10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2006

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File No. 01-13112

DHB INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

Delaware	11-3129361
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
2102 SW 2ND St. Pompano Beach, Florida	33069
(Address of principal executive offices)	(Zip Code)

(954) 630 0900

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12 (b) of the Act: None

Securities registered pursuant to Section 12 (g) of the Act: Common Stock, $0.001 Par Value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    YES  ¨    NO  þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    YES  ¨    NO  þ

Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act 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   ¨    NO  þ

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 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.    ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ¨            Accelerated filer  þ            Non-accelerated filer  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act).    YES  ¨    NO  þ

The aggregate market value of the voting and non-voting stock held by non-affiliates computed by reference to the price at which the stock was last sold, or the average bid and asked price of such stock, as of the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $185,486,170. This disclosure excludes 15,696,836 shares of Common Stock held by directors, executives, officers and our former Chairman and Chief Executive Officer and his wife. Exclusion of shares held by any person should not be construed to indicate that such person possesses the power, direct or indirect, to direct or cause the direction of the management or policies of the Registrant, or that such person is controlled by or under common control of the Registrant.

The number of shares of Common Stock outstanding as of September 26, 2007 was 51,027,535.

DOCUMENTS INCORPORATED BY REFERENCE

None

TABLE OF CONTENTS

PART I
Item 1.      BUSINESS	2
Item 1A.  RISK FACTORS	8
Item 1B.  UNRESOLVED STAFF COMMENTS	13
Item 2.      PROPERTIES	14
Item 3.      LEGAL PROCEEDINGS	15
Item 4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	17
PART II
Item 5.      MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	18
Item 6.      SELECTED FINANCIAL DATA	23
Item 7.      MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	24
Item 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	38
Item 8.      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	38
Item 9.      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	39
Item 9A.  CONTROLS AND PROCEDURES	39
Item 9B.  OTHER INFORMATION	46
PART III
Item 10.   DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	47
Item 11.   EXECUTIVE COMPENSATION	52
Item 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	66
Item 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	67
Item 14.   PRINCIPAL ACCOUNTANT FEES AND SERVICES	70
PART IV
Item 15.   EXHIBITS AND FINANCIALS STATEMENT SCHEDULES	71

EXPLANATORY NOTE

This Annual Report on Form 10-K includes consolidated financial statements for our years ended December 31, 2006 and 2005. In addition, this Annual Report on Form 10-K contains our restated consolidated financial statements for the years ended December 31, 2004 and 2003. This Annual Report also includes restated selected financial data for the years ended December 31, 2002 and 2001.

The restated financial information contained within this Annual Report on Form 10-K reflects the correction of errors made in the application of U.S. generally accepted accounting principles (“GAAP”). For a discussion of the significant restatement adjustments and the background leading to the adjustments, see Note 2—“Restatements” to the consolidated financial statements included in Item 8 of this Annual Report.

We have not amended our prior annual reports on Form 10-K or quarterly reports on Form 10-Q for the periods affected by the restatement adjustments. The consolidated financial statements and related financial information contained in such reports are superseded by the information in this Annual Report on Form 10-K and the consolidated financial statements and related financial information contained in such previously filed reports should not be relied upon.

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PART I

Item 1. BUSINESS

General

Unless stated to the contrary, or unless the context otherwise requires, references to “DHB,” “the Company,” “we,” “our” or “us” in this report include DHB Industries, Inc. and subsidiaries.

We are a leading manufacturer and provider of bullet- and projectile-resistant garments, fragmentation protective vests, slash and stab protective armor and related ballistic accessories, which are used domestically and internationally by military, law enforcement, security and corrections personnel, as well as government agencies. We also manufacture and distribute sports medicine, health support and other products, including a variety of knee, ankle, elbow, wrist and back supports and braces that assist serious athletes, weekend sports enthusiasts and general consumers in their respective sports and everyday activities. All products are sold through contracts, a corporate sales force, sales agents and a network of distributors. We were incorporated in 1994.

Recent Developments

Regulatory Investigations

We are cooperating with investigations by the U.S. Securities and Exchange Commission (the “SEC”) and the United States Attorney’s Office for the Eastern District of New York. These investigations concern:

• executive compensation issues involving David H. Brooks (“Mr. Brooks”), our former Chairman and Chief Executive Officer, Sandra Hatfield (“Ms. Hatfield”), our former Chief Operating Officer, and Dawn Schlegel (“Ms. Schlegel”), our former Chief Financial Officer;

• related party transactions with our former Chairman and Chief Executive Officer, his family members and entities controlled by him or his family members;

• accounting errors and irregularities resulting in misstatements in our books and records and in our publicly filed consolidated financial statements;

• material weaknesses in internal controls; and

• income and payroll tax issues.

See Item 3—LEGAL PROCEEDINGS for a discussion of investigations. The investigations stem from accounting irregularities and disclosure issues in the consolidated financial statements for the years ended December 31, 2004 and 2003, as well as quarterly financial reports for those years and for the first three quarters of 2005. As a result of the irregularities, we did not file a 10-K for the year ended December 31, 2005, nor did we file any interim reports on Form 10-Q for any of the quarters beyond September 30, 2005.

Investigation by the Civil Division of the Department of Justice

In addition to the investigations described above, we are cooperating with an industry-wide investigation by the Civil Division of the U.S. Department of Justice into the manufacture and sale of body armor products containing Zylon, a ballistic yarn produced by an unrelated company. We are producing documents and witnesses for interviews in this investigation. We cannot reasonably predict the outcome of this investigation.

De-listing from American Stock Exchange

As a result of delayed filing of required reports with the SEC, we failed to satisfy certain of the continued listing standards of the American Stock Exchange (AMEX). On August 29, 2006, our stock was de-listed from the AMEX. Since August 29, 2006, our Common Stock has been quoted on the Pink Sheets Electronic Quotation Service (the “Pink Sheets”).

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Withdrawal of Reliance on 2004 and 2003 Consolidated Financial Statements

On August 17, 2006, the Executive Committee of our Board of Directors concluded that our previously issued consolidated financial statements for the fiscal years ended December 31, 2004 and December 31, 2003, and the related financial information for those periods and interim periods, should no longer be relied upon.

On March 31, 2006, while under previous management, we announced that our quarterly reports on Form 10-Q for the first three quarters of 2005 also should not be relied upon. We conducted an analysis of our historical information and records. Discrepancies were noted with respect to the reasonableness of estimates and accuracy of reported sales, cost of sales, inventory, gross profit, and income levels in fiscal years 2003 and 2004. Further, our management concluded that the materiality of these inaccuracies with respect to inventory, gross profit, and net income values reported in these prior periods required a restatement of our consolidated financial statements for the years ended December 31, 2004 and 2003.

In the process of making its determination with regard to historical financial statements, the Executive Committee also considered the conclusions of our interim financial management that our existing internal controls over financial reporting did not provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

Changes to Controls and Procedures

As more fully explained in Item 9A—CONTROL AND PROCEDURES, we have taken and continue to take steps to establish an appropriate system of internal controls and to assess the impact of the aforementioned accounting irregularities. Among the steps taken are the following:

• The replacement of our Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and certain directors with new senior management and several new independent directors;

• The hiring of new accounting and financial management, as well as other key management personnel;

• The design and implementation of comprehensive new accounting and internal control policies and procedures;

• The assessment and quantification of the magnitude of the accounting irregularities and preparation of restated consolidated financial statements for those periods affected; and

• The extensive use of outside independent counsel and consultants to advise us in our remediation program.

Products and Markets

We manufacture and sell a variety of body armor products through our subsidiaries Point Blank Body Armor, Inc. (Point Blank) and Protective Apparel Corporation of America (PACA). We also produce and sell a variety of sports medicine, health support and other products through our subsidiary NDL Products, Inc. (NDL).

Our body armor products and related accessories protect individuals from bodily injury and death from multiple threats including bullets, knives, other sharp instruments and shrapnel fragments. We design, build and sell advanced systems that safeguard our users from specific threats. Our designs fall into two general categories based on mission and operating environment. Our products are designed for military and commercial customers.

Our military models are built to meet military specifications and undergo a rigorous test program that involves first article tests as well as routine performance testing at independent U.S. laboratories. Although we sell some vests to other government agencies, our principal customer for these vests is the U.S. military. The Armed Forces and other federal agencies purchase our products directly or through the U.S. General Services Administration (GSA).

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In 1998, the U.S. Army and Marine Corps procured our Interceptor^TM Outer Tactical Vest (OTV) system, which is a soft armor vest with pouches for hard armor plates for added ballistic protection over vital organs. We designed the Interceptor^TM as a continually upgradeable, modular, soft body armor system specifically for the U.S. military. The system includes removable yoke/collar, throat and groin protection that can be customized by the wearer to address the threat faced.

In 2004, we developed for the U.S. Marines Corps an Armor Protection Enhancement System. This modular system is designed to enhance the current Interceptor^TM OTV by providing equivalent protection to areas previously not covered by the Interceptor^TM including the underarm, shoulder and upper arms. Also during 2004, we developed a similar product for the US Army called Deltoid Auxiliary Protection System (D.A.P.S.). The Interceptor^TM system was first extensively used in combat in Afghanistan during Operation Enduring Freedom, where it was credited in reducing the number of life-threatening wounds. During Operation Iraqi Freedom, the Interceptor^TM system was widely deployed among U.S. combat forces. Through September 30, 2007, we have sold over 750,000 D.A.P.S.

We manufacture and supply the Interceptor^TM to the U.S. military through contracts with the U.S. Department of Defense (DOD) and pursuant to the GSA Schedule, a standard purchasing contract issued by the GSA. We developed seven ballistic models of the Interceptor^TM that we customize to meet mission requirements and delivered over 1.3 million Interceptor^TM OTVs to the U.S. Army.

In 2006, we designed, produced and began marketing the Enhanced Side Ballistic Insert (E.S.B.I.) to be used with the Interceptor^TM OTV. We developed this new system to defeat an adaptive enemy and evolving threat. Since its initial introductions, we sold over 550,000 E.S.B.I.

We manufacture and distribute a large variety of standard and specialized commercial products. Our commercial models are principally sold to law enforcement, federal agencies and other government agencies. We test these and our other vests in our own advanced technology center as well as independent U.S. test laboratories to ensure that we meet or exceed National Institute of Justice (NIJ) standards. We sell products to our customers through direct sales and an extensive network of distributors.

The majority of our concealable vests are sold to state and local law enforcement and to federal agencies. These vests are individually sized to provide the optimal fit and protection. We also make corrections body armor products that are used by personnel in corrections facilities and other law enforcement employees who are exposed to threats primarily from knives and other sharp instruments. These vests are constructed with special blended fabrics, stainless steel, titanium and flexible woven fabrics, and are available in both concealable and tactical models. In 2004, we patented the first front opening tactical vest, The Rock, which offers modularity and concealment as well as capacity for tactical upgrades. Our body armor products also include tactical police jackets, unique vests for special agents, corrections vests and K-9 protection.

Our sports medicine, health support and other products include a variety of knee, ankle, elbow, wrist and back supports and braces, along with athletic tape, support bandages, and hot/cold therapy products that assist serious athletes, weekend sports enthusiasts and general consumers in their respective sports and everyday activities. A small percentage of the sports medicine, health supports and protective product sales are protective knee and elbow pads sold to the U.S. military pursuant to marketing and distribution methods discussed above.

Our health support products sell under the brand FLEX-AID^TM, along with various private labels or store brands. Apart from sales to the military, we market these products to a variety of distribution points with an emphasis on major retailers and wholesalers. The store brand and private label programs are offered to consumers through mass merchandisers, chain drug stores, food chains, independent sporting goods retailers, independent pharmacies, catalogs, wholesalers and e-commerce. Our customer list includes national retail establishments and established wholesalers in the healthcare industry.

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Research and Development

Our research and development program is a key element in our effort to maintain and improve our position in the market for protective body armor. We are constantly exploring new and innovative solutions to the threats encountered by our customers. It is our goal to be the industry leader in research and development.

To further research and development goals, we opened our new Technology Center in 2005. The Technology Center has allowed us to refine our testing and evaluation of new ballistic materials and allows us to develop and evaluate products and materials in a shorter period of time than was previously possible.

Our two ballistic test laboratories are equipped to perform testing of both standard and unusual ballistic and fragmentation threats that exceed NIJ and international requirements. This commitment to research and development allows for the rapid development of products to meet the evolving needs of the marketplace.

Research and development personnel have an aggregate of over 100 years of ballistic research and development experience, including more than 40 years of experience with NIJ certification requirements. Many research and development personnel previously held positions of responsibility with other companies in the industry. Research and development projects consist of internally-funded efforts as well as government-funded efforts under fixed price government contracts. Collaborative efforts to customize products for specific customers are an important part of the research and development process, resulting in several new products such as D.A.P.S., E.S.B.I. and ballistic blankets.

Research and development expenses (materials, salaries, and ballistic testing) are included in selling, general and administrative expenses as incurred and for the years ended December 31, 2006, 2005, 2004 and 2003 were approximately $1.7 million, $1.7 million, $1.3 million and $0.4 million, respectively.

Raw Materials and Manufacturing

We manufacture all of our bullet-, fragmentation- and projectile-resistant products. Most of the raw materials used in the manufacture of ballistic-resistant garments consist of fabrics, which are patented by major corporations and purchased from weaving companies.

We have letters of commitment with our raw materials suppliers that provide a steady supply of ballistic fibers. These letters are required by our contracts with the DOD. We also have such letters of commitment relating to other, non-DOD contracts. The letters of commitment are legally enforceable and include a commitment to supply raw materials for the duration of the contracts. Our DOD-related letters of commitment provide that the supplier will provide us with raw materials at a fixed price for the life of the DOD contract. The letters of commitment that are related to non-DOD contracts give us the right to purchase raw materials at the suppliers’ published prices.

If any of the manufacturers of any of these ballistic fibers ceases production for any reason, we have the capability to substitute fabrics containing alternative fibers. Should the fabrics originally used and the respective alternatives become unavailable for any reason, we may be unable to replace them with materials of like weight and strength. Thus, if the supply of any of these materials were reduced or cut off or if there were a price increase for these materials, our manufacturing operations and our financial condition could be adversely affected. In order to provide flexibility in the availability of raw materials, we have cross-certified several fabrics with competitive raw materials. Further, in an attempt to avoid shortages of raw materials, we seek to maintain an inventory of ballistic fabrics that is based on the availability of such fabrics as well as our short-term projected manufacturing requirements. This policy may increase our inventory carrying costs but has helped avoid manufacturing disruptions and in our view has become a marketplace advantage.

From 2003 through 2006, shortages of required raw materials limited our ability to fully meet demand for our products. We mitigated the impact of these raw materials shortages by using a variety of ballistic fibers (hybridization) instead of relying on a single fiber in our products. Even when using a variety of fibers, however,

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the impact of shortages was not completely eliminated due to limits on the availability of individual ballistic fibers. During the period from 2004 through 2006, shortages of raw materials limited our total production capacity. The availability of raw materials placed an upper limit on the amount of product that we could produce, and demand for our product exceeded that amount.

We presently outsource the production of a majority of our NDL braces to a subcontractor in China. During 2006, approximately 65% of our sports and health sales were produced by this subcontractor. This subcontractor produces braces that are sold through our retail and wholesale distribution points. We have quality control procedures in place to ensure that the subcontractor’s work and materials conform to our quality standards.

Patents and Trademarks

Intellectual property rights that apply to various products include patents, copyrights, trade secrets and trademarks. We maintain an active program to protect our investment in technology by enforcing our intellectual property rights. We hold six U.S. patents with varying expiration dates through 2024. We also have numerous patents pending for our protective armor designs and integrated technologies. While patents are an important element of protecting market share, our business as a whole is not materially dependent on any one patent.

To distinguish our products from those of our competitors, we have obtained certain trademarks and trade names for our products, and maintain advertising programs to promote our brands and identity. In total, we hold 30 trademarks.

We also protect certain details about our products and strategies as trade secrets, keeping confidential the information that is believed to provide us a competitive advantage. Ongoing programs designed to maintain the confidentiality of such information are enforced.

Customers

Products are sold domestically to the U.S. military, state and local law enforcement agencies, correctional facilities, federal agencies and distributors. Sales to the U.S. military or federal law enforcement agencies, directly or through a subcontractor, accounted for 84%, 87%, 81% and 80% of our revenues for the years ended December 31, 2006, 2005, 2004 and 2003, respectively. The remainder of our sales is primarily to domestic state and local law enforcement agencies, security and intelligence agencies, distributors, federal and state correctional facilities and, for our NDL braces, to major retailers.

With the exception of the U.S. government, no customer accounted for 10% or more of our total revenues in 2006, 2005, 2004 or 2003.

Backlog

As of December 31, 2006, we had orders in place on our major contracts for sales totaling approximately $136 million, all of which were delivered in 2007. As of July 31, 2007, the backlog of sales orders in place was approximately $70 million. These contracts are all firm fixed price contracts with the U.S. military and our other customers, none of which is subject to renegotiation of profits at the election of government. However, U.S. government contracting regulations and mandatory clauses in government contracts provide the government with the right to unilaterally terminate contracts for the convenience of the government. To date, the U.S. government has not unilaterally terminated any order made under an existing contract, and we do not consider this right to terminate to be an impediment to our sales to the U.S. government.

Marketing and Distribution

Due to the acceptance of the Interceptor^TM OTV system by the U.S. military, performance in the industry, and related marketing efforts, our products and brands are recognized in the military, law enforcement and corrections communities. We seek to enhance our reputation as a premier provider of technologically advanced body armor to these communities through aggressive marketing and efficient distribution.

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We employ customer support representatives and sales representatives under the direction of our Head of Global Sales. These personnel are responsible for marketing our products to federal, state and local law enforcement agencies in the United States. We sell to law enforcement agencies primarily through distributorships established by our sales team. However, in areas in which there are no suitable distributors, orders are filled through direct contract awards or through internal customer service representatives. Strong relationships with our distributors are critical to this marketing strategy. We focus on protecting our distribution network through advertising and additions to our product line.

Certain sales to federal agencies are made pursuant to standard purchasing contracts of a type issued by the GSA, and are commonly referred to as GSA Schedules. Participation in the GSA is viewed as a key component to accessing sales to government entities.

Given the high percentage of sales to U.S. government entities and the importance of these continued sales to our revenue stream, we maintain a government and international liaison office in Washington, D.C. This office facilitates direct sales to governmental customers and potential international customers who can visit the office to examine products prior to purchase. Further, our representatives in this office focus on building relationships with various government customers and potential international customers as well as potential distributors and international agents.

Government and Industry Regulations and Standards

Ballistic and fragmentation resistant garments and accessories are not currently the subject of government regulation domestically. Sales of NIJ Level III and Level IV armor require an export license for shipment to international customers. Contracts with governmental entities are subject to rules, regulations and approvals applicable to government contractors, and we are subject to routine audits to assure our compliance with these requirements. Failure to comply with these contract terms and contracting rules or regulations could expose us to substantial penalties, including the loss of these contracts and disqualification as a U.S. government contractor. A number of employees involved with certain of our government contracts are required to maintain specified levels of security clearances. Further, law enforcement agencies and the U.S. military specify certain standards of performance, such as NIJ standards for bullet-resistant vests in several categories, and the NIJ has established a voluntary standard for testing stab-resistant armor, which is often a requirement for sales of correctional armor. We regularly submit vests to independent laboratories for testing under these standards.

Competition

The ballistic-resistant garment business is highly competitive and fragmented. We compete by combining high quality products with on-time delivery and personalized customer service. Our principal competitors include a number of regionalized manufacturers, including BAE Systems, Inc., Ceramic Protection Corporation and U.S. Armor Corporation. Because there are no published reports concerning the market, and many competing companies are privately held, we are unable to estimate the size of the market.

We focus on the following competitive strategies to maintain and improve our market and competitive position:

Execution and customer service—We focus on order execution and on-time delivery of products. Products offered are critically important to the safety of military and law enforcement personnel and reliable on-time delivery is essential. Our ability to execute orders and deliver products on time, backed by knowledgeable and professional customer service, has provided a key competitive advantage.

Understanding government needs—A majority of our revenues are dependent upon U.S. government contracts. The close relationships our management and sales personnel have developed with the military, federal, state and local agencies that use our products allow us to design products that respond to government needs and provide the credibility to effectively compete for contracts.

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Product and brand recognition—We seek to maintain a favorable reputation through years of supplying the U.S. military, federal, state and local governments and agencies with recognized models that are sold under a defined brand.

Broad product lines—We sell a full product line of protective apparel and accessories for use by military, law enforcement and corrections personnel to provide a wide range of protection against various threat levels.

A proud and motivated workforce—Our employees understand the importance of our products in saving lives, and their commitment to the consistency and quality of our products represents an important group mission—to protect and enhance the lives of the users of our products.

Network of distributors—We have spent many years developing and training a network of distributors throughout the U.S. The effectiveness of our marketing effort is substantially dependent upon the professionalism and motivation of our distribution network. We provide support through education and training, sales and marketing assistance and accessibility, all of which are designed to strengthen this network.

Employees

As of September 26, 2007, we had approximately 1,200 full-time employees. The employee population is made up of our officers, group or area supervisors, manufacturing, shipping and warehousing, quality control, customer service, sales, technical/research and development, and office and administration personnel. Approximately 70 employees are represented by a union and participate in collective bargaining.

We also contract with various independent sales representatives who, together with our sales executives, are responsible for sales throughout the U.S.

We believe we have a satisfactory relationship with our employees and independent sales representatives.

Available Information

Our most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports may be viewed or downloaded electronically, free of charge, from our website: http://www.dhbindustries.com as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Please note, however, that with the exception of Current Reports and this Annual Report, we have not filed periodic reports with the SEC for periods after September 30, 2005, and we have previously cautioned that financial information contained in our Annual Reports for the fiscal years ending December 31, 2004 and December 31, 2003, and our Quarterly Reports for the interim periods during such years and the first three quarter of 2005, should not be relied upon. In addition, you may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. To obtain information on the operation of the Public Reference Room, you may call the SEC at 1-800-SEC-0330. Our recent press releases are also available to be viewed or downloaded electronically at http://www.dhbindustries.com. We will also provide electronic copies of our SEC filings free of charge on request. Any information posted on or linked from our website is not incorporated by reference into this Annual Report on Form 10-K. The SEC maintains an Internet site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. We are domiciled in the United States of America and have no significant foreign revenue.

Item 1A. RISK FACTORS

The risks and uncertainties described below are not the only risks and uncertainties that we face. Additional risks and uncertainties not currently known or currently deemed not to be material also may impair business operations. If any of the following risks actually occur, our business, results of operations and financial condition could be adversely affected.

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We are subject to ongoing investigations, which could require us to pay substantial fines or other penalties or subject us to other sanctions. We cannot predict the outcome or the timing of developments in these matters.

We are subject to ongoing investigations by the SEC and other regulatory authorities. These investigations stem from alleged accounting irregularities associated with our financial statements for the years ended December 31, 2004 and 2003 and interim periods during 2005. While we are presently cooperating fully with the above-mentioned ongoing investigations, we cannot predict when the investigations will be completed or the timing of any other developments, nor can we predict what the results of these matters may be.

We are also subject to an industry-wide investigation by the Civil Division of the U.S. Department of Justice into the manufacture and sale of body armor products containing Zylon, a ballistic yarn produced by an unrelated company. We cannot reasonably predict the outcome of this investigation.

We are a defendant in a securities class action and shareholder derivative action.

On July 13, 2006, we signed a Memorandum of Understanding to settle a securities class action and a shareholder derivative action. A Stipulation of Settlement, dated as of November 30, 2006, which contains the terms of the settlement initially outlined in the Memorandum of Understanding, was executed on behalf of the parties and submitted to the United States District Court, Eastern District of New York for its approval on December 15, 2006, and received preliminary approval on July 3, 2007. See Item 3—LEGAL PROCEEDINGS. The class would receive $34.9 million in cash and 3,184,713 shares of our Common Stock under the settlement, which is subject to final court approval. The derivative action is being settled in consideration of the adoption of certain corporate governance provisions and payment of $0.3 million in legal fees and expenses to the lead counsel in the derivative action. That settlement also is subject to final court approval. There can be no assurance whether or when the court will grant final approval of the proposed settlements. Also, if the court does not grant final approval of the proposed settlement, we cannot predict what the ultimate outcome of this matter will be.

We face continuing risks in connection with the restatement of our financial statements for the years ended December 31, 2004 and 2003, as discussed in Note 2 of the Consolidated Financial Statements.

These risks include:

• The risk that, notwithstanding our efforts to date to identify and remedy all material errors in those financial statements, we may discover other errors in those financial statements in the future; and

• the risk that the cost of identifying and remedying those errors will be high.

We have identified a number of material weaknesses in our internal control over financial reporting, which could continue to impact negatively our ability to report our results of operations and financial condition accurately and in a timely manner.

As required by Section 404 of the Sarbanes-Oxley Act of 2002, our management has conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2006. We identified a number of material weaknesses in our internal control over financial reporting and concluded that, as of December 31, 2006, we did not maintain effective control over financial reporting based in part on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. For a detailed description of these material weaknesses, see Item 9A—CONTROLS AND PROCEDURES. Each of the material weaknesses results in more than a remote likelihood that a material misstatement of our annual or interim financial statements will not be prevented or detected. As a result, we must perform extensive additional work to obtain reasonable assurance regarding the reliability of our financial statements. Even with this additional work, given the number of material weaknesses identified, there is a risk of additional errors not being prevented or detected, which could result in additional restatements. Moreover, other material weaknesses may be identified.

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We have extensive work remaining to remedy the material weaknesses in our internal control over financial reporting.

We are in the process of remedying the identified material weaknesses, and this work will continue during 2007 and perhaps beyond. For a detailed description of these remedial efforts, see Item 9A—CONTROLS AND PROCEDURES. There can be no assurance as to when all of the material weaknesses will be remedied. Until the remedial efforts are completed, management will continue to devote significant time and attention to these efforts, which may be to the detriment of our operations. We will continue to incur expenses associated with the additional procedures and resources required to prepare our consolidated financial statements. Certain of the remedial actions, such as hiring additional qualified personnel to implement reconciliation and review procedures, will be ongoing and will result in us incurring additional costs even after the material weaknesses are remedied. As a result, our financial condition and results of operation may be negatively affected by the cost of these remediation measures.

If internal control over financial reporting remains ineffective, our business and future prospects may suffer.

If we are unsuccessful in implementing or following our remediation plan, or fail to update our internal control over financial reporting as our business evolves or to integrate acquired businesses into our controls system, we may not be able to timely or accurately report our financial condition, results of operations or cash flows or to maintain effective disclosure controls and procedures. If we are unable to report financial information in a timely and accurate manner or to maintain effective disclosure controls and procedures, we could be subject to, among other things, regulatory or enforcement actions by the SEC and a general loss of investor confidence, any one of which could adversely affect our business prospects and the market value of our Common Stock.

Further, there are inherent limitations to the effectiveness of any system of controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. We could face additional litigation exposure and additional SEC enforcement or other regulatory action if further restatements were to occur or other accounting-related problems emerge. In addition, any future restatements or other accounting-related problems may adversely affect our financial condition, results of operations and cash flows.

Our business is materially dependent upon raw materials that have been subject to shortages in recent years.

A substantial majority of revenues and net income is dependent upon the sale of our ballistic-resistant products. Substantially all of the raw materials used in the manufacturing of ballistic-resistant products consist of fabrics containing fibers that are patented by major corporations and are purchased from weaving companies. Accordingly, we have limited sources of such required raw materials for our ballistic-resistant products. In recent years, shortages of such required raw materials limited the quantity of products that we could produce, and demand for such products exceeded that amount. Although we were able to mitigate partially the impact of these shortages by using a variety of ballistic fibers instead of one type of fiber, the impact of these shortages was not completely eliminated because there are limits on the availability of ballistic fiber blends. In response to these shortages, we have adopted a policy of purchasing such materials based on their availability rather than our immediate need for such materials. This policy is designed to reduce the effects of any future shortages; however, it increases our inventory carrying costs. Further, notwithstanding efforts to increase inventory of required raw materials, if any of these manufacturers cease to produce these needed materials or shortages persist or worsen, we may be required to use other fabrics in our ballistic-resistant products. In such event, there is no assurance that we would be able to identify alternate fabrics with comparable performance and comparable cost. We expect any material future shortages of required raw materials to have a material adverse effect on our business, financial condition, results of operations and liquidity.

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Increases in the price paid for raw materials may adversely affect profit margins.

If we experience significant increases in the prices paid for raw materials, we may be unable to pass through to our customers such increases in cost of raw materials. If we are unable to pass through all or a portion of such cost increases to our customers, profit margins on such products may be reduced. Fixed price contracts are especially susceptible to having profit margins reduced by increases in the price of raw materials.

Our products are used in situations that are inherently risky. Accordingly, we may face product liability and other claims exposure for which we may not be able to obtain adequate insurance.

The products that we manufacture are typically used in applications and situations that involve high levels of risk of personal injury. Failure to use these products for their intended purposes, failure to use them properly, their malfunction and, in some circumstances, even correct use of these products could result in serious bodily injury or death. We cannot guarantee that our insurance coverage would be sufficient to cover the payment of any potential claim. Any substantial uninsured loss would have to be paid out of our assets as applicable and may have a material adverse effect on our financial condition and results of operations. In addition, we cannot guarantee that our current insurance or any other insurance coverage will continue to be available or, if available, that it will be obtainable at a reasonable cost. The cost of obtaining insurance coverage has risen substantially due to increased sales levels and increased volatility within the reinsurance industry. Any material uninsured loss could have a material adverse effect on our business, financial condition, results of operations and liquidity. If we are unable to obtain product liability coverage we may be prohibited from bidding for orders from certain government customers because many governmental agencies currently require such insurance coverage. Any inability to bid for government contracts as a result of insufficient insurance coverage would have a material adverse effect on our financial condition and results of operations.

We are engaged in a highly competitive marketplace, which demands that producers continue to develop new products. Our business will be adversely affected if we are not able to continue to develop new and competitive products.

We face a number of well-financed competitors. In order to remain competitive, we must continue to develop innovative products that meet the needs of our customers.

We may have difficulty protecting our proprietary technology.

Intellectual property and proprietary technology are important to the success of our business. It is difficult to monitor all possible misappropriations and unauthorized access to our intellectual property and technology. Further, litigation involving these matters can be costly, with no guarantee of ultimate success. Dissemination or dilution of the aforementioned property and technology could have an adverse effect on our business, financial condition, results of operations and liquidity.

A substantial portion of our revenue is dependent on U.S. military business, and a decrease in such business could have a material adverse effect on us.

U.S. military contracts account for the majority of our revenue. The U.S. military funds its contracts in increments based on annual authorization and appropriation, as well as supplemental bills passed by Congress and approved by the President, which may not be enacted or may provide funding that is greater than or less than the amount of the contract. Changes in the U.S. military’s budget, spending allocations or the timing of such spending could adversely affect our ability to receive future contracts. Our contracts with the U.S. military do not have a minimum purchase commitment, and the U.S. military generally has the right to cancel our contracts unilaterally with limited notice. A significant reduction in U.S. military expenditures for ballistic-resistant products would have a material adverse effect on our business, financial condition and results of operations.

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Many of our customers have fluctuating budgets, which may cause substantial fluctuations in our results of operations.

Customers for our products include federal, state, municipal, foreign, military, law enforcement and other governmental agencies. Government tax revenues and budgetary constraints, which fluctuate from time to time, can affect budgetary allocations for these customers. Many domestic and foreign government agencies have in the past experienced budget deficits that have led to decreased spending in defense, law enforcement and other military and security areas. Our results of operations may be subject to substantial period-to-period fluctuations because of these and other factors affecting military, law enforcement and other governmental spending. A reduction of funding for federal, state, municipal, foreign and other governmental agencies could have a material adverse effect on sales of our products and our business, financial condition, results of operations and liquidity. For example, our sales have increased due to the U.S. military operations in Iraq and Afghanistan. We can provide no assurance that these increases will be maintained after the completion of, or a reduction of forces serving in, those operations.

Our business is subject to various laws and regulations favoring the U.S. government’s contractual position, and our failure to comply with such laws and regulations could harm operating results and prospects.

As a contractor to the U.S. government, we must comply with laws and regulations relating to the formation, administration and performance of the federal government contracts that affect how we do business with our U.S. government customers and may impose added costs on our business. These rules generally favor the U.S. government’s contractual position. For example, these regulations and laws include provisions that subject contracts we have been awarded to protest or challenge by unsuccessful bidders and unilateral termination, reduction or modification by the U.S. government. The accuracy and appropriateness of certain costs and expenses used to substantiate direct and indirect costs for the U.S. government under contracts are subject to extensive regulation and audit by the Defense Contract Audit Agency, an arm of the DOD. Responding to governmental audits, inquiries or investigations may involve significant expense and divert our management’s attention from our business operations. Failure to comply with these or other laws and regulations could result in contract termination, suspension or debarment from contracting with the federal government, civil fines and damages and criminal prosecution and penalties, any of which could have a material adverse effect on our business, financial condition, results of operations and liquidity.

Growth of operations may strain resources and if we fail to successfully manage growth, our business could be adversely affected.

Increased orders for body armor for military personnel as well as the introduction of new products have placed, and may continue to place, a strain on our operational, financial and managerial resources and personnel. Any failure to effectively manage growth could have material adverse effects on our business, operating results, financial condition and liquidity.

Environmental issues could adversely affect our business.

We are subject to various federal, state and local laws and regulations governing the use, discharge and disposal of hazardous material. Compliance with current laws and regulations has not had and is not expected to have a material adverse effect on our financial condition. It is possible, however, that environmental issues may arise in the future that we cannot currently predict and which may have a material adverse effect on our business or financial condition.

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Our stock price is volatile.

The market price and trading volume of our Common Stock is subject to significant volatility and this trend may continue. The general economic, political, and stock market conditions that may affect the market prices of our Common Stock are beyond our control. The value of our Common Stock may decline regardless of our operating performance or prospects. Factors affecting market price include (but are not limited to) variations in our operating results and whether we have achieved our key business targets, the limited number of shares of our Common Stock available for purchase or sale in the public markets, sales or purchases of large blocks of stock, changes in, or failure to meet, earnings estimates, changes in securities analysts’ buy/sell recommendations, differences between reported results and those expected by investors and securities analysts and announcements of new contracts by us or our competitors. In the past, securities class action litigation has been instituted against companies following periods of volatility in the market price of their securities. We are presently a defendant in such litigation. Additionally, we are being investigated by the SEC and the U.S. Department of Justice. The outcome of these investigations could result in increased volatility of the market price of our Common Stock. See Item 3—LEGAL PROCEEDINGS.

Our stock is quoted on the Pink Sheets, which may decrease the liquidity of our Common Stock.

On August 29, 2006, the AMEX de-listed our Common Stock because we were not able to file certain periodic reports with the SEC in a timely manner. Since that time our Common Stock has been quoted on the Pink Sheets under the symbol “DHBT.PK.” Broker-dealers often decline to trade in Pink Sheet stocks given that the market for such securities is often limited, the stocks are more volatile, and the risk to investors is greater. Consequently, selling our Common Stock can be difficult because smaller quantities of shares can be bought and sold, transactions can be delayed and securities analyst and news media coverage of our Company may be reduced. These factors could result in lower prices and larger spreads in the bid and ask prices for shares of our Common Stock as well as lower trading volume. Although we intend to apply for the listing of our Common Stock on a national securities exchange once we are current in our periodic reporting obligations with the SEC, we cannot guarantee that we will be successful in those efforts. Investors should realize that they may be unable to sell shares of our Common Stock that they purchase. Accordingly, investors must be able to bear the financial risk of losing their entire investment in our Common Stock.

Our Common Stock may be subject to penny stock rules, which may make it more difficult for our stockholders to sell their Common Stock.

Broker-dealer practices in connection with transactions in “penny stocks” are regulated by certain penny stock rules adopted by the SEC. Penny stocks generally are equity securities with a price of less than $5.00 per share. The penny stock rules require a broker-dealer, prior to purchase or sale of a penny stock not otherwise exempt from the rules, to deliver to the customer a standardized risk disclosure document that provides information about penny stocks and the risk in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer account. In addition, the penny stock rules generally require that, prior to a transaction in a penny stock, the broker-dealer make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market of a stock that becomes subject to the penny stock rules.

Item 1B. UNRESOLVED STAFF COMMENTS

We have received written comments from the staff of the Division of Corporation Finance of the SEC (the “Staff”) relating to our Form 10-K for the fiscal year ended December 31, 2004, our Form 10-Q for the period ended June 30, 2005 and our Form 10-Q for the period ended September 30, 2005. The remaining comments

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relate principally to our accounting treatment of: (i) transactions where we provided raw materials to Tactical Armor Products, Inc. for use in the manufacture of our products; (ii) cashless exercise provisions for stock options; and (iii) certain inventory charges. We have agreed with the Staff’s comments relating to these matters and we are addressing them through the financial statements and restated financial statements included in this Annual Report on Form 10-K. For a discussion of the effects of certain corrections on our accompanying restated consolidated balance sheets and consolidated statements of operations, cash flows and stockholders’ equity for the years ended December 31, 2004 and 2003 and a discussion of the nature of the adjustments made to the balances, please see Note 2 to our consolidated financial statements included in this Annual Report on Form 10-K.

In addition, the Staff’s comments included a request that we file our June 2004 and December 2004 contracts with the U.S. Army as exhibits to this Annual Report on Form 10-K. By letter dated September 7, 2007, we informed the Staff that we are contacting the appropriate U.S. Army officers to obtain complete copies of both contracts and to seek permission from the U.S. Army to publicly file these contracts or portions thereof. Accordingly, as of the date of this Annual Report on Form 10-K, this Staff comment remains unresolved.

Item 2. PROPERTIES

Our general policy is to lease, rather than own, our business locations. Our lease agreements require us to pay our proportionate share of taxes, common area expenses, insurance and related costs of the rental properties. Our management believes that the properties we occupy are, in general, suitable and adequate for the purposes for which they are used. The leased facilities consist of the following:

Corporate Headquarters and Manufacturing Facility

We lease a 104,000 square foot manufacturing facility with administrative offices at 2102 SW 2^nd Street, Pompano Beach, Florida. During 2006, our corporate headquarters were moved to this location. The lease expires on April 30, 2014, and we may renew the lease for five years, at our option.

Other Manufacturing Facilities

We also lease the following manufacturing facilities:

• A 61,772 square foot manufacturing facility with administrative offices at 600 SW 12^th Avenue, Deerfield Beach, Florida. The lease expires on April 30, 2013.

• A 60,060 square foot manufacturing facility with administrative offices at 179 Mine Lane, Jacksboro, Tennessee. The lease expires on August 11, 2011.

• A 67,000 square foot office and manufacturing facility located at 4031 N.E. 12th Terrace, Oakland Park, Florida. The lease expires on December 31, 2010.

Sales Offices

We lease the following sales office facilities:

• A 2,192 square foot government and international liaison sales office at 1667 K Street NW, Suite 650, Washington, DC. The lease expires on April 30, 2011, and we may renew the lease for five years, at our option.

• A 3,300 square foot sales office at 1830 SW 2^nd Street, Pompano Beach, Florida. The lease expires on April 8, 2008, and we may renew the lease for four years, at our option.

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Item 3. LEGAL PROCEEDINGS

SEC Investigation

We are cooperating with investigations by the SEC and the United States Attorney’s Office for the Eastern District of New York. These investigations concern (1) executive compensation issues involving our former Chairman and CEO, our former COO and our former CFO; (2) related party transactions with our former Chairman and CEO, his family members and entities controlled by him or his family members; (3) accounting errors and irregularities resulting in misstatements in our books and records and in our publicly filed financial statements; (4) material weaknesses in internal controls; and (5) income and payroll tax issues. These investigations stem from accounting irregularities and disclosure issues in the consolidated financial statements for the years ended December 31, 2004 and 2003, as well as in the quarterly financial reports for those years and for the first three quarters of 2005. As a result of the impact of these irregularities, we did not file a 10-K for the year ended December 31, 2005, nor did we file any interim reports on Form 10-Q for any of the quarters beyond September 30, 2005.

We are in the process of implementing a comprehensive remediation plan. We cannot reasonably predict either the timing of the completion of these investigations or their outcome and the effects of their outcome on us.

Investigation by the Civil Division of the Department of Justice

In addition to the investigations described above, we are cooperating with an industry-wide investigation by the Civil Division of the U.S. Department of Justice into the manufacture and sale of body armor products containing Zylon, a ballistic yarn produced by an unrelated company. We are producing documents and witnesses for interviews in this investigation. We cannot reasonably predict the outcome of this investigation.

Securities Class Action and Shareholder Derivative Action

During the third and second quarters of 2005, a number of purported class action lawsuits were filed in the United States District Court for the Eastern District of New York against us and certain of our officers and directors. The actions were filed on behalf of purchasers of our publicly traded securities during the period from April 21, 2004 though August 29, 2005. The complaints, which were substantially similar to one another, allege, among other things, that our public disclosures were false or misleading. The lawsuits alleged that our body armor products were defective and failed to meet the standards of our customers, and that these alleged facts should have been publicly disclosed. The lawsuits were ultimately consolidated into a single class action.

During the same time frame, a number of derivative complaints were filed, also in the United States District Court for the Eastern District of New York, against certain of our officers and directors, and in certain cases our former auditors. The complaints, which were substantially similar to one another, allege, among other things, that the defendants breached their fiduciary duties and engaged in fraud, misrepresentation, misappropriation of corporate information, waste of corporate assets, abuse of control and unjust enrichment. The lawsuits were ultimately consolidated into a single shareholder derivative action.

On July 13, 2006, we signed a Memorandum of Understanding to settle the class action and the derivative action. Under the Memorandum of Understanding, the class action would be settled, subject to court approval, for $34.9 million in cash and 3,184,713 shares of our Common Stock. The derivative action also would be settled, subject to court approval, in consideration of the adoption of certain corporate governance provisions and the payment of $0.3 million in legal fees and expenses to the lead counsel in the derivative action.

On July 31, 2006, we completed the funding of, and deposited into escrow the $22.3 million portion of the cash settlement to be provided by us, which was funded by certain transactions entered into by us and our former Chairman and CEO. Our directors’ and officers’ liability insurers funded the remaining portion of the cash settlement, $12.9 million, pursuant to buyouts of the policies. In addition to the cash portion, the settlement called for the issuance of 3,184,713 shares of our Common Stock.

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Of the settlement amounts funded on July 31, 2006, we obtained $7.5 million from the proceeds of the exercise by our former Chairman and CEO of a warrant held by him to acquire 3,000,000 shares of our Common Stock at an exercise price of $2.50 per share. The warrant, granted to our former Chairman and CEO pursuant to a warrant agreement dated July 1, 2005, originally had an exercise price of $1.00 per share and originally vested and became exercisable with respect to 750,000 shares on each of July 1, 2007, 2008, 2009 and 2010. As part of the settlement, and pursuant to a warrant exercise agreement described below between us and our former Chairman and CEO, the warrants were accelerated and the exercise price was increased to $2.50 per share. If the settlement is not approved, we are required to cause to be paid to our former Chairman and CEO from the settlement funds being held in escrow $4.5 million, which is the difference between the warrant exercise price of $1.00 per share set forth in the Warrant Agreement and the elevated exercise price of $2.50, multiplied by the 3,000,000 shares involved. Pursuant to the Memorandum of Understanding, the remaining $14.8 million of the amount paid by us for the settlement was funded by our former Chairman and CEO through a purchase in a private placement transaction of 3,007,099 shares of our Common Stock at a price of $4.93 per share. In the event the settlement is not approved, our former Chairman and CEO has the right to sell some or all of these shares back to us in exchange for the amount he paid.

In order to complete the transactions contemplated in the Memorandum of Understanding, on July 31, 2006, we entered into the following agreements with our former Chairman and CEO:

• a release agreement and contractual undertakings;

• a securities purchase agreement;

• a warrant exercise agreement; and

• a registration rights agreement.

Pursuant to the release agreement, our former Chairman and CEO resigned from his position as a member of our Board of Directors and from all other positions held by him in the Company or any of our subsidiaries or affiliates. These resignations were effective July 31, 2006. The release agreement contains general releases from us to our former Chairman and CEO and from him to us. If, however, the settlement is not approved by the court on the same material terms as referred to in the Memorandum of Understanding or if the settlement otherwise does not become effective despite the reasonable best efforts of the parties, the general releases become null and void. Additionally, the former Chairman and CEO agreed to pay all taxes attributable to personal income received by him from the Company, including any fines, penalties or back taxes incurred by us as a result of such income.

Pursuant to the terms of the securities purchase agreement, we sold 3,007,099 shares of our Common Stock directly to our former Chairman and CEO at a price of $4.93 per share. We received proceeds of $14.8 million from this sale, which were used to partially fund the above-mentioned settlement.

Pursuant to the warrant exercise agreement, we permitted our former Chairman and CEO to exercise warrants to purchase 3,000,000 shares of Common Stock that would otherwise not have been exercisable until 2007, 2008, 2009 and 2010, and increased the exercise price of the warrants from $1.00 per share to $2.50 per share.

The registration rights agreement provides for us to register for resale under the Securities Act of 1933, as amended, the shares acquired by our former Chairman and CEO pursuant to the securities purchase agreement and warrant exercise agreement described above. We are not obligated to file a registration statement until after such time as we become current in our filing obligations under the Securities Exchange Act of 1934, as amended.

A Stipulation of Settlement, dated as of November 30, 2006, which contains the terms of the settlement initially outlined in the Memorandum of Understanding, was executed on behalf of the parties, and first submitted to the United States District Court, Eastern District of New York for its approval on December 15, 2006.

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In July of 2007, the United States District Court, Eastern District of New York, granted the lead plaintiffs’ motion for preliminary approval of the above-described settlements of the class action and derivative action. The court has scheduled a hearing for October 5, 2007, to consider and determine whether to grant final approval of the settlement. There can be no assurance that the court will grant final approval of the settlement.

Zylon Voluntary Replacement Program

In 2005, we incurred a cost of $19.2 million associated with increasing reserves to cover potential liability in connection with class action lawsuits filed against certain of our subsidiaries, as well as other companies in the body armor industry, relating to allegations of defective body armor products containing Zylon, a ballistic yarn produced by an unrelated company. The class action lawsuits against us and our subsidiaries were settled without monetary damages with us agreeing to participate in a voluntary vest exchange program. We believe that we have established adequate reserves for any further costs associated with replacing these vests and do not anticipate that the cost of this program will affect future years’ operating results.

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

None

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PART II

Item 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market for Common Stock and Dividends

Our Common Stock currently trades in the over-the-counter market and is quoted on the Pink Sheets under the symbol “DHBT.PK.” Previously, it traded on the AMEX, from which it was de-listed on August 29, 2006. The following table shows the range of high and low bid information on the Pink Sheets or the high and low prices on the AMEX for our Common Stock for each quarter in the three-year period ended December 31, 2006. Over-the-counter market quotations from the Pink Sheets reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

		Low		High
2006	Fourth Quarter	$	2.09	$	3.14
	Third Quarter	$	0.50	$	3.80
	Second Quarter	$	1.57	$	5.02
	First Quarter	$	4.36	$	5.43
2005	Fourth Quarter	$	2.76	$	5.03
	Third Quarter	$	3.51	$	9.48
	Second Quarter	$	6.50	$	9.79
	First Quarter	$	8.62	$	19.08
2004	Fourth Quarter	$	13.00	$	22.70
	Third Quarter	$	10.78	$	17.40
	Second Quarter	$	7.42	$	16.45
	First Quarter	$	5.05	$	7.50

As of September 15, 2007, there were approximately 125 holders of record of our Common Stock.

On January 12, 2002, we issued shares of Series A, 12% Convertible Preferred Stock, to Mr. Brooks, which we redeemed on December 15, 2005. During that period, we paid cash dividends on the preferred stock each quarter at a rate of $0.18 per share ($0.72 per share per annum), an amount equal to the interest that would have been payable on the shareholder indebtedness from which the preferred stock was converted. No dividends have been paid on our Common Stock during the last four fiscal years.

We currently retain our income from earnings and anticipate that future earnings will also be retained to finance the expansion of our business. Any determination to pay cash dividends on our Common Stock in the future will be at the discretion of our Board of Directors after taking into account various factors, including financial condition, results of operations, current and anticipated cash needs, and restrictions under our credit agreements. Our current credit facility prohibits the payment of dividends on our Common Stock without our lender’s prior written consent.

Warrants to Purchase Shares of our Common Stock

On July 29, 2005, our stockholders approved our 2005 Omnibus Equity Incentive Plan (the “2005 Plan”), which was previously adopted by our Board of Directors. Pursuant to the 2005 Plan, our Compensation Committee is authorized to award options or warrants to purchase up to a total of 2,500,000 shares of our Common Stock to the officers, directors, employees, consultants and other persons who provide services to us or any of our affiliates. Prior to 2005, awards were made under our 1995 Stock Option Plan, which expired ten years from its inception.

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On July 13, 2007, our Compensation Committee recommended to our Board of Directors for approval, and the Board approved and adopted, our 2007 Omnibus Equity Incentive Plan (the “2007 Plan”), pursuant to which the Compensation Committee is authorized to award options or warrants to purchase up to a total of 1,250,000 shares of our Common Stock to selected officers, employees, consultants and other persons who render service to us.

We made all of the aforementioned issuances of unregistered securities pursuant to and in reliance upon Section 4(2) of the Securities Act of 1933, relating to transactions not involving a public offering.

As of December 31, 2006, we had outstanding options/warrants to purchase shares of our Common Stock, and shares of Common Stock available for future grants of options/warrants under our equity plans, as follows.

Equity Compensation Plan Information (as of December 31, 2006)

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)		(b)		(c)
Equity compensation plans approved by security holders	1,779,670		$	4.98	1,272,330
Equity compensation plans not approved by security holders	800,000	(1)	$	2.82	—
Total	2,579,670		$	4.32	1,272,330

(1) Granted by the Executive Committee of the Board of Directors in connection with new employment agreements.

Stock Buy-back

The following table sets forth information regarding our purchase of issued and outstanding stock.

Issuer Purchases of Equity Securities
Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Maximum number of shares that may yet be purchased under the plans or programs
October 2005	755,300	$	3.97	0	0
November 2005	513,800		3.71	0	0
December 2005	661,600		4.24	0	0
January, 2006	655,000	$	4.78	0	0

Stockholder Rights Plan

On October 6, 2006, our Board of Directors declared a dividend of one preferred share purchase right for each outstanding share of our Common Stock. The dividend distribution was paid on October 10, 2006 (the “record date”) to stockholders of record at the close of business on that date. Each right entitles the registered holder to purchase from us one one-thousandth of a share of our Series B Junior Participating Preferred Stock, par value $0.001 per share (the “preferred stock”) at a price of $15.00 per one one-thousandth of a share of preferred stock (the “purchase price”), subject to adjustment. The description and terms of the rights are set forth in a Rights Agreement dated October 6, 2006, as the same may be amended from time to time (the “Rights Agreement”) between us and American Stock Transfer & Trust Company, as rights agent.

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Until the earlier to occur of (i) the close of business on the tenth business day following the date of public announcement or the date on which we first have notice or determine that a person or group of affiliated or associated persons (other than the Company, any subsidiary of the Company or any employee benefit plan of the Company, or certain “grandfathered persons” described below) has acquired, or obtained the right to acquire, 15% or more of the outstanding shares of our voting stock without our prior written consent executed on our behalf by our duly authorized officer following express approval by action of at least a majority of the members of our Board of Directors then in office (the “stock acquisition date”) or (ii) the close of business on the tenth business day (or such later date as may be determined by action of the Board of Directors but not later than the stock acquisition date) following the commencement of a tender offer or exchange offer, without our prior written consent, by a person (other than the Company, any subsidiary of the Company or an employee benefit plan of the Company) which, upon consummation, would result in such party’s control of 15% or more of our voting stock (the earlier of the dates in clause (i) or (ii) above being called the “distribution date,” the rights will be evidenced, with respect to any Common Stock certificate outstanding as of the record date, by such Common Stock certificate. For purposes of the Rights Agreement, a grandfathered person is a person who, as of the close of business on October 10, 2006, together with all affiliates and associates, was the beneficial owner of more than 15% of the outstanding shares of our voting stock; provided, that such person together with all affiliates and associates does not increase its or their percentage ownership of the outstanding shares of our voting stock by more than one (1) percentage point without our prior written consent.

The Rights Agreement provides that, until the distribution date (or earlier redemption or expiration of the rights), the rights will be transferred with and only with our Common Stock, new Common Stock certificates issued after the record date upon transfer or new issuances of Common Stock will contain notation incorporating the Rights Agreement by reference. Until the distribution date (or earlier redemption, exchange or expiration of the rights), the surrender for transfer of any certificate for shares of Common Stock outstanding as of the record date, even without such notation or a copy of this summary of rights, will also constitute the transfer of the rights associated with the Common Stock represented by such certificate. As soon as practicable following the distribution date, separate certificates evidencing the rights (“rights certificates”) will be mailed to holders of record of the Common Stock as of the close of business on the distribution date, and such separate certificate alone will then evidence the rights.

The rights are not exercisable until the distribution date. The rights will expire, if not previously exercised, on October 10, 2016 (the “final expiration date”), unless the final expiration date is extended or unless the rights are earlier redeemed or exchanged by us.

The purchase price payable, the number of shares of preferred stock or other securities or property issuable upon exercise of the rights are subject to adjustment from time to time to prevent dilution (i) in the event of a stock dividend on, or subdivision, combination or reclassification of, the preferred stock, (ii) upon the grant to holders of the preferred stock of certain rights or warrants to subscribe for or purchase preferred stock at a price, or securities convertible into preferred stock with a conversion price, less than the then-current market price of the preferred stock or (iii) upon the distribution to holders of the preferred stock of evidences of indebtedness or assets (excluding regular periodic cash dividends or dividends payable in preferred stock) or of subscription rights or warrants (other than those referred to above).

The number of outstanding rights and the number of one one-thousandths of a share of preferred stock issuable upon exercise of each right are also subject to adjustment in the event of a stock split of our Common Stock or a stock dividend on our Common Stock payable in shares of our Common Stock or subdivisions, consolidations or combinations of our Common Stock occurring, in any such case, prior to the distribution date.

Shares of preferred stock purchasable upon exercise of the rights will not be redeemable and will be junior to any of other series of preferred stock we may issue (unless otherwise provided in the terms of such stock). Each share of preferred stock will have a preferential dividend in an amount equal to 1,000 times any dividend declared on each share of Common Stock. In the event of liquidation, the holders of the preferred stock will

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receive a preferred liquidation payment of equal to the greater of $1,000 and 1,000 times the payment made per share of Common Stock. Each share of preferred stock will have 1,000 votes, voting together with our Common Stock. In the event of any merger, consolidation or other transaction in which shares of Common Stock are converted or exchanged, each share of preferred stock will be entitled to receive 1,000 times the amount and type of consideration received per share of Common Stock. The rights of the preferred stock as to dividends, liquidation and voting, and in the event of mergers and consolidations, are protected by customary antidilution provisions.

If any person or group (other than the Company, any subsidiary of the Company or any employee benefit plan of the Company or certain grandfathered persons) acquires 15% or more of our outstanding voting stock without the prior written consent of our Board of Directors, each right, except those held by such persons, would entitle each holder of a right to acquire such number of shares of our Common Stock as shall equal the result obtained by multiplying the then current purchase price by the number of one one-thousandth of a share of preferred stock for which each right is then exercisable and dividing that product by 50% of the then current per share market price of our Common Stock.

If any person or group (other than the Company, any subsidiary of the Company or any employee benefit plan of the Company or certain grandfathered persons) acquires more than 15% but less than 50% of our outstanding Common Stock without the prior written consent of our Board of Directors, each right, except those held by such persons, may be exchanged by the Board of Directors for one-half of a share of our Common Stock. The exercise of the rights is also subject to suspension under certain circumstances to enable us to register the shares being issued upon exercise under the Securities Act of 1933, as amended. We are not currently able to file a registration statement as we are not in compliance with our periodic filing requirements under SEC rules and regulations.

If we were acquired in a merger or other business combination transaction where the Company is not the surviving corporation or where our Common Stock is exchanged or changed or 50% or more of our assets or earning power is sold in one or several transactions without the prior written consent of our Board of Directors, each right would entitle the holders thereof (except for the acquiring person) to receive such number of shares of the acquiring company’s common stock as shall be equal to the results obtained by multiplying the then current purchase price by the number of one one-thousandths of a share of preferred stock for which a right is then exercisable and dividing that product by 50% of the then current market price per share of the common stock of the acquiring company on the date of such merger or other business combination transaction.

Effective October 12, 2006, we filed a Certificate of Designation, Preferences and Rights of Series B Junior Participating Preferred Stock with the Secretary of the State of Delaware. Our Board of Directors authorized the filing of this certificate at a meeting of the Board of Directors pursuant to the designation and reservation of 70,000 shares of our preferred stock as Series B Junior Participating Preferred Stock in connection with the Rights Agreement.

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Stock Performance

The graph below compares the cumulative total stockholder return on our Common Stock for the last six full fiscal years with the cumulative total returns on the S&P 500 Index and the “peer group” companies listed below for the same period. The graph assumes that $1,000 was invested on January 2, 2001, in each of our Common Stock, the S&P 500 Index and an index compiled by us tracking the peer group companies listed below. The comparisons in the graph below are based on historical data, with our Common Stock prices based on the closing price on the AMEX or last bid information quoted on the Pink Sheets on the dates indicated, and are not intended to forecast the possible future performance of our Common Stock.

Our “peer group,” as determined by management, consists of:

• Ceradyne, Inc.;

• Mine Safety Appliances Company;

• Armor Holdings, Inc.; and

• Force Protection, Inc.

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Item 6. SELECTED FINANCIAL DATA

The selected consolidated financial data set forth below for the years ended December 31, 2006, 2005, 2004, 2003, 2002 and 2001 were derived from our consolidated financial statements. The data set forth below should be read in conjunction with Item 7—MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS and our Consolidated Financial Statements and related Notes appearing elsewhere in this Annual Report on Form 10-K.

Income Statement Data (in thousands, except for per share data)

	2006			2005			Restated 2004			Restated 2003			Restated 2002			Restated 2001
Net sales	$	254,105		$	343,561		$	322,276		$	206,375		$	118,029		$	87,664
Cost of goods sold		196,154			282,653			265,607			177,066			80,303		$	61,288
Gross profit		57,951			60,908			56,669			29,309			37,726			26,376
Selling, general and administrative expenses		42,539			57,223			37,461			29,478			27,245			17,124
Legal settlements and investigations		13,886			27,246			943			—			—			—
Employment tax withholding obligation		4,407			2,358			28,981			737			—			—
Income (loss) before other income (expense)		(2,881	)		(25,919	)		(10,716	)		(906	)		10,481			9,252
Interest expense		1,946			1,798			1,371			1,410			1,645			2,513
Other (income) expense		(127	)		(551	)		190			1,925			130			42
Income (loss) before income taxes		(4,954	)		(28,268	)		(11,897	)		(391	)		8,966			6,781
Income taxes (benefit) expense		286			(250	)		(2,800	)		3,585			(3,672	)		175
Income (loss) before minority interest		(5,240	)		(28,018	)		(9,097	)		(3,976	)		12,638			6,606
Less minority interest of subsidiary		82			122			48			(1	)		—			—
Net income (loss)		(5,322	)		(28,140	)		(9,145	)		(3,975	)		12,638			6,606
Dividend—preferred stock (related party)		—			(345	)		(360	)		(360	)		(345	)		—
Income (loss) available to common stockholders		(5,322	)		(28,485	)		(9,505	)		(4,335	)		12,293			6,606
Earnings per common share:
Basic		($0.12	)		($0.63	)		($0.23	)		($0.11	)	$	0.33		$	0.21
Diluted		($0.12	)		($0.63	)		($0.23	)		($0.11	)	$	0.29		$	0.18
Earnings per contingently redeemable share:
Basic and Diluted		$0.00			—			—			—			—			—
Balance Sheet Data (in thousands)
Working capital	$	19,349		$	1,592		$	44,299		$	48,755		$	53,125		$	20,472
Total assets		148,199			125,537			109,204			69,304			65,371			40,896
Total current liabilities		126,776			121,300			62,168			18,273			7,822			16,585
Long-term liabilities		852			1,484			26,318			22,549			26,204			19,305
Contingently redeemable common stock		19,326			—			—			—			—			—
Stockholders’ equity		992			2,582			20,669			28,483			31,345			5,006

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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read together with our selected consolidated financial data and the Consolidated Financial Statements set forth in this Annual Report on Form 10-K. Certain statements contained in this discussion may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those reflected in forward-looking statements, as discussed more fully in this Annual Report on Form 10-K. See also the section entitled “Forward-Looking Statements” below.

General

We are a leading manufacturer and provider of bullet- and projectile-resistant garments, fragmentation protective vests, slash and stab protective armor and related ballistic accessories, which are used domestically and internationally by military, law enforcement, security and corrections personnel, as well as governmental agencies. We also manufacture and distribute sports medicine, health support and other products, including a variety of knee, ankle, elbow, wrist and back supports and braces that assist serious athletes, weekend sports enthusiasts and general consumers in their respective sports and everyday activities.

We are organized as a holding company that currently conducts business through three operating subsidiaries. Sales to the U.S. military comprise the largest portion of our business, followed by sales to federal, state and local law enforcement agencies, including correctional facilities. Accordingly, any substantial increase or reduction in government spending or change in emphasis in defense and law enforcement programs would have a material effect on our business. We also manufacture and market a variety of sports medicine, protective gear and health support products.

We derive substantially all of our revenue from sales of our products. We have experienced volatility in revenue over the past four years primarily due to changing levels of spending by the U.S. military in conjunction with military efforts in Afghanistan and Iraq. Our future revenue levels will continue to be highly dependent on the level of demand for body armor and projectile-resistant clothing, primarily from the U.S. military.

Our market share is highly dependent upon the quality of our products and our ability to deliver products in a prompt and timely fashion. To meet projected demand and to maintain our ability to deliver quality products in a timely manner, in April 2004 we moved into a new, expanded manufacturing facility in Pompano Beach, Florida. However, there is no assurance that, in the long term, demands for our products will remain at recent levels, or that we will be able to diversify into alternate markets or alternate products or increase our market share through either organic growth or acquisitions of other businesses. Our current strategic focus is on quality and delivery, which we believe are the key elements in obtaining additional and repeat orders under our existing procurement contracts with the U.S. military and other governmental agencies.

As of September 30, 2007, we lease approximately 298,000 square feet of manufacturing, distribution and office facilities in Florida and Tennessee. In Florida, our main manufacturing and distribution facility and corporate office is located in a 107,300 square foot facility in Pompano Beach, Florida. In addition, we operate a 61,772 square foot manufacturing and distribution facility with administrative offices in Deerfield Beach, Florida and a 67,000 square foot manufacturing facility in Oakland Park, Florida. In Jacksboro, Tennessee, we operate a 60,060 square foot manufacturing facility and administrative office. In addition, we lease an approximately 2,200 square foot government and international liaison sales office in Washington, DC. We do not anticipate a need to add additional manufacturing or distribution space in the near term.

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Significant Events

In addition to other matters discussed in this Form 10-K, below is a summary of certain significant events that occurred during the fiscal years 2003 to 2006.

Restatement of the Consolidated Financial Statements

As more fully explained in Note 2 to our Consolidated Financial Statements for the years ended December 31, 2006, 2005, 2004 and 2003, on March 31, 2006, we concluded that the previously issued consolidated financial statements for the interim periods during 2005 should no longer be relied upon. Furthermore, on August 17, 2006, the Executive Committee of our Board of Directors concluded that our previously issued consolidated financial statements for the fiscal years ended December 31, 2004 and 2003, and the related financial information for those periods and interim periods, should no longer be relied upon. The conclusion followed a review by our interim financial management of the pertinent facts.

We conducted an analysis of our historical information and records. Discrepancies were noted with respect to the reasonableness of estimates and accuracy of reported sales, cost of sales, inventory, gross profit, and income levels in fiscal years 2003 and 2004. Further, our management concluded that the materiality of these inaccuracies with respect to inventory, gross profit, and net income values reported in these prior periods required a restatement of our consolidated financial statements for the fiscal years ended December 31, 2004 and 2003.

Legal Proceedings

We are cooperating with investigations by the SEC and the United States Attorney’s Office for the Eastern District of New York. These investigations concern (1) executive compensation issues involving our former Chairman and CEO, our former COO and our former CFO; (2) related party transactions with our former Chairman and CEO, his family members and entities controlled by him or his family members; (3) accounting errors and irregularities resulting in misstatements in our books and records and in our publicly filed financial statements; (4) material weaknesses in internal controls; and (5) income and payroll tax issues. These investigations stem from accounting irregularities and disclosure issues in the financial statements for the years ended December 31, 2004 and 2003, as well as in the quarterly financial reports for those years and for the first three quarters of 2005. As a result of the impact of these irregularities, we did not file a 10-K for the year ended December 31, 2005, nor did we file any interim reports on Form 10-Q for any of the quarters beyond September 30, 2005.

See Item 3—LEGAL PROCEEDINGS and Note 11 to our Consolidated Financial Statements for the years ended December 31, 2006, 2005, 2004 and 2003 for a further discussion of these investigations, as well as other investigations and lawsuits in which we are involved.

Equity-based Compensation

In December 2004, the Financial Accounting Standards Board issued SFAS No. 123R, “Share-Based Payment” (SFAS 123R). This statement requires all equity-based compensation to be recognized as an expense in our financial statements and that such cost be measured according to the fair value of the equity-based payment award. We have implemented SFAS 123R using the modified retrospective method. As a result, our equity-based compensation recorded in the years ended December 31, 2006, 2005, 2004 and 2003 was $1.6 million, $20.9 million, $1.5 million and $1.1 million, respectively.

Employment Tax Withholding Obligation

As more fully explained in Note 11 to our Consolidated Financial Statements for the years ended December 31, 2006, 2005, 2004 and 2003, certain bonus payments and the exercise of warrants to purchase our Common Stock by certain former officers and other employees created an employment tax withholding obligation to us related to the employees’ share of federal income tax, state income tax and Social Security charges on the compensation associated with the bonuses and warrants. We also must remit to applicable taxing authorities the employer’s share of Social Security and other payroll related taxes.

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We have determined that income and other payroll taxes were not withheld and remitted by us to the taxing authorities when those bonuses were paid and, with one exception, when the warrants were exercised. We have self-reported these apparent violations to the relevant taxing authorities, including the Internal Revenue Service.

Accordingly, as of December 31, 2006, 2005, 2004 and 2003, we recorded liabilities for Employment Tax Withholding Obligations related to this matter totaling $36.5 million, $32.1 million, $29.8 million and $0.7 million, respectively, in our consolidated balance sheets. The related income statement charges totaling $4.4 million, $2.4 million, $29.0 million and $0.7 million have been recorded in each of the years ended December 31, 2006, 2005, 2004 and 2003, respectively.

We do not believe that the Company will be required to discharge the liability of former senior management personnel for income tax withholding obligations. Moreover, to the extent that we are required to discharge employee income tax withholding obligations for other current and former employees, management intends to seek recovery of those amounts from the affected employees. In July 2006, our former Chairman and CEO signed a Release Agreement and Contractual Undertaking with us in which he represented, warranted and covenanted that he has paid or will pay all taxes (including without limitation federal and state, Social Security, Medicare, FICA or other withholding taxes or similar amounts) attributable to personal income received by him from us, including any fines, penalties or back taxes incurred by us solely as a result of personal income paid to him. We intend to pursue recovery from our former Chairman and CEO for any of the foregoing amounts ultimately due and payable by us, if any, to the taxing authorities. At December 31, 2006, the income tax withholding obligations that may be recoverable from current and former employees were $34.2 million (including $30.4 million from our former Chairman and CEO, $1.1 million from our former CFO and $1.5 million from our former COO). The employer’s share of the employment tax withholding obligations was approximately $1.5 million, at December 31, 2006, and accrued penalties were approximately $0.8 million.

During 2007, the statute of limitations for the 2003 income tax withholding obligations expired and accordingly the charge and related liability originally recorded during 2003 (totaling $0.7 million) will be reversed during 2007.

Results of Operations and Financial Condition

As discussed in Item 1—BUSINESS and Item 1A—RISK FACTORS, this Annual Report includes our restated consolidated financial statements as of and for the years ended December 31, 2004 and 2003. All of the financial information and discussion set forth below reflects the effects of the restatements on the periods presented. For a discussion of the effects of the restatement on financial information that was previously reported for the periods discussed below, see Note 2 to our Consolidated Financial Statements.

Net Sales

Net sales consist primarily of gross sales less discounts, returns and allowances. Sales are recognized when the product has been shipped and title passes to the customer.

Gross Profit

Gross profit consists primarily of net sales less the cost of sales and manufacturing and warehousing expenses. Gross profit as a percentage of sales may be affected by variations of product mix, price changes in response to competitive factors and fluctuations in raw material costs and vendor programs. In addition, inventory adjustments caused by impaired inventory can also affect gross profit.

Operating Cost

Operating and administrative expenses are comprised of selling and marketing expenses including commissions and marketing programs; general and administrative expenses including administrative salaries, professional fees and other office expenses; research and development expenses and other expenses associated with our operations.

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Year ended December 31, 2006, compared to year ended December 31, 2005

Consolidated net sales for the year ended December 31, 2006 were $254.1 million compared to $343.6 million for the year ended December 31, 2005. This decrease of 26.1% is primarily attributed to a decline in sales to the U.S. military, domestic sales and health and sports product sales in 2006.

The following table shows our revenues for the years ended December 31, 2006 and December 31, 2005 for the main categories of our net sales.

ANALYSIS OF NET SALES

Years Ended December 31, 2006 and 2005

(Dollars in Thousands)

	2006				2005				Dollar Change
Net Sales
Military and Federal Government	$	213,465	84.0	%	$	297,886	86.7	%		(84,421	)
Domestic/Distributors		31,406	12.4	%		34,449	10.0	%		(3,043	)
International		905	0.3	%		773	0.2	%		132
Sports and Health Products		8,618	3.4	%		9,964	2.9	%		(1,346	)
Other		802	0.3	%		1,210	0.4	%		(408	)
Total		255,196	100.4	%		344,282	100.2	%		(89,086	)
Less Discounts, Returns and Allowances		1,091	0.4	%		721	0.2	%		370
Net Sales	$	254,105	100.0	%	$	343,561	100.0	%	$	(89,456	)

The decrease in sales to the U.S. military, domestic customers, sports product and other customers experienced in 2006 compared to 2005 is a function of both a slowdown in spending associated with the military and uncertainty on the part of customers as a result of the restatement of our 2004 and 2003 financial statements, related material weaknesses in internal control, changes in management, failure to file required annual reports and ongoing investigations. See Item 3—LEGAL PROCEEDINGS for a discussion of these investigations. During the last quarter of 2006 and continuing into 2007 we have undertaken an ongoing project of communicating with our military, domestic, sports and health and other customers in an effort to assure them that procedures are being implemented to strengthen our reporting and operational controls. Sales to the U.S. military and federal government decreased 28.3% from fiscal year 2005 to 2006.

Cost of goods sold decreased from $282.7 million for the year ended December 31, 2005 to $196.2 million for the year ended December 31, 2006. This decrease is consistent with the decline in sales discussed above, and the inclusion in cost of goods sold in 2005 of a provision relating to replacement of certain protective vest products.

Gross profit margin increased from 17.7% for the year ended December 31, 2005 to 22.8% for the year ended December 31, 2006. This increase is due to the above mentioned provision for product replacement affecting the 2005 gross profit margin.

Operating costs for the year ended December 31, 2006 were $60.8 million compared to $86.8 million for the year ended December 31, 2005. This decrease is attributable primarily to a reduction in litigation settlement and investigation charges and equity-based compensation expenses in 2006 compared to 2005. The following table summarizes our operating costs for fiscal year 2006 compared to 2005.

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OPERATING COST

Years Ended December 31, 2006 and 2005

(Dollars in Thousands)

	2006				2005				Dollar Change
Selling & Marketing	$	9,493	15.6	%	$	11,828	13.6	%	$	(2,335	)
Research & Development		1,687	2.8	%		1,707	2.0	%		(20	)
Equity-Based Compensation		1,395	2.3	%		20,558	23.7	%		(19,163	)
Other General & Administrative		29,314	48.2	%		23,130	26.6	%		6,184
Restructuring costs		650	1.1	%		—	0.0	%		650
Litigation and Cost of Investigations		13,886	22.8	%		27,246	31.4	%		(13,360	)
Employment Tax Withholding Obligation		4,407	7.2	%		2,358	2.7	%		2,049
Total Operating Costs	$	60,832	100.0	%	$	86,827	100.0	%	$	(25,995	)

Selling and marketing expense declined from $11.8 million for the year ended December 31, 2005 to $9.5 million for the year ended December 31, 2006. This decline is a function of reduced sales commissions paid during 2006 as a result of the reduced level of sales experienced during 2006. Additionally, during 2005, a significant commitment was a made to promotion and free samples which was not continued in 2006.

We spent approximately $1.7 million on research and development in both 2005 and 2006. Research and development is viewed as a critical component to meeting the needs of the market place and maintaining our customer relationships as the demands for unique and custom protective wear constantly change.

Equity-based compensation declined from $20.6 million for the year ended December 31, 2005 to $1.4 million for the year ended December 31, 2006. Equity-based compensation is the fair value, as defined in GAAP, of warrants issued to officers and employees, amortized over the period that the warrants are earned, which in our case is the vesting period. Equity-based compensation was higher in 2005 compared to 2006 because a large number of warrants were awarded in 2005 to our former Chairman and CEO at a below market exercise price that immediately vested on the date of grant.

Other general and administration expense increased from $23.1 million for the year ended December 31, 2005 to $29.3 million for the year ended December 31, 2006. This increase is a result of certain non-recurring costs incurred in 2006 including an increase in professional fees of $5.9 million.

In 2006, we incurred $0.7 million in restructuring costs relating to the relocation of our headquarters offices from Westbury, New York to Pompano Beach, Florida.

