<PAGE>   1

                                               Filed Pursuant to Rule 424(b)(4)
                                                     Registration No: 333-48099

 
   
PROSPECTUS                                                        April 30, 1998
    
--------------------------------------------------------------------------------
 
                                4,400,000 Shares
 
                               KROLL-O'GARA LOGO
 
                                  Common Stock
--------------------------------------------------------------------------------
 
Of the 4,400,000 shares of Common Stock, par value $0.01 per share (the "Common
Stock"), offered hereby (the "Offering"), 3,200,000 shares are being offered by
The Kroll-O'Gara Company ("Kroll-O'Gara" or the "Company") and 1,200,000 shares
are being offered by the Selling Shareholders. See "Principal and Selling
Shareholders." The Company will not receive any of the proceeds from the sale of
shares of Common Stock by the Selling Shareholders.
 
   
The Common Stock is listed on the Nasdaq National Market (the "Nasdaq") under
the symbol "KROG." On April 29, 1998 the last reported sale price of the Common
Stock on the Nasdaq was $21.125 per share. See "Price Range of Common Stock and
Dividend Policy."
    
 
   
FOR A DISCUSSION OF CERTAIN RISKS OF AN INVESTMENT IN THE SHARES OF COMMON STOCK
OFFERED HEREBY, SEE "RISK FACTORS" ON PAGES 8 TO 13.
    
 
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
 
   
<TABLE>
<CAPTION>
                                               Underwriting
                             Price to         Discounts and        Proceeds to       Proceeds to
                              Public          Commissions(1)        Company(2)   Selling Shareholders
<S>                        <C>                <C>                  <C>          <C>
------------------------------------------------------------------------------------------------------
    
   
Per Share                        $20.50               $1.20              $19.30                 $19.30
------------------------------------------------------------------------------------------------------
    
   
Total(3)                    $90,200,000           $5,280,000        $61,760,000            $23,160,000
------------------------------------------------------------------------------------------------------
</TABLE>
    
 
(1)The Company and certain of the Selling Shareholders have agreed to indemnify
   the Underwriters against certain liabilities, including liabilities under the
   Securities Act of 1933, as amended. See "Underwriting."
 
(2)Before deducting estimated expenses of the Offering of $975,000, all of which
   will be paid by the Company.
 
   
(3)Certain of the Selling Shareholders have granted the Underwriters a 30-day
   option to purchase up to 660,000 additional shares of Common Stock on the
   same terms per share solely to cover over-allotments, if any. If such option
   is exercised in full, the total price to public will be $103,730,000, the
   total underwriting discounts and commissions will be $6,072,000 the total
   proceeds to Company will be $61,760,000 and the total proceeds to Selling
   Shareholders will be $35,898,000. See "Principal and Selling Shareholders"
   and "Underwriting."
    
 
   
The Common Stock is being offered by the Underwriters as set forth under
"Underwriting" herein. It is expected that the delivery of certificates therefor
will be made at the offices of SBC Warburg Dillon Read Inc., New York, New York,
on or about May 5, 1998, against payment therefor. The Underwriters include:
    
 
SBC WARBURG DILLON READ INC.                            BEAR, STEARNS & CO. INC.
 
                         SUNTRUST EQUITABLE SECURITIES
<PAGE>   2
 
                              [INSIDE FRONT COVER]
 
<TABLE>
<S>                                                   <C>
[Picture of corporate logo; a                         KROLL-O'GARA
square with the letter K within                       THE RISK MITIGATION COMPANY
the letter G within the letter
O].
</TABLE>
 
                     INVESTIGATIONS AND INTELLIGENCE GROUP
 
     [Two Panels: Picture of a man and a woman working at a laptop computer and
     picture of a group of people around a conference room table; labelled
     "Investigations and Intelligence Group."]
 
<TABLE>
<S>                             <C>                             <C>
- CORPORATE AND FRAUD           - ASSET TRACING AND ANALYSIS    - BUSINESS INTELLIGENCE
  INVESTIGATIONS
- SECURITY CONSULTING           - VENDOR INVESTIGATIONS         - DUE DILIGENCE
- LITIGATION SUPPORT SERVICES   - ENVIRONMENTAL SERVICES        - MONITORING SERVICES
</TABLE>
 
                       SECURITY PRODUCTS & SERVICES GROUP
 
     [Three Panels: Picture of two men studying computer screen, picture of
     Up-Armored HMMWV being driven up a hill, and picture of a Suburban being
     driven; labelled "Security Products and Services Group."]
 
<TABLE>
    <S>                            <C>                            <C>
    - COUNTRY RISK ANALYSES        - ARMORED COMMERCIAL AND       - ADVANCED DRIVER TRAINING
    - RISK AND CRISIS MANAGE-        MILITARY VEHICLES            - SECURITY TRAINING
      MENT                         - FORCE PROTECTION TRAINING
</TABLE>
 
                          VOICE & DATA SECURITY GROUP
 
     [Two Panels: Picture of man working at computer screen and picture of
     global positioning receiver; labelled "Voice and Data Security Group."]
 
<TABLE>
<S>                                            <C>
- COMPUTER HARDWARE AND SOFTWARE SECURITY      - SATELLITE COMMUNICATIONS INTEGRATION
                                               - NAVIGATIONAL GLOBAL POSITIONING SATELLITE
                                                 SYSTEMS
</TABLE>
 
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING
OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN THE COMMON STOCK
AND THE IMPOSITION OF A PENALTY BID, DURING AND AFTER THE OFFERING. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
 
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP MEMBERS
MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE
NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE
"UNDERWRITING."
<PAGE>   3
 
                               PROSPECTUS SUMMARY
 
     The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the Consolidated
Financial Statements of the Company, including the Notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, (i) the financial
statements of the Company included in this Prospectus present the results of
operations and financial condition of the Company as though both (a) a
reorganization (the "Reorganization") of the Company, completed on October 28,
1996, and (b) a merger (the "Merger") of a wholly owned subsidiary of The O'Gara
Company ("O'Gara") into Kroll Holdings, Inc. ("KHI"), the parent company of
Kroll Associates, Inc. ("Kroll"), completed on December 1, 1997, each of which
has been accounted for as a pooling of interests, had been completed at the
dates, or at the beginning of the periods, presented; (ii) all information
presented in this Prospectus has been adjusted to reflect the completion of the
Reorganization and the Merger; and (iii) references in this Prospectus to the
"Company" or "Kroll-O'Gara" refer to The Kroll-O'Gara Company and its
subsidiaries on a consolidated basis, giving effect to the completion of the
Reorganization and the Merger, and to the Company and its predecessors.
                                  THE COMPANY
 
     The Kroll-O'Gara Company ("Kroll-O'Gara" or the "Company") is a leading
global provider of a broad range of specialized products and services that are
designed to provide solutions to a variety of security needs. Worldwide,
governments, businesses and individuals increasingly are recognizing the need
for products and services that mitigate the growing risks associated with
white-collar crimes, fraud, physical attacks, threats, violence and uninformed
decisions based upon incomplete or inaccurate information. Through its network
of 40 offices located in 15 countries, the Company is meeting these needs by
providing information, analysis, training and products to its customers. The
Company has served a diverse customer base of over 4,000 clients during the last
five years, including large multinational corporations, medium and small
businesses, individuals, law firms, investment and commercial banks and U.S. and
foreign government agencies. Giving effect to the Merger, the Company's revenues
have increased from $77.2 million in 1993 to $190.4 million in 1997.
 
     Kroll-O'Gara enjoys strong name recognition and an outstanding reputation
throughout the security industry. The Company's Kroll subsidiary was founded in
1972 by Jules B. Kroll to provide internal fraud investigative services. During
the late 1970s, Kroll expanded the scope of its operations to include other
services such as business intelligence, due diligence for financial
transactions, intelligence gathering in connection with hostile takeovers and
crisis management. Over the past five years, Kroll has handled over 11,000
investigative matters worldwide for its clients, including many Fortune 500
companies. The Company's O'Gara Hess & Eisenhardt Armoring Company ("OHE")
subsidiary has a long and distinguished history dating back to its early days as
a horse-drawn carriage builder in 1876. In the 1940s, OHE designed and built one
of the earliest armored presidential limousines, which was used by President
Harry S Truman. Since then, OHE's armored commercial vehicles have been used by
every U.S. President, as well as other heads of state, business executives and
VIPs worldwide. OHE has been the sole source provider of armoring systems for
the U.S. Military's Up-Armored High Mobility Multi-Purpose Wheeled Vehicles
("HMMWVs") since their introduction in 1994. In November 1996, the Company
completed its initial public offering. Between October 1996 and December 1997,
the Company acquired five companies in the highly fragmented security industry.
Together these five acquisitions accounted for $37.3 million of 1997 revenues.
 
     The Company's operations are divided among the following three business
segments:
 
          Investigations and Intelligence.  The Company's Investigations and
     Intelligence Group provides: (i) investigative services designed to
     mitigate or determine financial fraud, theft of trade secrets, infringement
     of trademarks or other intellectual property rights, and employee
     misconduct; (ii) litigation or arbitration assistance in preparation for
     legal proceedings; (iii) forensic auditing and asset tracing services and
     financial profiles in connection with matters such as bankruptcy cases and
     loan defaults; (iv) due diligence investigations and background information
     for business decisions; (v) monitoring and special inquiry assistance in
     the discovery and assessment of legal and ethical misconduct and the
     development and installation of appropriate systems to assist in ensuring
     future compliance with relevant standards; and (vi) environmental risk
     consulting services.
 
                                        3
<PAGE>   4
 
          Security Products and Services.  The Company's Security Products and
     Services Group provides: (i) armoring products, including ballistic and
     blast protected armoring systems for commercial and military vehicles,
     aircraft and missile components; and (ii) security services, including
     advanced driver training, force protection training, risk and crisis
     management and turn-key site security systems.
 
          Voice and Data Security.  The Company's Voice and Data Security Group
     provides: (i) planning, design, and hardware and software integration
     services which are customized to meet specific portable satellite
     communications or navigation needs; and (ii) computer hardware and software
     security consulting services.
 
BUSINESS STRATEGY
 
     The key elements of the Company's business strategy include:
 
          Leverage Customer Base.  Kroll and O'Gara have served a combined base
     of over 4,000 clients during the last five years. Generally, these clients
     have not been customers of both firms. Utilizing its expanded portfolio of
     product and service offerings resulting from the Merger, the Company has
     implemented a cross-marketing and integrated selling approach, with the
     goal of becoming the primary supplier of risk mitigation solutions to
     customers' security needs.
 
          Offer New Risk Mitigation Products and Services.  The Company has
     identified a number of security services and security products that are
     complementary to its existing offerings, including expanded forensic
     accounting services and the armoring of a diversified variety of vehicles,
     aircraft and ancillary equipment. The Company believes these new risk
     mitigation offerings can be developed internally or acquired through
     strategic acquisitions. The Company continually evaluates the benefits of
     providing additional products and services based upon the needs of existing
     customers and the potential for adding new customers.
 
          Expand Geographically.  The Merger provides an opportunity for the
     Company to offer a broader range of products and services through its
     existing offices, which formerly provided only the products and services of
     either Kroll or O'Gara. The Company expects to increase revenues through
     such offices without a proportionate increase in overhead. In addition, the
     Company believes that significant opportunities exist to leverage its
     extensive network of established international offices and its brand name
     recognition by expanding into new geographical locations not currently
     served by the Company.
 
          Pursue Strategic Acquisitions.  The fragmented nature of the security
     industry provides the Company with significant opportunities for strategic
     acquisitions that will add to the breadth of its products and services or
     expand its capacity in existing businesses. The Company believes it is
     well-positioned to identify, acquire and integrate risk mitigation-related
     companies, based upon its demonstrated track record of evaluating,
     acquiring and integrating five businesses between October 1996 and December
     1997, accounting for $37.3 million in 1997 revenues.
 
          Maximize Operating Efficiency and Profitability.  The Company's
     strategy to improve profitability is focused on: (i) maximizing return on
     fixed operating costs; (ii) reducing the number of hours and components
     used in the production of armored vehicles through the continued
     standardization of manufacturing processes and parts; and (iii) expanding
     the number of higher margin service-related offerings to its customers.
 
                                        4
<PAGE>   5
 
RECENT DEVELOPMENTS
 
     On March 16, 1998, the Company acquired all of the shares of Corplex Inc.,
a provider of investigative and executive protection services based in New York,
New York. This acquisition will allow the Company to streamline its use of
subcontract investigators in the New York metropolitan area and offer certain
new products, such as executive protection and electronic counter measure
expertise, that are natural extensions of existing service areas.
 
     On March 30, 1998, the Company announced it had reached an agreement in
principle to acquire all of the capital stock of General Commercial Services
Ltd. of Toronto, Canada, which operates primarily through its wholly owned
subsidiary, Lindquist Avey Macdonald Baskerville Inc. ("Lindquist Avey").
Lindquist Avey is a leading international firm dedicated exclusively to forensic
accounting and corporate investigations.
 
     Additionally, on March 31, 1998, the Company announced it had reached an
agreement in principle to acquire all of the capital stock of Kizorek, Inc. of
Naperville, Illinois, which does business as InPhoto Surveillance ("InPhoto").
InPhoto is a leading claims investigation agency which primarily provides video
surveillance services to insurance companies, corporations and government
agencies in connection with investigating disability claims. Closing of each of
the Lindquist Avey and InPhoto transactions is conditioned on the satisfactory
completion of due diligence, the execution of definitive agreements and other
closing conditions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
 
   
     For the quarter ended March 31, 1998 the Company had net sales of $52.5
million as compared to net sales of $41.2 million for the first quarter of 1997.
Operating income was $5.6 million for the three months ended March 31, 1998
versus $4.0 million for the comparable period of 1997. Net income for the first
quarter of 1998 increased to $2.5 million, or $0.18 per share (diluted), from
$1.5 million, or $0.09 per share (diluted), in 1997.
    
                            ------------------------
 
     The Company is incorporated in the State of Ohio. Its principal executive
offices are located at 9113 LeSaint Drive, Fairfield, Ohio 45014, telephone
(513) 874-2112, and at 900 Third Avenue, New York, New York 10022, telephone
(212) 593-1000.
 
                                        5
<PAGE>   6
 
                                  THE OFFERING
 
   
<TABLE>
<S>                                                          <C>
Common Stock offered by the Company........................  3,200,000 shares
Common Stock offered by the Selling Shareholders...........  1,200,000 shares
                                                             ----------------
          Total Common Stock offered.......................  4,400,000 shares
                                                             ================
Common Stock to be outstanding after the Offering..........  16,829,432 shares(1)
Use of proceeds by the Company.............................  To repay a portion of the indebtedness of
                                                             the Company (approximately $13.4 million),
                                                             and for potential acquisitions, working
                                                             capital and other general corporate
                                                             purposes. See "Use of Proceeds."
Nasdaq National Market symbol..............................  KROG
</TABLE>
    
 
---------------
 
   
(1) Based upon shares outstanding as of March 31, 1998. Excludes 1,204,089
    shares issuable upon exercise of stock options outstanding as of March 31,
    1998 (including 551,492 shares issuable upon exercise of stock options
    assumed in the Merger).
    
 
                                  RISK FACTORS
 
   
     An investment in the shares of Common Stock offered by this Prospectus
involves a high degree of risk. For a discussion of certain of these risks, see
"Risk Factors" on pages 8 to 13.
    
 
                                        6
<PAGE>   7
 
                      SUMMARY CONSOLIDATED FINANCIAL DATA
 
     The following summary consolidated financial data, which reflect the
combined operations and financial position of O'Gara and KHI for all periods
presented utilizing the pooling of interests method of accounting, should be
read in conjunction with "Selected Consolidated Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and related Notes thereto included
elsewhere herein.
 
<TABLE>
<CAPTION>
                                                                    YEAR ENDED DECEMBER 31,
                                                      ---------------------------------------------------
                                                      1993(2)    1994      1995       1996     1997(2)(3)
                                                      -------   -------   -------   --------   ----------
                                                             (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                   <C>       <C>       <C>       <C>        <C>
STATEMENT OF OPERATIONS DATA (1):
Net sales...........................................  $77,215   $86,784   $85,841   $153,661     $190,413
Gross profit........................................   31,551    30,595    23,727     42,202      58,769
Operating expenses..................................   25,487    29,953    28,364     33,704      42,593
Merger related costs................................       --        --        --         --       7,205
Operating income (loss).............................    6,064       642    (4,637)     8,499       8,971
Other income (expense), net.........................   (2,258)   (2,132)   (3,197)    (2,803)     (5,199)
Income (loss) before provision (benefit) for income
  taxes, extraordinary item and cumulative effect of
  change in accounting principle....................    3,806    (1,490)   (7,834)     5,696       3,615
Provision (benefit) for income taxes (4)............    7,070    (1,751)   (1,298)      (162)      2,352
Net income (loss)(5)................................  $(3,559)  $   261   $(6,536)  $  5,857    $    710
Diluted earnings (loss) per share(6)(7).............  $ (0.47)  $ (0.02)  $ (0.65)  $   0.51    $   0.05
Diluted weighted average shares outstanding(6)(7)...    7,554     8,969    10,021     11,160      13,721
</TABLE>
 
   
<TABLE>
<CAPTION>
                                                                  DECEMBER 31, 1997
                                                              -------------------------
                                                               ACTUAL    AS ADJUSTED(8)
                                                              --------   --------------
                                                               (DOLLARS IN THOUSANDS)
<S>                                                           <C>        <C>
BALANCE SHEET DATA:
Cash and equivalents........................................  $  6,899      $ 60,125
Working capital, net of cash and equivalents................    24,627        25,186
Net property, plant and equipment...........................    14,612        14,612
Total assets................................................   133,971       187,197
Long-term debt, including current maturities................    50,065        43,065
Shareholders' equity........................................    27,954        88,739
</TABLE>
    
 
---------------
 
(1) The summary consolidated financial data reflect the Reorganization and the
    Merger, each of which was accounted for as a pooling of interests which
    requires the presentation of all prior period consolidated financial
    information as if the respective entities had always been a part of the
    Company.
 
(2) Effective January 1, 1993, KHI adopted Statement of Financial Accounting
    Standards ("SFAS") No. 109 and reported the cumulative effect of a change in
    the method of accounting for income taxes in its 1993 consolidated statement
    of operations. Effective in the fourth quarter of 1997, the Company changed
    its method of accounting for costs incurred in connection with business
    process reengineering activities.
 
(3) The Company completed certain other acquisitions, primarily in 1997, that
    utilized the purchase method of accounting which requires including the
    reported results of the acquired business only from the effective date of
    the acquisition.
 
(4) Historical periods prior to 1997 include results of operations of certain
    entities that were not taxable.
 
(5) In 1997, the Company recorded a charge for a minority interest of
    approximately $0.2 million, an extraordinary loss, net of tax benefit, of
    approximately $0.2 million due to the early extinguishment of debt, and a
    cumulative effect of change in accounting principle, net of tax benefit, of
    approximately $0.4 million.
 
(6) Diluted earnings (loss) per share and diluted weighted average shares
    outstanding are shown for all periods presented following guidelines
    established under SFAS No. 128 and SEC Staff Accounting Bulletin No. 98 and
    include the dilutive impact of all common stock equivalents. See Notes to
    Consolidated Financial Statements.
 
   
(7) Supplemental pro forma diluted earnings per share, assuming the repayment of
    a portion of the indebtedness of the Company as noted under "Use of
    Proceeds," would have been $0.08 per diluted share for the year ended
    December 31, 1997, based on the diluted weighted average shares outstanding
    during the period, plus the estimated number of shares to be issued to repay
    such indebtedness.
    
 
   
(8) Adjusted to give effect to the sale of 3,200,000 shares of Common Stock
    offered by the Company hereby at the public offering price of $20.50 per
    share, and the application of the net proceeds therefrom.
    
 
                                        7
<PAGE>   8
 
                                  RISK FACTORS
 
     In addition to the other information in this Prospectus, prospective
investors should carefully consider the following factors in evaluating the
Company and its business before purchasing any of the Common Stock offered
hereby. Prospective investors are cautioned that the statements in this
Prospectus that are not descriptions of historical facts may be forward-looking
statements that are subject to risks and uncertainties. Actual results could
differ materially from those currently anticipated due to a number of factors,
including those identified in this section on "Risk Factors" and elsewhere in
this Prospectus.
 
MANAGEMENT OF GROWTH
 
     Part of the Company's strategy requires further development of existing
lines of business in current markets and geographic expansion into new markets.
As the Company's business develops and expands, it will need to implement
enhanced operational and financial systems and will require additional
employees, management and operational and financial resources. If the Company
cannot successfully implement and maintain these operational and financial
systems or successfully obtain, integrate or utilize the employees, management
and operational and financial resources required to manage a developing and
expanding business, it could have a material adverse effect on the Company's
financial condition, results of operations and cash flows.
 
     A further part of the Company's strategy is to grow through the acquisition
of companies that will complement its existing operations or provide it with an
entry into markets it does not currently serve. The Company may not be able to
identify or acquire suitable companies or, if acquired, to integrate or manage
them so as to produce returns that justify the Company's investments. In
addition, the Company may compete for acquisition and expansion opportunities
with companies that have significantly greater resources than the Company.
 
     The expansion of the Company's business eventually will require additional
capital from operations, borrowings under the Company's credit facility or the
issuance of debt or equity securities. The Company may not be able to generate
adequate cash or obtain adequate financing from external sources. The issuance
of additional Common Stock to raise capital or to finance acquisitions may
result in substantial dilution to holders of the Common Stock. Any debt
financing may increase significantly the Company's leverage and may involve
restrictive covenants which limit the Company's operations. Future acquisitions
by the Company also may require approval under the Company's credit facility.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
 
     The Merger has necessitated combining two formerly unrelated companies with
different lines of business, operating and accounting systems and corporate
cultures, as well as integrating personnel with disparate business backgrounds.
This has required substantial attention from management. The process is not yet
complete and the failure to complete it successfully could have a material
adverse effect on the Company's financial condition, results of operations and
cash flows.
 
COMPETITION
 
     The markets in which the Company does and intends to do business are highly
competitive. There are a large number of companies, both public and private,
that provide products or services similar to those offered by the Company.
Furthermore, the Company may encounter additional competition from future
industry entrants. Certain of the Company's current competitors have, and new
competitors may have, substantially greater financial and other resources than
the Company. A number also have long established relationships with their
clients. For example, certain accounting firms and other large security product
and service providers, which have indicated an interest in expanding their
product offerings to include value-added services such as certain of the
investigative and consulting services provided by the Company, may prove to be
formidable competitors if they elect to devote the necessary resources to such
competitive businesses. Competitive conditions could have a material adverse
effect on the Company's financial condition, results of operations and cash
flows. See "Business -- Competition."
 
                                        8
<PAGE>   9
 
U.S. MILITARY CONTRACTS
 
     Since August 1993, U.S. Military contracts have accounted for a significant
portion of the Company's business, representing 8%, 20%, 17%, 36% and 23% of net
sales for 1993, 1994, 1995, 1996 and 1997, respectively. Prior to August 1993,
the Company's business did not include armoring military vehicles. The Company's
U.S. Military contracts are funded in annual increments and require subsequent
authorization and appropriation which may not occur or which may provide less
than the total amount of the contract due to budgetary or other considerations.
The Company has negotiated an extension of its current prime contract to armor
and blast protect HMMWVs which will continue production through June 2000. The
contract is expected to be signed in April 1998. Future contracts may not be
received and the size of any contracts that are received may vary. Fluctuations
in spending by the U.S. Government for national defense could adversely affect
the Company's ability to receive future contracts. Moreover, U.S. Government
contracts, in general, are cancelable unilaterally at the convenience of the
U.S. Government, and a variety of international and/or domestic political
factors or decisions could result in the cancellation of the HMMWV armoring
project or a curtailing of its scope. The loss of, or a significant reduction
in, this business would have a material adverse effect on the Company's
financial condition, results of operations and cash flows. See "Business -- U.S.
Government Contracts."
 
     On several occasions during the U.S. Government's 1996 fiscal year, certain
operations of the U.S. Government essentially were "shut down" because of budget
impasses between the U.S. Congress and the President. During these periods,
payments to the Company under its U.S. Military contracts were delayed. Future
U.S. Government shut downs, if sufficiently prolonged, could have a material
adverse effect on the Company's financial condition, results of operations and
cash flows.
 
SINGLE AND PRIMARY SOURCE SUPPLIERS
 
     HMMWVs armored by the Company are manufactured under separate U.S. Military
contracts by AM General Corporation ("AM General"). Should AM General for any
reason be unable to deliver HMMWVs to the Company, as occurred during 1995, or
should the U.S. Military elect or be obligated to select a new HMMWV supplier,
there could be a material adverse effect on the Company's financial condition,
results of operations and cash flows.
 
     In 1997, the Company obtained approximately 69% of the glass used in
armoring its vehicles from Pilkington Aerospace Limited. Should the Company at
some time find it necessary to select one or more additional or substitute
suppliers, delays could be encountered in obtaining glass which meets the
Company's specifications.
 
