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================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                ----------------

                                    FORM 10-K

 [X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2002
                                       OR

 [ ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 For the transition period from ______ to ________


                         COMMISSION FILE NUMBER 0-18863

                               ------------------

                              ARMOR HOLDINGS, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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

     1400 MARSH LANDING PARKWAY, SUITE 112
             JACKSONVILLE, FLORIDA                              32250
    (Address of principal executive offices)                 (Zip Code)

                                 (904) 741-5400
              (Registrant's telephone number, including area code)

           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
               Title of each class: Common Stock, $0.01 par value
       Name of each exchange on which registered: New York Stock Exchange

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                                      None

         Indicate by check mark whether the Registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding twelve months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
   Yes  [ X ]  No [   ]

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [X]

         Indicate by check mark whether the registrant is an accelerated filer
(as defined in rule 12B-2 of the Act) Yes [ X ] No [  ]

         The aggregate market value of voting and non-voting common equity held
by non-affiliates of the Registrant as of June 30 , 2002 (based on the closing
sale price of the Common Stock on the New York Stock Exchange on such date) was
$890,358,924.

         The number of shares of the Registrant's Common Stock outstanding as of
March 17, 2003 was 28,033,755.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of our Proxy Statement for our Annual Meeting of Stockholders to be
held on June 24, 2003, are incorporated by reference into Part III hereof.


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                              TABLE OF CONTENTS AND
                              CROSS REFERENCE SHEET

<TABLE>
<CAPTION>

                                                                                     Page Number
                                                                                     -----------
<S>           <C>                                                                    <C>

PART I       Item 1.  Description of Business                                             3
                      Company Overview                                                    3
                      Material Developments                                               4
                      Industry Overview                                                   4
                      Information Concerning Business Segments and
                      Geographical Sales                                                  5
                      Business Strengths                                                  5
                      Growth Strategy                                                     6
                      Acquisitions                                                        7
                      Products                                                           13
                      Customers                                                          13
                      Marketing and Distribution                                         15
                      Product Manufacturing and Raw Materials                            16
                      Backlog                                                            16
                      Competition                                                        16
                      Employees                                                          17
                      Patents and Trademarks                                             17
                      Government Regulation                                              17
                      Environmental Matters                                              17

             Discontinued Operations

                      Description of Business                                            18
                      Industry Overview                                                  18
                      Geographical Sales                                                 19
                      Services                                                           19
                      Customers                                                          20
                      Marketing and Distribution                                         20
                      Competition                                                        21
                      Employees                                                          21


             Item 2.  Properties                                                         22

             Item 3.  Legal Proceedings                                                  23

             Item 4.  Submission of Matters to a Vote of Security Holders                25


PART II      Item 5.  Market for Registrant's Common Equity and Related
                             Stockholder Matters                                         26

             Item 6.  Selected Financial Data                                            29

             Item 7.  Management's Discussion and Analysis of Financial
                             Condition and Results of Operations                         30

             Item 7.A Quantitative and Qualitative Disclosures About
                             Market Risk                                                 46

             Item 8.  Financial Statements and Supplementary Data                        47

             Item 9.  Changes in and Disagreements with Accountants on
                             Accounting and Financial Disclosure                         47


PART III     Item 14. Controls and Procedures                                            48

PART IV      Item 15. Exhibits, Financial Statements and Schedules,
                             and Reports on Form 8-K                                     48
</TABLE>

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                                     PART I


FORWARD LOOKING STATEMENTS

We believe that it is important to communicate our expectations to our
investors. Accordingly, this report contains discussion of events or results
that have not yet occurred or been realized. You can identify this type of
discussion, which is often termed "forward-looking statements", by such words
and phrases as "expects", "anticipates", "intends", "plans", "believes",
"estimates" and "could be". Execution of acquisition or divestiture strategies,
expansion of product lines and increase of distribution networks or product
sales are examples of issues whose future success may be difficult to predict.
You should read forward-looking statements carefully because they discuss our
future expectations, contain projections of our future results of operations or
of our financial position, or state other expectations of future performance.
The actions of current and potential new competitors, changes in technology,
seasonality, business cycles and new regulatory requirements are factors that
impact greatly upon strategies and expectations and are outside our direct
control. There may be events in the future that we are not able accurately to
predict or to control. Any cautionary language in this report provides examples
of risks, uncertainties and events that may cause our actual results to differ
from the expectations we express in our forward-looking statements.

ITEM 1.DESCRIPTION OF BUSINESS

COMPANY OVERVIEW

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

During the second quarter of 2002 we made the decision to sell our Services
Division. In accordance with Statement of Accounting Standards 144, Accounting
for the Impairment or Disposal of Long-Lived Assets, the assets and liabilities
of our Services Division have been classified as held for sale, with its
operating results reported as discontinued operations in our statement of
operations, for all periods presented. The business of our Services Division is
described in Item 1 under the heading "Discontinued Operations."

Armor Holdings Products. Our Armor Holdings Products Division manufactures and
sells a broad range of high quality, branded law enforcement equipment, such as
concealable and tactical body armor, hard armor, duty gear, less-lethal
munitions, anti-riot products, police batons, emergency lighting products,
forensic products, firearms accessories and weapon maintenance products. Our
products are marketed under brand names that are well-known and respected in the
military and law enforcement communities such as American Body Armor(TM),
Safariland(R), B-Square(TM), Break-Free(R), Defense Technology/Federal
Laboratories(TM), MACE(R), PROTECH(TM), NIK(R)Public Safety, Monadnock(TM)
Lifetime Products, Identicator(TM), Lightning Powder(R), SpeedFeed(TM), and
911EP(R). We sell our manufactured products primarily to law enforcement
agencies through a worldwide network of over 350 distributors and sales agents,
including approximately 200 in the United States. Our extensive distribution
capabilities and commitment to customer service and training have enabled us to
become a leading provider of security equipment to law enforcement agencies.


                                       3

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Armor Mobile Security. Our Armor Mobile Security Division manufactures and
installs ballistic and blast protected armoring systems for military vehicles,
commercial vehicles, military aircraft, and missile components. Under the brand
name O'Gara-Hess & Eisenhardt, we are the sole-source provider to the U.S.
military for the supply of armoring and blast protection systems for the High
Mobility Multi-purpose Wheeled Vehicle (the "HMMWV"). We are also under contract
with the U.S. Army to provide systems technical support for the current
installed base of approximately 3,500 up-armored HMMWV's. We provide spare parts
and maintenance services for the HMMWV's in use and we expect that our
maintenance services may increase if the U.S. military substantially increases
its HMMWV purchases or substantially increases its use of the current installed
base. Additionally, the Armor Mobile Security Division has been subcontracted to
develop a ballistic and blast protected armored and sealed truck cab for the
High Mobility Artillery Rocket System ("HIMARS"), a program recently
transitioned by the U.S. Army from developmental to a low rate of initial
production with deliveries scheduled in late 2003. The Division also markets
armor sub-systems for other tactical wheeled vehicles. We armor a variety of
commercial vehicles, including limousines, sedans, sport utility vehicles,
commercial trucks and cash-in-transit vehicles, to protect against varying
degrees of ballistic and blast threats.


MATERIAL DEVELOPMENTS

On January 24, 2003, we executed an agreement to negotiate exclusively with an
undisclosed party for the sale of the security consulting business of our
ArmorGroup Services Division, headquartered in London. Separately, on January
16, 2003 we executed an agreement to negotiate exclusively with an undisclosed
party for the sale of the ArmorGroup Integrated Systems business of our
ArmorGroup Services Division. The terms of both transactions and the identities
of both buyers are protected by confidentiality agreements. These two proposed
transactions represent approximately 94% of the net assets of the Services
Division, currently reported as Discontinued Operations.

Both transactions are subject to, among other conditions, ongoing due diligence
and the execution of definitive purchase agreements.

Based upon our analysis and discussions with our advisors regarding the
estimated realizable value of the Services Division, we have recorded an
impairment charge of $30.3 million. This impairment charge includes
approximately $6.1 million in estimated disposal costs and resulted in a $24.2
million non-cash goodwill reduction. The reduction in the carrying value of the
Services Division is Management's estimate based upon all of the best
information currently available, including discussions with its investment
bankers. The actual proceeds from the disposal of our Services Division may
differ materially from our current estimates and therefore could result in
either a gain or a loss upon final disposal.

In March 2002, our Board of Directors approved a stock repurchase program
authorizing the repurchase of up to a maximum 3.2 million shares of our common
stock. In February 2003, the Board of Directors increased this stock repurchase
program to authorize the repurchase, from time to time depending upon market
conditions and other factors, of up to an additional 4.4 million shares. Through
March 10, 2003, we repurchased 3.3 million shares of our common stock under the
stock repurchase program at an average price of $12.42 per share, leaving us
with the ability to repurchase up to an additional 4.3 million shares of our
common stock. Repurchases may be made in the open market, in privately
negotiated transactions or otherwise. Such repurchases are limited by covenants
under our revolving credit agreement, are made in compliance with applicable
rules and regulations and may be discontinued at any time.


INDUSTRY OVERVIEW

We participate in the defense and global security products industry through the
manufacture of security products marketed to military, law enforcement, security



                                       4
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and corrections personnel and by manufacturing and installing ballistic and
blast protected armoring systems for military vehicles, commercial vehicles,
military and commercial aircraft, and missile components. Increasingly,
governments, militaries, businesses, and individuals have recognized the need
for our products and services to protect them from the risks associated with
terrorism, physical attacks and threats of violence.

The United States and the international community has been the target of several
deadly terrorist attacks directed towards US citizens and facilities around the
world. In 1998, U.S. embassies in Nairobi, Kenya and Dar Es Salaam, Tanzania
were bombed. In 2000, the U.S. Navy destroyer, USS Cole, was bombed in the
Yemeni port of Aden. Most recent were the terrorist attacks on September 11,
2001 against the World Trade Center in New York and the Pentagon in Washington,
D.C. and the bombing in Bali in 2002. As a result, institutions, including the
U.S. government, Department of Defense, government agencies and multinational
corporations are redefining strategies to protect against and combat terrorism.

Law Enforcement Security Products Market. Industry statistics are difficult to
quantify however, we believe there are approximately 23,000 Law Enforcement
Agencies in the U.S. From 1999 to 2002, we believe the number of active police
officers increased significantly from year to year such that in 2002, there were
approximately 900,000 law enforcement personnel in the U.S. We expect to see
this number continue to rise over the long-term, however, in the short term the
number of law enforcement personnel may decline during 2003 due to funding from
the Federal Government's Department of Homeland Security and budgetary
constraints at the state and local government level.

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

INFORMATION CONCERNING BUSINESS SEGMENTS AND GEOGRAPHICAL SALES

For information concerning our business segments and geographical sales, please
refer to Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations and Note 12 to our Consolidated Financial Statements
included elsewhere in this report.

BUSINESS STRENGTHS

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

Broad Portfolio of Products. We offer a broad portfolio of security products and
armor systems, which enables us to provide comprehensive solutions to a variety
of customers' security needs. We seek to strengthen our capabilities as a single
source provider of security products to our clients. Through our extensive
product distribution network we provide our customers with broad array of
complementary, manufactured law enforcement equipment. We expect to continue to
expand our product offerings and further diversify our revenue base.

Strong Brands with Leading Market Positions. Product lines are marketed under
brand names widely recognized in the military and law enforcement communities,
such as American Body Armor(TM), Safariland(R), B-Square(TM), Break-Free(R),
Defense Technology/Federal Laboratories(TM), MACE(R), PROTECH(TM), NIK(R)Public
Safety, Monadnock(TM) Lifetime Products, Identicator(TM), Lightning Powder(R),
SpeedFeed(TM), 911EP(R), O'Gara-Hess



                                       5
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& Eisenhardt and others. Due to the life-protecting nature of many of our
products, end users prefer to purchase innovative premium products with well
known brand names with quality reputations that perform at a high level. The
strength of our brand names has contributed to our leading market positions in
several of the product categories in which we compete.

Strong Client Base and Extensive Distribution Network. Armor Holdings Products
has a broad, full service network of approximately 200 domestic distributors and
150 international agents to sell our portfolio of manufactured law enforcement
equipment. The quality and scope of our products and the strength of our brand
names have enabled us to establish one of the largest distribution networks in
the industry and engendered the loyalty of our distributors. We work closely
with our distributors and agents to respond to and anticipate the needs of end
users, allowing us to maintain our market leadership position. The diversity of
our markets we serve, and the strength of our distribution relationships
minimize our dependence on any particular product, market, or customer.

Organizational Experience Identifying, Completing and Integrating Acquisitions.
Since January 1996, we have completed 19 acquisitions in our Products and Mobile
Security Divisions. We employ a disciplined value oriented approach to
evaluating strategic acquisition opportunities and integrating the operations of
acquired businesses. These acquisitions, in the aggregate, have strengthened our
market position, leveraged our distribution network and expanded our product and
service offerings.

Sole-Source Provider of Up-Armored HMMWVs. Through our Armor Mobile Security
Division, we are the sole-source provider of Up-Armored HMMWVs to the U.S.
military. We are also a subcontractor for the U.S. Army High Mobility Artillery
Rocket System ("HIMARS") program currently in development to produce an armored
cab for the vehicle. The Armor Mobile Security Division delivered 522 HMMWVs in
2001 and 623 HMMWVs in 2002. We believe this growth was driven by increased
deployments of military police and security forces to high risk areas such as
Bosnia, Kosovo and Afghanistan and the potential of a long-term, multi-front
offensive against terrorism. We also provide aftermarket sales of spare parts
and services/maintenance, as the incumbent provider of an installed base of over
3,500 Up-Armored HMMWVs.

GROWTH STRATEGY

We believe the demand for security products and vehicle armor systems will
continue to grow. We expect to address this growth by offering a comprehensive
array of high quality branded security products to meet the needs of law
enforcement and militaries around the globe. We also expect to continue to
develop ballistic and blast protection for high-end commercial vehicles as well
as for military vehicles. We intend to enhance our leadership position through
additional strategic acquisitions by creating a broad portfolio of products and
services to satisfy all of our customers' increasingly complex security products
needs. The following elements define our growth strategy:

Capitalize on Exposure to Military Programs. We believe the events of September
11, 2001, the subsequent "War on Terrorism", the increasing likelihood of
military conflicts abroad, and recent actual events in saving lives through the
performance of armor systems such as the HMMWV are all likely to result in
additional interest by the Department of Defense. We expect that several of our
military programs may be positively affected. These include the Concealable Body
Armor Program through which we supply concealable body armor to the U.S. Army
and the Special Operations Forces Personal Equipment Advanced Requirements
("SPEAR") program, which supplies special ballistic vests and load bearing
equipment to U.S. Special Forces. We are the sole-source provider to the U.S.
military for the supply of armor and blast protection to the HMMWVs. We belive
we are well positioned on these programs and



                                       6
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are bidding on several others. Additionally, we expect to participate in future
military programs that require our unique products and services.

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

Capitalize on Increased Homeland Security Requirements. While Homeland Security
spending is still not fully defined and in many cases has not yet reached down
to the first responder, police officer level, we believe we are well positioned
to provide products, services and specialized training essential to establishing
a sustainable homeland security infrastructure. After the September 11, 2001
terrorist attacks on the United States, the U.S. government has created the
Department of Homeland Security. We believe that we are well equipped and
prepared to help build the infrastructure the Department of Homeland Security is
expected to develop. Our Armor Holdings Products Division is positioned to
provide products that additional military, law enforcement, security and
corrections personnel require to combat terrorism and threats to our homeland.
Our Armor Mobile Security Division has the capacity to respond to an increase in
demand for armored commercial vehicles for use by federal, state and local
government agencies.

Pursue Strategic Acquisitions. We selectively pursue strategic acquisitions that
complement and or expand our product offerings, provide access to new geographic
markets, and provide additional distribution channels and new customer
relationships.

ACQUISITIONS

Since 1996 we have pursued a strategy of growth thru acquisition by acquiring
businesses and assets that complement our existing operations. We use several
criteria to evaluate prospective acquisitions, including whether the business to
be acquired:

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

     o    offers attractive margins;

     o    is accretive to earnings;

     o    offers opportunity to improve profitability by increasing the
          efficiency of our operations;

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

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

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

The Armor Holdings Products Division has acquired 17 companies since 1996. The
Safariland acquisition completed by the Products Division in 1999, a producer of
law enforcement products such as body armor, duty gear, and automotive
accessories in 1999. Safariland had approximately $47.0 million in annual
revenues at the time



                                       7
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of acquisition. The Armor Mobile Security Division was created by the
acquisition of O'Gara-Hess & Eisenhardt Corporation (OHEAC) from The
Kroll-O'Gara Company in August 2001 which provides ballistic and blast
protection armoring systems for military and commercial vehicles. OHEAC had
approximately $95 million of revenue at the time of the acquisition. The Armor
Mobile Security Division acquired Trasco Bremen, located in Bremmen, Germany, a
leading high-end, luxury line armored vehicle manufacturer which had
approximately $16 million in annual revenues at the time of acquisition.

PRODUCTS

ARMOR HOLDINGS PRODUCTS

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

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

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

We also distribute a variety of items manufactured by others, including helmets,
goggles, face shields and crowd management systems for protection from blunt
trauma.

Hard Armor. We manufacture hard armor products under the PROTECH(TM) brand name.
PROTECH(TM) products include ballistic shields, and other personal protection
accessories and armor products for aircrafts, automobiles and riot control
vehicles.

PROTECH(TM) emerged as a key participant in the construction of bulletproof
cockpit doors for the US commercial airline industry following the terrorist
attacks of September 11, 2001. By partnering with C&D Aerospace of California,
we produced the first armored cockpit door to receive official certification by
the U.S.



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Federal Aviation Administration (FAA). Since the July 3, 2002 certification,
PROTECH(TM) and C&D obtained contracts to supply cockpit doors for more than
5,000 aircraft.

Ballistic Resistent Enclosures -- Manufactured by PROTECH to meet exacting
customer specifications, these products are primarily used as guard booths,
shacks and towers. We also manufacture ballistic protected custom firing
positions for use within existing structures. Protection ranges from .357 Magnum
to .50APM2.

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

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

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

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

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

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

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



                                       9
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Police Batons. We manufacture police batons of wood, alloy steel, acetate,
aluminum and polycarbonate products under our brand name Monadnock. Branded
products include our patented Auto-Lock(TM) baton and our Classic-Friction
Lock(TM) baton. Our batons are manufactured in a variety of lengths for
different intended users, including patrol officers, detectives, corrections
officers and other law enforcement personnel in smaller portable units. We
believe that our manufacturing specifications are among the highest in the
marketplace and set the standard in the industry.

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

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

We design, manufacture and market proprietary cost-effective fingerprint
products for business, government and law enforcement agencies under the
Identicator(TM) brand name. These products are designed to deter fraud and
produce positive identification in many different applications. Whether Inkless,
Perfect Ink, child identification, baby foot printing, single digit endorsement,
enrollment by mail or custom application, the common denominator of these
systems is that they are simple to operate, clean, and cost-effective. All
products produce non-smearing, instantly permanent, black prints acceptable to
the FBI for scanning, classification, search and retention.

We also produce a variety of unique products for various specialized
investigative and evidence collection applications under the brand name
Evi-Paq(TM).

Firearm Accessories. We manufacture non-destructive, non-gunsmithing mounts as
well as synthetic stocks and forends. Our Speedfeed high quality synthetic
stocks and forends, fit most makes and models. Our B-Square(TM) subsidiary is a
leading designer, manufacturer and marketer of quality aluminum and steel sight
mounts, tools and accessories for the law enforcement, military and sporting
goods (hunting and target shooting) markets.

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

Warning Light Products and Technology. We manufacture emergency lighting
products using LED technology branded as 911EP(R).

LED technology offers patrol car lighting systems efficient energy consumption
combined with safety and durability in primary and secondary warning lights.
911EP(R)'s unique design utilizes the patrol vehicles existing 12-volt
electrical system and consumes 70% less energy than traditional strobe or
halogen systems. The products deliver optical superiority by radiating a narrow,
color-specific wavelength of light. This light requires no filters or tinted
lenses so none of



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the emitted light is wasted and it can be seen at great distances. While
weatherproof and extremely long-lasting with over 100,000 hours of operation,
maintenance and replacement is easy through 911EP's unique change-out
capability. Light patterns are easily created on our lightbars, which are
available in a variety of lengths and configurations, through the patrol car's
existing on-board computer and our unique controlled programming capabilities.

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

Safety Products. QUIKSTEP Ladders(TM): We manufacture strong, lightweight, and
compact ladders designed to be deployed quickly in emergency situations.
Constructed with aluminum alloy and stainless steel, our 12-foot ladder weighs
only 31 pounds and folds up to a briefcase size of 23.5 inches wide, 13 inches
high and 3.5 inches thick.

We are also the exclusive U.S. distributor of the V-Top(TM) Crowd Management
Protective System from Med-Eng Systems and the Thermal-Air(TM) Mask Engineered
by Polar-Wrap. Designed to protect the wearer in a broad range of situations
where officers commonly face blunt impact threats, the V-Top(TM) Crowd
Management Protective System is designed for public protests, riots, prison
uprisings and cell extractions. Manufactured with a patented heat exchange
module that captures the wearer's own breath and uses it to preheat cold air
coming in the mouth, the Thermal-Air(TM) products help keep the body core
temperature at a higher level increasing the time law enforcement officers can
effectively perform their duties outdoors, even in cold temperatures.

ARMOR MOBILE SECURITY

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

Military Products. We are the sole-source provider to the U.S. military for the
supply of armoring and blast protection systems for the HMMWV. The HMMWV chassis
is produced by AM General Corporation and shipped directly to our facility in
Fairfield, Ohio, where armor and blast protection components are added. The
Up-Armored HMMWVs provide exterior protection against various levels of armor
piercing ammunition, overhead airburst protection and underbody blast protection
against anti-tank and anti-personnel mines. In addition, we install other
features designed to enhance crew safety, comfort and performance, such as air
conditioning, weapon turrets and mounts, door locks and shock absorbing seats.
We charge $70,000 to $110,000 for these ballistic and blast protective systems.
During 2002, the Armor Mobile Security Division shipped 623 Up-Armored HMMWVs.
We also supply engineering design and prototype services in support of the
up-armored HMMWV program, and supply spare parts and logistical support.

We are serving as a subcontractor for the U. S. Army to supply a ballistically
armored and sealed truck cab for the High Mobility Artillery Rocket System
(HIMARS), a program recently transitioned by the U.S. Army from developmental to
low rate initial production quantities for delivery scheduled in late 2003. The
truck is used to fire missiles which are a part of either the Multiple Launch
Rocket System or the Army Tactical Missile System. This program consisted of
shipping seven prototypes in 2001 and two in 2002 for test and evaluation by the
U.S. Army and U.S. Marine Corps. The program is currently approved for a low
rate initial production in 2003.




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<PAGE>


We market armor sub-systems for other tactical wheeled vehicles, such as medium
and heavy military trucks. We also produce various armor systems as a
subcontractor to a number of large defense contractors. These products include
armor for containers for fuels and missile launchers and for pilot protection,
and often involve the use of unique materials or methods.

Commercial Products. We armor a variety of vehicles, including limousines,
sedans, sport utility vehicles, commercial trucks and cash-in-transit vehicles,
to protect against varying degrees of ballistic and blast threats. The
commercial vehicle armoring process begins with the disassembly of a new base
vehicle. This disassembly normally involves the removal of the interior trim,
seats, doors and windows. The passenger compartment then is armored with both
opaque and transparent armor. Other features, such as run flat tires and
non-exploding gas tanks, may also be added. Finally, the vehicle is reassembled
as close to its original appearance as possible. The entire conversion process
results in an low profile, integrated ballistic protective system. Our
relationship with various vehicle manufacturers has been valuable in permitting
us to armor certain vehicles while allowing the customer to maintain the
benefits of warranties issued by the vehicle manufacturer. The Armor Mobile
Security Division shipped 1,284 commercial armored vehicles in 2002.

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

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

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

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



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<PAGE>


CUSTOMERS

Armor Holdings Products. In 2002, we sold approximately 81.1% of our products in
North America, with the balance sold internationally. The primary end users of
our products are federal, state and local law enforcement agencies, local police
departments, state corrections facilities, U.S. and allied militaries, highway
patrols and sheriffs' departments. We reach these customers through a
distribution strategy that utilizes a worldwide distribution network of
approximately 200 domestic distributors and 150 international agents, as well as
approximately twenty-five domestic sales representatives, three regional sales
managers, and six technical sales specialists, who promote our products but
refer customers to a local distributor for purchasing.

Armor Mobile Security Division. In 2002, we sold approximately 58.3% of our
products in North America, with the balance sold internationally. The market for
military hardware products is worldwide in scope, including the U.S. military
and foreign defense forces. The primary contract for delivery of Up-Armored
HMMWVs is with the U.S. military. We also serve as a subcontractor to provide
ballistically armored and sealed truck cabs for High Mobility Artillery Rocket
System (HIMARS) for use by the U.S. Army and the U.S. marines Corps, a program
recently transitioned to low rate initial production. Additionally, we provide
protected container systems, typically used to protect missile systems from
small arms fire, to the U.S. military under a subcontract to a major defense
contractor.

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

There are no customers who accounted for more than 10% of net sales of the Armor
Holdings Products Division during our fiscal year ended December 31, 2002
("Fiscal 2002"). Our ten largest customers accounted for approximately 27.1% of
total sales for Fiscal 2002. Approximately 39.0% of the Armor Mobile Security
Division's net sales for Fiscal 2002 were derived from U.S. military contracts,
and an additional 17.2% were derived from commercial contracts with non-military
U.S. governmental agencies and foreign governments. Military and governmental
contracts generally are awarded on a periodic or sporadic basis. If the Armor
Mobile Security Division were to lose the HMMWV contract, which continues
through June 2005, the Division's financial performance would experience a
materially negative impact.

MARKETING AND DISTRIBUTION

Armor Holdings Products. As a result of our history of providing high quality
and reliable concealable armor, tactical armor, hard armor, duty gear,
less-lethal munitions, anti-riot products and forensic products, we enjoy broad
brand name recognition and a strong reputation in the law enforcement equipment
industry. The central element of our marketing strategy is to capitalize on our
brand name recognition and reputation among our customers by positioning
ourselves as a global



                                       13
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provider of many of the premier security risk management products that our
customers may need. By positioning ourselves in this manner, we expect to
capitalize on our existing customer base and our extensive global distribution
network and, maximize the benefits of our long history of supplying security
related products around the world. For a variety of reasons, we have not
historically targeted the military markets for our product offerings. We
currently see opportunities to increase penetration of the military markets with
our law enforcement products, which could strengthen the image of each product
group.

