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

FORM 10-K
(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 1999

[ ] 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 (I.R.S. Employer
organization) Identification No.)

13386 International Parkway
Jacksonville, Florida 32218
(Address of principal executive offices) (Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act: Name of each
exchange on which registered:
Common Stock, par value of $.01 per share 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 12 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. __

The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March __, 2000 is $_________________.

The number of shares outstanding of the registrant's Common Stock as of
March __, 2000 is _______________.

DOCUMENTS INCORPORATED BY REFERENCE:

DOCUMENT FORM 10-K PART
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None

PART I

ITEM 1. DESCRIPTION OF BUSINESS

COMPANY OVERVIEW

We are a leading global provider of security risk management service
to multi-national corporations and governmental agencies through our ArmorGroup
Services division. We are also a leading manufacturer of security products for
law enforcement personnel around the world through our Armor Holdings Products
division. ArmorGroup Services division provides sophisticated security planning
and risk management, mine clearance services, electronic security systems
integration, computer forensic, consulting and training services, as well as
intellectual property asset protection, business intelligence and investigative
services. We provide these services to multi-national corporations and
governmental and non-governmental agencies across 38 countries. Armor Holdings
Products manufactures and sells a broad range of high quality branded law
enforcement equipment and has leading market positions in several of the product
categories in which we compete. Such products include ballistic resistant vests
and tactical armor, less-than-lethal munitions, holsters and duty gear,
anti-riot products, narcotics identification kits and specialty lubricants,
cleaners and preservatives and military weapon maintenance systems. These
products are sold primarily to law enforcement agencies through a worldwide
network of over 500 distributors and sales agents, including approximately 350
in the United States. We believe significant opportunities exist to grow our
company and extend our global infrastructure through geographic expansion and
strategic acquisitions of related businesses in the fragmented security risk
management services and products industry.

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

Armor Holdings Products Division. Our Armor Holdings Products division
manufactures and sells a broad range of high quality branded law enforcement
equipment, such as ballistic resistant vests and tactical armor, bomb disposal
equipment, less lethal munitions, anti-riot products including tear gas and
distraction grenades, narcotics identification kits, custom-built armored
vehicles, specialty lubricants, cleaners and preservatives and military weapon
maintenance systems and holsters and duty gear. Our products are marketed under
brand names which are well-known and respected in the law enforcement community
such as American Body Armor, Safariland, Defense Technology, Federal
Laboratories, MACE(R), PROTECH and NIK(R). We sell our manufactured products
primarily to law enforcement agencies through a worldwide network of over 500
distributors and sales agents including approximately 350 in the United States.
Our extensive distribution capabilities and commitment to customer service and
training have enabled us to become a leading provider of security equipment to
law enforcement agencies. We believe there are significant opportunities to grow
our manufacturing business through the acquisition and development of new
product lines, expansion into new territories and further development of sales
to specialized government and military agencies. In addition, management
believes that consistent demand for our premium products at attractive margins
will continue because our products are critical to the safety and effectiveness
of our customers.

INDUSTRY OVERVIEW

We participate in the global security risk management industry by providing
specialized security services to multi-national corporations and
governmental agencies and through the manufacture of security products marketed
to law enforcement and correctional personnel. Increasingly, governments,
businesses, and individuals have recognized the need for our services and
products to protect them from the risks associated with white-collar crime,
fraud, physical attacks and threats of violence. In general, the need for
protection against these risks is confirmed by a variety of statistics. For
example, according to the American Society for Industrial Security, damages from
intellectual property thefts result in estimated losses of $250 billion annually
for U.S.-based companies. In addition, fraud costs U.S. organizations over $400
billion annually according to a recent estimate by the Association of Certified
Fraud Examiners. The number of casualties resulting from terrorist incidents
increased from 317 in 1991 to 2,963 in 1996, and in 1997, 73% of all
international terrorist incidents targeted businesses compared to 53% in 1992.
Corporate governance and legal imperatives are driving corporations to seek
enhanced standards of risk management.

Specialized Security Services Market. In response to these security
problems, corporations are increasingly contracting experienced private
companies to perform their security services. Industry studies demonstrate that
the worldwide security services market has been growing at a rate of 8.0%
annually from 1995 to 2000. Total revenues for the worldwide market have reached
$61.8 billion and are projected to grow to $87.9 billion by 2005. Management
believes that demand by multi-national corporations and governmental agencies
operating in developing nations for

security services such as risk assessment, crisis management, guard force
management, security force organization and executive protection is likely to
increase as these entities continue to establish operations and manufacturing
facilities in foreign and developing countries. These services are
mission-critical to our client's businesses and ArmorGroup enjoys premium
positioning offering the potential for sustained high margins.

The U.S. has been the target of several deadly terrorist attacks directed
toward U.S. Department of State personnel and facilities across the world. In
1998, U.S. embassies in Nairobi and Dar Es Salaam were bombed, resulting in over
235 deaths and over 5,000 injuries. The U.S. government's response to these
threats also supports the increased emphasis on protection against security
risks. With our global network of overseas offices and our broad portfolio of
security services and products, we believe that we are well positioned to
participate in expected increases in security-related spending at U.S.
diplomatic facilities around the world. Demand for corporate investigative
services continues to grow as corporations react to the need to protect their
assets against the growing threats of international fraud, counterfeiting and
piracy of intellectual property. Client companies require sophisticated
investigative solutions including computer-based techniques and strong
cross-border capabilities. ArmorGroup is able to deliver these key requirements.

Manufactured Security Products Market. Certain industry studies estimate
that worldwide expenditures for security products will grow at a compounded
annual rate of 7.9% from approximately $14 billion in 1990 to approximately $60
billion in 2010. Although these statistics do not correlate directly to our
product lines, we believe that the increasing spending in the private security
sector is indicative of a greater demand for our products in the law
enforcement, correctional and governmental sectors.

In response to an increased emphasis on safety and protection, the number
of police officers has increased significantly over the past several years. By
1996 there were approximately 738,000 full-time sworn law enforcement officers
in the U.S. In 1993, a U.S. Department of Justice survey of local police
departments indicated that 65% of such organizations have purchased body armor
for all of their officers, 60% supply their officers with pepper spray, 35%
supply their officers with tear gas and 10% maintain inventories of stun
grenades and less-than-lethal projectiles. In addition, the U.S. prison
population has doubled since 1985 to approximately 1.8 million inmates in 1998.
We believe this rise in the prison population has spurred demand from
institutional correctional facilities for manufactured security products.

Information concerning Business Segments and Geographical Sales. For
information concerning our business segments, please refer to Note 15 to our
consolidated financial statements included elsewhere in this report.

KEY STRENGTHS

We believe that the following key strengths will enable us to continue to
increase sales to existing and new customers, expand our service and product
offerings, enter new markets, increase our profitability and capitalize on
industry trends.

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

Strong Client Base and Extensive Distribution Network. ArmorGroup services
serves a client base representing governmental agencies and approximately 500
multi-national corporations worldwide. Armor Holdings Products has a broad, full
service network of approximately 350 domestic distributors and 150 international
agents to sell our portfolio of manufactured law enforcement equipment. The
quality and scope of our products and the strength of our brand names has
enabled us to establish one of the largest distribution networks in the industry
and engendered the loyalty of our distributors. We work closely with our
distributors and agents to respond to and anticipate the needs of end-users,
which we believe allows us to maintain our market leadership position. We
believe that the diversity of our clients' end-markets, the continued
globalization of our clients and the strength of our distribution relationships
minimize our dependence on any particular product, market, or customer.

Strong Brands with Leading Market Positions. Our product lines are marketed
under brand names widely recognized in law enforcement, such as American Body
Armor, NIK(R), Defense Technology, Federal Laboratories, MACE(R), Break-Free and
Safariland and others. Due to the life-protecting nature of the products in the
markets that we serve, end-users prefer to purchase premium products with brand
names that have solid reputations for quality and which provide high levels of
performance. The strength of our brand names has contributed to our leading
market positions in several of the product categories in which we compete,
including body armor (Xtreme(TM) and Zero-G(TM)), aerosol defense sprays
(MACE(R)), less-than-lethal munitions (Defense Technology and Federal
Laboratories), and duty gear (Safariland).

Proven Track Record of Identifying, Completing and Integrating
Acquisitions. Since January 1996, we have completed 18 acquisitions in the
security services and products industry. We employ a disciplined approach to
evaluating acquisition opportunities and integrating the operations of acquired
businesses. We believe that these acquisitions have strengthened our market
position, leveraged our distribution network and expanded our service and
product offerings. Further, we believe that our performance-based compensation
plan enables us to retain strong managers of acquired businesses and provides
for timely and efficient integration of acquired operations.

GROWTH STRATEGY

Our strategic objective is to be the leading global provider of security
risk management services and products to multi-national corporations,

governmental agencies and law-enforcement personnel. We expect the demand for
security risk management services and products to continue to grow and we seek
to capitalize on this growth by offering a comprehensive array of premium
security risk management services and law enforcement equipment throughout the
world. We intend to enhance our leadership position through strategic
acquisitions by creating a broad portfolio of services and products to satisfy
all of our customers' increasingly complex security needs. By establishing a
critical mass of services and a broad base of customers, we have built in the
capacity to perform multiple aspects of our clients' threat analyses and
security provision on a comprehensive basis. We plan to continue to execute this
growth strategy primarily through internal expansion of our existing businesses
and through strategic acquisitions of businesses offering complementary
services, markets, and customer bases. The following elements define our growth
strategy:

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

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

Expand Client Base. We expand our client base by offering a complete array
of security risk management services to our service clients, particularly those
involved in the petrochemical and mineral extraction industries, branded product
industries, and financial services industries as they expand their commercial
activities throughout the world. In addition, we market our expanded offerings
to new clients referred to us by our existing clients. Client referrals have
historically provided significant growth opportunities for us with minimal
incremental marketing expense.

Expand Distribution Network and Product Offering. We 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 enables us to strengthen our
relationship with distributors and enhance our brand appeal with military, law
enforcement and other end users.

Continue Global Expansion. We expand the scope of our service and product
offerings by serving existing customers who are expanding geographically,
acquiring complementary assets and capabilities and extending our distribution
network into new territories. We target those regions where emerging market
conditions or political instability create demand for our services or where
increased regulation, political instability or growth of prison populations
create a demand for our products. Many existing clients

are pursuing rapid global expansion strategies which may also provide access to
new territories and prospective new client relationships.

ACQUISITIONS

We have pursued a strategy of growth by acquiring businesses and assets
that complement our existing operations. We use several criteria to evaluate
prospective acquisitions including whether the business to be acquired (1)
broadens the scope of the services or products we offer or the geographic areas
we serve, (2) offers attractive margins, (3) is accretive to earnings, and
(4)offers the opportunity to enhance profitability by improving the efficiency
of our operations. Since January 1996, we have consummated 18 acquisitions.

Acquisition History. The following table summarizes certain information
concerning the acquisitions we have announced or closed.

ARMORGROUP SERVICES

Approximate Annual
Year Revenues Prior to
Company Acquired Services Acquisition
------- -------- -------- -----------

(In MILLIONS)

DSL Group Limited 1997 Security risk management and $31.1
consulting services worldwide

Gorandel Trading Limited 1997 Security risk management and consulting $6.4
services in Russia

Low Voltage Systems Technology 1998 Electronic security systems integration $2.0

Asmara Limited 1998 Investigation, asset tracing, due diligence $1.8

CDR International 1998 Intellectual property asset protection $3.8

Alarm Protection Services Limited 1998 Alarm monitoring, systems integration, $2.5
and physical security in Virginia

The Parvus Company 1999 Global business intelligence $1.1

Alarm Systems Holding Company 1999 Electronic security systems integration $6.0

Fire Alarm Service 1999 Electronic security systems integration $6.0
Corporation

New Technologies, Inc. 2000 Computer forensics $1.5

Special Clearance 2000 Landmine Risk Reduction Services $2.5

ARMOR HOLDINGS PRODUCTS

Approximate Annual
Year Revenues Prior to
Company Acquired Products Acquisition
------- -------- -------- -----------
(In MILLIONS)

NIK Public Safety Product Line 1996 Portable narcotic identification kits $2.2
under the NIK brand name

Defense Technology Corporation 1996 Less-than-lethal and anti-riot products $8.9
of America under the brand names Defense Technology,
Def-Tech, Distraction Device

Supercraft (Europe) Limited 1997 High visibility garments $5.7

Law Enforcement Division of Mace 1998 Tear gas and pepper sprays under the $7.0
Security International, Inc. brand name MACE(R)

PROTECH Armored Products of 1998 Hard armor, vehicle armor under the $5.0
Massachusetts, Inc. brand name Protech

Safariland Ltd., Inc. 1999 Law enforcement products under the brand $47.0
names Safariland, Safari Armor, Duty Gear,
Zero-G, Nylok

Break-Free, Inc. 2000 Specialty lubricants and military $3.0
weapon maintenance systems.

SERVICES AND PRODUCTS

ArmorGroup Services

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

Security Planning, Advice and Management. We believe we are the world's
leading provider of specialized security risk management services. We operate in
high risk and hostile environments characterized by rapid economic growth,
political instability, diminished law-and-order, emerging market conditions
and/or significant natural resources, such as Africa, South America, Central
Asia, Russia and the Balkans. 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 humanitarian mine clearance and ordnance disposal and maintenance
of secure lines of communication.

We offer security solutions that involve law enforcement training, security
consultation services and experienced security personnel who act as planners,
trainers, managers, advisors, instructors and liaison personnel. We also provide
teams of security consultants and advisors many of 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. In
connection with our security services, we utilize the services of approximately
140 expatriates and 3,500 locally recruited guards. These guards are supervised,
managed and trained by our professional security staff. Our clients are
multi-national corporations in industries including petrochemical and natural
resource extraction, manufacturing, travel and financial services. Additionally,
we serve governmental and non-governmental agencies.

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

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

clients include multi-national branded product companies involved in tobacco,
sportswear, spirits, and pharmaceuticals, as well as financial services and
insurance companies.

Investigation and Due Diligence. We provide fraud investigation, asset
tracing, computer forensics, due diligence, litigation research, political risk
analysis and other business intelligence services to multi-national and
financial services companies worldwide. We rely on our network of business
intelligence contacts, many proprietary and public databases, and our experience
in gathering and deciphering hard to find information. We are enhancing our
capabilities in this area through acquisition. Our professionals have various
backgrounds including experience in financial, due diligence and foreign
intelligence services. Our clients include investment and commercial banks,
insurance companies, law firms and other multi-national companies.

Armor Holdings Products

Body Armor. We manufacture and sell a wide array of armor products under
the leading brand names American Body Armor and Safariland which 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, helmets, 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. In addition, we primarily sell ballistic resistant vests, under
the brand names Xtreme(TM) and Zero-G(TM). Our body armor products that are
manufactured in the United States are certified under guidelines established by
the National Institute of Justice.

We offer two types of ballistic resistant armor, concealable armor and
tactical armor. Concealable armor, which generally is worn beneath the user's
clothing, is our basic line of body armor. These vests are often sold with a
shock plate, which is an insert designed to improve the protection of vital
organs from sharp instrument attack and to provide enhanced blunt trauma
protection. Tactical armor is worn externally and is designed to provide
protection over a wider area of a user's body and defeat higher levels of
ballistic threats. These 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. Tactical armor may also provide
enhanced protection against neck, shoulder and kidney 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 correctional 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 metallic blends, as well as, flexible woven
fabrics and are available in both concealable and tactical models. In addition,
these vests can be combined with ballistic armor configurations to provide both
ballistic and sharp instrument penetration resistant protection.

We manufacture several hard armor products under the PROTECH brand name.
PROTECH products include ballistic shields, helmets, visors and other

personal protection accessories and armor products for helicopters, automobiles
and riot control vehicles.