FLUCTUATIONS IN OPERATING RESULTS
 
     In its Security Products and Services Group, approximately 23% of the
Company's net sales for 1997 were derived from U.S. Military contracts and an
additional 5% were derived from commercial contracts with U.S. governmental
agencies or foreign governments. These contracts generally are awarded on a
periodic and/or sporadic basis. As a result, the Company's Security Products and
Services Group generally has significant fluctuations from time to time in its
business. Period-to-period comparisons within a given year or between years may
not be meaningful or indicative of operating results over a full fiscal year.
The Company generally does not have long term contracts with its clients in its
Investigations and Intelligence Group and its ability to generate net sales is
dependent upon obtaining many new projects each year, most of which are of
relatively short duration. As a result, the Company's net sales and net income
from year-to-year and period-to-period in its Investigations and Intelligence
Group are not necessarily predictable and historically there has not been a
consistent year-to-year pattern of growth. Additionally, the demand for the
Company's services is affected by general economic conditions and the level of
corporate acquisitions and other financial transactions, and clients may reduce
their reliance on the Company's services during periods when there is a decline
in such activities. See "Business -- Seasonality, Backlog and Related Matters"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
 
                                        9
<PAGE>   10
 
FIXED PRICE CONTRACTS
 
     A substantial portion of the Company's projects in its Security Products
and Services Group are currently performed on a fixed-price basis. The Company
attempts to cover anticipated increases in labor, material and service costs of
long-term fixed-price contracts through an estimation of such increases which is
reflected in the original price. Despite these attempts, however, the revenue,
cost and gross profit realized on a fixed-price contract often will vary from
the estimated amounts due to unforeseen conditions or changes in job conditions
and variations in productivity over the term of the contract. These variations
and the risks generally inherent in fixed-price contracts may result in the
gross profits realized by the Company being different from those originally
estimated and may result in the Company's experiencing reduced profitability or
losses on projects. Depending on the size of a contract, these variations from
estimated contract performance could have a material adverse effect on the
Company's results of operations for any quarter or year.
 
PERCENTAGE-OF-COMPLETION ACCOUNTING
 
     The Company's net sales from government contracts and most commercial
contracts in its Security Products and Services Group are recognized using the
percentage-of-completion method. Under this method, estimated contract revenues
are accrued based generally on the percentage that costs to date bear to total
estimated costs. Estimated contract losses are recognized in full when
determined. Accordingly, contract revenues and total cost estimates are reviewed
and revised periodically as the work progresses and as change orders are
approved, and adjustments based upon the percentage-of-completion are reflected
in contract revenues in the period when such estimates are revised. To the
extent that these adjustments result in an increase, a reduction or an
elimination of previously reported contract revenues, the Company would
recognize a credit or a charge against current earnings, which could be
material. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
 
POLITICAL AND ECONOMIC RISKS OF DOING BUSINESS OUTSIDE THE UNITED STATES
 
     In addition to its U.S. facilities, the Company has operations and assets
in Australia, Brazil, China, France, India, Italy, Japan, Mexico, the
Philippines, Russia, Saudi Arabia, Singapore, Switzerland and the United
Kingdom. The Company also sells its products and services in other foreign
countries and is seeking to increase its level of international business
activity. Accordingly, the Company is subject to various risks, including
exchange rate fluctuations, foreign currency restrictions, U.S. imposed
embargoes of sales to specific countries, expropriation of assets, war, civil
uprisings and riots, government instability and legal systems of decrees, laws,
regulations, interpretations and court decisions which are not always fully
developed and which may be retroactively applied. The Company's operations in
foreign countries may be materially adversely affected due to certain local
governmental agencies interpreting laws, regulations or court decisions in a
manner which might be considered inconsistent or inequitable in other countries.
The Company may be subject to unanticipated income taxes, excise duties, import
taxes, export taxes or other governmental assessments. Such risks could result
in a loss of business, significant unexpected write-offs of assets or other
unexpected costs which could have a material adverse effect on the Company's
financial condition, results of operations and cash flows. In the past, the
Company occasionally has encountered difficulties in collecting significant
accounts receivable for services of its Investigations and Intelligence Group,
particularly when the receivable obligor was located in a foreign country. See
"Business -- Government Regulation."
 
GOVERNMENT REGULATION
 
     As a contractor with agencies of the U.S. Government, the Company is
obligated to comply with a variety of regulations governing certain aspects of
its operations and the workplace. Additionally, such contracts give the
contracting agency the right to conduct audits of the Company's facilities and
operations, and such audits occur routinely. The Company may be subject to
investigations as a result of an audit or for other causes. Adverse findings in
an audit or other investigation, including violations of environmental or labor
laws, could result in fines or other penalties up to and including
disqualification as a U.S. Government contractor. In addition, U.S. Government
contracts may contain specific delivery requirements. Failure to meet these
requirements could result in penalties or lost profits to the Company.
                                       10
<PAGE>   11
 
     The Company is subject to federal licensing requirements with respect to
the sale in foreign countries of certain products and services. Regulations
promulgated by the U.S. Commerce Department require the Company to obtain a
general destination license in connection with the sale of certain commercial
products in foreign countries, and certain U.S. State Department regulations
require the Company to file an export license in connection with sales of
military equipment in foreign countries. Furthermore, the U.S. State Department
prohibits all sales of military equipment to certain countries, including, among
others, China, Cuba, Iran, Iraq, Libya and Syria. Such regulations could become
more restrictive in the future, which could limit the Company's ability to
market its products internationally. If additional restrictions were imposed,
they could have a material adverse effect on the Company's financial condition,
results of operations and cash flows.
 
     The services provided by the Company's Investigations and Intelligence
Group are subject to various federal, state, local and foreign laws, including
laws designed to protect the privacy of persons. Subsidiaries of the Company
hold private investigative licenses from, and their investigative activities are
regulated by, government agencies in various jurisdictions. The Company also
utilizes certain data from outside sources, including data from third party
vendors and various government and public record services, in performing its
services. To date, applicable laws and regulations have not interfered
materially with the conduct of the business or operations of the Company,
including the Company's access to data used in its business. However, new
regulations, or changes in governmental regulations relating to the protection
of privacy, could be enacted that would interfere materially with the manner in
which the Company obtains information, conducts its operations and provides its
services, with a resulting material adverse effect on the Company's financial
condition, results of operations and cash flows. See "Business -- Government
Regulation."
 
DEPENDENCE ON KEY PERSONNEL
 
     The Company's operations currently depend on the continued efforts of its
executive officers and on its senior management, particularly Jules B. Kroll,
its Chairman and Chief Executive Officer, and Wilfred T. O'Gara, its President
and Chief Operating Officer. Other members of the Company's senior management
play key roles in the management and direction of the Company. Additionally, the
Company is highly dependent on the quality and efforts of its professional staff
to provide its services and attract and retain clients. Competition for
qualified management and professional employees is intense. If the executive
officers of the Company unexpectedly become unable or decide not to continue in
their present positions, or if a number of senior managers fail to continue with
the Company and the Company is unable to attract and retain qualified
replacements, the Company's business could be materially and adversely affected.
See "Management."
 
CONTROL BY MANAGEMENT AND BOARD
 
     After the Offering, the Company's officers and directors will control
approximately 46.1% of the Company's outstanding Common Stock and effectively
will be able to control most matters requiring approval by shareholders,
including the election of directors. In addition, the Board of Directors has the
authority to issue 1,000,000 shares of undesignated preferred stock and to
determine the rights, preferences, privileges and restrictions of such shares
without further action by shareholders. Ohio law contains provisions that may
discourage takeover bids for the Company that have not been negotiated with the
Board of Directors. Each of these factors could have the effect of delaying or
preventing a change in control of the Company and, accordingly, could limit the
price that investors might be willing to pay for the Common Stock. See
"Principal and Selling Shareholders" and "Description of Capital Stock."
 
LIABILITY TO CLIENTS AND OTHERS
 
     Certain of the matters with respect to which the Company provides services
are extremely large and complex financial transactions in which very substantial
amounts of money may be at risk. The Company maintains environmental consulting,
product liability and professional liability insurance policies with limits of
$5 million, $25 million and $15 million, respectively; however, a successful
claim could result in liability in excess of coverage limits and have a material
adverse effect on the Company's financial condition, results of operations and
cash flows. Furthermore, in the ordinary course of its business, the Company is
subject to claims of third parties other than clients alleging trespass,
invasion of privacy and other tortious conduct by its
                                       11
<PAGE>   12
 
investigators and other personnel. Although the Company endeavors to minimize
the risk of such claims, they could have a material adverse effect on the
Company's financial condition, results of operations and cash flows. See
"Business--Legal Proceedings."
 
YEAR 2000 ISSUES
 
     The Company has implemented a Year 2000 program to ensure that the
Company's computer systems and applications will function properly beyond 1999.
The Company believes that it has allocated adequate resources for this purpose
and expects its Year 2000 date conversion program to be completed successfully
on a timely basis. In addition, the Company is selecting and implementing
several new software applications which are all believed to be Year 2000
compliant. Failure to implement successfully these applications on a timely
basis could have a material impact on the Company's operations. Although the
ability of third parties with whom the Company transacts business to address
adequately their Year 2000 issues is outside the Company's control, the Company
is discussing with its vendors and customers the possibility of any interface
difficulties which may affect the Company. The Company currently does not expect
the costs necessary to address the Year 2000 issue to be material to its
financial condition or results of operations. However, the failure of the
Company or of third parties with whom the Company transacts business to address
adequately, and in a timely manner, their respective Year 2000 issues could have
a material adverse effect on the Company's business, financial condition,
results of operations and cash flows.
 
POSSIBLE VOLATILITY OF SHARE PRICE
 
     The market price for the Common Stock may be highly volatile. The Company
believes that a variety of factors, including announcements by the Company or
its competitors, quarterly variations in financial results, trading volume,
general market trends and other factors, could cause the market price of the
Common Stock to fluctuate substantially. In addition, the stock market has
experienced extreme price and volume fluctuations that are often unrelated to
the operating performance of particular companies. These market fluctuations may
adversely affect the price of the Common Stock.
 
SHARES ELIGIBLE FOR FUTURE SALE
 
   
     Sales of a substantial number of shares of Common Stock, or the perception
that such sales could occur, could adversely affect prevailing market prices for
the Common Stock and may make it more difficult for the Company to sell shares
of Common Stock in the future at times and for prices that it deems appropriate.
Upon completion of the Offering, the Company will have approximately 16.8
million shares of Common Stock outstanding (assuming no exercise of outstanding
stock options). The 4.4 million shares of Common Stock offered hereby, as well
as approximately 2.9 million previously issued shares, will be or are freely
tradeable without restriction under the Securities Act of 1933, as amended (the
"Securities Act"). The remaining approximately 9.5 million shares (the
"Restricted Shares") of outstanding Common Stock may not be resold unless they
are registered under the Securities Act or sold pursuant to an applicable
exemption from registration, including Rule 144 under the Securities Act. Of the
Restricted Shares, approximately 8.5 million are subject to "lock-up" agreements
with the Underwriters expiring 90 days after the date of this Prospectus and may
be sold during that period only with the prior written consent of SBC Warburg
Dillon Read Inc. SBC Warburg Dillon Read Inc., in its sole discretion, and at
any time without prior notice, may release all or any portion of the Common
Stock subject to the lock-up agreements. When such lock-up restrictions lapse,
essentially all of the Restricted Shares may be sold in the public market or
otherwise disposed of in compliance with Rule 144. See "Shares Eligible for
Future Sale."
    
 
ABSENCE OF DIVIDENDS
 
     The Company does not anticipate paying any dividends on the Common Stock in
the foreseeable future. Additionally, the terms of the Company's Senior Notes
due 2004, which were issued to certain institutional investors in 1997 (the
"Senior Notes"), and of the Company's credit agreement with its bank require
maintenance of certain financial ratios which may limit the funds available for
cash dividends. See "Price Range of Common Stock and Dividend Policy."
                                       12
<PAGE>   13
 
POTENTIAL ANTI-TAKEOVER EFFECT AND POTENTIAL ADVERSE IMPACT ON MARKET PRICE OF
CERTAIN CHARTER AND CODE OF REGULATIONS PROVISIONS AND THE OHIO GENERAL
CORPORATION LAW
 
     Certain provisions of the Company's Amended and Restated Articles of
Incorporation and Code of Regulations and of the Ohio General Corporation Law
(the "OGCL"), together or separately, could discourage potential acquisition
proposals, delay or prevent a change in control of the Company and limit the
price that certain investors might be willing to pay in the future for the
Common Stock.
 
     The Board of Directors of the Company has authority to issue up to
1,000,000 preferred shares without further shareholder approval. Such preferred
shares could have dividend, liquidation, conversion, voting and other rights and
privileges that are superior or senior to the Common Stock. Issuance of
preferred shares could result in the dilution of the voting power of the Common
Stock, adversely affect holders of the Common Stock in the event of liquidation
of the Company or delay, defer or prevent a change in control of the Company.
 
     In addition, Sections 1701.01 and 1701.831 of the OGCL contain provisions
that require shareholder approval of any proposed "control share acquisition" of
an Ohio corporation at any of three ownership thresholds: 20%, 33 1/3% and 50%;
and Chapter 1704 of the Ohio Revised Code contains provisions that restrict
certain business combinations and other transactions between an Ohio corporation
and interested shareholders. See "Description of Capital Stock--Provisions
Affecting Business Combinations and Changes in Control."
 
                                       13
<PAGE>   14
 
                                USE OF PROCEEDS
 
   
     The net proceeds from the sale of the 3,200,000 shares of Common Stock
offered by the Company (at the public offering price of $20.50 per share), after
deducting underwriting discounts and estimated expenses payable by the Company
in connection with the Offering, will be approximately $60.8 million. The
Company will not receive any proceeds from the shares of Common Stock sold by
the Selling Shareholders. See "Principal and Selling Shareholders."
    
 
   
     Approximately $13.4 million of the net proceeds to the Company will be used
to repay certain indebtedness of the Company. The remainder will be reserved to
fund growth through potential acquisitions and expansion of products and
services, for working capital and for other general corporate purposes. The
amounts actually expended for such purposes are subject to change at the
Company's discretion, depending upon certain factors, including economic
conditions, the competitive environment and strategic opportunities that may
arise. See "Business--Business Strategy." Pending such uses, the Company intends
to invest the net proceeds from the Offering in short-term investment grade
instruments.
    
 
   
     The debt to be repaid is comprised of $7.0 million outstanding under a term
note with KeyBank National Association ("KeyBank") and the outstanding balance
(approximately $0.6 million at December 31, 1997 and $6.4 million at April 28,
1998) under the Company's revolving credit agreement with KeyBank, both of which
are a part of the Company's total credit facility with KeyBank. The term note
bears interest at the prime rate or, at the Company's option, the LIBOR rate
plus 2.5% per annum and matures in January 1999. The revolving credit portion of
the facility bears interest as follows: for advances outstanding of less than
$4.5 million, at the prime rate less 0.5% or, at the Company's option, the LIBOR
rate plus 2.0%; and for advances outstanding in excess of $4.5 million, at the
prime rate or, at the Company's option, the LIBOR rate plus 2.5%. As of April
28, 1998, the term note bore interest at the rate of 8.5% per annum and the
revolving credit portion of the facility bore interest at an effective rate of
8.1% per annum. The term note and most of the amount outstanding under the
revolving credit agreement were used to replace debt of KHI outstanding at the
time of the Merger and to fund transaction and integration costs associated with
the Merger. For additional information concerning the Company's credit facility,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." See also Notes 7 and 8 to the
Company's Consolidated Financial Statements.
    
 
   
     Following the closing of the Offering and the application of the net
proceeds as described above, the Company anticipates that it will have
approximately $43.4 million of outstanding indebtedness (including $35.0 million
of Senior Notes) and approximately $47.4 million remaining from the net proceeds
of the Offering.
    
 
                                       14
<PAGE>   15
 
                PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
 
     The Company's Common Stock commenced trading on the Nasdaq on November 13,
1996. The following table sets forth, for the periods indicated, the high and
low sale prices for the Common Stock as reported on the Nasdaq.
 
   
<TABLE>
<CAPTION>
                                                              HIGH   LOW
                                                              ----   ----
<S>                                                           <C>    <C>
1996
Fourth Quarter (from November 13, 1996).....................  $ 9-3/4 $ 8-1/4
1997
First Quarter...............................................   13-1/4   9-1/8
Second Quarter..............................................   13       9-5/8
Third Quarter...............................................   16-5/8  10-1/4
Fourth Quarter..............................................   20-7/8  16
1998
First Quarter...............................................   19-1/4  16-1/2
Second Quarter (through April 29, 1998).....................   22      17-7/8
</TABLE>
    
 
   
     On April 29, 1998, the last reported sale price of the Common Stock on the
Nasdaq was $21.125 per share. As of April 29, 1998, there were approximately 950
beneficial holders of the outstanding shares of Common Stock.
    
 
DIVIDENDS
 
     The Company anticipates that any future earnings will be retained to
finance the Company's operations and for the growth and development of its
business. Accordingly, the Company currently does not anticipate paying cash
dividends on its shares of Common Stock in the foreseeable future. Additionally,
the terms of the Company's Senior Notes and the credit agreement with its bank
require maintenance of certain financial ratios which may limit the funds
available for cash dividends. The payment of any future dividends will be
subject to the discretion of the Board of Directors of the Company and will
depend on the Company's results of operations, financial position and capital
requirements, general business conditions, restrictions imposed by financing
arrangements, if any, legal restrictions on the payment of dividends and other
factors the Board of Directors deems relevant.
 
                                       15
<PAGE>   16
 
                                 CAPITALIZATION
 
   
     The following table sets forth the cash and equivalents, short-term debt
and capitalization of the Company as of December 31, 1997 on an actual basis and
as adjusted for the sale of the 3,200,000 shares of Common Stock offered by the
Company (at the public offering price of $20.50 per share) and the application
of the net proceeds therefrom, after deducting underwriting discounts and
estimated expenses payable by the Company in connection with the Offering. See
"Use of Proceeds." The table should be read in conjunction with the Company's
Consolidated Financial Statements, including the Notes thereto, contained
elsewhere in this Prospectus.
    
 
   
<TABLE>
<CAPTION>
                                                                  DECEMBER 31, 1997
                                                              -------------------------
                                                                ACTUAL      AS ADJUSTED
                                                              ----------    -----------
                                                               (DOLLARS IN THOUSANDS)
<S>                                                           <C>           <C>
Cash and equivalents........................................  $    6,899    $   60,125
                                                              ==========    ==========
Short-term debt:
  Revolving line of credit(1)...............................  $      559    $       --
  Current portion of long-term debt.........................       3,201         3,201
  Shareholder payable.......................................         310           310
                                                              ----------    ----------
          Total short-term debt.............................  $    4,070    $    3,511
                                                              ==========    ==========
Long-term debt, excluding current portion...................  $   46,864    $   39,864
                                                              ----------    ----------
Shareholders' equity:
  Preferred Stock, $.01 par value per share,
     1,000,000 shares authorized, no shares issued or
      outstanding...........................................          --            --
  Common Stock, $.01 par value per share,
     50,000,000 shares authorized, 13,590,525 shares
     outstanding, 16,790,525 shares outstanding as
     adjusted(2)............................................         136           168
  Additional paid-in capital................................      50,590       111,343
  Retained deficit..........................................     (22,388)      (22,388)
  Unrealized appreciation of marketable securities..........          10            10
  Cumulative foreign currency translation adjustment........        (394)         (394)
                                                              ----------    ----------
          Total shareholders' equity........................      27,954        88,739
                                                              ----------    ----------
            Total capitalization............................  $   74,818    $  128,603
                                                              ==========    ==========
</TABLE>
    
 
---------------
 
   
(1) As of April 28, 1998, the Company had approximately $6.4 million outstanding
    under its revolving line of credit.
    
 
(2) Excludes 1,171,389 shares of Common Stock issuable upon exercise of stock
    options outstanding as of December 31, 1997.
 
                                       16
<PAGE>   17
 
                      SELECTED CONSOLIDATED FINANCIAL DATA
 
     The following selected consolidated financial data of the Company reflects:
(i) the Merger and the Reorganization, each of which was accounted for as a
pooling of interests which requires the presentation of all prior period
consolidated financial information as though the respective entities had always
been a part of the Company, (ii) the completion of certain other acquisitions,
primarily in 1997, that utilized the purchase method of accounting which
requires including the reported results of the acquired business only from the
effective date of the acquisition, and (iii) the fact that certain significant
entities of the Company were S Corporations for some of the historical periods
presented and, therefore, were not required to provide for federal, state or
certain foreign income taxes. The selected historical consolidated financial
data presented below as of December 31, 1996 and 1997 and for each of the three
years in the period ended December 31, 1997, have been derived from the audited
Consolidated Financial Statements of the Company presented elsewhere herein. The
consolidated financial data as of December 31, 1993, 1994 and 1995 and for the
years ended December 31, 1993 and 1994 are derived from the Company's unaudited
consolidated financial statements not included herein. The selected consolidated
financial data should be read in conjunction with the Consolidated Financial
Statements and Notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
 
<TABLE>
<CAPTION>
                                                                             YEAR ENDED DECEMBER 31,
                                                          --------------------------------------------------------------
                                                             1993         1994         1995         1996       1997(2)
                                                          ----------   ----------   ----------   ----------   ----------
                                                                  (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                       <C>          <C>          <C>          <C>          <C>
STATEMENT OF OPERATIONS DATA(1):
Net sales...............................................     $77,215      $86,784      $85,841     $153,661     $190,413
Cost of sales...........................................      45,664       56,189       62,114      111,458      131,644
                                                          ----------   ----------   ----------   ----------   ----------
  Gross profit..........................................      31,551       30,595       23,727       42,202       58,769
Selling and marketing expenses..........................       6,017        7,436        9,448        9,763       14,371
General and administrative expenses, including
  amortization..........................................      19,470       22,517       18,915       23,941       28,222
Merger related costs....................................          --           --           --           --        7,205
                                                          ----------   ----------   ----------   ----------   ----------
  Operating income (loss)...............................       6,064          642       (4,637)       8,499        8,971
Interest expense........................................      (2,692)      (2,598)      (2,812)      (3,140)      (4,806)
Other income (expense), net.............................         434          466         (384)         337         (393)
                                                          ----------   ----------   ----------   ----------   ----------
  Income (loss) before minority interest, provision
    (benefit) for income taxes, extraordinary item and
    cumulative effect of change in accounting
    principle...........................................       3,806       (1,490)      (7,834)       5,696        3,772
Minority interest.......................................          --           --           --           --         (156)
                                                          ----------   ----------   ----------   ----------   ----------
  Income (loss) before provision (benefit) for income
    taxes, extraordinary item and cumulative effect of
    change in accounting principle......................       3,806       (1,490)      (7,834)       5,696        3,615
Provision (benefit) for income taxes (3)................       7,070       (1,751)      (1,298)        (162)       2,352
                                                          ----------   ----------   ----------   ----------   ----------
  Income (loss) before extraordinary item and cumulative
    effect of change in accounting principle............      (3,264)         261       (6,536)       5,857        1,264
Extraordinary item, net of tax benefit(5)...............          --           --           --           --         (194)
                                                          ----------   ----------   ----------   ----------   ----------
  Income (loss) before cumulative effect of change in
    accounting principle................................      (3,264)         261       (6,536)       5,857        1,070
Cumulative effect of change in accounting principle, net
  of tax benefit(4).....................................        (295)          --           --           --         (360)
                                                          ----------   ----------   ----------   ----------   ----------
Net income (loss)(6)....................................     $(3,559)        $261      $(6,536)      $5,857         $710
                                                          ==========   ==========   ==========   ==========   ==========
Basic earnings (loss) per share (7) (8).................      $(0.47)       $0.03       $(0.65)       $0.55        $0.05
                                                          ==========   ==========   ==========   ==========   ==========
Diluted earnings (loss) per share (7) (8)...............      $(0.47)      $(0.02)      $(0.65)       $0.51        $0.05
                                                          ==========   ==========   ==========   ==========   ==========
Basic weighted average shares outstanding(7)............   7,554,071    8,510,467   10,020,777   10,742,131   13,060,818
Diluted weighted average shares outstanding(7)..........   7,554,071    8,968,672   10,020,777   11,160,157   13,720,556
</TABLE>
 
                                       17
<PAGE>   18
 
<TABLE>
<CAPTION>
                                                              AS OF DECEMBER 31,
                                               ------------------------------------------------
                                                1993      1994      1995      1996     1997(2)
                                               -------   -------   -------   -------   --------
                                                            (DOLLARS IN THOUSANDS)
<S>                                            <C>       <C>       <C>       <C>       <C>
BALANCE SHEET DATA(1):
Working capital..............................  $23,920   $14,511   $ 4,087   $10,600   $ 31,526
Net property, plant and equipment............    7,204     7,012     6,876     8,563     14,612
Total assets.................................   59,551    63,902    66,767    81,234    133,971
Long-term debt, including current portion....   25,374    27,566    30,915    17,479     50,065
Shareholders' equity.........................   10,339    11,076     4,657    16,867     27,954
</TABLE>
 
---------------
 
(1) The selected consolidated financial data include the Merger on December 1,
    1997 and the Reorganization on October 28, 1996, each of which was accounted
    for as a pooling of interests. Prior to the Company's initial public
    offering in November 1996 its business was conducted by a group of
    corporations affiliated by substantially common management and control (the
    "Related Corporations"), which were combined in the Reorganization. All
    prior period consolidated financial data presented have been restated to
    include the combined results of operations, financial position and cash
    flows of the respective entities as though they had always been a part of
    the Company.
 
(2) The Company completed certain other acquisitions, primarily in 1997, that
    utilized the purchase method of accounting. The Company acquired Palmer
    Associates, S.C. in October 1996 for approximately $1.0 million, Next
    Destination Limited in February 1997 for approximately $3.5 million, Labbe,
    S.A. in February 1997 for approximately $14.2 million, International
    Training, Inc. in March 1997 for approximately $2.5 million and ZAO IMEA in
    December 1997 for approximately $3.0 million.
 