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

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

We continually seek to expand our distribution network. As we identify and
acquire businesses that fit strategically into our existing product portfolio,
we maximize our distribution network by offering additional products. Certain
acquisitions, from time to time, can open new channels of global distribution to
parts of the world not previously penetrated.

Armor Holdings Products Division also sells a selected number of civilian
products into mass merchandise stores and sporting goods stores via a network of
national sporting goods wholesalers. These products include concealment
holsters, hunting and sports shooting accessories, cleaning equipment and
pepper spray products.

In addition to our traditional distribution channels, we are also selling our
products on the World Wide Web through a variety of sites. GSA-Buy.com, launched
in 2000, contains an on-line catalog and secured transaction platform for all
Armor Holdings Products Division General Services Administration contracts
targeting government agencies exclusively. For Forensic Specialists, we market
our products via Lightning Powder's website, redwop.com. We also sell a small
array of our concealable and competition holsters to the consumer market on
Holsters.com, limiting distribution of our law enforcement equipment to law
enforcement channels of distribution.

Armor Mobile Security Division. On a worldwide basis, the Armor Mobile Security
Division employs approximately 28 full-time sales professionals in connection
with its commercial sales. These employees operate out of Washington, D.C.;
Fairfield, Ohio; Sao Paulo, Brazil; Lamballe, France; Mexico City, Mexico;
Bogota, Colombia; Bremen, Germany, Geneva, Switzerland and Caracas, Venezuela.
All personnel have a geographic and/or product-specific responsibility. In most
cases, the sales personnel also recruit and maintain sales agents or
distributors. The agents or distributors have geographic and product specific
agreements, and compensation in most cases is based upon a commission
arrangement. Sales personnel use a consultative approach when offering solutions
to customers' security problems. Sales cycles for commercial physical security
products can range from several months to a matter of days, depending upon the
product and the urgency associated with the security problem being addressed.



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<PAGE>


The Armor Mobile Security Division has positioned itself in the marketplace as a
commercial company with a military production capability. As such, the Armor
Mobile Security Division emphasizes its ability to develop new products, or
product adaptations, quickly and more cost effectively than traditional defense
contractors. In marketing its products to the military, the Armor Mobile
Security Division places strong emphasis on its superior antitank and
antipersonnel mine protection for the occupants of tactical wheeled vehicles. We
market our military products through a combination of trade show exhibitions,
print advertising in military-related periodicals and direct customer visits. We
emphasize the cross-marketing of military and commercial products, which we
believe strengthens the image of each product group. We have also entered into
exclusive teaming and joint marketing agreements with various Original Equipment
Manufacturers (OEMs)to manufacturer the Up-armored HMMWV, HIMARS and FMTV
(Family of Medium Tactical Vehicles) for sales in domestic and international
military and commercial areas. Such agreements allow us to benefit from the OEM
distribution network and save on certain selling costs.

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

PRODUCT MANUFACTURING AND RAW MATERIALS

The raw materials used in manufacturing ballistic resistant garments and
Up-Armored vehicles include various ballistic fibers such as Kevlar, Twaron,
SpectraShield, Zylon and Z-Shield. Kevlar is a patented product of E.I. du Pont
de Nemours Co., Inc. ("Du Pont") and is only available from Du Pont and its
European licensee. We purchase Twaron, SpectraShield, Zylon and Z-Shield fibers
directly from the manufacturers, and from weaving companies who convert the raw
fibers into ballistic fabric. We believe that we enjoy a good relationship with
these suppliers. However, if necessary, we believe that we could readily find
replacement weavers. We also use SpectraShield and Kevlar in our hard and
vehicle armor products. Additionally, we use polycarbonates, acrylics, ballistic
quality steel, ceramics, and ballistic glass. We are aware of multiple suppliers
for these materials and would not anticipate a significant impact if we were to
lose any suppliers.

We purchase other raw materials used in the manufacture of our various products
from a variety of sources and additional sources of supply of these materials
are readily available. We also own several molds, which are used throughout our
less-lethal product line.

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



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

BACKLOG

Armor Holdings Products. At December 31, 2002, Armor Holdings Products Division
had unfilled customer orders of approximately $7.8 million compared with
approximately $9.0 million of such orders at December 31, 2001. These orders
were shipped in the first quarter of 2003.

Armor Mobile Security. At December 31, 2002, Armor Mobile Security Division had
unfilled customer orders of approximately $78.2 million compared with
approximately $65.6 million of such orders at December 31, 2001. Approximately
$26.3 million of these orders were shipped in the first quarter of 2003.

COMPETITION

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

The markets for the Armor Mobile Security Division's products and services are
also highly competitive. We compete in a variety of markets and geographic
regions, with competitors ranging from small businesses to multinational
corporations. We believe that the Armor Mobile Security Division's design,
engineering and production expertise in providing fully integrated ballistic and
blast protected vehicles gives it a competitive advantage over those competitors
who provide protection against only selected ballistic threats.

Geographically there are a number of complete vehicle armorers in Europe, the
Middle East and Latin America that armor primarily locally manufactured
automobiles. In the U.S. protected passenger automobile armorers include
Scaletta Maloney, International Armor and Square One Armoring Services. In each
of the South American markets in which we compete there exist a variety of
different competitors. In the high-end luxury sedan market we compete with a
variety of original equipment manufacturers ("OEMs"), our US competitors as well
as a variety of small independent automotive integrators such as Carat Du
Chatelet and SVOS in Europe.



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

EMPLOYEES

As of January 1, 2003, we have a total of approximately 1,913 employees in
continuing operations, of which approximately 1,050 were employed at Armor
Holdings Products, approximately 850 at Armor Mobile Security and 13 employees
at our corporate headquarters.

Approximately 23 employees employed by our Armor Products International
subsidiary are represented by the General Municipal Boilermaker and Allied Trade
Union. None of our remaining employees are represented by unions or covered by
any collective bargaining agreements. We have not experienced any work stoppages
or employee related slowdowns and believe that the relationship with our
employees is good.

PATENTS AND TRADEMARKS

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

GOVERNMENT REGULATION

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

ENVIRONMENTAL REGULATIONS

We are subject to federal, state, and local laws and regulations governing the
protection of the environment, including those regulating discharges to the air
and water, the management of wastes, and the control of noise and odors. While
we always strive to operate in compliance with these requirements, we cannot
assure you that we are at all times in complete compliance with all such
requirements. Like all companies, we are subject to potentially significant
fines or penalties if we fail to comply with environmental requirements and we
do not currently carry insurance for such events should they occur. Although we
have made and will continue to make capital expenditures in order to comply with
environmental




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requirements, we do not expect material capital expenditures for environmental
controls in 2003. However, environmental requirements are complex, change
frequently, and could become more stringent in the future. Accordingly, we
cannot assure you that these requirements will not change in a manner that will
require material capital or operating expenditures or will otherwise have a
material adverse effect on us in the future.

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

AVAILABLE INFORMATION

Our Internet address is www.armorholdings.com. We make available free of charge
on or through our Internet website our annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and amendments to those
reports, and the proxy statement for our annual meeting of stockholders as soon
as reasonably practicable after we electronically file such material with, or
furnish it to, the Securities and Exchange Commission. The information found on
our website shall not be deemed incorporated by reference by any general
statement incorporating by reference this report into any filing under the
Securities Act of 1933 or under the Securities Exchange Act of 1934, and shall
not otherwise be deemed filed under such Acts.

DISCONTINUED OPERATIONS

DESCRIPTION OF BUSINESS

Services Division. Our Services Division provides a broad range of sophisticated
security risk management solutions to multinational corporations in diverse
industries such as natural resources, financial services and consumer products,
and to governmental and non-governmental agencies such as the U.S. Departments
of State and Defense, the United Nations, United States Agency for International
Development ("USAID") and Britain's Department for International Development.
Our clients typically have personnel and other investments in unstable and often
more risky areas of the world. Through our offices on five continents, we
provide our multinational clients with a diversified portfolio of security
solutions to assist them in mitigating risks to their operations around the
world. Our highly trained, multilingual, and experienced security personnel work
closely with our clients to create and implement solutions to complex security
problems. These services include security planning, advice and management,
security systems integration, intellectual property asset protection, due
diligence investigations and training programs in counterintelligence,
counter-surveillance, advanced driving techniques and ballistics. We believe
that many of our security services, while often representing a small portion of
our clients' overall cost of doing business, are critical to our clients'
success. We believe that this creates a consistent demand for our premium
services at attractive margins.

INDUSTRY OVERVIEW

Specialized Security Services Market. Corporations, governmental and non-
governmental organizations as well as humanitarian organizations are
increasingly contracting experienced private companies to handle their security
services. We believe that demand from these customers operating in developing
nations for security services such as risk assessment, crisis management, guard
force




                                       18
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management, security force organization and executive protection is likely
to increase as these entities continue to establish operations and manufacturing
facilities in developed and developing countries. In addition, there are risks
related to white-collar crime and fraud. Demand for corporate investigative
services continues to grow as corporations react to the need to protect their
assets against the growing threat of fraud, counterfeiting and piracy of
intellectual property.


GEOGRAPHICAL SALES

Broad Portfolio of Services. We offer a broad portfolio of security services,
which enables us to provide comprehensive solutions to our customers' security
needs. We seek to strengthen our capabilities as a single source provider of
global security services to our clients. Our worldwide infrastructure enables us
to follow our governmental and multinational corporate clients to new
geographical markets and continue to expand the scope of our services.

Strong Client Base. ArmorGroup has a global footprint and currently operates in
35 countries that enable it to serve a client base representing governmental and
non-governmental agencies and approximately 500 multinational corporations
worldwide.

SERVICES

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

Security Planning, Advice and Management. We are a leading international
provider of specialized security risk management services. We operate in high
risk and hostile environments characterized by political instability, diminished
law-and-order, emerging market conditions and/or significant natural resources,
such as Africa, South America, Southeast Asia, Central Asia, the Balkans and
Russia. The core of our service business is the creation and implementation of
risk management plans and solutions to complex security problems in high risk
areas through detailed and targeted analysis of potential threats to security,
assistance in the secure design of facilities, the provision of highly qualified
specialists with extensive international experience in practical security
applications and on-going training of security personnel and client personnel
with respect to preventive security measures. We also provide post-conflict
support and services, including specialized mine clearance, to commercial and
humanitarian organizations, including agencies of the United Nations. We provide
a full range of services including surveys, technical advice, explosive ordnance
disposal and mine awareness training for local communities.

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



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

Investigation, Due Diligence and Intellectual Property Asset Protection. We
provide fraud investigation, asset tracing, computer forensic, computer evidence
consulting, due diligence, litigation research, political risk analysis, other
business intelligence services and intellectual property asset protection; the
latter against counterfeiting, patent infringements, product tampering, gray
market distribution, and extortion to identifying unethical supplier activities
such as the use of child labor. In offering brand protection, we work with our
clients during product development to establish trademark and patent protection
strategies and work to protect the brand throughout its lifecycle. These
services are provided by professionals with extensive backgrounds in related
areas, including trade, finance, law enforcement and intelligence and customs,
who gather and decipher hard to find information through extensive networks of
business intelligence contacts, and many proprietary and public databases. Our
clients include multinational branded product companies involved in tobacco,
sportswear, spirits, and pharmaceuticals, as well as investment and commercial
banks, law firms and insurance companies.

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

CUSTOMERS

Services Division. Our principal security services clients include multinational
corporations that have significant investments in remote and hostile areas of
the world. We currently serve clients in over 15 industries including
petrochemical, mining, branded products, financial services, insurance and
legal. Other significant clients include the U.S. Departments of State and
Defense, the United Nations, USAID and Britain's Department for International
Development and a variety of banking, finance, aid and humanitarian
organizations and companies engaged in international trade and commerce. No
customer accounted for more than 10% of total revenues of the Services Division
during our fiscal year ended December 31, 2002.

MARKETING AND DISTRIBUTION

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



                                       20
<PAGE>


are targeting include financial services, imaging supplies, insurance, natural
resource extraction, and global consumer brands.

COMPETITION

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

EMPLOYEES

As of January 1, 2003, we had approximately 9,200 employees in our discontinued
operations. Our Low Voltage Systems subsidiary has 4 employees covered under a
collective bargaining agreement and are represented by the International
Brotherhood of Electrical Workers. None of our remaining employees in our
discontinued operations are represented by unions or covered by any collective
bargaining agreements.








                                       21
<PAGE>


     ITEM 2. PROPERTIES

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

CONTINUING OPERATIONS

<TABLE>
<CAPTION>

                                                             OWNED/
LOCATION                                 ANNUAL RENT        LEASED           APPROXIMATE SIZE          PRODUCTS MANUFACTURED
-----------------------------------    ---------------    ------------    ---------------------- ---------------------------------
<S>                                     <C>                <C>             <C>                    <C>
Jacksonville, FL                              N/A           Owned                  14 Acres        Body armor, Forensic products,
                                                                             70,000 sq. ft.        Weapon cleaning lubricants

Jacksonville, FL                         $ 92,227          Leased             3,465 sq. ft.        Corporate headquarters.

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

Westhoughton, England                         N/A           Owned            44,000 sq. ft.        Body armor

Ontario, CA                                   N/A           Owned           117,500 sq. ft.        Body armor, Duty gear,
                                                                                                   Automotive accessories

Pittsfield, MA                           $ 46,800          Leased            16,000 sq. ft.        Hard armor, Vehicle armor

Pittsfield, MA                                N/A           Owned            19,700 sq. ft.        Hard armor, Vehicle armor

Tijuana, Mexico                         $ 159,422          Leased            31,452 sq. ft.        Duty gear, Body armor,
                                                                                                   Automotive accessories

Fitzwilliam, NH                          $ 24,000          Leased            22,848 sq. ft.        Police batons

El Segundo, CA                           $ 68,960          Leased              6,500 sq.ft.        Fingerprint equipment

Fort Worth, TX                           $ 26,460          Leased            10,000 sq. ft.        Scope Mounts & Rings

St Cloud, MN                             $ 60,000          Leased            10,000 sq. ft.        LED Light Bars

Fort Worth, TX                           $ 17,940          Leased             5,000 sq. ft.        Scope mounts & rings

Bremen, Germany (1)                           N/A           Owned           150,000 sq. ft.        Armored vehicles

Fairfield, OH                                 N/A           Owned           130,000 sq. ft.        Armored vehicles

Lamballe, France (2)                     $101,000          Leased            52,000 sq. ft.        Armored vehicles

Sao Paulo, Brazil                        $201,000          Leased            56,000 sq. ft.        Armored vehicles

Rio De Janeiro, Brazil                    $12,448          Leased                   sq. ft.        Armored vehicles

Bogota, Colombia                         $ 83,000          Leased            35,000 sq. ft.        Armored vehicles

Bogota, Colombia                         $ 22,200          Leased                                  Armored vehicles

Mexico City, Mexico                      $ 62,500          Leased            20,000 sq. ft.        Armored vehicles, training

Mexico City, Mexico                           N/A           Owned             5,380 sq. ft.        Armored vehicles

Caracas, Venezuela                      $ 128,484          Leased                   Sq. ft.        Armored vehicles

Plattsburgh, NY                          $ 42,000          Leased             3,000 sq. ft.        Hard armor, vehicle armor

Champlain, NY                            $ 18,508          Leased             7,000 sq. ft.        Hard armor, vehicle armor
</TABLE>


Note 1 - For accounting purposes, the land underneath our owned facility in
Bremen, Germany is financed by a capital lease that is recorded as a liability
on our financial statements.

Note 2 - For accounting purposes, the Lamballe, France facility is considered
owned and financed by a capital lease that is recorded as a liability on our
financial statements.

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


DISCONTINUED OPERATIONS
<TABLE>
<CAPTION>
<S>                                 <C>               <C>              <C>               <C>
    London, England                 $327,500          Leased           9,964 sq. ft.     ArmorGroup

    West Point, VA                  $67,740           Leased              490 Acres,     Training
                                                                       6,694 sq. ft.

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

We also lease an average of 5,000 square feet at each of 35 worldwide locations,
at an aggregate annual rental of approximately $1,000,000 having terms expiring
from 1 to 10 years.
--------------------------------------------------------------------------------



                                       22
<PAGE>


ITEM 3. LEGAL PROCEEDINGS

In 1997 we terminated several agreements with a Dutch company, Airmunition
International, B.V. (AMI), and with a British company, Crown Limited (Crown).
AMI and Crown started an action against us before the Netherlands Arbitration
Institute in Rotterdam, Holland claiming breach of contract and unauthorized use
of confidential information and seeking damages of $20.5 Million. The case is
currently pending, and while we are contesting the allegations vigorously, we
are unable to predict the outcome of this matter. Although we do not have
insurance coverage for this matter, at this time, we do not believe this matter
will have a material impact on our financial position, operations or liquidity.

On January 16, 1998, our Services Division ceased operations in Angola. The
cessation of operations in Angola was dictated by that government's decision to
deport all of our expatriate management and supervisors. As a result of the
cessation of operations in Angola, our Services Division became involved in
various disputes with SHRM S.A.("SHRM"), its minority joint venture partner
relating to the Angolan joint venture known as Defense System International
Africa ("DSIA"). On March 6, 1998, SIA (a subsidiary of SHRM) filed a complaint
against Defense Systems France, SA ("DSF") before the Commercial Court of
Nanterre (Tribunal de Commerce de Nanterre) seeking to be paid an amount of
$577,286 corresponding to an alleged debt of DSIA to SIA. On June 27, 2000, the
judge of the Paris Commercial Court ruled SHRM did not provide evidence required
to establish its standing and the proceedings brought by SHRM were cancelled. On
October 3, 2000, a winding up petition was served by DSF against DSIA. On
October 31, 2000, SHRM filed a counterclaim seeking to have this winding up
petition dismissed. On November 28, 2000, SHRM appealed the June 27, 2000
judgement rendered by the Paris Commercial Court, claiming that the Paris
Commercial Court no longer had jurisdiction over the case. On September 18,
2001, the Paris Commercial Court stayed the proceeding pending the outcome of
the appeal. A hearing with the Court of Appeal on the standing of SHRM and on
the merits was held on October 24, 2002. The Commercial Court of Nanterre has
stayed the proceedings before it, pending the decisions of the Court of Appeal
and the Paris Commercial Court. In February 2003, the Court of Appeal ruled
against SHRM and its parent entity, Compass Group, effectively ending all
further proceedings on the merits of Compass'claims. The decision is appealable
by Compass.

In 1999 and prior to our acquisition of OHEAC in 2001, O'Gara-Hess & Eisenhardt
Armoring do Brasil Ltda. (OHE Brazil) was audited by the Brazilian federal tax
authorities and assessed over Ten Million Reals (US$2.8 Million based on the
exchange rate as of December 31, 2002). OHE Brazil has appealed the tax
assessment and the case is pending. To the extent that there may be any
liability, we believe that we are entitled to indemnification from Kroll, Inc.
under the terms of our purchase agreement dated April 20, 2001, despite the
denial by Kroll, Inc. of any such liability, because the events occurred prior
to our purchase of the O'Gara Companies from Kroll, Inc. Additionally, Kroll,
Inc. has provided us with a US$1.5 Million letter of credit until August 21,
2008 in order to collateralize Kroll's indemnification obligation, which is
capped at US$5 Million with respect to this matter. At this time, we do not
believe this matter will have a material impact on our financial position,
operations or liquidity.

In 1999 and prior to our acquisition of OHEAC in 2001, several of the former
employees of Kroll O'Gara Company de Mexico, S.A. de C.V. (O'Gara Mexico), a
subsidiary of OHEAC, commenced labor claims against O'Gara Mexico seeking
damages for unjustified termination. These cases are still pending before the
labor board in Mexico City. The terminated employees are seeking back pay and
benefits since the date of termination amounting to approximately US $2,890,998,
and accruing at approximately US $50,400 per month. To the extent that there
may be any liability, we believe that we are entitled to indemnification from
Kroll, Inc. under the terms of our purchase agreement dated April 20, 2001,
despite the denial by Kroll, Inc. of any such liability, because the events
occurred prior to our purchase of the



                                       23
<PAGE>


O'Gara Companies from Kroll, Inc. Although we do not have any insurance coverage
for this matter, at this time, we do not believe this matter will have a
material impact on our financial position, operations or liquidity.

In August 2001, Defense Technology Corporation of America ("DTC"), one of our
subsidiaries, received a civil subpoena from the United States Environmental
Protection Agency requesting information pursuant to Section 104(e) of the
Comprehensive Environmental Response, Compensation and Liability Act regarding
the possible impact of the Casper, Wyoming tear gas facility on the environment.
DTC responded to the request, and to date the EPA has not taken any further
action with respect to the matter. At this time, we do not believe this matter
will have a material impact on our financial position, operations or liquidity.

In December 2001, OHE France sold its industrial bodywork business operated
under the name Labbe/Division de O'Gara Hess & Eisenhardt France/ Carrosserie
Industriells to SNC Labbe. Subsequent to the sale the Labbe Family Trust (LFT),
owner of the leasehold interest upon which the Carrosserie business is operated,
sued OHE France and SNC Labbe claiming that transfer of the leasehold was not
valid because the LFT had not given its consent to the transfer as required
under the terms of the lease. Further, LFT seeks to have OHE France, as the sole
tenant, maintain and repair the leased building. The approximate cost of
renovating the building is estimated to be between US $3.2 and US $6.4 million,
based on the exchange rate as of December 31, 2002. The case is currently
pending, and while we are contesting the allegations vigorously, we are unable
to predict the outcome of this matter. Although we do not have any insurance
coverage for this matter, at this time, we do not believe this matter will have
a material impact on our financial position, operations or liquidity.

In December 2001, an action was filed against us in the Regional Court of
Nuremberg, Germany alleging unauthorized use of the trademarks "First Defense"
and "First Defense Aerosol Pepper Projector." The case is currently pending, and
while we are contesting the allegations vigorously, we are unable to predict the
outcome of this matter. Although we do not have any insurance coverage for this
matter, at this time, we do not believe this matter will have a material impact
on our financial position, operations or liquidity.

On or about March 22, 2002, O'Gara-Hess & Eisenhardt Armoring Company (OHEAC),
one of our subsidiaries, received a civil subpoena from the Department of
Defense (DOD) requesting documents and information concerning various quality
control documentation regarding parts delivered by its subcontractors and
vendors in support of the High Mobility Multipurpose Wheeled Vehicles (HMMWV)
armored at its Fairfield, Ohio facility for the period October 1, 1999 through
May 1, 2001. OHEAC has complied fully with the subpoena. In early 2003, OHEAC
was advised that the Department of Justice (DOJ) was also investigating separate
claims against OHEAC filed by individuals that involve the same time frame and
issues covered by the DOD subpoena. OHEAC is responding to the government's
questions and expects to meet with the DOJ to discuss the current status of the
investigation and explore closure. Given the stage of these investigations, it
is not possible to predict the outcome of this matter. To the extent that there
may be any liability, we believe that we are entitled to indemnification from
Kroll, Inc. under the terms of our purchase agreement dated April 20, 2001,
despite the denial by Kroll, Inc. of any such liability, because the events
occurred prior to our purchase of the O'Gara Companies from Kroll, Inc. At this
time, we do not believe this matter will have a material impact on our financial
position, operations or liquidity.

In June 2002, O'Gara Hess & Eisenhardt France S.A. (OHE France) received a tax
reassessment from the French tax authorities for the tax years ended on March
31, 1999, 2000 and 2001 totaling approximately (euro)720,940 (Euro) (US$755,761
based on the exchange rate as of December 31, 2002). OHE France has appealed the
tax assessment and the case is pending. To the extent that there may be any
liability, we believe that we are entitled to indemnification from Kroll, Inc.
under the terms of our



                                       24
<PAGE>


purchase agreement dated April 20, 2001, despite the denial by Kroll, Inc. of
any such liability, because the events occurred prior to our purchase of the
O'Gara Companies from Kroll, Inc. At this time, we do not believe this matter
will have a material impact on our financial position, operations or liquidity.

On October 18, 2002, we were notified by the Internal Revenue Service that our
tax return for the tax year ended December 31, 2000 had been selected for
examination. Further, on January 30, 2003 we were notified that our tax return
for the tax year ended December 31, 2001 had been selected for examination. The
examinations are currently pending, and at this time we are unable to predict
the outcome of these matters.

In October 2002, we were sued in the United States District Court for the
District of Wyoming. The plaintiffs in that lawsuit asserted various state law
tort claims and federal environmental law claims under the Resource Conservation
and Recovery Act and the Clean Air Act stemming from DTC's Casper, Wyoming tear
gas plant. The plaintiffs have not yet quantified their alleged damages. The
plaintiffs have filed their suit as a potential class action, but have not yet
sought judicial certification of the class. The alleged actions took place over
time periods during which we were covered by different insurance policies. We
have notified our insurance carriers of the suit. Our prior insurance carrier
has agreed, under a full reservation of rights, including with respect to any
liability which relates to the time its policy was in effect, to provide a
defense and to address the question of liability indemnification in the future.
Our current insurance carrier has declined defense and indemnification coverage.
While we do not carry specific environment insurance coverage, we have reserved
the right to challenge our insurance carrier's determination. The case is
currently pending, and while we are contesting the allegations vigorously, we
are unable to predict the outcome of this matter. At this time, we do not
believe this matter will have a material impact on our financial position,
operations or liquidity.

In addition to the above, in the normal course of business, we are subjected to
various types of claims and currently have on-going litigations in the areas of
products liability and general liability. Our products are used in a wide
variety of law enforcement situations and environments. Some of our products can
cause serious personal or property injury or death if not carefully and properly
used by adequately trained personnel. We believe that we have adequate insurance
coverage for most claims that are incurred in the normal course of business. In
such cases, the effect on our financial statements is generally limited to the
amount of our insurance deductible or self-insured retention. Our annual
insurance premiums and self insurance retention amounts have risen significantly
over the past several years and may continue to do so to the extent we are able
to purchase insurance coverage. At this time, we do not believe any such claims
or litigations will have a material impact on our financial position, operations
and liquidity.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.


