Edgar Filing: ARMOR HOLDINGS INC

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 19, 2001
REGISTRATION STATEMENT NO. 333-72448
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

ARMOR HOLDINGS, INC.
(Exact name of registrant as specified in charter)

DELAWARE 59-3392443
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

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1400 MARSH LANDING PARKWAY, SUITE 112
JACKSONVILLE, FL 32250
(904) 741-5400
(Address, including zip code and telephone number, including area code,
of registrant's principal executive offices)
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WARREN B. KANDERS, CHAIRMAN OF THE BOARD OF DIRECTORS
ARMOR HOLDINGS, INC.
1400 MARSH LANDING PARKWAY, SUITE 112
JACKSONVILLE, FL 32250
(904) 741-5400
(Name, Address, including zip code and telephone number,
including area code, of agent for service of process)

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with copies to:

ROBERT L. LAWRENCE, ESQ. MARK C. SMITH, ESQ.
KANE KESSLER, P.C. SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
1350 AVENUE OF THE AMERICAS FOUR TIMES SQUARE
NEW YORK, NY 10019 NEW YORK, NY 10036

(212) 541-6222 (212) 735-3000

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Approximately Date of Commencement of Proposed Sale to Public: As soon as
practical after the effective date of this Registration Statement.

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than the securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

CALCULATION OF REGISTRATION FEE

=====================================================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED UNIT(1) OFFERING PRICE(1) FEE
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Common stock ................ 5,750,000(2) $ 24.51 $140,932,500 $ 35,233.13
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(1) Provided solely for purposes of calculating the registration fee in
accordance with Rule 457(c) based on the average high and low prices of the
common stock reported in the consolidated reporting system on October 26,
2001.

(2) Includes 750,000 shares subject to the overallotment option.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED NOVEMBER 16, 2001

PROSPECTUS

5,000,000 SHARES

[ARMOR HOLDINGS, INC. LOGO]

COMMON STOCK

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We are selling 4,500,000 shares and the selling stockholder identified in
this prospectus is selling 500,000 shares.

Our common stock trades on the New York Stock Exchange under the symbol
"AH." On November 16, 2001, the last reported sale price of our shares on the
New York Stock Exchange was $21.90 per share.

INVESTING IN OUR COMMON STOCK INVOLVES RISKS THAT ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 7 OF THIS PROSPECTUS.

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PER SHARE TOTAL
----------- -------

Public offering price .......................................... $ $
Underwriting discount .......................................... $ $
Proceeds, before expenses, to Armor Holdings, Inc. ............. $ $
Proceeds, before expenses, to the selling stockholder .......... $ $

The underwriters may also purchase up to an additional 750,000 shares from
the selling stockholders, at the public offering price, less the underwriting
discount, within 30 days from the date of this prospectus to cover
overallotments.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined whether
this prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

The shares will be ready for delivery on or about , 2001.

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MERRILL LYNCH & CO.
BEAR, STEARNS & CO. INC.
WACHOVIA SECURITIES
---------------

The date of this prospectus is December , 2001.

[INSIDE FRONT COVER: CAPTION "ARMOR HOLDINGS, INC. -- A LEADING GLOBAL PROVIDER
OF SECURITY PRODUCTS, VEHICLE ARMOR SYSTEMS AND SECURITY RISK MANAGEMENT
SERVICES" FOLLOWING ARMOR HOLDINGS LOGO ABOVE PICTURE OF GLOBAL MAP SHOWING
LOCATIONS OF ARMOR HOLDINGS' OFFICES AND FACILITIES.]

TABLE OF CONTENTS

Prospectus Summary ................................................................... 1
Risk Factors ......................................................................... 7
Forward-Looking Statements ........................................................... 12
Use of Proceeds ...................................................................... 13
Dividend Policy ...................................................................... 14
Price Range of Our Common Stock ...................................................... 14
Capitalization ....................................................................... 15
Selected Financial Data .............................................................. 16
Management's Discussion and Analysis of Financial Condition and Results of Operations 18
Business ............................................................................. 26
Management ........................................................................... 43
Principal and Selling Stockholders ................................................... 45
Underwriting ......................................................................... 48
Legal Matters ........................................................................ 51
Experts .............................................................................. 51
Incorporation of Certain Documents by Reference ...................................... 51
Where You Can Find More Information .................................................. 52
Index to Financial Statements ........................................................ F-1

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You should rely only on the information contained or incorporated by
reference in this prospectus. We have not, and the underwriters have not,
authorized any other person to provide you with different information. If anyone
provides you with different or inconsistent information, you should not rely on
it. We are not, and the underwriters are not, making an offer to sell these
securities in any jurisdiction where the offer or sale is not permitted. You
should assume that the information appearing in this prospectus is accurate only
as of the date on the front cover of this prospectus. Our business, financial
condition, results of operations and prospects may have changed since that date.

PROSPECTUS SUMMARY

This summary highlights information more fully described elsewhere in this
prospectus. Because it is a summary, it may not include all of the information
that is important to you. You should read the entire prospectus before
investing. All information in this prospectus assumes the underwriters'
overallotment option is not exercised, unless otherwise noted. References to
Armor Holdings, the Company, we, us and our refer to Armor Holdings, Inc. and
its subsidiaries. Industry information in this prospectus is taken from sources
we believe reliable. However, we do not guarantee the accuracy of this
information. Pro forma financial information included in this summary reflects
the acquisition of the Armor Mobile Security Division as if it had occurred at
the beginning of the period indicated.

ARMOR HOLDINGS, INC.

We are a leading manufacturer and provider of security products, vehicle
armor systems and security risk management services. Our products and services
are used by military, law enforcement, security and corrections personnel
throughout the world, as well as governmental agencies, multinational
corporations and non-governmental organizations. Our company is organized and
operated under three business segments: Armor Holdings Products; Armor Mobile
Security; and ArmorGroup Services.

ARMOR HOLDINGS PRODUCTS. Our Armor Holdings Products Division manufactures
and sells a broad range of high quality equipment marketed under brand
names that are well-known and respected in the military and law enforcement
communities. Products manufactured by this division include body armor,
tactical armor, hard armor, duty gear, less-lethal munitions, anti-riot
products, police batons, forensic products and weapon maintenance products.

ARMOR MOBILE SECURITY. Our Armor Mobile Security Division manufactures and
installs ballistic and blast protection armoring systems for military
vehicles, commercial vehicles, military aircraft and missile components.
Under the brand name O'Gara-Hess & Eisenhardt, we are the sole-source
provider to the U.S. military for the supply of armoring and blast
protection systems for the High Mobility Multi-purpose Wheeled Vehicle
(HMMWV, commonly known as the Humvee). Additionally, we have been
subcontracted to develop a ballistically armored and sealed truck cab for
the High Mobility Artillery Rocket System (HIMARS) currently in development
for the U.S. Army. We armor a variety of commercial vehicles including
limousines, sedans, sport utility vehicles, commercial trucks and
cash-in-transit vehicles, to protect against varying degrees of ballistic
and blast threats. Our Armor Mobile Security Division recently acquired the
companies that constituted the majority of what was formerly known as the
Security Products and Services Group of The Kroll-O'Gara Company ("O'Gara
Acquisition").

ARMORGROUP SERVICES. Our ArmorGroup Services Division provides a broad
range of sophisticated security risk management solutions to multinational
corporations in diverse industries such as natural resources, financial
services and consumer products, and to governmental and non-governmental
agencies such as the U.S. Departments of State and Defense, the United
Nations and CARE International. Services provided include security
planning, advice and management, security systems integration, intellectual
property asset protection, due diligence investigations and training
programs in counterintelligence, countersurveillance, advanced driving
techniques and ballistics.

INDUSTRY OVERVIEW / MARKET OPPORTUNITY

We participate in the defense and global security products and services
industries. Increasingly, governments, militaries, businesses, and individuals
have recognized the need for our products and services to protect them from the
risks associated with terrorism, physical attacks, threats of violence,
white-collar crime and fraud. We believe the following trends and developments
will drive growth in the industries in which we participate:

o the terrorist attacks on September 11, 2001 generating strong federal
and local support for increased spending in the defense and domestic
security sectors;

o the U.S. defense budget submission for fiscal 2002 reflecting an 11%
increase over fiscal 2001, excluding a recent supplemental
appropriation of $40 billion;

o the creation of a new federal authority, the Office of Homeland
Security;

o the Department of Defense ("DoD") recently published the Quadrennial
Defense Review highlighting the need to enhance critical domestic
defense infrastructure;

o a continued increase in the number of law enforcement and security
personnel in the U.S.; and

o a continuing trend toward the outsourcing of security services at the
corporate level.

We believe that the three segments of our business are well positioned to
respond to the new security environment created by the September 11, 2001
terrorist attacks on the United States. An increased law enforcement population
that will need to be properly equipped to combat and defend against the domestic
terrorist threat will, we expect, positively impact our Armor Holdings Products
Division. We believe that 85% -- 90% of our product line by revenue including
body armor, tactical armor, hard armor, duty gear, less-lethal munitions,
anti-riot products and police batons will exhibit higher than previously
expected demand over the next three to five years. With respect to our Armor
Mobile Security Division, we believe that increased demand for Up-Armored HMMWVs
by the U.S. military, though not currently quantifiable, is likely, and that the
demand for commercial armored vehicles is likely to increase under the new
security environment. We expect that the services provided by our ArmorGroup
Services Division will be more sought after as corporations, governmental and
non-governmental agencies re-evaluate their security programs.

BUSINESS STRENGTHS

We believe that the following key strengths are critical to our success as
a leading provider of security products, vehicle armor systems and security risk
management services:

o BROAD PORTFOLIO OF PRODUCTS AND SERVICES. We believe we have a unique
competitive advantage due to the diversity of our security product and
service portfolio and the ability to offer that portfolio on a
worldwide basis, resulting in a well balanced revenue base.

o STRONG BRANDS WITH LEADING MARKET POSITIONS. The strength of our brand
names, such as American Body Armor, NIK (Registered Trademark) ,
Defense Technology, Federal Laboratories, MACE (Registered Trademark) ,
Safariland, O'Gara-Hess & Eisenhardt and others, has contributed to our
leading market positions in several of the product categories in which
we compete.

o STRONG CLIENT BASE AND EXTENSIVE DISTRIBUTION NETWORK. Our offices in
38 countries and extensive worldwide distribution network of
approximately 500 distributors for our Armor Holdings Products and
ArmorGroup Services Divisions has allowed us to develop a diversified
client base that reduces our dependence on any particular customer.

o PROVEN TRACK RECORD OF IDENTIFYING, COMPLETING AND INTEGRATING
ACQUISITIONS. Since January 1996, we have completed 26 acquisitions
that we believe, in the aggregate, have strengthened our market
position, leveraged our distribution network and expanded our product
and service offerings.

o SOLE-SOURCE PROVIDER OF UP-ARMORED HMMWVS. We believe that our
sole-source position and positive delivery outlook on this product
program should provide significant revenue opportunities in the future.

GROWTH STRATEGY

Our strategic objective is to be the leading global provider of security
products, vehicle armor systems and security risk management services to
multinational corporations, governmental, non-governmental and law enforcement
entities. The following elements define our growth strategy:

o CAPITALIZE ON EXPOSURE TO MILITARY PROGRAMS. We expect an increase in
volume for our current major military programs and expect to
participate in other existing and future military programs that require
our unique products and services.

o EXPAND DISTRIBUTION NETWORK AND PRODUCT OFFERINGS. We will continue to
leverage our distribution network by expanding our range of branded law
enforcement equipment through strategic acquisitions and the
development of new products.

o CAPITALIZE ON INCREASED HOMELAND SECURITY REQUIREMENTS. We are well
positioned to provide reputable, well branded products and services as
well as specialized training that are essential to establishing a
sustainable domestic security infrastructure.

o INCREASE GLOBAL POSITION IN HIGH FRIGHT AREAS. We will address the
heightened security concerns of our customers in existing high fright
areas and leverage our global expertise and reputation in newly
developing high fright areas.

o BROADEN SERVICE OFFERINGS TO EXISTING CLIENT BASE. We intend to
increase revenue by cross-selling our expanding security risk
management service offerings to our existing client base.

o PURSUE STRATEGIC ACQUISITIONS. We intend to selectively pursue
acquisitions that enhance our product lines, service offerings,
geographic presence and client relationships in an effort to create a
diverse and global reach in our highly fragmented market.

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The mailing address and telephone number of our principal executive offices
are 1400 Marsh Landing Parkway, Suite 112, Jacksonville, FL 32250, (904)
741-5400.

THE OFFERING

Common Stock Offered:

By Armor Holdings ........................ 4,500,000
By the selling stockholder ............... 500,000
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Total .................................. 5,000,000
Shares outstanding after offering ......... 29,138,053 shares
Use of proceeds ........................... We intend to use our net proceeds
from this offering to repay
indebtedness under our credit
facility (including indebtedness
incurred to finance the O'Gara
Acquisition), to finance future
acquisitions, for working capital
and for general corporate
purposes. See "Use of Proceeds."

Risk Factors .............................. You should carefully consider the
information set forth in "Risk
Factors" and all other information
set forth in this prospectus
before investing in our common
stock.

New York Stock Exchange symbol ............ AH

The total number of shares of common stock outstanding after the offering
is based on 24,638,053 shares of common stock outstanding on November 15,
2001. This number excludes:

o 3,067,968 shares of common stock issuable upon exercise of stock
options outstanding as of November 15, 2001, at a weighted average
exercise price of $11.62 per share;

o 497,884 shares of common stock reserved for future issuance under the
1999 Stock Incentive Plan; and

o 63,377 shares of common stock issued as restricted stock bonuses under
the 1999 Stock Incentive Plan.

SUMMARY HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL INFORMATION

You should read the following summary historical and unaudited pro forma
financial information together with our financial statements and related notes
incorporated by reference in this prospectus. The summary historical
consolidated financial information for the years ended December 31, 1998, 1999
and 2000 has been derived from our audited financial statements. The summary
historical consolidated financial information for the nine months ended
September 30, 2000 and 2001 has been derived from our unaudited financial
statements. In the opinion of management, these unaudited financial statements
include all adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation of the financial position and the results of operations
for these periods.

The summary unaudited pro forma data for the year ended December 31, 2000
and the nine months ended September 30, 2001 have been derived from, and should
be read in conjunction with, the unaudited pro forma consolidated financial
statements included elsewhere in this prospectus. The unaudited as adjusted
balance sheet data reflect the application of the net proceeds from this
offering, as if it had occurred at September 30, 2001. The unaudited pro forma
statement of operations data reflect the O'Gara Acquisition as if it had
occurred at the beginning of our 2000 and 2001 fiscal years. The unaudited pro
forma financial information may not be indicative of the results of operations
that actually would have occurred had the O'Gara Acquisition been in effect on
the dates indicated or the financial position and results of operations that may
be obtained in the future.

NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------- ----------------------------------
PRO PRO
FORMA FORMA
1998 1999 2000 2000 2000 2001 2000
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(IN THOUSANDS, EXCEPT PER SHARE DATA)

STATEMENT OF OPERATIONS DATA:
Revenues
Products ....................................... $45,644 $ 96,706 $135,343 $135,343 $100,049 $103,121 $ 103,121
Services ....................................... 51,563 59,958 85,612 91,774 62,402 74,206 74,206
Mobile Security ................................ -- -- -- 106,258 -- 9,349 88,163
------- -------- -------- -------- -------- -------- ---------
Total revenues .................................. 97,207 156,664 220,955 333,375 162,451 186,676 265,490
Cost of sales ................................... 61,638 94,407 137,499 227,592 100,810 118,563 185,639
Operating expenses .............................. 21,915 37,004 50,341 72,112 38,288 43,763 57,324
Amortization expense ............................ 1,347 2,463 3,429 3,429 2,272 2,621 2,621
Restructuring and related charges ............... -- -- -- 686 -- 9,959 9,959
Integration and other non-recurring charges ..... -- 2,569 3,290 3,290 2,537 1,800 1,800
Equity in earnings of investee .................. (713) (179) (87) (87) (87) -- --
------- -------- -------- -------- -------- -------- ---------
Operating income ................................ 13,020 20,400 26,483 26,353 18,631 9,970 8,147
Interest (income) expense, net .................. (625) 17 1,896 4,495 1,186 2,639 5,550
Other (income) expense, net ..................... (28) (816) (1,803) 40 (1,837) (52) 936
Provision for income taxes ...................... 5,077 8,003 9,342 7,493 7,206 2,658 611
------- -------- -------- -------- -------- -------- ---------
Net income ...................................... $ 8,596 $ 13,196 $ 17,048 $ 14,325 $ 12,076 $ 4,725 $ 1,050
======= ======== ======== ======== ======== ======== =========

Earnings per share(1): ...........................
Basic ........................................... $ 0.53 $ 0.63 $ 0.75 $ 0.61 $ 0.53 $ 0.20 $ 0.04
Diluted ......................................... $ 0.50 $ 0.61 $ 0.73 $ 0.59 $ 0.51 $ 0.20 $ 0.04

Weighted average number of shares outstanding:
Basic ........................................... 16,165 21,006 22,630 23,639 22,706 23,190 24,055
Diluted ......................................... 17,354 21,702 23,356 24,365 23,613 23,905 24,770

OTHER DATA:
EBITDA(2) ....................................... 14,961 27,360 36,277 40,009 25,416 27,518 27,574
Depreciation & amortization(3) .................. 2,654 4,570 6,591 9,767 4,335 5,789 7,668
Capital expenditures ............................ 3,301 3,414 7,833 12,847 3,399 5,661 6,696

AS OF SEPTEMBER 30, 2001
-----------------------------
ACTUAL AS ADJUSTED(5)
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(IN THOUSANDS)

BALANCE SHEET DATA:
Working capital(4) ........... $101,107 $110,319
Total assets ................. 340,922 350,134
Long-term debt ............... 89,181 5,838
Stockholders' equity ......... 191,902 283,782

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(1) Earnings per share is after non-recurring income and charges. Earnings per
share before restructuring and related charges, integration and other
non-recurring charges and other (income) expense, net was $0.50, $0.66,
$0.86, and $0.70, for the years ended December 31, 1998, 1999, 2000 and
2000 pro forma for the O'Gara acquisition, respectively. For the nine
months ended September 30, 2000, 2001, and pro forma 2001 for the O'Gara
acquisition, earnings per share before restructuring and related charges,
integration and other non-recurring charges and other (income) expense, net
was $0.53, $0.51 and $0.37, respectively.

(2) EBITDA is defined as operating income plus integration and other
non-recurring charges, restructuring and related charges, equity in
earnings of investee and depreciation and amortization. The depreciation
and amortization is taken from the depreciation and amortization line of
the statement of cash flows. EBITDA is not a substitute for operating
income, net income and cash flow from operating activities as determined in
accordance with generally accepted accounting principles as a measure of
profitability or liquidity. EBITDA is presented because we believe some
investors may find it useful in evaluating an investment in our common
stock.

(3) The depreciation and amortization is taken from the depreciation and
amortization line on the statement of cash flows. For fiscal 1998
depreciation and amortization includes $1.4 million of depreciation and
$1.3 million of amortization; for fiscal 1999 depreciation and amortization
includes $2.1 million of depreciation and $2.5 million of amortization; and
for fiscal 2000 depreciation and amortization includes $3.2 million of
depreciation and $3.4 million of amortization. According to Statement of
Financial Accounting Standard No. 142, Goodwill and Other Intangible
Assets, goodwill arising from business combinations will no longer require
annual amortization but rather be tested for impairment.

(4) Working capital is defined as current assets minus current liabilities.

(5) Gives effect to the net proceeds from the sale of 4,500,000 shares of
common stock offered by us in this offering at an assumed offering price of
$21.90 per share.

RISK FACTORS

Before you invest in our common stock, you should consider carefully the
following risk factors and cautionary statements, as well as other information
and financial data set forth in this prospectus. If any of the following risks
actually occur, our business, financial condition or results of operation may
suffer. As a result, the trading price of our common stock could decline, and
you could lose a substantial portion of the money you paid to buy our common
stock.

RISKS RELATED TO OUR INDUSTRY

THEPRODUCTS WE SELL ARE INHERENTLY RISKY AND COULD GIVE RISE TO PRODUCT
LIABILITY CLAIMS.

The products we manufacture are used in applications where the failure to
use such products for their intended purposes, the failure to use them properly,
or their malfunction, could result in serious bodily injury or death. Our
products include: body armor designed to protect against ballistic and sharp
instrument penetration; less-lethal products such as less-lethal munitions,
pepper sprays, distraction devices and flameless expulsion grenades; various
models of police batons made of wood, alloy steel, acetate, aluminum and
polycarbonate products; vehicle and hard armoring systems; and police duty gear.

We are aware of claims against certain of our subsidiaries, of permanent
physical injury and death caused by self-defense sprays and other munitions
intended to be less-lethal. In addition, the manufacture and sale of certain
less-lethal products may be the subject of product liability claims arising from
the design, manufacture or sale of such goods. Based on our experience, we
believe that we maintain adequate insurance coverage under the circumstances.
However, we cannot assure you that this coverage would be sufficient to cover
the payment of any potential claim. In addition, we cannot assure you that this
or any other insurance coverage will continue to be available or, if available,
that we will be able to obtain it at a reasonable cost. Any material uninsured
loss could have a material adverse effect on our business, financial condition
and results of operations. In addition, the inability to obtain product
liability coverage would prohibit us from bidding for orders from certain
municipal customers since, at present, many municipal bids require such
coverage, and any such inability would have a material adverse effect on our
business, financial condition and results of operations.

THESERVICES WE PROVIDE ARE INHERENTLY RISKY AND MAY SUBJECT US TO CLAIMS SEEKING
SUBSTANTIAL DAMAGES.

We provide security risk management services through our ArmorGroup
Services Division. These services are most in demand in areas of the world
encountering high levels of violence, unstable or chaotic political environments
and little or no effective local law enforcement authorities. As a result, our
management and employees are often located, and provide services, in hostile and
high risk environments characterized by political instability, emerging market
conditions and/or significant natural resources such as Africa, South America,
Southeast Asia, Central Asia, the Balkans and Russia. In addition, we operate in
locations where murders, kidnappings and attacks on facilities and installations
and terrorism are endemic. We cannot be certain whether parties will bring
lawsuits in the future alleging negligence or other theories of liability in the
provision of security services and seeking substantial amounts in damages. Based
on our experience, we believe that the insurance coverage that we maintain is
adequate under the circumstances. However, the success of such a lawsuit could
have a material adverse effect on our business, financial condition and results
of operations.

MANY OF OUR EMPLOYEES ARE LOCATED IN SITUATIONS WHERE THEY ARE SUBJECT TO
HEIGHTENED RISK OF PERSONAL HARM.

Our management and employees are often located in hostile and high risk
environments, including locations where murders, kidnappings and attacks on
persons are endemic. Any personal attacks on our personnel could materially
adversely effect our operations, particularly in the locations where such
attacks occur. Additionally, we may be subject to material claims from our
employees who are subject to physical harm or their beneficiaries.

WE ARE SUBJECT TO EXTENSIVE GOVERNMENT REGULATION AND OUR FAILURE OR INABILITY
TO COMPLY WITH THESE REGULATIONS COULD MATERIALLY RESTRICT OUR OPERATIONS AND
SUBJECT US TO SUBSTANTIAL PENALTIES.

We are subject to federal licensing requirements with respect to the sale
in foreign countries of certain of our products. In addition, we are obligated
to comply with a variety of federal, state and local regulations governing
certain aspects of our operations and workplace, including regulations
promulgated by, among others, the U.S. Departments of Commerce, State and
Transportation, the U.S. Environmental Protection Agency and the U.S. Bureau of
Alcohol, Tobacco and Firearms. Additionally, the failure to obtain applicable
governmental approval and clearances could adversely affect our ability to
continue to service the government contracts we maintain. Furthermore, we have
material contracts with governmental entities and are subject to rules,
regulations and approvals applicable to government contractors. We are also
subject to routine audits to assure our compliance with these requirements. Our
failure to comply with these contract terms, rules or regulations could expose
us to substantial penalties, including the loss of these contracts and
disqualification as a U.S. government contractor.

Like other companies operating internationally, we are subject to the
Foreign Corrupt Practices Act and other laws which prohibit improper payments to
foreign governments and their officials by U.S. and other business entities. We
operate in countries known to experience endemic corruption. Our extensive
operations in such countries creates the risk of an unauthorized payment by an
employee or agent of ours which would be in violation of various laws including
the Foreign Corrupt Practices Act. Violations of the Foreign Corrupt Practices
Act may result in severe criminal penalties which could have a material adverse
effect on our business, financial condition and results of operations.

WE HAVE SIGNIFICANT INTERNATIONAL OPERATIONS AND ASSETS AND ARE THEREFORE
SUBJECT TO ADDITIONAL FINANCIAL AND REGULATORY RISKS.

We have operations and assets in many parts of Africa, South America,
Southeast Asia, Central Asia, the Balkans and Russia. In addition, we sell our
services and products in other foreign countries and seek to increase our level
of international business activity. Accordingly, we are subject to various
risks, including: U.S.-imposed embargoes of sales to specific countries; foreign
import controls (which may be arbitrarily imposed and enforced); exchange rate
fluctuations; dividend remittance restrictions; expropriation of assets; war,
civil uprisings and riots; government instability; the necessity of obtaining
government approvals for both new and continuing operations; and legal systems
of decrees, laws, taxes, regulations, interpretations and court decisions that
are not always fully developed and that may be retroactively or arbitrarily
applied.

We may also be subject to unanticipated income taxes, excise duties, import
taxes, export taxes or other governmental assessments. In addition, payments to
us in our international markets are often in local currencies. Although most of
these currencies are presently convertible into U.S. dollars, we cannot be sure
that convertibility will continue. Even if currencies are convertible, the rate
at which they convert is subject to substantial fluctuation. Our ability to
transfer currencies into or out of local currencies may be restricted or
limited. Any of these events could result in a loss of business or other
unexpected costs which could reduce revenue or profits and have a material
adverse effect on our business, financial condition and results of operations.

We routinely operate in areas where local government policies regarding
foreign entities and the local tax and legal regimes are often uncertain, poorly
administered and in a state of flux. We cannot, therefore, be certain that we
are in compliance with, or will be protected by, all relevant local laws and
taxes at any given point in time. A subsequent determination that we failed to
comply with relevant local laws and taxes could have a material adverse effect
on our business, financial condition and results of operations.

TERRORISM MAY ADVERSELY AFFECT OUR ABILITY TO DELIVER PRODUCTS AND SERVICES TO
OUR CUSTOMERS.

Terrorist attacks, such as the attacks that occurred in New York and
Washington, D.C. on September 11, 2001, and other acts of violence or war may
make travel and transportation of our supplies and products more difficult and
expensive and ultimately affect the sales of our products, and delivery of our
services, in the United States and overseas. Additionally, as a result of
terrorism, the

United States may enter into an armed conflict that could adversely impact our
sales, supply chain, production capability and ability to deliver products and
services to our customers.

RISKS RELATED TO OUR BUSINESS

THERE ARE LIMITED SOURCES FOR SOME OF OUR RAW MATERIALS WHICH MAY SIGNIFICANTLY
CURTAIL OUR MANUFACTURING OPERATIONS.

The raw materials that we use in manufacturing ballistic resistant garments
and Up-Armored vehicles include: SpectraShield, a patented product of Honeywell,
Inc.; Z-Shield, a patented product of Honeywell, Inc.; Zylon, a patented product
of Toyobo Co., Ltd.; Kevlar, a patented product of E.I. du Pont de Nemours Co.,
Inc. ("Du Pont"); and Twaron, a patented product of Akzo-Nobel Fibers, B.V. We
purchase these materials in the form of woven cloth from five independent
weaving companies. In the event Du Pont or its licensee in Europe cease, for any
reason, to produce and sell Kevlar, we would utilize these other ballistic
resistant materials as a substitute. However, none of Spectrashield, Twaron,
Z-Shield or Zylon is expected to become a complete substitute for Kevlar in the
near future. We enjoy a good relationship with our suppliers of Kevlar,
SpectraShield, Twaron, Z-Shield and Zylon. The use of Zylon and Z-Shield in the
design of ballistic resistant vests is a recent technological advancement that
is subject to continuing development and study. Toyobo is the only producer of
Zylon, and Honeywell is the only producer of Z-Shield. Should these materials
become unavailable for any reason, we would be unable to replace them with
materials of like weight and strength. Thus, if our supply of any of these
materials were cut off or if there were a material increase in the prices of
these materials, our manufacturing operations could be severely curtailed and
our business, financial condition and results of operations would be materially
adversely affected.

THE LOSS OF, OR A SIGNIFICANT REDUCTION IN, U.S. MILITARY BUSINESS WOULD HAVE A
MATERIAL ADVERSE EFFECT ON US.

U.S. military contracts account for a significant portion of the business
of the Armor Mobile Security Division. The U.S. military funds these contracts
in annual increments, and the contracts require subsequent authorization and
appropriation that may not occur or that may be for less than the total amount
of the contract. Changes in the U.S. military's budget, spending allocations,
and the timing of such spending, could adversely affect our ability to receive
future contracts. Also the U.S. military generally has the right to cancel its
contracts unilaterally, at its convenience.

WE ARE DEPENDENT ON A SINGLE SUPPLIER OF COMPONENTS FOR UP-ARMORED HMMWVS AND
WILL NOT BE ABLE TO DELIVER UP-ARMORED HMMWVS IF OUR SUPPLY IS INTERRUPTED.

The Armor Mobile Security Division is the sole-source provider to the U.S.
military for the supply of armoring and blast protection systems for the HMMWV.
Up-Armored HMMWVs accounted for approximately one-third of the sales of the
Armor Mobile Security Division during the twelve months ended June 30, 2001.
These HMMWVs are manufactured by AM General Corporation under separate U.S.
military contracts. Should deliveries of HMMWVs be significantly interrupted, or
should other single source suppliers significantly interrupt deliveries of
components for Up-Armored HMMWVs, we will not be able to deliver Up-Armored
HMMWVs to the U.S. military on schedule, which could have a material adverse
effect on us.

OUR RESOURCES MAY BE INSUFFICIENT TO MANAGE THE DEMANDS IMPOSED BY OUR GROWTH.

We have rapidly expanded our operations, and this growth has placed
significant demands on our management, administrative, operating and financial
resources. The continued growth of our customer base, the types of services and
products offered and the geographic markets served can be expected to continue
to place a significant strain on our resources. In addition, we cannot easily
identify and hire personnel qualified both in the provision and marketing of our
security services and products. Our future performance and profitability will
depend in large part on: our ability to attract and retain additional management
and other key personnel; our ability to implement successful enhancements to

our management, accounting and information technology systems; and our ability
to adapt those systems, as necessary, to respond to growth in our business.

MANY OF OUR CUSTOMERS HAVE FLUCTUATING BUDGETS WHICH MAY CAUSE SUBSTANTIAL
FLUCTUATIONS IN OUR RESULTS OF OPERATIONS.

Customers for our products include military, law enforcement and other
governmental agencies. Government tax revenues and budgetary constraints, which
fluctuate from time to time, can affect budgetary allocations for these
customers. Many domestic and foreign government agencies have in the past
experienced budget deficits that have led to decreased spending in certain
areas. Our results of operations may be subject to substantial period-to-period
fluctuations because of these and other factors affecting spending. A reduction
of funding for military, law enforcement and other governmental agencies could
have a material adverse effect on our business, financial condition and results
of operations.

WE MAY BE UNABLE TO PROTECT OUR PROPRIETARY TECHNOLOGY.

We are dependent upon a variety of methods and techniques that we regard as
proprietary trade secrets. We are also dependent upon a variety of trademarks,
service marks and designs to promote brand name development and recognition. We
rely on a combination of trade secrets, copyright, patent, trademark, unfair
competition and other intellectual property laws as well as contractual
agreements to protect our rights to such intellectual property. Due to the
difficulty of monitoring unauthorized use of and access to intellectual
property, however, such measures may not provide adequate protection. In
addition, there can be no assurance that courts will always uphold our
intellectual property rights, or enforce the contractual arrangements that we
have entered into to protect our proprietary technology. Any unenforceability or
misappropriation of our intellectual property could have a material adverse
effect on our business, financial condition and results of operations. In
addition, if we bring or become subject to litigation to defend against claimed
infringement of our rights or of the rights of others or to determine the scope
and validity of our intellectual property rights, such litigation could result
in substantial costs and diversion of our resources which could have a material
adverse effect on our business, financial condition and results of operations.
Unfavorable results in such litigation could also result in the loss or
compromise of our proprietary rights, subject us to significant liabilities,
require us to seek licenses from third parties, or prevent us from selling our
products which could have a material adverse effect on our business, financial
condition and results of operations.

WE MAY BE UNABLE TO COMPLETE OR INTEGRATE ACQUISITIONS AND AS A RESULT MAY INCUR
UNANTICIPATED LIABILITIES OR OPERATIONAL DIFFICULTIES.

We intend to grow through the acquisition of businesses and assets that
will complement our current businesses. We cannot be certain that we will be
able to complete attractive acquisitions, obtain financing for acquisitions on
satisfactory terms or successfully acquire identified targets. We may not be
successful in integrating acquired businesses into our existing operations.
Integration may result in unanticipated liabilities or unforeseen operational
difficulties, which may be material, or require a disproportionate amount of
management's attention. Acquisitions may result in our incurring additional
indebtedness or issuing preferred stock or additional common stock. Competition
for acquisition opportunities in the industry may rise, thereby increasing our
cost of making acquisitions or causing us to refrain from making further
acquisitions. In addition, the terms and conditions of our credit facility
impose restrictions on us that, among other things, may restrict our ability to
make acquisitions.

WE MAY BE ADVERSELY AFFECTED BY APPLICABLE ENVIRONMENTAL LAWS.

compliance with all such requirements. Like all companies, we are subject to
potentially significant fines or penalties if we fail to comply with
environmental requirements. Environmental requirements are complex, change
frequently, and could become more stringent in the future. Accordingly, we
cannot assure you that these requirements will not change in a manner that will
require material capital or operating expenditures or will otherwise have a
material adverse effect on us in the future. We are also subject to
environmental laws requiring the investigation and clean-up of environmental
contamination. We may be subject to liability, including liability for clean-up
costs, if contamination is discovered at one of our current or former facilities
or at a landfill or other location where we have disposed wastes. The amount of
such liability could be material. We use Orthochlorabenzalmalononitrile and
Chloroacetophenone chemical agents in connection with our production of tear
gas. These chemicals are hazardous, and could cause environmental damage if not
handled and disposed of properly.

RISKS RELATED TO OUR SECURITIES

ONE STOCKHOLDER HAS THE ABILITY TO SIGNIFICANTLY INFLUENCE THE ELECTION OF OUR
DIRECTORS AND THE OUTCOME OF CORPORATE ACTION REQUIRING STOCKHOLDER APPROVAL.

Warren B. Kanders is the sole stockholder of Kanders Florida Holdings, Inc.
Kanders Florida Holdings, Inc. and Mr. Kanders beneficially own 3,177,855 shares
or approximately 12.79% of the outstanding shares of our common stock. In
addition, our officers and directors, including Mr. Kanders, beneficially own an
aggregate of 5,351,301 shares, or approximately 20.32%, of the common stock.
Consequently, Mr. Kanders, as Chairman of the Board of Directors and as the sole
stockholder of Kanders Florida Holdings, Inc., together with our other officers
and directors, will have the ability to significantly influence the election of
our directors and the outcome of corporate actions requiring stockholder
approval, including a change in control.

DELAWARE LAW MAY LIMIT POSSIBLE TAKEOVERS.

Our certificate of incorporation makes us subject to the anti-takeover
provisions of Section 203 of the Delaware General Corporation Law. In general,
Section 203 prohibits publicly-held Delaware corporations to which it applies
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in
a prescribed manner. This provision could discourage others from bidding for our
shares and could, as a result, reduce the likelihood of an increase in our stock
price that would otherwise occur if a bidder sought to buy our stock.

THE MARKET PRICE FOR OUR COMMON STOCK IS VOLATILE.

The market price for our common stock may be highly volatile. We believe
that a variety of factors, including announcements by us or our competitors,
quarterly variations in financial results, trading volume, general market trends
and other factors, could cause the market price of our common stock to fluctuate
substantially. Additionally, the market in general, and our common stock in
particular, may be subject to increased volatility due to the recent terrorist
attacks in New York and Washington, D.C. and any resulting conflicts.
Additionally, due to our relatively modest size, our winning or losing a large
contract may have the effect of distorting our overall financial results.

WE MAY ISSUE A SUBSTANTIAL AMOUNT OF OUR COMMON STOCK IN CONNECTION WITH FUTURE
ACQUISITIONS AND THE SALE OF THOSE SHARES COULD ADVERSELY AFFECT OUR STOCK
PRICE.

As part of our acquisition strategy, we anticipate issuing additional
shares of our common stock. We have filed a shelf registration statement with
the Securities and Exchange Commission that we may use to sell up to 3,000,000
shares of our common stock from time to time in connection with acquisitions. To
the extent that we are able to grow through acquisitions for stock, the number
of outstanding shares of common stock that will be eligible for sale in the
future is likely to increase

substantially. Persons receiving shares of our common stock in connection with
these acquisitions may be more likely to sell large quantities of their common
stock that may influence the price of our common stock. In addition, the
potential issuance of additional shares in connection with anticipated
acquisitions could lessen demand for our common stock and result in a lower
price than would otherwise be obtained.

OUR STOCK PRICE MAY BE ADVERSELY AFFECTED WHEN ADDITIONAL SHARES ARE SOLD.

If our stockholders sell substantial amounts of our common stock in the
public market following this offering, the market price of our common stock
could fall. These sales might make it more difficult for us to sell equity or
equity-related securities in the future at a time and price that we deem
appropriate and may require us to issue greater amounts of our common stock to
finance such acquisition. Additional shares sold in this offering or to finance
acquisitions may dilute our earnings per share if the new operations' earnings
are disappointing.

WE CURRENTLY DO NOT INTEND TO PAY DIVIDENDS.

We currently do not intend to pay any cash dividends on our common stock.
We currently intend to retain any earnings for working capital, repayment of
indebtedness, capital expenditures and general corporate purposes. Our credit
facility contains restrictions on our ability to pay dividends or make other
distributions.

SINCE WE HAVE BROAD DISCRETION IN HOW WE USE THE NET PROCEEDS FROM THIS
OFFERING, WE MAY USE SUCH PROCEEDS IN WAYS WITH WHICH YOU DISAGREE.

We have not allocated specific amounts of the net proceeds from this
offering to any specific purpose. While we expect to use a portion of the net
proceeds from this offering to pay down our credit facility, our credit facility
will permit us to re-borrow that money at later times. Accordingly, our
management will have significant flexibility in applying the net proceeds of
this offering. The failure of our management to use such funds effectively could
have a material adverse effect on our business, financial condition and
operating results.

FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that involve risks and
uncertainties. Some of the forward-looking statements appear under "Prospectus
Summary" and "Risk Factors." Other forward-looking statements appear in the
sections entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business" and elsewhere included or incorporated
by reference in this prospectus. These statements relate to future events of our
future financial performance. In some cases, you can identify forward-looking
statements by terminology such as "may," "would," "will," "should," "could,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential," "continue," or the negative of these terms or other comparable
terminology. These statements are only predictions. Actual events or results may
differ materially. In evaluating these statements, you should specifically
consider various factors, including the risks outlined in the Risk Factors
section of this prospectus. These factors may cause our actual results to differ
materially from any forward-looking statement. Although we believe that the
expectations reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance or
achievements.

USE OF PROCEEDS

We estimate that the net proceeds from the sale by us of the 4,500,000
shares of our common stock in this offering, at an assumed offering price of
$21.90 per share, after deducting underwriting discounts and commissions and
other estimated offering expenses payable by us, will be approximately $91.9
million.

We expect to use approximately $85.5 million of our net proceeds to repay
indebtedness under our credit facility (including indebtedness incurred to
finance the O'Gara Acquisition) and the remainder will be used to finance future
acquisitions, for working capital and for general corporate purposes. We may
invest the net proceeds of this offering in short term interest-bearing
investment grade securities, pending the intended repayment of indebtedness
outstanding under the credit facility and the other uses described above.

Approximately $38.2 million of the indebtedness that will be reduced with
the net proceeds of this offering was incurred to finance the O'Gara
Acquisition. Our indebtedness under our credit facility bears interest at
variable rates (4.46% on November 15, 2001) and matures on February 12, 2004.
Although application of the net proceeds from this offering will repay amounts
outstanding under the credit facility, it will not reduce the amounts available
to us in the future.

We regularly review opportunities to further our business strategy through
strategic acquisitions of businesses that we believe are complementary to our
management skills and to our current and planned operations. We, however, have
no present commitments or agreements with respect to any particular acquisition.

The foregoing information represents our current plans. Actual expenditures
may vary substantially from the intended use referred to above. We may find it
necessary or advisable to use portions of this offering for other purposes. We
will not receive any proceeds from the sale of our common stock by the selling
stockholders.