Litigation and cost of investigations decreased from $27.2 million for fiscal year 2005 to $13.9 million for fiscal year 2006. In 2005, the Company recorded a charge of $26.5 million for the settlement of the securities class action brought against us. We also incurred $0.8 million of professional fees in connection with the cost of investigations. We incurred costs in 2006 in conjunction with the ongoing investigations and indemnification of our former officers and directors. Certain of these costs along with certain general and administrative expenses incurred in 2005 and 2006 are being researched in an effort to determine if they can be recovered by us from our former officers.

During 2005, we recorded a charge of approximately $26.5 million for liability associated with a class action securities lawsuit and a related shareholder derivative lawsuit brought against us and certain of our current and former directors and officers and others. On July 13, 2006, we signed a Memorandum of Understanding to settle this securities class action securities lawsuit, as well as the shareholder derivative action brought about by a certain shareholder. Both of these actions have been pending in United States District Court for the Eastern District of New York. See Item 3—LEGAL PROCEEDINGS for further discussion of these settlements.

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The class action lawsuit was settled, subject to court approval, for $34.9 million in cash and 3,184,713 shares of our Common Stock. The derivative action was also settled, subject to court approval, in consideration of certain corporate governance provisions and paying $0.3 million in legal fees and expenses to the lead counsel in the derivative action. The settlement amounts were paid into an escrow account with $12.9 million coming from our directors and officer liability insurers, and the balance was provided by us. The amount due from the insurers was received in 2006 and reflected as a receivable in current assets in our balance sheet dated as of December 31, 2005. This escrow is reflected as restricted cash in our balance sheet at December 31, 2006. The funds may only be disbursed pursuant to the Memorandum of Understanding.

In July of 2007, the United States Court, Eastern District of New York, granted lead plaintiffs’ motion for preliminary approval of the above described settlements of the class action and derivative action. The court has scheduled a hearing for October 5, 2007 to consider and determine whether to grant final approval of the settlement.

Employment Tax Withholding Obligation increased from $2.4 million in 2005 to $4.4 million in 2006 because we did not withhold an appropriate amount in connection with awards of incentive compensation, including stock compensation.

Our income tax expense for 2006 was $0.3 million, compared to an income tax benefit of $0.3 million for 2005. This change in income tax (benefit) expense and in the effective tax rate resulted primarily from results of operations and an increase in state income tax expense based on a shift in our mix of earnings among the various state tax jurisdictions. The effective tax rate for 2006 and 2005 differs from the statutory rates primarily due to nondeductible financial statement equity-based compensation expense and officer’s compensation expense in excess of the Internal Revenue Code Section 162(m) (“Section 162(m)”) annual limitation for performance based compensation.

Year ended December 31, 2005, compared to year ended December 31, 2004

Consolidated net sales for the year ended December 31, 2005, increased 6.6% to approximately $343.6 million as compared to approximately $322.3 million for the year ended December 31, 2004. The following table sets forth the major components of net sales for the year ended December 31, 2005 compared to December 31, 2004.

ANALYSIS OF NET SALES

Years Ended December 31, 2005 and 2004

(Dollars in Thousands)

	2005				2004				Dollar Change
Net Sales
Military and Federal Government	$	297,886	86.7	%	$	261,616	81.2	%		36,270
Domestic/Distributors		34,449	10.0	%		44,567	13.8	%		(10,118	)
International		773	0.2	%		9,260	2.9	%		(8,487	)
Sports and Health Products		9,964	2.9	%		7,278	2.3	%		2,686
Other		1,210	0.4	%		66	0.0	%		1,144
Total		344,282	100.2	%		322,787	100.2	%		21,495
Less Discounts, Returns and Allowances		721	0.2	%		511	0.2	%		210
Net Sales	$	343,561	100.0	%	$	322,276	100.0	%	$	21,285

Sales to the U.S. military and the federal government increased 13.9% from $261.6 million for the year ended December 31, 2004, to $297.9 million for the year ended December 31, 2005. This increase is a function of the popularity of our products with the U.S. military and the need for the products brought about by continuing U.S. military operations in the Middle East. Domestic sales of our armored products decreased from $44.6

29

million to $34.5 million for this same period as domestic budgets for homeland security related purchases decreased.

Sales of sports medicine and health support products increased from $7.3 million to $10.0 million from fiscal 2004 to 2005. This increase is primarily the result of continued efforts to develop and expand our distribution network for these products through nationally recognized retail chains.

The increase in the cost of sales from $265.6 million for the year ended December 31, 2004, to $282.7 million for the year ended December 31, 2005, is consistent with the increase in sales. Additionally, cost of sales for 2005 included a one time charge of $19.2 million to provide for the voluntary vest replacement program discussed above.

Gross profit increased to $60.9 million for 2005 as compared to $56.7 million in 2004. As a percentage of net sales, gross profit was 17.7% in 2005 and 17.6% in 2004. The increase in gross profit of $4.2 million was primarily due to the increase in net sales in 2005 over 2004. The gross profit in 2005 was affected by a $19.2 million provision we incurred associated with increasing our reserves to cover potential liability in connection with a class action filed against us, as well as others in the body armor industry, relating to allegations of defective body armor products containing Zylon, a ballistic yarn produced by an unrelated company. The class action was settled without monetary damages, by us agreeing to participate in a voluntary vest exchange program. We believe that we have established adequate reserves for any further cost associated with replacing these vest and do not anticipate that the cost of this program will affect our future years’ operating results. In 2004, gross profit was affected by impairment charges associated with obsolete inventory.

The $19.2 million provision for vest replacements in 2005 was partially offset by a reduction in inventory impairment charges of $9.7 million in 2005 as compared to 2004. In 2004, the inventory impairment charge was $17.2 million compared to the 2005 inventory impairment charge of $7.6 million.

Operating costs increased 28.9% from fiscal year ended December 31, 2004, to December 31, 2005. The table below sets forth the components of selling and general administrative expenses for 2005 compared to 2004, with explanatory comments below.

OPERATING COST

Years Ended December 31, 2005 and 2004

(Dollars in Thousands)

	2005				2004				Dollar Change
Selling & Marketing	$	11,828	13.6	%	$	14,545	21.6	%	$	(2,717	)
Research & Development		1,707	2.0	%		1,293	1.9	%		414
Equity-Based Compensation		20,558	23.7	%		1,531	2.3	%		19,027
Other General & Administrative		23,130	26.6	%		20,092	29.8	%		3,038
Litigation and Cost of Investigations		27,246	31.4	%		943	1.4	%		26,303
Employment Tax Withholding Obligation		2,358	2.7	%		28,981	43.0	%		(26,623	)
										—
Total Operating Costs	$	86,827	100.0	%	$	67,385	100.0	%	$	19,442

Selling and marketing expense decreased from $14.5 million for the year ended December 31, 2004, to $11.8 million for the year ended December 31, 2005. This 18.7% decrease is attributed to sales and marketing programs undertaken in 2004 not recurring in 2005.

Research and development expenses increased from $1.3 million for the year ended December 31, 2004, to $1.7 million for the year ended December 31, 2005. This increase resulted from increased cost associated with

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the opening of our technology center concurrent with an increase in our commitment to research and development in light of increasing competition in the industry.

Equity-based compensation increased from $1.5 million for the year ended December 31, 2004, to $20.6 million for the year ended December 31, 2005. Equity-based compensation is the fair value, as defined in GAAP, of warrants issued to officers and employees, amortized over the period that the warrants are awarded, which in our case is the vesting period. Equity-based compensation was higher in 2005 compared to 2004 because more warrants were awarded in 2005 as opposed to 2004.

Furthermore, in 2005, we incurred legal, settlement and investigation costs of $27.2 million associated with the ongoing investigations and related lawsuits discussed in Item 1—BUSINESS and Item 3—LEGAL PROCEEDINGS included in this Annual Report.

Interest expense for the year ended December 31, 2005, was approximately $1.8 million compared to approximately $1.4 million for the year ended December 31, 2004. The increase in interest expense is attributed to higher loan balances outstanding during 2005. See “Liquidity and Capital Resources” below for a discussion of our credit relationship during the four years ended December 31, 2006.

Employment Tax Withholding Obligation declined from $29.0 million in 2004 to $2.4 million in 2005 due primarily to lower exercises of stock compensation. We did not withhold an appropriate amount in connection with awards of incentive compensation, including stock compensation.

Our income tax benefit for 2005 was $0.3 million, compared to an income tax benefit of $2.8 million for 2004. This change in income tax benefits and in the effective tax rates resulted from results of operations, an increase in nondeductible financial statement equity-based compensation expense and a change in the effective deferred state tax rate based on a shift in our mix of earnings among various state tax jurisdictions. Additionally, the effective tax rate for 2005 and 2004 differs from the statutory rates primarily due to nondeductible financial statement equity-based compensation expense and officer’s compensation expense in excess of the Section 162(m) annual limitation for performance based compensation.

Year ended December 31, 2004, compared to year ended December 31, 2003

Consolidated net sales for the year ended December 31, 2004, increased 56.2% to approximately $322.3 million as compared to approximately $206.2 million for the year ended December 31, 2003. The following table sets forth the major components of net sales for the year ended December 31, 2004, compared to December 31, 2003.

ANALYSIS OF NET SALES

Years Ended December 31, 2004 and 2003

(Dollars in Thousands)

	2004				2003				Dollar Change
Net Sales
Military and Federal Government	$	261,617	81.2	%	$	165,306	80.1	%		96,311
Domestic/Distributors		44,567	13.8	%		34,687	16.8	%		9,880
International		9,260	2.9	%		599	0.3	%		8,661
NDL Products		7,278	2.3	%		5,807	2.8	%		1,471
Other		65	0.0	%		298	0.1	%		(233	)
Total		322,787	100.2	%		206,697	100.2	%		116,090
Less Discounts, Returns and Allowances		511	0.2	%		322	0.2	%		189
Net Sales	$	322,276	100.0	%	$	206,375	100.0	%	$	115,901

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The increase in gross sales from 2003 to 2004 is primarily attributable to an increase in sales to the U.S. military and the federal government. This trend, which continued into 2005, is a result of the popularity of our products with the U.S. military and increases in government spending on defense related products in the wake of the September 11 attacks in 2001 and increased military activity in the Middle East.

We also experienced increased sales in domestic markets, primarily due to local law enforcement agencies and correctional facilities having increased budget and buying capacity for protective armor, along with an increased effort by us to market our products. The increase in demand for these products by many law enforcement agencies is a result of the increased awareness of homeland security brought about by the September 11 attacks.

Our sports and health related product lines also experienced growth as a result of our efforts to market these products and grow this line of business.

Gross profit was $56.7 million for the year ended December 31, 2004, compared to $29.3 million for the year ended December 31, 2003. This increase is a function of both an increase in sales volume and an increase in the gross margin realized in 2004. The gross profit margin improved from 14.2% for 2003 to 17.6% for 2004. This improvement is a result of the increase in demand for our products experienced in 2004.

Operating costs increased from $30.2 million for the year ended December 31, 2003, to $67.4 million for the year ended December 31, 2004. The following table sets forth the components of operating cost comparing 2004 with 2003 with explanatory comments below.

OPERATING COST

Years Ended December 31, 2004 and 2003

(Dollars in Thousands)

	2004				2003				Dollar Change
Selling & Marketing	$	14,545	21.6	%	$	11,014	36.5	%	$	3,531
Research & Development		1,293	1.9	%		372	1.2	%		921
Equity-Based Compensation		1,531	2.3	%		898	3.0	%		633
General & Administrative		20,092	29.8	%		17,194	56.9	%		2,898
Litigation and Cost of Investigations		943	1.4	%		—	0.0	%		943
Employment Tax Withholding Obligation		28,981	43.0	%		737	2.4	%		28,244
Total Operating Costs	$	67,385	100.0	%	$	30,215	100.0	%	$	37,170

The increase in selling and marketing costs is consistent with and a function of the increase in revenue. We increased our commitment to marketing during 2004 to take advantage of the demand for our products brought about by military efforts in the Middle East and local corrections and law enforcement agencies’ increased budgets for protective armor and similar products.

We increased our commitment to research and development in 2004 in response to increased competition in the industry and in preparation for our technology center opening in 2005.

Equity-based compensation increased from $0.9 million for the year ended December 31, 2003, to $1.5 million for the year ended December 31, 2004. Equity-based compensation is the fair value, as defined in GAAP, of warrants issued to officers and employees, amortized over the period that the warrants are earned, which in our case is the vesting period.

Increases in other general and administrative costs reflect our higher compensation and compensation related costs consistent with our increase in revenue and our general growth experienced in 2004.

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Employment Tax Withholding Obligation increased from $0.7 million in 2003 to $29.0 million in 2004, primarily because we did not withhold appropriate amounts in connection with exercises of warrants in 2004.

Our income tax benefit for 2004 was $2.8 million, compared with income tax expense for 2003 of $3.6 million. This change in income tax (benefit) expense and in the effective tax rate resulted primarily from results of operations, a reduction in net operating carryforwards and the expiration of capital loss carryforwards from prior years. Additionally, the effective tax rate for 2004 and 2003 differs from the statutory rates primarily due to nondeductible financial statement equity-based compensation expense, officer’s compensation expense in excess of the Section 162(m) annual limitation for performance based compensation and the reduction in net operating and capital loss carryforwards from prior years.

Employment Tax Withholding Obligation

From 2003 through early 2006, the Company paid certain cash bonuses to management and other employees. Members of senior management during that time and other employees also exercised warrants to purchase shares of our Common Stock between 2003 and 2006 that had previously been granted to them. The payment of cash bonuses and exercise of warrants trigger tax withholding obligations by us related to the employees’ share of federal income tax, state income tax and Social Security charges on the compensation associated with the bonuses and warrants. We also must remit to applicable taxing authorities the employer’s share of Social Security and other payroll related taxes.

We have determined that income and other payroll related taxes were not withheld and remitted by us to the taxing authorities when those bonuses were paid and, with one exception, when the warrants were exercised. We self-reported these apparent violations to the relevant taxing authorities, including the Internal Revenue Service.

As of December 31, 2006, 2005, 2004 and 2003, we have recognized Employment Tax Withholding Obligations, including applicable penalties, related to this matter totaling $36.5, $32.1, $29.7 and $0.7 million, respectively, in the accompanying consolidated balance sheets. The related income statement charges totaling $4.4, $2.4, $29.0 and $0.7 million have been recorded in each of the years ended December 31, 2006, 2005, 2004 and 2003, respectively.

We do not believe that we will be required to discharge the liability of former senior management personnel for income tax withholding obligations. Moreover, to the extent that we are required to discharge employee income tax withholding obligations for other current and former employees, management intends to seek recovery of those amounts from the affected employees. In July 2006, Mr. Brooks signed a Release Agreement and Contractual Undertaking with us in which he represented, warranted and covenanted that he has paid or will pay all taxes (including without limitation federal and state, Social Security, Medicare, FICA or other withholding taxes or similar amounts) attributable to personal income received by him from us, including any fines, penalties or back taxes incurred by us solely as a result of personal income paid to him. We intend to pursue recovery from Mr. Brooks for any of the foregoing amounts ultimately due and payable by us, if any, to the taxing authorities. At December 31, 2006, the income tax withholding obligations that may be recoverable from current and former employees were $34.2 million (including $30.4 million from Mr. Brooks, $1.1 million from Ms. Schlegel and $1.5 million from Ms. Hatfield). The employer’s share of the employment tax withholding obligations was approximately $1.5 million, at December 31, 2006, and accrued penalties were approximately $0.8 million.

During 2007, the statute of limitations for the 2003 income tax withholding obligations expired and accordingly the charge and related liability originally recorded during 2003 (totaling $0.7 million) will be reversed during 2007.

Liquidity and Capital Resources

We intend to fund our cash requirements with cash flows from operating activities and, when necessary, borrowings under our revolving credit facility. We believe these resources should be sufficient to meet our cash

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needs for the foreseeable future. As of December 31, 2006, our working capital was approximately $19.3 million compared to $1.6 million at December 31, 2005, $44.3 million at December 31, 2004, and $48.8 million at December 31, 2003. The decrease in working capital from 2004 to 2005 is due to our establishing, in 2005, a reserve for the settlement of the class action lawsuit and related derivative action. Cash needs may fluctuate due to our policy of purchasing certain raw materials in advance when available to safeguard against shortages and credit terms given by us to our customers.

The accounts receivable days outstanding increased to 55 days at December 31, 2006, as compared to 44 days at December 31, 2005. This increase was primarily the result of lower sales volume to the U.S. military and federal government, from whom we typically collect receivables faster compared to our state and local law enforcement customers.

In order to meet the demands for working capital, we maintain a revolving credit facility with a major financial institution, which facility is secured by substantially all of our assets. The purpose of this revolving credit facility is to provide liquidity when needed on a short term basis. Our major material suppliers’ payment terms are normally 30 days from date of purchase. Our accounts receivable collections are typically 15 to 30 days longer. Any shortfall in working capital will result in us utilizing our revolving credit line to maintain liquidity.

Originally, the terms of the Loan and Security Agreement included both affirmative and negative covenants that are customary for a financing of this nature. Those covenants required us, among other things, to maintain a minimum (1) tangible net worth, (2) fixed charge coverage ratio and (3) minimum earnings before interest, taxes, depreciation and amortization. The agreement also contained certain restrictive covenants that limited our ability to pay dividends to common stockholders or repurchase treasury shares and that limited the amount of our capital expenditures to $2 million during any given year. Those restrictive covenants required us to obtain prior approval from the bank before paying Common Stock dividends or repurchasing treasury shares.

On April 12, 2006, we received a Notice of Events of Default and Reservation of Rights from the lender under the revolving credit facility. The notice asserted that certain events of default existed under the Loan and Security Agreement as a result of (1) the announcement by us that investors should no longer rely on our previously issued interim financial statements for 2005 and that we would not timely file our Annual Report on Form 10-K for the fiscal year ended December 31, 2005, (2) our announcement of the notification received from the American Stock Exchange of our failure to satisfy certain continuing listing standards and (3) our failure to deliver copies of the disclosure contained in our Current Reports on Form 8-K filed on April 3, 2006, and April 7, 2006, and related notices to the lender.

On April 3, 2007, we entered into an Amended and Restated Loan and Security Agreement with the lender. This amended agreement provides for a three-year, $35 million revolving credit line available to our subsidiaries, jointly and severally, bearing interest at the Prime Rate plus 0.25% or, at our option, LIBOR plus 2.25%. Borrowings are available in the form of advances or letters of credit granted or issued against a percentage of our subsidiaries’ eligible accounts receivable and eligible inventory. The amended and restated agreement also includes financial covenants related to minimum sales and maximum capital expenditures, and further provides that on or prior to December 31, 2007, or if we maintain an available balance of $15 million under the amended agreement for each day between October 1, 2007, and June 29, 2008, then as late as June 29, 2008, we will agree to additional financial covenants including a (1) senior leverage ratio, (2) total leverage ratio, (3) minimum tangible net worth, (4) fixed charge coverage ratio and (5) minimum consolidated earnings before interest, taxes, depreciation and amortization. The revolving credit line is secured by substantially all of our assets.

Our capital expenditures in 2006 were approximately $0.5 million as compared to approximately $0.7 million during 2005, $1.4 million during 2004 and $0.7 million during 2003. We believe capital expenditures are necessary and reasonable to maintain optimal efficiency in our manufacturing processes.

Our capital budget is intended to replace fixed asset equipment as needed and to take advantage of technological improvements that would improve productivity. Our capital expenditures for 2006 are indicative of

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our routine annual commitment to periodic replacement and equipment upgrades. We believe that our existing revolving credit line, together with funds generated from operations, will be adequate to sustain our operations, including anticipated capital expenditures, for the foreseeable future. There can be no assurance that we will be able to obtain further increases if needed. We may be required to explore other potential sources of financing (including the issuance of equity securities and, subject to the consent of our lender, other debt financing) if we experience escalating demands for our products. However, there can be no assurance that such sources will be available or, if available, provide terms satisfactory to us.

For fiscal 2006, 2005, 2004 and 2003, net cash flows from operating activities were ($21.6) million, $33.5 million, ($8.7) million and $0.7 million, respectively The fluctuations in cash flows from year to year is primarily a function of changes in inventory, accounts receivable and accounts payable.

Fiscal 2005 operating cash flows were positive despite a net loss for the year of ($28.1 million). The operating results for 2005 reflect a charge to earnings of $20.9 million for equity-based compensation, a provision for vest replacement of $9.7 million and a provision for the securities class action lawsuit of $39.4 million, which was partially offset by $12.9 million receivable from our insurers. These non-cash expenses did not impact operating cash flows for the year.

Fiscal 2006 cash flows were impacted positively by the collection of the above mentioned receivable from our insurers, while cash from operating activity was reduced by funding $35.2 million of restricted cash.

For fiscal 2006, 2005, 2004 and 2003, net cash provided from financing activities were $20.4 million, ($32.0) million, $10.1 million, and ($0.1) million respectively. Financing cash flows for 2006 include the issuance of contingently redeemable stock of $19.3 million. Other significant financing cash flows for the four years in the period ended December 31, 2006, related to cash borrowed and repaid on bank loans, related party loans, and lines of credit.

We anticipate that cash flows from operating activity will continue to fluctuate in future periods and that the line of credit will continue to be a our primary source of cash during periods of negative cash flow from operations.

Inflation and Changing Prices

Our profitability is dependent, among other things, on our ability to anticipate and react to changes in the cost of key operating resources, including labor and raw materials. Substantial increases in costs and expenses could impact our operating results to the extent that such increases cannot be passed along to customers. While we have taken steps to mitigate our risk to rising prices via prudent purchasing practices and inventory management techniques, there can be no assurance that future supplies of raw materials and labor will not fluctuate due to market conditions outside of our control.

Certain operating costs such as taxes, insurance and other outside services continue to increase at or above the general rate of inflation, and we may be subject to other cost and supply fluctuations outside of our control.

While we have been able to react to inflation through effective negotiation of increased prices in our sales contracts, efficient purchasing practices and constant management of our raw materials inventory levels, there can be no assurance that we will be able to do so in the future. Additionally, competitive market conditions could limit our ability to pass on cost increases to our customers.

Off-Balance-Sheet Arrangements

As of December 31, 2006, we did not have any off-balance-sheet-arrangements.

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Contractual Obligations

The following table presents our estimated cash requirements for contractual obligations outstanding as of December 31, 2006.

Payment Due by Period

(Dollars in Thousands)

Contractual Obligations	Less than 1 year		2 – 3 years		4 – 5 Years		After 5 years		Total
Operating Leases	$	2,179	$	4,428	$	3,791	$	2,884	$	13,282
Revolving line of credit		8,425		—		—		—		8,425
Class action litigation settlement		35,200		—		—		—		35,200
Accounts payable		17,626		—		—		—		17,626
Commissions		322		—		—		—		322
Payroll and related taxes		3,713		—		—		—		3,713
Purchase commitments		67,468		—		—		—		67,468
Total Contractual Obligations	$	134,933	$	4,428	$	3,791	$	2,884	$	146,036

Forward-Looking Statements

Certain statements made in this Annual Report on Form 10-K that are not statements of historical or current facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from historical results or from any future results expressed or implied by such forward-looking statements.

In addition to statements that explicitly describe such risks and uncertainties, readers are urged to consider statements in future or conditional tenses or that include terms such as “believes,” “belief,” “expects,” “intends,” “anticipates” or “plans” to be uncertain and forward-looking. Forward-looking statements may include comments as to our beliefs and expectations as to future events and trends affecting our business. Forward-looking statements are based upon management’s current expectations concerning future events and trends and are necessarily subject to uncertainties, many of which are outside of our control. The factors set forth in Item 1A—RISK FACTORS, as well as other factors, could cause our actual results to differ materially from those reflected or predicted in forward-looking statements.

If one or more of these or other risks or uncertainties materialize, or if the underlying assumptions prove to be incorrect, actual results may vary materially from those reflected in or suggested by forward-looking statements. Any forward-looking statement you read in this Annual Report on Form 10-K reflects our current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. All subsequent written and oral forward-looking statements attributable to us or individuals acting on our behalf are expressly qualified in their entirety by this paragraph. You should specifically consider the factors identified in this Annual Report on Form 10-K that would cause actual results to differ from those referred to in forward-looking statements.

Any forward-looking statements are based on management’s beliefs and assumptions, using information currently available to us. We assume no obligation, and do not intend, to update these forward-looking statements.

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Critical Accounting Policies

We believe that our critical accounting policies include:

Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and contingent assets and liabilities in the financial statements and accompanying notes. Actual results could differ materially from these estimates. Critical estimates made by us include, but are not limited to, the liability for the Zylon vest replacement program, equity-based compensation expense, the liability for payroll taxes, the provision for income taxes, the cost of litigation in connection with the reserve for class action/derivative lawsuits and the provision for excess and obsolete inventory.

Revenue recognition—We recognize revenue when it is realized or realizable and has been earned. Product revenue is recognized when persuasive evidence of an arrangement exists, the product has been delivered and legal title and all risks of ownership have been transferred, written contract and sales terms are complete, customer acceptance has occurred and payment is reasonably assured. Returns are minimal and do not materially affect our consolidated financial statements.

Inventories—Inventories are stated at the lower of cost (determined on the first-in, first-out basis) or market. An allowance for potential non-saleable inventory due to excess stock or obsolescence is based upon a detailed review of inventory components, past history, and expected future usage.

Accounting Change—Stock Compensation —We adopted Statement of Financial Accounting Standards No. 123R, “Share Based Payment” (SFAS 123R), which revises SFAS No. 123, “Accounting for Stock Based Compensation” (SFAS 123) and supersedes Accounting Principles Board Opinion 25, “Accounting for Stock Issued to Employees” (APB 25). SFAS 123R requires that new, modified and unvested equity-based payment transactions with employees, such as stock options (which we refer to as warrants) and restricted stock, be recognized in our consolidated financial statements based on their fair value and be recognized as compensation expense over the service period, in our case, the vesting period. We adopted SFAS 123R using the modified retrospective method. The fiscal years prior to 2005 have been restated to reflect the amounts previously calculated and reported in the pro forma footnote disclosures since 1994.

Income taxes—We use the asset and liability approach to account for income taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax bases using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period when the change is enacted. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Judgments and estimates underlying our accounting policies vary based on the nature of the judgment or estimate. We use judgments and estimates to determine our allowance for doubtful accounts, which are determined through analysis of the aging of the accounts receivable at the date of the consolidated financial statements, assessments of collectibles based on an evaluation of historic and anticipated trends, the financial condition of customers and an evaluation of the impact of economic conditions. We also use judgments and estimates to determine the valuation allowances on our deferred tax assets to establish reserves for income taxes, each of which relate to our income taxes critical accounting policy. We base these estimates on projections of future earnings, effective tax rates and the impact of economic conditions. These judgments and estimates are based upon empirical data as applied to present facts and circumstances. Judgments and estimates are susceptible to change because the projections that they are based upon do not always turn out to be correct and unanticipated issues may arise that are not considered in our assumptions.

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New Accounting Standards Implemented

In December 2004, the FASB issued SFAS 123R. This statement replaces SFAS 123 and supersedes APB 25. SFAS 123R requires all equity-based compensation to be recognized as an expense in our financial statements and that such cost be measured according to the fair value of the equity-based payment award, which we refer to as warrants. We have adopted SFAS 123R and have restated all periods to record the equity-based compensation expense on all warrants issued. See Note 1 to our Consolidated Financial Statements.

New Accounting Standards Not Yet Adopted

In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48), which defines the threshold for recognizing the benefits of tax return positions in the financial statements as “more-likely-than-not” to be sustained by the taxing authority. A tax position that meets the “more-likely-than-not” criterion shall be measured at the largest amount of benefit that is more than 50% likely of being realized upon ultimate settlement. FIN 48 applies to all tax positions accounted for under SFAS 109, “Accounting for Income Taxes,” and is effective for fiscal years beginning after December 15, 2006. Upon adoption, companies are required to adjust their financial statements to reflect only those tax positions that are more-likely-than-not to be sustained as of the adoption date, with any adjustment recorded directly to the beginning retained earnings balance in the period of adoption and reported as a change in accounting principle. We believe the effects of adopting FIN 48 will not have a material impact on our financial statements.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS 157). SFAS 157 provides a definition of fair value, establishes acceptable methods of measuring fair value and expands disclosures for fair value measurements required under other accounting pronouncements, but does not change existing guidance as to whether or not an instrument is carried at fair value. SFAS 157 is effective for our fiscal years beginning after November 15, 2007. We do not expect the adoption of SFAS 157 to have a material impact on our financial statements.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We do not issue or invest in financial instruments or their derivatives for trading or speculative purposes. Our market risk is limited to fluctuations in interest rates pertaining to our borrowings under our $35 million Amended and Restated Loan and Security Agreement. We therefore are exposed to market risk from changes in interest rates on funded debt. We can borrow at either the Prime Rate plus 0.25% or LIBOR plus 2.25%. Any increase in these reference rates could adversely affect our interest expense. Our current credit agreement provides for the establishment of performance pricing to be established at a future date. The change in the interest rates for 2006 was immaterial. The extent of market rate risk associated with fluctuations in interest rates is not quantifiable or predictable because of the volatility of future interest rates and business financing requirements. We use no derivative products to hedge or mitigate interest rate risk.

We purchase materials for use in our products based on market prices established with our suppliers. Many of the materials purchased can be subject to volatility due to market supply and demand factors outside our control. To mitigate this risk, in part, we attempt to enter into fixed price purchase agreements with reasonable terms.

Based on the outstanding balance on our revolving line of credit as of December 31, 2006, a 1% increase in interest rates would cost us approximately $0.1 million annually.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Index to Consolidated Financial Statements appearing in our consolidated financial statements annexed hereto.

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

On April 8, 2005, we were notified that Weiser LLP (“Weiser”) had declined to stand for re-election as our principal independent accountants.

During the fiscal years ended December 31, 2003 and 2004, the opinion of Weiser did not contain an adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the 2003 and 2004 fiscal years and through April 8, 2005, there were no disagreements with Weiser on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreement, if not resolved to the satisfaction of Weiser would have caused Weiser to make reference to the subject matter of the disagreement in connection with its reports except as follows:

On March 16, 2005, after the close of business, we transmitted our annual report on Form 10-K for the year ended December 31, 2004 (the “2004 10-K”) for filing with the SEC on March 17, 2005. Shortly before we transmitted the 2004 10-K, representatives of Weiser called to inform us that Weiser had not completed its final review of the last revisions to the Form 10-K and accordingly had not yet released its audit report for filing. Despite Weiser’s call, the 2004 10-K was forwarded for filing. On March 17, 2005, before the opening of business, we, in consultation with Weiser, amended the Form 10-K by filing a Form 10-K/A (the “2004 10-K/A”) to include the revisions to our financial statements requested by Weiser and certain other changes and Weiser released its audit report for filing. Such revisions were to amend certain financial information including the Note Payable-Bank, on the consolidated balance sheet, and the related footnote, Note 6-Note Payable-Bank, as well as the discussion of the Note Payable-Bank in Liquidity and Capital Resources, Note 2 Supplemental Cash Flow Information, Note 9 Stockholders Equity, and to correct the omission of the 2004 amount on the line titled “Accounts receivable” under the caption “Cash Flows from Operating Activities” in the Consolidated Statement of Cash Flows. Representatives of Weiser discussed the subject matter of this issue with members of our Audit Committee and Board of Directors.

During our two most recent fiscal years and through April 8, 2005, Weiser did not advise us of any “reportable events” as listed in Item 304(a)(1)(v)(A)-(D) of Regulation S-K adopted by the SEC except that Weiser has advised us that, in its view, there existed certain deficiencies in our system for pricing certain inventory and there exists a need to enhance and strengthen our Audit Committee in order to improve the Committee’s effectiveness.

On April 15, 2005, we filed a Form 8-K under Item 4.02, which was amended on April 22, 2005, disclosing the facts surrounding Weiser’s declining to stand for re-election as our principal independent accountants. The information contained in the Form 8-K filed on April 15, as amended on April 22, 2005 is incorporated herein by reference.

As noted previously, this Annual Report on Form 10-K contains restated consolidated financial information for our years ended December 31, 2003 and 2004. In addition, please see Item 9A—CONTROLS AND PROCEDURES for a discussion on our internal control over financial reporting.

Item 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”), as of December 31, 2006. Our principal executive and financial officers supervised and participated in the evaluation. Based on the evaluation, our principal executive and financial officers each concluded that, as of December 31, 2006, due to the material weaknesses in our internal control over financial reporting described below, our

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disclosure controls and procedures were not effective in providing reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s form and rules.

Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Our internal control over financial reporting includes those policies and procedures that:

i. pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

ii. provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

iii. provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting can also be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may be inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis.

Management’s Report on Internal Control over Financial Reporting

Our management concluded that we did not maintain effective internal control over financial reporting at December 31, 2006. In arriving at that conclusion, we considered the criteria established in Internal Control—Integrated Framework issued by the Commission of Sponsoring Organizations of the Treadway Commission (“COSO”, the “Framework”), but did not perform a complete assessment as outlined in Commission Guidance Regarding Management’s Report on Internal Controls Over Financial Reporting under Section 13(a) or 15(d) of the Securities and Exchange Act of 1934 (the “Act”). In performing our assessment, we performed an incomplete entity level risk assessment, as well as an incomplete review of financial application and general computer controls. The events and circumstances that took place during 2006 as follows, and the material weaknesses identified below, led us to arrive at that conclusion without performing a complete assessment in accordance with the criteria established in the Framework.

1. On March 15, 2006, our independent registered public accountants informed our former Chairman of the Audit Committee of the Board of Directors that they had begun an investigation as to whether a likely illegal act had occurred as required under Section 10A of the Act. As a result, management, at the direction of the then Audit Committee began an investigation of its own.

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2. During 2006, we experienced significant turnover of key positions, including the following:

a. Mr. David H. Brooks, Chief Executive Officer and Chairman of our Board of Directors, resigned;

b. Ms. Dawn M. Schlegel, Chief Financial Officer and a Director, resigned;

c. Mr. Jerome Krantz resigned as Director and Chairman of the Audit Committee;

d. Mr. Barry Berkman resigned as Director;

e. The corporate accounting and finance function, previously located in Long Island, New York, was relocated to Pompano Beach, Florida; by the end of 2006, all of the corporate accounting and finance staff who were employed at the beginning of 2006 had left us; and

f. The accounting personnel at our subsidiaries also experienced 100% turnover during 2006.

In addition, effective February 28, 2007, Mr. Cary Chasin and Mr. Gary Nadelman resigned as Directors.

3. There were allegations of numerous errors and misstatements in our previously-issued financial statements, and we conducted an internal review of each of these matters. This review was not completed until September 2007.

4. Based on the on going review of our previously-issued financial statements and preliminary findings, we announced that our consolidated financial statements for all periods subsequent to December 31, 2002, as filed with the SEC, should not be relied upon.

5. In connection with the restatement of our consolidated financial statements for the years ended December 31, 2004 and 2003, and the selected quarterly financial information for each of the quarters of 2005, 2004 and 2003 and the consequent delays in the filing of our subsequent reports, we fell significantly behind in our SEC reporting obligations. As a result, our internal control over financial reporting was subject to significant stress and demands largely related to the extraordinary amount of work related to our efforts to file the delayed reports coupled with our limited human resources.

6. We concluded that the errors and misstatements in the previously issued consolidated financial statements were primarily the result of actions directed by certain former management personnel and an ineffective entity level control environment which, among other things, permitted the following to occur:

a. recording of improper accounting entries as directed by certain personnel;

b. inappropriate override of, or interference with, existing policies, procedures and internal controls;

c. withholding information from, and providing of improper explanations and supporting documentation to, our Audit Committee and Board of Directors, as well as our independent public accountants; and

d. discouraging employees from raising accounting-related concerns and suppressing accounting related inquiries and allegations that were made.

7. We were not able to prepare and file our consolidated financial statements with the Securities and Exchange Commission on a timely basis for any period following the third quarter of 2005.

As of December 31, 2006, we identified the following material weaknesses in our internal control over financial reporting:

1. We did not design and maintain effective controls, including monitoring controls, over our financial close and reporting process. Specifically, the following material weaknesses were identified:

a. We did not design effective controls to allow for complete and accurate financial statement information to be presented to management and the Board of Directors for their review on a timely and recurring basis.

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b. We did not maintain a sufficient complement of personnel with an appropriate level of knowledge, experience and training in the application of GAAP and internal control over financial reporting. Specifically, we did not maintain sufficient personnel to assist the Chief Accounting Officer with the analysis and review of complex transactions and accounting pronouncements, including stock compensation and income tax matters.

c. We did not maintain or adequately disseminate accounting policies and procedures in certain critical areas to allow personnel to analyze completely and accurately transactions in order to determine their appropriate accounting treatment under GAAP.

2. We did not maintain effective controls over the following:

a. Recording inventories at cost, and over valuation of provisions for excess and obsolete inventories;

b. Appropriate recording of vendor rebates;

c. Recording of transfers of inventories to subcontractors;

d. Classification of research and development costs and marketing expenses;

e. Recording and disclosure of stock compensation;

f. Accounting for, reporting and disclosure of payroll tax obligations;

g. Disclosure of related party transactions and balances; and

h. Accounting for and protection of certain assets from misappropriation.

3. We were not able to perform a complete assessment of internal control over financial reporting as outlined in Section 13(a) or 15(d) of the Act.

Remediation of Material Weaknesses

We are actively implementing remediation measures to improve our internal control over financial reporting and disclosure controls and procedures. We are developing a remediation plan and have implemented numerous changes in our internal control over financial reporting and are in the process of continuing to improve our internal controls over financial reporting. We expect that the completion of our delayed consolidated financial statements and filings with the SEC during 2007 will enable us to devote our resources to a more efficient regular financial close and reporting process, with the benefit of enhanced internal controls.

The following describes the changes to our internal control over financial reporting prior to December 31, 2006 that materially affected our controls over financial reporting.

1. During 2006, we hired a new accounting and finance team, including a new Chief Accounting Officer. The Chief Accounting Officer is primarily responsible for the development and implementation of our accounting policies and practices and is in charge of reviewing and monitoring critical accounts and transactions to ensure that they are recorded in accordance with GAAP and our accounting policies and practices.

2. We designed and implemented controls to ensure an adequate valuation of excess and obsolete inventories on a quarterly basis.

3. We began to implement controls to ensure that our valuation of inventory and evaluation of excess and obsolete inventory reserves are performed. Although we began to implement these controls prior to the closing of the accounting records for the year ended December 31, 2006, we are still in the process of testing their effectiveness.

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The following describes the changes planned (or already made) to our internal control over financial reporting subsequent to December 31, 2006, which are reasonably likely to materially affect, our internal control over financial reporting.

1. We adopted a new Code of Conduct, based on a review of best practices, covering directors, officers and employees.

2. We completed an “Ethics Line” (whistleblower) policy, with toll-free call-in feature handled through an independent service provider reporting to the General Counsel and the Chair of the Audit Committee.

3. We substantially reconstituted our Board of Directors by appointing five new highly qualified independent directors, all of whom were identified through an independent search process and none of whom had any connection to incumbent board members or our former management. In addition, the Board of Directors populated the Audit, Compensation, and Nominating/Governance Committees of the Board, in each case with non-affiliated directors having appropriate expertise.

4. We hired a Chief Financial Officer.

5. We are implementing a comprehensive replacement of information systems in order to promote greater efficiency and to minimize the potential for manipulation of business processes, accounting records and internal communications. Areas being placed within the new integrated systems and control environment, include invoicing/sales/accounts receivable, inventory and procurement (includes development of an automated perpetual inventory system that represents an improvement over the former manual system, in terms of accuracy, control, consistency and efficiency), general ledger, payroll, accounts payable and fixed assets.

6. We are developing a comprehensive internal finance and accounting manual, setting forth formal accounting requirements and financial disclosure policies to be applied on a consistent basis.

7. We are developing formal internal approval processes for all significant nonordinary transactions, including all related party transactions.

8. We are developing formal accounting procedures to review and monitor critical accounts and transactions on a timely basis to ensure that financial statements are accurately prepared and reviewed.

9. We designed and implemented controls to ensure an adequate valuation of provisions for excess and obsolete inventories on a quarterly basis.

10. We are implementing procedures to ensure that the accounting and disclosure for employee stock options and the related compensation and benefit expense is performed in accordance with GAAP. The enhancements include, among others, the creation of a formal log of outstanding stock options and the redesign of the accounting and reporting process related to employee stock options.

11. During 2006, we retained an independent accounting firm to perform our tax functions. We believe this firm has the appropriate level of competence to perform these services and the scope and nature of their work is subject to management oversight.

12. We are in the process of reestablishing a recurring financial close and reporting process. As part of this process, we are strengthening current controls over the financial close and reporting process and using process-reengineering techniques and technology to simplify the accounting closing process and implement additional controls. These include, among others:

a. redistributing accounting and reporting tasks by functional teams and areas of expertise rather than by reporting entity;

b. enhancing the documentation and dissemination of accounting policies, including policies for the determination and support of material accounting conclusions, assumptions and estimates, and the timing and levels of supervision over the reconciliation of balance sheet accounts; and

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c. implementing formal communication channels between the business and functional departments and the accounting function in order to ensure timely and accurate communication of the existence and nature of recurring and non-recurring transactions.

Our management believes that the remediation and other efforts described above have improved and will continue to improve our internal control over financial reporting and our disclosure controls and procedures. During 2007, our management, with the oversight of the Audit Committee, will continue to take steps to remedy the identified material weaknesses in our internal control over financial reporting as expeditiously as possible.

Despite our assessment that our system of internal control over financial reporting is ineffective and the list of material weaknesses identified above, we believe that our consolidated financial statements contained in this Annual Report on Form 10-K filed with the SEC fairly present our financial condition, results of operations and cash flows for all years covered thereby in all material respects and we received an unqualified audit report from our independent registered public accountants on those consolidated financial statements.

Changes in Internal Control over Financial Reporting

Changes in our internal control over financial reporting during the quarter ended December 31, 2006 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting are as described above.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Board of Directors and Stockholders

DHB Industries, Inc.

We have audited the internal control over financial reporting of DHB Industries, Inc. and subsidiaries (the Company) as of December 31, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exits, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable

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assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of internal control over financial reporting to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The following material weaknesses have been identified and included in management’s assessment:

• Lack of effective controls, including monitoring controls, over financial close and reporting process.

The Company did not design effective controls to allow for complete and accurate financial statement information to be presented to management and the Board of Directors for their review on a timely and recurring basis. In addition, the Company did not maintain a sufficient complement of personnel with an appropriate level of knowledge, experience and training in the application of accounting principles generally accepted in the United States of America and internal control over financial reporting, nor did the Company maintain sufficient personnel to assist the Chief Accounting Officer with the analysis and review of complex transactions and accounting pronouncements, including stock compensation and income tax matters.

Moreover, the Company did not maintain or adequately disseminate accounting policies and procedures in certain critical areas to allow personnel to analyze completely and accurately transactions in order to determine their appropriate accounting treatment under accounting principles generally accepted in the United States of America in conformity with effective controls over various account balances and classes of transactions

The ineffective controls affected the accounting regarding recording inventories at cost, and over valuation of provisions for excess and obsolete inventories; appropriate recording of vendor rebates; recording of transfers of inventories to subcontractors; classification of research and development costs and marketing expenses; recording and disclosure of stock compensation; accounting for, reporting and disclosure of payroll tax obligations; disclosure of related party transactions and balances; and accounting for and protection of certain assets from misappropriation.

• Inability to perform a complete assessment of internal control over financial reporting.

These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audits of the consolidated financial statements of the Company as of and for the years ended December 31, 2006, 2005, 2004 and 2003 and this report does not affect our report on such financial statements.

In our opinion, because of the effect of the material weaknesses described above on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2006, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

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We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of the Company as of and for the years ended December 31, 2006, 2005, 2004 and 2003, and our report dated September 28, 2007 expressed an unqualified opinion on those financial statements and includes explanatory paragraphs as to the restatement of the Company’s consolidated financial statements for the years ended December 31, 2004 and 2003 described in Note 2, the adoption of Statement of Financial Accounting Standards No. 123R, “Share Based Payment,” described in Note 1, and the omission of the selected quarterly financial data for each quarter for the years ended December 31, 2006 and 2005 that are required by the rules and regulations of the U.S. Securities and Exchange Commission.

/s/ RACHLIN COHEN & HOLTZ LLP

Fort Lauderdale, Florida

September 28, 2007

Item 9B. OTHER INFORMATION.

Not applicable.

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PART III

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

During 2006, we had extensive turnover in our management and Board of Directors. Our former Chairman and CEO and former CFO (both of whom were also directors) and our former COO, as well as additional members of the Board of Directors, resigned.

Given the changes in management, the ongoing investigations discussed in Item 3—LEGAL PROCEEDINGS and the related material weaknesses in our system of internal controls discussed in Item 9A—CONTROL AND PROCEDURES, since 2006 we have embarked on an overhaul of our policies and practices relating to corporate governance, internal controls and procedures and accounting and reporting. These policies and practices include the following:

• A majority of the Board’s members are independent of our management.

• All members of the Board’s committees—the Audit Committee, the Compensation Committee and the Nominating and Governance Committee—are independent of our management.

• The non-management members of the Board meet regularly outside of the presence of management.

• We have established a code of business conduct and corporate governance policies that are monitored by our internal legal department and appropriate committees of the Board.

• The Board and each Board committee are committed to undertaking a periodic self-evaluation.

Our Audit Committee has procedures in place for the anonymous submission of employee complaints on accounting, internal controls or auditing matters.

We have adopted a Code of Ethics that applies generally to all employees and specifically to our principal executive officer and all members of our finance department, including our principal financial officer and principal accounting officer. A copy of our Code of Ethics is available to anyone free of charge upon request by writing us at our principal executive offices.

Our finance department maintains oversight over the key areas of our business and financial processes and controls and has access directly to the Audit Committee.

Directors

Our Board of Directors has seven members, each of whom serves a term of one year or until his or her respective successor has been elected and duly qualified.

Certain information regarding each of our current directors, including his or her principal occupation during the past five years and current directorships, is set forth below.

Larry Ellis, age 61, joined the Board of Directors in December 2004. He became President of the Company in 2005 and assumed the role of Chief Executive Officer in July 2006. In addition, he serves on the board of SRA International. Mr. Ellis served in the U.S. Army for over 35 years, holding positions of increasing responsibility before retiring in 2004 as Commanding General of United Sates Army Forces Command in Atlanta, Georgia. During his career, he oversaw multi-year, multi-billion-dollar programs and directed the development of comprehensive strategic plans supporting the Army’s mission. He also coordinated extensive operations and training programs in Germany, South Korea, and Bosnia. Between 2001 and 2004, Mr. Ellis orchestrated the mobilization and deployment of over 500,000 soldiers and more than a million tons of equipment to locations worldwide.

Senator (Ret.) William Campbell, age 72, joined the Board of Directors in May 2006 and was named Chairman of the Board of Directors in July 2006. Senator Campbell served in the California legislature for 22 years, including 14 years as a state senator. During his legislative career, Campbell held a number of distinguished positions,

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including Chairman of the Joint Legislative Budget Committee, Minority Floor Leader, and member of the Senate Rules Committee. In 1990, he retired from the Senate and became President of the California Manufactures Association and in 1998 became President Emeritus. In April 2000, he founded William Campbell & Associates, where he serves as President. Senator Campbell is a member of the Compensation Committee.

David Bell, age 64, joined the Board of Directors on November 22, 2006. Mr. Bell is Chairman Emeritus of the Interpublic Group, a public company that is a leading organization of advertising agencies and marketing service companies, a position he as held since January 2005. Mr. Bell was Chief Executive Officer of Interpublic from 2003 to 2005, having joined Interpublic as Vice Chairman in 2001. Previously, Mr. Bell was Chairman and Chief Executive Officer of True North Communications Inc. Prior to that, he was the President and CEO of Bozell Worldwide. Mr. Bell joined Bozell in 1975 when the agency acquired Knox Reeves Advertising where he had been president since 1972. Mr. Bell is Chair of the Compensation Committee and a member of the Nominating and Governance Committee.

Jack A. Henry, age 63, joined the Board of Directors on November 13, 2006. Mr. Henry founded Sierra Blanca Ventures LLC, a private advisory firm, in 2000, prior to which he served as managing partner of the Phoenix office of Arthur Andersen, LLP, where he spent over 34 years in various consulting and managerial positions. Mr. Henry currently serves on the board of directors of White Electronic Designs Corporation, a provider of advanced technology solutions, and Vista Care Inc., a provider of hospice services in the United States, both public companies. He is president of the Arizona Chapter of the National Association of Corporate Directors (NACD) and is a NACD Certified Director. Mr. Henry is Chair of the Audit Committee.

Maurice (Maury) Hannigan, age 66, joined the Board of Directors on November 22, 2006. Mr. Hannigan served thirty-one years with the California Highway Patrol (CHP) rising through the ranks to be appointed the Department’s Commissioner from 1989 - 1995. His term as Commissioner included service as General Chair of the State and Provincial Police Division of the International Association of Chiefs of Police, Chair of the US DOT / NAFTA Southwest Border States Law Enforcement Implementation Committee, and President of the California Peace Officers Association, and in several other capitates as a public safety advocate. Following his retirement from the CHP, Mr. Hannigan was a consultant to the National Safety Council, public commissions, and other entities in both the private and public sector. From 2001 - 2006 he served as Vice President / Managing Director of Affiliated Computer Services Public Safety Solutions group in Washington, D.C. He presently serves on the Board of Directors of the FBI’s National Executives Institute Associates. Mr. Hannigan is a member of the Audit and Compensation Committees.

Suzanne Hopgood, age 58, joined the Board of Directors on March 1, 2007. Ms. Hopgood is the President and CEO of The Hopgood Group, a business and workout consulting group she founded in 1985. She is a designated financial expert and has served on the boards of four public companies, as chairman of the board for two companies and as the CEO of two companies. She currently serves on the board of Acadia Realty Trust (NYSE: AKR) as chair of the Nominating/Governance Committee and as a financial expert on the Audit Committee. Ms. Hopgood is a member of the teaching faculty of the National Association Corporate Directors (NACD) and is an NACD Certified Director. Prior to founding The Hopgood Group, Ms. Hopgood was responsible for a $1 billion equity real estate portfolio for Aetna Realty Investors. Ms. Hopgood is Chair of the Nominating and Governance Committee and a member of the Audit Committee.

General Martin R. Berndt (Retired), age 59, joined the Board of Directors on March 1, 2007. General Berndt retired in 2005 after a thirty-six year career in the U.S. Marine Corps where he commanded U.S. Marine Corps Forces Atlantic, South and Europe; U.S. Marine Corps Bases, Atlantic; and U.S. Fleet Marine Forces Atlantic and Europe. General Berndt was commissioned a Second Lieutenant in the U.S. Marine Corps upon graduation from West Chester University in 1969. During his career he served in Vietnam, Panama, Germany and Bosnia. He serves as a Senior Mentor of the U.S. Marine Corps Staff Training Program and in a similar capacity for the Joint Forces Command. He also serves as a member of the “CorpStrategy” team under the sponsorship of the Institute for Defense and Business, University of North Carolina, Chapel Hill and is a member

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of the Onslow County Military Affairs Committee. He serves as a board member for the Governor’s North Carolina Military Foundation and a privately owned company in Northern Virginia. General Berndt is a member of the Nominating and Governance Committee.

The Board of Directors has adopted standards for director independence for determining whether a director is independent from management. These standards are based upon the listing standards of the AMEX. The AMEX’s independence definition includes a series of objective tests, such as that the director is not an employee of the Company and has not engaged in various types of business dealings with the Company. Under AMEX rules, a majority of the directors serving on the Board must be independent. The Board of Directors has determined that all members of the Board of Directors other than Mr. Ellis are “independent” under Section 121 (A) of the listing standards of the AMEX.

Executive Officers

All officers serve at the discretion of the Board of Directors. Set forth below is certain information regarding our executive officers, except Mr. Ellis, whose information is set forth above.

John C. Siemer, age 56, joined the Company in September 2006 as Chief Operating Officer—Chief of Staff. Prior to joining the Company, Mr. Siemer served as Special Assistant and Strategic Planner to the U.S. Army Chief of Staff where he advised on the use and allocation of resources. Previous to that, he served as Executive Officer to the Director of Program Analysis and Evaluation for the Department of the Army Headquarters. Mr. Siemer is also engaged in various charitable and community based non-profit activities. Mr. Siemer graduated from the U.S. Military Academy at West Point with a Bachelors of Science degree in Engineering and from the Georgia Institute of Technology with a Masters of Science in Structural Engineering.

Thomas Canfield, age 51, joined the Company in September 2006 as General Counsel and Secretary. Prior to that, Mr. Canfield served as CEO and Plan Administrator for AT&T Latin America Corp., a position he held since 2003, where he previously served as that organization’s General Counsel and Secretary. Prior to joining AT&T Latin America Corp., Mr. Canfield was an attorney with the law firm Debevoise & Plimpton LLP in New York. Mr. Canfield currently serves on the board of directors of Tricom S.A., a public company, and Birch Telecom, Inc. Mr. Canfield graduated from Wesleyan University with a B.A. in History and received his J.D. from Fordham Law School. Mr. Canfield has advised us of his resignation effective September 30, 2007, to take another position. Mr. Canfield has indicated that he will continue to assist us on various matters as requested after that date.

James F. Anderson, age 54, joined the Company in September 2006 as Senior Vice President and Chief Accounting Officer, and was appointed Interim Chief Financial Officer in December 2006 and Chief Financial Officer in July 2007. Prior to joining the Company, Mr. Anderson served as Senior Vice President and Corporate Controller for Danka Business Systems, PLC, Vice President and Corporate Controller of Sunterra Corporation, and Partner with KPMG LLP. Mr. Anderson is a Florida Certified Public Accountant and holds both a Masters of Accounting and Bachelors of Accounting from the University of Alabama.

Sam White, age 48, has been with the Company since 2001. He became the President of Point Blank Body Armor, Inc. in June, 2005 and in September 2006 assumed the position of Head of Global Sales of the Company. He has held various positions at the Company and Point Blank, including Vice President, responsible for Sales, Marketing and Research & Development.

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Compensation of Directors

The following table sets forth certain information with respect to the cash and other compensation paid or accrued by us for services rendered by the persons serving on our Board of Directors during the fiscal year ended December 31, 2006 that were not “Named Executive Officers,” as defined in Item 402(a)(3) of SEC Regulation S-K. The value recognized for financial statement reporting purposes with respect to 2006 is indicated in the chart below in the column entitled “Option Awards.”

Name	Fees Earned or Paid in Cash($)	Stock Awards($)	Option Awards($)		Non-Equity Incentive Plan Compensation($)	Change in Pension Value and Non-qualified Deferred Compensation Earnings($)	All Other Compensation($)	Total($)
Senator (Ret.) William Campbell(1)	—	—	$	52,088	—	—	—	$	52,088
Jack A. Henry(2)	—	—		9,374	—	—	—		9,374
David Bell(3)	—	—		7,105	—	—	—		7,105
Maurice Hannigan(4)	—	—		7,105	—	—	—		7,105
Barry Berkman (former director)(5)	—	—		67,771	—	—	—		67,771
Gary Nadelman (former director)(6)	—	—		67,771	—	—	—		67,771
Cary Chasin (former director)(7)	—	—		67,771	—	—	—		67,771
Jerome Krantz (former director)(8)	—	—		—	—	—	—		—

(1) Senator (Ret.) Campbell, who joined our board of directors on May 9, 2006 (grant date), was awarded 50,000 warrants to purchase shares of our common stock which had a grant date fair value of $52,088. As of December 31, 2006, he had 50,000 warrants outstanding.

(2) Mr. Henry, who joined our board of directors on November 13, 2006 (grant date), was awarded 6,986 warrants to purchase shares of our common stock which had a grant date fair value of $9,374. As of December 31, 2006, he had 6,986 warrants outstanding.

(3) Mr. Bell, who joined our board of directors on November 22, 2006 (grant date), was awarded 5,342 warrants to purchase shares of our common stock which had a grant date fair value of $7,105. As of December 31, 2006, he had 5,342 warrants outstanding.

(4) Mr. Hannigan, who joined our board of directors on November 22, 2006 (grant date), was awarded 5,342 warrants to purchase shares of our common stock which had a grant date fair value of $7,105. As of December 31, 2006, he had 5,342 warrants outstanding.

(5) Mr. Berkman, our former director, who resigned from the board effective December 31, 2006, was awarded 50,000 warrants to purchase shares of our common stock on November 9, 2006 which had a grant date fair value of $67,771. As of December 31, 2006, he had 175,000 warrants outstanding.

(6) Mr. Nadelman, our former director, who resigned from the board on February 28, 2007, was awarded 50,000 warrants to purchase shares of our common stock on November 9, 2006 which had a grant date fair value of $67,771. As of December 31, 2006, he had 150,000 warrants outstanding.

(7) Mr. Chasin, our former director, who resigned from the board on February 28, 2007, was awarded 50,000 warrants to purchase shares of our common stock on November 9, 2006 which had a grant date fair value of $67,771. As of December 31, 2006, he had 150,000 warrants outstanding.

(8) Mr. Krantz, our former director, who resigned from the board on May 9, 2006. As of December 31, 2006, he had 100,000 warrants outstanding.

On November 9, 2006, the Board of Directors determined to grant 50,000 warrants to acquire our shares of Common Stock to the then serving directors (other than Senator (Ret.) Campbell, who had previously been awarded a grant of 50,000 warrants upon joining the Board of Directors on May 18, 2006), and to award any

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individual joining the Board of Directors during the remainder of 2006 with a pro-rated award of 50,000 warrants based upon the number of days remaining in 2006 at the time such person joined the Board of Directors. The Board further determined that such awards to new members of the Board of Directors would be granted on the date that the individual joined the Board of Directors, with an exercise price that was equivalent to the closing trading price of our shares of Common Stock on such date.

Committees of the Board of Directors

The following discussion sets forth the various committees of our Board of Directors.

Audit Committee

We have a separately-designated standing Audit Committee that was established in accordance with Section 3(a)(58)(A) of the Exchange Act. The Audit Committee is comprised of three directors, including Mr. Henry (Chair), Mr. Hannigan and Ms. Hopgood. Our Board of Directors has determined that each member of the Audit Committee is “independent” under Section 121(A) of the listing standards of the AMEX.

Our Board of Directors has determined that Mr. Henry is an audit committee financial expert within the meaning of Item 407(d) (5) of SEC Regulation S-K. Stockholders should understand that this designation does not impose upon Mr. Henry any duties, obligations or liability that are greater than are generally imposed on him as a member of the Audit Committee and the Board, and his designation as an audit committee financial expert pursuant to this SEC requirement does not affect the duties, obligations or liability of any other member of the Audit Committee or the Board.

The Audit Committee operates under a written charter pursuant to which it, among other things, recommends to the Board of Directors the selection of our independent registered public accounting firm.

Compensation Committee—Interlocks and Insider Participation

The Compensation Committee operates under a written charter approved by the Board of Directors, and in the framework of our corporate governance policies. The Compensation Committee is comprised of three directors, including Mr. Bell (Chair), Sen.(Ret.) Campbell and Mr. Hannigan. The Compensation Committee is charged with determining and overseeing executive compensation pursuant to our executive compensation plan. (See “Compensation Discussion and Analysis,” below).

No member of the Compensation Committee (i) was, during the last fiscal year, an officer or employee of the Company; (ii) was formerly an officer of the Company; or (iii) had any relationship requiring disclosure under Item 404 of Regulation S-K. None of our executive officers serves as a member of the board of directors or compensation committee of any entity that has one or more executives serving on our Compensation Committee.

Nominating and Governance Committee

The Nominating and Governance Committee operates under a written charter approved by the Board of Directors and in the framework of our corporate governance policies. This committee is comprised of three directors, including Ms. Hopgood (Chair), Mr. Bell and Gen. (Ret.) Berndt. The Nominating & Governance Committee is charged with overseeing our corporate governance policies and initiatives, nominations of director candidates, director compensation and director continuing education.

Executive Committee

In July 2006, our Board created an Executive Committee having substantially all of the powers of the Board under applicable law. The Executive Committee initially was comprised of Messrs. Campbell (Chair), Ellis, Berkman and Chasin. The Executive Committee did not meet after September 2006. In August 2007, the Board abolished the Executive Committee.

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Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our directors, executive officers and persons who beneficially own more than 10% of a registered class of our equity securities to file with the SEC initial reports of ownership and reports of changes of ownership of our Common Stock and other equity securities. To our knowledge, based solely upon a review of copies of such reports and amendments thereto furnished to us and written representations that no other reports were required during and with respect to the years ended December 31, 2006, all Section 16(a) filing requirements applicable to our current officers, directors and beneficial owners of more than 10% of our Common Stock were complied with except as follows: (i) Jack Henry, David Bell and Maurice Hannigan, members of our Board of Directors, were each late filing a Form 3, one Form 4 and reporting one transaction,(ii) Thomas Canfield, our Secretary and General Counsel, was late filing a Form 3 and reporting one transaction; (iii) John Siemer, our Chief Operating Officer and Chief of Staff, was late filing a Form 3 and reporting one transaction; (iv) Larry Ellis, our CEO and a Director, was late filing one Form 4 and reporting one transaction; and (v) Sam White, our Head of Global Sales, failed to file a Form 3 and one Form 4.

Item 11. EXECUTIVE COMPENSATION

2006 Compensation Discussion and Analysis

This Compensation Discussion and Analysis discusses our objectives, policies and components of our compensation programs for our principal executive officer, principal financial officer and the other three most highly compensated executive officers as of December 31, 2006. These individuals are referred to as the “named executive officers.”

As discussed in Item 10 above, during 2006, we made a number of significant changes in our corporate governance and senior leadership. Toward the end of that year, with the appointment of several new directors and the reconstitution of Board committees, including the Compensation Committee, we began implementing significant changes in our policies and procedures in the area of executive compensation. In the third quarter of 2006, we entered into employment agreements with our COO and certain other members of our new senior leadership team.

Compensation Objectives and Philosophy

The key objectives of our executive compensation plan are to attract, retain and motivate the highest quality management talent available, offer fair and competitive compensation and employee benefits and align our executives’ interest with the interests of our stockholders.

We believe that an effective compensation program rewards the achievement of short-term, long-term and strategic goals that are closely aligned with the interests of our stockholders. We believe that a substantial portion of the total compensation opportunity of senior executive officers should be at risk and payable only in the event of performance by the executive that benefits the interests of our stockholders. As part of that approach, we place a greater emphasis on long-term, equity-based incentives versus cash compensation and other employee benefits. We expect that this emphasis on long-term, equity-based compensation will contribute to our long-term success and increase the value of our stockholders’ investment.

Setting Executive Compensation

Pursuant to its charter, the Compensation Committee of the Board of Directors has responsibility for establishing, implementing and monitoring our compensation philosophy as it relates to our executive officers, including the named executive officers. The Compensation Committee is composed entirely of directors who meet the independence requirements of the AMEX and who are considered “outside directors” for purposes of Section 162(m) of the Internal Revenue Code and “non-employee directors” for purposes of the Exchange Act Rule 16b-3. Our executive officers have broad policy-making authority in the Company, and the Compensation Committee holds them responsible for our financial performance and for setting and maintaining a strong ethical culture.

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We believe that the performance and contribution of our executive officers are critical to our overall success. In order to attract, retain and motivate executives necessary to accomplish our goals, the Compensation Committee has structured our annual and long-term incentive-based executive compensation to reward executives for achieving those goals.

During the first half of 2006, our Compensation Committee made decisions relating to the compensation of our named executive officers, including as to annual and long-term incentive compensation, based on the recommendations of our former CEO, Mr. Brooks.

Following the departure of Mr. Brooks in mid-2006 and continuing until the end of 2006, decisions on executive compensation were made primarily by the entire Board or by the Executive Committee of our Board. The Executive Committee consisted of Messrs. Campbell, Ellis, Chasin and Berkman. For the second half of 2006, the Board and Executive Committee evaluated several factors in determining compensation, particularly of new members of management. These factors included:

• our need to attract executive talent rapidly, at a time of severe turnover, including almost 100% turnover in the accounting and control functions and in several key operating positions;

• our need for executives with experience in turnaround and transitional business situations;

• our objective of replacing costly external advisers as quickly as practicable with internal management resources; and

• our recognition that, to attract appropriate executive talent during this high-risk period, we would need to offer performance-based incentives in addition to base compensation.

The condition of our internal accounting and recordkeeping functions during the latter half of 2006 did not lend itself to the creation of an annual budget and operating plan, against which we could measure executive performance. Rather, the principal objectives for our management team were the continued viability of the Company and the implementation, as rapidly as possible, of our comprehensive remediation program. In addition, given our turnaround situation, we did not place particular weight on benchmarking the compensation arrangements of our executives with other companies in our industry of similar size or in our area of operations.

Beginning in late 2006, with the arrival of new independent directors on our Board, we formed a new Compensation Committee. The Compensation Committee retained an independent executive compensation adviser and also received advice on executive compensation and benefits from our external legal counsel.

The new Compensation Committee began an ongoing process to reassess the overall executive and employee compensation policies of the Company, in light of best practices and pre-determined corporate and individual performance objectives.

Elements of Executive Compensation

For the year ended December 31, 2006, the primary elements of compensation for the current named executive officers were (a) base salary, (b) performance-based annual cash bonus, (c) long-term equity incentives, (d) perquisites and (e) post-employment benefits.

Base Salary

Named executive officers receive a base salary for services. The objective of base salary is to reflect the role and responsibility of the named executive officer, as well his individual performance. During its review of base salaries for each named executive officer, the Compensation Committee or other Board committee primarily considers an internal review of the executive’s compensation and performance. While salary levels are considered annually, individual salaries may be adjusted during the year on a case-by-case basis.

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Annual Cash Incentive Bonus

The purpose of the annual cash incentive bonus is to provide a competitive incentive opportunity that rewards both company and individual performance. With respect to 2006, the Board considered that there was no adequate financial performance metric on which to assess the CEO’s and named executive officers’ contribution. However, it noted the new management had been substantially responsible for the improved operation of the Company, to include gaining significant new sales contracts, the restoration of internal employee confidence, the negotiation of arrangements with creditors and suppliers and significant improvement in our liquidity position. In March 2007, the Compensation Committee awarded cash incentive bonuses to employees, including our named executive officers, totaling approximately $900,000 with respect to the 2006 year.

Long-term Equity-Based Incentives

The Compensation Committee believes that employee equity ownership is a significant incentive in building stockholder wealth and aligning the interests of employees and stockholders. Executive officers are eligible to receive equity awards under the 2005 Omnibus Equity Incentive Plan (2005 Plan) at the discretion of the Compensation Committee or Board of Directors.

The purposes of the 2005 Plan are to further align the 2005 Plan participants’ interest with those of the stockholders based on growth in value of our equity and long term stockholder return and to motivate participants by appropriate equity and performance based incentives, to achieve long-range performance goals.

In September 2006, the Executive Committee of the Board of Directors awarded warrants to purchase shares of our Common Stock to John C. Siemer, our Chief Operating Officer and Chief of Staff, and Thomas C. Canfield, our General Counsel and Secretary. The warrants were issued outside and independent of the 2005 Plan and pursuant to new employment agreements entered into with each of Messrs. Siemer and Canfield on September 28, 2006. We granted these awards as an inducement for these individuals to join our company. The employment agreements and warrant award certificates provided for the grant to each of Messrs. Siemer and Canfield of warrants to acquire 400,000 shares of our Common Stock at an exercise price equal to $2.82 per share, the closing market price of our Common Stock on September 28, 2006. The warrants have a 10-year term. Pursuant to the terms of the warrant award, 10% of the warrants were immediately vested and exercisable, and 30% of the warrants become vested and exercisable on each of the three subsequent anniversary dates following September 28, 2006, provided that such future vesting may be accelerated upon occurrence of a change of control of the Company. As Mr. Canfield has resigned from the Company effective September 30, 2007, he will forfeit 240,000 of these warrants.

In December 2006, prior to forming our reconstituted Compensation Committee, the Board of Directors granted to Sam White, at the time of his promotion to EVP—Global Sales and R&D, 150,000 warrants to purchase shares of our Common Stock. These warrants, together with an aggregate 170,000 warrants granted to seven other key executives of the Company, were granted under the 2005 Plan, on the same terms as the warrants granted to Messrs. Siemer and Canfield, except the exercise price was $2.59, the closing price of the shares of our Common Stock on December 5, 2006, the date of grant.

Perquisites

Pursuant to our employment agreement with Mr. Brooks, our former CEO, and a related Compensation Committee resolution, we were required to pay the expenses associated with Mr. Brooks’ Florida residence and a car and driver in all four locations where we operated facilities. We also reimbursed an entity affiliated with Mr. Brooks for his use of that entity’s airplane for business and personal travel. In addition, during 2006, we paid for Mr. Brooks’ use of a skybox at Madison Square Garden in New York City and reimbursed certain companies for Mr. Brooks use of a chartered jet for personal travel. Pursuant to her employment agreement, we provided an automobile to Ms. Schlegel, our former CFO. All such perquisites were cancelled once each individual ceased employment with us.

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Beginning in October 2006, we provided a monthly cash stipend compensates to each of Mr. Canfield and Mr. Siemer of $2,500. This cash stipend is required pursuant to the employment agreement with each executive and is designed to cover such person’s out-of-pocket living expenses as neither of them lived in Pompano Beach, Florida, where our headquarters are located. Upon relocating our corporate headquarters from New York to Florida in July 2006, we leased an apartment for Mr. Ellis, beginning in October of 2006 through March 2007, at $1,800 per month. Between August 2005 and March 2006, we provided Mr. Ellis with the use of an automobile. After March 29, 2007, expenses were included within his monthly cash stipend of $5,000.

We also provide each of our named executive officers with health insurance, which is generally available to our other executive officers and full time employees. Because of his retirement benefits from the United States Army, Mr. Ellis does not avail himself of such health insurance. We do not provide any other perquisites or personal benefits to our current named executive officers.

Employment Agreements

On May 24, 2005, Larry Ellis, our current President and Chief Executive Officer, entered into an employment agreement (now superseded, as described below in “Looking Ahead”) with us to become our President. Pursuant to this employment agreement, Mr. Ellis was to receive an annual base salary of not less than $500,000, and upon a review of his performance at the end of each fiscal year, was entitled to receive a bonus. The employment agreement contemplates the award of warrants to purchase 500,000 shares of our Common Stock, of which 200,000 were granted on May 24, 2005 and 300,000 were granted on August 9, 2005. Additionally, pursuant to his employment agreement, Mr. Ellis was entitled to receive compensation and the immediate vesting of all of his outstanding warrants upon the occurrence of an “event of a change of control” irrespective of whether his employment was terminated. The rationale for providing this benefit to Mr. Ellis was to attract him as an employee and to align his interests with the interests of our stockholders.

On August 24, 2006, James F. Anderson, our current Chief Financial Officer, entered into an employment agreement (now superseded, as described below in “Looking Ahead”) with us to be our Chief Accounting Officer. Pursuant to this employment agreement, Mr. Anderson was to receive an annual base salary of not less than $300,000, and upon a review of his performance at the end of each fiscal year, was entitled to receive a bonus.

On September 28, 2006, John C. Siemer, our Chief Operating Officer and Chief of Staff, entered into an employment agreement with us. Pursuant to this employment agreement, which is for a term of three years, unless earlier terminated or extended as provided therein, Mr. Siemer is entitled to receive an annual base salary of not less than $350,000, and upon a review of his performance at the end of each fiscal year, is entitled to receive a bonus. In connection with joining us, Mr. Siemer was granted a signing bonus of $54,726, a portion of which was per diem compensation, based on his base salary rate, for days worked prior to the effective date of his employment agreement. On September 28, 2006, Mr. Siemer also was granted a warrant to purchase 400,000 shares of our Common Stock as an inducement for him to join our company. Additionally, if he is terminated by us without “cause” or if he resigns for “good reason,” Mr. Siemer is entitled to receive his then current salary for twelve months following such termination or resignation.

Also on September 28, 2006, Thomas C. Canfield, our General Counsel and Secretary, entered into an employment agreement with us. The terms, including but not limited to the amount of compensation, of Mr. Canfield’s employment agreement and warrant award were the same as those of Mr. Siemer, except that Mr. Canfield was awarded a signing bonus of $45,137, a portion of which was per diem compensation, based on the above base salary rate, for days worked prior to the effective date of his employment agreement. Mr. Canfield has submitted his resignation effective September 30, 2007, and as a result, his employment agreement will no longer be effective after such date, except for his non-competition, non-solicitation and non-disclosure obligations. As a result of his resignation, Mr. Canfield will also forfeit his right to acquire 240,000 shares of our Common Stock pursuant to the warrant described above.

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On November 1, 2006, Sam White, our Head of Global Sales, entered into an employment agreement with us. Pursuant to this employment agreement, which is for a term of three years, unless earlier terminated or extended as provided therein, Mr. White is entitled to receive an annual base salary of not less than $250,000 and upon a review of his performance at the end of each fiscal year, is entitled to receive a bonus. On December 5, 2006, Mr. White was granted a warrant to purchase 150,000 shares of our Common Stock.

None our current named executive officers, other than Mr. Ellis (under his former employment agreement), was entitled to any cash payments upon a change in control of the Company in his contract that was effective at the end of 2006. All unvested warrants previously awarded to our named executive officers, however, will vest upon a change in control and the named executive officer will be entitled to exercise such warrants, unless such warrants are assumed or substituted by a successor company.

We believe that the above described severance provisions and accelerated vesting play a valuable role in attracting and retaining key executive officers, particularly our new executive officers hired in 2006. These post-employment payments and benefits also enable us to obtain specific post-employment non-competition, non-solicitation and non-disclosure obligations that we believe are of value to us and our stockholders. We further believe these agreements are customary in our industry.

The circumstances under which severance and other post-employment payments and benefits will be made or provided and the amount of such payments and benefits are described under “Potential Payments upon Termination or Change in Control” below.