                                       25
<PAGE>



                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock, par value $.01 per share (the "Common Stock") is traded under
the symbol "AH" on the New York Stock Exchange (the "NYSE"). The following table
sets forth the range of high and low sales prices for our Common Stock on the
NYSE for fiscal years 2002 and 2001 and for the first quarter of fiscal year
2003 (through March 21, 2003).


                                                          HIGH            LOW
                                                          ----            ---
       2003
       1st Quarter - through March 21, 2003            $ 14.60          $9.40

       2002
       4th Quarter ...........................         $ 16.50        $ 12.50
       3rd Quarter ...........................         $ 25.50        $ 12.00
       2nd Quarter............................         $ 29.55        $ 22.00
       1st Quarter.............................        $ 28.25        $ 20.45

       2001
       4th Quarter ...........................         $ 27.60        $ 19.25
       3rd Quarter ...........................         $ 23.50        $ 14.20
       2nd Quarter............................         $ 19.25        $ 11.00
       1st Quarter...........................          $ 17.75        $ 14.60


HOLDERS

As of March 18, 2003, we had approximately 485 stockholders of record. Only
record holders of shares held in "nominee" or street names are included in this
number.

DIVIDENDS

We have never declared or paid cash dividends on our Common Stock. We intend to
retain future earnings, if any, for use in the operations of our business
including working capital, repayment of indebtedness, capital expenditures and
general corporate purposes. We do not anticipate paying any cash dividends on
our Common Stock in the foreseeable future. In addition, we are restricted from
paying dividends on our Common Stock pursuant to our Credit Agreement. See Item
7, "Management's Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources" and Note 8 to Consolidated Financial
Statements.

RECENT SALES OF UNREGISTERED SECURITIES

None.



                                       26
<PAGE>


STOCK OPTION PLANS

The table below shows the number of options and range of exercise prices we
granted to various employees and directors during our fiscal year ended December
31, 2002 under our 1999 Stock Incentive Plan, 2002 Stock Incentive Plan and 2002
Executive Stock Plan.

<TABLE>
<CAPTION>

  PLAN NAME                                          NUMBER OF GRANTS               GRANT PRICE RANGES
  -----------------------------------------------    --------------------------     ----------------------------------
<S>                                                  <C>                             <C>
  1999 Stock Incentive Plan                                            471,501               $21.75 - $23.93
  2002 Stock Incentive Plan                                            117,500               $13.77 - $14.99
  2002 Stock Incentive Plan                                            935,659               $15.00 - $25.80
  2002 Executive Stock Plan                                            370,000               $23.93 - $23.93
  -----------------------------------------------    --------------------------     ----------------------------------
  Total                                                              1,894,660               $13.77 - $25.80
  ===============================================    ==========================     ==================================
</TABLE>


The options granted to non-employee directors vest in one year, and options
granted to employees typically vest equally over a period of three years from
the date of the grant. The vesting of the options may be accelerated in the
event of the occurrence of certain events.

The following table sets forth certain information regarding our equity plans as
at December 31, 2002.


<TABLE>
<CAPTION>

                                       --------------------------    -------------------------    -------------------------
                                                                                                            (C )
<S>                                    <C>                           <C>                          <C>
                                                                                                    Number of securities
                                                  (A)                          (B)                remaining available for
                                        Number of securities to          Weighted-average          future issuance under
                                        be issued upon exercise         exercise price of           equity compensation
                                        of outstanding options,        outstanding options,           plans (excluding
                                          warrants and rights          warrants and rights        securities reflected in
 Plan Category                                                                                          column (a))

----------------------------------     --------------------------    -------------------------    -------------------------

Equity compensation                           3,289,658                       $17.17                     1,418,635
plans approved by
security holders

Equity compensation                             995,000                       $16.00                           --
plans not approved by                        ----------
security holders

     Total                                    4,284,658
</TABLE>

We have two non-qualified equity plans that have not been approved by
stockholders. The 2002 Executive Stock Plan provides for the grant of a total of
470,000 stock options and stock awards to our key employees. The Board of
Directors, or a committee designated by the Board consisting of two or more
independent directors, is authorized to set the price and terms and conditions
of the options and awards granted under the 2002 Executive Stock Plan. Options
under the 2002 Executive Stock Plan are substantially the same as the 2002
Incentive Stock Plan except that we may only grant non-qualified stock options
under the 2002 Executive Stock Plan. The 2002 Executive Stock Plan was adopted
on March 13, 2002 and all shares available for grant under the 2002 Executive
Stock Plan were granted to our executive officers on March 13, 2002.


                                       27
<PAGE>



The 1998 Stock Option Plan provides for the grant of a total of 725,000 stock
options to our key employees. The Board of Directors, or a committee designated
by the Board consisting of two or more independent directors, is aughorized to
set the terms and conditions of the options granted under the 1998 Stock Option
Plan. The exercise price of all options granted under the 1998 Stock Option Plan
is equal to the fair market value of our common stock on the date of grant. As
of the end of our last fiscal year, there were no shares available for options
to be granted under the 1998 Stock Option Plan.



















                                       28
<PAGE>


ITEM 6. SELECTED FINANCIAL DATA

FINANCIAL OVERVIEW

FIVE-YEAR SUMMARY

     The table below sets forth a summary of our results of operations and
financial condition as of and for the periods then ended.

<TABLE>
<CAPTION>

                                                    2002            2001           2000            1999           1998
                                                    ----            ----           ----            ----           ----
                                            (AMOUNTS IN THOUSANDS,EXCEPT PER SHARE AMOUNTS)
<S>                                               <C>             <C>            <C>            <C>             <C>
Total Revenues (1)                                $ 305,117       $197,100       $139,904        $ 96,706        $45,644
Operating Income                                  $  38,365       $ 26,673       $ 19,869        $ 15,126        $ 6,326
Income from continuing operations                 $  21,337       $ 14,684       $ 10,847        $ 11,217        $ 4,718

Net Income (2)                                    $ (17,689)      $ 10,128       $ 17,048        $ 13,196        $ 8,596
Basic income from continuing operations
per common share                                  $    0.70       $   0.61       $   0.48        $   0.53        $  0.29

Diluted income from continuing operations
per common share                                  $    0.69       $   0.59       $   0.46        $   0.52        $  0.27

Basic Earnings Per Share                          $   (0.58)      $   0.42       $   0.75        $   0.63        $  0.53
Diluted Earnings Per Share                        $   (0.57)      $   0.41       $   0.73        $   0.61        $  0.50

Note 1 - Revenue for all periods presented represents revenue from continuing operations only while net income includes
income and losses from discontinued operations.
Note 2 - 2001 Net income includes a pre-tax restructuring charge of $10.3 million in discontinued operations.

Total Assets                                       $360,836       $388,057       $225,957        $178,922        $94,353
Working Capital                                    $100,591       $142,723       $ 67,937        $ 53,993        $24,366
Long-Term Obligations                                $5,240       $  4,640       $ 38,288        $  2,453        $   344
Stockholders' Equity                               $288,077       $326,019       $166,771        $157,883        $75,102


</TABLE>















                                       29
<PAGE>




ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS

This Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements within the meaning of Section 27A
of the Securities Act and Section 21E of the Exchange Act. Statements that are
predictive in nature, that depend upon or refer to future events or conditions
or that include the words such as "expects", "anticipates", "intends", "plans",
"believes", "estimates", "could be" and similar expressions are forward looking
statements. Although we believe that these statements are based upon reasonable
assumptions, we can give no assurance that our goals will be achieved. See
"Forward Looking Statements."

Our actual results may differ from those expressed or implied in forward-looking
statements. We believe that we are subject to a number of risk factors,
including: the inherent unpredictability of currency fluctuations; competitive
actions, including pricing; the ability to realize cost reductions and operating
efficiencies, including the ability to implement headcount reduction programs
timely and in a manner that does not unduly disrupt business operations and the
ability to identify and to realize other cost-reduction opportunities; general
economic and business conditions, our ability or inability to successfully sell
the Services Division; our ability to successfully execute changes to
operations, such as the move of our corporate headquarters and certain of our
manufacturing operations, without disrupting our operations; and our ability to
obtain supplies and raw materials without disruption.

Any forward-looking statements in this report should be evaluated in light of
these and other important risk factors listed in this Management's Discussion
and Analysis of Financial Condition and Results of Operations and elsewhere in
this Annual Report on Form 10-K including the accompanying financial statements.

COMPANY OVERVIEW

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

CONTINUING OPERATIONS

Armor Holdings Products. Our Armor Holdings Products Division manufactures and
sells a broad range of high quality, branded law enforcement equipment, such as
concealable and tactical body armor, hard armor, duty gear, less-lethal
munitions, anti-riot products, police batons, emergency lighting products,
forensic products, firearms accessories and weapon maintenance products. Our
products are marketed under brand names that are well-known and respected in the
military and law enforcement communities such as American Body Armor(TM),
Safariland(R), B-Square(TM), Break-Free(R), Defense Technology/Federal
Laboratories(TM), MACE(R), PROTECH(TM), NIK(R)Public Safety, Monadnock(TM)
Lifetime Products, Identicator(TM), Lightning Powder(R), SpeedFeed(TM), and
911EP(R). We sell our manufactured products primarily to law enforcement
agencies through a worldwide network of over 350 distributors and sales agents,
including approximately 200 in the United States. Our extensive distribution
capabilities and commitment to customer service and training have enabled us to
become a leading provider of security equipment to law enforcement agencies.



                                       30
<PAGE>


Armor Mobile Security. Our Armor Mobile Security Division manufactures and
installs ballistic and blast protected armoring systems for military vehicles,
commercial vehicles, military aircraft, and missile components. Under the brand
name O'Gara-Hess & Eisenhardt, we are the sole-source provider to the U.S.
military for the supply of armoring and blast protection systems for the High
Mobility Multi-purpose Wheeled Vehicle (the "HMMWV"). We are also under contract
with the U.S. Army to provide systems technical support for the installed base
of approximately 3,500 up-armored HMMWV's. We provide spare parts and
maintenance services for the HMMWV's in use and we expect that our maintenance
services may increase if the U.S. military substantially increases its HMMWV
purchases or substantially increases its use of the current installed base.
Additionally, the Armor Mobile Security Division has been subcontracted to
develop a ballistic and blast protected armored and sealed truck cab for the
High Mobility Artillery Rocket System ("HIMARS"), a U.S. Army and Marine Corps
program recently transitioned from developmental to low rate initial production
with deliveries scheduled in late 2003. The Division also markets armor
sub-systems for other tactical wheeled vehicles. We armor a variety of
commercial vehicles, including limousines, sedans, sport utility vehicles,
commercial trucks and cash-in-transit vehicles, to protect against varying
degrees of ballistic and blast threats.

DISCONTINUED OPERATIONS

Services Division. Our Services Division provides a broad range of sophisticated
security risk management solutions to multinational corporations in diverse
industries such as natural resources, financial services and consumer products,
and to governmental and non-governmental agencies such as the U.S. Departments
of State and Defense, the United Nations, United States Agency for International
Development ("USAID") and Britain's Department for International Development.
Our clients typically have personnel and other investments in unstable and often
more risky areas of the world. Through our offices on five continents, we
provide our multinational clients with a diversified portfolio of security
solutions to assist them in mitigating risks to their operations around the
world. Our highly trained, multilingual, and experienced security personnel work
closely with our clients to create and implement solutions to complex security
problems. These services include security planning, advice and management,
security systems integration, intellectual property asset protection, due
diligence investigations and training programs in counterintelligence,
counter-surveillance, advanced driving techniques and ballistics. We believe
that many of our security services, while often representing a small portion of
our clients' overall cost of doing business, are critical to our clients'
success. We believe that this creates a consistent demand for our premium
services at attractive margins.

CRITICAL ACCOUNTING POLICIES

Our significant accounting policies are described in Note 1 to the consolidated
financial statements included in Item 8 of this Form 10-K. We believe our most
critical accounting policies include revenue recognition, the use of estimates,
income taxes and impairment.

Revenue Recognition. We record products revenue at the time of shipment. Returns
are minimal and do not materially affect the financial statements.

We record revenue from our Mobile Security Division when the vehicle is shipped,
except for larger commercial contracts typically longer than four months in
length and the contract for the delivery of HMMWVs to the U.S. Government, which
continues through 2005. Revenue from such larger contracts is recognized on the
percentage of completion, units-of-work performed method. HMMWV units sold to
the U.S. Government are considered complete when the onsite Department of
Defense officer finishes the inspection of the HMMWV and approves it for
delivery. Should such contracts be in a loss position, the entire estimated loss
would be recognized for the balance of the contract at such time. We believe
that our current contracts are profitable.



                                       31
<PAGE>


We record service revenue as services are provided on a contract-by-contract
basis. Revenues from service contracts are recognized over the term of the
contract.

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

Income taxes. We account for income taxes pursuant to Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes". Under the
asset and liability method specified thereunder, deferred taxes are determined
based on the difference between the financial reporting and tax bases of assets
and liabilities. Deferred tax liabilities are offset by deferred tax assets
relating to net operating loss carryforwards and deductible temporary
differences. Future benefits obtained either from utilization of net operating
loss carryforwards or from the reduction in the income tax asset valuation
allowance existing on September 20, 1993 have been and will be applied to reduce
reorganization value in excess of amounts allocable to identifiable assets. At
December 31, 2002 and 2001, our consolidated foreign subsidiaries have
unremitted earnings of approximately $3.0 million and $1.3 million, respectively
on which the Company has not recorded a provision for United States Federal
income taxes since these earnings are considered to be permanently reinvested.
Such foreign earnings have been taxed according to the regulations existing in
the countries in which they were earned.

Impairment. Long-lived assets including certain identifiable intangibles, and
the goodwill related to those assets, are reviewed annually for impairment
whenever events or changes in circumstances indicate that the carrying amount of
the asset in question may not be recoverable including, but not limited to, a
deterioration of profits for a business segment that has long-lived assets, and
when other changes occur which might impair recovery of long-lived assets.
Management has reviewed the Company's long-lived assets and has taken an
impairment charge of $31.2 million to reduce the carrying value of the Services
Division to estimated realizable value. The method used to determine the
existence of an impairment would be discounted operating cash flows estimated
over the remaining useful lives of the related long-lived assets for continuing
operations in accordance with SFAS No. 142, "Goodwill and Other Intangible
Assets." Impairment is measured as the difference between fair value and
unamortized cost at the date impairment is determined.

Discontinued Operations. In accordance with Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" (SFAS 144), a component classified as held for sale is reported in
discontinued operations when the following conditions are met: (a) the
operations and cash flows of the component have been (or will be) eliminated
from the ongoing operations of the entity as a result of the disposal
transaction and (b) the entity will not have any significant continuing
involvement in the operations of the component after the disposal transaction.
In a period in which a component of an entity either has been disposed of or is
classified as held for sale, the income statement for current and prior periods
reports the results of operations of the component, including any estimated
impairment gain or loss recognized in accordance with SFAS 144 paragraph 37, in
discontinued operations. The results of discontinued operations, less applicable
income taxes (benefit), is reported as a separate component of income before
extraordinary items and the cumulative effect of accounting changes (if
applicable). The assets and liabilities of a disposal group classified as held
for sale is presented separately in the asset and liability sections,
respectively, of the statement of financial position.



                                       32
<PAGE>


RESULTS OF OPERATIONS

Effective June 30, 2002, we decided to sell the ArmorGroup Services Division
through an organized and formal auction managed by outside advisors. In
accordance with Statement of Accounting Standards 144, Accounting for Impairment
or Disposal of Long-Lived Assets, the assets and liabilities of the Company's
Services Division are classified as held for sale, with its operating results
reported as discontinued operations in our statement of operations for all
periods. Our US based training subsidiary, USDS, Inc. previously reported under
the Services Division but not included for sale has been reclassified to the
Products Division.

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


                                                          FISCAL YEAR
                                                   2002       2001     2000
                                                   ----       ----     ----

Revenue from continuing operations
   Products                                       59.0%       76.0%    100.0%
   Mobile Security                                41.0%       24.0%      0.0%
Total revenues from continuing operations        100.0%      100.0%    100.0%
Cost of sales                                     69.1%       64.1%     61.1%
Operating expenses                                16.3%       19.6%     21.6%
Amortization                                       0.1%        1.1%      1.2%
Integration and other non-recurring charges        1.9%        1.7%      1.8%
Operating income                                  12.6%       13.5%     14.2%
Interest expense, net                              0.3%        2.0%      1.3%
Other income, net                                  0.0%        0.0%      0.0%
Income from continuing operations before
   provision for income taxes                     12.3%       11.6%     12.9%
Provision for income taxes                         5.3%        4.2%      5.2%
Income from continuing operations                  7.0%        7.5%      7.8%
(Loss) Income from discontinued operations
   before provision for income taxes             (13.9)%      (3.6)%     5.9%
Provision (benefit) for income taxes              (1.1)%      (1.3)%     1.5%
(Loss) Income from discontinued operations       (12.8)%      (2.3)%     4.4%
Net (Loss) Income                                 (5.8)%       5.1%     12.2%


FISCAL 2002 AS COMPARED TO FISCAL 2001

Net (loss) income. Net income decreased $27.8 million to a net loss of $17.7
million for the year ended December 31, 2002 ("fiscal 2002") compared to net
income of $10.1 million for the year ended December 31, 2001 ("fiscal 2001").
Income from continuing operations and the loss from discontinued operations was
$21.3 million and $39.0 million respectively for fiscal 2002, compared to income
from continuing operations of $14.7 million and a loss from discontinued
operations of $4.6 million for fiscal 2001. The increase in income from
continuing operations relates primarily to the inclusion of the Mobile Security
Division for a full year in 2002 versus four months in 2001

CONTINUING OPERATIONS

Armor Holdings Products revenues. Our Armor Holdings Products Division revenues
increased $30 million, or 20.1%, to $179.9 million in fiscal 2002, compared to
$149.9 million in fiscal 2001. For fiscal 2002, Products Division revenue
increased 14.4% internally, including year over year changes in acquired
businesses, and 5.7% due to a series of small strategic "tuck-in" acquisitions
including Identicator, Inc. ("Identicator"), Guardian Personal Security
Products, Inc. ("Guardian"), Speedfeed, Inc. ("Speedfeed"), the Foldable
Products Group



                                       33
<PAGE>


("Foldable"), Evi-Paq, Inc. ("Evi-Paq") B-Square, Inc. ("B-Square") and 911
Emergency Products ("911"). Products Division revenues include $16.8 million and
$7.2 million from USDS, Inc., our US based training company, for the years ended
fiscal 2002 and fiscal 2001, respectively. In our filings prior to June 30,
2002, we reported USDS, Inc. as a part of our Services Division.

Mobile Security Division revenues. Our Armor Mobile Security Division revenues
increased $77.9 million, or 165.0% to $125.2 million in fiscal 2002, compared to
$47.2 million in fiscal 2001. Revenues for fiscal 2001, included only four
months of operations after the acquisitions of O'Gara-Hess & Eisenhardt Armoring
Company, The O'Gara Company, and O'Gara Security Associates, Inc. in August,
2001. Revenues in fiscal 2002 includes $3.3 million related to the acquisition
of Trasco Bremen in September 2002. Including the eight months of operations
prior to our ownership and excluding all revenue associated with assets that we
either did not purchase or sold, Mobile Security Division revenue increased
17.7% internally from approximately $106.3 million during fiscal 2001.

Cost of sales. Cost of sales increased $84.4 million, or 66.8%, to $210.7
million for fiscal 2002 compared to $126.3 million for fiscal 2001. This
increase was due primarily to the acquisition of the Armor Mobile Security
Division as well as overall revenue growth for fiscal 2002 compared to fiscal
2001. As a percentage of total revenues, cost of sales increased to 69.1% of
total revenues for fiscal 2002 from 64.1% for fiscal 2001. This increase as a
percentage of total revenues was partially due to the full year inclusion in
2002 of the Mobile Security Division, which operates at lower average gross
margins than the Products Division and partially to reduced Products Division
margins as discussed below.

For fiscal 2002, gross margins in the Products Division were 36.4% compared to
39.3% reported in the same period last year, while the gross margins in the
Mobile Security Division were 23.0% in fiscal 2002, compared to 25.1% for the
four months of the December 31, 2001 fiscal year after the acquisition date. The
Products Division consists of a portfolio of law enforcement products, each of
which is manufactured and sold at different margins. In any given period, the
Products Division weighted average gross margins will fluctuate based upon the
relative volume of products sold during the period. Lower gross margins during
fiscal 2002 in the Products Division were partially attributable to product mix,
as well as to short term increases in manufacturing costs and a raw material
supply issues in the division's body armor operations during the first half of
2002.

During late 2001 and 2002, the Products Division combined its Jacksonville,
Florida based body armor operation into its body armor manufacturing facility in
Ontario, California. During 2002, the Division experienced difficulty in this
combination resulting in capacity constraints and increased manufacturing costs.
We believe that these capacity constraints have been alleviated and that certain
of our body armor manufacturing costs will decrease during the first half of
2003. However, during this time, we also experienced interruptions in the supply
of Zylon Shield, a certain ballistic fiber used in our leading concealable
ballistic vest. This particular supply problem was related to the ballistic
integrity of the fiber we received and not the actual availability of the
material. Nevertheless, our inability to receive quality Zylon Shield during
this period exacerbated our capacity constraints. As of December 31, 2002, the
Division is currently receiving adequate supplies of Zylon Shield and is
currently working to decrease its body armor manufacturing costs.

The Products Division gross margins also decreased because it realized higher
proportional revenue increases from its training division, which operates at
significantly lower overall gross margins than its manufacturing segment. The
decrease in gross margins in the Mobile Security Division was primarily due to a
less favorable mix of commercial vehicle sales compared to the same period the
prior year, a heavier mix of "lower margin" cash-in-transit vehicles in 2002
compared to 2001, and a larger number of base unit sales included in revenue in
the 2002 period.




                                       34
<PAGE>



Operating expenses. Operating expenses increased $11.2 million, or 28.9%, to
$49.8 million (16.3% of total revenues) for fiscal 2002 compared to $38.7
million (19.6% of total revenues) for fiscal 2001. This increase was primarily
due to the operating expenses associated with the operations of the Mobile
Security Division, acquired in August 2001, which were not included for the full
year ended December 31, 2001. Operating expenses also increased in the Products
Division primarily due to operating expenses associated with acquired companies
and from internal growth of the business. Operating expenses as a percent of
sales decreased because the Mobile Security Division operates with a lower level
of operating expenses as a percentage of sales than does the Products Division.
We expect to see an increase in corporate operating expense during 2003 because
we will incur significant increases in insurance expenses, government affairs
and lobbying efforts, internal audit, information technology and increased legal
and accounting costs associated with legal compliance.

Amortization. Amortization expense decreased $1.9 million, or 88.6%, to $0.2
million for fiscal 2002 compared to $2.1 million for fiscal 2001. This decrease
results from the implementation of SFAS 142, which eliminated goodwill
amortization for all acquisitions completed after July 1, 2001, as well as for
all fiscal years ending after January 1, 2002. Remaining amortization expense is
related to patents and trademarks with finite lives.

Integration and other non-recurring charges. Integration and other non-recurring
charges increased $2.6 million, or 79.8%, to $5.9 million for fiscal 2002
compared to $3.3 million in fiscal 2001. These charges relate primarily to the
integration of the Mobile Security Division, as well as other acquisitions
completed in 2001 and 2002. 2002 integration and other non-recurring charges
also included certain expenses related to the integration of our body armor
operations, as well as direct costs and expenses associated with potential
acquisitions that did not close.

Operating income. Operating income from continuing operations increased $11.7
million to $38.4 million for fiscal 2002 compared to $ 26.7 million in fiscal
2001 due to the factors discussed above. USDS, Inc. contributed operating income
that was previously reported as a part of the Services Division of $1.7 million
and $1.2 million for the years ended December 31, 2002 and 2001, respectively.

Interest expense, net. Interest expense, net decreased $2.9 million, or 76.1% to
$0.9 million for fiscal 2002 compared to $3.9 million for fiscal 2001. This
decrease was due primarily to the repayment of long-term debt under our
revolving credit facility with the net proceeds of the secondary common stock
offering completed in December 2001.

Other expense (income), net. Other expense (income), net, was $51,000 for fiscal
2002, compared to ($82,000) for fiscal 2001 due to a gain on sale of fixed
assets during 2001.

Income from continuing operations before provision for income taxes. Income from
continuing operations before provision for income taxes increased by $14.5
million to $37.4 million for fiscal 2002 compared to $22.9 million for fiscal
2001 due to the reasons discussed above.

Provision for income taxes. Provision for income taxes was $16.1 million for
fiscal 2002 compared to $8.2 million for fiscal 2001. The provision for income
taxes for fiscal 2002 included charges of approximately $1.5 million related to
the establishment of valuation allowances for certain foreign deferred tax
assets of our discontinued operations. The effect of these charges was to
increase our effective tax rate for fiscal 2002 to 42.9% compared to 35.9% for
fiscal 2001. Without these charges, our effective tax rate for fiscal 2002 would
have been 39%. The increase in what our effective tax rate would have been
without the tax charges related to our discontinued operations is due primarily
to the higher percentage of income earned in the United States and the impact of
state income taxes on this income. Our expected effective tax rate is not
necessarily indicative of what our



                                       35
<PAGE>


actual effective rate will be due to the changing concentration and mix of
income in the various countries in which we continue to operate.

Income from continuing operations. Income from continuing operations increased
$6.6 million to $21.3 million for fiscal 2002 compared to $14.7 million for
fiscal 2001 due to the factors discussed above.

DISCONTINUED OPERATIONS

Many of the items listed below involve accounting estimates. The loss and
amounts below will be revaluated in the future for any changes which might be
appropriate.

Note 2 of the consolidated financial statements contains comparative information
for our discontinued operations. Our ArmorGroup Services Division revenues
increased $3.3 million, or 3.5%, to $98.3 million for fiscal 2002 compared to
$94.9 million for fiscal 2001. For fiscal 2002, revenue increased 6.7% due to
the acquisition of International Training, Inc. ("ITI"), which was acquired as
part of the acquisition of our Mobile Security Division and is included in the
Services Division from the date of acquisition. The 3.4% reduction in revenue
exclusive of the ITI acquisition was a result of lower revenues in the
Integrated Systems business in the United States and the Security consulting
business both in Latin America and Russia due to the completion of several large
contracts.