(3) Historical periods prior to 1997 include results of operations of certain
    entities that were not taxable. The most significant of the Related
    Corporations had elected to be treated as an S Corporation for federal and
    state income tax purposes, rather than be taxed at the corporate level. This
    entity became a taxable entity, or a C Corporation, in connection with the
    Reorganization. In addition, prior to 1993, KHI had elected to be treated as
    an S Corporation for federal and state income tax purposes. During 1993, KHI
    changed its tax filing status from an S to a C Corporation. The deferred tax
    liability resulting from this tax status change has been included in income
    tax expense for the year ended December 31, 1993. All entities of the
    Company are taxable entities only for periods subsequent to the
    Reorganization.
 
(4) Effective January 1, 1993, KHI adopted SFAS No. 109 and reported the
    cumulative effect of a change in the method of accounting for income taxes
    in its 1993 consolidated statement of operations. Effective in the fourth
    quarter of 1997, the Company changed its method of accounting for costs
    incurred in connection with business process reengineering activities.
 
(5) In 1997, the Company recorded an extraordinary loss, net of tax benefit, of
    approximately $0.2 million due to the early extinguishment of debt.
 
(6) The net income (loss) and cost of sales for the year ended December 31, 1996
    reflect a write-off by the Company of approximately $5.0 million ($2.8
    million net of tax benefit) of uncollectible accounts receivable. See
    "Management's Discussion and Analysis of Financial Condition and Results of
    Operations."
 
(7) Basic and diluted earnings per share and weighted average shares outstanding
    are shown for all periods presented following guidelines established under
    SFAS No. 128 and SEC Staff Accounting Bulletin No. 98. See Notes to
    Consolidated Financial Statements.
 
   
(8) Supplemental pro forma earnings per share, assuming the repayment of a
    portion of the indebtedness of the Company as noted under "Use of Proceeds",
    would have been $0.08 per basic share and $0.08 per diluted share for the
    year ended December 31, 1997, based on the basic and diluted weighted
    average shares outstanding during the period, plus the estimated number of
    shares to be issued to repay such indebtedness.
    
 
                                       18
<PAGE>   19
 
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
     The following discussion of results of operations and financial condition
is based upon and should be read in conjunction with the Company's Consolidated
Financial Statements and Notes thereto, the selected consolidated financial data
and other financial data appearing elsewhere in this Prospectus. As a result of
the acquisitions made by the Company since 1996, financial results from
period-to-period may lack comparability. Additionally, prior to December 1,
1997, the Company reported revenue under the categories Security Hardware
Products, Security Systems Integration and Security Services. Effective December
1, 1997, the Company recategorized its groups as Security Products and Services,
Investigations and Intelligence and Voice and Data Security. Historical revenue
amounts have been reclassified to conform to the current categories.
 
GENERAL
 
     The Kroll-O'Gara Company is a leading global provider of a broad range of
specialized products and services that are designed to provide solutions to a
variety of security needs. The Company reports its revenue through three groups.
The Security Products and Services Group markets ballistic and blast protected
vehicles to businesses, individuals and governments. It also offers security
services such as training, risk and crisis management services, and site
security systems. The Investigations and Intelligence Group offers business
intelligence and investigation services to clients worldwide. The Voice and Data
Security Group offers secure satellite communication equipment, satellite
navigation systems and computer hardware and software security.
 
     On November 15, 1996, the Company completed an initial public offering of
2,000,000 shares of its Common Stock at $9.00 per share. Additionally, on
December 16, 1996, the Company issued 48,000 shares under a partial exercise of
the underwriters' over-allotment option. The net proceeds from the initial
public offering were used to finance certain distributions to existing
shareholders, to acquire the Company's leased Mexico City manufacturing
facility, and to pay initial installments for the acquisition of Palmer
Associates, S.C. ("Palmer Associates"). The balance of the proceeds were used to
repay a portion of the indebtedness of the Company.
 
     On December 1, 1997, a wholly owned subsidiary of the Company merged into
KHI. In the Merger, the Company issued 6,098,561 shares of Common Stock and
repaid an aggregate of $14.5 million in outstanding indebtedness of KHI.
Approximately 550,000 additional shares of Common Stock may be issued upon the
exercise of options held by KHI employees, which were assumed by the Company.
Revenues of KHI comprise all of those reported by the Company's Investigations
and Intelligence Group as well as certain revenues in its other two Groups.
 
     Acquisitions. On October 29, 1996, the Company acquired substantially all
the assets of Palmer Associates of Mexico City, Mexico, for $1.0 million
(excluding $0.2 million for a non-competition agreement), most of which is
payable over two years. Palmer Associates is a provider of security services
such as advanced driver training, background investigations, due diligence
reports and forensic auditing, and reports its revenue primarily through the
Company's Investigations and Intelligence Group and also through the Security
Products and Services Group.
 
     On February 5, 1997, the Company completed the acquisition of all of the
shares of Next Destination, Limited ("Next Destination") of Salisbury, the
United Kingdom, a distributor of high technology products for the global
positioning satellite and satellite communication markets. The purchase price
consisted of 170,234 shares of Common Stock (valued at approximately $1.9
million or $10.88 per share) and $1.6 million in seller-provided financing in
the form of secured, three-year 6% notes. Next Destination, which had been
selling the portable satellite terminal offered by the Company, reports revenue
through the Company's Voice and Data Security Group.
 
     On February 12, 1997, the Company completed the acquisition of all of the
shares of Labbe, S.A. ("Labbe"), a leading armorer of commercial and private
vehicles headquartered in Lamballe, France. The purchase price consisted of
$10.7 million in cash and 376,597 shares of Common Stock (valued at
approximately $3.5 million or $9.29 per share). The acquisition of Labbe has
increased substantially the level
 
                                       19
<PAGE>   20
 
of commercial revenue generated by the Security Products and Services Group and
enhanced the Company's competitive position due to an expanded product line,
which includes cash-in-transit vehicles, and penetration into new markets, such
as Europe and Africa.
 
     On March 24, 1997, the Company completed the acquisition of all the shares
of International Training, Incorporated ("ITI"), a provider of advanced security
training headquartered near Washington, D.C. The purchase price consisted of
$0.5 million in cash, 68,086 shares of Common Stock (valued at approximately
$0.8 million or $11.89 per share) and $1.2 million in seller-provided financing
in the form of unsecured, two-year 10% notes. ITI, which reports revenue through
the Company's Security Products and Services Group, added a number of new
products, such as evasive and defensive driver training, terrorist surveillance
training, force protection consulting and advanced weapons training, not
previously available from the Company.
 
   
     Effective December 2, 1997, the Company acquired all of the shares of ZAO
IMEA, a Russian corporation ("IMEA"), as well as certain work in process of, and
an agreement not to compete in Russia by, Acorn Communications Group, Inc., a
Massachusetts corporation ("Acorn"). IMEA and Acorn had substantially common
ownership prior to the acquisition. The purchase price of $3.0 million consisted
of $0.5 million in cash, 138,889 shares of Common Stock (valued at approximately
$2.4 million or $18.00 per share) and $0.1 million in cash payable over the six
months commencing January 1, 1998. IMEA is engaged in the business of selling
cash-in-transit vehicles and other commercial bank equipment, such as safes,
money counters and counterfeit detectors, throughout Russia; it reports revenue
through the Company's Security Products and Services Group.
    
 
     On March 16, 1998, the Company acquired all of the shares of Corplex Inc.
("Corplex"), a provider of investigative and executive protection services based
in New York, New York. The purchase price consisted of 29,207 shares of Common
Stock (valued at approximately $0.5 million or $17.98 per share). Corplex, which
will report revenue through the Company's Investigations and Intelligence Group,
will allow the Company to streamline its use of subcontract investigators in the
New York metropolitan area and offer certain new products, such as executive
protection and electronic counter measure expertise, that are natural extensions
of existing service areas.
 
     On March 30, 1998, the Company announced it had reached an agreement in
principle to acquire all of the capital stock of General Commercial Services
Ltd. of Toronto, Canada, which operates primarily through its wholly owned
subsidiary, Lindquist Avey Macdonald Baskerville Inc. The purchase price will
consist of a combination of cash and shares of Common Stock, the specific terms
of which have not been determined. The transaction is expected to be consummated
during June 1998, conditioned on the satisfactory completion of due diligence,
the execution of definitive agreements and other closing conditions. Lindquist
Avey is a leading international firm dedicated exclusively to forensic
accounting and corporate investigations.
 
     On March 31, 1998, the Company announced it had reached an agreement in
principle to acquire all of the capital stock of Kizorek, Inc. of Naperville,
Illinois, which does business as InPhoto Surveillance, for 800,000 shares of
Common Stock. InPhoto is a leading claims investigation agency which primarily
provides video surveillance services to insurance companies, corporations and
government agencies in connection with investigating disability claims. The
transaction is conditioned on the satisfactory completion of due diligence, the
execution of definitive agreements and other closing conditions. The transaction
is expected to qualify for "pooling of interest" accounting treatment.
 
     Revenue recognition. The Company's net sales from government and most
commercial armoring contracts are recognized using the percentage-of-completion
method calculated utilizing the cost-to-cost approach. Under this method,
estimated contract revenues are accrued based generally on the percentage that
costs to date bear to total estimated costs. Estimated contract losses are
recognized in full when it becomes likely that a loss will occur. Accordingly,
contract revenues and total cost estimates are reviewed and revised periodically
as the work progresses and as change orders are approved, and adjustments based
upon the percentage of completion are reflected in contract revenues in the
period when such estimates are revised. To the extent that these adjustments
result in an increase, a reduction or an elimination of previously reported
contract revenues, the Company would recognize a credit or a charge against
current earnings, which could be material. Contract costs include all direct
material and labor costs, along with certain overhead costs allocated
                                       20
<PAGE>   21
 
to contract production. Provisions for any estimated total contract losses on
uncompleted contracts are recorded in the period in which it is concluded that
such losses will occur. Changes in estimated total contract costs will result in
revisions to contract revenue. The revisions are recognized when determined.
 
     Revenue from investigative and intelligence services is recognized as the
services are performed. The Company records either billed or unbilled accounts
receivable based on case-by-case invoicing determinations.
 
     Revenue related to telecommunications equipment and services is recognized
as equipment is shipped or as services are provided. Revenue and related direct
costs of brokered satellite time are recorded when payments are received from
customers.
 
     Provision for income taxes. From 1988 until October 28, 1996, OHE was
treated as an S Corporation under Subchapter S of the Internal Revenue Code and
comparable provisions of certain state tax laws. As a result, it paid no federal
or state income tax. The Company is a C Corporation and is responsible for
federal and state income taxes.
 
RESULTS OF OPERATIONS
 
     The following table sets forth, for the periods indicated, the items noted
as a percentage of net sales:
 
<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                                              --------------------------
                                                               1995      1996      1997
                                                              ------    ------    ------
<S>                                                           <C>       <C>       <C>
Security products and services
  Military..................................................    17.4%     35.5%     23.0%
  Commercial................................................    23.2      16.0      32.5
Investigations and intelligence.............................    57.0      43.4      35.4
Voice and data security.....................................     2.4       5.1       9.2
                                                              ------    ------    ------
  Total net sales...........................................   100.0%    100.0%    100.0%
Cost of sales...............................................    72.4      72.5      69.1
                                                              ------    ------    ------
  Gross profit..............................................    27.6      27.5      30.9
Operating expenses:
  Selling and marketing.....................................    11.0       6.4       7.5
  General and administrative................................    22.0      15.6      14.8
  Merger related costs......................................      --        --       3.8
                                                              ------    ------    ------
Operating income (loss).....................................    (5.4)      5.5       4.7
Other income (expense):
  Interest expense..........................................    (3.3)     (2.0)     (2.5)
  Other, net................................................    (0.4)      0.2      (0.2)
                                                              ------    ------    ------
Income (loss) before minority interest, provision (benefit)
  for income taxes, extraordinary item and cumulative effect
  of change in accounting principle.........................    (9.1)      3.7       2.0
Minority interest...........................................      --        --       0.1
                                                              ------    ------    ------
Income (loss) before provision (benefit) for income taxes,
  extraordinary item and cumulative effect of change in
  accounting principle......................................    (9.1)      3.7       1.9
     Provision (benefit) for income taxes...................    (1.5)     (0.1)      1.2
                                                              ------    ------    ------
Income (loss) before extraordinary item and cumulative
  effect of change in accounting principle..................    (7.6)      3.8       0.7
Extraordinary loss..........................................      --        --      (0.1)
                                                              ------    ------    ------
Income (loss) before cumulative effect of change in
  accounting principle......................................    (7.6)      3.8       0.6
Cumulative effect of change in accounting principle.........      --        --      (0.2)
                                                              ------    ------    ------
Net income (loss)...........................................    (7.6)%     3.8%      0.4%
                                                              ======    ======    ======
</TABLE>
 
                                       21
<PAGE>   22
 
1997 COMPARED TO 1996
 
     NET SALES. Net sales increased $36.7 million, or 24%, from $153.7 million
in 1996 to $190.4 million in 1997. The primary reasons for this increase were
the acquisitions made in the Company's Security Products and Services Group and
Voice and Data Security Group in 1997.
 
     Security Products and Services Group. Net sales for the Security Products
and Services Group increased $26.4 million, or 33%, from $79.2 million in 1996
to $105.6 million in 1997.
 
     The Group's net sales for 1997 from commercial products and services were
$61.8 million, an increase of $37.3 million, or 152%, over 1996. This increase
was due to several factors, including primarily the incorporation of net sales
from Labbe and ITI in the Group's results. Excluding acquisitions, net sales
from commercial products and services increased $12.7 million, or 52%. The
Company experienced significant growth in its Brazilian and Mexican armoring
subsidiaries, a trend management believes will continue for the foreseeable
future. With the purchase of IMEA and the initiation of a start-up armoring
operation in the Philippines, the Security Products and Services Group continued
its expansion in existing and new markets. The Company will continue to seek out
new acquisition opportunities and additional new markets for its security
products and services.
 
     In 1996, the U.S. Military requested accelerated production of Up-Armored
HMMWVs. This resulted in net sales of $54.6 million in 1996. Military net sales
returned to a non-accelerated level in 1997, resulting in net sales from
military products decreasing by $10.9 million, or 20%, to $43.7 million in 1997.
Management expects net sales from military products to remain at a level
comparable to 1997 for the foreseeable future.
 
     Investigations and Intelligence Group. Net sales of the Investigations and
Intelligence Group in 1997 were derived predominantly from the activities of
KHI. Throughout 1997, KHI was actively involved in various strategic discussions
that contemplated a sale of the company. Pending the outcome of such
discussions, KHI delayed implementation of its internal growth plans.
Furthermore, uncertainties regarding the outcome of the discussions resulted in
the departure of certain KHI managers prior to the Merger. Finally, in
connection with the Merger and in an effort to improve its cost structure, the
Company reduced personnel in certain markets. As a result of these factors, net
sales for the Investigations and Intelligence Group increased only $0.7 million,
or 1%, from $66.7 million in 1996 to $67.4 million in 1997. The change in 1997
was attributable primarily to an increase in net sales from business
intelligence services, which includes due diligence work and services related to
corporate mergers and acquisitions, offset by a decline in net sales from
investigations.
 
     During the fourth quarter, the Investigations and Intelligence Group
reactivated its growth plan to open offices in Boston, Mexico City and Dallas
and to pursue related acquisitions. The Company expects these initiatives will
have a favorable impact on growth of net sales in 1998.
 
     Voice and Data Security Group. During 1997, the Company replaced its
primary wholesale distributor, acquired Next Destination, a subdistributor, and
reconfigured its distribution product mix to focus on the sale of satellite
communications equipment in addition to satellite navigation equipment. As a
result, the Company experienced a growth rate in 1997 approximately five to six
times higher than normal. Net sales for the Voice and Data Security Group were
$17.4 million in 1997, an increase of $9.7 million, or 124%, from $7.8 million
in 1996. The Company expects growth in this segment to return to a more normal
rate in 1998.
 
     COST OF SALES AND GROSS PROFIT. Cost of sales for 1997 increased $20.2
million, or 18%, from $111.5 million in 1996 to $131.6 million in 1997. The
increase in cost of sales was due to increases in the Company's level of
business activity as result of the acquisitions made in 1997.
 
     Security Products and Services Group. Gross profit as a percent of net
sales for the Security Products and Services Group increased from 25.8% in 1996
to 28.4% in 1997. As revenues and costs are recognized using the
percentage-of-completion method of accounting, actual cost and gross profit may
be revised from previously estimated amounts.
 
                                       22
<PAGE>   23
 
     Historically the Company has experienced a higher gross profit percent
related to net sales of commercial armoring products in comparison with those of
military armoring products. In the future, the Company expects to increase its
percentage of sales from commercial armoring products. However, because the
Company's gross profit percentage was affected favorably by adjustments
resulting from performance on certain contracts in 1997, the Company does not
expect to maintain the 1997 gross profit percentage level in 1998.
 
     Investigations and Intelligence Group. Gross profit as a percent of net
sales for the Investigations and Intelligence Group increased from 29.4% in 1996
to 38.0% in 1997. Gross profit percent in 1996 was unfavorably affected by a
write-off of $5.0 million in uncollectible accounts receivable relating to
services provided in earlier periods. Without the write-off, the gross profit
percentages would have been comparable between periods.
 
     Voice and Data Security Group. Prior to the acquisition of Next
Destination, the Company's Voice and Data Security Group realized a higher gross
profit percentage due to a higher mix of integrated products versus distributed
products. As a distributor, Next Destination's gross profit percentages were
relatively lower. Gross profit as a percent of net sales for the Voice and Data
Security Group decreased from 27.6% in 1996 to 17.9% in 1997. Management expects
the level of gross profit percentage experienced in 1997 to be maintained in
future periods.
 
     OPERATING EXPENSES. Excluding Merger related expenses of $7.2 million,
operating expenses increased $8.9 million, or 26%, from $33.7 million in 1996 to
$42.6 million in 1997. The $7.2 million in expenses related to the Merger
consisted of approximately $4.6 million in professional fees and expenses and
approximately $2.6 million relating to the integration of the operations of the
two companies. Included in the integration expenses were bonuses paid to certain
key employees as incentives to remain with the Company and severance payments
made to employees who left employment of the Company in connection with the
Merger. Also included was a charge made as result of the acceleration of the
vesting of certain shares of restricted KHI stock immediately prior to the
Merger. All of the Merger related costs were recognized in 1997 and will have no
effect on the earnings of the Company in future periods.
 
     The primary reason for the increase in operating expenses, exclusive of
Merger related expenses, was the inclusion of operations from the acquisitions
made in 1997. In addition, the increase in operating expenses reflects the
Company's efforts to expand into new markets, both in the Security Products and
Services Group and the Investigations and Intelligence Group. Excluding Merger
related expenses, operating expenses as a percent of net sales stayed constant
at 22% in both 1996 and 1997.
 
     Prior to the Merger, KHI was involved in merger discussions with
Choicepoint, Inc. ("Choicepoint") a subsidiary of Equifax, Inc. Choicepoint and
KHI did not reach a final agreement and, as a result, did not consummate the
transaction. Certain professional fees, which totaled approximately $0.5
million, associated with the Choicepoint transaction are included in the
Company's operating expenses in 1997.
 
     INTEREST EXPENSE. Interest expense for 1997 increased $1.7 million, or 53%,
to $4.8 million, compared to $3.1 million in 1996. The increase in 1997 was the
result of increased borrowing to finance the Company's 1997 acquisitions. The
Company expects to retire a portion of its debt from the proceeds of the
Offering. As a result, assuming completion of the Offering, interest expense is
expected to be lower in 1998 than in 1997.
 
     OTHER, NET. Other income (expense), net decreased from $0.3 million of
income in 1996 to $0.4 million in expense in 1997. The change was due primarily
to an increase in foreign currency transaction losses recognized in 1997.
 
     PROVISION (BENEFIT) FOR INCOME TAXES. The provision (benefit) for income
taxes increased from a benefit of $(0.2) million in 1996 to a provision of $2.4
million in 1997. The Company's OHE subsidiary did not book a tax provision for
the first ten months of 1996 due to OHE's S Corporation status, which was
terminated on October 28, 1996 in conjunction with the Reorganization.
 
                                       23
<PAGE>   24
 
     The Company incurred taxes at the effective rate of 65% in 1997 due to the
non-deductibility of certain Merger related expenses in the period and the
impact of foreign losses for which no benefit can be provided. Management
believes that the rate is substantially higher than the Company will experience
in 1998 and for future periods.
 
     CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE.  The Company had
previously capitalized costs related to the reengineering of certain information
systems. The capitalized amount, approximately $0.6 million before tax, was
expensed in 1997 in accordance with Emerging Issues Task Force Issue No. 97-13
"Accounting for Costs Incurred in Connection with a Consulting Contract that
Combines Business Process Reengineering and Information Technology
Transformation." The amount expensed is shown net of applicable tax benefit of
$0.2 million.
 
1996 COMPARED TO 1995
 
     NET SALES. Net sales increased $67.8 million, or 79%, from $85.8 million in
1995 to $153.7 million in 1996. The primary reasons for this change were the
acceleration of the HMMWV contract and increases in the level of business
activity in the Investigations and Intelligence Group and Voice and Data
Security Group discussed below.
 
     Security Products and Services Group. Net sales for the Security Products
and Services Group increased $44.3 million, or 127%, from $34.9 million in 1995
to $79.2 million in 1996. 1996 net sales reflect the U.S. Government's request
to accelerate the production of Up-Armored HMMWVs and HMMWV armor kits. In
addition, the level of military net sales in 1995 was significantly impacted by
an unanticipated six-month delay in the delivery of HMMWV chassis from a
supplier, leading to production of substantially fewer Up-Armored HMMWVs.
 
     Commercial revenue for 1996 was $24.6 million, an increase of $4.6 million,
or 23% over 1995. This increase was primarily due to the inclusion of net sales
from start-up operations in Russia, Mexico and Brazil.
 
     Investigations and Intelligence Group. Net sales for the Investigations and
Intelligence Group increased $17.8 million, or 36%, from $48.9 million in 1995
to $66.7 million in 1996. The increase in 1996 was attributable primarily to an
increase in net sales from corporate investigation and business intelligence
services, which increased $12.3 million and $4.0 million, respectively. These
increases were the result of expansion into new geographic areas and an enhanced
marketing program, including a Vendor Integrity Program, which accounted for
approximately $1.0 million of the increase in net sales.
 
     Voice and Data Security Group. Net sales for the Voice and Data Security
Group increased $5.7 million, or 280%, from $2.0 million in 1995 to $7.8 million
in 1996. The increase in net sales was attributable primarily to the addition of
the Compact-M portable satellite terminal, initially marketed by the Company in
1996.
 
     COST OF SALES AND GROSS PROFIT. Cost of sales for 1996 increased $49.3
million, or 79%, from $62.1 million in 1995 to $111.5 million in 1996. The
increase in cost of sales was due to increases in the Company's level of
business activity.
 
     Security Products and Services Group. Gross profit as a percent of net
sales for the Security Products and Services Group increased from 23.3% in 1995
to 25.8% in 1996. This increase was due to revenue recognized on new military
contracts, both U.S. and foreign, with a higher gross profit percent than
previously experienced. Also contributing to the increase in gross profit as a
percent of sales was the effect of the start-up operations in Brazil, Mexico and
Russia, which experienced higher gross margins for their products than the
Company had experienced previously. These higher margins were the result of
lower direct costs and less developed competition in the markets where these
start-up operations exist.
 
     Investigations and Intelligence Group. Gross profit as a percent of net
sales decreased from 31.1% in 1995 to 29.4% in 1996. Cost of sales in 1996
included a write-off of $5.0 million in uncollectible accounts receivable
relating to services provided in earlier periods. Without the effect of the
write-off, gross margin as a percent of net sales would have increased 5.8% over
1995 to 36.9%.
 
                                       24
<PAGE>   25
 
     Voice and Data Security Group. Gross profit as a percent of net sales
increased from 20.0% in 1995 to 27.6% in 1996. This increase was due primarily
to new products marketed by the Company in 1996, that were sold at a higher
gross margin than the Company had experienced with other products.
 
     OPERATING EXPENSES. Operating expenses in 1996 increased $5.3 million, or
19%, from $28.4 million in 1995 to $33.7 million in 1996. As a percent of net
sales, operating expenses decreased from 33% in 1995 to 22% in 1996, as result
of increases in net sales which did not require a commitment of additional
marketing and administrative resources.
 
     Selling and marketing expenses increased approximately $0.3 million, or 3%,
from $9.4 million in 1995 to $9.7 million in 1996. Certain costs, primarily
personnel and advertising, increased $1.2 million due to the Company's growth
into its new Brazilian, Mexican and Russian markets. This increase was offset by
a $0.9 million reduction primarily attributable to the use of lower cost
information services for pre-marketing purposes in the Investigations and
Intelligence Group.
 
     General and administrative expenses increased $5.0 million, or 27%, from
$18.9 million in 1995 to $23.9 million in 1996. This increase was attributable
primarily to the addition of professional employees and associated
infrastructure to support the Company's increased level of business activity.
These increases included the addition of personnel and facilities to support
expansion into new product lines, such as risk and crisis management services,
and new geographic regions, such as Asia and Latin America.
 
     INTEREST EXPENSE. Interest expense increased $0.3 million, or 12%, from
$2.8 million in 1995 to $3.1 million in 1996. The increase was due primarily to
increased borrowings necessary to finance increased production levels and new
operations in the Company's Security Products and Services Group. This increase
was offset partially by a reduction in interest expense paid on long-term debt
outstanding to certain shareholders. The amount outstanding to those
shareholders was reduced due to principal payments made in 1996.
 
     OTHER, NET. Other income (expense), net increased $0.7 million, from $(0.4)
million in 1995 to $0.3 million in 1996. This increase was due primarily to a
gain on the sale of marketable securities and a realized foreign currency
transaction gain.
 