Tax and Accounting Implications

The Compensation Committee reviews and considers the deductibility of executive compensation under Section 162(m) of the Internal Revenue Code, which provides that we may not deduct in any one taxable year certain compensation in excess of $1 million paid to the CEO and the next three most highly compensated executive officers (other than the principal financial officer). The Compensation Committee uses, where practical, compensation policies and programs that preserve the tax deductibility of compensation; however, the Committee at its sole discretion may approve payment of nondeductible compensation from time to time. The long-term equity-based incentive awards granted under the 2005 Plan are eligible to qualify as performance-based compensation for purposes of Section 162(m) of the Internal Revenue Code provided certain requirements are complied with.

The American Jobs Act of 2004 added Section 409A to the Internal Revenue Code. Section 409A revises the tax rules governing non-qualified deferred compensation strategies. We will continue to review Section 409A and its rules and regulations and may adapt our deferred compensation arrangements to them.

Beginning on January 1, 2006, we began accounting for equity-based payments, including awards made under our 2005 Plan, in accordance with the requirements of SFAS 123R. The Compensation Committee, when granting equity-based awards, is made aware of the accounting impact of SFAS 123R.

Stock Ownership Guidelines

We do not have any stock ownership or retention guidelines or policies for our named executive officers.

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Looking Ahead

On March 29, 2007, we entered into a new employment agreement with Mr. Ellis, our President and CEO, pursuant to which Mr. Ellis is eligible to receive an annual salary of $650,000 for fiscal year 2007 and an annual cash incentive bonus in an amount to be determined in the discretion of the Compensation Committee, which amount will be based on approved performance criteria that are to be determined. The amount of such annual cash incentive bonus is targeted at 100% of his base salary. Mr. Ellis’s employment agreement also provided for the grant of warrants to acquire 900,000 shares of our Common Stock at an exercise price equal to $3.46 per share, the closing market price of such common stock on March 29, 2007, the grant date of the warrants. The warrants have a 10-year term. As of the effective date of the warrants, 10% of the warrants were vested and exercisable, and 30% of the warrants will become vested and exercisable on each of the three subsequent anniversary dates following the effective date, provided such future vesting will be accelerated upon the occurrence of a change in control of the Company, unless a successor company assumes or substitutes such warrants, or if such warrants are assumed or substituted, then if Mr. Ellis is terminated without “cause” within two years of the change in control. Additionally, all unvested warrants immediately vest if Mr. Ellis dies during the term of his employment agreement. The employment agreement also provides for the payment in installments to Mr. Ellis of an aggregate amount equal to 24 months annual base salary, plus target bonus, in the event the agreement is terminated by us prior to the end of the employment term without “cause” or by Mr. Ellis for “good reason,” as such terms are defined below under “Potential Payments upon Termination or Change in Control.” During such 24-month period, Mr. Ellis would be subject to non-compete and non-disclosure obligations.

On June 21, 2007, we entered into a new employment agreement with James Anderson, providing for his employment as our Chief Financial Officer. The agreement has an initial term of three years. Mr. Anderson’s employment agreement provides for an annual base salary of $325,000 and the grant to Mr. Anderson of warrants to acquire 400,000 shares of our Common Stock. On July 24, 2007, these warrants were granted to Mr. Anderson at an exercise price equal to $5.28 per share, the closing market price of our Common Stock on that date. The warrants have a ten year term. As of the grant date, 10% of the warrants were vested and exercisable, and 30% of the warrants will become vested and exercisable on each of the three subsequent anniversary dates following the grant date, provided such future vesting will be accelerated upon occurrence of a change in control of the Company. The employment agreement also provides for the payment in installments to Mr. Anderson of an aggregate amount equal to 12 months annual base salary in the event the agreement is terminated prior to the end of the employment term by us without “cause” or by Mr. Anderson for “good reason.” During such 12-month period, Mr. Anderson would be subject to non-compete and non-disclosure obligations.

On July 13, 2007, our Compensation Committee recommended to our Board of Directors for approval, and the Board approved and adopted, our 2007 Omnibus Equity Incentive Plan (the 2007 Plan). The 2007 Plan is designed to assist us in attracting, motivating, retaining and rewarding high-quality executives and other employees, officers, and consultants by enabling such persons to acquire or increase a proprietary interest in us and providing such persons with long-term performance incentives to expend their maximum efforts in the creation of stockholder value. The awards granted under the 2007 Plan are eligible to qualify as performance-based compensation for purposes of Section 162(m), provided that certain requirements are complied with.

During 2007, the Compensation Committee, with the assistance of an independent consulting firm, has been developing a cash incentive plan which will be tied to pre-set financial and non-financial goals based on our 2007 operating plan.

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2006 Summary Compensation Table and Other Supporting Tables

The following tables sets forth certain information with respect to the cash and other compensation paid or accrued by us for our named executive officers in 2006.

2006 Summary Compensation Table

Name and Principal Position	Year	Salary ($)		Bonus ($)		Stock Awards ($)	Option Awards ($)(7)			Non-Equity Incentive Plan Compensation ($)	Change in Pension Value & Nonqualified Deferred Compensation Earnings ($)	All Other Compensation ($)			Total ($)
Larry Ellis, President and Chief Executive Officer	2006	$	529,240	$	700,000	—	$	67,771	(1)	—	—	$	13,317	(2)	$	1,310,328
James F. Anderson, Senior Vice President & Chief Financial Officer	2006	$	97,500	$	21,750	—		—		—	—		—		$	119,250
John C. Siemer, Chief Operating Officer—Chief of Staff	2006	$	152,418	$	61,250	—	$	157,619		—	—		—	(3)	$	371,287
Thomas Canfield, General Counsel and Secretary	2006	$	145,329	$	26,250	—	$	157,619		—	—		—	(3)	$	329,198
Sam White, Head of Global Sales	2006	$	174,816	$	125,000	—	$	40,040		—	—		—		$	339,856
David H. Brooks, Former Chief Executive Officer and former Chairman of the Board of Directors	2006	$	468,750		—	—		—		—	—		—	(4)	$	468,750
Dawn Schlegel, former Chief Financial Officer	2006	$	87,179		—	—		—		—	—		—		$	87,179
Lawrence R. Litowitz, former Director of Finance	2006		—		—	—		—		—	—		—			—	(5)
Lawrence E. Young, former Chief Financial Officer	2006		—		—	—		—		—	—		—			—	(6)

(1) This value is attributable to the 50,000 warrants to purchase common stock that Mr. Ellis was awarded for service as a director of our corporation

(2) Mr. Ellis’ perquisites consist of apartment rental of $1,800 per month and auto allowance of $650 per month prorated from October 2006 through December 2006.

(3) Total amount of perquisites received by such officer during 2006 was less than $10,000

(4) We made numerous payments that appear to be personal expenses, or for which we cannot verify a business purpose. These payments include:

a. Approximately $200,000 for the purchase of a Bentley Flying Spur in 2006, which was included on our fixed asset register and operated by Mr. Brooks. We are not in possession of this vehicle or three other vehicles purchased by us in prior years. Under the Release Agreement and Contractual Undertakings, Mr. Brooks has agreed to return all of our property retained by him.

b. Approximately $299,0000 for payments to various companies, affiliates and personnel related to private jet travel by Mr. Brooks in 2006.

c. Approximately $175,000 for payments made to an affiliated company of Mr. Brooks, which owns a residence in south Florida in 2006.

d. The value, for which we have not been able to quantify the cost, of Mr. Brooks’ personal use, if any, of a Madison Square Garden skybox in our name that was controlled by Mr. Brooks.

e. Payments totaling approximately $62,0000 made in 2006 to an additional numerous payees which appear to be personal in nature.

We have not been able to quantify the value of Mr. Brook’s personal use if any of a Madison Square Garden skybox in the name of the Company.

(5) Mr. Litowitz was retained as a contract employee through Tatum LLC.

(6) Mr. Young was retained with two other individuals to act as officers for us through an engagement letter with AlixPartners, LLC, a corporate turnaround and restructuring firm. AlixPartners, LLC was compensated directly for Mr. Young’s and the other individuals’ services.

(7) The amounts in the Option Awards column reflects the dollar amount recognized for financial statement reporting purposes for the fiscal year ended December 31, 2006, in accordance with SFAS 123(R) of the warrants, and thus may include amounts from awards granted in and prior to 2006. Assumptions used in the calculation of these amounts are included in note 1 to the audited consolidated financial statements under “Stock-based compensation” for the fiscal year ended December 31, 2006, 2005, 2004 and 2003, included in this Annual Report on From 10-K.

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Grants of Plan-Based Awards Table

The following table sets forth certain information concerning grants of cash and non-cash awards made to each of the named executive officers under our equity and non-equity compensation plans during the fiscal year ended December 31, 2006. None of the named executive officers who have remained employed by us have transferred any of the awards that they received during the fiscal year ended December 31, 2006.

Name	Grant Date	Estimated Future Payouts Under Non-Equity Incentive Plan Awards			Estimated Future Payouts Under Equity Incentive Plan Awards			All Other Stock Awards: Number of Shares of Stock or Units (#)	All Other Option Awards: Number of Securities Underlying Options (#)	Exercise or Base Price of Option Awards ($/Share)		Grant Date Fair Value of Stock and Option Awards
		Threshold ($)	Target ($)	Maximum ($)	Threshold (#)	Target (#)	Maximum (#)
Larry Ellis	11/9/06	—	—	—	—	—	—	—	50,000	$	2.28	$	67,771
James F. Anderson	—	—	—	—	—	—	—	—	—		—		—
John C. Siemer	9/28/06	—	—	—	—	—	—	—	400,000	$	2.82	$	650,766
Thomas Canfield	9/28/06	—	—	—	—	—	—	—	400,000	$	2.82	$	650,766
Sam White	12/5/06	—	—	—	—	—	—	—	150,000	$	2.59	$	284,821
David H. Brooks	—	—	—	—	—	—	—	—	—		—		—
Dawn Schlegel	—	—	—	—	—	—	—	—	—		—		—
Lawrence R. Litowitz.	—	—	—	—	—	—	—	—	—		—		—
Lawrence E. Young	—	—	—	—	—	—	—	—	—		—		—

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Outstanding Equity Awards at Fiscal Year End Table

The following table sets forth certain information, on an award-by-award basis, concerning unexercised warrants to purchase Common Shares and unvested deferred stock units that are held by each Named Executive and outstanding as of December 31, 2006. None of the Named Executives who remain employed by us have transferred any of the awards that are reported in the table below.

	Option Awards							Stock Awards
Name	Number of Securities Underlying Unexercised Options (#) Exercisable	Number of Securities Underlying Unexercised Options (#) Unexercisable		Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)	Option Exercise Price ($)		Option Expiration Date	Number of Shares or Units of Stock That Have Not Vested (#)	Market Value of Shares or Units of Stock That Have Not Vested ($)	Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)	Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)
Larry Ellis	100,000 50,000 50,000	100,000 300,000	(1) (2)	—	$ $ $ $ $	7.66 7.66 7.66 2.28 4.89	5/24/2015 5/24/2015 8/9/2015 11/9/2011 12/13/2010	—	—	—	—
James F. Anderson	—	—		—		—	—	—	—	—	—
John C. Siemer	40,000	360,000	(3)	—	$ $	2.82 2.82	9/28/2016 9/28/2016	—	—	—	—
Thomas Canfield	40,000	360,000	(3)(4)	—	$ $	2.82 2.82	9/28/2016 9/28/2016	—	—	—	—
Sam White	5,000 15,000	135,000	(5)	—	$ $	2.01 2.59	2/6/2008 12/5/2016	—	—	—	—
David H. Brooks	50,000 50,000	—		—	$ $	5.88 4.89	6/29/2014 12/14/2015	—	—	—	—
Dawn Schlegel	50,000 50,000	—		—	$ $	5.88 4.89	6/29/2014 12/14/2015	—	—	—	—
Lawrence R. Litowitz	—	—		—		—	—	—	—	—	—
Lawrence E. Young	—	—		—		—	—	—	—	—	—

(1) These warrants vest on May 24, 2007.

(2) These warrants vest 100,000 shares each year beginning May 24, 2008 through May 25, 2010.

(3) These warrants vest 120,000 shares each year beginning September 28, 2007 through September 28, 2009.

(4) 240,000 of these warrants will be forfeited as a result of Thomas Canfield’s resignation, effective on September 30, 2007.

(5) These warrants vest 45,000 shares each year beginning December 5, 2007 through December 5, 2009.

Option Exercises and Stock Vested Table

The following table sets forth certain information concerning each exercise of warrants to purchase Common Stock and each vesting of deferred stock units held by each of the Named Executives during the fiscal year ended December 31, 2006.

	Option Awards			Stock Awards
Name	Number of Shares Acquired on Exercise (#)	Value Realized on Exercise ($)		Number of Shares Acquired on Vesting (#)	Value Realized on Vesting ($)
Larry Ellis	—		—	—	—
James F. Anderson	—		—	—	—
John C. Siemer	—		—	—	—
Thomas Canfield	—		—	—	—
Sam White	—		—	—	—
David H. Brooks	5,250,000	$	7,005,000	—	—
Dawn Schlegel	—		—	—	—
Lawrence R. Litowitz.	—		—	—	—
Lawrence E. Young	—		—	—	—

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Potential Payments upon Termination or Change in Control

As previously indicated in the Employment Agreements section of the Compensation Discussion and Analysis, Messrs. Ellis, Canfield, Siemer, White and Anderson are each entitled to receive benefits in certain instances related to a change in control in the case of Mr. Ellis, and termination in the case of Messrs. Canfield, Siemer, White and Anderson. Under the employment agreement entered into by Mr. Ellis with us on May 24, 2005 (now superseded), Mr. Ellis was entitled to receive compensation upon the occurrence of an “event of a change of control” irrespective of whether his employment is terminated. Upon the termination of employment of Messrs. Canfield, Siemer, White or Anderson without “cause” or if any such executive resigns with “good reason,” then such executive shall be entitled to receive termination benefits. Notwithstanding the foregoing, Mr. Canfield will not be eligible for such termination benefits after his resignation date of September 30, 2007.

Mr. Ellis’ 2005 employment agreement provided that upon the occurrence of an “event of a change of control,” Mr. Ellis would be entitled to the immediate vesting of all outstanding warrants to purchase shares of our Common Stock, a cash lump sum payment equal to four months salary at the then current rate, medical benefits for a period of four months and the transfer of ownership of any car furnished by us for his use. The definition of “event of a change of control” in his 2005 employment agreement was similar to the definition of a “change in control” under the 2005 Plan, which is set forth below.

If an event of a change of control had occurred on December 29, 2006, the last business day of our 2006 fiscal year, then the value of the benefits received by Mr. Ellis would have been $166,667, which is equivalent to four months salary at his then current rate. Mr. Ellis was not using a car provided by us and does not avail himself of our health benefits, and therefore would not have received any value attributable to such benefits.

Under the employment agreements of Messrs. Canfield and Siemer (Mr. Anderson did not have this benefit under his former employment agreement), the executives are entitled to termination payments if the executive’s employment is terminated by us without “cause,” or if such executive terminates his employment with “good reason.” “Cause” is generally defined as follows:

(a) the executive engaged in fraudulent or dishonest conduct (as determined by a court or other fact finding body) that our Board of Directors reasonably determines has or would have a material adverse impact on the Company;

(b) conviction of, or the pleading of no contest to a felony criminal offense;

(c) willful refusal of the executive to perform his material employment-related duties or intentionally engaging in conduct that is materially adverse to our business interests; or

(d) gross negligence in the performance of the executive’s material employment duties.

“Good reason” is generally defined as:

(a) a material diminution of the executive’s duties or the assignment of responsibilities that are materially inconsistent with his position;

(b) a reduction in the executive’s compensation (excluding a reduction of annual bonus due to the failure to achieve a target performance objective) or the executive’s benefits;

(c) a relocation of the Company from South Florida; or

(d) a material breach by the Company of the terms of the executive’s employment agreement.

If the executive’s employment is terminated by us other than for cause, death or disability, or if the executive terminates his employment for good reason, then the executive shall be entitled to receive his annual salary for the next year in twelve equal monthly installments and the executive will continue to be eligible to participate in our benefit program.

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If either of Messrs. Siemer or Canfield, were terminated “without cause” or resigned for “good reason” on December 29, 2006, he would be eligible to receive the benefits described below:

Name	Value of Twelve Month Annual Base Salary		Estimated Value of Benefits for Twelve Months(1)	Total
John C. Siemer	$	350,000	—	$	350,000
Thomas Canfield		350,000	—		350,000

(1) Benefits include participation in the company’s health, medical, disability, life and other insurance plans (subject to the individual making required contributions to such plan). Additionally, if the individual became eligible to receive comparable benefits from a subsequent employer, the above benefits would terminate. For purposes of this estimate, we assume provision of the benefits is for the full 12 month period.

Additionally, if a change of control had occurred on December 29, 2006, and our warrants were assumed or substituted by a successor company, then all unvested warrants to shares of our Common Stock would immediately vest pursuant to the terms of our 2005 Plan. Accordingly, the Named Executive Officers would receive a benefit estimated to be valued as follows:

Name	Value
Larry Ellis	$	—
James F. Anderson		—
John C. Siemer		46,800
Thomas Canfield		46,800
Sam White		48,600

The value in the above table is based upon the difference between the exercise price of each named executive officers’ warrant, and our closing market price on December 29, 2006 ($2.95 per share), multiplied by the number of shares subject to each such warrant.

Pursuant to our 2005 Plan, a change in control generally occurs if:

(a) Any person, entity or group acquires more than 50% of either our outstanding shares of voting stock, or the combined voting power of our then outstanding voting securities;

(b) There is a replacement of a majority of the members of the Board of Directors during any 12 month period, unless the new directors have been approved by at least a majority of the incumbent board; or

(c) Consummation of a reorganization, merger or similar transaction, or a sale of substantially all of the company’s assets, unless the stockholders before such transaction own directly or indirectly 50% or more of the then outstanding voting securities of the corporation resulting from the transaction.

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2005 Summary Compensation Table & Other Supporting Tables

Summary Compensation Table

The following table (the “2005 Summary Compensation Table”) sets forth certain information with respect to the cash and other compensation paid or accrued by us during the fiscal years ended December 31, 2005, 2004 and 2003 for persons serving as our chief executive officer and the three other most highly compensated executive officers who were serving as executive officers at the end of 2005.

Name and Principal Position	Year	Annual Compensation				Other Annual Compensation			Long-Term Compensation Awards
		Salary		Bonus					Restricted Stock Awards	Securities Underlying Options/SARs
David H. Brooks Former Chairman and former Chief Executive Officer	2005 2004 2003	$	811,538 762,500 781,250	$	2,400,000 2,000,000 1,000,000		—   —   —	(1) (1) (1)	—   —   —	5,300,000 50,000 50,000
Dawn M. Schlegel Former Chief Financial Officer	2005 2004 2003		223,077 200,000 139,423		525,000 500,000 100,000	$	—   —   62,875	(2)	—   —   —	50,000 50,000 50,000
Larry Ellis, President	2005		312,500		200,000		—		—	550,000
Sandra L. Hatfield Former Chief Operating Officer	2005 2004 2003		182,557 223,680 163,673		—   750,000 —	$	—   —   603,973	(3)	—   —   —	—   —   —

(1) We made numerous payments that appear to be personal expenses, or for which we cannot verify a business purpose. These payments include:

a Approximately $132,000 for payments made to an affiliated company of Mr. Brooks, which owns a residence in south Florida utilized by Mr. Brooks in 2005.

b Approximately $878,000, $370,000 and $445,000 in 2005, 2004 and 2003, respectively, for payments to various companies, affiliates and personnel related to private jet travel by Mr. Brooks.

c The costs associated with the purchase of three vehicles during the period 2001 to 2005 that were initially included on our fixed asset register and that were operated by Mr. Brooks and each of Ms. Schlegel and Ms. Hatfield. The Company is not in possession of any of these vehicles, including the three vehicles operated by Mr. Brooks. Under the Release Agreement and Contractual Undertakings, Mr. Brooks has agreed to return all of our property retained by him. The make, model, year and cost of the three vehicles is:

Make	Year	Cost
Mercedes CLK 430	2001	$	77,843
Armored Ford Excursion	2002	$	191,500
Mercedes CLK 500	2004	$	62,874

d Payments totaling approximately $171, 000, $23,000 and $208,000 were made in 2005, 2004 and 2003, respectively, to additional numerous payees which appear to be personal in nature.

In addition to the foregoing, in 2005, Mr. Brooks purchased 375 30-GB Apple iPods with a corporate American Express card which were not for company use. The cost for these iPods totaled approximately $122,000. This purchase was capitalized in inventory prior to the restatement and treated as compensation expense in our restated financial statements. Mr. Brooks reimbursed us approximately $66,000 by taking a reduction from his fiscal 2005 bonus and by a cash repayment, and approximately $56,000 remained capitalized as inventory in our balance sheet. Mr. Brooks also charged approximately $322,000 of personal expenses to our corporate credit cards in 2003. Amounts

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charged to our corporate credit cards by Mr. Brooks during 2004 and 2005 for personal expenses and any reimbursements of those charges could not be determined.

(2) The Company purchased a 2003 Mercedes E500 which was operated by Ms. Schlegel. The Company is not in possession of this vehicle.

(3) The Company purchased a condominium for Ms. Hatfield in lieu of a bonus.

Option/SAR Grants in 2005

The following table sets forth certain information concerning warrants or options granted to the executive officers named in the 2005 Summary Compensation Table during 2005.

	Individual Grants
Name	Number of Securities Underlying Options/SARs Granted	Percentage of Total Options/SARs Granted to Employees in Fiscal 2005		Exercise Price Per Share		Expiration Date	Grant Date Present Value
David H. Brooks	1,500,000 750,000 750,000 750,000 750,000 750,000 50,000	19.97 9.99 9.99 9.99 9.99 9.99 0.67	% % % % % % %	$	1.00 1.00 1.00 1.00 1.00 1.00 4.89	3/1/2006 3/1/2007 3/1/2008 3/1/2009 3/1/2010 3/1/2011 12/13/2015	$	11,317,294 2,853,362 1,437,019 968,663 734,020 594,046 161,695
Dawn M. Schlegel	50,000	0.67	%		4.89	12/31/2015		161,695
Larry Ellis	100,000 100,000 100,000 100,000 100,000 50,000	1.33 1.33 1.33 1.33 1.33 0.67	% % % % % %		7.66 7.66 7.66 7.66 7.66 4.89	5/24/2015 5/24/2015 8/9/2015 8/9/2015 8/9/2015 12/13/2010		307,268 153,844 62,366 45,942 36,365 161,695
Sandra L. Hatfield	—	—			—	—		—

Aggregated Option/SAR Exercises in 2005 and 2005 Fiscal Year End Option/SAR Values

The following table sets forth information concerning warrant exercises and the value of unexercised warrants as of December 31, 2005, by the executive officers named in the 2005 Summary Compensation Table.

Name	Shares Acquired on Exercise	Value Realized		Number of Unexercised Options/SARs Held at December 31, 2005		Value of Unexercised In-the-Money Options/SARs Held at December 31, 2005(1)
				Exercisable	Unexercisable	Exercisable		Unexercisable
David H. Brooks	—	$	—	1,550,000	3,750,000	$	11,478,989	$	28,890,624
Dawn M. Schlegel	—		—	100,000	—		370,245		—
Larry Ellis	—		—	50,000	500,000		161,695		2,330,576
Sandra L. Hatfield	—		—	—	—		—		—

2005 Director Compensation

In 2005, we granted 50,000 warrants to purchase our Common Stock to each person serving on our Board of Directors, including officers of the Company, as compensation for serving in such capacity.

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Compensation Committee Report

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Regulation S-K Item 402(b) with management. Based on the review and discussions referred to in the preceding sentence, the Compensation Committee recommended to the board of directors that the Compensation Discussion and Analysis be included in this Annual Report on Form 10-K.

David Bell

Senator (Ret.) William Campbell

Maurice Hannigan

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Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth the beneficial ownership of our Common Stock as of September 26, 2007, for (i) each person known by us to beneficially own more than five percent (5%) of our outstanding Common Stock, (ii) each of our directors, (iii) each of the current and former executive officers listed in the Summary Compensation Table in Item 11—EXECUTIVE COMPENSATION and (iv) all of our executive officers and directors as a group. To our knowledge, except as otherwise indicated, all shares are beneficially owned and the persons named as the owners hold investment and voting power.

Beneficial ownership is determined in accordance with Rule 13d-3 under the Exchange Act, and generally includes voting or investment power over securities. Under this rule, a person is deemed to be the beneficial owner of securities that can be acquired by such person within 60 days of September 26, 2007 upon the exercise of warrants to purchase shares of our Common Stock. Each beneficial owner’s percentage ownership is determined by assuming that all warrants held by such person that are exercisable within 60 days of September 26, 2007 have been exercised. The percentages provided are based on 51,027,535 shares outstanding as of September 26, 2007.

Name	Number of shares of common stock beneficially owned	Percentage ownership of common stock
David H. Brooks (2)	11,712,978	23.0	%
Harbinger Capital Partners Master Fund I, Ltd. (1)	7,537,225	14.8	%
Terry S. Brooks (2)	3,057,292	6.0	%
Larry Ellis (3)	392,000	*
Senator (Ret.) William Campbell (4)	76,730	*
Jack A. Henry (5)	20,862	*
David Bell (6)	18,322	*
Maurice Hannigan (7)	19,662	*
General Martin R. Berndt (8)	8,080	*
Suzanne Hopgood (9)	9,910	*
James F. Anderson (10)	40,000	*
John C. Siemer (11)	160,000	*
Thomas Canfield (12)	160,000	*
Sam White (13)	21,000	*
Dawn Schlegel (14)	100,000	*
Lawrence R. Litowitz (15)	0	*
Lawrence E. Young (16)	0	*
All current directors and executive officers as a group (11 persons)	926,566	1.8	%

  * Indicates ownership in an amount less than 1% of our Common Stock.

(1) Based upon a Schedule 13-D/A filed with the SEC on May 7, 2006. The address of Harbinger Capital Partners Master Fund I, Ltd. is One Riverchase Parkway South, Birmingham, Alabama 35244.

(2) Based upon a Schedule 13-D/A filed with the SEC on November 30, 2006. David H. Brooks is our former Chairman and Chief Executive Officer. The address of each of David H. Brooks and Terry Brooks is 800 South Ocean Drive, Boca Raton, Florida 33432.

(3) Mr. L. Ellis is a director of the Company and our President and Chief Executive Officer. The amount beneficially owned by Mr. Ellis includes 390,000 warrants currently exercisable or exercisable within 60 days of September 30, 2007.

(4) Senator (Ret.) Campbell is a director of the Company. The amount beneficially owned by Senator (Ret.) Campbell includes 26,730 deferred stock units and 50,000 warrants currently exercisable or exercisable within 60 days of September 30, 2007.

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(5) Mr. Henry is a director of the Company. The amount beneficially owned by Mr. Henry includes 6,712 warrants and 14,150 deferred stock units currently exercisable or exercisable within 60 days of September 30, 2007.

(6) Mr. Bell is a director of the Company. The amount beneficially owned by Mr. Bell includes 5,342 warrants and 12,980 deferred stock units currently exercisable or exercisable within 60 days of September 30, 2007.

(7) Mr. Hannigan is a director of the Company. The amount beneficially owned by Mr. Hannigan includes 5,342 warrants and 14,320 deferred stock units currently exercisable or exercisable within 60 days of September 30, 2007.

(8) General Berndt is a director of the Company. The amount beneficially owned by General Berndt includes 8,080 deferred stock units currently exercisable or exercisable within 60 days of September 30, 2007.

(9) Ms. Hopgood is a director of the Company. The amount beneficially owned by Ms. Hopgood includes 9,910 deferred stock units currently exercisable or exercisable within 60 days of September 30, 2007.

(10) Mr. Anderson is our Senior Vice President and the Chief Accounting Officer. The amount beneficially owned by Mr. Anderson includes 40,000 warrants currently exercisable or exercisable within 60 days of September 30, 2007.

(11) Mr. Siemer is our Chief Operating Officer and Chief of Staff. The amount beneficially owned by Mr. Siemer includes 160,000 warrants currently exercisable or exercisable within 60 days of September 30, 2007.

(12) Mr. Canfield is our General Counsel and Secretary. The amount beneficially owned by Mr. Canfield includes 160,000 warrants currently exercisable or exercisable within 60 days of September 30, 2007.

(13) Mr. White is our Head of Global Sales. The amount beneficially owned by Mr. White includes 15,000 warrants currently exercisable or exercisable within 60 days of September 30, 2007.

(14) Ms. Schlegel is our former Chief Financial Officer.

(15) Mr. Litowitz is our former Director of Finance

(16) Mr. Young is our former Chief Financial Officer.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Future relationships and transactions, if any, with affiliated parties will be reviewed by our Audit Committee for any potential conflict of interest. If the Audit Committee determines that any such transaction creates a conflict of interest situation, we will not proceed with such transaction unless approved in advance by the Audit Committee.

David H. Brooks, former Chairman and CEO

During 2006, 2005, 2004 and 2003, we entered into various transactions with David H. Brooks and entities affiliated with Mr. Brooks or individuals related to Mr. Brooks. From 1992 until July 7, 2006, Mr. Brooks was the Chairman or Co-Chairman of our Board of Directors and from 2000 until July 31, 2006, was our Chief Executive Officer. Based on information filed with the SEC on November 30, 2006, Mr. Brooks, together with Ms. Terry Brooks (his wife), own approximately 29% of our Common Stock.

Tactical Armor Products, Inc.

During 2006, 2005, 2004 and 2003, Tactical Armor Products, Inc. (TAP) provided certain manufacturing and assembly services to us. In particular, TAP assembled hard armor plates, manufactured yoke and collar assemblies in our ballistic apparel and sewed other protective components into the apparel. TAP ceased providing these services in July 2006.

We believe that we were the primary beneficiary of TAP’s protective apparel operations during the period TAP was providing services to us. TAP also owned and raced horses, although the extent of the equestrian operations is unknown. After making numerous unsuccessful efforts, management concluded that we were

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unable to obtain the information necessary to perform the accounting required to consolidate TAP, otherwise required per FASB Interpretation No. 46, “Consolidation of Variable Interest Entities.”

During the relevant time period, TAP was owned by Ms. Brooks. Purchases from TAP totaled $2,323, $15,708, $10,746 and $14,379 during the years ending December 31, 2006, 2005, 2004 and 2003, respectively. These amounts include the amounts paid to U.S. Manufacturing Corporation (USM). USM was owned by Ms. Brooks and was acquired by TAP during 2003.

In addition, we made bonus payments to certain TAP employees of approximately $2,000, $126,000 and $100,000 during the years ended December 31, 2005, 2004 and 2003, respectively. We did not make any such bonus payments during 2006.

TAP sub-leased a portion of our facility in Tennessee from 2001 until July 2006. TAP paid the Company approximately $9,000, $40,000, $40,000 and $40,000 for rent during the years ended December 31, 2006, 2005, 2004 and 2003, respectively.

We owed TAP $71 and $108 at December 31, 2004 and 2003, respectively, for services rendered, which amounts are included in accounts payable in the accompanying consolidated balance sheets for the applicable periods.

V.A.E. Enterprises

We entered into a ten year agreement with V.A.E. Enterprises (VAE) to lease a building in Oakland Park, Florida, which is used in certain of our manufacturing and administrative operations. The term of the lease commenced on January 1, 2001. VAE was indirectly owned by Mr. Brooks. In July 2004, the property was sold to an unrelated third party. We paid VAE approximately $419,000 and $679,000 for rent during the years ended December 31, 2004 and 2003, respectively. We continue to utilize this facility.

Vianel Corporation

The Company agreed to reimburse Mr. Brooks for his Florida residence, pursuant to the terms of his employment agreement. During the years ended December 31, 2006 and 2005, the Company paid Vianel Corporation (“Vianel”) approximately $175,000 and $132,000, respectively, for reimbursements of Mr. Brooks’ Florida residence. Vianel was indirectly owned by Mr. Brooks.

RSJ Industries

The Company agreed to reimburse Mr. Brooks for air travel expenses, pursuant to authorization by the Board of Directors. During the year ended December 31, 2005, the Company paid RSJ Industries (“RSJ”) approximately $227,000 for certain air travel expenses. RSJ owned the airplane utilized and was indirectly owned by Mr. Brooks.

Debt Transactions

During 2005, Mr. Brooks provided credit availability to us in our unsuccessful efforts to acquire an unrelated entity. We paid Mr. Brooks interest of approximately $117,000 during the year ended December 31, 2005, for such availability.

We paid approximately $7,000 in interest to Mr. Brooks during the year ended December 31, 2004.

On May 9, 2003, we satisfied the outstanding balance of a note due Mr. Brooks in the amount of $1,500,000. During 2003, we paid approximately $95,000 in accrued interest relating to the note due Mr. Brooks.

Convertible Preferred Stock

On January 14, 2002, we issued Mr. Brooks 500,000 shares of our Series A, 12% convertible preferred stock in exchange for $3,000 of outstanding indebtedness incurred by us in 1996. The convertible preferred stock had a dividend rate of $0.72 per share per annum, an amount equal to the interest that would have been payable on the

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exchanged indebtedness. We paid Brooks dividends totaling approximately $360,000, $360,000 and $345,000 on the convertible preferred stock during the years ended December 31, 2005, 2004 and 2003, respectively. The convertible preferred stock was redeemed in December 2005 for $3,000,000.

Warrant Exercise and Securities Purchase Agreements

On July 13, 2006, we signed a Memorandum of Understanding to settle a class action securities lawsuit, as well as another shareholder derivative suit brought about by a certain shareholder. As part of this settlement, we obtained $7,500,000 from the proceeds of the exercise of 3,000,000 warrants held by Mr. Brooks at an exercise price of $2.50 per share. The warrant, granted to Mr. Brooks pursuant to a warrant agreement dated July 1, 2005, originally had an exercise price of $1.00 per share and originally vested and became exercisable with respect to 750,000 shares on each of July 1, 2007, 2008, 2009 and 2010. As part of the settlement, and pursuant to a warrant exercise agreement between us and Mr. Brooks, the warrants were accelerated and the exercise price was increased to $2.50 per share. Pursuant to the terms of the warrant exercise agreement, in the event the settlement is not approved, we are required to cause to be paid to Mr. Brooks $4,500,000, which is the difference between the warrant exercise price of $1.00 per share set forth in the warrant agreement and the elevated exercise price of $2.50, multiplied by the 3,000,000 shares involved.

In addition, as part of the settlement, Mr. Brooks entered into a securities purchase agreement with us. Pursuant to the terms of the securities purchase agreement, we sold 3,007,099 shares of our Common Stock directly to Mr. Brooks at a price of $4.93 per share. We granted Mr. Brooks the right to sell back some or all of such shares in the event the settlement is not approved.

For a more complete discussion of the settlement and the warrant exercise agreement, please refer to Note 11 of the Consolidated Financial Statements.

Other

We made payments to a condominium association in Boca Raton, Florida on behalf of Mr. Jeffrey Brooks, a brother of Mr. Brooks, of approximately $22,000, $21,000 and $19,000 during the years ended December 31, 2005, 2004 and 2003, respectively. Those payments are included in selling, general and administrative expenses in the accompanying consolidated financial statements for the appropriate periods. Mr. Jeffrey Brooks was not an employee of the Company during this period.

During 2005, we purchased approximately $20,000 in gift certificates from a restaurant owned by Mr. Jeffrey Brooks, which is included in selling, general and administrative expenses in the accompanying consolidated financial statement for the fiscal year ended December 31, 2005.

We employed an uncle of Mr. Brooks during 2003, 2004, 2005 and through July 18, 2006, at which time the employment arrangement between us and that individual terminated. Amounts paid to Mr. Brooks’s uncle were approximately $11,000, $19,000, $20,000 and $19,000 during the years ended December 31, 2006, 2005, 2004 and 2003, respectively.

We paid bonuses to individuals affiliated with Mr. Brooks of approximately $10,000, $20,000 and $10,000 during the years ended December 31, 2005, 2004 and 2003, respectively. Those payments are included in selling, general and administrative expenses in the accompanying consolidated financial statements for the appropriate periods. No such bonus payments were made during 2006.

We made automobile lease payments on behalf of Mr. Brooks’ son approximately $3,000, $7,000 and $1,000 during the years ended December 31, 2005, 2004 and 2003, respectively. Those payments are included in selling, general and administrative expenses in the accompanying consolidated financial statements for the appropriate periods. No such lease payments were made during 2006.

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Sandra Hatfield, former Chief Operating Officer

During 2003, we paid $95,000 for legal services to Mr. Keith Hatfield, the son of Ms. Sandra L. Hatfield. Mr. Hatfield was also employed by us from August 2005 through September 2006. Mr. Hatfield received payments of $116 and $29,000 respectively. From 2002 through August 11, 2005, Ms. Hatfield was our COO.

Dawn M. Schlegel, former Chief Financial Officer and Director

From 1999 until April 7, 2006, Ms. Dawn M. Schlegel was the Company’s Chief Financial Officer; she also served as a member of the Company’s Board of Directors from 2000 until April 7, 2006. Subsequent to her resignation on April 7, 2006, Ms. Schlegel provided consulting services through mid-May 2006, and was paid $22,000 during the year ended December 31, 2006, for those services.

Indemnifications

Pursuant to Delaware law and certain indemnification agreements entered into with Mr. Brooks, Ms. Schlegel and Ms. Hatfield, we advanced expenses and legal fees to each of Mr. Brooks, Ms. Schlegel and Ms. Hatfield in the amount of $5,894,000, $562,000 and $242,000, respectively during 2006.

Vehicles

During the period 2001 to 2006, we purchased four vehicles that were initially included on our fixed asset register and that were operated by Mr. Brooks, Ms. Hatfield and Ms. Schlegel. We are not in possession of any of those vehicles, nor do our records indicate any reimbursement to us for these purchases. The make, year and cost of the four vehicles are:

Make	Year	Cost
Bentley Flying Spur	2006	$	200,000
Armored Ford Excursion	2002	$	192,000
Mercedes CLK430	2001	$	78,000
Mercedes CLK500	2004	$	63,000

Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

We understand the need for Rachlin Cohen & Holtz, LLP (“Rachlin”), to maintain objectivity and independence in its audit of our financial statements. To minimize relationships that could appear to impair the objectivity of Rachlin, our Audit Committee has restricted the non-audit services that Rachlin may provide to us primarily to audit services and audit-related services. Additionally, the Audit Committee has also adopted policies and procedures for pre-approving all audit and non-audit work performed by Rachlin.

Audit Fees. The aggregate fees billed for professional services rendered by Rachlin for auditing our 2006 and 2005 financial statements and our 2004 and 2003 restated financial statements were $1,854,000. Rachlin performed no “audit related,” “tax services,” “or other” services (as such terms are defined in Item 9(e) of Schedule 14A to the Exchange Act) for us during 2005 or 2006.

The aggregate fees billed for professional services rendered by Weiser LLP for auditing our financial statements for the years ended December 31, 2004 and 2003 were $557,600 and 359,000, respectively.

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PART IV

Item 15. EXHIBITS AND FINANCIALS STATEMENT SCHEDULES

(a) The following documents are filed as part of this report on Form 10-K:

1. Financial Statements

See the Index to Financial Statements of page F-1 for a list of the financial statements filed with this report all of which are incorporated herein by reference.

2. Financial Statement Schedules

See Note 13 to the Consolidated Financial Statements, for the “Valuation and Qualifying Accounts.”

3. List of Exhibits

Exhibit	Description
3.1	Certificate of Incorporation of the Company filed September 1, 1994.	(1)
3.2	Certificate of Amendment of Certificate of Incorporation of the Company filed December 31, 1996.	(2)
3.3	Certificate of Amendment of Certificate of Incorporation of the Company filed July 24, 2001.	(6)
3.4	Certificate of Designations and Preferences of the Company filed December 26, 2001.	(6)
3.5	Certificate of Designation, Preferences and Rights of Series B Junior Participating Preferred Stock of the Company filed October 12, 2006.	(16)
3.6	Second Amended and Restated By-Laws of the Company adopted as of August 17, 2007.	(19)
4.2	Stock Subscription Agreement dated December 14, 2001, between the Company and David Brooks.	(6)
4.3	Form of Warrant Award Certificate of the Company pursuant to the 2005 Plan.	(20)
4.4	Form of Warrant Award Certificate of the Company pursuant to the 2007 Plan.	(18)
4.5	Rights Agreement dated as of October 6, 2006, between American Stock Transfer & Trust Company and the Company.	(16)
10.1	Employment Agreement dated July 1, 2000, between the Company and David Brooks.	(7)
10.2	Employment Agreement dated May 24, 2005, by and between the Company and Larry Ellis.	(11)
10.3	Employment Agreement dated September 28, 2006, by and between the Company and John C. Siemer.	(20)
10.4	Employment Agreement dated September 28, 2006, by and between the Company and Thomas C. Canfield.	(20)
10.5	Employment Agreement dated November 1, 2006, by and between the Company and Sam White.	(20)
10.6	Employment Agreement dated March 29, 2007, by and between the Company and Larry Ellis.	(20)
10.7	Employment Agreement dated June 21, 2007, by and between the Company and James Anderson.	(20)
10.8	Warrant Agreement dated July 1, 2005, between the Company and David Brooks.	(14)

71

Exhibit	Description
10.9	Warrant of the Company issued to Larry Ellis on May 24, 2005.	(11)
10.10	Warrant Agreement dated May 18, 2006, between the Company and William P. Campbell.	(20)
10.11	Warrant Award Certificate issued to John C. Siemer on September 28, 2006.	(20)
10.12	Warrant Award Certificate issued to Thomas C. Canfield on September 28, 2006.	(20)
10.13	Warrant Award Certificate issued to Larry Ellis on March 29, 2007.	(20)
10.14	Warrant Award Certificate issued to James Anderson on July 24, 2007.	(20)
10.15	Promissory Note dated November 6, 2000, between the Company and David Brooks.	(3)
10.16	The Company’s 1995 Stock Option Plan.	(4)
10.17	The Company’s 2005 Omnibus Equity Incentive Plan.	(13)
10.18	The Company’s 2007 Omnibus Equity Incentive Plan.	(18)
10.19	Board of Directors Compensation Policy, effective as of January 1, 2007.	(20)
10.20	Sale Agreement dated March 10, 2000, between the Company and DMC2 Electronic Components.	(5)
10.21	Lease dated January 1, 2001, between V.A.E. Enterprises and Point Blank Body Armor, Inc.	(7)
10.22	Lease Agreement dated April 15, 2001, between A&B Holdings, Inc. and the Company.	(3)
10.23	Industrial Lease dated December 5, 2003, between Atlantic Business Center L.C. and Point Blank Body Armor Inc.	(8)
10.24	Employment Agreement dated May 24, 2005, by and between the Company and Manuel Rubio.	(11)
10.25	Employment Agreement dated May 24, 2005, by and between the Company and Dawn Schlegel.	(11)
10.26	Employment Agreement dated May 24, 2005, by and between the Company and Ishmon Burks.	(11)
10.27	Employment Agreement dated June 2, 2005, by and between the Company and Marc Dien.	(12)
10.28	Amended and Restated Loan and Security Agreement, dated as of April 3, 2007, by and among Protective Apparel Corporation of America, Point Blank Body Armor Inc., NDL Products, Inc., the Company and LaSalle Business Credit, LLC, as Administrative Agent and Collateral Agent.	(17)
10.29	Subscription and Structuring Agreement dated as of December 19, 2003, by and among Point Blank Body Armor Inc., Hightower Capital Management, LLC and the Company.	(8)
10.30	Release Agreement and Contractual Undertakings dated July 31, 2006, by and between the Company and David H. Brooks.	(20)
10.31	Securities Purchase Agreement dated July 31, 2006, by and between the Company and David H. Brooks.	(20)
10.32	Registration Rights Agreement dated July 31, 2006, by and between the Company and David H. Brooks.	(20)
10.33	Warrant Exercise Agreement dated July 31, 2006, by and between the Company and David H. Brooks.	(20)

72

Exhibit	Description
10.34	Agreement of Insureds dated as of July 27, 2006, by and among the Company, David H. Brooks, Sandra Hatfield, Dawn M. Schlegel, Cary Chasin, Jerome Krantz, Gary Nadelman, Barry Berkman and Gen. (Ret.) Larry R. Ellis.	(20)
10.35	Stipulation and Agreement of Settlement dated November 30, 2006.	(20)
10.36	Warrant of the Company issued to Manuel Rubio on May 24, 2005.	(11)
10.37	Warrant of the Company issued to Ishmon Burks on May 24, 2005.	(11)
10.38	Warrant of the Company issued to Marc Dien on June 2, 2005.	(12)
10.39	Employment Agreement dated December 1, 2005, by and between the Company and Rick Hockensmith.	(15)
10.40	Warrant Award Agreement dated November 28, 2005, between the Company and Rick Hockensmith.	(15)
10.41	Employment Agreement dated August 24, 2006, by and between the Company and James Anderson.	(20)
14.1	Code of Ethics.	(9)
16.1	Letter from Weiser LLP to the Company regarding change in certifying accountant.	(10)
21.1	List of Significant Subsidiaries.	(20)
23.1	Consent of Independent Registered Public Accounting Firm.	(20)
31.1	Certification of President and Chief Executive Officer pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.	(20)
31.2	Certification of Chief Financial Officer pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.	(20)
32.1	Certification of President and Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	(20)
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	(20)

73

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 on this the 28th day of September, 2007.

DHB INDUSTRIES, INC.
By:	/s/    LARRY ELLIS
	Larry Ellis
	President and Chief Executive Officer

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.

Name	Capacity	Date
/s/    LARRY ELLIS         Larry Ellis	President, Chief Executive Officer and Director (Principal Executive Officer)	September 28, 2007
/s/    JAMES F. ANDERSON         James F. Anderson	Chief Financial Officer, Senior Vice President and Chief Accounting Officer (Principal Financial Officer and Principal Accounting Officer)	September 28, 2007
/s/    WILLIAM CAMPBELL         William Campbell	Chairman of the Board	September 28, 2007
/s/    JACK HENRY         Jack Henry	Director	September 28, 2007
/s/    DAVID BELL         David Bell	Director	September 27, 2007
/s/    MAURICE HANNIGAN         Maurice Hannigan	Director	September 28, 2007
/s/    MARTIN R BERNDT         Martin R Berndt	Director	September 28, 2007
/s/    SUZANNE HOPGOOD         Suzanne Hopgood	Director	September 28, 2007

74

DHB INDUSTRIES, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

CONTENTS

	Page
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets	F-3
Consolidated Statements of Operations	F-4
Consolidated Statement of Stockholders’ Equity	F-5
Consolidated Statements of Cash Flows	F-6
Notes to the Consolidated Financial Statements	F-7 - F-38

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

DHB Industries, Inc.

We have audited the accompanying consolidated balance sheets of DHB Industries, Inc. and subsidiaries as of December 31, 2006, 2005, 2004 and 2003, and the related consolidated statements of operations, stockholders’ equity and cash flows for the years then ended. 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 conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of DHB Industries, Inc. and subsidiaries as of December 31, 2006, 2005, 2004 and 2003 and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 2 to the consolidated financial statements, the consolidated financial statements for the years ended December 31, 2004 and 2003 have been restated.

As discussed in Note 1 to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards No. 123R, “Share Based Payment,” on January 1, 2006, based on the modified retrospective application method.

The Company has not presented the selected quarterly financial data for each quarter for the years ended December 31, 2006 and 2005 that are required by the rules and regulations of the U.S. Securities and Exchange Commission as supplemental information outside the consolidated financial statements, although not required to be part of the basic consolidated financial statements.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated September 28, 2007 expressed an adverse opinion on the effectiveness of the Company’s internal control over financial reporting because of material weaknesses.

/s/ Rachlin Cohen & Holtz, LLP

Fort Lauderdale, Florida

September 28, 2007

F-2

DHB INDUSTRIES, INC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31,

(In thousands, except share and per share data)

	2006			2005			Restated			Restated
								2004			2003
ASSETS
Current assets:
Cash and cash equivalents	$	177		$	1,283		$	498		$	441
Restricted cash		35,200			—			—			—
Accounts receivable, less allowance for doubtful accounts of $911, $700, $702, and $852 respectively		38,087			41,044			47,425			33,565
Receivable from Insurer		—			12,875			—			—
Inventories, net		32,210			26,825			38,231			30,001
Deferred income tax assets		38,125			39,323			19,094			1,424
Prepaid expenses and other current assets		2,326			1,542			1,219			1,597
Total current assets		146,125			122,892			106,467			67,028
Property and equipment, net		1,825			2,488			2,371			1,771
Other assets
Deferred income tax assets		155			16			—			124
Deposits and other assets		94			141			366			381
Total other assets		249			157			366			505
Total assets	$	148,199		$	125,537		$	109,204		$	69,304
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Revolving line of credit	$	8,425		$	—		$	—		$	—
Note payable—bank, current portion		—			15,000			10,500			2,000
Accounts payable		17,626			9,866			8,004			9,642
Accrued expenses and other current liabilities		12,912			8,734			9,015			5,776
Reserve for class action settlement		39,372			39,372			—			—
Vest replacement program obligation		6,054			9,712			—			—
Income taxes payable		5,904			6,540			4,931			118
Employment tax withholding obligation		36,483			32,076			29,718			737
Total current liabilities		126,776			121,300			62,168			18,273
LONG TERM LIABILITIES
Note payable—bank		—			—			25,644			22,022
Other liabilities		852			1,484			674			527
Total liabilities		127,628			122,784			88,486			40,822
Commitments and Contingencies
Minority interest in consolidated subsidiary		253			171			49			(1	)
Contingently redeemable common stock (related party)		19,326			—			—			—
Stockholders’ equity
Convertible preferred stock $0.001 par value, 5,000,000 shares authorized, 500,000 shares of Series A, 12% convertible preferred stock issued and outstanding at liquidation preference		—			—			3,000			3,000
Common stock, $0.001 par value, 100,000,000 shares authorized, 48,017, 43,407, 45,283 and 40,742 million shares issued and outstanding, respectively		48			43			45			41
Additional paid in capital		80,903			77,176			63,776			62,089
Retained deficit		(79,959	)		(74,637	)		(46,152	)		(36,647	)
Total stockholders’ equity		992			2,582			20,669			28,483
Total liabilities and stockholders’ equity	$	148,199		$	125,537		$	109,204		$	69,304

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

F-3

DHB INDUSTRIES, INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

For The Years Ended December 31,

(In thousands, except share and per share data)

	2006			2005			Restated 2004			Restated 2003
Net sales	$	254,105		$	343,561		$	322,276		$	206,375
Cost of goods sold		196,154			282,653			265,607			177,066
Gross profit		57,951			60,908			56,669			29,309
Selling, general and administrative expenses		42,539			57,223			37,461			29,478
Litigation and cost of investigations		13,886			27,246			943			—
Employment tax withholding charge		4,407			2,358			28,981			737
Total operating cost		60,832			86,827			67,385			30,215
Operating loss		(2,881	)		(25,919	)		(10,716	)		(906	)
Interest expense		1,946			1,798			1,371			1,410
Other (income) expense		127			551			(190	)		(1,925	)
Total other (income) expense		2,073			2,349			1,181			(515	)
Loss before income tax (benefit) expense		(4,954	)		(28,268	)		(11,897	)		(391	)
Income tax (benefit) expense:
Current taxes		(772	)		20,014			14,726			413
Deferred tax expense (benefit)		1,058			(20,264	)		(17,526	)		3,172
Total income tax (benefit) expense		286			(250	)		(2,800	)		3,585
Loss before minority interest in subsidiary		(5,240	)		(28,018	)		(9,097	)		(3,976	)
Less minority interest of subsidiary		82			122			48			(1	)
Net loss		(5,322	)		(28,140	)		(9,145	)		(3,975	)
Dividends—preferred stock (related party)		—			345			360			360
Loss available to common stockholders	$	(5,322	)	$	(28,485	)	$	(9,505	)	$	(4,335	)
Basic loss per common share	$	(0.12	)	$	(0.63	)	$	(0.23	)	$	(0.11	)
Diluted loss per common share	$	(0.12	)	$	(0.63	)	$	(0.23	)	$	(0.11	)
Basic and diluted loss per contingently redeemable common share	$	0.00

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

F-4

DHB INDUSTRIES, INC AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDER’S EQUITY (DEFICIT)

For The Years Ended December 31, 2006, 2005, 2004, and 2003

(In thousands, except share and per share data)

	Series A Preferred Shares		Redemption Value			Common			Par Value			Additional Paid-in Capital			Retained Earnings (Accumulated Deficit)			Total
Balance December 31, 2002 Restated	500,000		$	3,000			40,413,746		$	40		$	60,599		($	32,312	)	$	31,327
2003 Restated
Net loss	—			—			—			—			—			(3,975	)		(3,975	)
Stock based compensation	—			—			—			—			898			—			898
Preferred stock dividends paid (related party)	—			—			—			—			—			(360	)		(360	)
Common stock issued for services	—			—			80,000			—			165			—			165
Exercise of stock warrants	—			—			248,390			1			427			—			428
Balance December 31, 2003	500,000			3,000			40,742,136			41			62,089			(36,647	)		28,483
2004 Restated																—
Net loss	—			—			—			—			—			(9,145	)		(9,145	)
Stock based compensation	—			—			—			—			1,531			—			1,531
Preferred stock dividends paid (related party)	—			—			—			—			—			(360	)		(360	)
Exercise of stock warrants	—			—			4,540,400			4			156			—			160
Balance December 31, 2004	500,000			3,000			45,282,536			45			63,776			(46,152	)		20,669
2005
Net loss	—			—			—			—			—			(28,140	)		(28,140	)
Stock based compensation	—			—			—			—			20,558						20,558
Preferred stock dividends paid (related party)	—			—			—			—			—			(345	)		(345	)
Preferred stock redemption (related party)	(500,000	)		(3,000	)		—			—						—			(3,000	)
Common stock repurchased	—			—			(1,930,700	)		(2	)		(7,714	)		—			(7,716	)
Stock issued for settlement of obligation	—			—			25,040			—			368			—			368
Exercise of stock warrants	—			—			30,000			—			188			—			188
Balance December 31, 2005	—			—			43,406,876			43			77,176			(74,637	)		2,582
2006
Net loss	—						—			—			—			(5,322	)		(5,322	)
Stock based compensation	—			—			—			—			1,395			—			1,395
Common stock repurchased	—			—			(655,000	)		—			(3,133	)		—			(3,133	)
Stock issued for settlement of obligation	—			—			14,960			—			220			—			220
Exercise of stock warrants	—			—			5,250,000			5			5,245			—			5,250
Balance December 31, 2006	—		$	—		$	48,016,836		$	48		$	80,903		$	(79,959	)	$	992

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

F-5

DHB INDUSTRIES, INC AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

For The Years Ended December 31,

(In thousands, except share and per share data)

							Restated			Restated
	2006			2005			2004			2003
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss)	$	(5,322	)	$	(28,140	)	$	(9,145	)	$	(3,975	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		643			616			787			564
Amortization of deferred financing costs		41			23			117			132
Deferred income tax expense (benefit)		1,058			(20,264	)		(17,526	)		3,172
Gain on sale of fixed assets		(94	)		—			—			—
Gain on exchange of minority interest for inventory		—			—			—			(1,650	)
Write off of other investments		—			—			—			942
Minority interest in consolidated subsidiary		82			122			48			(1	)
Stock based compensation		1,615			20,926			1,531			1,063
Changes in assets and liabilities:
Increase in restricted cash		(35,200	)		—			—			—
Accounts receivable		2,957			6,381			(13,860	)		(10,661	)
Accounts receivable from insurers		12,875			(12,875	)		—			—
Inventories		(5,385	)		11,406			(8,230	)		5,009
Prepaid expenses and other current assets		(784	)		(323	)		380			(626	)
Deposits and other assets		7			202			(103	)		(70	)
Accounts payable		2,229			1,862			166			2,470
Income taxes payable		(636	)		1,609			4,813			118
Employment tax withholding obligation		4,407			2,358			28,981			737
Reserve for class action settlement		—			39,372			—			—
Vest replacement obligation		(3,658	)		9,712			—			—
Accrued expenses and other current liabilities		4,178			(281	)		3,239			3,322
Other liabilities		(632	)		829			128			177
Net cash provided by (used in) operating activities		(21,619	)		33,535			(8,674	)		723
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment		572			—			—			—
Purchases of property and equipment		(458	)		(733	)		(1,387	)		(715	)
Net cash provided by (used in) investing activities		114			(733	)		(1,387	)		(715	)
CASH FLOWS FROM FINANCING ACTIVITIES
Bank overdraft		5,531			—			(1,804	)		1,804
Dividends paid on preferred stock (related party)		—			(345	)		(360	)		(360	)
Redemption of convertible preferred stock		—			(3,000	)		—			—
Net proceeds from revolving line of credit		8,425			—			—
Repayment of note payable—bank		(15,000	)		(21,144	)					(2,332	)
Proceeds from note payable—bank		—			—			12,122			2,000
Payment of note payable to stockholder		—			—			—			(1,500	)
Issuance of contingently redeemable common stock (related party)		19,326			—			—			—
Repurchase of common stock		(3,133	)		(7,716	)		—			—
Net proceeds from exercise of stock warrants		5,250			188			160			428
Net cash provided by (used in) financing activities		20,399			(32,017	)		10,118			40
Net increase (decrease) in cash		(1,106	)		785			57			48
Cash at beginning of year		1,283			498			441			393
Cash at end of year	$	177		$	1,283		$	498		$	441
Supplemental cash flow information:
Cash payments for interest	$	1,905		$	1,775		$	1,254		$	1,278
Cash payments for taxes	$	—		$	18,361		$	9,915		$	260

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

F-6

DHB INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

Note 1 BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation

The consolidated financial statements include the accounts of DHB Industries, Inc. and its subsidiaries, (the “Company”), all of which are wholly owned (except for a 0.65% minority interest in a subsidiary, Point Blank Body Armor, Inc., (“Point Blank”)). The Company’s operating subsidiaries are engaged in the domestic manufacture and marketing of protective body armor and health related sports braces and related equipment. All significant inter-company balances and transactions have been eliminated in consolidation.

Reclassifications

Certain reclassifications have been made to the 2004 and 2003 consolidated financial statements to conform to the presentation in 2006 and 2005. These reclassifications had no effect on net loss or retained deficit.

Business description

The Company is a leading manufacturer and provider of bullet- and projectile-resistant garments, fragmentation protective vests, slash and stab protective armor, and related ballistic accessories, which are used domestically and internationally by military, law enforcement, security and corrections personnel, as well as government agencies. In addition, the Company manufactures and distributes health apparel and equipment, including a variety of knee, ankle, elbow, wrist, back supports and braces that assist serious athletes, weekend sports enthusiasts and general consumers in their respective sports and everyday activities. The Company has manufacturing facilities in Pompano Beach, Deerfield Beach and Oakland Park, Florida, and Jacksboro, Tennessee.

Segments

The Company operates in one segment and therefore does not provide additional disclosure relating to reporting segments.

Use of estimates in the preparation of financial statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net revenue and expenses during each reporting period. Actual results could differ from those estimates and the differences could be material. Critical estimates made by the Company include, but are not limited to, the liability for the Zylon vest replacement program, stock based compensation expense, the liability for payroll taxes, the provision for income taxes, the cost of litigation in connection with the reserve for class action/derivative lawsuits, and the provision for excess and obsolete inventory.

Revenue recognition

The Company recognizes revenue when it is realized or realizable and has been earned. Product revenue is recognized when persuasive evidence of an arrangement exists, the product has been delivered and legal title and all risks of ownership have been transferred, written contract and sales terms are complete, customer acceptance has occurred and payment is reasonably assured. While the Company offers a right of return for all its products, returns are minimal and do not materially affect the consolidated financial statements.

F-7

DHB INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

Concentration of credit risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist of cash and cash equivalents and trade accounts receivable. The Company maintains its cash and cash equivalents with what it believes to be high quality financial institutions. Amounts held in individual financial institutions may exceed federally insured amounts.

Cash and cash equivalents

All short-term, highly liquid investments with original maturities of ninety days or less are considered cash equivalents.

Accounts Receivable

Accounts receivable consist of trade receivables recorded at original invoice amount, less an estimated allowance for uncollectible amounts. Trade credit is generally extended on a short-term basis without requiring collateral; thus trade receivables do not bear interest, although a finance charge may be applied to receivables that are past due. Trade receivables are periodically evaluated for collectibility based on past credit history with customers and their current financial condition. Changes in the estimated collectibility of trade receivables are recorded in the results of operations for the period in which the estimate is revised. Trade receivables that are deemed uncollectible are offset against the allowance for uncollectible accounts.

Inventories

The Company values inventories, which consist of finished goods, work in process and raw materials, at the lower of cost, using specific identification for ballistic raw materials and using the first-in, first-out (FIFO) method, or market. A provision for potential non-saleable inventory due to excess stock or obsolescence is based upon a detailed review of inventory components, past history and expected future usage.

Property and equipment

Property and equipment are recorded at cost less accumulated depreciation. Major additions, improvements and renewals, which substantially increase the useful lives of assets, are capitalized. Maintenance, repairs and minor renewals are expensed as incurred. Depreciation is calculated primarily on the straight-line method over the estimated life of the asset. Leasehold improvements are amortized over the shorter of the estimated life or the term of the related lease.

Fair values of financial instruments

The Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable and long-term debt. The carrying values of cash, accounts receivable, accounts payable and long-term debt approximate their fair values. The fair value of the Company’s long-term debt was estimated based on the current rates offered to the Company for debt with the same remaining terms and maturities. The fair value of the Company’s debt approximates its book value. The Company’s contingently redeemable common stock was estimated based upon (1) the number of shares contingently redeemable (see Note 11) multiplied by the price per share as of December 31, 2006, and (2) the potentially refundable share price (see Note 11). The fair value of the Company’s contingently redeemable common stock at December 31, 2006, was approximately $13,371.

F-8

DHB INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

Contingencies

Amounts are accrued for the financial resolution of certain claims which are either asserted or probable of being asserted, if management believes that it is both probable that a liability has been incurred and that the amount can be reasonably estimated.

Income taxes

DHB Industries, Inc. and subsidiaries file a consolidated federal income tax return and separate state income tax returns.

The Company uses the asset and liability approach to account for income taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax bases using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period when the change is enacted. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Research and development expenses

Research and development expenses are included in selling, general and administrative expenses as incurred and for the years ended December 31, 2006, 2005, 2004 and 2003 were $1,687, $1,707, $1,293 and $372, respectively.

Advertising expenses

The cost of advertising is expensed as incurred. The Company’s advertising expense was $567, $3, $493 and $317 for the four years ended December 31, 2006, 2005, 2004, and 2003 respectively.

Loss per share

For all periods presented, basic earnings per share is computed by dividing net loss, as adjusted for preferred dividends, by the weighted average number of common shares outstanding. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares outstanding compounding the effects of all potentially dilutive common stock equivalents, principally warrants, using the treasury stock method except in cases where the effect would be anti-dilutive.

During 2006, the Company has presented earnings per share using the two-class method. This is because the Company has outstanding contingently redeemable common shares that would participate in any dividend distributions, to the extent that the Company declared any dividends.

Stock-based compensation

The Company has adopted Statement of Accounting Standard 123R (“SFAS 123R”) using the modified retrospective method. SFAS 123R requires that new, modified and unvested share-based payment transactions with employees, such as stock options and restricted stock, be recognized in the financial statements based on their fair value and recognized as compensation expense over the period earned, usually the vesting period. The modified retrospective method requires the restatement of financial statements in the year of adoption based on the amounts previously calculated and reported in the pro forma footnote disclosures.

F-9

DHB INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

The per share weighted average fair value of stock warrants granted during the years ended December 31, 2006, 2005, 2004 and 2003 was $1.40, $6.72, $4.17 and $1.58, respectively. The fair value of these warrants was determined as of the date of grant using the Black-Scholes warrant pricing model with the following assumptions:

	Grants Issued During
	2006		2005		2004		2003
Risk free interest rate	5.1	%	3.7	%	2.8	%	2.9	%
Expected volatility of common stock	90.5	%	80.1	%	100.0	%	98.4	%
Dividend yield	0	%	0	%	0	%	0	%
Expected term (in years)	0.7 years		5.0 years		4.4 years		5.0 years

The risk free rate for the periods within the contractual life of the warrant is based on the U.S. Treasury security yield curve in effect at the time of the grant. Expected volatilities are based on the Company’s common stock historical volatility. The Company uses historical data to estimate forfeiture rates within the valuation model.

Impairment of long-lived assets

The Company reviews the recoverability of its long-lived assets when events or changes in circumstances occur that indicate that the carrying value of the asset or asset group may not be recoverable. The assessment of possible impairment is based on the Company’s ability to recover the carrying value of the asset or asset group from the expected pre-tax cash flows (undiscounted and without interest charges) of the related operations. If these cash flows are less than the carrying value of such asset, an impairment loss is recognized for the difference between estimated fair value and carrying value. The measurement of impairment requires management to estimate future cash flows and the fair value of long-lived assets. No impairment losses for long-lived assets have been recognized during each of the four years in the period ended December 31, 2006.

New Accounting Standards Implemented

In December 2004, the FASB issued SFAS No.123R, “Share-Based Payment” (SFAS 123R). This statement replaces SFAS 123 and supersedes APB 25. SFAS 123R requires all stock-based compensation to be recognized as an expense in the financial statements and that such cost be measured according to the fair value of stock options. SFAS 123R is effective for the first reporting period of a company’s first fiscal year beginning after June 15, 2005. The Company has implemented SFAS123R using the modified retrospective method. See notes 2 and 9.

New Accounting Standards Not Yet Adopted

In June 2006, FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” which defines the threshold for recognizing the benefits of tax return positions in the financial statements as “more-likely-than-not” to be sustained by the taxing authority. A tax position that meets the “more-likely-than-not” criterion shall be measured at the largest amount of benefit that is more than 50% likely of being realized upon ultimate settlement. Interpretation No. 48 applies to all tax positions accounted for under SFAS No. 109, “Accounting for Income Taxes.” Interpretation No. 48 is effective for fiscal years beginning after December 15, 2006. Upon adoption, the Company will adjust its financial statements to reflect only those tax positions that are more-likely-than-not to be sustained as of the adoption date. Any adjustment will be recorded directly to the

F-10

DHB INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

beginning retained earnings balance in the period of adoption and reported as a change in accounting principle. The Company has determined that Interpretation No. 48 will not have material effect on the Company’s financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standard No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 provides a definition of fair value, establishes acceptable methods of measuring fair value and expands disclosures for fair value measurements required under other accounting pronouncements, but does not change existing guidance as to whether or not an instrument is carried at fair value. SFAS 157 is effective for fiscal years beginning after November 15, 2007, the year beginning January 1, 2008 for the Company. The Company does not expect the adoption of SFAS 157 to have a material impact on its financial statements.

Note 2 RESTATEMENTS

In March 2006, the Company determined that there may have been errors in certain journal entries in the 2005 books and records relating to inventory and the vest exchange program accrual. Errors as defined by GAAP include mathematical mistakes, mistakes in the application of accounting principles or oversight or misuse of facts that existed at the time the financial statements are prepared, both intentional and unintentional, including fraud.

As a result, the Company, primarily at the direction of the Audit Committee, began a comprehensive analysis of historical information and accounting books and records. The Company identified discrepancies relating to the reasonableness of estimates and the accuracy of reported financial results. These discrepancies were primarily related to reported amounts of sales, cost of sales, inventory values, compensation amounts, both cash and stock based, expected vest replacement accruals and certain related party transactions reported in 2004 and 2003. In addition, certain withholding, remitting and reporting obligations under the employment tax laws had not been complied with. The financial reporting discrepancies and disclosures were significant enough to require restatement of the Company’s consolidated financial statements as of and for the years ended December 31, 2004 and 2003.

On March 31, 2006, the Company concluded that the Company’s previously issued consolidated financial statements as of and for the interim periods during 2005 and the related financial information for those interim periods should not be relied on. On August 17, 2006, the Executive Committee of the Board of Directors of DHB Industries, Inc. concluded that the Company’s previously issued consolidated financial statements as of and for the years ended December 31, 2004 and 2003 and the related financial information for those years should not be relied on.

The Company has corrected its accounting for recording certain sales, costing of certain inventory items, including reserves for excess and obsolete items, recording of grants of share based payments, estimating the obligation under the vest replacement program, recording obligations pursuant to employment tax laws and accounting for income taxes and reporting certain related party transactions. Pursuant to these corrections, the Company has restated its previously reported consolidated financial statements as of and for the years ended December 31, 2004 and 2003.

The effects of these corrections on the accompanying consolidated balance sheets, consolidated statements of operations, consolidated statements of cash flows and consolidated statements of stockholders’ equity for the years ended December 31, 2004 and 2003 and a discussion of the nature of the adjustments made to the balances are as follows.

F-11

DHB INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

Inventory valuation

During the years ended December 31, 2004 and 2003, certain inventory items were valued at amounts that exceeded their manufactured costs.

Following is an overview of the components of the adjustments shown in the schedules below:

1. Work in process for commercial products was inappropriately valued using a percentage of ending sales prices, which overstated the related inventory.

2. Rebates were credited to revenues and not captured as a reduction of inventory costs

3. Work in process for military products was significantly overvalued in both 2003 and 2004, resulting in adjustments of approximately $8,000 at both December 31, 2004 and 2003.

4. Finished goods for all periods included inconsistent costing, primarily in connection with military products

5. The inventory records consisted of Excel worksheets and other documents that were not centrally controlled. This led to a lack of consistency and accountability and increased the level of confusion and inaccuracy. We were not able to locate any historical bills of materials for inventory valuation purposes.

Reserves for inventories

Under GAAP, inventories should be valued at the lower of cost or market. During the years ended December 31, 2004 and 2003, the Company did not value its inventories at the lower of cost or market. There were certain levels of excess and obsolete inventories for which provisions should have been recorded, but were not.

Following is an overview of the larger components of the adjustments shown in the schedules below:

1. Certain operating subsidiaries did not have any stated policy regarding evaluation of excess and obsolete inventories. Moreover, the Company did not find any evidence of such an evaluation being performed.

2. Over time, design and certification specifications changed, but consideration of those changes and their impact on inventories were not documented and, in fact, diminished the value of certain inventories.

Rebates

The Company received rebates from certain vendors that were recorded as revenue during the years ended December 31, 2003 through 2004. GAAP requires that such rebates be recorded as reductions of inventory cost and recognized as a component of cost of sales when the related inventory is sold.

Sales to TAP

The Company used Tactical Armor Products, Inc. (TAP) to serve as a subcontractor to assemble hard armor plates. While some of the transfers of raw materials to TAP were correctly accounted for, other transfers of raw materials during the years ended December 31, 2003 and 2004 were recorded as sales; this caused both sales and cost of sales to be incorrectly “grossed-up” by the amount of those transfers that were recorded as sales.

In addition to the above, the Company included in accounts receivable at December 31, 2004, amounts that represented inventory held by TAP that should have been included as inventory.

F-12

DHB INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

Cost of Sales

During the years ended December 31, 2004 and 2003, the Company inappropriately reclassified certain cost of sales as either research and development expense or marketing expense.

Fixed Assets

Certain assets were paid for by the Company and were recorded in the Company’s fixed asset register and depreciated over time. However, title documents for those assets may be in the name of persons or entities other than the Company (e.g., certain vehicles, etc).

Deferred Rent

GAAP requires that rent expense for operating leases be recognized on a straight-line basis. The Company erred in computing the deferred rent and related rent expense for the years ended December 31, 2004 and 2003.

Payroll Taxes

During the years ended December 31, 2004 and 2003, withholding taxes for bonuses paid and the exercise of stock options and warrants were not withheld and paid to the taxing authorities as required. The Company has now recorded liabilities for its potential obligations for federal and state payroll withholding taxes, plus penalties.

Revenue Cut-off

The Company did not consider certain product shipments made at the end of each accounting period with terms of FOB destination. To conform to GAAP, such shipments should not be recognized as revenue until received by customers.

Minority Interest

There were errors in computing the amount of minority interest recorded. The errors resulted from incorrect valuation of the initial minority interest, as well as the impact of the other errors discussed in this note.

True-up of Miscellaneous Accounts

The Company identified numerous miscellaneous errors in the recording of operating expenses.

Income taxes

The previously reported provisions for income taxes for 2004 and 2003 were adjusted based on the corrected amounts, when appropriate, of previously reported earnings before income taxes as well as to take into consideration nondeductible stock based compensation, penalties, meals and entertainment expenses and officers compensation in excess of the annual Internal Revenue Code Section 162(m) limitation for performance based plans.

Stock Based Compensation

The Company did not use third party intermediary brokers to assist with “cashless exercises” for exercise of warrants by certain employees, meaning that variable accounting should have been employed under APB Opinion No. 25 and related standards. However, the Company did not consider the impact of variable accounting for those awards, which should have resulted in revaluing the warrants and recording stock compensation charges (or credits) based on changes in the intrinsic value of the awards. Also, certain individuals and professional firms received warrants for services rendered. The Company incorrectly accounted for issuance of those warrants using the intrinsic value method, not the fair value method required by Statement of Financial Accounting Standards No. 123.