Cost of sales. Cost of sales increased $10.8 million, or 16.5%, to $75.8 million
for fiscal 2002 compared to $65 million for fiscal 2001. This increase was due
primarily to the acquisition of ITI. As a percentage of total revenue, cost of
sales increased to 77.1% of total revenues for fiscal 2002 from 68.5% for fiscal
2001. This increase in cost of sales as a percentage of total revenue was
primarily due to the weakness in our Integrated Systems business resulting in
poor margins from increased inventory reserves, the loss of high margin oil
industry security consulting work in Latin America and the scaling down of
business in the Democratic Republic of Congo.

Operating expenses. Operating expenses increased $6.1 million, or 24.9%, to
$30.6 million (31.1% of total revenues) for fiscal 2002 compared to $24.5
million (25.8% of total revenues) for fiscal 2001. This increase was due
primarily to increased accounts receivable reserves, other asset write-downs,
and other charges in the Integrated Systems and Security consulting businesses,
as well as additional operating expenses associated with ITI's operations,
acquired in August 2001.

Amortization. Amortization expense decreased $1.5 million, or 100%, to $0 for
fiscal 2002 compared to $1.5 million for fiscal 2001. This decrease was a result
of the implementation of SFAS 142, which eliminated goodwill amortization for
acquisitions completed after July 1, 2001 and for fiscal years beginning on or
after January 1, 2002.

Charge for impairment of long-lived assets. Charges for impairment of long-lived
assets was $30.3 million for fiscal 2002 compared to $0 for fiscal 2001. The
impairment charge is the result of the $24.2 million reduction in carrying value
of the Services Division to the estimated realizable value as required by SFAS
144.

Restructuring and related charges. In January 2001, our Board of Directors
approved a restructuring plan to close the Services Division's U.S.
investigative businesses, realign the Service Division's organization, eliminate
excess facilities and reduce overhead in its business worldwide. In connection
with this restructuring charge, the Services Division performed a review of its
long-lived assets to identify potential impairments. Pursuant to this
restructuring plan, we a) eliminated 26 employees, primarily from the Services
Division investigative business; b) eliminated an additional 24 employees from
its security consulting business; c) incurred lease and other exit costs as a
result of the closure of the



                                       36
<PAGE>


investigative businesses; and d) wrote-down the value of both tangible and
intangible assets as a result of the impairment review.

As a result of the restructuring plan, we recorded a pre-tax charge of $10.3
million. At December 31, 2002 we had a restructuring accrual of $270,000
compared to $354,000 at December 31, 2001 relating to lease termination and
other exit costs. This liability has been classified in accrued expenses and
other current liabilities on our discontinued operations balance sheet and will
be funded through cash provided by operating activities and our credit facility.

Integration and other non-recurring charges. Integration and other non-recurring
charges increased $1.8 million, or 238.0%, to $2.6 million for fiscal 2002
compared to $776,000 for fiscal 2001. These charges reflect certain severance
expenses, software write-off costs and other expenses associated with preparing
the division for sale, as well as the expenses associated with integrating ITI
into the Services Division.

Operating loss. Operating losses were $41.9 million for fiscal 2002, compared to
an operating loss of $7.1 million for fiscal 2001 due to the factors discussed
above.

Interest expense, net. Interest expense, net increased $203,000 or 142%, to
$346,000 for fiscal 2002 compared to $143,000 for fiscal 2001. This increase was
due to increased utilization of the Services Division's line of credit.

Other (income) expense, net. Other expense, net, was $99,000 for fiscal 2002,
compared to other income, net of $218,000 for fiscal 2001. The increase expense
in fiscal 2002 was a result of losses on the disposal of fixed assets and other
asset write-offs.

Loss from discontinued operations before provision for income taxes (benefit).
Loss from discontinued operations before provision for income taxes (benefit)
was $41.5 million for fiscal 2002 and $7.1 million for fiscal 2001 due to the
reasons discussed above.

Provision for income taxes (benefit). Income tax benefit was $2.4 million for
fiscal 2002 compared to a benefit of $2.5 million for fiscal 2001. The effective
tax rate for fiscal 2002 was a benefit of 5.9% compared to a benefit of 35.5%
for fiscal 2001. The decrease in percentage benefit is primarily due to the
inclusion in taxable income of certain expenses not deductible for tax purposes,
including a $31.2 million charge for the impairment of long-lived assets.

Loss from discontinued operations. Loss from discontinued operations was $39.0
million for fiscal 2002 compared to a loss from discontinued operations of $4.6
million for fiscal 2001 due to the factors discussed above.

FISCAL 2001 AS COMPARED TO FISCAL 2000

Net (loss) income. Net income decreased $6.9 million to a net income of $10.1
million for fiscal 2001 compared to net income of $17.0 million for the year
ended December 31, 2000 ("fiscal 2000"). Net income for fiscal 2001 includes
income from continuing operations of $14.7 million and a loss from discontinued
operations of $4.6 million, compared to income from continuing operations of
$10.8 million and income from discontinued operations of $6.2 million for fiscal
2000.



                                       37
<PAGE>


CONTINUING OPERATIONS

Armor Holdings Product Division Revenues. Armor Holdings Product Division
revenues increased $10 million, or 7.1% to $149.9 million in for fiscal 2001
("fiscal 2001"), compared to $139.9 million for fiscal 2000 ("fiscal 2000").
Revenue increased during the year due to the acquisitions completed in fiscal
2000 and additional fiscal 2001 acquisitions. All of these acquisitions were
accounted for as purchases and accordingly the results of their operations are
included only from the date of acquisition. Products Division revenues include
$7.2 million and $4.6 million from USDS, Inc. for the years ended December 31,
2001 and December 31, 2000, respectively. In our filings prior to June 30, 2002,
we reported USDS, Inc. as a part of the Service Division. Not including these
acquisitions, the Armor Holdings Product Division revenue decreased during
fiscal 2001, due in part to shipping interruptions and order cancellations that
resulted from the September 11 terrorist attacks against the World Trade Center
and the Pentagon and to a slowdown in purchasing during the first quarter of
2001. We attribute a portion of the first quarter slowdown with the Bulletproof
Vest Partnership Act (the "BVP Money") that provides federal matching funds to
law enforcement agencies purchasing bullet resistant vests. We believe that
agencies delayed their purchasing decisions during the first quarter of 2001
until such time as the BVP Money was fully allocated.

Mobile Security revenues. Mobile Security Division revenues were $47.2 million,
in fiscal 2001, compared to $0 in fiscal 2000. The Mobile Security Division was
created through the acquisition of O'Gara-Hess & Eisenhardt Armoring Company,
The O'Gara Company, and O'Gara Security Associates, Inc., which was completed on
August 22, 2001, and only included in our financial statements from the date of
acquisition. Revenues for the year ended 2001 included only four months of
operations, from the date of acquisition.

Cost of sales. Cost of sales increased $40.9 million, or 47.8%, to $126.3
million for fiscal 2001 compared to $85.5 million for fiscal 2000. This increase
was due primarily to the acquisition of the Mobile Security Division as well as
overall revenue growth for the fiscal 2001 compared to fiscal 2000. As a
percentage of total revenues, cost of sales increased to 64.1% of total revenues
for fiscal 2001 from 61.1% for fiscal 2000. This increase as a percentage of
total revenues was primarily due to the inclusion of the Mobile Security
Division, which operates at lower average gross margins than the Products
Division.

For fiscal 2001, gross margins in the Products Division were 39.3% compared to
39.8% reported in fiscal 2000, while the gross margins in the Mobile Security
Division were 25.1% for the four-month stub portion for fiscal 2001. The
decrease in the Products Division gross margins is attributable to the impact of
higher proportional revenue of USDS, Inc., which operates at margins, which are
significantly lower than the gross margins experienced within the other Products
Division companies.

Operating expenses. Operating expenses increased $8.4 million, or 27.6%, to
$38.7 million, or 19.6% of total revenues for fiscal 2001 compared to $30.3
million, or 21.7% of total revenues for fiscal 2000. This increase was primarily
due to the operating expenses associated with the operations of the Mobile
Security Division, acquired in August 2001, which were not included at all for
the year ended December 31, 2000. Operating expenses also increased due to
acquisitions in the Products Division including Monadnock and Lightning Powder,
as well as general internal growth of the business. Operating expenses as a
percent of sales decreased because the Mobile Security Division operates with a
lower level of operating expenses as a percentage of sales than does the
Products Division.

Amortization. Amortization expense increased $438,000, or 25.7%, to $2.1 million
for fiscal 2001 compared to $1.7 million for fiscal 2000. Amortization expense
increased during the year due to amortization of intangible assets acquired
during fiscal 2000 through the acquisitions of Monadnock and Lightning Powder.
In



                                       38
<PAGE>


accordance with SFAS 142, we did not amortize goodwill from the O'Gara
acquisition, which occurred subsequent to June 30, 2001.

Integration and other non-recurring charges. Integration and other non-recurring
charges increased $.7 million, or 27.4%, to $3.3 million for fiscal 2001
compared to $2.6 million in fiscal 2000.

Fiscal 2001 integration expenses represent costs associated with the
acquisitions and integration of the Mobile Security Division, Monadnock and
Lightning Powder, as well as costs associated with our international tax
minimization program. Fiscal 2000 integration expenses included costs associated
with the acquisitions of Safariland, and Break-Free, as well as, costs
associated with our international tax minimization program and other one time
expenses incurred in the third quarter of 2000.

Operating income. Operating income from continuing operations increased $6.8
million, or 34.2%, to $26.7 million for fiscal 2001 compared to $19.9 million in
fiscal 2000 due to the factors discussed above. USDS, Inc. contributed operating
income that was previously reported as a part of the Services Division of $1.2
million and $889,000 for fiscal 2001 and 2000, respectively.

Interest expense, net. Interest expense, net increased $2.0 million, or 109% to
$3.9 million for fiscal 2001 compared to $1.8 million for fiscal 2000. Interest
expense, net increased during fiscal 2001 primarily due to interest on debt
incurred to fund the acquisitions of Monadnock, Lightning Powder and the Mobile
Security Division, which were each funded in part with cash from our revolving
credit facility. Increased borrowings under the revolving credit facility were
offset by lower interest rates on that debt. Interest expense, net includes
interest on and amortization of the fees associated with our debt obligations,
including our revolving credit facility, and the amortization of the discount on
certain long-term liabilities acquired as part of the Safariland acquisition.

Other (income) expense, net. Other income, net, was $82,000 for fiscal 2001,
compared to $67,000 for fiscal 2000.

Income from continuing operations before provision for income taxes. Income from
continuing operations before provision for income taxes increased by $4.8
million to $22.9 million for fiscal 2001 compared to $18.1 million for fiscal
2000 due to the reasons discussed above.

Provision for income taxes. Provision for income taxes was $8.2 million for
fiscal 2001 compared to $7.2 million for fiscal 2000.

Income from continuing operations. Income from continuing operations increased
$3.9 million to $14.7 million for fiscal 2001 compared to $10.8 million for
fiscal 2000 due to the factors discussed above.

DISCONTINUED OPERATIONS

ArmorGroup Services Division revenues. Our ArmorGroup Services Division revenues
increased $13.9 million, or 17.1%, to $94.9 million for fiscal 2001 compared to
$81.1 million for fiscal 2000. For fiscal 2001, revenue increased due to the
acquisition of International Training, Inc. ("ITI"), which was acquired as part
of the acquisition of O'Gara and is included in the Services Division from the
date of acquisition.

Cost of sales. Cost of sales increased $13.0 million, or 24.9%, to $65.0 million
for fiscal 2001 compared to $52 million for fiscal 2000. This increase was due
primarily to the acquisition of ITI. As a percentage of total revenue, cost of
sales increased to 68.5% of total revenues for fiscal 2001 from 64.2% for fiscal
2000. Increased cost of sales is directly related to revenue increases
associated



                                       39
<PAGE>


with the ITI acquisition and internal revenue growth in our ArmorGroup Services
Division. Increasing cost of sales as a percentage of total revenue reflects a
shift in revenue mix in the ArmorGroup Service Division from investigations to
security services which has lower margins. During 2001, ArmorGroup abandoned its
US Investigations strategy by closing several higher margin business units while
replacing this revenue with growth in lower margin security consulting service
revenue.

Operating expenses. Operating expenses increased $4.4 million, or 22.1%, to
$24.5 million (25.8% of total revenues) for fiscal 2001 compared to $20.1
million (24.7% of total revenues) for fiscal 2000. This increase was due to
additional operating expenses associated with ITI's operations, acquired in
August 2001 as well as internal revenue growth.

Amortization. Amortization expense decreased $206,000, or 11.9%, to $1.5 million
for fiscal 2001 compared to $1.7 million for fiscal 2000. The reduction in
amortization expense resulted from goodwill write-offs contained in our
restructuring charge in the first quarter of 2001. In accordance with SFAS 142,
we did not amortize the goodwill from acquisitions in the Services Division,
which occurred after June 30, 2001.

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

As a result of the restructuring plan, we recorded a pre-tax charge of $10.3
million. As of December 31, 2001, we had a remaining liability of $354,000
relating to lease termination and other exit costs. This liability has been
classified in accrued expenses and other current liabilities on our consolidated
balance sheet and will be funded through cash provided by operating activities
and our credit facility.

Equity in earnings of investees. Equity in earnings of investee was $87,000 in
fiscal 2000 and relates to our 20% investment in Jardine Securicor Gurkha
Services Limited, a Hong Kong joint venture company ("JSGS"), which we sold
during fiscal 2000.

Integration and other non-recurring charges. Integration and other non-recurring
charges increased $74,000, or 10.5% to $776,000 for fiscal 2001 compared to
$702,000 for fiscal 2000. Fiscal 2001 integration expenses represent costs
associated with the acquisitions and integration of ITI. Fiscal 2000 integration
expenses included costs associated with the acquisitions of OVG/Traquair and
Special Clearance Services and other one time expenses incurred in the third
quarter of 2000.

Operating (loss) income. Operating loss was $7.1 million for fiscal 2001,
compared to operating income of $6.6 million for fiscal 2000 due to the factors
discussed above.



                                       40
<PAGE>


Interest expense (income), net. Interest expense (income), net increased
$96,000, or 204.3%, to $143,000 for fiscal 2001 compared to $47,000 for fiscal
2000. This increase was due to increased utilization of the Services Division's
overdraft line of credit.

Other (income) expense, net. Other income, net decreased $1.5 million, or 87.4%
to $218,000 in fiscal 2001, compared to $1.7 million in fiscal 2000 which
includes a gain related to the sale of our investment in JSGS in fiscal 2000.

(Loss) income from discontinued operations before provision for income taxes
(benefit). Loss from discontinued operations before provision for income taxes
(benefit) was $7.1 million for fiscal 2001 compared to income of $8.3 million
for fiscal 2000 due to the reasons discussed above.

(Benefit) provision for income taxes. (Benefit) provision for income taxes was
($2.5) million for fiscal 2001 compared to $2.1 million for fiscal 2000. The
effective tax rate for fiscal 2001 was a benefit of 35.5% compared to 25.3%
for fiscal 2000. The decrease in benefit is primarily due to the inclusion in
taxable income of certain expenses not deductible for tax purposes, including an
$11.9 million charge for the impairment of long-lived assets.

(Loss) income from discontinued operations. Loss from discontinued operations
was $4.6 million for fiscal 2001 compared to income from discontinued operations
of $6.2 million for fiscal 2000 due to the factors discussed above.

QUARTERLY RESULTS

Set forth below are certain unaudited quarterly financial data for each of our
last eight quarters and certain such data expressed as a percentage of our
revenue for the respective quarters. The information has been derived from
unaudited financial statements that, in the opinion of management, include all
adjustments (consisting only of normal recurring adjustments) necessary to
fairly present such quarterly information in accordance with generally accepted
accounting principles. The operating results for any quarter are not necessarily
indicative of the results to be expected for any future period.














                                       41
<PAGE>

<TABLE>
<CAPTION>

                                                               QUARTER ENDED
----------------------------------------------------------------------------------------------------------------------------------
                                                  (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                   Dec 31,    Sept 30,     Jun 30,      Mar 31,     Dec 31,      Sept 30,      Jun 30,     Mar 31,
                                    2002        2002        2002         2002         2001         2001         2001         2001
                                 -------------------------------------------------------------------------------------------------
<S>                              <C>          <C>         <C>          <C>          <C>         <C>          <C>          <C>


Revenues
  Products                        $ 48,897    $ 49,047     $ 43,057     $ 38,945    $ 42,285     $ 39,315     $ 38,100    $ 30,168
  Mobile Security                   34,454      31,510       28,548       30,659      37,883        9,349            -           -
                                 -------------------------------------------------------------------------------------------------
Total Revenue                       83,351      80,557       71,605       69,604      80,168       48,664       38,100      30,168
Operating income                    10,815      10,337        8,168        9,045      10,590        5,328        7,127       3,628
Interest expense, net                  254         343          284           42       1,334        1,102          775         653
Other expense (income), net            128        (13)            -          (64)       (228)         146            -           -
                                 -------------------------------------------------------------------------------------------------
Income from continuing              10,433      10,007        7,884        9,067       9,484        4,080        6,352       2,975
operations before taxes
Provision for income taxes           2,451       7,043        3,060        3,500       2,925        1,607        2,503       1,172
                                 -------------------------------------------------------------------------------------------------
Income from continuing               7,982       2,964        4,824        5,567       6,559        2,473        3,849       1,803
operations
(Loss) income from
discontinuing operations           (23,862)    (17,032)        (817)         244      (1,042)       1,058          362      (7,443)
before taxes
(Benefit) provision for income      (2,863)        639          (68)        (149)        114         (292)         (87)     (2,244)
taxes
                                 -------------------------------------------------------------------------------------------------
(Loss) income from                 (20,999)    (17,671)        (749)         393      (1,156)       1,350          449      (5,199)
discontinuing operations
                                 -------------------------------------------------------------------------------------------------
Net (loss) income                 $(13,017)   $(14,707)     $ 4,075     $  5,960    $  5,403     $  3,823     $  4,298    $ (3,396)
                                 =================================================================================================

Net income/(loss) per common
share - Basic
Income from continuing operations $   0.27    $   0.10     $   0.15     $   0.18    $   0.25    $   0.10     $   0.17    $   0.08
Loss from discontinuing              (0.71)      (0.60)       (0.02)        0.01       (0.04)       0.06         0.02       (0.23)
operations
                                 -------------------------------------------------------------------------------------------------
Basic (loss) earnings per share   $  (0.44)   $  (0.50)    $   0.13     $   0.19    $   0.21     $   0.16     $   0.19    $  (0.15)
                                 =================================================================================================
Net income/(loss) per common
share - Diluted
Income from continuing operations $   0.27    $   0.10     $   0.15     $   0.17    $   0.24     $   0.10     $   0.16    $   0.08

Loss from discontinuing              (0.71)      (0.59)       (0.02)        0.02       (0.04)        0.06         0.02       (0.22)
operations
                                 -------------------------------------------------------------------------------------------------
Diluted (loss) earnings per share $  (0.44)   $  (0.49)    $   0.13     $   0.19    $   0.20     $   0.16     $   0.18    $  (0.14)
                                 =================================================================================================

Weighted average common shares
outstanding
Basic                               29,456      29,708       31,193       31,030      26,138       23,645       23,007      22,861

Diluted                             29,623      30,037       32,110       31,986      27,206       24,317       23,682      23,650

Revenues
  Products                           58.7%       60.9%        60.1%        56.0%       52.7%        80.8%       100.0%      100.0%
  Mobile Security                    41.3%       39.1%        39.9%        44.0%       47.3%        19.2%         0.0%        0.0%
                                 -------------------------------------------------------------------------------------------------
Total revenue                       100.0%      100.0%       100.0%       100.0%      100.0%       100.0%       100.0%      100.0%
Operating income                     13.0%       12.8%        11.4%        13.0%       13.2%        10.9%        18.7%       12.0%
Interest expense, net                 0.3%        0.4%         0.4%         0.1%        1.7%         2.3%         2.0%        2.2%
Other expense (income), net           0.2%        0.0%         0.0%        -0.1%       -0.3%         0.3%         0.0%        0.0%
                                 -------------------------------------------------------------------------------------------------
Income from continuing               12.5%       12.4%        11.0%        13.0%       11.8%         8.4%        16.7%        9.9%
operations before taxes
Provision for income taxes            2.9%        8.7%         4.3%         5.0%        3.6%         3.3%         6.6%        3.9%
                                 -------------------------------------------------------------------------------------------------
Income from continuing                9.6%        3.7%         6.7%         8.0%        8.2%         5.1%        10.1%        6.0%
operations
Income from discontinuing           (28.6%)     (21.1%)       (1.1%)        0.4%       (1.3%)        2.2%         1.0%      (24.7%)
operations before taxes
(Benefit) provision for income       (3.4%)       0.8%       (0.1%)        (0.2%)      (0.1%)       (0.6%)       (0.2%)      (7.4%)
taxes
                                 -------------------------------------------------------------------------------------------------
Loss from discontinuing             (25.2%)     (21.9%)       (1.0%)        0.6%       (1.4%)        2.8%         1.2%      (17.2%)
operations
                                 -------------------------------------------------------------------------------------------------
Net income                          (15.6%)     (18.3%)        5.7%         8.6%        6.7%         7.9%        11.3%      (11.3%)
                                 =================================================================================================
</TABLE>


                                       42
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

On August 22, 2001, we entered into an Amended and Restated Credit Agreement
(the "Credit Agreement") with Bank of America, Canadian Imperial Bank of
Commerce, First Union National Bank, Suntrust Bank, Republic Bank, Keybank
National Association, and ING (U.S.) Capital LLC. Pursuant to the Credit
Agreement, the lenders established a $120,000,000 line of credit for our benefit
expiring on February 12, 2004. The Credit Agreement, among other things,
provides for (i) total maximum borrowings of $120,000,000 and (ii) the
capability for borrowings in foreign currencies. All borrowings under the Credit
Agreement bear interest at either (i) a base rate, plus an applicable margin
ranging from .000% to .375%, depending on certain conditions, (ii) a eurodollar
rate, plus an applicable margin ranging from 1.125% to 1.875%, depending on
certain conditions, or (iii) with respect to foreign currency loans, a fronted
offshore currency rate, plus an applicable margin ranging from 1.125% to 1.875%,
depending on certain conditions. In addition, the Credit Agreement includes both
negative and affirmative covenants customary for a credit facility of this
nature, such as limitations on capital expenditures, indebtedness, and sales of
assets, minimum fixed charge coverage, maintenance of net worth, a limitation on
senior indebtedness to capitalization, and a restriction against paying
dividends. As of December 31, 2002 we are in compliance with all of our negative
and affirmative covenants.

The Credit Agreement also provides that Bank of America will make swing-line
loans to us of up to $5,000,000 for working capital purposes and will issue
letters of credit on our behalf of up to $20,000,000. As of December 31, 2002,
we had no outstanding borrowings under our Credit Facility, and Bank of America
had issued $11.4 million in letters of credit giving us $108.6 million of
availability under our credit agreement. All indebtedness under the Credit
Agreement will mature on February 12, 2004. On December 31, 2002, we had
approximately $6.9 million in total long-term debt for continuing operations,
consisting of $3.9 million in industrial development revenue bonds and $3.0
million in other long-term liabilities assumed in connection with acquisitions.

In March 2002, our Board of Directors approved a stock repurchase program
authorizing the repurchase of up to a maximum 3.2 million shares of our common
stock. In February 2003, the Board of Directors increased this stock repurchase
program to authorize the repurchase, from time to time depending upon market
conditions and other factors, of up to an additional 4.4 million shares. Through
March 10, 2003, we repurchased 3.3 million shares of our common stock under the
stock repurchase program at an average price of $12.42 per share, leaving us
with the ability to repurchase up to an additional 4.3 million shares of our
common stock. Repurchases may be made in the open market, in privately
negotiated transactions or otherwise.

We expect to continue our policy of repurchasing our common stock from time to
time. In addition, our Credit Agreement permits us to repurchase shares of our
common stock with no limitation if our ratio of Consolidated Total Indebtedness
to Consolidated EBTIDA (as such terms are defined in the Credit Agreement) for
any rolling twelve-month period is less than 1:00 to 1. At ratios greater than
1:00 to 1 our credit agreement limits our ability to repurchase shares at $15.0
million. This basket resets to $0 each time the ratio is less than 1.0.

Working capital, excluding amounts relating to discontinued operations, was
$89.0 million and $112.8 million as of December 31, 2002 and December 31, 2001,
respectively.

Our fiscal 2002 capital expenditures for continuing operations were $5.9
million. Our fiscal 2002 capital expenditures for discontinued operations were
$4.5 million. Such expenditures include leasehold improvements, information
technology and communications infrastructure equipment and software, and
manufacturing machinery and equipment.




                                       43
<PAGE>


We anticipate that the cash generated from operations, proceeds from the sale of
discontinued operations, cash on hand and available borrowings under the Credit
Agreement will enable us to meet liquidity, working capital and capital
expenditure requirements during the next 12 months. We may, however, require
additional financing to pursue our strategy of growth through acquisitions. If
such financing is required, there are no assurances that it will be available,
or if available, that it can be obtained on terms favorable to us or on a basis
that is not dilutive to our stockholders.

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
141, "Business Combinations." SFAS No. 141 requires that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001.
This statement specifies that certain acquired intangible assets in a business
combination be recognized as assets separately from goodwill and that existing
intangible assets and goodwill be evaluated for these new separation
requirements. The adoption of this statement did not have a material impact on
our consolidated financial statements.