     PROVISION (BENEFIT) FOR INCOME TAXES. The provision (benefit) decreased
from a benefit of $1.3 million in 1995 to a benefit of $0.2 million in 1996. The
lower benefit for income taxes in 1996 in comparison with 1995 was related to
KHI's losses before taxes, which were lower in 1996. OHE booked no provision for
income taxes prior to the termination of its S Corporation status in October
1996.
 
                                       25
<PAGE>   26
 
QUARTERLY FINANCIAL INFORMATION
 
     The following table sets forth certain unaudited quarterly operating data
for each of the Company's last four quarters as well as such data expressed as a
percent of net sales for the periods indicated. This information has been
prepared by the Company on a basis consistent with the Company's audited
financial statements and includes all adjustments (consisting of normal and
recurring adjustments) that management considers necessary for a fair
presentation of the data. These quarterly results are not necessarily indicative
of future results of operations. The Company does not believe that its business
is seasonal overall, although historically the first quarter has been weaker
than the other three. This information should be read in conjunction with the
Consolidated Financial Statements and Notes thereto included elsewhere in this
Prospectus.
 
<TABLE>
<CAPTION>
                                                                MARCH 31,   JUNE 30,   SEPT. 30,   DEC. 31,
                                                                  1997        1997       1997        1997
                                                                ---------   --------   ---------   --------
                                                                          (DOLLARS IN THOUSANDS)
<S>                                                             <C>         <C>        <C>         <C>
Net sales...................................................     $41,239    $47,360     $47,791    $54,023
Cost of sales...............................................      27,834     31,775      33,310     38,725
                                                                 -------    -------     -------    -------
  Gross profit..............................................      13,405     15,585      14,481     15,298
                                                                 -------    -------     -------    -------
Operating expenses:
  Selling and marketing.....................................       3,162      3,378       3,199      4,632
  General and administrative................................       6,284      7,134       6,634      8,169
  Merger related costs......................................          --         --          --      7,205
                                                                 -------    -------     -------    -------
    Operating income (loss).................................       3,959      5,073       4,648     (4,708)
Interest expense............................................        (861)    (1,255)     (1,274)    (1,416)
Other income (expense), net.................................        (266)       314        (131)      (467)
                                                                 -------    -------     -------    -------
Income (loss) before provision for income taxes.............       2,832      4,132       3,243     (6,591)
Provision (benefit) for income taxes........................       1,303      1,646       1,087     (1,684)
Extraordinary item/accounting change, net...................          --       (194)         --       (360)
                                                                 -------    -------     -------    -------
  Net income (loss).........................................     $ 1,529    $ 2,292     $ 2,156    $(5,267)
                                                                 =======    =======     =======    =======
Net sales...................................................      100.0%      100.0%     100.0%      100.0%
Cost of sales...............................................       67.5        67.1       69.7        71.7
                                                                 ------      ------     ------      ------
  Gross profit..............................................       32.5        32.9       30.3        28.3
                                                                 ------      ------     ------      ------
Operating expenses:
  Selling and marketing.....................................        7.7         7.1        6.7         8.6
  General and administrative................................       15.2        15.1       13.9        15.1
  Merger related costs......................................         --          --         --        13.3
                                                                 ------      ------     ------      ------
    Operating income (loss).................................        9.6        10.7        9.7        (8.7)
Interest expense............................................       (2.1)       (2.7)      (2.7)       (2.6)
Other income (expense), net.................................       (0.6)        0.7       (0.3)       (0.9)
                                                                 ------      ------     ------      ------
Income (loss) before provision for income taxes.............        6.9         8.7        6.8       (12.2)
Provision (benefit) for income taxes........................        3.2         3.5        2.3        (3.1)
Extraordinary item/accounting change, net...................         --        (0.4)        --        (0.7)
                                                                 ------      ------     ------      ------
  Net income (loss).........................................        3.7%        4.8%       4.5%       (9.8)%
                                                                 ======      ======     ======      ======
</TABLE>
 
LIQUIDITY AND CAPITAL RESOURCES
 
     General. The Company historically has met its operating cash needs by
utilizing borrowings from shareholders and credit arrangements to supplement
cash provided by operations, excluding non-cash charges such as depreciation and
amortization.
 
     The Company's operations may fluctuate on a quarterly basis as a result of
the timing of contract costs. The incurrence of contract costs and related
production scheduling must be responsive to specific customer delivery
requirements, which may involve the acceleration of deliveries under a contract
at a customer's
 
                                       26
<PAGE>   27
 
request, such as occurred with the HMMWV contract in 1996. The Company's
short-term liquidity may be affected by the payment terms of its U.S. Military
contracts and certain foreign government contracts.
 
     The Company attempts to mitigate the risks of doing business in foreign
countries by separately incorporating its operations in such countries; entering
into contracts providing for payment in U.S. dollars instead of the local
currency in certain instances; maintaining reserves for credit losses; and
maintaining insurance on equipment to protect against losses related to
political risks and terrorism.
 
     Senior Notes. On May 30, 1997 the Company issued and sold $35.0 million
worth of Senior Notes, maturing on May 30, 2004, to certain institutional
investors. The Senior Notes bear interest at a rate of 9.56%, subject to a step
down of the associated interest rate if the Company meets certain defined
requirements. The Senior Notes impose covenant restrictions on the Company's
operations, including limitations on dividends and priority debt, and
constraints on specific investments, as well as requirements relating to the
Company's reported net worth, fixed charges coverage and level of outstanding
debt. Of the $35.0 million in proceeds from the issuance of the Senior Notes,
$26.2 million was used to pay off the term loan and revolver from the Company's
previous credit agreement. The payoff also resulted in the recognition of an
extraordinary charge against earnings of $0.2 million, net of $0.1 million of
tax benefit, for the bank fees associated with the previous agreement.
 
   
     Credit Facility. On December 1, 1997, the Company entered into a restated
credit agreement with KeyBank concurrent with the closing of the Merger. The
agreement provides for a revolving line of credit of $7.0 million, a letter of
credit facility of approximately $7.7 million and a $7.0 million term note
maturing in January 1999. The term note bears interest at the prime rate or, at
the Company's option, the LIBOR rate plus 2.5% per annum and matures in January
1999. The revolving credit portion of the facility bears interest as follows:
for advances outstanding of less than $4.5 million, at the prime rate less 0.5%
or, at the Company's option, the LIBOR rate plus 2.0%; and for advances
outstanding in excess of $4.5 million, at the prime rate or, at the Company's
option, the LIBOR rate plus 2.5%. As of April 28, 1998, the term note bore
interest at the rate of 8.5% per annum and the revolving credit portion of the
facility bore interest at an effective rate of 8.1% per annum. The credit
agreement imposes requirements on the Company's reported fixed charge coverage
ratio, net worth and debt capitalization, along with certain restrictions on
investments, acquisitions, intangibles and capital expenditures. The restated
agreement replaced an agreement signed with KeyBank on May 30, 1997.
    
 
   
     On April 28, 1998, approximately $6.4 million was outstanding on the
Company's revolving credit agreement and $7.0 million was outstanding on the
term note with KeyBank. Upon consummation of the Merger, the Company used cash
on hand, proceeds from its revolving credit facility, the term note and cash
from KHI to replace substantially all of KHI's existing debt (approximately
$14.5 million) and to fund transaction and integration costs previously
discussed. Amounts outstanding under the credit agreement and the term note will
be repaid out of the proceeds of the Offering.
    
 
     Cash Flows from Operating Activities. Net cash provided by operating
activities was $7.4 million and $4.5 million for the twelve months ended
December 31, 1996 and 1997, respectively. The Company generated over $5.7
million in depreciation and amortization for the twelve months ended December
31, 1997, versus $4.6 million for the previous year. Working capital changes,
net of effects of acquisitions, utilized $5.3 million in cash in 1997, primarily
due to increases in accounts receivable, inventory and prepaid expenses largely
offset by an increase in accounts payable. These increases resulted from a
general increase in the Company's business activity.
 
     Cash Flows from Investing Activities. Historically, the Company has limited
its capital expenditure requirements by leasing certain facilities and
equipment. Capital expenditures totaled $3.2 million and $4.4 million for the
twelve months ended December 31, 1996 and 1997, respectively. Additions to
databases totaled $3.3 million and $3.9 million for the twelve months ended
December 31, 1996 and 1997, respectively.
 
   
     In addition to capital expenditures and database additions, the Company
also used $8.1 million in net cash in connection with the acquisitions of Labbe,
ITI, and IMEA in 1997.
    
 
                                       27
<PAGE>   28
 
     Cash Flows from Financing Activities. Net cash provided by financing
activities was $1.6 million and $13.8 million for the twelve months ended
December 31, 1996 and 1997, respectively. The increase in 1997 was due primarily
to issuance of the Senior Notes in the second quarter of 1997 ($35.0 million)
and the issuance of a $7.0 million term bank note in the fourth quarter in
connection with the Merger. This increase was partially offset by the $14.5
million in repayments made in conjunction with the Merger and net repayments of
approximately $9.4 million made under the Company's revolving line of credit
during 1997.
 
     The Company utilizes derivative financial instruments, in the form of
forward contracts, to hedge its exposure to foreign currency rate fluctuations.
At December 31, 1997, four such contracts were outstanding in connection with an
intercompany demand note with Labbe. These contracts are intended to hedge the
Company's exposure to deterioration in the amount outstanding due to changes in
currency translation rates. The notional amount (together with amortized
premium) and the fair market value associated with these forward contracts at
December 31, 1997 were $15.5 million and $0.5 million, respectively. Gains or
losses on existing forward instruments are offset against the translation
effects reflected in shareholders' equity. The fair value of forward contracts
is not recognized in the consolidated financial statements since they are
accounted for as hedges. The Company does not hold or issue derivative financial
instruments for trading purposes.
 
     Year 2000 Issues.  The Company has implemented a Year 2000 program to
ensure that its computer systems and applications will function properly beyond
1999. The Company believes that it has allocated adequate resources for this
purpose and expects its Year 2000 date conversion program to be completed
successfully on a timely basis. In addition, the Company is selecting and
implementing several new software applications, all of which are believed to be
Year 2000 compliant. Although the ability of third parties with whom the Company
transacts business to address adequately their Year 2000 issues is outside the
Company's control, the Company is discussing with its vendors and customers the
possibility of any interface difficulties which may affect the Company. The
Company currently does not expect the costs necessary to address this matter to
be material to its financial condition or results of operations.
 
   
     Available Funds. After the Offering and the application of the net proceeds
as described under "Use of Proceeds," the Company anticipates that it will have
approximately $47.4 million remaining from the net proceeds and $7.0 million
available under its credit facility. The Company believes the total of funds on
hand, available credit and cash flows from operating activities will be adequate
for the Company's 1998 operational and capital expenditure needs.
    
 
     As noted above, the Company continues to seek opportunities to invest in
new markets, products and services, and acquisitions that fit its strategic
growth plans. The Company believes that adequate financing for any such
investments or acquisitions will be available through funds on hand, through
future borrowings due to the enhanced financial condition of the Company after
the Offering or through the issuance of Common Stock in payment for acquired
businesses.
 
                                       28
<PAGE>   29
 
                                    BUSINESS
 
GENERAL
 
     Worldwide, governments, businesses and individuals increasingly are
recognizing the need for products and services that mitigate the growing risks
associated with white-collar crimes, fraud, physical attacks, threats, violence
and uninformed decisions based upon incomplete or inaccurate information. The
need for protection against these risks is confirmed by a variety of statistics.
Fraud costs U.S. organizations more than $400 billion annually, according to the
Association of Certified Fraud Examiners. In addition, between 1993 and 1995,
700 incidents of intellectual property theft resulted in estimated potential
losses of $63 billion, according to the American Society for Industrial
Security. Spending by businesses, communities and individuals on private
security increased from $19 billion in 1980 to $52 billion in 1990, according to
the Hallcrest Report. The FBI Explosives Unit reported that there were 2,577
bombings in the U.S. in 1995, up from 1,582 bombings in 1990. The number of
casualties resulting from terrorist incidents has increased from 317 in 1991 to
2,963 in 1996, according to the U.S. State Department. In addition, the U.S.
State Department determined that businesses increasingly are the target of
international terrorism, with 65% of all incidents targeting businesses in 1996
compared to 55% of all incidents in 1991.
 
     Currently, products and services intended to mitigate these risks are
provided by thousands of local, regional, national and international businesses.
In most instances, these businesses, which include accounting firms, specialized
consulting firms, armoring products companies and computer and communications
systems consultants, focus their products and services on mitigating a
particular type of risk. These products and services include information-based
services such as due diligence, forensic accounting, background checks and
country risk assessments; products to protect individuals or assets such as
armored vehicles, surveillance systems and other security equipment; and
consulting and training services to assist companies with particular crisis
situations or to develop policies and procedures for use in crisis or emergency
situations.
 
     The Company is a leading global provider of a broad range of specialized
products and services that are designed to provide solutions to a variety of
security needs. The Company is distinguished by its ability to deliver
integrated solutions to its customers' risk mitigation needs. Through its
network of 40 offices located in 15 countries, the Company is meeting these
needs by providing information, analysis, training and products to its
customers. The Company has served a diverse customer base of over 4,000 clients
during the last five years, including large multinational corporations, medium
and small businesses, individuals, law firms, investment and commercial banks
and U.S. and foreign government agencies.
 
     Kroll-O'Gara enjoys strong name recognition and an outstanding reputation
throughout the security industry. The Company's Kroll subsidiary was founded in
1972 by Jules B. Kroll to provide internal fraud investigative services. During
the late 1970s, Kroll expanded the scope of its operations to include a variety
of investigative and crisis management services such as business intelligence,
due diligence for financial transactions and intelligence gathering in
connection with hostile takeovers. Over the past five years, Kroll has handled
over 11,000 investigative matters worldwide for its clients, including many
Fortune 500 companies. The Company's OHE subsidiary has a long and distinguished
history dating back to its early days as a horse-drawn carriage builder in 1876.
In the 1940s, OHE designed and built one of the earliest armored presidential
limousines, which was used by President Harry S Truman. Since then, OHE's
armored commercial vehicles have been used by every U.S. President, as well as
other heads of state, business executives and VIPs worldwide. OHE has been the
sole source provider of armoring systems for the U.S. Military's HMMWVs since
their introduction in 1994. In November 1996, the Company completed its initial
public offering. Since that time, the Company has acquired five companies in the
highly fragmented security industry. Together these five acquisitions accounted
for $37.3 million of 1997 revenues. Giving effect to the Merger, the Company's
revenues have increased from $77.2 million in 1993 to $190.4 million in 1997.
 
                                       29
<PAGE>   30
 
BUSINESS STRATEGY
 
     The key elements of the Company's business strategy include:
 
          Leverage Customer Base.  Kroll and O'Gara have served a combined base
     of over 4,000 clients during the last five years. Generally, these clients
     have not been customers of both firms. Utilizing its expanded portfolio of
     product and service offerings resulting from the Merger, the Company has
     implemented a cross-marketing and integrated selling approach, with the
     goal of becoming the primary supplier of risk mitigation solutions to
     customers' security needs.
 
          Offer New Risk Mitigation Products and Services.  The Company has
     identified a number of security services and security products that are
     complementary to its existing offerings, including expanded forensic
     accounting services and the armoring of a diversified variety of vehicles,
     aircraft and ancillary equipment. The Company believes these new risk
     mitigation offerings can be developed internally or acquired through
     strategic acquisitions. The Company continually evaluates the benefits of
     providing additional products and services based upon the needs of existing
     customers and the potential for adding new customers.
 
          Expand Geographically.  The Merger provides an opportunity for the
     Company to offer a broader range of products and services through existing
     offices that formerly provided only the products and services of either
     Kroll or O'Gara. The Company expects to increase revenues through such
     offices without a proportionate increase in overhead. In addition, the
     Company believes that significant opportunities exist to leverage its
     extensive network of established international offices and its brand name
     recognition by expanding into new geographical locations not currently
     served by the Company.
 
          Pursue Strategic Acquisitions.  The fragmented nature of the security
     industry provides the Company with significant opportunities for strategic
     acquisitions that will add to the breadth of its products and services or
     expand its capacity in existing businesses. The Company believes it is
     well-positioned to identify, acquire and integrate risk mitigation-related
     companies, based upon its demonstrated track record of evaluating,
     acquiring and integrating five businesses between October 1996 and December
     1997, accounting for $37.3 million in 1997 revenues.
 
          Maximize Operating Efficiency and Profitability.  The Company's
     strategy to improve profitability is focused on: (i) maximizing return on
     fixed operating costs, (ii) reducing the number of hours and components
     used in the production of armored vehicles through the continued
     standardization of manufacturing processes and parts, and (iii) expanding
     the number of higher margin service-related offerings to its customers.
 
PRODUCTS AND SERVICES
 
     The following table presents the net sales of Kroll-O'Gara's products and
services by Group for the periods indicated:
 
<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                              -----------------------------
                                                               1995       1996       1997
                                                              -------   --------   --------
                                                                 (DOLLARS IN THOUSANDS)
<S>                                                           <C>       <C>        <C>
Security Products and Services Group........................  $34,883   $ 79,156   $105,557
Investigations and Intelligence Group.......................   48,914     66,735     67,419
Voice and Data Security Group...............................    2,044      7,770     17,437
                                                              -------   --------   --------
                                                              $85,841   $153,661   $190,413
                                                              =======   ========   ========
</TABLE>
 
     In addition to the information presented above, see Notes to the Company's
Consolidated Financial Statements included elsewhere in this Prospectus for
business segment data and for information concerning foreign and domestic
operations and export sales.
 
                                       30
<PAGE>   31
 
  SECURITY PRODUCTS AND SERVICES GROUP
 
     The Security Products and Services Group has three product categories: (i)
commercial products, (ii) military products, and (iii) security services. Net
sales for the Security Products and Services Group totaled $105.6 million for
fiscal year 1997. The following table presents the aggregate net sales for each
of the three product categories for the periods indicated.
 
<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                              -----------------------------
                                                               1995       1996       1997
                                                              -------   --------   --------
                                                                 (DOLLARS IN THOUSANDS)
<S>                                                           <C>       <C>        <C>
Commercial products.........................................  $15,818   $ 18,304   $ 54,541
Military products...........................................   14,955     54,596     43,719
Security services...........................................    4,110      6,256      7,297
                                                              -------   --------   --------
                                                              $34,883   $ 79,156   $105,557
                                                              =======   ========   ========
</TABLE>
 
Commercial Products
 
     The Company armors a variety of vehicles including limousines, sedans,
sport utility vehicles, commercial trucks and money transport vehicles that
protect against varying degrees of ballistic and blast threats. The armoring
process begins with the disassembly of a base vehicle which is purchased new
from a dealership or directly from the factory. This disassembly normally
involves the removal of the interior trim, seats, doors and windows. The
passenger compartment then is armored with both opaque armor (metallic, fibrous
and ceramic materials) and transparent armor (glass/plastic laminate) and other
features, such as run flat tires and non-exploding gas tanks are added. Finally,
the vehicle is reassembled as close to its original appearance as possible. The
types of commercial products produced by the Company are described below. During
1997, the Company shipped approximately 1,000 armored vehicles.
 
     Armored vehicles. The Company produces fully armored vehicles and light
armored vehicles. Fully armored vehicles, such as limousines, large sedans (such
as a Cadillac, Mercedes Benz S600 or Volvo S90) or sport utility vehicles (such
as the GMC/Chevrolet Suburban), typically are armored to protect against attacks
from military assault rifles such as AK-47s and M16s and from certain underbody
explosives. Certain vehicles also are blast protected by incorporating 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 $50,000 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 the Company essentially rebuilds from the ground up.
Because the threat of organized assassination attempts is greater for heads of
state, these vehicles normally incorporate more advanced armor and sophisticated
protection systems and have special features such as 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 Cherokee. Light armored vehicles are designed to protect
against attacks from handguns, such as a 9 mm 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.
 
                                       31
<PAGE>   32
 
     Other vehicles. The Company also produces specialty vehicles,
cash-in-transit ("CIT") money transport vehicles and commercial truck bodies.
Specialty vehicles are custom built for a specific mission, such as Escort Cars
(usually a convertible) and Chase Cars (usually a closed-top vehicle) in which
security personnel ride while in a head of state motorcade. The Company's Labbe
and IMEA subsidiaries produce CIT vehicles which are used by banks or other
businesses to transport currency and other valuables. After starting with a van
or small truck, the Company modifies the base vehicle to provide protection for
the cargo and passengers from ballistic and blast threats. The Company believes
that conditions in many emerging growth countries will promote high demand for
these vehicles. Labbe also builds 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.
 
Military Products
 
     Up-Armored HMMWVs. The Company is the prime contractor to the U.S. Military
for the supply of armoring and blast protection for HMMWVs. The HMMWV chassis
are produced by AM General and shipped directly to the Company's facility in
Fairfield, Ohio where armor and blast protection components are added. These
Up-Armored HMMWVs provide protection against 7.62 mm armor-piercing ammunition
(such as that fired by the AK-47 military assault rifle), overhead airburst
protection against a 155 mm shell, front underbody blast protection against a 12
lb. anti-tank mine and rear underbody blast protection against a 4 lb.
antipersonnel mine. In addition, the Company installs other features designed to
enhance crew safety, comfort and performance, such as air conditioning, weapon
turrets and mounts, door locks and shock-absorbing seats. The Company charges
its customers $70,000 to $100,000 for these ballistic and blast protective
systems, which is in addition to the cost of the vehicle. During 1997, the
Company shipped 366 Up-Armored HMMWVs. The Company also supplies engineering
design and prototype services in support of the Up-Armored HMMWV Program,
supplies spare parts and logistic support and produces field-installable
armoring kits.
 
     Other armor systems. The Company markets armor sub-systems for other
tactical wheeled vehicles, such as 2.5 ton and 5.0 ton trucks. The Company also
produces various armor systems as a subcontractor to larger defense contractors,
such as Lockheed Martin Corporation and The Boeing Company. These products
include armor for containers for fuels and missile launchers and for pilot
protection, and typically involve the use of materials or methods which are
unique to the Company.
 
Security Services
 
     The Company provides a variety of services designed to protect and help its
clients manage risks and respond to crisis situations. These services include
training, risk and crisis management and site security systems.
 
     Training. The Company offers comprehensive training programs in advanced
driving, ballistics, security and counterintelligence, and surveillance. Driver
training programs are offered primarily through the Company's ITI subsidiary.
ITI utilizes various facilities around the world including its Force Protection
Institute in San Antonio, Texas, which offer a full range of advanced driver and
force protection training. The Company offers ballistics training in a
progressive and realistic 360 degree, .223 caliber ballistic shooting house,
encompassing 6,800 square feet of training space, at its facility near
Washington, DC. Ballistics training consists of a wide spectrum of combat
marksmanship skills which focuses on realistic situations, exposing students to
stress while under difficult firing situations. The Company also offers security
and counterintelligence training courses for both U.S. Government agencies and
clients in the private sector. These courses provide a history of U.S.
counterintelligence efforts and current issues in the field, such as force
protection, protection of intellectual property rights and information security.
The training includes instruction on methods of recognizing and deterring
political and business intelligence risks. Additionally, the Company provides
training in the detection of, and responses to, surveillance. 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.
 
                                       32
<PAGE>   33
 
     Risk and crisis management. The Company provides a variety of consulting
services to assist businesses in managing diverse risks to their personnel and
assets and in meeting and managing unexpected crises. The Company's crisis
management services are provided in a variety of contexts, including the crisis
response to a kidnapping of a company's executive, the safety of consumers, the
contamination of a consumer product or the environment or the potential damage
to the reputation of a corporate client as a result of disclosure of adverse
events. The Company maintains a crisis management center in Vienna, Virginia
where personnel are on duty 24 hours a day, 365 days a year, to handle requests
for information and provide initial advice and immediate contact with members of
the Company's professional staff specializing in the particular crisis
presented.
 
     As part of its risk and crisis management service, the Company furnishes
periodic information that includes: reports providing city-specific advisories
to business travelers on conditions and other relevant information with respect
to almost 300 cities around the world; a comprehensive country security risk
assessment service that includes daily intelligence briefings containing early
warnings of events and up-to-date information about political unrest, terrorist
activities, product contaminations, health emergencies and other similar events;
a monthly bulletin that reviews and analyzes safety and security issues relating
to air travel around the world; a monthly intelligence review that provides a
global survey of political risk development in countries around the world; and
special reports on relevant topics, such as kidnappings or specific regions or
countries that are relevant to business travelers.
 
     Site security systems. The Company offers comprehensive planning, design
and hardware and software integration services customized to meet the
requirements of customers for physical site protection. Primarily intended for
perimeter security around business facilities and plant operations, the Company
also offers its services to embassies, VIPs' homes and public facilities.
Generally, such a systems integration project begins with a site survey, which
identifies areas of vulnerability and recommends methods for securing the entire
area surveyed. Specific pieces of hardware are ordered and installed, processes
and procedures are outlined, engineering documentation is provided and control
centers are established. Although each job is unique, the methodology used to
develop the system is similar in most cases.
 
  INVESTIGATIONS AND INTELLIGENCE GROUP
 
     The Investigations and Intelligence Group has three product categories: (i)
investigations, (ii) business intelligence, and (iii) other services. The
Company's investigative and intelligence services are provided by professionals
with backgrounds in law, finance, business, consulting, law enforcement,
accounting, journalism, environmental science and technology. The Company
believes that its blend of talent and expertise is important to the success of
this Group. The following table presents the aggregate net sales for each of the
Group's three product categories for the periods indicated.
 