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

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

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 under the widely recognized Safariland brand duty gear
(Safari-Laminate(TM)),nylon duty gear and accessories. Duty gear represents a
very attractive market and one in which brand appeal, safety and quality dictate
demand. Replacement sales represent significant recurring demand for duty gear.

Less-Than-Lethal Products. Under the Defense Technology, First Defense,
Federal Laboratories and MACE(R) brands, we manufacture and sell a complete line
of less-than-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 distraction devices.

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. 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 ("CS")
and Chloroacetophenone ("CN"). These products are packaged in hand-held or
launchable grenades, both pyrotechnic and non-pyrotechnic, as well as in 37 mm,
40 mm 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, wood and rubber batons, to multiple projectile products
containing rubber pellets, rubber balls or foam, can be fired from standard
12 gauge shotguns, 37 mm gas guns and 40 mm 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, emits a loud bang and brilliant flash
of light when used.

Narcotic Identification and Evidence Equipment. We assemble and market
portable narcotic identification kits under the NIK(R) brand name which are used
in the field by law enforcement personnel to identify a variety of controlled
substances, including cocaine, marijuana, heroin and LSD. We also assemble and
market evidence collection kits and evidence tape, and have the exclusive rights
to distribute Flex-Cuf(R) and Key-Cuff disposable restraints.

CUSTOMERS

ArmorGroup Services. Our principal security services clients include
multi-national 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 United Nations, governmental
embassies including those belonging to the United States, projects funded by the
World Bank and the European Commission and a variety of banking, finance, aid
and humanitarian organizations and companies engaged in international trade and
commerce.

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

We have no clients or customers who account for more than 10% of our
total sales for the 1999 fiscal year, and our ten largest clients account for
approximately 10% of total sales for the 1999 fiscal year.

Armor Holdings Products. In 1999, we sold approximately 82% of our products
in the U.S., with the balance sold internationally. The primary end-users of our
products are law enforcement agencies, local police departments, state
correctional facilities, highway patrols and sheriffs' departments.

MARKETING AND DISTRIBUTION

ArmorGroup Services. As we have expanded our service offerings, we have
better exploited efficiencies and more active marketing has become an integral
part of our growth efforts. In addition to sourcing new business from client
referrals, we continue to follow our clients into new geographic areas where
there exist significant security risks. We rarely enter a country without a
substantial contract for services already in place. Once established in a
country, we seek to expand our service offerings and our customer base through
active marketing. As we have integrated new services our professionals have
increasingly relied on active marketing to generate new business. We have
fostered the cross selling of our services by physically locating our
professionals in common space and educating our professionals about all of our
service business lines. Further, a rebranding effort is completed to market our
services under the brand ArmorGroup. A

comprehensive web presence has been established (www.armorgroup.com) as a key
marketing tool for the business and with potential to deliver risk information
services on-line. We are focusing on clients in high growth industries where the
need for investigation, brand protection and other security services are
critical to success. The industries we are targeting include financial services,
software and publishing, insurance, natural resource extraction, and global
consumer brands.

Armor Holdings Products. As a result of our history of providing
high-quality and reliable armor, duty gear, less-than-lethal products and
narcotic identification and evidence equipment, we enjoy excellent name
recognition and a strong reputation in the law enforcement equipment industry.
The central element of our marketing strategy is to capitalize our name
recognition and reputation amongst our customers by positioning ourselves as a
global provider of many of the PREMIER SECURITY RISK MANAGEMENT SERVICES AND LAW
ENFORCEMENT EQUIPMENT THAT OUR CUSTOMERS MAY NEED. BY POSITIONING OURSELVES IN
THIS MANNER, we can capitalize on our existing customer base and our extensive
global distribution network, maximize the benefits of our long history of
supplying security-related products around the world and leverage our leadership
position in the security risk management services and products markets. When
entering a foreign market, we penetrate the market by offering the most
comprehensive range of products and services available in the security industry.
We tailor our marketing strategy to each geographic area of the world and will
often tailor our product offering by country. There are opportunities for
cross-marketing of military and law enforcement products which could strengthen
the image of each product group. We believe that our ability to cross-market our
security risk management services and products will enhance our position as an
integrated provider of an extensive assortment of such services and products.

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

Our distribution strategy involves the utilization of a worldwide
distribution network of approximately 350 domestic distributors and 150
international agents, as well as 15 regional domestic sales managers who promote
our products but refer customers to a local distributor for purchasing. We
further reinforce distributor loyalty by offering price discounts to high volume
distributors. We believe that relationships with our distributors are strong.
The distributors benefit from their association with us due to the quality our
manufactured products, the scope of our product line, the high degree of service
we provide and the distributor's opportunity to participate profitably in the
sale of our products.

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

PRODUCT MANUFACTURING AND RAW MATERIALS

The primary raw materials used in manufacturing ballistic resistance
garments are various ballistic fibers, including Kevlar, Twaron and
SpectraShield. Kevlar, an aramid fiber, 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. SpectraShield is a high strength polyethylene product of
Honeywell, Inc. We also use Twaron, an aramid fiber product of Akzo-Nobel Fibers
B.V. We purchase these fibers directly from the manufacturers, and from weaving
companies who convert the raw fibers into ballistic fabric. We believe that we
enjoy a good relationship with these weaving companies. However, if necessary,
we believe that we could readily find replacement weavers. We also use
SpectraShield and Kevlar in our hard and vehicle armor products. Additionally,
we use polycarbonates, acrylics, ballistic quality steel, ceramics, and
ballistic glass. We are aware of multiple suppliers for these materials and
would not anticipate a significant impact if we were to lose any suppliers. We
do not manufacture equipment used in our security systems integration business.

We obtain from several sources the raw materials we used in the production
of chemical agents. The raw chemicals used in the production of CS tear gas are
readily obtainable with the exception of Malononitrile, for which sources are
limited. If we were unable to obtain Malononitrile, or if there were a material
increase in the price of Malononitrile, our production of CS tear gas could be
severely curtailed. The remainder of the chemicals and piece parts used by us
are readily available from other suppliers. Although we manufacture armor on a
built-to-order basis, we do maintain reasonable inventories of our
less-than-lethal and anti-riot products.

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-than-lethal product line.

We adhere to strict quality control standards and conduct extensive product
testing throughout our manufacturing process. Raw materials are also tested to
ensure quality. We have obtained ISO 9001 certification for our Jacksonville
manufacturing operation for body armor and narcotic identification kits, our
Wyoming manufacturing facility for less-than-lethal products, and our Safariland
facilities in Ontario, CA and Mexico 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.

BACKLOG

At December 31, 1999, we had unfilled customer orders of approximately
$15.0 million compared with approximately $2.5 millions of such orders at
December 31,1998. These orders are expected to ship by March 31, 2000, however,
there can be no assurance that such backlog will become revenues in any
particular period or at all.

COMPETITION

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

The market for our products is highly competitive and we compete in a
variety of fields with competitors ranging from small businesses to
multi-national corporations. In the body armor business, we compete by providing
superior design, engineering and production expertise in our line of
fully-integrated ballistic and blast protective wear. Our principal competitors
in this market include Point Blank Body Armor, Inc., Second Chance Body Armor,
Inc. and Rabin-Tex. In the less-than-lethal product industry we compete by
providing a broad variety of less-than-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.

EMPLOYEES

As of March 10, 2000, we have a total of approximately 4,400 employees, of
which approximately 867 were employed at Armor Holdings Products and
approximately 3,533 were employed at ArmorGroup. Additionally, we subcontract
3,825 employees from local companies. Approximately 23 employees employed by our
Supercraft subsidiary are represented by the General Municipal Boilermaker and
Allied Trade Union. THE COLLECTIVE BARGAINING AGREEMENT

CURRENTLY IN EFFECT FOR THESE EMPLOYEES EXPIRED ON DECEMBER 31, 1999. Also
our Low Voltage Systems subsidiary has 5 employees covered under a collective
bargaining agreement and are represented by the International Brotherhood of
Electrical Workers. None of our remaining employees are represented by unions or
covered by any collective bargaining agreements. We have not experienced any
work stoppages or employee related slowdowns and believe that the relationship
with our employees is good.

PATENTS AND TRADEMARKS

We currently own numerous issued U.S. and foreign patents and pending
patent applications relating to our product lines as well as several registered
and unregistered trademarks relating to our products. The trademarks include
Gold Series GSX, Xtreme, Def-Tec Products, Distraction Device, NIK, Identidrug,
Federal Laboratories, Safariland, Break-Free, Zero G and First Defense. We also
have an exclusive license to use the MACE 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 REGULATIONS

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

ENVIRONMENTAL MATTERS

We are subject to federal, state, and local laws and regulations governing
the protection of the environment, including those regulating discharges to the
air and water, the management of wastes, and the control of noise and odors.
While we always strive to operate in compliance with these requirements, we
cannot assure you that we are at all times in complete compliance with all such
requirements. Like all companies, we are subject to potentially significant
fines or penalties if we fail to comply with environmental requirements.
Although we have made and will continue to make capital expenditures in order to
comply with environmental requirements, we do not expect material capital
expenditures for environmental controls in 1999 or 2000. 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. We use
Orthochlorabenzalmalononitrile ("CS") and Chloroacetophenone ("CN") 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.

ITEM 2. PROPERTIES

Approximate Products
Location Principal Use Owned/Leased Size Manufacture
- ------------------------- ------------------------ ------------ ------------------ -----------
Jacksonville, Florida Manufacturing, Owned (1) 14 acres Body Armor
distribution, 70,000 sq. ft. Narcotic ID Kits
corporate accounting

Casper, Wyoming Manufacturing, warehouse Owned (2) 66 acres Tear gas, Pepper
Office 72,234 sq. ft. Spray, Less-than
Lethal Munitions

Westhoughton, England Sales, manufacturing Owned 44,000 sq. ft. High visibility
garments

London, England Sales, office Leased (3) 9,964 sq. ft. ArmorGroup
Services

Ontario, California Manufacturing, Leased (4) 117,500 sq. ft. Body Armor
distribution office Duty gear
Automotive
accessories

Pittsfield, Massachusetts Manufacturing Leased (5) 22,000 sq. ft. Hard armor
Vehicle armor

Tijuana, Mexico Manufacturing Leased (6) 31,452 sq. ft. Duty gear
Body armor

The Company's principal facilities consist of the following:

(1) We have the capacity to expand the building facility to 250,000 sq. ft.

(2) We own four properties at this location.

(3) We pay combined annual rent of (pound sterling) 225,790 on the leases on
this property. The leases expire March 2002 and March 2008.

(4) In connection with the acquisition of Safariland, we entered into a lease
expiring January 11, 2000 and providing for an annual rent of $144,000.
Have entered into negotiations to purchase this facility.

(5) We lease two facilities in Pittsfield Massachusetts one for 16,000 sq. ft.
at an annual rent of $46,800, the lease for which expires in April 2003,
and one for 6,000 sq. ft. at am annual rental $15,288 on a month-to-month
basis. We have given notice that the 6,000 sq. ft. facility will be vacated.
On April 1, 1999, we leased an additional 20,000 sq. ft. for an additional
annual rental of $39,360 under a lease expiring on March 31, 2002.

(6) We pay an annual rent of $143,412. The lease for this property expires on
August 2002.

We also lease an average of 2,000 square feet at each of the other 21
worldwide locations, at an aggregate annual rental of $550,000 having terms
expiring from 1 to 10 years.

We believe our manufacturing, warehouse and office facilities are
suitable, 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.

ITEM 3. LEGAL PROCEEDINGS

On January 16, 1998, our ArmorGroup Services division ceased operations
in the country of Angola. The cessation of operations in Angola was dictated by
that government's decision to deport all of our expatriate management and
supervisors. As a result of the cessation of operations in Angola, our
ArmorGroup Services division is involved in various disputes with SHRM S.A.
("SHRM"), its minority joint venture partner relating to the Angolan business.
On March 6, 1998, SIA (a subsidiary of SHRM) filed a complaint against Defence
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. Such dispute is pending before the Commercial
COurt of Paris and no hearing is yet scheduled.

On March 5, 1999, DSF and Defense Systems Limited ("DSL"), a subsidiary
of the Company, filed a claim seeking to obtain damages from SHRM in the amount
of $16.1 million. No court hearing is scheduled yet. The procedure is pending
before the Commercial Court of Nanterre; a hearing has been scheduled for June
9, 2000.

On September 20, 1999, the Company was notified that SHRM and SIA filed
a complaint before the chamber of the Commercial Court of Paris against us,
several of our subsidiaries, several current and past members of the board of
DSIA, our Company and its subsidiaries and other parties seeking to obtain
damages in an amount of $20,000,000. The procedure is pending before the
Commercial Court of Paris; a hearing has been scheduled for April 18, 2000.

The Company believes that the likelihood of loss may be possible but
any favorable or unfavorable outcome cannot be estimated at this time.

In addition to the above, the Company, in the normal course of
business, is subject to claims and litigation in the areas of product and
general liability. The Company believes that it has adequate insurance coverage
for most claims that are incurred in the normal course of business. In such
cases, the effect on the Company's financial statements is generally limited to
the amount of its insurance deductibles. Management does not believe at this
time that any such claims could reasonably be expected to have a material impact
on the Company's 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
last quarter of fiscal 1999.

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"). Prior to May
7, 1999, our common stock was traded under the symbol "ABE" on the American
Stock Exchange (the "AMEX"). The following table sets forth the range of high
and low sales prices for our Common Stock on the NYSE and the AMEX for fiscal
years 1999 and 1998 and for the first quarter of fiscal year 2000 (through March
22, 2000).

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

2000
1st Quarter............................... 13 3/8 10

1999
1st Quarter............................... 14 15/16 11 1/8
2nd Quarter............................... 13 11/16 9 1/4
3rd Quarter .............................. 11 1/16 8 1/2
4th Quarter .............................. 13 1/8 8 15/16

1998
1st Quarter............................... 11 3/4 9 3/4
2nd Quarter............................... 12 1/2 10 5/8
3rd Quarter .............................. 11 11/16 8 7/8
4th Quarter .............................. 11 9/16 9

HOLDERS

As of March 22, 2000, the Company had approximately 2,750 stockholders of
record. Holders of shares held in "nominee" or street names are included in this
number.

DIVIDENDS

The Company has not paid any cash dividends on its Common Stock for the
last two fiscal years, and does not intend to pay any cash dividends on the
Common Stock for the foreseeable future. The Company currently intends to retain
any earnings for working capital, repayment of indebtedness, capital
expenditures and general corporate purposes. In addition, the Company is
restricted from paying dividends on its Common Stock pursuant to its Credit
Facility. See Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital Resources" and Note 19
to Consolidated Financial Statements.

RECENT SALES OF UNREGISTERED SECURITIES

The following information relates to sales of unregistered securities by the
Company during fiscal 1999. All of these sales of securities were made in
reliance upon an exemption from the registration provisions of the Securities
Act set forth in Sections 4(2), 4(6) and/or 3(b) thereof and the rules and
regulations under the Securities Act, including Regulation D, as transactions by
an issuer not involving any public offering and/or sales to a limited number of
purchasers who were acquiring such securities for their own account for
investment purposes and not with a view to the resale or distribution thereof.

During fiscal 1999, the Company granted options to various employees and
directors to purchase an aggregate of 1,683,500 shares of Common Stock under the
Amended and Restated 1996 Option Plan, the 1998 Stock Option Plan and the 1999
Stock Incentive Plan at exercise prices ranging from $9.25 to $13.44 per share.
These options 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.