In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 changes the accounting for goodwill from an amortization
method to an impairment-only approach. Amortization of goodwill, including
goodwill recorded in past business combinations, ceased upon adoption of this
statement. In addition, this statement requires that goodwill be tested for
impairment at least annually at the reporting unit level. We implemented SFAS
No. 142 on January 1, 2002. In connection with the adoption of SFAS 142, we
completed in the second quarter the transitional goodwill impairment test that
compared the fair value of each reporting unit to its carrying value and
determined that no impairment existed. The goodwill resulting from acquisitions
made by us subsequent to June 30, 2001 was immediately subject to the
non-amortization provisions of SFAS 142. Had we been accounting for goodwill
under SFAS 142 for all periods presented, our net income and earnings per share
would have been as follows:

<TABLE>
<CAPTION>

                                                                  DECEMBER 31,2002     DECEMBER 31, 2001     DECEMBER 31, 2000
                                                               -------------------  --------------------  --------------------
                                                                            (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                            <C>                   <C>                   <C>
Reported net (loss)income                                               $ (17,689)               $10,128               $17,048
Add back goodwill amortization, net of tax                                      -                  3,044                 2,943
                                                                -------------------  --------------------  --------------------
 Actual/pro forma adjusted net(loss)income                              $ (17,689)               $13,172               $19,991
                                                                ===================  ====================  ====================
Basic earnings per share
  Reported basic (loss) income per share                                   $(0.58)                 $0.42                 $0.75
  Goodwill amortization, net of tax                                             -                   0.13                  0.13
                                                                -------------------  --------------------  --------------------
  Actual/pro forma basic (loss) income per share                           $(0.58)                 $0.55                 $0.88
                                                                ===================  ====================  ====================

Diluted earnings per share
  Reported diluted (loss) income per share                                 $(0.57)                 $0.41                 $0.73
  Goodwill amortization, net of tax                                             -                   0.12                  0.13
                                                                -------------------  --------------------  --------------------
  Actual/pro forma diluted (loss) income per share                         $(0.57)                 $0.53                 $0.86
                                                                ==================   ====================  ====================
</TABLE>



In August 2001, the FASB issued Statement of Financial Accounting Standards No.
143, "Accounting for Asset Retirement Obligations" (SFAS 143). SFAS 143
establishes accounting standards for recognition and measurement of a liability
for an asset retirement obligation and the associated asset retirement cost.
SFAS 143



                                       44
<PAGE>



requires the recognition of the fair value of a liability for an asset
retirement obligation in the period in which it is incurred if a reasonable
estimate of fair value can be made. If a reasonable estimate of fair value
cannot be made in the period the asset retirement obligation is incurred, the
liability shall be recognized when a reasonable estimate of fair value can be
made. The fair value of a liability for an asset retirement obligation is the
amount at which that liability could be settled in a current transaction between
willing parties, that is, other than in a forced or liquidation transaction.
SFAS 143 is effective for financial statements issued for fiscal years beginning
after June 15, 2002. The provisions of SFAS 143 became effective for us on
January 1, 2003. The effects of adopting this standard will not have a material
effect on us.

In October 2001, the FASB issued Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS
144). SFAS 144 establishes a "primary-asset" approach to determine the cash flow
estimation period for a group of assets and liabilities that represents the unit
of accounting for a long-lived asset to be held and used. SFAS 144 requires that
a long-lived asset to be (1) abandoned, (2) exchanged for a similar productive
asset, or (3) distributed to owners in a spin-off be considered held and used
until it is abandoned, exchanged, or distributed. SFAS 144 requires (1) that
spin-offs and exchanges of similar productive assets be recorded at the lower of
carrying value or fair value, and that such assets be classified as held and
used until disposed of and (2) that any impairment loss resulting from a
spin-off or exchange of similar productive assets be recognized upon asset
disposition. SFAS 144 provides for total assets and total liabilities of
discontinued business segments to be presented in separate captions in assets
and liabilities and also provides that future losses, if any, of discontinued
business segments shall be reported as incurred. We adopted SFAS 144 effective
January 1, 2002,. The reclassification of the Services Division to discontinued
operations and subsequent reduction in its carrying value was in accordance with
the provisions of SFAS 144.

In April 2002, the FASB issued Statement of Financial Accounting Standards No.
145, "Rescission on FASB 4, 44 and 64, Amendment of FASB Statement No. 13 and
Technical Corrections" (SFAS 145). Under SFAS 145, gains and losses related to
the extinguishment of debt should no longer be segregated on the income
statement from continuing operations. The provisions of SFAS 145 are effective
for fiscal years beginning after May 15, 2002.

In June 2002, the FASB issued Statement of Financial Accounting Standard 146,
"Accounting for Costs Associated with Exit or Disposal Activities" (SFAS 146).
SFAS 146 addresses financial accounting and reporting for costs associated with
exit or disposal activities and nullifies Emerging Issues Task Force Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." SFAS 146 is effective for exit or disposal activities initiated
on or after December 31, 2002. The effects of adopting this standard will not
have a material effect on us.

In December 2002, the FASB issued Statement of Financial Accounting Standard
148, "Accounting for Stock-Based Compensation - Transition and Disclosure" (SFAS
148). SFAS 148 provides alternative methods of transition for a voluntary change
to the fair value based method of accounting for stock-based employee
compensation. In addition, SFAS 148 amends the disclosure requirements of
Statement of Financial Accounting Standard 123, "Accounting for Stock-Based
Compensation" (SFAS 123), to require prominent disclosures in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results. The
disclosures required by SFAS 148 are included in this document.



                                       45
<PAGE>


INFLATION

We believe that the relatively moderate rates of inflation in recent years have
not had a significant impact on our revenue or profitability. Historically, we
have been able to offset any inflationary effects by either increasing prices or
improving cost efficiencies.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a result of our global operating and financial activities, we are exposed to
changes in raw material prices, interest rates and foreign currency exchange
rates, which may adversely affect our results of operations and financial
position. In seeking to minimize the risks and/or costs associated with such
activities, we manage exposure to changes in raw material prices, interest
rates, and foreign currency exchange rates through our regular operating and
financing activities. We do not utilize financial instruments for trading or
other speculative purposes, nor do we utilize leveraged financial instruments or
other derivatives for such purposes.

MARKET RATE RISK

The following discussion about our market rate risk involves forward-looking
statements. Actual results could differ materially from those projected in the
forward-looking statements. We are exposed to market risk related to changes in
interest rates, foreign currency exchange rates, and equity security price risk.
We do not use derivative financial instruments to hedge these risks.

Interest Rate Risk. Our exposure to market rate risk for changes in interest
rates relate primarily to borrowings under our credit facilities and our
short-term monetary investments. To the extent that, from time to time, we hold
short-term money market instruments, there is a market rate risk for changes in
interest rates on such instruments. To that extent, there is inherent rollover
risk in the short-term money market instruments as they mature and are renewed
at current market rates. The extent of this risk is not quantifiable or
predictable because of the variability of future interest rates and business
financing requirements. However, there is no risk of loss of principal in the
short-term money market instruments, only a risk related to a potential
reduction in future interest income. Derivative instruments are not presently
used to adjust our interest rate risk profile. We do not use derivative
financial instruments to hedge this interest rate risk. However, in the future,
we may consider the use of financial instruments to hedge interest rate risk.

On December 18, 2002, we sold a put option on 500,000 shares to an institutional
counterparty with an exercise price of $13.99 per share and an expiration date
of March 31, 2003 for $525,000. We have a maximum potential obligation under the
put options to purchase 500,000 shares of our common stock at an exercise price
of $13.99 for an aggregate of $7.0 million. Although certain other events can
trigger exercise these put options are generally excercisable only at maturity
on March 31, 2003. We have the right to settle the put options by cash
settlement, physical settlement of the options or by net share settlement using
shares of our common stock. In accordance with EITF Issue No. 00-19, we have
recorded the sale of the put options in equity and as such, changes in fair
value of the options have not been recognized in the financial statements. We
may, from time to time, enter into additional put and call option arrangements.

Foreign Currency Exchange Rate Risk. The majority of our business is denominated
in U.S. dollars. There are costs associated with our operations in foreign
countries that require payments in the local currency. Where appropriate and to
partially manage our foreign currency risk related to those payments we receive
payment from customers in local currencies in amounts sufficient to meet our
local currency obligations. We do not use derivatives or other financial
instruments to hedge foreign currency risk.



                                       46
<PAGE>

RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS

We have business operations in numerous countries, including emerging markets in
Africa, Asia and South America. We have invested substantial resources outside
of the United States and plan to continue to do so in the future. Our
international operations are subject to the risk of new and different legal and
regulatory requirements in local jurisdictions, tariffs and trade barriers,
potential difficulties in staffing and managing local operations, potential
imposition of restrictions on investments, potentially adverse tax consequences,
including imposition or increase of withholding and other taxes on remittances
and other payments by subsidiaries, and local economic, political and social
conditions. Governments of many developing countries have exercised and continue
to exercise substantial influence over many aspects of the private sector.
Government actions in the future could have a significant adverse effect on
economic conditions in a developing country or may otherwise have a material
adverse effect on us and our operating companies. We do not have political risk
insurance in the countries in which we currently conducts business, but
periodically analyze the need for and cost associated with this type of policy.
Moreover, applicable agreements relating to our interests in our operating
companies are frequently governed by foreign law. As a result, in the event of a
dispute, it may be difficult for us to enforce our rights. Accordingly, we may
have little or no recourse upon the occurrence of any of these developments.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The response to this item is incorporated by reference from our consolidated
financial statements and notes thereto which are included in the report
beginning on page F-1. Certain selected quarterly financial data is included
under Item 7 of this Report.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

There have been no changes in or disagreements with accountants on accounting or
financial disclosure matters during the periods covered by this annual report on
Form 10-K.











                                       47
<PAGE>


                                    PART III

The information called for pursuant to this Part III, Items 10, 11, 12 and 13,
is incorporated by reference from our definitive proxy statement, which we
intend to file with the Securities and Exchange Commission not later than April
30, 2003.

ITEM 14. CONTROLS AND PROCEDURES

Within 90 days before filing this report, we evaluated the effectiveness of the
design and operation of our disclosure controls and procedures. Our disclosure
controls and procedures are designed to ensure that the information that the
Company must disclose in its reports filed under the Securities and Exchange Act
is communicated and processed in a timely manner. Jonathan M. Spiller, President
and Chief Executive Officer, and Robert R. Schiller, Executive Vice President
and Chief Financial Officer, participated in this evaluation.

Based on this evaluation, Mr. Spiller and Mr. Schiller concluded that, as of the
date of their evaluation, our disclosure controls and procedures were effective,
except as noted in the next paragraph. Since the date of the evaluation
described above, there have not been any significant changes in our internal
controls or in other factors that could significantly affect those controls.

During the fiscal 2002 financial reporting process, management, in consultation
with our independent accountants, identified a deficiency in our tax financial
reporting process relating to the reconciliation of provisions for income taxes
for our discontinued operations to tax filings and inventory of deferred tax
assets and liabilities which constitutes a "Reportable Condition" under
standards established by the American Institute of Certified Public Accountants.
We believe that this matter has not had any material impact on our financial
statements. We have initiated the design, development and implementation of
processes and controls to address this deficiency, the completion of which will
extend into 2003.


                                     PART IV

ITEM 15.  EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K

(a)   The following financial statements (which appear sequentially beginning
      at page number F-1) are included in this report on Form 10-K. Financial
      statement schedules have been omitted since they are either not
      required, not applicable, or the information is otherwise included.


      Reports of Independent Certified Public Accountants

      Consolidated Balance Sheets

      Consolidated Income Statements

      Consolidated Statements of Stockholders' Equity and Comprehensive Income

      Consolidated Statements of Cash Flows

      Notes to Consolidated Financial Statements

(b)     Reports on Form 8-K

        No reports on Form 8-K were filed during the last quarter of the
period covered by this report.

(c) Exhibits



                                       48
<PAGE>


     The following Exhibits are hereby filed as part of this Annual Report on
Form 10-K:

EXHIBIT NO. DESCRIPTION


+2.1              Agreement for the Sale and Purchase of the Whole of the Issued
                  Share Capital of DSL, dated April 16, 1997, between the
                  Company, AHL, NatWest Ventures Nominees Limited and Others and
                  Martin Brayshaw (filed as Exhibit 2.2 to our Form 8-K, Current
                  Report, dated April 22, 1997 and incorporated herein by
                  reference).

+2.2              Stock Purchase Agreement by and among Armor Holdings, Inc.,
                  The Neale A. Perkins Trust, The Scott T. O'Brien and Victoria
                  S. O'Brien Revocable Trust, The David M. Holmes and Katherine
                  C. Holmes Revocable Trust, Neale A. Perkins, David M. Holmes,
                  Scott T. O'Brien and Safariland Ltd., Inc. dated as of April
                  12,1999 (filed as Exhibit 2.8 to Amendment No. 1 to our
                  Registration Statement on Form S-3 filed with the Commission
                  on April 15, 1999 and incorporated herein by reference).

+2.3              Stock Purchase Agreement, dated as of April 20, 2001, by and
                  among Armor Holdings, Inc., Bengal Acquisition Corp., The
                  Kroll-O'Gara Company, O'Gara-Hess & Eisenhardt Armoring
                  Company, The O'Gara Company, and O'Gara Security Associates,
                  Inc. (filed as Exhibit 2.1 to our Current Report on Form 8-K
                  dated April 20, 2001 and incorporated herein by reference).

+2.4              Amendment dated as of August 20, 2001 to the Stock Purchase
                  Agreement, dated as of April 20, 2001, by and among Armor
                  Holdings, Inc., Bengal Acquisition Corp., The Kroll-O'Gara
                  Company, O'Gara-Hess & Eisenhardt Armoring Company, The O'Gara
                  Company, and O'Gara Security Associates, Inc. (filed as
                  Exhibit 2.2 to our Current Report on Form 8-K dated August 21,
                  2001 and incorporated herein by reference).

+2.5              Amendment dated as of August 22, 2001 to the Stock Purchase
                  Agreement, dated as of April 20, 2001, by and among Armor
                  Holdings, Inc., Bengal Acquisition Corp., The Kroll-O'Gara
                  Company, O'Gara-Hess & Eisenhardt Armoring Company, The O'Gara
                  Company, and O'Gara Security Associates, Inc. (filed as
                  Exhibit 2.3 to our Current Report on Form 8-K dated August 22,
                  2001 and incorporated herein by reference).

+3.1              Certificate of Incorporation of the Company (filed as Exhibit
                  3.1)to Form 8-K, Current Report of the Company, dated
                  September 3,1996 and incorporated herein by reference).

+3.2              Certificate of Merger of American Body Armor & Equipment,
                  Inc., a Florida corporation, and the Company (filed as Exhibit
                  3.2 to Form 8-K, Current Report of the Company, dated
                  September 3,1996 and incorporated herein by reference).

+3.3              Bylaws of the Company (filed as Exhibit 3.3 to Form
                  8-K,Current Report of the Company, dated September 3, 1996 and
                  incorporated herein by reference).

+3.4              Amendment to Bylaws of the Company (incorporated by reference
                  to Exhibit 3.3.2 to our Form 10-K Annual Report for the fiscal
                  year ended December 31, 1998 (the "98 10-K)).

+10.1             Borrower Pledge Agreement, dated as of February 12, 1999, made
                  by he Company in favor of Canadian Imperial Bank of Commerce
                  as



                                       49
<PAGE>


                  Administrative Agent for the Lenders (filed as Exhibit 5.10 to
                  Form 8-K, Current Report of the Company, filed with the
                  Commission on March 10, 1999 and incorporated herein by
                  reference).

+10.2             Security Deed, dated February 12, 1999, made by the Company in
                  favor of Canadian Imperial Bank of Commerce as Administrative
                  Agent for the Lenders (filed as Exhibit 5.11 to Form 8-K,
                  Current Report of the Company, filed with the Commission on
                  March 10, 1999 and incorporated herein by reference).

+10.3             Subsidiaries Guarantee, dated as of February 12, 1999, made by
                  the Company in favor of Canadian Imperial Bank of Commerce as
                  Administrative Agent for the Lenders (filed as Exhibit 5.12 to
                  Form 8-K, Current Report of the Company, dated March 10, 1999
                  and incorporated herein by reference).

+10.4             Amended and Restated Credit Agreement, dated August 22, 2001,
                  among Bank of America, N.A., Canadian Imperial Bank of
                  Commerce, First Union National Bank, Suntrust Bank, Republic
                  Bank, Keybank National Association, and ING (U.S.) Capital LLC
                  (filed as Exhibit 10.1 to our Current Report on Form 8-K dated
                  August 22, 2001 and incorporated herein by reference).

+10.5             Amended and Restated Revolving Credit Note, dated August 22,
                  2001, in the principal amount of up to $30,000,000.00 made by
                  the Company in favor of Bank of America, N.A. (filed as
                  Exhibit 10.2 to our Current Report on Form 8-K dated August
                  22, 2001 and incorporated herein by reference).

+10.6             Amended and Restated Revolving Credit Note, dated August 22,
                  2001, in the principal amount of up to $25,000,000.00 made by
                  the Company in favor of First Union National Bank (filed as
                  Exhibit 10.3 to our Current Report on Form 8-K dated August
                  22, 2001 and incorporated herein by reference).

+10.7             Amended and Restated Revolving Credit Note, dated August 22,
                  2001, in the principal amount of up to $20,000,000 made by the
                  Company in favor of Suntrust Bank (filed as Exhibit 10.4 to
                  our Current Report on Form 8-K dated August 22, 2001 and
                  incorporated herein by reference).

+10.8             Amended and Restated Revolving Credit Note, dated August 22,
                  2001, in the principal amount of up to $15,000,000 made by the
                  Company in favor of Keybank National Association (filed as
                  Exhibit 10.5 to our Current Report on Form 8-K dated August
                  22, 2001 and incorporated herein by reference).

+10.9             Amended and Restated Revolving Credit Note, dated August 22,
                  2001, in the principal amount of up to $15,000,000 made by the
                  Company in favor of Republic Bank (filed as Exhibit 10.6 to
                  our Current Report on Form 8-K dated August 22, 2001 and
                  incorporated herein by reference).

+10.10            Amended and Restated Revolving Credit Note, dated August 22,
                  2001, in the principal amount of up to $15,000,000 made by the
                  Company in favor of ING (U.S.) Capital LLC (filed as Exhibit
                  10.7 to our Current Report on Form 8-K dated August 22, 2001
                  and incorporated herein by reference).

+10.11            Amended and Restated Swing Line Note, dated August 22, 2001,
                  in the principal amount of up to $5,000,000 made by the
                  Company in favor of Bank of America, N.A. (filed as Exhibit
                  10.8 to our Current Report on Form 8-K dated August 22, 2001
                  and incorporated herein by reference).



                                       50
<PAGE>


+10.12            Supplement to Subsidiaries Guarantee, dated August 22, 2001,
                  made by Bengal Acquisition Corp., O'Gara-Hess & Eisenhardt
                  Armoring Company, The O'Gara Company, O'Gara Security
                  Associates, Inc., International Training, Inc., ITI Limited
                  Partnership, Armor Brands, Inc., Armor Group Integrated
                  Systems, Inc., Armor Holdings GP, LLC, Armor Holdings LP, LLC,
                  Break-Free Armor Corp., Global Support Systems, Inc.,
                  Lightning Powder Company, Inc., Monadnock Lifetime Products,
                  Inc., a Delaware corporation, NAP Property Managers, LLC,
                  Network Audit Systems, Inc., New Technologies Armor, Inc.,
                  USDS, Inc., Break-Free, Inc., Casco International, Inc.,
                  Monadnock Lifetime Products, Inc., a New Hampshire
                  corporation, Monadnock Police Training Council, Inc., NAP
                  Properties, Ltd., and Safariland Government Sales, Inc. in
                  favor of Bank of America, N.A., as Administrative Agent for
                  the Lenders(filed as Exhibit 10.9 to our Current Report on
                  Form 8-K dated August 22, 2001 and incorporated herein by
                  reference).

+10.13            Borrower Pledge Agreement Supplement, dated August 22, 2001,
                  made by the Company in favor of Bank of America, N.A, as
                  Administrative Agent for the Lenders 10.11 Subsidiaries Pledge
                  Agreement Supplement, dated August 22, 2001 made by Bengal
                  Acquisition Corp., O'Gara-Hess & Eisenhardt Armoring Company,
                  O'Gara Security Associates, Inc., International Training,
                  Inc., Break-Free Armor Corp., Monadnock Lifetime Products,
                  Inc., a Delaware corporation, Armor Holdings LP, LLC, Armor
                  Holdings GP, LLC, Armor Holdings Properties, Inc. and NAP
                  Property Managers, LLC in favor of Bank of America, N.A. , as
                  Administrative Agent for the Lenders (filed as Exhibit 10.10
                  to our Current Report on Form 8-K dated August 22, 2001 and
                  incorporated herein by reference).

*10.14            Amendment to the Amended and Restated Credit Agreement dated
                  as of December 9, 2002.

@+10.15           Employment Agreement between Jonathan M. Spiller and Armor
                  Holdings, Inc., dated as of January 1, 2002 (incorporated by
                  reference to Exhibit 10.1 to our Form 10-Q Quarterly Report
                  for the fiscal quarter ended March 31, 2002).

@+10.16           Employment Agreement between Robert R. Schiller and Armor
                  Holdings, Inc., dated as of January 1, 2002 (incorporated by
                  reference to Exhibit 10.2 to our Form 10-Q Quarterly Report
                  for the fiscal quarter ended March 31, 2002).

@+10.17           Employment Agreement between Stephen E. Croskrey and Armor
                  Holdings, Inc., dated as of January 1, 2002 (incorporated by
                  reference to Exhibit 10.3 to our Form 10-Q Quarterly Report
                  for the fiscal quarter ended March 31, 2002).

@+10.18           Employment Agreement between Warren B. Kanders and Armor
                  Holdings, Inc., dated as of January 1, 2002 (incorporated by
                  reference to Exhibit 10.4 to our Form 10-Q Quarterly Report
                  for the fiscal quarter ended March 31, 2002).

+10.19            Form of Indemnification Agreement for Directors of the
                  Registrant, dated September 21, 1993 (filed as Exhibit 10.4 to
                  Form 10-KSB, Annual Report of the Company for the fiscal year
                  ended December 31, 1993 and incorporated herein by reference).

+10.20            Form of Indemnification Agreement for Officers of the
                  Registrant, dated February 28, 1994 (filed as Exhibit 10.5 to
                  Form 10-KSB, Annual Report



                                       51
<PAGE>


                  of the Company for the fiscal year ended December 31, 1993 and
                  incorporated herein by reference).

**+10.21          American Body Armor & Equipment, Inc. 1994 Incentive Stock
                  Plan (incorporated by reference from Form S-8 filed on October
                  10, 1994, Reg. No. 33-018863).

**+10.22          American Body Armor & Equipment, Inc. 1994 Directors Stock
                  Plan (incorporated by reference from Form S-8 filed on
                  October 31, 1994, Reg. No. 33-018863).

**+10.23          Armor Holdings, Inc. Amended and Restated 1996 Stock Option
                  Plan (incorporated by reference from the Company's 1997
                  Definitive Proxy Statement with respect to the Company's 1997
                  Annual Meeting of Stockholders, held June 12, 1997, as filed
                  with the Commission on May 27, 1997).

**+10.24          Armor Holdings Inc. Amended and Restated 1996 Non-Employee
                  Directors Stock Option Plan (incorporated by reference from
                  the Company's 1997 Definitive Proxy Statement with respect to
                  the Company's 1997 Annual Meeting of Stockholders, held June
                  12, 1997, as filed with the Commission on May 27, 1997).

**+10.25          Armor Holdings, Inc. 1998 Stock Option Plan (incorporated by
                  reference to Exhibit 10.19 to the 98 10-K).

**+10.26          Armor Holdings, Inc. 1999 Stock Incentive Plan (incorporated
                  by reference from Appendix A to the Company's 1999 Definitive
                  Proxy Statement with respect to the Company's 1999 Annual
                  Meeting of Stockholders, as filed with the Commission on May
                  21, 1999).

**+10.27          Armor Holdings, Inc. 2002 Stock Incentive Plan (incorporated
                  by reference from Appendix A to our 2002 Definitive Proxy
                  Statement with respect to our 2002 Annual Meeting of
                  Stockholders, as filed with the Commission on April 30, 2002).

**+10.28          Armor Holdings, Inc. 2002 Executive Stock Plan (incorporated
                  by reference to Exhibit 10.6 to our Form 10-Q Quarterly Report
                  for the fiscal quarter ended March 31, 2002).

+10.29            Consulting Agreement between Kanders & Company, Inc. and Armor
                  Holdings, Inc. dated as of January 1, 2002 (incorporated by
                  reference to Exhibit 10.5 to our Form 10-Q Quarterly Report
                  for the fiscal quarter ended March 31, 2002).

***10.30          Amendment No. 1 to the Armor Holdings, Inc. 2002 Stock
                  Incentive Plan

*21.1             Subsidiaries of the Registrant

*23.1             Consent of PricewaterhouseCoopers LLP.

*99.1             Certification of Periodic Report under Section 906 of the
                  Sarbanes-Oxley Act of 2002.

--------------------------
*        Filed herewith.
+        Incorporated herein by reference.
@        This Exhibit represents a management contract.
**       This Exhibit represents a compensatory plan.


                                       52
<PAGE>

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


ARMOR HOLDINGS, INC.

     Report of Independent Certified Public Accountants              F-2

     Consolidated Balance Sheets                                     F-3

     Consolidated Income Statements                                  F-4

     Consolidated Statements of Stockholders' Equity and             F-5
               Comprehensive Income

     Consolidated Statements of Cash Flow                            F-6

     Notes to the Consolidated Financial Statements               F-7 - F-38


                                       F-1
<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

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

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, stockholders' equity and comprehensive
income, and cash flows present fairly, in all material respects, the financial
position of Armor Holdings, Inc. and its subsidiaries at December 31, 2002 and
2001, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2002 in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

As discussed in Note 1 to the consolidated financial statements, effective
January 1, 2002, the Company changed its method of accounting for goodwill
following adoption of Statement of Financial Accounting Standard No. 142
"Goodwill and Other Intangible Assets."