DIVIDEND POLICY

We have never declared or paid any cash dividends on our common stock and
do not intend to declare or pay any for the foreseeable future. We expect to
continue to retain any earnings for working capital, repayment of indebtedness,
capital expenditures and general corporate purposes. In addition, our credit
facility restricts the payment of dividends on our common stock.

PRICE RANGE OF OUR COMMON STOCK

Our common stock has been traded under the symbol "AH" on the New York
Stock Exchange since May 7, 1999. Prior to May 7, 1999, our common stock was
traded under the symbol "ABE" on the American Stock Exchange. The following
table shows the high and low per share sales prices of our common stock on the
New York Stock Exchange and American Stock Exchange for the periods indicated.

HIGH LOW
----------- -----------

2001
Fourth Quarter (through November 16, 2001) ..... $ 26.35 $ 19.25
Third Quarter .................................. 23.50 14.20
Second Quarter ................................. 19.25 11.00
First Quarter .................................. 17.75 14.60

2000
Fourth Quarter ................................. $ 17.69 $ 13.56
Third Quarter .................................. 18.13 13.00
Second Quarter ................................. 14.69 8.63
First Quarter .................................. 13.38 10.00

1999
Fourth Quarter ................................. $ 13.13 $ 8.94
Third Quarter .................................. 11.06 8.50
Second Quarter ................................. 13.69 9.25
First Quarter .................................. 14.94 11.13

On November 16, 2001, the last reported sale price of our common stock on
the New York Stock Exchange was $21.90 per share. As of November 15, 2001, there
were 192 holders of record of our common stock.

CAPITALIZATION

The following table sets forth our capitalization as of September 30, 2001,
(i) on an actual basis and (ii) on an as adjusted basis, to reflect our sale of
4,500,000 shares of common stock offered by us in this offering at an assumed
offering price of $21.90 per share and the application of the proceeds
therefrom. You should read the following table with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and notes included, and incorporated by reference, in this
prospectus.

SEPTEMBER 30, 2001
-------------------------
ACTUAL AS ADJUSTED
------------ ------------
(IN THOUSANDS, EXCEPT
SHARE AMOUNTS)

Cash and cash equivalents ......................................... $ 11,890 $ 21,102
========= =========
Long-term debt .................................................... 89,181 5,838
Stockholders' equity
Preferred stock, $0.01 par value 5,000,000 shares authorized; no
shares issued and outstanding .................................. -- --
Common stock, $0.01 par value; 50,000,000 shares authorized;
26,833,400 shares issued and 24,508,741 shares outstanding
on an actual basis and 31,333,400 shares issued and
29,008,741 shares outstanding on an as adjusted basis .......... 268 313
Additional paid-in capital ....................................... 172,482 264,317
Retained earnings ................................................ 48,064 48,064
Accumulated other comprehensive loss ............................. (3,488) (3,488)
Treasury stock ................................................... (25,424) (25,424)
--------- ---------
Total stockholders' equity ..................................... $ 191,902 $ 283,782
--------- ---------
Total capitalization ........................................... $ 281,083 $ 289,620
========= =========

SELECTED FINANCIAL DATA

The selected financial data set forth below for the years ended December
31, 1998, 1999 and 2000 are derived from our audited consolidated financial
statements appearing elsewhere in this prospectus. The selected financial data
for the fiscal years 1996 and 1997 are derived from our audited financial
statements not included in this prospectus. The selected financial data for the
nine months ended September 30, 2000 and 2001 are derived from our unaudited
financial statements included in this prospectus. The summary unaudited pro
forma data for the year ended December 31, 2000 and the nine months ended
September 30, 2001 have been derived from, and should be read in conjunction
with, the unaudited pro forma condensed consolidated financial statements
included elsewhere in this prospectus. You should read the selected financial
data with our "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our consolidated financial statements and related
notes included, or incorporated by reference, in this prospectus.

FISCAL YEAR ENDED
----------------------------------------------------------------------------
PRO FORMA
1996 1997 1998 1999 2000 2000
------------- ----------- ----------- ----------- ------------ -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

STATEMENT OF OPERATIONS DATA:
Revenues
Products ........................ $18,011 $ 29,869 $ 45,644 $ 96,706 $ 135,343 $ 135,343
Services ........................ 12,956 48,445 51,563 59,958 85,612 91,774
Mobile Security ................. -- -- -- -- -- 106,258
------- -------- -------- -------- --------- ---------
Total revenues ................... 30,967 78,314 97,207 156,664 220,955 333,375
Cost of sales .................... 21,172 57,438 61,638 94,407 137,499 227,592
Operating expenses ............... 7,022 12,758 21,915 37,004 50,341 72,112
Amortization expense ............. 437 842 1,347 2,463 3,429 3,429
Restructuring and related
charges ......................... -- -- -- -- -- 686
Merger, integration and other
non-recurring charges ........... -- 2,542 -- 2,569 3,290 3,290
Equity in earnings of investee ... (320) (746) (713) (179) (87) (87)
------- -------- -------- -------- --------- ---------
Operating income ................. 2,656 5,480 13,020 20,400 26,483 26,353
Interest (income) expense, net.... 515 195 (625) 17 1,896 4,495
Other (income) expense, net ...... (2) (392) (28) (816) (1,803) 40
Dividends on preference
shares .......................... 239 143 -- -- -- --
Provision for income taxes ....... 1,215 2,376 5,077 8,003 9,342 7,493
-------- -------- -------- -------- --------- ---------
Net income ....................... $ 689 $ 3,158 $ 8,596 $ 13,196 $ 17,048 $ 14,325
======== ======== ======== ======== ========= =========
Earnings per share(1):
Basic ......................... $ 0.09 $ 0.23 $ 0.53 $ 0.63 $ 0.75 $ 0.61
Diluted ....................... $ 0.08 $ 0.21 $ 0.50 $ 0.61 $ 0.73 $ 0.59
Weighted average shares:
Basic ......................... 7,966 13,638 16,165 21,006 22,630 23,639
Diluted ....................... 8,876 14,712 17,354 21,702 23,356 24,365
OTHER DATA:
EBITDA(2) ...................... 3,154 9,253 14,961 27,360 36,277 40,009
Depreciation &
amortization(3) .............. 818 1,976 2,654 4,570 6,591 9,767
Capital expenditures ........... 1,860 5,153 3,301 3,414 7,833 12,847

NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------
PRO FORMA
2000 2001 2001
----------- ----------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

STATEMENT OF OPERATIONS DATA:
Revenues
Products ........................ $100,049 $103,121 $ 103,121
Services ........................ 62,402 74,206 74,206
Mobile Security ................. -- 9,349 88,163
-------- -------- ---------
Total revenues ................... 162,451 186,676 265,490
Cost of sales .................... 100,810 118,563 185,639
Operating expenses ............... 38,288 43,763 57,324
Amortization expense ............. 2,272 2,621 2,621
Restructuring and related
charges ......................... -- 9,959 9,959
Merger, integration and other
non-recurring charges ........... 2,537 1,800 1,800
Equity in earnings of investee ... (87) -- --
-------- -------- ---------
Operating income ................. 18,631 9,970 8,147
Interest (income) expense, net.... 1,186 2,639 5,550
Other (income) expense, net ...... (1,837) (52) 936
Dividends on preference
shares .......................... -- -- --
Provision for income taxes ....... 7,206 2,658 611
-------- -------- ---------
Net income ....................... $ 12,076 $ 4,725 $ 1,050
======== ======== =========
Earnings per share(1):
Basic ......................... $ 0.53 $ 0.20 $ 0.04
Diluted ....................... $ 0.51 $ 0.20 $ 0.04
Weighted average shares:
Basic ......................... 22,706 23,190 24,055
Diluted ....................... 23,613 23,905 24,770
OTHER DATA:
EBITDA(2) ...................... 25,416 27,518 27,574
Depreciation &
amortization(3) .............. 4,335 5,789 7,668
Capital expenditures ........... 3,399 5,661 6,696

AS OF SEPTEMBER 30, 2001
-----------------------------
ACTUAL AS ADJUSTED(5)
----------- ---------------
(IN THOUSANDS)

BALANCE SHEET DATA:

Working capital(4) .......... $101,107 $110,319
Total assets ................ 340,922 350,134
Total debt .................. 89,181 5,838
Stockholders' equity......... 191,902 283,782

----------

(1) Earning per share is after non-recurring income and charges. Earnings per
share before restructuring and related charges, integration and other
non-recurring charges and other (income) expense, net was $0.08, $0.33,
$0.50, $0.66, $0.86, and $0.70, for the fiscal years 1996, 1997, 1998,
1999, 2000 and 2000 pro forma for the O'Gara acquisition, respectively. For
the nine months ended September 30, 2000, 2001, and pro forma 2001 for the
O'Gara acquisition, earnings per share before restructuring and related
charges, integration and other non-recurring charges and other (income)
expense, net was $0.53, $0.51, and $0.37, respectively.

(2) EBITDA is defined as operating income plus merger, integration and other
non-recurring charges, restructuring and related charges, equity in
earnings of investee and depreciation and amortization. The depreciation
and amortization is taken from the depreciation and amortization line of
the statement of cash flows. EBITDA is not a substitute for operating
income, net income and cash flow from operating activities as determined in
accordance with generally accepted accounting principles as a measure of
profitability or liquidity. EBITDA is presented because we believe some
investors may find it useful in evaluating an investment in our common
stock.

(3) The depreciation and amortization is taken from the depreciation and
amortization line on the statement of cash flows. For fiscal 1996
depreciation and amortization includes $388,000 of depreciation, and
$430,000 of amortization; for fiscal 1997 depreciation and amortization
includes $994,000 of depreciation and $982,000 of amortization; for fiscal
1998 depreciation and amortization includes $1.4 million of depreciation
and $1.3 million of amortization; for fiscal 1999 depreciation and
amortization includes $2.1 million of depreciation and $2.5 million of
amortization; and for fiscal 2000 depreciation and amortization includes
$3.2 million of depreciation and $3.4 million of amortization. According to
Statement of Financial Accounting Standard No. 142, Goodwill and Other
Intangible Assets, goodwill arising from business combinations will no
longer require annual amortization but rather be tested for impairment.

(4) Working capital is defined as current assets minus current liabilities.

(5) Gives effect to the sale of 4,500,000 shares of common stock offered by us
in this offering at an assumed offering price of $21.90 per share.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

COMPANY OVERVIEW

MATERIAL CHANGES

On August 22, 2001, we, through a wholly owned subsidiary, acquired all of
the issued and outstanding capital stock of O'Gara-Hess & Eisenhardt Armoring
Company, The O'Gara Company, and O'Gara Security Associates, Inc. The acquired
companies constitute the majority of what was formerly known as the Security
Products and Services Group of The Kroll-O'Gara Company. The primary business of
the acquired companies is now conducted through our new Armor Mobile Security
Division. Our future operations and performance is likely to differ
significantly from the discussion below, as a result of, among other things,
this recent acquisition.

We have consummated 21 acquisitions since January 1998. A comparison of our
period to period financial performance from January 1, 1998 through June 30,
2001 may be significantly affected by these acquisitions, including, but not
limited to, the O'Gara Acquisition and the Safariland Ltd., Inc. ("Safariland")
acquisition.

RESTRUCTURING AND RELATED CHARGES

In January 2001, our ArmorGroup Services Division approved a restructuring
plan to close its U.S. investigative businesses, realign the division's
organization, eliminate excess facilities and reduce overhead in its businesses
worldwide. In connection with this restructuring plan, the division performed a
review of its long-lived assets to identify potential impairments. Pursuant to
this restructuring plan, ArmorGroup:

o eliminated 26 employees, primarily from its investigative businesses;

o eliminated an additional 24 employees from its security consulting
business;

o incurred lease and other exit costs as a result of the closure of its
investigative businesses; and

o wrote-down the value of both tangible and intangible assets as a result
of the impairment review.

We completed most of the significant actions related to this restructuring
by June 30, 2001.

As a result of the restructuring plan, we recorded a pre-tax charge of $10
million. We recorded $8.7 million in the first quarter and $1.3 million in the
second quarter of fiscal 2001. The pre-tax charge in the nine month period
ending September 30, 2001 included approximately:

o $1,375,000 in employee termination and related costs including
severance, relocation, medical and other benefits;

o $956,000 in lease termination and other exit costs;

o $291,000 in impairment charges related to tangible assets; and

o $7,337,000 in impairment charges related to intangible assets,
primarily goodwill.

The earnings per share effect of these charges for the nine months ended
September 30, 2001 was $0.27 per share. As of September 30, 2001, we had a
remaining liability of $382,000 relating to lease

termination and other exit costs. This liability has been classified in accrued
expenses and other current liabilities on the consolidated balance sheet and
will be funded through cash provided by operating activities and our credit
facility.

ACQUISITIONS

We have pursued a strategy of growth through acquisition of businesses and
assets that complement our existing operations. We use several criteria to
evaluate prospective acquisitions including whether the business to be acquired:

o broadens the scope of the services or products we offer or the
geographic areas we serve;

o offers attractive margins;

o is accretive to earnings;

o offers the opportunity to enhance profitability by improving the
efficiency of our operations;

o is managed in a manner consistent with our existing businesses; and

o complements our portfolio of existing businesses by increasing our
ability to manage our customers' needs.

Since January 1, 1998, our Armor Holdings Products Division completed seven
acquisitions with approximate combined annual revenues of $74.0 million at the
time of their acquisition, our Armor Mobile Security Division completed the
O'Gara Acquisition, with approximate annual revenues of $112.4 million ($6.1
million of which relates to businesses integrated into our ArmorGroup Services
Division) at the time of its acquisition, and our ArmorGroup Services Division
completed thirteen acquisitions with approximate combined annual revenues of
$28.7 million at the time of their acquisition. All of these acquisitions were
accounted for as purchases and, accordingly, the results of their operations are
included only for the period after acquisitions.

RESULTS OF OPERATIONS

The following table sets forth selected statement of operations data as a
percentage of total revenues for the periods indicated:

NINE MONTHS ENDED
FISCAL YEAR SEPTEMBER 30,
--------------------------------- -------------------
1998 1999 2000 2000 2001
----------- -------- -------- -------- --------

Revenue

Products ................................. 47% 62% 61% 62% 55%
Services ................................. 53% 38% 39% 38% 40%
Mobile Security .......................... -- -- -- -- 5%
Total revenues ........................... 100% 100% 100% 100% 100%
Cost of sales ............................. 63% 60% 62% 62% 64%
Operating expenses ........................ 23% 24% 23% 24% 23%
Amortization expense ...................... 1% 2% 2% 1% 1%
Integration and other non-recurring
charges .................................. -- 2% 1% 2% 1%
Restructuring and related charges ......... -- -- -- -- 5%
Operating income .......................... 13% 13% 12% 11% 5%
Interest (income) expense, net ............ (1)% 0% 1% 1% 1%
Provision for income taxes ................ 5% 5% 4% 4% 1%
Net income ................................ 9% 8% 8% 7% 3%
EBITDA .................................... 15% 17% 16% 16% 15%

Revenue Recognition. We record product revenues at gross amounts to be
received including amounts to be paid to agents as commissions, at the time the
product is shipped to the distributor. Although product returns are permitted in
certain circumstances within 30 days from the date of purchase, these returns
have historically been minimal and usually consist of minor modifications to the
ordered product. We record services revenue as the service is provided on a
contract by contract basis.

We record revenue from our Armor Mobile Security Division when the vehicle
is shipped except for commercial contracts greater than $1,250,000 and longer
than four months in length and government contracts for the delivery of HMMWVs
to the U.S. Government. Revenue from commercial contracts greater than
$1,250,000 and longer than four months in length is recognized on the percentage
of completion units-of-work performed method. Revenues from the sale of HMMWV's
to the U.S. Government are recorded when the onsite Department of Defense
officer finishes the inspection of the HMMWV and approves it for delivery.

NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 2000

Products revenues. Armor Holdings Products Division revenues increased by
$3.1 million, or 3.1%, to $103.1 million in the nine months ended September 30,
2001, compared to $100.0 million in the nine months ended September 30, 2000.
This increase was due to the acquisitions we completed in November 2000.

Mobile Security revenues. Armor Mobile Security Division revenues totaled
$9.3 million in the three months ended September 30, 2001. The Mobile Security
Division was created with the O'Gara Acquisition on August 22, 2001, and its
revenues are included from September 1, 2001.

Services revenues. ArmorGroup Services Division revenues increased by $11.8
million, or 18.9%, to $74.2 million in the nine months ended September 30, 2001,
compared to $62.4 million in the nine months ended September 30, 2000. This
increase was due to internal growth of 16.9% as well as 2.0% growth from
International Training, Inc., which was acquired in the O'Gara Acquisition and
is included in the revenue of ArmorGroup Services Division.

Cost of sales. Cost of sales increased by $17.8 million, or 17.6%, to
$118.6 million in the nine months ended September 30, 2001, compared to $100.8
million in the nine months ended September 30, 2000. This increase was primarily
due to increased revenues in the ArmorGroup Services Division for the nine
months ended September 30, 2001, compared to the nine months ended September 30,
2000 as well as the O'Gara Acquisition. As a percentage of total revenues, cost
of sales increased to 63.5% of total revenues for the nine months ended
September 30, 2001, compared to 62.1% for the nine months ended September 30,
2000. This increase was primarily due to the O'Gara Acquisition as well as
higher revenues in the ArmorGroup Services Division, both of which operate at
lower average gross margins than the Armor Holdings Products Division.

Operating expenses. Operating expenses increased by $5.5 million, or 14.3%,
to $43.8 million (23.4% of total revenues) in the nine months ended September
30, 2001, compared to $38.3 million (23.6% of total revenues) in the nine months
ended September 30, 2000. This increase was primarily due to internal growth in
the overall business as well as the operating expenses associated with the
O'Gara Acquisition and certain other newly acquired companies.

Amortization. Amortization expense increased by $349,000, or 15.4%, to $2.6
million in the nine months ended September 30, 2001, compared to $2.3 million in
the nine months ended September 30, 2000. This increase was due to the
amortization of intangible assets acquired as a result of the acquisitions
completed in June and November 2000, which are not fully reflected in the nine
months ended September 30, 2000, offset by a reduction in amortization of
goodwill associated with impairment charges taken earlier this year.

Restructuring and related charges. As a result of the restructuring plan,
we recorded a pre-tax charge of $10 million. As of September 30, 2001, we had a
remaining liability of $382,000 relating to lease termination and other exit
costs. This liability has been classified in accounts payable, accrued expenses
and other current liabilities on the consolidated balance sheet and will be
funded through cash provided by operating activities and our credit facility.

Integration and other non-recurring charges. Integration and other
non-recurring charges decreased by $737,000, or 29.1%, to $1.8 million in the
nine months ended September 30, 2001, compared to $2.5 million in the nine
months ended September 30, 2000. Merger and integration expenses for the nine
months ended September 30, 2001 represent costs associated with the integration
of the O'Gara Acquisition and certain other acquisitions, as well as costs
associated with our tax minimization project. Merger and integration expenses in
the nine months ended September 30, 2000 represent costs associated with the
integration of Safariland and certain other acquisitions, as well as costs
associated with the tax minimization project, the evaluation of strategic
alternatives and certain other one-time costs.

Equity in earnings of investee. Equity in earnings of investee was $87,000
in the nine months ended September 30, 2000 and relates to our 20% investment in
Jardine Securicor Gurkha Services Limited ("JSGS"), which was sold during the
nine month period ended September 30, 2000.

Operating income. Operating income decreased by $8.7 million, or 46.5%, to
$10.0 million in the nine months ended September 30, 2001, compared to operating
income of $18.6 million in the nine months ended September 30, 2000 due to the
factors discussed above.

Interest expense, net. Interest expense, net increased by $1.5 million, or
122.5%, to $2.6 million in the nine months ended September 30, 2001, compared to
$1.2 million in the nine months ended September 30, 2000. This increase resulted
from increased borrowings in connection with the O'Gara Acquisition and other
acquisitions that were funded with long-term debt. Increased debt levels were
offset by reductions in the cost of debt we are currently paying on our bank
credit facility due to lower interest rates. Net interest expense includes
interest on and amortization of the fees associated with our $120 million credit
facility, and the amortization of the discount on certain long-term liabilities
acquired as part of the Safariland acquisition.

Other income, net. Other income, net decreased by $1.8 million, or 97.2%,
to $52,000 in the nine months ended September 30, 2001, compared to $1.8 million
for the nine months ended September 30, 2000. Other income, net in the nine
months ended September 30, 2001 includes the results of operations associated
with the O'Gara Acquisition from the date of purchase to September 1, 2001.
Other income, net in the nine months ended September 30, 2000 was due primarily
to the sale of our investment in JSGS.

Provision for income taxes. Provision for income taxes decreased by $4.5
million, or 63.1%, to $2.7 million in the nine months ended September 30, 2001,
compared to $7.2 million in the nine months ended September 30, 2000. The
effective tax rate for the nine months ended September 30, 2001 was 36.0%,
compared to 37.4% for the nine months ended September 30, 2000. The decrease in
our effective tax rate in the nine month ended September 30, 2001 was due to the
realization of benefits associated with our tax planning strategies in the
current period and the reduced impact of non-deductible goodwill amortization on
our effective tax rate. Our effective tax rate is continually changing as
estimated future income from our foreign operations can vary significantly from
period to period. The effective tax rate for the nine months ended September 30,
2001 is not necessarily indicative of continued tax rates due to the continually
changing concentration of income in each country in which we operate.

Net income. Net income decreased by $7.4 million, or 60.9%, to $4.7 million
in the nine months ended September 30, 2001, compared to $12.1 million for the
nine months ended September 30, 2000 due to the factors discussed above.

FISCAL YEAR ENDED DECEMBER 31, 2000 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1999

Product revenues. Product revenues increased by $38.6 million, or 40.0%, to
$135.3 million for the year ended December 31, 2000 ("Fiscal 2000"), compared to
$96.7 million for the year ended

December 31, 1999 ("Fiscal 1999"). This increase was primarily due to strong
internal growth, including year over year comparisons of businesses acquired
during the previous year, of 20.4% as well as the inclusion of full year results
for Safariland and other 1999 acquisitions, and additional acquisitions
completed in Fiscal 2000. All of these acquisitions were accounted for as
purchases and accordingly the results of their operations are included only for
the period after acquisition.

Service revenues. Service revenues increased by $25.7 million, or 42.8%, to
$85.6 million in Fiscal 2000, compared to $60.0 million in Fiscal 1999. This
increase was primarily due to strong internal growth, including year over year
comparisons of security businesses acquired during the previous year, of 23.6%
as well as the inclusion of full year results for Fiscal 1999 acquisitions, and
the additional Fiscal 2000 acquisitions. All of these acquisitions were
accounted for as purchases and accordingly the results of their operations are
included only for the period after acquisition.

Cost of sales. Cost of sales increased by $43.1 million, or 45.6%, to
$137.5 million in Fiscal 2000, compared to $94.4 million in Fiscal 1999. This
increase was primarily due to increased revenues in Fiscal 2000 compared to
Fiscal 1999. As a percentage of total revenues, cost of sales increased to 62.2%
in Fiscal 2000 from 60.3% in Fiscal 1999.

Operating expenses. Operating expenses increased by $13.3 million, or
36.0%, to $50.3 million in Fiscal 2000, compared to $37.0 million in Fiscal
1999. This increase was primarily due to the increased revenues from our Armor
Holdings Products and ArmorGroup Services Divisions as well as the acquisitions
which were completed in 2000. As a percentage of sales, operating expenses
decreased to 22.8% of sales in Fiscal 2000 compared to 23.6% in Fiscal 1999.

Amortization. Amortization expense increased by $1.0 million, or 39.2%, to
$3.4 million in Fiscal 2000, compared to $2.5 million in Fiscal 1999. This
increase was primarily due to additional amortization of intangible assets
acquired as a result of the acquisitions completed during Fiscal 2000, as well
as a full year of amortization relating to the 1999 acquisitions.

Equity in earnings of investee. Equity in earnings of investee decreased by
$92,000, or 51.4%, to $87,000 in Fiscal 2000, compared to $179,000 in Fiscal
1999. The equity in earnings of investee was comprised of a 20% investment in
JSGS that we sold in Fiscal 2000 (see Other Income).

Integration and other non-recurring charges. Integration and other
non-recurring charges increased by $0.7 million, or 28.1% to $3.3 million in
Fiscal 2000, compared to $2.6 million in Fiscal 1999 and are related to the
integration of the acquired companies. These costs include relocation expenses
for equipment and employees, severance costs as well as charges for integrating
our sales and marketing efforts.

Operating income. Operating income increased by $6.1 million, or 29.8%, to
$26.5 million in Fiscal 2000, compared to $20.4 million in Fiscal 1999 due to
the reasons discussed above.

Interest (income) expense, net. Net interest expense was $1.9 million in
Fiscal 2000, compared to net interest expense of $17,000 in Fiscal 1999. The
increase was primarily due to interest on debt incurred to fund acquisitions and
make purchases under our stock repurchase plan.

Other income, net. Net other income was $1.8 million in Fiscal 2000,
compared to $0.8 million in Fiscal 1999. The increase was primarily due to the
gain of approximately $1.7 million recognized on the sale of our investment in
JSGS in Fiscal 2000.

Provision for income taxes. The provision for income taxes increased by
$1.3 million, or 16.7%, to $9.3 million in Fiscal 2000, compared to $8.0 million
in Fiscal 1999. The provision was based on our U.S. federal and state statutory
income tax rates of approximately 37% for our U.S.-based companies and a 10.6%
blended effective tax rate for foreign operations. The effective tax rate for
our foreign operations is not necessarily indicative of expected future rates
due to the changing concentration and mix of income in the various countries in
which we operate. The effective tax rate for 2000 and 1999 was 35.4% and 37.8%,
respectively. The decrease in our effective tax rate was a result of the
increased amount of income earned in jurisdictions whose statutory tax rates
were below those in the United States, as a percentage of operating income.

Net income. Net income increased approximately $3.9 million or 29.2%, to
$17.0 million in Fiscal 2000, compared to $13.2 million in Fiscal 1999. This
increase was primarily due to the combination of acquisitions, internal growth,
and to the factors discussed above.

FISCAL YEAR ENDED DECEMBER 31, 1999 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1998

Product revenues. Product revenues increased by $51.1 million, or 111.9%,
to $96.7 million for Fiscal 1999, compared to $45.6 million for the year ended
December 31, 1998 ("Fiscal 1998"). This increase was primarily due to the
acquisitions completed in 1998 and the acquisition of Safariland in 1999, as
well as strong internal growth. These acquisitions were accounted for as
purchases and the results of their operations are recorded only for the period
we owned them.

Service revenues. Service revenues increased by $8.4 million, or 16.3%, to
$60.0 million in Fiscal 1999, compared to $51.6 million in Fiscal 1998. This
increase was primarily due to the acquisitions completed in 1998 and 1999. These
acquisitions were accounted for as purchases and the results of their operations
are recorded only for the period we owned them.

Cost of sales. Cost of sales increased by $32.8 million, or 53.2%, to $94.4
million in Fiscal 1999, compared to $61.6 million in Fiscal 1998. This increase
was primarily due to increased revenues in Fiscal 1999 compared to Fiscal 1998.
As a percentage of total revenues, cost of sales decreased to 60.2% in Fiscal
1999 from 63.4% in Fiscal 1998 reflecting a greater proportion of total revenue
generated by our Armor Holdings Products Division in Fiscal 1999, which has
higher gross margins than our ArmorGroup Services Division. Both divisions
improved their gross margins in 1999 by lowering costs through greater
efficiencies and by concentrating on higher margin investigative business in the
Services Division.

Operating expenses. Operating expenses increased by $15.1 million, or
68.9%, to $37.0 million (23.6% of total revenues) in Fiscal 1999, compared to
$21.9 million (22.5% of total revenues) in Fiscal 1998. This increase was
primarily due to the increased revenues from our Armor Holdings Products
Division which has higher sales and marketing expenses than the revenues from
the ArmorGroup Services Division, and the acquisitions we completed in 1999.

Amortization. Amortization expense increased by $1.1 million, or 82.9%, to
$2.5 million in Fiscal 1999, compared to $1.3 million in Fiscal 1998. This
increase was primarily due to additional amortization of intangible assets
acquired as a result of the Safariland acquisition and other acquisitions that
we completed during Fiscal 1999, which would not have been reflected in Fiscal
1998.

Equity in earnings of investee. Equity in earnings of investee decreased by
$534,000, or 74.9%, to $179,000 in Fiscal 1999, compared to $713,000 in Fiscal
1998. The decrease in earnings was primarily due to losses incurred by JSGS on
its operations in India. This office was subsequently closed.

Integration and other non-recurring charges. Integration and other
non-recurring charges increased by $2.6 million to $2.6 million in Fiscal 1999.
These charges related to the integration of the acquired companies. These
charges include relocation expenses for equipment and employees, severance costs
as well as charges for integrating our sales and marketing efforts. We did not
incur such charges in Fiscal 1998.

Operating income. Operating income increased by $7.4 million, or 56.7%, to
$20.4 million in Fiscal 1999, compared to $13.0 million in Fiscal 1998 primarily
due to the factors discussed above.

Interest (income) expense, net. Net interest expense was $17,000 in Fiscal
1999, compared to net interest income of $625,000 in Fiscal 1998. This increase
was primarily due to amortization of fees associated with the $60 million bank
credit agreement completed in February, 1999, as well as interest on debt
acquired as part of the purchased companies.

Other income, net. Net other income increased by $788,000 to $816,000 in
Fiscal 1999, compared to $28,000 in Fiscal 1998 and is primarily due to the gain
on the sale of stock in MACE Security International. We acquired this stock
through the exercise of warrants we received as part of an acquisition of
certain assets in July of 1998.

Provision for income taxes. Provision for income taxes increased by $2.9
million, or 57.6%, to $8.0 million in Fiscal 1999, compared to $5.1 million in
Fiscal 1998. The provision was based on our U.S. federal and state statutory
income tax rates of approximately 39% for our U.S.-based companies and a 37%
blended effective tax rate for foreign operations. The effective tax rate for
our foreign operations is not necessarily indicative of continued tax rates due
to a continually changing concentration of income in each country in which we
operate. The increase in our effective tax rate is a result of the increased
amortization of the goodwill generated by the Safariland and other acquisitions
that is not tax deductible.

Net income. Net income increased approximately $4.6 million or 53.5%, to
$13.2 million in Fiscal 1999, compared to $8.6 million in Fiscal 1998. This
increase was primarily due to a combination of the acquisitions made during the
year being successfully integrated, and to the factors discussed above.

LIQUIDITY AND CAPITAL RESOURCES

On August 22, 2001, we entered into an Amended and Restated Credit
Agreement (the "Credit Agreement") with Bank of America, Canadian Imperial Bank
of Commerce, First Union National Bank, Suntrust Bank, Republic Bank, Keybank
National Association, and ING (U.S.) Capital LLC. Pursuant to the Credit
Agreement, the lenders established a $120,000,000 line of credit for our benefit
expiring on February 12, 2004. The Credit Agreement, among other things,
provides for (i) total aggregate maximum borrowings of $120,000,000 and (ii) the
capability for borrowings in foreign currencies. All borrowings under the Credit
Agreement bear interest at either (i) a base rate, plus an applicable margin
ranging from .000% to .375%, depending on certain conditions, (ii) a eurodollar
rate, plus an applicable margin ranging from 1.125% to 1.875%, depending on
certain conditions, or (iii) with respect to foreign currency loans, a fronted
offshore currency rate, plus an applicable margin ranging from 1.125% to 1.875%,
depending on certain conditions. Outstanding borrowings under the Credit
Agreement currently bear interest at a variable rate of 4.46% per annum. In
addition, the Credit Agreement provides that Bank of America will make
swing-line loans to us of up to $5,000,000 for working capital purposes only and
will issue letters of credit on our behalf of up to $20,000,000. As of November
15, 2001, we had approximately $85.5 million outstanding and approximately $34.5
million available under the Credit Agreement. All indebtedness under the Credit
Agreement will mature on February 12, 2004. We expect to use approximately $85.5
million of our net proceeds from this offering to repay indebtedness under our
credit facility. Following such repayment, $120,000,000 will be available under
the Credit Agreement. We also have approximately $6.9 million in other long-term
debt, net of current portion, consisting primarily of $4.2 million in industrial
revenue and industrial development bonds.

In October 1999, our Board of Directors approved a stock repurchase program
that is effective through December 31, 2001, and that allows us to repurchase up
to 10% of our outstanding shares. Under this program, we expended approximately
$9.8 million in 1999 and $12.6 million in 2000 to repurchase approximately 1.8
million shares of our common stock. We have the ability to repurchase up to
approximately 629,000 additional shares under this program. We expect to
continue our policy of repurchasing our common stock at opportune intervals. In
addition, our Credit Agreement permits us to repurchase shares of our common
stock up to a maximum amount of $30 million if our ratio of Consolidated Total
Indebtedness to Consolidated EBITDA for any Rolling Period (as such terms are
defined in the Credit Agreement) is greater than 2.00 to 1; provided that if
such ratio is less than or equal to 2.00 and 1, there is no limitation under the
Credit Agreement on the amount of such stock repurchases. As of September 30,
2001, we had the ability to repurchase up to an additional $7.6 million of
shares of our common stock under the Credit Agreement.

As of December 31, 2000, we had working capital of $68.1 million. As of
September 30, 2001, we had working capital of $101.1 million.

We anticipate that the net proceeds from this offering, cash generated from
operations and borrowings under the Credit Agreement will enable us to meet our
liquidity, working capital and capital expenditure requirements during the next
12 months. We may, however, require additional financing to pursue our strategy
of growth through acquisitions. If such financing is required, there are

no assurances that it will be available, or if available, that it can be
obtained on terms favorable to us or on a basis that is not dilutive to our
stockholders.

Our capital expenditures were $7.8 million in our 2000 fiscal year and $3.4
million in our 1999 fiscal year. Our spending on capital expenditures for the
nine months ended September 30, 2001 was $5.7 million. Such expenditures
include, among other things, leasehold improvements, computer equipment and
software, and manufacturing machinery and equipment.

RECENTLY ISSUED ACCOUNTING STANDARDS

In October 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS 144"). SFAS 144 establishes a "primary-asset" approach to
determine the cash flow estimation period for a group of assets and liabilities
that represents the unit of accounting for a long-lived asset to be held and
used. SFAS 144 requires that a long-lived asset to be (1) abandoned, (2)
exchanged for a similar productive asset, or (3) distributed to owners in a
spin-off be considered held and used until it is abandoned, exchanged, or
distributed. SFAS 144 requires (1) that spin-offs and exchanges of similar
productive assets to be recorded at the lower of carrying value or fair value,
and that such assets be classified as held and used until disposed of and (2)
that any impairment loss resulting from a spin-off or exchange of similar
productive assets be recognized when the asset is disposed of. The provisions of
SFAS 144 will be come effective for us on January 1, 2002. The effects of
adopting this standard have not been determined.

In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143"). SFAS 143
establishes accounting standards for recognition and measurement of a liability
for an asset retirement obligation and the associated asset retirement cost.
SFAS 143 requires the recognition of the fair value of a liability for an asset
retirement obligation in the period in which it is incurred if a reasonable
estimate of fair value can be made. If a reasonable estimate of fair value
cannot be made in the period the asset retirement obligation is incurred, the
liability shall be recognized when a reasonable estimate of fair value can be
made. The fair value of a liability for an asset retirement obligation is the
amount at which that liability could be settled in a current transaction between
willing parties, that is, other than in a forced or liquidation transaction.
SFAS 143 is effective for financial statements issued for fiscal years beginning
after June 15, 2002. The provisions of SFAS 143 will become effective for us on
January 1, 2003. The effects of adopting this standard have not been determined.

In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 141, "Business Combinations" ("SFAS 141"), and Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS
142"). SFAS 141 requires that all business combinations be accounted for under a
single method -- the purchase method. Use of the pooling-of-interest method is
no longer permitted. SFAS 141 requires that the purchase method be used for all
business combinations initiated after June 30, 2001. SFAS 142 requires, among
other things, that goodwill no longer be amortized to earnings, but instead
reviewed for impairment annually. Under SFAS 142, the amortization of goodwill
ceases upon adoption of the statement, which will become effective for us on
January 1, 2002. We have historically amortized our goodwill over its estimated
useful life. The goodwill resulting from recognition made by us subsequent to
June 30, 2001 is immediately subject to the non-amortization provisions of SFAS
142. The effects of adopting this standard have not been determined.

We adopted Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" ("SFAS 133"), as amended by
Statement of Financial Accounting Standards No. 137 and 138, on January 1, 2001.
The Statement establishes accounting and reporting standards requiring that
every derivative instrument (including certain derivative instruments embedded
in other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. We do not currently have derivative
instruments and, accordingly, SFAS 133, as amended, is not expected to impact
our financial position, results of operations or cash flows.

In March 2000, the FASB issued FASB Interpretation No. 44 ("FIN 44"),
"Accounting for Certain Transactions Involving Stock Compensation -- an
Interpretation of APB Opinion No. 25." FIN 44 clarifies the application of APB
Opinion No. 25 and, among other issues, clarifies the following: the definition
of an employee for purposes of applying APB Opinion No. 25; the criteria for
determining whether a plan qualifies as a noncompensatory plan; the accounting
consequence of various modifications to the terms of previously fixed stock
options or awards; and the accounting for an exchange of stock compensation
awards in a business combination. The adoption of FIN 44 did not have a material
impact on our results of operations, financial position or cash flows.

RECENTLY ISSUED STAFF ACCOUNTING BULLETIN

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"). SAB 101 provides guidance on the
recognition, presentation and disclosure of revenue in the financial statements,
and is effective in the fourth quarter of 2000. SAB 101 did not have a material
impact on our results of operations, financial position or cash flows.

BUSINESS

Armor Holdings Products. Our Armor Holdings Products Division manufactures
and sells a broad range of high quality branded law enforcement equipment, such
as tactical armor, hard armor, duty gear, less-lethal munitions, anti-riot
products, police batons, forensic products and weapon maintenance products. Our
products are marketed under brand names that are well-known and respected in the
military and law enforcement communities such as American Body Armor,
Safariland, Defense Technology, Federal Laboratories, MACE (Registered
Trademark) , PROTECH, NIK (Registered Trademark) Public Safety, Break-Free,
Monadnock Lifetime Products and Lightning Powder. We sell our manufactured
products primarily to law enforcement agencies through a worldwide network of
over 500 distributors and sales agents including approximately 350 in the United
States. Our extensive distribution capabilities and commitment to customer
service and training have enabled us to become a leading provider of security
equipment to law enforcement agencies. We believe there are significant
opportunities to grow our manufacturing business through the acquisition and
development of new product lines, expansion into new territories and further
development of sales to specialized government and military agencies. In
addition, we believe that consistent demand for our premium products at
attractive margins will continue because our products are critical to the safety
and effectiveness of our customers. We believe that the September 11, 2001
terrorist attacks on the United States will lead to an increase in law
enforcement professionals. These professionals will need to be properly
equipped. As a result, we believe that our product line could exhibit higher
than previously expected and sustainable demand over the next three to five
years.

Armor Mobile Security. Our Armor Mobile Security Division manufactures and
installs ballistic and blast protected armoring systems for military vehicles,
commercial vehicles, military aircraft and missile components. Under the brand
name O'Gara-Hess & Eisenhardt, we are the sole-source provider to the U.S.
military for the supply of armoring and blast protection systems for the HMMWV.
We have also entered into an agreement to provide the U.S. military with certain
maintenance services with respect to its HMMWVs. There is currently an installed
base of approximately 2,200 HMMWVs subject to this maintenance arrangement. We
expect that our maintenance services may increase if the U.S. military
substantially increases its HMMWV purchases or substantially increases its use
of the current installed base. Additionally, the Armor Mobile Security Division
has been subcontracted to develop a ballistically armored and sealed truck cab
for HIMARS, a program currently in development for the U.S. Army, and also
markets armor sub-systems for other

tactical wheeled vehicles. We armor a variety of commercial vehicles, including
limousines, sedans, sport utility vehicles, commercial trucks and
cash-in-transit vehicles, to protect against varying degrees of ballistic and
blast threats. We believe that increased demand for Up-Armored HMMWVs and other
armored vehicles is likely following the September 11, 2001 terrorist attacks.
We believe that we have adequate capacity to accomodate an expected increase in
orders.

ArmorGroup Services. Our ArmorGroup Services Division provides a broad
range of sophisticated security risk management solutions to multinational
corporations in diverse industries such as natural resources, financial services
and consumer products, and to governmental and non-governmental agencies such as
the U.S. Departments of State and Defense, the United Nations and CARE
International. Our clients typically have personnel and other investments in
unstable and often violent areas of the world. Through our offices on five
continents, we provide our multinational clients with a diversified portfolio of
security solutions to assist them in mitigating risks in their operations around
the world. Our highly trained, multilingual and experienced security personnel
work closely with our clients to create and implement solutions to complex
security problems. These services include security planning, advice and
management, security systems integration, intellectual property, asset
protection, due diligence investigations and training programs in
counterintelligence, countersurveillance, advanced driving techniques and
ballistics. We believe that many of our security services, while often
representing a small portion of our clients' overall cost of doing business, are
critical to our clients' success. We believe that this creates a consistent
demand for our premium services at attractive margins. The September 11, 2001
terrorist attacks on the United States has heightened security concerns at
corporations and governmental and non-governmental organizations. We believe
that our global infrastructure and experience will allow us to aggressively
respond to increased concerns and to provide our services as required.