<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER 31,
                                                      ---------------------------
                                                       1995      1996      1997
                                                      -------   -------   -------
                                                        (DOLLARS IN THOUSANDS)
<S>                                                   <C>       <C>       <C>
Investigations......................................  $35,244   $45,737   $40,675
Business intelligence...............................    8,834    11,925    19,148
Other services......................................    4,836     9,073     7,596
                                                      -------   -------   -------
                                                      $48,914   $66,735   $67,419
                                                      =======   =======   =======
</TABLE>
 
Investigations
 
     The Company provides a variety of investigative services including
financial fraud investigations, corporate investigations, litigation services,
asset tracing and analysis, vendor investigations and corporate security.
 
     Financial fraud investigations. The Company's investigators, including
forensic accountants and computer specialists, work with corporations and
governmental entities to detect and curtail fraudulent and illegal activities by
a client's employees, vendors or contractors. When a company's senior management
or a board of directors suspects their company is being victimized by such
conduct, they must act quickly to confirm their
 
                                       33
<PAGE>   34
 
suspicions, safeguard the company's assets, halt the undesired activity and
prevent recurrences. This must be accomplished without disrupting the normal
business flow. To this end, Kroll-O'Gara personnel collect and analyze
information about the suspected conduct, thereby maximizing the client's ability
to assess the extent of losses, attempt to recover assets and contain or prevent
damaging financial impact on the company. The Company's investigators have
extensive experience in detecting and solving misappropriations of corporate
assets, violations of fiduciary duties, business frauds and insolvency and
bankruptcy fraud.
 
     Corporate investigations. Working closely and confidentially with
management and/or legal counsel, the Company's investigators and forensic
accountants help to devise a strategy to solve such problems as thefts of trade
secrets, threats and hostile acts, gray market and counterfeit products, patent
and trademark infringements, and sexual harassment and other employee issues.
Businesses have encountered growing numbers of disgruntled employees, vengeful
ex-employees and ruthless competitors and distributors. This has resulted in a
growing need for corporate investigations. The Company attempts to determine the
source and extent of the problem, develop information about the parties
responsible, minimize damage to the client and propose effective measures to
prevent further losses.
 
     Litigation services.  The Company provides litigation support services to a
client's outside counsel and in-house lawyers in preparation for litigation or
arbitration proceedings and designing settlement strategies. These services
include developing evidence to support a claim or a defense, identifying and
locating material witnesses, investigating adverse witnesses, locating and
evaluating recoverable or relevant assets of adverse parties, assessing the
strategic goals and financial commitment of the opposition and helping to assess
whether an adequate recovery can be obtained if a lawsuit is successful. The
Company's wide-ranging information gathering can help businesses and legal
strategists decide whether to sue, go to trial or employ alternative dispute
resolution, and whether, and at what level, to negotiate a settlement. In
complex litigation, Kroll-O'Gara's sophisticated link-analysis software can
track and process voluminous documentation, as well as extensive database
material, in order to identify elusive connections and produce investigative
leads.
 
     Asset tracing and analysis. The Company's asset tracing services consist of
tracing and locating assets anywhere in the world and developing financial
profiles and life style assessments in connection with bankruptcy cases, loan
defaults, internal investigations and other due diligence requests by clients.
In many cases, the Company has worked with trustees in bankruptcy and
insolvency, creditors' committees, bankers in workout and restructuring
departments, litigators and bankruptcy attorneys, conducting searches for
concealed or undisclosed assets. In other contexts, clients may be interested in
a financial profile or asset analysis of a person in connection with a potential
business relationship, lawsuit or internal investigation. The Company's asset
searching and analysis techniques are effective both in uncovering assets and in
bringing debtors to the negotiating table. The Company's strategies for
identifying assets rely both on a range of investigative techniques and on the
highly sophisticated use of electronic databases. Tactics employed include
searching through sometimes obscure but publicly available local records,
reviewing financial documents and conducting discreet interviews with people
associated with the subject.
 
     Vendor qualification. The Company has recently developed a vendor integrity
program that provides profiles of a client's vendors, using information provided
by the vendors and obtained from independent sources. A client utilizes these
profiles to insure that its vendors adhere to the client's standards for ethical
business practices. The fees for this service may be paid either through nominal
fees charged to each participating vendor or billed directly to the client.
 
     Corporate security services. The Company designs corporate security
programs that help to safeguard clients' operations and premises. Security
programs and systems are designed to protect the safety of key executives,
preserve assets and protect the integrity of computer and telecommunications
systems.
 
Business Intelligence
 
     Kroll-O'Gara provides business intelligence services to clients requiring
reliable insight into the strengths, vulnerabilities and strategies of
competitors and potential business partners. The Company's professionals provide
sophisticated business intelligence on companies and individuals, reporting on
their market position,
                                       34
<PAGE>   35
 
technical capabilities, strategic direction and the industries and countries in
which they operate. The due diligence and background information and analysis
furnished by the Company is intended to be useful for clients considering
significant operating or strategic decisions, such as proposed acquisitions or
unsolicited offers to acquire corporate control, possible business arrangements
with particular partners and proposed entries into new markets.
 
     Business intelligence services are utilized by lenders, underwriters,
potential acquirers and other businesses concerned with assessing and attempting
to minimize the risks related to major financial and other business decisions.
These services include pre-transaction intelligence, due diligence
investigations, competitor intelligence and analysis, intelligence in contests
for corporate control, new market entry intelligence and intelligence on
business partners, customers and critical vendors.
 
Other Services
 
     Monitoring services and special inquiries. Kroll-O'Gara provides monitoring
services and special inquiries to clients that require an independent fact
finder to end fraud and install systems that monitor compliance. The Company's
lawyers, forensic accountants, investigators, analysts and industry experts seek
to identify violations of federal or state regulatory requirements or corporate
policies and consult with clients with respect to establishing systems to audit
and ensure compliance with such regulatory requirements or policies. The Company
serves as an objective fact finder, one whose work product might well be turned
over to a questioning government regulator or a skeptical and vocal segment of
the public. In addition, the Company's fact finding efforts have been enlisted
by management or by audit committees concerned about problems that need to be
resolved within an enterprise.
 
     Environmental services. The Company's environmental services involve
investigations, establishing audit and compliance verification programs,
providing litigation support and reporting to insurance companies in connection
with underwriting analysis and conducting due diligence for clients facing
potential environmental liabilities. These services are provided primarily to
large corporations, insurance companies, and potential business partners.
Increasingly stringent environmental regulations have created the need for
thorough environmental investigations in order to avoid stiff penalties.
 
  VOICE AND DATA SECURITY GROUP
 
     Satellite communication integration. The Company offers comprehensive
design and hardware and software integration services customized to meet
specific satellite communication requirements of its customers. This involves
the integration of portable satellite terminals, mobile antennas and
software-based air time. Usually these systems are designed for remote or
security intensive operations. The portable satellite terminals, which are
manufactured by third party suppliers and distributed by the Company, allow the
user to make voice and data transmissions via satellite link anywhere in the
world.
 
     Navigation systems. The Company distributes Global Positioning Satellite
Systems ("GPS") primarily in the United Kingdom and Europe. The GPS products
enable users to identify their exact location throughout the world.
 
     Computer hardware and software security. The Company offers computer
hardware and software consulting services. Businesses face a variety of risks
from both employees and outsiders who infiltrate computer systems by various
means including e-mail and internet access points. For example, disgruntled
employees or competitors may cause unauthorized changes to a company's website,
redirect message traffic to an alternative website or create "hate sites"
containing negative and often untrue information about a business. The Company's
investigators are able to track down the perpetrators of these activities,
analyze how the incident occurred and offer countermeasures to prevent future
security breaches. The Company also can help a client locate information vital
to a lawsuit, and do so in a manner that assists in proving the admissability of
such evidence. Such information is located by the use of forensic software that
allows the Company to recover previously deleted computer files, obtain access
to password protected files, and search a hard drive for up to 256 words or
phrases simultaneously.
 
                                       35
<PAGE>   36
 
CUSTOMERS
 
  SECURITY PRODUCTS AND SERVICES GROUP
 
     Commercial products. The Company's 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. Such 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. The Company's
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. Local servicing of the vehicle is also
a critical concern to private buyers. The Company's customers for CITs are
generally financial institutions. Purchasing decisions for CITs depend on many
criteria including the ownership of the institution (private or governmental),
insurance requirements and costs. The geographic distribution of 1997 sales of
the Company's commercial armored vehicles, as a percentage of total 1997 sales
for those products, was as follows:
 
                             1997 COMMERCIAL SALES
                               BY GEOGRAPHIC AREA
 
<TABLE>
<CAPTION>
                                                             PERCENTAGE OF
                                                            COMMERCIAL SALES
                                                            ----------------
<S>                                                         <C>
Central and South America.................................         38%
Europe....................................................         33
North America.............................................         10
Middle East...............................................          8
Far East..................................................          6
Other.....................................................          5
</TABLE>
 
     Military products. The Company's market for military hardware products is
worldwide in scope, including the U.S. Military and foreign defense forces. The
Company's major contracts for delivery of Up-Armored HMMWVs are with the U.S.
Military. Additionally, the Company provides protected container systems,
typically used to protect missile systems from small arms fire, to the U.S.
Military under a subcontract with Lockheed Martin. The Company has sold
Up-Armored HMMWVs to Qatar and Luxembourg, either directly or through the U.S.
Foreign Military Sales Program and is seeking to expand its sales of these
vehicles to foreign defense forces.
 
     Training. The Company began offering advanced driver training, firearms
training and surveillance detection training courses after its acquisition of
ITI, which had an established customer base of U.S. and foreign governmental
agencies and corporate customers. Many private sector clients are drawn to the
Company's training courses due to the Company's reputation of providing these
services to various governmental agencies. The Company markets its various
courses to its armored commercial vehicle customers and vice versa.
 
     Risk and crisis management. A significant portion of the Company's
customers for investigating and negotiating ransom demands in connection with
kidnappings and for investigating incidents of product tampering or
disparagement arise from a contract with American International Group, Inc.
("AIG"), an international multi-risk insurance company, under which the Company
investigates certain claims by AIG's insureds. Although the Company is paid by
AIG after claims are made for such occurrences, the Company's client is the
affected person or entity. The Company's customers for its information services
relating to travel safety are multinational corporations and individuals. The
Company markets its information services to many of its customers for other
products and services.
 
                                       36
<PAGE>   37
 
     Site security systems. Since it began offering site protection systems
integration services in early 1996, the Company has obtained numerous contracts
with both Russian and multinational companies to provide integrated site
security systems. Currently, the Company is marketing these products primarily
in Russia. Corporate and governmental buyers of integrated security systems
normally purchase through their corporate security officer, a governmental
department responsible for the particular facility's security, a facility
manager or a construction project manager. Purchases generally are made on
project-specific proposals and include the cost of the hardware, transportation
costs to the site, engineering integration and documentation.
 
  INVESTIGATIONS AND INTELLIGENCE GROUP
 
     From 1994 through 1997, the Company provided investigative and intelligence
services to approximately 2,100 clients located in the United States and
approximately 1,200 clients located in other parts of the world. The Company's
clients for these services include multinational corporations, leading law
firms, financial institutions, government agencies and individuals in a wide
range of business sectors. The financial institutions to which the Company
provides services include many of the largest international investment banks,
numerous commercial banks, insurance companies and other significant credit
institutions. The Company's governmental clients include agencies of the U.S.
Government, state and local governments in the United States and a number of
foreign governments and ministries.
 
     The Company classifies its investigative and intelligence sales by where
the services are delivered; international sales are services delivered outside
the United States. For the years ended December 31, 1995, 1996 and 1997, 71%,
73% and 67%, respectively, of this Group's net sales were attributable to
services delivered in the United States; the balance were attributable to
services delivered outside the United States.
 
     Although many of the Company's clients utilize these services on a periodic
basis, relatively few clients utilize the Company's services each year and the
clients that account for a material percentage of net sales in any year may vary
widely.
 
     Generally, in the United States the Company charges for its investigative
and intelligence services on an hourly basis at varying rates, depending upon
the type of service being provided and the competition that exists in providing
the service. The Company also provides these services, particularly outside the
United States, on a negotiated project, or fixed fee, basis. Providing services
on a fixed fee basis enhances the potential for higher profit margins. However,
such arrangements can also result in unexpected losses on a particular project.
The Company believes that this risk is reduced by the large number of its fixed
fee arrangements.
 
  VOICE AND DATA SECURITY GROUP
 
     Satellite communication integration. Principal customers for satellite
communications services include private corporations and individuals,
governmental agencies, peacekeeping forces and disaster relief organizations
which operate in lesser-developed countries that lack a telecommunications
infrastructure, in rural areas of developed countries or in disaster scenarios
in which the traditional forms of telecommunications are rendered inoperable.
Increasingly, customers are demanding that the satellite communication channels
provided be secure. Depending on the level of security desired, satellite
communication systems can be implemented using a variety of encryption methods
up to and including fully secure U.S. Government STU-III telephones. Most of the
Company's satellite communication customers are located outside of the United
States because the U.S. Federal Communications Commission does not permit
private corporations or individuals to use terminals in the United States which
do not utilize the American Mobile Satellite Corp. ("AMSC") satellite network.
The terminals marketed by the Company access the INMARSAT network rather than
the AMSC network.
 
     Navigation systems. The Company resells GPS equipment through approximately
1,270 independent distributors and retailers in the United Kingdom and France.
Marine GPS units are sold generally through distributors and retailers which
specialize in marine electronics and others that sell general boat equipment.
Outdoor (general recreational) GPS units are sold through sporting goods
retailers, camping and outdoor stores and general electronics stores. Aviation
GPS equipment is sold through aviation equipment retailers.
 
                                       37
<PAGE>   38
 
     Computer hardware and software security. The Company markets its computer
hardware and software security to its corporate customers. These customers
either are concerned about potential infiltration of their proprietary databases
or have had their databases infiltrated by employees or third parties.
 
MARKETING AND SALES
 
     Commercial. The Company believes that it enjoys excellent name recognition
and a strong reputation in the security industry. The central element of the
Company's commercial marketing strategy is to leverage the name recognition and
reputation of its products and services by positioning the Company as a global
provider of one-stop risk mitigation services and products. The Company believes
that by positioning itself in this manner it can capitalize on its existing
customer base, maximize the benefits of its long history of supplying
security-related products and services around the world and leverage its
leadership niche in the risk mitigation market. The Company tailors its
marketing strategy to each geographic area of the world and often will tailor
its product and services offering by country. There is strong cross-marketing of
its products and services which the Company believes strengthens the image of
each product group.
 
     On a worldwide basis, the Company employs 39 full-time sales professionals
in its Security Products and Services Group who operate out of Los Angeles,
California; Washington, D.C.; Miami, Florida; Fairfield, Ohio; Sao Paulo,
Brazil; Lamballe, France; Paris, France; Mexico City, Mexico; Subic Bay, the
Philippines; Moscow, Russia; and Geneva, Switzerland. All personnel have a
geographic and/or product-specific responsibility. In most cases, these sales
personnel also maintain and recruit 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 the customer's 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 Standard Suburban, allow
the Company to assist customers who have, or believe they have, developed an
immediate threat.
 
     In its Investigations and Intelligence Group, the Company relies on its
professionals not only to provide services to existing clients, but also for
business development. The Company's professionals are principally responsible
for the marketing of services and for establishing relationships with clients.
The Company obtains engagements from a client's board of directors, chief
executive and chief financial officers, general counsel and a variety of other
corporate officials, including business development officers, security managers,
risk managers and human resource personnel. The Company's senior professionals
act as relationship managers for the Company's major clients, and a significant
amount of the Company's marketing consists of maintaining and developing these
personal relationships. In addition, the Company has a professional staff in New
York City and in each of its regional headquarters that includes marketing,
sales and public relations professionals who support and coordinate the
Company's marketing efforts on a worldwide basis. These marketing efforts
include seminars, briefings, receptions, breakfast and lunch meetings, direct
mail and selected advertising in trade and other journals. The Company's
services and marketing events are promoted through its Internet website and a
publication mailed periodically to approximately 20,000 clients and prospective
clients.
 
     The Company's marketing efforts attempt to increase business with existing
clients by expanding clients' awareness of the range of services offered by the
Company and by broadening the decision makers within a client's organization
that are aware of the range of services offered by the Company. The Company's
business development staff periodically conducts surveys of clients to assess
their perception of the range and quality of its services and, after the
completion of an assignment, clients are often asked to complete a quality
control questionnaire.
 
     Because most of the product sales of the Company's Voice and Data Security
Group are through independent distributors and retailers, the Company employs
only eight sales professionals in that Group, most of whom operate out of its
Deer Park, New York and Salisbury, United Kingdom facilities.
 
     Military. The Company continues to position itself in the marketplace as a
commercial company with a military production capability and to emphasize its
ability to develop new products, or product adaptations,
                                       38
<PAGE>   39
 
quickly and more cost-effectively than traditional defense contractors. In
marketing its products to the military, the Company also places strong emphasis
on its superior antitank and antipersonnel mine protection for the occupants of
tactical wheeled vehicles. The Company markets its military products through a
combination of trade show exhibitions, print advertising in military-related
periodicals and direct customer visits. The Company emphasizes the
cross-marketing of military and commercial products, which it believes
strengthens the image of each product group. The Company also has entered into
exclusive teaming and joint marketing agreements with AM General, the
manufacturer of the basic HMMWV, for sales in the military and commercial
arenas. These agreements designate the Company as the exclusive armorer to AM
General for HMMWVs and allow the Company to benefit from the AM General
distribution network and save on certain costs, such as exhibitions where AM
General and the Company otherwise would both show products.
 
     The Company's military sales activities are directed toward identifying
contract bid opportunities with various U.S. Government agencies, private
enterprises acting as prime contractors on government contracts, sales through
the Foreign Military Sales Program, and military sales directly to foreign
military organizations. The Company has two full-time business development
managers who are responsible for this activity and also has 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 proposal team which normally consists of
program managers who have specific project responsibilities, a contracting
officer, a cost accountant and various manufacturing and engineering personnel.
 
ENGINEERING AND DEVELOPMENT
 
     The Company's engineering and development activities are centered on
products offered by its Security Products and Services Group. The Company
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 (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 the ability
of the Company to manufacture a product design, on improvements in the
production process and overall cost reductions from better methods, fewer
components and less expensive materials with equal or superior quality and on
materials handling issues. Applying these techniques, in the last several years
the Company has been able to produce savings in both the time and cost necessary
to produce its armored vehicles.
 
     Quality engineering is responsible for assuring that manufacturing and
design plans are consistent with a reliable, quality product that meets the
specifications of the customer. Quality engineers also are responsible for
identifying in-process quality inspection points in the work orders. The
Company's ballistic engineer, in conjunction with its design and manufacturing
engineers, develops new ballistic and blast protection systems that meet
ever-changing threats. The ballistic engineer also is responsible for the
ballistic testing required by customers, the assignment of ballistic
specifications to final products and the issuance of ballistic specifications
for internal quality control. Advanced engineering is responsible for new
product development in conjunction with design engineering, manufacturing
engineering and ballistic engineering. The Company estimates that it expended
approximately $2.0 million, $2.8 million and $2.9 million in 1995, 1996 and
1997, respectively, on its engineering and development efforts. The amount for
1997 includes expensed amounts reimbursed under a Systems Technical Support
Contract described under "U.S. Government Contracts."
 
                                       39
<PAGE>   40
 
U.S. GOVERNMENT CONTRACTS
 
     The Company serves as the U.S. Military's sole source contractor for
armoring the HMMWV fleet. Since its initial contract in August 1993 to armor 59
HMMWVs, the Company has been awarded contracts to armor a total of 1,993 HMMWVs.
Of these, 1,098 Up-Armored HMMWVs have been shipped, as follows:
 
<TABLE>
<CAPTION>
                                                                NUMBER OF
                                                                 HMMWVS
YEAR                                                             SHIPPED
----                                                            ---------
<S>                                                             <C>
1993........................................................          0
1994........................................................        139
1995........................................................         26
1996........................................................        507
1997........................................................        366
1998 (through February 28)..................................         60
                                                                  -----
       Total................................................      1,098
                                                                  =====
</TABLE>
 
   
     The Company's most recent contract with the U.S. Military covers 738
Up-Armored HMMWVs for the U.S. Army and the U.S. Air Force, to be delivered from
August 1998 through June 2000. The contract for 378 of those vehicles for the
U.S. Air Force was signed in March 1998, with the remaining amount contracted
for in April 1998. The award includes an option for an additional 216 vehicles.
As the Up-Armored HMMWV fleet grows, the Company is experiencing continued
growth in sales of spare parts and related fleet management activity, including
a $2.0 million annual contract to support field requirements. This contract was
most recently renewed in March 1998.
    
 
     In January 1997, the Company signed a Systems Technical Support ("STS")
Contract with the U.S. Military to support continued research and development on
the Up-Armored HMMWV program. The four year contract, three of which are option
years, was budgeted for $2.5 million in 1997, with $2.5 million options in each
of 1998 and 1999 and a $2.0 million option in 2000. In September 1997, the U.S.
Military exercised its options for 1998 and 1999. The STS Contract, in part,
allows the Company to make new design improvements, to conduct additional
testing of materials, components and vehicles and to explore alternate and more
advanced armor configurations. The contract requires the Company to provide
25,000 hours per year of engineering and development time to the U.S. Military.
The Company believes that the knowledge gained from STS Contract work can be
applied to its commercial manufacturing programs.
 
     As a subcontractor to Lockheed Martin, the Company has provided armoring
for certain missile weapons systems. The Company was first engaged in September
1993 by Lockheed Martin to armor launch systems of missiles. The Company was
most recently engaged by Lockheed Martin in March 1997 to provide such armoring
and believes that it is well positioned for future engagements.
 
COMPETITION
 
     The markets for the Company's products and services are highly competitive.
The Company competes in a variety of fields, with competitors ranging from small
businesses to multinational corporations.
 
  SECURITY PRODUCTS AND SERVICES GROUP
 
     The Company believes that its 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 competitor on a worldwide basis in the
production of armored commercial vehicles is Mercedes-Benz Aktiengesellschaft,
which sells its product through its worldwide dealer distribution system. In
addition, there are a number of other vehicle armorers in Europe, the Middle
East and Latin America which armor primarily locally manufactured automobiles.
U.S. based protected passenger automobile armorers include the Pittston Company
(owner of Brinks armored vehicles), Moloney Coachbuilders, Inc., Safe Car, Inc.,
and Armet Armored Vehicles, Inc. The principal competitive factors are price,
quality of engineering and design, production capability and capacity, ability
to meet delivery
 
                                       40
<PAGE>   41
 
schedules and reputation in the industry. There are a large number of companies,
such as Simula, Inc., that provide specific armoring packages for tactical
wheeled vehicles, helicopters and selected other military applications. The
Company believes that, as the size of the Up-Armored HMMWV requirement continues
to grow, competition from major defense contractors may increase.
 
     With regard to the security services provided by this Group, the Company
competes with numerous local integrators and small consultant-type businesses,
such as Control Risks Group Ltd., and also with large suppliers of
security-related equipment such as Western Resources, Inc., Pinkerton's, Inc.,
The Wackenhut Corporation, Borg-Warner Security Corporation, Pittway
Corporation, Armor Holdings, Inc., ICTS International, N.V. and Tyco
International Ltd. The principal competitive factors are the best approach to
solving the problems, expertise, price, trust, availability and the company or
individual reputation.
 
  INVESTIGATIONS AND INTELLIGENCE GROUP
 
     In this area, the Company competes with local, regional, national and
international firms, including investigative and security firms, guard companies
and specialized consultants in specific areas such as kidnapping. The Company
believes that it is one of the largest companies in the world providing a broad
array of corporate investigation, risk and crisis management and business
intelligence services on a global basis and enjoys strong name recognition in
its industry. Nevertheless, the Company faces significant, and increasing,
competition in the United States and elsewhere in the world from a variety of
companies that provide some of the services offered by the Company. In most
service areas in which the Company operates, there is at least one competitor
that is significantly larger or more established than the Company. Many of the
national and international accounting firms, along with other companies such as
Decision Strategies/Fairfax International, LLC and Investigations Group, Inc.,
provide consulting services similar to some of the services provided by the
Company. Some of these firms have indicated an interest in providing corporate
investigation and business intelligence services on a broader scale. The
accounting firms have significantly larger financial and other resources than
the Company and have long-established relationships with their clients, which
also are likely to be clients or prospective clients of the Company. In
addition, large multinational security product and service providers have
indicated an interest in expanding their services to include value-added
services such as certain of the investigation and consulting services provided
by the Company.
 
  VOICE AND DATA SECURITY GROUP
 
     In this Group, the products distributed by the Company compete with those
offered by many companies, including STN Atlas Elektronik, GmbH and Nera AS. The
Company believes that the competitive factors in this portion of its business
include product reliability, the incorporation of advanced technological
features, price, ease of installation, availability and service. With respect to
secure custom communications systems integration services and computer hardware
and software security services, the Company competes with small and large
communications and computer security systems integrators.
 
SEASONALITY, BACKLOG AND RELATED MATTERS
 
     Approximately 23% of the Company's net sales during 1997 were derived from
U.S. Military contracts and an additional 5% were derived from commercial
contracts with U.S. governmental agencies or foreign governments. For 1996,
these percentages were 36% and 6%, respectively. Military and governmental
contracts generally are awarded on a periodic or sporadic basis. The Company
frequently receives substantial orders in one quarter, the revenues from which
will not be recognized until one or more subsequent quarters. As a result, the
Company generally has significant fluctuations from time to time in its
business. Historically, these fluctuations have not been seasonal. The Company
does not believe that its business is seasonal overall, although historically
the first quarter has been weaker than the other three. Period-to-period
comparisons within a given year or between years may not be meaningful or
indicative of operating results over a full fiscal year.
 