PricewaterhouseCoopers LLP
March 30, 2003
Jacksonville, Florida


                                      F-2
<PAGE>

                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                  AS OF DECEMBER 31, 2002 AND DECEMBER 31, 2001
                      (IN THOUSANDS, EXCEPT FOR SHARE DATA)

<TABLE>
<CAPTION>
                                                                                         DECEMBER 31, 2002  DECEMBER 31, 2001
                                                                                         -----------------  -----------------
<S>                                                                                     <C>                <C>
ASSETS
Current Assets:
    Cash and cash equivalents                                                                 $  12,913       $  47,489
    Accounts receivable (net of allowance for doubtful accounts of $1,428
         and $1,620)                                                                             58,513          50,119
    Costs and earned gross profit in excess of billings                                             234           5,451
    Inventories                                                                                  62,330          50,553
    Prepaid expenses and other current assets                                                    12,212           8,947
    Current assets of discontinued operations (Note 2)                                           28,825          37,562
                                                                                              ---------       ---------
Total current assets                                                                            175,027         200,121

Property and equipment (net of accumulated depreciation of $12,919 and $8,096)                   47,136          36,704
Goodwill (net of accumulated amortization of $4,024 and $4,024)                                  98,736          86,808
Patents, licenses and trademarks (net of accumulated amortization of
    $2,169 and $1,930)                                                                            7,521           6,695
Long-term assets of discontinued operations (Note 2)                                             30,285          51,105
Other assets                                                                                      9,048           6,624
                                                                                              ---------       ---------
Total assets                                                                                  $ 367,753       $ 388,057
                                                                                              =========       =========

LIABILITIES AND STOCKHOLDERS'EQUITY
Current liabilities:
    Current portion of long-term debt                                                         $   1,813       $   1,773
    Short term debt                                                                                 599             709
    Accounts payable                                                                             23,770          21,444
    Accrued expenses and other current liabilities                                               25,116          25,796
    Income taxes payable                                                                          5,913              --
    Current liabilities of discontinued operations (Note 2)                                      17,225           7,676
                                                                                              ---------       ---------
Total current liabilities                                                                        74,436          57,398

Long-term debt, less current portion                                                              5,072           4,225
Long-term liabilities of discontinued operations (Note 2)                                           168             415
                                                                                              ---------       ---------
Total liabilities                                                                                79,676          62,038

Commitments and contingencies

Stockholders' equity:
   Preferred stock, $.01 par value, 5,000,000 shares authorized; no shares issued and
     outstanding                                                                                     --              --
   Common stock, $.01 par value; 50,000,000 shares authorized; 33,593,977 and 33,065,904
     issued; 29,456,692 and 30,857,019 outstanding at December 31, 2002 and December 31,
     2001, respectively                                                                             336             331
   Additional paid-in capital                                                                   307,487         301,995
   Retained earnings                                                                             34,056          51,745
   Accumulated other comprehensive loss                                                          (4,169)         (4,473)
   Treasury stock                                                                               (49,633)        (23,579)
                                                                                              ---------       ---------
       Total stockholders' equity                                                               288,077         326,019
                                                                                              ---------       ---------
Total liabilities and stockholders' equity                                                    $ 367,753       $ 388,057
                                                                                              =========       =========
</TABLE>

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


                                      F-3
<PAGE>

                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
                         CONSOLIDATED INCOME STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
                    (IN THOUSANDS, EXCEPT FOR PER SHARE DATA)

<TABLE>
<CAPTION>
                                                              DECEMBER 31, 2002    DECEMBER 31, 2001     DECEMBER 31, 2000
                                                              -----------------    -----------------     -----------------
<S>                                                          <C>                  <C>                  <C>
REVENUES:

  Products                                                           $ 179,946           $ 149,868           $ 139,904
  Mobile Security                                                      125,171              47,232                  --
                                                                     ---------           ---------           ---------
  Total Revenues                                                       305,117             197,100             139,904
                                                                     ---------           ---------           ---------

COSTS AND EXPENSES:
  Cost of sales                                                        210,745             126,330              85,457
  Operating expenses                                                    49,836              38,659              30,286
  Amortization                                                             245               2,142               1,704
  Integration and other non-recurring charges                            5,926               3,296               2,588
                                                                     ---------           ---------           ---------

OPERATING INCOME                                                        38,365              26,673              19,869

  Interest expense, net                                                    923               3,864               1,849
  Other expense (income), net                                               51                 (82)                (67)
                                                                     ---------           ---------           ---------

INCOME FROM CONTINUING OPERATIONS BEFORE PROVISION FOR
INCOME TAXES                                                            37,391              22,891              18,087

PROVISION FOR INCOME TAXES                                              16,054               8,207               7,240
                                                                     ---------           ---------           ---------
INCOME FROM CONTINUING OPERATIONS                                       21,337              14,684              10,847
                                                                     ---------           ---------           ---------
DISCONTINUED OPERATIONS (NOTE 2):
(LOSS) INCOME FROM DISCONTINUED OPERATIONS BEFORE (BENEFIT)            (41,468)             (7,066)              8,303
PROVISION FOR INCOME TAXES
(BENEFIT) PROVISION FOR INCOME TAXES                                    (2,442)             (2,510)              2,102
                                                                     ---------           ---------           ---------
(LOSS) INCOME FROM DISCONTINUED OPERATIONS                             (39,026)             (4,556)              6,201
                                                                     ---------           ---------           ---------
NET (LOSS) INCOME                                                    $ (17,689)          $  10,128           $  17,048
                                                                     =========           =========           =========


NET (LOSS)/INCOME PER COMMON SHARE - BASIC

INCOME FROM CONTINUING OPERATIONS                                    $    0.70           $    0.61           $    0.48

(LOSS) INCOME FROM DISCONTINUED OPERATIONS                               (1.28)              (0.19)               0.27
                                                                     ---------           ---------           ---------
BASIC (LOSS) INCOME PER SHARE                                        $   (0.58)          $    0.42           $    0.75
                                                                     =========           =========           =========

NET (LOSS)/INCOME PER COMMON SHARE - DILUTED

INCOME FROM CONTINUING OPERATIONS                                    $    0.69           $    0.59           $    0.46

(LOSS) INCOME FROM DISCONTINUED OPERATIONS                               (1.26)              (0.18)               0.27
                                                                     ---------           ---------           ---------
DILUTED (LOSS) INCOME PER SHARE                                      $   (0.57)          $    0.41           $    0.73
                                                                     =========           =========           =========

WEIGHTED AVERAGE SHARES - BASIC                                         30,341              23,932              22,630
                                                                     =========           =========           =========

WEIGHTED AVERAGE SHARES - DILUTED                                       30,957              24,768              23,356
                                                                     =========           =========           =========
</TABLE>

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


                                      F-4
<PAGE>

                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
                  YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
                                                                                          ACCUMULATED
                                      COMMON STOCK           ADDITIONAL                      OTHER
                                                 PAR          PAID-IN       RETAINED     COMPREHENSIVE     TREASURY
                                    SHARES      VALUE         CAPITAL       EARNINGS          LOSS           STOCK        TOTAL
                                    ------      -----        --------       --------          ----           -----        -----
<S>                                <C>         <C>          <C>           <C>           <C>               <C>           <C>
Balance, December 31, 1999          24,514       $245        $145,480       $ 26,615        $(1,351)       $(13,106)     $157,883
Exercise of stock options              333          3           1,470                                                       1,473
Tax benefit from exercises
of options                                                        867                                                         867
Issuance of stock for
acquisitions                           217          2           2,437                                                       2,439
Repurchase of stock                                                                                         (12,606)      (12,606)
                                                                                                                         --------
Comprehensive income:
Net income                                                                    17,048                                       17,048
Foreign currency  translation
adjustments, net of taxes of $179                                                              (333)                         (333)
                                                                                                                         --------

 Total Comprehensive income                                                                                                16,715
                                    ------      -----        --------       --------        -------        --------      --------
Balance, December 31, 2000          25,064       $250        $150,254       $ 43,663        $(1,684)       $(25,712)     $166,771

Exercise of stock options            1,063         11          10,101                                                      10,112
Tax benefit from exercises
of options                                                      3,116                                                       3,116

Issuance of treasury shares
for exercises of options              (119)        (1)           (123)        (2,046)                         2,856           686
Issuance of common stock             5,765         58         117,969                                                     118,027
Issuance of stock for
acquisitions and additional                                                                                                20,691
consideration for earnouts           1,293         13          20,678
Repurchase of stock                                                                                            (723)         (723)
Comprehensive income:
                                                                                                                         --------
Net income                                                                    10,128                                       10,128
Foreign currency
translation adjustments,
net of taxes of $713                                                                         (2,789)                       (2,789)
                                                                                                                         --------

Total Comprehensive income                                                                                                  7,339
                                    ------      -----        --------       --------        -------        --------      --------
Balance, December 31, 2001          33,066       $331        $301,995       $ 51,745        $(4,473)       $(23,579)     $326,019

Exercise of stock options              528          5           4,135                                                       4,140
Tax benefit from exercises of
options                                                           832                                                         832
Sale of put options                                               525                                                         525
Repurchase of stock                                                                                         (26,054)      (26,054)
Comprehensive income:
                                                                                                                         --------
Net income                                                                   (17,689)                                     (17,689)
Foreign currency
translation adjustments,
net of taxes of $364                                                                            304                           304
                                                                                                                         --------

Total Comprehensive income                                                                                                (17,385)
                                    ------      -----        --------       --------       --------        --------      --------

Balance, December 31, 2002          33,594       $336        $307,487       $ 34,056        $(4,169)       $(49,633)     $288,077
                                    ======      =====        ========       ========       ========        ========      ========
</TABLE>

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


                                      F-5
<PAGE>


                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOW
                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                             YEAR ENDED
                                                                    ------------------------------------------------------------
                                                                    DECEMBER 31, 2002    DECEMBER 31, 2001    DECEMBER  31, 2000
                                                                    ------------------------------------------------------------
<S>                                                                   <C>                   <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Income from continuing operations                                    $   21,337            $  14,684            $  10,847
  Adjustments to reconcile income from continuing operations to
    cash used in operating activities:
     Depreciation and amortization                                          5,580                5,614                3,462
     Loss on disposal of fixed assets                                         200                  191                  110
     Deferred income taxes                                                    359                 (373)                 769
  Changes in operating assets and liabilities, net of acquisitions:
      Increase in accounts receivable                                      (2,554)             (14,880)              (3,600)
      Increase in inventories                                              (9,381)              (3,948)              (4,579)
      (Increase) decrease in prepaid expenses and other assets             (2,246)               1,049               (6,396)
      (Decrease) increase in accounts payable, accrued
        expenses and other current liabilities                             (3,754)               7,181                  381
      Increase in income taxes payable                                      6,745                6,667               (2,928)
                                                                       ----------            ---------            ---------
      Net cash provided by (used in) operating activities                  16,286               16,185               (1,934)
                                                                       ----------            ---------            ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of patents and trademarks                                         (69)                   -                  (83)
   Purchase of property and equipment                                      (5,902)              (5,644)              (4,063)
   Additional consideration for purchased businesses                       (9,375)              (3,270)
   Purchases of investments                                                     -                    -               (1,682)
   Proceeds from sale of equity securities                                      -                  843                  857
   Purchase of businesses, net of cash acquired                            (8,818)             (39,365)             (14,220)
                                                                       ----------            ---------            ---------
   Net cash used in investing activities                                  (24,164)             (47,436)             (19,191)
                                                                       ----------            ---------            ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from the issuance of common stock                                   -              117,979                    -
   Proceeds from the exercise of stock options                              4,227               10,160                1,473
   Repurchases of treasury stock                                          (26,054)                (723)             (12,606)
   Proceeds from the sale of put options                                      525                    -                    -
   Proceeds from issuance of treasury shares for the exercise
        of stock options                                                        -                  686                    -
   Cash paid for deferred loan costs                                            -                 (545)                (256)
   Cash paid for offering costs                                              (326)                   -                    -
   Repayments of long-term debt                                              (730)                (676)              (1,115)
   Repayments of debt assumed in acquisitions                                   -               (1,315)              (1,132)
   Borrowings under line of credit                                         32,372               98,286               75,647
   Repayments under line of credit                                        (32,447)            (130,981)             (43,434)
                                                                       ----------            ---------            ---------

   Net cash (used in) provided by financing activities                    (22,433)              92,871               18,577

   Effect of exchange rate changes on cash and cash equivalents              (126)              (1,459)                (333)
   Net cash used in discontinued operations                                (4,139)             (14,336)              (2,754)
                                                                       ----------            ---------            ---------

   NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                   (34,576)              45,825               (5,635)
   CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                          47,489                1,664                7,299
                                                                       ----------            ---------            ---------
   CASH AND CASH EQUIVALENTS, END OF PERIOD                            $   12,913            $  47,489                1,664
                                                                       ==========            =========            =========

   CASH AND CASH EQUIVALENTS, END OF PERIOD
       CONTINUING OPERATIONS                                           $   12,913            $  47,489            $   1,664
       DISCONTINUED OPERATIONS                                              3,638                6,230                5,593
                                                                       ----------            ---------            ---------
                                                                       $   16,551            $  53,719            $   7,257
                                                                       ==========            =========            =========
</TABLE>



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


                                       F-6
<PAGE>

                      ARMOR HOLDINGS INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company and nature of business. Armor Holdings, Inc. (the "Company" or
"Armor") is a leading manufacturer and provider of security products, vehicle
armor systems and security risk management services. Armor's products and
services are used by military, law enforcement, security and corrections
personnel throughout the world, as well as governmental agencies, multinational
corporations and non-governmental organizations. The Company is organized and
operated under three business segments: Armor Holdings Products; Armor Mobile
Security; and ArmorGroup Services. ArmorGroup Services has been classified as
discontinued operations. The amounts disclosed in the footnotes are related to
continuing operations unless otherwise indicated.

CONTINUING OPERATIONS

Armor Holdings Products. Our Armor Holdings Products Division manufactures and
sells a broad range of high quality, branded law enforcement equipment, such as
concealable and tactical body armor, hard armor, duty gear, less-lethal
munitions, anti-riot products, police batons, emergency lighting products,
forensic products, firearms accessories and weapon maintenance products. Our
products are marketed under brand names that are well-known and respected in the
military and law enforcement communities such as American Body Armor(TM),
Safariland(R), B-Square(TM), Break-Free(R), Defense Technology/Federal
Laboratories(TM), MACE(R), PROTECH(TM), NIK(R)Public Safety, Monadnock(TM)
Lifetime Products, Identicator(TM), Lightning Powder(R), SpeedFeed(TM), and
911EP(R). We sell our manufactured products primarily to law enforcement
agencies through a worldwide network of over 350 distributors and sales agents,
including approximately 200 in the United States. Our extensive distribution
capabilities and commitment to customer service and training have enabled us to
become a leading provider of security equipment to law enforcement agencies.

Armor Mobile Security. Our Armor Mobile Security Division manufactures and
installs ballistic and blast protected armoring systems for military vehicles,
commercial vehicles, military aircraft, and missile components. Under the brand
name O'Gara-Hess & Eisenhardt, we are the sole-source provider to the U.S.
military for the supply of armoring and blast protection systems for the High
Mobility Multi-purpose Wheeled Vehicle (the "HMMWV"). We have also entered into
an agreement to provide systems technical support for HMMWVs. There is currently
an installed base of approximately 3,500 up-armored HMMWVs. We provide spare
parts and maintenance services for the installed HMMWVs and we expect that our
maintenance services may increase if the U.S. military substantially increases
its HMMWV purchases or substantially increases its use of the current installed
base. Additionally, the Armor Mobile Security Division has been subcontracted to
develop a ballistically armored and sealed truck cab for the High Mobility
Artillery Rocket System ("HIMARS"), a program currently in development for the
U.S. Army. The Division also markets armor sub-systems for other tactical
wheeled vehicles. We armor a variety of commercial vehicles, including
limousines, sedans, sport utility vehicles, commercial trucks and
cash-in-transit vehicles, to protect against varying degrees of ballistic and
blast threats.

DISCONTINUED OPERATIONS

Services Division. Our Services Division provides a broad range of sophisticated
security risk management solutions to multinational corporations in diverse
industries such as natural resources, financial


                                      F-7
<PAGE>

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

services and consumer products, and to governmental and non-governmental
agencies such as the U.S. Departments of State and Defense, the United Nations,
United States Agency for International Development ("USAID") and Britain's
Department for International Development. Our clients typically have personnel
and other investments in unstable and often more risky areas of the world.
Through our offices on five continents, we provide our multinational clients
with a diversified portfolio of security solutions to assist them in mitigating
risks to their operations around the world. Our highly trained, multilingual,
and experienced security personnel work closely with our clients to create and
implement solutions to complex security problems. These services include
security planning, advice and management, security systems integration,
intellectual property asset protection, due diligence investigations and
training programs in counterintelligence, counter-surveillance, advanced driving
techniques and ballistics. We believe that many of our security services, while
often representing a small portion of our clients' overall cost of doing
business, are critical to our clients' success. We believe that this creates a
consistent demand for our premium services at attractive margins.

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

Cash and cash equivalents. We consider all highly liquid investments purchased
with maturities of three months or less, at date of purchase, to be cash
equivalents.

Concentration of credit risk. Financial instruments that potentially subject the
Company to concentrations of credit risk consist primarily of cash and cash
equivalents and trade accounts receivable. The Company maintains its cash and
cash equivalents with what it believes to be various high quality banks. Amounts
held in individual banks may periodically exceed, for brief time periods,
federally insured amounts. Our accounts receivable consist of amounts due from
customers and distributors located throughout the world. International product
sales generally require cash in advance or confirmed letters of credit on United
States ("U.S.") banks. We maintain reserves for potential credit losses. As of
December 31, 2002 and 2001, management believes that we have no significant
concentrations of credit risk.

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

Fair value of financial instruments. The carrying value of cash and cash
equivalents, accounts receivable, other receivables, accounts payable, and short
and long-term debt approximates fair value at December 31, 2002 and 2001.

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

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


                                      F-8
<PAGE>

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

Goodwill. Goodwill represents the excess of the purchase price over the fair
value of the net assets acquired in a purchase business combination. Goodwill
and other intangible assets are stated on the basis of cost. The $46.3 million
in goodwill resulting from acquisitions made by the Company subsequent to June
30, 2001 was immediately subjected to the non-amortization provisions of SFAS
142. See also "Impairment and Recent Accounting Pronouncements " which follows.

Patents, licenses and trademarks. Patents, licenses and trademarks were
primarily acquired through acquisitions accounted for by the purchase method of
accounting. Such assets are amortized on a straight-line basis over their
remaining lives useful lives.

Impairment. Long-lived assets including certain identifiable intangibles, and
the goodwill, are reviewed for annually impairment or whenever events or changes
in circumstances indicate that the carrying amount of the asset in question may
not be recoverable including, but not limited to, a deterioration of profits for
a business segment that has long-lived assets, and when other changes occur
which might impair recovery of long-lived assets. Management has reviewed our
long-lived assets and has taken an impairment charge of $31.1 million to reduce
the carrying value of the Services Division to estimated realizable value. The
method used to determine the existence of an impairment would be generally by
discounted operating cash flows estimated over the remaining useful lives of the
related long-lived assets or estimated realizable amounts on assets of
discontinued operations. Impairment is measured as the difference between fair
value and unamortized cost at the date impairment is determined.

Research and development. Research and development costs are included in
operating expenses as incurred and for the years ended December 31, 2002, 2001
and 2000, approximated $2,968,000, $2,353,000 and $2,590,000, respectively.

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

Income taxes. We account for income taxes pursuant to Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes". Under the
asset and liability method specified thereunder, deferred taxes are determined
based on the difference between the financial reporting and tax bases of assets
and liabilities. Deferred tax liabilities are offset by deferred tax assets
relating to net operating loss carryforwards and deductible temporary
differences. Future benefits obtained either from utilization of net operating
loss carryforwards or from the reduction in the income tax asset valuation
allowance existing on September 20, 1993 have been and will be applied to reduce
reorganization value in excess of amounts allocable to identifiable assets. At
December 31, 2002 and 2001, our consolidated foreign subsidiaries have
unremitted earnings of approximately $3.0 million and $1.3 million, respectively
on which we have not recorded a provision for United States Federal income taxes
since these earnings are considered to be permanently reinvested. Such foreign
earnings have been


                                      F-9
<PAGE>

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

taxed according to the regulations existing in the countries in which they were
earned.

Revenue recognition. We record products revenue at the time of shipment. Returns
are minimal and do not materially effect the financial statements.

We record revenue from its Mobile Security Division when the vehicle is shipped,
except for larger commercial contracts typically longer than four months in
length and the contract for the delivery of HMMWVs to the U.S. Government which
continues through 2005. Revenue from such contracts is recognized on the
percentage of completion, units-of-work performed method. HMMWV units sold to
the U.S. Government are considered complete when the onsite Department of
Defense officer finishes the inspection of the HMMWV and approves it for
delivery. Should such contracts be in a loss position, the entire estimated loss
would be recognized for the balance of the contract at such time. Current
contracts are profitable.

We record service revenue as services are provided on a contract by contract
basis. Revenues from service contracts are recognized over the term of the
contract.

Advertising. We expense advertising costs as expense in the period in which they
are incurred.

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

Comprehensive income and foreign currency translation. In accordance with SFAS
No. 130, "Reporting Comprehensive Income", assets and liabilities denominated in
a foreign currency are translated into U.S. dollars at the current rate of
exchange existing at year-end and revenues and expenses are translated at the
average monthly exchange rates. The cumulative translation adjustment, net of
tax, which represents the effect of translating assets and liabilities of our
foreign operations is recorded as a reduction of equity of $4,169,000 and
$4,473,000 for the years ended December 31, 2002 and 2001, respectively, and is
classified as accumulated other comprehensive loss. The current year change in
the accumulated amount, net of tax, is included as a component of comprehensive
income.

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


                                      F-10
<PAGE>

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

If compensation cost for stock option grants had been determined based on the
fair value on the grant dates for 2002, 2001 and 2000 consistent with the method
prescribed by SFAS No. 123, the Company's net earnings and earnings per share
would have been adjusted to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                            2002             2001          2000
                                                          --------          -------       -------
                                                          (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                    <C>               <C>            <C>
Net income as reported                                    $(17,689)         $10,128       $17,048
Deduct:  Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects                  (5,053)          (2,435)         (803)
                                                          --------          -------       -------
                                                          $(22,742)         $ 7,693       $16,245
                                                          ========          =======       =======

Earnings per share:
  Basic - as reported                                     $  (0.58)         $  0.42       $  0.75
                                                          ========          =======       =======
  Basic - pro forma                                       $  (0.75)         $  0.32       $  0.72
                                                          ========          =======       =======

  Diluted - as reported                                   $  (0.57)         $  0.41       $  0.73
                                                          ========          =======       =======
  Diluted - pro forma                                     $  (0.74)         $  0.31       $  0.70
                                                          ========          =======       =======
</TABLE>

Reclassifications. Certain reclassifications have been made to the 2001 and 2000
financial statements in order to conform to the presentation adopted for 2002.
These reclassifications had no effect on net income or retained earnings.

Recent accounting pronouncements. In June 2001, the Financial Accounting
Standards Board (FASB) issued SFAS No. 141, "Business Combinations." SFAS No.
141 requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. This statement specifies that
certain acquired intangible assets in a business combination be recognized as
assets separately from goodwill and that existing intangible assets and goodwill
be evaluated for these new separation requirements. The adoption of this
statement did not have a material impact on our consolidated financial
statements.

In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 changes the accounting for goodwill from an amortization
method to an impairment-only approach. Amortization of goodwill, including
goodwill recorded in past business combinations, ceased upon adoption of this
statement. In addition, this statement requires that goodwill be tested for
impairment at least annually at the reporting unit level. We implemented SFAS
No. 142 on January 1, 2002. In connection with the adoption of SFAS 142, we
completed in the second quarter the transitional goodwill impairment test that
compared the fair value of each reporting unit to its carrying value and
determined that no impairment existed. The goodwill resulting from acquisitions
made by us subsequent to June 30, 2001 was immediately subject to the
non-amortization provisions of SFAS 142. Had we been accounting for goodwill
under SFAS 142 for all periods presented, our net income and earnings per share
would have been as follows:


                                      F-11
<PAGE>

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

<TABLE>
<CAPTION>
                                                         DECEMBER 31,2002    DECEMBER 31, 2001     DECEMBER 31, 2000
                                                         ----------------    -----------------     -----------------
                                                                   (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                       <C>                  <C>                 <C>
Reported net (loss)income                                   $  (17,689)          $   10,128          $   17,048
Add back goodwill amortization, net of tax                          --                3,044               2,943
                                                            ----------           ----------          ----------
 Actual/pro forma adjusted net(loss)income                  $  (17,689)          $   13,172          $   19,991
                                                            ==========           ==========          ==========

Basic earnings per share
  Reported basic (loss) income per share                    $    (0.58)          $     0.42          $     0.75
  Goodwill amortization, net of tax                                 --                 0.13                0.13
                                                            ----------           ----------          ----------
  Actual/pro forma basic (loss) income per share            $    (0.58)          $     0.55          $     0.88
                                                            ==========           ==========          ==========

Diluted earnings per share
  Reported diluted (loss) income per share                  $    (0.57)          $     0.41          $     0.73
  Goodwill amortization, net of tax                                 --                 0.12                0.13
                                                            ----------           ----------          ----------
  Actual/pro forma diluted (loss) income per share          $    (0.57)          $     0.53          $     0.86
                                                            ==========           ==========          ==========
</TABLE>

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

In October 2001, the FASB issued Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS
144). SFAS 144 establishes a "primary-asset" approach to determine the cash flow
estimation period for a group of assets and liabilities that represents the unit
of accounting for a long-lived asset to be held and used. SFAS 144 requires that
a long-lived asset to be (1) abandoned, (2) exchanged for a similar productive
asset, or (3) distributed to owners in a spin-off be considered held and used
until it is abandoned, exchanged, or distributed. SFAS 144 requires (1) that
spin-offs and exchanges of similar productive assets to be recorded at the lower
of carrying value or fair value, and that such assets be classified as held and
used until disposed of and (2) that any impairment loss resulting from a
spin-off or exchange of similar productive assets be recognized upon asset
disposition. SFAS 144 also states that the total assets and total liabilities of
discontinued business segments shall be presented in separate captions in assets
and liabilities. SFAS 144 also provides that future losses, if any, of
discontinued business segments shall be reported as incurred. Effective January
1, 2002, we adopted SFAS 144. The reclassification of the Services division to
discontinued operations and subsequent reduction in its carrying value was a
result of our adoption of SFAS 144 (See Note 2).


                                      F-12
<PAGE>

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

In April 2002, the FASB issued Statement of Financial Accounting Standards No.
145, "Recission on FASB 4, 44 and 64, Amendment of FASB Statement No. 13 and
Technical Corrections" (SFAS 145). Under SFAS 145, gains and losses related to
the extinguishment of debt should no longer be segregated on the income
statement from continuing operations. The provisions of SFAS 145 are effective
for fiscal years beginning after May 15, 2002 with early adoption encouraged.
The effects of adopting this standard will not have a material effect on us.

In June 2002, the FASB issued Statement of Financial Accounting Standard 146,
"Accounting for Costs Associated with Exit or Disposal Activities" (SFAS 146).
SFAS 146 addresses financial accounting and reporting for costs associated with
exit or disposal activities and nullifies Emerging Issues Task Force Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." FAS 146 is effective for exit or disposal activities initiated
on or after December 31, 2002. The effects of adopting this standard will not
have a material effect on the us.