INDUSTRY OVERVIEW / MARKET OPPORTUNITY

We participate in the defense and global security products and services
industries through the manufacture of security products marketed to military,
law enforcement, security and corrections personnel, by providing specialized
security services to multinational corporations and governmental agencies and by
manufacturing and installing ballistic and blast protected armoring systems for
military vehicles, commercial vehicles, military aircraft, and missile
components. Increasingly, governments, militaries, businesses, and individuals
have recognized the need for our products and services to protect them from the
risks associated with terrorism, physical attacks, threats of violence,
white-collar crime and fraud.

The U.S. has been the target of several deadly terrorist attacks directed
towards its citizens and facilities around the world. In 1998, U.S. embassies in
Nairobi, Kenya and Dar Es Salaam, Tanzania were bombed. In 2000, the U.S. Navy
destroyer, USS Cole, was bombed in the Yemeni port of Aden. Most recent were the
terrorist attacks on September 11, 2001 against the World Trade Center in New
York and the Pentagon in Washington, D.C. The continued U.S. military response
and additional security measures related to the terrorist threat will, we
believe, require spending at federal, state, and local agencies, corporations
and U.S. diplomatic facilities around the world. Institutions, including the
U.S. government, DoD, government agencies and multinational corporations are
redefining strategies to protect against and combat terrorism.

The terrorist attacks on September 11, 2001 have emphasized the importance
of a strong national defense both abroad and domestically. Prior to September
11, 2001, as part of President George W. Bush's stated commitment to strengthen
national defense, the Bush Administration submitted to Congress a $328 billion
fiscal 2002 defense budget that reflected an 11.0% increase over the fiscal 2001
defense budget submitted by the Clinton Administration, representing the first
double digit increase since Operation Desert Storm. Since September 11, 2001,
Congress has passed a $40 billion supplemental appropriation and established the
Office of Homeland Security to be headed by the former Governor of Pennsylvania,
Thomas J. Ridge. On September 30, 2001, the DoD released its Quadrennial Defense
Review Report. The report emphasized the establishment of a new strategy for
America's defense and highlighted the need to enhance critical domestic defense
infrastructure that

may require changes in force structure and organization. This new force
structure may result in an increase in U.S. military personnel, law enforcement
personnel, airport security personnel, and federal sky marshals who would
require law enforcement products and training. Many U.S. and Western
multinational corporations, commercial organizations, and governmental and
non-governmental organizations, especially airports, must also place increased
attention on security issues that we believe will require security consulting
services. It is also possible that the military will require additional
equipment and training in order to fight the war on terrorism on several fronts
simultaneously.

Law Enforcement Security Products Market. In response to an increased
emphasis on safety and protection, the number of active police officers has
increased significantly over the past several years. By 1999 there were
approximately 933,000 law enforcement personnel in the U.S. We expect the likely
increase in law enforcement personnel due to the September 11, 2001 terrorist
attacks to lead to an increase in demand for our products. We believe that the
historical rise in the prison population has spurred demand from institutional
corrections facilities for law enforcement security products.

Vehicle Armor Market. Recent terrorist activities may accelerate the need
for armoring light military vehicles that will be utilized in hostile
environments in order to carry out mission objectives required by the U.S.
military's war on terrorism. As multinational corporations seek to implement
more comprehensive security programs, one area of focus will be executive
protection. We believe that the use of armored commercial vehicles in high
fright areas will increase as multinational corporations expand their
operations.

Specialized Security Services Market. Corporations are increasingly
contracting experienced private companies to handle their security services.
Industry studies demonstrate that the worldwide security services market has
grown at a rate of 8.0% annually from 1995 to 2000. Total revenues for the
worldwide market have reached $61.8 billion and is expected to continue to grow
to $87.9 billion by 2005. Management believes that demand by multinational
corporations and governmental agencies operating in developing nations for
security services such as risk assessment, crisis management, guard force
management, security force organization and executive protection is likely to
increase as these entities continue to establish operations and manufacturing
facilities in developed and developing countries. In addition, there are risks
related to white-collar crime and fraud. Demand for corporate investigative
services continues to grow as corporations react to the need to protect their
assets against the growing threat of fraud, counterfeiting and piracy of
intellectual property.

BUSINESS STRENGTHS

We believe that the following key strengths are critical to our success as
a leading provider of security products, vehicle armor systems and security risk
management services.

Broad Portfolio of Products and Services. We offer a broad portfolio of
security products, armor systems and security services enabling us to provide
comprehensive solutions to our customers' security needs. We strive to enhance
our position as a single source provider of global security services to our
clients and believe that our worldwide infrastructure enables us to follow our
governmental and multinational corporate clients to new geographical markets as
well as cross-sell additional services to these customers. Similarly, our
extensive product distribution network allows us to provide our customers a
broad array of complementary manufactured law enforcement equipment. Through
strategic acquisitions and internal growth, we expect to continue to expand our
product and service offerings and further diversify our revenue base.

Strong Brands with Leading Market Positions. Product lines are marketed
under brand names widely recognized in the military and law enforcement
communities, such as American Body Armor, NIK (Registered Trademark) , Defense
Technology, Federal Laboratories, MACE (Registered Trademark) , Safariland,
O'Gara-Hess & Eisenhardt, and others. Due to the life protecting nature of the
products in the markets that we serve, end users prefer to purchase premium
products with brand names that have solid reputations for quality and that
provide high levels of performance. The strength of our brand names has
contributed to our leading market positions in several of the product categories
in which we compete.

Strong Client Base and Extensive Distribution Network. Armor Holdings
Products has a broad, full service network of approximately 350 domestic
distributors and 150 international agents to sell our portfolio of manufactured
law enforcement equipment. The Armor Mobile Security Division's client base
includes governmental and private buyers and employs a global sales force to
market its commercial products. ArmorGroup Services has a global footprint, and
currently operates in 38 countries that enables it to serve a client base
representing governmental and non-governmental agencies and approximately 500
multinational corporations worldwide. The quality and scope of our products and
the strength of our brand names has enabled us to establish one of the largest
distribution networks in the industry and engendered the loyalty of our
distributors. We work closely with our distributors and agents to respond to and
anticipate the needs of end users, which we believe allows us to maintain our
market leadership position. We believe that the diversity of our clients' end
markets, the continued globalization of our clients and the strength of our
distribution relationships minimize our dependence on any particular product,
market, or customer.

Proven Track Record of Identifying, Completing and Integrating
Acquisitions. Since January 1996, we have completed 26 acquisitions. We employ a
disciplined approach to evaluating acquisition opportunities and integrating the
operations of acquired businesses. We believe that these acquisitions, in the
aggregate, have strengthened our market position, leveraged our distribution
network and expanded our product and service offerings. Further, we believe that
our performance based compensation plan enables us to retain strong managers of
acquired businesses and provides for timely and efficient integration of
acquired operations.

Sole-Source Provider of Up-Armored HMMWVs. Through our Armor Mobile
Security Division, we are the sole-source provider of Up-Armored HMMWVs to the
U.S. military, as well as the armoring of the HIMARS cab, a program currently in
development for the U.S. Army. Contracted by the DoD, the Armor Mobile Security
Division (then part of a division of The Kroll-O'Gara Company) delivered 377
HMMWVs in 2000, and expects to deliver approximately 500 in 2001. We believe
that deliveries for 2002 could be as high as 700 to 1,000 units, based on recent
inquiries from the DoD. This growth is driven by an increased defense budget for
procurement, heightened demand due to recent military deployments and activation
of U.S. Reserve and National Guard units, and the potential of a long term,
multi-front offensive against terrorism. Current U.S. Army requirements call for
approximately 7,500 Up-Armored HMMWVs that we expect will be part of the
military's mechanized forces through approximately 2030. Aftermarket sales of
spare parts and services/maintenance are also extremely attractive, as we are
the incumbent provider of the armoring on an installed base of over 2,200
Up-Armored HMMWVs. We believe that our strength in this product segment is
significant and should drive future growth.

GROWTH STRATEGY

We expect the demand for security products, vehicle armor systems, and
security risk management services will continue to grow, especially given the
expected impact of the September 11, 2001 terrorist attacks on the United
States. We plan to address this growth by offering a comprehensive array of
premium security risk management products and services. We intend to enhance our
leadership position through strategic acquisitions by creating a broad portfolio
of products and services to satisfy all of our customers' increasingly complex
security needs. By establishing a critical mass of products and services and a
broad base of customers, we have built in the capacity to perform multiple
aspects of our clients' threat analyses and security provisions on a
comprehensive basis. We plan to continue to execute this growth strategy
primarily through internal expansion of our existing businesses and through
strategic acquisitions of businesses offering complementary services, markets,
and customer bases. The following elements define our growth strategy:

Capitalize on Exposure to Military Programs. We expect an increase in
volume for our current major military programs. The events of September 11, 2001
are expected to result in additional funds being allocated to the DoD. We expect
several of our military programs to be positively affected. These include the
Concealable Body Armor Program through which we supply concealable body

armor to the U.S. Army and the Special operation forces Personal Equipment
Advance Requirement ("SPEAR") program, which supplies special ballistic vests
and load bearing equipment to U.S. Special Forces. We also expect an increase in
the United States Tank Automotive Armored Command's HMMWV delivery requirements.
We are the sole-source provider to the U.S. military for the supply of armor and
blast protection to the HMMWVs. We are well positioned on these programs and
have a proven track record and a strong relationship with the U.S. military.
Additionally, we expect to participate in other existing and future military
programs that require our unique products and services.

Expand Distribution Network and Product Offerings. We will continue to
leverage our distribution network by expanding our range of branded law
enforcement equipment through the acquisition of niche defensive security
products manufacturers and by investing in the development of new and enhanced
products which complement our existing offerings. We believe that a broader
product line will enable us to strengthen our relationship with our distributors
and add additional quality distributors, and enhance our brand appeal with
military, law enforcement and other end users.

Capitalize on Increased Homeland Security Requirements. We are well
positioned to provide products, services and specialized training that are
essential to establishing a sustainable Homeland Security infrastructure. Due to
the September 11, 2001 terrorist attacks on the United States, the U.S.
government has created the Office of Homeland Security. Although this Office's
mandate is still being finalized, a Homeland Security infrastructure will be
developed. We believe that our three divisions are well equipped and prepared to
help build this infrastructure. Our Armor Holdings Products Division is
positioned to provide the products that additional military, law enforcement,
security and corrections personnel require to combat terrorism and threats to
our homeland. Our Armor Mobile Security Division is prepared for an expected
increase in armored commercial vehicles for use by federal, state and local
government agencies. The services provided by our ArmorGroup Services Division
are expected to be more sought after as U.S. government agencies and
corporations re-evaluate their security programs. For example, we expect to
leverage our global experience and reputation into domestic airport security
training.

Increase Global Position in High Fright Areas. We will service the
heightened security concerns of governments, agencies and corporations in
existing high fright areas. We will also leverage our global expertise and
reputation for providing security products and services in newly developing high
fright areas. We target regions that have economic and political instability as
well as regions with increased regulation, growth in prison populations and
growing national and regional security concerns. We also grow the scope of our
existing product and service offerings by servicing existing customers who
expand geographically.

Broaden Service Offerings to Existing Client Base. We will broaden our
existing service offerings through strategic acquisitions and develop a
comprehensive range of security risk management offerings with a global network
of service providers. We intend to continue to market our expanded offerings by
increasing penetration of our existing client base with sales of additional
services.

Pursue Strategic Acquisitions. The security risk management products and
services industry is highly fragmented and characterized primarily by smaller,
geographically restricted single product or service providers. We believe,
however, that many clients in the industry would prefer to deal with a
consolidated entity that can provide a broad spectrum of services and/or
products in the security risk management industry with coverage of their needs
across entire regions, or globally. As a result, we selectively pursue
acquisitions that complement and expand our product and service offerings and
provide access to new geographic markets, additional distribution channels and
new client relationships.

ACQUISITIONS

We have pursued a strategy of growth by acquiring businesses and assets
that complement our existing operations. We use several criteria to evaluate
prospective acquisitions, including whether the business to be acquired:

o broadens the scope of the services or products we offer or the
geographic areas we serve;

o offers attractive margins;

o is accretive to earnings;

o offers the opportunity to enhance profitability by improving the
efficiency of our operations;

o is managed in a manner consistent with our existing businesses; and

o complements our portfolio of existing businesses by increasing our
ability to manage our customers' needs.

We exercise a high degree of financial discipline and strictly adhere to these
criteria. As a result, we do not enter into transactions that we believe would
be dilutive to our earnings. Since January 1996, we have consummated 26
acquisitions.

The Armor Holdings Products Division has acquired 10 companies since 1996.
The largest acquisition completed by this division was Safariland, a producer of
law enforcement products such as body armor, duty gear, and automotive
accessories in 1999. Safariland had approximately $47.0 million in annual
revenues at the time of acquisition. The Armor Mobile Security Division
completed the O'Gara Acquisition in August 2001. The Armor Mobile Security
Division provides ballistic and blast protection armoring systems and training
(training was integrated into the ArmorGroup Services Division). The businesses
acquired in the O'Gara Acquisition had approximately $112.4 million ($6.1 of
which relates to businesses integrated into our ArmorGroup Services Division) in
annual revenues at the time of acquisition. The ArmorGroup Services Division has
acquired 15 companies since 1996. The largest acquisition occurred in 1997 when
DSL Group Limited, a security risk management and consulting services firm, was
acquired. DSL Group Limited had approximately $31.0 million in annual revenues
at the time of acquisition.

PRODUCTS AND SERVICES

ARMOR HOLDINGS PRODUCTS

Body Armor. We manufacture and sell a wide array of armor products under
the leading brand names American Body Armor, PROTECH and Safariland that are
designed to protect against bodily injury caused by bullets, knives and
explosive shrapnel. Our principal armor products are ballistic resistant vests,
sharp instrument penetration armor, hard armor such as anti-riot gear, shields
and upgrade armor plates, and bomb protective gear. Our line of ballistic
protective vests provides varying levels of protection depending upon the
configuration of ballistic materials and the standards (domestic or
international) to which the armor is built. We primarily sell ballistic
resistant vests, under the brand names Xtreme (Trade Mark) and Zero-G (Trade
Mark) . Our body armor products that are manufactured in the United States are
certified under guidelines established by the National Institute of Justice.

We offer two types of body armor, concealable armor and tactical armor.
Concealable armor, which generally is worn beneath the user's clothing, is our
basic line of body armor. These vests are often sold with a shock plate, which
is an insert designed to improve the protection of vital organs from sharp
instrument attack and to provide enhanced blunt trauma protection. Tactical
armor is worn externally and is designed to provide protection over a wider area
of a user's body and defeat higher levels of ballistic threats. The vests, which
are usually manufactured with hard armor ballistic plates that provide
additional protection against rifle fire, are designed to afford the user
maximum protection and may be purchased with enhanced protection against neck
and shoulder injuries. Tactical armor is offered in a variety of styles,
including tactical assault vests, tactical police jackets, floatation vests,
high coverage armor and flak jackets.

Our sharp instrument penetration armor is designed primarily for use by
personnel in corrections facilities and by other law enforcement employees who
are primarily exposed to threats from knives and other sharp instruments. These
vests are constructed with special blended fabrics, as well as flexible woven
fabrics and are available in both concealable and tactical models. In addition,
these vests can be combined with ballistic armor configurations to provide both
ballistic and sharp instrument penetration protection.

We manufacture several hard armor products under the PROTECH brand name.
PROTECH products include ballistic shields, and other personal protection
accessories and armor products for helicopters, automobiles and riot control
vehicles.

We also manufacture a variety of hard armor ballistic shields primarily for
use in tactical clearance applications. These shields are manufactured using a
variety of ballistic fibers, polyethylene ballistic materials, ballistic steel,
ballistic glass or a combination of any one or more of these materials. Other
hard armor products include barrier shields and blankets. These products allow
tactical police officers to enter high threat environments with maximum
ballistic protection.

Other specialty products that we manufacture include armored press vests,
executive vests, raincoats and fireman turnout coats. These specialty products
can be custom designed to provide various levels of ballistic protection. We
also distribute a variety of items manufactured by others, including gas masks,
helmets, goggles and face shields.

Duty Gear. We are a leading supplier of duty gear to law enforcement
personnel in the United States. Uniformed police officers require a wide
assortment of duty gear, which typically includes items such as belts, safety
holsters, handcuff and flashlight holders and related accessories. We
manufacture and sell duty gear and accessories under the widely recognized
brands Safariland (Safari-Laminate (Trade Mark) ) and NYLOK (Registered
Trademark) (nylon). Duty gear represents a very attractive market and one in
which brand appeal, safety and quality dictate demand. Replacement sales
represent significant recurring demand for duty gear.

Less-Lethal Products. Under the Defense Technology, First Defense (Trade
Mark) , Federal Laboratories, MACE (Registered Trademark) and Guardian brands,
we manufacture and sell a complete line of less-lethal, anti-riot and crowd
control products designed to assist law enforcement and military personnel in
handling situations that do not require the use of deadly force. These products,
which generally are available for use only by authorized public safety agencies,
include pepper sprays, tear gas, specialty impact munitions and diversionary
devices. We are also the exclusive distributor of Mine Safety Appliance
Advantage 1000 and Millenium model gas masks in the United States.

Through the acquisition of the assets of the law enforcement division of
Mace Security International, Inc., we acquired the exclusive license to use the
MACE (Registered Trademark) brand in connection with the manufacturing and sale
of MACE (Registered Trademark) aerosol sprays to law enforcement entities
worldwide. We also manufacture pepper sprays containing the active ingredient
Oleoresin Capsicum, a cayenne pepper extract. Our pepper spray formula is
patented and carries the trademark name of First Defense (Trade Mark) . The
products range from small "key-ring" and hand held units to large volume
canisters for anti-riot and crowd control applications.

Our tear gases are manufactured using Orthochlorabenzalmalononitrile and
Chloroacetophenone. These products are packaged in hand held or launchable
grenades, both pyrotechnic and non-pyrotechnic, as well as in 37mm, 40mm and 12
gauge munitions. The munitions include barricade rounds, blast dispersions and
pyrotechnic canisters. We hold a patented design covering two of our
non-pyrotechnic grenades.

We manufacture a wide range of specialty impact munitions that can be used
against either individual targets or in anti-riot and crowd control situations.
These products, which range from single projectiles, such as bean bags, rubber
balls, sponge rounds, wood and rubber batons, to multiple projectile products
containing rubber pellets, rubber balls or foam, can be fired from standard 12
gauge shotguns, 37mm gas guns and 40mm launchers.

We also manufacture a patented and trademarked device that is used for
dynamic entries by specially trained forces where it is necessary to divert the
attention of individuals away from an entry area. This product, which carries
the trademark name of Distraction Device (Trade Mark) , emits a loud bang and
brilliant flash of light when used.

Police Batons. We manufacture police batons of wood, alloy steel, acetate,
aluminum and polycarbonate products under our brand name Monadnock. Branded
products include our

trademarked, patent pending new Auto-Lock (Trade Mark) baton and our friction
lock baton. Our batons are manufactured in a variety of lengths for different
intended users including patrol officers, detectives, corrections officers and
other law enforcement personnel in smaller portable units. We believe that our
manufacturing specifications are the highest in the marketplace and set the
standard in the industry.

Forensic Products. We assemble and market portable narcotic identification
kits under the NIK (Registered Trademark) brand name that are used in the field
by law enforcement personnel to identify a variety of controlled substances,
including Ecstasy, cocaine, marijuana, heroin and methamphetamine. We also
assemble and market evidence collection kits and evidence tape, and have the
exclusive rights to distribute Flex-Cuf (Registered Trademark) disposable
restraints.

We manufacture and distribute a more extensive line of evidence collection
equipment under our brand name Lightning Powder. These products, such as
fingerprint powders, dusting brushes, and lifting tape, are used to collect
latent fingerprints. Other supplies for evidence collection that we distribute
include bags, tapes, stone casting equipment and high powered, distortion free
magnifying glasses.

Weapon Maintenance Products. We manufacture synthetic based lubricants,
cleaners and preservative compounds for military weapon maintenance, law
enforcement, civilian firearms/sports equipment and industrial machinery. Our
flagship weapon maintenance product, Break Free CLP (Registered Trademark) , was
specifically developed to provide reliable weapon lubrication in battlefield
conditions; remove firing residues, carbon deposits and other firing
contaminants; repel water and dirt and prevent corrosion; and keep weapons
combat ready and functional in steamy jungles, dust blown deserts, salty air of
sea and coast, and cold and icy climates.

Automotive Accessories. Through our Safariland subsidiary, we manufacture
and supply automotive accessories such as tire covers, seat covers, cargo
organizers and grill covers to automobile manufacturers, including Toyota, Ford,
Honda, Nissan, Mitsubishi, Kia and Subaru.

ARMOR MOBILE SECURITY

We provide ballistic and blast protection armoring systems for military
vehicles, commercial vehicles, military aircraft, and missile components,
including the following:

Military Products. We are the sole-source provider to the U.S. military for
the supply of armoring and blast protection systems for the HMMWV. The HMMWV
chassis is produced by AM General Corporation and shipped directly to our
facility in Fairfield, Ohio where armor and blast protection components are
added. The Up-Armored HMMWVs provide exterior protection against various levels
of armor piercing ammunition, overhead airburst protection and underbody blast
protection against anti-tank and anti-personnel mines. In addition, we install
other features designed to enhance crew safety, comfort and performance, such as
air conditioning, weapon turrets and mounts, door locks and shock absorbing
seats. We charge $70,000 to $110,000 for these ballistic and blast protective
systems. During 2000, the Armor Mobile Security Division (then part of a
division of The Kroll-O'Gara Company) shipped 377 Up-Armored HMMWVs. We also
supply engineering design and prototype services in support of the Up-Armored
HMMWV Program, and supply spare parts and logistic support.

We are serving as a subcontractor to develop a ballistically armored and
sealed truck cab for HIMARS, a program currently in development for the U.S.
Army. The truck is used to fire missiles which are a part of either the Multiple
Launch Rocket System or the Army Tactical Missile System.

We market armor sub-systems for other tactical wheeled vehicles, such as
2.5 ton and 5.0 ton trucks. We also produce various armor systems as a
subcontractor to larger defense contractors, such as Lockheed Martin
Corporation. These products include armor for containers for fuels and missile
launchers and for pilot protection, and often involve the use of unique
materials or methods.

Commercial Products. We armor a variety of vehicles, including limousines,
sedans, sport utility vehicles, commercial trucks and cash-in-transit vehicles,
to protect against varying degrees of ballistic

and blast threats. The armoring process begins with the disassembly of a new
base vehicle. This disassembly normally involves the removal of the interior
trim, seats, doors and windows. The passenger compartment then is armored with
both opaque and transparent armor. Other features, such as run flat tires and
non-exploding gas tanks, also may be added. Finally, the vehicle is reassembled
as close to its original appearance as possible. The types of commercial
products produced are described below. Our relationship with various vehicle
manufacturers has been valuable in permitting us to armor certain vehicles while
allowing the customer to maintain the benefits of warranties issued by the
vehicle manufacturer. During 2000, the Armor Mobile Security Division (then part
of a division of The Kroll-O'Gara Company) shipped approximately 1,132
commercial armored vehicles.

We produce fully armored vehicles and light armored vehicles. Fully armored
vehicles, such as limousines, large sedans or sport utility vehicles, typically
are armored to protect against attacks from military assault rifles such as
AK-47s and M16s. These vehicles also can be blast protected by enhancing the
ballistic and underbody protection with proprietary materials and installation
methods that protect the occupants against a defined blast threat. Blast
protected vehicles defend against threats such as pipe bombs attached to the
exterior of the vehicle and nondirectional charges of 20 kg of TNT detonated
approximately five meters from the vehicle. Fully armored vehicles typically
sell for $70,000 to $200,000 exclusive of the cost of the base vehicle.

Fully armored vehicles also include Parade Cars, which are formal
limousines used predominantly for official functions by a president or other
head of state. These vehicles are usually customized based upon a commercially
available chassis which we essentially rebuild completely. Because the threat of
organized assassination attempts is greater for heads of state, these vehicles
normally incorporate more advanced armor and sophisticated protection features.
These features can include supplemental air and oxygen systems, air purification
systems to protect against chemical or biological contamination, underbody fire
suppressant systems, tear gas launchers, anti-explosive self-sealing fuel tanks,
electric deadbolt door locks, gun ports and bomb scanners. Parade Cars normally
sell for $300,000 to in excess of $1.0 million inclusive of the cost of the base
vehicle.

Light armored vehicles are similar in all respects to fully armored
vehicles except that substantially less total weight of armoring is added.
Therefore, it is possible to armor smaller vehicles such as the Volkswagen Jetta
and the General Motors Omega, as well as larger vehicles such as the Mercedes
Benz S600 and the Jeep Grand Cherokee. Light armored vehicles are designed to
protect against attacks from handguns, such as a 9mm or .357 Magnum. The price
of a light armored vehicle ranges from $5,000 to $60,000 exclusive of the cost
of the base vehicle.

We also produce specialty vehicles, cash-in-transit vehicles and commercial
truck bodies. Specialty vehicles are custom built for a specific mission.
Examples of specialty vehicles are Escort Cars, usually convertibles, and Chase
Cars, usually closed top vehicles, in which security personnel ride while in a
head of state motorcade. Cash-in-transit vehicles are used by banks or other
businesses to transport currency and other valuables. After starting with a van
or small truck, we modify the base vehicle to provide protection for the cargo
and passengers from ballistic and blast threats. We also build commercial truck
bodies. The truck bodies are manufactured primarily for 3.5 ton trucks and are
installed on chassis produced by a variety of manufacturers.

ARMORGROUP SERVICES

Our ArmorGroup Services Division provides a broad range of sophisticated
security risk management services to multinational corporations and to
governmental and non-governmental agencies, including the following services:

Security Planning, Advice and Management. We are a leading international
provider of specialized security risk management services. We operate in high
risk and hostile environments characterized by political instability, diminished
law-and-order, emerging market conditions and/or significant natural resources,
such as Africa, South America, Southeast Asia, Central Asia, the Balkans and
Russia. The core of our service business is the creation and implementation of
risk management

plans and solutions to complex security problems in high risk areas through
detailed and targeted analysis of potential threats to security, assistance in
the secure design of facilities, the provision of highly qualified specialists
with extensive international experience in practical security applications and
on-going training of security personnel and client personnel with respect to
preventive security measures. We also provide post-conflict support and
services, including specialized mine clearance, to humanitarian organizations,
including agencies of the United Nations. We provide a full range of services
including surveys, technical advice, explosive ordinance disposal and mine
awareness training for local communities.

We offer security solutions that involve law enforcement training, security
consultation services and experienced security personnel who act as planners,
trainers, managers, advisors, instructors and liaison personnel. We also provide
teams of security consultants and advisors many of whom are British Special Air
Services veterans. We provide security services including risk assessment,
project organization and management, equipment, training and management of
existing guard forces, system design, procurement and installation, crisis
management, VIP protection, specialist training and evacuation planning. On-site
guards are supervised, managed and trained by our professional security staff.
Our clients are multinational corporations in industries including petrochemical
and natural resource extraction, manufacturing, travel and financial services.
Additionally, we serve governmental and non-governmental agencies.

Security Systems Integration. We are a provider of security systems
specializing in the design, integration, maintenance and technical support of
sophisticated electronic and computer driven security and fire alarm systems. We
specialize in high speed analog and digital transmission designs for life
safety, communication, alarm, closed circuit television, access control,
television and security systems. These systems are installed in airports, banks,
government buildings, hospitals, prisons, universities, stores, office
buildings, telecommunications centers, radio and television stations, and
similar locations. Our clients include multinational corporations, major
contractors, embassies, and high commissions.

Intellectual Property Asset Protection. We provide a full range of
consulting and investigative services specializing in worldwide intellectual
property asset protection for multinational corporations with products that have
valuable brand name recognition. Our services range from protecting companies
against counterfeiting, patent infringements, product tampering, gray market
distribution, and extortion to identifying unethical supplier activities such as
the use of child labor. These services are provided by professionals with
extensive backgrounds in related areas, including trade and customs law. We
offer brand protection and often work with our clients during product
development to establish trademark and patent protection strategies and work to
protect the brand throughout its lifecycle. Our clients include multinational
branded product companies involved in tobacco, sportswear, spirits, and
pharmaceuticals, as well as financial services and insurance companies.

Investigation and Due Diligence. We provide fraud investigation, asset
tracing, computer forensic, computer evidence consulting, due diligence,
litigation research, political risk analysis and other business intelligence
services to multinational and financial services companies worldwide. We rely on
our network of business intelligence contacts, many proprietary and public
databases, and our experience in gathering and deciphering hard to find
information. Our professionals have various backgrounds including experience in
financial, due diligence and foreign intelligence services. Our clients include
investment and commercial banks, insurance companies, law firms and other
multinational corporations.

Training. We offer comprehensive security training programs in
counterintelligence, countersurveillance, advanced driving techniques, and
ballistics at our facilities near Washington, D.C., San Antonio, Texas and
Mexico City, Mexico and at customer designated locations. We also offer
security, counterintelligence and countersurveillance training courses for both
U.S. government agencies and clients in the private sector. The training
includes instruction on methods of recognizing and deterring security risks.
Students learn methodologies utilized by terrorists, what information is needed
by terrorists in order to plan an attack and how to block or manipulate this
flow of intelligence.

CUSTOMERS

Armor Holdings Products. In 2000, we sold approximately 83% of our products
in North America, with the balance sold internationally. The primary end users
of our products are federal, state and local law enforcement agencies, local
police departments, state corrections facilities, U.S. and allied militaries,
highway patrols and sheriffs' departments. We reach these customers through a
distribution strategy that utilizes a worldwide distribution network of
approximately 350 domestic distributors and 150 international agents, as well as
17 domestic regional sales managers who promote our products but refer customers
to a local distributor for purchasing.

Armor Mobile Security Division. The market for military hardware products
is worldwide in scope, including the U.S. military and foreign defense forces.
Our major contracts for delivery of Up-Armored HMMWVs are with the U.S.
military. We are also serving as a subcontractor to develop a ballistically
armored and sealed truck cab for HIMARS, a program currently in development for
use by the U.S. Army. Additionally, we provide protected container systems,
typically used to protect missile systems from small arms fire, to the U.S.
military under a subcontract with Lockheed Martin Corporation.

Our armored commercial vehicle customers include governmental and private
buyers. U.S. and foreign governmental buyers purchase both fully and
light-armored vehicles. Governmental buyers also comprise the market for Parade
Cars. Typically, governmental buyers consist of ministries of foreign affairs,
defense and internal affairs and offices of presidential security. These
customers are not constrained in their purchasing decisions by considerations
such as import duties and taxes and are free to search globally for the best
product available. The procurement cycles of governmental buyers can range from
relatively rapid, when the vehicles are for the use of the head of state or in
response to a particular crisis, to prolonged bureaucratic bids and evaluations
for normally budgeted items. Private customers for armored commercial vehicles
include corporations and individuals. Private buyers are much more sensitive to
cost, of which import duties and taxes may be a substantial part, and,
therefore, often will buy a locally produced product, if one exists that meets
their needs. Local servicing of the vehicle is also a critical concern to
private buyers. Customers for cash-in-transit vehicles are generally financial
institutions. Purchasing decisions for cash-in-transit vehicles depend on many
criteria including insurance and regulatory requirements and costs, and whether
the financial institution is private or governmental.

ArmorGroup Services. Our principal security services clients include
multinational corporations that have significant investments in remote and
hostile areas of the world. We currently serve clients in over 15 industries
including petrochemical, mining, branded products, financial services, insurance
and legal. Other significant clients include the U.S. Departments of State and
Defense, the United Nations, CARE International and a variety of banking,
finance, aid and humanitarian organizations and companies engaged in
international trade and commerce.

No customer accounted for more than 10% of total sales in Fiscal 2000. Our
ten largest customers accounted for approximately 19% of total sales for Fiscal
2000. These figures do not include sales by the Armor Mobile Security Division.
Approximately 32% of the Armor Mobile Security Division's net sales during 2000
were derived from U.S. military contracts and an additional 15% were derived
from commercial contracts with U.S. governmental agencies or foreign
governments. Military and governmental contracts generally are awarded on a
periodic or sporadic basis.

MARKETING AND DISTRIBUTION

Armor Holdings Products. As a result of our history of providing high
quality and reliable armor, tactical armor, hard armor, duty gear, less-lethal
munitions, anti-riot products and forensic products, we enjoy excellent name
recognition and a strong reputation in the law enforcement equipment industry.
The central element of our marketing strategy is to capitalize on our name
recognition and reputation amongst our customers by positioning ourselves as a
global provider of many of the premier security risk management products and
services that our customers may need. By positioning ourselves in this manner,
we can capitalize on our existing customer base and our

extensive global distribution network, maximize the benefits of our long history
of supplying security related products around the world and leverage our
leadership position in the security risk management products and services
markets. When entering a foreign market, we penetrate the market by offering the
most comprehensive range of products and services available in the security
industry. We tailor our marketing strategy to each geographic area of the world
and will often tailor our product offering by country. There are opportunities
for cross marketing of military and law enforcement products, which could
strengthen the image of each product group. We believe that our ability to
cross-market our security risk management products and services will enhance our
position as an integrated provider of an extensive assortment of such products
and services.

In addition, we have designed comprehensive training programs to provide
initial and continuing training in the proper use of our various products. These
training programs, offered by The Training Academy for Technology and Tactics,
are typically conducted by trained law enforcement and military personnel that
we hire for such purposes. Certain of our training programs also contribute to
revenues. Training programs are an integral part of our customer service. In
addition to enhancing customer satisfaction, we believe that they also help
breed customer loyalty and brand awareness, so that we may sell additional
products to the same customer. Our marketing efforts are further augmented by
our involvement with and support of several important law enforcement
associations, including the National Tactical Officer's Association, the
International Law Enforcement Firearms Instructors, the American Society of Law
Enforcement Trainers and the International Association of Chiefs of Police.

We further reinforce distributor loyalty by offering price discounts to
high volume distributors. We believe that relationships with our distributors
are strong. The distributors benefit from their association with us due to the
quality our manufactured products, the scope of our product line, the high
degree of service we provide and the distributor's opportunity to participate
profitably in the sale of our products.

We seek to expand our distribution network. As we identify and acquire
businesses that fit strategically into our existing product and service
portfolio, we maximize our distribution network by offering additional products
and services. Recent acquisitions have opened new channels of global
distribution to parts of the world not previously penetrated and have enabled us
to more fully exploit our extensive access to multinational corporations, whose
security service needs in unstable countries may in the future require security
products that complement the services provided. The addition of these new
distribution channels will allow us to take advantage of our various units'
distribution networks by offering a wider variety of products, thereby
increasing operating efficiencies.

We are strategically selling our product on the World Wide Web. We have
created a secured website targeting government agencies exclusively.
GSA-Buy.com, launched in 2000, contains an on-line catalog and secured
transaction platform for all Armor Holdings Products Division General Services
Administration contracts. We are also selling a small array of our concealable
and competition holsters to the consumer market on Holsters.com. All of the
products offered on this website are targeted to consumer markets and do not
infringe on our strong relationships with our distributor network.

Armor Mobile Security Division. On a worldwide basis, the Armor Mobile
Security Division employs approximately 28 full-time sales professionals in
connection with its commercial sales. These employees operate out of Washington,
D.C.; Miami, Florida; Fairfield, Ohio; Sao Paulo, Brazil; Lamballe, France;
Mexico City, Mexico; Bogota, Colombia; and Geneva, Switzerland. All personnel
have a geographic and/or product-specific responsibility. In most cases, the
sales personnel also recruit and maintain sales agents or distributors. The
agents or distributors have geographic and product specific agreements, and
compensation in most cases is based upon a commission arrangement. The sales
personnel use a consultative approach when offering solutions to customers'
security problems. Sales cycles for commercial physical security products can
range from several months to a matter of days, depending upon the product and
the urgency associated with the security problem being addressed. Physical
security products which are readily available, such as the fully armored
Chevrolet Suburban, allow us to assist customers who have, or believe they have,
developed an immediate threat.

We are working with a number of the global cash transportation and
management companies to create exclusive supply agreements in order to provide
all of these companies with armored cash-in-transit vehicles in specific
countries or regions.

The Armor Mobile Security Division has positioned itself in the marketplace
as a commercial company with a military production capability. As such, the
Armor Mobile Security Division emphasizes its ability to develop new products,
or product adaptations, quickly and more cost effectively than traditional
defense contractors. In marketing its products to the military, the Armor Mobile
Security Division places strong emphasis on its superior antitank and
antipersonnel mine protection for the occupants of tactical wheeled vehicles. We
market our military products through a combination of trade show exhibitions,
print advertising in military-related periodicals and direct customer visits. We
emphasize the cross-marketing of military and commercial products, which we
believe strengthens the image of each product group. We have also entered into
exclusive teaming and joint marketing agreements with AM General, the
manufacturer of the basic HMMWV, for sales in the military and commercial areas.
These agreements designate the Armor Mobile Security Division as the exclusive
armorer to AM General for HMMWVs and allows us to benefit from the AM General
distribution network and save on certain costs, such as exhibitions where both
AM General and we otherwise would both show products. We have also entered into
an agreement with Stewart & Stevenson Services, Inc. to jointly develop the
enhanced armoring and blast specifications for Stewart & Stevenson's Family of
Medium Tactical Vehicles.

Our military sales activities are directed toward identifying contract bid
opportunities with various U.S. government agencies and private enterprises
acting as prime contractors on government contracts and to making sales through
the Foreign Military Sales Program and directly to foreign military
organizations. We have two full time business development managers who are
responsible for this activity and also have contractual arrangements with
several outside consultants who assist the business development managers in
their activities. Proposal preparation and presentation for government projects
is done by a team which normally consists of program managers, a contracting
officer, a cost accountant and various manufacturing and engineering personnel.

ArmorGroup Services. As we have expanded our service offerings, more active
marketing has become an integral part of our growth efforts. In addition to
sourcing new business from client referrals, we continue to follow our clients
into new geographic areas where there exist significant security risks. We
rarely enter a country without a substantial contract for services already in
place. Once established in a country, we seek to expand our service offerings
and our customer base through active marketing. As we have integrated new
services, our professionals have increasingly relied on active marketing to
generate new business. We have fostered the cross selling of our services by
physically locating our professionals in common space and educating our
professionals about all of our service business lines. Further, a rebranding
effort has been completed in order to market our services under the ArmorGroup
brand. A comprehensive web presence has been established (www.armorgroup.com) as
a key marketing tool for the business and with potential to deliver risk
information services on-line. We are focusing on clients in high growth
industries where the need for investigation, brand protection and other security
services are critical to success. The industries we are targeting include
financial services, imaging supplies, insurance, natural resource extraction,
and global consumer brands.

PRODUCT MANUFACTURING AND RAW MATERIALS

The raw materials used in manufacturing ballistic resistant garments and
Up-Armored vehicles include various ballistic fibers such as Kevlar, Twaron,
SpectraShield, Zylon and Z-Shield. Kevlar is a patented product of E.I. du Pont
de Nemours Co., Inc. ("Du Pont") and is only available from Du Pont and its
European licensee. We purchase Twaron, SpectraShield, Zylon and Z-Shield fibers
directly from the manufacturers, and from weaving companies who convert the raw
fibers into ballistic fabric. We believe that we enjoy a good relationship with
these weaving companies. However, if necessary, we believe that we could readily
find replacement weavers. We also use SpectraShield and Kevlar in our hard and
vehicle armor products. Additionally, we use polycarbonates, acrylics, ballistic

quality steel, ceramics, and ballistic glass. We are aware of multiple suppliers
for these materials and would not anticipate a significant impact if we were to
lose any suppliers. We do not manufacture equipment used in our security systems
integration business.

We purchase other raw materials used in the manufacture of our various
products from a variety of sources and additional sources of supply of these
materials are readily available. We also own several molds, which are used
throughout our less-lethal product line. In addition, we are working on the
development and certification of flat ballistic glass for use in HMMWVs. We hope
to certify glass that we manufacture with the military by the end of 2001, and
to be in production in early 2002.

We adhere to strict quality control standards and conduct extensive product
testing throughout our manufacturing process. Raw materials are also tested to
ensure quality. We have obtained ISO 9001 certification for, our Wyoming
manufacturing facility for less-lethal products, and our Safariland facility in
Ontario, California for body armor and duty gear holsters and accessories. We
have obtained ISO 9002 certification for our Westhoughton, England manufacturing
facility for body armor and high visibility garments. ISO standards are
promulgated by the International Organization of Standardization and have been
adopted by more than 100 countries worldwide. We obtain ISO certification by
successfully completing an audit certifying our compliance with a comprehensive
series of quality management and quality control standards.