     The Company's backlog at December 31, 1996 and 1997 was approximately $28.8
million and $50.0 million, respectively. Backlog consists of net sales value for
firm orders not previously included in net
 
                                       41
<PAGE>   42
 
sales on the basis of percentage-of-completion accounting. Because many factors
affect the conclusion of definitive agreements for contracts awarded and the
production and delivery of the Company's products, no assurance can be given as
to when or whether net sales will be recognized from the Company's backlog.
Year-to-year comparisons of backlog are not necessarily indicative of future
operating results.
 
     The Company's net sales from government contracts and most commercial
contracts for its armoring products are recognized using the
percentage-of-completion method. Under this method, estimated contract revenues
are accrued based generally on the percentage that costs to date bear to total
estimated costs. Estimated contract losses are recognized in full in the period
in which it becomes likely that a loss will occur. Accordingly, contract
revenues and total cost estimates are reviewed and revised periodically as the
work progresses and as change orders are approved, and adjustments based upon
the percentage-of-completion are reflected in contract revenues in the period
when such estimates are revised. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
 
PROPERTIES AND FACILITIES
 
   
     The Company maintains executive offices in New York, New York, and
Fairfield, Ohio, and regional headquarters in London, England; Hong Kong; Miami,
Florida; and New York, New York. In addition, the Company maintains 20 domestic
offices or facilities in 14 states and 20 foreign offices or facilities in 14
foreign countries around the world. The Company's principal properties and
facilities as of March 31, 1998 were as follows:
    
 
<TABLE>
<CAPTION>
                                                     BUILDING
                    LOCATION                      SQUARE FOOTAGE       STATUS
                    --------                      --------------       ------
<S>                                               <C>              <C>
Fairfield, Ohio.................................     130,000       owned
Lamballe, France................................     125,000       leased
Subic Bay, the Philippines......................      85,000       subcontractor
Sao Paulo, Brazil...............................      50,000       leased
New York, New York..............................      36,900       leased
Mexico City, Mexico.............................      20,000       owned
Torino, Italy...................................      15,000       subcontractor
Washington, D.C. area...........................         n/a       leased
San Antonio, Texas..............................         n/a       owned
</TABLE>
 
     Fairfield, Ohio.  In addition to executive offices, this facility contains
full production and assembly facilities for the Company's armored commercial
vehicles and the manufacturing and distribution of Up-Armored HMMWVs. The
facility is financed through tax-exempt debt and is pledged to secure the
repayment of such debt. The facility includes a complete fabrication and machine
shop equipped with a computer controlled plasma cutter, a computer controlled
press break, mills, automated grinders, a robotic welder and two coordinate
measuring machines, paint booths and ancillary equipment for both military and
commercial painting.
 
     Lamballe, France.  This facility houses the management, sales and
accounting functions of Labbe. The site contains facilities for production of
armored commercial and cash-in-transit vehicles, design studios for development
of prototypes, integrated computer systems, and areas for parts, fabrication,
painting and quality control. This facility also contains a ballistics range.
Labbe has occupied the site since 1948. It currently is leased for a term
expiring in September 2000. For accounting purposes, this is treated as an
operating lease.
 
     Subic Bay, the Philippines.  This facility is owned by a subcontractor, but
is supervised by the Company's personnel and performs installation of armoring
kits engineered in the Fairfield, Ohio facility.
 
     Sao Paulo, Brazil.  This facility, which was expanded to include a second
facility on an adjacent location in December 1996, is used for manufacturing and
sales of a full product line of armored commercial vehicles. It currently is
leased for a term expiring in March 2000. For accounting purposes, this lease is
treated as an operating lease.
 
                                       42
<PAGE>   43
 
     New York, New York.  This facility contains executive offices and serves as
the headquarters for the Company's Investigations and Intelligence Group. The
space is leased for a term expiring in December 2007. For accounting purposes,
this lease is treated as an operating lease.
 
     Mexico City, Mexico.  This facility is used for manufacturing and sales of
armored commercial vehicles. The facility currently is installing armoring kits
which have been engineered in the Fairfield, Ohio facility. The Company expects
the facility to have the capability to build a complete product line once it has
fully trained its production work force.
 
     Torino, Italy.  This facility is owned by a subcontractor, but is
supervised by the Company's personnel, and performs all aspects of manufacturing
specialty armored and unarmored commercial vehicles, from component fabrication
through final assembly. On occasion, the Torino subcontractor will act as a
vendor to the Company.
 
     Washington D.C. area.  This facility is used for advanced security training
and includes a portion of an abandoned airport runway that is used specifically
for advanced driver training. The facility is leased for a term expiring in May
1999. For accounting purposes, this lease is treated as an operating lease.
 
     San Antonio, Texas.  This facility, which was acquired in 1997, consists of
165 acres of land used for advanced driver and force protection training.
 
     The Company's manufacturing capabilities include fully integrated
manufacturing programs which link production control, materials control, quality
control and accounting, thus allowing the Company to issue work orders, update
and track inventories, implement quality assurance procedures, schedule and
track production and report, on a daily basis, costs accumulated to a job. The
Company's non-executive offices range from approximately 320 square feet to
approximately 8,800 square feet and are subject to leases expiring through May
2002. The Company believes that its facilities are adequate for its current
needs and that its properties, including machinery and equipment, are generally
in good condition, well maintained and suitable for intended current and
foreseeable uses.
 
EMPLOYEES
 
   
     As of March 31, 1998, the Company had 917 employees (excluding 91 temporary
employees), comprised of 81 in marketing and sales, 412 in manufacturing, 185 in
professional services, 44 in engineering and 195 in general and administrative.
The Company's U.S. employees are not represented by any union and are not
covered by any collective bargaining agreements. Approximately 25 employees of
Labbe are employed under agreements with the Confederation Francaise
Democratique du Travail (FTDT). Wage increase parameters are set twice a year by
the Company's local management in consultation with the union. The Company has
not experienced any work stoppages or employee related slowdowns and believes
that its relationship with its employees is good.
    
 
GOVERNMENT REGULATION
 
     The Company's services are subject to various federal, state, local and
foreign laws, including laws designed to protect the privacy of persons.
Subsidiaries of the Company hold private investigative licenses from, and their
investigative activities are subject to regulation by, the state and local
licensing authorities in the locations where such subsidiaries do business. The
Company also utilizes certain data from outside sources, including data from
third party vendors and various government and public record services, in
performing its services. Such utilization is subject to compliance with
applicable law.
 
     As a contractor with agencies of the U.S. Government, the Company is
obligated to comply with a variety of regulations governing certain aspects of
its operations and the workplace. Additionally, the Company's contracts give the
contracting agency the right to conduct audits of the Company's facilities and
operations, and such audits occur routinely. An audit involves a governmental
agency's review of the Company's compliance with the prescribed procedures
established in connection with the government contract.
 
                                       43
<PAGE>   44
 
     The Company is subject to federal licensing requirements with respect to
the sale in foreign countries of certain of the products of its Security
Products and Services Group. Regulations promulgated by the U.S. Commerce
Department require the Company to obtain a general destination license in
connection with the sale of certain commercial products in foreign countries,
and certain U.S. State Department regulations require the Company to file an
export license in connection with sales of military equipment in foreign
countries. Furthermore, the U.S. State Department prohibits all sales of
military equipment to certain countries, including, among others, China, Cuba,
Iran, Iraq, Libya and Syria.
 
     The Company's foreign operations are subject to the laws and regulations of
the various countries in which they are conducted, including licensing, labor,
environmental and currency control restrictions.
 
ENVIRONMENTAL MATTERS
 
     The Company and its operations are subject to a number of environmental
laws, regulations and ordinances, both in the U.S. and various foreign
countries, that govern activities or operations that may have adverse
environmental effects, such as discharges to air and water, as well as handling,
storage and disposal practices regarding solid and hazardous materials, and
impose liability for the cost of remediating, and certain damages resulting
from, sites of past releases of hazardous materials. Environmental laws continue
to change rapidly, and it is likely that the Company will be subject to
increasingly stringent environmental standards in the future. The Company
believes that it currently conducts its activities and operations in substantial
compliance with applicable environmental laws. The Company is implementing
recommendations of an environmental consulting company designed to address
certain air pollution, hazardous waste, underground storage tank and hazard
communication matters at its Fairfield, Ohio facility. No notices of violation
have been issued to the Company by any regulatory agency with respect to
environmental matters which remain uncorrected. The Company believes that its
potential liability under the environmental laws, if any, would not have a
material adverse effect, individually or in the aggregate, on its results of
operations, financial condition or cash flows.
 
LEGAL PROCEEDINGS
 
     The Company is involved in litigation from time to time in the ordinary
course of its business; however, the Company does not believe that there is any
pending litigation, individually or in the aggregate, that is likely to have a
material adverse effect on its business or financial condition.
 
     The Company is a defendant in an action titled Douglas H. Cohen v. Madison
Square Garden, L.P. and Kroll Associates, Inc., pending in the United States
District Court, Southern District of New York. In this litigation, which was
commenced in February 1998, Mr. Cohen seeks $1.0 million in compensatory damages
and $10.0 million in punitive damages against his former employer, Madison
Square Garden ("MSG"), and the Company. Mr. Cohen alleges libel and slander in
connection with an investigation of ticket sales practices and policies at MSG
carried out by the Company. Mr. Cohen was terminated by MSG for violating its
ticket sales policies. MSG successfully prevailed in a similar action brought by
another terminated employee to which the Company was not a party. The Company
intends vigorously to defend these claims, but there can be no assurance that a
favorable outcome will be obtained.
 
PATENTS, TRADEMARKS AND COPYRIGHTS
 
     The Company currently has four issued U.S. patents relating to its armoring
business. The Company currently has three federally registered trademarks and a
pending application for a fourth trademark. The Company has no federally
registered copyrights. Although the Company does not believe that its ability to
compete in any of its product markets is dependent on its intellectual property,
the Company does believe that the protection afforded by its "Armoring Assembly"
and "Vehicle Mine Protection Structure" patents, both of which relate to vehicle
underbody blast protection, provides the Company with important technological
advantages over its competitors. Although the Company has protected its
technologies to the extent that it believes appropriate, there can be no
assurance that the Company's measures to protect its proprietary rights will
deter or prevent unauthorized use of the Company's technologies. In other
countries, the Company's proprietary rights may not be protected to the same
extent as in the United States.
 
                                       44
<PAGE>   45
 
                                   MANAGEMENT
 
EXECUTIVE OFFICERS AND DIRECTORS
 
   
     The following table sets forth certain information as of March 31, 1998
concerning each of the Company's executive officers and directors:
    
 
   
<TABLE>
<CAPTION>
                NAME                     AGE                          POSITION
                ----                     ---                          --------
<S>                                      <C>    <C>
Jules B. Kroll.......................    56     Chairman of the Board, Chief Executive Officer and
                                                  Director
Thomas M. O'Gara.....................    47     Vice Chairman of the Board and Director
Wilfred T. O'Gara....................    40     President, Chief Operating Officer and Director
Nicholas P. Carpinello...............    48     Controller and Treasurer
Michael G. Cherkasky.................    48     Chief Operating Officer -- Investigations and
                                                Intelligence Group and Director
Marshall S. Cogan....................    60     Director
Abram S. Gordon......................    34     Vice President, General Counsel and Secretary
Michael J. Lennon....................    41     Chief Operating Officer -- Security Products and
                                                Services and Director
Raymond E. Mabus.....................    49     Director
Nazzareno E. Paciotti................    52     Chief Financial Officer
Hugh E. Price........................    61     Director
Jerry E. Ritter......................    63     Director
William S. Sessions..................    67     Director
Howard I. Smith......................    53     Director
</TABLE>
    
 
     Jules B. Kroll has been Chairman of the Board and Chief Executive Officer
of the Company since the Merger on December 1, 1997. He founded Kroll in 1972
and has been the Chairman of the Board and Chief Executive Officer of Kroll and
KHI since their foundings. Mr. Kroll also is a director of United Auto Group,
Inc. He has been a director of the Company since December 1997.
 
     Thomas M. O'Gara has been Vice Chairman of the Board of the Company since
the Merger. He served as Chairman of the Board of the Company from August 1996
until December 1997. Mr. O'Gara has also been Chairman of the Board of OHE since
1990 and was OHE's Chief Executive Officer from 1990 until 1995. He has been a
director of the Company since August 1996 and a director of OHE since 1988. Mr.
O'Gara has held numerous executive officer and director positions with the
Company, its subsidiaries and its predecessors since 1975. From 1984 until 1986,
Mr. O'Gara also was Honorary Consul General for the Sultanate of Oman. Thomas M.
O'Gara and Wilfred T. O'Gara are brothers.
 
     Wilfred T. O'Gara is President and Chief Operating Officer of the Company.
He served as the Company's Chief Executive Officer from August 1996 until the
Merger. Mr. O'Gara has been associated with the Company, its subsidiaries and
its predecessors since 1983 and has held numerous executive officer and director
positions, including serving as Chief Executive Officer of OHE since January
1996, President and Chief Operating Officer of OHE from 1991 through 1995 and
Vice President--Sales and Marketing of OHE from 1988 until 1991. Mr. O'Gara has
been a director of the Company since August 1996 and a director of OHE since
1991.
 
     Nicholas P. Carpinello has been Controller and Treasurer of the Company
since the Merger. From August 1996 until December 1997 he served as the
Company's Executive Vice President, Chief Financial Officer and Treasurer,
positions he also has held with OHE since 1993. He has been Treasurer of OSN,
Inc. since 1995. Mr. Carpinello has been associated with the Company and its
predecessors since 1984. From 1975 until 1984, he was employed by Arthur
Andersen LLP where he served as a manager in the audit and small business
consulting divisions.
 
     Michael G. Cherkasky became Chief Operating Officer of the Company's
Investigations and Intelligence Group in December 1997. Prior to the Merger he
had been an Executive Managing Director of KHI since
 
                                       45
<PAGE>   46
 
April 1997 and Chief Operating Officer of KHI since January 1997. From November
1995 to January 1997, he was the head of KHI's North American Region and from
February 1994 to November 1995 he was the head of KHI's Monitoring Group. From
June 1993 to November 1993, Mr. Cherkasky was a candidate for public office.
From 1978 to June 1993, Mr. Cherkasky was with the District Attorney's office
for New York County, his last position being Chief of the Investigation
Division. He became a director of the Company in December 1997.
 
     Marshall S. Cogan has been Vice Chairman of Foamex International Inc., a
manufacturer of polyurethane foam products ("Foamex"), since May 1997 and
Chairman and Chief Executive Officer of United Auto Group, a franchisor of car
and light truck dealerships, since April 1997. Mr. Cogan was Chairman of the
Board and Chairman of the Executive Committee of Foamex from 1993 until 1997 and
was Chief Executive Officer of Foamex from 1994 until 1997. Since 1974, Mr.
Cogan has been the principal stockholder, Chairman or Co-Chairman of the Board
of Directors, and Chief Executive Officer or Co-Chief Executive Officer, of
Trace International Holdings, Inc., a holding company operating businesses in
the auto sales, foam, textile and publishing industries. Mr. Cogan has been a
director of the Company since December 1997.
 
     Abram S. Gordon is Vice President, General Counsel and Secretary of the
Company. Prior to joining the Company in January 1997, he was with the law firm
of Taft, Stettinius & Hollister LLP, Cincinnati, Ohio, from October 1987 until
December 1996.
 
     Michael J. Lennon became Chief Operating Officer of the Company's Security
Products and Services Group in December 1997. He also has been the President and
Chief Operating Officer of OHE since January 1996. Mr. Lennon joined OHE in
February 1994 as Manager of Commercial and Military Programs; he became Vice
President for Sales, Marketing and Program Management in October 1994 and served
OHE in that capacity through 1995. Prior to joining OHE, Mr. Lennon had 15
years' experience in manufacturing, quality control and marketing with General
Electric Company, which he joined in 1979. From 1990 to 1994, he was Manager of
Advanced Technology Marketing for their G.E. Aircraft Engines business. He was
elected a director of the Company on March 12, 1998.
 
     Raymond E. Mabus is currently of counsel to the law firm of Baker,
Donaldson, Bearman and Caldwell and also manages a family timber business. He
served as the United States' Ambassador to the Kingdom of Saudi Arabia from 1994
until 1996, as a consultant to Mobil Telecommunications Technology from 1992
until 1994 and as Governor of the State of Mississippi from 1988 until 1992. Mr.
Mabus has been a director of the Company since November 1996.
 
     Nazzareno E. Paciotti has been Chief Financial Officer of the Company since
the Merger. Prior to the Merger he had been the Chief Financial Officer of KHI
since 1992. From 1990 to 1992, he was a Managing Director and the Controller of
the Henley Group (the parent of PneumoAbex Inc. and Fisher Scientific, a
laboratory supply company) and from 1988 to 1990, he was a Vice President and
the Controller of PneumoAbex Inc., an aerospace contractor specializing in the
manufacture of landing gear and flight actuating systems.
 
     Hugh E. Price is engaged in business development activities for the
Company. During 1995 and 1996, prior to joining the Company, he was a consultant
to various businesses and organizations. Until his retirement in 1995, Mr. Price
had been employed by the Central Intelligence Agency since 1964. His positions
with the Agency included Deputy and Associate Deputy Director for Operations
(1991-1995), Chief and Deputy Chief for Counterintelligence (1988-1990) and
Director of Personnel (1986-1988). Mr. Price became a director of the Company in
October 1996.
 
     Jerry E. Ritter is currently a consultant to Anheuser-Busch Companies,
Inc., a company engaged in the brewing and family entertainment businesses. He
also is Chairman of the Board of Clark Enterprises, Inc., the general partner of
the Kiel Center and the St. Louis Blues Hockey Club. From 1990 until 1996, Mr.
Ritter served as Executive Vice President and Chief Financial and Administrative
Officer for Anheuser-Busch Companies, Inc. Prior to that time, he served
Anheuser-Busch in various other managerial and executive
 
                                       46
<PAGE>   47
 
capacities. Mr. Ritter also is a director of The Earthgrains Company, Brown
Group, Inc. and OmniQuip International, Inc. He became a director of the Company
in January 1997.
 
     William S. Sessions is a partner in the law firm of Sessions & Sessions,
L.C. and is a consultant to various public and private businesses. From 1987
until 1993, Mr. Sessions was Director of the Federal Bureau of Investigation. He
served as a United States District Judge for the Western District of Texas from
1974 until 1987. Mr. Sessions is a director of Zenith National Insurance
Company. He has been a director of the Company since November 1996.
 
     Howard I. Smith has been Executive Vice President, Chief Financial Officer
and Comptroller of AIG since 1996. From 1984 until 1996, Mr. Smith was Senior
Vice President and Comptroller of AIG. From 1975 until 1984 Mr. Smith was a
partner in the independent public accounting firm of Coopers & Lybrand. Mr.
Smith also is a director of AIG, 20th Century Industries, International Lease
Finance Corporation and Transatlantic Holdings, Inc. He became a director of the
Company in December 1997.
 
     Directors of the Company are elected annually. Officers of the Company are
elected annually and serve at the discretion of the Board of Directors.
 
COMMITTEES OF THE BOARD OF DIRECTORS
 
     The Board of Directors has an Audit Committee and a Compensation Committee,
both of which are composed of Messrs. Ritter (Chairman), Cogan, Mabus, Sessions
and Smith. The Audit Committee recommends the appointment of independent
accountants and reviews and discusses with the independent accountants the scope
of their examination, their proposed fee and the overall approach to the audit.
The Audit Committee also reviews with the independent accountants and the
Company's financial management the annual financial statements and discusses the
effectiveness of internal accounting controls. The Compensation Committee has
responsibility for establishing executive officers' compensation and fringe
benefits.
 
DIRECTORS' COMPENSATION
 
     Effective at the time of the Company's 1998 Annual Meeting of Shareholders,
directors who are not employees of the Company will receive annually a $15,000
fee, plus options to purchase 2,000 shares of Common Stock, for serving as
directors. These directors also will be paid $1,000 for each Board of Directors
meeting attended in person and $750 for Board meetings held by telephone. Each
committee Chairman receives an annual fee of $1,600 and committee members,
including the Chairman, receive $750 per meeting attended, whether in person or
by telephone, unless the meeting occurs on the same day as a Board meeting, in
which case no separate fee is paid. Employee directors are not separately
compensated for their services as directors.
 
                                       47
<PAGE>   48
 
EXECUTIVE COMPENSATION
 
     Summary Information. The following table sets forth, for the fiscal years
indicated, amounts of cash and certain other compensation paid by the Company
and its subsidiaries, for services in all capacities, to (i) Jules B. Kroll and
Wilfred T. O'Gara, each of whom served as Chief Executive Officer of the Company
for a portion of 1997, (ii) Michael G. Cherkasky and Nazzareno E. Paciotti, who
became executive officers at the time of the Merger, and (iii) each of the
Company's four other most highly compensated executive officers who received
compensation in excess of $100,000 during 1997. These persons are sometimes
referred to as the "named executive officers."
 
                           SUMMARY COMPENSATION TABLE
 
<TABLE>
<CAPTION>
                                                                                   LONG TERM
                                                 ANNUAL COMPENSATION          COMPENSATION AWARDS
                                              --------------------------   -------------------------
                                                                  OTHER                  SECURITIES
                                                                 ANNUAL    RESTRICTED    UNDERLYING
                                                                 COMPEN-     STOCK      STOCK OPTION    ALL OTHER
              NAME AND                        SALARY    BONUS    SATION      AWARD         GRANTS      COMPENSATION
         PRINCIPAL POSITION            YEAR     ($)      ($)       ($)        ($)           (#)            ($)
         ------------------            ----   -------   ------   -------   ----------   ------------   ------------
<S>                                    <C>    <C>       <C>      <C>       <C>          <C>            <C>
Jules B. Kroll(1)                      1997   489,583       --      --            --           --         32,965(2)
Chairman and Chief Executive           1996   500,000   75,000      --            --           --         31,715
Officer                                1995   500,000       --      --            --           --         30,395
Thomas M. O'Gara                       1997   252,083       --      --            --       23,150          4,568(3)
Vice Chairman                          1996   379,081    7,000      --            --           --          4,912
                                       1995   410,631       --      --            --           --          1,218
Wilfred T. O'Gara                      1997   240,000   45,000      --            --       98,150          4,898(3)
President and Chief Operating          1996   200,231   45,000      --            --       17,000          4,240
Officer                                1995   140,550       --      --            --           --            462
Michael G. Cherkasky(1)                1997   400,000       --      --     1,904,578       25,000         28,914(2)
Chief Operating Officer -              1996   300,000   75,000     898            --       68,647         26,767
Investigations and Intelligence        1995   260,000       --     898            --       21,882         25,971
Group
Michael J. Lennon                      1997   148,333   70,000      --            --       20,000          5,401(3)
Chief Operating Officer -              1996   128,334   60,317      --            --       17,000          4,258
Security Products and Services         1995    89,977   20,000      --            --           --            277
Group
Nazzareno E. Paciotti(1)               1997   275,520   66,667      --       229,714       15,000         26,984(2)
Chief Financial Officer                1996   225,520   50,000      --            --       68,647         24,984
                                       1995   225,520       --      --            --       21,882         22,797
Gary W. Allen(1)                       1997   116,666   60,000      --            --        4,000          6,063(3)
Vice President, OHE                    1996   100,666   47,784      --            --       15,000          3,817
                                       1995    88,239       --      --            --           --            414
Richard L. Curotto(1)                  1997   110,000   35,000      --            --        3,000          9,006(3)
Vice President, OHE                    1996   100,833   47,392      --            --       15,000          8,184
                                       1995    98,433   17,000      --            --           --          2,223
</TABLE>
 
---------------
 
(1) Messrs. Kroll, Cherkasky and Paciotti were unaffiliated with the Company
    prior to the Merger on December 1, 1997; however, their compensation
    information is given on a pooling of interests basis, as if they had been
    executive officers of the Company throughout the periods presented. Messrs.
    Allen and Curotto served as executive officers of the Company until the
    Merger; their 1997 information includes compensation for the entire year.
 
(2) Represents pension contributions and profit-sharing contributions of $20,000
    and $500, respectively, for each person and supplemental disability plan
    benefits of $12,465 for Mr. Kroll, $8,414 for Mr. Cherkasky and $6,484 for
    Mr. Paciotti.
 
(3) Represents profit-sharing contributions to the Company's 401(k) Plan of
    $1,218 for Mr. Thomas M. O'Gara, $714 for Mr. Wilfred T. O'Gara, $714 for
    Mr. Lennon, $602 for Mr. Allen and $2,520 for Mr. Curotto and executive
    disability insurance plan benefits of $3,350 for Mr. Thomas M. O'Gara,
    $4,184 for Mr. Wilfred T. O'Gara, $4,687 for Mr. Lennon, $5,461 for Mr.
    Allen and $6,486 for Mr. Curotto.
 