In December 2002, the FASB issued Statement of Financial Accounting Standard
148, "Accounting for Stock-Based Compensation - Transition and Disclosure" (SFAS
148). SFAS 148 provides alternative methods of transition for a voluntary change
to the fair value based method of accounting for stock-based employee
compensation. In addition, SFAS 148 amends the disclosure requirements of
Statement of Financial Accounting Standard 123, "Accounting for Stock-Based
Compensation" (SFAS 123), to require prominent disclosures in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results. The
disclosure requirements of SFAS 148 are included in this document.



                                      F-13
<PAGE>

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

2.  DISCONTINUED OPERATIONS

On July 15, 2002, we announced plans to sell the Services division and the
retention of Merrill Lynch & Company to assist in the sale. In accordance with
Statement of Accounting Standards 144, Accounting for Impairment or Disposal of
Long-Lived Assets, the assets and liabilities of the Services division have been
classified as held for sale, with its operating results in the current and prior
periods reported in discontinued operations for the year ended December 31,
2002, 2001 and 2000. USDS, Inc., a subsidiary providing certain training
services, formerly reported as a part of the Services Division is not included
in the amounts classified as assets held for sale. The assets and liabilities as
well as the operating results of USDS, Inc. have been reclassified to the Armor
Holdings Products Division where management oversight currently resides.

On January 24, 2003, we executed an agreement to negotiate exclusively with an
undisclosed party for the sale the Security consulting business of our
ArmorGroup Services Divisiion, headquartered in London. Separately, on January
16, 2003 we executed an agreement to negotiate exclusively with an undisclosed
party for the sale of the ArmorGroup Integrated Systems business of our
ArmorGroup Services Division. The terms of both transactions and the identities
of both buyers are protected by confidentiality agreements. These two
transactions represent approximately 94% of the net assets of the Services
Division, currently reported as Discontinued Operations.

Both transactions are subject to, among other conditions, ongoing due diligence
and the execution of definitive purchase agreements.

Based upon our analysis and discussions with our advisors regarding the
estimated realizable value of the Services Division, we reduced the carrying
value of the Services Division, and recorded an impairment charge of $30.3
million. This impairment charge consisted of approximately $6.1 million in
estimated disposal costs and a $24.2 million non-cash goodwill reduction. The
reduction in the carrying value of the Services Division is Management's
estimate based upon all of the best information currently available, including
discussions with its investment bankers. The actual proceeds from the disposal
of our Services Division may differ materially from our current estimates and
therefore could result in either a gain or a loss upon final disposal.

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

As a result of the restructuring plan, we recorded a pre-tax charge of $10.3
million. As of December 31, 2002, we had a remaining liability of $270,000 after
fiscal year 2002 utilization of $84,000 relating to lease termination costs. The
remaining liability has been classified in accrued expenses in and other current
liabilities discontinued operations on the consolidated balance sheet.


                                      F-14
<PAGE>

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

The following is a summary of the operating results of the discontinued
operations for the year ended December 31, 2002, 2001 and 2000.

<TABLE>
<CAPTION>
                                                           DECEMBER 31, 2002   DECEMBER 31, 2001   DECEMBER 31, 2000
                                                           -----------------   -----------------   -----------------
                                                                                (IN THOUSANDS)
<S>                                                       <C>                 <C>                 <C>
   Revenue                                                      $ 98,263           $ 94,928           $ 81,051
   Cost of sales                                                  75,779             65,021             52,042
                                                                --------           --------           --------
   Gross Profit                                                   22,484             29,907             29,009
   Operating expenses                                             30,588             24,496             20,055
   Amortization expenses                                              --              1,519              1,725
   Charge for impairment of long-lived assets                     30,296                 --                 --
   Restructuring and related charges                                  --             10,257                 --
   Equity in earnings of investees                                    --                 --                (87)
   Integration and other non-recurring charges                     2,623                776                702
                                                                --------           --------           --------
   Operating (loss) income                                       (41,023)            (7,141)             6,614
   Interest expense, net                                             346                143                 47
   Other expense (income), net                                        99               (218)            (1,736)
                                                                --------           --------           --------
   (Loss) income from discontinued operations before
   provision (benefit) for income taxes                          (41,468)            (7,066)             8,303
   (Benefit) provision for income taxes (a)                       (2,442)            (2,510)             2,102
                                                                --------           --------           --------
   (Loss) income from discontinued  operations                  $(39,026)          $ (4,556)          $  6,201
                                                                ========           ========           ========
</TABLE>

(a)  Fiscal 2002 income taxes exclude additional expense of $1,475,000 per
     paragraphs 26 and 27 of SFAS No. 109 included in income from continuing
     operations on a consolidated basis. See Note 13.


                                      F-15
<PAGE>

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

The following is a summary of the assets and liabilities of our discontinued
operations:

<TABLE>
<CAPTION>
                                                     DECEMBER 31, 2002     DECEMBER 31, 2001
                                                     -----------------     -----------------
                                                                  (IN THOUSANDS)
<S>                                                 <C>                    <C>
Assets
  Cash and cash equivalents                                $ 3,638              $ 6,230
  Accounts receivable, net                                  16,228               24,040
  Other current assets                                       8,959                7,292
                                                           -------              -------
      Total current assets                                  28,825               37,562
  Property, plant and equipment, net                        12,481                9,358
  Goodwill, net                                             12,995               36,865
  Other assets                                               4,809                4,882
                                                           -------              -------
 Total assets of discontinued operations                   $59,110              $88,667
                                                           =======              =======

Liabilities
  Current portion of long-term debt                        $   186              $   282
   Short-term debt                                             350                  681
   Accounts payable                                          2,405                2,692
   Accrued expenses and other current liabilities           14,284                4,021
                                                           -------              -------
       Total current liabilities                            17,225                7,676
   Long-term debt                                              168                  415
                                                           -------              -------
Total liabilities of discontinued operations               $17,393              $ 8,091
                                                           =======              =======
</TABLE>

3. COMPREHENSIVE INCOME

The components of comprehensive income, net of tax benefits of $364,000,
$713,000 and $179,000 for the years ended December 31, 2002, 2001 and 2000, are
listed below:

<TABLE>
<CAPTION>
                                           DECEMBER 31, 2002   DECEMBER 31, 2001    DECEMBER 31, 2000
                                           -----------------   -----------------    -----------------
                                                                (IN THOUSANDS)
<S>                                       <C>                 <C>                  <C>
Net (loss) income                              $(17,689)          $ 10,128           $ 17,048
Other comprehensive loss:
   Foreign currency translations, net
   of tax                                           304             (2,789)              (333)
                                               --------           --------           --------
Comprehensive (loss) income:                   $(17,385)          $  7,339           $ 16,715
                                               ========           ========           ========
</TABLE>


                                      F-16
<PAGE>

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

4. BUSINESS COMBINATIONS

We have completed numerous purchase business combinations for cash and/or shares
of our common stock and assumption of liabilities in certain cases. In the three
years in the period ended December 31, 2002, the following acquisitions were
completed:

<TABLE>
<CAPTION>
                                                                       TOTAL               SHARES       VALUE OF
                                                                   CONSIDERATION           ISSUED        SHARES
                                                                   -------------           ------        ------
                                                                        (IN THOUSANDS, EXCEPT SHARES ISSUED)
<S>                                                               <C>                 <C>             <C>
2002
----

Aggregate 2002 acquisitions (1)                                          $ 8,818               --              --
Additional purchase price paid/issued for acquisition earnouts             9,375               --              --
                                                                        --------        ---------        --------
                                                                         $18,193               --              --

2001
----

Aggregate 2001 acquisitions (2)                                          $59,887        1,224,302        $ 19,604
Additional purchase price paid/issued for acquisition earnouts             3,904           68,888           1,087
                                                                        --------        ---------        --------
                                                                        $ 63,791        1,293,190        $ 20,691
                                                                        ========        =========        ========

2000
----

Aggregate 2000 acquisitions (3)                                          $14,220               --          $   --
Additional purchase price paid/issued for acquisition earnouts               200           14,996             200
                                                                        --------        ---------        --------
                                                                         $14,420           14,996          $  200
                                                                        ========        =========        ========
</TABLE>

(1)  Includes Speedfeed, Inc., Foldable Products Group, B-Square, Inc., Evi-Paq,
     Inc., Trasco Bremen and 911 Emergency Products.

(2)  Includes O'Gara-Hess & Eisenhardt Companies, Guardian and Identicator.

(3)  Includes Breakfree, Inc., Monadnock Lifetime Products and Lightning Powder.


                                      F-17
<PAGE>

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

Businesses acquired are included in consolidated results including discontinued
operations from the date of acquisition. Pro forma results of the 2002 and 2000
acquisitions are not presented as they would not differ by a material amount
from actual results. The following unaudited pro forma consolidated results are
presented to show the results on a pro forma basis as if the 2001 acquisitions
had been made as of January 1, 2001 and January 1, 2000:
<TABLE>
<CAPTION>

                                                                 2001                2000
                                                         -----------------       --------------
                                                                  (IN THOUSANDS, EXCEPT
                                                                     PER SHARE DATA)
           <S>                                          <C>                      <C>
            Revenues                                          $ 370,842           $ 333,375
            Net income                                        $   6,453           $  14,325
            Basic earnings per share                          $    0.26           $    0.61
            Diluted earnings per share                        $    0.25           $    0.59
            Weighted average shares - basic                      24,579              23,639
            Weighted average shares - diluted                    25,415              24,365
</TABLE>


The changes in the carrying amount of goodwill for the year ended December 31,
2002, are as follows:

                                    Products    Mobile Security     Total
                                    ---------------------------------------
                                                (in thousands)
Balance at January 1, 2001           $52,845        $33,963        $86,808
Goodwill acquired during year          7,298          4,630         11,928
                                     -------        -------        -------
Balance at December 31, 2002         $60,143        $38,593        $98,736
                                     -------        -------        -------

5.    INVENTORIES

 The components of inventory as of December 31, 2002 and 2001 are as follows:

                                                     2002             2001
                                                   -------          -------
                                                         (IN THOUSANDS)
              Raw materials                        $30,211          $28,796
              Work-in-process                       15,733           12,941
              Finished goods                        16,386            8,816
                                                   -------          -------
                                                   $62,330          $50,553
                                                   =======          =======


                                      F-18
<PAGE>

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

6. PROPERTY AND EQUIPMENT

Property and equipment as of December 31, 2002 and 2001 are summarized as
follows:

                                                        2002           2001
                                                      --------       --------
                                                          (IN THOUSANDS)
              Land                                    $  5,557       $  3,571
              Buildings and improvements                23,964         16,083
              Machinery and equipment                   30,534         25,146
                                                      --------       --------
              Total                                     60,055         44,800
              Accumulated Depreciation                 (12,919)        (8,096)
                                                      --------       --------
                                                      $ 47,136       $ 36,704
                                                      ========       ========

Depreciation expense for the years ended December 31, 2002, 2001 and 2000 was
approximately $4,953,000, $3,031,000, and $2,074,000 respectively. In the
statement of operations on continuing operations for the years ended December
31, 2002, 2001 and 2000, depreciation expense has been reduced by $130,000 in
each year for the amortization of the proceeds received under an economic
development grant received from the Department of Housing and Urban Development.


                                      F-19
<PAGE>

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

7. ACCRUED EXPENSES AND OTHER CURRENT LIABILTIES

Accrued expenses and other current liabilities as of December 31, 2002 and 2001
are summarized as follows:

                                                              2002        2001
                                                            -------     -------
                                                                (IN THOUSANDS)
              Accrued expenses                              $16,988     $18,269
              Customer Deposits                               6,302       7,002
              Deferred consideration for acquisitions         1,826         525
                                                            -------     -------
                                                            $25,116     $25,796
                                                            =======     =======

8.  DEBT

                                                                2002       2001
                                                               ------     ------
                                                                 (IN THOUSANDS)

Credit facility (a)                                            $   --    $   --

Ontario Industrial Development Authority Variable Rate
    Demand Industrial Development Revenue Bonds, Series 1989    2,800     3,000
    payable in annual installments of $200 to $300, through
    August 1, 2014, with interest paid monthly at varying
    rates

Note payable in scheduled installments through 2013, with an
    interest rate of 5%.                                        1,582        --

Economic Development Revenue Bonds, payable in scheduled
    installments through September 2016, with a variable
    interest rate approximating 85% of the bond equivalent
    yield of the 13 week U.S. Treasury bills (not to exceed
    12%) which approximated 1.5% and 2.75% at December 31,
    2002 and 2001, respectively.                                1,075     1,150

Note to former officer payable in monthly principal and
    interest installments of $7 through December 31, 2009
    with an imputed interest rate of 9.25%                        399       438

Minimum guaranteed royalty to former officer payable in
    monthly principal and interest installments of $4
    through August 2005, with an imputed interest rate of
    9.2%                                                          114       152

Minimum guaranteed royalty to former officer payable in
    monthly principal and interest installments of $36
    through April 2005, with an imputed interest rate of
    7.35%                                                         915     1,258
                                                               ------    ------
                                                               $6,885    $5,998
Less current portion                                           (1,813)   (1,773)
                                                               ------    ------
                                                               $5,072    $4,225
                                                               ======    ======

Credit Facility (a) - On August 22, 2001, we entered into an Amended and
Restated Credit Agreement (the "Credit Agreement") with Bank of America,
Canadian Imperial Bank of Commerce, First Union National Bank, Suntrust Bank,
Republic Bank, Keybank National Association, and ING (U.S.) Capital LLC.
Pursuant to the Credit Agreement, the lenders established a $120,000,000 line of
credit for our benefit expiring on February 12, 2004. The Credit Agreement,
among other things, provides for (i) total maximum borrowings of $120,000,000
and (ii) the capability for borrowings in foreign currencies. All borrowings
under the Credit Agreement bear interest at either (i) a base rate, plus an
applicable margin ranging from .000% to .375%, depending on certain conditions,
(ii) a eurodollar rate, plus an applicable margin ranging from 1.125% to 1.875%,
depending on certain conditions, or (iii) with respect


                                      F-20
<PAGE>

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

to foreign currency loans, a fronted offshore currency rate, plus an applicable
margin ranging from 1.125% to 1.875%, depending on certain conditions. In
addition, the Credit Agreement includes both negative and affirmative covenants
customary for a credit facility of this nature, such as a limitation on capital
expenditures, foreign indebtedness, minimum fixed charge coverage and a
restriction against paying dividends.

The Credit Agreement also provides that Bank of America will make swing-line
loans to us of up to $5,000,000 for working capital purposes and will issue
letters of credit on our behalf of up to $20,000,000. As of December 31, 2002,
we had no outstanding borrowings under our Credit Facility, and Bank of America
had issued $11.4 million in letters of credit on our behalf under the Credit
Agreement. All indebtedness under the Credit Agreement will mature on February
12, 2004. We had approximately $6.9 million in other long-term debt, net of
current portion, consisting primarily of $3.9 million in industrial development
revenue bonds.

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

Maturities of long-term debt are as follows:

                YEAR ENDED                            (IN THOUSANDS)
                ----------
              2003                                          $ 1,813
              2004                                              917
              2005                                              550
              2006                                              393
              2007                                              443
              Thereafter                                      2,769
                                                            -------
                                                            $ 6,885
                                                            =======

9. INTEGRATION AND OTHER NON-RECURRING CHARGES

As a result of its acquisition program, we incurred integration and other
non-recurring charges of approximately $5.9 million, $3.3 million and $2.6
million for the years ending December 31, 2002, 2001 and 2000, respectively.
These costs related to the relocation of assets and personnel, severance costs,
systems integration, domestic and international tax restructuring as well as
integrating the sales and marketing functions for the acquired companies.

10.  COMMITMENTS AND CONTINGENCIES

Employment contracts. We are party to several employment contracts at year
ending December 31, 2002 with certain members of management. Such contracts are
for varying periods and include restrictions on competition after termination.
These agreements provide for salaries, bonuses and other

                                      F-21

<PAGE>

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

benefits and also specify and delineate the granting of various stock options.

Legal/litigation matters. In 1997 we terminated several agreements with a Dutch
company, Airmunition International, B.V. (AMI), and with a British company,
Crown Limited (Crown). AMI and Crown started an action against us before the
Netherlands Arbitration Institute in Rotterdam, Holland claiming breach of
contract and unauthorized use of confidential information and seeking damages of
$20.5 Million. The case is currently pending, and while we are contesting the
allegations vigorously, we are unable to predict the outcome of this matter.
Although we do not have insurance coverage for this matter, at this time, we do
not believe this matter will have a material impact on our financial position,
operations or liquidity.

On January 16, 1998, our Services Division ceased operations in Angola. The
cessation of operations in Angola was dictated by that government's decision to
deport all of our expatriate management and supervisors. As a result of the
cessation of operations in Angola, our Services Division became involved in
various disputes with SHRM S.A.("SHRM"), its minority joint venture partner
relating to the Angolan joint venture known as Defense System International
Africa ("DSIA"). On March 6, 1998, SIA (a subsidiary of SHRM) filed a complaint
against Defense Systems France, SA ("DSF") before the Commercial Court of
Nanterre (Tribunal de Commerce de Nanterre) seeking to be paid an amount of
$577,286 corresponding to an alleged debt of DSIA to SIA. On June 27, 2000, the
judge of the Paris Commercial Court ruled SHRM did not provide evidence required
to establish its standing and the proceedings brought by SHRM were cancelled. On
October 3, 2000, a winding up petition was served by DSF against DSIA. On
October 31, 2000, SHRM filed a counterclaim seeking to have this winding up
petition dismissed. On November 28, 2000, SHRM appealed the June 27, 2000
judgement rendered by the Paris Commercial Court, claiming that the Paris
Commercial Court no longer had jurisdiction over the case. On September 18,
2001, the Paris Commercial Court stayed the proceeding pending the outcome of
the appeal. A hearing with the Court of Appeal on the standing of SHRM and on
the merits was held on October 24, 2002. The Commercial Court of Nanterre has
stayed the proceedings before it, pending the decisions of the Court of Appeal
and the Paris Commercial Court. In February 2003, the Court of Appeal ruled
against SHRM and its parent entity, Compass Group, effectively ending all
further proceedings on the merits of Compass'claims. The decision is appealable
by Compass.

In 1999 and prior to our acquisition of OHEAC in 2001, O'Gara-Hess & Eisenhardt
Armoring do Brasil Ltda. (OHE Brazil) was audited by the Brazilian federal tax
authorities and assessed over Ten Million Reals (US$2.8 Million based on the
exchange rate as of December 31, 2002). OHE Brazil has appealed the tax
assessment and the case is pending. To the extent that there may be any
liability, we believe that we are entitled to indemnification from Kroll, Inc.
under the terms of our purchase agreement dated April 20, 2001, despite the
denial by Kroll, Inc. of any such liability, because the events occurred prior
to our purchase of the O'Gara Companies from Kroll, Inc. Additionally, Kroll,
Inc. has provided us with a US$1.5 Million letter of credit until August 21,
2008 in order to collateralize Kroll's indemnification obligation, which is
capped at US$5 Million with respect to this matter. At this time, we do not
believe this matter will have a material impact on our financial position,
operations or liquidity.

In 1999 and prior to our acquisition of OHEAC in 2001, several of the former
employees of Kroll O'Gara Company de Mexico, S.A. de C.V. (O'Gara Mexico), a
subsidiary of OHEAC, commenced labor claims against O'Gara Mexico seeking
damages for unjustified termination. These cases are still pending before


                                      F-22
<PAGE>

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

the labor board in Mexico City. The terminated employees are seeking back pay
and benefits since the date of termination amounting to approximately US
$2,890,998, and accruing at approximately US $50,400 per month. To the extent
that there may be any liability, we believe that we are entitled to
indemnification from Kroll, Inc. under the terms of our purchase agreement dated
April 20, 2001, despite the denial by Kroll, Inc. of any such liability, because
the events occurred prior to our purchase of the O'Gara Companies from Kroll,
Inc. Although we do not have any insurance coverage for this matter, at this
time, we do not believe this matter will have a material impact on our financial
position, operations or liquidity.

In August 2001, Defense Technology Corporation of America ("DTC"), one of our
subsidiaries, received a civil subpoena from the United States Environmental
Protection Agency requesting information pursuant to Section 104(e) of the
Comprehensive Environmental Response, Compensation and Liability Act regarding
the possible impact of the Casper, Wyoming tear gas facility on the environment.
DTC responded to the request, and to date the EPA has not taken any further
action with respect to the matter. At this time, we do not believe this matter
will have a material impact on our financial position, operations or liquidity.

In December 2001, OHE France sold its industrial bodywork business operated
under the name Labbe/Division de O'Gara Hess & Eisenhardt France/ Carrosserie
Industriells to SNC Labbe. Subsequent to the sale the Labbe Family Trust (LFT),
owner of the leasehold interest upon which the Carrosserie business is operated,
sued OHE France and SNC Labbe claiming that transfer of the leasehold was not
valid because the LFT had not given its consent to the transfer as required
under the terms of the lease. Further, LFT seeks to have OHE France, as the sole
tenant, maintain and repair the leased building. The approximate cost of
renovating the building is estimated to be between US $3.2 and US $6.4 million
based on the exchange rate as of December 31, 2002. The case is currently
pending, and while we are contesting the allegations vigorously, we are unable
to predict the outcome of this matter. Although we do not have any insurance
coverage for this matter, at this time, we do not believe this matter will have
a material impact on our financial position, operations or liquidity.

In December 2001, an action was filed against us in the Regional Court of
Nuremberg, Germany alleging unauthorized use of the trademarks "First Defense"
and "First Defense Aerosol Pepper Projector." The case is currently pending, and
while we are contesting the allegations vigorously, we are unable to predict the
outcome of this matter. Although we do not have any insurance coverage for this
matter, at this time, we do not believe this matter will have a material impact
on our financial position, operations or liquidity.

On or about March 22, 2002, O'Gara-Hess & Eisenhardt Armoring Company (OHEAC),
one of our subsidiaries, received a civil subpoena from the Department of
Defense (DOD) requesting documents and information concerning various quality
control documentation regarding parts delivered by its subcontractors and
vendors in support of the High Mobility Multipurpose Wheeled Vehicles (HMMWV)
armored at its Fairfield, Ohio facility for the period October 1, 1999 through
May 1, 2001. OHEAC has complied fully with the subpoena. In early 2003, OHEAC
was advised that the Department of Justice (DOJ) was also investigating separate
claims against OHEAC filed by individuals that involve the same time frame and
issues covered by the DOD subpoena. OHEAC is responding to the government's
questions and expects to meet with the DOJ to discuss the current status of the
investigation and explore closure. Given the stage of these investigations, it
is not possible


                                      F-23
<PAGE>

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

to predict the outcome of this matter. To the extent that there may be any
liability, we believe that we are entitled to indemnification from Kroll, Inc.
under the terms of our purchase agreement dated April 20, 2001, despite the
denial by Kroll, Inc. of any such liability, because the events occurred prior
to our purchase of the O'Gara Companies from Kroll, Inc. At this time, we do not
believe this matter will have a material impact on our financial position,
operations or liquidity.

In June 2002, O'Gara Hess & Eisenhardt France S.A. (OHE France) received a tax
reassessment from the French tax authorities for the tax years ended on March
31, 1999, 2000 and 2001 totaling approximately (Euro) 720,940 (Euro) (US$755,761
based on the exchange rate as of December 31, 2002). OHE France has appealed the
tax assessment and the case is pending. To the extent that there may be any
liability, we believe that we are entitled to indemnification from Kroll, Inc.
under the terms of our purchase agreement dated April 20, 2001, despite the
denial by Kroll, Inc. of any such liability, because the events occurred prior
to our purchase of the O'Gara Companies from Kroll, Inc. At this time, we do not
believe this matter will have a material impact on our financial position,
operations or liquidity.

On October 18, 2002 we were notified by the Internal Revenue Service that our
tax return for the tax year ended December 31, 2000 had been selected for
examination. Further, on January 30, 2003 we were notified that our tax return
for the tax year ended December 31, 2001 had been selected for examination. The
examinations are currently pending, and at this time we are unable to predict
the outcome of these matters.

In October 2002, we were sued in the United States District Court for the
District of Wyoming. The plaintiffs in that lawsuit asserted various state law
tort claims and federal environmental law claims under the Resource Conservation
and Recovery Act and the Clean Air Act stemming from DTC's Casper, Wyoming tear
gas plant. The plaintiffs have not yet quantified their alleged damages. The
plaintiffs have filed their suit as a potential class action, but have not yet
sought judicial certification of the class. The alleged actions took place over
time periods during which we were covered by different insurance policies. We
have notified our insurance carriers of the suit. Our prior insurance carrier
has agreed, under a full reservation of rights, including with respect to any
liability which relates to the time its policy was in effect, to provide a
defense and to address the question of liability indemnification in the future.
Our current insurance carrier has declined defense and indemnification coverage.
While we do not carry specific environment insurance coverage, we have reserved
the right to challenge our insurance carrier's determination. The case is
currently pending, and while we are contesting the allegations vigorously, we
are unable to predict the outcome of this matter. At this time, we do not
believe this matter will have a material impact on our financial position,
operations or liquidity.

In addition to the above, in the normal course of business, we are subjected to
various types of claims and currently have on-going litigations in the areas of
products liability and general liability. Our products are used in a wide
variety of law enforcement situations and environments. Some of our products can
cause serious personal or property injury or death if not carefully and properly
used by adequately trained personnel. We believe that we have adequate insurance
coverage for most claims that are incurred in the normal course of business. In
such cases, the effect on our financial statements is generally limited to the
amount of our insurance deductible or self-insured retention. Our annual
insurance premiums and self insurance retention amounts have risen significantly
over the past several years and may continue to do so to the extent we are able
to purchase insurance


                                      F-24
<PAGE>

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

coverage. At this time, we do not believe any such claims or litigations will
have a material impact on our financial position, operations and liquidity.

11. OTHER INCOME

On May 31, 2000, we sold our investment in JSGS which is Jardine Securicor
Gurkha Services Limited for a pre-tax gain of approximately $1.7 million
included in other income.

12. INFORMATION CONCERNING BUSINESS SEGMENTS AND GEOGRAPHICAL SALES

         We are a leading manufacturer and provider of security products,
vehicle armor systems, and security training services. Our products and services
are used by military, law enforcement, security and corrections personnel
throughout the world, as well as governmental agencies, multinational
corporations and non-governmental organizations. Our continuing operations are
organized and operated under two business segments: Armor Holdings Products and
Armor Mobile Security. Our Services division has been classified as discontinued
operations and is no longer included in this presentation (See Note 2).