The Armor Mobile Security Division emphasizes engineering excellence and
has an extensive engineering staff. Design engineers use state-of-the-art
two-dimensional and three-dimensional computer aided design and engineering or
CAD/CAE systems in conjunction with coordinate measuring machines to develop
electronic models which generally are converted to solid models or prototypes.
Manufacturing engineers concentrate on improvements in the production process
and on overall cost reductions from better methods, fewer components and less
expensive materials with equal or superior quality. Applying these techniques,
over the years the Armor Mobile Security Division has been able to reduce both
the time and cost necessary to produce its armored vehicles. Our ballistic
engineer, in conjunction with our design and manufacturing engineers, develops
and tests new ballistic and blast protection systems that meet ever changing
threats. Advanced engineering is responsible for new product development in
conjunction with design engineering, manufacturing engineering and ballistic
engineering.

COMPETITION

The market for our products is highly competitive and we compete in a
variety of fields with competitors ranging from small businesses to
multinational corporations. In the body armor business, we compete by providing
superior design, engineering and production expertise in our line of
fully-integrated ballistic and blast protective wear. Our principal competitors
in this market include Point Blank Body Armor, Inc., Second Chance Body Armor,
Inc. and Rabin-Tex. In the less-lethal product industry we compete by providing
a broad variety of less-lethal products with unique features and formulations
which we believe afford us a competitive advantage over our competitors. The
principal competitive factors for all of our products are quality of engineering
and design, reputation in the industry, production capability and capacity,
price and ability to meet delivery schedules.

The markets for the Armor Mobile Security Division's products and services
are highly competitive. We compete in a variety of fields, with competitors
ranging from small businesses to multinational corporations. We believe that the
Armor Mobile Security Division's design, engineering and production expertise in
providing fully integrated ballistic and blast protected vehicles gives it a
competitive advantage over those competitors who provide protection against only
selected ballistic threats. The largest competitors on a worldwide basis in the
production of armored commercial vehicles are DaimlerChrysler AG, which sells
its armored Mercedes Benz products on a special order basis as well as through
its worldwide distribution system, and BMW AG, which sells its products through
its worldwide dealer distribution system. In addition, there are a number of
other vehicle armorers in Europe, the Middle East and Latin America that armor
primarily locally manufactured automobiles. U.S.-based protected passenger
automobile armorers include Moloney Coachbuilders, Inc., Square One Armoring
Services and Armet Armored Vehicles, Inc. The principal competitive

factors are price, quality of engineering and design, production capability and
capacity, ability to meet delivery schedules and reputation in the industry.
There are a large number of companies that provide specific armoring packages
for tactical wheeled vehicles, helicopters and selected other military
applications.

The security services industry is highly competitive, and we compete in a
variety of fields with competitors ranging from small business to multinational
corporations. Within the security services industry we compete on the basis of
the quality of services provided, ability to provide national and international
services and range of services offered, as well as price and reputation. Our
security services also face a wide variety of competition in different areas,
although there is no single organization that competes directly with us
globally. Our principal competitors in this market include The Wackenhut
Corporation, Securitas AB, Pinkerton's, Inc., Control Risks Group, Electronic
One and Tyco International, Ltd. and its subsidiary ADT. Our primary competitors
in supplying security services to the petrochemical and mining industries are
local security companies, in-house security programs and small consultancy
companies. Our primary competitors in the embassy and international agency
protection business are local companies and large manned guarding companies
including The Wackenhut Corporation, Securicor, and Group 4 Falk A/S. As the
countries within which we operate become more mature and stable, competition is
likely to increase.

PROPERTIES

The following table identifies and provides certain information regarding
our principal facilities.

APPROXIMATE PRODUCTS
LOCATION ANNUAL RENT OWNED/LEASED SIZE MANUFACTURED
------------------------ --------------------------- -------------- ----------------- -----------------------

Jacksonville, FL N/A Owned 14 Acres Body armor, Forensic
70,000 sq. ft. products, Weapon
cleaning lubricants

Casper, WY N/A Owned 66 Acres Tear gas
72,234 sq. ft. Pepper spray

Less-lethal munitions

Westhoughton, England N/A Owned 44,000 sq. ft. Body armor
London, England (pounds sterling)225,790 Leased 9,964 sq. ft. ArmorGroup Services
Ontario, CA N/A Owned 117,500 sq. ft. Body armor

Duty gear
Automotive accessories

Pittsfield, MA $ 86,160 Leased 36,000 sq. ft. Hard armor
Vehicle armor

Tijuana, Mexico $143,412 Leased 31,452 sq. ft. Duty gear
Body armor

Fitzwilliam, NH $ 24,000 Leased 22,848 sq. ft. Police batons
Fairfield, OH N/A Owned 130,000 sq. ft. Armored vehicles
Lamballe, France N/A Owned 178,000 sq. ft. Armored vehicles
Sao Paulo, Brazil $192,000 Leased 56,000 sq. ft. Armored vehicles
Mexico City, Mexico N/A Owned 20,000 sq. ft. Armored vehicles,
Training

Mexico City, Mexico $ 31,500 Leased 5,380 sq. ft. Armored vehicles
West Point, VA $ 67,740 Leased 490 Acres, Training
6,694 sq. ft.

San Antonio, TX N/A Owned 261 Acres, Training
2,600 sq. ft.

We also lease an average of 5,000 square feet at each of 16 worldwide
locations, at an aggregate annual rental of approximately $550,000 having terms
expiring from 1 to 10 years.

We believe that our manufacturing, warehouse and office facilities are
suitable and adequate and afford sufficient manufacturing capacity for our
current and anticipated requirements. We believe that we have adequate insurance
coverage for our properties and their contents.

EMPLOYEES

As of November 16, 2001, we have a total of approximately 11,221 employees,
of which approximately 974 were employed at Armor Holdings Products, 737 were
employed at Armor Mobile Security, 9,500 were employed at ArmorGroup Services
and 10 employees were located at our corporate headquarters.

Approximately 27 employees employed by our Supercraft subsidiary are
represented by the General Municipal Boilermaker and Allied Trade Union. Also,
our Low Voltage Systems subsidiary has 3 employees covered under a collective
bargaining agreement and are represented by the International Brotherhood of
Electrical Workers. None of our remaining employees are represented by unions or
covered by any collective bargaining agreements. We have not experienced any
work stoppages or employee related slowdowns and believe that the relationship
with our employees is good.

PATENTS AND TRADEMARKS

We currently own numerous issued U.S. and foreign patents and pending
patent applications relating to our product lines as well as several registered
and unregistered trademarks and service marks relating to our products and
services. The registered trademarks include FERRET (Registered Trademark) ,
BREAK FREE (Registered Trademark) , DEF-TEC PRODUCTS (Registered Trademark) ,
DISTRACTION DEVICE (Registered Trademark) , NIK(and Design) (Registered
Trademark) , IDENTIDRUG (Registered Trademark) , FEDERAL LABORATORIES
(Registered Trademark) , FIRST DEFENSE (Registered Trademark) and O'GARA-HESS &
EISENHARDT ARMORING COMPANY (and Design) (Registered Trademark) . We also have
an exclusive license to use the MACE (Registered Trademark) trademarks in the
law enforcement market. Although we do not believe that our ability to compete
in any of our product markets is dependent solely on our patents and trademarks,
we do believe that the protection afforded by our intellectual property provides
us with important technological and marketing advantages over our competitors.
Although we have protected our technologies to the extent that we believe
appropriate, the measures taken to protect our proprietary rights may not deter
or prevent unauthorized use of our technologies. In other countries, our
proprietary rights may not be protected to the same extent as in the United
States.

GOVERNMENT REGULATION

We are subject to federal licensing requirements with respect to the sale
in foreign countries of certain of our products. In addition, we are obligated
to comply with a variety of federal, state and local regulations, both
domestically and abroad, governing certain aspects of our operations and the
workplace. We are also regulated by the U.S. Bureau of Alcohol, Tobacco, and
Firearms as a result of our manufacturing of certain destructive devices and by
the use of ethyl alcohol in certain products. We also ship hazardous goods, and
in doing so, must comply with the regulations of the U.S. Department of
Transportation for packaging and labeling. We are also subject to certain
regulations promulgated by, among others, the U.S. Departments of Commerce and
State and the U.S. Environmental Protection Agency. Additionally, as a
government contractor, we are subject to rules, regulation and approvals
applicable to government contractors.

ENVIRONMENTAL MATTERS

We are subject to federal, state, and local laws and regulations governing
the protection of the environment, including those regulating discharges to the
air and water, the management of wastes, and the control of noise and odors.
While we always strive to operate in compliance with these requirements, we
cannot assure you that we are at all times in complete compliance with all such
requirements. Like all companies, we are subject to potentially significant
fines or penalties if we fail to comply with environmental requirements.
Although we have made and will continue to make capital expenditures in order to
comply with environmental requirements, we do not expect material capital
expenditures for environmental controls in 2001. However, environmental
requirements are complex, change frequently, and could become more stringent in
the future. Accordingly, we cannot assure you that these requirements will not
change in a manner that will require material capital or operating expenditures
or will otherwise have a material adverse effect on us in the future.

The United States Environmental Protection Agency issued a request for
information to us pursuant to Section 104(e) of the Comprehensive Environmental
Response, Compensation and Liability Act in August 2001, regarding the possible
impact of our Casper, Wyoming tear gas facility on the environment. We have
responded to this request. The EPA's inquiry is in its initial stage, and we
cannot predict the outcome of this matter.

We are also subject to environmental laws requiring the investigation and
cleanup of environmental contamination. We may be subject to liability,
including liability for cleanup costs, if contamination is discovered at one of
our current or former facilities or at a landfill or other location where we
have disposed wastes. The amount of such liability could be material. We use
Orthochlorabenzalmalononitrile and Chloroacetophenone chemical agents in
connection with our production of tear gas. These chemicals are hazardous, and
could cause environmental damage if not handled and disposed of properly.

MANAGEMENT

The following table lists our current executive officers and directors:

NAME AGE POSITION
---- --- --------

Warren B. Kanders ............ 44 Chairman of the Board of Directors
Jonathan M. Spiller .......... 50 President, Chief Executive Officer and Director
Robert R. Schiller ........... 38 Executive Vice President, Chief Financial Officer, Secretary
and Treasurer

Stephen E. Croskrey .......... 41 President and Chief Executive Officer -- Armor Holdings
Products Division
Stephen J. Loffler ........... 48 President and Chief Executive Officer -- ArmorGroup
Services Division
Gary W. Allen ................ 47 Senior Vice President, World Wide Operations -- Armor
Mobile Security Division
Burtt R. Ehrlich ............. 62 Director
Nicholas Sokolow ............. 51 Director
Thomas W. Strauss ............ 59 Director
Alair A. Townsend ............ 59 Director
Stephen B. Salzman ........... 36 Director

Warren B. Kanders has served as the Chairman of our board since January
1996. From October 1992 to May 1996, Mr. Kanders served as Vice Chairman of the
board of Benson Eyecare Corporation. From June 1992 to March 1993, Mr. Kanders
served as the President and a director of Pembridge Holdings, Inc.

Jonathan M. Spiller has served as our President and as a director since
July 1991 and as Chief Executive Officer since September 1993. From June 1991 to
September 1993, Mr. Spiller served as our Chief Operating Officer. From 1989 to
1991, Mr. Spiller served as a partner with Deloitte & Touche LLP, an
international accounting firm, where he worked for 18 years. Mr. Spiller is a
chartered accountant in England and Wales, a certified public accountant, and
holds a Bachelor's Degree from the University of Wales.

Robert R. Schiller has served as our Executive Vice President, Chief
Financial Officer, Secretary and Treasurer since November 2000, as Executive
Vice President and Director of Corporate Development from January 1999 to
October 2000, and as Vice President of Corporate Development from July 1996 to
December 1998. Mr. Schiller graduated with a B.A. in Economics from Emory
University in 1985 and received an M.B.A. from Harvard Business School in 1991.

Stephen E. Croskrey has served as President and Chief Executive
Officer--Armor Holdings Products Division since February 1999. From 1998 to
February 1999, Mr. Croskrey served as Director of Sales for Allied Signal,
Inc.'s global fibers business. From 1988 to 1998, Mr. Croskrey served in various
positions for Mobil Oil, most recently as its Central Regional Manager for its
Industrial Lubricant division. Mr. Croskrey graduated with a B.S. in Engineering
from USMA at West Point and received an MM from Kellogg School of Management at
Northwestern in 1998.

Stephen J. Loffler has served as President and Chief Executive
Officer--ArmorGroup Services Division since April 1999. From April 1998 to March
1999, Mr. Loffler served as Vice President and General Manager Europe at Office
Depot, an office products retailer, where he was responsible for European
operations. From August 1991 to March 1998, Mr. Loffler served as Deputy
Chairman of Acco Europe, an office product manufacturer, where he led the
integration of Ofrex Group Holdings, an international distributor and
manufacturer of office products. Mr. Loffler graduated with a B.A. in Business
Studies from Brighton Polytechnic in 1975.

Gary W. Allen has served as Senior Vice President, World Wide Operations
of the Armor Mobile Security Division since August 2001. From 1994 to 2001, Mr.
Allen served in various capacities with

O'Gara-Hess & Eisenhardt Armoring Company and its affiliates. From 2000 to
2001, Mr. Allen served as Vice President of the Securities Products and
Services Group of The Kroll-O'Gara Company, from 1999 to 2000, Mr. Allen served
as Vice President of the Commercial Products Division, and from 1994 to 1999,
Mr. Allen served as Vice President of Operations of O'Gara-Hess & Eisenhardt
Armoring Company. From 1989 to 1994, Mr. Allen was Manager of Shop Operations
for the G.E. Aircraft Engines business of General Electric Company. Mr. Allen
graduated with a B.A. in Management from Wilmington College in 1992.

Burtt R. Ehrlich has served as one of our directors since January 1996.
Mr. Ehrlich served as Chairman and Chief Operating Officer of Ehrlich Bober
Financial Corp. (the predecessor of Benson Eyecare Corporation) from December
1986 until October 1992, and as a director of Benson Eyecare Corporation from
October 1992 until November 1995.

Nicholas Sokolow has served as one of our directors since January 1996.
Mr. Sokolow has been a partner in the law firm of Sokolow, Dunaud, Mercadier &
Carreras since 1994. From June 1973 until October 1994, Mr. Sokolow was an
associate and partner in the law firm of Coudert Brothers.

Thomas W. Strauss has served as one of our a directors since May 1996.
Since 1995, Mr. Strauss has been a principal with Ramius Capital Group, a
privately held investment management firm. From June 1993 until July 1995, Mr.
Strauss was co-chairman of Granite Capital International Group, an investment
banking firm. From 1963 to 1991, Mr. Strauss served in various capacities with
Salomon Brothers Inc, an investment banking and brokerage firm, including
President and Vice-Chairman.

Alair A. Townsend has served as one of our directors since December 1996.
Since February 1989, Ms. Townsend has been publisher of Crain's New York
Business, a business periodical. Ms. Townsend was a former governor of the
American Stock Exchange. Ms. Townsend served as New York City's Deputy Mayor
for Finance and Economic Development from February 1985 to January 1989.

Stephen B. Salzman has served as one of our directors since June 1999. Mr.
Salzman has been a principal of Priderock Advisers since its inception in
August 2001. Prior to forming Priderock, Mr. Salzman was a principal of FS
Partners, LLC from its inception in 1994 until 2001. Priderock and its
affiliates invest in public and private companies through the purchase of
equity and related securities.

PRINCIPAL AND SELLING STOCKHOLDERS

SELLING STOCKHOLDERS

The following table sets forth information regarding the selling
stockholders' beneficial ownership of our common stock as of November 15, 2001.

The beneficial ownership is calculated based on 24,638,053 shares of our
common stock outstanding as of November 15, 2001 and 29,138,053 shares of common
stock outstanding after completion of this offering. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission. In computing the number of shares beneficially owned by a person and
the percentage ownership of that person, shares of common stock subject to
options held by that person that are currently exercisable within 60 days of
November 15, 2001 are deemed outstanding. Such shares, however, are not deemed
outstanding for the purpose of computing the percentage of each other person. To
our knowledge, except pursuant to applicable community property laws, the
persons named in the table have sole voting and investment power with respect to
the shares set forth opposite such person's name.

SHARES BENEFICIALLY SHARES BEING SHARES BENEFICIALLY
OWNED PRIOR TO THE SOLD IN THE OWNED AFTER THE
OFFERING(1) OFFERING OFFERING
-------------------------- -------------- -------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENTAGE NUMBER PERCENTAGE
--------------------------------- ----------- ------------ ----------- -----------

Warren B. Kanders (2) ........... 3,177,855 12.79% 500,000 2,677,855 9.12%
Jonathan M. Spiller (3) ......... 1,017,204 4.02% -0- 1,017,204 3.41%
Robert R. Schiller (4) .......... 228,439 * -0- 228,439 *
Stephen E. Croskrey (5) ......... 53,439 * -0- 53,439 *
Stephen J. Loffler (6) .......... 101,965 * -0- 101,965 *
Nicholas Sokolow (7) ............ 217,500 * -0- 217,500 *
Thomas W. Strauss (8) ........... 142,500 * -0- 142,500 *
Alair A. Townsend (9) ........... 102,516 * -0- 102,516 *
Stephen B. Salzman (10) ......... 74,784 * -0- 74,784 *
Burtt R. Ehrlich (11) ........... 235,000 * -0- 235,000 *

----------
* Less than 1%

(1) Amounts indicated reflect actual number of shares offered and assumes no
exercise of the underwriters' overallotment option.

(2) Of such shares, Kanders Florida Holdings, Inc., of which Mr. Kanders is the
sole stockholder and sole director, owns 2,965,355 shares. Includes options
held by Mr. Kanders to purchase 212,500 shares of common stock. Mr. Kanders
will sell an additional 338,000 shares in the offering assuming the
underwriters exercise the overallotment option in full.

(3) Includes options to purchase 659,429 shares of common stock. Also includes
43,541 shares owned by Mr. Spiller's children, of which Mr. Spiller
disclaims beneficial ownership. Does not include 9,827 restricted shares
which will vest more than 60 days from the date hereof. Mr. Spiller will
sell 125,000 shares in the offering assuming the underwriters exercise the
overallotment option in full.

(4) Includes options to purchase 225,000 shares of common stock. Does not
include options to purchase 200,000 shares and 6,879 restricted shares
which will vest more than 60 days after the date hereof. Mr. Schiller will
sell 50,000 shares in the offering assuming the underwriters exercise the
overallotment option in full.

(5) Includes options to purchase 50,000 shares of common stock. Does not
include options to purchase 150,000 shares and 6,879 restricted shares
which will vest more than 60 days after the date hereof. Mr. Croskrey will
sell 50,000 shares in the offering assuming the underwriters exercise the
overallotment option in full.

(6) Includes options to purchase 100,000 shares of common stock. Does not
include options to purchase 50,000 shares and 3,931 restricted shares which
will vest more than 60 days after the date hereof. Mr. Loffler will sell
50,000 shares in the offering assuming the underwriters exercise the
overallotment option in full.

(7) Includes options to purchase 107,500 shares of common stock. Also includes
100,000 shares owned by S.T. Investors Fund, LLC, a limited liability
company of which Mr. Sokolow is a member, of which he disclaims beneficial
ownership. Also includes 10,000 shares owned by Mr. Sokolow's profit
sharing plan. Mr. Sokolow will sell 40,000 shares in the offering assuming
the underwriters exercise the overallotment option in full.

(8) Includes options to purchase 107,500 shares of common stock. Mr. Strauss
will sell 22,500 shares in the offering assuming the underwriters exercise
the overallotment option in full.

(9) Includes options to purchase 97,500 shares of common stock. Ms. Townsend
will sell 10,000 shares in the offering assuming the underwriters exercise
the overallotment option in full.

(10) Includes options to purchase 32,500 shares of common stock. Mr. Salzman
will sell 42,000 shares in the offering assuming the underwriters exercise
the overallotment option in full.

(11) Includes options to purchase 107,500 shares of common stock. Also includes
10,000 shares owned by Mr. Ehrlich's children and 23,000 in trust for the
benefit of his children, of which Mr. Ehrlich's spouse is trustee, of which
he disclaims beneficial ownership. Also includes 400 shares owned by Mr.
Ehrlich's spouse's individual retirement account of which Mr. Ehrlich
disclaims beneficial ownership. Mr. Ehrlich will sell 22,500 shares in the
offering assuming the underwriters exercise the overallotment option in
full.

PRINCIPAL STOCKHOLDERS

The following table sets forth as of November 15, 2001 certain information
regarding the beneficial ownership of the common stock outstanding by (i) each
person who is known to the Company to own 5% or more of the common stock, (ii)
each director of the Company, (iii) certain executive offers of the Company and
(iv) all executive officers and directors of the Company as a group. Unless
otherwise indicated, each of the stockholders shown in the table below has sole
voting and investment power with respect to the shares beneficially owned.
Unless otherwise indicated, the address of each person named in the table below
is c/o Armor Holdings, Inc., 1400 Marsh Landing Parkway, Suite 112,
Jacksonville, Florida 32250.

SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE OWNED OWNED AFTER THE
OFFERING(1) OFFERING(2)
-------------------------- -------------------------
NAME OF EXECUTIVE OFFICERS,
DIRECTORS OR 5% STOCKHOLDERS NUMBER PERCENTAGE NUMBER PERCENTAGE
----------------------------------------------- ----------- ------------ ----------- -----------

Warren B. Kanders and Kanders Florida
Holdings, Inc. (3) ........................... 3,177,855 12.79% 2,677,855 9.12%
Nevis Capital Management, Inc. (4) ............ 2,384,100 9.68% 2,384,100 8.18%
Lord, Abbett & Co. (5) ........................ 2,067,116 8.39% 2,067,116 7.09%
T. Rowe Price Associates, Inc. (6) ............ 1,967,800 7.99% 1,967,800 6.75%
Capital Group International, Inc. and
CapitalGuardian Trust Company (7) ............ 1,302,700 5.29% 1,302,700 4.47%
Thomas F. Frist III (8) ....................... 1,236,640 5.02% 1,236,640 4.24%
Jonathan M. Spiller (9) ....................... 1,017,204 4.02% 1,017,204 3.41%
Burtt R. Ehrlich (10) ......................... 235,000 * 235,000 *
Nicholas Sokolow (11) ......................... 217,500 * 217,500 *
Thomas W. Strauss (12) ........................ 142,500 * 142,500 *
Alair A. Townsend (13) ........................ 102,516 * 102,516 *
Stephen B. Salzman (14) ....................... 74,784 * 74,784 *
Robert R. Schiller (15) ....................... 228,439 * 228,439 *
Stephen J. Loffler (16) ....................... 101,965 * 101,965 *
Stephen E. Croskrey (17) ...................... 53,439 * 53,439 *
All executive officers and directors as a group
(10 persons)(18) ............................. 5,351,202 20.32% 4,851,202 15.73%

----------
* Less than 1%

(1) As used in this table, a beneficial owner of a security includes any person
who, directly or indirectly, through contract, arrangement, understanding,
relationship or otherwise has or shares (a) the power to vote, or direct
the voting of, such security or (b) investment power which includes the
power to dispose, or to direct the disposition of, such security. In
addition, a person is deemed to be the beneficial owner of a security if
that person has the right to acquire beneficial ownership of such security
within 60 days.

(2) Amounts indicated reflect actual number of shares offered and assumes no
exercise of the underwriters' overallotment option.

(3) Of such shares, Kanders Florida Holdings, Inc., of which Mr. Kanders is the
sole stockholder and sole director, owns 2,965,355 shares. Includes options
held by Mr. Kanders to purchase 212,500 shares of common stock.

(4) The address of Nevis Capital Management, Inc. is 1119 St. Paul, Baltimore,
Maryland 21202.

(5) The address of Lord, Abbett & Co. is 90 Hudson Street, Jersey City, New
Jersey 07302.

(6) The address of T. Rowe Price Associates, Inc. is 100 E. Pratt Street,
Baltimore, Maryland 21202.

(7) The address of Capital Group International, Inc. and Capital Guardian Trust
Company is 11100 Santa Monica Blvd., Los Angeles, California 90025.

(8) The address of Thomas F. Frist III is 767 Fifth Avenue, 50th Floor, New
York, New York 10153.

(9) Includes options to purchase 659,429 shares of common stock. Also includes
43,541 shares owned by Mr. Spiller's children, of which Mr. Spiller
disclaims beneficial ownership. Does not include 9,827 restricted shares
which will vest more than 60 days from the date hereof.

(10) Includes options to purchase 107,500 shares of common stock. Also includes
10,000 shares owned by Mr. Ehrlich's children and 23,000 in trust for the
benefit of his children, of which Mr. Ehrlich's spouse is trustee, of which
he disclaims beneficial ownership. Also includes 400 shares owned by Mr.
Ehrlich's spouse's individual retirement account of which Mr. Ehrlich
disclaims beneficial ownership.

(11) Includes options to purchase 107,500 shares of common stock. Also includes
100,000 shares owned by S.T. Investors Fund, LLC, a limited liability
company of which Mr. Sokolow is a member, of which he disclaims beneficial
ownership. Also includes 10,000 shares owned by Mr. Sokolow's profit
sharing plan.

(12) Includes options to purchase 107,500 shares of common stock.

(13) Includes options to purchase 97,500 shares of common stock.

(14) Includes options to purchase 32,500 shares of common stock.

(15) Includes options to purchase 225,000 shares of common stock. Does not
include options to purchase 200,000 shares and 6,879 restricted shares
which will vest more than 60 days after the date hereof.

(16) Includes options to purchase 100,000 shares of common stock. Does not
include options to purchase 50,000 shares and 3,931 restricted shares which
will vest more than 60 days after the date hereof.

(17) Includes options to purchase 50,000 shares of common stock. Does not
include options to purchase 150,000 shares and 6,879 restricted shares
which will vest more than 60 days after the date hereof.

(18) See footnotes (3) and (9-17).

UNDERWRITING

Merrill Lynch, Pierce, Fenner & Smith Incorporated, Bear, Stearns & Co.
Inc., and First Union Securities, Inc., an indirect, wholly-owned subsidiary of
Wachovia Corporation, are acting as representatives of the underwriters named
below. Subject to the terms and conditions described in a purchase agreement
among us, the selling stockholders and the underwriters, we and the selling
stockholders have agreed to sell to the underwriters, and the underwriters
severally have agreed to purchase from us and the selling stockholders, the
number of shares of our common stock listed opposite their names below.

NUMBER OF
UNDERWRITERS SHARES
------------ ----------

Merrill Lynch, Pierce, Fenner & Smith
Incorporated ..............
Bear, Stearns & Co. Inc. ..............
First Union Securities, Inc. ..........
Total ..................... 5,000,000
=========

The underwriters have agreed to purchase all of the shares of the offered
common stock if any of these shares are purchased. If an underwriter defaults,
the purchase agreement provides that the purchase commitments of the
nondefaulting underwriters may be increased or the purchase agreement may be
terminated.

We and the selling stockholders have agreed to indemnify the underwriters
against certain liabilities, including liabilities under the Securities Act, or
to contribute to payments the underwriters may be required to make in respect of
those liabilities.

The underwriters are offering the shares of our common stock, subject to
prior sale, when, as and if issued to and accepted by them, subject to approval
of legal matters by their counsel, including the validity of the shares, and
other conditions contained in the purchase agreement, such as the receipt by the
underwriters of officers' certificates and legal opinions. The underwriters
reserve the right to withdraw, cancel or modify offers to the public and to
reject orders in whole or in part.

Offers and sales outside the United States, if any, will be made through
the underwriters' international broker-dealer affiliates.

COMMISSIONS AND DISCOUNTS

The representatives have advised us and the selling stockholders that the
underwriters propose initially to offer the shares of our common stock to the
public at the public offering price on the cover page of this prospectus and to
dealers at that price less a concession not in excess of $ per share. The
underwriters may allow, and the dealers may reallow, a discount not in excess of
$ per share to other dealers. After the offering, the public offering price,
concession and discount may be changed.

The following table shows the public offering price, underwriting discount
and proceeds before expenses to Armor Holdings, Inc. and the selling
stockholders. This information assumes either no exercise or full exercise by
the underwriters of their overallotment option.

PER SHARE WITHOUT OPTION WITH OPTION
----------- ---------------- ------------

Public offering price .......................................... $ $ $
Underwriting discount .......................................... $ $ $
Proceeds, before expenses, to Armor Holdings, Inc. ............. $ $ $
Proceeds, before expenses, to the selling stockholder .......... $ $ $

The expenses of the offering, not including the underwriting discount, are
estimated at $1,250,000 and are payable by Armor Holdings, Inc.

OVERALLOTMENT OPTION

The selling stockholders have granted an option to the underwriters to
purchase up to 750,000 additional shares of our common stock at the public
offering price less the underwriting discount. The underwriters may exercise
this option for 30 days from the date of this prospectus solely to cover any
overallotments. If the underwriters exercise this option, each will be
obligated, subject to conditions contained in the purchase agreement, to
purchase a number of additional shares proportionate to that underwriter's
initial amount reflected in the above table.

NO SALES OF SIMILAR SECURITIES

We and the selling stockholders and our executive officers and directors
have agreed, subject to some limited exceptions, not to sell or transfer any of
our common stock for 90 days after the date of this prospectus without first
obtaining the written consent of Merrill Lynch. Specifically, we and these other
individuals have agreed not to directly or indirectly:

o offer, pledge, sell or contract to sell any of our common stock;

o sell any option or contract to purchase any of our common stock;

o purchase any option or contract to sell any of our common stock;

o grant any option, right or warrant for the sale of any of our common
stock;

o lend or otherwise dispose of or transfer any of our common stock;

o request a demand that we file a registration statement related to our
common stock; or

o enter into any swap or other agreement that transfers, in whole or in
part, the economic consequences of ownership of our common stock
whether any such swap or transaction is to be settled by delivery of
shares of our common stock or other securities, in cash or otherwise.

This lock-up agreement applies to our common stock and to securities
convertible into or exchangeable or exercisable for, or repayable with, our
common stock. It also applies to our common stock owned now or acquired later by
the person executing the agreement or for which the person executing the
agreement later acquires the power of disposition.

The lock-up agreement does not apply to:

o any shares of our common stock issued by us upon the exercise of an
option or warrant or the conversion of a security outstanding on the
date of this prospectus;

o any shares of our common stock issued or options to purchase our common
stock granted pursuant to employee benefit plans existing on the date
of this prospectus; or

o any shares of our common stock issued pursuant to any non-employee
director stock plan or dividend reinvestment plan.

Merrill Lynch may in its sole discretion, at any time without notice,
consent to the release of all or any portion of the shares subject to lock-up
agreements. Merrill Lynch does not have any current intention to release shares
of our common stock subject to these lock-up agreements. Any determination to
release any shares subject to the lock-up agreements would be based on a number
of factors at the time of any such determination, possibly including, but not
limited to, the market price of our common stock, the liquidity of the trading
market for our common stock, general market conditions, the number of shares
proposed to be sold and the timing of the proposed sale.

ELECTRONIC DISTRIBUTION

Merrill Lynch will be facilitating Internet distribution for this offering
to certain of its Internet subscription customers. Merrill Lynch intends to
allocate a limited number of shares for sale to its online brokerage customers.
An electronic prospectus is available on the Internet website maintained by
Merrill Lynch. Other than the prospectus in electronic format, the information
on the Merrill Lynch website is not a part of this prospectus.

NEW YORK STOCK EXCHANGE LISTING

The shares of our common stock are listed on the New York Stock Exchange
under the symbol "AH."

NASD REGULATIONS

Because more than ten percent of the net proceeds of the offering may be
paid to members or affiliates of members of the National Association of
Securities Dealers, Inc. participating in the offering, the offering will be
conducted in accordance with NASD Conduct Rule 2710(c)(8).

PRICE STABILIZATION AND SHORT POSITIONS

Until the distribution of the common stock is completed, SEC rules may
limit the underwriters from bidding for or purchasing our common stock. However,
the underwriters may engage in transactions that stabilize the price of the
common stock, such as bids or purchases to peg, fix or maintain that price.

The underwriters may purchase and sell our common stock in the open market.
These transactions may include short sales, stabilizing transactions and
purchases to cover the positions created by short sales. Short sales involve the
sale by the underwriters of a greater number of shares than they are required to
purchase in the offering. "Covered" short sales are sales made in an amount not
greater than the underwriters' option to purchase additional shares from the
issuer in the offering. The underwriters may close out any covered short
position by either exercising their option to purchase additional shares or
purchasing shares in an open market. In determining the source of shares to
close out the covered short position, the underwriters will consider, among
other things, the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through the
overallotment option. "Naked" short sales are any sales in excess of such
option. The underwriters must close out any naked short position by purchasing
shares in the open market. A naked short position is more likely to be created
if the underwriters are concerned that there may be downward pressure on the
price of our common stock in the open market after pricing that could adversely
affect investors who purchase in the offering. Stabilizing transactions consist
of various bids for or purchase of our common stock made by the underwriters in
the open market prior to the completion of the offering.

Similar to other purchase transactions, the underwriters' purchases to
cover the syndicate short sales may have the effect of raising or maintaining
the market price of our common stock or preventing or retarding a decline in the
market price of our common stock. As a result, the price of our common stock may
be higher than the price that might otherwise exist in the open market.

Neither we nor any of the underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor any of the underwriters makes any representation that the representatives
or the lead manager will engage in these transactions or that these
transactions, once commenced, will not be discontinued without notice.

OTHER RELATIONSHIPS

Some of the underwriters and their affiliates have engaged in, and may in
the future engage in, investment banking and other commercial dealings in the
ordinary course of business with us. They have received customary fees and
commissions for these transactions.

First Union Securities, Inc., one of the underwriters, is an indirect,
wholly-owned subsidiary of Wachovia Corporation. Wachovia Corporation conducts
its investment banking, institutional, and capital markets businesses through
its various bank, broker-dealer and nonbank subsidiaries (including First Union
Securities, Inc.) under the trade name of Wachovia Securities. Any references to
Wachovia Securities in this prospectus, however, do not include Wachovia
Securities, Inc., a member

of the National Association of Securities Dealers, Inc. and the Security
Investor Protection Corporation and a separate broker-dealer subsidiary of
Wachovia Corporation and an affiliate of First Union Securities, Inc., which may
or may not be participating as a selling dealer in the distribution of the
securities offered by this prospectus.

First Union National Bank, an affiliate of First Union Securities, Inc., is
a lender under our Credit Agreement. We intend to use proceeds from this
offering to repay our credit facility.

LEGAL MATTERS

The validity of the common stock offered by this prospectus will be passed
upon for us by Kane Kessler P.C., New York, New York. Robert L. Lawrence, a
member of Kane Kessler, P.C., owns 5,000 shares of our common stock. Certain
legal matters will be passed upon for the underwriters by Skadden, Arps, Slate,
Meagher & Flom LLP.

EXPERTS

The consolidated financial statements of Armor Holdings, Inc. as of
December 31, 2000 and 1999 and for each of the three years in the period ended
December 31, 2000 included in this prospectus have been so included in reliance
on the report of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of said firm as experts in auditing and accounting.

The audited combined financial statements of The Security Products and
Services Group as of December 31, 1999 and 2000 and for each of the three years
in the period ended December 31, 2000 have been audited by Arthur Andersen LLP,
independent public accountants, as set forth in their report. Reference is made
to said report, which includes an explanatory paragraph with respect to the
change in the method of accounting for costs of start-up activities in the first
quarter of 1999, as discussed in Note 2(o) to the combined financial statements.
The audited combined financial statements referred to above are included herein
in reliance upon the authority of said firm as experts in giving said report.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The SEC allows us to "incorporate" into this prospectus information that we
file with the SEC in other documents. This means that we can disclose important
information to you by referring to other documents that contain that
information. Any information that we incorporate by reference is considered part
of this prospectus. The documents and reports that we list below are
incorporated by reference into this prospectus. In addition, all documents and
reports which we file pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act after the date of this prospectus and prior to the
termination of this offering are also incorporated by reference in this
prospectus as of the respective filing dates of these documents and reports.
Statements contained in these documents that we file with the SEC and are
incorporated by reference in this prospectus, automatically update and supersede
information contained in this prospectus, to the extent the new information
differs from or is inconsistent with the old information.

We have filed the following documents with the SEC. These documents are
incorporated into this prospectus by reference:

(1) our annual report on Form 10-K for the year ended December 31, 2000;

(2) our quarterly reports on Form 10-Q for the quarters ended March 31,
2001, June 30, 2001 and September 30, 2001;

(3) our current reports on Form 8-K filed on April 27, 2001, August 22,
2001, August 23, 2001 and September 7, 2001; and

(4) the description of our common stock contained in our registration
statement on Form 8-A filed on April 29, 1999, including any amendments
or reports filed for the purpose of updating that description.

We will provide any person to whom a copy of this prospectus is delivered,
on written or oral request, a copy of any or all of the documents incorporated
by reference, other than exhibits to those documents unless specifically
incorporated by reference. You should direct any request for documents to our
Corporate Secretary, c/o Armor Holdings, Inc., 1400 Marsh Landing Parkway, Suite
112, Jacksonville, Florida 32250, (904) 741-5400.

IN ORDER TO OBTAIN TIMELY DELIVERY, YOU MUST REQUEST THIS INFORMATION NO
LATER THAN FIVE BUSINESS DAYS BEFORE THE DATE ON WHICH YOU MUST MAKE YOUR
INVESTMENT DECISION.

You should rely only on the information contained in this document,
including information incorporated by reference as described above, or any
supplement that we have referred you to. We have not authorized anyone else to
provide you with different information. This prospectus may only be used where
it is legal to offer and sell these securities and by persons to whom we are
permitted to offer and sell these securities. The information in this prospectus
may only be accurate on the date of this prospectus. The information in
documents incorporated by reference may only be accurate as of their filing
date.

WHERE YOU CAN FIND MORE INFORMATION

We file reports, proxy statements and other documents with the Securities
and Exchange Commission. You may read and copy any document we file with the SEC
at the SEC's Public Reference Room at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549 and at the SEC's regional office located at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. You may request copies of
these documents by writing to the SEC and paying a fee for the copying costs.
You may also call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms. The SEC also maintains a Web site (http://www.sec.gov)
that contains our annual, quarterly and special reports, proxy and information
statements.

This prospectus is part of a registration statement we filed with the SEC.
The registration statement contains more information than this prospectus
regarding us and our common stock, including certain exhibits and schedules. You
can obtain a copy of the registration statement from the SEC at any address
listed above or from the SEC's Internet site.