F-13

DHB INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

Financial Statement Reconciliations

A reconciliation of the 2003 and 2004 consolidated financial statements to the previously filed statements along with supporting schedules is as follows:

DHB INDUSTRIES, INC AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2004

(In thousands, except share and per share data)

	As Reported			Restatement Adjustments			Subtotal			Effects of Adoption of SFAS 123R			Restated
Net sales	$	340,075		$	(17,799	)	$	322,276		$	—		$	322,276
Cost of goods sold		245,940			19,667			265,607			—			265,607
Gross profit		94,135			(37,466	)		56,669			—			56,669
Selling, general and administrative expenses		44,564			57,811			102,375			(63,971	)		38,404
Employment tax withholding charge		—			28,981			28,981			—			28,981
Total operating cost		44,564			86,792			131,356			(63,971	)		67,385
Operating income		49,571			(124,258	)		(74,687	)		63,971			(10,716	)
Interest expense		1,374			(3	)		1,371			—			1,371
Other (income) expense		(35	)		(155	)		(190	)		—			(190	)
Total other (income) expense		1,339			(158	)		1,181			—			1,181
Income (loss) before income tax (benefit) expense		48,232			(124,100	)		(75,868	)		63,971			(11,897	)
Income taxes (benefit) expense
Current taxes		17,840			(3,114	)		14,726			—			14,726
Deferred tax expense (benefit)		(267	)		(17,259	)		(17,526	)		—			(17,526	)
Total income tax (benefit) expense		17,573			(20,373	)		(2,800	)		—			(2,800	)
Income (loss) before minority interest of subsidiary		30,659			(103,727	)		(73,068	)		63,971			(9,097	)
Less minority interest of subsidiary		224			(176	)		48			—			48
Net income (loss)		30,435			(103,551	)		(73,116	)		63,971			(9,145	)
Dividend—preferred stock (related party)		360			—			360			—			360
Income (loss) available to common stockholders	$	30,075		$	(103,551	)	$	(73,476	)	$	63,971		$	(9,505	)
Basic earnings (loss) per common share	$	0.73											$	(0.23	)
Diluted earnings (loss) per common share	$	0.67											$	(0.23	)

F-14

DHB INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

DHB INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEET

December 31, 2004

(In thousands, except share and per share data)

	As Reported		Restatement Adjustments			Subtotal			Effects of Adoption of SFAS 123R			Restated
ASSETS
Current assets:
Cash	$	447	$	51		$	498		$	—		$	498
Accounts receivable, less allowance for doubtful accounts of $1,157		47,560		(135	)		47,425			—			47,425
Accounts receivable – related party		6,583		(6,583	)					—
Inventories		85,973		(47,742	)		38,231						38,231
Deferred income tax assets		483		18,611			19,094			—			19,094
Prepaid expenses and other current assets		1,220		(1	)		1,219			—			1,219
Total current assets		142,266		(35,799	)		106,467			—			106,467
Property and equipment, net		2,632		(261	)		2,371			—			2,371
Other assets
Deferred income tax assets		593		(593	)		—			—			—
Deposits and other assets		366		—			366			—			366
		959		(593	)		366						366
Total assets	$	145,857	$	(36,653	)	$	109,204		$	—		$	109,204
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Note payable – bank	$	6,000	$	4,500		$	10,500		$	—		$	10,500
Accounts payable		8,014		(10	)		8,004			—			8,004
Accrued expenses and other current liabilities		8,350		665			9,015			—			9,015
Employment tax withholding obligation		—		29,718			29,718			—			29,718
Income taxes payable		14,816		(9,885	)		4,931			—			4,931
Total current liabilities		37,180		24,988			62,168			—			62,168
LONG TERM LIABILITIES
Notes payable—bank		30,134		(4,490	)		25,644			—			25,644
Other liabilities		1,086		(412	)		674			—			674
Total liabilities		68,400		20,086			88,486			—			88,486
Minority interest in consolidated subsidiary		431		(382	)		49			—			49
COMMITMENTS AND CONTINGENCIES
Stockholders’ equity
Convertible preferred stock $0.001 par value, 5,000,000 shares authorized, 500,000 shares of Series A, 12% convertible preferred stock issued and outstanding; at liquidation preference		1		2,999			3,000			—			3,000
Common stock, $ 0.001 par value, 100,000,000 shares authorized, 45.283 million shares issued and outstanding		45		—			45			—			45
Additional paid in capital		35,540		92,840			128,380			(64,604	)		63,776
Retained earnings (accumulated deficit)		41,440		(152,196	)		(110,756	)		64,604			(46,152	)
Total stockholders’ equity		77,026		(56,357	)		20,669			—			20,669
Total liabilities and stockholders’ equity	$	145,857	$	(36,653	)	$	109,204		$	—		$	109,204

F-15

DHB INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

DHB INDUSTRIES, INC AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS’ EQUITY

For the Year Ended December 31, 2004

(In thousands, except share and per share data)

	Series A Preferred Shares	Par Value		Common	Par Value		Additional Paid-in Capital			Retained Earnings (Accumulated Deficit)			Total
Balance December 31, 2003, as reported	500,000	$	1	40,742,136	$	41	$	35,384		$	11,312		$	46,738
Restatement adjustments	—		2,999	—		—		26,705			(47,959	)	$	(18,255	)
Balance December 31, 2003, as restated	500,000		3,000	40,742,136	$	41		62,089			(36,647	)		28,483
Restatement adjustments in connection with stock based compensation	—		—	—		—		65,502			—			65,502
Adoption of SFAS 123R	—		—	—		—		(63,971	)		—			(63,971	)
Net loss	—		—	—		—		—			(9,145	)		(9,145	)
Preferred stock dividends paid	—		—	—		—		—			(360	)		(360	)
Exercise of stock warrants	—		—	4,540,400		4		156			—			160
Balance December 31, 2004, as restated	500,000	$	3,000	45,282,536	$	45	$	63,776		$	(46,152	)	$	20,669

DHB INDUSTRIES, INC AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS

For the Year Ended December 31, 2004

(In thousands, except share and per share data)

	As Reported			Restatement Adjustments			Subtotal			Effects of Adoption of SFAS 123R		Restated
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash used in operating activities	$	(10,095	)	$	1,421		$	(8,674	)	$	—	$	(8,764	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment		(1,791	)		404			(1,387	)		—		(1,387	)
Net cash provided by (used in) investing activities		(1,791	)		404			(1,387	)		—		(1,387	)
CASH FLOWS FROM FINANCING ACTIVITIES
Bank overdraft		—			(1,804	)		(1,804	)		—		(1,804	)
Dividends paid on preferred stock (related party)		(360	)		—			(360	)		—		(360	)
Net proceeds of notes payable – bank		1,539			6,961			8,500			—		8,500
Proceeds from the issuance of long term debt		12,500			(8,878	)		3,622			—		3,622
Principal payments on term loan payable		(2,000	)		2,000
Net proceeds from exercise of stock warrants		160			—			160			—		160
Net cash provided by (used in) financing activities		11,839			(1,721	)		10,118					10,118
Effect of foreign currency translation		53			(53	)		—			—
Net increase in cash		6			51			57			—		57
Cash at beginning of year		441			—			441			—		441
Cash at end of year	$	447		$	51		$	498		$	—	$	498

F-16

DHB INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

	Restatement Adjustment	Amount
	2004
	Net sales
1	Rebates — Reclassification of rebates from vendors were recorded in sales instead of a reduction in cost of inventory	$	(11,130	)
2	Sales to TAP — Transfers of product to TAP, a subcontractor, were recorded as sales in error		(6,632	)
3	Sales cut-off — Correct errors recording FOB sales. GAAP requires FOB shipments to be recognized when received by the customer		(37	)
	Total		(17,799	)
	Cost of goods sold
1	Inventory Valuation — Certain inventory items were valued at costs that exceeded their actual manufactured cost in error.		6,203
2	Inventory Reserve — Adjustment to inventory to lower of cost or market and establish reserves for obsolete inventory as required by GAAP		17,034
3	Rebates — Reclassification of rebates from vendors were recorded in sales instead of a reduction in cost of inventory in error.		(11,130	)
4	Sales to TAP — Transfers of product to TAP, a subcontractor, were recorded as sales in error		(6,632	)
5	Receivable from TAP — Correct errors in recording amounts due from TAP		6,509
6	Research & Development — Reclassification of costs charged to R & D expense in error		7,100
7	Rent — Adjustment to deferred rent expense to properly allocate rent payments.		(443	)
8	Sales cut-off — Correct errors recording FOB sales. GAAP requires FOB shipments to be recognized when received by the customer		8
9	Plate Purchases — Correct error in purchases of plates		1,018
	Total		19,667
	Operating Cost
1	Stock Based Compensation — Correct errors in connection of recording grants of stock warrants as required by GAAP.		65,502
2	Research & Development — Reclassification of costs charged to R & D expense in error		(7,100	)
3	Commissions — Correct recording of accrual		(84	)
4	Advertising — Correct errors in recording accrual		(60	)
5	Labor Fringe Benefit Cost — Reclassification to cost of goods sold		(149	)
6	Bank and Credit Card Fees — Correct errors in recording bank and credit card fees		106
7	Professional Fees — Correct errors in recording accrual		(313	)
8	Miscellaneous — Correct miscellaneous errors and record reclassifications		(91	)
9	Employment tax withholding charge — Record expense for taxes in connection with paid bonuses and exercise of warrants.		28,981
	Total		86,792
	Interest and other expense (income)
1	Interest Expense — Record corrections and reclassifications		(3	)
2	Other Expense (Income) — Record correction of miscellaneous errors		(155	)
	Total		(158	)
	Income tax (benefit) expense
1	Current Taxes — Record current income tax benefit		(3,114	)
2	Deferred tax (Benefit) Expense — Record deferred tax benefit		(17,259	)
	Total		(20,373	)
	Minority interest in subsidiary
1	Minority interest in subsidiary — Correct recording of minority interest	$	(176	)

F-17

DHB INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

DHB INDUSTRIES, INC AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

For the Year Ended December 31, 2003

(In thousands, except share and per share data)

	As Reported			Restatement Adjustments			Subtotal			Effects of Adoption of FAS 123R			Restated
Net sales	$	230,011		$	(23,636	)	$	206,375		$	—		$	206,375
Cost of goods sold		166,670			10,396			177,066			—			177,066
Gross profit		63,341			(34,032	)		29,309			—			29,309
Selling, general and administrative expenses		37,325			16,501			53,826			(24,348	)		29,478
Employment tax withholding charge					737			737			—			737
Total operating cost		37,325			17,238			54,563			(24,348	)		30,215
Operating income		26,016			(51,270	)		(25,254	)		24,348			(906	)
Interest expense		1,344			66			1,410			—			1,410
Other (income) expense		(1,605	)		(320	)		(1,925	)		—			(1,925	)
Total other (income) expense		(261	)		(254	)		(515	)		—			(515	)
Income before income tax (benefit) expense		26,277			(51,016	)		(24,739	)		24,348			(391	)
Income taxes (benefit) expense
Current taxes		7,186			(6,773	)		413			—			413
Deferred tax expense (benefit)		3,912			(740	)		3,172			—			3,172
Total income tax (benefit) expense		11,098			(7,513	)		3,585			—			3,585
Income (loss) before minority interest of subsidiary		15,179			(43,503	)		(28,324	)		24,348			(3,976	)
Less minority interest of subsidiary		7			(8	)		(1	)		—			(1	)
Net income (loss)		15,172			(43,495	)		(28,323	)		24,348			(3,975	)
Dividend—preferred stock (related party)		360			—			360			—			360
Income (loss) available to common stockholders	$	14,812		$	(43,495	)	$	(28,683	)	$	24,348		$	(4,335	)
Basic earnings per common share	$	0.36											$	(0.11	)
Diluted earnings per common share	$	0.34											$	(0.11	)

F-18

DHB INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

DHB INDUSTRIES, INC AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEET

DECEMBER 31, 2003

(In thousands, except share and per share data)

	As Reported		Restatement Adjustments			Subtotal			Effects of Adoption of SFAS 123R			Restated
ASSETS
Current assets:
Cash	$	441	$	—		$	441		$	—		$	441
Accounts receivable, less allowance for doubtful accounts of $1,107		33,707		(142	)		33,565			—			33,565
Inventories		54,753		(24,752	)		30,001			—			30,001
Deferred income tax assets		372		1,052			1,424			—			1,424
Prepaid expenses and other current assets		1,518		79			1,597			—			1,597
Total current assets		90,791		(23,763	)		67,028			—			67,028
Property and equipment, net		1,819		(48	)		1,771			—			1,771
Other assets
Deferred income tax assets		437		(313	)		124			—			124
Deposits and other assets		381					381			—			381
		818		(313	)		505			—			505
Total assets	$	93,428	$	(24,124	)	$	69,304			—		$	69,304
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Note payable—bank	$	2,000	$	—		$	2,000		$	—		$	2,000
Accounts payable		9,465		177			9,642			—			9,642
Employment tax withholding charge		—		737			737			—			737
Accrued expenses and other current liabilities		5,635		141			5,776			—			5,776
Income taxes payable		6,868		(6,750	)		118			—			118
Total current liabilities		23,968		(5,695	)		18,273			—			18,273
LONG TERM LIABILITIES
Notes payable—bank		22,012		10			22,022			—			22,022
Other liabilities		502		25			527			—			527
Total liabilities		46,482		(5,660	)		40,822			—			40,822
Minority interest in consolidated subsidiary		207		(208	)		(1	)		—			(1	)
COMMITMENTS AND CONTINGENCIES
Stockholders’ equity
Convertible preferred stock $0.001 par value, 5,000,000 shares authorized, 500,000 shares of Series A, 12% convertible preferred stock issued and outstanding; at liquidation preference		1		2,999			3,000			—			3,000
Common stock, 0.001 par value, 100,000,000 shares authorized, 40.742 million shares issued and outstanding		41		—			41			—			41
Additional paid in capital		35,384		58,216			93,600			(31,511	)		62,089
Retained earnings (accumulated deficit)		11,313		(79,471	)		(68,158	)		31,511			(36,647	)
Total stockholders’ equity		46,739		(18,256	)		28,483			—			28,483
Total liabilities and stockholders’ equity	$	93,428	$	(24,124	)	$	69,304		$	—		$	69,304

F-19

DHB INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

DHB INDUSTRIES, INC AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE YEAR ENDED DECEMBER 31, 2003

(In thousands, except share and per share data)

	Series A Preferred Shares	Par Value		Common	Par Value		Additional Paid-in Capital			Earnings (Accumulated Deficit)			Total
Balance December 31, 2002, as reported	500,000	$	1	40,413,746	$	40	$	34,792		$	(3,506	)	$	31,327
Restatement adjustments in connection with stock based compensation	—		—	—		—		35,969			(35,969	)		—
Reflect preferred stock at liquidation value	—		2,999	—		—		(2,999	)		—			—
Adoption of FAS 123R	—		—	—		—		(7,163	)		7,163			—
Balance December 31, 2002, as restated	500,000		3,000	40,413,746		40		60,599			(32,312	)		31,327
Net loss	—		—	—		—		—			(3,975	)		(3,975	)
Correction of errors in connection with grants of stock warrants	—		—	—		—		25,246			—			25,246
Adoption effect of SFAS 123R	—		—	—		—		(24,348	)		—			(24,348	)
Preferred stock dividends paid											(360	)		(360	)
Stock issued for services	—		—	80,000		—		165			—			165
Exercise of stock warrants	—		—	248,390		1		427			—			428
Balance December 31, 2003, as restated	500,000	$	3,000	40,742,136	$	41	$	62,089		$	(36,647	)	$	28,483

DHB INDUSTRIES, INC AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 31, 2003

(In thousands, except share and per share data)

	As Reported			Restatement Adjustments			Subtotal			Effects of Adoption of SFAS 123R		Restated
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by (used in) operating activities	$	2,595		$	(1,872	)	$	723				$	723
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment		(741	)		26			(715	)		—		(715	)
Net cash provided by (used in) investing activities		(741	)		26			(715	)		—		(715	)
CASH FLOWS FROM FINANCING ACTIVITIES
Bank overdraft		—			1,804			1,804			—		1,804
Dividends paid on preferred stock (related party)		(360	)		—			(360	)		—		(360	)
Proceeds of notes payable bank—short term					2,000			2,000			—		2,000
Repayment of notes payable bank—long term		(362	)		(1,970	)		(2,332	)		—		(2,332	)
Payments of note payable—stockholder		(1,500	)		—			(1,500	)		—		(1,500	)
Net proceeds from exercise of stock warrants		428			—			428			—		428
Net cash provided by (used in) financing activities		(1,794	)		1,834			40			—		40
Effect of foreign currency translation		(12	)		12			—			—
Net increase in cash and cash equivalents		48			—			48					48
Cash at beginning of year		393			—			393			—		393
Cash at end of year	$	441		$	—		$	441		$	—	$	441

F-20

DHB INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

	Restatement Adjustment	Amount
	2003
	Net sales
1	Rebates — Reclassification of rebates from vendors were recorded in sales instead of a reduction in cost of inventory	$	(8,324	)
2	Sales to TAP — Transfers of product to TAP, a subcontractor, were recorded as sales in error		(15,136	)
3	Sales cut-off — Correct errors recording FOB sales. GAAP requires FOB shipments to be recognized when received by the customer		(176	)
	Total		(23,636	)
	Cost of goods sold
1	Inventory Valuation — Certain inventory items were valued at costs that exceeded their actual manufactured cost in error.		23,895
2	Inventory Reserve — Adjustment to inventory to lower of cost or market and establish reserves for obsolete inventory as required by GAAP		1,028
3	Rebates — Reclassification of rebates from vendors were recorded in sales instead of a reduction in cost of inventory in error.		(8,324	)
4	Sales to TAP — Transfers of product to TAP, a subcontractor, were recorded as sales in error		(15,136	)
5	Research & Development - Reclassification of costs charged to R & D expense in error		8,830
6	Rent - Adjustment to deferred rent expense to properly allocate rent payments.		31
7	Sales cut-off — Correct errors recording FOB sales. GAAP requires FOB shipments to be recognized when received by the customer		(77	)
8	Direct Labor Fringe Benefit Cost — Reclassification of certain fringe benefit costs charged to expense		149
	Total		10,396
	Operating Cost
1	Stock Based Compensation — Correct errors in connection of recording grants of stock warrants as required by GAAP.		25,246
2	Research & Development —Reclassification of costs charged to R & D expense in error		(8,830	)
3	Labor Fringe Benefit Cost — Reclassification to cost of goods sold		(149	)
4	Bank and Credit Card Fees — Correct errors in recording bank and credit card fees		65
5	Miscellaneous — Correct miscellaneous errors and record reclassifications		169
6	Employment tax withholding charge — Record expense for taxes in connection with paid bonuses and exercise of warrants.		737
	Total		17,238
	Interest and other expense (income)
1	Interest Expense — Record corrections and reclassifications		66
2	Other Expense (Income) — Record correction in investment in subsidiary and miscellaneous error corrections		(320	)
	Total		(254	)
	Income tax (benefit) expense
1	Current Taxes — Record current income tax benefit		(6,773	)
2	Deferred tax (Benefit) Expense - Record deferred tax benefit		(740	)
	Total		(7,513	)
	Minority interest in subsidiary
1	Minority interest in subsidiary — Correct recording of minority interest	$	(8	)

F-21

DHB INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

Note 3 RESTRICTED CASH

Restricted cash at December 31, 2006, is comprised of amounts in escrow of $35,200. These escrowed funds are restricted as to use and may only be used for the settlement of the Company’s securities class action and related derivative action as described in Note 11. This escrow balance and the related reserve for liability associated with this litigation are both included as components of working capital.

Note 4 INVENTORIES AND COST OF SALES

The components of inventories as of December 31, 2006, 2005, 2004 and 2003 are as follows:

	December 31,
	2006		2005		Restated 2004		Restated 2003
Raw materials	$	18,963	$	16,735	$	23,015		18,539
Work in process		5,733		2,799		2,629		4,058
Finished goods		7,514		7,291		12,587		7,404
	$	32,210	$	26,825	$	38,231	$	30,001

The components of cost of sales for each of the four years in the period ended December 31, 2006, are as follows:

	For the years ended December 31,
	2006		2005		Restated 2004		Restated 2003
Manufactured cost of goods sold	$	192,720	$	255,918	$	248,333	$	175,811
Impairment of inventory		3,434		7,558		17,274		1,255
Provision for vest replacement program				19,177
Cost of goods sold	$	196,154	$	282,653	$	265,607	$	177,066

The impairment of inventory represents the charge to cost of goods sold for each of the periods presented for valuing obsolete or excess inventory at its market value. See Note 2 – RESTATEMENTS for a discussion of charges for impairment of inventory in 2004. Charges for impairment of inventory in 2005 in part reflect the charge relating to the cost of Zylon raw material on hand at the time the material Zylon became non-saleable.

The provision for vest replacement program charged to cost of goods sold in 2005 represents the estimated cost of replacing certain vests, containing the material Zylon pursuant to a non-cash settlement of a class action lawsuit against the Company and other companies in the industry. The Company agreed to participate in a voluntary vest replacement program with the cost of that program charged to cost of goods sold in 2005.

F-22

DHB INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

Note 5 PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

	December 31,
	2006			2005			2004 Restated			2003 Restated			Estimated useful life
Machinery and equipment	$	2,147		$	2,810		$	2,956		$	2,076		5-10 years
Furniture, fixtures and computer equipment		1,236			1,256			1,611			1,226		3-7 years
Transportation equipment		50			242			242			242		3-5 years
													3-10 years or term
Leasehold improvements		983			1,613			1,263			1,149		of lease
		4,416			5,921			6,072			4,693
Less accumulated depreciation and amortization		(2,591	)		(3,433	)		(3,701	)		(2,922	)
	$	1,825		$	2,488		$	2,371		$	1,771

Depreciation and amortization expense for the years ended December 31, 2006, 2005, 2004 and 2003 were approximately $643, $616, $787 and $564 respectively.

Note 6 DEBT

Effective March 15, 2004, and prior to April 12, 2006, the Company’s credit agreement, as amended, consisted of both a revolving credit facility and a term loan. Borrowings under the credit agreement bore interest, at the Company’s option, at the bank’s prime rate or LIBOR plus 1.75% per annum on the revolving credit facility and at the bank’s prime rate or LIBOR plus 2.25% on the term loan portion, as LIBOR is set from time to time. The borrowings under the credit agreement are collateralized by a first security interest in substantially all of the assets of the Company. In addition, the credit agreement includes both affirmative and negative covenants customary for a financing of this nature. The credit agreement, among other things, requires the Company to maintain a minimum (i) tangible net worth, as defined, (ii) fixed charge coverage ratio, and (iii) earnings before interest, taxes, depreciation and amortization. The credit agreement further limits the amount of capital expenditures that the Company may incur in any fiscal year and the payment of dividends.

On April 12, 2006, the Company received a Notice of Events of Default and Reservation of Rights from the lender under the credit agreement, as amended. The events of default related to non-reliance on 2005 interim financial statements, a delay in filing the Company’s Annual Report on Form 10-K for the year ended December 31, 2005, and the receipt by the Company of a notice from the American Stock Exchange of failure to satisfy certain continued listing standards.

During the period from April 12, 2006, to April 3, 2007, the Company remained in default on its credit agreement and operated under various forbearance agreements, and at certain times had no forbearance from the lender.

On April 3, 2007, the Company entered into an Amended and Restated Loan and Security Agreement with the lender. This credit agreement provides for a three-year, $35,000 revolving credit facility available to the Subsidiaries, jointly and severally, bearing interest at the Prime Rate plus 0.25% or, at the Company’s option, LIBOR plus 2.25%. Borrowings are available in the form of advances, or letters of credit granted or issued against a percentage of the Subsidiaries eligible accounts receivable and eligible inventory as defined. The credit

F-23

DHB INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

agreement includes financial covenants related to minimum sales and maximum capital expenditures. The credit agreement further provides that, at a future date, the Company will agree to additional financial covenants including a senior leverage ratio; total leverage ratio; minimum tangible net worth; fixed charge coverage ratio and minimum consolidated earnings before interest, taxes, depreciation and amortization. The credit facility is secured by substantially all the assets of the Company.

The fair value of balances outstanding under the Company’s credit agreement approximated book value at December 31, 2006, 2005, 2004 and 2003, respectively.

Financing costs associated with the credit agreement are capitalized and amortized over the term of the financing as extended by subsequent amendments using a method that approximates the effective interest method. Amortization expense was $41, $23, $117 and $132 during the years ended December 31, 2006, 2005, 2004 and 2003, respectively.

Note 7 ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consist of the following as of December 31,

	2006		2005		Restated 2004		Restated 2003
Commissions	$	322	$	2,369	$	894	$	815
Customer deposits		68		168		200		367
Accrued payroll		3,649		3,046		398		141
Payroll taxes and other withholdings		64		34		28		16
Vendor invoices not yet received		4,726		1,432		2,526		4,215
Other		4,083		1,685		4,969		222
	$	12,912	$	8,734	$	9,015	$	5,776

Note 8 MINORITY INTEREST

The Company’s minority interest on the consolidated balance sheet reflects the 0.65% minority interest in Point Blank at December 31, 2006, 2005, 2004 and 2003. The Company sold stock in its Point Blank subsidiary, representing a 0.65% minority interest, in exchange for $1,650 of inventory. This interest had no book value, which resulted in a gain on the sale of the stock of the subsidiary of $1,650 included in other income in the accompanying consolidated statement of operations for the year ended December 31, 2003.

Note 9 STOCKHOLDERS’ EQUITY

Convertible Preferred Stock

The Company is authorized to issue 5,000,000 shares of Series A 12% Convertible Preferred Stock (“Preferred Stock”). The Series A, 12% Convertible Preferred Stock has a dividend rate of $0.72 per share per annum and may be converted, on a one to one basis, at the option of the holder, into shares of common stock. The shares of Series A, 12% Convertible Preferred Stock are redeemable at the option of the Company on December 15^th of each year at $6.00 per share. On January 14, 2002, the principal stockholder (the Company’s former Chairman and CEO) exchanged $3,000 of the indebtedness due him for 500,000 shares of Preferred Stock. Until its redemption on December 15, 2005, the Company paid cash dividends on the Preferred Stock each quarter at a rate of $0.18 per share ($0.72 per share per annum).

F-24

DHB INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

Common Stock

The Company has 100,000,000 shares authorized of its $0.001 par value common stock. No dividends have been paid on common stock during the last four fiscal years. During 2006 and 2005, respectively, 655,000 and 1,930,700 shares of its common stock were bought back by the Company in the open market.

On July 31, 2006 the Company issued 3,007,099 shares of its common stock in a private placement transaction where the former Chairman and CEO purchased the shares for $4.93 per share under the terms of the Memorandum of Understanding. Due to the fact that the shares are subject to a put if the proposed settlement is not approved by the court, the proceeds of this issuance are classified outside of permanent equity until the contingency is resolved (See Note 11). The fair value of these contingently redeemable shares at December 31, 2006, is approximately $13,400. In addition, during 2006 and 2005, a total of 40,000 shares of common stock were issued in settlement of other obligations, and the value of the shares recorded was determined by the carrying amounts of these other obligations.

In 2003 80,000 shares of common stock were in exchange for services. The fair value of the services performed was most readily determinable and therefore used as the basis for recording the transaction.

Exercise of Stock Warrants and Options

In March and July, 2006 the former chairman and CEO exercised certain stock warrants granted to him in connection with the extension of his employment agreement in July 2005. In March 2006 he exercised 1,500,000 warrants with an exercise price of $1.00 pursuant to a mandatory exercise provision contained in the warrant agreement. On July 1, 2006 he elected to exercise an additional 750,000 warrants with an exercise price of $1.00 per common share. On July 31, 2006 he agreed to exercise 3,000,000 additional warrants at a modified exercise price of $2.50 per common share in connection with a Memorandum of Understanding executed to memorialize the agreement between the Company and the former chairman and CEO regarding the funding of certain obligations under a proposed settlement of a class action lawsuit. (See Note 11). Due to the fact $1.50 per share of the exercise price is potentially refundable if the proposed settlement is not approved by the court, $4,500 of the exercise price has been classified outside permanent equity until such time as the matter is resolved.

During 2005, 30,000 warrants were exercised for a total proceeds of $188 resulting in the issuance of 30,000 common shares.

During 2004, 4,891,000 stock warrants were exercised resulting in the issuance of 4,540,400 common shares in exchange for proceeds of $160. Of these warrants, 4,811,000 were exercised in a cashless exercise.

During 2003, 281,723 warrants and options were exercised for total consideration of $428 in exchange for 248,390 common shares.

Loss per share

Basic and diluted loss per common share calculations are based on the weighted average number of common shares outstanding during each period: 44,884,474, 45,156,950, 41,184,612 and 40,599,018 shares for the years ended December 31, 2006, 2005, 2004 and 2003, respectively.

For the years ended December 31, 2006, 2005, 2004 and 2003, the Company’s stock warrants outstanding are anti-dilutive with respect to the calculation of fully-diluted loss per share. Consequently, the effect of these warrants are not included in the calculation of fully diluted loss per share.

F-25

DHB INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

Additionally, for the years ended December 31, 2005, 2004 and 2003 the Company’s convertible preferred stock outstanding is anti-dilutive with respect to the calculation of fully-diluted loss per share. Consequently, the effect of the preferred stock is not included in the calculation of fully diluted loss per share.

The computations for basic and diluted loss per share are as follows:

	Year Ended December 31,
	2006			2005		2004		2003
Common Shareholders
Net loss		($5,322	)	($28,140	)	($9,145	)	($3,975	)
Less: Dividends on preferred stock				345		360		360
Net loss attributable to common shares		($5,322	)	($28,485	)	($9,505	)	($4,335	)
Weighted-average shares		44,884,474		45,156,950		41,184,612		40,599,018
Basic and diluted loss per common share		($.12	)	($ .63	)	($.23	)	($.11	)
	2006
Contingently redeemable common shares
Net loss obliged to be funded by contingently redeemable shareholder		—
Plus: Change in redemption value		—
Net loss attributable to contingently redeemable common shareholder		—
Divided by weighted-average shares		1,252,958
Basic and diluted loss per common share	$	0.00

Warrants to Purchase Stock

Pursuant to the Company’s 2005 Omnibus Equity Incentive Plan, the Compensation Committee is authorized to award options or warrants to purchase up to a total of 2,500,000 shares of the Company’s common stock to the officers, directors, employees, consultants and other persons who provide services to the Company or any of its affiliates. Pursuant to the Company’s 2007 Omnibus Equity Incentive Plan, the Compensation Committee is authorized to award options or warrants to purchase up to a total of 1,250,000 shares of the Company’s common stock to selected officers, employees, consultants and other persons who render service to the Company. Prior to 2005, awards were made under the Company’s 1995 Stock Option Plan, which plan expired ten years from its inception.

F-26

DHB INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

A summary of the status of the Company’s warrants is presented in the table below:

	For the Years Ended December 31,
	2006		2005		2004		2003
	Shares	Weighted Average Exercise Price	Shares	Weighted Average Exercise Price	Shares	Weighted Average Exercise Price	Shares	Weighted Average Exercise Price
Warrants outstanding—beginning of the year	7,000,333	1.99	670,333	4.27	5,494,666	1.64	6,257,666	1.96
Granted	1,117,670	2.76	7,510,000	2.78	300,000	5.88	378,000	2.08
Exercised	5,250,000	1.86	30,000	6.26	4,891,000	1.42	281,723	2.67
Cancelled/expired/forfeited	843,333	4.03	1,150,000	7.68	233,333	3.96	859,277	3.84
Warrants outstanding—end of the year	2,024,670	4.51	7,000,333	2.10	670,333	4.27	5,494,666	1.64
Warrants exercisable—end of the year	884,670	4.42	2,574,333	2.42	638,333	4.32	4,581,666	1.71

The intrinsic value of warrants outstanding at December 31, 2006, vested and unvested, was $203 and $93, respectively.

The following table summarizes information regarding warrants outstanding at December 31, 2006.

Exercise Price Range	Number of Warrants Outstanding	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Number of Shares Exercisable	Weighted Average Exercise Price
0 to $1.00
$1.01 - $1.50
$1.51 - $2.00
$2.01 - $2.50	272,670	4.71	$	2.24	272,670	$	2.24
$2.51 - $3.00	800,000	4.74		2.82	80,000		2.82
$3.01 and above	952,000	5.64		6.59	532,000		5.77
Total	2,024,670	5.16	$	4.51	884,670	$	4.42

The Company has adopted SFAS 123R which requires the measurement of the cost of employee services received in exchange for an award of an equity instrument based on the grant-date fair value of the award. The Company elected the modified retrospective application method in adopting SFAS 123R, which resulted in the restatement of prior period amounts in order to present comparable compensation data. In accordance with SFAS 123R, the Company calculated the fair value of its stock options and warrants issued using the Black-Scholes model at the time the options and warrants were granted. That amount is then amortized over the vesting period of the option or warrant.

As of December 31, 2006, there was approximately $1,895 of unrecognized compensation cost related to unvested warrants. This cost is expected to be recognized over a weighted average of approximately two years.

The Company recorded stock-based compensation expense related to SFAS 123R of approximately $1,395, $20,558, $1,532 and $898 during fiscal 2006, 2005, 2004 and 2003, respectively. Stock-based compensation expense is included in general and administrative expenses.

F-27

DHB INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

The intrinsic value of options and warrants exercised during fiscal 2006, 2005, 2004 and 2003 was approximately $7,005, $231, $87,266 and $553, respectively.

The total fair value of shares vested in fiscal 2006, 2005, 2004 and 2003 was approximately $8,825, $13,298, $3,005 and $1,493, respectively.

Stockholder Rights Plan

On October 6, 2006, the Board of Directors of the Company declared a dividend of one preferred share purchase right for each outstanding share of common stock, par value $0.001 per share, of the Company. The dividend distribution was paid on October 10, 2006 to stockholders of record at the close of business on that date. Each right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series B Junior Participating Preferred Stock, par value $0.001 per share (the “preferred stock”) of the Company at a price of $15.00 per one one–thousandth of a share of preferred stock (the “purchase price”), subject to adjustment. The description and terms of the rights are set forth in a Rights Agreement dated October 6, 2006, as the same may be amended from time to time (the “Rights Agreement”) between the Company and its stock transfer agent, as rights agent.

The rights are not exercisable until the distribution date. The rights will expire, if not previously exercised, on October 10, 2016, unless the final expiration date is extended or unless the rights are earlier redeemed or exchanged by the Company.

Shares of preferred stock purchasable upon exercise of the rights will not be redeemable and will be junior to any of other series of preferred stock the Company may issue (unless otherwise provided in the terms of such stock). Each share of preferred stock will have a preferential dividend in an amount equal to 1,000 times any dividend declared on each share of common stock. In the event of liquidation, the holders of the preferred stock will receive a preferred liquidation payment of equal to the greater of $1,000 and 1,000 times the payment made per share of common stock. Each share of preferred stock will have 1,000 votes, voting together with the common stock. In the event of any merger, consolidation or other transaction in which shares of common stock are converted on exchanged, each share of preferred stock will be entitled to receive 1,000 times the amount and type of consideration received per share of common stock. The rights of the preferred stock as to dividends, liquidation and voting, and in the event of mergers and consolidations, are protected by customary antidilution provisions.

If any person or group (other than the Company, any subsidiary of the Company or any employee benefit plan of the Company or certain grandfathered persons) acquires 15% or more of the Company’s outstanding voting stock without the prior written consent of the Board of Directors, each right, except those held by such persons, would entitle each holder of a right to acquire such number of shares of the Company’s common stock as shall equal the result obtained by multiplying the then current purchase price by the number of one one-thousandth of a share of preferred stock for which each right is then exercisable and dividing that product by 50% of the then current per share market price of the Company’s common stock.

Effective October 12, 2006, the Company filed a Certificate of Designation, Preferences and Rights of Series B Junior Participating Preferred Stock with the Secretary of the State of Delaware. The Company’s Board of Directors authorized the filing of this certificate at a meeting of the Board of Directors pursuant to the designation and reservation of 70,000 shares of the Company’s preferred stock as Series B Junior Participating Preferred Stock in connection with the Rights Agreement.

F-28

DHB INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

Note 10 RELATED PARTY TRANSACTIONS

David H. Brooks

During 2006, 2005, 2004 and 2003, the Company entered into various transactions with David H. Brooks and entities affiliated with Mr. Brooks or individuals related to Mr. Brooks. From 1992 until July 7, 2006, Mr. Brooks was the Chairman or Co-Chairman of the Company’s Board of Directors and from 2000 until July 31, 2006, was the Company’s Chief Executive Officer. Based on information filed with the SEC on November 30, 2006, Mr. Brooks, together with Ms. Terry Brooks (his wife), own approximately 29% of the common stock of the Company.

Tactical Armor Products, Inc.

During 2006, 2005, 2004 and 2003, Tactical Armor Products, Inc. (TAP) provided certain manufacturing and assembly services to the Company. In particular, TAP assembled hard armor plates, manufactured yoke and collar assemblies in the Company’s ballistic apparel and sewed other protective components into the apparel. TAP ceased providing these services in July 2006.

The Company believes that it was the primary beneficiary of TAP’s protective apparel operations during the period TAP was providing services to the Company. TAP also owned and raced horses, although the extent of the equestrian operations is unknown. After making numerous unsuccessful efforts, management concluded that the Company was unable to obtain the information necessary to perform the accounting required to consolidate TAP, otherwise required per FASB Interpretation No. 46, “Consolidation of Variable Interest Entities.”

During the relevant periods TAP was owned by Ms. Brooks. Purchases from TAP totaled $2,323, $15,708, $10,746 and $14,379 during the years ending December 31, 2006, 2005, 2004 and 2003, respectively. These amounts include the amounts paid to U.S. Manufacturing Corporation (USM). USM was owned by Ms. Brooks and was acquired by TAP during 2003.

In addition, the Company made bonus payments to certain TAP employees totaling approximately $2, $126 and $100 during the years ended December 31, 2005, 2004 and 2003, respectively. The Company did not make any such bonus payments during 2006.

TAP sub-leased a portion of the Company’s facility in Tennessee from 2001 until July 2006. TAP paid the Company $9, $40, $40 and $40 for rent during the years ended December 31, 2006, 2005, 2004 and 2003, respectively.

The Company owed TAP $71 and $108 at December 31, 2004 and 2003, respectively, for services rendered, which amounts are included in accounts payable in the accompanying consolidated balance sheets for the applicable periods.

V.A.E. Enterprises

The Company entered into a ten year agreement with V.A.E. Enterprises (VAE) to lease a building in Oakland Park, Florida, which is used in certain of the Company’s manufacturing and administrative operations. The term of the lease commenced on January 1, 2001. VAE was indirectly owned by Mr. Brooks. In July 2004, the property was sold to an unrelated third party. The Company paid VAE $419 and $679 for rent during the years ended December 31, 2004 and 2003, respectively. The Company continues to utilize this facility.

F-29

DHB INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

Vianel Corporation

The Company agreed to reimburse Mr. Brooks for his Florida residence, pursuant to the terms of his employment agreement. During the years ended December 31, 2006 and 2005, the Company paid Vianel Corporation (Vianel) $175 and $132, respectively, for reimbursements of Mr. Brooks’ Florida residence. Vianel was indirectly owned by Mr. Brooks.

RSJ Industries

The Company agreed to reimburse Mr. Brooks for air travel expenses, pursuant to authorization by the Board of Directors. During the year ended December 31, 2005, the Company paid RSJ Industries (RSJ) $227 for certain air travel expenses. RSJ owned the airplane utilized and was indirectly owned by Mr. Brooks.

Debt Transactions

During 2005, Mr. Brooks provided credit availability to the Company in its unsuccessful efforts to acquire an unrelated entity. The Company paid Mr. Brooks interest totaling $117 during the year ended December 31, 2005, for such availability.

The Company paid $7 in interest to Mr. Brooks during the year ended December 31, 2004.

On May 9, 2003, the Company satisfied the outstanding balance of a note due Mr. Brooks in the amount of $1,500. During 2003, the Company paid $95 in accrued interest relating to the note due Mr. Brooks.

Convertible Preferred Stock

On January 14, 2002, the Company issued Mr. Brooks 500,000 shares of Series A, 12% convertible preferred stock in exchange for $3,000 of outstanding indebtedness incurred by the Company in 1996. The convertible preferred stock had a dividend rate of $0.72 per share per annum, an amount equal to the interest that would have been payable on the exchanged indebtedness. The Company paid Brooks dividends totaling $360, $360 and $345 on the convertible preferred stock during the three years ended December 31, 2005, 2004 and 2003, respectively. The convertible preferred stock was redeemed in December 2005 for $3,000.

Warrant Exercise and Securities Purchase Agreements

On July 13, 2006, the Company signed a Memorandum of Understanding to settle a class action securities lawsuit, as well as another shareholder derivative suit brought about by a certain shareholder. As part of this settlement, the Company obtained $7,500 from the proceeds of the exercise of 3,000,000 warrants held by Mr. Brooks at an exercise price of $2.50 per share. The warrant, granted to Mr. Brooks pursuant to a warrant agreement dated July 1, 2005, originally had an exercise price of $1.00 per share and originally vested and became exercisable with respect to 750,000 shares on each of July 1, 2007, 2008, 2009 and 2010. As part of the settlement, and pursuant to a warrant exercise agreement between the Company and Mr. Brooks, the warrants were accelerated and the exercise price was increased to $2.50 per share. Pursuant to the terms of the warrant exercise agreement, in the event the settlement is not approved, the Company is required to cause to be paid to Mr. Brooks $4,500 which is the difference between the warrant exercise price of $1.00 per share set forth in the warrant agreement and the elevated exercise price of $2.50, multiplied by the 3,000,000 shares involved.

F-30

DHB INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

In addition, as part of the settlement, Mr. Brooks entered into a securities purchase agreement with the Company. Pursuant to the terms of the securities purchase agreement, the Company sold 3,007,099 shares of the Company’s common stock directly to Mr. Brooks at a price of $4.93 per share. The Company granted Mr. Brooks the right to sell back some or all of such shares in the event the settlement is not approved.

For a more complete discussion of the settlement and the warrant exercise agreement, please refer to Note 11.

Other

The Company made payments to a condominium association in Boca Raton, Florida on behalf of Mr. Jeffrey Brooks, a brother of Mr. Brooks, totaling $22, $21 and $19 during the years ended December 31, 2005, 2004 and 2003, respectively. Those payments are included in selling, general and administrative expenses in the accompanying consolidated financial statements for the appropriate periods.

During 2005, the Company purchased $20 in gift certificates from a restaurant owned by Mr. Jeffrey Brooks, which is included in selling, general and administrative expenses in the accompanying consolidated financial statement for the fiscal year ended December 31, 2005.

The Company employed an uncle of Mr. Brooks during 2003, 2004, 2005 and through July 18, 2006, at which time the employment arrangement between the Company and that individual terminated. Amounts paid to Mr. Brooks’s uncle totaled $11, $19, $20 and $19 during the years ended December 31, 2006, 2005, 2004 and 2003, respectively.

The Company paid bonuses to individuals affiliated with Mr. Brooks totaling $10, $20 and $10 during the years ended December 31, 2005, 2004 and 2003, respectively. Those payments are included in selling, general and administrative expenses in the accompanying consolidated financial statements for the appropriate periods. No such bonus payments were made during 2006.

The Company made automobile lease payments on behalf of Mr. Brooks’s son totaling $3, $7 and $1 during the years ended December 31, 2005, 2004 and 2003, respectively. Those payments are included in selling, general and administrative expenses in the accompanying consolidated financial statements for the appropriate periods. No such lease payments were made during 2006.

Sandra Hatfield

During 2003, the Company paid $95 for legal services to Mr. Keith Hatfield, the son of Ms. Sandra L. Hatfield. Mr. Hatfield was also employed by the Company from August 2005 through September 2006. Mr. Hatfield received payments of $116 and $29, during the years ended December 31, 2006 and 2005. From 2002 through August 11, 2005, Ms. Hatfield was the Company’s Chief Operating Officer.

Dawn M. Schlegel

From 1999 until April 7, 2006, Ms. Dawn M. Schlegel was the Company’s Chief Financial Officer; she also served as a member of the Company’s Board of Directors from 2000 until April 7, 2006. Subsequent to her resignation on April 7, 2006, Ms. Schlegel provided consulting services through mid-May 2006, and was paid $22 during the year ended December 31, 2006, for those services.

F-31

DHB INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

Indemnifications

Pursuant to Delaware law and certain indemnification agreements entered into with Mr. Brooks, Ms. Dawn Schlegel and Ms. Hatfield, the Company advanced expenses and legal fees to each of Mr. Brooks, Ms. Schlegel and Ms. Hatfield in the amount of $5,894, $562 and $242, respectively during 2006.

Vehicles

During the period 2001 to 2006, the Company purchased four vehicles that were initially included on the Company’s fixed asset register that were operated by Mr. Brooks, Ms. Hatfield and Ms. Schlegel. The Company is not in possession of any of those vehicles. The make, year and cost of the four vehicles are:

Make	Year	Cost
Bentley Flying Spur	2006	$	200
Armored Ford Excursion	2002	$	192
Mercedes CLK 430	2001	$	78
Mercedes CLK 500	2004	$	63

Note 11 COMMITMENTS AND CONTINGENCIES

Leases

The Company has non-cancelable operating leases, which expire through 2014. These leases generally require the Company to pay certain costs, such as real estate taxes.

As of December 31, 2006, future minimum lease commitments (excluding renewal options) under non-cancelable leases are approximately:

	For the Year Ended December 31,
	(in thousands)
2007	$	2,179
2008		2,201
2009		2,227
2010		2,270
2011		1,521
Thereafter		2,884
	$	13,282

Rent expense on operating leases for the years ended December 31, 2006, 2005, 2004 and 2003 aggregated approximately $2,806, $2,591, $2,037 and $1,653, respectively.

Employment agreements

On March 29, 2007, the current Chief Executive Officer and DHB Industries, Inc. entered into a four year employment agreement. Pursuant to the agreement, the Chief Executive Officer will receive an annual salary of $650 per year. The agreement also provides the Chief Executive Officer with a housing allowance of $5 per month and provides for him to be awarded performance based bonus based on criteria established by the Board of Directors.

F-32

DHB INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

As of December 31, 2006, the Company also has various employment agreements with other key employees, none for a period of more than three years. All of these contracts have customary terms and conditions and provide for termination of employment with cause.

Legal Proceedings

SEC Investigation

The Company is subject to ongoing investigations by the SEC and the United States Attorney’s Office for the Eastern District of New York. The Company is cooperating fully with these investigations. These investigations concern (1) executive compensation issues involving the Company’s former Chairman and CEO, former COO, and former CFO; (2) the Company’s related party transactions with its former Chairman and CEO, his family members, and entities controlled by him or his family members; (3) accounting errors and irregularities resulting in misstatements in the Company’s books and records and in its publicly filed financial statements; (4) material weaknesses in internal controls; and (5) income and payroll tax issues. These investigations stem from accounting irregularities and disclosure issues in the consolidated financial statements for the years ended December 31, 2004 and 2003, as well as in the quarterly financial reports for those years and for the first three quarters of 2005. As a result of the impact of these irregularities, the Company did not file a 10-K for the year ended December 31, 2005, nor did it file any interim reports on Form 10-Q for any of the quarters beyond September 30, 2005.

The Company is in the process of implementing a comprehensive remediation plan. It cannot reasonably predict either the timing of the completion of these investigations or their outcome and the effects of their outcome on the Company.

Investigation by the Civil Division of the Department of Justice

In addition to the investigations described above, the Company is cooperating with an industry-wide investigation by the Civil Division of the U.S. Department of Justice into the manufacture and sale of body armor products containing Zylon, a ballistic yarn produced by an unrelated company. The Company is producing documents and witnesses for interviews in this investigation. The Company cannot reasonably predict the outcome of this investigation.

Securities Class Action and Derivative Shareholder Lawsuits

During the third and second quarters of 2005, a number of purported class action lawsuits were filed in the United States District Court for the Eastern District of New York against the Company and certain of the Company’s officers and directors. The actions were filed on behalf of purchasers of the Company’s publicly traded securities during the period from April 21, 2004 though August 29, 2005. The complaints, which were substantially similar to one another, allege, among other things, that the Company’s public disclosures were false or misleading. The lawsuits alleged that the Company’s body armor products were defective and failed to meet the standards of its customers, and that these alleged facts should have been publicly disclosed. The lawsuits were ultimately consolidated into a single class action.

During the same time frame, a number of derivative complaints were filed, also in the United States District Court for the Eastern District of New York, against certain officers and directors of the Company, and in certain cases the Company’s former auditors. The complaints, which were substantially similar to one another, allege, among other things, that the defendants breached their fiduciary duties and engaged in fraud, misrepresentation, misappropriation of corporate information, waste of corporate assets, abuse of control, and unjust enrichment. The lawsuits were ultimately consolidated into a single shareholder derivative action.

F-33

DHB INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

On July 13, 2006, the Company signed a Memorandum of Understanding to settle the class action and the derivative action. Under the Memorandum of Understanding, the class action would be settled, subject to court approval, for $34,900 in cash and 3,184,713 shares of the Company’s Common Stock. The derivative action also would be settled, subject to court approval, in consideration of the adoption of certain corporate governance provisions and the payment of $300 in legal fees and expenses to the lead counsel in the derivative action.

On July 31, 2006, the Company completed the funding of, and deposited into escrow the $22,325 portion of the cash settlement to be provided by the Company, which was funded by certain transactions entered into by the Company and its former Chairman and CEO. The Company’s directors’ and officers’ liability insurers funded the remaining portion of the cash settlement, $12,875 pursuant to buyouts of the policies. In addition to the cash portion, the settlement called for the issuance of 3,184,713 shares of Company Common Stock.

Of the settlement amounts funded on July 31, 2006, the Company obtained $7,500 from the proceeds of the exercise by its former Chairman and CEO of a warrant held by him to acquire 3,000,000 shares of Common Stock of the Company at an exercise price of $2.50 per share. The warrant, granted to the former Chairman and CEO pursuant to a warrant agreement dated July 1, 2005, originally had an exercise price of $1.00 per share and originally vested and became exercisable with respect to 750,000 shares on each of July 1, 2007, 2008, 2009, and 2010. As part of the settlement, and pursuant to a warrant exercise agreement described below between the Company and the former Chairman and CEO, the warrants were accelerated and the exercise price was increased to $2.50 per share. If the settlement is not approved, the Company is required to cause to be paid to its former Chairman and CEO from the settlement funds being held in escrow $4,500, which is the difference between the warrant exercise price of $1.00 per share set forth in the warrant agreement and the elevated exercise price of $2.50, multiplied by the 3,000,000 shares involved. The remaining $14,825 of the amount paid by the Company for the settlement was funded by the former Chairman and CEO, through a purchase in a private placement transaction of 3,007,099 shares of the Company’s Common Stock at a price of $4.93 per share. In the event the settlement is not approved, the former Chairman and CEO has the right to sell some or all of these shares back to the Company in exchange for the amount he paid.

In July of 2007, the United State District Court, Eastern District of New York, granted a motion for preliminary approval of the above-described settlements of the class action and derivative shareholder lawsuits. The court has scheduled a hearing for October 5, 2007, to consider and determine whether to grant final approval of the settlement. There can be no assurance that the court will grant final approval of the settlement.

Employment Tax Withholding Obligations

From 2003 through early 2006, the Company paid certain cash bonuses to management and other employees. Members of senior management during that time and other employees also exercised warrants to purchase shares of the Company’s Common Stock between 2003 and 2006 that had previously been granted to them. The payment of cash bonuses and exercise of warrants trigger tax withholding obligations by the Company related to the employees’ share of federal income tax, state income tax and Social Security charges on the compensation associated with the bonuses and warrants. The Company also must remit to applicable taxing authorities the employer’s share of Social Security and other payroll related taxes.

The Company has determined that income and other payroll related taxes were not withheld and remitted by the Company to the taxing authorities when those bonuses were paid and, with one exception, when the warrants were exercised. The Company self-reported these apparent violations to the relevant taxing authorities, including the Internal Revenue Service.

F-34

DHB INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

As of December 31, 2006, 2005, 2004 and 2003, the Company has recognized Employment Tax Withholding Obligations including applicable penalties related to this matter totaling $36,483, $32,076, $29,718 and $737, respectively, in the accompanying consolidated balance sheets. The related income statement charges totaling $4,407, $2,358, $28,981 and $738 have been recorded in each of the years ended December 31, 2006, 2005, 2004 and 2003, respectively.

The Company does not believe that it will be required to discharge the liability of former senior management personnel for income tax withholding obligations. Moreover, to the extent that the Company is required to discharge employee income tax withholding obligations for other current and former employees, management intends to seek recovery of those amounts from the affected employees. In July 2006, the former Chairman and CEO signed a Memorandum of Understanding with the Company in which he represented, warranted and covenanted that he has paid (or will pay) all taxes (including without limitation federal and state, Social Security, Medicare, FICA or other withholding taxes or similar amounts) attributable to personal income received by him from the Company, including any fines, penalties or back taxes incurred by the Company solely as a result of personal income paid to him. The Company intends to pursue recovery from its former Chairman and CEO for any of the foregoing amounts ultimately due and payable by the Company to the taxing authorities. At December 31, 2006, the income tax withholding obligations that may be recoverable from current and former employers were $34,244 (including $30,394 from the former Chairman and CEO, $1,084 from the former CFO and $1,543 from the former COO). The employer’s share of the Employment Tax Withholding Obligations was $1,474 at December 31, 2006, and accrued penalties (excluding amounts recoverable from the Company’s former Chairman and CEO) were $766.

During 2007, the statute of limitations for the 2003 Employment Tax Withholding Obligations expired and accordingly the charge and related liability originally recorded during 2003 (totaling $737) will be reversed during 2007.

Zylon Voluntary Replacement Program

In 2005, the Company incurred charges of $19,200 associated with establishing reserves to cover potential liability in connection with class action lawsuits filed against certain subsidiaries of the Company, as well as other companies in the body armor industry, relating to allegations of defective body armor products containing Zylon, a ballistic yarn produced by an unrelated company. The class action lawsuits against the Company and its subsidiaries were settled without monetary damages with the Company agreeing to participate in a voluntary vest exchange program. The Company believes that it has established adequate reserves for any further costs associated with replacing these vests and does not anticipate that the cost of this program will affect future years’ operating results.

Letters of Credit

As of December 31, 2006, the Company had open letters of credit for $521.

F-35

DHB INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

Note 12 INCOME TAXES

Income tax expense benefit consists of the following:

	Years Ended December 31,
	2006			2005			2004			2003
Current
Federal	$	(1,072	)	$	18,410		$	13,519		$	9
State		300			1,604			1,207			404
Total Federal		(772	)		20,014			14,726			413
Deferred
Federal		1,021			(20,345	)		(15,846	)		2,785
State		37			81			(1,680	)		387
Total State		1,058			(20,264	)		(17,526	)		3,172
Total Provision	$	286		$	(250	)	$	(2,800	)	$	3,585

A reconciliation of the income tax (benefit) computed at the U.S. federal statutory tax rate compared to the Company’s effective income tax expense (benefit) is as follows:

	Years Ended December 31,
	2006			2005			2004			2003
Tax at U.S statutory rate	$	(1,763	)	$	(9,937	)	$	(4,181	)	$	(137	)
State income tax, net of federal tax benefit		347			991			(886	)		631
Non-deductible meals and entertainment		424			336			361			234
Section 162(m) non-deductible officers compensation		—			1,195			761			615
Non-deductible stock based compensation		508			7,195			611			358
Section 199 manufacturing deduction		—			(564	)		—			—
Adjustments to federal net operating loss carryforward											1,461
Penalties		652			296			517			66
Valuation allowances increase (decrease)		(81	)		50			—			(268	)
Expired capital loss carryovers		—			—			—			625
Other		199			188			17			—
Total provision for income taxes	$	286		$	(250	)	$	(2,800	)	$	3,585

F-36

DHB INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

Deferred income tax assets and liabilities are comprised of the following:

	December 31,
	2006			2005			2004			2003
Deferred taxes, current
Bad debt reserve	$	329		$	262		$	261		$	316
Deferred rent		228			254			238			198
Section 263A inventory adjustment		270			218			322			218
Inventory reserve		9,035			10,487			6,826			465
Zylon reserve		5,816			7,158			—			—
Reserve for class action shareholder settlement		9,657			9,657			—			—
Accrued expenses		12,790			11,287			11,447			227
Current deferred tax assets		38,125			39,323			19,094			1,424
Deferred taxes, non current
Net operating loss carryovers		76			87			4			89
Capital loss carryovers		335			335			367			367
Fixed assets		79			11			(23	)		35
Non current deferred tax assets		490			433			348			491
Valuation allowances		(335	)		(417	)		(367	)		(367	)
Net noncurrent deferred tax assets (liability)		155			16			(19	)		124
Total Deferred tax assets	$	38,280		$	39,339		$	19,075		$	1,548

Statement of Financial Accounting Standard No. 109 requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of available evidence, both positive and negative for each tax jurisdiction, it is more likely than not that some portion or all of the deferred tax assets will not be realized. At December 31, 2006, management has determined that a valuation allowance of $335 is necessary to reduce the deferred tax assets with respect to the Company’s capital loss carryovers.

The Company had state net operating loss carry-forwards of $2,500, $100, $1,800 and $2,200 at December 31, 2006, 2005, 2004 and 2003, respectively. These state net operating loss carry-forwards will expire in varying amounts through 2026.

The Company is currently under examination by the Internal Revenue Service for its U.S. Corporate Income Tax Return for the tax year ended December 31, 2003. There have been no adjustments proposed in connection with the examination. The Company is also under examination by the state of New York for the years 2002 through 2004 and has been assessed $1,800 in additional taxes and interest related to the proposed disallowance of losses on discontinued operations, inter-company interest expense and other inter-company charges. The Company has filed a protest with the State of New York, believes it has a meritorious defense and anticipates the ultimate resolution of the assessment will not result in a material adjustment to the financial statements.

The Company had a contingent income tax liability of $936, $5,886, $5,886 and $8,752 at December 31, 2006, 2006, 2004 and 2003, respectively, related primarily to deductions claimed for stock based compensation.

F-37

DHB INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

The amount of the contingent liability is based on an estimate of the probable liability in accordance with SFAS No. 5 “Accounting for Contingencies”, using available evidence, including detailed analyses of the potential income tax issues, income tax assessments and consultation with independent outside tax and legal advisors.

Note 13 VALUATION AND QUALIFYING ACCOUNTS

A summary of the allowance for doubtful accounts related activity for each the years ended December 31, 2006, 2005, 2004 and 2003 is as follows:

	Allowance for Accounts Receivable
Balance, December 31, 2002	$	1,070
Provision		99
Write offs		(317	)
Balance, December 31, 2003		852
Provision		2
Write offs		(152	)
Balance, December 31, 2004		702
Provision		727
Write offs		(729	)
Balance, December 31, 2005		700
Provision		506
Write offs (recoveries)		(295	)
Balance, December 31, 2006	$	911

F-38

INDEX OF EXHIBITS

Exhibit	Description
3.1	Certificate of Incorporation of the Company filed September 1, 1994.	(1)
3.2	Certificate of Amendment of Certificate of Incorporation of the Company filed December 31, 1996.	(2)
3.3	Certificate of Amendment of Certificate of Incorporation of the Company filed July 24, 2001.	(6)
3.4	Certificate of Designations and Preferences of the Company filed December 26, 2001.	(6)
3.5	Certificate of Designation, Preferences and Rights of Series B Junior Participating Preferred Stock of the Company filed October 12, 2006.	(16)
3.6	Second Amended and Restated By-Laws of the Company adopted as of August 17, 2007.	(19)
4.2	Stock Subscription Agreement dated December 14, 2001, between the Company and David Brooks.	(6)
4.3	Form of Warrant Award Certificate of the Company pursuant to the 2005 Plan.	(20)
4.4	Form of Warrant Award Certificate of the Company pursuant to the 2007 Plan.	(18)
4.5	Rights Agreement dated as of October 6, 2006, between American Stock Transfer & Trust Company and the Company.	(16)
10.1	Employment Agreement dated July 1, 2000, between the Company and David Brooks.	(7)
10.2	Employment Agreement dated May 24, 2005, by and between the Company and Larry Ellis.	(11)
10.3	Employment Agreement dated September 28, 2006, by and between the Company and John C. Siemer.	(20)
10.4	Employment Agreement dated September 28, 2006, by and between the Company and Thomas C. Canfield.	(20)
10.5	Employment Agreement dated November 1, 2006, by and between the Company and Sam White.	(20)
10.6	Employment Agreement dated March 29, 2007, by and between the Company and Larry Ellis.	(20)
10.7	Employment Agreement dated June 21, 2007, by and between the Company and James Anderson.	(20)
10.8	Warrant Agreement dated July 1, 2005, between the Company and David Brooks.	(14)
10.9	Warrant of the Company issued to Larry Ellis on May 24, 2005.	(11)
10.10	Warrant Agreement dated May 18, 2006, between the Company and William P. Campbell.	(20)
10.11	Warrant Award Certificate issued to John C. Siemer on September 28, 2006.	(20)
10.12	Warrant Award Certificate issued to Thomas C. Canfield on September 28, 2006.	(20)
10.13	Warrant Award Certificate issued to Larry Ellis on March 29, 2007.	(20)
10.14	Warrant Award Certificate issued to James Anderson on July 24, 2007.	(20)
10.15	Promissory Note dated November 6, 2000, between the Company and David Brooks.	(3)
10.16	The Company’s 1995 Stock Option Plan.	(4)
10.17	The Company’s 2005 Omnibus Equity Incentive Plan.	(13)
10.18	The Company’s 2007 Omnibus Equity Incentive Plan.	(18)

1

Exhibit	Description
10.19	Board of Directors Compensation Policy, effective as of January 1, 2007.	(20)
10.20	Sale Agreement dated March 10, 2000, between the Company and DMC2 Electronic Components.	(5)
10.21	Lease dated January 1, 2001, between V.A.E. Enterprises and Point Blank Body Armor, Inc.	(7)
10.22	Lease Agreement dated April 15, 2001, between A&B Holdings, Inc. and the Company.	(3)
10.23	Industrial Lease dated December 5, 2003, between Atlantic Business Center L.C. and Point Blank Body Armor Inc.	(8)
10.24	Employment Agreement dated May 24, 2005, by and between the Company and Manuel Rubio.	(11)
10.25	Employment Agreement dated May 24, 2005, by and between the Company and Dawn Schlegel.	(11)
10.26	Employment Agreement dated May 24, 2005, by and between the Company and Ishmon Burks.	(11)
10.27	Employment Agreement dated June 2, 2005, by and between the Company and Marc Dien.	(12)
10.28	Amended and Restated Loan and Security Agreement, dated as of April 3, 2007, by and among Protective Apparel Corporation of America, Point Blank Body Armor Inc., NDL Products, Inc., the Company and LaSalle Business Credit, LLC, as Administrative Agent and Collateral Agent.	(17)
10.29	Subscription and Structuring Agreement dated as of December 19, 2003, by and among Point Blank Body Armor Inc., Hightower Capital Management, LLC and the Company.	(8)
10.30	Release Agreement and Contractual Undertakings dated July 31, 2006, by and between the Company and David H. Brooks.	(20)
10.31	Securities Purchase Agreement dated July 31, 2006, by and between the Company and David H. Brooks.	(20)
10.32	Registration Rights Agreement dated July 31, 2006, by and between the Company and David H. Brooks.	(20)
10.33	Warrant Exercise Agreement dated July 31, 2006, by and between the Company and David H. Brooks.	(20)
10.34	Agreement of Insureds dated as of July 27, 2006, by and among the Company, David H. Brooks, Sandra Hatfield, Dawn M. Schlegel, Cary Chasin, Jerome Krantz, Gary Nadelman, Barry Berkman and Gen. (Ret.) Larry R. Ellis.	(20)
10.35	Stipulation and Agreement of Settlement dated November 30, 2006.	(20)
10.36	Warrant of the Company issued to Manuel Rubio on May 24, 2005.	(11)
10.37	Warrant of the Company issued to Ishmon Burks on May 24, 2005.	(11)
10.38	Warrant of the Company issued to Marc Dien on June 2, 2005.	(12)
10.39	Employment Agreement dated December 1, 2005, by and between the Company and Rick Hockensmith.	(15)
10.40	Warrant Award Agreement dated November 28, 2005, between the Company and Rick Hockensmith.	(15)
10.41	Employment Agreement dated August 24, 2006, by and between the Company and James Anderson.	(20)
14.1	Code of Ethics.	(9)
16.1	Letter from Weiser LLP to the Company regarding change in certifying accountant.	(10)

2

Exhibit	Description
21.1	List of Significant Subsidiaries.	(20)
23.1	Consent of Independent Registered Public Accounting Firm.	(20)
31.1	Certification of President and Chief Executive Officer pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.	(20)
31.2	Certification of Chief Financial Officer pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.	(20)
32.1	Certification of President and Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	(20)
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	(20)

Notes to Exhibit Table:

(1) Incorporated by reference to the Company’s Definitive Proxy Material filed February 15, 1995.

(2) Incorporated by reference to Post-Effective Amendment No. #3 to the Company’s Registration Statement on Form SB-2, File No. 33-59764, filed on Jan 31, 1997.

(3) Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000, filed March 30, 2001.

(4) Incorporated by reference to the Company’s Registration Statement on Form S-8 filed on or about November 6, 1995.

(5) Incorporated by reference to the Company’s Current Report on Form 8-K filed March 23, 2000.

(6) Incorporated by reference to the Company’s Current Report on Form 8-K filed January 28, 2002.

(7) Incorporated by reference to the Amendment filed April 9, 2002, to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001, filed April 1, 2002.

(8) Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003, filed March 16, 2004.

(9) Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004, filed March 17, 2005.

(10) Incorporated by reference to the Amendment filed April 22, 2005, to the Company’s Current Report on Form 8-K filed April 15, 2005.

(11) Incorporated by reference to the Company’s Current Report on Form 8-K filed May 27, 2005.

(12) Incorporated by reference to the Company’s Current Report on Form 8-K filed June 3, 2005.

(13) Incorporated by reference to the Company’s Definitive Proxy Material filed on June 24, 2005.

(14) Incorporated by reference to the Company’s Current Report on Form 8-K filed July 1, 2005.

(15) Incorporated by reference to the Company’s Current Report on Form 8-K filed December 6, 2005.

(16) Incorporated by reference to the Company’s Current Report on Form 8-K filed October 12, 2006.

(17) Incorporated by reference to the Company’s Current Report on Form 8-K filed April 5, 2007.

(18) Incorporated by reference to the Company’s Current Report on Form 8-K filed July 20, 2007.

(19) Incorporated by reference to the Company’s Current Report on Form 8-K filed August 24, 2007.

(20) Filed herewith.

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EX-4.3

Exhibit 4.3

NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT, THE AVAILABILITY OF WHICH IS ESTABLISHED BY AN OPINION FROM COUNSEL TO THE COMPANY.

WARRANT AWARD CERTIFICATE

Warrant #                      For                      Shares

DHB INDUSTRIES, INC.

THIS WARRANT AWARD CERTIFICATE (THIS “WARRANT AWARD”) CERTIFIES that on                  , 20     (the “Issuance Date”),                      (the “Holder”) was granted a warrant (the “Warrant”) to purchase, at the price of $    .     per share, all or any part of                     fully paid and non-assessable shares (“Shares”) of common stock, par value $.001 per share, of DHB INDUSTRIES, INC., a Delaware corporation (the “Company”), upon and subject to the following terms and conditions:

1. General Terms of the Warrant. The Warrant is granted in accordance with, and as a material inducement to, the Holder’s [commencement] [continuation] of [employment with] [providing services to] the Company. In addition, this Warrant is granted under, and is subject to the terms and conditions of, the Company’s 2005 Omnibus Equity Incentive Plan (the “Plan”), the terms, conditions and definitions of which are hereby incorporated herein as though set forth at length. Capitalized terms used herein shall have the meanings set forth in the Plan, unless otherwise defined herein.

2. Expiration. Except as otherwise provided herein, this Warrant shall expire and shall no longer be exercisable one day prior to the 10^th anniversary of the Issuance Date.

3. Exercise. Except as otherwise permitted under the Plan, this Warrant may be exercised or surrendered during the Holder’s lifetime only by the Holder or his/her guardian or legal representative. THIS WARRANT SHALL NOT BE TRANSFERABLE BY THE HOLDER OTHERWISE THAN BY WILL OR BY THE LAWS OF DESCENT AND DISTRIBUTION, UNLESS THE COMMITTEE, IN ITS SOLE AND ABSOLUTE DISCRETION, CONSENTS TO A TRANSFER AUTHORIZED BY SECTION 10(b) OF THE PLAN.

Except as otherwise provided in Sections 4 and 5 of this Warrant Award or Section 9 of the Plan, this Warrant shall vest as follows: 10% on the Issuance Date, 30% on the date one year after the Issuance Date, 30% on the date two years after the Issuance Date and 30% on the date three years after the Issuance Date.

This Warrant may be exercised by the Holder (or by his executors, administrators, guardian or legal representative), as to all or any of the then-vested portion thereof, by the giving of written notice of exercise to the Company, specifying the number of Shares to be purchased, accompanied by payment of the full purchase price (specified herein) for the Shares being purchased. Full payment of such purchase price shall be made at the time of exercise and shall be made (i) in cash or by certified check or bank check or wire transfer of immediately available funds or (ii) with the consent of the Committee, in its sole and absolute discretion, by tendering previously acquired Shares (valued at their then Fair Market Value, as determined by the Committee as of the date of exercise). Such notice of exercise, accompanied by such payment, shall be delivered to the Company at its principal business office or such other office as the Company may from time to time direct, and shall be in the form of Exhibit A hereto or such other form as the Company may from time to time prescribe by notice to the Holder. In no event may this Warrant be exercised for a fraction of a Share. No person exercising this Warrant shall have any of the rights of a holder of Shares subject to this Warrant until such Shares shall have been issued (as noted in the stock transfer books and records of the Company) following the exercise of such Warrant. No adjustment shall be made for cash dividends or other rights for which the record date is prior to the date of such issuance.

4. Termination of Employment by the Company for Cause. In the event the Holder’s employment is terminated by the Company for Cause, the Warrant shall cease to vest and neither any vested nor any unvested portion of the Warrant may be exercised after such termination. “Cause” shall, with respect to any Holder, have the equivalent meaning or the same meaning as “cause” or “for cause” set forth in any written employment, consulting or other agreement for the performance of services between the Holder and the Company or a Related Entity (a “Services Agreement”) or, in the absence of any such Services Agreement or any such definition in such agreement, such term shall mean (i) the failure by the Holder to perform, in a reasonable manner, his or her duties as assigned by the Company or a Related Entity, (ii) any violation or breach by the Holder of his or her Services Agreement, if any, or any written Company policy, (iii) any violation or breach by the Holder of any non-competition, non-solicitation, non-disclosure and/or other similar agreement with the Company or a Related Entity, (iv) any act by the Holder of dishonesty or bad faith or breach of duty or loyalty with respect to the Company or a Related Entity, (v) use of alcohol, drugs or other similar substances in a manner that adversely affects the Holder’s work performance, (vi) the commission by the Holder of any act, misdemeanor, or crime reflecting unfavorably upon the Holder or the Company or any Related Entity or (vii) any statement (written or verbal) by the Holder which denigrates, demeans, libels or slanders the Company or a Related Entity and which has had or is reasonably likely to have a material adverse effect on the Company or any Related Entity or its business, operations or reputation. The good faith determination by the Committee of whether the Holder’s Continuous Service was terminated by the Company for “Cause” shall be final and binding for all purposes hereunder.

5. Other Termination of Employment. In the event the Holder’s employment terminates for any reason not addressed by Section 4 of this Warrant Award, this Warrant shall cease to vest and, to the extent vested on the date of such termination and not previously expired or exercised, shall be exercisable in accordance with this Warrant Award until the earlier of (i) the 90^th day after such termination (or one year after termination because of death) or (ii) the day on which the Warrant is scheduled to expire in accordance with Section 2 of this Warrant Award, unless the Committee, in its sole and absolute discretion and subject to the terms of the Plan, decides otherwise. No unvested portion of the Warrant may be exercised after any such termination.

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6. Restrictions on Exercise.

(a) Notwithstanding anything to the contrary contained herein, this Warrant may not be exercised, and neither this Warrant nor the Shares issued upon exercise of this Warrant may be purchased, sold or transferred, unless the Company, in its sole and absolute discretion, believes such exercise, purchase, sale or transfer (as the case may be) is in compliance with the Securities Act of 1933, as amended (the “Act”), or any comparable federal securities law and all applicable state securities laws, and the requirements of any stock exchange, national market system or national quotation system on which securities of the Company of the same class as the Shares are then traded or quoted, in each case as in effect on the date of such proposed exercise, purchase, sale or transfer.

(b) In the event that the Warrant or any portion thereof cannot be exercised immediately prior to the time it expires pursuant to any of Sections 2 and 5 of this Warrant Award because such exercise would violate an applicable Federal, state, local or foreign law, then the expiration date of such portion shall be extended to the 30^th day after the date on which such exercise would no longer violate an applicable Federal, state, local or foreign law. The Company shall use reasonable efforts to notify the Holder of the date on which such exercise would no longer violate an applicable Federal, state, local or foreign law.

(c) The Holder acknowledges that the Company shall have the right, but not the obligation, to register the Shares underlying this Warrant on a Form S-8 or S-3 to facilitate their resale by the Holder. The Holder acknowledges that the Company is under no obligation to register, qualify or list, or maintain the registration, qualification or listing of, the Warrant or the Shares with the Securities and Exchange Commission, any state securities commission or any stock exchange, national market system or national quotation system to effect such compliance.

(d) In the event the Holder desires to offer for sale or to otherwise transfer this Warrant or the Shares for which this Warrant may be exercised pursuant to an exemption from registration under the Act, the Holder shall make such representations and furnish such information as may, in the opinion of counsel for the Company, be appropriate to permit the Company, in light of the then existence or non-existence of an effective Registration Statement under the Act with respect to such Shares to issue the Shares in compliance with the provisions of that or any comparable federal securities law and all applicable state securities laws.

7. Adjustments. Notwithstanding anything to the contrary contained herein, to prevent the dilution or enlargement of benefits or potential benefits intended to be made available under the Plan, this Warrant shall be subject to adjustment pursuant to Section 10(c) of the Plan.

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8. Delivery of Share Certificates. Within a reasonable time after the exercise of this Warrant and the issuance of Shares in connection therewith, the Company shall cause to be delivered to the person entitled thereto a certificate representing such Shares. If this Warrant shall have been exercised with respect to the purchase of less than all of the Shares subject to this Warrant, the Company shall make a notation in its books and records to reflect the partial exercise of this Warrant and the number of Shares with respect to which this Warrant remains available for exercise. Absent manifest error, the Company’s books and records shall be final, conclusive and determinative as to the number of Shares with respect to which this Warrant remains available for exercise.