         Armor Holdings Products. Our Armor Holdings Products division
manufactures and sells a broad range of high quality equipment marketed under
brand names that are well known and respected in the military and law
enforcement communities. Products manufactured by this division include
concealable and tactical body armor, hard armor, duty gear, less-lethal
munitions, anti-riot products, police batons, emergency lighting products,
forensic products firearms accessories and weapon maintenance products. USDS,
Inc., a small subsidiary providing certain training services formerly reported
as a part of the Services division, is not included in the amounts classified as
assets held for sale or discontinued operations and has been reclassified to our
Armor Holdings Products division where management oversight currently resides.

         Armor Mobile Security. Our Armor Mobile Security division manufactures
and installs ballistic and blast protection armoring systems for military
vehicles, commercial vehicles, military aircraft and missile components. Under
the brand name O'Gara-Hess & Eisenhardt ("O'Gara"), we are the sole-source
provider to the U.S. military for the supply of armoring and blast protection
systems as well as maintenance services for the High Mobility Multi-purpose
Wheeled Vehicle (HMMWV, commonly known as the Humvee). Additionally, we have
been subcontracted to develop a ballistically armored and sealed truck cab for
the High Mobility Artillery Rocket System (HIMARS) currently in development for
the U.S. Army. We armor a variety of commercial vehicles including limousines,
sedans, sport utility vehicles, commercial trucks and cash-in-transit vehicles,
to protect against varying degrees of ballistic and blast threats. The Armor
Mobile Security division was created in connection with our acquisition of
O'Gara on August 22, 2001 (the "O'Gara acquisition").

         We have invested substantial resources outside of the United States and
plan to continue to do so in the future. The Armor Mobile Security division has
invested substantial resources in Europe and South America. These operations are
subject to the risk of new and different legal and regulatory requirements in
local jurisdictions, tariffs and trade barriers, potential difficulties in
staffing and managing local operations, currency risks, potential imposition of
restrictions on investments, potentially adverse tax consequences, including
imposition or increase of withholding and


                                      F-25
<PAGE>

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

other taxes on remittances and other payments by subsidiaries, and local
economic, political and social conditions. Governments of many developing
countries have exercised and continue to exercise substantial influence over
many aspects of the private sector. Government actions in the future could have
a significant adverse effect on economic conditions in a developing country or
may otherwise have a material adverse effect on us and our operating companies.
We do not have political risk insurance in the countries in which we currently
conduct business. Moreover, applicable agreements relating to our interests in
our operating companies are frequently governed by foreign law. As a result, in
the event of a dispute, it may be difficult for us to enforce our rights.
Accordingly, we may have little or no recourse upon the occurrence of any of
these developments.


                                      F-26
<PAGE>

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

         Revenues, operating income and total assets for each of our continuing
segments are as follows:

                                               2002         2001         2000
                                            ---------    ---------    ---------
                                                      (IN THOUSANDS)
Revenues:
     Products                               $ 179,946    $ 149,868    $ 139,904
     Mobile Security                          125,171       47,232           --
                                            ---------    ---------    ---------
      Total revenues                        $ 305,117    $ 197,100    $ 139,904
                                            =========    =========    =========
Income (loss) from operations:
     Products                               $  30,978    $  26,845    $  27,803
     Mobile Security                           14,375        6,673           --
     Corporate                                 (6,988)      (6,845)      (7,934)
                                            ---------    ---------    ---------
      Total income from operations          $  38,365    $  26,673    $  19,869
                                            =========    =========    =========

Total assets:
     Products                               $ 179,367    $ 147,313    $ 129,432
     Mobile Security                          105,446      102,127           --
     Corporate                                 23,830       49,950        9,596
                                            ---------    ---------    ---------
      Total assets                          $ 308,643    $ 299,390    $ 139,028
                                            =========    =========    =========


                                      F-27
<PAGE>

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

The following financial information with respect to revenues, operating income
from continuing operations (geographic operating income from continuing
operations before amortization expense and integration and other non-recurring
charges) and total assets to principal geographic areas are as follows:

                                            2002          2001          2000
                                          ---------     ---------     ---------
                                                     (IN THOUSANDS)
Revenues:
     North America                        $ 225,365     $ 144,981     $ 117,199
     South America                           19,879         6,449         3,434
     Africa                                   1,219           582           167
     Europe/Asia                             58,654        45,088        16,078
     Other                                       --            --         3,026
                                          ---------     ---------     ---------
                                          $ 305,117     $ 197,100     $ 139,904
                                          =========     =========     =========

Geographic operating income:
     North America                        $  34,032     $  23,290     $  19,376
     South America                            1,702           473           982
     Africa                                     428           192            57
     Europe/Asia                              8,374         8,156         3,019
     Other                                       --            --           727
                                          ---------     ---------     ---------
                                          $  44,536     $  32,111     $  24,161
                                          =========     =========     =========

Total assets:
     North America                        $ 264,767     $ 268,019     $ 132,744
     South America                            5,456         5,811            --
     Africa                                      --           --             --
     Europe/Asia                             38,420        25,560         6,284
                                          ---------     ---------     ---------
                                          $ 308,643     $ 299,390     $ 139,028
                                          =========     =========     =========

A reconciliation of consolidated geographic operating income from continuing
operations to consolidated operating income from continuing operations follows:

                                                    2002      2001       2000
                                                   -------   -------  -------
                                                         (IN THOUSANDS)
Consolidated geographic operating income:          $44,536   $32,111  $24,161
Amortization                                          (245)   (2,142)  (1,704)
Integration and other non-recurring charges         (5,926)   (3,296)  (2,588)
                                                   -------   -------  -------
          Operating income                         $38,365   $26,673  $19,869
                                                   =======   =======  =======


                                      F-28
<PAGE>


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

13. INCOME TAXES

Income tax expense (benefit) from continuing operations for the years ended
December 31, 2002, 2001, and 2000 consisted of the following:

<TABLE>
<CAPTION>
                                                 2002             2001            2000
                                               -------           ------          ------
                                                             (IN THOUSANDS)
    <S>                                       <C>              <C>              <C>
     Current
       Domestic                                $13,306          $ 7,017          $6,239
       Foreign                                   2,389            1,563             232
                                               -------          -------          ------
          Total current                        $15,695          $ 8,580          $6,471
                                               -------          -------          ------
     Deferred
       Domestic                                $   (25)         $  (319)         $  769
       Foreign                                     384              (54)              0
                                               -------          -------          ------
          Total deferred                       $   359          $  (373)         $  769
                                               -------          -------          ------
          Total provision for Income Taxes     $16,054          $ 8,207          $7,240
                                               -------          -------          ------
</TABLE>

Significant components of our net deferred tax asset related to continuing
operations as of December 31, 2002 and 2001 are as follows:

<TABLE>
<CAPTION>
                                                            2002                 2001
                                                          --------             --------
                                                                 (IN THOUSANDS)
    <S>                                                   <C>                  <C>
     Deferred tax assets:
          Reserves not currently deductible                $2,697               $1,910
          Operating loss carryforwards                      1,769                  666
          Accrued expenses                                    220                    0
          Foreign tax credits                               2,939                    0
          Research and development and other credits          206                  222
          Tax on unremitted foreign earnings                1,255                1,619
                                                           ------               ------
                                                            9,086                4,417
     Deferred tax asset valuation allowance                   (75)                 (75)
                                                           ------               ------
     Deferred tax asset, net of valuation allowance        $9,011               $4,342

     Deferred tax liability:
          Goodwill not amortized for financial
            statement purposes under SFAS 142                (954)                (239)
          Property and equipment                             (475)                (318)
                                                           ------               ------
     Net deferred tax asset                                $7,582               $3,785
                                                           ======               ======
</TABLE>

Effective with the change in control of the Company by Kanders Florida Holdings,
Inc. on January 18, 1996, the utilization of the United States portion of the
NOL became restricted to approximately $300,000 per year. As of December 31,
2002, we had U.S. and foreign NOLs of approximately $4.6 million. The U.S.
portion of the net NOLs expire in varying amounts in fiscal years 2006 to 2019.
At December 31, 2002, we also have tax credits of $206,000 subject to certain
limitations due to the acquisition of Safariland, LTD. The Company also has
approximately $2.9 million in foreign tax credits expiring in 2006. Certain
deferred tax assets including net operating losses and tax credits could become
limited if there is a change of control as defined in IRC Section 382.



                                      F-29
<PAGE>


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


The realization of deferred tax assets may be based on the utilization of
carrybacks to prior taxable periods, the anticipation of future taxable income
and the utilization of tax planning strategies. Management has determined that
it is more likely than not that certain deferred tax assets can be supported by
carrybacks to federal taxable income in the federal carryback period and by
expected future taxable income.

US taxes have not been provided for on unremitted foreign earnings of
approximately $3 million from continuing operations. These earnings are
considered to be permanently reinvested in non-US operations. We are not
permanently reinvested in some jurisdictions and have established a deferred tax
asset of $1,255,000.

Net deferred tax assets described above have been included in the accompanying
consolidated balance sheets as follows:

                                       2002           2001
                                      ------        -------
Other current assets                  $2,697         $1,910
Other assets                           4,885          1,875
                                      ------         ------
Total deferred tax assets             $7,582         $3,785
                                      ======         ======

      The following reconciles the income tax expense computed at the Federal
statutory income tax rate to the provision for income taxes recorded in the
income statement for the years ended December 31, 2002, 2001 and 2000:

<TABLE>
<CAPTION>
                                                         2002         2001         2000
                                                        ------       ------       ------
<S>                                                     <C>          <C>          <C>
Provision for income taxes at statutory federal rate     35.0%        35.0%        35.0%
State and local income taxes, net of Federal benefit      3.8%         3.2%         1.4%
Foreign income taxes                                       .7%         (.1%)          -
Valuation allowances from discontinued operations         3.8%           -            -
Other permanent items                                     (.4%)       (2.2%)        3.6%
                                                        -----        -----        -----
                                                         42.9%        35.9%        40.0%
                                                        =====        =====        =====
</TABLE>



                                      F-30
<PAGE>

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

14. STOCKHOLDERS' EQUITY

Preferred stock. On July 16, 1996, Our shareholders authorized a series of
preferred stock with such rights, privileges and preferences as the Board of
Directors shall from time to time determine. We have not issued any of this
preferred stock.

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

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

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

During 2002, we implemented two new stock option plans. The 2002 Stock Incentive
Plan, authorizes the issuance of up to 2,700,000 shares of our common stock upon
the exercise of stock options or in connection with the issuance of restricted
stock and stock bonuses. The 2002 Stock Incentive Plan authorizes the granting
of stock options, restricted stock and stock bonuses to employees, officers,
directors and consultants, independent contractors and advisors of Armor
Holdings and its subsidiaries. The 2002 Executive Stock Plan provides for the
grant of a total of 470,000 stock options and stock awards to our key employees.
The terms and provisions of the 2002 Executive Stock Plan are substantially the
same as the 2002 Stock Incentive Plan, except that we may only grant
non-qualified stock options under the 2002 Executive Stock Plan. The 2002
Executive Stock Plan was adopted on March 13, 2002 and all shares available for
grant under the 2002 Executive Stock Plan were granted to our executive officers
on March 13, 2002.

On December 18, 2002, we sold a put option on 500,000 shares to an institutional
counterparty with an exercise price of $13.99 per share and an expiration date
of March 31, 2002 for $525,000. We have a maximum potential obligation under the
put options to purchase 500,000 shares of our common stock at an exercise price
of $13.99 for an aggregate of $7.0 million. Although certain other events can
trigger exercise these put options are generally excercisable only at maturity
on March 31, 2002. We have the right to settle the put options by cash
settlement, physical settlement of the


                                      F-31
<PAGE>

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

options or by net share settlement using shares our common stock. In accordance
with EITF Issue No. 00-19, we have recorded the sale of the put options in
equity and as such, changes in fair value of the options have not been
recognized in the financial statements. We may, from time to time, enter into
additional put and call option arrangements.

Under SFAS 123, the fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions for the years ended December 31, 2002, 2001 and
2000:

                                                2002        2001       2000
                                               ------      ------     ------

Expected life of option                         4 yrs       4 yrs      4 yrs
Dividend yield                                     0%          0%         0%
Volatility                                      52.2%       44.7%      30.9%
Risk free interest rate                         3.94%       4.52%      5.76%

The increase in volatility in from fiscal 2000 to fiscal 2002 is primarily due
to the increase demand for the stock, which drove up the price and increased the
volatility.

The weighted average fair value of options granted during 2002, 2001 and 2000
are as follows:

                                               2002       2001        2000
                                             --------    -------     ------
                                           (IN THOUSANDS, EXCEPT PER SHARE DATA)
Fair value of each option granted            $  10.08    $  6.17     $ 4.79
Total number of options granted                 1,895        892        185
Total fair value of all options granted      $ 19,098    $ 5,501     $  886

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


                                      F-32
<PAGE>

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

A summary of the status of stock option grants as of December 31, 2002 and
changes during the years ending on those dates is presented below:

                                                                WEIGHTED AVERAGE
                                                     OPTIONS     EXERCISE PRICE
                                                     -------     --------------
      Outstanding at December 31, 1999              3,545,258       $ 9.21
      Granted                                         185,000       $14.37
      Exercised                                      (333,075)      $ 4.57
      Forfeited                                      (102,344)      $10.98
                                                   ----------

      Outstanding at December 31, 2000              3,294,839       $ 9.91
      Granted                                         892,159       $15.24
      Exercised                                    (1,173,227)      $ 9.37
      Forfeited                                       (29,737)      $15.51
                                                   ----------

      Outstanding at December 31, 2001              2,984,034       $11.60
      Granted                                       1,894,660       $22.96
      Exercised                                      (507,868)      $ 8.41
      Forfeited                                       (86,168)      $16.75
                                                   ----------

      Outstanding at December 31, 2002              4,284,658       $ 7.81
                                                   ==========

      Options exercisable at December 31, 2002      2,099,307       $ 6.42
                                                   ==========



                                      F-33
<PAGE>

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

The following table summarizes information about stock options outstanding at
December 31, 2002:

                                        12/31/2002                    REMAINING
                                          OPTIONS        OPTIONS       LIFE IN
EXERCISE PRICE RANGE                    OUTSTANDING    EXERCISABLE      YEARS
--------------------                    -----------    -----------      -----
 0.97 -  3.75                                93,357         93,357       3.0
 7.50 -  9.94                               255,292        255,292       5.0
10.00 - 10.63                               141,671        138,337       5.2
11.00 - 11.63                               762,844        759,510       5.8
12.00 - 12.03                                65,002         58,334       5.2
13.19 - 14.00                               309,668        223,668       7.3
14.17 - 14.70                               444,492        187,322       8.7
15.05 - 15.90                               347,994         94,331       8.8
16.31 - 16.50                                62,667          9,000       8.0
17.00 - 17.54                               105,170         30,156       8.3
21.75 - 21.75                               125,000             --       9.1
23.09 - 23.93                               689,501        225,000       9.2
24.07 - 25.80                               882,000         25,000       9.5
                                          ---------      ---------

Total                                     4,284,658      2,099,307
                                          =========      =========

Remaining non-exercisable options as of December 31, 2002 become exercisable as
follows:

                    2003                           775,961
                    2004                           991,358
                    2005                           168,032
                    2006                           250,000


                                      F-34
<PAGE>

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

Earnings per share. The following details the earnings per share computations on
a basic and diluted basis for the years ended December 31, 2002, 2001 and 2000:

<TABLE>
<CAPTION>
                                                                            2002              2001             2000
                                                                          --------           -------          -------
                                                                              (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                                      <C>                <C>              <C>
Numerator for basic and diluted earnings per share:
  Net (loss) income available to common shareholders                      $(17,689)          $10,128          $17,048
                                                                          --------           -------          -------
Denominator:
    Basic earnings per share weighted average shares outstanding            30,341            23,932           22,630
    Effect of dilutive securities:
    Effect of shares issuable under stock option and stock
    grant plans, based on the treasury stock method
                                                                               616               836              726
                                                                          --------           -------          -------
Diluted earnings per share
  Adjusted weighted-average shares outstanding
                                                                            30,957            24,768           23,356
                                                                          --------           -------          -------
Basic earnings per share                                                  $  (0.58)          $  0.42          $  0.75
                                                                          ========           =======          =======
Diluted earnings per share                                                $  (0.57)          $  0.41          $  0.73
                                                                          ========           =======          =======
</TABLE>

15. SUPPLEMENTAL CASH FLOW INFORMATION:

<TABLE>
<CAPTION>
                                                                            2002              2001             2000
                                                                           ------            ------           ------
                                                                                        (In Thousands)
<S>                                                                       <C>               <C>              <C>
Cash paid during the year for:
   Interest                                                                $  527            $ 3,878          $ 1,762
                                                                           ======            =======          =======
   Income taxes                                                            $5,753            $ 4,656          $ 7,240
                                                                           ======            =======          =======
</TABLE>

<TABLE>
<CAPTION>
                                                                            2002              2001             2000
                                                                           ------            ------           ------
<S>                                                                       <C>               <C>              <C>
                                                                                         (In Thousands)
Acquisitions of businesses, net of cash acquired:
   Fair value of assets acquired                                          $ 16,134           $ 57,932         $ 4,807
   Goodwill                                                                  8,478             37,578          12,336
   Liabilities assumed                                                     (15,794)           (36,541)         (2,923)
   Stock issued                                                                 --            (19,604)             --
                                                                          --------           --------         -------
   Total cash paid                                                        $  8,818           $ 39,365          14,220
                                                                          ========           ========         =======

   Debt assumed in acquisition of property                                      --                 --         $ 3,500

</TABLE>


                                      F-35
<PAGE>

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

16. QUARTERLY RESULTS (UNAUDITED)

The following table presents summarized unaudited quarterly results of
operations for the Company for fiscal 2002 and 2001. We believe all necessary
adjustments have been included in the amounts stated below to present fairly the
following selected information when read in conjunction with the Consolidated
Financial Statements and Notes thereto included elsewhere herein. Future
quarterly operating results may fluctuate depending on a number of factors.
Results of operations for any particular quarter are not necessarily indicative
of results of operations for a full year or any other quarter.

<TABLE>
<CAPTION>
                                                                  FISCAL 2002
                                        ----------------------------------------------------------------
                                            FIRST           SECOND           THIRD           FOURTH
                                           QUARTER          QUARTER         QUARTER         QUARTER
                                        --------------   --------------   ------------   ---------------
                                                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
      <S>                                   <C>              <C>           <C>               <C>
       Revenue                               $ 69,604         $ 71,605        $80,557           $83,351
       Gross profit                          $ 21,974         $ 22,701        $24,610           $25,087
       Net income                              $5,960           $4,075      $(14,707)         $(13,017)
       Basic earnings per share                $ 0.19           $ 0.13        $(0.50)           $(0.44)
       Diluted earnings per share              $ 0.19           $ 0.13        $(0.49)           $(0.44)
</TABLE>

<TABLE>
<CAPTION>
                                                                 FISCAL 2001
                                         -------------------------------------------------------------
                                            FIRST           SECOND           THIRD          FOURTH
                                           QUARTER          QUARTER         QUARTER        QUARTER
                                         -------------   --------------   ------------   -------------
                                                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                     <C>             <C>              <C>            <C>
       Revenue                               $ 30,168         $ 38,100       $ 48,664        $ 80,168
       Gross profit                          $ 12,190         $ 15,865       $ 17,227        $ 25,488
       Net income                            $ (3,396)          $4,298         $3,823          $5,403
       Basic earnings per share              $  (0.15)          $ 0.19         $ 0.16          $ 0.21
       Diluted earnings per share            $  (0.14)          $ 0.18         $ 0.16          $ 0.20
</TABLE>

17. EMPLOYEE BENEFITS PLAN

In October 1997, we formed a 401(k) plan, (the "Plan") which provides for
voluntary contributions by employees and allows for a discretionary contribution
by us in the form of cash. We made contributions of approximately $395,500,
$272,700 and $243,000 to the Plan in 2002, 2001 and 2000 respectively.


                                      F-36
<PAGE>

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

18.  RELATED PARTY TRANSACTIONS

In fiscal 2000 we subcontracted for certain security guard services with
Alpha, Inc., wholly owned by a shareholder of the Company, who is also a
director of Gorandel Trading Limited. In fiscal 2000, security guard service
fees of approximately $2,444,000 were paid to Alpha. In August of 2000, we
acquired Alpha. The purchase price was approximately $1.0 million in cash
consisting of both a current and deferred portion. In fiscal 2002 and 2001 we
paid paid $100,000 and $400,000 of the deferred portion of the purchase price
respectively.

Effective as of January 1, 2002, Kanders & Company, Inc. ("Kanders & Co."), a
corporation controlled by Warren B. Kanders, the Chairman of our Board, entered
into an agreement with us to provide certain investment banking, financial
advisory and related services for a five year term that will expire December 31,
2006. Kanders & Co. will receive a mutually agreed upon fee on a transaction by
transaction basis during the term of this agreement. The aggregate fees under
this agreement will not exceed $1,575,000 during any calendar year. We also
agreed to reimburse Kanders & Co. for reasonable out-of-pocket expenses
including Kanders & Co.'s expenses for office space, an executive assistant,
furniture and equipment, travel and entertainment, reasonable fees and
disbursements of counsel, and consultants retained by Kanders & Co. During the
fiscal year ended December 31, 2002, we paid Kanders & Co. $525,000 for
investment banking services. We also reimbursed Kanders & Co. for out-of-pocket
expenses in the aggregate amount of $302,000 during the fiscal year ended
December 31, 2002. We also granted Kanders & Co. (i) options to purchase 35,000
shares of our common stock at an exercise price per share equal to $23.93, and
(ii) a restricted stock grant of 10,447 shares of common stock valued at $15.04
per share (iii) a restricted stock grant of 100,000 shares of common stock
valued at $15.04 per share. These grants were made during fiscal 2002 in
consideration for consulting services provided by Kanders & Co. in connection
with certain transactions during fiscal 2001.

During the fiscal year ended December 31, 2002 we paid our Director Nicholas
Sokolow's law firm Sokolow, Dunaud, Mercadier & Carreras $28,000 for legal
services in connection with various acquisitions.


                                      F-37
<PAGE>

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

19. OPERATING LEASES

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

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

                2003                                     $1,141
                2004                                        840
                2005                                        365
                2006                                         66
                2007                                         51
                Thereafter                                   --

                                           ---------------------
                                                         $2,463
                                           =====================

We incurred rent expense of approximately $1,200,000, $765,000 and $394,000
during the years ended December 31, 2002, December 31, 2001 and December 31,
2000.


                                      F-38
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.


                                            ARMOR HOLDINGS, INC.

                                            /s/ Jonathan M. Spiller
                                            -----------------------------------
                                            Jonathan M. Spiller
                                            President, Chief Executive Officer
                                            and Director
                                            Dated: March 31, 2003


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:


/s/ Jonathan M. Spiller                     /s/ Warren B. Kanders
------------------------------------        ----------------------------------
Jonathan M. Spiller                         Warren B. Kanders
President and Chief Executive               Chairman of the Board of Directors
Officer and Director                        March 31, 2003
Principal Executive Officer
March 31, 2003

/s/ Robert R. Schiller                      /s/ Nicholas Sokolow
-----------------------------------         ----------------------------------
Robert R. Schiller                          Nicholas Sokolow
Executive Vice President                    Director
and Chief Financial Officer                 March 31, 2003
March 31, 2003

/s/ Burtt R. Ehrlich                        /s/ Thomas W. Strauss
-----------------------------------         ----------------------------------
Burtt R. Ehrlich                            Thomas W. Strauss
Director                                    Director
March 31, 2003                              March 31, 2003

/s/ Alair A. Townsend                       /s/ Deborah A. Zoullas
-----------------------------------         ----------------------------------
Alair A. Townsend                           Deborah A. Zoullas
Director                                    Director
March 31, 2003                              March 31, 2003



                                       91
<PAGE>

                                 CERTIFICATIONS

         I, Jonathan M. Spiller, certify that:

         1. I have reviewed this annual report on Form 10-K of Armor Holdings,
Inc.;

         2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;

         3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

         4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

         a)   designed such disclosure controls and procedures to ensure that
              material information relating to the registrant, including its
              consolidated subsidiaries, is made known to us by others within
              those entities, particularly during the period in which this
              annual report is being prepared;

         b)   evaluated the effectiveness of the registrant's disclosure
              controls and procedures as of a date within 90 days prior to the
              filing date of this annual report (the "Evaluation Date"); and

         c)   presented in this annual report our conclusions about the
              effectiveness of the disclosure controls and procedures based on
              our evaluation as of the Evaluation Date;

         5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

         a)   all significant deficiencies in the design or operation of
              internal controls which could adversely affect the registrant's
              ability to record, process, summarize and report financial data
              and have identified for the registrant's auditors any material
              weaknesses in internal controls; and

         b)   any fraud, whether or not material, that involves management or
              other employees who have a significant role in the registrant's
              internal controls; and

         6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: March 31, 2003

/s/ Jonathan M. Spiller
-----------------------
President and Chief Executive Officer


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<PAGE>

         I, Robert R. Schiller, certify that:

         1. I have reviewed this annual report on Form 10-K of Armor Holdings,
Inc.;

         2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;

         3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

         4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

         a)   designed such disclosure controls and procedures to ensure that
              material information relating to the registrant, including its
              consolidated subsidiaries, is made known to us by others within
              those entities, particularly during the period in which this
              annual report is being prepared;

         b)   evaluated the effectiveness of the registrant's disclosure
              controls and procedures as of a date within 90 days prior to the
              filing date of this annual report (the "Evaluation Date"); and

         c)   presented in this annual report our conclusions about the
              effectiveness of the disclosure controls and procedures based on
              our evaluation as of the Evaluation Date;

         5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

         a)   all significant deficiencies in the design or operation of
              internal controls which could adversely affect the registrant's
              ability to record, process, summarize and report financial data
              and have identified for the registrant's auditors any material
              weaknesses in internal controls; and

         b)   any fraud, whether or not material, that involves management or
              other employees who have a significant role in the registrant's
              internal controls; and

         6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.


Date: March 31, 2003

/s/ Robert S. Schiller
----------------------
Executive Vice President and Chief Financial Officer


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