ITEM 6. SELECTED FINANCIAL DATA

(Amounts in thousands 1999 1998 1997 1996 1995
except per share amounts) ---- ---- ---- ---- ----

Total Revenues $156,664 $97,207 $78,314 $30,967 $11,741
Net Income 13,196 8,596 3,158 689 520
Basic Earnings Per Share 0.63 0.53 0.23 0.09 0.11
Diluted Earnings Per Share 0.61 0.50 0.21 0.08 0.08

Total Assets 178,922 94,353 75,487 49,530 8,161
Long-Term Obligations 2,453 344 11 5,780 28
Stockholders' Equity 157,883 75,102 64,598 24,875 4,947

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

This analysis of the Company's results of operations should be viewed in
conjunction with the accompanying financial statements, including notes thereto,
contained in Item 8 of this Annual Report on Form 10K. This report 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
their goals will be achieved. See "Forward Looking Statements."

Actual results may differ from those expressed or implied in
forward-looking statements. With respect to any forward-looking statements
contained in this report, the Company believes that it is 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; and general economic and business conditions. Any forward-looking
statements in this report should be evaluated in light of these important risk
factors.

COMPANY OVERVIEW

We are a leading global provider of security risk management services and
products to multi-national corporations, governmental agencies and law
enforcement personnel through our two operating divisions -- ArmorGroup Services
and Armor Holdings Products. Our ArmorGroup Services division provides
sophisticated security planning and risk management, electronic security systems
integration, consulting and training services, as well as intellectual property
asset protection, business intelligence and investigative services. We provide
these services to multi-national corporations and governmental and
non-governmental agencies through our 22 offices in 18 countries. Our Armor
Holdings Products division manufactures and sells a broad range of high quality
branded law enforcement equipment and has a leading market position in several
of the product categories in which we compete. Such products include ballistic
resistant vests and tactical armor, less-than-lethal munitions, anti-riot
products and narcotics identification kits. These products are sold primarily to
law enforcement agencies through a worldwide network of over 500 distributors
and sales agents including approximately 350 in the United States. We believe
significant opportunities exist to grow our company and extend our global
infrastructure through geographic expansion and strategic acquisitions of
related businesses in the fragmented security risk management services and
products industry.

ACQUISITIONS

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

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

o offers attractive margins,

o is accretive to earnings, and

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

RESULTS OF OPERATIONS

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

FISCAL YEAR
---------------------
1997 1998 1999
---- ---- ----
Revenue
Services ..................................... 62% 53% 38%
Products ..................................... 38% 47% 62%
Total revenues .................................. 100% 100% 100%
Interest (income) expense, net .................. 0% (1)% 0%
Operating income ................................ 7% 14% 14%
Provision of income taxes ....................... 3% 5% 5%
Net income applicable to common stockholders .... 4% 9% 8%
EBITDA .......................................... 10% 16% 15%

FISCAL 1999 AS COMPARED TO FISCAL 1998

Service revenues. Service revenues increased by $8.4 million, or 16.3%, to
$60.0 million in fiscal 1999 compared to $51.6 million in fiscal 1998. This
increase was primarily due to the acquisitions and integration of Asmara, CDR,
APS, acquired in 1998, and Alarm Systems Holding company and Fire Alarm Service
Corporation acquired in 1999. These acquisitions were accounted for as purchases
and the results of their operations are recorded only for the period the Company
owned them.

Product revenues. Product revenues increased by $51.1 million, or
111.9%, to $96.7 million in fiscal 1999 compared to $45.6 million in fiscal
1998. This increase was primarily due to the acquisition of Pro-Tech and Fed
Labs in 1998 and Safariland Ltd., Inc. in 1999, as well as strong internal
growth. These acquisitions were accounted for as purchases and the results of
their operations are recorded only for the period the Company owned them.

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

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

the ArmorGroup Services division, and the acquisitions of Safariland, Parvus,
ASH and FAS which were completed in 1999.

Amortization. Amortization expense increased by $1.1 million, or 81.4%,
to $2.4 million in fiscal 1999 compared to $1.3 million in fiscal 1998. This
increase was primarily due to additional amortization of intangible assets
acquired as a result of the Safariland, Parvus, ASH and FAS acquisitions during
fiscal 1999 which would not have been reflected in the fiscal 1998.

Equity in earnings of investees. Equity in earnings of investees
decreased by $534,000, or 74.9%, to $179,000 in fiscal 1999 compared to $713,000
in fiscal 1998. The decrease was primarily due to losses incurred by Jardine
Securicor Gurkha Services Limited ("JSGS"), a Hong Kong joint venture company in
India. This office has been subsequently closed.

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

Interest expense. Interest expense was $17,000 in fiscal 1999 compared
to interest income of $653,000 in fiscal 1998. This increase was primarily due
to amortization of fees associated with the $60 million bank credit facility
completed in February, 1999, as well as interest on debt acquired as part of the
purchased companies.

Operating income. Operating income increased by $6.7 million, or 49.1%,
to $20.4 million in fiscal 1999 compared to $13.6 million in fiscal 1998
primarily due to the factors discussed above.

Other income. Non-operating income increased by $788,000, or 2814.3%, to
$816,000 in fiscal 1999 compared to $28,000 in fiscal 1998 and is primarily due
to the gain on the sale of stock in MACE Security International acquired
warrants received as part of the acquisition of certain assets of the Law
Enforcement Divisions of MACE Security International in July of 1998.

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

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

FISCAL 1998 AS COMPARED TO FISCAL 1997

Service revenues. Service revenues increased by $3.1 million, or 6.4%, to
$51.6 million in fiscal 1998 compared to $48.4 million in fiscal 1997. This
increase was primarily due to the award of new contracts to our ArmorGroup
Services division and the integration of acquisitions completed during 1998.
This increase was partially offset by the reduction of $12.0 million in revenue
associated with the termination of our Angolan operation in early 1998.

Product revenues. Product revenues increased by $15.8 million, or 52.8%,
to $45.6 million in fiscal 1998 compared to $29.9 million in fiscal 1997. This
increase was primarily due to internal growth of approximately 25% over fiscal
1997 for acquired companies owned by us for more than one year and the increase
resulting from the integration of acquisitions completed during 1998.

Cost of sales. Cost of sales increased by $4.2 million, or 7.3%, to $61.6
million in fiscal 1998 compared to $57.4 million in fiscal 1997. This increase
was primarily due to increased revenues in fiscal 1998 compared to fiscal 1997.
As a percentage of total revenues, cost of sales decreased to 63.4% in fiscal
1998 from 73.3% in fiscal 1997 reflecting a greater proportion of total revenue
generated by our Armor Holdings Products division in fiscal 1998, which has
higher gross margins than our ArmorGroup Services division.

Operating expenses. Operating expenses increased by $9.4 million, or 75.7%,
to $21.9 million (22.5% of total revenues) in fiscal 1998 compared to $12.5
million (15.9% of total revenues) in fiscal 1997. This increase was primarily
due to the increased revenues from our Armor Holdings Products division which
has higher sales and marketing expenses than the revenues from the ArmorGroup
Services division.

Amortization. Amortization expense increased by $220,000, or 19.5%, to
$1.3 million in fiscal 1998 compared to $1.1 million in fiscal 1997. This
increase was primarily due to additional amortization of intangible assets
acquired during fiscal 1998 which would not have been reflected in fiscal 1997.

Merger, integration and other non-recurring charges. The fees and expenses
associated with the acquisition of DSL, a component of our ArmorGroup Services
division, which was accounted for as a pooling of interests and had
non-recurring expenses relating to the financial and administrative
restructuring and integration of DSL into our ArmorGroup Services division,
totaled approximately $2.5 million in fiscal 1997. No such non-recurring
expenses were incurred in fiscal 1998.

Equity in earnings of investees. Equity in earnings of investees decreased
by $33,000, or 4.4%, to $713,000 in fiscal 1998 compared to $746,000 in fiscal
1997. The equity in earnings of investees in fiscal 1998 is comprised of a 20%
investment in Jardine Securicor Gurkha Services Limited ("JSGS"), a Hong Kong
joint venture company. The equity in earnings of investees in fiscal 1997
related to the investment in JSGS, as well as DSL's original 50% investment in
Gorandel Trading Limited until June 9, 1997, when the 100% investment was
consolidated into our results of operations.

Interest (income) expense, net. Interest (income) was $(625,000) in fiscal
1998 compared to interest expense of $195,000 in fiscal 1997. This increase was
primarily due to interest income earned on the proceeds from our 1997 public
offering and the repayment of the balance of approximately $18.6 million that
was outstanding on the credit facility at the time the offering was completed.

Operating income. Operating income increased by $8.4 million, or 158.2%, to
$13.6 million in fiscal 1998 compared to $5.3 million in fiscal 1997 primarily
due to the factors discussed above.

Other income. Non-operating income decreased by $364,000, or 92.9%, to
$28,000 in fiscal 1998 compared to $392,000 in fiscal 1997. This decrease was
primarily due to fees paid to us by a former employee in fiscal 1997 in
connection with our role as agent for the sale of our common stock.

Income taxes. Income taxes increased by $2.7 million, or 113.7%, in fiscal
1998, compared to $2.4 million in fiscal 1997, based on a provision of 37%. This
provision is comprised of our U.S. federal and state statutory rates of
approximately 36% for our U.S.-based companies and a 38% blended effective tax
rate for our foreign operations.

Dividends on preference shares. In connection with our acquisition of
DSL, a unit of our ArmorGroup Services division, we incurred $143,000 in
preference share dividends in fiscal 1997. We acquired the shares underlying the
dividends on April 16, 1997, and therefore, did not incur any dividends on these
shares during fiscal 1998.

Net income applicable to common stockholders. Net income applicable to
common stockholders increased approximately $5.4 million or 172.2%, to $8.6
million in fiscal 1998 compared to $3.2 million in fiscal 1997. This increase
was primarily due to the factors discussed above.

QUARTERLY RESULTS

Set forth below is certain unaudited quarterly financial data for each of
our last eight quarters and 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.

QUARTER ENDED
- ------------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Mar 29 Jun 28 Sept 27 Dec 31 Mar 31 Jun30 Sept30 Dec 31
1998 1998 1998 1998 1999 1999 1999 1999

Revenues
Services $11,800 $11,905 $13,860 $13,998 $12,815 $12,847 $16,693 $17,603
Products 7,835 10,928 12,584 14,297 14,025 26,064 28,398 28,219
------- ------- ------- ------- ------- ------- ------- -------
Total Revenue 19,635 22,833 26,444 28,295 26,840 38,911 45,091 45,822
Operating income 2,507 2,759 3,667 4,087 3,862 4,270 6,386 5,865
Interest expense (income), net (242) (198) (104) (81) (44) (6) (41) 108
Provision for Income taxes 975 1,122 1,445 1,535 1,635 1,738 2,484 2,146
Net income (loss) applicable to
common stockholders 1,774 1,835 2,326 2,661 2,740 2,835 3,902 3,719
Earnings per common share
Basic 0.11 0.11 0.14 0.16 0.17 0.14 0.16 0.16
Diluted 0.10 0.11 0.14 0.15 0.16 0.14 0.16 0.15
Weighted average common shares
outstanding
Basic 16,037 16,144 16,224 16,227 16,284 20,082 23,884 23,593
Diluted 17,154 17,034 17,022 17,471 17,476 20,839 24,473 24,300
Revenues
Services 60% 52% 52% 49% 48% 33% 37% 38%
Products 40% 48% 48% 51% 52% 67% 63% 62%
--- --- --- --- --- --- --- ---
Total revenue 100% 100% 100% 100% 100% 100% 100% 100%
Operating income 13% 12% 14% 14% 14% 11% 14% 13%
Interest expense (income), net (1)% (1)% 0% 0% 0% 0% 0% 0%
Provision(benefit) for income taxes 5% 5% 5% 5% 6% 4% 6% 5%
Net income applicable to 9% 8% 9% 9% 8% 7% 8% 8%
common stockholders

Liquidity And Capital Resources

Historically, we have funded operations through cash flow from
operations, debt, and equity financing, including a May 1999 public offering of
$63.5 million of our common stock. On February 12, 1999, we entered into a a
Credit Agreement among the Company, as Borrower, CIBC, Inc. ("CIBC"),
NationsBank, N.A. ("NationsBank"), First Union National Bank ("First Union") and
SunTrust Bank, North Florida, N.A. ("SunTrust"), as lenders, NationsBank, as
Documentation Agent and Canadian Imperial Bank of Commerce, as Administrative
Agent (the "Credit Agreement").

On February 25, 2000, we amended this Credit Agreement. Pursuant to the
Credit Agreement, as amended, the several lenders established a five-year
$100,000,000 line of credit (the "Credit Facility") for our benefit. Our
indebtedness under the Credit Facility is evidenced by (i) Five Year Revolving
Credit Notes of up to $100,000,000. All borrowings under the Credit Facility
bear interest at either (i) the base rate, plus an applicable margin ranging
from .000% to .375% depending on certain conditions, or (ii) the eurodollar
rate, plus an applicable margin ranging from 1.125% to 1.875% depending on
certain conditions. In addition, the Credit Facility provides that NationsBank
will make swing-line loans of up to $5,000,000 available to the Company to be
used by the Company for working capital purposes. CIBC, Inc. and NationsBank,
N.A. will also issue letters of credit of up to $10,000,000 to the Company. As
of March 14, 2000, we had $2,200,000 outstanding and $97,800,000 available under
the credit facility.

As part of the Credit Facility, all of our direct and indirect domestic
subsidiaries (NIK Public Safety, Inc. ("NIK"), Armor Holdings Properties, Inc.
("Properties"), Defense Technology Corporation of America ("DTC"), Low Voltage
Systems Technology, Inc. ("LST"), Federal Laboratories, Inc. ("FLI"), American
Body Armor & Equipment, Inc. ("ABAE"), Pro-Tech Armored Products of
Massachusetts, Inc. ("Pro-Tech", together with NIK, Properties, DTC, LST, FLI,
ABAE, Safariland Ltd., Inc. ("SL"), The Parvus Company ("PC") collectively, the
"Direct Domestic Subsidiaries"), US Defense Systems, Inc. ("USDS"), CDR
International, Inc. ("CDR"), Safariland Government Sales, Inc. ("SLGC"), The
Parvus International Information Company ("PIIC") and Parvus Crisis Management
Corporation ("PCMC"), together with the Direct Domestic

Subsidiaries and USDS, collectively, the "Domestic Subsidiaries")) agreed
to guarantee our obligations under the Credit Facility pursuant to a
Subsidiaries Guarantee. The Credit Facility is secured by (i) a pledge by us of
all of the issued and outstanding shares of stock of the Direct Domestic
Subsidiaries pursuant to a Borrower Pledge Agreement and (ii) a pledge by us of
65% of the issued and outstanding shares of its foreign subsidiary, Armor
Holdings Limited, organized under the laws of England and Wales, pursuant to a
Security Deed. In connection with the closing of the Credit Facility, we fully
paid our existing credit facility with Barnett Bank, N.A. and obtained a release
of all collateral and security interests which Barnett Bank, N.A. held in
connection with such facility.

As of December 31, 1998, we had working capital of $24.4 million. As of
December 31, 1999, we had working capital of $52.3 million which reflects the
proceeds of our public offering in May 1999.

We anticipate that cash generated from operations and borrowings under the
Credit Facility will enable us to meet our liquidity, working capital and
capital expenditure requirements during the next 12 months. We, however, may
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 stockholders.

The Company's spending for its fiscal 1999 capital expenditures was $4.5
million. Such expenditures include, among other things, leasehold improvements,
computer equipment and software, and manufacturing machinery and equipment.

NEW ACCOUNTING PRONOUNCEMENTS

Beginning in the first quarter of 1999, we adopted Statement of
Position 98-5, "Reporting on the Costs of Start-up Activities." The adoption of
this statement did not materially impact our consolidated results, financial
condition or long-term liquidity.

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounts Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"). Comprehensive income includes net income and several other items that
current accounting standards require to be recognized outside of net income.
This standard requires enterprises to display comprehensive income and its
components in financial statements, to classify items of comprehensive income by
their nature in financial statements, and to display the accumulated balances of
other comprehensive income in stockholders' equity separately from retained
earnings and additional paid-in capital. SFAS 130 was effective for fiscal years
beginning after December 31, 1997. We adopted this standard for our fiscal year
beginning December 28, 1997.