     Employment Agreements.  Commencing December 1, 1997, the Company has
employment agreements, or amendments to existing employment agreements, which
expire on November 30, 2000, with each of Messrs. Kroll, Thomas M. O'Gara,
Wilfred T. O'Gara, Lennon, Paciotti, Carpinello and Gordon, providing
 
                                       48
<PAGE>   49
 
for annual base salaries in the respective amounts set forth in the table below.
Each executive officer, including Mr. Cherkasky (who does not have an employment
agreement), also is entitled to participate in an annual bonus plan to be
established by the Compensation Committee of the Company's Board of Directors
and to receive up to 50% of such bonus in shares of the Company's Common Stock.
Pursuant to these employment agreements, employment may be terminated by the
Company at any time with or without cause, except that, in a case of termination
without cause, the employee is entitled to receive compensation for the greater
of the balance of the term of the agreement or one year. The agreements also
provide that if the employer does not renew the agreement for one year or more
at the end of the term, the employee will receive an amount equal to one year's
base salary. Each employment agreement restricts the executive officer from
competing with the Company during the term of the agreement, and for two years
thereafter if termination of employment is for cause or at the volition of the
employee. Each of Messrs. Thomas M. and Wilfred T. O'Gara has further agreed
that during his employment and for a period of 10 years thereafter he will not
directly or indirectly own any interest in or perform any services for any
entity which uses the word "O'Gara" as a business or trade name and competes
with the Company. Additionally, Mr. Kroll has agreed that during his employment
with the Company and for a period of 10 years thereafter he will not directly or
indirectly own any interest in or perform any services for any entity which uses
the word "Kroll" as a business or trade name and competes with the Company. Mr.
Cherkasky's base salary, as established by the Company's Board of Directors,
also is listed below. Additionally, at the time of the Merger, the executive
officers were granted options to purchase shares of the Company's Common Stock,
in the amounts listed below; each option has an exercise price equal to 100% of
the fair market value of the Common Stock on December 1, 1997.
 
<TABLE>
<CAPTION>
                                                                        OPTIONS TO PURCHASE
                                                                              SHARES
                          NAME                            BASE SALARY     OF COMMON STOCK
                          ----                            -----------   -------------------
<S>                                                       <C>           <C>
Jules B. Kroll..........................................   $375,000              -0-
Thomas M. O'Gara........................................    275,000              -0-
Wilfred T. O'Gara.......................................    350,000           75,000
Michael G. Cherkasky....................................    400,000           25,000
Michael J. Lennon.......................................    185,000           15,000
Nazzareno E. Paciotti...................................    275,000           15,000
Nicholas P. Carpinello..................................    140,000           10,000
Abram S. Gordon.........................................    135,000           10,000
</TABLE>
 
     Stock Options.  The following table presents information on option grants
to the named executive officers during 1997 pursuant to the Company's 1996 Stock
Option Plan. The Plan does not provide for the grant of stock appreciation
rights ("SARs").
 
                       OPTION GRANTS IN LAST FISCAL YEAR
 
<TABLE>
<CAPTION>
                                                        INDIVIDUAL GRANTS(1)
                                       ------------------------------------------------------    POTENTIAL REALIZABLE
                                       NUMBER OF                                                   VALUE AT ASSUMED
                                       SECURITIES    % OF TOTAL                                  ANNUAL RATES OF STOCK
                                       UNDERLYING     OPTIONS                                   PRICE APPRECIATION FOR
                                        OPTIONS      GRANTED TO      EXERCISE                         OPTION TERM
                                        GRANTED     EMPLOYEES IN   OR BASE PRICE   EXPIRATION   -----------------------
                NAME                      (#)       FISCAL YEAR       ($/SH)          DATE        5%($)       10%($)
                ----                   ----------   ------------   -------------   ----------   ---------   -----------
<S>                                    <C>          <C>            <C>             <C>          <C>         <C>
Jules B. Kroll.......................        --           --              --              --          --            --
Thomas M. O'Gara.....................    23,150          4.8           12.10         3/24/07     176,163       446,431
Wilfred T. O'Gara....................    23,150          4.8           11.00         3/24/07     160,148       405,847
                                         75,000         15.6           17.25        12/01/07     813,632     2,061,404
Michael G. Cherkasky.................    25,000          5.2           17.25        12/01/07     271,211       687,301
Michael J. Lennon....................     5,000          1.0           11.00         3/24/07      34,589        87,656
                                         15,000          3.1           17.25        12/01/07     162,726       412,381
Nazzareno E. Paciotti................    15,000          3.1           17.25        12/01/07     162,726       412,381
Gary W. Allen........................     4,000          0.8           11.00         3/24/07      27,671        70,125
Richard L. Curotto...................     3,000          0.6           11.00         3/24/07      20,754        52,594
</TABLE>
 
                                       49
<PAGE>   50
 
---------------
 
(1) All options vest one-third per year beginning one year after the date of
    grant. The exercise price of all options may be paid in cash or by the
    transfer of shares of the Company's Common Stock valued at their fair market
    value on the date of exercise. Each option becomes exercisable in full in
    the event of the execution of an agreement of merger, consolidation or
    reorganization pursuant to which the Company is not to be the surviving
    corporation or the execution of an agreement of sale or transfer of all or
    substantially all of the assets of the Company.
 
     With respect to each named executive officer, the following table sets
forth information concerning unexercised stock options held at December 31,
1997. No options were exercised during 1997.
 
                AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                            AND FY-END OPTION VALUES
 
<TABLE>
<CAPTION>
                                                                            NUMBER OF
                                                                           SECURITIES                VALUE OF
                                                                           UNDERLYING              UNEXERCISED
                                                       VALUE               UNEXERCISED             IN-THE-MONEY
                                                    REALIZED($)            OPTIONS AT               OPTIONS AT
                                                 -----------------          FY-END(#)               FY-END ($)
                                                 (MARKET PRICE ON    -----------------------   --------------------
                              SHARES ACQUIRED      EXERCISE LESS          EXERCISABLE/             EXERCISABLE/
            NAME               ON EXERCISE(#)     EXERCISE PRICE)         UNEXERCISABLE           UNEXERCISABLE
            ----              ---------------    ----------------         -------------           -------------
<S>                           <C>                <C>                 <C>                       <C>
Jules B. Kroll..............           --            --                      --                                --
Thomas M. O'Gara............           --            --                 7,716/15,434                42,631/85,273
Wilfred T. O'Gara...........           --            --                24,716/90,434              197,744/130,375
Michael G. Cherkasky........           --            --                90,529/25,000              1,290,776/9,375
Michael J. Lennon...........           --            --                18,666/18,334               157,662/27,713
Nazzareno E. Paciotti.......           --            --                90,529/15,000              1,290,776/5,625
Gary W. Allen...............           --            --                16,333/ 2,667               138,206/17,669
Richard L. Curotto..........           --            --                16,000/ 2,000               136,000/13,250
</TABLE>
 
     Section 16(a) Beneficial Ownership Reporting Compliance. Section 16(a) of
the Securities Exchange Act of 1934 (the "Exchange Act") requires the Company's
executive officers and directors, and persons who beneficially own more than ten
percent of the Company's equity securities, to file reports of security
ownership and changes in such ownership with the Securities and Exchange
Commission (the "SEC"). These persons also are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file. Based upon
a review of copies of such forms and written representations from its executive
officers and directors, the Company believes that all Section 16(a) forms were
filed on a timely basis during and for 1997, except that Forms 5 reporting stock
options granted in December 1997 were filed after their due date by Messrs.
Carpinello, Cherkasky, Gordon, Lennon, Wilfred T. O'Gara and Paciotti.
 
              CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
 
     In connection with the Company's initial public offering, the Board of
Directors of the Company adopted a policy requiring that any future
transactions, including loans, between the Company and its officers, directors,
principal shareholders and their affiliates be on terms no less favorable to the
Company than could be obtained from unrelated third parties and that any such
transactions be approved by a majority of the disinterested members of the
Company's Board of Directors.
 
     Described below are certain transactions and relationships between the
Company and certain of its officers, directors and shareholders which have
occurred during the last three fiscal years. Except with respect to interest
rates charged on certain of the intercompany notes and accounts
payable/receivable, the Company believes that the material terms of the various
transactions were as favorable as could have been obtained from unrelated third
parties.
 
                                       50
<PAGE>   51
 
GENERAL
 
     Prior to October 28, 1996, the Company's business was conducted by a group
of companies affiliated by substantially common ownership and control. The
Company's armoring business was carried out primarily by OHE. Certain foreign
armoring operations, and foreign sales for OHE, were carried out by Overseas
Limited (formerly O'Gara-Hess & Eisenhardt Armoring Company, Limited), an Irish
corporation ("Limited"), and its subsidiaries. Satellite communications
operations were carried out by O'Gara Satellite Networks Limited, an Irish
corporation ("OSN"), and OSN, Inc., a Delaware corporation. On October 28, 1996,
certain of these companies and their businesses were reorganized and combined
with the Company in the Reorganization.
 
     Longline Leasing, Inc. ("Longline") and Excel Armor Products, Inc. ("Excel
Armor" and, together with Longline, "Longline/Excel"), each a Delaware
corporation, merged as of December 31, 1996; Messrs. Thomas M. O'Gara, Wilfred
T. O'Gara and Carpinello own approximately 92%, 1% and 1%, respectively, of the
outstanding capital stock of Longline/Excel.
 
LONGLINE LEASING/EXCEL ARMOR
 
     Lease agreements. OHE has a Master Equipment Lease with Longline/Excel,
entered into in July 1995, pursuant to which OHE leases various items of
equipment from Longline/Excel. As of December 31, 1997, OHE had approximately
$1,250,000 of equipment under lease for 12 and 36-month terms, beginning on
various dates between July 1995 and April 1996. Rental expenses were $17,000,
$381,446 and $396,005 for the years ended December 31, 1995, 1996 and 1997,
respectively.
 
   
     Supplier arrangements. During 1995 and 1996, OHE purchased the dual-hard
steel required for certain aspects of its vehicle armoring from Longline/Excel,
which distributed the steel for an unrelated third party. Purchases by OHE from
Longline/Excel were $520,700 and $960,231 during 1995 and 1996, respectively,
and accounted for 90% and 99% of Longline/Excel's sales revenues for the same
periods. In connection with these purchases, OHE advanced $160,390 to
Longline/Excel during 1995 to fund Longline/Excel's initial purchase commitments
and guaranteed a $150,000 letter of credit furnished by Longline/Excel to the
third party. OHE now purchases its dual-hard steel directly from the third
party. At December 31, 1996 and 1997, OHE had receivables of $210,659 and
$282,345, respectively, from Longline/Excel in connection with the prior
arrangement, which sum is guaranteed by the shareholders of Longline/Excel. All
other aspects of the arrangement have been terminated. Also, in August 1995,
Longline/Excel and OHE entered into an agreement under which OHE manufactured
certain parts needed by Longline/Excel in connection with a contract with a
third party. Total revenue recognized in 1995 and 1996 in association with this
contract was $113,000.
    
 
     Corporate aircraft. In February 1995, OHE entered into a lease for a
Gulfstream G-II aircraft owned by Longline/Excel. The Gulfstream aircraft was
purchased by Longline/Excel for a price of $4,060,000 (represented by an
exchange of a prior jet leased by the Company from Longline/Excel and new
financing). In connection with the cancellation of the prior jet's lease,
$400,493, representing the unamortized portion of OHE's $504,000 deposit on that
lease, was transferred as the deposit on the Gulfstream lease. The Gulfstream
lease had a non-cancelable ten year term and initially provided for rental
payments of $53,000 per month. Nonetheless the Company paid rentals based on
actual usage. In August 1996, the Gulfstream lease was amended to provide for
minimum lease payments of $35,200 per month.
 
     In February 1995, OHE also entered into a supplemental agreement with
Longline/Excel pursuant to which Longline/Excel agreed to provide all aircraft
management (including insurance) for the Gulfstream aircraft and to charter it
to others when not in use by OHE. Pursuant to this arrangement, and in lieu of
the $53,000 per month rental payments then required by the lease, OHE paid
Longline/Excel $30,000 per month, plus $1,800 per hour of monthly use in excess
of 16.7 hours, and Longline/Excel was entitled to retain all revenues from the
charter operations. In connection with the August 1996 amendment to the
Gulfstream lease, this agreement was amended to allow OHE 23 hours of usage per
month and to provide for charges of $1,500 per hour thereafter. Longline/Excel
continues to retain all revenues from charter operations. Rental expense related
to the Gulfstream lease (including amortization of the deposit) was $414,160,
$422,349 and
 
                                       51
<PAGE>   52
 
$233,939 for 1995, 1996 and 1997, respectively. Additionally, the Company paid
Longline/Excel $327,000 in 1996 relating to usage of the aircraft during the
Company's initial public offering and $576,000 in 1997 relating to usage of the
aircraft in connection with the Merger. The Company believes that the rate paid
was equivalent to that charged by Longline/Excel to other unrelated companies
for similar services during 1996 and compared favorably to rates charged by
another unrelated charter service for similar aircraft.
 
     OHE and Longline/Excel have begun negotiations regarding changes to these
lease arrangements. Because of unanticipated high usage of the Gulfstream
aircraft by OHE due to travel undertaken during the Company's initial public
offering and the Merger, Longline/Excel has been limited in its ability to
charter the aircraft.
 
INTERCOMPANY NOTES AND ACCOUNTS PAYABLE/RECEIVABLE AND CERTAIN LOANS
 
   
     OHE held promissory notes, for money borrowed, in the principal amounts of
$100,000 and $130,000 from Mr. Thomas M. O'Gara. Each note bore interest at the
rate of 8.75% per annum and was due on December 31, 1996. In December 1996, Mr.
O'Gara repaid in full the $251,834 of principal and accrued interest outstanding
under these notes. Mr. Thomas M. O'Gara also was indebted, for money borrowed,
to OHE in the amount of $242,242, not represented by a promissory note; as of
March 31, 1998, $120,191 of this indebtedness remains outstanding.
    
 
     OSN held a promissory note, for money borrowed, from Excel Metal Products,
Inc. ("Excel Metal"), a corporation wholly owned by Mr. Thomas M. O'Gara, in the
principal amount of $310,000, which bore interest at the rate of 8.5% and was
due on February 11, 1997. All principal and accrued interest outstanding
pursuant to this note, totalling $331,224, was repaid in December 1996.
 
     During 1995 and 1996, OHE paid Silver Springs Land and Cattle Company, a
Nevada corporation of which Mr. Thomas M. O'Gara is the President and sole
shareholder, $11,082 and $3,177, respectively, for the use of its facilities for
corporate meetings. The use of these facilities by the Company has been
discontinued.
 
     Until the Reorganization, OHE held a 49% beneficial interest in O'Gara
Overseas Services, S.A., a Swiss corporation ("OOS"), with the remaining 51%
held by Limited. As part of the Reorganization, OHE's interest in OOS was
exchanged for certain assets and liabilities of Limited, with the result being
that OOS is no longer affiliated with the Company. In addition, OHE fulfilled a
demand note, bearing interest at 3.0% per annum, that had been outstanding with
OOS in the amount of $90,930, which represented $88,685 in principle and $2,245
in interest. Also, subsequent to the Reorganization, Mr. Thomas M. O'Gara made
full payment on a 3.0% promissory note, which totalled $302,803 including
interest, held by OOS. OOS also had provided sales and marketing services for
OHE and OSN. During 1995 and 1996, $377,144 and $363,583, respectively, were
paid to OOS for these services. All arrangements with OOS were terminated in
connection with the Reorganization.
 
     From its incorporation in 1988 until 1996, O'Gara Protective Services, a
Nevada corporation ("OPS") in which the former shareholders of OHE (including
Messrs. Thomas M. O'Gara, Wilfred T. O'Gara, Carpinello and Curotto) previously
owned approximately a 47% interest, but which was and is controlled by Mr.
Edward F. O'Gara, the brother of Messrs. Thomas M. and Wilfred T. O'Gara, was
provided certain medical and general liability insurance coverage under OHE's
insurance policies. These insurance programs were paid for by OPS through
monthly and annual premiums established by OHE's insurance provider. These
arrangements were terminated upon the consummation of the Company's initial
public offering.
 
     Immediately prior to the Merger, KHI owed $6,349,813 to Mr. Kroll,
representing unpaid principal of $4,761,958 and accrued interest of $242,356 on
open account advances and loans which had been made by him to KHI from time to
time since 1989. An additional $286,308 previously had been repaid. Also
immediately prior to the Merger, Mr. Kroll owed KHI $1,420,756, representing
aggregate borrowings from KHI of $1,345,499 plus $75,257 in accrued interest. Of
the outstanding principal amounts, $4,380,849 owed by KHI to Mr. Kroll and
$748,000 owed by Mr. Kroll to KHI bore interest at an annual rate equal to the
prime rate plus 1%, $1,129,109 owed by KHI to Mr. Kroll bore interest at an
annual rate equal to the brokers' loan rate (7.625% at December 1, 1997) and
$597,499 owed by each of KHI and Mr. Kroll to the other bore
 
                                       52
<PAGE>   53
 
interest at an annual rate of 7% (equal to the prime rate at the date of the
loan plus 1%). Immediately prior to the Merger, the principal and accrued
interest on all outstanding loans from KHI to Mr. Kroll were repaid in full and
loans (plus all accrued interest) from Mr. Kroll to KHI were repaid to the
extent of the amounts owed to KHI by Mr. Kroll. The remaining amount owed Mr.
Kroll is represented by a promissory note, issued by a subsidiary of KHI at the
time of the Merger, in the principal amount of $309,500, bearing interest at an
annual rate 1/2% below the prime rate. Also, upon consummation of the Merger,
all $6,040,313 of principal and accrued interest owed by KHI to Mr. Kroll for
open account advances was repaid.
 
     In July 1995 AIG loaned $2,000,000 to KHI. These loans were evidenced by
demand promissory notes bearing interest at an annual rate equal to the Citibank
N.A. base rate in effect from time to time plus 2%. As of December 1, 1997,
principal and accrued interest in the aggregate amount of $2,035,583 was
outstanding under these notes. These notes were repaid in full upon the
consummation of the Merger.
 
     During 1995, 1996 and 1997, the Company rendered risk management services,
including marketing support, and claims investigations services to AIG and its
subsidiaries. The Company billed AIG and its subsidiaries $3,868,967, $5,325,559
and $6,412,244 in 1995, 1996 and 1997, respectively, for such services. Included
in the 1996 and 1997 amounts are payments pursuant to an agreement under which
the Company provides certain AIG subsidiaries with crisis management and
marketing services through November 30, 1998. The agreement provides for an
annual retainer ($2,288,640 for 1997), subject to certain adjustments, and is
payable quarterly in advance. The accounts receivable balance for AIG was
$897,361 at December 31, 1997. Since 1995, the Company has purchased certain of
its liability insurance, including Professional Errors and Omissions and
Directors and Officers liability insurance, from AIG's subsidiaries. AIG's
subsidiaries billed the Company $485,807, $824,348 and $814,154 for this
insurance during 1995, 1996 and 1997, respectively. The Company obtains the
coverage through an independent insurance broker and where possible obtains
competitive proposals from unrelated third parties.
 
BUILDING LEASE
 
     OLG, Limited, an Ohio limited liability company of which Messrs. Thomas M.
O'Gara, Wilfred T. O'Gara, Allen, Carpinello, Curotto and Lennon own
approximately 91%, 5%, 1%, 1%, 1% and 1% of the outstanding capital stock, was
formed in March 1996 for the purpose of acquiring and leasing to OHE a facility
located at 4175 Mulhauser Road, Fairfield, Ohio. The building was purchased for
approximately $1.8 million and was leased to OHE for one year, ending March 31,
1997, for $468,000 (plus taxes, insurance and maintenance costs). OHE exercised
an option to renew the lease, at a base rent of $21,000 per month, through July
1997. Since August 1997, OHE has continued to utilize the facility on a month to
month basis. Previously used for manufacturing, the facility is currently used
for storage and general office purposes. OHE also has an option to purchase the
building for its fair market value.
 
CONSULTING AGREEMENTS
 
     Excel Metal. OSN, Inc. had a consulting agreement with Excel Metal pursuant
to which Excel Metal provided management consulting services to OSN, Inc. during
calendar year 1996 for a fee of $6,000 per month plus reimbursement of expenses.
The arrangement terminated upon consummation of the Company's initial public
offering.
 
     William S. Sessions. From time to time, Mr. Sessions has provided
consulting services to the Company or OHE. During 1995, 1996 and 1997, he
received $25,000, $5,000 and $7,500, respectively, for sales development
assistance related to OHE's commercial armored products.
 
     Neil P. Saldin. Mr. Saldin was an executive officer of the Company until
June 30, 1997. Prior to becoming an executive officer of the Company, Mr. Saldin
was a consultant to OSN from October 1994 through September 1995. The consulting
services, which were managerial and related to the start up of OSN's operations,
were provided through a company controlled by Mr. Saldin, which was paid
$180,000.
 
                                       53
<PAGE>   54
 
     Edward F. O'Gara. In 1995 and 1996, OHE guaranteed certain consulting
agreements between Longline/Excel and Cirrus Systems, Inc., a Delaware
corporation owned by Mr. Edward F. O'Gara. Such agreements were for one year
terms for a total of $120,000 per year and expired December 31, 1996. Mr. Thomas
M. O'Gara has agreed to indemnify OHE for any claims made under such guarantees.
 
EXERCISE OF STOCK OPTIONS AND SALE OF SHARES
 
     On August 23, 1996, Messrs. Thomas M. O'Gara, Wilfred T. O'Gara, Carpinello
and Curotto exercised options previously granted on December 31, 1993 to
purchase 138, 131, 91 and 85 shares of the common stock of OHE, respectively, at
a price of $1.00 per share. Giving effect to the Reorganization, the
corresponding numbers of shares of Common Stock of the Company were 37,667,
35,756, 24,838 and 23,201, respectively, at a price of $0.0037 per share.
 
     On August 23, 1996, Mr. Thomas M. O'Gara sold 10 shares of the common stock
of OHE to Mr. Carpinello for a price of $468.00 per share (equivalent to 2,730
shares of Common Stock of the Company for a price of $1.71 per share). The
Company incurred a non-recurring, non-cash expense of approximately $19,890 in
the fourth quarter of 1996 in connection with this sale. This expense resulted
in a corresponding increase in additional paid-in capital, and no change in
total shareholders' equity. This expense was not tax deductible and represented
the difference between the net offering price and the net sales price of these
shares as if issued directly by the Company.
 
                                       54
<PAGE>   55
 
                       PRINCIPAL AND SELLING SHAREHOLDERS
 
     The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock on March 31, 1998 (on an actual basis
and as adjusted to reflect the sale of shares offered by the Selling
Shareholders) by (i) each Selling Shareholder, (ii) each beneficial owner of
more than five percent of the Common Stock immediately prior to the Offering,
(iii) each director and named executive officer individually and (iv) all
directors and executive officers of the Company as a group. Unless otherwise
indicated, all shares are owned directly and the indicated owner has sole voting
and dispositive power with respect to such shares.
 
<TABLE>
<CAPTION>
                                      SHARES BENEFICIALLY                          SHARES BENEFICIALLY
                                        OWNED PRIOR TO                                    OWNED
                                          OFFERING(1)                               AFTER OFFERING(1)
                                   -------------------------     SHARES TO BE      --------------------
              NAME                     NUMBER        PERCENT   SOLD IN OFFERING     NUMBER      PERCENT
              ----                 --------------    -------   ----------------    ---------    -------
<S>                                <C>               <C>       <C>                 <C>          <C>
Jules B. Kroll (2) (3) (4).......       3,684,991     27.0         475,000         3,209,991     19.1
Thomas M. O'Gara (2) (4) (5).....       2,882,935     21.1         292,000         2,590,935     15.4
Wilfred T. O'Gara................         284,982      2.1          30,000           254,982      1.5
Gary W. Allen (6)................          17,730        *              --            17,730        *
Michael G. Cherkasky.............         200,939      1.5          47,000           153,939        *
Marshall S. Cogan................              --       --              --                --       --
Richard L. Curotto (6)...........          41,087        *              --            41,087        *
Michael J. Lennon................          20,530        *              --            20,530        *
Raymond E. Mabus.................           1,000        *              --             1,000        *
Nazzareno E. Paciotti............         103,845        *              --           103,845        *
Hugh E. Price....................          17,500        *              --            17,500        *
Jerry E. Ritter..................           1,000        *              --             1,000        *
William S. Sessions..............           1,000        *              --             1,000        *
Howard I. Smith (2)(7)...........       1,444,212     10.6              --         1,444,212      8.6
All directors and current
  executive officers as a group
  (14 persons) (6) (8)...........       8,721,233     62.7         844,000         7,877,233     46.1
American International Group,
  Inc. (2).......................       1,444,212     10.6              --         1,444,212      8.6
Alian SARL (9)...................         376,579      2.8          45,000           331,579      2.0
Yakov Bratslavskiy...............          38,889        *          10,000            28,889        *
Chez Financial Corp. (10)........          69,565        *           4,500            65,065        *
MeesPierson Management
  (Guernsey) Ltd. (2) (4) (5)....         793,095      5.8         296,500           496,595      3.0
</TABLE>
 
------------------
* Less than 1% of the outstanding Common Stock.
 
 (1) Under the regulations of the Commission, shares are deemed to be
     "beneficially owned" by a person if the person directly or indirectly has
     or shares the power to vote or dispose of the shares, whether or not the
     person has any pecuniary interest in the shares, or has or shares the right
     to acquire the power to vote or dispose of the shares within 60 days,
     including through the exercise of any option, warrant or right. Included in
     the shares listed are the following numbers of shares of Common Stock which
     may be acquired through the exercise of currently exercisable stock options
     or stock options which become exercisable within 60 days after March 31,
     1998: Mr. Kroll, none; Mr. Thomas M. O'Gara, 7,716 shares; Mr. Wilfred T.
     O'Gara, 24,716 shares; Mr. Allen, 16,333 shares; Mr. Cherkasky, 90,529
     shares; Mr. Cogan, none; Mr. Curotto, 16,000 shares; Mr. Lennon, 18,666
     shares; Mr. Mabus, 1,000 shares; Mr. Paciotti, 90,529 shares; Mr. Price,
     17,500 shares; Mr. Ritter, none; Mr. Sessions, 1,000 shares; Mr. Smith,
     none; and all directors and current executive officers as a group, 272,989
     shares.
 