9. Withholding. If the Company or any subsidiary or affiliate of the Company is required to withhold any amounts by reasons of any federal, state or local tax laws, rules or regulations in respect of (a) the issuance of Shares to the Holder pursuant to this Warrant, and/or (b) the exercise or disposition (in whole or in part) of the Warrant, the Company or such subsidiary or affiliate shall be entitled to deduct and withhold such amounts from any payments to be made to the Holder. In any event, the Holder shall make available to the Company or such subsidiary or affiliate, promptly when requested by the Company or such subsidiary or affiliate, sufficient funds to meet the requirements of such withholding; and the Company or such subsidiary or affiliate shall be entitled to take and authorize such steps as it may deem advisable in order to have such funds available to the Company or such subsidiary or affiliate out of any funds or property due or to become due to the Holder. With the consent of the Committee (which can be given or withheld in its sole and absolute discretion), withholding tax obligations of the Holder may be satisfied by the tendering of Shares by the Holder or by the withholding of Shares by the Company (in either case with such Shares to be valued at their Fair Market Value as of the date of exercise, as determined in the sole and absolute discretion of the Committee).

10. Committee Discretion. The Committee shall have sole and absolute discretion to interpret, construe or apply any provision of the Plan and this Warrant Award and its determinations as to the meaning or application of the Plan and this Warrant Award shall be final and binding. The Committee is authorized, in its discretion, to make any determinations necessary or advisable for the administration of the Plan and this Warrant, waive any conditions or rights under this Warrant Award or amend, alter, accelerate, suspend, discontinue or terminate this Warrant or this Warrant Award; provided, however, that, except in furtherance of Section 7 hereof, without the consent of the Holder, no such amendment, alteration, suspension, discontinuation or termination of this Warrant Award may materially and adversely affect the rights of the Holder hereunder.

11. Reservation of Shares. The Company hereby agrees that at all times there shall be reserved for issuance and/or delivery such number of Shares as shall be required for issuance or delivery to the Holder following the exercise hereof.

12. Rights of Holder. Nothing contained in this Warrant Award shall be construed to confer upon the Holder any right to be continued in the employ of the Company and/or any subsidiary or affiliate of the Company or derogate from any right of the Company and/or any subsidiary or affiliate of the Company to retire, request the resignation of, or discharge the Holder at any time, with or without cause. The Holder shall not, by virtue hereof, be entitled to any rights of a shareholder in the Company, either at law or in equity, and the rights of the Holder are limited to those expressed herein and are not enforceable against the Company except to the extent set forth herein.

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13. Successors and Assigns. The provisions of this Warrant Award shall be binding upon and inure to the benefit of the Company, its successors and assigns, and Holder and, to the extent applicable, Holder’s legal representative or permitted assigns.

14. Legend. The Company may cause the following or a similar legend to be set forth on each certificate representing Shares or any other security issued or issuable upon exercise of this Warrant unless counsel for the Company is of the opinion as to any such certificate that such legend is unnecessary:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT, THE AVAILABILITY OF WHICH IS ESTABLISHED BY AN OPINION FROM COUNSEL TO THE COMPANY.

15. Notices. Any notice which either party hereto may be required or permitted to give to the other shall be in writing, and may be delivered personally or by mail, postage prepaid, or overnight courier, addressed as follows: if to the Company, at the address shown on the cover page of its most recently filed periodic report with the SEC (or, if the Company is not currently filing periodic reports, at the last address designated by notice from the Company to the Holder pursuant to this Section 15), Attn: General Counsel; and if to the Holder, at the address shown below his signature on this Warrant Award, or at such other address as the Holder by notice to the Company may designate in writing from time to time. Notices shall be effective upon receipt.

16. Conflict with Services Agreement or Plan. In the event of any conflict between the terms of the Holder’s Services Agreement, if any, and the terms of this Warrant Award with respect to the Warrant, the terms of this Warrant Award shall control. In the event of any conflict between the terms of the Holder’s Services Agreement, if any, or this Warrant Award and the terms of the Plan, the terms of the Plan shall control.

17. Governing Law. To the extent federal law does not otherwise control, the validity, interpretation, performance and enforcement of this Warrant Award shall be governed by the laws of the State of Delaware, without giving effect to principles of conflicts of laws thereof.

[Remainder of page intentionally blank.]

5

IN WITNESS WHEREOF, the Company has executed this Warrant Award as of the date first set forth above.

DHB INDUSTRIES, INC.

By:

Name:

Title:

Date:

Attest:

Holder hereby acknowledges by his signature below that he has received a copy of this Warrant Award and the Plan.

Accepted and Confirmed:
[NAME OF HOLDER]
Address
City	State	Zip Code
Social Security Number

6

Exhibit A

FORM OF ELECTION TO PURCHASE

To DHB Industries, Inc.:

The undersigned is the Holder of Warrant No.                      (the “Warrant”) issued by DHB Industries Inc., a Delaware corporation (the “Company”). Capitalized terms used herein and not otherwise defined have the respective meanings set forth in the Warrant.

1. The Warrant is currently exercisable to purchase a total of                      Shares.

2. The undersigned Holder hereby exercises its rights with respect to                      Shares pursuant to the Warrant (“Exercised Share Number”).

3. The Holder intends that payment of the exercise price shall be made (check one):

[    ] in cash or by certified check or bank check or wire transfer of immediately available funds

[    ] by tendering previously acquired Shares (subject to the consent of the Committee)

(a) If the Holder has elected the first method of exercise, the Holder shall pay the sum of $            .     to the Company in accordance with the terms of the Warrant (equal to the Exercised Share Number multiplied by the exercise price of $            .     per Share).

(b) If the Holder has elected the second method of exercise, the Committee shall determine the number of previously acquired Shares to be tendered and provide further instructions to the Holder.

4. The Holder intends that payment of applicable withholding taxes shall be made (check one):

[    ] in cash or by certified check or bank check or wire transfer of immediately available funds

[    ] by the Company withholding cash from amounts otherwise payable to Holder

[    ] by tendering previously acquired Shares (subject to the consent of the Committee)

[    ] by the Company withholding Shares otherwise issuable to Holder upon this exercise (subject to the consent of the Committee)

The undersigned requests that certificates for the Shares issuable upon this exercise be issued in the name of                     .

Dated:                      Name of Holder                                         

Address                                                                                                                           

Name                                                               Title                                     

Social Security or Tax ID: Number                                     

Signature:                                                              

EX-10.3

Exhibit 10.3

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (including any amendments hereto as are in effect from time to time, this “Agreement”) is made as of the 28th day of September, 2006 by and between John C. Siemer (“Executive”) and DHB Industries, Inc., a Delaware corporation (alone or together with all divisions, subsidiaries and groups, the “Company”).

In consideration of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and sufficiency of which is acknowledged, the parties agree as follows:

1. Agreement to Employ. The company hereby agrees to employ the Executive, and Executive hereby agrees to be employed by the Company, pursuant to the terms and conditions set forth in this Agreement. Executive represents and agrees that (i) he is entering into this Agreement voluntarily and that his employment hereunder and compliance with the terms and conditions hereof will not conflict with or result in a breach by him of any agreement to which he is a party or by which he may be bound, (ii) he has not violated, and in connection with his employment by the Company will not violate, any non-solicitation or similar covenant to which he is or may be bound, and (iii) in connection with his employment by the Company, he will not use any confidential or proprietary information he may have obtained in connection with his employment by any previous employer.

2. Term. The Company agrees to employ Executive, and Executive agrees to be employed by the Company, subject to the terms and conditions of this Agreement, for the period commencing on the 28th day of September, 2006 (the “Effective Date”) and terminating on the third anniversary of the Effective Date, unless earlier terminated as provided in Section 7, provided that such initial term shall be extended automatically for successive one-year periods unless the company shall have provided notice to the Executive not less than 30 days prior to the expiration of the initial term or any such extension term of its intention not to extend the Employment Period, as defined below. The period during which the Executive is employed pursuant to this Agreement shall be referred to herein as the “Employment Period.”

3. Employment Duties.

2.1 Title and Duties. During the Employment Period, Executive shall be employed in the business of the Company. Executive shall serve as Chief Operating Officer (COO) – Chief of Staff of DHB Industries, Inc. and may also assume similar positions or other positions with subsidiaries and affiliates of DHB Industries, Inc. Executive shall devote substantially all of his working time and efforts to the performance of his duties under this Agreement, provided that Executive may also (i) serve on corporate or civic boards or committees, (ii) deliver lectures or presentations to professional and similar organizations and/or participate in continuing education activities, and (iii) manage his or his family’s personal investments, in each case so long as such activities do not substantially interfere with the performance of Executive’s responsibilities under this Agreement and do not conflict with any company rule or policy or present a conflict of interest with the Company. Executive’s duties and responsibilities shall include those customarily assigned to the COO of a comparable manufacturing business having significant government contracting activity and such other duties and responsibilities, including coordination of corporate staff, as are consistent with Executive’s title(s) as the Chief Executive Officer shall specify from time to time.

2.2 Location/Travel. In performing his duties hereunder, Executive shall be available for reasonable travel, as the needs of the business of the Company may require. It is expected that Executive shall be based and shall perform his duties primarily at the Company’s Pompano Beach, Florida facility.

2.3 Reporting. In carrying out his duties hereunder, Executive shall report to the Chief Executive Officer.

3. Compensation/Benefits. In consideration of Executive’s services hereunder, the Company shall provide Executive the following:

3.1 Base Salary. During the Employment Period, the Executive shall receive an annual rate of base salary not less than $350,000, which the Company shall pay at semi-monthly intervals, or otherwise at such intervals (not less frequently than monthly) as are used generally for the Company’s senior executives. The base salary shall be reviewed annually by the Company (through its Board or any Compensation Committee thereof) not later than June 30 of each calendar year and may be increased (but not decreased) by such amount as the Company in its sole discretion shall determine.

3.2 Bonuses. Commencing at the close of each fiscal year of the Company during the Employment Period, the Company shall review the performance of the Company and of Executive during the prior fiscal year, and the Company may provide Executive with additional compensation as a bonus if the Board of Directors, or any Compensation Committee thereof, in its sole discretion, determines. Executive shall receive from the Company a signing payment (including amounts for previous work performed) of $54,726 as promptly as practicable following the Effective Date.

3.3 Equity-Based Compensation. Effective on the Effective Date, to induce Executive to enter into this Agreement, Executive will be granted by the Company warrants to purchase 400,000 shares of common stock of the Company, pursuant to a separate award agreement substantially in the form of Exhibit A (“Award Agreement”). Such warrants will have a term of 10 years from the Effective Date. On the Effective Date 10% of such warrants shall be vested and exercisable, 30% of such warrants shall vest and become exercisable on each of the first, second and third anniversaries following the Effective Date. The warrants shall have an exercise price equal to the closing price per share of the company’s common stock on the Effective Date, as set forth in the Award Agreement. The warrants will be subject to such other terms and restrictions as are set forth in the Award Agreement, and in the event of any conflict between the terms hereof and the Award Agreement, the terms of the Award Agreement shall take precedence. The Company will reserve for issuance the number of shares of common stock underlying the warrants and, as promptly as practicable once it is in compliance with applicable reporting and other requirements, shall use its best efforts to file a registration statement with respect to such shares and to cause such registration statement to remain effective until the end of the term of such warrants.

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3.4 Vacation. Executive shall be entitled to three (3) weeks of paid vacation for the first calendar year of this agreement and four (4) weeks during subsequent calendar years, provided that not more than 10 days accrued and unused vacation may be carried over into any subsequent year.

3.5 Expenses. Executive shall be entitled to reimbursement of reasonable business expenses incurred in carrying out his duties for the Company, provided that such expenses are evidenced by appropriate documentation and submitted in accordance with Company policies and procedures. For so long as Executive is required to work for the Company primarily at a location other than the vicinity of his home address, Executive shall also be entitled to receive from the Company a stipend for temporary housing and for the use of an automobile, in the amount of $2,500 per month.

3.6 Other Benefits. The Company shall provide to Executive such other benefits, including the right to participate in medical, savings, deferred compensation and other benefit plans and arrangements as are made generally available to other senior executives of the Company from time to time.

4. Indemnification.

4.1 Indemnity. To the fullest extent permitted by law, the Company shall indemnify Executive with respect to any actions commenced against Executive in his capacity as an officer, director, executive, agent or fiduciary or former officer, director, executive, agent or fiduciary of the Company, or any affiliate thereof, for which Executive may render service in such capacity, whether by or on behalf of the Company, its shareholders or third parties, and the Company shall advance to Executive on a timely basis an amount equal to the reasonable fees and expenses incurred in defending such actions, after receipt of an itemized request for such advance, and an undertaking from Executive to repay the amount of such advance, with interest at a reasonable rate from the date of the request, as determined by the Company, if it shall ultimately be determined that Executive is not entitled (as a matter of law or by judicial determination) to be indemnified against such expenses. This indemnity shall survive any termination of employment under this Agreement and is in addition to and not in limitation of any other right to indemnification or exoneration to which Executive is entitled at law, or under the governing organizational documents and/or policies of the Company. The Company agrees to use its best efforts to secure and maintain officers’ and directors’ liability insurance, including coverage for Executive.

5. Covenants and Confidential Information.

5.1 Restrictive Covenants. Executive acknowledges the Company’s reliance on and expectation of Executive’s continued commitment to performance of his duties and responsibilities during the Employment Period. In light of such reliance and expectation on the part of the Company, during the applicable period hereafter specified in Section 5.3, Executive shall not, directly or indirectly, do or suffer either of the following:

(a)(1) own, manage, control or participate in the ownership, management or control of, or be employed or engaged by or otherwise affiliated or associated as an Executive, agent, representative, consultant, independent contractor or otherwise with, any

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other corporation, partnership, proprietorship, firm, association or other business entity engaged in the business of, or otherwise engage in the business of, manufacturing, selling or distributing body armor or body armor related products, and other products manufactured, sold or distributed by the Company from time to time, within the United States in direct or indirect competition with the Company or any of its affiliates;

(2) solicit any business or contracts from any customers of the Company or its affiliates, any past customers of the Company or its affiliates, or any prospective customers of the Company or its affiliates (i.e., potential customers from which the Company or its affiliates has solicited business at any time during the twelve (12) month period preceding the expiration or termination of the Employment Period), except as necessitated by Executive’s position with the Company and then only in furtherance of the business interests of the Company or its affiliates;

(3) induce or attempt to induce any such customer to alter its business relationship with the Company or its affiliates except as necessitated by Executive’s position with the Company and then only in furtherance of the business interests of the Company or its affiliates;

(4) solicit or induce or attempt to solicit or induce any executive or employee of the Company or its affiliates to leave the employ of the Company or any of its affiliates for any reason whatsoever or hire any person who was an executive or employee of the Company or its affiliates within the twelve (12) month period prior to such hiring; or

(5) directly or indirectly, engage in any conduct or make any statement, whether in commercial or noncommercial speech, disparaging or criticizing in any way the Company or any of its affiliates, or any products or services offered by any of them, nor shall Executive engage in any other conduct or make any other statement that could be reasonably expected to impair the goodwill of any of the Company or any if its affiliates, the reputation of any products or services of the Company or any of its affiliates or the marketing of such products or services.

(b) disclose, divulge, discuss, copy or otherwise use or suffer to be used in any manner, other than in accordance with Executive’s duties hereunder (and in a manner not in violation or conflict with applicable laws and regulations), any confidential or proprietary information relating to the Company’s or any of its affiliates’ businesses, prospects, finances, operations, pricing, products, research and development or properties or other trade secrets of the Company or any of its affiliates, it being acknowledged and agreed by Executive that all such information regarding the business of the Company or any of its affiliates compiled or obtained by, or furnished to, Executive while Executive shall have been employed by or associated with the Company is confidential and/or proprietary information and the Company’s exclusive property; provided, however, that the foregoing restrictions shall not apply to the extent that such information: (A) is clearly obtainable in the public domain; (B) becomes obtainable in the public domain, other than by reason of the breach by Executive of the terms hereof or breach by another person barred by a duty of confidentiality to the Company; or (C) is required to be disclosed by rule of law or by order of a court or governmental body or agency.

5.2 Litigation; Cooperation. If this Agreement is terminated by the Company other than for Cause or by the Executive for Good Reason (as defined herein), the Executive

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agrees that, for up to 12 months following the date of termination, he will provide to the Company and its affiliates truthful and complete cooperation including, but not limited to, the Executive’s appearance at interviews and depositions at reasonable times in all regulatory or litigation matters and proceedings relating to the Company and its affiliates, and to provide to the Company’s legal counsel, upon request, all documents and materials in his possession or under his control relating to such matters and proceedings, all at no additional compensation to the Executive, provided that the company shall reimburse promptly the Executive for all reasonable expenses, including attorney’s fees and other expenses, as well as pay to the Executive any amount of salary forfeited and including with respect to vacation time consumed by him during any time spent by Executive in connection with the foregoing.

5.3 Applicable Periods. The applicable periods shall be:

(a) so long as Executive is an Executive of the Company; and

(b) for a period of twelve (12) months after termination of employment or the expiration of the Employment Period.

5.4 Injunctive Relief. Executive agrees and understands that the remedy at law for any breach by his of this Section 5 will be inadequate and that the damages flowing from such breach are not readily susceptible to being measured in monetary terms. Accordingly, it is acknowledged that the Company shall be entitled to immediate injunctive relief and may obtain a temporary order restraining any threatened or further breach. Nothing in this Section 5 shall be deemed to limit the Company’s remedies at law or in equity for any breach by Executive of any of the provisions of this Section 5 which may be pursued or availed of by the Company.

5.5 Acknowledgment by Executive. Executive has carefully considered the nature and extent of the restrictions upon his and the rights and remedies conferred upon the Company under this Section 5, and hereby acknowledges and agrees that the same are reasonable in time and territory, do not stifle the inherent skill and experience of Executive, would not operate as a bar to Executive’s sole means of support, are fully required to protect the legitimate interests of the Company, and do not confer a benefit upon the Company disproportionate to the detriment of Executive.

6. Proprietary Rights.

6.1 Copyrights. At all times during the Employment Period, all right, title and interest in all copyrightable material which Executive shall conceive or originate, either individually or jointly with others, and which arise out of the performance of this Agreement, will be the property of the Company and are by this Agreement assigned to the Company along with ownership of any and all copyrights in the copyrightable material. At all times during the Employment Period, Executive agrees to execute all papers and perform all other acts necessary to assist the Company to obtain and register copyrights on such materials in any and all countries, and the Company agrees to pay expenses associated with such copyright registration. Works of authorship created by Executive for the Company in performing his responsibilities under this Agreement shall be considered “works made for hire” as defined in the U.S. Copyright Act. In addition, Executive hereby assignees to the Company all proprietary rights, including but not limited to, all patents, copyrights, trade secrets and trademarks Executive might otherwise have, by operation of law or otherwise, in all inventions, discoveries, works, ideas, information, knowledge and data related to Executive’s access to confidential information of the Company during the Employment Period.

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6.2 Know-How and Trade Secret. All know-how and trade secret information conceived or originated by Executive which arises out of the performance of his obligations or responsibilities under this Agreement during the Employment Period or otherwise shall be the property of the Company, and all rights therein are by this Agreement assigned to the Company.

6.3 Joint Ventures, etc. If, during the Employment Period, Executive is engaged in or associated with the planning or implementing of any project, program or venture involving the Company and a third party or parties, all rights in such project, program or venture shall belong to the Company. Except as formally approved by the Board of Directors of the Parent, Executive shall not be entitled to any interest in such project, program or venture or to any commission, finder’s fee or other compensation in connection therewith other than the compensation to be paid to Executive as provided in this Agreement.

6.4 Return of Materials. Upon termination of the Employment Period, Executive shall deliver promptly to the Company all records, manuals, books, documents, letters, memoranda, notes, notebooks, reports, data, tables, calculations, customer and prospective customer lists, and copies of all of the foregoing, which are the property of the Company, and all other property, trade secrets and confidential information of the Company, including, but not limited to, all documents which in whole or in part contain any trade secrets or confidential information of the Company, which in any of these cases are in his possession or under his control.

7. Termination.

7.1 Death or Disability. This Agreement shall terminate automatically upon the Executive’s death or upon a determination by the Board of Directors to terminate the Executive’s employment as a result of his disability during the Employment Period. For purposes of this Agreement, “disability” shall mean a physical or mental disability that prevents or can be reasonably expected to prevent the performance by the Executive of his duties hereunder for a continuous period of 90 days or longer in any 12-month period. Determination of disability shall be supported by the report of an independent physician reasonably acceptable to the Company and Executive (or his representative), taking into account competent medical evidence, and otherwise shall be in accordance with the Americans with Disabilities Act and other applicable laws.

7.2 Termination by the Company. The Company may terminate the Executive’s employment during the Employment Period for Cause or without Cause. For purposes of this Agreement, “Cause” shall mean the Executive’s (i) engaging in fraudulent or dishonest conduct (as determined by a finding, order, judgment or decree in any court or administrative agency of competent jurisdiction, in any action or proceeding whether civil, criminal, administrative or investigative) that the Board reasonably determines has or would have a material adverse impact on Company, its affiliates or their respective businesses; (ii) conviction of, or entering a plea of nolo contendere to, a felony criminal offense or comparable level of crime in any jurisdiction that uses a different nomenclature; (iii) willful refusal to perform his material employment-related duties or responsibilities or intentionally engaging in any activity that is in material conflict with or is materially adverse to the business interests of the Company, its affiliates or their respective businesses; (iv) gross negligence in the

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performance of his material employment-related duties or responsibilities; or (v) breach of any material provision of this Agreement (in the case of (iii), (iv) and (v) above, that is not cured by the Executive within 30 days following receipt by the Executive of notice from the Company setting forth in reasonable detail the circumstances giving rise to such Cause). A termination for Cause shall include a determination by the Board no later than 45 days following the termination of the Employment Period that circumstances existed during the Employment Period that would have justified a termination for Cause. A termination of the Executive by the Company shall not be a termination for Cause for purposes of this Agreement unless the determination to so terminate the Executive’s employment is made by a resolution of the Board (excluding the Executive) following a meeting convened upon not less than 10 days notice to the Executive and at which the Executive and his legal counsel, if any, shall have had a reasonable opportunity to be heard by the Board.

7.3 Termination by the Executive. The Executive may terminate his employment with or without Good Reason. For purposes of this Agreement “Good Reason” means, without Executive’s written consent: (i) a material diminution of Executive’s duties and responsibilities, or the assignment of responsibilities that are materially inconsistent with his position and responsibilities hereunder; (ii) a reduction of the Executive’s base salary, annual bonus or long-term compensation opportunity (it being understood that a reduction of the dollar amount of the Executive’s annual bonus from year to year solely as a result of achievement or failure to achieve target performance objectives shall not constitute a reduction in Executive’s bonus opportunity) or of the benefits made available to Executive as described herein; (iii) requiring Executive’s primary place of business to be located other than in south Florida (Broward, Dade or Palm Beach counties) or in the vicinity of Executive’s home residence address; (iv) a material breach by the Company of any other provision of this Agreement, in each case that is not cured by the Company within 30 days after its receipt from the Executive of written notice setting forth in reasonable detail the circumstances giving rise to such Good Reason.

7.4 Termination Procedures. Any termination of the Executive’s employment by the Company or by the Executive shall be communicated to the other party by a notice of termination given in accordance with this Agreement. For purposes of this Agreement, a “notice of termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon; (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for the termination under such provision; (iii) subject to this paragraph, specifies the date of termination (as defined below). For purposes of this Agreement, “date of termination” means (a) if the Executive’s employment is terminated other than for Cause or by reason of death or disability, 90 days following the receipt of the notice of termination, and (b) if the Executive’s employment is terminated for Cause or by reason of death or disability, the date of death or the date of the Board’s determination of Cause or of Executive’s disability, in accordance with this Agreement, provided that the Company may elect to pay the Executive (at the rate of his base salary then in effect) in lieu of part or all of such notice period preceding the date of termination.

7.5 Effect of Termination. Effective as of any date of termination or, if earlier, as of any date specified by the Company at or following the delivery of a notice of termination, the Executive shall resign, in writing, from all Board memberships and all other positions held by him with the Company and its affiliates.

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7.6 Obligations of the Company upon Termination. (a) General. If, during the Employment Period, the Executive’s employment terminates for any reason, the Executive (or his estate, beneficiary or legal representative) shall be entitled to receive (i) any earned or accrued but unpaid base salary through the date of termination (including with respect to accrued and unused vacation time), and (ii) all amounts payable and benefits accrued under any otherwise applicable plan, policy, program or practice of the Company (other than relating to severance) in which Executive was a participant during his employment with the Company in accordance with the terms thereof (including, without limitation, amounts deferred under deferred compensation and similar plans, if any).

(b) Other than for Cause, Death or Disability; Good Reason. If, during the Employment Period, the Company terminates the Executive’s employment, other than for Cause, death or disability, or if the Executive terminates his employment for Good Reason, the Company shall, subject to Executive’s continued full performance of his obligations set forth in Section 5 hereof, in addition to the amounts payable under paragraph (a) above, pay to the Executive (or his estate, beneficiary or legal representative) in twelve equal monthly installments commencing on the first day of the month following the date of termination, an amount equal to the Executive’s annual base salary then in effect. In addition, the Executive and the Executive’s eligible spouse, dependents and beneficiaries will continue to be eligible to participate in the company’s health, medical, disability, life and other insurance plans (subject to Executive’s making required contributions to such plans) for a period of twelve months following the date of termination (or the Company will provide equivalent benefits for such period), provided that all such continuing benefits shall cease upon the date on which Executive becomes eligible to receive comparable benefits from a subsequent employer.

8. Notice. Any notice required or permitted hereunder shall be in writing and shall be deemed sufficient when given by hand or by nationally recognized overnight courier or by express, registered or certified mail, postage prepaid, return receipt requested, and addressed, (i) if to the Company, to DHB Industries, Inc., 2102 S.W. 2^nd Street, Pompano Beach, FL 33069 Attn: Chief Executive Officer, with a copy delivered to the same address, Attn: General Counsel, and (ii) if to Executive, to him at the address set forth in the initial paragraph hereof (or to such other addresses as may be provided by either party by notice). Notice shall be effective two (2) days after it is delivered by any overnight courier, upon receipt if delivered by mail, or immediately if delivered by hand.

9. Miscellaneous. This Agreement constitutes the entire agreement between the parties concerning the subjects hereof and supersedes any and all prior agreements, term sheets or understandings. This Agreement may not be assigned by Executive, and may not be assigned by the Company except in connection with a sale of substantially all of the assets or stock of the Company and shall be binding upon, and inure to the benefit of, the Company’s successors and assigns. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had

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taken place. As used in this Agreement, “Company” shall mean the Company as defined herein and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. Headings herein are for convenience of reference only and shall not define, limit or interpret the contents hereof.

10. Amendment. This Agreement may be amended, modified or supplemented by the mutual consent of the parties in writing, but no oral amendment, modification or supplement shall be effective. No waiver by either party of any breach by the other party of any condition or provision contained in this Agreement to be performed by such other party shall be deemed a waiver of a similar or dissimilar condition or provision at the same or any prior or subsequent time. Any waiver must be in writing and signed by Executive or an authorized officer of the Company, as the case may be.

11. Severability. The provisions of this Agreement are severable. The invalidity of any provision shall not affect the validity of any other provision, and each provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.

12. Resolution of Disputes; Enforcement. Any controversy or claim seeking equitable relief pursuant to this Agreement, all controversies and claims arising under or in connection with this Agreement or relating to the interpretation, breach or enforcement hereof and all other disputes between the parties in connection with the employment of the Executive shall be referred for arbitration to be held in Miami, Florida (or such other location as the Company and Executive shall agree) to a neutral arbitrator selected by Executive and the Company, and this shall be the sole and exclusive manner in which to resolve such controversy or claim hereunder (other than for injunctive relief that may be required by either party) The arbitration shall be conducted in accordance with the Employment Arbitration Rules (the “Rules”) of the American Arbitration Association (“AAA”) in effect at the time of the arbitration. If the parties are not able to agree upon a neutral arbitrator, then an arbitrator shall be selected in accordance with the rules and procedures of the AAA. Each party hereto shall bear its own costs and expenses in connection with any proceeding hereunder, provided that the arbitrator shall be entitled to award to the prevailing party reimbursement of its reasonable legal costs and expenses (including with respect to the arbitrator and the AAA).

13. Survivorship. The provisions of Sections 4, 5 and 6 of this Agreement shall survive Executive’s termination of employment. Other provisions of this Agreement shall survive any termination of Executive’s employment to the extent necessary to the intended preservation of each party’s respective rights and obligations.

14. Withholding. All amounts required to be paid by the Company shall be subject to reduction in order to comply with applicable federal, state and local tax withholding requirements.

15. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. The execution of this Agreement may be by actual or facsimile signature.

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16. Definition of Terms. The term “affiliate,” when used in this Agreement with respect to any person, means any other person that, directly or indirectly, controls, is controlled by or is under common control with the first person. The term “person,” when used in this Agreement, means any natural person or entity with legal status.

17. Governing Law. This Agreement shall be construed and regulated in all respects under the internal laws of the State of Florida, without regard to principles of conflict of laws of such state.

18. Captions. All captions are provided for convenience, do not form a part of this Agreement, and are not admissible for purposes of construction.

IN WITNESS WHEREOF, this Agreement is entered into as of the date first written above.

DHB INDUSTRIES INC.
By:
	Larry Ellis
	President/CEO
	John C. Siemer

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EX-10.4

Exhibit 10.4

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (including any amendments hereto as are in effect from time to time, this “Agreement”) is made as of the 28th day of September, 2006 by and between Thomas C. Canfield (“Executive”) and DHB Industries, Inc., a Delaware corporation (alone or together with all divisions, subsidiaries and groups, the “Company”).

In consideration of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and sufficiency of which is acknowledged, the parties agree as follows:

1. Agreement to Employ. The company hereby agrees to employ the Executive, and Executive hereby agrees to be employed by the Company, pursuant to the terms and conditions set forth in this Agreement. Executive represents and agrees that (i) he is entering into this Agreement voluntarily and that his employment hereunder and compliance with the terms and conditions hereof will not conflict with or result in a breach by him of any agreement to which he is a party or by which he may be bound, (ii) he has not violated, and in connection with his employment by the Company will not violate, any non-solicitation or similar covenant to which he is or may be bound, and (iii) in connection with his employment by the Company, he will not use any confidential or proprietary information he may have obtained in connection with his employment by any previous employer.

2. Term. The Company agrees to employ Executive, and Executive agrees to be employed by the Company, subject to the terms and conditions of this Agreement, for the period commencing on the 28th day of September, 2006 (the “Effective Date”) and terminating on the third anniversary of the Effective Date, unless earlier terminated as provided in Section 7, provided that such initial term shall be extended automatically for successive one-year periods unless the company shall have provided notice to the Executive not less than 30 days prior to the expiration of the initial term or any such extension term of its intention not to extend the Employment Period, as defined below. The period during which the Executive is employed pursuant to this Agreement shall be referred to herein as the “Employment Period.”

3. Employment Duties.

2.1 Title and Duties. During the Employment Period, Executive shall be employed in the business of the Company. Executive shall serve as General Counsel and Secretary of DHB Industries, Inc. Executive shall devote substantially all of his working time and efforts to the performance of his duties under this Agreement, provided that Executive may also (i) serve on corporate or civic boards or committees, (ii) deliver lectures or presentations to professional and similar organizations and/or participate in continuing education activities, and (iii) manage his or his family’s personal investments, in each case so long as such activities do not substantially interfere with the performance of Executive’s responsibilities under this Agreement and do not conflict with any company rule or policy or present a conflict of interest with the Company. Executive’s duties and responsibilities shall include those customarily assigned to the General Counsel and Secretary of a public company and such other duties and responsibilities consistent with Executive’s title(s) as the Board of Directors or the Chief Executive Officer shall specify from time to time, including without limitation, taking overall

responsibility for all legal matters affecting the Company and its subsidiaries, supporting the Board of Directors and committees thereof, supervising internal and external counsel of the Company and its subsidiaries, and reviewing all public filings and releases of the Company.

2.2 Location/Travel. In performing his duties hereunder, Executive shall be available for reasonable travel, as the needs of the business of the Company may require. It is expected that Executive shall be based and shall perform his duties primarily at the Company’s Pompano Beach, Florida facility.

2.3 Reporting. In carrying out his duties hereunder, Executive shall report to the Chief Executive Officer and to the Board of Directors.

3. Compensation/Benefits. In consideration of Executive’s services hereunder, the Company shall provide Executive the following:

3.1 Base Salary. During the Employment Period, the Executive shall receive an annual rate of base salary not less than $350,000, which the Company shall pay at semi-monthly intervals, or otherwise at such intervals (not less frequently than monthly) as are used generally for the Company’s senior executives. The base salary shall be reviewed annually by the Company (through its Board or any Compensation Committee thereof) not later than June 30 of each calendar year and may be increased (but not decreased) by such amount as the Company in its sole discretion shall determine.

3.2 Bonuses. Commencing at the close of each fiscal year of the Company during the Employment Period, the Company shall review the performance of the Company and of Executive during the prior fiscal year, and the Company may provide Executive with additional compensation as a bonus if the Board of Directors, or any Compensation Committee thereof, in its sole discretion, determines. Executive shall receive from the Company a signing payment (including amounts for previous work performed) of $45,137 as promptly as practicable following the Effective Date.

3.3 Equity-Based Compensation. Effective on the Effective Date, to induce Executive to enter into this Agreement, Executive will be granted by the Company warrants to purchase 400,000 shares of common stock of the Company, pursuant to a separate award agreement substantially in the form of Exhibit A (“Award Agreement”). Such warrants will have a term of 10 years from the Effective Date. On the Effective Date 10% of such warrants shall be vested and exercisable, 30% of such warrants shall vest and become exercisable on each of the first, second and third anniversaries following the Effective Date. The warrants shall have an exercise price equal to the closing price per share of the company’s common stock on the Effective Date, as set forth in the Award Agreement. The warrants will be subject to such other terms and restrictions as are set forth in the Award Agreement, and in the event of any conflict between the terms hereof and the Award Agreement, the terms of the Award Agreement shall take precedence. The Company will reserve for issuance the number of shares of common stock underlying the warrants and, as promptly as practicable once it is in compliance with applicable reporting and other requirements, shall use its best efforts to file a registration statement with respect to such shares and to cause such registration statement to remain effective until the end of the term of such warrants.

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3.4 Vacation. Executive shall be entitled to three (3) weeks of paid vacation for the first calendar year of this agreement and four (4) weeks during subsequent calendar years, provided that not more than 10 days accrued and unused vacation may be carried over into any subsequent year.

3.5 Expenses. Executive shall be entitled to reimbursement of reasonable business expenses incurred in carrying out his duties for the Company, provided that such expenses are evidenced by appropriate documentation and submitted in accordance with Company policies and procedures. For so long as Executive is required to work for the Company primarily at a location other than the vicinity of his home address, Executive shall also be entitled to receive from the Company a stipend for temporary housing and for the use of an automobile, in the amount of $2,500 per month.

3.6 Other Benefits. The Company shall provide to Executive such other benefits, including the right to participate in medical, savings, deferred compensation and other benefit plans and arrangements as are made generally available to other senior executives of the Company from time to time.

4. Indemnification.

4.1 Indemnity. To the fullest extent permitted by law, the Company shall indemnify Executive with respect to any actions commenced against Executive in his capacity as an officer, director, executive, agent or fiduciary or former officer, director, executive, agent or fiduciary of the Company, or any affiliate thereof, for which Executive may render service in such capacity, whether by or on behalf of the Company, its shareholders or third parties, and the Company shall advance to Executive on a timely basis an amount equal to the reasonable fees and expenses incurred in defending such actions, after receipt of an itemized request for such advance, and an undertaking from Executive to repay the amount of such advance, with interest at a reasonable rate from the date of the request, as determined by the Company, if it shall ultimately be determined that Executive is not entitled (as a matter of law or by judicial determination) to be indemnified against such expenses. This indemnity shall survive any termination of employment under this Agreement and is in addition to and not in limitation of any other right to indemnification or exoneration to which Executive is entitled at law, or under the governing organizational documents and/or policies of the Company. The Company agrees to use its best efforts to secure and maintain officers’ and directors’ liability insurance, including coverage for Executive.

5. Covenants and Confidential Information.

5.1 Restrictive Covenants. Executive acknowledges the Company’s reliance on and expectation of Executive’s continued commitment to performance of his duties and responsibilities during the Employment Period. In light of such reliance and expectation on the part of the Company, during the applicable period hereafter specified in Section 5.3, Executive shall not, directly or indirectly, do or suffer either of the following:

(a)(1) own, manage, control or participate in the ownership, management or control of, or be employed or engaged by or otherwise affiliated or associated as an Executive, agent, representative, consultant, independent contractor or otherwise with, any

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other corporation, partnership, proprietorship, firm, association or other business entity engaged in the business of, or otherwise engage in the business of, manufacturing, selling or distributing body armor or body armor related products, and other products manufactured, sold or distributed by the Company from time to time, within the United States in direct or indirect competition with the Company or any of its affiliates;

(2) solicit any business or contracts from any customers of the Company or its affiliates, any past customers of the Company or its affiliates, or any prospective customers of the Company or its affiliates (i.e., potential customers from which the Company or its affiliates has solicited business at any time during the twelve (12) month period preceding the expiration or termination of the Employment Period), except as necessitated by Executive’s position with the Company and then only in furtherance of the business interests of the Company or its affiliates;

(3) induce or attempt to induce any such customer to alter its business relationship with the Company or its affiliates except as necessitated by Executive’s position with the Company and then only in furtherance of the business interests of the Company or its affiliates;

(4) solicit or induce or attempt to solicit or induce any executive or employee of the Company or its affiliates to leave the employ of the Company or any of its affiliates for any reason whatsoever or hire any person who was an executive or employee of the Company or its affiliates within the twelve (12) month period prior to such hiring; or

(5) directly or indirectly, engage in any conduct or make any statement, whether in commercial or noncommercial speech, disparaging or criticizing in any way the Company or any of its affiliates, or any products or services offered by any of them, nor shall Executive engage in any other conduct or make any other statement that could be reasonably expected to impair the goodwill of any of the Company or any if its affiliates, the reputation of any products or services of the Company or any of its affiliates or the marketing of such products or services.

(b) disclose, divulge, discuss, copy or otherwise use or suffer to be used in any manner, other than in accordance with Executive’s duties hereunder (and in a manner not in violation or conflict with applicable laws and regulations), any confidential or proprietary information relating to the Company’s or any of its affiliates’ businesses, prospects, finances, operations, pricing, products, research and development or properties or other trade secrets of the Company or any of its affiliates, it being acknowledged and agreed by Executive that all such information regarding the business of the Company or any of its affiliates compiled or obtained by, or furnished to, Executive while Executive shall have been employed by or associated with the Company is confidential and/or proprietary information and the Company’s exclusive property; provided, however, that the foregoing restrictions shall not apply to the extent that such information: (A) is clearly obtainable in the public domain; (B) becomes obtainable in the public domain, other than by reason of the breach by Executive of the terms hereof or breach by another person barred by a duty of confidentiality to the Company; or (C) is required to be disclosed by rule of law or by order of a court or governmental body or agency.

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5.2 Litigation; Cooperation. If this Agreement is terminated by the Company other than for Cause or by the Executive for Good Reason (as defined herein), the Executive agrees that, for up to 12 months following the date of termination, he will provide to the Company and its affiliates truthful and complete cooperation including, but not limited to, the Executive’s appearance at interviews and depositions at reasonable times in all regulatory or litigation matters and proceedings relating to the Company and its affiliates, and to provide to the Company’s legal counsel, upon request, all documents and materials in his possession or under his control relating to such matters and proceedings, all at no additional compensation to the Executive, provided that the company shall reimburse promptly the Executive for all reasonable expenses, including attorney’s fees and other expenses, as well as pay to the Executive any amount of salary forfeited and including with respect to vacation time consumed by him during any time spent by Executive in connection with the foregoing.

5.3 Applicable Periods. The applicable periods shall be:

(a) so long as Executive is an Executive of the Company; and

(b) for a period of twelve (12) months after termination of employment or the expiration of the Employment Period.

5.4 Injunctive Relief. Executive agrees and understands that the remedy at law for any breach by his of this Section 5 will be inadequate and that the damages flowing from such breach are not readily susceptible to being measured in monetary terms. Accordingly, it is acknowledged that the Company shall be entitled to immediate injunctive relief and may obtain a temporary order restraining any threatened or further breach. Nothing in this Section 5 shall be deemed to limit the Company’s remedies at law or in equity for any breach by Executive of any of the provisions of this Section 5 which may be pursued or availed of by the Company.

5.5 Acknowledgment by Executive. Executive has carefully considered the nature and extent of the restrictions upon his and the rights and remedies conferred upon the Company under this Section 5, and hereby acknowledges and agrees that the same are reasonable in time and territory, do not stifle the inherent skill and experience of Executive, would not operate as a bar to Executive’s sole means of support, are fully required to protect the legitimate interests of the Company, and do not confer a benefit upon the Company disproportionate to the detriment of Executive.

6. Proprietary Rights.

6.1 Copyrights. At all times during the Employment Period, all right, title and interest in all copyrightable material which Executive shall conceive or originate, either individually or jointly with others, and which arise out of the performance of this Agreement, will be the property of the Company and are by this Agreement assigned to the Company along with ownership of any and all copyrights in the copyrightable material. At all times during the Employment Period, Executive agrees to execute all papers and perform all other acts necessary to assist the Company to obtain and register copyrights on such materials in any and all countries, and the Company agrees to pay expenses associated with such copyright registration. Works of authorship created by Executive for the Company in performing his responsibilities under this Agreement shall be considered “works made for hire” as defined in the U.S. Copyright Act. In addition, Executive hereby assignees to the Company all proprietary rights, including but not limited to, all patents, copyrights, trade secrets and trademarks Executive might otherwise have, by operation of law or otherwise, in all inventions, discoveries, works, ideas, information, knowledge and data related to Executive’s access to confidential information of the Company during the Employment Period.

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6.2 Know-How and Trade Secret. All know-how and trade secret information conceived or originated by Executive which arises out of the performance of his obligations or responsibilities under this Agreement during the Employment Period or otherwise shall be the property of the Company, and all rights therein are by this Agreement assigned to the Company.

6.3 Joint Ventures, etc. If, during the Employment Period, Executive is engaged in or associated with the planning or implementing of any project, program or venture involving the Company and a third party or parties, all rights in such project, program or venture shall belong to the Company. Except as formally approved by the Board of Directors of the Parent, Executive shall not be entitled to any interest in such project, program or venture or to any commission, finder’s fee or other compensation in connection therewith other than the compensation to be paid to Executive as provided in this Agreement.

6.4 Return of Materials. Upon termination of the Employment Period, Executive shall deliver promptly to the Company all records, manuals, books, documents, letters, memoranda, notes, notebooks, reports, data, tables, calculations, customer and prospective customer lists, and copies of all of the foregoing, which are the property of the Company, and all other property, trade secrets and confidential information of the Company, including, but not limited to, all documents which in whole or in part contain any trade secrets or confidential information of the Company, which in any of these cases are in his possession or under his control.

7. Termination.

7.1 Death or Disability. This Agreement shall terminate automatically upon the Executive’s death or upon a determination by the Board of Directors to terminate the Executive’s employment as a result of his disability during the Employment Period. For purposes of this Agreement, “disability” shall mean a physical or mental disability that prevents or can be reasonably expected to prevent the performance by the Executive of his duties hereunder for a continuous period of 90 days or longer in any 12-month period. Determination of disability shall be supported by the report of an independent physician reasonably acceptable to the Company and Executive (or his representative), taking into account competent medical evidence, and otherwise shall be in accordance with the Americans with Disabilities Act and other applicable laws.

7.2 Termination by the Company. The Company may terminate the Executive’s employment during the Employment Period for Cause or without Cause. For purposes of this Agreement, “Cause” shall mean the Executive’s (i) engaging in fraudulent or dishonest conduct (as determined by a finding, order, judgment or decree in any court or administrative agency of competent jurisdiction, in any action or proceeding whether civil, criminal, administrative or investigative) that the Board reasonably determines has or would have a material adverse impact on Company, its affiliates or their respective businesses; (ii) conviction of, or entering a plea of nolo contendere to, a felony criminal offense or comparable level of crime in any jurisdiction that uses a different nomenclature; (iii) willful refusal to perform his material employment-related duties or responsibilities or intentionally engaging in any activity that is in material conflict with or is materially adverse to the business interests of the Company, its affiliates or their respective businesses; (iv) gross negligence in the

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performance of his material employment-related duties or responsibilities; or (v) breach of any material provision of this Agreement (in the case of (iii), (iv) and (v) above, that is not cured by the Executive within 30 days following receipt by the Executive of notice from the Company setting forth in reasonable detail the circumstances giving rise to such Cause). A termination for Cause shall include a determination by the Board no later than 45 days following the termination of the Employment Period that circumstances existed during the Employment Period that would have justified a termination for Cause. A termination of the Executive by the Company shall not be a termination for Cause for purposes of this Agreement unless the determination to so terminate the Executive’s employment is made by a resolution of the Board (excluding the Executive) following a meeting convened upon not less than 10 days notice to the Executive and at which the Executive and his legal counsel, if any, shall have had a reasonable opportunity to be heard by the Board.

7.3 Termination by the Executive. The Executive may terminate his employment with or without Good Reason. For purposes of this Agreement “Good Reason” means, without Executive’s written consent: (i) a material diminution of Executive’s duties and responsibilities, or the assignment of responsibilities that are materially inconsistent with his position and responsibilities hereunder; (ii) a reduction of the Executive’s base salary, annual bonus or long-term compensation opportunity (it being understood that a reduction of the dollar amount of the Executive’s annual bonus from year to year solely as a result of achievement or failure to achieve target performance objectives shall not constitute a reduction in Executive’s bonus opportunity) or of the benefits made available to Executive as described herein; (iii) requiring Executive’s primary place of business to be located other than in south Florida (Broward, Dade or Palm Beach counties) or in the vicinity of Executive’s home residence address; (iv) a material breach by the Company of any other provision of this Agreement, in each case that is not cured by the Company within 30 days after its receipt from the Executive of written notice setting forth in reasonable detail the circumstances giving rise to such Good Reason.

7.4 Termination Procedures. Any termination of the Executive’s employment by the Company or by the Executive shall be communicated to the other party by a notice of termination given in accordance with this Agreement. For purposes of this Agreement, a “notice of termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon; (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for the termination under such provision; (iii) subject to this paragraph, specifies the date of termination (as defined below). For purposes of this Agreement, “date of termination” means (a) if the Executive’s employment is terminated other than for Cause or by reason of death or disability, 90 days following the receipt of the notice of termination, and (b) if the Executive’s employment is terminated for Cause or by reason of death or disability, the date of death or the date of the Board’s determination of Cause or of Executive’s disability, in accordance with this Agreement, provided that the Company may elect to pay the Executive (at the rate of his base salary then in effect) in lieu of part or all of such notice period preceding the date of termination.

7.5 Effect of Termination. Effective as of any date of termination or, if earlier, as of any date specified by the Company at or following the delivery of a notice of termination, the Executive shall resign, in writing, from all Board memberships and all other positions held by him with the Company and its affiliates.

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7.6 Obligations of the Company upon Termination. (a) General. If, during the Employment Period, the Executive’s employment terminates for any reason, the Executive (or his estate, beneficiary or legal representative) shall be entitled to receive (i) any earned or accrued but unpaid base salary through the date of termination (including with respect to accrued and unused vacation time), and (ii) all amounts payable and benefits accrued under any otherwise applicable plan, policy, program or practice of the Company (other than relating to severance) in which Executive was a participant during his employment with the Company in accordance with the terms thereof (including, without limitation, amounts deferred under deferred compensation and similar plans, if any).

(b) Other than for Cause, Death or Disability; Good Reason. If, during the Employment Period, the Company terminates the Executive’s employment, other than for Cause, death or disability, or if the Executive terminates his employment for Good Reason, the Company shall, subject to Executive’s continued full performance of his obligations set forth in Section 5 hereof, in addition to the amounts payable under paragraph (a) above, pay to the Executive (or his estate, beneficiary or legal representative) in twelve equal monthly installments commencing on the first day of the month following the date of termination, an amount equal to the Executive’s annual base salary then in effect. In addition, the Executive and the Executive’s eligible spouse, dependents and beneficiaries will continue to be eligible to participate in the company’s health, medical, disability, life and other insurance plans (subject to Executive’s making required contributions to such plans) for a period of twelve months following the date of termination (or the Company will provide equivalent benefits for such period), provided that all such continuing benefits shall cease upon the date on which Executive becomes eligible to receive comparable benefits from a subsequent employer.

8. Notice. Any notice required or permitted hereunder shall be in writing and shall be deemed sufficient when given by hand or by nationally recognized overnight courier or by express, registered or certified mail, postage prepaid, return receipt requested, and addressed, (i) if to the Company, to DHB Industries, Inc., 2102 S.W. 2^nd Street, Pompano Beach, FL 33069 Attn: Chief Executive Officer, with a copy delivered to the same address, Attn: General Counsel, and (ii) if to Executive, to him at the address set forth in the initial paragraph hereof (or to such other addresses as may be provided by either party by notice). Notice shall be effective two (2) days after it is delivered by any overnight courier, upon receipt if delivered by mail, or immediately if delivered by hand.

9. Miscellaneous. This Agreement constitutes the entire agreement between the parties concerning the subjects hereof and supersedes any and all prior agreements, term sheets or understandings. This Agreement may not be assigned by Executive, and may not be assigned by the Company except in connection with a sale of substantially all of the assets or stock of the Company and shall be binding upon, and inure to the benefit of, the Company’s successors and assigns. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had

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taken place. As used in this Agreement, “Company” shall mean the Company as defined herein and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. Headings herein are for convenience of reference only and shall not define, limit or interpret the contents hereof.

10. Amendment. This Agreement may be amended, modified or supplemented by the mutual consent of the parties in writing, but no oral amendment, modification or supplement shall be effective. No waiver by either party of any breach by the other party of any condition or provision contained in this Agreement to be performed by such other party shall be deemed a waiver of a similar or dissimilar condition or provision at the same or any prior or subsequent time. Any waiver must be in writing and signed by Executive or an authorized officer of the Company, as the case may be.

11. Severability. The provisions of this Agreement are severable. The invalidity of any provision shall not affect the validity of any other provision, and each provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.

12. Resolution of Disputes; Enforcement. Any controversy or claim seeking equitable relief pursuant to this Agreement, all controversies and claims arising under or in connection with this Agreement or relating to the interpretation, breach or enforcement hereof and all other disputes between the parties in connection with the employment of the Executive shall be referred for arbitration to be held in Miami, Florida (or such other location as the Company and Executive shall agree) to a neutral arbitrator selected by Executive and the Company, and this shall be the sole and exclusive manner in which to resolve such controversy or claim hereunder (other than for injunctive relief that may be required by either party) The arbitration shall be conducted in accordance with the Employment Arbitration Rules (the “Rules”) of the American Arbitration Association (“AAA”) in effect at the time of the arbitration. If the parties are not able to agree upon a neutral arbitrator, then an arbitrator shall be selected in accordance with the rules and procedures of the AAA. Each party hereto shall bear its own costs and expenses in connection with any proceeding hereunder, provided that the arbitrator shall be entitled to award to the prevailing party reimbursement of its reasonable legal costs and expenses (including with respect to the arbitrator and the AAA).

13. Survivorship. The provisions of Sections 4, 5 and 6 of this Agreement shall survive Executive’s termination of employment. Other provisions of this Agreement shall survive any termination of Executive’s employment to the extent necessary to the intended preservation of each party’s respective rights and obligations.

14. Withholding. All amounts required to be paid by the Company shall be subject to reduction in order to comply with applicable federal, state and local tax withholding requirements.

15. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. The execution of this Agreement may be by actual or facsimile signature.

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16. Definition of Terms. The term “affiliate,” when used in this Agreement with respect to any person, means any other person that, directly or indirectly, controls, is controlled by or is under common control with the first person. The term “person,” when used in this Agreement, means any natural person or entity with legal status.

17. Governing Law. This Agreement shall be construed and regulated in all respects under the internal laws of the State of Florida, without regard to principles of conflict of laws of such state.

18. Captions. All captions are provided for convenience, do not form a part of this Agreement, and are not admissible for purposes of construction.

IN WITNESS WHEREOF, this Agreement is entered into as of the date first written above.

DHB INDUSTRIES INC.
By:
	Larry Ellis
	President/CEO
	Thomas C. Canfield

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EX-10.5

Exhibit 10.5

EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT (this “Agreement”) made as of November 1, 2006 by and between Sam White (“Employee”) and DHB Industries Inc., a Delaware corporation (together with all divisions, subsidiaries and groups, the “Company”).

NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and sufficiency of which is acknowledged, the parties agree as follows:

1. Term. The Company agrees to employ Employee, and Employee agrees to be employed by the Company, subject to the terms and conditions of this Agreement, for the period commencing on November 1, 2006 (the “Effective Date”) and terminating on the third anniversary of the Effective Date (the “Employment Period”), unless earlier terminated as provided in Section 7. Further, the Company shall have the option of extending this Agreement for two successive one year terms, upon the terms contained herein. Company shall provide Employee with notice of its intention to exercise the aforementioned option 30 days prior to the expiration of the preceding term.

2. Employment Duties.

2.1 Title. During the Employment Period, Employee shall be employed in the business of the Company. Employee shall serve as Executive Vice President – Global Sales, Marketing and R&D. Employee shall devote substantially all of his working time and efforts to the performance of his duties under this Agreement.

2.2 Location. In performing his duties hereunder, Employee shall be available for reasonable travel, as the needs of the business of the Company may require.

2.3 Reporting. Employee shall report to the Chief Operating Officer (COO) of the Company, or such other person(s) as the Chief Executive Officer of the Company shall direct from time to time.

3. Compensation/Benefits. In consideration of Employee’s services hereunder, the Company shall provide Employee the following:

3.1 Base Salary. During the Employment Period, the Employee shall receive an annual rate of base salary (“Base Salary”) not less than $250,000, which the Company shall pay at semi-monthly intervals.

3.2 Bonuses. Commencing at the close of each fiscal year of the Company during the Employment Period, the Company shall review the performance of the Company and of Employee during the prior fiscal year, and the Company may provide Employee with additional compensation as a bonus, if so determined under any approved performance or other bonus plan then in effect.

3.3 Equity Compensation. To induce Employee to enter into this Agreement, Employee shall be granted by the Company a warrant or option to purchase shares of common stock of the Company, pursuant to a separate award agreement.

3.4 Vacations. Employee shall be entitled to 15 days of paid vacation in each year during the Employment Period (in addition to Federal holidays observed by the Company). Unused vacation shall not be carried over to any subsequent year.

3.5 Other Benefits. The Company shall provide to Employee such other benefits, including the right to participate in medical and other benefit plans, as are made generally available to employees of the Company from time to time.

4. Expenses. The Company shall reimburse Employee for the reasonable business expenses incurred by Employee in the course of performing his duties for the Company, upon submission (and approval) of invoices, vouchers or other appropriate documentation, in accordance with the policies in effect from time to time.

5. Covenants and Confidential Information.

5.1 Restrictive Covenants. Employee acknowledges the Company’s reliance on and expectation of Employee’s continued commitment to performance of his duties and responsibilities during the Employment Period. In light of such reliance and expectation on the part of the Company, during the applicable period hereafter specified in Section 5.2, Employee shall not, directly or indirectly, do or suffer either of the following:

(a)(1) own, manage, control or participate in the ownership, management or control of, or be employed or engaged by or otherwise affiliated or associated as an employee, agent, representative, consultant, independent contractor or otherwise with, any other corporation, partnership, proprietorship, firm, association or other business entity engaged in the business of, or otherwise engage in the business of, manufacturing, selling or distributing body armor or body armor related products within the United States in direct or indirect competition with the Company or any of its affiliates;

(2) solicit any business or contracts from any customers of the Company or its affiliates, any past customers of the Company or its affiliates, or any prospective customers of the Company or its affiliates (i.e., potential customers from which the Company or its affiliates has solicited business at any time during the twelve (12) month period preceding the expiration or termination of the Employment Period), except as necessitated by Employee’s position with the Company and then only in furtherance of the business interests of the Company or its affiliates;

(3) induce or attempt to induce any such customer to alter its business relationship with the Company or its affiliates except as necessitated by Employee’s position with the Company and then only in furtherance of the business interests of the Company or its affiliates;

(4) solicit or induce or attempt to solicit or induce any employee of the Company or its affiliates to leave the employ of the Company or any of its affiliates for any reason whatsoever or hire any employee or any person who was an employee of the Company or its affiliates within the twelve (12) month period prior to such hiring; or

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(5) directly or indirectly, engage in any conduct or make any statement, whether in commercial or noncommercial speech, disparaging or criticizing in any way the Company or any of its affiliates, or any products or services offered by any of them, nor shall Employee engage in any other conduct or make any other statement that could be reasonably expected to impair the goodwill of any of the Company or any if its affiliates, the reputation of any products or services of the Company or any of its affiliates or the marketing of such products or services.

(b) disclose, divulge, discuss, copy or otherwise use or suffer to be used in any manner, other than in accordance with Employee’s duties hereunder, any confidential or proprietary information relating to the Company’s or any of its affiliates’ businesses, prospects, finances, operations or properties or other trade secrets of the Company or any of its affiliates, it being acknowledged by Employee that all such information regarding the business of the Company or any of its affiliates compiled or obtained by, or furnished to, Employee while Employee shall have been employed by or associated with the Company is confidential and/or proprietary information and the Company’s exclusive property; provided, however, that the foregoing restrictions shall not apply to the extent that such information: (A) is clearly obtainable in the public domain; (B) becomes obtainable in the public domain, except by reason of the breach by Employee of the terms hereof or by another person barred by a similar duty of confidentiality; or (C) is required to be disclosed by rule of law or by order of a court or governmental body or agency.

5.2 Applicable Periods. The applicable periods shall be:

(a) so long as Employee is an employee of the Company; and

(b) for a period of twelve (12) months after termination of employment or the expiration of the Employment Period.

5.3 Injunctive Relief. Employee agrees and understands that the remedy at law for any breach by his of this Section 5 will be inadequate and that the damages flowing from such breach are not readily susceptible to being measured in monetary terms. Accordingly, it is acknowledged that the Company shall be entitled to immediate injunctive relief and may obtain a temporary order restraining any threatened or further breach. Nothing in this Section 5 shall be deemed to limit the Company’s remedies at law or in equity for any breach by Employee of any of the provisions of this Section 5 which may be pursued or availed of by the Company.

5.4 Acknowledgment by Employee. Employee has carefully considered the nature and extent of the restrictions upon his and the rights and remedies conferred upon the Company under this Section 5, and hereby acknowledges and agrees that the same are reasonable in time and territory, do not stifle the inherent skill and experience of Employee, would not operate as a bar to Employee’s sole means of support, are fully required to protect the legitimate interests of the Company, and do not confer a benefit upon the Company disproportionate to the detriment of Employee.

6. Proprietary Rights.

6.1 Copyrights. At all times during the Employment Period, all right, title and interest in all copyrightable material which Employee shall conceive or originate, either individually or jointly with others, and which arise out of the performance of this Agreement,

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will be the property of the Company and are by this Agreement assigned to the Company along with ownership of any and all copyrights in the copyrightable material. At all times during the Employment Period, Employee agrees to execute all papers and perform all other acts necessary to assist the Company to obtain and register copyrights on such materials in any and all countries, and the Company agrees to pay expenses associated with such copyright registration. Works of authorship created by Employee for the Company in performing his responsibilities under this Agreement shall be considered “works made for hire” as defined in the U.S. Copyright Act. In addition, Employee hereby assignees to the Company all proprietary rights, including but not limited to, all patents, copyrights, trade secrets and trademarks Employee might otherwise have, by operation of law or otherwise, in all inventions, discoveries, works, ideas, information, knowledge and data related to Employee’s access to confidential information of the Company during the Employment Period.

6.2 Know-How and Trade Secret. All know-how and trade secret information conceived or originated by Employee which arises out of the performance of his obligations or responsibilities under this Agreement during the Employment Period or otherwise shall be the property of the Company, and all rights therein are by this Agreement assigned to the Company.

6.3 Joint Ventures, etc. If, during the Employment Period, Employee is engaged in or associated with the planning or implementing of any project, program or venture involving the Company and a third party or parties, all rights in such project, program or venture shall belong to the Company. Except as formally approved by the Board of Directors of the Parent, Employee shall not be entitled to any interest in such project, program or venture or to any commission, finder’s fee or other compensation in connection therewith other than the compensation to be paid to Employee as provided in this Agreement.

6.4 Return of Materials. Upon termination of the Employment Period, Employee shall deliver promptly to the Company all records, manuals, books, documents, letters, memoranda, notes, notebooks, reports, data, tables, calculations, customer and prospective customer lists, and copies of all of the foregoing, which are the property of the Company, and all other property, trade secrets and confidential information of the Company, including, but not limited to, all documents which in whole or in part contain any trade secrets or confidential information of the Company, which in any of these cases are in his possession or under his control.

7. Termination.

7.1 At-Will Employment. Employee’s employment hereunder is “at will” and may be terminated at any time, with or without cause, at the option of the Company, subject only to the obligations under Section 7.2 below. Additionally, this Agreement may be terminated by Employee by delivering written notice to the Company in the manner specified below. Simultaneous with any termination or resignation hereunder, the Employment Period shall expire. For purposes of this Agreement, “cause” shall mean the Employee (i) engaging in fraudulent conduct, as determined by the Company, after due inquiry; (ii) being convicted of a felony criminal offense or comparable level of crime in a jurisdiction that uses a different nomenclature; (iii) breaching any material term of this Agreement; and (iv) engaging in misconduct, whether or not performance related, as defined in Company employment policies from time to time.

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7.2 Rights Upon Termination; Payment of Benefits Earned Through Date of Termination. Upon any termination of Employee’s employment during the Employment Period, Employee shall in all events be paid all accrued but unpaid Base Salary plus compensation reflecting earned but unused vacation earned through the Date of Termination (as defined below). Employee shall also retain all such rights with respect to vested equity-based awards as are provided under the circumstances under the applicable grant or award agreement, and shall be entitled to other benefits which are provided under the circumstances in accordance with the provisions of the Company’s generally applicable employee benefit plans, practices and policies and Employee shall have no further entitlements with respect thereto. Further, if this Agreement is terminated by the Company, other than for cause or as a result of Employee’s death, Employee shall be entitled to a sum equivalent to [six (6)] months salary, which amount shall be payable in twelve equal monthly installments, beginning not later than the 15^th day of the month immediately following the month in which the Date of Termination occurs.

7.3 Notice of Termination. Notice of termination of this Agreement or of any termination of Employee’s employment (other than by reason of death) shall be communicated by written notice (a “Notice of Termination”) from one party to the other in accordance with this Section 7 and Section 8. “Date of Termination,” with respect to any termination of Employee’s employment during the Employment Period, shall mean the effective date of termination specified in the Notice of Termination.

8. Notice. Any notice required or permitted hereunder shall be in writing and shall be deemed sufficient when given by hand or by nationally recognized overnight courier or by express, registered or certified mail, postage prepaid, return receipt requested, and addressed, if to the Company at 2102 S.W. 2^nd Street, Pompano Beach, FL 33069 Attn: General Counsel, and if to Employee at the address most recently set forth in the Company’s personnel records (or to such other address as may be provided by notice from the Employee to the Company). Notice shall be effective three (3) days after it is delivered to any courier, or immediately if delivered in hand.

9. Miscellaneous. This Agreement constitutes the entire agreement between the parties concerning the subjects hereof and supersedes any and all prior agreements, term sheets or understandings. This Agreement may not be assigned by Employee, and may be assigned by the Company and shall be binding upon, and inure to the benefit of, the Company’s successors and assigns. As used in this Agreement, “Company” shall mean the Company as defined herein and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. Headings herein are for convenience of reference only and shall not define, limit or interpret the contents hereof.

10. Amendment. This Agreement may be amended, modified or supplemented by the mutual consent of the parties in writing, but no oral amendment, modification or supplement shall be effective. No waiver by either party of any breach by the other party of any condition or provision contained in this Agreement to be performed by such other party shall be deemed a waiver of a similar or dissimilar condition or provision at the same or any prior or subsequent time. Any waiver must be in writing and signed by Employee or an authorized officer of the Company, as the case may be.

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11. Severability. The provisions of this Agreement are severable. The invalidity of any provision shall not affect the validity of any other provision, and each provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.

12. Resolution of Disputes; Enforcement. Any controversy or claim seeking equitable relief pursuant to this Agreement, all controversies and claims arising under or in connection with this Agreement or relating to the interpretation, breach or enforcement hereof and all other disputes between the parties in connection with the employment of the Employee shall be heard in the courts of the State of Florida, County of Broward (“Court”) which shall have exclusive jurisdiction of any and all such disputes and which shall apply the law specified in Section 17 below. Each party shall pay the cost of his or its own legal fees and expenses incurred in connection with any such litigation. No party to any such litigation shall be liable to the other for multiple, punitive, exemplary or consequential damages. All parties consent to the jurisdiction of the Court, and agree inter alia that service may be had pursuant to the provisions of any “long-arm statute” so-called applicable to proceedings pending within such Court.

13. Survivorship. The provisions of Sections 5 and 6 of this Agreement shall survive Employee’s termination of employment. Other provisions of this Agreement shall survive any termination of Employee’s employment to the extent necessary to the intended preservation of each party’s respective rights and obligations.

14. Withholding. All amounts required to be paid by the Company shall be subject to reduction in order to comply with applicable federal, state and local tax withholding requirements.

15. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. The execution of this Agreement may be by actual or facsimile signature.

16. Definition of Terms. The term “affiliate,” when used in this Agreement with respect to any person, means any other person that, directly or indirectly, controls, is controlled by or is under common control with the first person. The term “person,” when used in this Agreement, means any natural person or entity with legal status.

17. Governing Law. This Agreement shall be construed and regulated in all respects under the internal laws of the State of Florida, without regard to principles of conflict of laws of such state.

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18. Captions. All captions are provided for convenience, do not form a part of this Agreement, and are not admissible for purposes of construction.

IN WITNESS WHEREOF, this Agreement is entered into as of the date first written above.

DHB INDUSTRIES INC.
By:
	Larry Ellis, President and CEO
	Sam White

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EX-10.6

Exhibit 10.6

EXECUTION COPY

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (including any amendments hereto as are in effect from time to time, this “Agreement”) by and between Larry R. Ellis (“Executive”) and DHB Industries, Inc., a Delaware corporation (alone or together with all divisions, subsidiaries and groups, the “Company”), has been executed by Executive and the Company on March 29, 2007 (the “Effective Date”).

In consideration of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and sufficiency of which is acknowledged, the parties agree as follows:

1. Agreement to Employ. The Company hereby agrees to employ Executive, and Executive hereby agrees to be employed by the Company, pursuant to the terms and conditions set forth in this Agreement. Executive represents and agrees that: (i) he is entering into this Agreement voluntarily and that his employment hereunder and compliance with the terms and conditions hereof will not conflict with or result in a breach by him of any agreement to which he is a party or by which he may be bound, (ii) he has not violated, and in connection with his employment by the Company will not violate, any non-solicitation or similar covenant to which he is or may be bound, and (iii) in connection with his employment by the Company, he will not use any confidential or proprietary information he may have obtained in connection with his employment by any previous employer.

2. Term. The Company agrees to employ Executive, and Executive agrees to be employed by the Company, subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and terminating on the fourth anniversary of the Effective Date, unless earlier terminated as provided in Section 8, provided that such initial term shall be extended automatically for successive one-year periods unless the Company shall have provided notice to Executive, not less than 60 days prior to the expiration of the initial term or any such extension term, of its intention not to extend the Employment Period, as defined below. The period during which Executive is employed pursuant to this Agreement shall be referred to herein as the “Employment Period.”

3. Employment Duties.

3.1 Title and Duties. During the Employment Period, Executive shall be employed as President and Chief Executive Officer (“CEO”) of DHB Industries, Inc. and may also be assigned or assume similar positions or other positions with subsidiaries and affiliates of DHB Industries, Inc. Executive shall devote substantially all of his working time and efforts to the performance of his duties under this Agreement, provided that Executive may also: (i) continue to serve on the two corporate boards on which he currently serves; (ii) serve on civic boards or committees; (iii) deliver lectures or presentations to professional and similar organizations and/or participate in continuing education activities; and (iv) manage his or his family’s personal investments, in each case so long as such activities do not substantially interfere with the performance of Executive’s responsibilities under this Agreement and do not conflict with any Company rule or policy or present a conflict of interest with the Company. Executive may serve on any other corporate board only after obtaining the prior written consent

of the Company’s Board of Directors (the “Board”). Executive’s duties and responsibilities shall include those that customarily have been performed by the president and CEO of the Company and such other duties and responsibilities consistent with Executive’s titles as the Board of Directors shall specify from time to time.

3.2 Location/Travel. In performing his duties hereunder, Executive shall be available for reasonable travel, as the needs of the business of the Company may require. It is expected that Executive shall be based and shall perform his duties primarily at the Company’s Pompano Beach, Florida facility.

3.3 Reporting. In carrying out his duties hereunder, Executive shall report to the Board.

4. Compensation/Benefits. In consideration of Executive’s services hereunder, the Company shall provide Executive the following:

4.1 Base Salary. During the Employment Period, Executive shall receive an annual rate of base salary (“Base Salary”) not less than $650,000, which the Company shall pay at semi-monthly intervals, or otherwise at such intervals (not less frequently than monthly) as are used generally for the Company’s senior executives. The Base Salary shall be reviewed annually by the Company (through its Board or any Compensation Committee thereof) not later than June 30 of each calendar year and may be increased (but not decreased) by such amount as the Board in its sole discretion shall determine.

4.2 Bonus. Executive shall be eligible to be awarded a performance bonus (“Bonus”) of 100% of his Base Salary (the “Bonus”) based on Executive’s achievement during a given fiscal year of the Annual Goals (as hereinafter defined) for that fiscal year. The Board’s Compensation Committee shall determine, in its sole discretion, the extent to which Annual Goals have been achieved and the amount of the Bonus to be awarded to Executive, and may, in the exercise of its sole discretion, award a Bonus greater than or less than 100% of Base Salary. Annual Goals shall be jointly agreed by Executive and the Compensation Committee for each fiscal year during the Employment Period. The Annual Goals for 2007 shall be established not more than 30 days following the Effective Date. The Annual Goals for each subsequent fiscal year during the Employment Period shall be established at the time the Board approves the Company’s budget for that year. Any Bonus awarded to Executive will be paid within two and a half months following the end of the fiscal year to which the Bonus relates.

4.3 Equity-Based Compensation. To induce Executive to enter into this Agreement, the Company shall grant Executive warrants to purchase 900,000 shares of common stock of the Company,. The warrants shall be granted on the Effective Date and have an exercise price equal to the closing price per share of the Company’s common stock on the Effective Date. The warrants will be embodied in a Warrant Award (“Warrant Award”), which will be issued within ten business days after the Effective Date, and will be subject to the Company’s 2005 Omnibus Long-Term Incentive Compensation Plan (the “LTIP Plan”). The Warrant Award shall include, inter alia, the closing price per share of the Company’s common stock on the Effective Date, and provisions that: (i) ten percent (10%) of the warrants shall vest on the Effective Date, and 30% of the balance of the warrants shall vest on each of the first, second, and

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third anniversaries of the Effective Date, provided that Executive is employed on that date or has been terminated without Cause (as defined herein) or by reason of a Disability (as defined herein), or has resigned for Good Reason (as defined herein), before any such anniversary date; (ii) notwithstanding the foregoing, in the event of a Change in Control (as defined in the LTIP Plan) all unvested warrants shall vest as follows: (x) if the Company, or any successor to the Company, does not assume, or offer substitute warrants or options in exchange for, the warrants, all unvested warrants shall vest as of the effective date of the Change in Control; or (y) if the Company, or any successor to the Company, assumes, or offers substitute warrants or options in exchange for, the warrants, and Executive is terminated by the Company without Cause or by reason of a Disability (as defined herein), or resigns for Good Reason, within two years of the effective date of the Change in Control, all unvested warrants shall vest as of the last day of the Employment Period; (iii) notwithstanding the foregoing, if Executive dies during the Employment Period, all unvested warrants shall vest as of the date of death; (iv) the warrants will have a term of 10 years from the Effective Date (the Warrant Term”); and (v) the exercise period for vested warrants will be the shorter of the Warrant Term or 90 days from the end of the Employment Period, except that vested warrants shall not be exercisable after a termination for Cause. The Compensation Committee will exercise its discretionary authority under the LTIP Plan to issue the Warrant Award in accordance with this Agreement. In the event of any conflict between the terms of the LTIP Plan, as of the Effective Date, and the terms of the Warrant Award or the terms of this Agreement, the terms of the LTIP Plan, as of the Effective Date, shall take precedence. The Company will reserve for issuance the number of shares of common stock underlying the warrants and, as promptly as practicable once it is in compliance with applicable reporting and other requirements, shall make reasonable efforts to file a registration statement with respect to such shares and to cause such registration statement to remain effective until the end of the term of such warrants.

4.4 Vacation. Executive shall be entitled to 30 days of paid vacation per year during the Employment Period, provided, however, that unused vacation may not be carried over into any subsequent year.

4.5 Expenses. Executive shall be entitled to reimbursement of reasonable business expenses incurred in carrying out his duties for the Company in accordance with Company policies and procedures, including, without limitation, the Company’s documentation requirements. For so long as Executive is required to work for the Company primarily at a location other than the vicinity of his home address in Atlanta, Georgia, Executive shall be paid a monthly stipend in the amount of $5,000.00 per month for temporary housing and automobile expenses at the time comparable stipends are paid to senior executives pursuant to Company policies. The Company shall also reimburse Executive for all reasonable legal fees and expenses incurred in negotiating this Agreement within 30 days after the Effective Date, up to a maximum of $25,000.00, provided that Executive submits appropriate documentation of such expenses.

4.6 Other Benefits. The Company shall provide to Executive such other benefits, including the right to participate in medical, savings, deferred compensation and other benefit plans and arrangements (except for any severance plans or arrangements) as are made generally available to other senior executives of the Company from time to time.