In December 1999, the staff of the Securities and Exchange Commission
("SEC") issued Staff Accounting Bulletin ("SAB") No. 101 "Revenue Recognition in
Financial Statements". SAB No. 101 summarizes the SEC staff's view in applying
generally accepted accounting principles to the recognition of revenues. The
Company has evaluated the impact of the reporting requirements of SAB No. 101
and has determined that there will be no material impact on its consolidated
results of operations, financial position or cash flows.

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.

YEAR 2000 ACTIVITIES

As described in the Form 10-Q for the quarter ended September 30, 1999,
we had developed plans to address our potential exposures to our systems related
to the Year 2000. Since entering the Year 2000, we have not experienced any
significant disruptions to our business nor are we aware of any significant Year
2000 related disruptions impacting our customers and suppliers. We will continue
to monitor our systems and operations until we are reasonably assured that no
significant business interruptions will occur as a result of any Year 2000
issues.

We spent a total of approximately $50,000 on the Year 2000 Project with no
significant additional expenses expected in 2000.

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 strategies, expansion of
product lines and increase of distribution networks or product sales are are as,
among others, 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 provide examples
of risks, uncertainties and events that may cause our actual results to differ
from the expectations we express in our forward-looking statements. Before you
invest in our common stock, you should be aware that the occurrence of certain
of the events described in this report could adversely affect our business,
results of operations and financial position.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company, as a result of its global operating and financial activities,
is exposed to changes in raw material prices, interest rates and foreign
currency exchange rates which may adversely affect its results of
operations and financial position. In seeking to minimize the risks and/or costs
associated with such activities, the Company manages exposures to changes in raw
material prices, interest rates and foreign currency exchange rates through its
regular operating and financing activities. The Company does not utilize
financial instruments or leveraged financial instrument for trading or other
speculative purposes.

The Company is exposed to interest rate risk primarily through its
investments in short-term investments as the Company currently has no short- or
long-term borrowings outstanding. There is inherent roll-over risk for
marketable securities 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, only a risk related to potential
reduction in future interest income. Derivative instruments are not presently
used to adjust the Company's interest rate risk profile.

The majority of the Company's business is denominated in U.S. dollars.
There are costs related to the London headquarters which are denominated in the
British currency. Several other currencies are used by the Company for various
transactions, but their effect on the total business is minimal. By maintaining
a sterling bank account, the Company is able to eliminate any foreign currency
exchange gains or losses arising under cash paid out in British currency.

RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS

The Company does business in numerous countries, including emerging
markets in Africa, Asia and South America. The Company has invested substantial
resources outside of the United States and plans to continue to do so in the
future. The Company's 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 the Company and its operating
companies. The Company does not have political risk insurance in the countries
in which it currently conducts business, but does periodically analyze the need
for and cost associated with this type of policy. Moreover, applicable
agreements relating to the Company's interests in its operating companies are
frequently governed by foreign law. As a result, in the event of a dispute, it
may be difficult for the Company to enforce its rights. Accordingly, the Company
may have little or no recourse upon the occurrence of any of these developments.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The response to this item is included in Item 14.

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

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth the name, age and position of each of
our directors, executive officers and significant employees as of March 1, 2000.
Each director will hold office until the next annual meeting of our stockholders
or until his or her successor has been elected and qualified. Our executive
officers are appointed by and serve at the discretion of, the board of
directors.

Name Age Position
- -------------------- --- --------------------------------------------------

Warren B. Kanders 42 Chairman of the Board of Directors
Jonathan M. Spiller 48 President, Chief Executive Officer and Director
Robert R Schiller 37 Executive Vice President and Director of Corporate
Development
Nicholas B Winiewicz 51 Vice President - Finance, Chief Financial Officer,
Secretary and Treasurer
Stephen E. Croskrey 40 President and Chief Executive Officer - Armor Holdings Products Division
Stephen J. Loffler 46 President and Chief Executive Officer - ArmorGroup Services Division
Richard C. Bartlett 65 Director
Burtt R. Ehrlich 60 Director
Stephen B. Salzman 34 Director
Nicholas Sokolow 50 Director
Thomas W. Strauss 58 Director
Alair A. Townsend 58 Director

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

Jonathan M. Spiller has served as our President and as a director since
July 1991 and as Chief Executive Officer since September 1993. From June 1991 to
September 1993, Mr. Spiller served as our Chief Operating Officer. Mr. Spiller
is a chartered and certified public accountant and was previously partner with
Deloitte & Touche LLP, an international accounting firm, where he worked for 18
years.

Robert R. Schiller has served as Executive Vice President and Director of
Corporate Development since January 1, 1999, and as Vice President of Corporate
Development from July 1996 to December 1998. From January 1995 to September
1995, Mr. Schiller served as Chief Financial Officer of Troma, Inc., an
independent film studio. From 1994 to July 1996, Mr. Schiller was a principal in
the merchant banking firm of Circadian Capital Corporation and from 1993 to 1995
he was a director of corporate finance for Jonathan Foster & Co. L.P., an
investment banking and financial advisory firm.

Nicholas B. Winiewicz has served as Vice President--Finance, Chief
Financial Officer, Secretary and Treasurer since February 1999. From 1994 to
February 1999, Mr. Winiewicz served as Vice President and Chief Financial
Officer for Aladdin Industries, Inc., a consumer branded appliance company. From
1984 to 1994 Mr. Winiewicz served as Vice President-Finance of Bentler
Industries, Inc., an auto parts manufacturer. Mr. Winiewicz is a Certified
Public Accountant.

Stephen E. Croskrey has served as President and Chief Executive Officer
of our Armor Holdings Products division since February 1999. From 1998 to
February 1999, Mr. Croskrey served as Director of Sales for Allied Signal,
Inc.'s global fibers business. From 1988 to 1998, Mr. Croskrey served in various
positions for Mobil Oil, most recently as its Central Regional Manager for its
Industrial Lubricant division.

Stephen J. Loffler has served as President and Chief Executive Officer
of our ArmorGroup Services division since April 1999. From April 1998 to March
1999, Mr. Loffler served as Vice President and General Manager Europe at Office
Depot, an office products retailer, where he was responsible for European
operations. From August 1991 to March 1998, Mr. Loffler served as Deputy
Chairman of Acco Europe, an office products manufacturer, where he led the
integration of Ofrex Group Holdings, an international distributor and
manufacturer of office products.

Richard C. Bartlett has served as director since May 1996. Mr. Bartlett has
also served as Vice Chairman of Mary Kay Holding Corporation, a consumer branded
products company, since January 1993 and as President, Chief Operating Officer,
and director of Mary Kay Inc. from 1987 through 1992. Mr. Bartlett has also
served as Chairman of the board of directors (from 1995 to 1999) and Chief
Executive Officer (from 1994 to 1995) of Richmont Group, Inc., an affiliate of
Richmont Capital Partners I, L.P. Richmont Group, Inc. and its affiliates own
and operate portfolio businesses in industries such as financial services,
apparel, sports products, and food services. On March 1, 1999, Mr. Bartlett
resigned from his positions with Richmont Group, Inc., but he continues to serve
as Vice Chairman of Mary Kay Holding Corporation.

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

Stephen B. Salzman has served as director since June 1999. Mr. Salzman has
been a principal of FS Partners since its inception in 1994. FS Partners and its
affiliates invest in public and private companies through the purchase of equity
and related securities.

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

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

capacities with Salomon Brothers Inc., an investment banking and brokerage firm,
including President and Vice-Chairman.

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

COMMITTEES OF THE BOARD OF DIRECTORS

During fiscal 1999, the Board of Directors held 11 meetings. The Board
of Directors has standing Audit, Compensation, Nominating and Option Committees.
During fiscal 1999, all of the directors then in office attended at least 60% of
the total number of meetings of the Board of Directors and the Committees of the
Board of Directors on which they served. The Audit, Compensation, Nominating and
Option Committees do not meet on a regular basis, but only as circumstances
require.

AUDIT COMMITTEE

The functions of the Audit Committee are to recommend to the Board of

Directors the appointment of independent auditors for the Company and to analyze
the reports and recommendations of such auditors. The committee also monitors
the adequacy and effectiveness of the Company's financial controls and reporting
procedures. During fiscal 1999, the Audit Committee consisted of Ms. Townsend
(Chairwoman), and Messrs. Sokolow and Strauss. THE AUDIT COMMITTEE MET TWICE
DURING FISCAL 1999.

COMPENSATION COMMITTEE

The purpose of the Compensation Committee is to recommend to the Board of
Directors the compensation and benefits of the Company's executive officers and
other key managerial personnel. During fiscal 1999, the Compensation Committee
consisted of Messrs. Sokolow (Chairman), Kanders and Ehrlich. The Compensation
Committee did not meet during fiscal 1999.

NOMINATING COMMITTEE

The purpose of the Nominating Committee is to identify, evaluate and
nominate candidates for election to the Board of Directors. The Nominating
Committee will consider nominees recommended by stockholders. The names of such
nominees should be forwarded to Nicholas B. Winiewicz, Secretary, Armor
Holdings, Inc., 1400 Marsh Landing Parkway Suite 112, Jacksonville, Florida
32250, who will submit them to the committee for its consideration. During
fiscal 1999, the Nominating Committee consisted of Messrs. Kanders (Chairman),
Bartlett and Sokolow. The Nominating Committee met once during fiscal 1999.

OPTION COMMITTEE

The purpose of the Option Committee is to administer the Company's 1999 Stock
Incentive Plan (the "1999 Stock Option Plan"), the 1998 Stock Option Plan (the
"1998 Stock Option Plan"), Amended and Restated 1996 Stock Option Plan (the
"1996 Option Plan") and Amended and Restated 1996 Non-Employee Directors Stock
Option Plan (the "1996 Directors Plan"), and to recommend to the Board of
Directors awards of options to purchase Common Stock of the Company thereunder.
During fiscal 1999, the Option Committee consisted of Messrs. Ehrlich (Chairman)
and Kanders. The Option Committee did not meet during fiscal 1999.

COMPENSATION OF DIRECTORS

In 1999, no compensation was paid to our directors of the Company for their
services as directors. Directors who are not our employees ("Non-Employee
Directors") are compensated for their services as directors through their
participation in the 1999 Stock Option Plan. Each Non-Employee director was
granted options to purchase 10,000 shares in consideration for service as a
director. The exercise price for all 10,000 options granted to each Non-Employee
Director under the 1999 Stock Option Plan was the closing price of the Common
Stock on the date of the grant as quoted on the New York Stock Exchange.

SECTION 16(A) BENEFICIAL OWNERSHIP COMPLIANCE

Stephen Salzman, who was appointed as one of our directors on June 24, 1999,
inadvertently did not file the required Form 3 by the required time. The Form 3
has since been filed.

ITEM 11. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following summary compensation table sets forth information
concerning the annual and long-term compensation earned by our chief executive
officer and each of the other most highly compensated executive officers whose
annual salary and bonus during fiscal 1999 exceeded $100,000 (collectively, the
"Named Executive Officers").

SECURITIES
FISCAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS (#) COMPENSATION
- --------------------------------- ------ --------- ------- ----------- ------------

Jonathan M. Spiller 1999 $ 350,000 $ 0 300,000 $ 0
President, CEO and Director 1998 275,000 150,000 0 0
1997 250,000 250,000 250,000 0

Robert R. Schiller 1999 200,000 50,000 125,000 0
Executive Vice President and 1998 140,000 80,000 0 0
Director of Business Development 1997 130,000 60,000 0 0

Stephen E. Croskrey 1999 220,000 0 200,000 103,674 (2)
President and CEO of Armor
Holdings Product Division

Stephen J. Loffler 1999 264,000 0 150,000 0
President and CEO of ArmorGroup

Nicholas Winiewicz 1999 165,000 0 75,000 50,000 (3)
Vice President - Finance, CFO,
Seccretary and Treasurer

(1) We have no long-term incentive compensation plan for our executive
officers and employees other than the 1994 Incentive Sock Option Plan
(which was discontinued for the purpose of further stock option grants
in March 1996), the 1996 Option Plan, the 1998 Stock Option Plan, the
1999 Stock Incentive Plan and various individually granted options. We
do not award stock appreciation rights, restricted stock awards or long
term incentive plan pay-outs.

(2) Mr. Croskrey received reimbursement for moving expenses as part of his
employment agreement.

(3) Mr. Winiewicz received reimbursement for moving expenses as part of his
employment agreement.

OPTIONS GRANTED IN FISCAL 1999

The following table contains certain information regarding stock
options we granted to our Named Executive Officers during fiscal 1999.

Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation for Option
Individual Grants Term (2)
---------------------------------------------------------- ------------------------
Number of Percent of
Securities Total Options Exercise of
Underlying Granted to Base Price
Options Employees in ($/share) Expiration
Name Granted Fiscal Year (1) Date 5% 10%
- ------------------ ---------- ------------- ----------- ---------- ---------- ----------

Jonathan Spiller 300,000 16.03% $ 11.3125 1/1/2009 $1,871,070 $4,608,535
Robert Schiller 125,000 6.68 11.3125 1/1/2009 779,613 1,920,223
Stephen Croskrey 200,000 10.69 13.1875 2/8/2009 1,454,128 3,581,587
Stephen Loffler 150,000 8.02 12.6875 4/12/2009 1,049,247 2,584,344
Nicholas Winiewicz 75,000 4.01 12.1875 2/16/2009 503,948 1,241,249

(1) All options were granted at the market value on the date of grant based
generally on the last sale price on the date of grant of the our Common
Stock.

(2) The dollar amounts under these calculations are the result of
calculations at the 5% and 10% rates set by the Securities and Exchange
Commission and, therefore, are not intended to forecast possible future
appreciation, if any, of the price of the Company's Common Stock or the
present or future value of the options.

AGGREGATE OPTION EXERCISES IN FISCAL 1999 AND FISCAL YEAR END OPTION VALUES

The following table contains certain information regarding stock options
exercised during and options to purchase Common Stock held as of December 31,
1999, by each of the Named Executive Officers. The stock options listed below
were granted without tandem stock appreciation rights. We have no freestanding
stock appreciation rights outstanding.

Number of Securities Value of Underlying
Underlying Unexercised In the Money Options
Options at 12/31/99 (#) at 12/31/99 (1)
------------------------- -------------------------
Acquired Shares
On Value Non- Non-
Exercise (#) Realized (2) ($) Exercisable Exercisable Exercisable Exercisable
------------ ------------ ----------- ----------- ----------- -----------

Jonathan M. Spiller
Robert R. Schiller
Nicholas Winiewicz
Stephen E. Croskrey
Stephen J. Loffler
J. Lawrence Battle

(1). Calculated on the basis of $13.125 per share, the last reported sales
price of the Common Stock on the New York Stock Exchange on December
31, 1999, less exercise price payable for such shares.

(2). Calculated on the basis of the closing share price the Common Stock on
the New York Stock Exchange on the date exercised, less the exercise
price payable for such shares.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item is incorporated by reference to
the Armor Holdings, Inc.'s Proxy Statement for the 2000 Annual Meeting of
Stockholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES, AND REPORTS ON FORM 8-K

(a) Financial Statements and Schedules

(1) The following Financial Statements of the Company (which appear
beginning at sequential page number F-1) are included herein:

Independent Auditors' Reports

Consolidated Balance Sheets

Consolidated Income Statements

Consolidated Statements of Stockholders' Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

(2) Schedules for which provision is made in the applicable accounting
regulations of the Commission have been omitted because they are not applicable
or the required information is shown in the Financial Statements or the Notes
thereto.