INDEX TO FINANCIAL STATEMENTS

PAGE

-----

Audited Financial Statements of Armor Holdings, Inc.
Report of Independent Certified Public Accountants ...................................... F-2
Consolidated Balance Sheets as of December 31, 1999 and December 31, 2000 ............... F-3
Consolidated Income Statements for the years ended December 31, 1998, 1999 and 2000 ..... F-4
Consolidated Statements of Stockholders' Equity and Comprehensive Income for the
years ended December 31, 1998, 1999 and 2000 .......................................... F-5
Consolidated Statements of Cash Flow for the years ended December 31, 1998, 1999
and 2000 .............................................................................. F-6
Notes to the Consolidated Financial Statements .......................................... F-7
Unaudited Interim Financial Statements of Armor Holdings, Inc.
Condensed Consolidated Balance Sheets as of December 31, 2000 and September 30,
2001 F-24 Condensed Consolidated Statements of Operations for the three months
and nine months ended September 30, 2000 and 2001 ..................................... F-25
Condensed Consolidated Statements of Cash Flows for the nine months ended
September 30, 2000 and 2001 ........................................................... F-26
Notes to Condensed Consolidated Unaudited Financial Statements .......................... F-27
Audited Financial Statements of The Security Products and Services Group ("SPSG")
Report of Independent Public Accountants ................................................ F-35
Combined Balance Sheet as of December 31, 1999 and 2000 ................................. F-36
Combined Statements of Operations for the years ended December 31, 1998, 1999 and
2000 .................................................................................. F-37
Combined Statements of Parent's Equity in Segment for the years ended December 31,
1998, 1999 and 2000 ................................................................... F-38
Combined Statements of Cash Flows for the years ended December 31, 1998, 1999
and 2000 .............................................................................. F-39
Notes to Combined Financial Statements .................................................. F-40
Unaudited Interim Financial Statements of The Security Products and Services Group
Combined Balance Sheets as of December 31, 2000 and June 30, 2001 ....................... F-58
Combined Statements of Operations for the three and six months ended June 30, 2000
and 2001 .............................................................................. F-59
Combined Statements of Cash Flows for the six months ended June 30, 2000 and 2001 ....... F-60
Notes to Combined Unaudited Financial Statements ........................................ F-61
Unaudited Pro Forma Financial Statements
Pro Forma Condensed Consolidated Statement of Operations for the Year ended
December 31, 2000 ..................................................................... F-66
Pro Forma Condensed Consolidated Statement of Operations for the Nine Months ended
September 30, 2001 .................................................................... F-68

F-1

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of
Armor Holdings, Inc.:

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, stockholders' equity and comprehensive
income, and cash flows present fairly, in all material respects, the financial
position of Armor Holdings, Inc. and its subsidiaries at December 31, 2000 and
1999, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the 1998 financial statements of Defence Systems
Colombia S.A., a wholly owned subsidiary, which statements reflect total
revenues of $13,266,000 for the year ended December 31, 1998. Those statements
were audited by other auditors whose report thereon has been furnished to us,
and our opinion expressed herein, insofar as it relates to the amounts included
for Defence Systems Colombia S.A. is based solely on the report of the other
auditors. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

PricewaterhouseCoopers LLP
March 31, 2001
Jacksonville, Florida

F-2

ARMOR HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)

DECEMBER 31,
--------------------------
1999 2000
------------ -----------

ASSETS

Current Assets:
Cash and cash equivalents ............................................... $ 13,246 $ 7,257
Accounts receivable (net of allowance for doubtful accounts of
$1,691 and $1,133)..................................................... 35,132 44,590
Inventories ............................................................. 16,452 23,675
Prepaid expenses and other current assets ............................... 7,611 13,313
--------- ---------
Total current assets ..................................................... 72,441 88,835
Property and equipment, net .............................................. 16,367 24,590
Goodwill (net of accumulated amortization of $3,593 and 6,451)............ 74,586 95,649
Patents, licenses and trademarks (net of accumulated amortization of
$1,124 and $1,518)....................................................... 7,008 6,907
Investment in unconsolidated subsidiaries ................................ 514 --
Other assets ............................................................. 7,646 9,976
--------- ---------
Total assets ............................................................. $ 178,562 $ 225,957
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ....................................... $ 359 $ 1,072
Short term debt ......................................................... 1,924 1,157
Accounts payable, accrued expenses and other current liabilities ........ 14,261 18,159
Income taxes payable .................................................... 1,616 322
--------- ---------
Total current liabilities ................................................ 18,160 20,710
Long-term debt, less current portion ..................................... 2,340 38,288
--------- ---------
Total liabilities ........................................................ 20,500 58,998
Commitments and contingencies (Note 8)
Minority interest ........................................................ 179 188
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized; no
shares issued and outstanding ......................................... -- --
Common stock, $.01 par value; 50,000,000 shares authorized;
24,513,830 and 25,063,534 issued; 23,302,958 and 22,685,475 outstanding at
December 31, 1999 and December 31, 2000,
respectively .......................................................... 245 250
Additional paid-in capital .............................................. 145,480 150,254
Retained earnings ....................................................... 26,615 43,663
Accumulated other comprehensive loss .................................... (1,351) (1,684)
Treasury stock .......................................................... (13,106) (25,712)
--------- ---------
Total stockholders' equity ............................................ 157,883 166,771
--------- ---------
Total liabilities and stockholders' equity ............................... $ 178,562 $ 225,957
========= =========

The accompanying notes are an integral part of these consolidated
financial statements.

F-3

ARMOR HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)

1998 1999 2000
---------- ---------- -----------

Revenues:
Products ............................................ $45,644 $ 96,706 $135,343
Services ............................................ 51,563 59,958 85,612
------- -------- --------
Total revenues ....................................... 97,207 156,664 220,955
------- -------- --------
Costs and expenses:
Cost of sales ....................................... 61,638 94,407 137,499
Operating expenses .................................. 21,915 37,004 50,341
Amortization ........................................ 1,347 2,463 3,429
Integration and other non-recurring charges ......... -- 2,569 3,290
Equity in earnings of investee ...................... (713) (179) (87)
------- -------- --------
Operating income ..................................... 13,020 20,400 26,483
Interest (income) expense, net ...................... (625) 17 1,896
Other income, net ................................... 28 816 1,803
------- -------- --------
Income before provision for income taxes ............. 13,673 21,199 26,390
Provision for income taxes ........................... 5,077 8,003 9,342
------- -------- --------
Net income ........................................... $ 8,596 13,196 17,048
======= ======== ========
Basic earnings per share ............................ $ 0.53 $ 0.63 $ 0.75
======= ======== ========
Diluted earnings per share .......................... $ 0.50 $ 0.61 $ 0.73
======= ======== ========

The accompanying notes are an integral part of these consolidated
financial statements.

F-4

ARMOR HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
(IN THOUSANDS)

COMMON STOCK ACCUMULATED
---------------- ADDITIONAL OTHER
PAR PAID-IN RETAINED COMPREHENSIVE TREASURY
SHARES VALUE CAPITAL EARNINGS LOSS STOCK TOTAL
-------- ------- ------------ ---------- --------------- ------------ ------------

Balance, December 27, 1997 ..... 16,023 $160 $ 61,496 $ 4,823 $ (353) $ (1,528) $ 64,598
Exercise of stock options ...... 149 2 170 172
Issuance of stock for
Acquisitions .................. 326 3 3,742 3,745
Recovery of acquisition
escrow shares due to
settlement of lawsuit ......... (1,788) (1,788)
Comprehensive income:
Net income .................... 8,596
Foreign currency translation
adjustments, net of taxes
of $120 ....................... (221)
Total Comprehensive
Income ...................... 8,375
------ ---- -------- ------- -------- --------- ---------
Balance, December 31, 1998 ..... 16,498 $165 $ 65,408 $13,419 $ (574) $ (3,316) $ 75,102
Exercise of stock options ...... 298 3 1,087 1,090
Issuance of common stock ....... 6,125 61 61,563 61,624
Issuance of stock for
acquisitions .................. 1,593 16 17,422 17,438
Repurchase of stock ............ (9,790) (9,790)
Comprehensive income:
Net income .................... 13,196
Foreign currency translation
adjustments, net of taxes of
$418 .......................... (777)
Total Comprehensive
income ...................... 12,419
------ ---- -------- ------- -------- --------- ---------
Balance, December 31, 1999 ..... 24,514 $245 $145,480 $26,615 $ (1,351) $ (13,106) $ 157,883
Exercise of stock options ...... 333 3 1,470 1,473
Tax benefit from exercises of
options ....................... 867 867
Issuance of stock for
acquisitions .................. 217 2 2,437 2,439
Repurchase of stock ............ (12,606) (12,606)
Comprehensive income:
Net income .................... 17,048
Foreign currency translation
adjustments, net of taxes of
$179 .......................... (333)
Total Comprehensive
income ...................... 16,715
------ ---- -------- ------- -------- --------- ---------
Balance, December 31, 2000 ..... 25,064 $250 $150,254 $43,663 $ (1,684) $ (25,712) $ 166,771
====== ==== ======== ======= ======== ========= =========

The accompanying notes are an integral part of these consolidated
financial statements.

F-5

ARMOR HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
(IN THOUSANDS)

YEAR ENDED
-----------------------------------------
1998 1999 2000
----------- ------------ ------------

Cash flows from operating activities:
Net income ................................................... $ 8,596 $ 13,196 $ 17,048
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization ............................... 2,654 4,570 6,591
Deferred income taxes ....................................... 1,842 486 290
Equity in earnings of investees ............................. (713) (179) (87)
Gain on sale of investment in investee ...................... -- -- (1,734)
Loss on disposal of property and equipment .................. -- -- 110
Changes in operating assets and liabilities, net of acquisitions:
Increase in accounts receivable ........................... (2,848) (4,884) (7,815)
Increase in inventories ................................... (786) (3,323) (4,862)
Decrease (increase) in prepaid expenses and other assets (4,737) 756 (6,120)
Decrease in accounts payable, accrued liabilities and
other current liabilities ................................ (500) (6,762) (2,562)
Increase (decrease) in income taxes payable ............... 162 (717) 177
Increase (decrease) in minority interests ................. (105) 66 9
--------- --------- ---------
Net cash provided by operating activities ................... 3,565 3,209 1,045
--------- --------- ---------
Cash flows from investing activities:
Purchase of property and equipment ........................ (3,301) (3,414) (7,833)
Purchase of patents, licenses and trademarks .............. (3,448) -- (83)
Purchase of businesses, net of cash acquired .............. (12,068) (36,677) (19,243)
Dividends received from equity investee ................... 478 115 87
Proceeds from the sale of investment in investee .......... -- -- 2,568
Purchases of equity securities ............................ -- -- (1,682)
Proceeds from the sale of equity securities ............... -- -- 857
Other fees paid related to acquisitions ................... (685) -- --
Advances to stockholders .................................. (1,677) -- --
--------- --------- ---------
Net cash used in investing activities ....................... (20,701) (39,976) (25,329)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock .................... -- 61,624 --
Proceeds from the exercise of stock options ............... 172 1,090 1,473
Repurchases of treasury shares ............................ -- (9,790) (12,606)
Deferred loan costs ....................................... -- -- (256)
Net repayments of long-term debt .......................... (367) (5,105) (867)
Repayments of debt assumed in acquisitions ................ -- -- (1,329)
Borrowings under lines of credit .......................... 5,041 57,868 76,097
Repayments under lines of credit .......................... -- (61,686) (43,884)
--------- --------- ---------
Net cash provided by financing activities ................... 4,846 44,001 18,628
--------- --------- ---------
Effect of exchange rate changes on cash ...................... (221) (777) (333)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents ......... (12,511) 6,457 (5,989)
Cash and cash equivalents, beginning of period ............... 19,300 6,789 13,246
--------- --------- ---------
Cash and cash equivalents, end of period ..................... $ 6,789 $ 13,246 $ 7,257
========= ========= =========

The accompanying notes are an integral part of these consolidated
financial statements.

F-6

ARMOR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

THE COMPANY AND NATURE OF BUSINESS: Armor Holdings, Inc. (the "Company" or
"Armor") is a global provider of security risk management services and products
to multi-national corporations, governmental agencies and law enforcement
personnel through two operating divisions -- Armor Holdings Products and
ArmorGroup Services.

Armor Holdings Products Division. Armor Holdings Products division
manufactures and sells a broad range of high quality branded law enforcement
equipment, such as ballistic resistant vests and tactical armor, hard armor,
less lethal munitions, police batons, forensic, fingerprint and evidence
collection equipment, anti-riot products including tear gas and distraction
grenades, narcotics identification kits, custom-built armored vehicles,
specialty lubricants, cleaners and preservatives and military weapon maintenance
systems and holsters and duty gear. These products are marketed under brand
names that are well-known and respected in the law enforcement community such as
American Body Armor, Safariland, Defense Technology, Federal Laboratories, MACE
(Registered Trademark) , PROTECH, NIK (Registered Trademark) Public Safety,
Break-Free, Monadnock Lifetime Products and Lightning Powder. Armor Holdings
Products division sells manufactured products primarily to law enforcement
agencies through a worldwide network of over 500 distributors and sales agents
including approximately 350 in the United States. Extensive distribution
capabilities and commitment to customer service and training have enabled the
Company to become a leading provider of security equipment to law enforcement
agencies.

ArmorGroup Services Division. ArmorGroup Services division provides a broad
range of sophisticated security risk management solutions to multi-national
corporations in diverse industries such as natural resources, financial services
and consumer products, and to governmental and non-governmental agencies such as
the U.S. Department of State, the United Nations and the World Bank. Clients
typically have personnel and other investments in unstable and often violent
areas of the world. Through ArmorGroup Services offices on five continents,
ArmorGroup Services provides its multi-national clients with a diversified
portfolio of security solutions to assist them in mitigating risks in their
operations around the world. ArmorGroup Services' highly trained, multi-lingual
and experienced security personnel work closely with our clients to create and
implement solutions to complex security problems. These services include the
design and implementation of risk management plans and security systems,
provision of security specialists and training of security personnel. ArmorGroup
Services provides its multi-national clients with specialized investigative
services enhanced by its global network. These services include intellectual
property asset protection and related investigative services ranging from
protecting companies against counterfeiting, patent infringements, product
tampering and extortion to identifying unethical supplier activities. In
addition, ArmorGroup Services provides business intelligence, fraud
investigation, computer forensic and asset tracing and recovery services to
financial services companies, law firms and other entities worldwide.

PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries. In consolidation,
all material intercompany balances and transactions have been eliminated.
Results of operations of companies acquired in transactions accounted for under
the purchase method of accounting are included in the financial statements from
the dates of the acquisition.

CASH AND CASH EQUIVALENTS: The Company considers all highly liquid
investments purchased with original maturities of three months or less to be
cash equivalents.

CONCENTRATION OF CREDIT RISK: Financial instruments that potentially
subject the Company to concentrations of credit risk consist primarily of cash
and cash equivalents and trade accounts receivable. The Company maintains its
cash and cash equivalents with what it believes to be various high quality
banks. Amounts held in individual banks may periodically exceed, for brief time
periods, federally insured amounts. The Company's accounts receivable consist of
amounts due from customers

F-7

ARMOR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

and distributors located throughout the world. International product sales
generally require cash in advance or confirmed letters of credit on United
States ("U.S.") banks. The Company maintains reserves for potential credit
losses. As of December 31, 1999 and 2000, management believes that the Company
had no significant concentrations of credit risk.

INVENTORIES: Inventories are stated at the lower of cost or market
determined on the first-in, first-out ("FIFO") method.

FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying value of cash and cash
equivalents, accounts receivable, other receivables, accounts payable, and short
and long-term debt approximates fair value at December 31, 1999 and 2000.

PROPERTY AND EQUIPMENT: Property and equipment are carried at cost less
accumulated depreciation. Upon disposal of property and equipment, the
appropriate accounts are reduced by the related cost and accumulated
depreciation. The resulting gains and losses are reflected in consolidated
earnings. Depreciation is computed using the straight-line method over the
estimated lives of the related assets as follows:

Buildings and improvements ......... 5 - 39 years
Machinery and equipment ............ 3 - 7 years

GOODWILL: Goodwill represents the excess of the purchase price over the
fair value of the net assets acquired in a purchase business combination.
Goodwill and other intangible assets are stated on the basis of cost and are
amortized, principally on a straight-line basis, over the estimated future
periods to be benefited (20 to 40 years).

PATENTS, LICENSES AND TRADEMARKS: Patents, licenses and trademarks were
acquired through acquisitions accounted for by the purchase method of
accounting. Such assets are amortized on a straight-line basis over their
remaining lives of 10 to 40 years.

REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCABLE TO IDENTIFIABLE ASSETS:
This intangible asset, included in other assets, is amortized on a straight-line
basis over twenty-five years. The net asset at December 31, 1999 and 2000
amounted to approximately $1,511,000 and $1,355,000, respectively.

IMPAIRMENT: Long-lived assets including certain identifiable intangibles,
and the goodwill related to those assets, are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
asset in question may not be recoverable including, but not limited to, a
deterioration of profits for a business segment that has long-lived assets, and
when other changes occur which might impair recovery of long-lived assets.
Management has reviewed the Company's long-lived assets and has determined that
there are no events requiring impairment loss recognition. The method used to
determine the existence of an impairment would be undiscounted operating cash
flows estimated over the remaining amortization period for the related
long-lived assets. Impairment is measured as the difference between fair value
and unamortized cost at the date impairment is determined.

RESEARCH AND DEVELOPMENT: Research and development costs are included in
operating expenses as incurred and for the years ended December 31, 1998, 1999
and 2000, approximated $738,000, $1,559,000, and $2,590,000, respectively.

ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts in the financial statements and
accompanying notes. Significant estimates inherent in the preparation of the
accompanying consolidated financial statements include the carrying value of
long-lived assets, valuation allowances for receivables, inventories and
deferred income tax assets, liabilities for potential litigation claims and
settlements; and contract contingencies and obligations. Actual results could
differ from those estimates.

F-8

ARMOR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

INCOME TAXES: The Company accounts for income taxes pursuant to Statement
of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes". Under the asset and liability method specified thereunder, deferred
taxes are determined based on the difference between the financial reporting and
tax bases of assets and liabilities. Deferred tax liabilities are offset by
deferred tax assets relating to net operating loss carryforwards and deductible
temporary differences. Future benefits obtained from utilization of net
operating loss carryforwards or from the reduction in the income tax asset
valuation allowance existing on September 20, 1993 have been and will be applied
to reduce reorganization value in excess of amounts allocable to identifiable
assets. At December 31, 1999 and 2000, the Company's consolidated foreign
subsidiaries have unremitted earnings of approximately $6 million and $10
million, respectively on which the Company has not recorded a provision for
United States Federal income taxes since these earnings are considered to be
permanently invested. Such foreign earnings have been taxed according to the
regulations existing in the countries in which they were earned.

REVENUE RECOGNITION: The Company records service revenue as the service is
provided on a contract by contract basis. Revenues are recorded at the time of
shipment of products or performance of services. Revenues from service contracts
are recognized over the term of the contract. Returns are minimal and do not
materially effect financial statements.

ADVERTISING: The Company expenses advertising costs as expense in the
period in which they are incurred.

EARNINGS PER SHARE: Basic earnings per share is computed by dividing net
income by the weighted-average number of common shares outstanding. Diluted
earnings per share is computed by dividing net income by the weighted-average
number of common shares outstanding compounding the effects of all potentially
dilutive common stock equivalents, principally options, except in cases where
the effect would be anti-dilutive.

COMPREHENSIVE INCOME AND FOREIGN CURRENCY TRANSLATION: In accordance with
SFAS No. 130, "Reporting Comprehensive Income", assets and liabilities
denominated in a foreign currency are translated into U.S. dollars at the
current rate of exchange existing at year-end and revenues and expenses are
translated at the average monthly exchange rates. The cumulative translation
adjustment, net of tax, which represents the effect of translating assets and
liabilities of the Company's foreign operations is recorded as a reduction of
equity of $1,351,000 and $1,684,000 for the years ended December 31, 1999 and
2000, respectively, and is classified as accumulated other comprehensive loss.
The current year change in the accumulated amount, net of tax, is included as a
component of comprehensive income.

RECLASSIFICATIONS: Certain reclassifications have been made to the 1998
and 1999 financial statements in order to conform to the presentation adopted
for 2000. These reclassifications had no effect on net income or retained
earnings.

AICPA STATEMENT OF POSITION 98-5 (SOP 98-5): The Company adopted the
American Institute of Certified Public Accountants (AICPA) Statement of Position
SOP 98-5, "Reporting on the Costs of Start-Up Activities", on January 1, 1999.
SOP 98-5 requires the expensing of start-up costs, defined as pre-opening,
pre-operating and pre-contract type costs. The adoption of SOP 98-5 did not have
a material impact on the consolidated results of operations, financial position
or cash flows.

RECENT ACCOUNTING PRONOUNCEMENTS

In the fourth quarter of 2000, the Company adopted SEC Staff Accounting
Bulletin: No. 101 (SAB No. 101) -- Revenue Recognition. The reporting
requirements under SAB No. 101 did not have an impact on the Company's
consolidated results of operations, financial position or cash flows.

F-9

ARMOR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Company will adopt SFAS 133. "Accounting for Derivative Instruments and
Hedging Activities", as amended by SFAS No. 137 and 138, on January 1, 2001. The
Statement establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. the Company does not currently have
derivative instruments and accordingly, SFAS 133, as amended, is not expected to
impact the Company's financial position, results of operations or cash flows.

In March 2000, the FASB issued FASB Interpretation No. 44 ("FIN 44"),
"Accounting for Certain Transactions Involving Stock Compensation -- an
Interpretation of APB Opinion No. 25." FIN 44 clarifies the application of APB
Opinion No. 25 and, among other issues, clarifies the following: the definition
of an employee for purposes of applying APB Opinion No. 25; the criteria for
determining whether a plan qualifies as a noncompensatory plan; the accounting
consequence of various modifications to the terms of previously fixed stock
options or awards; and the accounting for an exchange of stock compensation
awards in a business combination. The adoption of FIN 44 did not have an impact
on the Company's financial position, results of operations or cash flows.

2. BUSINESS COMBINATIONS

The Company has completed numerous purchase business combinations for cash
and/or shares of the Company's common stock and assumption of liabilities in
certain cases. In the three years in the period ended December 31, 2000, the
following acquisitions were made:

TOTAL SHARES VALUE OF
CONSIDERATION ISSUED SHARES
--------------- ------------ ---------
(IN THOUSANDS, EXCEPT SHARES ISSUED)

1998
Low Voltage Systems Technology, Inc. (January) ..................... $ 750 18,519 $ 188
Asmara Limited (April) ............................................. $ 3,000 36,846 $ 415
Pro-Tech Armored Products of Massachusetts, Inc. (April) ........... $ 1,600 42,592 $ 485
CDR International Ltd. (June) ...................................... $ 2,500 210,460 $ 2,457
Alarm Protection Services, Inc. (July) ............................. $ 1,215 17,429 $ 200
Law Enforcement Division of Mace Security International (July) ..... $ 4,600 -- --

1999
Safariland Ltd., Inc. (April) ...................................... $45,000 300,752 $ 4,000
The Parvus Company (May) ........................................... $ 1,300 64,876 $ 754
Alarm Systems Holding Company and Fire Alarm Service
Corporation (June) ................................................ $12,700 1,226,021 $12,669
Additional purchase price paid/issued for acquisition earnouts ..... $18,475 1,096 $17,438
Aggregate 2000 acquisitions ........................................ $22,483 191,845 $ 2,094
Additional purchase price paid/issued for acquisition earnouts ..... $ 1,316 24,064 $ 345

Businesses acquired are included in consolidated results from the date of
acquisition. Pro forma results for the 2000 acquisitions are not presented as
they would not differ by a material amount from actual results. The following
unaudited pro forma consolidated results are presented to show the results on a
pro forma basis as if the 1998 and 1999 acquisitions had been made as of the
beginning of the years acquired; also as if made at the beginning of 1998 for
the 1999 acquisitions:

F-10

ARMOR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

1998 1999
------------- -------------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)

Revenues ..................................... $ 152,275 $ 173,973
Net income ................................... $ 8,235 $ 13,321
Basic and diluted earnings per share ......... $ 0.44 $ 0.59
Weighted average shares ...................... 18,775 22,140

3. INVENTORIES

The components of inventory as of December 31, 1999 and 2000 are as
follows:

1999 2000
------------- -------------
(IN THOUSANDS,

Raw materials ................................. $ 8,812 $13,756
Work-in-process ............................... 1,243 1,999
Finished goods ................................ 6,397 7,920
------- -------
$16,452 $23,675
======= =======

4. PROPERTY AND EQUIPMENT

Property and equipment as of December 31, 1999 and 2000 are summarized as
follows:

1999 2000
------------- -------------
(IN THOUSANDS)

Land .......................................... $ 1,330 $ 3,312
Buildings and improvements .................... 7,536 10,394
Machinery and equipment ....................... 13,780 21,030
-------- ---------
Total ......................................... 22,646 34,736
Accumulated Depreciation ...................... (6,279) (10,146)
-------- ---------
$ 16,367 $ 24,590
======== =========

Depreciation expense for the years ended December 31, 1998, 1999 and 2000
was approximately $1,409,000, $2,107,000, and $3,162,000 respectively. In the
statement of operations for the years ended December 31, 1998, 1999 and 2000,
depreciation expense in the income statement has been reduced by $131,000,
$130,000 and $130,000, respectively for the amortization of the proceeds
received under an economic development grant received from the Department of
Housing and Urban Development.

5. ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILTIES

Accounts payable, accrued expenses and other current liabilities as of
December 31, 1999 and 2000 are summarized as follows:

1999 2000
--------- ----------
(IN THOUSANDS)

Trade and other payables ............................. $ 5,717 4,432
Accrued expenses ..................................... 6,382 6,914
Additional purchase price for acquisition earnouts ... -- 3,000
Deferred consideration for acquisitions .............. -- 1,550
Other ................................................ 2,162 2,263
------- -----
$14,261 $18,159
======= =======

F-11

ARMOR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

6. DEBT

1999 2000
---------- ----------
(IN THOUSANDS)

Credit facility (a) ......................................................... $ -- $ 32,981
Note to former shareholder, payable every four months in installments of
$95 through April 2000 with an imputed rate of interest of 10.0%............ 87 --

Ontario Industrial Development Authority Variable Rate Demand Industrial
Development Revenue Bonds, Series 1989 payable in annual installments of $200
to $300, through August 1, 2014, with interest paid
monthly at varying rates ................................................... -- 3,300

Note payable for purchase of business, discounted at 8.5%, requiring
varying principal payments through June 30, 2003 ........................... -- 548

Note payable for purchase of software, payable in annual installments of
$125, with a fixed interest rate of 8.0%.................................... -- 350

Note to former officer payable in monthly principal and interest
installments of $7 through December 31, 2009, with an imputed interest
rate of 9.25% .............................................................. 505 469

Minimum guaranteed royalty to former officer payable in monthly principal
and interest installments of $4 through August 2005, with an imputed
interest rate of 9.2% ...................................................... 219 188

Minimum guaranteed royalty to former officer payable in monthly principal
and interest installments of $36 through April 2005, with an imputed
interest rate of 7.35% ..................................................... 1,888 1,524
------ --------
$2,699 $ 39,360
Less current portion ........................................................ (359) (1,072)
------ --------
$2,340 $ 38,288
====== ========

----------

(a) CREDIT FACILITY -- On February 25, 2000, the Company amended its
existing credit agreement with Canadian Imperial Bank of Commerce, Inc.
("CIBC"), Bank of America, N.A. ("BofA"), First Union National Bank
("First Union") and SunTrust Bank, North Florida, N.A. ("SunTrust") as
lenders, BofA as Documentation Agent, and CIBC as Administrative Agent
(the "Credit Agreement"). Pursuant to the Credit Agreement, as amended,
the several lenders established a five-year $100,000,000 line of credit
(the "Credit Facility") for the Company's benefit. the Company's
indebtedness under the Credit Facility is evidenced by Five Year (three
years remaining) Revolving Credit Notes of up to $100,000,000. All
borrowings under the Credit Facility bear interest at either (1) the
base rate, plus an applicable margin ranging from .000% to .375%
depending on certain conditions, or the eurodollar rate, plus an
applicable margin ranging from 1.125% to 1.875% depending on certain
conditions. In addition, the Credit Facility provides that BofA will
make swing-line loans of up to $5,000,000 available to the Company to
be used by the Company for working capital purposes. CIBC, Inc. and
BofA will also issue letters of credit of up to $10,000,000 to the
Company. At December 31, 2000, the Company had $32,980,770 outstanding
under the line of credit and approximately $3,804,000 outstanding in
letters of credit. The Company had no such borrowing outstanding at
December 31, 1999.

F-12

ARMOR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

As part of the credit agreement, all of the Company's direct and indirect
domestic subsidiaries agreed to guarantee the Company's obligations under the
credit agreement pursuant to a guarantee by certain subsidiaries. The credit
agreement is collateralized by (1) a pledge of all of the issued and outstanding
shares of stock of certain domestic subsidiaries of the Company pursuant to a
pledge agreement and (2) a pledge of 65% of the issued and outstanding shares of
the Company's foreign subsidiary, Armor Holdings Limited, organized under the
laws of England and Wales. In addition, the Company is restricted from paying
dividends.

Maturities of long-term debt are as follows:

YEAR ENDED (IN THOUSANDS)
---------- --------------

2001 ..................... $ 1,072
2002 ..................... 835
2003 ..................... 861
2004 ..................... 33,875
2005 ..................... 362
Thereafter ............... 2,355
-------
$39,360

The Company's subsidiary Defense Systems Limited maintains a $2 million
overdraft facility with a variable interest rate requiring monthly interest
payments. This overdraft facility expires March 31, 2001. The overdraft facility
had an outstanding balance of approximately $1.9 million and $1.2 million for
the years ended December 31, 1999 and 2000 respectively.

7. INTEGRATION AND OTHER NON-RECURRING ITEMS

As a result of its acquisition program, the Company incurred integration
costs of approximately $2.6 million and $3.3 million for the years ending
December 31, 1999 and 2000, respectively. These costs related to the relocation
of assets and personnel, severance costs, systems integration, domestic and
international tax restructuring as well as integrating the sales and marketing
functions for the companies acquired during the period.

8. COMMITMENTS AND CONTINGENCIES

EMPLOYMENT CONTRACTS: The Company is party to several employment contracts
at year ending December 31, 2000 with certain members of management. Such
contracts are for varying periods and include restrictions on competition after
termination. These agreements provide for salaries, bonuses and other benefits
and also specify and delineate the granting of various stock options.

LEGAL/LITIGATION MATTERS: On January 16, 1998, our ArmorGroup Services
division ceased operations in the country of Angola. The cessation of operations
in Angola was dictated by that government's decision to deport all of our
expatriate management and supervisors. As a result of the cessation of
operations in Angola, our Armor Group Services division is involved in various
disputes with SHRM S.A.("SHRM"), its minority joint venture partner relating to
the Angolan business. On March 6, 1998, SIA (a subsidiary of SHRM) filed a
complaint against Defense Systems France, SA ("DSF") before the Commercial Court
of Nanterre (Tribunal de Commerce de Nanterre) seeking to be paid an amount of
$577,286 corresponding to an alleged debt of DSIA to SIA. On, June 27, 2000, the
judge of the Paris Commercial Court ruled SHRM did not provide evidence required
to establish its standing and the proceedings brought by SHRM were cancelled. On
October 3, 2000, a winding up petition was served by DSF against DSIA. On
October 31, 2000, SHRM filed a counterclaim seeking to have this winding up
petition dismissed. On November 28, 2000, SHRM appealed the judgement rendered
by the Paris Commercial Court on June 27, 2000, claiming that the Paris
Commercial Court

F-13

ARMOR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

no longer has jurisdiction over the case. The procedure before the Nanterre
Commercial Court is still pending, awaiting a decision on the liquidation of
DSIA.

SETTLEMENTS: In November of 2000, without either admitting or denying the
accusations, the Company settled its lawsuit with Second Chance Body Armor, Inc.
and other lawsuits for approximately $2.0 million, including legal costs. The
dispute that led to the Second Chance Body Armor lawsuit was filed in 1994 and
related to allegations of trademark infringement that were purported to have
occurred during the period 1984 to 1994.

OTHER: In addition to the above, the Company, in the normal course of
business, is subjected to claims and litigation in the areas of product and
general liability. Management believes it has adequate insurance coverage in the
areas of product and general liability. Management does not believe any of such
claims will have a material impact on the Company's financial statements.

9. INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES

At December 31, 1999, the Company had a 20% investment in Jardine Securicor
Gurkha Services Limited ("JSGS") for which the equity method of accounting for
investments was used. On May 31, 2000, the Company sold its investment in JSGS
for a pre-tax gain of approximately $1.7 million included in other income. The
Company recognized equity in earnings of investee of $87,000 for the five months
ended May 31, 2000, the date of the sale.

10. INFORMATION CONCERNING BUSINESS SEGMENTS AND GEOGRAPHICAL SALES

The Company is a leading global provider of security risk management
services and products to multi-national corporations, governmental agencies and
law enforcement personnel through two operating divisions -- ArmorGroup Services
and Armor Holdings Products. The ArmorGroup Services division provides
sophisticated security planning and risk management, electronic security systems
integration, consulting and training services, as well as intellectual property
asset protection, business intelligence and investigative services. The Armor
Holdings Products division manufactures and sells a broad range of high quality
branded law enforcement equipment.

The Company has invested substantial resources outside of the United States
and plans to continue to do so in the future. Substantially all of the
operations of the services segment is conducted in emerging markets in Africa,
Asia and South America. These operations are subject to the risk of new and
different legal and regulatory requirements in local jurisdictions, tariffs and
trade barriers, potential difficulties in staffing and managing local
operations, potential imposition of restrictions on investments, potentially
adverse tax consequences, including imposition or increase of withholding and
other taxes on remittances and other payments by subsidiaries, and local
economic, political and social conditions. Governments of many developing
countries have exercised and continue to exercise substantial influence over
many aspects of the private sector. Government actions in the future could have
a significant adverse effect on economic conditions in a developing country or
may otherwise have a material adverse effect on the Company and its operating
companies. The Company does not have political risk insurance in the countries
in which it currently conducts business. Moreover, applicable agreements
relating to the Company's interests in it operating companies are frequently
governed by foreign law. As a result, in the event of a dispute, it may be
difficult for the Company to enforce its rights. Accordingly, the Company may
have little or no recourse upon the occurrence of any of these developments.

Revenues, income from operations (before amortization, equity in earnings,
integration expenses and interest income, net) and total assets for each of our
segments for the years ended December 31, 1998, 1999 and 2000, were as follows:

F-14

ARMOR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The following financial information with respect to sales to principal
geographic areas for the years ended December 31, 1998, 1999 and 2000 is as
follows:

1998 1999 2000
---------- ------------ ------------
(IN THOUSANDS)

Revenues:
Services ............................... $ 51,563 $ 59,958 $ 85,612
Products ............................... 45,644 96,706 135,343
-------- -------- --------
Total revenues ....................... $ 97,207 $156,664 $220,955
======== ======== ========

Income from operations:
Services ............................... $ 6,695 $ 6,894 $ 9,842
Products ............................... 8,717 21,195 29,879
Corporate .............................. (1,758) (2,836) (6,606)
-------- -------- --------
Total income from operations ......... $ 13,654 $ 25,253 $ 33,115
======== ======== ========

Total assets:
Services ................................ $ 41,531 $ 65,134 $ 88,361
Products ............................... 45,470 103,092 128,000
Corporate .............................. 7,352 10,696 9,596
-------- -------- --------
Total assets ......................... $ 94,353 $178,922 $225,957
======== ======== ========

The following financial information with respect to sales to principal
geographic areas for the years ended December 31, 1998, 1999 and 2000 is as
follows:

1998 1999 2000
---------- ---------- -----------
(IN THOUSANDS)

Revenues:
North America .......................... $36,596 $ 94,847 $144,966
South America .......................... 16,484 16,246 17,941
Africa ................................. 18,932 17,987 18,153
Europe/Asia ............................ 24,668 27,584 36,869
Other .................................. 527 -- 3,026
------- -------- --------
Total revenues ....................... $97,207 $156,664 $220,955
======= ======== ========

Income from operations:
North America .......................... $ 6,464 $ 16,938 $ 23,753
South America .......................... 2,344 2,855 3,223
Africa ................................. 4,220 2,645 5,124
Europe/Asia ............................ 502 2,815 288
Other .................................. 124 -- 727
------- -------- --------
Total income from operations ......... $13,654 $ 25,253 $ 33,115
======= ======== ========

Total assets:
North America .......................... $47,881 $142,375 $163,047
South America .......................... 4,477 5,673 6,974
Africa ................................. 4,892 3,001 14,447
Europe/Asia ............................ 37,103 27,873 41,489
------- -------- --------
Total assets ......................... $94,353 $178,922 $225,957
======= ======== ========

F-15

ARMOR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

11. INCOME TAXES

Income tax expense (benefit) for the years ended December 31, 1998,
December 31, 1999, and 2000 consisted of the following:

1998 1999 2000
--------- --------- ---------
(IN THOUSANDS)

Current
Domestic .................................... $2,638 $6,059 $8,270
Foreign ..................................... 2,641 1,458 782
------ ------ ------
Total current ............................. $5,279 $7,517 $9,052
------ ------ ------

Deferred
Domestic .................................... $ 107 $ 597 676
Foreign ..................................... (309) (111) (386)
------ ------ ------
Total deferred ............................ $ (202) $ 486 $ 290
------ ------ ------
Total provision for Income Taxes ......... $5,077 $8,003 $9,342
====== ====== ======

Significant components of the Company's net deferred tax asset as of
December 31, 1999 and 2000 are as follows:

1999 2000
---------- ---------
(IN THOUSANDS)

Deferred tax assets:
Reserves not currently deductible ..................... $1,428 $1,383
Operating loss carryforwards .......................... 3,063 3,263
Research and development and other .................... 551 426
------ ------
5,042 5,072
Deferred tax asset valuation allowance ................. (75) (75)
------ ------
Deferred tax asset, net of valuation allowance ......... $4,967 $4,997
Deferred tax liability:
Property and equipment ................................ (310) (630)
------ ------
Net deferred tax asset ................................. $4,657 $4,367
====== ======

The components giving rise to the net deferred tax asset described above
have been included in the accompanying consolidated balance sheet as of December
31, 1999 and 2000 are as follows:

1999 2000
--------- ---------
(IN THOUSANDS)

Other current assets .............. $1,306 $1,620
Other assets ...................... 3,351 2,747
------ ------
Total deferred tax assets ......... $4,657 $4,367
====== ======

F-16

ARMOR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The following reconciles the income tax expense computed at the Federal
statutory income tax rate to the provision for income taxes recorded in the
income statement for the years ended December 31, 1998, 1999 and 2000:

1998 1999 2000
---------- ---------- ----------

Provision for income taxes at statutory Federal rate .......... 34.0% 35.0% 35.0%
State and local income taxes, net of Federal benefit .......... 1.8% 1.6% 1.3%
Foreign income taxes .......................................... 1.5% 0.8% (4.2%)
Other non-deductible items .................................... (0.1%) 0.4% 3.3%
---- ---- ----
37.2% 37.8% 35.4%
==== ==== ====

The decrease in effective tax rate indicated above for foreign taxes is a
result of the Company's re-estimation of foreign tax liabilities and the related
U.S. liability as a result of the Company's execution of certain reorganization
and other strategic plans.

12. STOCKHOLDERS' EQUITY

Effective with the change in control of the Company by Kanders Florida
Holdings, Inc. on January 18, 1996, the utilization of the United States portion
of the NOL became restricted to approximately $300,000 per year. As of December
31, 2000, the Company had U.S. and foreign NOLs of approximately $10,400,000.
The U.S. portion of the net NOLs expire in varying amounts in fiscal years 2006
to 2019. At December 31, 2000, the Company also has tax credits of $426,000
subject to certain limitations due to the acquisition of Safariland, LTD. These
credits will expire in varying amounts in fiscal years to 2019.

PREFERRED STOCK: On July 16, 1996, the Company's shareholders authorized a
series of preferred stock with such rights, privileges and preferences as the
Board of Directors shall from time to time determine. The Company has not issued
any of this preferred stock.

STOCK OPTIONS AND GRANTS: In 1994, the Company implemented an incentive
stock plan and an outside directors' stock plan. These plans collectively
provide for the granting of options to certain key employees as well as
providing for the grant of common stock to outside directors and to all full
time employees. Pursuant to such plans, 1,050,000 shares of common stock were
reserved and made available for distribution. The option prices of stock which
may be purchased under the incentive stock plan are not less than the fair
market value of common stock on the dates of the grants. Effective January 19,
1996, all stock grants awarded under the 1994 incentive stock plan were
accelerated and considered fully vested.

In 1996, the Company implemented an incentive stock plan and an outside
directors' stock plan. These plans collectively provide for the granting of
options to certain key employees and directors. Pursuant to such plans, as
amended, 2,200,000 shares of common stock were reserved and made available for
distribution. The option prices of stock which may be purchased under the
incentive stock plan are not less than the fair market value of common stock on
the dates of the grants.

During 1998, the Company implemented a new non-qualified stock option plan.
Pursuant to the new plan, 725,000 shares of common stock were reserved and made
available for distribution. On January 1, 1999, the Company distributed all
725,000 shares allocated under the plan. In 1999, the Company implemented the
1999 Stock Incentive Plan (the "1999 Plan"). The Company reserved 2,000,000
shares of its Common Stock for the 1999 Plan. The 1999 Plan provides for the
granting to employees, officers, directors, consultants, independent contractors
and advisors of the Company. The option prices of stock which may be purchased
under the 1999 Plan are not less than the fair market value of common stock on
the dates of the grants.

F-17

ARMOR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Effective January 1, 1996, the Company adopted SFAS No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123"). SFAS 123 establishes a fair value
based method of accounting for stock-based employee compensation plans; however,
it also allows an entity to continue to measure compensation cost for those
plans using the intrinsic value based method of accounting prescribed by
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees." Under the fair value based method, compensation cost is measured
at the grant date based on the value of the award and is recognized over the
service period, which is usually the vesting period. Under the intrinsic value
based method, compensation costs is the excess, if any, of the quoted market
price of the stock at the grant date or other measurement date over the amount
an employee must pay to acquire the stock. The Company has elected to continue
to account for its employee stock compensation plans under APB Opinion No. 25
with pro forma disclosures of net earnings and earnings per share, as if the
fair value based method of accounting defined in SFAS No. 123 had been applied.