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5. Indemnification. To the fullest extent permitted by law, the Company shall indemnify Executive with respect to any actions, proceedings, investigations, or inquiries (collectively, “Actions”) commenced against or relating to Executive in his capacity as an officer, director, executive, agent or fiduciary or former officer, director, executive, agent or fiduciary of the Company, or any affiliate thereof, for which Executive may render service in such capacity, whether by or on behalf of the Company, its shareholders or third parties, including, without limitation, any governmental agency or entity, and the Company shall advance to Executive on a timely basis an amount equal to the reasonable fees and expenses incurred in defending such Actions, after receipt of an itemized request for such advance, and an undertaking from Executive to repay the amount of such advance, with interest at a reasonable rate from the date of the request, as determined by the Company, if it shall ultimately be determined that Executive is not entitled (as a matter of law or by judicial determination) to be indemnified against such expenses. This indemnity shall survive any termination of employment under this Agreement and is in addition to and not in limitation of any other right to indemnification or exoneration to which Executive is entitled at law, or under the governing organizational documents and/or policies of the Company. The Company agrees to use its best efforts to secure and maintain officers’ and directors’ liability insurance, including coverage for Executive.

6. Covenants and Confidential Information.

6.1 Restrictive Covenants. Executive acknowledges the Company’s reliance on and expectation of Executive’s continued commitment to performance of his duties and responsibilities during the Employment Period. In light of such reliance and expectation on the part of the Company, during the applicable period hereafter specified in Section 6.3, Executive shall not, directly or indirectly, do or suffer either of the following:

(a) (1) own, manage, control or participate in the ownership, management or control of, or be employed or engaged by or otherwise affiliated or associated as an Executive, agent, representative, consultant, independent contractor or otherwise with, any other corporation, partnership, proprietorship, firm, association or other business entity engaged in the business of, or otherwise engage in the business of, manufacturing, selling or distributing body armor or body armor related products, and other products manufactured, sold or distributed by the Company from time to time, within the United States in direct or indirect competition with the Company or any of its affiliates;

(2) solicit any business or contracts to provide products or services that are similar to, or are competitive with, products or services sold by the Company or its affiliates, from any current customers of the Company or its affiliates, any past customers of the Company or its affiliates (which purchased products or services from the Company or its affiliates during the Employment Period, provided that this restriction does not apply to customers which did not purchase any goods or services from the Company or its affiliates within the two year period preceding the expiration or termination of the Employment Period), or any prospective customers of the Company or its affiliates (i.e., potential customers from which the Company or its affiliates has solicited business at any time during the twelve (12) month period preceding the expiration or termination of the Employment Period), except as necessitated by Executive’s position with the Company and then only in furtherance of the business interests of the Company or its affiliates;

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(3) induce or attempt to induce any such customer to alter its business relationship with the Company or its affiliates except as necessitated by Executive’s position with the Company and then only in furtherance of the business interests of the Company or its affiliates;

(4) solicit or induce or attempt to solicit or induce any executive or employee of the Company or its affiliates to leave the employ of the Company or any of its affiliates for any reason whatsoever or hire any person who was an executive or employee of the Company or its affiliates within the twelve (12) month period prior to such hiring; or

(5) directly or indirectly, engage in any conduct or make any statement, whether in commercial or noncommercial speech, disparaging or criticizing in any way the Company or any of its affiliates, or any products or services offered by any of them, nor shall Executive engage in any other conduct or make any other statement that could be reasonably expected to impair the goodwill of any of the Company or any if its affiliates, the reputation of any products or services of the Company or any of its affiliates or the marketing of such products or services, provided, however, that such restrictions do not apply to truthful testimony by Executive, or to statements by Executive to any government or regulatory agency.

(b) disclose, divulge, discuss, copy or otherwise use or suffer to be used in any manner, other than in accordance with Executive’s duties hereunder (and in a manner not in violation or conflict with applicable laws and regulations), any confidential or proprietary information relating to the Company’s or any of its affiliates’ businesses, prospects, finances, operations, pricing, products, research and development or properties or other trade secrets of the Company or any of its affiliates, it being acknowledged and agreed by Executive that all such information regarding the business of the Company or any of its affiliates compiled or obtained by, or furnished to, Executive while Executive shall have been employed by or associated with the Company is confidential and/or proprietary information and the Company’s exclusive property; provided, however, that the foregoing restrictions shall not apply to the extent that such information: (A) is clearly obtainable in the public domain; (B) becomes obtainable in the public domain, other than by reason of the breach by Executive of the terms hereof or breach by another person barred from disclosing such information by a duty of confidentiality to the Company; or (C) is required to be disclosed by rule of law or by order of a court or governmental body or agency.

6.2 Litigation; Cooperation. If the Employment Period ends for any reason other than the death of Executive, Executive agrees that, following the end of the Employment Period, he will provide to the Company and its affiliates truthful and complete cooperation including, but not limited to, Executive’s appearance at interviews and depositions at reasonable times in all regulatory or litigation matters and proceedings relating to the Company and its affiliates, and to provide to the Company’s legal counsel, upon request, all documents and materials in his possession or under his control relating to such matters and proceedings. The Company shall promptly reimburse Executive for all reasonable out-of-pocket expenses, including attorney’s fees and other expenses, incurred by Executive in providing such Company-

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requested cooperation. If Executive provides such Company requested cooperation when Executive is eligible to receive an installment of the Severance Payment pursuant to Section 8.6(b) of this Agreement, Executive will not receive any compensation beyond the reimbursement of expenses described above. If Executive provides such Company requested cooperation when Executive is not eligible to receive an installment of the Severance Payment for any reason other than the Company’s termination of Executive for Cause (as defined herein) or Executive’s resignation without Good Reason (as defined herein), Executive shall be paid, in addition to the reimbursement of expenses, a daily “Consulting Fee” at the rate of $2,500 per day, as follows: (i) if Executive spends four or more hours in a day providing Company requested cooperation, he shall be paid $2,500 for that day; (ii) if Executive spends at least one hour and less than four hours in a day providing Company requested cooperation, he shall be paid $1,250 for that half day; and (iii) if Executive spends less than one hour in a day providing Company requested cooperation, Executive shall not be paid a Consulting Fee for that day. Executive shall be paid such Consulting Fees within 30 days after the end of the month in which Executive provides Company requested cooperation.

6.3 Applicable Periods. The applicable periods shall be:

(a) so long as Executive is an Executive of the Company; and

(b) for a period of twenty four (24) months after termination of employment for any reason or the expiration of the Employment Period.

6.4 Injunctive Relief. Executive agrees and understands that the remedy at law for any breach by him of this Section 6 will be inadequate and that the damages flowing from such breach are not readily susceptible to being measured in monetary terms. Accordingly, it is acknowledged that the Company shall be entitled to immediate injunctive relief and may obtain a temporary order restraining any threatened or further breach. Nothing in this Section 6 shall be deemed to limit the Company’s remedies at law or in equity for any breach by Executive of any of the provisions of this Section 6 which may be pursued or availed of by the Company.

6.5 Acknowledgment by Executive. Executive has carefully considered the nature and extent of the restrictions upon him and the rights and remedies conferred upon the Company under this Section 6, and hereby acknowledges and agrees that the same are reasonable in time and territory, do not stifle the inherent skill and experience of Executive, would not operate as a bar to Executive’s sole means of support, are fully required to protect the legitimate interests of the Company, and do not confer a benefit upon the Company disproportionate to the detriment of Executive.

7. Proprietary Rights.

7.1 Copyrights. At all times during the Employment Period, all right, title and interest in all copyrightable material which Executive shall conceive or originate, either individually or jointly with others, and which arise out of the performance of this Agreement, will be the property of the Company and are by this Agreement assigned to the Company along with ownership of any and all copyrights in the copyrightable material. At all times during the Employment Period, Executive agrees to execute all papers and perform all other acts necessary

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to assist the Company to obtain and register copyrights on such materials in any and all countries, and the Company agrees to pay expenses associated with such copyright registration. Works of authorship created by Executive for the Company in performing his responsibilities under this Agreement shall be considered “works made for hire” as defined in the U.S. Copyright Act. In addition, Executive hereby assigns to the Company all proprietary rights, including but not limited to, all patents, copyrights, trade secrets and trademarks Executive might otherwise have, by operation of law or otherwise, in all inventions, discoveries, works, ideas, information, knowledge and data related to Executive’s performance of his duties under this Agreement, or his access to confidential information of the Company, during the Employment Period.

7.2 Know-How and Trade Secret. All know-how and trade secret information conceived or originated by Executive which arises out of the performance of his obligations or responsibilities under this Agreement during the Employment Period or otherwise shall be the property of the Company, and all rights therein are by this Agreement assigned to the Company.

7.3 Joint Ventures, etc. If, during the Employment Period, Executive is engaged in or associated with the planning or implementing of any project, program or venture involving the Company and a third party or parties, all rights in such project, program or venture shall belong to the Company. Except as formally approved by the Board, Executive shall not be entitled to any interest in such project, program or venture or to any commission, finder’s fee or other compensation in connection therewith other than the compensation to be paid to Executive as provided in this Agreement.

7.4 Return of Materials. Upon termination of the Employment Period, Executive shall deliver promptly to the Company all records, manuals, books, documents, letters, memoranda, notes, notebooks, reports, data, tables, calculations, and customer and prospective customer lists, and copies of all of the foregoing, which are the property of the Company, and all other property, trade secrets and confidential information of the Company, including, but not limited to, all documents which in whole or in part contain any trade secrets or confidential information of the Company, which in any of these cases are in his possession or under his control.

8. Termination.

8.1 Death or Disability. This Agreement shall terminate automatically upon Executive’s death or upon a determination by the Board of Directors to terminate Executive’s employment as a result of his Disability during the Employment Period. For purposes of this Agreement, “Disability” shall mean a physical or mental impairment that prevents or can be reasonably expected to prevent the performance by Executive of his duties hereunder for a continuous period of 90 days, or that prevents the performance by Executive of his duties hereunder for more than a total of 120 days, in any 12-month period. Any determination of Disability shall be supported by the report of an independent physician reasonably acceptable to the Company and Executive (or his representative), taking into account competent medical evidence, and otherwise shall be in accordance with the Americans with Disabilities Act and other applicable laws.

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8.2 Termination by the Company. The Company may terminate Executive’s employment during the Employment Period for Cause or without Cause. For purposes of this Agreement, “Cause” shall mean Executive’s: (i) engaging in fraudulent or dishonest conduct (as determined by a finding, order, judgment or decree in any court, arbitration forum or administrative agency of competent jurisdiction, in any action or proceeding whether civil, criminal, administrative, arbitral or investigative) that the Board reasonably determines has or would have a material adverse impact on the Company, its affiliates or their respective businesses; (ii) conviction of, or entering a plea of nolo contendere to, a felony criminal offense or comparable level of crime in any jurisdiction that uses a different nomenclature; (iii) willful refusal to perform his material employment-related duties or responsibilities or intentionally engaging in any activity that is in material conflict with or is materially adverse to the business interests of the Company, its affiliates or their respective businesses; (iv) gross negligence in the performance of his material employment-related duties or responsibilities; (v) breach of any material provision of this Agreement; or (vi) with respect to any Actions against or relating to the Company by any governmental, regulatory or self-regulatory agency or entity, or any Board approved Actions relating to the Company, Executive’s failure or refusal to cooperate with the Company, or at the Company’s request any governmental, regulatory or self-regulatory agency or entity, in providing information with respect to any act or omission in his capacity as an officer, director, executive, agent or fiduciary of the Company, or any affiliate thereof for which Executive has rendered service in such capacity (in the case of (iii), (iv), (v) and (vi) above, that is not cured by Executive within 30 days following receipt by Executive of written notice from the Company setting forth in reasonable detail the circumstances giving rise to such Cause). A termination for Cause shall include a determination by the Board no later than 45 days following the termination of the Employment Period that circumstances existed during the Employment Period that would have justified a termination for Cause. A termination of Executive by the Company shall not be a termination for Cause for purposes of this Agreement unless the determination to so terminate Executive’s employment is made by a resolution of the Board (excluding Executive) following a meeting convened upon not less than 10 days notice to Executive and at which Executive and his legal counsel, if any, shall have had a reasonable opportunity to be heard by the Board.

8.3 Termination by Executive. Executive may terminate his employment with or without Good Reason by providing at least 31 days advance written notice to the Company of such termination. For purposes of this Agreement, “Good Reason” means, during the Employment Period and without Executive’s written consent: (i) the Company’s requiring Executive’s primary place of business to be at a location which is neither in south Florida (Broward, Dade or Palm Beach counties) nor closer to Executive’s home residence (as of the Effective Date) than the Company’s current headquarters (as of the Effective Date); (ii) a material diminution of Executive’s duties and responsibilities, or the assignment of responsibilities that are materially inconsistent with his position and responsibilities hereunder; (iii) a reduction of Executive’s Base Salary, a reduction of the benefits made available to Executive as described herein (other than as a result of a change in an employee benefit plan applicable to all employees covered by such plan), or the elimination of Executive’s eligibility for a Bonus (it being agreed that the Board’s decision not to award a Bonus for any fiscal year as a result of Executive’s failure to achieve Annual Goals shall not constitute an elimination of Bonus eligibility); or (iv) a material breach by the Company of any other provision of this Agreement. Executive may only resign for Good Reason pursuant to Sections 8.3(ii), (iii) or (iv)

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if the Company has not cured the asserted basis for such resignation within 30 days after its receipt from Executive of written notice setting forth in reasonable detail the circumstances giving rise to such resignation for Good Reason, provided, however, that if Executive fails to deliver such notice within thirty (30) days of the act or omission allegedly constituting Good Reason, Executive shall waive the right to resign for Good Reason in connection with such act or omission.

8.4 Termination Procedures. Any termination of Executive’s employment by the Company or by Executive shall be communicated to the other party by a notice of termination given in accordance with this Agreement. For purposes of this Agreement, a “notice of termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon; (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for the termination under such provision; (iii) subject to this paragraph, specifies the date of termination (as defined below). For purposes of this Agreement, “date of termination” means: (a) if Executive’s employment is terminated by the Company other than for Cause or by reason of death or Disability, at least ten days from the delivery of the notice of termination; (b) if Executive’s employment is terminated for Cause or by reason of death or Disability, the date of death, Disability (as determined by the Board), or the date of the Board’s determination of Cause, in accordance with this Agreement,; or (c) if Executive’s employment is terminated by Executive for any reason, 31 days from the delivery of the notice of termination. With respect to a notice pursuant to Section 8.4(i) or (ii), the Company may elect to pay Executive (at the rate of his Base Salary then in effect) in lieu of part or all of such notice period preceding the date of termination.

8.5 Effect of Termination. Effective as of any date of termination or, if earlier, as of any date specified by the Company at or following the delivery of a notice of termination, Executive shall resign, in writing, from all Board memberships and all other positions held by him with the Company and its affiliates.

8.6 Obligations of the Company upon Termination.

(a) If Executive’s employment terminates during the Employment Period for the reasons specified below, the Company shall pay Executive (or his estate, beneficiary or legal representative) the following.

(1) If Executive’s employment terminates for any reason, the Company shall pay or provide: (x) any earned or accrued but unpaid Base Salary through the date of termination (including accrued and unused vacation time); (y) all amounts payable and benefits accrued under any otherwise applicable plan, policy, program or practice of the Company (other than relating to severance) in which Executive was a participant during his employment with the Company in accordance with the terms thereof (including, without limitation, amounts deferred under deferred compensation and similar plans, if any); and (z) rights, if any, with respect to the warrants as set forth in the Warrant Award.

(2) If Executive’s employment terminates for any reason other than a termination of employment by the Company for Cause, the Company shall pay or provide, in addition to the amounts payable under subparagraph (a)(1) above, any accrued but unpaid Bonus with respect to any fiscal year prior to the fiscal year in which the termination occurs.

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(3) If Executive’s employment ends as a result of death, a termination of employment by the Company by reason of Disability or without Cause, or a termination by Executive for Good Reason, the Company shall pay, in addition to the amounts payable under subparagraphs (a)(1) and (2) above, a pro rata Bonus for the fiscal year in which the date of termination occurs, based on the Board’s assessment of Executive’s achievement of Annual Goals through the date of termination. Any pro rata Bonus awarded pursuant to this Section 8.6(a)(3) shall be paid within two and a half months following the end of the fiscal year in which the date of termination occurs.

(b) If, during the Employment Period, the Company terminates Executive’s employment for a reason other than Cause, death or Disability, or if Executive terminates his employment for Good Reason, the Company shall, subject to Executive’s continued full performance of his obligations set forth in Section 6 hereof, in addition to the amounts payable under paragraph (a) above, pay to Executive (or his estate, beneficiary or legal representative) an amount equal to two times the sum of his annual Base Salary in effect as of the date of termination plus a Bonus calculated at 100% of Base Salary in effect as of the date of termination (the “Severance Payment”). The Severance Payment shall be paid in 24 equal monthly installments. The first six installments of the Severance Payment shall be paid on the first business day following the date that is six months from the date of termination, and each remaining payment shall be paid on the first business day of each month commencing with the seventh month following the month in which the termination date occurred. In addition, to the extent that Executive and Executive’s eligible spouse, dependents and beneficiaries continue to be eligible to participate in the Company’s medical or life insurance plans after the Employment Period ends, they shall continue to participate in those plans on the same basis as if Executive had remained employed by the Company (and subject to Executive’s making any required contributions to such plans) for a period of up to 24 months following the date of termination, provided, however: (i) for the first six months from the date of termination, Executive shall pay all such insurance premiums, and shall be reimbursed by the Company for such payments which are in excess of any required contributions within ten business days following the later of the day after the date that is six months from the date of termination or the date Executive submits to the Company proof of such premium payments which is acceptable to the Company; and (ii) any such continuing insurance coverage, or obligation to reimburse Executive for premium payments, shall cease on the date on which Executive becomes eligible to receive comparable benefits from a subsequent employer.

(c) Notwithstanding anything else contained herein to the contrary, if the aggregate of the payments to be made under this Agreement as a result of a Change of Control, either alone or together with other payments to which Executive is entitled from the Company, would constitute an “excess parachute payment” (as defined in Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”)), such aggregate payments shall be reduced to the largest amount that can be received by Executive without incurring an excise tax under Section 4999(a) of the Code; provided, however, that such reduction shall occur only if the after-tax value of the payments to Executive calculated with the foregoing reduction exceed the after-tax value of the payments to Executive without the foregoing reduction. The determination

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of any reduction in payments hereunder pursuant to the foregoing provisions shall be made in good faith by the Board, or, in the sole discretion of the Board, by a nationally recognized accounting firm, after the Company provides material information for this purpose to and consults with Executive. Such determination shall be conclusive and binding on Executive

9. Notice. Any notice required or permitted hereunder shall be in writing and shall be deemed sufficient when given by hand or by nationally recognized overnight courier or by express mail, postage prepaid, return receipt requested, and addressed, (i) if to the Company, to DHB Industries, Inc., 2102 S.W. 2^nd Street, Pompano Beach, FL 33069 Attn: Chair of the Board of Directors, with a copy delivered to the same address, Attn: General Counsel, and (ii) if to Executive, to DHB Industries, Inc., 2102 S.W. 2^nd Street, Pompano Beach, FL 33069 Attn: Chief Executive Officer (or to such other addresses as may be provided by either party by notice). Notice shall be effective two (2) days after it is sent by any overnight courier or express mail, or immediately if delivered by hand.

10. Miscellaneous. This Agreement constitutes the entire agreement between the parties concerning the subjects hereof and supersedes any and all prior agreements, term sheets or understandings. This Agreement may not be assigned by Executive, and may not be assigned by the Company except in connection with a sale of substantially all of the assets or stock of the Company and shall be binding upon, and inure to the benefit of, the Company’s successors and assigns. As used in this Agreement, “Company” shall mean the Company as defined herein and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. Headings herein are for convenience of reference only and shall not define, limit or interpret the contents hereof.

11. Amendment. This Agreement may be amended, modified or supplemented by the mutual consent of the parties in writing, but no oral amendment, modification or supplement shall be effective. No waiver by either party of any breach by the other party of any condition or provision contained in this Agreement to be performed by such other party shall be deemed a waiver of a similar or dissimilar condition or provision at the same or any prior or subsequent time. Any waiver must be in writing and signed by Executive or an authorized officer of the Company, as the case may be.

12. Severability. The provisions of this Agreement are severable. The invalidity of any provision shall not affect the validity of any other provision, and each provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.

13. Resolution of Disputes; Enforcement. Any controversy or claim seeking equitable relief pursuant to this Agreement, all controversies and claims arising under or in connection with this Agreement or relating to the interpretation, breach or enforcement hereof, and all other disputes between the parties in connection with the employment of Executive, including without limitation any statutory employment discrimination, compensation, benefits or retaliation claims, shall be decided by final and binding arbitration, to be held in Broward County, Florida (or such other location as the Company and Executive shall agree) before a neutral arbitrator selected by Executive and the Company, and this shall be the sole and exclusive manner in which to resolve such controversy or claim hereunder (other than a claim for interim injunctive relief that may be sought by either party). The arbitration shall be conducted

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in accordance with the Employment Arbitration Rules (the “Rules”) of the American Arbitration Association (“AAA”) in effect at the time of the arbitration. If the parties are not able to agree upon a neutral arbitrator, then an arbitrator shall be selected in accordance with the rules and procedures of the AAA. Each party hereto shall bear its own costs and expenses in connection with any proceeding hereunder, provided that the arbitrator shall be entitled to award to the prevailing party reimbursement of its reasonable legal costs and expenses (including with respect to the arbitrator and the AAA). Any proceeding to obtain interim injunctive relief, to compel arbitration, or to enforce an arbitration award shall be brought in a United States District Court, or any Florida court, with jurisdiction over such proceeding, located in Broward County, Florida.

14. Survivorship. The provisions of Sections 5, 6 and 7 of this Agreement shall survive Executive’s termination of employment for any reason. Other provisions of this Agreement shall survive any termination of Executive’s employment to the extent necessary to the intended preservation of each party’s respective rights and obligations.

15. Withholding. All amounts required to be paid by the Company shall be subject to reduction in order to comply with applicable federal, state and local tax withholding requirements.

16. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. The execution of this Agreement may be by actual or facsimile signature.

17. Definition of Terms. The term “affiliate,” when used in this Agreement with respect to any person, means any other person that, directly or indirectly, controls, is controlled by or is under common control with the first person. The term “person,” when used in this Agreement, means any natural person or entity with legal status.

18. Governing Law. This Agreement shall in all respects be construed under, and governed by, the internal laws of the State of Florida, without regard to principles of conflict of laws of such state, except that the Federal Arbitration Act shall, to the extent applicable, govern the parties’ rights and obligations with respect to Section 13 of this Agreement.

19. Captions. All captions are provided for convenience, do not form a part of this Agreement, and are not admissible for purposes of construction.

IN WITNESS WHEREOF, this Agreement is entered into on March 29, 2007.

DHB INDUSTRIES INC.

By:

Title:

Larry R. Ellis

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EX-10.7

Exhibit 10.7

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (including any amendments hereto as are in effect from time to time, this “Agreement”) is made as of the 21^st day of June, 2007 by and between James Anderson (“Executive”) and DHB Industries, Inc., a Delaware corporation (alone or together with all divisions, subsidiaries and groups, the “Company”).

In consideration of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and sufficiency of which is acknowledged, the parties agree as follows:

1. Agreement to Employ. The company hereby agrees to employ the Executive, and Executive hereby agrees to be employed by the Company, pursuant to the terms and conditions set forth in this Agreement. Executive represents and agrees that (i) he is entering into this Agreement voluntarily and that his employment hereunder and compliance with the terms and conditions hereof will not conflict with or result in a breach by him of any agreement to which he is a party or by which he may be bound, (ii) he has not violated, and in connection with his employment by the Company will not violate, any non-solicitation or similar covenant to which he is or may be bound, and (iii) in connection with his employment by the Company, he will not use any confidential or proprietary information he may have obtained in connection with his employment by any previous employer.

2. Term. The Company agrees to employ Executive, and Executive agrees to be employed by the Company, subject to the terms and conditions of this Agreement, for the period commencing on the 21^st day of June, 2007 (the “Effective Date”) and terminating on the third anniversary of the Effective Date, unless earlier terminated as provided in Section 7, provided that such initial term shall be extended automatically for successive one-year periods unless the company shall have provided notice to the Executive not less than 30 days prior to the expiration of the initial term or any such extension term of its intention not to extend the Employment Period, as defined below. The period during which the Executive is employed pursuant to this Agreement shall be referred to herein as the “Employment Period.”

3. Employment Duties.

2.1 Title and Duties. During the Employment Period, Executive shall be employed in the business of the Company. Executive shall serve as Chief Financial Officer (CFO) of DHB Industries, Inc. and may also assume similar positions or other positions with subsidiaries and affiliates of DHB Industries, Inc. Executive shall devote substantially all of his working time and efforts to the performance of his duties under this Agreement, provided that Executive may also (i) serve on corporate or civic boards or committees, (ii) deliver lectures or presentations to professional and similar organizations and/or participate in continuing education activities, and (iii) manage his or his family’s personal investments, in each case so long as such activities do not substantially interfere with the performance of Executive’s responsibilities under this Agreement and do not conflict with any company rule or policy or present a conflict of interest with the Company. Executive’s duties and responsibilities shall include those customarily assigned to the CFO of a public company and such other duties and responsibilities, including coordination of finance and accounting staff, as are consistent with Executive’s title(s) and as the Chief Executive Officer may specify from time to time.

2.2 Location/Travel. In performing his duties hereunder, Executive shall be available for reasonable travel, as the needs of the business of the Company may require. It is expected that Executive shall be based and shall perform his duties primarily at the Company’s Pompano Beach, Florida facility.

2.3 Reporting. In carrying out his duties hereunder, Executive shall report to the Chief Executive Officer.

3. Compensation/Benefits. In consideration of Executive’s services hereunder, the Company shall provide Executive the following:

3.1 Base Salary. During the Employment Period, the Executive shall receive an annual rate of base salary not less than $325,000, which the Company shall pay at semi-monthly intervals, or otherwise at such intervals (not less frequently than monthly) as are used generally for the Company’s senior executives. The base salary shall be reviewed annually by the Company (through its Board or any Compensation Committee thereof) not later than June 30 of each calendar year after 2007 and may be increased (but not decreased) by such amount as the Company in its sole discretion shall determine.

3.2 Bonuses. Commencing at the close of each fiscal year of the Company during the Employment Period, the Company shall review the performance of the Company and of Executive during the prior fiscal year, and the Company may provide Executive with additional compensation as a bonus if the Board of Directors, or any Compensation Committee thereof, in its sole discretion, determines.

3.3 Equity-Based Compensation. The Chief Executive Officer will recommend to the Compensation Committee of the Board of Directors of the Company that the Employee be granted warrants or options to purchase 400,000 shares of common stock of the Company, pursuant to a separate award agreement in the form provided by the Company. Such grants are in the sole discretion of the Compensation Committee, are subject to availability under the Company’s applicable equity plan and will have a strike price not less than the closing price of the Company’s common stock on the date of grant.

3.4 Vacation. Executive shall be entitled to three (3) weeks of paid vacation for the first calendar year of this agreement and four (4) weeks during subsequent calendar years, provided that not more than 10 days accrued and unused vacation may be carried over into any subsequent year.

3.5 Expenses. Executive shall be entitled to reimbursement of reasonable business expenses incurred in carrying out his duties for the Company, provided that such expenses are evidenced by appropriate documentation and submitted in accordance with Company policies and procedures.

3.6 Other Benefits. The Company shall provide to Executive such other benefits, including the right to participate in medical, savings, deferred compensation and other benefit plans and arrangements as are made generally available to other senior executives of the Company from time to time.

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4. Indemnification.

4.1 Indemnity. To the fullest extent permitted by law, the Company shall indemnify Executive with respect to any actions commenced against Executive in his capacity as an officer, director, executive, agent or fiduciary or former officer, director, executive, agent or fiduciary of the Company, or any affiliate thereof, for which Executive may render service in such capacity, whether by or on behalf of the Company, its shareholders or third parties, and the Company shall advance to Executive on a timely basis an amount equal to the reasonable fees and expenses incurred in defending such actions, after receipt of an itemized request for such advance, and an undertaking from Executive to repay the amount of such advance, with interest at a reasonable rate from the date of the request, as determined by the Company, if it shall ultimately be determined that Executive is not entitled (as a matter of law or by judicial determination) to be indemnified against such expenses. This indemnity shall survive any termination of employment under this Agreement and is in addition to and not in limitation of any other right to indemnification or exoneration to which Executive is entitled at law, or under the governing organizational documents and/or policies of the Company. The Company agrees to use its best efforts to secure and maintain officers’ and directors’ liability insurance, including coverage for Executive.

5. Covenants and Confidential Information.

5.1 Restrictive Covenants. Executive acknowledges the Company’s reliance on and expectation of Executive’s continued commitment to performance of his duties and responsibilities during the Employment Period. In light of such reliance and expectation on the part of the Company, during the applicable period hereafter specified in Section 5.3, Executive shall not, directly or indirectly, do or suffer either of the following:

(a)(1) own, manage, control or participate in the ownership, management or control of, or be employed or engaged by or otherwise affiliated or associated as an Executive, agent, representative, consultant, independent contractor or otherwise with, any other corporation, partnership, proprietorship, firm, association or other business entity engaged in the business of, or otherwise engage in the business of, manufacturing, selling or distributing body armor or body armor related products, and other products manufactured, sold or distributed by the Company from time to time, within the United States in direct or indirect competition with the Company or any of its affiliates;

(2) solicit any business or contracts from any customers of the Company or its affiliates, any past customers of the Company or its affiliates, or any prospective customers of the Company or its affiliates (i.e., potential customers from which the Company or its affiliates has solicited business at any time during the twelve (12) month period preceding the expiration or termination of the Employment Period), except as necessitated by Executive’s position with the Company and then only in furtherance of the business interests of the Company or its affiliates;

(3) induce or attempt to induce any such customer to alter its business relationship with the Company or its affiliates except as necessitated by Executive’s position with the Company and then only in furtherance of the business interests of the Company or its affiliates;

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(4) solicit or induce or attempt to solicit or induce any executive or employee of the Company or its affiliates to leave the employ of the Company or any of its affiliates for any reason whatsoever or hire any person who was an executive or employee of the Company or its affiliates within the twelve (12) month period prior to such hiring; or

(5) directly or indirectly, engage in any conduct or make any statement, whether in commercial or noncommercial speech, disparaging or criticizing in any way the Company or any of its affiliates, or any products or services offered by any of them, nor shall Executive engage in any other conduct or make any other statement that could be reasonably expected to impair the goodwill of any of the Company or any if its affiliates, the reputation of any products or services of the Company or any of its affiliates or the marketing of such products or services.

(b) disclose, divulge, discuss, copy or otherwise use or suffer to be used in any manner, other than in accordance with Executive’s duties hereunder (and in a manner not in violation or conflict with applicable laws and regulations), any confidential or proprietary information relating to the Company’s or any of its affiliates’ businesses, prospects, finances, operations, pricing, products, research and development or properties or other trade secrets of the Company or any of its affiliates, it being acknowledged and agreed by Executive that all such information regarding the business of the Company or any of its affiliates compiled or obtained by, or furnished to, Executive while Executive shall have been employed by or associated with the Company is confidential and/or proprietary information and the Company’s exclusive property; provided, however, that the foregoing restrictions shall not apply to the extent that such information: (A) is clearly obtainable in the public domain; (B) becomes obtainable in the public domain, other than by reason of the breach by Executive of the terms hereof or breach by another person barred by a duty of confidentiality to the Company; or (C) is required to be disclosed by rule of law or by order of a court or governmental body or agency.

5.2 Litigation; Cooperation. If this Agreement is terminated by the Company other than for Cause or by the Executive for Good Reason (as defined herein), the Executive agrees that, for up to 12 months following the date of termination, he will provide to the Company and its affiliates truthful and complete cooperation including, but not limited to, the Executive’s appearance at interviews and depositions at reasonable times in all regulatory or litigation matters and proceedings relating to the Company and its affiliates, and to provide to the Company’s legal counsel, upon request, all documents and materials in his possession or under his control relating to such matters and proceedings, all at no additional compensation to the Executive, provided that the company shall reimburse promptly the Executive for all reasonable expenses, including attorney’s fees and other expenses, as well as pay to the Executive any amount of salary forfeited and including with respect to vacation time consumed by him during any time spent by Executive in connection with the foregoing.

5.3 Applicable Periods. The applicable periods shall be:

(a) so long as Executive is an Executive of the Company; and

(b) for a period of twelve (12) months after termination of employment or the expiration of the Employment Period.

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5.4 Injunctive Relief. Executive agrees and understands that the remedy at law for any breach by his of this Section 5 will be inadequate and that the damages flowing from such breach are not readily susceptible to being measured in monetary terms. Accordingly, it is acknowledged that the Company shall be entitled to immediate injunctive relief and may obtain a temporary order restraining any threatened or further breach. Nothing in this Section 5 shall be deemed to limit the Company’s remedies at law or in equity for any breach by Executive of any of the provisions of this Section 5 which may be pursued or availed of by the Company.

5.5 Acknowledgment by Executive. Executive has carefully considered the nature and extent of the restrictions upon his and the rights and remedies conferred upon the Company under this Section 5, and hereby acknowledges and agrees that the same are reasonable in time and territory, do not stifle the inherent skill and experience of Executive, would not operate as a bar to Executive’s sole means of support, are fully required to protect the legitimate interests of the Company, and do not confer a benefit upon the Company disproportionate to the detriment of Executive.

6. Proprietary Rights.

6.1 Copyrights. At all times during the Employment Period, all right, title and interest in all copyrightable material which Executive shall conceive or originate, either individually or jointly with others, and which arise out of the performance of this Agreement, will be the property of the Company and are by this Agreement assigned to the Company along with ownership of any and all copyrights in the copyrightable material. At all times during the Employment Period, Executive agrees to execute all papers and perform all other acts necessary to assist the Company to obtain and register copyrights on such materials in any and all countries, and the Company agrees to pay expenses associated with such copyright registration. Works of authorship created by Executive for the Company in performing his responsibilities under this Agreement shall be considered “works made for hire” as defined in the U.S. Copyright Act. In addition, Executive hereby assignees to the Company all proprietary rights, including but not limited to, all patents, copyrights, trade secrets and trademarks Executive might otherwise have, by operation of law or otherwise, in all inventions, discoveries, works, ideas, information, knowledge and data related to Executive’s access to confidential information of the Company during the Employment Period.

6.2 Know-How and Trade Secret. All know-how and trade secret information conceived or originated by Executive which arises out of the performance of his obligations or responsibilities under this Agreement during the Employment Period or otherwise shall be the property of the Company, and all rights therein are by this Agreement assigned to the Company.

6.3 Joint Ventures, etc. If, during the Employment Period, Executive is engaged in or associated with the planning or implementing of any project, program or venture involving the Company and a third party or parties, all rights in such project, program or venture shall belong to the Company. Except as formally approved by the Board of Directors of the Parent, Executive shall not be entitled to any interest in such project, program or venture or to any commission, finder’s fee or other compensation in connection therewith other than the compensation to be paid to Executive as provided in this Agreement.

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6.4 Return of Materials. Upon termination of the Employment Period, Executive shall deliver promptly to the Company all records, manuals, books, documents, letters, memoranda, notes, notebooks, reports, data, tables, calculations, customer and prospective customer lists, and copies of all of the foregoing, which are the property of the Company, and all other property, trade secrets and confidential information of the Company, including, but not limited to, all documents which in whole or in part contain any trade secrets or confidential information of the Company, which in any of these cases are in his possession or under his control.

7. Termination.

7.1 Death or Disability. This Agreement shall terminate automatically upon the Executive’s death or upon a determination by the Board of Directors to terminate the Executive’s employment as a result of his disability during the Employment Period. For purposes of this Agreement, “disability” shall mean a physical or mental disability that prevents or can be reasonably expected to prevent the performance by the Executive of his duties hereunder for a continuous period of 90 days or longer in any 12-month period. Determination of disability shall be supported by the report of an independent physician reasonably acceptable to the Company and Executive (or his representative), taking into account competent medical evidence, and otherwise shall be in accordance with the Americans with Disabilities Act and other applicable laws.

7.2 Termination by the Company. The Company may terminate the Executive’s employment during the Employment Period for Cause or without Cause. For purposes of this Agreement, “Cause” shall mean the Executive’s (i) engaging in fraudulent or dishonest conduct (as determined by a finding, order, judgment or decree in any court or administrative agency of competent jurisdiction, in any action or proceeding whether civil, criminal, administrative or investigative) that the Board reasonably determines has or would have a material adverse impact on Company, its affiliates or their respective businesses; (ii) conviction of, or entering a plea of nolo contendere to, a felony criminal offense or comparable level of crime in any jurisdiction that uses a different nomenclature; (iii) willful refusal to perform his material employment-related duties or responsibilities or intentionally engaging in any activity that is in material conflict with or is materially adverse to the business interests of the Company, its affiliates or their respective businesses; (iv) gross negligence in the performance of his material employment-related duties or responsibilities; (v) with respect to any actions, lawsuits, investigations, inquiries or similar proceedings (“Actions”) against or relating to the Company by any governmental, regulatory or self-regulatory agency or entity, or any Board approved Actions relating to the Company, Executive’s failure or refusal to cooperate with the Company or, at the Company’s request, with any governmental, regulatory or self-regulatory agency or entity, in providing information with respect to any act or omission in his capacity as an officer, director, executive, agent or fiduciary of the Company, or any affiliate thereof for which Executive has rendered service in such capacity; or (vi) breach of any material provision of this Agreement (in the case of (iii), (iv), (v) and (vi) above, that is not cured by the Executive within 30 days following receipt by the Executive of notice from the Company setting forth in reasonable detail the circumstances giving rise to such Cause). A termination for Cause shall include a determination by the Board no later than 45 days following the termination of the Employment Period that circumstances existed during the Employment Period that would have justified a termination for Cause. A termination of the Executive by the Company shall not be a termination for Cause for purposes of this Agreement unless the determination to so terminate

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the Executive’s employment is made by a resolution of the Board (excluding the Executive) following a meeting convened upon not less than 10 days notice to the Executive and at which the Executive and his legal counsel, if any, shall have had a reasonable opportunity to be heard by the Board.

7.3 Termination by the Executive. The Executive may terminate his employment with or without Good Reason. For purposes of this Agreement “Good Reason” means, without Executive’s written consent: (i) a material diminution of Executive’s duties and responsibilities, or the assignment of responsibilities that are materially inconsistent with his position and responsibilities hereunder; (ii) a reduction of the Executive’s base salary, annual bonus or long-term compensation opportunity (it being understood that a reduction of the dollar amount of the Executive’s annual bonus from year to year solely as a result of achievement or failure to achieve target performance objectives shall not constitute a reduction in Executive’s bonus opportunity) or of the benefits made available to Executive as described herein; (iii) requiring Executive’s primary place of business to be located other than in south Florida (Broward, Dade or Palm Beach counties) or in the vicinity of Executive’s home residence address; (iv) a material breach by the Company of any other provision of this Agreement, in each case that is not cured by the Company within 30 days after its receipt from the Executive of written notice setting forth in reasonable detail the circumstances giving rise to such Good Reason.

7.4 Termination Procedures. Any termination of the Executive’s employment by the Company or by the Executive shall be communicated to the other party by a notice of termination given in accordance with this Agreement. For purposes of this Agreement, a “notice of termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon; (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for the termination under such provision; (iii) subject to this paragraph, specifies the date of termination (as defined below). For purposes of this Agreement, “date of termination” means (a) if the Executive’s employment is terminated other than for Cause or by reason of death or disability, 90 days following the receipt of the notice of termination, and (b) if the Executive’s employment is terminated for Cause or by reason of death or disability, the date of death or the date of the Board’s determination of Cause or of Executive’s disability, in accordance with this Agreement, provided that the Company may elect to pay the Executive (at the rate of his base salary then in effect) in lieu of part or all of such notice period preceding the date of termination.

7.5 Effect of Termination. Effective as of any date of termination or, if earlier, as of any date specified by the Company at or following the delivery of a notice of termination, the Executive shall resign, in writing, from all Board memberships and all other positions held by him with the Company and its affiliates.

7.6 Obligations of the Company upon Termination. (a) General. If, during the Employment Period, the Executive’s employment terminates for any reason, the Executive (or his estate, beneficiary or legal representative) shall be entitled to receive (i) any earned or accrued but unpaid base salary through the date of termination (including with respect to accrued and unused vacation time), (ii) in the case of any termination other than by the company for Cause, any accrued but unpaid annual bonus with respect to any fiscal year ending prior to the

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date of termination, and (iii) all amounts payable and benefits accrued under any otherwise applicable plan, policy, program or practice of the Company (other than relating to severance) in which Executive was a participant during his employment with the Company in accordance with the terms thereof (including, without limitation, amounts deferred under deferred compensation and similar plans, if any).

(b) Other than for Cause, Death or Disability; Good Reason. If, during the Employment Period, the Company terminates the Executive’s employment, other than for Cause, death or disability, or if the Executive terminates his employment for Good Reason, the Company shall, subject to Executive’s continued full performance of his obligations set forth in Section 5 hereof, in addition to the amounts payable under paragraph (a) above, pay to the Executive (or his estate, beneficiary or legal representative) in twelve equal monthly installments commencing on the first day of the month following the date of termination, the sum of (x) the Executive’s annual base salary then in effect, plus (y) the greater of the Executive’s target bonus, if any, for the fiscal year in which the date of termination occurs and the average amount of annual bonuses paid to Executive for the two fiscal years preceding the year in which the date of termination occurs. In addition, the Executive and the Executive’s eligible spouse, dependents and beneficiaries will continue to be eligible to participate in the company’s health, medical, disability, life and other insurance plans (subject to Executive’s making required contributions to such plans) for a period of twelve months following the date of termination (or the Company will provide equivalent benefits for such period), provided that all such continuing benefits shall cease upon the date on which Executive becomes eligible to receive comparable benefits from a subsequent employer.

8. Notice. Any notice required or permitted hereunder shall be in writing and shall be deemed sufficient when given by hand or by nationally recognized overnight courier or by express, registered or certified mail, postage prepaid, return receipt requested, and addressed, (i) if to the Company, to DHB Industries, Inc., 2102 S.W. 2^nd Street, Pompano Beach, FL 33069 Attn: Chief Executive Officer, with a copy delivered to the same address, Attn: General Counsel, and (ii) if to Executive, to him at the address set forth in the initial paragraph hereof (or to such other addresses as may be provided by either party by notice). Notice shall be effective two (2) days after it is delivered by any overnight courier, upon receipt if delivered by mail, or immediately if delivered by hand.

9. Miscellaneous. This Agreement constitutes the entire agreement between the parties concerning the subjects hereof and supersedes any and all prior agreements, term sheets or understandings. This Agreement may not be assigned by Executive, and may not be assigned by the Company except in connection with a sale of substantially all of the assets or stock of the Company and shall be binding upon, and inure to the benefit of, the Company’s successors and assigns. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean the Company as defined herein and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. Headings herein are for convenience of reference only and shall not define, limit or interpret the contents hereof.

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10. Amendment. This Agreement may be amended, modified or supplemented by the mutual consent of the parties in writing, but no oral amendment, modification or supplement shall be effective. No waiver by either party of any breach by the other party of any condition or provision contained in this Agreement to be performed by such other party shall be deemed a waiver of a similar or dissimilar condition or provision at the same or any prior or subsequent time. Any waiver must be in writing and signed by Executive or an authorized officer of the Company, as the case may be.

11. Severability. The provisions of this Agreement are severable. The invalidity of any provision shall not affect the validity of any other provision, and each provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.

12. Resolution of Disputes; Enforcement. Any controversy or claim seeking equitable relief pursuant to this Agreement, all controversies and claims arising under or in connection with this Agreement or relating to the interpretation, breach or enforcement hereof and all other disputes between the parties in connection with the employment of the Executive shall be referred for arbitration to be held in Miami, Florida (or such other location as the Company and Executive shall agree) to a neutral arbitrator selected by Executive and the Company, and this shall be the sole and exclusive manner in which to resolve such controversy or claim hereunder (other than for injunctive relief that may be required by either party) The arbitration shall be conducted in accordance with the Employment Arbitration Rules (the “Rules”) of the American Arbitration Association (“AAA”) in effect at the time of the arbitration. If the parties are not able to agree upon a neutral arbitrator, then an arbitrator shall be selected in accordance with the rules and procedures of the AAA. Each party hereto shall bear its own costs and expenses in connection with any proceeding hereunder, provided that the arbitrator shall be entitled to award to the prevailing party reimbursement of its reasonable legal costs and expenses (including with respect to the arbitrator and the AAA).

13. Survivorship. The provisions of Sections 4, 5 and 6 of this Agreement shall survive Executive’s termination of employment. Other provisions of this Agreement shall survive any termination of Executive’s employment to the extent necessary to the intended preservation of each party’s respective rights and obligations.

14. Withholding. All amounts required to be paid by the Company shall be subject to reduction in order to comply with applicable federal, state and local tax withholding requirements.

15. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. The execution of this Agreement may be by actual or facsimile signature.

16. Definition of Terms. The term “affiliate,” when used in this Agreement with respect to any person, means any other person that, directly or indirectly, controls, is controlled by or is under common control with the first person. The term “person,” when used in this Agreement, means any natural person or entity with legal status.

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17. Governing Law. This Agreement shall be construed and regulated in all respects under the internal laws of the State of Florida, without regard to principles of conflict of laws of such state.

18. Effect on Prior Agreements. This Agreement supersedes all prior agreements of a similar nature between the Company and the Executive (other than existing coverage of the Executive for employee plans and benefits), whether oral or written, and upon execution and delivery hereof by both parties, none of such prior agreements shall have any further force or effect.

19. Captions. All captions are provided for convenience, do not form a part of this Agreement, and are not admissible for purposes of construction.

IN WITNESS WHEREOF, this Agreement is entered into as of the date first written above.

DHB INDUSTRIES INC.
By:
	Larry Ellis
	President/CEO
	James Anderson

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EX-10.10

Exhibit 10.10

No. 1087

AWARD AGREEMENT

Optionee: William Campbell	Grant Date: May 18, 2006
Per Share Exercise Price: $2.10	Number of Shares:- 50,000-
Plan: DHB Industries, Inc. 2005	Option Type: Nonqualified Stock Option
Omnibus Equity Incentive Plan

AWARD AGREEMENT (this “Agreement”) dated as of the Grant Date specified above between DHB Industries, Inc., a Delaware corporation (the “Company”), and the Optionee specified above, pursuant to the Plan specified above as in effect and as amended from time to time.

1. Incorporation By Reference. This Agreement is subject in all respects to the terms and provisions of the Plan, all of which are by this reference made a part of and incorporated in this Agreement. Any capitalized term not defined in this Agreement shall have the meaning ascribed to it in the Plan. If and to the extent this Agreement and the Plan conflict, the Plan shall control.

2. Grant of Option. The Company grants to the Optionee, as of the Grant Date specified above, an option (the “Option”) to acquire the number of Shares of the Company’s common stock specified above (the “Option Shares”) from the Company at the Per Share Exercise Price specified above. The Option is not intended to qualify as an incentive stock option within the meaning of Section 422 of the Internal Revenue Code.

3. Exercise of Option.

(a) Except as otherwise provided in the Plan and this Agreement, the Option shall vest and become exercisable as to 100% of the Option Shares (subject to adjustment in accordance with Section 9) on the Grant Date.

(b) The Option may not be exercised for a fractional share of common stock.

4. Method of Exercise and Payment. To exercise the Option, the Optionee must deliver a written notice, in such manner and form as the Company may require, to the Company’s corporate secretary or the secretary’s designee on any business day. The notice must specify the number of the Option Shares the Optionee wants to acquire, the date of grant of the Option, the aggregate purchase price for the shares with respect to which the Option is exercised, and the effective date of exercise (no earlier than the date of receipt of such notice by the Company). The notice must be accompanied by payment, made in the manner set forth in the Plan, of (i) the aggregate purchase price for the

Option Shares to be acquired (except as otherwise provided in the following sentence), and (ii) unless the Committee administering the Plan determines otherwise, the amount of any taxes (including, without limitation, any FICA, FUTA and similar taxes) required to be withheld and paid by the Company or its Related Entity in connection with the exercise of the Option, as determined by the Committee. Notwithstanding the preceding sentence, the Optionee may elect in the notice of exercise to make a cashless exercise of the Option, in which event the amount described in clause (i) of the immediately preceding sentence shall not be required to be paid to the Company and the Company shall deliver to the Optionee the number of Option Shares determined as follows

	X = Y [(A-B)/A]
Where:
	X = the number of Option Shares to be issued to the Optionee.
	Y = the number of Option Shares with respect to which this Option is being exercised.
	A = the average of the closing bid prices for the five most recent business days preceding the date of exercise on which the common stock of the Company has traded on the primary exchange or market on which it is listed.
	B = the Per Share Exercise Price.

Notwithstanding the above, the Company may decline to effect such a cashless exercise of the Option or any portion thereof if the Committee determines that such an exercise would conflict with any law, governmental or regulatory requirement, or contractual obligation to which the Company is subject.

5. Termination. Unless terminated earlier in accordance with this Agreement, the Option shall terminate as and to the extent provided in the Plan, and, in any event, the Option shall expire the day immediately preceding the tenth anniversary of the Grant Date, and thereafter shall no longer be exercisable.

6. Dividends. The Option shall not entitle the Optionee to receive any dividend declared on the Company’s common stock prior to the delivery of Option Shares pursuant to the exercise of the Option.

7. Non-transferability. Neither the Optionee nor the Optionee’s beneficiaries shall sell, exchange, transfer, assign, or otherwise dispose of the Option or any rights or interests therein, other than by testamentary disposition by the Optionee or the laws of descent and distribution, or except as

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the Committee administering the Plan may otherwise determine subject to such terms and conditions as may be imposed by the Committee in its sole discretion. Neither the Optionee nor the Optionee’s beneficiaries shall pledge, encumber, or otherwise hypothecate the Option or any rights or interests therein in any way at any time. The Option shall not be subject to execution, attachment, or similar legal process. Any attempted sale, pledge, or other disposition of the Option in violation of this paragraph shall be void and of no force or effect.

8. Representation. The Optionee represents that the Optionee is an individual providing services to the Company or a Related Entity and eligible to receive the Option under the Plan.

9. Adjustments. The number and kind of Option Shares subject to delivery hereunder, the Per Share Exercise Price, and other terms of this Agreement shall be subject to adjustment under the circumstances and to the extent provided in the Plan.

10. Entire Agreement; Amendment. This Agreement is an Award Agreement under the Plan; contains, together with the Plan itself, the entire agreement between the parties; and supersedes any other oral and written agreements previously entered into by the parties concerning the same subject matter. This Agreement may be modified or rescinded only with the written consent of both parties.

11. Governing Law. Delaware law shall govern this Agreement and its interpretation. The issuance of the Option (and the Option Shares upon exercise of this Option) pursuant to this Agreement shall be subject to, and shall comply with, any applicable requirements of any federal and state securities laws, rules, and regulations (including but not limited to the Securities Act, the Exchange Act, and the respective rules and regulations promulgated thereunder) and any other applicable law or regulation.

12. Binding Effect. This Agreement shall bind and inure to the benefit of the Company and its successors and assigns.

13. Notices. Any and all notices or other communications hereunder (including without limitation any notice of exercise) shall be in writing and shall be deemed given and effective (i) when transmitted by facsimile (confirmed electronically), if such notice or communication is delivered via facsimile to the facsimile number specified in this Section; (ii) on the first business day after it is sent by nationally recognized overnight courier service to the address specified in this Section, or (iii) upon actual receipt by the party to whom such notice is required to be given. The addresses for such communications shall be: (i) if to the Company, to DHB Industries, Inc., 400 Post Avenue, suite 303, Westbury, New York 11590, Attn: Dawn Schelgel, Facsimile No: (516) 997-5051, or (ii) if to the Optionee, to the address for such Optionee appearing on the books and records of the Company or a Related Entity, or such other address as the Optionee may provide to the Company by written notice under this Agreement.

14. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, and all of which, taken together, shall constitute one and the same instrument.

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DHB INDUSTRIES, INC.
By:
	Name:
	Title:

William Campbell

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FORM OF ELECTION TO PURCHASE

To by DHB Industries, Inc.:

The undersigned is the Holder of Warrant No. 1087 (the “Warrant”) issued by DHB Industries Inc., a Delaware corporation (the “Company”). Capitalized terms used herein and not otherwise defined have the respective meanings set forth in the Warrant.

1. The Warrant is currently exercisable to purchase a total of ______ Warrant Shares.

2. The undersigned Holder hereby exercises its rights with respect to _____ Warrant Shares pursuant to the Warrant (“Exercised Share Number”).

3. The Holder intends that payment of the Exercise Price shall be made as (check one):

¨ “Cash Exercise”

¨ “Cashless Exercise”

(a) If the Holder has elected a Cash Exercise, the Holder shall pay the sum of $________ to the Company in accordance with the terms of the Warrant (equal to the Exercised Share Number multiplied by the Exercise Price of $6.85 per Warrant Share).

(b) If the Holder has elected a Cashless Exercise, the average of the closing bid prices for the five Trading Days immediately prior to (but not including) the Date of Exercise equals: $________.

4. Number of shares of Common Stock to be issued to the Holder equals _______ (equal to Exercised Share Number if using Cash Exercise, or based on Cashless Exercise Formula per Section 9(b) of the Warrant).

By its delivery of this Form of Election To Purchase, the Holder represents and warrants to the Company that in giving effect to the exercise evidenced hereby the Holder will not beneficially own in excess of the number of shares of Common Stock (determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended) permitted to be owned under Section 11 of the Warrant to which this notice relates.

The undersigned requests that certificates for the shares of Common Stock issuable upon this exercise be issued in the name of Barry Berkman.

Please print

Dated: ______________                    Name of Holder _____________________

Address ________________________________________________________________

Name _____________________      Title _______________

Social Security or Tax ID: Number ____________________

Signature: __________________________________

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EX-10.11

Exhibit 10.11

NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT, THE AVAILABILITY OF WHICH IS ESTABLISHED BY AN OPINION FROM COUNSEL TO THE COMPANY.

WARRANT AWARD CERTIFICATE

Warrant #                     For 400,000 Shares

DHB INDUSTRIES, INC.

THIS WARRANT AWARD CERTIFICATE (THIS “WARRANT AWARD”) CERTIFIES that on September 28, 2006 (the “Issuance Date”), John C. Siemer (the “Holder”) was granted a warrant (the “Warrant”) to purchase, at the price of $2.82 per share, all or any part of 400,000 fully paid and non-assessable shares (“Shares”) of common stock, par value $.001 per share, of DHB INDUSTRIES, INC., a Delaware corporation (the “Company”), upon and subject to the following terms and conditions:

1. General Terms of the Warrant. The Warrant is granted in accordance with, and as a material inducement to, the Holder’s commencement of employment with the Company pursuant to an employment agreement dated September 28, 2006 (the “Services Agreement”). This Warrant is granted outside and independent of the Company’s 2005 Omnibus Equity Incentive Plan (the “Plan”); provided, however, that the terms, conditions and definitions of Sections 2, 3, 6, 7, 8, 9 and 10 of the Plan are hereby incorporated herein as though set forth at length and as though this Warrant were granted under the Plan. Capitalized terms used herein shall have the meanings set forth in the Plan, unless otherwise defined herein.

2. Expiration. Except as otherwise provided herein, this Warrant shall expire and shall no longer be exercisable one day prior to the 10^th anniversary of the Issuance Date.

3. Exercise. Except as otherwise permitted under the Plan, this Warrant may be exercised or surrendered during the Holder’s lifetime only by the Holder or his/her guardian or legal representative. THIS WARRANT SHALL NOT BE TRANSFERABLE BY THE HOLDER OTHERWISE THAN BY WILL OR BY THE LAWS OF DESCENT AND DISTRIBUTION, UNLESS THE COMMITTEE, IN ITS SOLE AND ABSOLUTE DISCRETION, CONSENTS TO A TRANSFER AUTHORIZED BY SECTION 10(b) OF THE PLAN.

Except as otherwise provided in Sections 4 and 5 of this Warrant Award or Section 9 of the Plan, this Warrant shall vest as follows: 10% on the Issuance Date, 30% on the date one year after the Issuance Date, 30% on the date two years after the Issuance Date and 30% on the date three years after the Issuance Date.

This Warrant may be exercised by the Holder (or by his executors, administrators, guardian or legal representative), as to all or any of the then-vested portion thereof, by the giving of written notice of exercise to the Company, specifying the number of Shares to be purchased, accompanied by payment of the full purchase price (specified herein) for the Shares being purchased. Full payment of such purchase price shall be made at the time of exercise and shall be made (i) in cash or by certified check or bank check or wire transfer of immediately available funds or (ii) with the consent of the Committee, in its sole and absolute discretion, by tendering previously acquired Shares (valued at their then Fair Market Value, as determined by the Committee as of the date of exercise). Such notice of exercise, accompanied by such payment, shall be delivered to the Company at its principal business office or such other office as the Company may from time to time direct, and shall be in the form of Exhibit A hereto or such other form as the Company may from time to time prescribe by notice to the Holder. In no event may this Warrant be exercised for a fraction of a Share. No person exercising this Warrant shall have any of the rights of a holder of Shares subject to this Warrant until such Shares shall have been issued (as noted in the stock transfer books and records of the Company) following the exercise of such Warrant. No adjustment shall be made for cash dividends or other rights for which the record date is prior to the date of such issuance.

4. Termination of Employment by the Company for Cause. In the event the Holder’s employment is terminated by the Company for Cause (as defined in the Plan), the Warrant shall cease to vest and neither any vested nor any unvested portion of the Warrant may be exercised after such termination.

5. Other Termination of Employment. In the event the Holder’s employment terminates for any reason not addressed by Section 4 of this Warrant Award, this Warrant shall cease to vest and, to the extent vested on the date of such termination and not previously expired or exercised, shall be exercisable in accordance with this Warrant Award until the earlier of (i) the 90^th day after such termination (or one year after termination because of death) or (ii) the day on which the Warrant is scheduled to expire in accordance with Section 2 of this Warrant Award, unless the Committee, in its sole and absolute discretion and subject to the terms of the Plan, decides otherwise. No unvested portion of the Warrant may be exercised after any such termination.

6. Restrictions on Exercise.

(a) Notwithstanding anything to the contrary contained herein, this Warrant may not be exercised, and neither this Warrant nor the Shares issued upon exercise of this Warrant may be purchased, sold or transferred, unless the Company, in its sole and absolute discretion, believes such exercise, purchase, sale or transfer (as the case may be) is in compliance with the Securities Act of 1933, as amended (the “Act”), or any comparable federal securities law and all applicable state securities laws, and the requirements of any stock exchange, national market system or national quotation system on which securities of the Company of the same class as the Shares are then traded or quoted, in each case as in effect on the date of such proposed exercise, purchase, sale or transfer.

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(b) In the event that the Warrant or any portion thereof cannot be exercised immediately prior to the time it expires pursuant to any of Sections 2 and 5 of this Warrant Award because such exercise would violate an applicable Federal, state, local or foreign law, then the expiration date of such portion shall be extended to the 30^th day after the date on which such exercise would no longer violate an applicable Federal, state, local or foreign law. The Company shall use reasonable efforts to notify the Holder of the date on which such exercise would no longer violate an applicable Federal, state, local or foreign law.

(c) The Holder acknowledges that the Company shall have the right, but not the obligation, to register the Shares underlying this Warrant on a Form S-8 or S-3 to facilitate their resale by the Holder. Except as provided in the Services Agreement, the Holder acknowledges that the Company is under no obligation to register, qualify or list, or maintain the registration, qualification or listing of, the Warrant or the Shares with the Securities and Exchange Commission, any state securities commission or any stock exchange, national market system or national quotation system to effect such compliance.

(d) In the event the Holder desires to offer for sale or to otherwise transfer this Warrant or the Shares for which this Warrant may be exercised pursuant to an exemption from registration under the Act, the Holder shall make such representations and furnish such information as may, in the opinion of counsel for the Company, be appropriate to permit the Company, in light of the then existence or non-existence of an effective Registration Statement under the Act with respect to such Shares to issue the Shares in compliance with the provisions of that or any comparable federal securities law and all applicable state securities laws.

7. Adjustments. Notwithstanding anything to the contrary contained herein, to prevent the dilution or enlargement of benefits or potential benefits intended to be made available under the Plan, this Warrant shall be subject to adjustment pursuant to Section 10(c) of the Plan.

8. Delivery of Share Certificates. Within a reasonable time after the exercise of this Warrant and the issuance of Shares in connection therewith, the Company shall cause to be delivered to the person entitled thereto a certificate representing such Shares. If this Warrant shall have been exercised with respect to the purchase of less than all of the Shares subject to this Warrant, the Company shall make a notation in its books and records to reflect the partial exercise of this Warrant and the number of Shares with respect to which this Warrant remains available for exercise. Absent manifest error, the Company’s books and records shall be final, conclusive and determinative as to the number of Shares with respect to which this Warrant remains available for exercise.

9. Withholding. If the Company or any subsidiary or affiliate of the Company is required to withhold any amounts by reasons of any federal, state or local tax laws, rules or regulations in respect of (a) the issuance of Shares to the Holder pursuant to this Warrant, and/or

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(b) the exercise or disposition (in whole or in part) of the Warrant, the Company or such subsidiary or affiliate shall be entitled to deduct and withhold such amounts from any payments to be made to the Holder. In any event, the Holder shall make available to the Company or such subsidiary or affiliate, promptly when requested by the Company or such subsidiary or affiliate, sufficient funds to meet the requirements of such withholding; and the Company or such subsidiary or affiliate shall be entitled to take and authorize such steps as it may deem advisable in order to have such funds available to the Company or such subsidiary or affiliate out of any funds or property due or to become due to the Holder. With the consent of the Committee (which can be given or withheld in its sole and absolute discretion), withholding tax obligations of the Holder may be satisfied by the tendering of Shares by the Holder or by the withholding of Shares by the Company (in either case with such Shares to be valued at their Fair Market Value as of the date of exercise, as determined in the sole and absolute discretion of the Committee).

10. Committee Discretion. The Committee shall have sole and absolute discretion to interpret, construe or apply any provision of the Plan and this Warrant Award and its determinations as to the meaning or application of the Plan and this Warrant Award shall be final and binding. The Committee is authorized, in its discretion, to make any determinations necessary or advisable for the administration of the Plan and this Warrant, waive any conditions or rights under this Warrant Award or amend, alter, accelerate, suspend, discontinue or terminate this Warrant or this Warrant Award; provided, however, that, except in furtherance of Section 7 hereof, without the consent of the Holder, no such amendment, alteration, suspension, discontinuation or termination of this Warrant Award may materially and adversely affect the rights of the Holder hereunder.

11. Reservation of Shares. The Company hereby agrees that at all times there shall be reserved for issuance and/or delivery such number of Shares as shall be required for issuance or delivery to the Holder following the exercise hereof.

12. Rights of Holder. Nothing contained in this Warrant Award shall be construed to confer upon the Holder any right to be continued in the employ of the Company and/or any subsidiary or affiliate of the Company or derogate from any right of the Company and/or any subsidiary or affiliate of the Company to retire, request the resignation of, or discharge the Holder at any time, with or without cause. The Holder shall not, by virtue hereof, be entitled to any rights of a shareholder in the Company, either at law or in equity, and the rights of the Holder are limited to those expressed herein and are not enforceable against the Company except to the extent set forth herein.

13. Successors and Assigns. The provisions of this Warrant Award shall be binding upon and inure to the benefit of the Company, its successors and assigns, and Holder and, to the extent applicable, Holder’s legal representative or permitted assigns.

14. Legend. The Company may cause the following or a similar legend to be set forth on each certificate representing Shares or any other security issued or issuable upon exercise of this Warrant unless counsel for the Company is of the opinion as to any such certificate that such legend is unnecessary:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT, THE AVAILABILITY OF WHICH IS ESTABLISHED BY AN OPINION FROM COUNSEL TO THE COMPANY.

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15. Notices. Any notice which either party hereto may be required or permitted to give to the other shall be in writing, and may be delivered personally or by mail, postage prepaid, or overnight courier, addressed as follows: if to the Company, at the address shown on the cover page of its most recently filed periodic report with the SEC (or, if the Company is not currently filing periodic reports, at the last address designated by notice from the Company to the Holder pursuant to this Section 15), Attn: General Counsel; and if to the Holder, at the address shown below his signature on this Warrant Award, or at such other address as the Holder by notice to the Company may designate in writing from time to time. Notices shall be effective upon receipt.

16. Conflict with Services Agreement or Plan. In the event of any conflict between the terms of the Holder’s Services Agreement, if any, and the terms of this Warrant Award with respect to the Warrant, the terms of this Warrant Award shall control. In the event of any conflict between the terms of the Holder’s Services Agreement, if any, or this Warrant Award and the terms of the Plan, the terms of the Plan shall control.

17. Governing Law. To the extent federal law does not otherwise control, the validity, interpretation, performance and enforcement of this Warrant Award shall be governed by the laws of the State of Delaware, without giving effect to principles of conflicts of laws thereof.

[Remainder of page intentionally blank.]

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IN WITNESS WHEREOF, the Company has executed this Warrant Award as of the date first set forth above.

DHB INDUSTRIES, INC.

By:

Name:

Title:

Date:

Attest:

Holder hereby acknowledges by his signature below that he has received a copy of this Warrant Award and the Plan.

Accepted and Confirmed:
John C. Siemer
Address
City	State	Zip Code
Social Security Number

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Exhibit A

FORM OF ELECTION TO PURCHASE

To DHB Industries, Inc.:

The undersigned is the Holder of Warrant No.                      (the “Warrant”) issued by DHB Industries Inc., a Delaware corporation (the “Company”). Capitalized terms used herein and not otherwise defined have the respective meanings set forth in the Warrant.

1. The Warrant is currently exercisable to purchase a total of                      Shares.

2. The undersigned Holder hereby exercises its rights with respect to                      Shares pursuant to the Warrant (“Exercised Share Number”).

3. The Holder intends that payment of the exercise price shall be made (check one):

[    ] in cash or by certified check or bank check or wire transfer of immediately available funds

[    ] by tendering previously acquired Shares (subject to the consent of the Committee)

(a) If the Holder has elected the first method of exercise, the Holder shall pay the sum of $        .     to the Company in accordance with the terms of the Warrant (equal to the Exercised Share Number multiplied by the exercise price of $            .     per Share).

(b) If the Holder has elected the second method of exercise, the Committee shall determine the number of previously acquired Shares to be tendered and provide further instructions to the Holder.

4. The Holder intends that payment of applicable withholding taxes shall be made (check one):

[    ] in cash or by certified check or bank check or wire transfer of immediately available funds

[    ] by the Company withholding cash from amounts otherwise payable to Holder

[    ] by tendering previously acquired Shares (subject to the consent of the Committee)

[    ] by the Company withholding Shares otherwise issuable to Holder upon this exercise (subject to the consent of the Committee)

The undersigned requests that certificates for the Shares issuable upon this exercise be issued in the name of                     .

Dated:                      Name of Holder                                         

Address                                                                                                                       

Name                                                              Title                                 

Social Security or Tax ID: Number                                    

Signature:                                                             

EX-10.12

Exhibit 10.12

NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT, THE AVAILABILITY OF WHICH IS ESTABLISHED BY AN OPINION FROM COUNSEL TO THE COMPANY.

WARRANT AWARD CERTIFICATE

Warrant #                     For 400,000 Shares

DHB INDUSTRIES, INC.

THIS WARRANT AWARD CERTIFICATE (THIS “WARRANT AWARD”) CERTIFIES that on September 28, 2006 (the “Issuance Date”), Thomas C. Canfield (the “Holder”) was granted a warrant (the “Warrant”) to purchase, at the price of $2.82 per share, all or any part of 400,000 fully paid and non-assessable shares (“Shares”) of common stock, par value $.001 per share, of DHB INDUSTRIES, INC., a Delaware corporation (the “Company”), upon and subject to the following terms and conditions:

1. General Terms of the Warrant. The Warrant is granted in accordance with, and as a material inducement to, the Holder’s commencement of employment with the Company pursuant to an employment agreement dated September 28, 2006 (the “Services Agreement”). This Warrant is granted outside and independent of the Company’s 2005 Omnibus Equity Incentive Plan (the “Plan”); provided, however, that the terms, conditions and definitions of Sections 2, 3, 6, 7, 8, 9 and 10 of the Plan are hereby incorporated herein as though set forth at length and as though this Warrant were granted under the Plan. Capitalized terms used herein shall have the meanings set forth in the Plan, unless otherwise defined herein.

2. Expiration. Except as otherwise provided herein, this Warrant shall expire and shall no longer be exercisable one day prior to the 10^th anniversary of the Issuance Date.

3. Exercise. Except as otherwise permitted under the Plan, this Warrant may be exercised or surrendered during the Holder’s lifetime only by the Holder or his/her guardian or legal representative. THIS WARRANT SHALL NOT BE TRANSFERABLE BY THE HOLDER OTHERWISE THAN BY WILL OR BY THE LAWS OF DESCENT AND DISTRIBUTION, UNLESS THE COMMITTEE, IN ITS SOLE AND ABSOLUTE DISCRETION, CONSENTS TO A TRANSFER AUTHORIZED BY SECTION 10(b) OF THE PLAN.

Except as otherwise provided in Sections 4 and 5 of this Warrant Award or Section 9 of the Plan, this Warrant shall vest as follows: 10% on the Issuance Date, 30% on the date one year after the Issuance Date, 30% on the date two years after the Issuance Date and 30% on the date three years after the Issuance Date.

This Warrant may be exercised by the Holder (or by his executors, administrators, guardian or legal representative), as to all or any of the then-vested portion thereof, by the giving of written notice of exercise to the Company, specifying the number of Shares to be purchased, accompanied by payment of the full purchase price (specified herein) for the Shares being purchased. Full payment of such purchase price shall be made at the time of exercise and shall be made (i) in cash or by certified check or bank check or wire transfer of immediately available funds or (ii) with the consent of the Committee, in its sole and absolute discretion, by tendering previously acquired Shares (valued at their then Fair Market Value, as determined by the Committee as of the date of exercise). Such notice of exercise, accompanied by such payment, shall be delivered to the Company at its principal business office or such other office as the Company may from time to time direct, and shall be in the form of Exhibit A hereto or such other form as the Company may from time to time prescribe by notice to the Holder. In no event may this Warrant be exercised for a fraction of a Share. No person exercising this Warrant shall have any of the rights of a holder of Shares subject to this Warrant until such Shares shall have been issued (as noted in the stock transfer books and records of the Company) following the exercise of such Warrant. No adjustment shall be made for cash dividends or other rights for which the record date is prior to the date of such issuance.

4. Termination of Employment by the Company for Cause. In the event the Holder’s employment is terminated by the Company for Cause (as defined in the Plan), the Warrant shall cease to vest and neither any vested nor any unvested portion of the Warrant may be exercised after such termination.

5. Other Termination of Employment. In the event the Holder’s employment terminates for any reason not addressed by Section 4 of this Warrant Award, this Warrant shall cease to vest and, to the extent vested on the date of such termination and not previously expired or exercised, shall be exercisable in accordance with this Warrant Award until the earlier of (i) the 90^th day after such termination (or one year after termination because of death) or (ii) the day on which the Warrant is scheduled to expire in accordance with Section 2 of this Warrant Award, unless the Committee, in its sole and absolute discretion and subject to the terms of the Plan, decides otherwise. No unvested portion of the Warrant may be exercised after any such termination.

6. Restrictions on Exercise.

(a) Notwithstanding anything to the contrary contained herein, this Warrant may not be exercised, and neither this Warrant nor the Shares issued upon exercise of this Warrant may be purchased, sold or transferred, unless the Company, in its sole and absolute discretion, believes such exercise, purchase, sale or transfer (as the case may be) is in compliance with the Securities Act of 1933, as amended (the “Act”), or any comparable federal securities law and all applicable state securities laws, and the requirements of any stock exchange, national market system or national quotation system on which securities of the Company of the same class as the Shares are then traded or quoted, in each case as in effect on the date of such proposed exercise, purchase, sale or transfer.

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(b) In the event that the Warrant or any portion thereof cannot be exercised immediately prior to the time it expires pursuant to any of Sections 2 and 5 of this Warrant Award because such exercise would violate an applicable Federal, state, local or foreign law, then the expiration date of such portion shall be extended to the 30^th day after the date on which such exercise would no longer violate an applicable Federal, state, local or foreign law. The Company shall use reasonable efforts to notify the Holder of the date on which such exercise would no longer violate an applicable Federal, state, local or foreign law.

(c) The Holder acknowledges that the Company shall have the right, but not the obligation, to register the Shares underlying this Warrant on a Form S-8 or S-3 to facilitate their resale by the Holder. Except as provided in the Services Agreement, the Holder acknowledges that the Company is under no obligation to register, qualify or list, or maintain the registration, qualification or listing of, the Warrant or the Shares with the Securities and Exchange Commission, any state securities commission or any stock exchange, national market system or national quotation system to effect such compliance.

(d) In the event the Holder desires to offer for sale or to otherwise transfer this Warrant or the Shares for which this Warrant may be exercised pursuant to an exemption from registration under the Act, the Holder shall make such representations and furnish such information as may, in the opinion of counsel for the Company, be appropriate to permit the Company, in light of the then existence or non-existence of an effective Registration Statement under the Act with respect to such Shares to issue the Shares in compliance with the provisions of that or any comparable federal securities law and all applicable state securities laws.

7. Adjustments. Notwithstanding anything to the contrary contained herein, to prevent the dilution or enlargement of benefits or potential benefits intended to be made available under the Plan, this Warrant shall be subject to adjustment pursuant to Section 10(c) of the Plan.