(b) Reports on Form 8-K

The Company filed a Current Report on Form 8-K under Item 5, dated
October 21, 1999, announcing the approval of its stock repurchase program.

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

EXHIBIT
NO. DESCRIPTION
- ------- -----------

+2.1 Order confirming Debtor's Third Amended and Restated Plan of
Reorganization with the Third Amended and Restated Plan of Reorganization
attached thereto (incorporated by reference from Exhibit 2 to our Form 8-K,
Current Report, dated October 1, 1993).

+2.2 Asset Purchase Agreement, dated as of July 2, 1996, between the
Company, NIK, Ivers-Lee and LFC No. 46 Corp. (filed as Exhibit 2.1 to our Form
8-K, Current Report, dated July 30, 1996 and incorporated herein by reference).

+2.3 Asset Purchase Agreement, dated as of August 23, 1996, between the
Company, DTC, Robert L. Oliver, Sandra A. Oliver and DTCoA (filed as Exhibit 2.1
to our Form 8-K, Current Report, dated October 9, 1996 and incorporated herein
by reference).

+2.4 Agreement and Plan of Merger, dated July 23, 1996, by and between
American Body Armor & Equipment, a Florida corporation, and the Company (filed
as Exhibit 2.1 to our Form 8-K, Current Report, dated September 3, 1996 and
incorporated herein by reference).

+2.5 Share Acquisition Agreement, dated as of April 7, 1997, between
Bodycote, AHL and the Company (filed as Exhibit 2.1 to our Form 8-K, Current
Report, dated April 22, 1997 and incorporated herein by reference).

+2.6 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).

+2.7 Share Acquisition Agreement, dated as of June 9, 1997, between the
Company, Strontian Holdings Limited, Alpha-A Limited and Others (filed as
Exhibit 2.1 to our Form 8-K, Current Report, dated June 24, 1997 and
incorporated herein by reference).

+2.8 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).

+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 Credit Agreement, dated as of February 12, 1999, among the
Company, CIBC, NationsBank, First Union and SunTrust, as lenders, Canadian
Imperial Bank of Commerce, as Administrative Agent and NationsBank, as
Documentation Agent, in the aggregate principal amount of $60,000,000 (filed as
Exhibit 5.1 to Form 8-K, Current Report of the Company, filed with the
Commission on March 10, 1999 and incorporated herein by reference).

+10.2 364-Day Revolving Credit Note, dated February 12, 1999, in the
principal amount of up to $4,166,667 made by the Company in favor of First Union
(filed as Exhibit 5.2 to Form 8-K, Current Report of the Company, filed with the
Commission on March 10, 1999 and incorporated herein by reference).

+10.3 364-Day Revolving Credit Note, dated February 12, 1999, in the
principal amount of up to $4,166,667 made by the Company in favor of SunTrust
(filed as Exhibit 5.3 to Form 8-K, Current Report of the Company, filed with the
Commission on March 10, 1999 and incorporated herein by reference).

+10.4 364-Day Revolving Credit Note, dated February 12, 1999, in the
principal amount of up to $5,833,333 made by the Company in favor of NationsBank
(filed as Exhibit 5.4 to Form 8-K, Current Report of the Company, filed with the
Commission on March 10, 1999 and incorporated herein by reference).

+10.5 364-Day Revolving Credit Note, dated February 12, 1999, in the
principal amount of up to $5,833,333 made by the Company in favor of CIBC

(filed as Exhibit 5.5 to Form 8-K, Current Report of the Company, filed with
the Commission on March 10, 1999 and incorporated herein by reference).

+10.6 Five Year Revolving Credit Note, dated February 12, 1999, in the
principal amount of up to $8,333,333 made by the Company in favor of First Union
(filed as Exhibit 5.6 to Form 8-K, Current Report of the Company, filed with the
Commission on March 10, 1999 and incorporated herein by reference).

+10.7 Five Year Revolving Credit Note, dated February 12, 1999, in the
principal amount of up to $8,333,333 made by the Company in favor of SunTrust
(filed as Exhibit 5.7 to Form 8-K, Current Report of the Company, filed with the
Commission on March 10, 1999 and incorporated herein by reference).

+10.8 Five Year Revolving Credit Note, dated February 12, 1999, in the
principal amount of up to $11,666,667 made by the Company in favor of
NationsBank (filed as Exhibit 5.8 to Form 8-K, Current Report of the Company,
filed with the Commission on March 10, 1999 and incorporated herein by
reference).

+10.9 Five Year Revolving Credit Note, dated February 12, 1999, in the
principal amount of up to $11,666,667 made by the Company in favor of CIBC
(filed as Exhibit 5.9 to Form 8-K, Current Report of the Company, filed with the
Commission on March 10, 1999 and incorporated herein by reference).

+10.10 Borrower Pledge Agreement, 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 5.10 to Form 8-K, Current Report of the
Company, filed with the Commission on March 10, 1999 and incorporated herein by
reference).

+10.11 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).

+10.12 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).

+10.13 Amended and Restated Employment Agreement between Jonathan M.
Spiller and the Company, dated as of January 1, 1999 (incorporated by reference
to Exhibit 10.5 to our 98 10-K).

+10.14 Amended and Restated Employment Agreement between Robert R.
Schiller and the Company, dated as of January 1, 1999 (incorporated by reference
to Exhibit 10.6 to the 98 10-K).

+10.15 Employment Agreement between Stephen E. Croskrey and the
Company, dated as of February 8, 1999 (incorporated by reference to Exhibit 10.7
to the 98 10-K).

+10.16 Employment Agreement between Nicholas B. Winiewicz and the
Company, dated as of February 16, 1999 (incorporated by reference to Exhibit
10.8 to the 98 10-K).

+10.17 Employment Agreement between Warren B. Kanders and the Company,
dated as of January 1, 1999 (incorporated by reference to Exhibit 10.9 to the 98
10-K).

+10.18 Form of Registration Rights Agreement, dated April 16, 1997,
between the Company and the Vendors of DSL (filed as Exhibit 10.3 to Form 8-K,
Current Report of the Company, dated April 22, 1997 and incorporated herein by
reference).

+10.19 Form of Option for 300,000 shares of Common Stock, dated May 15,
1996 granted to Richmont Capital Partners I, L.P. (filed as Exhibit 10.34 to
Registration Statement No. 333-28879 on Form S-1 of the Company and incorporated
herein by reference).

+10.20 Agreement, dated as of April 21, 1998, amending Option, dated
May 15, 1996, granted to Richmont Capital Partners I, L.P. for 300,000 shares of
Common Stock (incorporated by reference to Exhibit 10.33 to the 98 10-K).

+10.21 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).

+10.22 Form of Indemnification Agreement for Officers of the
Registrant, dated February 28, 1994 (filed as Exhibit 10.5 to Form 10-KSB,
Annual Report of the Company for the fiscal year ended December 31, 1993 and
incorporated herein by reference).

+10.23 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).

+10.24 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).

+10.25 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).

+10.26 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).

+10.27 Armor Holdings, Inc. 1998 Stock Option Plan (incorporated by
reference to Exhibit 10.19 to the 98 10-K).

+10.28 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).

+10.29 Lease for the Company's former primary facility located in
Yulee, Florida, dated July 26, 1993, effective May 1, 1993 (filed as Exhibit
28.1 to Form 10-KSB, Annual Report of the Company, for the fiscal year ended
December 31, 1993 and incorporated herein by reference).

+10.30 Agreement, dated as of March 8, 1999, between the Company and
Kanders & Company, Inc (incorporated by reference to Exhibit 10.21 to the 98
10-K).

*23.1 Consent of PricewaterhouseCoopers LLP.

*23.2 Consent of Deloitte & Touche.

*23.3 Consent of Deloitte & Touche LLP.

*23.4 Consent of KPMG.

*23.5 Consent of Ernst & Young LLP.

*27.1 Financial Data Schedule.

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

* Filed herewith.

+ Incorporated herein by reference.

INDEX TO FINANCIAL STATEMENTS

ARMOR HOLDINGS, INC.

Report of Independent Accountants................ F-2

Independent Auditors' Report..................... F-4

Independent Auditors' Report..................... F-5

Consolidated Balance Sheets...................... F-6 -- F-7

Consolidated Income Statements................... F-8

Consolidated Statement of Stockholders' Equity... F-9

Consolidated Statements of Cash Flow............. F-10

Notes to Consolidated Financial Statements....... F-11 -- F-35

F-1

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

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

In our opinion, based upon our audits and the report of other auditors, the
accompanying consolidated balance sheets and the related consolidated statements
of income, stockholders' equity and cash flows present fairly, in all material
respects, the financial position of Armor Holdings, Inc. and its subsidiaries
(the "Company") at December 31, 1999 and 1998, and the results of their
operations and their cash flows for the periods ended December 31, 1999 and
1998, in conformity with accounting principles generally accepted in the United
States. These consolidated financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We did not audit the 1998
financial statements of Defence Systems Colombia S.A., a wholly owned
subsidiary, which statements reflect total assets of $4,974,000 at December 31,
1998 and total revenues of $13,266,000 for the year ended December 31, 1998.
Those statements were audited by other auditors whose report thereon has been
furnished to us, and our opinion expressed herein, insofar as it relates to the
amounts included for Defence Systems Colombia S.A. is based solely on the report
of the other auditors. We conducted our audits of the consolidated financial
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated 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 and the report of other auditors provide a reasonable
basis for the opinion expressed above.

PricewaterhouseCoopers LLP
March 27, 2000
Jacksonville, Florida

F-2

INDEPENDENT AUDITORS REPORT

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

We have audited the consolidated statements of income, stockholders'
equity, and cash flows; for the year ended December 27, 1997 of Armor Holdings,
Inc. 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 audit. These consolidated financial statements give
retroactive effect to the merger with DSL Group Limited ("DSL") on April 16,
1997, which has been accounted for as a pooling of interests as described in
Note 1. We did not audit the financial statements of Defense Systems Colombia
("DSC") (a consolidated subsidiary), which statements total revenues of
$10,766,000 for the year ended December 31, 1997. Those statements were audited
by other auditors whose reports have been furnished to us, and our opinion,
insofar as it relates to the amounts included for DSC in the December 27,
1997 financial statements, is based solely upon the report of such other
auditors.

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

In our opinion, based upon our audit and the reports of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the results of operations and the cash flows for the year
ended December 27, 1997 of Armor Holdings Inc. in conformity with generally
accepted accounting principles.

Deloitte & Touche LLP
New York, New York
March 19, 1999

F-3

ARMOR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND DECEMBER 31, 1999
(IN THOUSANDS)

DECEMBER 31
1998 1999
-------- ---------

ASSETS
Current Assets:
Cash and cash equivalents.............................................. $6,789 $13,246
Accounts receivable (net of allowance for doubtful accounts of $1,380
$1,691 )........................................................... 21,363 35,028
Net investment in sales-type leases - 99
Inventories............................................................ 9,103 16,452
Prepaid expenses and other current assets.............................. 5,910 7,215
------- --------

Total current assets....................................................... 43,165 72,040

Property, plant and equipment, net......................................... 12,173 16,367

Goodwill (net of accumulated amortization of $1,577 and $3,593)............ 25,820 74,586

Reorganization value in excess of amounts allocable to identifiable assets
(net of accumulated amortization of $2,513 and $2,564).................. 1,562 1,511

Patents, licenses and trademarks (net of accumulated amortization of
$728 and $1,124)........................................................ 7,180 7,008

Net investment in sales-type leases........................................ - 401

Investment in unconsolidated subsidiaries.................................. 483 514

Other assets............................................................... 3,970 6,495
------- --------
Total assets............................................................... $94,353 $178,922
======= =========

See notes to consolidated financial statements.

F-4

ARMOR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT FOR SHARE DATA)

DECEMBER 31
-----------------------
1998 1999
------- --------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capitalized lease obligations..... $ 433 $ 509
Short term debt......................................................... 5,041 1,924
Accounts payable, accrued expenses and other current liabilities........ 11,294 13,998
Income taxes payable.................................................... 2,031 1,616
------- --------
Total current liabilities............................................... 18,799 18,047

Minority interest........................................................... 108 179

Deferred tax liability...................................................... -- 360

Long-term debt and capitalized lease obligations, less current portion...... 344 2,453
------- --------
Total liabilities................................................... 19,251 21,039

Commitments and contingencies (Notes 6, 10 and 11)..........................

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; 16,497,808
and 24,513,830 issued; 16,227,080 and 23,302,958 outstanding at
December 31,1998 and 1999 respectively................................ 165 245
Additional paid-in capital............................................... 65,408 145,480
Retained Earnings........................................................ 13,419 26,615
Accumulated other comprehensive income:
Cumulative translation adjustments................................... (574) (1,351)
Treasury stock........................................................... (3,316) (13,106)
------- --------
Total stockholders' equity.......................................... 75,102 157,883
------- --------
Total liabilities and stockholders' equity.................................. $94,353 $178,922
======= ========

See notes to consolidated financial statements.

F-5

ARMOR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENTS

FOR THE YEARS ENDED DECEMBER 27, 1997,
DECEMBER 31, 1998 AND 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)

YEAR ENDED
-------------------------------------------
1997 1998 1999
------------ ------------ ------------

Revenues:
Services......................................................... $48,445 $51,563 $59,958
Products......................................................... 29,869 45,644 96,706
---------- ---------- -----------
Total revenues...................................................... 78,314 97,207 156,664
---------- ---------- -----------
Costs and expenses:
Cost of sales.................................................... 57,438 61,638 94,407
Operating expenses............................................... 12,473 21,915 37,004
Amortization..................................................... 1,127 1,347 2,463
Merger, integration and other non-recurring charges.............. 2,542 - 2,569
Equity in earnings of investees.................................. (746) (713) (179)
Interest (income) expense net.................................... 195 (625) 17
---------- ---------- -----------
Total costs and expenses............................................ 73,029 83,562 136,281

Operating income.................................................... 5,285 13,645 20,383
Other income........................................................ 392 28 816
---------- ---------- -----------
Income before provision for income taxes............................ 5,677 13,673 21,199
Provision for income taxes.......................................... 2,376 5,077 8,003
Dividends on preference shares...................................... 143 - -
---------- ---------- -----------
Net income applicable to common shareholders........................ $3,158 $8,596 $13,196
========== ========== ===========
Basic earnings per share............................................ $ 0.23 $ 0.53 $ 0.63
========== ========== ===========
Diluted earnings per share.......................................... $ 0.21 $ 0.50 $ 0.61
========== ========== ===========

See notes to consolidated financial statements.

F-6

ARMOR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 27, 1997, DECEMBER 31, 1998 AND 1999
(IN THOUSANDS)

ACCUMULATED
OTHER
COMPREHENSIVE
INCOME (LOSS)
COMMON STOCK FOREIGN
---------------- ADDITIONAL CURRENCY
PAR PAID-IN RETAINED TRANSLATION TREASURY
SHARES VALUE CAPITAL EARNINGS ADJUSTMENTS STOCK TOTAL
-------- ----- ---------- -------- ------------- -------- -------

December 28, 1996............ 11,691 $117 $ 23,322 $1,665 ($229) - $24,875
Exercise of stock options ... 217 2 539 541
Issuance of stock for
acquisitions............... 115 1 1,200 1,201
Recovery of acquisition
escrow shares.............. (1,528) (1,528)
Issuance of common stock..... 4,000 40 36,435 36,475
Comprehensive income (loss)
excluded from net
income, net of tax (124) (124)
Dividends on preference
shares..................... (143) (143)
Net income................... 3,301 3,301
-----------------------------------------------------------------------------------

Balance December 27, 1997 16,023 $160 $ 61,496 $4,823 ($353) ($1,528) $64,598
Exercise of stock options ... 149 2 170 172
Issuance of stock for
acquisitions............... 326 3 3,742 3,745
Recover of acquisition
escrow shares due to
settlement of lawsuit...... (1,788) (1,788)
Comprehensive income (loss)
excluded from net
income, net of tax......... (221) (221)
Net income................... 8,596 8,596
-----------------------------------------------------------------------------------
Balance, December 31,
1998....................... 16,498 $165 $ 65,408 $ 13,419 $(574) $(3,316) $75,102
Exercise of stock options.... 298 3 1,087 1,090
Issuance of common stock..... 6,125 61 61,563 61,624
Issuance of stock for
acquisitions 1,593 16 17,422 17,438)
Repurchases of stock......... (9,790) (9,790)
Comprehensive income (loss)
excluded from net
income, net of tax......... (777) (777)
Net income................... 13,196 13,196
-----------------------------------------------------------------------------------
Balance, December 31, 1999 .. 24,514 $245 $145,480 $ 26,615 $(1,351) $(13,106) $157,883
======== ==== ======== ======== ======= ======== ========

See notes to consolidated financial statements.