If compensation cost for stock option grants had been determined based on
the fair value on the grant dates for 1998 1999 and 2000 consistent with the
method prescribed by SFAS No. 123, the Company's net earnings and earnings per
share would have been adjusted to the pro forma amounts indicated below:

1998 1999 2000
----------- ------------ ------------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)

Net earnings ....................... As reported $ 8,596 $ 13,196 $ 17,048
Pro forma $ 7,844 $ 11,375 $ 16,245
Diluted earnings per share ......... As reported $ 0.50 $ 0.61 $ 0.73
Pro Forma $ 0.45 $ 0.52 $ 0.70

Under SFAS 123, the fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions for the years ended December 31, 1998, 1999 and
2000:

1998 1999 2000
--------- --------- ---------

Expected life of option .......... 3 yrs 3 yrs 4 yrs
Dividend yield ................... 0% 0% 0%
Volatility ....................... 31.9% 35.8% 30.9%
Risk free interest rate .......... 5.50% 5.76% 5.76%

The weighted average fair value of options granted during 1998, 1999 and
2000 are as follows:

1998 1999 2000
---------- ---------- ----------
(IN THOUSANDS,
EXCEPT FOR FAIR VALUE OF OPTIONS)

Fair value of each option granted ............... $ 2.89 $ 3.48 $ 4.79
Total number of options granted ................. 286 1,871 185
Total fair value of all options granted ......... $ 827 $6,511 $ 886

Outstanding options, consisting of ten-year incentive and non-qualified
stock options, vest and become exercisable over a three year period from the
date of grant. The outstanding options expire ten years from the date of grant
or upon retirement from the Company, and are contingent upon continued
employment during the applicable ten-year period.

F-18

ARMOR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

A summary of the status of stock option grants as of December 31, 2000 and
changes during the years ending on those dates is presented below:

WEIGHTED
AVERAGE
OPTIONS EXERCISE PRICE
------------- ---------------

Outstanding at December 27, 1997 ................. 2,041,000 $ 5.69
Granted .......................................... 286,450 10.32
Exercised ........................................ (148,582) 1.11
Forfeited ........................................ (101,667) 10.12
---------
Outstanding at December 31, 1998 ................. 2,077,201 6.46
Granted .......................................... 1,871,000 11.14
Exercised ........................................ (298,277) 3.65
Forfeited ........................................ (104,666) 9.54
---------
Outstanding at December 31, 1999 ................. 3,545,258
Granted .......................................... 185,000 14.37
Exercised ........................................ (333,075) 4.57
Forfeited ........................................ (102,344) 10.98
---------
Outstanding at December 31, 2000 ................. 3,294,839
=========
Options exercisable at December 31, 2000 ......... 2,192,109
=========

The following table summarizes information about stock options outstanding
at December 31, 2000:

12/31/2000
OPTIONS OPTIONS REMAINING
EXERCISE PRICE OUTSTANDING EXERCISABLE LIFE IN YEARS
---------------- ------------- ------------- --------------

0.97........... 19,166 19,166 3.5
1.05........... 109,429 109,429 5.0
3.75........... 150,000 150,000 5.0
6.06........... 150,000 150,000 5.7
6.75........... 20,000 20,000 6.0
6.94........... 12,000 12,000 5.7
7.38........... 15,000 15,000 5.7
7.50........... 375,000 375,000 5.4
7.81........... 10,000 10,000 6.0
8.00........... 75,000 75,000 5.8
9.00........... 10,000 10,000 6.3
9.25........... 115,000 72,333 7.7
9.50........... 10,000 10,000 6.3
9.69........... 225,625 115,209 8.5
9.94........... 3,000 2,000 7.6
10.00........... 5,000 1,667 8.6
10.19........... 86,000 28,668 8.5
10.25........... 20,000 6,667 8.6
10.31........... 2,000 667 8.5
10.44........... 147,000 115,665 7.3
10.56........... 3,334 1,111 8.4

F-19

ARMOR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

12/31/2000
OPTIONS OPTIONS REMAINING
EXERCISE PRICE OUTSTANDING EXERCISABLE LIFE IN YEARS
---------------- ------------- ------------- --------------

10.63........... 16,667 8,334 7.9
10.72........... 8,334 -- 7.0
11.00........... 154,800 148,133 6.7
11.19........... 63,834 43,560 7.9
11.31........... 725,000 375,001 8.0
11.63........... 3,000 1,000 8.3
11.88........... 7,000 333 7.5
12.00........... 50,000 50,000 6.7
12.03........... 25,000 8,333 8.9
12.19........... 25,000 -- 8.1
12.25........... 11,450 7,299 7.4
12.69........... 150,000 50,000 8.3
12.85........... 44,800 44,800 6.2
13.13........... 10,000 3,334 8.2
13.19........... 309,000 116,667 8.6
13.50........... 10,000 3,333 8.0
14.44........... 30,000 10,000 8.2
14.83........... 22,400 22,400 6.2
16.31........... 6,000 -- 9.8
17.00........... 60,000 -- 10.0
------- -------
Total .......... 3,294,839 2,192,109
========= =========

Remaining non-exercisable options as of December 31, 2000 become
exercisable as follows:

2001 .............. 584,413
2002 .............. 473,317
2003 .............. 45,000

EARNINGS PER SHARE: The following details the earnings per share
computations on a basic and diluted basis for the years ended December 31, 1998,
1999 and 2000:

F-20

ARMOR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

1998 1999 2000
----------- ------------ ------------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)

Numerator for basic and diluted earnings per share:
Net income available to common shareholders .......................... $ 8,596 $ 13,196 $ 17,048
-------- -------- --------
Denominator:
Basic earnings per share weighted average shares outstanding ......... 16,165 21,006 22,630
Effect of dilutive securities:
Effect of shares issuable under stock option and stock grant
plans, based on the treasury stock
Method ................................................................ 1,189 696 726
-------- -------- --------
Denominator for diluted earnings per share ........................... --
Adjusted weighted-average shares ................................... 17,354 21,702 23,356
-------- -------- --------
Basic earnings per share .............................................. $ 0.53 $ 0.63 $ 0.75
======== ======== ========
Diluted earnings per share ............................................ $ 0.50 $ 0.61 $ 0.73
======== ======== ========

13. SUPPLEMENTAL CASH FLOW INFORMATION

1998 1999 2000
------------ ------------ -----------

Cash paid (received) during the year for:

Interest ........................................ $ 273 $ 993 $ 1,809
========= ========= ========
Income taxes .................................... $ 4,724 $ 8,418 $ 8,935
========= ========= ========
Acquisitions of businesses, net of cash acquired:
Fair value of assets acquired ................... $ 10,578 $ 20,476 $ 6,142
Goodwill ........................................ 11,732 50,859 24,100
Liabilities assumed ............................. (10,072) (17,220) (8,560)
Stock issued .................................... (3,746) (17,438) (2,439)
--------- --------- --------
Total cash paid ................................. $ 8,492 $ 36,677 $ 19,243
========= ========= ========
Debt assumed in acquisition of property ......... $ -- $ -- $ 3,500
Note payable issued for equipment ............... $ -- $ -- $ 500

14. QUARTERLY RESULTS (UNAUDITED)

The following table presents summarized unaudited quarterly results of
operations for the Company for fiscal 1999 and 2000. The Company believes all
necessary adjustments have been included in the amounts stated below to present
fairly the following selected information when read in conjunction with the
Consolidated Financial Statements and Notes thereto included elsewhere herein.
Future quarterly operating results may fluctuate depending on a number of
factors. Results of operations for any particular quarter are not necessarily
indicative of results of operations for a full year or any other quarter.

F-21

ARMOR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FISCAL 1999
---------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------------- -------------- -------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Revenue ............................ $ 26,840 $ 38,911 $ 45,091 $ 45,822
Gross profit ....................... $ 10,550 $ 15,716 $ 17,850 $ 18,141
Net income ......................... $ 2,740 $ 2,835 $ 3,902 $ 3,719
Basic earnings per share ........... $ 0.17 $ 0.14 $ 0.16 $ 0.16
Diluted earnings per share ......... $ 0.16 $ 0.14 $ 0.16 $ 0.15

FISCAL 2000
------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Revenue ............................ $ 49,866 $ 55,467 $ 57,118 $ 58,504
Gross profit ....................... 18,758 21,110 21,773 21,815
Net income ......................... $ 4,080 $ 5,536 $ 2,460 $ 4,972
Basic earnings per share ........... $ 0.18 $ 0.25 $ 0.11 $ 0.22
Diluted earnings per share ......... $ 0.17 $ 0.24 $ 0.11 $ 0.21

F-22

ARMOR HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

15. EMPLOYEE BENEFITS PLAN

In October 1997, the Company formed a 401(k) plan, (the "Plan") which
provides for voluntary contributions by employees and allows for a discretionary
contribution by the Company in the form of cash. The Company made a contribution
of approximately $243,000 to the Plan in 2000. There were no such contributions
in 1999 or 1998.

16. RELATED PARTY TRANSACTIONS

The Company subcontracts for certain security guard services with Alpha,
Inc., wholly owned by a shareholder of the Company, who is also a director of
Gorandel Trading Limited. In fiscal 1998, 1999 and 2000, security guard service
fees of approximately $5,204,000; $3,392,000; and $2,444,000 respectively, were
paid to Alpha. In August of 2000, the purchase price was approximately $1.0
million in cash consisting of both a current and deferred portion.

On January 1, 1999, the Company entered into an agreement with Kanders &
Company, Inc. to provide investment banking and financial advisory services to
the Company. The specific details of such services and compensation to be paid
to Kanders & Co. will be determined by the parties on a case by case basis.
Warren B. Kanders, Chairman of the Board of the Company, is the sole stockholder
of Kanders & Company, Inc.

17. OPERATING LEASES

The Company is party to certain real estate, equipment and vehicle leases.
Several leases include options for renewal and escalation clauses. In most
cases, management expects that in the normal course of business leases will be
renewed or replaced by other leases. Approximate total future minimum annual
lease payments under all noncancelable leases are as follows:

YEAR (IN THOUSANDS)
---- --------------

2001 ..................... $1,256
2002 ..................... 808
2003 ..................... 613
2004 ..................... 512
2005 ..................... 232
Thereafter ............... 362
------
$3,783
======

The Company incurred rent expense of approximately $485,000, $1,152,000,
and $1,523,700 during the years ended December 31, 1998, December 31, 1999 and
December 31, 2000.

F-23

ARMOR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE DATA)

SEPTEMBER 30, 2001 DECEMBER 31, 2000
-------------------- ------------------
(UNAUDITED) *

ASSETS

Current assets:
Cash and cash equivalents ........................................ $ 11,890 $ 7,257
Accounts receivable (net of allowance for doubtful accounts of
$2,631 and $1,133) ............................................. 74,924 44,590
Inventories ...................................................... 55,592 23,675
Prepaid expenses and other current assets ........................ 18,540 13,313
--------- ---------
Total current assets ........................................... 160,946 88,835
Property, plant and equipment (net of accumulated depreciation of
$13,403 and $10,146) ............................................. 43,447 24,590
Goodwill (net of accumulated amortization
of $8,027 and $6,451) ............................................ 120,838 95,649
Patents, licenses and trademarks (net of accumulated amortization
of $1,815 and $1,518) ............................................ 6,802 6,907
Other assets ...................................................... 8,889 9,976
--------- ---------
Total assets ................................................... $ 340,922 $ 225,957
========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ................................ $ 2,066 $ 1,072
Short-term debt .................................................. 4,113 1,157
Accounts payable ................................................. 25,939 4,432
Accrued expenses and other current liabilities ................... 27,524 13,915
Income taxes payable ............................................. 197 322
--------- ---------
Total current liabilities ...................................... 59,839 20,898
Long-term debt, less current portion .............................. 89,181 38,288
--------- ---------
Total liabilities .............................................. 149,020 59,186
Commitments and Contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized; no
shares issued and outstanding .................................. -- --
Common stock, $.01 par value; 50,000,000 shares authorized;
26,833,400 and 25,063,534 issued and 24,508,741 and 22,685,475 outstanding at
September 30, 2001 and December 31, 2000
respectively ................................................... 268 250
Additional paid-in capital ....................................... 172,482 150,254
Retained earnings ................................................ 48,064 43,663
Accumulated other comprehensive loss ............................. (3,488) (1,684)
Treasury stock ................................................... (25,424) (25,712)
--------- ---------
Total stockholders' equity ..................................... 191,902 166,771
--------- ---------
Total liabilities and stockholders' equity ........................ $ 340,922 $ 225,957
========= =========

----------
* Condensed from audited financial statements.

See notes to condensed consolidated financial statements.

F-24

ARMOR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- -------------------------
2001 2000 2001 2000
------------ ------------ ----------- -----------

Revenues:
Products ............................................ $ 37,330 $ 34,548 $103,121 $100,049
Mobile Security ..................................... 9,349 -- 9,349 --
Services ............................................ 27,067 22,570 74,206 62,402
-------- -------- -------- --------
Total revenues ....................................... 73,746 57,118 186,676 162,451
-------- -------- -------- --------
Costs and expenses:
Cost of sales ....................................... 48,856 35,345 118,563 100,810
Operating expenses
Litigation settlements ............................ -- 1,918 -- 1,950
Other operating expenses .......................... 16,645 13,414 43,763 36,338
Amortization ........................................ 843 790 2,621 2,272
Equity in earnings of investee ...................... -- -- -- (87)
Restructuring and related charges ................... -- -- 9,959 --
Integration and other non-recurring charges ......... 964 1,081 1,800 2,537
-------- -------- -------- --------
Operating income ..................................... 6,438 4,570 9,970 18,631
Interest expense, net ............................... 1,125 600 2,639 1,186
Other expense (income), net ......................... 175 51 (52) (1,837)
-------- -------- -------- --------
Income before provision for income taxes ............. 5,138 3,919 7,383 19,282
Provision for income taxes ........................... 1,315 1,459 2,658 7,206
-------- -------- -------- --------
Net income ........................................... $ 3,823 $ 2,460 $ 4,725 $ 12,076
======== ======== ======== ========
Basic earnings per share ............................. $ 0.16 $ 0.11 $ 0.20 $ 0.53
======== ======== ======== ========
Diluted earnings per share ........................... $ 0.16 $ 0.11 $ 0.20 $ 0.51
======== ======== ======== ========
Weighted average shares -- Basic ..................... 23,645 22,442 23,190 22,706
======== ======== ======== ========
Weighted average shares -- Diluted ................... 24,317 23,351 23,905 23,613
======== ======== ======== ========

See notes to condensed consolidated financial statements.

F-25

ARMOR HOLDINGS, INC. AND SUBSIDIARIES (UNAUDITED)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
2001 2000
------------ ------------

Cash flows from operating activities:
Net income .............................................................. $ 4,725 $ 12,076
Adjustments to reconcile net income to cash used in operating
activities:
Depreciation and amortization ......................................... 5,789 4,335
Gain on sale of investments ........................................... -- (1,719)
Non-cash restructuring charges, primarily write-off of goodwill ....... 8,022 --
Deferred income taxes ................................................. (846) --
Equity in earnings of investee ........................................ -- (87)
Changes in operating assets and liabilities, net of acquisitions:
Increase in accounts receivable ....................................... (13,805) (7,096)
Increase in inventories ............................................... (6,654) (2,759)
Increase in prepaid expenses and other assets ......................... (2,905) (8,207)
Increase in accounts payable, accrued expenses and other current
liabilities .......................................................... 7,060 50
Increase in minority interest ......................................... -- 9
Increase in income taxes payable ...................................... (441) --
--------- ---------
Net cash provided by (used in) operating activities ................... 945 (3,398)
--------- ---------
Cash Flows From Investing Activities:
Purchase of patents and trademarks ...................................... (34) --
Purchase of property and equipment ...................................... (5,661) (3,399)
Purchase of businesses, net of cash acquired ............................ (44,827) (8,889)
Additional consideration for purchased businesses ....................... (3,230) --
Purchases of investments ................................................ -- (1,682)
Proceeds from sale of investment ........................................ -- 3,598
Dividends received from associated companies ............................ -- 87
Proceeds from sale of equity securities ................................. 843 --
--------- ---------
Net cash used in investing activities ................................. (52,909) (10,285)
--------- ---------
Financing Activities:
Proceeds from the exercise of stock options ............................. 6,548 709
Repurchases of common stock ............................................. (722) (12,574)
Proceeds from issuance of treasury shares for the exercise of stock
options ............................................................... 686 --
Net borrowings under short-term debt .................................... -- (420)
Net repayment of long-term debt ......................................... (300) --
Borrowings under line of credit ......................................... 90,267 46,072
Repayments under line of credit ......................................... (38,078) (26,590)
--------- ---------
Net cash provided by financing activities ............................... 58,401 7,197
Effect of exchange rate changes on cash and cash equivalents ............ (1,804) (223)
--------- ---------
Net decrease in cash and cash equivalents ............................... 4,633 (6,709)
Cash and cash equivalents, beginning of period ........................... 7,257 13,246
--------- ---------
Cash and cash equivalents, end of period ................................. $ 11,890 $ 6,537
========= =========

See notes to condensed consolidated financial statements.

F-26

ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1 GENERAL

The accompanying condensed quarterly financial statements represent the
consolidation of Armor Holdings, Inc. (the "Company") and its wholly-owned
subsidiaries. These statements are unaudited and include all adjustments
(consisting only of normal recurring accruals) considered necessary by
management to present a fair statement of the results of operations, financial
position and cash flows. They have been prepared in accordance with the
instructions to Form 10-Q and accordingly, do not include all the information
and footnotes required by generally accepted accounting principles for complete
financial statements.

The results of operations for the three and nine month periods are not
necessarily indicative of the results to be expected for the full year and
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2000. Certain prior year amounts have been reclassified to
conform to the current year presentation.

NOTE 2 COMPREHENSIVE INCOME

The components of comprehensive income, net of taxes of $496,000 and
$140,000 for the three months ended September 30, 2001 and 2000, respectively
and $999,000 and $120,000 for the nine months ended September 30, 2001 and 2000,
respectively, are listed below:

THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------- ------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2001 2000 2001 2000
--------------- --------------- --------------- --------------
(IN THOUSANDS) (IN THOUSANDS)

Net income ................................ $3,823 $2,460 $ 4,725 $12,076
Other comprehensive loss:

Foreign currency translations, net of tax (881) 237 (1,776) (202)
------ ------ -------- -------
Comprehensive income: ..................... $2,942 $2,697 $ 2,949 $11,874
====== ====== ======== =======

NOTE 3 INVENTORIES

The inventories are stated at the lower of cost or market using the
first-in, first-out (FIFO) method and are summarized as follows:

SEPTEMBER 30, DECEMBER 31,
2001 2000
--------------- -------------
(IN THOUSANDS)

Raw material ............... $33,348 $13,756
Work-in-process ............ 12,395 1,999
Finished goods ............. 9,849 7,920
------- -------
Total inventories ......... $55,592 $23,675
======= =======

F-27

ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)

NOTE 4 ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities are summarized as follows:

SEPTEMBER 30, DECEMBER 31,
2001 2000
--------------- -------------
(IN THOUSANDS)

Accrued expenses and other current liabilities ............. $26,224 $ 9,365
Additional purchase price for acquisition earnouts ......... -- 3,000
Deferred consideration for acquisitions .................... 1,300 1,550
------- -------
$27,524 $13,915
======= =======

NOTE 5 DEBT

Credit Facility - On August 22, 2001, the Company entered into an Amended
and Restated Credit Agreement (the "Credit Agreement") with Bank of America,
Canadian Imperial Bank of Commerce, First Union National Bank, Suntrust Bank,
Republic Bank, Keybank National Association, and ING (U.S.) Capital LLC.
Pursuant to the Credit Agreement, the lenders established a $120,000,000 line of
credit for our benefit expiring on February 12, 2004. The Credit Agreement,
among other things, provides for (i) total aggregate maximum borrowings of
$120,000,000 and (ii) the capability for borrowings in foreign currencies. All
borrowings under the Credit Agreement bear interest at either (i) a base rate,
plus an applicable margin ranging from .000% to .375%, depending on certain
conditions, (ii) a eurodollar rate, plus an applicable margin ranging from
1.125% to 1.875%, depending on certain conditions, or (iii) with respect to
foreign currency loans, a fronted offshore currency rate, plus an applicable
margin ranging from 1.125% to 1.875%, depending on certain conditions.
Outstanding borrowings under the Credit Agreement bear interest at a variable
rate, currently 5.48% per annum. In addition, the Credit Agreement provides that
Bank of America will make swing-line loans to us of up to $5,000,000 for working
capital purposes only and will issue letters of credit on our behalf of up to
$20,000,000. At September 30, 2001, the Company had $82.7 million outstanding
under the line of credit and approximately $10 million outstanding in letters of
credit leaving approximately $27.3 million in availability under the Credit
Agreement. The Company also had approximately $6.9 million of other long-term
debt and capitalized lease obligations, net of current portion, consisting
primarily of $4.2 million of industrial revenue bonds. All indebtedness under
the Credit Agreement will mature on February 12, 2004, which will bring the
Company's expected 2004 maturities to approximately $83.6 million.

As part of the Credit Agreement, all of the Company's direct and indirect
domestic subsidiaries agreed to guarantee the Company's obligations under the
Credit Agreement. The Credit Agreement is collateralized by (1) a pledge of all
of the issued and outstanding shares of stock of certain domestic subsidiaries
of the Company pursuant to a pledge agreement and (2) a pledge of 65% of the
issued and outstanding shares of the Company's first tier foreign subsidiaries.
The Credit Agreement includes both negative and affirmative covenants customary
for a credit facility of this nature, such as a limitation on capital
expenditures, foreign indebtedness, minimum fixed charge coverage and a
restriction against paying dividends.

NOTE 6 ACQUISITIONS

On August 22, 2001, the Company, through a wholly owned subsidiary,
acquired all of the outstanding stock of O'Gara-Hess Eisenhardt Armoring
Company, The O'Gara Company, and O'Gara Security Associates, Inc. The acquired
companies (which are collectively referred to below as "O'Gara") constitute the
majority of what was formerly known as the Security Products and Services

F-28

ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)

Group (which is referred to below as "SPSG") of The Kroll-O'Gara Company
("Kroll"). In connection with the acquisition, the Company paid $52.2 million,
of which $37.2 million was paid in cash and $15 million was paid by issuing to
Kroll-O'Gara 1,009,422 shares of the Company's common stock (the "Shares") and
has recorded $33.5 million in goodwill related to the acquisition. The entire
cash portion of the transaction was paid by drawing down on the Company's
revolving credit facility.

The Company also deposited an additional $1.5 million in cash with an
escrow agent, to be held and distributed by the escrow agent pursuant to the
terms of an Escrow Agreement entered into between the Company and Kroll. The
Company also agreed to pay Kroll up to $2.0 million in contingent deferred
consideration if O'Gara achieves certain gross profit targets for the twelve
months ended December 31, 2001.

The results of SPSG have been included in the Company's results since
August 22, 2001. The unaudited consolidated results of operations of the Company
on a pro forma basis as if the Company had consummated the acquisition of SPSG
on January 1, 2001 and 2000 are as follows:

9 MONTHS 12 MONTHS
SEPTEMBER 30, 2001 DECEMBER 31, 2000
-------------------- ------------------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)

Revenues ................................... $ 265,490 $ 333,375
Net Income ................................. $ 1,050 $ 14,325
Diluted Earnings per Share ................. $ 0.04 $ 0.59
Weighted Average Shares -- Diluted ......... 24,767 24,365

NOTE 7 RESTRUCTURING CHARGE

In January 2001, the Company's ArmorGroup Services division approved a
restructuring plan to close its U.S. investigative businesses, realign the
division's organization, eliminate excess facilities and reduce overhead in its
businesses worldwide. In connection with this restructuring plan, the division
performed a review of its long-lived assets to identify potential impairments.
Pursuant to this restructuring plan, ArmorGroup i) eliminated 26 employees,
primarily from its investigative businesses, ii) eliminated an additional 24
employees from its security business, iii) incurred lease and other exit costs
as a result of the closure of its investigative businesses, and iv) wrote-down
the value of both tangible and intangible assets as a result of the impairment
review. Most of the significant actions contemplated by the restructuring plan
have been completed.

As a result of the restructuring plan, the Company has recorded a pre-tax
charge of $10 million. As of September 30, 2001, the Company had a remaining
liability of $382,000 relating to lease termination and other exit costs after
current quarter utilization of the reserves for employee termination costs
($569,000) and lease related costs ($346,000). This liability has been
classified in accrued expenses and other current liabilities on the consolidated
balance sheet and will be funded through cash provided by operating activities
and the Company's credit facility. A summary of the restructuring charges and
the remaining accrual follows:

F-29

ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)

LEASE
TERMINATION ASSET
EMPLOYEE AND OTHER REMOVAL
TERMINATION CLOSING ASSET & RELATED
COSTS COSTS IMPAIRMENT COSTS TOTAL
------------- ------------- ------------ --------------- ---------------

Additions ............................. $ 531,000 $ 541,000 $ 291,000 $ 7,337,000 $ 8,700,000
Utilization ........................... (531,000) (85,000) (291,000) (7,337,000) (8,244,000)
---------- ---------- ---------- ------------ ------------
Balance at March 31, 2001 ............. $ -- $ 456,000 $ -- $ -- $ 456,000
Additions ............................. $ 844,000 $ 415,000 $ -- $ -- $ 1,259,000
Utilization ........................... (275,000) (143,000) -- -- (418,000)
---------- ---------- ---------- ------------ ------------
Balance at June 30, 2001 .............. $ 569,000 $ 728,000 $ -- $ -- $ 1,297,000
Additions ............................. $ -- $ -- $ -- $ -- $ --
Utilization ........................... (569,000) (346,000) -- -- (915,000)
---------- ---------- ---------- ------------ ------------
Balance At September 30, 2001 ......... $ -- $ 382,000 $ -- $ -- $ 382,000
========== ========== ========== ============ ============

NOTE 8 INFORMATION CONCERNING BUSINESS SEGMENTS AND GEOGRAPHICAL SALES

The Company is a leading manufacturer and provider of security products,
vehicle armor systems and security risk management services. The Company's
products and services are used by military, law enforcement, security and
corrections personnel throughout the world, as well as governmental agencies,
multinational corporations and non-governmental organizations. The Company is
organized and operated under three business segments: Armor Holdings Products;
Armor Mobile Security; and ArmorGroup Services.

Armor Holdings Products. The Armor Holdings Products division manufactures
and sells a broad range of high quality equipment marketed under brand names
that are well-known and respected in the military and law enforcement
communities. Products manufactured by this division include body armor, tactical
armor, hard armor, duty gear, less-lethal munitions, anti-riot products, police
batons, forensic products and weapon maintenance products.

Armor Mobile Security. The Armor Mobile Security division manufactures and
installs ballistic and blast protection armoring systems for military vehicles,
commercial vehicles, military aircraft and missile components. Under the brand
name O'Gara-Hess & Eisenhardt, the Company is the sole-source provider to the
U.S. military for the supply of armoring and blast protection systems as well as
maintenance services for the High Mobility Multi-purpose Wheeled Vehicle (HMMWV,
commonly known as the Humvee). Additionally, the Company has been subcontracted
to develop a ballistically armored and sealed truck cab for the High Mobility
Artillery Rocket System (HIMARS) currently in development for the U.S. Army. The
Company armors a variety of commercial vehicles including limousines, sedans,
sport utility vehicles, commercial trucks and cash-in-transit vehicles, to
protect against varying degrees of ballistic and blast threats. The Armor Mobile
Security Division consists of SPSG less International Training, Inc., which is
now included in ArmorGroup Services division.

ArmorGroup Services. The ArmorGroup Services division provides a broad
range of sophisticated security risk management solutions to multinational
corporations in diverse industries such as natural resources, financial services
and consumer products, and to governmental and non-governmental agencies such as
the U.S. Departments of State and Defense, the United Nations and CARE
International. Services provided include security planning, advice and
management, security systems integration, intellectual property asset
protection, due diligence investigations and training programs in
counterintelligence, counter-surveillance, advanced driving techniques, computer
forensics and ballistics.

F-30

ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)

The Company has invested substantial resources outside of the United States
and plans to continue to do so in the future. Significant operations of
ArmorGroup Services division are conducted in certain emerging markets in
Africa, Asia and South America, while the Armor Mobile Security division has
invested substantial resources in Europe and South America. These operations are
subject to the risk of new and different legal and regulatory requirements in
local jurisdictions, tariffs and trade barriers, potential difficulties in
staffing and managing local operations, potential imposition of restrictions on
investments, potentially adverse tax consequences, including imposition or
increase of withholding and other taxes on remittances and other payments by
subsidiaries, and local economic, political and social conditions. Governments
of many developing countries have exercised and continue to exercise substantial
influence over many aspects of the private sector. Government actions in the
future could have a significant adverse effect on economic conditions in a
developing country or may otherwise have a material adverse effect on the
Company and its operating companies. The Company does not have political risk
insurance in the countries in which it currently conducts business. Moreover,
applicable agreements relating to the Company's interests in it operating
companies are frequently governed by foreign law. As a result, in the event of a
dispute, it may be difficult for the Company to enforce its rights. Accordingly,
the Company may have little or no recourse upon the occurrence of any of these
developments.

Revenues, operating income and total assets for each of the Company's
segments are as follows:

NINE MONTHS ENDED
----------------------------------------
SEPTEMBER 30, 2001 SEPTEMBER 30, 2000
-------------------- -------------------
(IN THOUSANDS)

Revenues:
Products ......................... $103,121 $100,049
Mobile Security .................. 9,349 --
Services ......................... 74,206 62,402
-------- --------
Total revenues ................. $186,676 $162,451
======== ========
Operating income:
Products ......................... $ 19,015 $ 19,485
Mobile Security .................. 1,166 --
Services ......................... (5,639) 5,657
Corporate ........................ (4,572) (6,511)
-------- --------
Total operating income ......... $ 9,970 $ 18,631
======== ========
Total assets:
Products ......................... $145,815 $112,815
Mobile Security .................. 98,871 --
Services ......................... 84,278 62,705
Corporate ........................ 11,958 30,812
-------- --------
Total assets ................... $340,922 $206,332
======== ========

F-31

ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)

The following unaudited information with respect to revenues and operating
income (operating income before amortization expense, equity in earnings of
investee, restructuring charges and integration expense) to principal geographic
areas are as follows:

NINE MONTHS ENDED
----------------------------------------
SEPTEMBER 30, 2001 SEPTEMBER 30, 2000
-------------------- -------------------
(IN THOUSANDS)

Revenues:
North America .................... $109,395 $100,873
South America .................... 20,606 16,953
Africa ........................... 17,799 15,621
Europe/Asia ...................... 38,876 29,004
-------- --------
Total revenue .................. $186,676 $162,451
======== ========
Geographic operating income:
North America .................... $ 14,770 $ 16,448
South America .................... 2,462 2,431
Africa ........................... 2,751 4,801
Europe/Asia ...................... 4,367 (327)
-------- --------
Total operating income ......... $ 24,350 $ 23,353
======== ========
Total assets:
North America .................... $247,713 $145,353
South America .................... 13,697 6,727
Africa ........................... 21,290 13,023
Europe/Asia ...................... 58,222 41,229
-------- --------
Total assets ................... $340,922 $206,332
======== ========

A reconciliation of consolidated geographic operating income to
consolidated operating income follows:

NINE MONTHS ENDED
----------------------------------------
SEPTEMBER 30, 2001 SEPTEMBER 30, 2000
-------------------- -------------------
(IN THOUSANDS)

Consolidated geographic operating income ............ $ 24,350 $ 23,353
Amortization ........................................ (2,621) (2,272)
Equity in earnings of investee ...................... -- 87
Restructuring and related charges ................... (9,959) --
Integration and other non-recurring charges ......... (1,800) (2,537)
-------- --------
Operating income .................................... $ 9,970 $ 18,631
======== ========

F-32

ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)

NOTE 9 EARNINGS PER SHARE

The company follows SFAS No. 128, Earnings Per Share, which requires the
presentation of basic and diluted earnings per share. The following is a
reconciliation of the numerators and denominators of the basic and diluted
earnings per share computations for net income:

THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------------- ------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2001 2000 2001 2000
--------------- --------------- --------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Numerator for basic and diluted earnings
per share:
Net income ............................. $ 3,823 $ 2,460 $ 4,725 $ 12,076
-------- -------- -------- --------
Denominator for basic earnings per share
Weighted average shares: .............. 23,645 22,442 23,190 22,706
Effect of shares issuable under stock
option and stock grant plans, based on
the treasury stock method ............. 672 909 715 907
-------- -------- -------- --------
Denominator for diluted earnings per
share--Adjusted weighted average
shares ................................ 24,317 23,351 23,905 23,613
-------- -------- -------- --------
Basic earnings per share ............... $ 0.16 $ 0.11 $ 0.20 $ 0.53
======== ======== ======== ========
Diluted earnings per share ............. $ 0.16 $ 0.11 $ 0.20 $ 0.51
======== ======== ======== ========

NOTE 10 NEW ACCOUNTING PRONOUNCEMENTS

In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 141, "Business Combinations" (SFAS 141), and Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS 142).
SFAS 141 requires that all business combinations be accounted for under a single
method -- the purchase method. Use of the pooling-of-interest method is no
longer permitted. SFAS 141 requires that the purchase method be used for all
business combinations initiated after June 30, 2001. SFAS 142 requires, among
other things, that goodwill no longer be amortized to earnings, but instead
reviewed for impairment annually. Under SFAS 142, the amortization of goodwill
ceases upon adoption of the statement, which will become effective for the
Company on January 1, 2002. The Company has historically amortized its goodwill
over its estimated useful lives. Under SFAS 142, the amortization of goodwill
resulting from acquisitions prior to July 1, 2001 will cease to be amortized
effective January 1, 2002. The goodwill resulting from acquisitions made by the
Company subsequent to June 30, 2001 is immediately subject to the
non-amortization provisions of SFAS 142. The effects of adopting these standards
have not been completely determined.

F-33

ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)

In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 143, "Accounting for Asset Retirement Obligations" (SFAS 143). SFAS 143
establishes accounting standards for recognition and measurement of a liability
for an asset retirement obligation and the associated asset retirement cost.
SFAS 143 requires the recognition of the fair value of a liability for an asset
retirement obligation in the period in which it is incurred if a reasonable
estimate of fair value can be made. If a reasonable estimate of fair value
cannot be made in the period the asset retirement obligation is incurred, the
liability shall be recognized when a reasonable estimate of fair value can be
made. The fair value of a liability for an asset retirement obligation is the
amount at which that liability could be settled in a current transaction between
willing parties, that is, other than in a forced or liquidation transaction.
SFAS 143 is effective for financial statements issued for fiscal years beginning
after June 15, 2002. The provisions of SFAS 143 will become effective for the
Company on January 1, 2003. The effects of adopting this standard have not been
determined.

In October 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" (SFAS 144). SFAS 144 establishes a "primary-asset" approach to determine
the cash flow estimation period for a group of assets and liabilities that
represents the unit of accounting for a long-lived asset to be held and used.
SFAS 144 requires that a long-lived asset to be (1) abandoned, (2) exchanged for
a similar productive asset, or (3) distributed to owners in a spin-off be
considered held and used until it is abandoned, exchanged, or distributed. SFAS
144 requires (1) that spin-offs and exchanges of similar productive assets to be
recorded at the lower of carrying value or fair value, and that such assets be
classified as held and used until disposed of and (2) that any impairment loss
resulting from a spin-off or exchange of similar productive assets be recognized
when the asset is disposed of. The provisions of SFAS 144 will be come effective
for the Company on January 1, 2002. The effects of adopting this standard have
not been determined.

NOTE 11 SUBSEQUENT EVENT

On October 30, 2001, the Company announced that it filed a registration
statement with the Securities and Exchange Commission relating to the proposed
offering of 5.0 million common shares that includes 4.5 million shares to be
sold by the Company and 0.5 million shares to be sold by certain shareholders.
An additional 750,000 shares may be sold by a certain shareholder to the
underwriters to cover all over allotments. As of November 9, 2001, the Company
had approximately 24.6 million common shares outstanding.

NOTE 12 SUPPLEMENTAL CASH FLOW INFORMATION

NINE MONTHS ENDED
----------------------------------------
SEPTEMBER 30, 2001 SEPTEMBER 30, 2000
-------------------- -------------------
(IN THOUSANDS)

Non-cash investing and financing activities:
Stock issued as additional consideration
for purchased businesses ...................... $ 900 $ 201
======= ======
Stock issued for purchase of businesses ......... $14,798 $2,094
======= ======

F-34

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To The Kroll-O'Gara Company:

We have audited the accompanying combined balance sheets of THE SECURITY
PRODUCTS AND SERVICES GROUP (a wholly-owned segment of The Kroll-O'Gara Company
-- see Note 1) as of December 31, 1999 and 2000 and the related combined
statements of operations, parent's equity in segment and cash flows for each of
the three years in the period ended December 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of The Security
Products and Services Group as of December 31, 1999 and 2000, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States.

As explained in Note 2(o) to the combined financial statements, effective in the
first quarter of 1999, the Company changed its method of accounting for costs of
start-up activities.

Arthur Andersen LLP

Cincinnati, Ohio
April 20, 2001

F-35

THE SECURITY PRODUCTS AND SERVICES GROUP
COMBINED BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND 2000

1999 2000
---------------- ----------------

ASSETS (NOTE 7)
Current assets:
Cash and cash equivalents ............................................. $ 3,238,003 $ 2,160,667
Trade accounts receivable, net of allowance for doubtful accounts
of $958,749 and $1,220,454 in 1999 and 2000, respectively (Note 4) .. 23,070,754 22,700,811
Related party receivables (Note 6) .................................... 334,934 411,067
Costs and estimated earnings in excess of billings on uncompleted
contracts (Note 4) .................................................. 24,159,724 8,634,134
Inventories (Note 4) .................................................. 21,194,072 18,641,172
Prepaid expenses and other ............................................ 4,245,948 3,712,065
Deferred tax asset (Note 5) ........................................... 455,499 1,001,368
------------ -------------
Total current assets ................................................ 76,698,934 57,261,284
------------ -------------
Property, plant and equipment, at cost (Notes 3, 4 and 7):
Land .................................................................. 1,970,094 2,350,362
Buildings and improvements ............................................ 6,630,563 6,409,884
Leasehold improvements ................................................ 1,109,421 734,420
Furniture and fixtures ................................................. 4,989,378 5,520,345
Machinery and equipment ................................................ 11,430,893 13,097,138
------------ -------------
26,130,349 28,112,149

Less-accumulated depreciation .......................................... (9,155,674) (11,034,471)
------------ -------------
16,974,675 17,077,678
------------ -------------
Costs in excess of assets acquired and other intangible assets, net of
accumulated amortization of $3,181,580 and $3,836,381 in 1999 and
2000, respectively (Note 3) ........................................... 16,924,465 14,452,643
Other assets (Note 4) .................................................. 753,891 652,822
------------ -------------
17,678,356 15,105,465
------------ -------------
$111,351,965 $ 89,444,427
============ =============
LIABILITIES AND PARENT'S EQUITY IN SEGMENT
Current liabilities:
Current portion of debt due to third-parties (Note 7) ................. $ 2,245,927 $ 2,111,147
Trade accounts payable ................................................ 21,889,237 18,041,155
Billings in excess of costs and estimated earnings on uncompleted
contracts ........................................................... 360,725 --
Accrued liabilities (Note 4) .......................................... 6,665,966 8,304,120
Customer deposits and deferred revenue ................................ 1,381,456 5,498,582
------------ -------------
Total current liabilities ........................................... 32,543,311 33,955,004
Other long-term liabilities ............................................ 521,787 174,352
Deferred income taxes (Note 5) ......................................... 26,201 210,815
Long-term debt due to third parties, net of current portion (Note 7).... 853,639 1,004,296
------------ -------------
Total liabilities ................................................... 33,944,938 35,344,467
------------ -------------
Commitments and contingencies (Notes 8 and 11)
Parent's equity in segment (Notes 1 and 10):
Advances from Kroll-O'Gara, net ....................................... 77,360,861 58,138,979
Deferred compensation ................................................. (214,171) (72,176)
Accumulated other comprehensive income (loss) ......................... 260,337 (3,966,843)
------------ -------------
Total parent's equity in segment .................................... 77,407,027 54,099,960
------------ -------------
$111,351,965 $ 89,444,427
============ =============

The accompanying notes to combined financial statements are an
integral part of these combined balance sheets.

F-36

THE SECURITY PRODUCTS AND SERVICES GROUP
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000

1998 1999 2000
--------------- --------------- -----------------

Net sales .......................................... $137,736,262 $117,323,965 $ 104,991,972
Cost of sales ...................................... 99,075,439 84,025,859 86,126,825
------------ ------------ -------------
Gross profit ...................................... 38,660,823 33,298,106 18,865,147
Operating expenses:
Selling and marketing ............................. 9,423,372 9,135,057 6,782,321
General and administrative ........................ 11,385,896 16,348,053 16,915,286
Restructuring charge (Note 4(e)) .................. -- 291,757 685,620
------------ ------------ -------------
Operating expenses .............................. 20,809,268 25,774,867 24,383,227
------------ ------------ -------------
Operating income (loss) ......................... 17,851,555 7,523,239 (5,518,080)
Other income (expense):
Interest expense .................................. (2,410,211) (1,994,705) (2,365,341)
Interest income ................................... 472,365 71,306 99,032
Litigation settlement (Note 11(c)) ................ -- -- (1,254,457)
Other, net ........................................ (547,593) (244,391) (697,298)
------------ ------------ -------------
Other expense ................................... (2,485,439) (2,167,790) (4,218,064)
------------ ------------ -------------
Income (loss) before provision for income taxes
and cumulative effect of change in accounting
principle ...................................... 15,366,116 5,355,449 (9,736,144)
Provision for income taxes (Note 5) ................ (5,978,353) (3,534,299) (274,626)
------------ ------------ -------------
Income (loss) before cumulative effect of change
in accounting principle ........................ 9,387,763 1,821,150 (10,010,770)
Cumulative effect of change in accounting principle,
net of applicable tax benefit of $408,000 in 1999
(Note 2(o)) ....................................... -- (778,041) --
------------ ------------ -------------
Net income (loss) .............................. $ 9,387,763 $ 1,043,109 $ (10,010,770)
============ ============ =============

Theaccompanying notes to combined financial statements are an
integral part of these combined statements.