8. Delivery of Share Certificates. Within a reasonable time after the exercise of this Warrant and the issuance of Shares in connection therewith, the Company shall cause to be delivered to the person entitled thereto a certificate representing such Shares. If this Warrant shall have been exercised with respect to the purchase of less than all of the Shares subject to this Warrant, the Company shall make a notation in its books and records to reflect the partial exercise of this Warrant and the number of Shares with respect to which this Warrant remains available for exercise. Absent manifest error, the Company’s books and records shall be final, conclusive and determinative as to the number of Shares with respect to which this Warrant remains available for exercise.

9. Withholding. If the Company or any subsidiary or affiliate of the Company is required to withhold any amounts by reasons of any federal, state or local tax laws, rules or regulations in respect of (a) the issuance of Shares to the Holder pursuant to this Warrant, and/or

3

(b) the exercise or disposition (in whole or in part) of the Warrant, the Company or such subsidiary or affiliate shall be entitled to deduct and withhold such amounts from any payments to be made to the Holder. In any event, the Holder shall make available to the Company or such subsidiary or affiliate, promptly when requested by the Company or such subsidiary or affiliate, sufficient funds to meet the requirements of such withholding; and the Company or such subsidiary or affiliate shall be entitled to take and authorize such steps as it may deem advisable in order to have such funds available to the Company or such subsidiary or affiliate out of any funds or property due or to become due to the Holder. With the consent of the Committee (which can be given or withheld in its sole and absolute discretion), withholding tax obligations of the Holder may be satisfied by the tendering of Shares by the Holder or by the withholding of Shares by the Company (in either case with such Shares to be valued at their Fair Market Value as of the date of exercise, as determined in the sole and absolute discretion of the Committee).

10. Committee Discretion. The Committee shall have sole and absolute discretion to interpret, construe or apply any provision of the Plan and this Warrant Award and its determinations as to the meaning or application of the Plan and this Warrant Award shall be final and binding. The Committee is authorized, in its discretion, to make any determinations necessary or advisable for the administration of the Plan and this Warrant, waive any conditions or rights under this Warrant Award or amend, alter, accelerate, suspend, discontinue or terminate this Warrant or this Warrant Award; provided, however, that, except in furtherance of Section 7 hereof, without the consent of the Holder, no such amendment, alteration, suspension, discontinuation or termination of this Warrant Award may materially and adversely affect the rights of the Holder hereunder.

11. Reservation of Shares. The Company hereby agrees that at all times there shall be reserved for issuance and/or delivery such number of Shares as shall be required for issuance or delivery to the Holder following the exercise hereof.

12. Rights of Holder. Nothing contained in this Warrant Award shall be construed to confer upon the Holder any right to be continued in the employ of the Company and/or any subsidiary or affiliate of the Company or derogate from any right of the Company and/or any subsidiary or affiliate of the Company to retire, request the resignation of, or discharge the Holder at any time, with or without cause. The Holder shall not, by virtue hereof, be entitled to any rights of a shareholder in the Company, either at law or in equity, and the rights of the Holder are limited to those expressed herein and are not enforceable against the Company except to the extent set forth herein.

13. Successors and Assigns. The provisions of this Warrant Award shall be binding upon and inure to the benefit of the Company, its successors and assigns, and Holder and, to the extent applicable, Holder’s legal representative or permitted assigns.

14. Legend. The Company may cause the following or a similar legend to be set forth on each certificate representing Shares or any other security issued or issuable upon exercise of this Warrant unless counsel for the Company is of the opinion as to any such certificate that such legend is unnecessary:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT, THE AVAILABILITY OF WHICH IS ESTABLISHED BY AN OPINION FROM COUNSEL TO THE COMPANY.

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15. Notices. Any notice which either party hereto may be required or permitted to give to the other shall be in writing, and may be delivered personally or by mail, postage prepaid, or overnight courier, addressed as follows: if to the Company, at the address shown on the cover page of its most recently filed periodic report with the SEC (or, if the Company is not currently filing periodic reports, at the last address designated by notice from the Company to the Holder pursuant to this Section 15), Attn: General Counsel; and if to the Holder, at the address shown below his signature on this Warrant Award, or at such other address as the Holder by notice to the Company may designate in writing from time to time. Notices shall be effective upon receipt.

16. Conflict with Services Agreement or Plan. In the event of any conflict between the terms of the Holder’s Services Agreement, if any, and the terms of this Warrant Award with respect to the Warrant, the terms of this Warrant Award shall control. In the event of any conflict between the terms of the Holder’s Services Agreement, if any, or this Warrant Award and the terms of the Plan, the terms of the Plan shall control.

17. Governing Law. To the extent federal law does not otherwise control, the validity, interpretation, performance and enforcement of this Warrant Award shall be governed by the laws of the State of Delaware, without giving effect to principles of conflicts of laws thereof.

[Remainder of page intentionally blank.]

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IN WITNESS WHEREOF, the Company has executed this Warrant Award as of the date first set forth above.

DHB INDUSTRIES, INC.

By:

Name:

Title:

Date:

Attest:

Holder hereby acknowledges by his signature below that he has received a copy of this Warrant Award and the Plan.

Accepted and Confirmed:
Thomas C. Canfield
Address
City	State	Zip Code
Social Security Number

6

Exhibit A

FORM OF ELECTION TO PURCHASE

To DHB Industries, Inc.:

The undersigned is the Holder of Warrant No.                      (the “Warrant”) issued by DHB Industries Inc., a Delaware corporation (the “Company”). Capitalized terms used herein and not otherwise defined have the respective meanings set forth in the Warrant.

1. The Warrant is currently exercisable to purchase a total of                      Shares.

2. The undersigned Holder hereby exercises its rights with respect to                      Shares pursuant to the Warrant (“Exercised Share Number”).

3. The Holder intends that payment of the exercise price shall be made (check one):

[    ] in cash or by certified check or bank check or wire transfer of immediately available funds

[    ] by tendering previously acquired Shares (subject to the consent of the Committee)

(a) If the Holder has elected the first method of exercise, the Holder shall pay the sum of $            .     to the Company in accordance with the terms of the Warrant (equal to the Exercised Share Number multiplied by the exercise price of $            .     per Share).

(b) If the Holder has elected the second method of exercise, the Committee shall determine the number of previously acquired Shares to be tendered and provide further instructions to the Holder.

4. The Holder intends that payment of applicable withholding taxes shall be made (check one):

[    ] in cash or by certified check or bank check or wire transfer of immediately available funds

[    ] by the Company withholding cash from amounts otherwise payable to Holder

[    ] by tendering previously acquired Shares (subject to the consent of the Committee)

[    ] by the Company withholding Shares otherwise issuable to Holder upon this exercise (subject to the consent of the Committee)

The undersigned requests that certificates for the Shares issuable upon this exercise be issued in the name of                     .

Dated:                          Name of Holder                                 

Address                                                                                                                       

Name                                     Title                             

Social Security or Tax ID: Number                                 

Signature:                                             

EX-10.13

Exhibit 10.13

NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT, THE AVAILABILITY OF WHICH IS ESTABLISHED BY AN OPINION FROM COUNSEL TO THE COMPANY.

WARRANT AWARD CERTIFICATE

Warrant #[                    ] For 900,000 Shares

DHB INDUSTRIES, INC.

THIS WARRANT AWARD CERTIFICATE (THIS “WARRANT AWARD”) CERTIFIES that on March 29, 2007 (the “Issuance Date”), Larry R. Ellis (the “Holder”) was granted a warrant (the “Warrant”) to purchase, at the price of $3.46 per share, all or any part of 900,000 fully paid and non-assessable shares (“Shares”) of common stock, par value $.001 per share, of DHB INDUSTRIES, INC., a Delaware corporation (the “Company”), upon and subject to the following terms and conditions:

1. General Terms of the Warrant. The Warrant is granted in accordance with, and as a material inducement to the Holder’s continuation of employment with the Company pursuant to an employment agreement dated March 29, 2007 (the “Employment Agreement”). In addition, this Warrant is granted under, and is subject to the terms and conditions of, the Company’s 2005 Omnibus Equity Incentive Plan (the “Plan”), the terms, conditions and definitions of which are hereby incorporated herein as though set forth at length. Capitalized terms used herein shall have the meanings set forth in the Plan, unless otherwise defined herein.

2. Expiration. Except as otherwise provided herein, on March 28, 2017 this Warrant shall expire and shall no longer be exercisable.

3. Exercise. Except as otherwise permitted under the Plan, this Warrant may be exercised or surrendered during the Holder’s lifetime only by the Holder or his/her guardian or legal representative. THIS WARRANT SHALL NOT BE TRANSFERABLE BY THE HOLDER OTHERWISE THAN BY WILL OR BY THE LAWS OF DESCENT AND DISTRIBUTION, UNLESS THE COMMITTEE, IN ITS SOLE AND ABSOLUTE DISCRETION, CONSENTS TO A TRANSFER AUTHORIZED BY SECTION 10(b) OF THE PLAN.

Except as otherwise provided in Sections 4 through 7 of this Warrant Award or Section 9 of the Plan, this Warrant shall vest as follows: (a) with respect to the purchase of 90,000 Shares, on March 29, 2007, (b) with respect to the purchase of 270,000 Shares, on March 29, 2008, (c) with respect to the purchase of 270,000 Shares, on March 29, 2009 and (d) with respect to the purchase of 270,000 Shares, on March 29, 2010.

This Warrant may be exercised by the Holder (or by his executors, administrators, guardian or legal representative), as to all or any of the then-vested portion thereof, by the giving of written notice of exercise to the Company, specifying the number of Shares to be purchased, accompanied by payment of the full purchase price (specified herein) for the Shares being purchased. Full payment of such purchase price shall be made at the time of exercise and shall be made (i) in cash or by certified check or bank check or wire transfer of immediately available funds or (ii) with the consent of the Committee, in its sole and absolute discretion, by tendering previously acquired Shares (valued at their then Fair Market Value, as determined by the Committee as of the date of exercise). Such notice of exercise, accompanied by such payment, shall be delivered to the Company at its principal business office or such other office as the Company may from time to time direct, and shall be in the form of Exhibit A hereto or such other form as the Company may from time to time prescribe by notice to the Holder. In no event may this Warrant be exercised for a fraction of a Share. No person exercising this Warrant shall have any of the rights of a holder of Shares subject to this Warrant until such Shares shall have been issued (as noted in the stock transfer books and records of the Company) following the exercise of such Warrant. No adjustment shall be made for cash dividends or other rights for which the record date is prior to the date of such issuance.

4. Termination of Employment by the Company for Cause. In the event the Holder’s employment is terminated by the Company for Cause pursuant to Section 8.2 of the Employment Agreement, the Warrant shall cease to vest and neither any vested nor any unvested portion of the Warrant may be exercised after such termination.

5. Termination of Employment by the Company without Cause or for Disability or by the Holder with Good Reason. In the event that, during the Employment Period (as defined in the Employment Agreement), the Holder’s employment is terminated (a) by the Company without Cause pursuant to Section 8.2 of the Employment Agreement, (b) because of Disability of the Holder pursuant to Section 8.1 of the Employment Agreement or (c) by the Holder with Good Reason pursuant to Section 8.3 of the Employment Agreement, then the Warrant (i) to the extent vested on the date of such termination and not previously expired or exercised, in accordance with this Warrant Award shall be exercisable until the earlier of the 90^th day after such termination or the day on which the Warrant is scheduled to expire in accordance with Section 2 of this Warrant Award and (ii) shall continue to vest in accordance with this Warrant Award, and shall be exercisable to the extent the Warrant vests on any given date following such termination (and to the extent not previously expired or exercised) in accordance with this Warrant Award until the earlier of the 90^th day after such vesting date or the day on which the Warrant is scheduled to expire in accordance with Section 2 of this Warrant Award.

6. Death. In the event the Holder dies during the Employment Period, this Warrant shall become fully vested as of the date of death and be exercisable until the 90^th day after such date of death, by the estate of the Holder or by any person who acquired this Warrant by bequest or inheritance, in accordance with this Warrant Award.

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7. Other Termination of Employment. In the event the Holder’s employment terminates for any reason not addressed by Sections 4 through 6 of this Warrant Award, this Warrant shall cease to vest and, to the extent vested on the date of such termination and not previously expired or exercised, shall be exercisable in accordance with this Warrant Award until the earlier of the 90^th day after such termination or the day on which the Warrant is scheduled to expire in accordance with Section 2 of this Warrant Award, unless the Committee, in its sole and absolute discretion and subject to the terms of the Plan, decides otherwise.

8. Restrictions on Exercise.

(a) Notwithstanding anything to the contrary contained herein, this Warrant may not be exercised, and neither this Warrant nor the Shares issued upon exercise of this Warrant may be purchased, sold or transferred, unless the Company, in its sole and absolute discretion, believes such exercise, purchase, sale or transfer (as the case may be) is in compliance with the Securities Act of 1933, as amended (the “Act”), or any comparable federal securities law and all applicable state securities laws, and the requirements of any stock exchange, national market system or national quotation system on which securities of the Company of the same class as the Shares are then traded or quoted, in each case as in effect on the date of such proposed exercise, purchase, sale or transfer.

(b) In the event that the Warrant or any portion thereof cannot be exercised immediately prior to the time it expires pursuant to any of Sections 2, 5, 6 or 7 of this Warrant Award because such exercise would violate an applicable Federal, state, local or foreign law, then the expiration date of such portion shall be extended to the 30^th day after the date on which such exercise would no longer violate an applicable Federal, state, local or foreign law. The Company shall use reasonable efforts to notify the Holder of the date on which such exercise would no longer violate an applicable Federal, state, local or foreign law.

(c) The Holder acknowledges that the Company shall have the right, but not the obligation, to register the Shares underlying this Warrant on a Form S-8 or S-3 to facilitate their resale by the Holder. Except as provided in the Employment Agreement, the Holder acknowledges that the Company is under no obligation to register, qualify or list, or maintain the registration, qualification or listing of, the Warrant or the Shares with the Securities and Exchange Commission, any state securities commission or any stock exchange, national market system or national quotation system to effect such compliance.

(d) In the event the Holder desires to offer for sale or to otherwise transfer this Warrant or the Shares for which this Warrant may be exercised pursuant to an exemption from registration under the Act, the Holder shall make such representations and furnish such information as may, in the opinion of counsel for the Company, be appropriate to permit the Company, in light of the then existence or non-existence of an effective Registration Statement under the Act with respect to such Shares to issue the Shares in compliance with the provisions of that or any comparable federal securities law and all applicable state securities laws. The Company shall use reasonable efforts to obtain such opinion of counsel within a reasonable amount of time.

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9. Adjustments. Notwithstanding anything to the contrary contained herein, to prevent the dilution or enlargement of benefits or potential benefits intended to be made available under the Plan, this Warrant shall be subject to adjustment pursuant to Section 10(c) of the Plan.

10. Delivery of Share Certificates. Within a reasonable time after the exercise of this Warrant and the issuance of Shares in connection therewith, the Company shall cause to be delivered to the person entitled thereto a certificate representing such Shares. If this Warrant shall have been exercised with respect to the purchase of less than all of the Shares subject to this Warrant, the Company shall make a notation in its books and records to reflect the partial exercise of this Warrant and the number of Shares with respect to which this Warrant remains available for exercise. Absent manifest error, the Company’s books and records shall be final, conclusive and determinative as to the number of Shares with respect to which this Warrant remains available for exercise.

11. Withholding. If the Company or any subsidiary or affiliate of the Company is required to withhold any amounts by reasons of any federal, state or local tax laws, rules or regulations in respect of (a) the issuance of Shares to the Holder pursuant to this Warrant, or (b) the exercise or disposition (in whole or in part) of the Warrant, the Company or such subsidiary or affiliate shall be entitled to deduct and withhold such amounts from any payments to be made to the Holder. In any event, the Holder shall make available to the Company or such subsidiary or affiliate, promptly when requested by the Company or such subsidiary or affiliate, sufficient funds to meet the requirements of such withholding; and the Company or such subsidiary or affiliate shall be entitled to take and authorize such steps as it may deem advisable in order to have such funds available to the Company or such subsidiary or affiliate out of any funds or property due or to become due to the Holder. With the consent of the Committee (which can be given or withheld in its sole and absolute discretion), withholding tax obligations of the Holder may be satisfied by the tendering of Shares by the Holder or by the withholding of Shares by the Company (in either case with such Shares to be valued at their Fair Market Value as of the date of exercise, as determined in the sole and absolute discretion of the Committee).

12. Committee Discretion. The Committee shall have sole and absolute discretion to interpret, construe or apply any provision of the Plan and this Warrant Award and its determinations as to the meaning or application of the Plan and this Warrant Award shall be final and binding. The Committee is authorized, in its discretion, to make any determinations necessary or advisable for the administration of the Plan and this Warrant, waive any conditions or rights under this Warrant Award or amend, alter, accelerate, suspend, discontinue or terminate this Warrant or this Warrant Award; provided, however, that, except in furtherance of Section 9 hereof, without the consent of the Holder, no such amendment, alteration, suspension, discontinuation or termination of this Warrant Award may materially and adversely affect the rights of the Holder hereunder.

13. Reservation of Shares. The Company hereby agrees that at all times there shall be reserved for issuance and/or delivery such number of Shares as shall be required for issuance or delivery to the Holder following the exercise hereof.

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14. Rights of Holder. Nothing contained in this Warrant Award shall be construed to confer upon the Holder any right to be continued in the employ of the Company and/or any subsidiary or affiliate of the Company or derogate from any right of the Company and/or any subsidiary or affiliate of the Company to retire, request the resignation of, or discharge the Holder at any time, with or without cause. The Holder shall not, by virtue hereof, be entitled to any rights of a shareholder in the Company, either at law or in equity, and the rights of the Holder are limited to those expressed herein and are not enforceable against the Company except to the extent set forth herein.

15. Successors and Assigns. The provisions of this Warrant Award shall be binding upon and inure to the benefit of the Company, its successors and assigns, and Holder and, to the extent applicable, Holder’s legal representative or permitted assigns.

16. Legend. The Company may cause the following or a similar legend to be set forth on each certificate representing Shares or any other security issued or issuable upon exercise of this Warrant unless counsel for the Company is of the opinion as to any such certificate that such legend is unnecessary:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT, THE AVAILABILITY OF WHICH IS ESTABLISHED BY AN OPINION FROM COUNSEL TO THE COMPANY.

17. Notices. Any notice which either party hereto may be required or permitted to give to the other shall be in writing, and may be delivered personally or by mail, postage prepaid, or overnight courier, addressed as follows: if to the Company, at the address shown on the cover page of its most recently filed periodic report with the SEC (or, if the Company is not currently filing periodic reports, at the last address designated by notice from the Company to the Holder pursuant to this Section 17), Attn: General Counsel; and if to the Holder, at the address shown below his signature on this Warrant Award, or at such other address as the Holder by notice to the Company may designate in writing from time to time. Notices shall be effective upon receipt.

18. Conflict with Employment Agreement or Plan. In the event of any conflict between the terms of the Employment Agreement and the terms of this Warrant Award with respect to the Warrant, the terms of this Warrant Award shall control. In the event of any conflict between the terms of the Employment Agreement or this Warrant Award and the terms of the Plan, the terms of the Plan shall control.

19. Governing Law. To the extent federal law does not otherwise control, the validity, interpretation, performance and enforcement of this Warrant Award shall be governed by the laws of the State of Delaware, without giving effect to principles of conflicts of laws thereof.

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[Remainder of page intentionally blank.]

6

IN WITNESS WHEREOF, the Company has executed this Warrant Award as of the date first set forth above.

DHB INDUSTRIES, INC.

By:

Name:

Title:

Date:

Attest:

Holder hereby acknowledges by his signature below that he has received a copy of this Warrant Award and the Plan.

Accepted and Confirmed:
LARRY R. ELLIS
Address
City	State	Zip Code
Social Security Number

7

Exhibit A

FORM OF ELECTION TO PURCHASE

To DHB Industries, Inc.:

The undersigned is the Holder of Warrant No.                      (the “Warrant”) issued by DHB Industries Inc., a Delaware corporation (the “Company”). Capitalized terms used herein and not otherwise defined have the respective meanings set forth in the Warrant.

1. The Warrant is currently exercisable to purchase a total of                      Shares.

2. The undersigned Holder hereby exercises its rights with respect to                      Shares pursuant to the Warrant (“Exercised Share Number”).

3. The Holder intends that payment of the exercise price shall be made (check one):

[    ] in cash or by certified check or bank check or wire transfer of immediately available funds

[    ] by tendering previously acquired Shares (subject to the consent of the Committee)

(a) If the Holder has elected the first method of exercise, the Holder shall pay the sum of $            .     to the Company in accordance with the terms of the Warrant (equal to the Exercised Share Number multiplied by the exercise price of $            .     per Share).

(b) If the Holder has elected the second method of exercise, the Committee shall determine the number of previously acquired Shares to be tendered and provide further instructions to the Holder.

4. The Holder intends that payment of applicable withholding taxes shall be made (check one):

[    ] in cash or by certified check or bank check or wire transfer of immediately available funds

[    ] by the Company withholding cash from amounts otherwise payable to Holder

[    ] by tendering previously acquired Shares (subject to the consent of the Committee)

[    ] by the Company withholding Shares otherwise issuable to Holder upon this exercise (subject to the consent of the Committee)

The undersigned requests that certificates for the Shares issuable upon this exercise be issued in the name of                     .

Dated:                      Name of Holder                                         

Address                                                                                                                           

Name                                                               Title                                     

Social Security or Tax ID: Number                                     

Signature:                                                              

9

EX-10.14

Exhibit 10.14

Warrant Award subject to 2007 Plan

NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT, THE AVAILABILITY OF WHICH IS ESTABLISHED BY AN OPINION FROM COUNSEL TO THE COMPANY.

WARRANT AWARD CERTIFICATE

Warrant #1001 For 400,000 Shares

DHB INDUSTRIES, INC.

THIS WARRANT AWARD CERTIFICATE (THIS “WARRANT AWARD”) CERTIFIES that on July 24, 2007 (the “Issuance Date”), James Anderson (the “Holder”) was granted a warrant (the “Warrant”) to purchase, at the price of $5.28 per share, all or any part of 400,000 fully paid and non-assessable shares (“Shares”) of common stock, par value $.001 per share, of DHB INDUSTRIES, INC., a Delaware corporation (the “Company”), upon and subject to the following terms and conditions:

1. General Terms of the Warrant. The Warrant is granted in accordance with, and as a material inducement to, the Holder’s continuation of employment with the Company. In addition, this Warrant is granted under, and is subject to the terms and conditions of, the Company’s 2007 Omnibus Equity Incentive Plan (the “Plan”), the terms, conditions and definitions of which are hereby incorporated herein as though set forth at length. Capitalized terms used herein shall have the meanings set forth in the Plan, unless otherwise defined herein.

2. Expiration. Except as otherwise provided herein, this Warrant shall expire and shall no longer be exercisable one day prior to the 10^th anniversary of the Issuance Date.

3. Exercise. Except as otherwise permitted under the Plan, this Warrant may be exercised or surrendered during the Holder’s lifetime only by the Holder or his/her guardian or legal representative. THIS WARRANT SHALL NOT BE TRANSFERABLE BY THE HOLDER OTHERWISE THAN BY WILL OR BY THE LAWS OF DESCENT AND DISTRIBUTION, UNLESS THE COMMITTEE, IN ITS SOLE AND ABSOLUTE DISCRETION, CONSENTS TO A TRANSFER AUTHORIZED BY SECTION 9(b) OF THE PLAN.

Except as otherwise provided in Sections 4 and 5 of this Warrant Award or Section 8 of the Plan, this Warrant shall vest as follows: 10% on the Issuance Date, 30% on the date one year after the Issuance Date, 30% on the date two years after the Issuance Date and 30% on the date three years after the Issuance Date.

This Warrant may be exercised by the Holder (or by his executors, administrators, guardian or legal representative), as to all or any of the then-vested portion thereof, by the giving of written notice of exercise to the Company, specifying the number of Shares to be purchased, accompanied by payment of the full purchase price (specified herein) for the Shares being purchased. Full payment of such purchase price shall be made at the time of exercise and shall be made (i) in cash or by certified check or bank check or wire transfer of immediately available funds or (ii) with the consent of the Committee, in its sole and absolute discretion, by tendering previously acquired Shares (valued at their then Fair Market Value, as determined by the Committee as of the date of exercise). Such notice of exercise, accompanied by such payment, shall be delivered to the Company at its principal business office or such other office as the Company may from time to time direct, and shall be in the form of Exhibit A hereto or such other form as the Company may from time to time prescribe by notice to the Holder. In no event may this Warrant be exercised for a fraction of a Share. No person exercising this Warrant shall have any of the rights of a holder of Shares subject to this Warrant until such Shares shall have been issued (as noted in the stock transfer books and records of the Company) following the exercise of such Warrant. No adjustment shall be made for cash dividends or other rights for which the record date is prior to the date of such issuance.

4. Termination of Employment by the Company for Cause. In the event the Holder’s employment is terminated by the Company for Cause (as defined in the Plan), the Warrant shall cease to vest and neither any vested nor any unvested portion of the Warrant may be exercised after such termination.

5. Other Termination of Employment. In the event the Holder’s employment terminates for any reason not addressed by Section 4 of this Warrant Award, this Warrant shall cease to vest and, to the extent vested on the date of such termination and not previously expired or exercised, shall be exercisable in accordance with this Warrant Award until the earlier of (i) the 90^th day after such termination (or one year after termination because of death) or (ii) the day on which the Warrant is scheduled to expire in accordance with Section 2 of this Warrant Award, unless the Committee, in its sole and absolute discretion and subject to the terms of the Plan, decides otherwise. No unvested portion of the Warrant may be exercised after any such termination.

6. Restrictions on Exercise.

(a) Notwithstanding anything to the contrary contained herein, this Warrant may not be exercised, and neither this Warrant nor the Shares issued upon exercise of this Warrant may be purchased, sold or transferred, unless the Company, in its sole and absolute discretion, believes such exercise, purchase, sale or transfer (as the case may be) is in compliance with the Securities Act of 1933, as amended (the “Act”), or any comparable federal securities law and all applicable state securities laws, and the requirements of any stock exchange, national market system or national quotation system on which securities of the Company of the same class as the Shares are then traded or quoted, in each case as in effect on the date of such proposed exercise, purchase, sale or transfer.

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(b) In the event that the Warrant or any portion thereof cannot be exercised immediately prior to the time it expires pursuant to any of Sections 2 and 5 of this Warrant Award because such exercise would violate an applicable Federal, state, local or foreign law, then the expiration date of such portion shall be extended to the 30^th day after the date on which such exercise would no longer violate an applicable Federal, state, local or foreign law. The Company shall use reasonable efforts to notify the Holder of the date on which such exercise would no longer violate an applicable Federal, state, local or foreign law.

(c) The Holder acknowledges that the Company shall have the right, but not the obligation, to register the Shares underlying this Warrant on a Form S-8 or S-3 to facilitate their resale by the Holder. The Holder acknowledges that the Company is under no obligation to register, qualify or list, or maintain the registration, qualification or listing of, the Warrant or the Shares with the Securities and Exchange Commission, any state securities commission or any stock exchange, national market system or national quotation system to effect such compliance.

(d) In the event the Holder desires to offer for sale or to otherwise transfer this Warrant or the Shares for which this Warrant may be exercised pursuant to an exemption from registration under the Act, the Holder shall make such representations and furnish such information as may, in the opinion of counsel for the Company, be appropriate to permit the Company, in light of the then existence or non-existence of an effective Registration Statement under the Act with respect to such Shares to issue the Shares in compliance with the provisions of that or any comparable federal securities law and all applicable state securities laws.

7. Adjustments. Notwithstanding anything to the contrary contained herein, to prevent the dilution or enlargement of benefits or potential benefits intended to be made available under the Plan, this Warrant shall be subject to adjustment pursuant to Section 9(c) of the Plan.

8. Delivery of Share Certificates. Within a reasonable time after the exercise of this Warrant and the issuance of Shares in connection therewith, the Company shall cause to be delivered to the person entitled thereto a certificate representing such Shares. If this Warrant shall have been exercised with respect to the purchase of less than all of the Shares subject to this Warrant, the Company shall make a notation in its books and records to reflect the partial exercise of this Warrant and the number of Shares with respect to which this Warrant remains available for exercise. Absent manifest error, the Company’s books and records shall be final, conclusive and determinative as to the number of Shares with respect to which this Warrant remains available for exercise.

9. Withholding. If the Company or any subsidiary or affiliate of the Company is required to withhold any amounts by reasons of any federal, state or local tax laws, rules or regulations in respect of (a) the issuance of Shares to the Holder pursuant to this Warrant, and/or (b) the exercise or disposition (in whole or in part) of the Warrant, the Company or such subsidiary or affiliate shall be entitled to deduct and withhold such amounts from any payments to be made to the Holder. In any event, the Holder shall make available to the Company or such

3

subsidiary or affiliate, promptly when requested by the Company or such subsidiary or affiliate, sufficient funds to meet the requirements of such withholding; and the Company or such subsidiary or affiliate shall be entitled to take and authorize such steps as it may deem advisable in order to have such funds available to the Company or such subsidiary or affiliate out of any funds or property due or to become due to the Holder. With the consent of the Committee (which can be given or withheld in its sole and absolute discretion), withholding tax obligations of the Holder may be satisfied by the tendering of Shares by the Holder or by the withholding of Shares by the Company (in either case with such Shares to be valued at their Fair Market Value as of the date of exercise, as determined in the sole and absolute discretion of the Committee).

10. Committee Discretion. The Committee shall have sole and absolute discretion to interpret, construe or apply any provision of the Plan and this Warrant Award and its determinations as to the meaning or application of the Plan and this Warrant Award shall be final and binding. The Committee is authorized, in its discretion, to make any determinations necessary or advisable for the administration of the Plan and this Warrant, waive any conditions or rights under this Warrant Award or amend, alter, accelerate, suspend, discontinue or terminate this Warrant or this Warrant Award; provided, however, that, except in furtherance of Section 7 hereof, without the consent of the Holder, no such amendment, alteration, suspension, discontinuation or termination of this Warrant Award may materially and adversely affect the rights of the Holder hereunder.

11. Reservation of Shares. The Company hereby agrees that at all times there shall be reserved for issuance and/or delivery such number of Shares as shall be required for issuance or delivery to the Holder following the exercise hereof.

12. Rights of Holder. Nothing contained in this Warrant Award shall be construed to confer upon the Holder any right to be continued in the employ of the Company and/or any subsidiary or affiliate of the Company or derogate from any right of the Company and/or any subsidiary or affiliate of the Company to retire, request the resignation of, or discharge the Holder at any time, with or without cause. The Holder shall not, by virtue hereof, be entitled to any rights of a shareholder in the Company, either at law or in equity, and the rights of the Holder are limited to those expressed herein and are not enforceable against the Company except to the extent set forth herein.

13. Successors and Assigns. The provisions of this Warrant Award shall be binding upon and inure to the benefit of the Company, its successors and assigns, and Holder and, to the extent applicable, Holder’s legal representative or permitted assigns.

14. Legend. The Company may cause the following or a similar legend to be set forth on each certificate representing Shares or any other security issued or issuable upon exercise of this Warrant unless counsel for the Company is of the opinion as to any such certificate that such legend is unnecessary:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES

4

ACT OF 1933, AS AMENDED (THE “ACT”), OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT, THE AVAILABILITY OF WHICH IS ESTABLISHED BY AN OPINION FROM COUNSEL TO THE COMPANY.

15. Notices. Any notice which either party hereto may be required or permitted to give to the other shall be in writing, and may be delivered personally or by mail, postage prepaid, or overnight courier, addressed as follows: if to the Company, at the address shown on the cover page of its most recently filed periodic report with the SEC (or, if the Company is not currently filing periodic reports, at the last address designated by notice from the Company to the Holder pursuant to this Section 15), Attn: General Counsel; and if to the Holder, at the address shown below his signature on this Warrant Award, or at such other address as the Holder by notice to the Company may designate in writing from time to time. Notices shall be effective upon receipt.

16. Conflict with Services Agreement or Plan. In the event of any conflict between the terms of the Holder’s Services Agreement, if any, and the terms of this Warrant Award with respect to the Warrant, the terms of this Warrant Award shall control. In the event of any conflict between the terms of the Holder’s Services Agreement, if any, or this Warrant Award and the terms of the Plan, the terms of the Plan shall control.

17. Governing Law. To the extent federal law does not otherwise control, the validity, interpretation, performance and enforcement of this Warrant Award shall be governed by the laws of the State of Delaware, without giving effect to principles of conflicts of laws thereof.

[Remainder of page intentionally blank.]

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IN WITNESS WHEREOF, the Company has executed this Warrant Award as of the date first set forth above.

DHB INDUSTRIES, INC.
By:
	Name:	Larry R. Ellis
	Title:	President and CEO
Date:	July 24, 2007
Attest:

Holder hereby acknowledges by his signature below that he has received a copy of this Warrant Award and the Plan.

Accepted and Confirmed:

[NAME OF HOLDER]

Address

City                         State                      Zip Code

Social Security Number

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Exhibit A

FORM OF ELECTION TO PURCHASE

To DHB Industries, Inc.:

The undersigned is the Holder of Warrant No.                  (the “Warrant”) issued by DHB Industries Inc., a Delaware corporation (the “Company”). Capitalized terms used herein and not otherwise defined have the respective meanings set forth in the Warrant.

1. The Warrant is currently exercisable to purchase a total of                  Shares.

2. The undersigned Holder hereby exercises its rights with respect to                  Shares pursuant to the Warrant (“Exercised Share Number”).

3. The Holder intends that payment of the exercise price shall be made (check one):

¨ in cash or by certified check or bank check or wire transfer of immediately available funds

¨ by tendering previously acquired Shares (subject to the consent of the Committee)

(a) If the Holder has elected the first method of exercise, the Holder shall pay the sum of $                    .        to the Company in accordance with the terms of the Warrant (equal to the Exercised Share Number multiplied by the exercise price of $                    .         per Share).

(b) If the Holder has elected the second method of exercise, the Committee shall determine the number of previously acquired Shares to be tendered and provide further instructions to the Holder.

4. The Holder intends that payment of applicable withholding taxes shall be made (check one):

¨ in cash or by certified check or bank check or wire transfer of immediately available funds

¨ by the Company withholding cash from amounts otherwise payable to Holder

¨ by tendering previously acquired Shares (subject to the consent of the Committee)

¨ by the Company withholding Shares otherwise issuable to Holder upon this exercise (subject to the consent of the Committee)

The undersigned requests that certificates for the Shares issuable upon this exercise be issued in the name of                     .

Dated:                          Name of Holder                                              

Address                                                                                                                                            

Name                                          Title                                                    

Social Security or Tax ID: Number                                                     

Signature:                                                                                                

EX-10.19

Exhibit 10.19

DHB INDUSTRIES, INC.

BOARD OF DIRECTORS COMPENSATION POLICY

EFFECTIVE AS OF JANUARY 1, 2007

In connection with a report dated September 14, 2006, prepared by The Director’s Council, the Board of Directors of DHB Industries, Inc. (“DHB”) has established the following policy for the compensation of non-employee members of its Board of Directors (the “Board”).

I. Annual Retainer.

In 2007, DHB will pay each director (other than the Non-Executive Chairman of the Board) who is not an employee of DHB an annual retainer of $25,000. Fifty percent (50%) of the retainer will be paid in awards of deferred common stock of DHB unless a director elects to receive a larger percentage (up to 100%) of the retainer in stock. The balance of the retainer will be paid in cash quarterly in advance. The terms of the deferred stock awards (“DSAs”) will be as follows: Prior to commencement of service on the Board and the first day of each calendar year thereafter the percentage of the annual retainer to consist of deferred stock awards shall be elected by the director (in the absence of an election the percentage shall be 50%); the aggregate number of deferred shares shall be determined on first trading day of each calendar year or the first trading day on or after the first date of service as a director, as the case may be; deferred shares shall vest on a daily basis, ratably over the period commencing on the first date of service on the Board during a calendar year and ending on December 31 of such calendar year; vested deferred shares shall be delivered to a director as soon as practicable following the end of the three-year period commencing on the initial date of service on the Board or, if earlier, as soon as practicable following separation from service as a director.

II. Attendance Fees.

In addition to the Annual Retainer, Directors will be paid the following attendance fees:

1. $2,500 for each Board meeting attended in person (50% of fee for each meeting participated through teleconference);

2. $2,500 for each Audit, Governance, and Compensation committee meeting attended in person (50% of fee for each meeting participated through teleconference).

These attendance fees shall be paid in cash as soon as practicable following the close of each calendar quarter. Notwithstanding the foregoing, no fees will be paid for the committee meetings held in conjunction with a Board meeting on the same day.

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III. Committee Chair Fees.

The chairman of each Board committee will receive an additional annual retainer as follows:

Audit Committee	$	15,000
Governance Committee	$	10,000
Compensation Committee	$	10,000

Committee Chair fees shall be paid in the same manner as the Annual Retainer under Section I above.

IV. Long-Term Equity Incentive.

Each director (other than the Non-Executive Chairman of the Board) shall receive DSAs worth $75,000 upon election to the Board. The DSAs shall vest ratably on a daily basis over the three-year period commencing on the first date of service as a director. Vested DSAs shall be delivered to a director as soon as practicable following the close of such three-year period, or if earlier, as soon as practicable following separation from service as a director. Each year after the initial three-year period, a director shall receive an additional $25,000 of stock equivalent for effective board service, as determined by the Compensation Committee.

V. Non-Executive Chair Provisions.

The Non-Executive Chair of the Board of Directors shall receive a $75,000 annual retainer (not $25,000) and $150,000 of DSAs (not $75,000), subject to all other terms and conditions for retainers and DSAs set forth in Section I.

VI. Stock Accumulation Policy.

In an effort to further align directors’ interests with those of shareholders, DHB will require directors to accumulate $25,000 worth of DHB stock and hold it until retirement from the Board of Directors. Each director will have until the third anniversary of his or her first date of service as a member of the Board to accumulate this stock. For purposes of satisfying the $25,000 of stock requirement, no share acquired as compensation for serving on the Board shall qualify, except for stock receive pursuant to a DSA attributable to an election under Section I above to receive more than 50% of an annual retainer in the form of DSAs. In addition, for purposes of this $25,000 stock requirement, stock is valued based on either its actual purchase price (for stock that is purchased) or the value of the stock on the date the DSA was initially awarded (for stock received pursuant to a DSA).

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VII. Change in Control.

In the event of a change in control (as defined in Section 9 of the DHB Incentive Plan) DSAs awarded to board members will immediately vest.

DHB INDUSTRIES, INC.

BOARD OF DIRECTORS COMPENSATION POLICY

EFFECTIVE AS OF JANUARY 1, 2007

APPENDIX I

The attached chart shows the various amounts and types of compensation to be paid to each non-employee director for their service in 2007.

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EX-10.30

Exhibit 10.30

RELEASE AGREEMENT AND CONTRACTUAL UNDERTAKINGS

This agreement (the “Agreement”) is entered into by and between the following parties (the “Parties”): (i) David H. Brooks (“Mr. Brooks”) and (ii) DHB Industries, Inc. (the “Company” or “DHB”).

RECITALS

On July 12, 2006, the Company and Mr. Brooks, among others, entered into a Memorandum of Understanding (“MOU”) regarding the settlement of the matters captioned (i) In re DHB Industries, Inc. Class Action Litigation, United States District Court for the Eastern District of New York, No. CV 05-4296 (JS) (ETB) and (ii) In re DHB Industries, Inc. Derivative Litigation, United States District Court for the Eastern District of New York, CV 05-4345 (JS) (ETB) (collectively, the “Litigation”).

The MOU requires the Parties to execute various agreements relating to the settlement of the Litigation and other matters, to take certain actions, and to exchange general releases as provided in the MOU.

Pursuant to the MOU, the Parties are executing simultaneously herewith the following agreements: (i) Securities Purchase Agreement (Exhibit A); (ii) Registration Rights Agreement (Exhibit B); (iii) Warrant Exercise Agreement (Exhibit C); (iv) Escrow Agreement (Exhibit D); (v) Undertaking (Exhibit E); and Agreement Among Insureds (Exhibit F). In addition, the Parties are in the process of preparing additional agreements required to be executed pursuant to the MOU, including Stipulations of Settlement of the Litigation and various releases. The MOU, the Securities Purchase Agreement, the Registration Rights Agreement, the Warrant Exercise Agreement, the Escrow Agreement, the Undertaking, the Agreement Among Insureds, and other agreements between the Parties required to be executed under the terms of the MOU are referred to herein as the “Operative Agreements.” Each of the Operative Agreements memorializes and details rights and obligations created by the MOU with respect to the subject matter of each agreement.

This Agreement is being entered into to effectuate, memorialize, and detail additional terms of the MOU, including the obligation of the Parties to exchange releases in the form specified in the MOU and the obligation of Mr. Brooks to resign from the Board of Directors of DHB and from all of the other positions held by him in DHB.

AGREEMENT

In consideration of the mutual obligations set forth in the Operative Agreements and in this Agreement, the Parties agree as follows:

1. Effect on Other Agreements. With the exception of the Operative Agreements, which remain in full force and effect except to the extent that they conflict with this Agreement, this Agreement supersedes and rescinds all prior agreements (“Prior Agreements”) between DHB and Mr. Brooks, whether verbal or in writing,

including but not limited to: (i) the employment agreement between DHB and Mr. Brooks dated July 1, 2000, as extended by Mr. Brooks through June 30, 2010; (ii) the Warrant Agreement between DHB and Mr. Brooks dated July 1, 2005; and (iii) any contract rights created by prior resolutions of the Board of Directors of DHB with respect to reimbursement of costs or expenses incurred by Mr. Brooks for travel, entertainment or housing. All Prior Agreements are hereby terminated, and Mr. Brooks shall have no further rights to compensation including any severance thereunder. Notwithstanding the foregoing, this Agreement shall not affect any rights of Mr. Brooks arising solely from (i) ownership or control of securities issued by DHB or (ii) options and/or warrants previously granted to Mr. Brooks on the same terms and conditions as other directors as compensation for service on the Board of Directors of the Company (which options and/or warrants shall remain valid and enforceable).

2. Best Efforts. Each of DHB and Mr. Brooks represents and warrants that each shall use reasonable best efforts in all respects to consummate and secure judicial approval of the settlements contemplated by the MOU, including prompt preparation of all settlement documents and diligent advocacy of the settlements at all stages of court and appellate proceedings.

3. Resignation of Mr. Brooks. By executing this Agreement, Mr. Brooks hereby resigns from the Board of Directors of DHB and from all of the other positions held by him in DHB or any of its subsidiaries or affiliates. Mr. Brooks represents and warrants that his resignation is entirely voluntary and entered into solely in consideration of the representations and agreements set forth in this Agreement, other agreements entered into simultaneously herewith, and the MOU. DHB shall promptly pay Mr. Brooks, on a pro rata basis through the date of execution of this Agreement, any unpaid salary at the pre-existing rate of $800,000 per year. Mr. Brooks shall not be entitled to any unpaid bonus, DHB warrants not yet awarded, accrued or unused vacation, or unpaid expenses. Mr. Brooks shall be eligible for continued coverage under DHB-sponsored health and dental plans to the extent permitted by the Consolidated Omnibus Budget Reconciliation Act of 1985, and the Company shall provide Mr. Brooks with such information and forms as are required for him to exercise this right. The Company shall permit Mr. Brooks a reasonable opportunity to remove all personal items from offices of DHB and its subsidiaries, including but not limited to model ships, model cars, and the like.

4. Board and Committee Minutes. DHB shall provide Mr. Brooks with the minutes of any meetings of the Board of Directors of DHB or committees thereof for the three months prior to the date of execution of this Agreement within a reasonable time following DHB’s completion and approval of such minutes.

5. Personal Guarantees of Mr. Brooks and his Spouse. Upon the execution of this Agreement, Mr. Brooks will identify any and all obligations of which he is aware that were incurred solely for the benefit and in the name of DHB in the ordinary course of business, not in violation of any statute, regulatory or other legal obligations and not contrary to any resolution or direction of the Board of Directors or

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the Company’s policies (excluding any such obligations that directly benefited Mr. Brooks, his spouse or Mr. Brooks’ family members), and that are subject to personal guarantees by Mr. Brooks and/or his spouse (“Obligations”). Mr. Brooks represents that, to the best of his present recollection, the sole Obligations are guarantees by Mr. Brooks of certain DHB American Express credit cards, with debit balances not believed to have exceeded $50,000 when last known to Mr. Brooks, and his guarantee of accounts payable by DHB to Hexcel Corporation. Within 60 days of the execution of this Agreement (with respect to obligations to Hexcel and American Express referenced in this Agreement) and Mr. Brooks’ identification of such Obligations (with respect to any other Obligations), the Company shall either (i) pay such Obligations; or (ii) secure from the relevant persons a release of the relevant guarantees by Mr. Brooks and/or his spouse.

6. DHB’s New York Office Lease. If by August 31, 2006, the Company secures the required consent of the landlord of the space occupied by DHB’s New York Office and delivers the space to Mr. Brooks, (i) Mr. Brooks shall accept assignment of such lease and assume all future obligations of DHB under the presently operative lease for such space with no further obligations under the lease accruing to DHB after the date of assignment; and (ii) except as otherwise provided in Paragraph 7 of this Agreement, the Company shall transfer to Mr. Brooks at no charge all furniture and equipment of DHB now contained in the New York Office. If the foregoing conditions are not met by August 31, 2006, Mr. Brooks shall have no rights or obligations with respect to the lease or the furniture and equipment of DHB contained in the New York Office, and shall immediately thereafter vacate the New York Office.

7. Return of Company Property by Mr. Books. Except as otherwise provided in this Agreement or the Operative Agreements, Mr. Brooks shall return to DHB all property and equipment owned by DHB presently in Mr. Brooks’ possession, custody or control, including, without limitation, any computers or software, credit cards of DHB, any rights to a Madison Square Garden (“MSG”) skybox or any other Company-owned seats or Company-owned tickets to MSG or other sporting or entertainment venues.

8. Indemnification and Advancement of Attorneys’ Fees and Expenses. Confirming his earlier undertaking, Mr. Brooks has executed the undertaking attached as Exhibit E. Mr. Brooks shall cause his personal counsel Milbank Tweed and Mintz Levin promptly to pay to the Company any unused legal fees or retainer above $100,000 that has not been expended or incurred as of August 14, 2006. After receiving such unused retainer or legal fees, the Company thereafter shall promptly indemnify and advance the fees and expenses of Mr. Brooks’ counsel to the maximum extent allowed by DHB’s Articles of Incorporation and By-Laws and the laws of the State of Delaware (the “Indemnification and Advancement Rights”). Mr. Brooks agrees to cause his counsel to present a bill for their fees and expenses on a monthly basis. The Company agrees to pay Mr. Brooks’ counsel all reasonable fees and expenses within 30 days of the presentation of such bills, net of application of the $100,000 amount for each firm.

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9. General Release of DHB. Except for claims arising from this Agreement or the Operative Agreements, DHB, on behalf of itself and its past and present predecessors, successors, parents, affiliates, divisions, directors, officers and employees, and subsidiaries (collectively, the “DHB Releasors”), does hereby and forever release David H. Brooks from any and all claims, demands, causes of action or suits, costs, expenses or compensation for or on account of any damages, liability, loss or injury, whether known or unknown, that the DHB Releasors ever had, now have or hereafter can, shall, or may have from the beginning of time to the day of the date of this Agreement, including, without limitation, any and all claims relating to the Litigation.

10. General Release of Mr. Brooks. Except for claims arising from this Agreement, the Operative Agreements, the Indemnification and Advancement Rights, or claims arising after the date of execution of this Agreement solely from his ownership of DHB securities, David H. Brooks does hereby and forever release the DHB Releasors from any and all claims, demands, causes of action or suits, costs, expenses or compensation for or on account of any damages, liability, loss or injury, whether known or unknown, that he ever had, now have or hereafter can, shall, or may have from the beginning of time to the day of the date of this Agreement, including, without limitation, any and all claims relating to the Litigation.

11. Effectiveness of General Releases. Upon execution of this Agreement, the general releases set forth in paragraph 9 and 10 above shall be immediately valid and enforceable. However, in the event that the Settlement on the same material terms as referred to in the MOU is not approved by the Court or otherwise does not become effective despite the reasonable best efforts of the Parties (“Ineffective Date”), such releases shall become null and void.

12. Tolling of Statute of Limitation. Any applicable statutes of limitation with respect to any claims subject to the releases set forth in paragraphs 9 and 10 that DHB may have against Mr. Brooks, or that Mr. Brooks may have against DHB, are hereby tolled from the date as of which this agreement was made until July 28, 2008, (“Tolling Period”), and no defense to any such claim may be asserted or raised against or by either party against the other based on the passage of time, including, without limitation, statute of limitations, laches, waiver or estoppel, to the extent such defense is based on the passage of time during the Tolling Period.

13. Registration of Stock Underlying Outstanding Warrants/Options. The Company shall register common stock underlying options and/or warrants granted to Mr. Brooks for service as a director of the Company at the same time and on the same terms and conditions as the Company registers common stock underlying any options and/or warrants concurrently granted to other directors for the same term of service on the Board of Directors.

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14. Confidential Information.

(a) Mr. Brooks hereby acknowledges that during his employment at DHB, he acquired confidential information (“Confidential Information,” as defined and described in this sub-paragraph). Confidential Information shall mean all non-public information, whether or not created or maintained in written or electronic form, which constitutes, relates or refers to the Company, any current or former employees of the Company, any aspect of the operation of the business of the Company, including without limitation, all financial, operational and statistical information, or any information or documents protected and/or governed by the attorney-client privilege, work product immunity or any similar privilege or immunity.

(b) Mr. Brooks hereby represents and agrees that upon execution of this Agreement that he: (i) has returned to the Company all original or non-duplicate documents, records or materials of any kind, whether written or electronically created or stored, which contain, relate to or refer to any Confidential Information (“Confidential Materials”); (ii) has not disclosed any Confidential Information or Confidential Materials to any person or entity, except to his attorneys and persons assisting them in legal representation, since July 7, 2006; and (iii) shall not disclose any Confidential Information or Confidential Materials, in any manner directly or indirectly, except (a) as shall be required by law, (b) to government officials in the course of official investigation or proceedings, (c) to his attorneys or persons assisting them solely for use in connection with legal representation, or (d) upon the Company’s written consent. In the event that Mr. Brooks receives a subpoena or any other written or oral request for any Confidential Information or Confidential Materials from any person other than a government official acting in an official capacity, he shall provide the Company with reasonable notice and opportunity to oppose such request before producing any such Confidential Information or Confidential Materials in response to such subpoena or other request. Mr. Brooks shall provide such notice to the Company in writing, by fax to Kenneth Henderson, Esq. Bryan Cave, LLP, 1290 Avenue of the Americas, New York, New York 10104, Fax: (212) 541-4630, provide a copy of such subpoena or other request if in writing, and/or disclose the nature of the request for information if oral.

15. Non-Competition and Non-Solicitation.

(a) Mr. Brooks will not for a period of twelve months subsequent to his termination of employment (the “Restricted Period”), either as an individual, or in conjunction with any other person, firm, corporation, or other entity, whether acting as a principal, agent, consultant, or in any capacity whatsoever, including without limitation through Tactical Armor Products, Inc. (“TAP”): (i) render any services in the capacity as an executive, manager, supervisor, employee, independent contractor or consultant within the Defined

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Geographic Area (as defined herein) to any person, firm, corporation or other entity engaged in any Competitive Business; (ii) engage in any Competitive Business within the Defined Geographic Area for Mr. Brooks’ own account; or (iii) become a partner, shareholder, member, investor or otherwise own any interest in a Competitive Business in the Defined Geographic Area; (iv) solicit, attempt to solicit or communicate in any way with DHB’s customers for the purpose of soliciting business away from DHB for a Competitive Business; or (v) solicit, attempt to solicit, or communicate in any way with any employees or consultants of the Company or its affiliates, other than Teddy Tawil and members of Mr. Brooks’ family, for the purpose of having such employees cease being employed or to become employed or in any way engaged by another person, firm, corporation, or other entity.

(b) For purposes of this Agreement, a “Competitive Business” shall mean any company that engages in the design, manufacture, sale or distribution of protective body armor or athletic supports or braces.

(c) For purposes of this Agreement, “Defined Geographic Area” shall mean the United States and any foreign countries in which DHB has done business.

(d) Mr. Brooks acknowledges and agrees the limitations as to time, geographical area and scope of activity to be restrained by this Section are reasonable and acceptable to him, and do not impose any greater restraint than is reasonably necessary to protect the goodwill and other business interests of the Company. Mr. Brooks further agrees that his performance of the covenants and agreements contained herein, and the enforcement by the Company of the provisions contained herein, will cause no undue hardship on him.

(e) Mr. Brooks may make a written request to the Company, before undertaking any of the activities described in this Section, to be allowed to engage in such activities during the Restricted Period. The Company may, in its sole and absolute discretion, either grant or withhold permission to engage in the requested activity. In no event will the Company grant permission if Mr. Brooks has engaged in any activity that violates this Section before seeking the Company’s consent. Mr. Brooks may not rely on any authorization granted pursuant to this paragraph unless it is in writing and signed by a duly authorized officer of the Company.

16. Irreparable Harm. Due to the irreparable and continuing nature of the injury which would result from a breach of the covenants, as described in paragraphs 14 and 15 above, Mr. Brooks agrees that the Company may, in addition to any remedy which it may have at law or in equity, apply to any court of competent jurisdiction for the entry of an immediate order to restrain or enjoin the breach of these covenants and to otherwise specifically enforce the provisions of this covenant, and Mr. Brooks waives any requirement on the part of the Company to post a bond with respect to such application.

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17. Miscellaneous.

(a) This Agreement may be executed in counterparts.

(b) No negative inference of interpretation shall be made by a court against any party to this Agreement.

(c) This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to its choice of law rules.

(d) The terms and conditions of this Agreement, including the mutual releases contained in this Agreement, shall inure to the benefit of and be binding upon the respective successors, heirs, estates, and assigns of the Parties.

(e) DHB represents that this Agreement was authorized in the manner required by applicable law and the governing articles of incorporation and bylaws.

(f) Mr. Brooks represents, warrants and covenants that he has paid or shall pay all taxes (including without limitation federal and state, Social Security, Medicare, FICA or other withholding taxes or similar amounts) attributable to personal income received by him from the Company, including any fines, penalties or back taxes incurred by the Company solely as a result of personal income paid to Mr. Brooks.

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of the day and year first above written.

Dated: July 31, 2006

DHB INDUSTRIES, INC.

By:

DAVID H. BROOKS

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EX-10.31

Exhibit 10.31

EXECUTION COPY

SECURITIES PURCHASE AGREEMENT

This Securities Purchase Agreement (this “Agreement”) is dated as of July 31, 2006, between DHB Industries, Inc., a Delaware corporation (the “Company”), and David H. Brooks, an individual residing at 20 Red Ground Road, Old Westbury, New York 11568 (the “Investor”).

WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(2) of the Securities Act (as defined below) and Rule 506 promulgated thereunder, the Company desires to issue and sell to the Investor, and the Investor desires to purchase from the Company certain securities of the Company, as more fully described in this Agreement.

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and the Investor agree as follows:

ARTICLE 1.

DEFINITIONS

1.1. Definitions. In addition to the terms defined elsewhere in this Agreement, for all purposes of this Agreement, the following terms shall have the meanings indicated in this Section 1.1:

“Affiliate” means, with respect to any Person, any other Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with such specified Person, as such terms are used in and construed under Rule 144.

“Business Day” means any day except Saturday, Sunday and any day which is a federal legal holiday or a day on which banking institutions in the State of New York or State of Oregon are authorized or required by law or other governmental action to close.

“Closing” means the closing of the purchase and sale of the Shares pursuant to Article II.

“Closing Date” means the date hereof, or such other date as the parties may agree.

“Commission” means the Securities and Exchange Commission.

“Common Stock” means the common stock of the Company, $0.001 par value per share, and any securities into which such common stock may hereafter be reclassified or changed into.

“Company Deliverables” has the meaning set forth in Section 2.2(a).

“Compliance Date” means the date on which the Company first comes into compliance with its periodic filing requirements under the Commission’s rules and regulations, including the Exchange Act.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Investment Amount” means $14,825,000.

“Investor Deliverables” has the meaning set forth in Section 2.2(b).

“Lien” means any lien, charge, encumbrance, security interest, pledge, mortgage, right of first refusal or other restrictions of any kind.

“Material Adverse Effect” means any of (i) a material and adverse effect on the legality, validity or enforceability of any Transaction Document, or (ii) a material and adverse effect on the results of operations, assets, prospects, business or condition (financial or otherwise) of the Company.

“MOU” has the meaning set forth in Section 4.3.

“New York Courts” means the United States District Court for the Eastern District of New York, before the Honorable Joanna Seybert, if available, or if not available, before another judge in either the Eastern or Southern District of New York; provided, however, that if the Eastern and Southern District of New York both lack subject matter jurisdiction over a claim or dispute, then with respect to such claim or dispute, the term “New York Courts” shall mean the Supreme Court of the State of New York in the County of New York.

“Per Share Purchase Price” equals $4.93.

“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.

“Registration Rights Agreement” means the Registration Rights Agreement, dated as of the date of this Agreement, among the Company and the Investor, in the form of Exhibit A hereto.

“Registration Statement” means a registration statement meeting the requirements set forth in the Registration Rights Agreement and covering the resale by the Investor of the Shares.

“Rejection Date” has the meaning set forth in Section 4.3.

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“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

“Securities Act” means the Securities Act of 1933, as amended.

“Shares” means the shares of Common Stock issued or issuable to the Investor pursuant to this Agreement.

“Short Sales” include, without limitation, all “short sales” as defined in Rule 200 promulgated under Regulation SHO under the Exchange Act and all types of direct and indirect stock pledges, forward sale contracts, options, puts, calls, swaps and similar arrangements (including on a total return basis), and sales and other transactions through non-US broker dealers or foreign regulated brokers.

“Trading Day” means (i) a day on which the Common Stock is traded on a Trading Market, or (ii) if the Common Stock is not quoted on any Trading Market, a day on which the Common Stock is quoted in the over-the-counter market as reported by the Pink Sheets, LLC (or any similar organization or agency succeeding to its functions of reporting prices); provided, that in the event that the Common Stock is not listed or quoted as set forth in (i) and (ii) hereof, then Trading Day shall mean a Business Day.

“Trading Market” means whichever of the New York Stock Exchange, the American Stock Exchange, the NASDAQ National Market, the NASDAQ Capital Market or OTC Bulletin Board on which the Common Stock is listed or quoted for trading on the date in question.

“Transaction Documents” means this Agreement, the Registration Rights Agreement, and any other documents or agreements executed in connection with the transactions contemplated hereunder.

ARTICLE 2.

PURCHASE AND SALE

2.1. Closing. Subject to the terms and conditions set forth in this Agreement, at the Closing the Company shall issue and sell to the Investor, and the Investor shall purchase from the Company, the Shares representing the Investor’s Investment Amount. The Closing shall take place on the Closing Date at the offices of Bryan Cave LLP, 1290 Avenue of the Americas, New York, NY 10104 or at such other location as the parties may agree.

2.2. Closing Deliveries. (a) At the Closing, the Company shall deliver or cause to be delivered to the Investor the following (the “Company Deliverables”):

(i) evidence of instructions to American Stock Transfer & Trust Company, transfer agent to the Company (the “Transfer Agent”) authorizing the Transfer Agent to issue a certificate evidencing a number of Shares equal to the Investor’s Investment Amount divided by the Per Share Purchase Price, registered in the name of the Investor; and

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(ii) the Registration Rights Agreement, duly executed by the Company.

(b) At the Closing, the Investor shall deliver or cause to be delivered to the Company the following (the “Investor Deliverables”):

(i) the Investment Amount, in United States dollars and in immediately available funds, by wire transfer to an account designated in writing by the Company for such purpose; and

(ii) the Registration Rights Agreement, duly executed by the Investor.

ARTICLE 3.

REPRESENTATIONS AND WARRANTIES

3.1. Representations and Warranties of the Company. The Company hereby makes the following representations and warranties to the Investor:

(a) Organization and Qualification. The Company is duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization (as applicable), with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. The Company is not in violation of any of the provisions of its certificate of incorporation, bylaws or other organizational or charter documents. The Company is duly qualified to conduct its business and is in good standing as a foreign corporation or other entity (as applicable) in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except for such jurisdictions where the failure to be so qualified or in good standing, as the case may be, would not have a Material Adverse Effect.

(b) Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents and otherwise to carry out its obligations thereunder. The execution and delivery of each of the Transaction Documents by the Company and the consummation by it of the transactions contemplated thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company in connection therewith. Each Transaction Document has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors’ rights and remedies or by other equitable principles of general application.

(c) Issuance of the Shares. The Shares have been duly authorized and, when issued and paid for in accordance with the Transaction Documents, will be duly and validly issued, fully paid and nonassessable and free and clear of all Liens. The Company has reserved from its duly authorized capital stock the shares of Common Stock issuable pursuant to this Agreement in order to issue the Shares.

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(d) Certain Registration Matters. Assuming the accuracy of the Investor’s representations and warranties set forth in Section 3.2(b)-(e), no registration under the Securities Act is required for the offer and sale of the Shares by the Company to the Investor under the Transaction Documents.

(e) No Conflicts. The execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated thereby do not and will not result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court, regulatory body, administrative agency, governmental authority or other authority to which the Company is subject (including federal and state securities laws and regulations).

3.2. Representations and Warranties of the Investor. The Investor hereby represents and warrants to the Company as follows:

(a) Authority. The Investor has the requisite legal capacity to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out his obligations thereunder. Each of this Agreement and the Registration Rights Agreement has been (or upon delivery will have been) duly executed by the Investor, and when delivered by the Investor in accordance with the terms hereof, will constitute the valid and legally binding obligation of the Investor, enforceable against him in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors’ rights and remedies or by other equitable principles of general application.

(b) No Conflicts. The execution, delivery and performance of the Transaction Documents by the Investor and the consummation by the Investor of the transactions contemplated thereby do not and will not (i) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, debt or other instrument or other understanding to which the Investor is a party or by which any property or asset of the Investor is bound or affected, or (ii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Investor is subject (including federal and state securities laws and regulations), or by which any property or asset of the Investor is bound or affected.

(c) Investment Intent. The Investor is acquiring the Shares as principal for his own account for investment purposes only and not with a view to or for distributing or reselling such Shares or any part thereof, without prejudice, however, to the Investor’s right at all times to sell or otherwise dispose of all or any part of such Shares in compliance with applicable federal and state securities laws. Subject to the immediately preceding sentence, nothing contained herein shall be deemed a representation or warranty by the Investor to hold the Shares for any period of time. The Investor does not have any agreement or understanding, directly or indirectly, with any Person to distribute any of the Shares. Nothing contained in this Section 3.2(c) shall in any way affect the Investor’s rights under the Registration Rights Agreement.

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(d) Investor Status. At the time the Investor was offered the Shares, he was, and at the date hereof he is, an “accredited investor” as defined in Rule 501(a) under the Securities Act. The Investor is not a registered broker-dealer under Section 15 of the Exchange Act.

(e) General Solicitation. The Investor is not purchasing the Shares as a result of any advertisement, article, notice or other communication regarding the Shares published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.

(f) Access to Information. The Investor acknowledges that he has reviewed the disclosure materials provided by the Company and has been afforded (i) the opportunity to ask such questions as he has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Shares and the merits and risks of investing in the Shares; (ii) access to information about the Company and its financial condition, results of operations, business, properties, management and prospects sufficient to enable him to evaluate his investment; and (iii) the opportunity to obtain such additional information that the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to the investment.

(g) Certain Trading Activities. Except for warrant exercises referenced in that certain Warrant Exercise Agreement, dated as of the date hereof, between the Investor and the company, the Investor has not directly or indirectly, nor has any Person acting on behalf of or pursuant to any understanding with the Investor, engaged in any transactions in the securities of the Company (including, without limitations, any Short Sales involving the Company’s securities) since March 15, 2006. The Investor covenants that neither he nor any Person acting on his behalf or pursuant to any understanding with him will engage in any transactions in the securities of the Company (including Short Sales) prior to the time that the transactions contemplated by this Agreement are publicly disclosed. The Company agrees to file a Form 8-K with the Commission regarding this Agreement as and when required.

(h) Independent Investment Decision. The Investor has independently evaluated the merits of his decision to purchase Shares pursuant to the Transaction Documents, and the Investor confirms that he has not relied on the advice of the Company’s business advisors and/or legal counsel in making such decision.

(i) Investment Amount. The Investment Amount shall be delivered to the Company, free and clear of all Liens.

ARTICLE 4.

OTHER AGREEMENTS OF THE PARTIES

4.1. (a) Shares may only be disposed of in compliance with state and federal securities laws. In connection with any transfer of the Shares other than pursuant to an effective registration statement, the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Shares under the Securities Act.

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(b) Certificates evidencing the Shares will contain the following legend, until such time as they are not required under Section 4.1(c):

THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.

(c) Certificates evidencing Shares shall not contain any legend (including the legend set forth in Section 4.1(b)): (i) following a sale, transfer or other disposition of such Shares pursuant to an effective registration statement (including a Registration Statement), or (ii) following a sale or transfer of such Shares pursuant to Rule 144 (assuming the transferee is not an Affiliate of the Company), (iii) while such Shares are eligible for sale or transfer under Rule 144(k), or (iv) if the transferor provides to the Company an opinion of counsel selected by the transferor, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that no legend is required for purposes of the Securities Act.

4.2. Furnishing of Information. After the Compliance Date, as long as the Investor owns the Shares, the Company covenants to use all commercially reasonable efforts to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act. After the Compliance Date, as long as the Investor owns Shares, if the Company is not required to file reports pursuant to the Exchange Act, it will prepare and furnish to the Investor and make publicly available in accordance with Rule 144(c)(2) such information as is required under Rule 144(c)(2) for the Investor to sell the Shares under Rule 144.

4.3. Sale Back Option. This Agreement is being entered into pursuant to the terms of that certain Memorandum of Understanding dated July 12, 2006 for claims set forth in In re: DHB Industries, Inc. Class Action Litigation, Case No. CV-05-4296 (E.D.N.Y.) and In re DHB Industries, Inc. Derivative Litigation, Case No. CV-05-4345 (E.D.N.Y.) (the “MOU”). In the event of the issuance of a final, nonappealable order by the New York Courts denying approval

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of the MOU (such date, the “Rejection Date”) then for a period of ninety (90) days after the Rejection Date, the Investor shall have the option to put some or all of the Shares back to the Company at the Per Share Purchase Price on the same terms and conditions set forth in this Agreement. The Company’s obligations under this Section 4.3 shall be contingent upon the return of settlement funds deposited with the escrow agent pursuant to the terms of Section 8 of the MOU. In the event that the Investor invokes his option prior to the return of the settlement funds to the Company, the Company shall cause such amount as is owed to the Investor to be paid to the Investor directly from escrow as soon as the funds are permitted to be released from escrow.

4.4. Use of Proceeds. The Company shall use the Investment Amount to fund a portion of the settlement set forth in the MOU. Such funds shall be placed in an escrow account pursuant to the terms of the MOU until released in accordance with the terms of the MOU.

4.5. Short Sales. Investor covenants and agrees not to engage in any Short Sales of the Shares for a period of one (1) year after the Closing Date.

4.6. Material Non-Public Information. Investor hereby acknowledges that he is aware that the United States securities laws prohibit any person who has material non-public information with respect to a public company from purchasing or selling securities of such company, or from communicating such information to any other person under circumstances in which it is reasonably foreseeable that such person is likely to purchase or sell such securities. Investor further hereby acknowledges that he is in possession of material non-public information for purposes of the United States securities laws, including, without limitation, as a result of his service as an officer and director of the Company.

ARTICLE 5.

MISCELLANEOUS

5.1. Fees and Expenses. The Parties acknowledge that this transaction is being entered into in connection with the settlement of class and derivative actions in which the Investor is a party. Accordingly, the reasonable legal fees and expenses incurred by the Investor incident to the negotiation, preparation, execution, delivery and performance of the Transaction Documents are subject to advancement pursuant to the Company’s bylaws, certificate of incorporation, and governing corporate law and possible repayment pursuant to the undertaking required by those provisions. The Company shall pay all stamp and other taxes and duties levied in connection with the sale of the Shares.

5.2. Entire Agreement. The Transaction Documents, together with the Exhibits and Schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements, understandings, discussions and representations, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.

5.3. Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is delivered via

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facsimile (provided the sender receives a machine-generated confirmation of successful transmission) at the facsimile number specified in this Section prior to 6:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a Trading Day or later than 6:30 p.m. (New York City time) on any Trading Day, (c) the Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as follows:

If to the Company:	DHB Industries, Inc.
	2102 SW 2nd Street
	Pompano Beach, FL 33069
	Facsimile:	954-630-9225
	Attention:	Chief Executive Officer
With a copy to:	Bryan Cave LLP
	1290 Avenue of the Americas
	New York, NY 10104
	Facsimile:	212-541-4630
	Attention:	Kenneth Henderson
If to the Investor:	David H. Brooks
	20 Red Ground Road
	Old Westbury, NY 11568
	Facsimile:	516-626-9177
With a copy to:	Milbank, Tweed, Hadley & McCloy LLP
	1 Chase Manhattan Plaza
	New York, New York 10005
	Facsimile:	212-530-5219
	Attention:	George S. Canellos

or such other address as may be designated in writing hereafter, in the same manner, by such Person.

5.4. Amendments; Waivers; No Additional Consideration. No provision of this Agreement may be waived or amended except in a written instrument signed by the Company and the Investor. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder in any manner impair the exercise of any such right.

5.5. Construction. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.

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This Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement or any of the Transaction Documents.

5.6. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. No party to this Agreement may assign this Agreement or any rights or obligations hereunder without the prior written consent of the other party hereto.

5.7. No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person.

5.8. Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all Proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective Affiliates, employees or agents) shall be commenced exclusively in the New York Courts. Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of the any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any Proceeding, any claim that it is not personally subject to the jurisdiction of any New York Court, or that such Proceeding has been commenced in an improper or inconvenient forum. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such Proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any Proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. If either party shall commence a Proceeding to enforce any provisions of a Transaction Document, then the prevailing party in such Proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such Proceeding.

5.9. Survival. The representations, warranties, agreements and covenants contained herein shall survive the Closing and the delivery of the Shares.

5.10. Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile signature page were an original thereof.

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5.11. Severability. If any provision of this Agreement is held to be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision that is a reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement.

5.12. Replacement of Shares. If any certificate or instrument evidencing any Shares is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof, or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and customary and reasonable indemnity, if requested. The applicants for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs associated with the issuance of such replacement Shares. If a replacement certificate or instrument evidencing any Shares is requested due to a mutilation thereof, the Company may require delivery of such mutilated certificate or instrument as a condition precedent to any issuance of a replacement.

5.13. Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, the Investor and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations described in the foregoing sentence and hereby agrees to waive in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.

[Signature Page to Follow]

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IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

DHB INDUSTRIES, INC.
By:
Name:
Title:
	DAVID H. BROOKS

[Signature Page to Securities Purchase Agreement]

EX-10.32

Exhibit 10.32

EXECUTION COPY

REGISTRATION RIGHTS AGREEMENT

This Registration Rights Agreement (this “Agreement”) is made and entered into as of July 31, 2006, by and between DHB Industries, Inc., a Delaware corporation (the “Company”), and David H. Brooks, an individual residing at 20 Red Ground Road, Old Westbury, New York 11568 (the “Investor”).

This Agreement is made pursuant to the Securities Purchase Agreement, dated as of the date hereof between the Company and the Investor (the “Purchase Agreement”).

The Company and the Investor hereby agree as follows:

1. Definitions. Capitalized terms used and not otherwise defined herein that are defined in the Purchase Agreement will have the meanings given such terms in the Purchase Agreement. As used in this Agreement, the following terms have the respective meanings set forth in this Section 1:

“Advice” has the meaning set forth in Section 6(c).

“Common Stock” means the common stock of the Company, $0.001 par value per share, and any securities into which such common stock may hereafter be reclassified or changed into.

“Effective Date” means, as to a Registration Statement, the date that the Registration Statement is first declared effective by the Commission.

“Effectiveness Date” means with respect to the Registration Statement required to be filed under Section 2(a), the earlier of: (i) the fifth Trading Day following the date on which the Company is notified by the Commission that the Registration Statement will not be reviewed or is no longer subject to further review and comments and (ii) the 90^th day following the Filing Date; provided, that, if the Commission reviews and has written comments to the filed Registration Statement that would require the filing of a pre-effective amendment thereto with the Commission, then the Effectiveness Date under this clause (ii) shall be the 120^th day following the Filing Date.

“Effectiveness Period” has the meaning set forth in Section 2(a).

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Filing Date” means with respect to the Registration Statement required to be filed under Section 2(a), the 30^th day following the date upon which the Company is in compliance with its periodic filing requirements under the Commission’s rules and regulations, including the Exchange Act.

“Holder” or “Holders” means the holder or holders, as the case may be, from time to time of Registrable Securities.

“Indemnified Party” has the meaning set forth in Section 5(c).

“Indemnifying Party” has the meaning set forth in Section 5(c).

“Losses” has the meaning set forth in Section 5(a).

“New York Courts” means the United States District Court for the Eastern District of New York, before the Honorable Joanna Seybert, if available, or if not available, before another judge in either the Eastern or Southern District of New York; provided, however, that if the Eastern and Southern District of New York both lack subject matter jurisdiction over a claim or dispute, then with respect to such claim or dispute, the term “New York Courts” shall mean the Supreme Court of the State of New York in the County of New York.

“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.

“Prospectus” means the prospectus included in a Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A or Rule 430B promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by a Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.

“Registrable Securities” means: (i) the Shares and any shares of Common Stock acquired by a Holder upon exercise of its warrants pursuant to the Warrant Agreement between the Company and the Investor, dated July 1, 2005, and (ii) any securities issued or issuable upon any stock split, dividend or other distribution, recapitalization or similar event, with respect to any of the securities referenced in (i) above.

“Registration Statement” means any registration statement required to be filed in accordance with Section 2, including the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference therein.

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

“Rule 415” means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

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“Rule 424” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

“Securities Act” means the Securities Act of 1933, as amended.