F-7

ARMOR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 27, 1997, DECEMBER 31, 1998 AND 1999
(IN THOUSANDS)

YEAR ENDED
-------------------------------
1997 1998 1999
--------- -------- -------

OPERATING ACTIVITIES:
Net income.................................................... $3,301 $ 8,596 $13,196
Adjustments to reconcile net income to
cash provided by (used in )operating
activities, net of effects of acquisitions:
Preference stock dividends.................................... (143) -- --
Depreciation and amortization................................. 1,976 2,654 5,676
Loss on sale of equipment..................................... 166 -- --
Deferred income taxes......................................... 1,203 1,842 486
Increase in accounts receivable............................... (3,468) (2,848) (5,280)
Increase (decrease) in inventories............................ (1,001) (786) (3,323)
Decrease (increase) in prepaid expenses and other assets...... (1,129) (5,450) 972
Decrease in accounts payable, accrued liabilities
and other current liabilities............................ (3,715) (686) (6,839)
Increase in income taxes payable.............................. 1,072 162 (717)
Increase (decrease) in minority interests..................... 182 (105) 66
------ ------ ------
Net cash provided by (used in ) operating activities.......... (1,556) 3,379 4,238
------ ------ ------
INVESTING ACTIVITIES:
Purchase of property and equipment............................ (5,153) (3,301) (4,520)
Purchase of licenses, patents and trademarks.................. (76) (3,448) --
Purchase of businesses, net of assets acquired................ (3,607) 12,068 (36,677)
Dividends received from equity investees...................... 939 478 115
Proceeds from the sale of equipment........................... 20 -- --
Other fees paid related to acquisitions....................... -- (685) --
Repurchases of treasury shares................................ -- -- (9,790)
Advances to stockholders...................................... -- (1,677) --
Net cash used in investing activities......................... (7,877) (20,701) (50,872)
------ ------ ------
FINANCING ACTIVITIES:
Proceeds from issuance of common stock and preference shares.. 36,475 -- 61,213
Repurchase of preference shares............................... (7,480) -- --
Preferred stock dividends..................................... (382) -- --
Proceeds from the exercise of stock options................... 201 172 1,090
Repayments of long-term debt.................................. (8,002) (181) (5,028)
Borrowings (repayments) under lines of credit................. -- 5,041 57,868
Repayments under lines of credit -- -- (61,275)
------ ------- ------
Net cash provided by financing activities..................... 20,812 5,032 53,868
Cumulative comprehensive income excluded from net
income, net of tax....................................... (124) (221) (777)
------- ------- -------
Net increase (decrease) in cash and cash equivalents.......... 11,255 (12,511 6,457
Cash and cash equivalents, beginning of period................. 8,045 19,300 6,789
------- ------- -------
Cash and cash equivalents, end of period....................... $19,300 $6,789 $13,246
======= ======= =======

See notes to consolidated financial statements.

F-8

ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

THE COMPANY AND NATURE OF BUSINESS -- Armor Holdings, Inc. (the
"Company"or "Armor") is a global provider of security risk management services
and products to multi-national corporations, governmental agencies and law
enforcement personnel through two operating divisions -- ArmorGroup Services and
Armor Holdings Products. ArmorGroup Services division provides sophisticated
security planning and risk management, electronic security systems integration,
consulting and training services, intellectual property asset protection,
business intelligence, computer forensics, and investigative services. Armor
provides these services to multi-national corporations and governmental and
non-governmental agencies through 22 offices in 38 countries. Armor Holdings
Products division manufactures and sells a broad range of high quality branded
law enforcement equipment and has leading market positions in several of the
product categories in which Armor competes. Such products include ballistic
resistant vests and tactical armor, duty gear, less-than-lethal munitions,
anti-riot products and narcotics identification kits. These products are sold
primarily to law enforcement agencies through a worldwide network of over 500
distributors and sales agents including approximately 350 in the United States.

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

Armor Holdings Products Division. Armor Holdings Products division
manufactures and sells a broad range of high quality branded law enforcement
equipment, such as ballistic resistant vests and tactical armor, duty gear, bomb
disposal equipment, less-than-lethal munitions, anti-riot products including
tear gas and distraction grenades, narcotics identification kits and
custom-built armored vehicles.

F-9

ARMOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1. BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

These products are marketed under brand names which are well-known and respected
in the law enforcement community such as American Body Armor, Safariland,
Defense Technology, First Defense, MACE, Pro-Tech and NIK. Armor Holdings
Products division sells manufactured products primarily to law enforcement
agencies through a worldwide network of over 500 distributors and sales agents
including approximately 350 in the United States. Extensive distribution
capabilities and commitment to customer service and training have enabled Armor
Holdings Products division to become a leading provider of security equipment to
law enforcement agencies.

In April 1997, the Company combined with DSL Group Limited ("DSL"). DSL is
in the business of planning and implementing solutions to complex security
problems in high risk areas. DSL's services encompass the provision of detailed
threat assessments, security planning, security training, the provision,
training and supervision of specialist manpower and other services up to the
implementation and management of fully integrated security systems. The
Company's combination with DSL provided the Company with the cornerstone of its
security services business. Through recent acquisitions, the Company has
expanded the portfolio of services the Company can offer its customers to
include business intelligence and investigative due diligence, intellectual
property asset protection, alarm monitoring, executive protection and the
engineering, integration, maintenance and technical support of sophisticated
electronic and computer driven security and fire alarm systems.

The combination with DSL was accounted for under the pooling-of-interests
method of accounting, and accordingly, the accompanying 1997 consolidated
financial statements were retroactively restated as if the Company and DSL had
operated as one entity since inception.

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

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

CONCENTRATION OF CREDIT RISK -- The Company's 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.

F-10

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 values of the
Company's various financial instruments reflected in the accompanying statements
of financial position approximate their estimated fair values at December 31,
1998 and December 31, 1999.

PROPERTY AND EQUIPMENT -- Property and equipment are carried at cost less
accumulated depreciation. Depreciation is computed using the straight-line
method over the estimated lives of the related assets as follows:

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

GOODWILL -- Goodwill represents the excess of the purchase price over the
fair value of the net assets acquired in a purchase business combination.
Goodwill and other intangible assets are stated on the basis of cost and are
amortized, principally on a straight-line basis, over the estimated future
periods to be benefited 25 to 40 years).

REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCABLE TO IDENTIFIABLE ASSETS
- -- This intangible asset is amortized or otherwise reduced in amounts not less
than those which would be recognized on a straight-line basis over twenty-five
years.

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

IMPAIRMENT - The Company periodically reviews the carrying value of
property and equipment, goodwill and other long-lived assets. Impairments are
recognized when the estimated undiscounted future cash flows are less than the
carrying amount of the asset.

RESEARCH AND DEVELOPMENT -- Research and development costs are expensed as
incurred. The Company incurred approximately $605,000, $738,000, and $1,559,000
for the years ended December 27, 1997, December 31, 1998 and December 31, 1999,
respectively, for research and development. These costs are included in the
operating expenses in the accompanying consolidated financial statements.

F-11

ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported 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 materially from the estimates and assumptions used.

INCOME TAXES -- The Company accounts for income taxes pursuant to
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes" . Under the asset and liability method specified thereunder,
deferred taxes are determined based on the difference between the financial
reporting and tax bases of assets and liabilities. Deferred tax liabilities are
offset by deferred tax assets representing the tax-effected cumulative net
operating loss carryforwards and deductible temporary differences, subject to
applicable limits and an asset valuation allowance. Future benefits obtained
from utilization of net operating loss carryforwards or from the reduction in
the income tax asset valuation allowance existing on September 20, 1993 have
been and will be applied to reduce reorganization value in excess of amounts
allocable to identifiable assets. At December 31, 1998 and 1999, the Company's
consolidated foreign subsidiaries have unremitted earnings of approximately $3
million and $6 million, respectively on which the Company has not recorded a
provision for United States Federal income taxes since these earnings are
considered to be permanently invested. Such foreign earnings have been taxed
according to the regulations existing in the countries in which they were
earned.

REVENUE RECOGNITION -- The Company records sales at gross amounts to be
received, including amounts to be paid to agents as commissions. The Company
records service revenue as the service is provided on a contract by contract
basis. Revenues are recorded at the time of shipment of products or performance
of services. Revenues from service contracts are recognized in earnings over the
term of the contract. Returns are minimal and do not materially effect financial
statements. The present values of payments due under sales-type lease contracts
are recorded as revenues and cost of goods sold is charged with the book value
of the equipment at the time of shipment. Future interest income is deferred and
recognized over the related lease term.

ADVERTISING - The Company accounts for advertising costs as expense in the
period in which they are incurred.

EARNINGS PER SHARE -- The Company accounts for Earnings per Share, "EPS" in
accordance with SFAS No. 128. This Standard establish standards for computing
and presenting earnings per share ("EPS") and applies to all entities with
publicly held common stock or potential common stock. This standard replace the
presentation of primary EPS and fully diluted EPS with a presentation of basic
EPS and diluted EPS, respectively. Basic EPS excludes dilution and is computed
by dividing earnings available to common stockholders by the weighted average
number of common shares outstanding for the period. Similar to fully diluted
EPS, diluted EPS reflects the potential dilution of securities that could share
in the earnings.

F-12

FOREIGN CURRENCY TRANSLATION -- In accordance with Statement Financial
Accounting Standard No. 52, "Foreign Currency Translation", assets and
liabilities denominated in a foreign currency are translated into U.S. dollars
at the current rate of exchange existing at year-end and revenues and expenses
are translated at the average monthly exchange rates. The cumulative translation
adjustment, net of tax, which represents the effect of translating assets and
liabilities of the Company's foreign operations was recorded as a reduction of
equity of $(574,000) and $(1,351,000) for the years ended December 31, 1998 and
December 31, 1999. The change is included in comprehensive income.

COMPREHENSIVE INCOME - The Company accounts for comprehensive income in
accordance with SFAS No. 130, "Reporting Comprehensive Income." Comprehensive
income includes net income and several other items that current accounting
standards require to be recognized outside of net income. This standard requires
enterprises to display comprehensive income and its components in financial
statements, to classify items of comprehensive income by their nature in
financial statements, and to display the accumulated balances of other
comprehensive income in stockholders' equity separately from retained earnings
and additional paid-in capital.

Comprehensive increase is as follows:

1997 1998 1999
---- ---- ----

Net Income 3,301 9,596 13,196

Foreign Currency translation
adjustments (124) (221) (727)
------ ------ -------
Comprehensive Income $3,177 $8,375 $12,419
====== ====== =======

RECLASSIFICATIONS -- Certain reclassifications have been made to the 1997
and 1998 financial statements in order to conform to the presentation adopted
for 1999. These reclassifications had no effect on net income or retained
earnings.

NEW ACCOUNTING STANDARDS--In December1999, the staff of the Securities and
Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 101
"Revenue Recognition in Financial Statements". SAB No. 101 summarizes the SEC
staff's view in applying generally accepted accounting principles to the
recognition of revenues. The Company has evaluated the impact of the reporting
requirements of SAB No. 101 and has determined that there will be no material
impact on its consolidated results of operations, financial position or cash
flows. We adopted the American Institute of Certified Public Accountants (AICPA)
Statement of Position SOP 98-5, "Reporting on the Costs of Start-Up Activities,"
on January 1, 1999. We expense costs as incurred. There was no material impact
on our consolidated financial statements as a result.

2. BUSINESS COMBINATIONS

SUPERCRAFT (GARMENTS) LIMITED

On April 7, 1997, the Company acquired Supercraft (Garments) Limited.
Supercraft is a European manufacturer of military apparel, high visibility
garments and ballistic resistant vests, which it distributes to law enforcement
and military agencies throughout Europe, the Middle East and Asia. The Company
acquired Supercraft for a total purchase price of approximately $2.6 million.
The acquisition of Supercraft has been accounted for under the purchase method.
Accordingly, the results of its operations are included in the consolidated
financial statements from the date of acquisition.

DSL GROUP LIMITED

On April 16, 1997 in a pooling of interests calculation, Armor issued
1,274,217 shares of its common stock in exchange for all of the outstanding
ordinary shares of DSL Group Limited ("DSL"), a company incorporated on June 3,
1996, under the laws of England and Wales. DSL provides specialized security
services in high risk and volatile environments.

F-13

GORANDEL TRADING LIMITED

On June 9, 1997, the Company acquired the remaining 50% of Gorandel
Trading Limited that it did not previously own. GTL provides specialized
security services throughout Russia and Central Asia. The aggregate purchase
price of the transaction was approximately $2.4 million, consisting of $570,000
in cash paid at closing, $300,000 in cash paid on September 30, 1997 and
$300,000 in cash payable subject to certain conditions, and 115,176 shares of
the Company's common stock valued at $1.2 million. As part of this transaction,
the Company agreed to make a loan of $200,000 to a former stockholder of GTL,
subject to certain conditions which was subsequently repaid. The acquisition of
GTL has been accounted for under the purchase method. Accordingly, the results
of its operations are included in the consolidated financial statements from the
date of acquisition.

LOW VOLTAGE SYSTEMS TECHNOLOGY, INC.

On January 30, 1998, the Company acquired all of the issued and
outstanding stock of Low Voltage Systems Technology, Inc., a New Jersey
corporation ("LST"). LST is a leading engineered systems distributor
specializing in the supply, integration, maintenance and technical support of
sophisticated electronic and computer-driven security and fire alarm systems.
The aggregate purchase price of the transaction was approximately $750,000,
consisting of $562,500 in cash paid at closing and 18,519 unregistered shares of
the Company's common stock valued at the time at $187,500. The Company also
assumed and subsequently repaid approximately $200,000 to a stockholder of LST
in full satisfaction of loans previously made by such stockholder to LST. The
acquisition of LST has been accounted for under the purchase method.
Accordingly, the results of its operations are included in the consolidated
financial statements from the date of acquisition.

ASMARA LIMITED

On April 8, 1998, the Company acquired all of the issued and outstanding
stock of Asmara Limited, based in London, England (hereinafter "Asmara"). Asmara
provides business intelligence and investigative due diligence services to
clients on a worldwide basis. Services include personnel investigations, due
diligence, asset tracing, and litigation intelligence. This acquisition has a
current aggregate purchase price of (pounds sterling) 1.825 million
(approximately $3 million). The purchase price consists of (pounds sterling)
1.575 million (approximately $2.6 million) in cash paid at closing and 36,846
unregistered shares of the Company's common stock valued at closing at (pounds
sterling) 250,000 (approximately $415,000). All 36,846 shares are restricted
from sale until April 8, 2001. As part of the acquisition, additional purchase
price contingent upon meeting certain agreed targets during this period could be
paid for the fiscal years ending 1998, 1999 and 2000. The total aggregate
contingent purchase price could be (pounds sterling)1.5 million. Based upon the
results of operations for 1998, the Company will pay an additional purchase
price of approximately $825,000. This additional purchase price for fiscal 1998
is reflected in the Company's balance sheet as of December 31, 1998. The
acquisition of Asmara has been accounted for under the purchase method.
Accordingly, the results of its operations are included in the consolidated
financial statements from the date of acquisition.