F-37

THE SECURITY PRODUCTS AND SERVICES GROUP
COMBINED STATEMENTS OF PARENT'S EQUITY IN SEGMENT
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000

ACCUMULATED
OTHER
COMPREHENSIVE ADVANCES FROM DEFERRED COMPREHENSIVE
INCOME (LOSS) KROLL O'GARA COMPENSATION INCOME (LOSS) TOTAL
------------------ --------------- -------------- --------------- ----------------

Balance, December 31, 1997 ............ $ 27,246,665 $ -- $ (547,406) $ 26,699,259
Comprehensive income:
Net income ........................... $ 9,387,763 9,387,763 -- -- 9,387,763
--------------
Other comprehensive income (loss),
net of tax (Notes 2(m) and 12):
Foreign currency translation
adjustment, net of $330,000 tax
benefit ............................. (494,432) -- -- -- --
--------------
Other comprehensive loss ............. (494,432) -- -- (494,432) (494,432)
--------------
Comprehensive income ................ $ 8,893,331 -- -- -- --
==============
Change in advances from Kroll-O'Gara... 29,998,511 -- -- 29,998,511
------------- ---------- ------------ -------------
Balance, December 31, 1998 ............ 66,632,939 -- (1,041,838) 65,591,101
Comprehensive income (loss):
Net income ........................... $ 1,043,109 1,043,109 -- -- 1,043,109
--------------
Other comprehensive income (loss),
net of tax (Notes 2(m) and 12):
Foreign currency translation
adjustment, net of $868,000 tax
provision ........................... 1,302,175 -- -- -- --
--------------
Other comprehensive income ........... 1,302,175 -- -- 1,302,175 1,302,175
--------------
Comprehensive income ................ $ 2,345,284 -- -- -- --
==============
Change in advances from Kroll-O'Gara... 9,271,218 -- -- 9,271,218
Deferred compensation related to
restricted stock of Kroll-O'Gara
(Note 10(b)) ......................... 413,595 (214,171) -- 199,424
------------- ---------- ------------ -------------
Balance, December 31, 1999 77,360,861 (214,171) 260,337 77,407,027
Comprehensive income (loss):
Net loss ............................. $ (10,010,770) (10,010,770) -- -- (10,010,770)
--------------
Other comprehensive income (loss),
net of tax (Notes 2(m) and 12):
Foreign currency translation
adjustment, net of $131,000 tax
provision .......................... (4,227,180) -- -- -- --
--------------
Other comprehensive loss ............ (4,227,180) -- -- (4,227,180) (4,227,180)
--------------
Comprehensive loss ................. $ (14,237,950) -- -- -- --
==============
Change in advances from Kroll-O'Gara... (9,211,112) -- -- (9,211,112)
Deferred compensation related to
restricted stock of Kroll-O'Gara
(Note 10(b)) ......................... -- 141,995 -- 141,995
------------- ---------- ------------ -------------
Balance, December 31, 2000 ............ $ 58,138,979 $ (72,176) $ (3,966,843) $ 54,099,960
============= ========== ============ =============

Theaccompanying notes to combined financial statements are an
integral part of these combined statements.

F-38

THE SECURITY PRODUCTS AND SERVICES GROUP
COMBINED STATEMENTS OF CASH FLOWS (NOTE 14)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000

1998 1999 2000
---------------- --------------- ----------------

Cash flows from operating activities:

Net income (loss) .............................................................. $ 9,387,763 $ 1,043,109 $ (10,010,770)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operations--
Depreciation and amortization ................................................ 2,413,473 3,688,942 3,720,053
Bad debt expense ............................................................. 337,203 1,132,518 1,186,307
Shareholder stock compensation ............................................... -- 199,424 91,136
Change in assets and liabilities, net of effects of acquisitions--
Trade receivables ............................................................ (6,794,252) (2,788,128) (1,392,352)
Costs and estimated earnings in excess of billings on uncompleted
contracts .................................................................. (14,510,296) 2,248,373 15,494,298
Inventories, prepaid expenses and other assets ............................... (4,094,132) (976,767) 1,925,246
Accounts payable and income taxes currently payable .......................... 1,198,949 1,899,901 (3,395,843)
Billings in excess of costs and estimated earnings on uncompleted
contracts .................................................................. (68,214) 178,069 (360,725)
Amounts due to/from related parties .......................................... (158,862) (294,758) (76,133)
Deferred taxes ............................................................... 175,885 321,056 (361,255)
Accrued liabilities, long-term liabilities and customer deposits ............. 2,457,446 (3,472,586) 5,841,556
-------------- ------------- -------------
Net cash provided by (used in) operating activities ........................ (9,655,037) 3,179,153 12,661,518
-------------- ------------- -------------
Cash flows from investing activities:
Purchases of property, plant and equipment, net ................................ (3,868,200) (6,176,704) (5,013,508)
Acquisition, net of cash acquired (Note 3) ..................................... (3,200,000) -- --
-------------- ------------- -------------
Net cash used in investing activities ...................................... (7,068,200) (6,176,704) (5,013,508)
-------------- ------------- -------------
Cash flows from financing activities:
Proceeds from third party debt, net ............................................ 457,511 -- 84,627
Payments of third party debt, net .............................................. (559,112) (495,859) (68,750)
Increase (decrease) in advances from Kroll-O'Gara, net ......................... 16,748,478 2,823,565 (9,160,253)
Other .......................................................................... (581,551) 1,608,717 599,417
-------------- ------------- -------------
Net cash provided by (used in) financing activities ........................ 16,065,326 3,936,423 (8,544,959)
-------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents ............................ (657,911) 938,872 (896,949)
Effects of foreign currency exchange rates on cash and cash equivalents ........ 87,119 (179,387) (180,387)
Cash and cash equivalents, beginning of year .................................... 3,049,310 2,478,518 3,238,003
-------------- ------------- -------------
Cash and cash equivalents, end of year .......................................... $ 2,478,518 $ 3,238,003 $ 2,160,667
============== ============= =============

Theaccompanying notes to combined financial statements are an
integral part of these combined statements.

F-39

THE SECURITY PRODUCTS AND SERVICES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The Security Products and Services Group (SPSG or the Company) is a
wholly-owned segment of The Kroll-O'Gara Company (Kroll-O'Gara).

On April 20, 2001, the Board of Directors of Kroll-O'Gara approved a
definitive agreement, subject to a limited number of closing conditions, to
sell the common stock of the active companies that comprise Kroll-O'Gara's
SPSG segment, other than SPSG's subsidiaries that provide kidnap and ransom
and risk information services, SPSG's Russian subsidiaries and certain
other inactive companies, to Armor Holdings, Inc. (Armor) for up to $56.5
million. The accompanying SPSG combined financial statements and footnotes
exclude the subsidiaries that provide kidnap and ransom and risk
information services as they will continue to be operated by Kroll-O'Gara
after the sale of SPSG. The Russian subsidiaries and certain other inactive
companies are included within the accompanying combined financial
statements as they have historically been included within the SPSG segment
and might not be operated by Kroll-O'Gara after the sale. The Russian
subsidiaries and certain other inactive companies had combined total assets
of approximately $3.0 million at December 31, 2000 and net revenues of
approximately $1.9 million for the year ended December 31, 2000.

Of the $56.5 million sales price, a portion ($53.0 million subject to
adjustment) is to be paid at closing, currently expected to occur late in
the second quarter or in the third quarter of 2001. An escrow of $1.5
million will be maintained and a deferred payment of up to $2.0 million may
be made based on the Company's achievement of a gross profit target for the
year ending December 31, 2001. At Armor's option, up to $15.0 million of
the purchase price can be paid in registered common stock of Armor. The
purchase price will be reduced dollar-for-dollar to the extent tangible net
assets, as defined, are less than approximately $37.4 million. Kroll-O'Gara
currently believes the sale of SPSG will approximate the value of parent's
equity in segment. In the event the sale to Armor is not consummated,
Kroll-O'Gara will continue to evaluate all options available to it,
including seeking other buyers or other alternatives.

The accompanying combined financial statements are presented on a carve-out
basis and include the historical results of operations and assets and
liabilities of the SPSG entities as noted above. These combined financial
statements have been prepared from Kroll-O'Gara's historical accounting
records.

SPSG was allocated $2.5 million, $3.9 million and $4.5 million of overhead
costs related to Kroll-O'Gara's corporate administrative functions in 1998,
1999 and 2000, respectively. The allocations were based on a specific
identification of Kroll-O'Gara's administrative costs attributable to SPSG
and, to the extent that such identification was not practicable, on the
basis of SPSG's sales as a percentage of Kroll-O'Gara's sales. The expenses
associated with various corporate initiatives of Kroll-O'Gara were not
allocated to SPSG. The allocated costs are included in the various
operating expense captions in the accompanying combined statements of
operations.

SPSG's operations have been financed through its operating cash flows and
advances from Kroll-O'Gara. SPSG's interest expense includes an allocation
of Kroll-O'Gara's interest expense based on Kroll-O'Gara's weighted average
interest rate applied to intercompany advances. Interest expense allocated
from Kroll-O'Gara was $2.0 million, $1.7 million and $1.9 million for the
years ended December 31, 1998, 1999 and 2000, respectively, at weighted
average interest rates of 6.2%, 5.4%, and 9.5% for the years ended December
31, 1998, 1999, and 2000, respectively. Income tax was calculated as if
SPSG had filed separate income tax returns. SPSG's current income taxes
receivable or payable at any point in time are included in the advances
from Kroll-O'Gara balance in parent's equity in segment. The advances from
Kroll-O'Gara balance in

F-40

THE SECURITY PRODUCTS AND SERVICES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS

parent's equity in segment also includes the equity accounts of specific
legal entities included in SPSG, the net assets or liabilities of divisions
included in SPSG and the net intercompany receivable and payable balances
of all entities and divisions with Kroll-O'Gara.

Management believes that the allocation methodologies utilized are
reasonable.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Nature of Operations--SPSG markets ballistic and blast-protected
vehicles and security services. All material intercompany accounts and
transactions are eliminated. Investments in 20% to 50% owned entities
are accounted for using the equity method and investments in less than
20% owned entities are accounted for using the cost method. Affiliated
entities are not included in the accompanying combined financial
statements, and include entities that are directly or indirectly owned
by current shareholders or former shareholders.

(b) Revenue Recognition--Revenue related to certain contracts for security
products (both government and commercial) that results principally from
long-term fixed price contracts is recognized on the
percentage-of-completion method calculated utilizing the cost-to-cost
approach. The percent deemed to be complete is calculated by comparing
the costs incurred to date to estimated total costs for each contract.
This method is used because management considers costs incurred to be
the best available measure of progress on these contracts. However,
adjustments to this measurement are made when management believes that
costs incurred materially exceed effort expended. Contract costs
include all direct material and labor costs, along with certain direct
overhead costs related to contract production. Changes in estimated
total contract costs will result in revisions to the percentage of
contract revenue recognized. These revisions are recognized when
determined.

Revenue related to other contracts for security products (both government
and commercial) that results principally from short-term fixed price
contracts is recognized on the completed contract method. Provisions for
estimated total contract losses on any uncompleted contracts are recorded
in the period in which it becomes known that such losses will occur.

(c) Cash and Cash Equivalents--Cash equivalents consist of all highly
liquid debt instruments with an initial maturity of three months or
less at the date of purchase. SPSG invests excess cash in overnight
repurchase agreements, which are government-collateralized securities.
The carrying amount of cash and cash equivalents approximates fair
value of those instruments due to their short maturity.

(d) Concentrations of Credit Risk--Financial instruments that subject SPSG
to credit risk consist principally of trade receivables. Concentrations
of credit risk with respect to accounts receivable are limited by the
number of clients that comprise SPSG's client base, along with the
different industries and geographic regions in which SPSG's clients
operate. SPSG does not generally require collateral or other security
to support client receivables, although SPSG does require retainers,
up-front deposits or irrevocable letters-of-credit in certain
situations. SPSG has established an allowance for doubtful accounts
based upon facts surrounding the credit risk of specific clients and
past history. Management does not anticipate incurring losses on its
trade receivables in excess of established allowances.

F-41

THE SECURITY PRODUCTS AND SERVICES GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS

(e) Property, Plant and Equipment--Property, plant and equipment are
stated at cost. Depreciation is computed on both straight-line and
accelerated methods over the estimated useful lives of the related
assets as follows:

Buildings and improvements ......... 5-40 years
Furniture and fixtures ............. 4-10 years
Machinery and equipment ............ 3-12 years
Leasehold improvements ............. Life of lease

(f) Impairment of Long-Lived Assets--Pursuant to the provisions of
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of" (SFAS 121), long-lived assets, certain identifiable
intangibles and goodwill related to those assets must be reviewed for
impairment by asset group for which the lowest level of independent
cash flows can be identified. In accordance with this standard, SPSG
periodically reviews the carrying value of these assets and impairments
are recognized when the expected undiscounted future cash flows are
less than the carrying amount of the asset. Based on its most recent
analysis, SPSG believes no impairment existed at December 31, 2000.
However, it is possible, due to a change in circumstances, that
carrying values could become impaired in the future. Such impairment
could have a material effect on the results of operations in a
particular reporting period.

(g) Costs in Excess of Assets Acquired--Costs in excess of assets acquired
represents the excess of the purchase cost over the fair value of net
assets acquired in a purchase business combination. Costs in excess of
assets acquired, net of accumulated amortization, as of December 31,
1999 and 2000 were approximately $15,218,000 and $13,027,000,
respectively. Amortization is recorded on a straight-line basis over
periods ranging from 15 to 40 years. Amortization of costs in excess of
assets acquired for the years ended December 31, 1998, 1999, and 2000
was approximately $642,000, $973,000 and $673,000, respectively.

(h) Other Intangible Assets--Other intangible assets, comprised mainly of
customer lists and non-compete agreements, are amortized on a
straight-line basis. Customer lists are amortized over a fifteen year
period and the non-compete agreements are amortized over the lives of
the respective agreements, which range from two and one-half years to
five years. Other intangible assets, net of accumulated amortization,
as of December 31, 1999 and 2000 were approximately $1,707,000 and
$1,426,000, respectively. Amortization of other intangible assets for
the years ended December 31, 1998, 1999 and 2000 was approximately
$469,000, $489,000 and $404,000, respectively.

(i) Foreign Currency Translation--Assets and liabilities of foreign
operations are translated using yearend exchange rates and revenues and
expenses are translated using exchange rates prevailing during the
year, with gains or losses resulting from translation included as a
separate component of parent's equity in segment.

Gains or losses resulting from foreign currency transactions are translated
to local currency at the rates of exchange prevailing at the dates of the
transactions. Amounts receivable or payable in foreign currencies, other
than the subsidiary's local currency, are translated at the rates of
exchange prevailing at the balance sheet date. The effect of transactional
gains or losses is included in other income (expense) in the accompanying
combined statements of operations.

(j) Use of Estimates--The preparation of financial statements in conformity
with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of

F-42

THE SECURITY PRODUCTS AND SERVICES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS

contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

(k) Research and Development--Research and development costs are expensed
as incurred. SPSG incurred approximately $537,000, $297,000 and
$630,000 for the years ended December 31, 1998, 1999 and 2000,
respectively, for research and development. These costs are included in
general and administrative expenses in the accompanying combined
statements of operations.

(l) Advertising--SPSG expenses the cost of advertising as incurred.
Advertising expenses for the years ended December 31, 1998, 1999 and
2000 were approximately $1,340,000, $1,510,000 and $1,554,000,
respectively.

(m) New Accounting Pronouncements--In 1998, SPSG adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (SFAS 130), which established standards for reporting and
displaying comprehensive income and its components in a financial
statement that is displayed with the same prominence as other financial
statements. SPSG has chosen to disclose comprehensive income, which
encompasses net income and foreign currency translation adjustments, in
the combined statements of parent's equity in segment. The accumulated
other comprehensive income (loss) balances of ($1.0) million, $0.3
million and ($4.0) million at December 31, 1998, 1999 and 2000,
respectively, consisted entirely of foreign currency translation
adjustments.

In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133). SFAS 133
establishes accounting and reporting standards requiring that derivative
instruments (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as assets and liabilities
measured at fair value. SFAS 133 requires that changes in the derivative's
fair value be recognized currently in earnings unless specific hedge
accounting criteria are met. SFAS 133, as amended, is effective for fiscal
years beginning after June 15, 2000. SPSG has several forward contracts in
place in association with its net investment in one of its subsidiaries.
These instruments have historically qualified for hedge accounting
throughout the periods presented in the accompanying combined financial
statements. SPSG has adopted the provisions of SFAS 133 beginning on
January 1, 2001. SPSG has designated these contracts as net investment
hedges under SFAS 133 and, as such, the accounting under this new statement
will approximate its previous accounting. Based on current hedge
instruments and designations, SPSG will account for changes in the fair
value of its net investment hedge contracts with the related changes in
fair value reported in other comprehensive income (loss). SPSG does not
expect that it will realize any material charges to earnings pursuant to
SFAS 133. See Note 12 for further discussion. However, in the event of a
future change in facts or in the underlying net investment hedge
relationships, SPSG could experience future volatility in earnings. A sale
of net assets or portions of the business that does not include the
corresponding hedge instrument could also result in future volatility in
earnings.

(n) Stock-Based Compensation--SPSG has elected to account for the cost of
its employee stock options and other forms of employee stock-based
compensation plans utilizing the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25 (APB 25) as allowed by
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123). APB 25 requires compensation cost
for stock-based compensation plans to be recognized based on the
difference, if any, between the fair market value of the stock on the
date of grant and the option exercise price. SFAS 123 established a
fair value-based method of accounting for compensation cost related to
stock options and

F-43

THE SECURITY PRODUCTS AND SERVICES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS

other forms of stock-based compensation. SFAS 123 allows an entity to
continue to measure compensation cost using the principles of APB 25 if
certain pro forma disclosures are made. The pro forma disclosures
required by SFAS 123 are presented in Note 10(c).

(o) Change in Accounting Principle--In April 1998, the American Institute
of Certified Public Accountants released Statement of Position (SOP)
98-5, "Reporting on the Cost of Start-Up Activities". The SOP requires
costs of start-up activities, including preoperating costs,
organization costs and other start-up costs, to be expensed as
incurred. SPSG's former practice was to capitalize certain of these
expenses and amortize them over periods ranging from one to five years.
SPSG adopted the provisions of this statement in the first quarter of
1999 and recorded a cumulative effect of a change in accounting
principle of $0.8 million, net of a tax benefit of $0.4 million.

(p) Derivative Financial Instruments--Financial instruments in the form of
foreign currency exchange contracts are utilized by SPSG to hedge its
exposure to movements in foreign currency exchange rates. SPSG does not
hold or issue derivative financial instruments for trading purposes.
Gains and losses on foreign exchange contracts are deferred and
amortized as an adjustment to the cumulative foreign currency
translation adjustment component of equity over the terms of the
agreements in accordance with hedge accounting standards. The carrying
value of foreign currency exchange contracts is not equal to the fair
value. See Note 12 for further discussion.

(q) Reclassifications--Certain reclassifications have been reflected in
1998 and 1999 to conform with the current period presentation.
Specifically, in accordance with EITF Issue No. 99-19, "Reporting
Revenue Gross as a Principal versus Net as an Agent" and EITF Issue No.
00-14, "Accounting for Certain Sales Incentives," SPSG has made
reclassifications in the 1998 and 1999 combined statements of
operations to include certain types of costs that are billed to its
customers in net sales instead of offsetting the revenues against cost
of sales and selling and marketing expenses.

3. MERGERS AND ACQUISITIONS

Kroll-O'Gara completed one acquisition in SPSG in 1998 that was accounted
for as a purchase business combination. In September 1998, Kroll-O'Gara,
through its O'Gara-Hess & Eisenhardt de Columbia (OHE-Columbia) subsidiary,
completed the acquisition of the assets of Protec, S.A. (Protec),
headquartered in Bogota, Colombia, which specializes in vehicle armoring
systems and manufacturing bullet and smash resistant glass for its own use
and for sale to third parties. OHE-Columbia has been included in SPSG. The
purchase price of this acquisition amounted to approximately $4.1 million
and consisted of $3.2 million in cash and 38,788 shares of Kroll-O'Gara
common stock (valued at approximately $0.9 million or an average of $22.95
per share). For accounting purposes, the acquisition was effective on
October 1, 1998, and the results of operations of OHE-Columbia are included
in the combined financial statements from that date forward. The resulting
goodwill from this transaction is being amortized over a 20 year period.

F-44

THE SECURITY PRODUCTS AND SERVICES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS

In connection with the 1998 purchase acquisition of Protec, the original
assets acquired and liabilities assumed were as follows (dollars in
thousands):

FAIR VALUE OF ASSETS ACQUIRED INCLUDING:
Other current assets .................................................. $ 75
Property, plant and equipment ......................................... 311
Costs in excess of assets acquired and other intangible assets ........ 3,917
--------
4,303

Less: Cash paid for net assets ........................................ (3,200)
Fair value of Kroll-O'Gara stock issued ............................... (890)
--------
$ 213
========
LIABILITIES ASSUMED INCLUDING:
Liabilities assumed and acquisition costs ............................. $ 99
Debt .................................................................. 114
--------
$ 213
========

4. BALANCE SHEET ACCOUNTS

(a) Trade Accounts Receivable and Costs and Estimated Earnings in Excess of
Billings on Uncompleted Contracts--The following summarizes the
components of trade accounts receivable and costs and estimated
earnings in excess of billings on uncompleted contracts:

DECEMBER 31,
-----------------------------
1999 2000
------------- -------------

United States Military:
Billed receivables ...................................... $ 4,877,570 $ 6,826,533
Costs and estimated earnings in excess of billings on
uncompleted contracts .................................. 13,827,929 7,265,288
----------- -----------
Total United States Military ......................... $18,705,499 $14,091,821
=========== ===========
Other contracts and receivables:
Billed receivables ...................................... $18,193,184 $15,874,278
Costs and estimated earnings in excess of billings on
uncompleted contracts .................................. 10,331,795 1,368,846
----------- -----------
Total other contracts and receivables ................ $28,524,979 $17,243,124
=========== ===========
Total trade accounts receivable, net ...................... $23,070,754 $22,700,811
=========== ===========
Total costs and estimated earnings in excess of billings on
uncompleted contracts .................................... $24,159,724 $ 8,634,134
=========== ===========

Costs and estimated earnings in excess of billings on uncompleted contracts
are net of $131,582,751 and $139,118,840 of progress billings to the United
States Military at December 31, 1999 and 2000, respectively.

Costs and estimated earnings in excess of billings on uncompleted contracts
represent revenue recognized on long-term contracts in excess of billings
because amounts were not billable at the balance sheet date. It is
anticipated such unbilled amounts attributable to the United States
Military will generally be billed over the next 180 days from the balance
sheet date as shipments

F-45

THE SECURITY PRODUCTS AND SERVICES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS

are made. Amounts receivable on other contracts are also generally billed
as shipments are made. It is estimated that substantially all such amounts
will be billed within one year, although contract extensions may delay
certain collections beyond one year.

The following summarizes activity in the allowance for doubtful accounts on
trade accounts receivable:

ADDITIONS
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND BALANCE AT
PERIOD EXPENSES DEDUCTIONS END OF PERIOD
-------------- ------------ -------------- --------------

Year ended December 31, 1998 ......... $657,254 $ 337,203 $ (484,947) $ 509,510
Year ended December 31, 1999 ......... 509,510 1,132,518 (683,279) 958,749
Year ended December 31, 2000 ......... 958,749 1,186,307 (924,602) 1,220,454

(b) Inventories--Inventories are stated at the lower cost or market using
the first-in, first-out (FIFO) method and include the following:

DECEMBER 31,
-----------------------------
1999 2000
-------------- --------------

Raw materials ............................. $14,494,953 $11,650,878
Vehicle costs and work-in-process ......... 6,699,119 6,990,294
----------- -----------
$21,194,072 $18,641,172
=========== ===========

The following summarizes activity in valuation reserves for inventory
obsolescence:

ADDITIONS
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND BALANCE AT
PERIOD EXPENSES DEDUCTIONS END OF PERIOD
-------------- ----------- ------------ --------------

Year ended December 31, 1998 ........ $340,332 $ 9,668 $-- $ 350,000
Year ended December 31, 1999 ........ 350,000 116,752 -- 466,752
Year ended December 31, 2000 ........ 466,752 857,648 -- 1,324,400

(c) Other Assets--Other assets are stated at cost less accumulated
amortization and are being amortized on a straight-line basis over
their estimated useful lives, as applicable. Other assets consist of
the following:

DECEMBER 31,
USEFUL LIFE -------------------------
DESCRIPTION (YEARS) 1999 2000
----------- ------- ---- ----

Security deposits ..................................... -- $ 95,065 $ 63,691
Deferred financing fees ............................... 30 152,940 152,940
Investment is unconsolidated subsidiary and other ..... 20 493,316 474,987
Advances to Kroll-O'Gara shareholder .................. -- 80,119 40,000
--------- ---------
821,440 731,618
Less--accumulated amortization ........................ (67,549) (78,796)
--------- ---------
$ 753,891 $ 652,822
========= =========

F-46

THE SECURITY PRODUCTS AND SERVICES GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS

(d) Accrued Liabilities--Accrued liabilities consist of the following:

DECEMBER 31,
-----------------------------
DESCRIPTION 1999 2000
----------- ------------- -------------

Payroll and related benefits .................... $3,625,072 $2,538,146
Accrued professional fees ....................... -- 124,199
Property, sales and other taxes payable ......... 400,306 683,567
Accrued medical costs ........................... 332,394 295,845
Accrued interest ................................ -- 5,052
Accrued warranty reserve ........................ 442,597 464,933
Accrued restructuring reserve ................... -- 315,146
Other accruals .................................. 1,865,597 3,877,232
---------- ----------
$6,665,966 $8,304,120
========== ==========

(e) Restructuring of Operations--In the first quarter of 1999, SPSG began
implementation of a restructuring plan (the 1999 Plan) to reduce costs
and improve operating efficiencies. The 1999 Plan was substantially
completed by the end of the second quarter of 1999. The total
non-recurring pre-tax restructuring charge recorded pursuant to the
1999 Plan was approximately $0.3 million. Total payments or writeoffs
made pursuant to the 1999 Plan through December 31, 1999 were $0.3
million. SPSG does not expect to incur any other significant
restructuring charges in future periods related to the 1999 Plan. The
principal element of the restructuring plan was the elimination of
approximately 55 employees. The components of the restructuring charge
in 1999 were as follows:

DESCRIPTION EXPENSE
----------- -----------

Severance and related costs ......................... $195,095
Writedown of property, plant and equipment .......... 96,662
--------
$291,757

========

In the third quarter of 2000, SPSG implemented and completed a plan to
reduce costs and improve operating efficiencies (the 2000 Plan) with a
total non-recurring pre-tax restructuring charge of approximately $0.7
million. Total payments pursuant to the 2000 Plan through December 31, 2000
were $0.4 million. SPSG does not expect to incur any other significant
restructuring charges in future periods related to the 2000 Plan. The
principal element of the restructuring plan was the elimination of
approximately 25 employees. The only component of the restructuring charge
was severance related to the termination of employees. At December 31,
2000, approximately $0.3 million remained as an accrual relating to the
2000 Plan.

5. INCOME TAXES

PSG accounts for income taxes under the liability method pursuant to
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." Under the liability method, deferred tax liabilities and assets are
determined based on the differences between the financial reporting and tax
bases of assets and liabilities using enacted tax rates.

SPSG is a wholly-owned subsidiary of Kroll-O'Gara and does not file an
individual tax return. Accordingly, for purposes of these separate combined
financial statements, SPSG has computed

F-47

THE SECURITY PRODUCTS AND SERVICES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS

deferred income tax assets and liabilities using the separate return method
as allowed by SFAS 109. Under this method, the allocation of tax expense or
tax benefit is based on what SPSG's current and deferred tax expense would
have been had SPSG filed separate tax returns. This method also assumes
that all net operating loss carryforwards are available to be utilized by
the respective subsidiaries in the segment.

SPSG's provision for income taxes, excluding the cumulative effect of a
change in accounting principle, is summarized as follows:

1998 1999 2000
------------- ------------- ------------

Currently payable:
Federal ................. $4,019,928 $2,813,258 $ --
State and local ......... 709,399 496,457 --
Foreign ................. 1,632,204 592,815 322,402
---------- ---------- ---------
6,361,531 3,902,530 322,402
---------- ---------- ---------
Deferred:
Federal ................. (325,701) (128,546) 41,790
State and local ......... (57,477) (22,684) 7,375
Foreign ................. -- (217,001) (96,941)
---------- ---------- ---------
(383,178) (368,231) (47,776)
---------- ---------- ---------
$5,978,353 $3,534,299 $ 274,626
========== ========== =========

A reconciliation between the statutory federal income tax rate and the
effective tax rate is summarized as follows:

1998 1999 2000
------------------------ ------------------------ ------------------------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
------------- ---------- ------------- ---------- ---------------- -------------

Provision (benefit) for income
taxes at the federal statutory
rate ................................. $5,224,479 34.0% $1,820,853 34.0% $ (3,310,289) (34.0)%
State and local income taxes,
net of federal benefit ............... 433,063 2.8 285,680 5.3 62,979 0.7
Nondeductible expenses ................ (106,743) (0.7) 314,421 5.9 770,133 7.9
Change in valuation allowance ......... 107,206 0.7 661,620 12.4 2,418,132 24.8
Effect of foreign losses .............. 156,041 1.0 31,262 0.6 284,507 2.9
Other ................................. 164,307 1.1 420,463 7.8 49,164 0.5
---------- ---- ---------- ---- ------------ -----
Provision for income taxes ............ $5,978,353 38.9% $3,534,299 66.0% $ 274,626 2.8%
========== ==== ========== ==== ============ =====

F-48

THE SECURITY PRODUCTS AND SERVICES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS

The components of SPSG's combined deferred income tax assets and
liabilities as of December 31 are summarized below:

1999 2000
------------- ---------------

Deferred tax assets:
Allowance for doubtful accounts .......................... $ 213,396 $ 467,274
Depreciation and amortization ............................ 78,838 37,791
Net operating loss carryforwards ......................... 867,985 3,287,382
Payroll and other benefits ............................... 534,734 556,921
Other accruals ........................................... 212,764 220,786
Other .................................................... 89,300 327,482
---------- ------------
1,997,017 4,897,636
Valuation allowance ....................................... (867,985) (3,287,382)
---------- ------------
Net deferred tax assets .................................. 1,129,032 1,610,254
---------- ------------
Deferred tax liabilities:
Percentage of completion on foreign subsidiaries ......... (201,148) --
Foreign leasing transactions ............................. (147,146) (145,332)
Other .................................................... (351,440) (674,369)
---------- ------------
(699,734) (819,701)
---------- ------------
Net deferred tax asset ................................ $ 429,298 $ 790,553
========== ============

SPSG has certain domestic and foreign net operating loss carryforwards. The
domestic net operating loss carryforward approximated $5.9 million at
December 31, 2000 and expires in 2015. There was no domestic net operating
loss carryforward at December 31, 1999. The foreign net operating loss
carryforwards approximated $2.6 million and $3.9 million at December 31,
1999 and 2000, respectively, and relate primarily to Mexico and the
Philippines. These carryforwards expire beginning in 2001. A valuation
allowance for all existing domestic and foreign net operating loss
carryforwards has been provided as it is not certain that the tax benefit
will be realized in the foreseeable future. Adjustments to the valuation
allowance, if any, will be recorded in the periods in which it is
determined the asset is realizable.

F-49

THE SECURITY PRODUCTS AND SERVICES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS

6. RELATED PARTY TRANSACTIONS

(a) Summary of Related Party Transactions--The following summarizes
transactions with related parties:

YEARS ENDED DECEMBER 31,
--------------------------------------
1998 1999 2000
------------ ---------- ----------

Purchases
from Kroll-O'Gara Shareholder ............................... $ 118,700 $ 90,350 $ --
from affiliated entities .................................... 1,325,410 --
Lease expense to affiliated entities ......................... 838,597 566,213 450,764
Non-interest bearing advances to Kroll-O'Gara
shareholders ................................................ 562,541 132,707 92,587
Non-interest bearing advances to affiliated entities ......... 282,346 282,346 358,480

(b) Equipment Leases with Affiliated Entities--SPSG is currently leasing
various equipment from an affiliated entity under month-to-month lease
agreements. Rental expense approximated $547,000, $484,000 and $451,000
for the years ended December 31, 1998, 1999 and 2000, respectively.

7. LONG-TERM DEBT DUE TO THIRD PARTIES

(a) Debt Specifically Allocated to SPSG--The components of long-term debt
due to third parties are as follows at:

DECEMBER 31,
-------------------------------
1999 2000
--------------- ---------------

Economic Development Revenue Bonds, variable interest rate approximating 85%
of the bond equivalent yield of 13 week U.S. Treasury bills (not to exceed
12%) which approximated 5.84% at December 31, 2000, payable in scheduled
installments through September 2016, subject to optional tender by the
bondholders and a corresponding remarketing agreement, secured by certain
property, plant and equipment
and a bank letter of credit (Note 11) ......................... $ 1,275,974 $ 1,207,224
Notes payable to former shareholders of acquired company,
interest at 10%, payable in 2001 .............................. 250,000 250,000
Other notes payable, interest at 6% to 10.9%, payable in
scheduled installments through November 2010, certain notes
secured by various equipment .................................. 1,573,592 1,658,219
------------ ------------
3,099,566 3,115,443
Less--current portion ........................................... (2,245,927) (2,111,147)
------------ ------------
$ 853,639 $ 1,004,296
============ ============

F-50

THE SECURITY PRODUCTS AND SERVICES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS

Scheduled maturities of long-term debt at December 31, 2000 are as follows:

2001 ...................................................... $2,111,147
2002 ...................................................... 179,503
2003 ...................................................... 150,585
2004 ...................................................... 155,616
2005 ...................................................... 166,961
Thereafter ................................................ 351,631
----------
$3,115,443
==========

Included in other notes payable is a foreign revolving line-of-credit not
to exceed $500,000. Amounts outstanding were $384,706 and $333,000 at
December 31, 1999 and 2000, respectively.

(b) Parent's Debt Not Specifically Allocated to SPSG--On March 30, 2001,
Kroll-O'Gara entered into an amended and restated loan agreement to
provide for a revolving credit facility that initially amounts to $40.0
million. The agreement was further amended on April 20, 2001 and
expires on May 31, 2002. Additionally, the agreement provides for a
letter of credit facility of $1,356,250 supporting the Company's
Economic Development Revenue Bonds and up to $6.0 million of
transactional letters of credit (see Note 11). Letters of credit cannot
be issued or renewed with a maturity date beyond May 31, 2002. Advances
under the revolving credit facility bear interest at prime plus 1.5% at
December 31, 2000, and, based on the amendments on March 30, 2001 and
April 20, 2001, bear interest at the greater of (a) 8.56% or (b) the
prime rate plus 1.5%, plus 0.5% times the number of 30-day periods
which have expired since April 20, 2001 (or, if less, the highest rate
allowed by law). Kroll-O'Gara had approximately $36.5 million borrowed
under the line of credit at December 31, 2000.

Kroll-O'Gara had $35.0 million of senior notes payable outstanding at
December 31, 2000. These agreements were also amended on March 30, 2001 and
April 20, 2001. Based on the amendments, the senior notes bear interest at
the greater of (a) 8.56% or (b) the prime rate plus 1.5%, plus 0.5% times
the number of 30-day periods which have expired since April 20, 2001 (or,
if less, the highest rate allowed by law).

The loan agreement and the senior notes (together, the financing
agreements) are secured by substantially all assets of Kroll-O'Gara and its
subsidiaries and a pledge of the stock of essentially all of the
subsidiaries, all of which jointly and severally guarantee obligations
under the financing agreements. These financing agreements include
financial covenants which, among other restrictions, require the
maintenance of certain financial ratios and other financial requirements,
including an interest coverage ratio, net worth minimums and minimum
quarterly EBITDA, that requires Kroll-O'Gara to effectively break even
before taxes and to generate EBITDA of $6.0 million per quarter. The
financing agreements also impose limitations on mergers, acquisitions,
stock redemptions, additional indebtedness and capital expenditures. The
financing agreements do not permit the declaration or payment of any
dividends, other than stock dividends. The net proceeds from any
lender-approved asset sales in excess of $1.0 million per transaction or
$2.0 million per fiscal year must be paid proportionately to the revolving
credit facility lender and the holders of the senior notes, with a
corresponding reduction in the total permitted borrowings under the
revolving credit facility. A material adverse change in the business of
Kroll-O'Gara, including a significant sale of net assets, would result in
the acceleration of all amounts due to the revolving credit facility lender
and the holders of the senior notes. In accordance with the April 20, 2001
amendment to the loan agreement, Kroll-O'Gara's agreement to sell SPSG
would result in an acceleration of all amounts due under the loan agreement
60 days after the closing of the

F-51

THE SECURITY PRODUCTS AND SERVICES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS

sale. Kroll-O'Gara was not in compliance with certain covenants of the
financing agreements as of December 31, 2000. Had the lender and the
holders of senior notes not amended and restated the financing agreements,
all amounts outstanding under the financing agreements would have been
immediately payable. Kroll-O'Gara believes it has the capability to
continue to finance its operations and the operations of its segments
through fiscal 2001.

8. OPERATING LEASES

SPSG leases office space and certain equipment and supplies under
agreements with terms from one to fifteen years. The following is a
schedule, by year, of approximate future minimum rental or usage payments
required under operating leases that have initial or non-cancelable lease
terms in excess of one year as of December 31, 2000:

2001 ..................................................... $ 851,987
2002 ..................................................... 627,435
2003 ..................................................... 565,190
2004 ..................................................... 517,763
2005 ..................................................... 289,333
Thereafter ............................................... 724,333
----------
$3,576,041
==========

Rental expense charged against current operations amounted to approximately
$1,169,888, $1,536,174 and $1,784,236 for the years ended December 31,
1998, 1999 and 2000, respectively.

9. DEFINED CONTRIBUTION PLAN

SPSG participates in a Kroll-O'Gara sponsored profit sharing/401(k) plan
covering substantially all domestic employees. Contributions to the plan
are discretionary. The plan includes a matching contribution whereby SPSG
will contribute a percentage of the amount a participant contributes,
limited to certain maximum amounts. Plan contribution expense charged
against current operations amounted to approximately $236,000 and $146,000
for the years ended December 31, 1999 and 2000, respectively. There was no
contribution expense for the year ended December 31, 1998.

10. PARENT EQUITY ARRANGEMENTS

(a) Stock Option Plans--SPSG employees were granted stock options under
Kroll-O'Gara's 1996 stock option plan (the 1996 Plan). Options for
60,500, 220,400 and 82,000 shares were granted during 1998, 1999 and
2000, respectively. Options granted under the 1996 Plan were generally
granted at fair market value at the date of grant and are exercisable
over periods not exceeding ten years.

In 2000, Kroll-O'Gara adopted a stock option plan (the 2000 Plan) for
non-executive employees. Options for 289,850 shares were granted to SPSG
employees during 2000. Options granted under the 2000 Plan were generally
granted at fair market value at the date of grant and are exercisable over
periods not exceeding ten years.

(b) Restricted Stock Plan--Effective August 12, 1998, Kroll-O'Gara adopted
a stock incentive plan (the 1998 Stock Incentive Plan) for employees.
There were no shares granted under the plan during 1998 or 2000,
however, during fiscal 1999, 12,500 shares were granted under the plan
to SPSG employees. In connection with the shares granted under the
Stock Incentive Plan in 1999, SPSG recorded deferred compensation of
$413,595 representing the difference

F-52

THE SECURITY PRODUCTS AND SERVICES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS

between the fair market value of Kroll-O'Gara common stock on the date
of grant and the purchase price of the shares. This amount is presented
as a reduction of parent's equity in segment and is being amortized
ratably over the vesting periods of the applicable grants.
Approximately $199,000 and $91,000 was expensed in 1999 and 2000,
respectively.