 (2) Mr. Kroll's address is 900 Third Avenue, New York, New York 10022. Mr.
     O'Gara's address is 9113 LeSaint Drive, Fairfield, Ohio 45014. Mr. Smith's
     and AIG's address is 70 Pine Street, New York, New
 
                                       55
<PAGE>   56
 
     York 10270. The address of MeesPierson Management (Guernsey) Ltd. is
     Bordage House, No. 253, Le Bordage, St. Peter Port, Guernsey, U.K.
 
 (3) Does not include 192,561 shares held by trusts for the benefit of Mr.
     Kroll's adult children, in which Mr. Kroll disclaims any beneficial
     interest.
 
 (4) Mr. Kroll, Mr. Thomas M. O'Gara and MeesPierson Management (Guernsey) Ltd.
     have granted to the Underwriters an over-allotment option to purchase up to
     an aggregate of 660,000 shares of Common Stock at the Offering price, less
     the underwriting discount and commissions set forth on the cover page of
     this Prospectus. If the over-allotment option is exercised in full, the
     numbers of shares beneficially owned after the Offering and the percentage
     ownerships for Mr. Kroll, Mr. Thomas M. O'Gara and MeesPierson Management
     (Guernsey) Ltd. will be 2,879,991 shares, 2,425,935 shares and 331,595
     shares and 17.1%, 14.4% and 2.0%, respectively.
 
 (5) The 793,095 shares shown for MeesPierson Management (Guernsey) Ltd., along
     with 373,524 shares held by Union Federal Corporation, previously were
     aggregated with those shown as beneficially owned by Mr. Thomas M. O'Gara
     on the basis that Mr. O'Gara may have had shared indirect voting authority
     over these shares. The Company has been advised that any such authority no
     longer exists and, accordingly, the 793,095 shares and 373,524 shares are
     no longer aggregated with those beneficially owned by Mr. O'Gara.
     MeesPierson Management (Guernsey) Ltd. has sole discretion over the
     disposition of the 793,095 shares of stock and the proceeds of sale, with
     Mr. O'Gara's issue having a remainder interest upon the termination of the
     applicable trust instrument. Mr. O'Gara has no voting, investment or
     distribution authority over the 793,095 shares.
 
 (6) Messrs. Allen and Curotto ceased to be executive officers of the Company on
     December 1, 1997. Their shares are not included in those listed as held by
     all directors and current executive officers as a group.
 
 (7) Consists of 1,444,212 shares held by AIG. Mr. Smith disclaims any
     beneficial interest in these shares.
 
 (8) Includes 1,444,212 shares held by AIG which are deemed to be owned by Mr.
     Smith and in which he disclaims any beneficial interest.
 
 (9) Mr. Daniel Gautier, the sole shareholder of Alian SARL, is Chairman of the
     Company's Labbe subsidiary and was a director of the Company until March
     12, 1997.
 
(10) Chez Financial Corp. was the minority shareholder of one of the Company's
     Brazilian subsidiaries until December 29, 1997, when the Company acquired
     the minority interest in exchange for 69,565 shares of Common Stock. Mr.
     Paulo C. Amorim, the sole shareholder of Chez Financial Corp., is Vice
     President of International Operations of OHE.
 
                                       56
<PAGE>   57
 
                          DESCRIPTION OF CAPITAL STOCK
 
     The Company's authorized capital stock consists of 50,000,000 shares of
Common Stock, $.01 par value per share, of which 13,629,432 shares are
outstanding at March 31, 1998, and 1,000,000 shares of undesignated preferred
stock, $.01 par value per share, none of which is issued or outstanding. The
following description of the material terms of the capital stock of the Company
is qualified in its entirety by the provisions of the Company's Amended and
Restated Articles of Incorporation and Code of Regulations and by the provisions
of the Ohio General Corporation Law.
 
COMMON STOCK
 
     Holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of shareholders. Shareholders do not
have the right to cumulate their votes in the election of directors.
 
     Subject to preferences which have been and may be granted to holders of
preferred stock, holders of Common Stock are entitled to share in such dividends
as the Board of Directors, in its discretion, may validly declare from funds
legally available. In the event of liquidation, each outstanding share of Common
Stock entitles its holder to participate ratably in the assets remaining after
payment of liabilities and any preferred stock liquidation preferences.
 
     Shareholders have no preemptive or other rights to subscribe for or
purchase additional shares of any class of stock or any other securities of the
Company. There are no redemption or sinking fund provisions with regard to the
Common Stock. All outstanding shares of Common Stock are fully paid, validly
issued and nonassessable.
 
     The vote of holders of a majority of all outstanding shares of Common Stock
is required to amend the Amended and Restated Articles of Incorporation and to
approve mergers, reorganizations, and similar transactions.
 
PREFERRED STOCK
 
     Up to 1,000,000 authorized shares of preferred stock may be issued from
time to time in series having such designations, preferences and rights,
qualifications and limitations as the Board of Directors may determine without
any approval of shareholders. Preferred stock could be given rights which would
adversely affect the equity of holders of Common Stock and could have preference
to Common Stock with respect to dividend and liquidation rights. Issuance of
preferred stock could have the effect of acting as an anti-takeover device to
prevent a change of control of the Company.
 
PROVISIONS AFFECTING BUSINESS COMBINATIONS AND CHANGES IN CONTROL
 
     Ohio law governs the rights of shareholders of the Company. Chapter 1704 of
the Ohio Revised Code may be viewed as having an anti-takeover effect. This
statute, in general, prohibits an "issuing public corporation" (the definition
of which includes the Company) from entering into a "Chapter 1704 Transaction"
with the beneficial owner (or affiliates of such beneficial owner) of 10% or
more of the outstanding shares of the corporation (an "interested shareholder")
for at least three years following the date on which the interested shareholder
attains such 10% ownership, unless the board of directors of the corporation
approves, prior to such person becoming an interested shareholder, either the
transaction or the acquisition of shares resulting in a 10% ownership position.
A "Chapter 1704 Transaction" is broadly defined to include, among other things,
a merger or consolidation with, a sale of substantial assets to, or the receipt
of a loan, guaranty or other financial benefit (which is not proportionately
received by all shareholders) from the interested shareholder. Following the
expiration of such three-year period, a Chapter 1704 Transaction with the
interested shareholder is permitted only if either (i) the transaction is
approved by the holders of at least two-thirds of the voting power of the
corporation (or such different proportion as is set forth in the corporation's
articles of incorporation), including a majority of the outstanding shares
excluding those owned by the interested shareholder, or (ii) the business
combination results in the shareholders other than the interested
 
                                       57
<PAGE>   58
 
shareholder receiving a prescribed "fair price" for their shares. One
significant effect of Chapter 1704 is to encourage a person to negotiate with
the board of directors of a corporation prior to becoming an interested
shareholder.
 
     In addition, Section 1707.043 of the Ohio Revised Code requires a person or
entity that makes a proposal to acquire the control of a corporation to repay to
that corporation any profits made from trades in the corporation's stock within
18 months after making the control proposal.
 
     Section 1701.831 of the Ohio GCL (the "Control Share Acquisition Statute")
requires shareholder approval of any proposed "control share acquisition" of an
Ohio corporation. A "control share acquisition" is the acquisition, directly or
indirectly, by any person (including any individual, partnership, corporation,
limited liability company, society, association or two or more persons who have
a joint or common interest) of shares of a corporation that, when added to all
other shares of the corporation that may be voted, directly or indirectly, by
the acquiring person, would entitle such person to exercise or direct the
exercise of 20% or more (but less than 33 1/3%) of the voting power of the
corporation in the election of directors or 33 1/3% or more (but less than a
majority) of such voting power or a majority or more of such voting power. Under
the Control Share Acquisition Statute, the control share acquisition must be
approved in advance by the holders of a majority of the outstanding voting
shares represented at a meeting at which a quorum is present and by the holders
of a majority of the portion of the outstanding voting shares represented at
such a meeting excluding the voting shares owned by the acquiring shareholder
and certain "interested shares," including shares owned by officers elected or
appointed by the directors of the corporation and by directors of the
corporation who are also employees of the corporation.
 
     The purpose of the Control Share Acquisition Statute is to give
shareholders of Ohio corporations a reasonable opportunity to express their
views on a proposed shift in control, thereby reducing the coercion inherent in
an unfriendly takeover. The provisions of the Control Share Acquisition Statute
grant to the shareholders of the Company the assurance that they will have
adequate time to evaluate the proposal of the acquiring person, that they will
be permitted to vote on the issue of authorizing the acquiring person's purchase
program to go forward in the same manner and with the same proxy information
that would be available to them if a proposed merger of the Company were before
them and, most importantly, that the interests of all shareholders will be taken
into account in connection with such vote and the probability will be increased
that they will be treated equally regarding the price to be offered for their
common shares if the implementation of the proposal is approved.
 
     The Control Share Acquisition Statute applies not only to traditional
offers but also to open market purchases, privately negotiated transactions and
original issuances by an Ohio corporation, whether friendly or unfriendly. The
procedural requirements of the Control Share Acquisition Statute could render
approval of any control share acquisition difficult in that the transaction must
be authorized at a special meeting of shareholders, at which a quorum is
present, by the affirmative vote of the majority of the voting power represented
and by a majority of the portion of such voting power excluding "interested
shares." It is recognized that any corporate defense against persons seeking to
acquire control may have the effect of discouraging or preventing offers which
some shareholders might find financially attractive. On the other hand, the need
on the part of the acquiring person to convince the shareholders of the Company
of the value and validity of his offer may cause such offer to be more
financially attractive in order to gain shareholder approval.
 
     While the Company believes that these provisions are in its best interests,
potential shareholders should be aware that such provisions could be
disadvantageous to them because the overall effect of these statutes may be to
render more difficult or discourage the removal of incumbent management or the
assumption of effective control by other persons.
 
TRANSFER AGENT AND REGISTRAR
 
     The registrar and transfer agent for the Company's Common Stock is The
Fifth Third Bank, Cincinnati, Ohio.
 
                                       58
<PAGE>   59
 
                        SHARES ELIGIBLE FOR FUTURE SALE
 
   
     Upon completion of the Offering, the Company will have approximately 16.8
million outstanding shares of Common Stock. The 4,400,000 shares sold in the
Offering and any of the up to 660,000 shares sold upon exercise of the
Underwriters' over-allotment option, will be freely tradeable by persons other
than "affiliates" of the Company, as that term is defined in Rule 144 under the
Securities Act, without restriction or registration under that Act. In addition,
approximately 2.9 million other outstanding shares are freely tradeable. The
remaining approximately 9.5 million shares (the "Restricted Shares") are
beneficially owned primarily by certain of the Company's executive officers,
directors and pre-initial public offering shareholders. The Restricted Shares
may not be sold unless they are registered under the Securities Act or sold
pursuant to an applicable exemption from registration, including an exemption
pursuant to Rule 144. The Company and its executive officers and directors have
agreed not to offer, sell or otherwise dispose of any shares of Common Stock,
including the Restricted Shares, for a period of 90 days from the date of this
Prospectus, without the prior written consent of SBC Warburg Dillon Read Inc.
    
 
     Rule 144 governs the public sale in ordinary trading transactions of
"restricted securities" and of securities owned by "affiliates." Restricted
securities are securities acquired directly or indirectly from an issuer in a
transaction not involving a public offering. In general, under Rule 144, if a
holding period of at least one year has elapsed since the date the restricted
securities were acquired from the Company, then the holder of such restricted
securities (including an affiliate of the Company) is entitled, subject to
certain conditions, to sell within any three-month period a number of shares
which does not exceed the greater of (i) 1% of the Company's then outstanding
shares of Common Stock or (ii) the shares' average weekly trading volume during
the four calendar weeks preceding such sale. Sales under Rule 144 are also
subject to certain manner-of-sale provisions and requirements as to notice and
the availability of current public information about the Company. Essentially
all of the Restricted Shares either currently are eligible for sale pursuant to
Rule 144 or will be eligible for sale under Rule 144 upon expiration of the
90-day lock-up period.
 
     AIG has a registration rights agreement with the Company that entitles AIG
to one "demand" and unlimited "piggyback" registration rights for any shares of
Common Stock held by it, at the expense of the Company (except for any
underwriting discounts), until December 1, 2000. The registration rights
agreement contains customary limitations with respect to underwriter cutbacks,
pending announcements or transactions involving the Company and certain other
terms and conditions. Another shareholder of the Company also has the right to
one "demand" registration (on Form S-3 only) for approximately 19,500 shares
held by him. The holders of approximately 7.1 million other shares of Common
Stock have "piggyback" registration rights for so long as the resale of those
shares is restricted as to holding period or volume of sale under Rule 144;
812,000 of those shares are being sold in this Offering. All of the registration
rights arrangements were entered into in connection with acquisitions made by
the Company.
 
     The Company has reserved up to 836,000 shares of its Common Stock for
issuance under its 1996 Stock Option Plan (the "Plan"). There currently are
options for 652,597 shares of Common Stock outstanding under the Plan. In
addition, the Company has reserved 551,492 shares of Common Stock for issuance
upon exercise of options granted by KHI and assumed in the Merger. The Company
is registering the shares of Common Stock reserved for issuance under the Plan
and upon exercise of the KHI options. Subject to the expiration of the 90-day
lock-up period, and subject to compliance with Rule 144 by affiliates of the
Company and to Section 16 of the Securities Exchange Act of 1934 by directors,
officers and 10% beneficial owners, any shares issued upon exercise of options
granted under the Plan and assumed in the Merger will be freely tradeable.
 
     Sales of substantial amounts of Common Stock in the public market could
adversely affect prevailing market prices and the Company's ability to raise
capital at favorable prices.
 
                                       59
<PAGE>   60
 
                                  UNDERWRITING
 
     The names of the Underwriters of the shares of Common Stock offered hereby
and the aggregate number of shares of Common Stock that each of them has agreed
to purchase from the Company and the Selling Shareholders, subject to the terms
and conditions specified in the Underwriting Agreement, are as follows:
 
   
<TABLE>
<CAPTION>
                                                              NUMBER OF
                        UNDERWRITER                            SHARES
                        -----------                           ---------
<S>                                                           <C>
SBC Warburg Dillon Read Inc.................................  1,346,000
Bear, Stearns & Co. Inc.....................................  1,346,000
SunTrust Equitable Securities Corporation...................    673,000
Robert W. Baird & Co. Incorporated..........................     45,000
J.C. Bradford & Co..........................................     45,000
Cowen & Company.............................................     90,000
Credit Suisse First Boston Corporation......................     90,000
Donaldson, Lufkin & Jenrette Securities Corporation.........     90,000
Lehman Brothers Inc.........................................     90,000
Loewenbaum & Company Incorporated...........................     45,000
McDonald & Company Securities, Inc..........................     45,000
Monness, Crespi, Hardt & Co., Inc...........................     45,000
Morgan Stanley & Co. Incorporated...........................     90,000
Neuberger & Berman LLC......................................     45,000
The Ohio Company............................................     45,000
Piper Jaffray Inc...........................................     45,000
Roney & Co..................................................     45,000
Wm Smith Securities Incorporated............................     45,000
Stephens Inc................................................     45,000
UBS Securities LLC..........................................     90,000
                                                              ---------
          Total.............................................  4,400,000
                                                              =========
</TABLE>
    
 
   
     The Managing Underwriters are SBC Warburg Dillon Read Inc., Bear, Stearns &
Co. Inc., and SunTrust Equitable Securities Corporation.
    
 
     If any shares of Common Stock offered hereby are purchased by the
Underwriters, all such shares will be so purchased. The Underwriting Agreement
contains certain provisions whereby, if any Underwriter defaults in its
obligation to purchase such shares, and the aggregate obligations of the
Underwriters so defaulting do not exceed ten percent of the shares offered
hereby, the remaining Underwriters, or some of them, must assume such
obligations.
 
   
     The Common Stock offered hereby is being initially offered severally by the
Underwriters for sale at the price set forth on the cover page of this
Prospectus, or at such price less a concession not in excess of $0.72 per share
on sales to certain dealers. The Underwriters may allow, and such dealers may
re-allow, a concession not to exceed $0.10 per share on sales to certain other
dealers. The offering of shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and withdrawal, cancellation or
modification of the offer without notice. The Underwriters reserve the right to
reject any order for the purchase of the shares. After the shares of Common
Stock are released for sale to the public, the offering price and such
concessions may be changed by the Managing Underwriters.
    
 
     Mr. Jules B. Kroll, MeesPierson Management (Guernsey) Ltd. and Mr. Thomas
M. O'Gara have granted to the Underwriters an over-allotment option to purchase
up to an aggregate of 660,000 additional shares of Common Stock at the public
offering price less the underwriting discount and commission set forth on the
cover page of this Prospectus. If the Underwriters exercise such option, each of
the Underwriters will be obligated, subject to certain conditions, to purchase
the number of additional shares of Common Stock proportionate to such
Underwriter's initial commitment. The Underwriters may exercise such option on
or
 
                                       60
<PAGE>   61
 
before the thirtieth day from the date of the Underwriting Agreement and only to
cover over-allotments made of the shares in connection with the Offering.
 
     The Company and certain of the Selling Shareholders have agreed in the
Underwriting Agreement to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof.
 
     The Company and each of its executive officers and directors (other than,
with respect to shares of Common Stock included in the Offering, the Selling
Shareholders) have agreed that they will not sell, contract to sell, grant any
option to sell or otherwise dispose of, directly or indirectly, any shares of
Common Stock, or securities convertible into or exercisable or exchangeable for,
any shares of Common Stock or warrants or other rights to purchase shares of
Common Stock, or permit the registration of any shares of Common Stock for a
period of 90 days after the date of this Prospectus, without the prior consent
of SBC Warburg Dillon Read Inc., except that the Company may issue shares of
Common Stock upon exercise of outstanding options and in connection with
acquisition transactions and may issue options to purchase shares of Common
Stock pursuant to its 1996 Stock Option Plan.
 
     Dillon, Read & Co. Inc., a predecessor of SBC Warburg Dillon Read Inc.,
served as the lead managing underwriter for the Company's initial public
offering in November 1996 and as placement agent for the Company's Senior Notes
issued in June 1997. SBC Warburg Dillon Read Inc. acted as financial advisor to
the Company in connection with the Merger and provided a fairness opinion to the
Company in such capacity, for which it received customary fees and reimbursement
of expenses.
 
     The Common Stock is listed on the Nasdaq under the symbol "KROG." In
connection with this Offering, the Underwriters and selling group members may
engage in passive market making transactions in the Common Stock on the Nasdaq
immediately prior to the commencement of sales in this Offering, in accordance
with Rule 10b-6A under the Exchange Act. Passive market making consists of
displaying bids on the Nasdaq that are limited by the bid prices of independent
market makers and completing purchases in response to the order flow at prices
limited by such bids. Net purchases by a passive market maker on each day are
limited to a specific percentage of the passive market maker's average daily
trading volume in the shares of Common Stock during a specified prior period and
must be discontinued when such limit is reached. Passive market making may
stabilize the market price of the shares of Common Stock at a level above that
which might otherwise prevail and, if commenced, may be discontinued at any
time.
 
     The Managing Underwriters, on behalf of the Underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Exchange Act.
Over-allotment involves syndicate sales in excess of the offering size, which
creates a syndicate short position. Stabilizing transactions permit bids to
purchase the underlying security so long as the stabilizing bids do not exceed a
specified maximum. Syndicate covering transactions involve purchases of the
Common Stock in the open market after the distribution has been completed in
order to cover syndicate short positions. Penalty bids permit the Managing
Underwriters to reclaim a selling concession from a syndicate member when the
Common Stock originally sold by such syndicate member is purchased in a
syndicate covering transaction to cover syndicate short positions. Such
stabilizing transactions, syndicate covering transactions and penalty bids may
cause the price of the Common Stock to be higher than it would otherwise be in
the absence of such transactions. These transactions may be effected on the
Nasdaq or otherwise and, if commenced, may be discontinued at any time.
 
                                 LEGAL MATTERS
 
     The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Taft, Stettinius & Hollister LLP. Certain legal matters
in connection with the Offering will be passed upon for the Underwriters by
Cahill Gordon & Reindel, a partnership including a professional corporation.
 
                                       61
<PAGE>   62
 
                                    EXPERTS
 
     The consolidated financial statements included in this Prospectus and
elsewhere in the Registration Statement have been audited by Arthur Andersen
LLP, independent public accountants, as set forth in their report. In that
report, that firm states that with respect to certain subsidiaries, its opinion
is based on the reports of other independent public accountants, namely Deloitte
& Touche LLP for the year ended December 31, 1996 and KPMG Peat Marwick LLP for
the year ended December 31, 1995. The financial statements referred to above
have been included herein in reliance upon the authority of those firms as
experts in accounting and auditing.
 
                             ADDITIONAL INFORMATION
 
     The Company has filed a Registration Statement with the Securities and
Exchange Commission (the "Commission") covering the shares of Common Stock
offered by this Prospectus. This Prospectus does not contain all of the
information provided in the Registration Statement and its exhibits.
Additionally, this Prospectus includes summaries of certain contracts and other
documents that are filed as exhibits to the Registration Statement. The reader
should refer to the full Registration Statement, including its exhibits, for
additional information and the full text of summarized documents that are filed
as exhibits.
 
                             AVAILABLE INFORMATION
 
     The Company is subject to the reporting requirements of the Exchange Act
and files reports, proxy statements and other information with the Commission.
These documents may be inspected and copied at the Commission's Public Reference
Section, 450 Fifth Street, N.W., Washington, D.C. 20549, as well as the
Commission's Regional Offices at 7 World Trade Center, Suite 1300, New York, New
York 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of these documents also may be obtained from the
Public Reference Section upon payment of the prescribed fees. The Commission
maintains an Internet World Wide Web site that contains reports, proxy
information and statements, and other information regarding registrants,
including the Company, that file electronically with the Commission. The Web
site address is http://www.sec.gov.
 
                                       62
<PAGE>   63
 
                              [INSIDE BACK COVER]
 
                               WORLDWIDE NETWORK
 
           [Picture of world map labelled "Worldwide Network" and indicating
           offices at: New York, New York; Washington, D.C.; Fairfield, Ohio;
           Chicago, Illinois; San Francisco and Los Angeles, California; San
           Antonio, Texas; Miami, Florida; Mexico City, Mexico; Sao Paulo,
           Brazil; Lamballe and Paris, France; London and Salisbury, the United
           Kingdom; Moscow, Russia; Ryhad, Saudi Arabia; Hong Kong and Beijing,
           China; Tokyo, Japan; Singapore, Singapore; New Delhi, India; Manila,
           the Philippines; Torino, Italy; and Geneva, Switzerland.]
 
O'GARA-HESS & EISENHARDT(TM), KROLL-O'GARA(TM) AND COMPACT-M(TM) ARE TRADEMARKS
OF THE COMPANY. KROLL(R) AND O'GARA SATELLITE NETWORKS(R) ARE REGISTERED
TRADEMARKS OF THE COMPANY. GENERAL MOTORS(TM), CHEVROLET(R), CADILLAC(R),
GMC(TM), SUBURBAN(R) AND OMEGA(TM) ARE TRADEMARKS OF GENERAL MOTORS CORPORATION.
JEEP CHEROKEE(TM) IS A TRADEMARK OF CHRYSLER CORPORATION AND JETTA(R) IS A
REGISTERED TRADEMARK OF VOLKSWAGENWERK A.G. MERCEDES BENZ(R) IS A REGISTERED
TRADEMARK OF MERCEDES-BENZ A.G. AND SL(R) AND DAIMLER-BENZ(R) ARE REGISTERED
TRADEMARKS OF DAIMLER-BENZ. AMSC(R) IS A REGISTERED TRADEMARK OF AMERICAN MOBILE
SATELLITE CORPORATION. BRINK'S(R) IS A REGISTERED TRADEMARK OF BRINK'S
INCORPORATED. S90(R) IS A TRADEMARK OF VOLVO AB. ALL OTHER TRADEMARKS APPEARING
IN THIS PROSPECTUS ARE THE PROPERTY OF THEIR RESPECTIVE OWNERS.
<PAGE>   64
 
No dealer, salesperson or other person has been authorized to give any
information or to make any representation other than those contained in this
Prospectus in connection with the offer contained herein, and, if given or made,
such information or representation must not be relied upon as having been
authorized by the Company, the Selling Shareholders or any Underwriter. This
Prospectus does not constitute an offer to sell, or a solicitation of an offer
to buy, shares of Common Stock in any jurisdiction to any person to whom it is
not lawful to make such offer or solicitation in such jurisdiction or in which
the person making such offer or solicitation is not qualified to do so. Neither
the delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create an implication that there has been no change in the
affairs of the Company since the date hereof.
 
                               TABLE OF CONTENTS
-------------------------------------------------------------
 
   
<TABLE>
<S>                                         <C>
Prospectus Summary........................    3
Risk Factors..............................    8
Use of Proceeds...........................   14
Price Range of Common Stock and Dividend
  Policy..................................   15
Capitalization............................   16
Selected Consolidated Financial Data......   17
Management's Discussion and Analysis of
  Financial Condition and Results of
  Operations..............................   19
Business..................................   29
Management................................   45
Certain Relationships and Related Party
  Transactions............................   50
Principal and Selling Shareholders........   55
Description of Capital Stock..............   57
Shares Eligible for Future Sale...........   59
Underwriting..............................   60
Legal Matters.............................   61
Experts...................................   62
Additional Information....................   62
Available Information.....................   62
Index to Consolidated Financial
  Statements..............................  F-1
</TABLE>
    
 
   
PROSPECTUS                                                        April 30, 1998
    
 
                               KROLL-O'GARA LOGO
                                4,400,000 Shares
                            The Kroll-O'Gara Company
                                  Common Stock
 
                          SBC WARBURG DILLON READ INC.
 
                            BEAR, STEARNS & CO. INC.
 
                         SUNTRUST EQUITABLE SECURITIES