PRO-TECH ARMORED PRODUCTS OF MASSACHUSETTS, INC.

On April 14, 1998 the Company acquired all of the issued and outstanding
stock of Pro-Tech Armored Products of Massachusetts, Inc. of Pittsfield,
Massachusetts (hereinafter "Pro-Tech"). Pro-Tech is a leading manufacturer of
hard armor products including ballistic shields, bulletproof vests, visors, and
other personal accessories. Pro-Tech also manufactures protective armor products
for helicopters, automobiles, and riot control vehicles. This acquisition has
been accounted for as a purchase and has a current purchase price of $1.6
million. The purchase price consists of $1.115 million in cash and 42,592
unregistered shares of the Company's common stock valued at closing at

F-14

$485,000. As part of this transaction, additional purchase price could be paid
for the fiscal years ending 1998, 1999 and 2000 totaling an aggregate of $4
million, with up to 50% payable in common stock and the remainder in cash. The
payment of additional purchase price is contingent upon operating performance
and meeting certain agreed targets during this period. This additional purchase
price for fiscal 1998 totaled approximately $401,000 and is reflected in the
Company's balance sheet as of December 31, 1998. All of the shares issued for
the purchase and to be issued for payment for the earn-out, if any, are
restricted from sale until April 14, 2001. The acquisition of Pro-Tech has been
accounted for under the purchase method. Accordingly, the results of its
operations are included in the consolidated financial statements from the date
of acquisition.

CDR INTERNATIONAL LTD.

On June 11, 1998 the Company acquired all of the issued and outstanding
stock of CDR International Ltd. ("CDR"), a London based investigation firm with
offices in London, Charlotte, Los Angeles and Moscow. CDR provides a full range
of consulting and investigative services specializing in worldwide intellectual
property asset protection for multinational corporations involved in the
manufacturing and distribution of, among other things, sportswear, tobacco,
spirits and pharmaceuticals. Its services range from protecting companies
against counterfeiting, patent infringements, product tampering and extortion to
identifying unethical supplier activity such as the use of child labor. CDR also
provides training services to law enforcement agencies in foreign countries.
This acquisition has been accounted for as a purchase and has a current
aggregate purchase price of (pounds sterling)1.5 million. The purchase price
consists of 210,460 registered shares the Company's common stock valued at
closing at (pounds sterling)1.5 million (approximately $2.5 million). Additional
purchase price could be paid for the fiscal years ending 1999, 2000 and 2001
totaling an aggregate of (pounds sterling) 6.0 million (approximately $10
million). The payment of additional purchase price is contingent upon operating
performance meeting certain agreed targets during the period. Any additional
purchase price will be paid entirely in common stock of the Company. Of the
total shares of the Company's common stock received at closing, 70,154 shares
and 40% of the additional consideration will be restricted from sale for a
period of three years from the date of issue, and 50% of any additional
consideration in excess of (pounds sterling) 4.25 million will be restricted
from sale for between 4.5 and 6 years. The acquisition of CDR has been accounted
for under the purchase method. Accordingly, the results of its operations are
included in the consolidated financial statements from the date of acquisition.

ALARM PROTECTION SERVICES, INC.

On July 15, 1998 the Company acquired of all of the outstanding common
stock of Alarm Protection Services, Inc. ("APS") located in Kampala, Uganda. APS
is a fully licensed physical security and consulting company providing alarm
monitoring, physical asset and executive protection, quick response and cash in
transit capabilities. APS has approximately 900 employees and has been in
operation in Uganda since 1993. Since 1996, the Company has managed APS through
a management agreement. This acquisition has been accounted for as a purchase
and has a current aggregate purchase price of $1,215,166. The purchase price
consisted of $734,426 in cash paid at closing, 17,429 unregistered shares of the
Company's common stock valued at closing at approximately $200,000 and an
additional $280,740 to be paid in cash as the outstanding accounts receivable at
the time of closing is collected. Based on APS meeting certain performance
criteria, additional purchase price may be paid in fiscal years 1999 and 2000
totaling $235,000 in cash. The acquisition of APS has been accounted for under
the purchase method. Accordingly, the results of its operations are included in
the consolidated financial statements from the date of acquisition.

F-15

LAW ENFORCEMENT DIVISION OF MACE SECURITY INTERNATIONAL

On July 16, 1998 the Company acquired certain assets of the Law
Enforcement Division of MACE Security International (hereinafter "MSI"). This
acquisition includes the assets of the Federal Laboratories ("Fed Labs")
division and an exclusive license to use the MACE (Registered Trademark)
trademark for the manufacture and sale of MACE (Registered Trademark) brand
aerosol defensive sprays to law enforcement markets worldwide. The purchase
price was approximately $4.6 million in cash. The Company is holding an
additional amount of $600,000 in escrow of which $480,000 is payable six months
after closing (paid in January 1999) and $120,000 is payable twelve months after
closing. The acquisition of Fed Labs has been accounted for under the purchase
method. Accordingly, the results of its operations are included in the
consolidated financial statements from the date of acquisition.

SAFARILAND LTD., INC.

On April 12, 1999, the Company acquired all of the outstanding stock of
Safariland Ltd., Inc., a leading U.S. manufacturer of law enforcement and
military equipment based in Ontario, California. The purchase price was
approximately $45.0 million, subject to certain adjustments, consisting of
approximately $35.6 million in cash, $4 million (300,752 shares) of the
Company's common stock and repayment of approximately $5.1 million of
Safariland's indebtedness. The transaction was financed with borrowings of
approximately $39.2 million. This transaction was accounted for as a purchase.

THE PARVUS COMPANY

On May 4, 1999, the Company acquired all of the outstanding capital stock
of The Parvus Company, a Washington, D.C. based consulting firm specializing in
international investigations, corporate intelligence and security services. The
purchase price was approximately $1.3 million, subject to adjustments,
consisting of approximately $754,000 (64,876 shares) of the Company's common
stock, the repayment of approximately $297,389 of Parvus' indebtedness and
approximately $150,000 in cash. Up to an aggregate of 54,449 additional shares
may be issued to the seller in the event certain revenue targets of Parvus are
achieved. This transaction was accounted for as a purchase.

ALARM SYSTEMS HOLDING COMPANY AND FIRE ALARM SERVICE CORPORATION

On June 30, 1999, the Company acquired all of the outstanding capital
stock of two affiliated security systems integrators, Alarm Systems Holding
Company of Lyndhurst, New Jersey ("ASH") and Fire Alarm Service Corporation of
Tampa, Florida ("FAS"). Each of ASH and FAS design, install and service
commercial and industrial security systems, including access control systems,
burglar and fire alarm systems, closed circuit television and other engineered
low voltage systems in New Jersey, Florida, and South Carolina.The purchase
price was approximately $12.7 million consisting of 1,226,021 shares of the
Company's common stock.

F-16

The following unaudited consolidated results of operations of the Company
are presented on a pro forma basis as if the acquisitions referenced above had
been consummated on December 31, 1998, for the years ended December 31:

1998 1999
--------- --------
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

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

3. INVENTORIES

Inventories are summarized as follows for the years ended December 31:

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

Raw materials........................... $4,863 $8,812
Work-in-process......................... 1,348 1,243
Finished goods.......................... 2,892 6,397
------- ------
$9,103 $16,452
======= =======
4. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are summarized as follows for the years
ended December 31:

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

Land.................................... $1,248 $1,330
Buildings and improvements.............. 6,352 7,536
Machinery and equipment................. 8,287 13,780
Construction in progress................ 458 0
------- ------
Total................................... 16,345 22,646
(4,172) (6,279)
Accumulated Depreciation................
------- ------
$12,173 $16,367
======= =======
Depreciation expense for 1997, 1998 and 1999 was approximately $994,000,
$1,409,000, and $2,107,000 respectively. In the statement of operations for 1998
and 1999, depreciation expense in the income statement has been reduced by
$131,000 and $130,270, respectively for the amortization of the proceeds
received under an economic development grant received from the Department of
Housing and Urban Development.

F-17

5. ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accounts payable, accrued expenses and other current liabilities are
summarized as follows for the years ended December 31:

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

Trade and other payables............................ $3,681 $ 5,717
Accrued expenses.................................... 2,980 6,382
Additional purchase price for acquisition earnouts.. 1,226 0
Deferred conditions for acquisitions................ 835 0
Other current liabilities........................... 2,572 1,899
------- -------
$11,294 $13,998
======= =======

6. INDEBTEDNESS

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

Debt:
Note to former shareholder payable every four months in installments of $95
through April 2000 with an imputed rate of interest of 10%.................. $ 350 $ 87

Bank note payable in quarterly installments of $19 including interest at 9%
through March 2002.......................................................... 241 -

Revolving working capital credit facility with NationsBank expired March 1,
1999 with an interest rate of 7.5%.......................................... 3,890 -

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

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

Minimum guaranteed royalty to former officer payable in monthly installments
of $36 through April 2005 with an imputed interest rate of 7.35%............ 1,888

--------- ---------
$ 4,481 $ 2,699
Less current portion............................................................ (4,227) (359)
--------- ---------
$ 254 $ 2,340
========= =========

The company's subsidiary Defense Systems Limited maintains a $2 million
overdraft facility with a variable interest rate requiring monthly interest
payments. The facility expires March 31, 2000. The overdraft facility had an
outstanding balance of $1.1 million and $1.9 million for the years ended
December 31, 1998 and 1999 respectively.

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

Capitalized lease obligations:

Equipment lease bearing interest at 12% for 48 months, expiring July 2001,
collateralized by equipment with an amortized cost of approximately $36
at December 31, 1999........................................................ $ 73 $ 36
Equipment lease bearing interest at 12% for 36 months expiring August 2000
collateralized by equipment with an amortized cost of approximately $46
at December 31, 1999........................................................ 92 46
Equipment lease for 60 months expiring January 2002 collateralized by
equipment with an amortized cost of approximately $0 at December 31,
1999........................................................................ 11 -
Equipment lease bearing interest at 10.88%, expiring November, 1999,
collateralized by equipment with an amortized cost of approximately $0
at December 31, 1999........................................................ 10 -
Capital lease obligation for vehicles with terms of 48 months, expiring through
June 2003 with imputed interest rate of 8%, and an amortized cost of
approximately $174 at December 31, 1999..................................... - 181
--------- ----------
$ 186 $ 263
Less current portion............................................................ (96) (150)
--------- ----------
$ 90 $ 113
========= ==========

F-18

UNDER
LONG-TERM CAPITALIZED
YEAR ENDING DEBT LEASE
----------- ---------- -------------
(IN THOUSANDS)

2000 .............................. $ 359 $ 167
2001 .............................. 391 68
2002 .............................. 422 38
2003 .............................. 456 19
2004 .............................. 492 0
Thereafter........................ 579 0
------- ------
$2,699 $ 292
======= ======

Less amount representing interest on
obligation under capitalized lease - 29
------ ------
$2,699 $ 263
======= ======

7. PREFERENCE SHARES

DSL had $7,480,000, (4,400,000 shares) of preference shares with a par value
of pounds sterling (pounds sterling) 0.01. Such shares carry an 8% dividend. The
Company paid cash of $7,508,000, including accrued interest of approximately
$380,000, to purchase such shares on April 16, 1997.

8. MERGER, INTEGRATION AND OTHER NON-RECURRING CHARGES

Approximately $2.5 million of fees and expenses associated with the DSL pooling
transaction were expensed in fiscal 1997. These expenses include approximately
$1.1 million in professional fees and approximately $1.4 million in costs to
consolidate the financial and administrative functions at the Company's
headquarters in Jacksonville. In 1999, the Company incurred integration costs of
approximately $2.6 million relating to the relocation of assets and personnel as
well as severance costs in integrating the companies acquired this year.

9. INCOME TAXES

Income tax expense (benefit) for the years ended December 27, 1997, December
31, 1998, and 1999 consisted of the following:

1997 1998 1999
-------- --------- ---------
(In thousands)
Current
Domestic ........................... $ 1,329 $ 2,638 $ 6,059
Foreign ............................ 1,458 2,250 2,641
------- ------- -------
Total Current ..................... $ 3,579 $ 5,279 $ 7,517
Deferred
Domestic ........................... $ 68 $ 107 $ 597
Foreign ............................ (1,271) (309) (111)
------- ------- -------
Total Deferred .................. $(1,203) $ (202) $ 486
------- ------- -------
Total Provision for Income Taxes $ 2,376 $ 5,077 $ 8,003
======= ======= =======

F-19

Significant components of the Company's net deferred tax asset as of
December 31, 1998 and December 31, 1999 are as follows:

1998 1999
---------- ----------
(In thousands)
Deferred tax assets:
Reserves not currently deductible..... $ 267 $ 1,118
Operating loss carryforwards ......... 2,890 3,063
Other (including tax credits)......... 154 551
------- -------
3,311 4,732
Deferred tax asset valuation allowance..... (150) (75)
------- -------
Net deferred tax asset .................... $ 3,161 $ 4,657
======= =======

At December 31, 1998, due to both internal growth of the Company and growth
by acquisition, the Company reevaluated the need for a valuation allowance. As a
result, the Company reduced the valuation allowance by $1,650,000 with a
corresponding reduction of the reorganization value in excess of amounts
allocable to identifiable assets since the deferred tax asset was initially
established in 1993, under "fresh start" reporting on its reorganization. In
1999, the Company reduced the valuation allowance by $75,000. These deferred tax
assets are included in other assets on the balance sheet for the years ended
December 31, 1998 and December 31, 1999.

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:

1997 1998 1999
------- ------ -------

Provision for income taxes at statutory Federal rate 34.0% 34.0% 35.0%
State and local income taxes, net of Federal benefit 0.4% 1.8% 1.6%
Foreign income taxes 0.1% 1.5% 0.8%
Other non-deductible items 7.4% (0.1%) 0.40%
----- ----- ------
41.9% 37.2% 37.8%
===== ===== ======

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, 1999, the Company had net NOLs of approximately $9,230,000. The U.S. portion
of the net NOLs expire in varying amounts in fiscal years 2006 to 2019. The
company also has tax credits of $551,000 subject to certain limitations due to
the acquisition of Safariland, LTD. These credits will expire in varying amounts
in fiscal years to 2019.

10. OPERATING LEASES

The Company is party to various other equipment and vehicle leases. DSL
leases its London office under an operating lease expiring in 2002. Approximate
total future minimum annual lease payments under all such arrangements are as
follows:

YEAR (In thousands)
-------------------------------------- -----------------
2000 ............................... $325
2001 ............................... 293
2002 ............................... 230
2003 ............................... 76
2004 ............................... 10
Thereafter -
----
$934
====

The Company incurred rent expense of approximately $454,000, (net of
sublease income of $35,000), and $485,000, and $887 (net of sublease income of
$141,000) during the years ended December 27, 1997, December 31, 1998 and
December 31, 1999.

F-20

11. COMMITMENTS AND CONTINGENCIES

EMPLOYMENT CONTRACTS -- The Company is party to several employment contracts
at year ending December 31, 1999 with its management. Such contracts are for
varying periods and include restrictions on competition after termination. These
agreements provide for salaries, bonuses and other benefits and also specify and
delineate the granting of various stock options.

LEGAL/LITIGATION MATTERS -- On January 16, 1998, our ArmorGroup Services
division ceased operations in the country of Angola. The cessation of operations
in Angola was dictated by that government's decision to deport all of
ArmorGroup's expatriate management and supervisors. As a result of the cessation
of operations in Angola, our ArmorGroup Services division is involved in various
disputes with SHRM S.A., its minority joint venture partner relating to the
Angolan business. SHRM has alleged that as a result of the cessation of
operations, it has suffered damages of $5 million from lost business. The
Company believes that the likelihood of loss related to these disputes is
possible and the maximum exposure to be approximately $500,000. In March 1999,
Armor filed a claim of $16.1 million in the Commercial Court Nanterre in France
against SHRM for actual and punitive damages from SHRM's violation of its
obligations resulting from its agreement with Armor.