(c) Stock Based Compensation Disclosure--SFAS 123 requires, at a minimum,
pro forma disclosures of expense for stock-based awards based on their
fair values. The pro forma amounts below are not necessarily
representative of the effects of stock-based awards on future pro forma
net income because future plans that include SPSG employees may differ
from Kroll-O'Gara stock option plans and accordingly (1) future grants
of employee stock options may not be comparable to awards made to
employees while SPSG was a part of Kroll-O'Gara, and (2) the
assumptions used to compute the fair value of any future stock option
awards will be specific to these future plans and therefore, may not be
comparable to the Kroll-O'Gara assumptions used. If SPSG had measured
compensation cost for the Kroll-O'Gara stock options granted to its
employees under the fair value method prescribed by SFAS 123, SPSG's
net income (loss) for the years ended December 31, 1998, 1999 and 2000
would have been as follows:

1998 1999 2000
------------- ------------- -----------------

Net income (loss):
As reported ......... $9,387,763 $1,043,109 $ (10,010,770)
Pro forma ........... $8,817,376 $ 101,957 $ (10,967,658)

The fair value of each Kroll-O'Gara stock option granted to SPSG employees
is estimated on the date of grant using the Black-Scholes option pricing
model with the following weighted average assumptions used by Kroll-O'Gara
for grants in 1998, 1999 and 2000:

YEAR ENDED DECEMBER 31,
-----------------------------------------
1998 1999 2000
------------------ ----------- ----------

Dividend yield .................. -- -- --
Expected volatility ............. 41.4% 41.4% 43.7%
Risk-free interest rate ......... 5.4% 5.4% 6.7%
Expected lives .................. 2.5 -- 7.5 years 7.5 years 7.5 years

The 60,500 options granted by Kroll-O'Gara to SPSG employees during 1998
have a weighted-average exercise price of $18.92, a weighted-average fair
value of $10.02 and remaining contractual lives, on a weighted-average
basis, of 7.4 years. The 220,400 options granted by Kroll-O'Gara to SPSG
employees during 1999 have a weighted-average exercise price of $27.66, a
weighted-average fair value of $17.01 and contractual lives, on a
weighted-average basis, of 8.2 years. The 371,850 options granted by
Kroll-O'Gara to SPSG employees during 2000 have a weighted-average exercise
price of $6.38, a weighted-average fair value of $3.74 and contractual
lives, on a weighted-average basis, of 9.4 years.

A summary of the status of Kroll-O'Gara stock options granted to SPSG
employees at December 31, 1998, 1999 and 2000, and the change during the
years then ended is presented in the table below:

F-53

THE SECURITY PRODUCTS AND SERVICES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS

1998 1999 2000
------------------------- ------------------------- ---------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------------ ---------- ------------ ---------- ------------- -----------

Outstanding, beginning of year..... 381,449 $ 11.60 386,671 $ 13.01 569,895 $ 18.66
Granted ........................... 60,500 18.92 220,400 27.66 371,850 6.38
Exercised ......................... (52,778) 9.36 (24,209) 10.16 -- --
Forfeited/Expired/Cancelled ....... (2,500) 17.50 (12,967) 19.19 (287,877) 15.05
------- -------- ------- -------- -------- --------
Outstanding, end of year .......... 386,671 $ 13.01 569,895 $ 18.66 653,868 $ 13.26
======= ======== ======= ======== ======== ========
Exercisable, end of year .......... 188,144 $ 11.47 218,557 $ 12.79 278,907 $ 15.90
======= ======== ======= ======== ======== ========

Of the options outstanding at December 31, 2000, 59,309 options are
exercisable at prices per share ranging from $1.00 to $9.00 per share,
57,751 options are exercisable at prices per share ranging from $9.88
to $12.75 per share and 161,847 options are exercisable at prices per
share ranging from $17.25 to $26.94 per share.

11. COMMITMENTS AND CONTINGENCIES

(a) Letters of Credit--Under the terms of the Economic Development Revenue
Bonds Agreement, SPSG is required to maintain a letter of credit
supporting the debt. As of December 31, 2000, SPSG's lender was
committed to providing this letter of credit through May 31, 2001. As
of December 31, 2000, SPSG had an outstanding letter of credit in the
amount of $1,356,250.

At December 31, 2000, SPSG had standby and purchase letters of credit,
issued on its behalf by its primary lender, in the aggregate amount of
$1,875,562.

(b) Employment Agreements--Kroll-O'Gara and SPSG have month-to-month
employment agreements with SPSG executive officers and management level
personnel with annual compensation ranging in value from $135,000 to
$350,000. The agreements generally provide for salary continuation in
the event of termination without cause for the greater of the remainder
of the agreement or one year. The agreements also contain certain
non-competition clauses and generally provide for one year's salary if
the agreement is not renewed.

As of December 31, 2000, the remaining aggregate commitment under these
employment agreements if all individuals were terminated without cause was
approximately $785,000.

(c) Legal Matters--Kroll-O'Gara has been named as a defendant in eight
lawsuits alleging that its officers and directors breached their
fiduciary duties in connection with the now terminated proposed
acquisition of a majority of Kroll-O'Gara's shares by a company formed
by Blackstone Capital Partners III Merchant Banking Fund L.P.
(Blackstone). The plaintiffs allege that Kroll-O'Gara's officers and
directors breached their fiduciary duties by deferring acquisitions, by
negotiating an inadequate acquisition price, by failing to engage in
arms-length negotiations and by failing to seek redress from Blackstone
after Blackstone terminated the proposed transaction. The plaintiffs
also allege that Blackstone and American International Group, Inc. and
its subsidiaries (AIG) aided and abetted the directors' and officers'
alleged breaches of fiduciary duties. The plaintiffs seek to bring
their claims derivatively on behalf of Kroll-O'Gara and also seek class
certification. The plaintiffs seek a declaration that the individual
defendants breached their fiduciary duty and seek damages and
attorneys' fees in an unspecified amount. Kroll-O'Gara believes that
the allegations in the complaint are meritless and will defend the
suits vigorously.

F-54

THE SECURITY PRODUCTS AND SERVICES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS

In 1999, Kroll-O'Gara learned that an individual had filed a qui tam suit
against an SPSG subsidiary under the Civil False Claims Act alleging that
the SPSG subsidiary and three of its vendors knowingly violated their
contractual requirements with the Army due to the vendors' alleged failure
to have certified welders. In October 2000, SPSG settled this litigation
with the Department of Justice for approximately $1.1 million, plus legal
costs. SPSG admitted no wrongdoing as part of the settlement. SPSG paid
$0.55 million of the settlement amount in November 2000; the remainder is
due on December 30, 2001.

In addition to the matters discussed above, SPSG is involved in litigation
from time to time in the ordinary course of its business; however, SPSG
does not believe that there is any currently pending or threatened
litigation, individually or in the aggregate, that is likely to have a
material adverse effect on its financial position, results of operations or
its cash flows.

12. FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of significant current assets, current liabilities and
long-term debt approximate their respective historical carrying amounts.

SPSG has entered into six foreign currency exchange contracts to
effectively hedge its exposure to certain foreign currency rate
fluctuations on intercompany demand loans to one subsidiary which are
denominated in a foreign currency. By virtue of these contracts, SPSG has
fixed the total dollar amount which it will receive under the
aforementioned subsidiary loan through the maturity dates of the contracts
regardless of the fluctuations in the exchange rate. As of December 31,
2000, the total notional amount of the contracts, which mature between
January 2001 and July 2002, was $11.5 million. SPSG's cumulative foreign
currency translation adjustment component of parent's equity in segment was
increased by $2.0 million in 1999 and decreased by $0.3 million in 2000 as
a result of these contracts.

SPSG has estimated the fair value of its foreign exchange contracts based
on information obtained from the counterparty. Fair value represents the
amount SPSG would have received at December 31, 2000 if the agreements had
been terminated. As of December 31, 2000, SPSG would have received
approximately $0.9 million upon cancellation of all contracts. If SFAS 133
had to be applied to all net investment hedge contracts in place at
December 31, 2000, the effect would have been to decrease assets by
approximately $0.2 million with an offsetting amount recorded in the
accumulated other comprehensive income (loss) component of parent's equity
in segment.

F-55

THE SECURITY PRODUCTS AND SERVICES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS

13. CUSTOMER DATA

(a) Geographic Data--The following summarizes information about SPSG's
different geographic areas:

UNITED STATES FRANCE OTHER FOREIGN ELIMINATIONS COMBINED
--------------- ---------- --------------- -------------- -------------
(DOLLARS IN THOUSANDS)

1998
----
Net sales to unaffiliated
customers ...................... $ 83,812 $26,164 $ 27,760 $ -- $ 137,736
Intercompany .................... 898 637 186 (1,721) --
--------- ------- -------- -------- ---------
Total net sales ................. $ 84,710 $26,801 $ 27,946 $ (1,721) $ 137,736
========= ======= ======== ======== =========
Operating income ................ $ 11,851 $ 2,185 $ 3,816 $ -- $ 17,852
========= ======= ======== ======== =========

1999
----
Net sales to unaffiliated
customers ...................... $ 68,263 $25,315 $ 23,746 $ -- $ 117,324
Intercompany .................... 2,037 1,445 423 (3,905) --
--------- ------- -------- -------- ---------
Total net sales ................. $ 70,300 $26,760 $ 24,169 $ (3,905) $ 117,324
========= ======= ======== ======== =========
Operating income (loss) ......... $ 7,318 $ 2,012 $ (1,807) $ -- $ 7,523
========= ======= ======== ======== =========

2000
----
Net sales to unaffiliated
customers ...................... $ 55,541 $25,159 $ 24,292 $ -- $ 104,992
Intercompany .................... 3,962 1,218 758 (5,938) --
--------- ------- -------- -------- ---------
Total net sales ................. $ 59,503 $26,377 $ 25,050 $ (5,938) $ 104,992
========= ======= ======== ======== =========
Operating income (loss) ......... $ (5,413) $ 927 $ (1,032) $ -- $ (5,518)
========= ======= ======== ======== =========

SPSG accounts for transfers between geographic areas at cost plus a
proportionate share of operating profit.

The following summarizes SPSG's sales in the United States and foreign
locations:

YEARS ENDED DECEMBER 31,
------------------------------------
1998 1999 2000
---------- ---------- ----------
(DOLLARS IN THOUSANDS)

Sales to unaffiliated customers:
U.S. Government ................... $ 62,059 $ 54,953 $ 49,960
Other United States ............... 11,859 7,989 8,716
Middle East ....................... 3,998 1,618 2,403
Europe ............................ 31,202 29,759 24,610
Central and South America ......... 20,766 19,716 16,025
Other Foreign ..................... 7,852 3,289 3,278
-------- -------- --------
$137,736 $117,324 $104,992
======== ======== ========

Export sales by SPSG's domestic operations were approximately 10%, 5% and
4% of net sales for the years ended December 31, 1998, 1999 and 2000,
respectively.

F-56

THE SECURITY PRODUCTS AND SERVICES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS

SPSG is subject to audit and investigation by various agencies which
oversee contract performance in connection with SPSG's contracts with the
U.S. government. Management believes that potential claims from such audits
and investigations will not have a material adverse effect on the combined
financial statements. In addition, contracts with the U.S. government may
contain cost or performance incentives or both based on stated targets or
other criteria. Cost or performance incentives are recorded at the time
there is sufficient information to relate actual performance to targets or
other criteria.

SPSG has foreign operations and assets in Brazil, Colombia, France, Italy,
Mexico, Russia and the Philippines. In addition, SPSG sells its products
and services in other foreign countries and has continued to increase its
level of international activity. Accordingly, SPSG is subject to various
risks including, among others, foreign currency restrictions, exchange rate
fluctuations, government instability and complexities of local laws and
regulations.

(b) Major Customers during the years ended December 31, 1998, 1999 and 2000
sales to the U.S. government approximated 45%, 47% and 48% of SPSG's
net sales, respectively.

14. SUPPLEMENTAL CASH FLOWS DISCLOSURES

The following is a summary of cash paid related to certain items:

1998 1999 2000
------------- ------------- -----------

Supplemental disclosure of cash flow information:
Cash paid for interest .................................... $ 473,107 $ 212,277 $170,763
========== ========== ========
Cash paid for taxes ....................................... $1,303,277 $2,455,459 $312,316
========== ========== ========
Supplemental disclosure of non-cash activities:

Deferred compensation related to restricted stock ......... $ -- $ 413,595 $ --
========== ========== ========
Fair value of Kroll-O'Gara stock issued in connection
with acquisition of businesses .......................... $ 890,185 $ -- $ --
========== ========== ========

The supplemental cash flow disclosure information does not include
allocated interest and tax expense that was funded directly by
Kroll-O'Gara.

F-57

THE SECURITY PRODUCTS AND SERVICES GROUP
COMBINED BALANCE SHEETS (UNAUDITED)
AS OF DECEMBER 31, 2000 AND JUNE 30, 2001

(DOLLARS IN 000'S)

DECEMBER 31, JUNE 30,
2000 2001
-------------- ------------

ASSETS
Current Assets:
Cash and cash equivalents ................................................. $ 2,161 $ 2,231
Trade accounts receivable, net of allowance for doubtful accounts of
approximately $1,220 and $1,022 at December 31, 2000 and June 30,
2001, respectively ...................................................... 22,701 14,777
Related party receivables ................................................. 411 338
Costs and estimated earnings in excess of billings on uncompleted contracts 8,634 12,726
Inventories (note 4) ...................................................... 18,641 18,512
Prepaid expenses and other ................................................ 3,712 2,794
Deferred tax asset ........................................................ 1,001 1,001
--------- ---------
Total current assets .................................................... 57,261 52,379
--------- ---------
Property, Plant And Equipment, at cost:
Land ...................................................................... 2,350 2,342
Buildings and improvements ................................................ 6,410 6,188
Leasehold improvements .................................................... 735 726
Furniture and fixtures .................................................... 5,520 6,384
Machinery and equipment ................................................... 13,097 12,504
--------- ---------
28,112 28,144
Less--accumulated depreciation ............................................ (11,034) (11,924)
--------- ---------
17,078 16,220
--------- ---------
Costs In Excess Of Assets Acquired And Other Intangible Assets, net of
accumulated amortization of approximately $3,836 and $4,284 at December
31,2000 and June 30,2001, respectively .................................... 14,453 13,413
Other Assets ............................................................... 652 595
--------- ---------
15,105 14,008
--------- ---------
$ 89,444 $ 82,607
========= =========
LIABILITIES AND PARENT'S EQUITY IN SEGMENT
Current Liabilities:
Current portion of long-term debt due to third-parties .................... $ 2,111 $ 2,070
Trade accounts payable .................................................... 18,041 15,036
Accrued liabilities ....................................................... 8,304 7,392
Customer deposits and deferred revenue .................................... 5,499 4,023
--------- ---------
Total current liabilities ............................................... 33,955 28,521
Other Long-Term Liabilities ................................................ 174 391
Deferred Income Taxes ...................................................... 211 211
Long-Term Debt Due To Third Parties, net of current portion ................ 1,004 945
--------- ---------
Total liabilities ....................................................... 35,344 30,068
Parent's Equity In Segment (note 1):
Advances from Kroll-O'Gara, net ........................................... 58,139 57,641
Deferred compensation ..................................................... (72) (20)
Accumulated other comprehensive loss ...................................... (3,967) (5,082)
--------- ---------
Total parent's equity in segment ........................................ 54,100 52,539
--------- ---------
$ 89,444 $ 82,607
========= =========

The accompanying notes are an integral part of these combined balance sheets.

F-58

THE SECURITY PRODUCTS AND SERVICES GROUP
COMBINED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 2001 (DOLLARS IN 000'S)

THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- ---------------------------
2000 2001 2000 2001
---------- ------------ ------------ ------------

Net sales .................................... $22,755 $ 32,928 $ 51,440 $ 61,404
Cost of sales ................................ 17,598 28,202 38,211 50,250
------- -------- -------- --------
Gross profit .............................. 5,157 4,726 13,229 11,154
Operating Expenses:
Selling and marketing expenses .............. 880 845 2,700 2,410
General and administrative expenses ......... 3,816 3,914 7,978 7,207
------- -------- -------- --------
Operating income (loss) ................... 461 (33) 2,551 1,537
Other Income (expense):
Interest expense ............................ (370) (638) (1,004) (1,215)
Other, net .................................. (84) (141) (118) (292)
------- -------- -------- --------
Income (loss) before provision for
income taxes ............................. 7 (812) 1,429 30
Provision for income taxes .................. 117 290 209 382
------- -------- -------- --------
Net income (loss) ......................... $ (110) $ (1,102) 1,220 (352)
======= ======== -------- --------
Other comprehensive loss, net of tax:
Foreign currency translation adjustment,
net of $1,010 and $424 tax provision,
respectively .............................. (2,658) (1,115)
-------- --------
Comprehensive loss ........................ $ (1,438) $ (1,467)
======== ========

The accompanying notes are an integral part of these combined
financial statements.

F-59

THE SECURITY PRODUCTS AND SERVICES GROUP
COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 2001 (DOLLARS IN 000'S)

SIX MONTHS ENDED
JUNE 30,
------------------------
2000 2001
----------- ----------

Cash flows from operating activities:

Net income (loss) .................................................. $ 1,220 $ (352)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities-
Depreciation and amortization .................................... 2,062 1,879
Bad debt expense ................................................. 40 237
Noncash compensation expense ..................................... 55 52
Change in assets and liabilities-
Trade accounts receivables ......................................... 1,141 6,874
Costs and estimated earnings in excess of billings on uncompleted
contracts ........................................................ 8,919 (4,092)
Inventories, prepaid expenses and other assets ..................... (6,113) 536
Trade accounts payable ............................................. (2,645) (2,336)
Amounts due to/from related parties ................................ 25 67
Accrued liabilities, long-term liabilities and customer deposits and
deferred revenue ................................................. 864 (1,477)
-------- --------
Net cash provided by operating activities ........................ 5,568 1,388
-------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment, net .................... (1,764) (1,035)
-------- --------
Net cash used in investing activities ............................ (1,764) (1,035)
-------- --------
Cash flows from financing activities:
Payments of third party debt, net .................................. (208) (100)
Decrease in advances from Kroll-O'Gara, net ........................ (4,480) (144)
Other .............................................................. (564) 36
-------- --------
Net cash used in financing activities ............................ (5,252) (208)
-------- --------
Net increase (decrease) in cash and cash equivalents ................ (1,448) 145
Effects of foreign currency exchange rates on cash and cash
equivalents ...................................................... (158) (75)
Cash and cash equivalents, beginning of period ...................... 3,238 2,161
-------- --------
Cash and cash equivalents, end of period ............................ $ 1,632 $ 2,231
======== ========

The accompanying notes are an integral part of these combined
financial statements.

F-60

THE SECURITY PRODUCTS AND SERVICES GROUP
NOTES TO COMBINED UNAUDITED FINANCIAL STATEMENTS

(1) GENERAL

The Security Products and Services Group (SPSG or the Company) is a
wholly-owned segment of The Kroll-O'Gara Company (Kroll-O'Gara).

On April 20, 2001, the Board of Directors of Kroll-O'Gara approved a
definitive agreement, subject to a limited number of closing conditions, to sell
the common stock of the active companies that comprise Kroll-O'Gara's SPSG
segment, other than SPSG's subsidiaries that provide kidnap and ransom and risk
information services, SPSG's Russian subsidiaries and certain other inactive
companies, to Armor Holdings, Inc. (Armor) for up to $56.5 million. The
accompanying SPSG combined financial statements and footnotes exclude the
subsidiaries that provide kidnap and ransom and risk information services as
they will continue to be operated by Kroll-O'Gara after the sale of SPSG. The
Russian subsidiaries and certain other inactive companies are included within
the accompanying combined financial statements as they have historically been
included within the SPSG segment and might not be operated by Kroll-O'Gara after
the sale.

Of the $56.5 million sales price, a portion ($53.0 million subject to
adjustment) is to be paid at closing, currently expected to occur in the third
quarter of 2001. An escrow of $1.5 million will be maintained and a deferred
payment of up to $2.0 million may be made based on SPSG's achievement of a gross
profit target for the year ending December 31, 2001. At Armor's option, up to
$15.0 million of the purchase price can be paid in registered common stock of
Armor. The purchase price will be reduced dollar-for-dollar to the extent
tangible net assets, as defined, are less than approximately $37.4 million.
Kroll-O'Gara currently believes the sale of SPSG will approximate the value of
parent's equity in segment. In the event the sale to Armor is not consummated,
Kroll-O'Gara will continue to evaluate all options available to it, including
seeking other buyers or other alternatives.

SPSG was allocated $0.9 million and $1.2 million of overhead costs related
to Kroll-O'Gara's corporate administrative functions for the three months ended
June 30, 2000 and 2001, respectively, and $2.0 million and $2.2 million for the
six months ended June 30, 2000 and 2001, respectively. The allocations were
based on a specific identification of Kroll-O'Gara's administrative costs
attributable to SPSG and, to the extent that such identification was not
practicable, on the basis of SPSG's sales as a percentage of Kroll-O'Gara's
sales. The expenses associated with various corporate initiatives of
Kroll-O'Gara were not allocated to SPSG. The allocated costs are included in the
various operating expense captions in the accompanying combined statements of
operations.

SPSG's operations have been financed through its operating cash flows and
advances from Kroll-O'Gara. SPSG's interest expense includes an allocation of
Kroll-O'Gara's interest expense based on Kroll-O'Gara's weighted average
interest rate applied to intercompany advances. Interest expense allocated from
Kroll O'Gara was $0.9 million and $1.0 million at weighted average interest
rates of 3.8% and 6.0% for the six months ended June 30, 2000 and 2001,
respectively. Income tax was calculated as if SPSG had filed separate income tax
returns. SPSG's current income taxes receivable or payable at any point in time
are included in the advances from Kroll-O'Gara in parent's equity in segment.
The advances from Kroll-O'Gara balance in parent's equity in segment also
includes the equity accounts of specific legal entities included in SPSG, the
net assets or liabilities of divisions included in SPSG and the net intercompany
balances of all entities and divisions with Kroll-O'Gara.

Management believes that its allocation methodologies are reasonable.

The accompanying unaudited combined financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
for interim financial information. Accordingly, they do not include all of the
information and footnotes required by accounting

F-61

THE SECURITY PRODUCTS AND SERVICES GROUP
NOTES TO COMBINED UNAUDITED FINANCIAL STATEMENTS--(CONTINUED)

principles generally accepted in the United States for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for fair presentation have been
included. Operating results for the three months and six months ended June 30,
2001 are not necessarily indicative of the results that may be expected for the
year ended December 31, 2001. The accompanying combined financial statements
should be read in conjunction with the combined financial statements and notes
thereto in SPSG's audited financial statements for the year ended December 31,
2000.

(2) PARENT'S DEBT NOT SPECIFICALLY ALLOCATED TO SPSG

On March 30, 2001, Kroll-O'Gara entered into an amended and restated loan
agreement to provide for a revolving credit facility that initially amounts to
$40.0 million. The agreement was further amended on April 20, 2001 and expires
on May 31, 2002. Additionally, the agreement provides for a letter of credit
facility of $1,356,250 supporting the Company's Economic Development Revenue
Bonds and up to $6.0 million of transactional letters of credit. Letters of
credit cannot be issued or renewed with a maturity date beyond May 31, 2002.
Advances under the revolving credit facility bear interest at prime plus 1.5% at
June 30, 2001 and, based on the amendments on March 30, 2001 and April 20, 2001,
bear interest at the greater of (a) 8.56% or (b) the prime rate plus 1.5%, plus
0.5% (monthly interest factor which was negotiated with the lender to receive
advanced waiver to release pledged collateral for the sale of SPSG to Armor)
times the number of 30-day periods which have expired since April 20, 2001 (or,
if less, the highest rate allowed by law). At June 30, 2001, the interest rate
on the revolving credit facility was 9.25%. Kroll-O'Gara had approximately $36.1
million borrowed under the revolving credit facility at June 30, 2001.

Kroll-O'Gara had $35.0 million of senior notes payable outstanding at June
30, 2001. These agreements were also amended on March 30, 2001 and April 20,
2001. Based on the amendments, the senior notes bear interest at the greater of
(a) 8.56% or (b) the prime rate plus 1.5%, plus 0.5% (monthly interest factor
which was negotiated with the lender to receive advanced waiver to release
pledged collateral for the sale of SPSG to Armor) times the number of 30-day
periods which have expired since April 20, 2001 (or, if less, the highest rate
allowed by law). At June 30, 2001, the interest rate on the senior notes was
9.25%.

The loan agreement and the senior notes (together, the financing
agreements) are secured by substantially all assets of Kroll-O'Gara and its
subsidiaries and a pledge of the stock of essentially all the subsidiaries, all
of which jointly and severally guarantee obligations under the financing
agreements. These financing agreements include financial covenants which, among
other restrictions, require the maintenance of certain financial ratios and
other financial requirements, including an interest coverage ratio, net worth
minimums and minimum quarterly EBITDA, that requires Kroll-O'Gara to effectively
break even before taxes and to generate EBITDA of $6.0 million per quarter. The
financing agreements also impose limitations on mergers, acquisitions, stock
redemptions, additional indebtedness and capital expenditures. The financing
agreements do not permit the declaration or payment of any dividends, other than
stock dividends. The net proceeds from any lender-approved asset sales in excess
of $1.0 million per transaction or $2.0 million per fiscal year must be paid
proportionately to the revolving credit facility lender and the holders of the
senior notes, with a corresponding reduction in the total permitted borrowings
under the revolving credit facility. A material adverse change in the business
of Kroll-O'Gara, including a significant sale of net assets, would result in the
acceleration of all amounts due to the revolving credit facility lender and the
holders of the senior notes. In accordance with the April 20, 2001 amendment to
the loan agreement, Kroll-O'Gara's agreement to sell SPSG would result in an
acceleration of all amounts due under the loan agreement 60 days after the
closing of the sale. Kroll-O'Gara was not in compliance with certain covenants
of the financing agreements as of December 31, 2000 and June 30, 2001. Had the
revolving credit facility lender and the holders of the senior notes not amended
and restated the financing

F-62

THE SECURITY PRODUCTS AND SERVICES GROUP
NOTES TO COMBINED UNAUDITED FINANCIAL STATEMENTS--(CONTINUED)

agreements on March 30, 2001 and April 20, 2001, or waived the events of
non-compliance as of June 30, 2001, all amounts outstanding under the financing
agreements would have been immediately payable. Kroll-O'Gara anticipates
compliance with all covenants and believes it has the capability to continue to
finance its operations and the operations of its segments throughout the
remainder of 2001.

(3) SUPPLEMENTAL CASH FLOW DISCLOSURE

The following is a summary of cash paid related to certain items:

SIX MONTHS ENDED
JUNE 30,
---------------------
2000 2001
--------- ---------
(DOLLARS IN 000'S)

Cash paid for taxes ................................. $224 $63
Cash paid for interest (exclusive of Kroll O'
Gara interest allocation discussed in Note 1) ..... 63 141

(4) INVENTORIES

Inventories are stated at the lower of cost or market using the first-in,
first-out (FIFO) method and include the following:

DECEMBER 31, JUNE 30,
2000 2001
-------------- ---------
(DOLLARS IN 000'S)

Raw materials ............................. $11,651 $11,547
Vehicle costs and work-in-process ......... 6,990 6,965
------- -------
Total inventory ......................... $18,641 $18,512
======= =======

(5) RESTRUCTURING OF OPERATIONS

In the third quarter of 2000, SPSG implemented and completed a plan to
reduce costs and improve operating efficiencies (the 2000 Plan) with a total
pre-tax restructuring charge of approximately $0.7 million. Total payments
pursuant to the 2000 Plan through June 30, 2001 were $0.6 million. SPSG does not
expect to incur any other significant restructuring charges in future periods
related to the 2000 Plan. The principal element of the restructuring plan was
the elimination of approximately 25 employees. The only component of the
restructuring charge was severance related to the termination of employees. At
June 30, 2001, approximately $0.1 million remained as an accrual relating to the
2000 Plan.

(6) NEW ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 141, "Business Combinations"
(SFAS No. 141), which addresses financial accounting and reporting for business
combinations. SFAS No. 141 requires all business combinations in the scope of
the statement to be accounted for using one method, the purchase method. The
provisions of this statement apply to all business combinations initiated after
June 30, 2001. Due to the recent issuance of the standard, the Company is still
assessing the potential impact to its combined financial statements.

In June 2001, the FASB issued Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets" (SFAS No. 142), which
establishes accounting and reporting standards for goodwill and other
intangible assets that are acquired individually or with a group of other
assets. The provisions of this statement are effective for fiscal years
beginning after December 15, 2001. For

F-63

THE SECURITY PRODUCTS AND SERVICES GROUP
NOTES TO COMBINED UNAUDITED FINANCIAL STATEMENTS--(CONTINUED)

example, the Company had amortization expense related to goodwill and other
intangible assets of approximately $0.5 million for the six months ended June
30, 2001. Due to the recent issuance of the standard, the Company is still
assessing the potential impact to its combined financial statements.

F-64

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

The following unaudited pro forma condensed consolidated statements of
operations for the year ended December 31, 2000 and the nine months ended
September 30, 2001 are presented for informational purposes only and are not
necessarily indicative of actual results that would have been achieved had the
O'Gara Acquisition been consummated at the beginning of, or for, the periods
indicated. These pro forma condensed consolidated statements of operations do
not purport to indicate results of operations as of any future period. The pro
forma condensed consolidated statement of operations for the year ended December
31, 2000 and the nine months ended September 30, 2001 reflect only anticipated
cost savings directly attributable to the O'Gara Acquisition which we believe
would have resulted had the acquisition occurred on January 1, 2000 and reflects
the implementation of Statement of Financial Accounting Standard No. 142,
Goodwill and Other Intangible Assets, as if it had been applied to the O'Gara
Acquisition. The unaudited pro forma condensed consolidated statements of
operations should be read in conjunction with our Consolidated Financial
Statements and the related notes thereto filed with our Form 10-K for the year
ended December 31, 2000, and the Combined Financial Statements of SPSG included
herein.

F-65

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

HISTORICAL PRO FORMA
ARMOR SPSG (1) ADJUSTMENTS PRO FORMA
------------ ------------ ------------------------- ------------

Revenues ................................ $220,955 $ 104,992 $ 7,428 (2)(5) $333,375
Cost of sales ........................... 137,499 86,127 3,966 (2)(5) 227,592
Operating expenses ...................... 50,341 22,620 (849)(3)(5) 72,112
Amortization expense .................... 3,429 1,077 (1,077)(4)(5) 3,429
Equity in earnings of
investee ............................... (87) -- -- (87)
Restructuring and related charges ....... -- 686 -- 686
Integration and other non-recurring
charges ................................ 3,290 -- -- 3,290
-------- --------- ----------- --------
Operating income (loss) ................. 26,483 (5,518) 5,388 26,353
Interest expense, net ................... 1,896 2,266 333 (7) 4,495
Other (income) expense, net ............. (1,803) 1,952 (109)(5) 40
Provision (benefit) for income taxes .... 9,342 275 (2,124)(6) 7,493
-------- --------- ----------- --------
Net income (loss) ....................... $ 17,048 $ (10,011) $ 7,288 $ 14,325
======== ========= =========== ========
Earnings per share:
Basic .................................. $ 0.75 $ 0.61
Diluted ................................ $ 0.73 $ 0.59
Weighted average number of shares
outstanding:
Basic .................................. 22,630 1,009 (8) 23,639
Diluted ................................ 23,356 1,009 (8) 24,365

F-66

NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS

(1) SPSG's combined results of operations are presented for the year ended
December 31, 2000.

(2) Reflects a change from O'Gara's revenue recognition policy on long-term
contracts from percentage of completion based on the cost incurred basis to
percentage of completion based on the units completed basis. For the year
ended December 31, 2000, this change in revenue recognition would have
resulted in an increase in revenues of approximately $9.3 million and an
increase in cost of sales of approximately $5.6 million.

(3) Represents an adjustment to operating expenses to reflect the reduction in
information technology consulting and data circuit costs of $262,000, and
reduced insurance fees of $100,000 pursuant to our existing contracts.

(4) Reflects the elimination of amortization expense for the SPSG companies
being acquired pursuant to this acquisition. According to Statement of
Financial Accounting Standard No. 142, Goodwill and Other Intangible
Assets, goodwill arising from business combinations completed after July 1,
2001 will no longer require annual amortization but rather be tested for
impairment.

(5) Reflects the elimination of the Russian operations with revenues of $1.9
million, cost of sales of $1.6 million, operating expenses of $487,000,
amortization expense of $450,000 and other income of $109,000. These
operations were not purchased as part of the O'Gara Acquisition.

(6) Reflects the adjustment to the provision for taxes by applying our
effective tax rate to the pro forma income derived from the pro forma
adjustments described above.

(7) Reflects interest expense of $2.7 million related to the debt incurred as a
result of the O'Gara Acquisition, net of the elimination of SPSG's
allocated interest expense of $2.4 million.

(8) Reflects the issuance of 1,009,422 shares of our $0.01 par value per share
common stock valued at $15 million issued as part of the consideration for
the O'Gara Acquisition.

F-67

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

HISTORICAL PRO FORMA
ARMOR SPSG (1) SPSG (2) ADJUSTMENTS PRO FORMA
------------ ---------- ------------ ------------------------- -------------

Revenues ...................... $186,676 $61,404 $ 17,955 $ (545) (3)(6) $ 265,490
Cost of sales ................. 118,563 50,250 17,228 (402) (3)(6) 185,639
Operating expenses ............ 43,763 9,169 4,813 (421) (4)(6) 57,324
Amortization expense .......... 2,621 448 73 (521) (5)(6) 2,621
Restructuring and related
charges ...................... 9,959 -- -- -- 9,959
Integration and other
non-recurring charges ........ 1,800 -- -- -- 1,800
-------- ------- -------- ---------- ---------
Operating (loss) income ....... 9,970 1,537 (4,159) 799 8,147
Interest expense, net ......... 2,639 1,215 280 1,416 (8) 5,550
Other (income)
expense, net ................. (52) 292 683 13 (6) 936
Provision (benefit) for
income taxes ................. 2,658 382 -- (2,429) (7) 611
-------- ------- -------- ---------- ---------
Net (loss) income ............. $ 4,725 $ (352) $ (5,122) $ 1,799 $ 1,050
======== ======= ======== ========== =========
Earnings per share:
Basic ........................ $ 0.20 $ 0.04
Diluted ...................... $ 0.20 $ 0.04
Weighted average number of
shares outstanding:
Basic ........................ 23,190 865 (9) 24,055
Diluted ...................... 23,905 865 (9) 24,770

F-68

NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS

(1) SPSG's combined results of operations are presented for the six months
ended June 30, 2001.

(2) Represents the results of operations of SPSG for the period July 1, 2001 to
August 22, 2001 and includes adjustments subject to review under the terms
of the O'Gara Acquisition.

(3) Reflects a change from O'Gara's revenue recognition policy on long-term
contracts from percentage of completion based on the cost incurred basis to
percentage of completion based on the units completed basis. For the nine
months ended September 30, 2001, this change in revenue recognition would
have resulted in an increase in revenues of approximately $606,000 and an
increase in cost of sales of approximately $515,000.

(4) Represents an adjustment to operating expenses to reflect reduced
information technology consulting and data circuit costs of $160,000 and
reduced insurance fees of $75,000 pursuant to our existing contracts.

(5) Reflects the elimination of the historical amortization expense associated
with pre-existing goodwill on the SPSG companies being acquired pursuant to
this acquisition. In addition, no adjustment has been made to recognize
amortization of goodwill associated with the O'Gara Acquisition. According
to Statement of Financial Accounting Standard No. 142, Goodwill and Other
Intangible Assets, goodwill arising from business combinations completed
after July 1, 2001 will no longer require annual amortization but rather
be tested for impairment.

(6) Reflects the elimination of the Russian operations with revenues of
$1,151,000, cost of sales of $917,000, operating expenses of $186,000,
amortization expense of $146,000 and other income of $13,000. These
operations were not purchased as part of the O'Gara Aquisition.

(7) Reflects an adjustment to the provision for taxes by applying our estimated
effective tax rate of 36%, as impacted by O'Gara's historical operations,
to the pro forma adjustments.

(8) Reflects additional interest expense of $1,416,000 related to the
acquisition debt incurred as a result of the O'Gara Acquisition.

(9) Reflects the additional impact on our weighted average basic and diluted
shares outstanding of the August 22, 2001 issuance of 1,009,422 shares of
our $0.01 par value per share common stock valued at $15 million issued as
part of the consideration for the O'Gara Acquisition.

F-69

[PICTURES OF CERTAIN OF OUR PRODUCTS]

================================================================================

5,000,000 SHARES

[ARMOR HOLDINGS, INC. LOGO]

COMMON STOCK

----------------
P R O S P E C T U S
----------------

MERRILL LYNCH & CO.

BEAR, STEARNS & CO. INC.

WACHOVIA SECURITIES

, 2001

================================================================================

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

We will pay the following costs and expenses incident to the offering and
sale to the public of the shares being registered. All amounts, other than the
Commission registration fee, are estimates.

SEC Registration Fee ................. $ 35,233
Listing Fee .......................... 50,000
Accounting fees and expenses ......... 500,000
Legal fees and expenses .............. 500,000
Printing Fees ........................ 100,000
Miscellaneous expenses ............... 64,767
----------
Total ............................... $1,250,000
==========

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL") makes provision for the indemnification of officers and directors of
corporations in terms sufficiently broad to indemnify our officers and directors
under certain circumstances from liabilities (including reimbursement of
expenses incurred) arising under the Securities Act.

As permitted by the DGCL, our Charter provides that, to the fullest extent
permitted by the DGCL, no director shall be liable to the Company or to its
stockholders for monetary damages for breach of his fiduciary duty as a
director. Delaware law does not permit the elimination of liability (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) in respect of certain unlawful
dividend payments or stock redemptions or repurchases or (iv) for any
transaction from which the director derives an improper personal benefit. The
effect of this provision in the Charter is to eliminate the rights of the
Company and its stockholders (through stockholders' derivative suits on behalf
of the Company) to recover monetary damages against a director for breach of
fiduciary duty as a director thereof (including breaches resulting from
negligent or grossly negligent behavior) except in the situations described in
clauses (i)-(iv), inclusive, above. These provisions will not alter the
liability of directors under federal securities laws.

Our Charter provides that we may indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Company) by reason
of the fact that he is or was a director, officer, employee or agent of the
Company or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation or enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding if such person acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful.

Our Charter also provides that we may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Company to procure a judgment
in its favor by reason of the fact that such person acted in any of the
capacities set forth above, against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection with the defense
or settlement of such action or suit if such person acted under similar
standards, except that no indemnification may be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable to
the

II-1

Company unless and only to the extent that the Court of Chancery of the State of
Delaware or the court in which such action or suit was brought shall determine
upon application that despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.

Our Charter also provides that to the extent a director or officer of the
Company has been successful in the defense of any action, suit or proceeding
referred to in the previous paragraphs or in the defense of any claim, issue, or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith; that
indemnification provided for in the Charter shall not be deemed exclusive of any
other rights to which the indemnified party may be entitled; and that the
Company may purchase and maintain insurance on behalf of a director or officer
of the Company against any liability asserted against him or incurred by him in
any such capacity or arising out of his status as such whether or not the
Company would have the power to indemnify him against such liabilities under the
provisions of Section 145 of the DGCL.

ITEM 16. EXHIBITS

EXHIBIT
NO. DESCRIPTION
---------- -----------

1.1 Form of Underwriting Agreement*
4.1 Form of Common Stock Certificate (filed as Exhibit 4.1 to Registration Statement
No. 333-28879 on Form S-1 of the Company and incorporated herein by reference)
5.1 Opinion of Kane Kessler, P.C. regarding the validity of our common stock being registered*
23.1 Consent of Kane Kessler, P.C. (included in Exhibit 5.1)
23.2 Consent of PricewaterhouseCoopers LLP
23.3 Consent of Arthur Andersen LLP
24.1 Power of Attorney **

----------
* To be filed by amendment

** Previously filed

ITEM 17. UNDERTAKINGS

The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

II-2

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4)or 497(h) under the Securities Act shall be
deemed to be part of this registration statement as of the time it was
declared effective.

(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.

II-3

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in City New York, State of New York, on November 16, 2001.

ARMOR HOLDINGS, INC.

By: /s/ Warren B. Kanders
------------------------------------
Warren B. Kanders, Chairman of
the Board of Directors

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on November 16, 2001.

SIGNATURE TITLE
--------- -----

/s/ Warren B. Kanders Chairman of the Board of Directors
---------------------------------
Warren B. Kanders

* President, Chief Executive Officer
--------------------------------- and Director (Principal Executive
Officer)
Jonathan M. Spiller

* Executive Vice President, Chief
--------------------------------- Financial Officer (Principal
Robert R. Schiller Accounting Officer)

* Director
---------------------------------
Burtt R. Ehrlich

* Director
---------------------------------
Nicholas Sokolow

* Director
---------------------------------
Thomas W. Strauss

* Director
---------------------------------
Alair A. Townsend

* Director
---------------------------------
Stephen B. Salzman

*By: /s/ Warren B. Kanders
---------------------------------
Warren B. Kanders
as Attorney-in-fact

II-4

EXHIBIT INDEX

EXHIBIT
NO. DESCRIPTION
--- -----------

----------
* To be filed by amendment

** Previously filed