SETTLEMENT -- During 1998 the Company settled a lawsuit with a previous
seller. As a result of the settlement, the Company received shares of common
stock that were previously issued to the seller and held in escrow pursuant to
the purchase and escrow agreements. Accordingly, the Company recorded $1,788,000
of treasury stock based on the fair value of the Company's stock on the
settlement date.

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

12. STOCKHOLDERS' EQUITY AND PREFERRED STOCK

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

STOCK OPTIONS AND GRANTS -- In 1994, the Company implemented an incentive
stock plan and an outside directors' stock plan, which plans collectively
provide for the granting to certain key employees of options to acquire the
Company's common stock 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.

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

F-21

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

If compensation cost for stock option grants had been determined based on
the fair value on the grant dates for 1998, 1997 and 1996 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:

1997 1998 1999
------------- ------------- ------------
(In thousands, except per share data)

Net earnings........................... As reported $ 3,518 $ 8,596 $ 13,196
Pro forma $ 2,653 $ 7,844 $ 11,509
Diluted earnings per share............. As reported $ 0.21 $ 0.50 $ 0.61
Pro Forma $ 0.18 $ 0.45 $ 0.53

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 used for grants in 1997, 1998 and 1999: dividend
yield of 0%, expected volatility of 33% in 1997 and 1998 and 31.9% for 1999,
risk-free interest rates of 5.93%, 6.00% and 5.50% for 1997, 1998 and 1999
respectively, and expected lives of 3 years.

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-22

A summary of the status of stock option grants as of December 31, 1999 and
changes during the years ending on those dates is presented below:

WEIGHTED
AVERAGE
OPTIONS EXERCISE PRICE
------------- ---------------
Outstanding at December 28, 1996 ............. 1,825,033 $ 3.88
Granted....................................... 485,000 10.36
Exercised .................................... (217,332) 0.97
Forfeited .................................... (51,701) 4.37
--------- 5.69
Outstanding at December 27, 1997 ............. 2,041,000
Granted ...................................... 286,450 10.32
Exercised .................................... (148,582) 1.11
Forfeited .................................... (101,667) 10.12
---------
Outstanding at December 31, 1998 ............. 2,077,201 6.46
Granted ...................................... 1,871,000 11.14
Exercised .................................... (298,277) 3.65
Forfeited .................................... (104,666) 9.54
---------
Outstanding at December 31, 1999 ............. 3,545,258
Options exercisable at December 31, 1999 ..... 1,466,955
Weighted-average fair value of options granted
during 1999 ................................ $5,516,720

The following table summarizes information about stock options outstanding at
December 31, 1999:

12/31/1999
Exercise Options Remaining
Price Outstanding Exercisable Life
----- ----------- ----------- ----

0.79 10,000 10,000 4.50
0.97 33,141 33,141 5.70
1.05 206,000 206,000 5.50
3.75 150,000 150,000 6.05
6.06 150,000 150,000 6.60
6.75 20,000 20,000 6.82
7.19 128,334 128,334
7.38 15,000 15,000 6.71
7.5 375,000 375,000 6.35
7.81 5,000 3,334 7.07
8 50,000 50,000 6.95
8.5 3,333 3,333 7.22
9 10,000 6,664 7.28
9.25 117,000 39,000 8.60
9.6875 564,000 0 9.6
9.88 10,000 6666.5 8.36
9.94 3,000 1,000 8.65
10 5,000 0 9.66
10.1875 100,000 0 9.50
10.3125 2,000 0 9.50
10.44 110,000 0 7.97
10.625 25,000 8,333 8.92
11 100,000 100,000 7.68
11.1875 71,000 23,667 8.93
11.3125 725,000 241,667 9.00
11.875 20,000 6,667 8.42
12 50,000 16,667 7.68
12.1875 75,000 0 9.20
12.25 22,450 7,483 8.58
12.6875 150,000 0 9.35
13.125 10,000 0 9.33
13.1875 200,000 0 9.10
13.4375 30,000 0 9.30

F-23

Remaining non-exercisable options as of December 31, 1999 become exercisable as
follows:

2000............................... 580,152
2001............................... 575,150
2002............................... 230,667

EARNINGS PER SHARE -- The following is a reconciliation of the numerators
and denominators of the basic and diluted earnings per share computations for
net income and net income available to common stockholders:

1997 1998 1999
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Numerator for basic and diluted earnings per share:
Net income available to common shareholders...................... $ 3,158 $ 8,596 $13,196
Denominator:
Denominator for basic earnings per share weighted
average shares................................................ 13,638 16,165 21,006
Effect of dilutive securities:
Effect of shares issuable under stock option and
Stock grant plans, based on the treasury stock Method........ 1,074 1,189 696
----------- ----------- -----------
Denominator for diluted earnings per share --
Adjusted weighted-average shares.............................. 14,712 17,354 21,702
----------- ----------- -----------
Basic earnings per share........................................... $ 0.23 $ 0.53 $ 0.63
=========== =========== ===========
Diluted earnings per share......................................... $ 0.21 $ 0.50 $ 0.61
=========== =========== ===========

13. SUPPLEMENTAL CASH FLOW INFORMATION:

1997 1998 1999
------- ----------- ---------
(IN THOUSANDS)

Cash paid (received) during the year for:
Interest.......................................................... $ 673 $ 273 $ 993
======= ======= =======
Income taxes...................................................... $ 1,506 $ 4,724 $ 8,418
======= ======= =======

Acquisitions (businesses, patents, and trademarks):
Fair value of assets acquired..................................... 5,294 10,578 20,466
Goodwill.......................................................... 4,731 11,732 50,859
Liabilities assumed............................................... (5,218) (10,072) (19,761)
Stock issued...................................................... (1,200) (3,746) (14,897)
------- ------- -------
Total cash paid................................................... $ 3,607 $ 8,492 $36,667
======= ======= =======

F-24

14. INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES

At December 31, 1998 and December 31, 1999, the Company had a 20% investment
in Jardine Securicor Gurkha Services Limited for which the equity method of
accounting for investments is used. The following summarizes significant
financial information of this unconsolidated subsidiary as of and for the twelve
months ended December 31, 1998 and December 31, 1999.

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

Total assets .... $ 4,098 $ 3,211
Retained earnings $ 1,212 $ (870)
Total revenues .. $ 24,731 $ 18,401
Net income ...... $ 3,157 $ 726

15. INFORMATION CONCERNING BUSINESS SEGMENTS AND GEOGRAPHICAL SALES

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

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

Revenues, income from operations (before amortization, equity in earnings,
integration expenses and interest income, net) and total assets for each of our
segments for the years December 27, 1997, December 31, 1998 and 1999 were as
follows:

1997 1998 1999
------------ ------------ ------------
(IN THOUSANDS)

Revenues:
Services........................... $48,445 $51,563 $ 59,958
Products........................... 29,869 45,644 96,706
------------ ------------ ------------
Total revenues................ $78,314 $97,207 $156,664
============ ============ ============
Income from operations:
Services........................... $ 5,015 $ 6,695 $ 6,894
Products........................... 4,345 8,717 21,195
Corporate.......................... (957) (1,758) (2,836)
------------ ------------ ------------
Total income from operations.. $ 8,403 $13,654 $ 25,253
============ ============ ============
Total assets:
Services............................ $29,363 $41,531 $ 65,134
Products........................... 29,418 45,470 103,092
Corporate.......................... 16,706 7,352 10,696
------------ ------------ ------------
Total assets.................... $75,487 $94,353 $178,922
============ ============ ============

The following unaudited financial information with respect to sales to
principal geographic areas for the years ended December 27, 1997, December 31,
1998 and 1999 are as follows:

1997 1998 1999
------------ ------------ ------------
(IN THOUSANDS)

Sales to unaffiliated customers:
North America...................... $23,574 $36,596 $ 94,847
South America...................... 12,082 16,484 16,246
Africa............................. 25,499 18,932 17,987
Europe/Asia........................ 16,079 24,668 27,584
Other.............................. 1,080 527
------------ ------------ ------------
Total Revenues................ $78,314 $97,207 $156,664
============ ============ ============

Operating Profit:
North America...................... $ 2,212 $ 7,358 $ 16,938
South America...................... $ 738 $ 2,747 $ 2,855
Africa............................. $ 2,823 $ 4,683 $ 2,645
Europe/Asia........................ $ 1,206 $ 1,105 $ 2,815
Other.............................. $ 101 $ 137
------------ ------------ ------------
$ 7,080 $16,030 $ 25,253
============ ============ ============
Total assets:
North America...................... $40,964 $47,881 $142,375
South America...................... $ 2,847 $ 4,477 $ 5,673
Africa............................. $ 7,944 $ 4,892 $ 3,001
Europe/Asia........................ $23,732 $37,103 $ 27,873
------------ ------------ ------------
$75,487 $94,353 $178,922
============ ============ ============

F-25

16. QUARTERLY RESULTS

The following table presents summarized unaudited quarterly results of
operations for the Company for fiscal 1998 and 1999. The Company believes all
necessary adjustments have been included in the amounts stated below to present
fairly the following selected information when read in conjunction with the
Consolidated Financial Statements and Notes thereto included elsewhere herein.
Future quarterly operating results may fluctuate depending on a number of
factors. Results of operations for any particular quarter are not necessarily
indicative of results of operations for a full year or any other quarter.

FISCAL 1998
----------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenue .................. $19,635 $22,833 $26,444 $28,295
Gross profit ............. $ 6,034 $ 7,007 $ 8,604 $ 9,111
Net income ............... $ 1,774 $ 1,835 $ 2,326 $ 2,661
Basic earnings per share . $ 0.11 $ 0.11 $ 0.14 $ 0.16
Diluted earnings per share $ 0.10 $ 0.11 $ 0.14 $ 0.15

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

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

17. EMPLOYEE BENEFIT PLANS

In October 1997, the Company formed a 401(k) plan, (the "Plan") which
provides for voluntary contributions by employees and allows for a discretionary
contribution by the Company in the form of cash or stock. The Company did not
make a discretionary contribution to the Plan in 1997, 1998 or 1999.

18. RELATED PARTY TRANSACTIONS

The Company entered into the following transactions with related parties:

(a) Purchases and Sales -- The Company subcontracts for certain security
guard services with Alpha, Inc., wholly owned by a shareholder of the Company.
In fiscal 1997, 1998 and 1999, security guard service fees of approximately
$3,286,000; $5,204,000; and $3,392,000 respectively, were paid to Alpha.

At December 31, 1997, 1998, and 1999 the Company had outstanding payables to
Alpha of approximately $377,000; $341,000; and $94,641 respectively. These
liabilities are included in accounts payable. At December 31, 1999, Alpha owed
the Company approximately $117,785, which is included in accounts receivable.

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

(c) In March 1999, the Company loaned to Stephen E. Croskey, President of
the Company's Armor Holdings Products division, $111,000 in connection with his
relocation to Jacksonville, Florida. After an initial 90-day grace period, the
loan will bear interest at the prime rate as announced from time to time by
NationsBank, N.A. This loan was repaid during 1999.

F-26

19. SUBSEQUENT EVENTS

On February 25, 2000, the Company amended its credit agreement with CIBC,
Inc., NationsBank, N.A., First Union National Bank and SunTrust Bank, North
Florida, N.A. as lenders, NationsBank, N.A., as documentation agent and Canadian
Imperial Bank of Commerce, as administrative agent. According to the terms of
the amended credit facility, several lenders established a five-year
$100,000,000 line of credit for the Company. Indebtedness under the credit
agreement is evidenced by (1) Five Year Revolving Credit Notes of up to
$40,000,000 and (2) 364-Day Revolving Credit Notes of up to $20,000,000,
convertible at the end of 364 days into four-year term notes. All borrowings
under the credit facility will bear interest at either (1) the base rate, plus
an applicable margin ranging from .125% to .375% depending on certain
conditions, or (2) the eurodollar rate, plus an applicable margin ranging from
1.375% to 1.625% depending on certain conditions. In addition, the credit
agreement provides that NationsBank, N.A. shall make swing-line loans of up to
$5,000,000 to be used for working capital purposes. CIBC, Inc. and NationsBank,
N.A. will also issue letters of credit of up to $5,000,000 to the Company.

As part of the credit facility, all of the Company's direct and indirect
domestic subsidiaries agreed to guarantee the Company's obligations under the
credit facility pursuant to a guarantee by certain subsidiaries.

The credit facility is collateralized by (1) a pledge of all of the issued
and outstanding shares of stock of certain domestic subsidiaries of the Company
pursuant to a pledge agreement and (2) a pledge of 65% of the issued and
outstanding shares of the Company's foreign subsidiary, Armor Holdings Limited,
organized under the laws of England and Wales.

On January _, 2000, the Company announced the acquisition of New
Technologies, Inc, a company specializing in computer forensics training,
software development and computer evidence consulting. This transaction was
accounted for as a purchase.

On March 9, 2000, the Company announced the acquisition of all of the
outstanding capital stock of Break-Free, Inc., a leading manufacturer of branded
products, including specialty lubricants, cleaners and preservatives and
military weapon maintenance systems. The purchase price was $2.38 million in
cash, and the transaction was accounted for as a purchase.

On March 23, 2000, the Company announced the acquisition of the assets of
Special Clearance Services, a provider of landmine risk reduction services in
sub-Saharan Africa. This transaction was accounted for as a purchase.

F-27

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 30, 2000

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 30, 2000
Principal Executive Officer
March 30, 2000

/s/Nicholas Winiewicz /s/ Nicholas Sokolow
- ----------------------------------- ----------------------------------
Nicholas Winiewicz Nicholas Sokolow
Chief Financial Officer Director
and Principal Accounting Officer March 30, 2000
March 30, 2000

/s/Burtt R. Ehrlich /s/ Thomas W. Strauss
- ----------------------------------- ----------------------------------
Burtt R. Ehrlich Thomas W. Strauss
Director Director
March 25, 1999 March 22, 1999

/s/Richard C. Bartlett /s/ Alair A. Townsend
- ----------------------------------- ----------------------------------
Richard C. Bartlett Alair A. Townsend
Director Director
March 30, 2000 March 30, 2000

/s/Stephen Salzman
- ----------------------------------
Stephen Salzman
Director
March 30, 2000

EXHIBIT INDEX

The following Exhibits are filed herewith:

EXHIBIT
NO. DESCRIPTION

3.3.2 Amendment to Bylaws of the Company.

10.5 Amended and Restated Employment Agreement between Jonathan M.
Spiller and the Company, dated as of January 1, 1999.

10.6 Amended and Restated Employment Agreement between Robert R.
Schiller and the Company, dated as of January 1, 1999.

10.7 Employment Agreement between Stephen E. Croskrey and the Company,
dated as of February 8, 1999.

10.8 Employment Agreement between Nicholas B. Winiewicz and the
Company, dated as of February 16, 1999.

10.9 Employment Agreement between Warren B. Kanders and the Company,
dated as of January 1, 1999.

10.12 Agreement, dated as of April 21, 1998, amending Option, dated May
15, 1996, granted to Richmont Capital Partners I, L.P. for
300,000 shares of Common Stock.

10.19 Armor Holdings, Inc. 1998 Stock Option Plan.

10.21 Agreement, dated as of March 8, 1999, between the Company and
Kanders & Company, Inc.

21.1 Subsidiaries of the Company.

23.1 Consent of PricewaterhouseCoopers LLP.

23.2 Consent of Deloitte & Touche.

23.3 Consent of Deloitte & Touche LLP.

23.4 Consent of KPMG.

27.1 Financial Data Schedule.