“Shares” means the shares of Common Stock issued or issuable to the Investor pursuant to the Purchase Agreement.

2. Registration.

(a) On or prior to the Filing Date, the Company shall prepare and file with the Commission a Registration Statement covering the resale of all Registrable Securities in an offering to be made on a continuous basis pursuant to Rule 415, on Form SB-2 (or on such other form appropriate for such purpose). Such Registration Statement shall contain (except if otherwise required pursuant to written comments received from the Commission upon a review of such Registration Statement) the “Plan of Distribution” attached hereto as Annex A. The Company shall use commercially reasonable efforts to cause such Registration Statement to be declared effective under the Securities Act no later than its Effectiveness Date, and shall use commercially reasonable efforts to keep the Registration Statement continuously effective under the Securities Act until the date which is the earlier of (i) such time as all Registrable Securities covered by such Registration Statement have been publicly sold by the Holders, or (ii) such time as all of the Registrable Securities covered by such Registration Statement may be sold by the Holders pursuant to Rule 144(k) as determined by the counsel to the Company (the “Effectiveness Period”). If necessary, the Company shall cause to be filed, and shall use its best efforts to have declared effective as soon as practicable following filing, additional registration statements or amendments as necessary to maintain such effectiveness for the Effectiveness Period.

(b) Each Holder agrees to furnish to the Company a completed Questionnaire in the form attached to this Agreement as Annex B (a “Selling Holder Questionnaire”). The Company shall not be required to include the Registrable Securities of a Holder in a Registration Statement who fails to furnish to the Company a fully completed Selling Holder Questionnaire at least two days prior to the Filing Date (subject to the requirements set forth in Section 3(a)).

3. Registration Procedures.

In connection with the Company’s registration obligations hereunder, the Company shall:

(a) (i) Prepare and file with the Commission such amendments, including post-effective amendments, to each Registration Statement and the Prospectus used in connection therewith as may be necessary to keep such Registration Statement continuously effective as to the applicable Registrable Securities for its Effectiveness Period and prepare and file with the Commission such additional Registration Statements in order to register for resale under the Securities Act all of the Registrable Securities; (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement, and as so supplemented or amended to be filed pursuant to Rule 424 and to comply fully with the applicable provisions of

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Rules 424, 430A and 430B under the Securities Act in a timely manner; (iii) respond promptly to any comments received from the Commission with respect to each Registration Statement or any amendment thereto; and (iv) comply in all material respects with the provisions of the Securities Act and the Exchange Act with respect to the Registration Statements and the disposition of all Registrable Securities covered by each Registration Statement.

(b) Notify the Holders promptly (i) with respect to the Registration Statement or any post-effective amendment, when the same has become effective, and when the Prospectus or any Prospectus supplement or post-effective amendment has been filed; (ii) of any request by the Commission or any other Federal or state governmental authority for amendments or supplements to a Registration Statement or Prospectus or for additional information; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of a Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; and (v) of the occurrence of any event or passage of time that makes the financial statements included in a Registration Statement ineligible for inclusion therein or any statement made in such Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to such Registration Statement, Prospectus or other documents so that, in the case of such Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

(c) Use its commercially reasonable efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any order suspending the effectiveness of a Registration Statement, or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment.

(d) Prior to any public offering of Registrable Securities, register or qualify such Registrable Securities for offer and sale under the securities or Blue Sky laws as the Holders may reasonably request, to keep each such registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by the Registration Statement.

(e) Cooperate with the Holders to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be delivered to a transferee pursuant to the Registration Statements, which certificates shall be free, to the extent permitted by the Purchase Agreement, of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any such Holders may request.

(f) Upon the occurrence of any event contemplated by Section 3(b)(v), as promptly as reasonably possible, prepare a supplement or amendment, including a post-effective amendment, to the affected Registration Statements or a supplement to the related Prospectus or

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any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, no Registration Statement nor any Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

(g) Cause all Registrable Securities covered by the Registration Statement to be listed or quoted, as the case may be, on each securities exchange or automated quotation system on which similar securities listed by the Company are then listed or quoted.

(h) If it has not already by the Effective Date, engage a transfer agent and registrar for its Common Stock, including the Registrable Securities covered by such Registration statement.

4. Registration Expenses. All fees and expenses incident to the performance of or compliance with this Agreement by the Company shall be borne by the Company whether or not any Registrable Securities are sold pursuant to a Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation, (i) all registration and filing fees and expenses (including, without limitation, fees and expenses (A) with respect to filings required to be made with any Trading Market on which the Common Stock is then listed for trading, and (B) in compliance with applicable state securities or Blue Sky laws), (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities and of printing prospectuses if the printing of prospectuses is reasonably requested by the holders of a majority of the Registrable Securities included in the Registration Statement), (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company, (v) Securities Act liability insurance, if the Company so desires such insurance, and (vi) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement. In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual or special audit and the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder.

5. Indemnification.

(a) Indemnification by the Company. The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Holder, the officers, directors, agents, investment advisors, partners, members and employees of each of them, each Person who controls any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, agents and employees of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable costs of preparation and reasonable attorneys’ fees) and expenses (collectively, “Losses”), as incurred, arising out of or relating to any untrue or alleged untrue statement of a material fact contained in any Registration Statement, any Prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission

5

or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading, except to the extent, but only to the extent, that (1) such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder’s proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in the Registration Statement, such Prospectus or such form of Prospectus or in any amendment or supplement thereto (it being understood that the Holder has approved Annex A hereto for this purpose) or (2) in the case of an occurrence of an event of the type specified in Section 3(b)(ii)-(v), the use by such Holder of an outdated or defective Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated or defective and prior to the receipt by such Holder of an Advice or an amended or supplemented Prospectus, but only if and to the extent that following the receipt of the Advice or the amended or supplemented Prospectus the misstatement or omission giving rise to such Loss would have been corrected. The Company shall notify the Holders promptly of the institution, threat or assertion of any Proceeding of which the Company is aware in connection with the transactions contemplated by this Agreement.

(b) Indemnification by Holders. Each Holder shall, severally and not jointly, indemnify and hold harmless the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents or employees of such controlling Persons, to the fullest extent permitted by applicable law, from and against all Losses, as incurred, arising solely out of or based solely upon: (x) such Holder’s failure to comply with the prospectus delivery requirements of the Securities Act or (y) any untrue statement of a material fact contained in any Registration Statement, any Prospectus, or any form of prospectus, or in any amendment or supplement thereto, or arising solely out of or based solely upon any omission of a material fact required to be stated therein or necessary to make the statements therein not misleading to the extent, but only to the extent that, (1) such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder’s proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in the Registration Statement (it being understood that the Holder has approved Annex A hereto for this purpose), such Prospectus or such form of Prospectus or in any amendment or supplement thereto or (2) in the case of an occurrence of an event of the type specified in Section 3(b)(ii)-(v), the use by such Holder of an outdated or defective Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated or defective and prior to the receipt by such Holder of an Advice or an amended or supplemented Prospectus, but only if and to the extent that following the receipt of the Advice or the amended or supplemented Prospectus the misstatement or omission giving rise to such Loss would have been corrected. In no event shall the liability of any selling Holder hereunder be greater in amount than the dollar amount of the net proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation.

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(c) Conduct of Indemnification Proceedings. If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an “Indemnified Party”), such Indemnified Party shall promptly notify the Person from whom indemnity is sought (the “Indemnifying Party”) in writing, and the Indemnifying Party shall assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof; provided, that the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have proximately and materially adversely prejudiced the Indemnifying Party.

An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such fees and expenses; (2) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding or to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and such Indemnified Party shall have been advised by counsel that a conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and such counsel shall be at the expense of the Indemnifying Party). The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding.

All fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within ten Trading Days of written notice thereof to the Indemnifying Party (regardless of whether it is ultimately determined that an Indemnified Party is not entitled to indemnification hereunder; provided, that the Indemnifying Party may require such Indemnified Party to undertake to reimburse all such fees and expenses to the extent it is finally judicially determined that such Indemnified Party is not entitled to indemnification hereunder).

(d) Contribution. If a claim for indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified Party (by reason of public policy or otherwise), then each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any

7

other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in Section 5(c), any reasonable attorneys’ or other reasonable fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section was available to such party in accordance with its terms.

The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 5(d), no Holder shall be required to contribute, in the aggregate, any amount in excess of the amount by which the proceeds actually received by such Holder from the sale of the Registrable Securities subject to the Proceeding exceeds the amount of any damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission.

The indemnity and contribution agreements contained in this Section are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties.

6. Miscellaneous.

(a) Remedies. In the event of a breach by the Company or by a Holder, of any of their obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company and each Holder agree that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate.

(b) Compliance. Each Holder covenants and agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicable to it in connection with sales of Registrable Securities pursuant to the Registration Statement.

(c) Discontinued Disposition. Each Holder agrees by its acquisition of such Registrable Securities that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Section 3(b), such Holder will forthwith discontinue disposition of such Registrable Securities under the Registration Statement until such Holder’s receipt of the copies of the supplemented Prospectus and/or amended Registration Statement or until it is advised in writing (the “Advice”) by the Company that the use of the applicable Prospectus may

8

be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Registration Statement. The Company may provide appropriate stop orders to enforce the provisions of this paragraph.

(d) Piggy-Back Registrations. If at any time during the Effectiveness Period there is not an effective Registration Statement covering all of the Registrable Securities and the Company shall determine to prepare and file with the Commission a registration statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans, then the Company shall send to each Holder written notice of such determination and, if within fifteen days after receipt of such notice, any such Holder shall so request in writing, the Company shall include in such registration statement all or any part of such Registrable Securities such holder requests to be registered, subject to customary underwriter cutbacks applicable to all holders of registration rights.

(e) Amendments and Waivers. The provisions of this Agreement, including the provisions of this Section 6(e), may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the Company and the Holders of no less than a majority in interest of the then outstanding Registrable Securities. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of certain Holders and that does not directly or indirectly affect the rights of other Holders may be given by Holders of at least a majority of the Registrable Securities to which such waiver or consent relates.

(f) Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is delivered via facsimile (provided the sender receives a machine-generated confirmation of successful transmission) at the facsimile number specified in this Section prior to 6:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a Trading Day or later than 6:30 p.m. (New York City time) on any Trading Day, (c) the Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as follows:

If to the Company:	DHB Industries, Inc.
	2102 SW 2nd Street
	Pompano Beach, FL 33069
	Facsimile:	954-630-9225
	Attention:	Chief Executive Officer

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With a copy to:	Bryan Cave LLP
	1290 Avenue of the Americas
	New York, NY 10104
	Facsimile:	212-541-4630
	Attention:	Kenneth Henderson
If to the Investor:	David H. Brooks
	20 Red Ground Road
	Old Westbury, NY 11568
	Facsimile:	516-626-9177
with a copy to:	Milbank, Tweed, Hadley & McCloy LLP
	1 Chase Manhattan Plaza
	New York, New York 10005
	Facsimile:	212-530-5219
	Attention:	George S. Canellos
If to any other Person who is then the registered Holder:
	To the address of such Holder as it appears in the stock transfer books of the Company

or such other address as may be designated in writing hereafter, in the same manner, by such Person.

(g) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder. The Company may not assign its rights or obligations hereunder without the prior written consent of each Holder.

(h) Execution and Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof.

(i) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all Proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement (whether brought against a party hereto or its respective affiliates, employees or agents) shall be commenced exclusively in the New York Courts. Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any Proceeding, any claim that it is not personally subject to the jurisdiction of any New York Court, or that such Proceeding

10

has been commenced in an improper or inconvenient forum. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such Proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any Proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. If either party shall commence a Proceeding to enforce any provisions of this Agreement, then the prevailing party in such Proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such Proceeding.

(j) Cumulative Remedies. The remedies provided herein are cumulative and not exclusive of any remedies provided by law.

(k) Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

(l) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGES TO FOLLOW]

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IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.

DHB INDUSTRIES, INC.

By:

Name:

Title:

DAVID H. BROOKS

[Signature Page to Registration Rights Agreement]

Annex A

Plan of Distribution

The selling stockholders and any of their pledgees, donees, transferees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of Common Stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed, at prevailing market prices at the time of the sale, at varying prices determined at the time of sale or at negotiated prices. Such Common Stock may be sold directly by the undersigned or, alternatively, through broker-dealers or agents. The Selling Stockholders may use any one or more of the following methods when selling shares:

• ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

• block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

• purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

• an exchange distribution in accordance with the rules of the applicable exchange;

• privately negotiated transactions;

• through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

• broker-dealers may agree with the Selling Stockholders to sell a specified number of such shares at a stipulated price per share;

• by pledge to secure debt and other obligations;

• a combination of any such methods of sale; and

• any other method permitted pursuant to applicable law.

The Selling Stockholders may also sell shares under Rule 144 under the Securities Act, if available, rather than under this prospectus.

Broker-dealers engaged by the Selling Stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. The Selling Stockholders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved.

Upon the Company being notified in writing by a Selling Stockholder that any material arrangement has been entered into with a broker-dealer for the sale of Common Stock through a block trade, special offering, exchange distribution or secondary distribution or a purchase by a

broker or dealer, a supplement to this prospectus will be filed, if required, pursuant to Rule 424(b) under the Securities Act, disclosing (i) the name of each such Selling Stockholder and of the participating broker-dealer(s), (ii) the number of shares involved, (iii) the price at which such the shares of Common Stock were sold, (iv) the commissions paid or discounts or concessions allowed to such broker-dealer(s), where applicable, (v) that such broker-dealer(s) did not conduct any investigation to verify the information set out or incorporated by reference in this prospectus, and (vi) other facts material to the transaction. In addition, upon the Company being notified in writing by a Selling Stockholder that a donee or pledgee intends to sell more than 500 shares of Common Stock, a supplement to this prospectus will be filed if then required in accordance with applicable securities law.

The Selling Stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Discounts, concessions, commissions and similar selling expenses, if any, that can be attributed to the sale of Securities will be paid by the Selling Stockholder and/or the purchasers. Each Selling Stockholder has represented and warranted to the Company that (i) it is neither a registered broker-dealer nor an affiliate of a registered broker-dealer and (ii) at the time of its purchase of such securities such Selling Stockholder had no agreements or understandings, directly or indirectly, with any person to distribute any such securities.

If a Selling Stockholder uses this prospectus for any sale of the Common Stock, it will be subject to the prospectus delivery requirements of the Securities Act. The Selling Stockholders will be responsible to comply with the applicable provisions of the Securities Act and Exchange Act, and the rules and regulations thereunder promulgated, including, without limitation, Regulation M, as applicable to such Selling Stockholders in connection with resales of their respective shares under this Registration Statement.

The Company is required to pay all fees and expenses incident to the registration of the shares, but the Company will not receive any proceeds from the sale of the Common Stock under this Registration Statement. The Company has agreed to indemnify the Selling Stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.

Annex B

DHB INDUSTRIES, INC.

Selling Securityholder Notice and Questionnaire

The undersigned beneficial owner (the “Selling Securityholder”) of registrable securities (the “Registrable Securities”) of DHB Industries, Inc., a Delaware corporation (the “Company”), understands that the Company intends to file or has filed with the Securities and Exchange Commission (the “Commission”) a Registration Statement for the registration and resale of the Registrable Securities, in accordance with the terms of the Registration Rights Agreement, dated as of July [ ], 2006 (the “Registration Rights Agreement”), between the Company and the Investor named therein. A copy of the Registration Rights Agreement is available from the Company upon request at the address set forth below. All capitalized terms used and not otherwise defined herein shall have the meanings ascribed thereto in the Registration Rights Agreement.

The Selling Securityholder hereby provides the following information to the Company and represents and warrants that such information is accurate:

QUESTIONNAIRE

1. Name.

(a)	Full legal name of Selling Securityholder
(b)	Full legal name of registered holder (if not the same as (a) above) through which Registrable Securities listed in Item 3 below are held:
(c)	Full legal name of natural person who directly or indirectly alone or with others has power to vote or dispose of the Registrable Securities listed in Item 3 below:

2. Address for Notices to Selling Securityholder:

Telephone:

Fax:

Contact Person:

3. Beneficial Ownership of Registrable Securities:

Type and principal amount of Registrable Securities beneficially owned:

4. Broker-Dealer Status:

(a) Are you a registered broker-dealer?

Yes  ¨    No  ¨

Note: If yes, the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

(b) Are you an affiliate of a broker-dealer?

Yes   ¨    No  ¨

(c) If you are an affiliate of a registered broker-dealer, do you certify that you bought the Registrable Securities in the ordinary course of business, and at the time of the purchase of the Registrable Securities to be resold, you had no agreements or understandings, directly or indirectly, with any person to distribute the Registrable Securities?

Yes  ¨    No  ¨

Note: If no, the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

5. Beneficial Ownership of Other Securities of the Company Owned by the Selling Securityholder.

Except as set forth below in this Item 5, the Selling Securityholder is not the beneficial or registered owner of any securities (“Other Securities”) of the Company other than the Registrable Securities listed above in Item 3.

Type and amount of Other Securities beneficially owned by the Selling Securityholder:

6. Relationships with the Company:

Except as set forth below, neither the Selling Securityholder nor any of its affiliates, officers, directors or principal equity holders (owners of 5% of more of the equity securities of the Selling Securityholder) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years.

State any exceptions here:

The Selling Securityholder agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein that may occur subsequent to the date hereof and prior to the Effective Date for the Registration Statement.

By signing below, the Selling Securityholder consents to the disclosure of the information contained herein in its answers to Items 1 through 6 and the inclusion of such information in the Registration Statement and the related prospectus. The Selling Securityholder understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Registration Statement and the related prospectus.

IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent.

Dated:   Beneficial Owner:

By:

Name:

Title:

PLEASE FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:

DHB Industries, Inc.

2102 SW 2^nd Street

Pompano Beach, FL 33069

Facsimile: 954-630-9225

Attention: Chief Executive Officer

With a copy to:

Bryan Cave LLP

1290 Avenue of the Americas

New York, NY 10104

Facsimile: 212-541-4630

Attention: Kenneth Henderson

EX-10.33

Exhibit 10.33

EXECUTION COPY

WARRANT EXERCISE AGREEMENT

This agreement (the “Agreement”) is entered into by and between the following parties (the “Parties”) as of the 31st day of July, 2006: (i) David H. Brooks (“Mr. Brooks”) and (ii) DHB Industries, Inc. (the “Company” or “DHB”).

RECITALS

WHEREAS, on July 1, 2000, the Company and Mr. Brooks entered into a five-year employment agreement (the “Employment Agreement”) entitling Mr. Brooks to, among other things, (i) 750,000 warrants exercisable at $1.00 per share vesting every year on the anniversary of the Employment Agreement and (ii) the right to extend the Employment Agreement for an additional five-year term on the same terms and conditions; and

WHEREAS, on December 27, 2004, Mr. Brooks exercised his right to extend the Employment Agreement for an additional five-year term on the same terms and conditions;

WHEREAS, Mr. Brooks became entitled on July 1, 2006 to exercise warrants to acquire 750,000 shares of common stock of DHB at $1.00 per share and provided notice of his exercise of those warrants on July 7, 2006 (the “July Warrants”);

WHEREAS, Mr. Brooks remained in possession of unvested and unexercised warrants to acquire 3,000,000 shares of common stock of DHB at $1.00 per share (the “Unvested Warrants”);

WHEREAS, on July 12, 2006, the Parties, among others, entered a Memorandum of Understanding (“MOU”) in settlement (the “Settlement”) of the matters captioned (i) In re DHB Industries, Inc. Class Action Litigation, United States District Court for the Eastern District of New York, No. CV 05-4296 (JS) (ETB) and (ii) In re DHB Industries, Inc. Derivative Litigation, United States District Court for the Eastern District of New York, CV 05-4345 (JS) (ETB) (collectively, the “Litigation”);

WHEREAS, DHB agreed in the Memorandum of Understanding to accelerate the vesting of the Unvested Warrants and Mr. Brooks agreed to exercise those warrants at an increased exercise price of $2.50 per share in order to fund, in part, the Settlement and in consideration of Mr. Brooks’ resignation from his positions at DHB;

WHEREAS, The Memorandum of Understanding provides that, in the event the Settlement is not finally approved by the Court in substantially the form of, and containing substantially the same provisions as those set forth in, the Memorandum of Understanding, DHB shall pay or cause to be paid from the settlement funds being held in escrow, to Mr. Brooks, $4,500,000, being the difference between the warrant exercise price of $1 per share and the elevated exercise price of $2.50 per share, multiplied by the 3,000,000 shares involved.

AGREEMENT

NOW, THEREFORE, the Parties agree as follows:

1. Mr. Brooks shall immediately resign from the Board of Directors and all other positions at the Company.

2. Mr. Brooks shall immediately pay the Company $8,250,000 (plus any withholding taxes, as instructed by the Company, due as a result of the exercise of the Unvested Warrants at $2.50 a share and the July Warrants at $1.00 a share), $7,500,000 of which shall be directly deposited by Mr. Brooks into the escrow account (the “Escrow Account”) established pursuant to the Escrow Agreement executed simultaneously herewith;

3. Any withholding tax so instructed by the Company shall be determined in good faith based on calculating the fair market value of the Unvested Warrants and the July Warrants using the volume weighted average price of the Company’s Common Stock on July 6, 2006 for the July Warrants and July 28, 2006 for the Unvested Warrants;

4. The Company shall immediately issue to Mr. Brooks 3,750,000 shares of its duly issued and authorized common stock in respect of the July Warrants and the Unvested Warrants;

5. In the event the Settlement is not finally approved by the Court in materially the form of, and containing materially the same terms as those set forth in, the Memorandum of Understanding, the Company shall pay or cause to be paid from the Escrow Account to Mr. Brooks, within 10 days after Court’s failure finally to approve the settlement as aforesaid, $4,500,000, being the difference between the exercise price of $1 per share applicable to the Unvested Warrants and the increased exercise price of $2.50 per share, multiplied by the 3,000,000 shares involved. The Company’s obligations under this Section 5 shall be contingent upon the return of settlement funds from the Escrow Account. In the event that amounts from the Escrow Account are not released to the Company within 10 days after Court’s failure finally to approve the settlement as aforesaid, the Company shall cause $4,500,000 to be paid to the Mr. Brooks directly from the Escrow Account as soon as the funds are permitted to be released from the Escrow Account.

6. The Company shall have no further obligations and Mr. Brooks shall have no further rights under any warrant or option agreements between the Parties (including without limitation in respect of the July Warrants, the Unvested Warrants and any other warrants granted to Mr. Brooks under the Employment Agreement), with the sole exception of warrants or options previously granted to Mr. Brooks on the same terms and conditions as other directors as compensation for service on the Board of Directors of the Company (which warrants and/or options shall remain valid and enforceable).

7. Mr. Brooks hereby confirms and acknowledges his obligations to file Forms 4 and an amendment to Schedule 13D as required by the Securities Exchange Act of 1934, as amended.

8. Miscellaneous Provisions.

2

a. This Agreement may be executed in counterparts.

b. No negative inference of interpretation shall be made by a court against any party to this Agreement.

c. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to its choice of law rules.

d. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the Parties.

e. DHB represents that this Agreement was authorized in the manner required by applicable law and the governing articles of incorporation and bylaws.

Dated: July 31, 2006

DHB INDUSTRIES, INC.

By:

Name:

Title:

DAVID H. BROOKS

3

EX-10.34

Exhibit 10.34

AGREEMENT OF INSUREDS

AGREEMENT OF INSUREDS, dated as of July 27, 2006 (the “Agreement”) by and among DHB Industries Inc. (“DHB”), David H. Brooks, Sandra Hatfield, Dawn M. Schlegel, Cary Chasin, Jerome Krantz, Gary Nadelman, Barry Berkman, and Gen. (Ret.) Larry R. Ellis (all of the foregoing, together with DHB, being collectively referred to herein as the “Insureds”).

RECITALS

WHEREAS, the Insureds, among others, are all parties to a Memorandum of Understanding dated July 12, 2006 (the “MOU”) with respect to the settlement of litigation pending in the United States District Court for the Eastern District of New York (the “Court”);

WHEREAS, pursuant to Paragraph 4 of the MOU, the Insureds, among others, shall cause to be paid into escrow the principal sum of $35,200,000 in cash (the “Cash Settlement Amount”) consisting of $12,875,000 paid by the Insureds’ directors’ and officers’ liability insurers (the “Insurance Contribution”) and $22,325,000 funded by David H. Brooks pursuant to the terms of the MOU and Exhibit B thereof;

WHEREAS, the Cash Settlement Amount shall be held in and distributed from escrow in accordance with the Escrow Agreement, dated July 27, 2006, by and among the Settling Parties (the “Escrow Agreement”); and

WHEREAS, the Insureds desire to provide for the disposition of the Insurance Contribution in the event the Settlement contemplated by the MOU is not approved by the Court;

AGREEMENT

NOW THEREFORE, in consideration of the mutual covenants and agreements contained herein and in the MOU, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

1. Definitions. Capitalized terms used but not defined herein shall have the same meanings ascribed to them in the Escrow Agreement.

2. Release of Escrowed Funds to Insureds. In the event that the Escrow Agent releases and distributes the Escrowed Funds to the Insureds pursuant to Paragraph 4(c) of the Escrow Agreement, the Insurance Contribution, with any interest earned thereon, shall be placed in trust for the benefit of the Insureds under Executive and Organization Liability Policy No. 490-97-35 issued by National Union Fire Insurance Company of Pittsburg, Pa., and Excess Liability Policy No. 08950-05 issued by XL Specialty Insurance Company. The form of trust and the policies governing how the funds shall be held, invested, reinvested, and/or released shall be mutually agreed by the Insureds at the time the funds are made available by the Escrow Agent pursuant to Paragraph 4(c) of the Escrow Agreement.

3. Arbitration. Any dispute, claim or controversy arising out of or relating to this Agreement, or the breach, termination, enforcement, interpretation or validity thereof, including the determination of the scope or applicability of this agreement to arbitrate, shall be determined by arbitration in New York, before three arbitrators. The arbitration shall be administered by JAMS pursuant to its Comprehensive Arbitration Rules and Procedures. Judgment on the Award may be entered in any court having jurisdiction. This clause shall not preclude parties from seeking provisional remedies in aid of arbitration from a court of appropriate jurisdiction. The arbitrator may, in the Award, allocate all or part of the costs of the arbitration, including the fees of the arbitrator and the reasonable attorneys’ fees of the prevailing party.

4. Alternative Dispute Resoution. If, within forty five (45) days of the date the Escrow Agent makes available the Escrowed Funds to the Insureds pursuant to Paragraph 4(c) of the Escrow Agreement, the Insureds are unable to approve a mutually agreeable trust agreement pursuant to Paragraph 2 hereof, the Insureds agree that any and all disagreements with respect to said trust agreement, including the negotiation thereof, shall be submitted to JAMS, or its successor, for mediation, and if the matter is not resolved through mediation, then it shall be submitted to JAMS, or its successor, for final and binding arbitration pursuant to the arbitration clause set forth above. Any Insured may commence mediation by providing to JAMS and all other Insureds a written request for mediation, setting forth the subject of the dispute and the relief requested. The Insureds will cooperate with JAMS and with one another in selecting a mediator from JAMS panel of neutrals, and in scheduling mediation proceedings. The Insureds covenant that they will participate in the mediation in good faith, and that they will share equally in its costs. All offers, promises, conduct and statements, whether oral or written, made in the course of the mediation by any of the Insureds, their agents, employees, experts and attorneys, and by the mediator or any JAMS employees, are confidential, privileged and inadmissible for any purpose, including impeachment, in any arbitration or other proceeding involving the Insureds, provided that evidence that is otherwise admissible or discoverable shall not be rendered inadmissible or non-discoverable as a result of its use in the mediation. Any Insured may initiate arbitration with respect to the matters submitted to mediation by filing a written demand for arbitration at any time following the initial mediation session or 45 days after the date of filing the written request for mediation, whichever occurs first. The mediation may continue after the commencement of arbitration if the Insureds so desire. Unless otherwise agreed by the Insureds, the mediator shall be disqualified from serving as arbitrator in the case. The provisions of this Clause may be enforced by any Court of competent jurisdiction, and the Insured seeking enforcement shall be entitled to an award of all costs, fees and expenses, including attorneys’ fees, to be paid by the Insured or Insureds against whom enforcement is ordered.

5. Miscellaneous.

(a) Entire Agreement. This Agreement embodies the entire agreement and understanding among the parties hereto with respect to the subject matter hereof and supersedes all prior oral or written agreements and understandings between or among the parties relating to the subject matter hereof. No statement, representation, warranty, covenant or agreement of any kind not expressly set forth in this Agreement shall affect, or be used to interpret, change or restrict, the express terms and provisions of this Agreement.

(b) Amendments, Waivers and Consents. Except as otherwise expressly provided herein, the terms and provisions of this Agreement may be modified or amended only by written agreement executed by all parties hereto. The terms and provisions of this Agreement may be waived, or consent for the departure therefrom granted, only by a written document signed by the party entitled to the benefits of such terms or provisions. No such waiver or consent shall be deemed to be or shall constitute a waiver or consent with respect to any other terms or provisions of this Agreement, whether or not similar. Each such waiver or consent shall be effective only in the specific instance and for the purpose for which it was given, and shall not constitute a continuing waiver or consent.

(c) Assignment. The rights and obligations under this Agreement may not be assigned by any of the parties hereto without the prior written consent of the other parties.

(d) Benefit, Binding Effect; Third Party Beneficiaries. All statements, representations, warranties, covenants and agreements in this Agreement shall be binding on the parties hereto and shall inure to the benefit of the respective successors and permitted assigns of each party hereto. Nothing in this Agreement shall be construed to create any rights or obligations except among the parties hereto, and no person or entity shall be regarded as a third party beneficiary of this Agreement.

(e) Governing Law. This Agreement and the rights and obligations of the parties hereunder shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to the conflict of law principles thereof.

(f) Severability. In the event that any court of competent jurisdiction shall determine that any provision, or any portion thereof, contained in this Agreement shall be unenforceable or invalid in any respect, then such provision shall be deemed limited to the extent that such court deems it valid or enforceable, and as so limited shall remain in full force and effect. In the event that such court shall deem any such provision, partially or wholly unenforceable, the remaining provisions of this Agreement shall nevertheless remain in full force and effect.

(g) Expenses. Except as otherwise explicitly provided herein, each of the parties hereto shall pay its own fees and expenses (including the fees of any attorneys, accountants, appraisers or others engaged by such party) in connection with this Agreement and the transactions contemplated hereby, whether or not the transactions contemplated in this Agreement or in the MOU are consummated.

(h) Headings and Captions. The headings and captions contained in this Agreement are for convenience only and shall not affect the meaning or interpretation of this Agreement or of any of its terms or provisions.

(i) Interpretation. The parties hereto acknowledge and agree that they have participated jointly in the negotiation and drafting of this Agreement, have each been represented by counsel in such negotiation and drafting, and that in the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement.

(j) Counterparts. This Agreement may be executed in any number of counterparts, and by different parties hereto on separate counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.

BAKER BOTTS LLP

By:

Counsel for Defendant DHB Industries, Inc.

MILBANK TWEED HADLEY & McCLOY LLP

By:

MINTZ LEVIN COHN FERRIS GLOVSKY AND POPEO, P.C.

By:

Counsel for Defendant David H. Brooks

SERCARZ & RIOPELLE, LLP

By:

Counsel for Defendant Sandra Hatfield

KOBRE & KIM LLP

By:

Counsel for Defendant Dawn M. Schlegel

CLIFFORD CHANCE US LLP

By:

Counsel for Defendants Cary Chasin, Jerome Krantz, Gary Nadelman, and Barry Berkman

DLA PIPER RUDNICK GRAY CARY US LLP

By:

Counsel for Defendant Gen. (Ret.) Larry R. Ellis

EX-10.35

Exhibit 10.35

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
	x
In re DHB INDUSTRIES, INC. CLASS	:	Civil Action No. CV 05-4296(JS)(ETB)
ACTION LITIGATION	:
	:	CLASS ACTION
	:
This Document Relates To:	:
	:
ALL ACTIONS.	:
	x
In re DHB INDUSTRIES, INC. DERIVATIVE	:	Civil Action No. CV 05-4345(JS)(ETB)
LITIGATION	:
	:	DERIVATIVE ACTION
	:
This Document Relates To:	:
	:
ALL ACTIONS.	:
	x

STIPULATION AND AGREEMENT OF SETTLEMENT

This Stipulation and Agreement of Settlement (the “Stipulation”), dated as of November 30, 2006, is made and entered into pursuant to Rules 23 and 23.1 of the Federal Rules of Civil Procedure and contains the terms of a settlement (the “Settlement”), initially outlined in a Memorandum of Understanding, dated as of July 12, 2006 (“MOU”), (a) by and among the Class Defendants (as defined below in Section IV, ¶1 as are other capitalized terms herein, except as otherwise noted) and the Class Plaintiffs, on behalf of themselves and Members of the Class in connection with In re DHB Industries, Inc. Sec. Litig., No. CV 05-4296(JS)(ETB) (the “Class Action”), pending in the United States District Court, Eastern District of New York (the “Court”); and (b) by and among the Derivative Defendants and the Derivative Plaintiff, derivatively and on behalf of DHB Industries, Inc. (“DHB” or the “Company”), in connection with In re DHB Industries, Inc. Derivative Litigation, No. CV 05-4345(JS)(ETB) (the “Derivative Action”) pending in the Court (collectively, the “Actions”).

This Stipulation is intended by the Class Plaintiffs, the Derivative Plaintiff and the Defendants to fully, finally and forever resolve, discharge and settle the Released Class Claims against the Released Class Persons and the Released Derivative Claims against the Released Derivative Persons, but not the Non-Released Claims, upon and subject to the terms and conditions hereof and subject to the approval of the Court.

I. THE CLASS ACTIONS AND THE DERIVATIVE ACTIONS

On and after September 9, 2005, multiple actions were filed in the Court as class actions on behalf of persons who purchased or otherwise acquired certain of the publicly traded shares of DHB alleging violations of §§10(b) and 20(a) of the Securities Exchange Act of 1934 (15 U.S.C. §§78(j)(b) and 78(t). On January 31, 2006, the Court consolidated the class actions as In re DHB Industries, Inc. Sec. Litig., No. CV 05-4296(JS)(ETB) and appointed RS Holdings, NECA-IBEW Pension Fund (the “Decatur Group”) and George Baciu as Lead Plaintiffs (the “Lead Plaintiffs” or

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the “Class Plaintiffs”) and, pursuant to provisions of the Private Securities Litigation Reform Act of 1995 (the “PSLRA”), approved the Class Plaintiffs’ choice of Lerach Coughlin Stoia Geller Rudman & Robbins LLP and Labaton Sucharow & Rudoff LLP as Lead Counsel.

On and after September 14, 2005, multiple actions were filed in the Court as derivative actions on behalf of DHB. The complaints in the derivative actions generally allege causes of action for breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets, and unjust enrichment. On January 31, 2006, the Court consolidated the derivative actions filed as In re DHB Industries, Inc. Derivative Litigation, No. CV 05-4345(JS)(ETB) and appointed Robbins Umeda & Fink, LLP and Law Offices of Thomas G. Amon as Co-Lead Counsel.

II. DEFENDANTS’ DENIALS OF WRONGDOING AND LIABILITY

The Defendants have denied and continue to deny each and all of the claims and contentions alleged by the Class Plaintiffs and the Derivative Plaintiff (collectively the “Plaintiffs”) in the Actions. The Defendants expressly have denied and continue to deny all charges of wrongdoing or liability against them or any of them arising out of any of the conduct, statements, acts or omissions alleged, or that could have been alleged, in the Actions, or either of them. The Defendants also have denied and continue to deny, inter alia, the allegations that the Plaintiffs, the Class Members or DHB have suffered damage, that the price of DHB’s common stock was artificially inflated by reason of any alleged misrepresentations, non-disclosures or otherwise, or that the Plaintiffs, the Class Members or DHB were harmed by any of the conduct alleged in the Actions or that could have been alleged therein, or either of them.

Nonetheless, the Defendants have concluded that further conduct of the Actions would be protracted, expensive, and distracting, including, without limitation, to DHB and its management, and that it is desirable that the Actions be fully and finally settled in the manner and upon the terms and conditions set forth in this Stipulation. The Defendants also have taken into account the

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uncertainty and risks inherent in any litigation, especially in complex cases like the Actions. The Defendants have, therefore, determined that it is desirable that the Actions be settled in the manner and upon the terms and conditions set forth in this Stipulation.

Neither this Stipulation nor any document referred to herein nor any action taken to carry out this Stipulation is, may be construed as or may be used as an admission by or against the Defendants, or any of them, of any fault, wrongdoing or liability whatsoever. Entering into or carrying out this Stipulation (or the Exhibits hereto) and any negotiations or proceedings related thereto shall not in any event be construed as, or be deemed to be evidence of, any admission or concession with regard to any of Plaintiffs’ claims, or contrary to any of Defendants’ denials and defenses, and shall not be offered by any of the Settling Parties, Class Members or Current DHB Shareholders in any action or proceeding in any court, administrative agency or other tribunal for any purpose whatsoever other than to enforce the provisions of this Stipulation (and the Exhibits hereto) or the provisions of any related agreement or release; except that this Stipulation and the Exhibits hereto may be filed in any of the Actions or related litigation, as evidence of the Settlement, or in any subsequent action against or by the Defendants or the Released Persons or any of them to support a claim or defense of res judicata, collateral estoppel, release or other theory of claim or issue preclusion or similar defense.

III. CLAIMS OF THE CLASS PLAINTIFFS AND THE DERIVATIVE PLAINTIFF AND BENEFITS OF SETTLEMENT

The Plaintiffs believe that the claims asserted in the Actions have merit. However, counsel for the Plaintiffs recognize and acknowledge the expense and length of continued proceedings necessary to prosecute the Actions against the Defendants through trial and appeal. Counsel for the Plaintiffs also have taken into account the uncertain outcome and the risk of any litigation, especially in complex actions such as the Actions, as well as the difficulties and delays inherent in such litigation. Counsel for the Plaintiffs also are mindful of the inherent problems of proof of, and

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possible defenses to, the violations asserted in the Actions. Counsel for the Plaintiffs believe that the Settlement set forth in this Stipulation confers substantial benefits upon and is in the best interests of the Class and each of the Members of the Class. Counsel for the Derivative Plaintiff believe that the Settlement set forth in this Stipulation confers substantial benefits upon, and is also in the best interests of, DHB and the Current DHB Shareholders.

IV. TERMS OF STIPULATION AND AGREEMENT OF SETTLEMENT

NOW, THEREFORE, IT IS HEREBY STIPULATED AND AGREED by and among the Class Plaintiffs (for themselves and the Class Members), the Derivative Plaintiff (derivatively on behalf of DHB), and the Defendants, by and through their respective counsel or attorneys of record, that, subject to the approval of the Court, the Actions and the Released Claims shall be finally and fully compromised, settled and released, and the Actions shall be dismissed with prejudice, upon and subject to the terms and conditions of this Stipulation, as follows:

1. Definitions

As used in this Stipulation the following terms have the meanings specified below:

1.1 “Authorized Claimant” means any Class Member whose claim for recovery has been allowed pursuant to the terms of this Stipulation.

1.2 “Claimant” means any Class Member who submits a Proof of Claim and Release in such form and manner, and within such time, as the Court shall prescribe.

1.3 “Claims” means any and all claims, demands, rights, liabilities, damages and causes of action of every nature and description whatsoever, known or unknown, whether or not concealed or hidden, including, without limitation, “Unknown Claims” (as defined below) and claims for negligence, gross negligence, breach of fiduciary duty, breach of duty of care, breach of duty of loyalty, waste, insider trading, unjust enrichment, abuse of control, mismanagement, fraud, and violations of any local, state or federal statutes, rules, regulations or common law.

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1.4 “Claims Administrator” means the firm of Gilardi & Co. LLC, P.O. Box 5100, Larkspur, CA 94977-5100, Telephone: 1-800-654-5763, www.gilardi.com.

1.5 “Class” means all Persons who purchased or otherwise acquired (including by exchange, conversion or otherwise) the publicly traded securities of DHB (including puts, calls and other securities) on or after November 18, 2003 until and including November 30, 2006, and were allegedly damaged thereby. Excluded from the Class are the Defendants and Persons related to the Defendants, including any subsidiaries or affiliates of DHB; the officers and directors of DHB during the Class Period; members of the individual Defendants’ immediate families; any person, firm, trust, officer, director or any individual or entity in which any Defendant has a controlling interest or which is related to, or affiliated with, any of the Defendants; and the legal representatives, agents, affiliates, heirs, successors in interest or assigns of any such excluded person or entity. Also excluded from the Class are those Persons who timely and validly request to be excluded from the Class pursuant to the “Notice of Pendency and Settlement of Class Action” to be sent to Class Members.

1.6 “Class Defendants” means DHB, David H. Brooks, Terry Brooks, David Brooks International Inc., Andrew Brooks Industries Inc. (sued as Andrew Brooks International Inc.), Elizabeth Brooks Industries Inc. (sued as Elizabeth Brooks International Inc.), Sandra Hatfield, Dawn M. Schlegel, Cary Chasin, Jerome Krantz, Gary Nadelman and Barry Berkman.

1.7 “Class Member” or “Member of the Class” means a Person who falls within the definition of the Class as set forth in ¶1.5 of this Section of this Stipulation.

1.8 “Class Period” means the period commencing on November 18, 2003 through and including November 30, 2006.

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1.9 “Class Plaintiffs’ Counsel” means Keith F. Park, Lerach Coughlin Stoia Geller Rudman & Robbins LLP, 655 W. Broadway, Suite 1900, San Diego, CA 92101, Samuel H. Rudman, Lerach Coughlin Stoia Geller Rudman & Robbins LLP, 58 South Service Road, Suite 200, Melville, NY 11747, and Lynda J. Grant, Labaton Sucharow & Rudoff LLP, 100 Park Avenue, 12th Floor, New York, NY 10017.

1.10 “Current DHB Shareholders” means any Person(s) who owned DHB common stock as of the date hereof.

1.11 “Defendants” means the Class Defendants and Derivative Defendants.

1.12 “Derivative Counsel” means Brian Robbins, Robbins Umeda & Fink, LLP, 610 West Ash Street, Suite 1800, San Diego, CA 92101 and Thomas G. Amon, Law Offices of Thomas G. Amon, 500 Fifth Avenue, Suite 1650, New York, NY 10110.

1.13 “Derivative Defendants” means nominal defendant DHB, David H. Brooks, Sandra Hatfield, Dawn M. Schlegel, Jerome Krantz, Gary Nadelman, Cary Chasin, Barry Berkman, Larry Ellis, Tactical Armor Products, Inc., David Brooks International Inc., Andrew Brooks Industries Inc. (sued as Andrew Brooks International Inc.), Elizabeth Brooks Industries Inc. (sued as Elizabeth Brooks International Inc.), Terry Brooks and Jeffrey Brooks.

1.14 “Derivative Plaintiff” means Alvin Viray.

1.15 “Effective Date” means the first date by which all of the events and conditions specified in ¶7.1 of this Section of this Stipulation shall have been met and have occurred, unless one or more of such conditions is waived or modified in writing and signed by Class Plaintiffs’ Counsel, Derivative Counsel, and counsel for each of the Defendants.

1.16 “Escrow Agent” means Lerach Coughlin Stoia Geller Rudman & Robbins LLP. Further terms relating to the Escrow Agent are contained in a certain Escrow Agreement dated as of July 27, 2006 (the “Escrow Agreement”). A copy of the Escrow Agreement is attached hereto as Exhibit A.

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1.17 “Final” means: (a) the date of final affirmance on an appeal of the Judgments, the expiration of the time for a petition for or a denial of a writ of certiorari to review the Judgments and, if certiorari is granted, the date of final affirmance of the Judgments following review pursuant to that grant; or (b) the date of final dismissal of any appeal from the Judgments or the final dismissal of any proceeding on certiorari to review the Judgments; or (c) if no appeal is filed, the expiration date of the applicable time for the filing or noticing of any appeal from the Judgments. Any proceeding or order, or any appeal or petition for a writ of certiorari, pertaining solely to any Plan of Allocation and/or application for or award of attorneys’ fees or expenses, shall not in any way delay or preclude the Judgments from becoming Final.

1.18 “Judgments” means the final judgments to be rendered by the Court in the Actions, substantially in the forms attached hereto as Exhibits D and E.

1.19 “Non-Released Claims” means all of DHB’s obligations to David H. Brooks and to all of the other Defendants to whom DHB has indemnification obligations, of and for indemnification and reimbursement for fees, expenses and liabilities, as provided for in DHB’s Articles of Incorporation and By-Laws, in the laws of Delaware, and in this Stipulation, as the latter is approved by the Court, all of which shall remain in full force and effect, and David H. Brooks’ undertaking to DHB, regarding his indemnification by DHB, and the undertakings of the other Defendants to whom DHB has indemnification obligations, shall also remain in full force and effect. “Non-Released Claims” shall also include any and all obligations of any Defendant to any other Defendant under any existing contract or agreement between or among them, including, without limitation, any agreement entered into in connection with the Settlement.

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1.20 “Person” means an individual, corporation, limited liability corporation, professional corporation, limited liability partnership, partnership, limited partnership, association, joint stock company, joint venture, estate, legal representative, trust, unincorporated association, government or any political subdivision or agency thereof, and any business or legal entity and their spouses, heirs, predecessors, successors, representatives, and assignees.

1.21 “Plaintiffs’ Counsel” means counsel who have appeared for any of the Plaintiffs in the Actions.

1.22 “Plan of Allocation” means a plan or formula or formulae of allocation of the Settlement Fund (to be described in the notice to be sent to Class Members), whereby the Settlement Fund, plus interest earned thereon, shall be distributed to Authorized Claimants after the payment of the expenses of notice and administration of the Settlement, Taxes and Tax Expenses and such attorneys’ fees, expenses and interest and amounts to the Lead Plaintiffs as may be awarded by the Court. The Plan of Allocation is not part of this Stipulation and Defendants shall have no responsibility or liability with respect thereto.

1.23 “Related Persons” means each of a Defendant’s present and former parents, subsidiaries, affiliates, divisions, joint ventures, joint venturers, and his, her or its present and former officers, directors, employees, agents, representatives, attorneys, insurers, excess insurers, advisors, investment advisors, auditors, accountants, spouses and immediate family members, and the predecessors, heirs, successors and assigns of any of them, and any Person in which any Related Person has or had a controlling interest or which is or was related to or affiliated with any Related Person, and any trust of which any Defendant is the settler or which is for the benefit of any Defendant and/or a member(s) of a Defendant’s family. Stockbrokers in their capacity as such are excluded from this definition.

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1.24 “Released Claims” means, collectively, the Released Class Claims and the Released Derivative Claims, as defined below.

1.25 “Released Class Claims” means any and all Claims arising from either the purchase or other acquisition (including by an exchange, conversion or otherwise) of any publicly-traded securities of DHB, including, without limitation, put and call options thereon, during the Class Period and based on any facts, transactions, events, occurrences, acts, disclosures, statements, omissions or failures to act that were or could have been asserted by the Lead Plaintiffs or any Class Member in the Class Action, in a direct, indirect, representative, derivative or other capacity against the Released Class Persons, or any of them.

1.26 “Released Class Persons” means the Class Defendants and each of them, and each of their respective Related Persons in their capacities as such.

1.27 “Released Derivative Claims” means any and all Claims based on any facts, transactions, events, occurrences, acts, disclosures, statements, omissions or failures to act that were or could have been asserted by the Derivative Plaintiff on behalf of DHB, or by DHB on its own behalf, or by any Current DHB Shareholder in the Derivative Action, in a direct, indirect, representative, derivative or other capacity against the Released Derivative Persons, or any of them. In addition, Released Derivative Claims includes, without limitation, a release by DHB of David H. Brooks and Dawn M. Schlegel, and each of them, from any and all liability under §304 of the Sarbanes-Oxley Act of 2002 to reimburse DHB for any bonus or other incentive-based or equity based compensation received by them or either of them, or for any profits realized by them or either of them from the sale of any securities of DHB.

1.28 “Released Derivative Persons” means the Derivative Defendants, and each of them, and each of their respective Related Persons in their capacities as such.

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1.29 “Released Persons” means, collectively, the Released Class Persons and the Released Derivative Persons.

1.30 “Settlement Fund” means the principal amount of Thirty-Five Million Two Hundred Thousand Dollars ($35,200,000) plus 3,184,713 shares of DHB common stock.

1.31 “Settling Parties” means, collectively, each of the Defendants, and the Class Plaintiffs and the Derivative Plaintiff on behalf of, respectively, themselves, the Members of the Class, the Current DHB Shareholders, and derivatively on behalf of DHB.

1.32 “Unknown Claims” means any Released Class Claims or any Released Derivative Claims which any Class Plaintiff or Class Member (as to Released Class Claims), and/or the Derivative Plaintiff, any Current DHB Shareholder, or DHB (as to Released Derivative Claims), respectively, does not know of or suspect to exist in his, her or its favor at the time of the release of the Released Class Persons and/or the Released Derivative Persons which, if known by him, her or it, might have affected his, her or its settlement with, and release of, the Released Class Persons and/or Released Derivative Persons, or might have affected his, her or its decision not to object to this Settlement. With respect to any and all Released Class Claims and Released Derivative Claims, the Settling Parties stipulate and agree that, upon the Effective Date, the Class Plaintiffs, the Derivative Plaintiff and DHB, and each of the Class Members and the Current DHB Shareholders, shall be deemed to have, and by operation of the Judgments shall have, waived the provisions, rights and benefits of California Civil Code §1542, which provides:

A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.

The Class Plaintiffs, the Derivative Plaintiff and DHB, and each of the Class Members and the Current DHB Shareholders, shall be deemed to have, and by operation of the Judgments shall have, waived any and all provisions, rights and benefits conferred by any law of any state or territory of

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the United States, or principle of common law, which is similar, comparable or equivalent to California Civil Code §1542. Each of the Class Plaintiffs, the Derivative Plaintiff, the Class Members, DHB, and the Current DHB Shareholders, may hereafter discover facts in addition to or different from those which he, she or it now knows or believes to be true with respect to the Released Class Claims or Released Derivative Claims, but each Class Plaintiff, Derivative Plaintiff and DHB, and each of the Class Members and the Current DHB Shareholders, upon the Effective Date, shall be deemed to have, and by operation of the Judgments shall have, fully, finally, and forever settled and released any and all Released Class Claims and Released Derivative Claims, respectively, known or unknown, suspected or unsuspected, contingent or non-contingent, accrued or unaccrued, whether or not concealed or hidden, which now exist, or heretofore have existed upon any theory of law or equity now existing or coming into existence in the future, including, but not limited to, conduct which is negligent, intentional, with or without malice, or a breach of any duty, law or rule, without regard to the subsequent discovery or existence of such different or additional facts. The Class Plaintiffs, the Derivative Plaintiff, DHB, and the Class Members and the Current DHB Shareholders, shall be deemed by operation of the Judgments to have acknowledged that the foregoing waivers were separately bargained for and are key elements of the Settlement of which this release is a part.

2. The Settlement

a. The Settlement Fund

2.1 The Class cash portion of the Settlement Fund is Thirty-Four Million Nine Hundred Thousand Dollars ($34,900,000) and the Derivative cash portion of the Settlement Fund is Three Hundred Thousand Dollars ($300,000). All but Twelve Million Eight Hundred Seventy Five Thousand Dollars ($12,875,000) of the cash portion of the Settlement Fund was deposited with the Escrow Agent on July 31, 2006 and has been and will be maintained by the Escrow Agent pursuant to the terms of the Escrow Agreement.

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2.2 The remaining Twelve Million, Eight Hundred Seventy Five Thousand Dollars ($12,875,000) of the cash portion of the Settlement Fund was deposited with the Escrow Agent by the Defendants’ directors’ and officers’ liability insurers on August 14, 2006, and has been and also will be maintained by the Escrow Agent pursuant to the terms of the Escrow Agreement.

2.3 In the event the Settlement is not finally approved by the Court in substantially the form of, and containing substantially the same provisions as those set forth in this Stipulation, then the cash portion of the Settlement Fund, plus interest earned thereon, less any permitted expenses therefrom, shall be paid, distributed and/or held by the Escrow Agent in the amounts and to the Persons and in the manner provided for in the Escrow Agreement.

2.4 On the Effective Date, DHB shall deliver to the Claims Administrator 3,184,713 shares of DHB’s common stock. The common stock shall be exempt from registration under §3(a)(10) of the Securities Act of 1933, or registered, if no exemption is available, and shall be freely tradable, except as to Class Members who are affiliates of DHB, as defined in the federal securities laws. DHB shall be responsible for the costs of registering the stock, if required. While the Settling Parties acknowledge that DHB’s common stock is currently delisted, DHB will undertake its best efforts to obtain a relisting of such shares on the American Stock Exchange and, if and when relisted, to maintain such listing for a period of at least one year. The total number of shares of DHB’s common stock to be contributed to the Settlement Fund will be adjusted to reflect any changes until the time of distribution of the stock to the Authorized Claimants due to stock dividends, stock splits, reverse stock splits, or reclassification (including reclassification in connection with a consolidation or merger in which DHB is the surviving entity) (any of the

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foregoing events shall be considered an “Adjustment Event”) that occur from the date of this Stipulation until the date of distribution to the Authorized Claimants, such that the percentage of ownership of the equity of DHB represented by this block of DHB stock will remain the same as it was immediately prior to the occurrence of the Adjustment Event.

b. The Escrow Agent

2.5 The Escrow Agent shall invest the cash portion of the Settlement Fund deposited pursuant to ¶¶2.1 and 2.2 above in instruments backed by the full faith and credit of the United States Government or insured by the United States Government or an agency thereof and shall reinvest the proceeds of those instruments as they mature in similar instruments at their then current market rates, as provided in the Escrow Agreement.

2.6 The Escrow Agent shall not disburse the Settlement Fund except as provided in this Stipulation, by an order of the Court, in the Escrow Agreement, or pursuant to a written agreement among counsel for DHB, counsel for David H. Brooks and Class Plaintiffs’ Counsel.

2.7 Subject to further order and/or direction as may be made by the Court, the Escrow Agent is authorized to execute such transactions as are consistent with the terms of this Stipulation and the Escrow Agreement.

2.8 All funds held by the Escrow Agent shall be deemed and considered to be in custodia legis of the Court, and shall remain subject to the jurisdiction of the Court.

2.9 The Escrow Agent shall establish a “Notice and Administration Fund,” and deposit $200,000 from the Settlement Fund in it. The Notice and Administration Fund shall be used by Class Plaintiffs’ Counsel to pay costs and expenses reasonably and actually incurred in connection with providing notice to the Class and the Current DHB Shareholders, identifying and locating Class Members and Current DHB Shareholders, soliciting Class claims, assisting with the filing of claims, administering and distributing the “Net Settlement Fund,” as defined below in ¶5.1, to Authorized

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Claimants, processing Proof of Claim and Release forms and paying escrow costs, if any. The Notice and Administration Fund, like the other cash portion of the Settlement Fund, shall be invested and earn interest as provided for in the Escrow Agreement. Any portion of the Notice and Administration Fund remaining after the payment of the aforesaid costs and expenses shall revert to the Settlement Fund and become part of the Net Settlement Fund, as defined below in ¶5.1.

c. Taxes, Tax Expenses and Related Matters

2.10 The Settling Parties and the Escrow Agent agree to treat the Settlement Fund as being at all times a “qualified settlement fund” within the meaning of Treas. Reg. §§1.468B-1 through 1.468B-5. In addition, the Escrow Agent shall timely make such elections as are necessary or advisable to carry out the provisions of this ¶2.10, including the “relation-back election” (as defined in Treas. Reg. §1.468B-1) back to the earliest permitted date. Such elections shall be made in compliance with the procedures and requirements contained in such regulations. It shall be the responsibility of the Escrow Agent to timely and properly prepare and deliver the necessary documentation for signature by all necessary parties, and thereafter to cause the appropriate filings to occur.

(a) For the purpose of §468B of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder, the “administrator” shall be the Escrow Agent. The Escrow Agent shall timely and properly file all informational and other tax returns necessary or advisable with respect to the Settlement Fund (including without limitation the returns described in Treas. Reg. §1.468B-2(k)(l)). Such returns (as well as the election described in this ¶2.10) shall be consistent with this ¶2.10 and in all events shall reflect that all Taxes (including any estimated Taxes, interest or penalties) on the income earned by the Settlement Fund shall be paid out of the cash portion of the Settlement Fund as provided in ¶2.10(b) hereof.

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(b) All (i) Taxes (including any estimated Taxes, interest or penalties) arising with respect to the income earned by the Settlement Fund, including any Taxes or tax detriments that may be imposed upon the Defendants, their insurers or their respective counsel with respect to any income earned by the Settlement Fund for any period during which the Settlement Fund does not qualify as a “qualified settlement fund” for federal or state income tax purposes (“Taxes”), and (ii) expenses and costs incurred in connection with the operation and implementation of this ¶2.10 (including, without limitation, expenses of tax attorneys and/or accountants and mailing and distribution costs and expenses relating to filing, or failing to file, the returns described in this ¶2.10) (“Tax Expenses”) shall be paid out of the cash portion of the Settlement Fund; in all events, the Defendants, their insurers, and their respective counsel shall not have any liability or responsibility for any Taxes or any Tax Expenses or the filing of any tax returns or other documents with the Internal Revenue Service or any other state or local taxing authority. From the cash portion of the Settlement Fund, the Escrow Agent shall indemnify and hold harmless the Defendants, their insurers and their respective counsel for Taxes and Tax Expenses (including, without limitation, Taxes payable by reason of any such indemnification). Further, Taxes and Tax Expenses shall be treated as, and considered to be, a cost of administration of the Settlement Fund and shall be timely paid by the Escrow Agent out of the cash portion of the Settlement Fund without prior order from the Court. The Escrow Agent shall be obligated (notwithstanding anything herein to the contrary) to withhold from distribution to Authorized Claimants any funds necessary to pay such Taxes and Tax Expenses, including the establishment of adequate reserves for any Taxes and Tax Expenses (as well as any amounts that may be required to be withheld under Treas. Reg. §1.468B-2(1)(2)); neither the Defendants, their insurers nor their respective counsel are responsible to pay such Taxes and Tax Expenses, nor shall they have any liability or responsibility therefor. The Settling Parties hereto agree to cooperate with the Escrow Agent, each other, and their tax attorneys and accountants to the extent reasonably necessary to carry out the provisions of this ¶2.10.

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(c) For the purpose of this ¶2.10, references to the Settlement Fund shall include both the Settlement Fund and the Notice and Administration Fund established therefrom and shall also include any interest thereon.

d. Termination of Settlement

2.11 In the event that the Effective Date does not occur, or the Settlement is not approved by the Court, or is terminated for any other reason, the cash portion of the Settlement Fund shall be refunded as described in ¶7.4 below.

e. Additional Settlement Consideration - Corporate Governance

2.12 DHB, through its Board of Directors, shall adopt the Corporate Governance

Principles and Policies set forth below, as soon as practicable after the Effective Date and shall maintain the same in effect for at least two years. The Settling Parties acknowledge that the Corporate Governance Principles and Policies set forth below were jointly developed and negotiated by the Lead Plaintiffs and Lead Counsel in the Class Action and the Derivative Action.

2.13 Nothing in these Principles and Policies shall dilute any existing or future legal requirements to which DHB is subject as a public corporation or as a publicly-traded stock on any national listing.

CORPORATE GOVERNANCE PRINCIPLES AND POLICIES

A. THE ROLE OF THE BOARD OF DIRECTORS

1. Direct the Affairs of DHB Industries Inc. (the “Company”) for the Benefit of Stockholders

The primary responsibility of directors is to oversee the affairs of the Company for the benefit of stockholders. The Board of Directors (the “Board”) agrees that day-to-day management of the Company is the responsibility of management and that the role of the Board is to oversee management’s performance

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of that function. The Board shall also mandate and administer a corporate compliance program, which shall include the creation of a Company Code of Business and Ethics, the maintenance of accounting, financial and other controls, and the review of the adequacy of such controls.

2. Long Range Strategy Development

Long range strategic issues should be discussed as a matter of course at regular Board meetings. The Board may choose to devote one of its regularly scheduled meetings exclusively to strategic planning.

3. Review of Financial Goals and Performance

The Board reviews the annual operating plan and specific goals at the start of the fiscal year and financial performance quarterly (actual and in comparison to plan). The Board also believes it is important to establish and evaluate both short and long term objectives.

4. Ethical Business Environment

The Board insists on an ethical business environment that focuses on adherence to both the letter and the spirit of regulatory and legal mandates. The Board expects that management will conduct operations in a manner supportive of this view. The Board is committed to avoiding any transactions that compromise, or appear to compromise, director independence. The Company shall prepare for the Board’s review and approval a Code of Business Conduct and Ethics, and shall receive periodic reports from the Company’s General Counsel with respect to such Code.

5. Chairman and Chief Executive Officer Performance Evaluation

The Chairman and Chief Executive Officer’s performance should be evaluated annually and as a regular part of any decision with respect to their respective compensation. The Board shall delegate the performance and compensation evaluation as it deems appropriate to specified Board members or to the Compensation Committee of the Board. Notwithstanding such delegation, however, the Board as a whole shall be responsible for the oversight of the Chairman, Chief Executive Officer and senior management. The offices of the Chairman and the Chief Executive Officer may be from time to time combined and may be from time to time separated. The Board has discretion in combining or separating the positions as it deems appropriate in light of prevailing circumstances.

6. Succession Planning

The Board is responsible for succession planning. The Board will have the Chairman and Chief Executive Officer annually review with the independent directors the abilities of the key senior managers and their likely successors. Additionally, the independent directors may meet periodically to discuss, among

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other things, management succession issues. As part of the succession and development process, the Board, or at the Board’s direction, the Compensation Committee, will familiarize itself with the Chairman’s and Chief Executive Officer’s direct reports through periodic management and operating reports and meetings. The independent directors shall call a meeting upon any sudden temporary or permanent incapacity of the Chairman or Chief Executive Officer.

7. Material Transactions

The Board shall evaluate and, if appropriate, approve all material Company transactions not arising in the ordinary course of business.

8. Stockholder Communications; Attendance at Annual Stockholders Meetings

The Board shall establish procedures to allow for stockholders to communicate directly with the Board, the non-management directors, and the committees of the Board. To further facilitate stockholder communication with the Board, all directors are encouraged to attend the Company’s Annual Meeting of Stockholders.

9. Governing Documents

In the event of any conflict between the Company’s Certificate of Incorporation, By-laws and these Principles and Policies, the Certificate shall first govern and next the By-law and then these Principles and Policies, in that order.

B. MEETINGS OF THE BOARD OF DIRECTORS

1. Selection of Chairman of the Board

The Chairman of the Board shall be selected by the Board. The Chairman will be elected annually and shall serve at the pleasure of the Board.

2. Frequency of Meetings

The Board will regularly meet at least one time each quarter and one quarterly meeting may be in conjunction with the annual meeting of stockholders. An annual calendar for the succeeding year will be agreed upon from time to time. Special meetings may be called as necessary.

While the Board recognizes that directors discharge their duties in a variety of ways, including personal meetings and telephone contact with management and others regarding the business and affairs of the Company, the Board shall inform its members that it feels it is the responsibility of individual directors to make themselves available to attend both regular and special Board and committee meetings on a consistent basis. Active attendance at meetings shall be taken into account in the determination whether to nominate for reelection any director.

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3. Meetings of Independent Directors

Independent directors should meet routinely and regularly without management as they deem appropriate in their discretion, and should meet at any time upon the request of any director.

4. Access to Management and Outside Experts

Board members shall have reasonable direct access to the Chairman, Chief Executive Officer, Chief Operating Officer and General Counsel, in their discretion. The Board shall have access to other members of senior management on a case by case basis after a courtesy call to the Chairman or Chief Executive Officer. Upon prior notice to the Chairman and/or General Counsel, the Board or a Board committee may seek legal or other expert advice from a source independent of management. Board members will use judgment to ensure that contact with management is not distracting to the business operation of the Company and that such contact, if in writing, be copied to the Chairman, Chief Executive Officer and General Counsel.

5. Attendance of Non-Directors at Meetings

The Chairman and the Chief Executive Officer shall have discretion to invite any members of management, other Company employees or third parties they deem appropriate to attend Board meetings at appropriate times, subject to the Board’s right to request that such attendance be limited or discontinued. The Board shall have the authority to request non-management guests to sign a confidentiality agreement in form satisfactory to the General Counsel prior to such guest’s participation in any Board or committee meeting. The Board and committees may exclude any guest from part or all of any meeting upon its determination that it is in the best interests of the Company to do so.

6. Agendas and Presentations

The Board shall indicate it believes the Chairman and Chief Executive Officer are jointly responsible, and should establish, the agenda for each Board meeting, taking into account suggestions of Board members. Board members may include particular items on the agenda by contacting the Chairman and the Chief Executive Officer and the Chairman and Chief Executive Officer are expected to ask directors for their suggestions or opinions on possible agenda items before each meeting.

As with the agenda, the Board shall indicate it believes that the Chairman and Chief Executive Officer should determine the form of each presentation to the Board and the person to make such presentation. Each meeting should include reports from the Board committees, as appropriate.

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It shall be the policy of the Board that the Chief Executive Officer or Chief Financial Officer will give a presentation on the financial and operating results of the Company and related issues at each Board meeting.

7. Information Flow

The Board shall receive salient information helpful in understanding the presentations, discussions and issues to be covered at such meeting, in writing and sufficiently in advance of such meeting to permit appropriate review. Where appropriate, longer and more complex documents shall contain executive summaries. Absent unusual circumstances, in no event will such information be distributed less than three days in advance of any regular Board meeting and 24 hours in advance of any special meeting.

The Board shall periodically review the information flow to Board members to ensure that directors receive the right kind and amount of information from management in sufficient time to prepare for meetings. The Chairman or Chief Executive Officer, or their designee, shall coordinate the information flow to the directors, periodically discuss director satisfaction with Board materials with individual directors and encourage directors to offer suggestions on materials. In addition, this topic shall be considered annually by the independent directors as part of its regular review of Board performance.

8. Additional Service

From time to time the Company may request the services of a Board member other than in his or her capacity as a director. In such situations, before assigning any task to a Board member that would require additional compensation, the Chairman, Chief Executive Officer or General Counsel shall first review such assignment with the Compensation Committee. Any Board member requested to perform services by the Company that he or she believes do not lie within his or her capacity as a director, shall inform the Compensation Committee prior to accepting such assignment. Any such engagement will be consistent with the independence requirements of the American Stock Exchange.

C. BOARD STRUCTURE

1. Composition of Board

The majority of the members of the Board shall be independent directors. Independent directors should have appropriate skills and characteristics required of Board members. This assessment should include issues of diversity, age and skills, all in the context of an assessment of the perceived needs of the Board at that point in time. Unless otherwise determined by a majority of the independent directors, all independent directors shall offer their resignation as a matter of course upon a change in employer or other significant changes in their professional roles or responsibilities that might reasonably be seen to affect their ability to serve, and the Board shall consider the appropriateness of continued service in light of such changes. Any such resignation shall be communicated to the Chairman or Chief Executive Officer and may be considered by the Board or by the independent directors.

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The Chairman, Chief Executive Officer, and any other directors other than independent directors, shall offer his or her resignation from the Board as a matter of course upon resignation or any other significant change in his or her professional roles or responsibilities, unless otherwise provided in such individual’s employment, consulting or other agreement with the Company.

Any resignation submitted as a matter of course shall be reviewed by the Board as a whole or at the Board’s direction the independent directors, and, if the Board or such independent directors determines that such director continues to contribute significantly to the Company, the director’s membership on the Board may continue.

Paragraph 18 of the Memorandum of Understanding is incorporated herein.

2. Definition of Independent Director

The Board of Directors defines an “independent director” as a director who, in the opinion of the Board meets the independence requirements of the American Stock Exchange or other market or exchange on which the Company’s stock may be listed. To evaluate “independence,” the Board may consider all relevant factors. The Board recognizes that director independence is an issue that is actively being reviewed by multiple constituencies and may amend its criteria for determining what constitutes an “independent director” to reflect changing standards.

3. Size of the Board

The Board acknowledges that it should not be too large and understands that the size of the Board will fluctuate from time to time depending on circumstances. The independent directors will make recommendations regarding increasing or decreasing size from time to time.

4. Director Retirement Age and Term Limits

The Board believes that consistent quality in the directorship can be achieved effectively without term limits or any mandatory retirement age. However, each director shall stand for election or re-election annually and serve a one-year term.

5. Director Appointments

A majority of the independent directors shall nominate candidates for election to the Board. It is the independent directors’ responsibility to make director recommendations to the full Board for appointments to fill vacancies of any unexpired term on the Board and to recommend nominees for submission to stockholders for approval at the time of the Annual Meeting.

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The Company does not set specific criteria for directors except to the extent required to meet applicable legal, regulatory and exchange requirements. The Board shall seek candidates that show evidence of leadership in their particular field, have broad experience and the ability to exercise sound business judgment, have specific knowledge about the Company’s business and be able to network in a way to promote the Company’s interests.

6. Director Evaluation

The independent directors shall prepare, for the Board’s review and approval, Board and director assessment methods and criteria, taking the Chairman’s and Chief Executive Officer’s views into consideration. The independent directors shall annually evaluate the Board’s overall performance and evaluate individual directors performance using the Board approved methods and criteria for such review.

7. Director Compensation and Stock Ownership

The Board believes that the level of director compensation generally should be competitive with that paid to directors of other corporations of similar size and profile in the United States. The Compensation Committee is responsible for making recommendations for the full Board’s review and approval with respect to director compensation and benefit programs.

8. Interlocking Directorates

All directors shall seek approval from the independent directors prior to accepting any other board memberships in for-profit companies to avoid legally impermissible interlocking directorships or other conflicts of interest; provided that no director shall serve on more than four (4) outside public boards of for-profit companies. Similarly, the Chairman, Chief Executive Officer and other members of management shall seek approval of the Board prior to accepting outside board memberships in for-profit companies.

D. COMMITTEES OF THE BOARD

1. Number and Types of Committees

The Board shall create and disband committees depending on the particular interests of the Board, issues facing the Company and legal requirements. The current “standing” committees of the Board (that is, committees expected to operate over an extended period) are the Audit Committee, the Compensation Committee, and the Corporate Governance Committee. Each Committee shall be comprised solely of Independent Directors, as described in §C.2. The independent directors shall periodically recommend changes to the composition of the Board committees. Directors shall be free to make suggestions regarding committees at any time and are encouraged to do so. The Board shall consider from time to time the committee structure as part of the review of overall Board effectiveness. The composition, members and responsibilities will also be defined periodically by the Board.

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2. Assignment and Rotation of Committee Members

The Board shall make assignments within the following guidelines: assignments may be rotated periodically, though not necessarily within any specified time frame; all shall be comprised solely of independent directors; and committee assignments must comply with any applicable stock exchange and legal requirements. The Chairman of the Audit Committee and other Audit Committee members shall meet the financial sophistication and independence requirements of the American Stock Exchange and applicable law.

3. Frequency of Committee Meetings

Management will generally recommend an annual committee meeting schedule for all standing committees, but it shall be the responsibility of committee chairpersons, in consultation with committee members, to determine the frequency and length of committee meetings. The Audit Committee will meet at least quarterly; other committees will meet at least twice annually.

4. Committee Agendas

Committee chairpersons, in consultation with appropriate members of management and committee members, shall determine committee agendas. Any director may suggest an item for consideration as part of any committee agenda. The Chief Financial Officer will act as the primary management liaison to provide committees requested financial data and analyses. The General Counsel will act as the management liaison to assemble and distribute agendas and facilitate minutes and reports preparation.

5. Committee Reports

Reports of committee meetings are submitted to the full Board following each committee meeting. Committee actions shall be binding consistent with such Committee’s charter and applicable corporate law. Committee chairpersons shall be offered the opportunity to comment or report on committee activities at each Board meeting.

6. Specific Roles and Responsibilities

The specific roles and responsibilities of each committee shall be outlined in their respective charters.

f. Additional Settlement Consideration - Resignations

2.14 David H. Brooks has voluntarily resigned from the Board of Directors of DHB and from all of the other positions held by him in DHB and its subsidiaries.

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2.15 To the extent that they may be serving on DHB’s Board of Directors at the time of the Effective Date of the Settlement, Cary Chasin, Gary Nadelman and Barry Berkman shall be replaced as Board members within one year thereafter.

2.16 Upon cessation of employment with DHB and/or service on its Board of Directors, and for a period of time of 5 years thereafter, David H. Brooks, Dawn M. Schlegel, Sandra Hatfield, Cary Chasin, Jerome Krantz, Gary Nadelman and Barry Berkman will not be employed (directly or indirectly) by DHB or any of its subsidiaries or affiliates (but not including Tactical Armor Products, Inc., if the same may be deemed to be such an affiliate), including, but not limited to, serving as any manner of consultant or in any capacity on or in service to the Board of Directors. This same restriction on employment shall apply to Terry Brooks and Jeffrey Brooks, commencing as of the Effective Date.

3. Preliminary Approval, Notice Orders and Settlement Hearing

3.1 Promptly after execution of this Stipulation by all parties hereto, Class Plaintiffs’ Counsel and Derivative Counsel shall submit this Stipulation, together with its Exhibits, to the Court and shall apply for entry of orders (the “Notice Orders”), substantially in the form of Exhibits B and C attached hereto, requesting, inter alia, the preliminary approval of the Settlement set forth in this Stipulation, and approval for the mailing and publication of settlement notices (the “Notices”), substantially in the form of Exhibits B-1, B-3, C-1 and C-2 attached hereto, which shall include the general terms of the Settlement set forth in this Stipulation, the Plan of Allocation, the general terms of the Class Fee and Expense Application and the Derivative Fee and Expense Application, as defined in ¶¶6.2 and 6.5 below, and the date of the Settlement Hearing, as defined below in ¶3.2. Class Plaintiffs’ Counsel shall be responsible for providing notice to the Class. Derivative Counsel shall be responsible for providing notice to the Current DHB Shareholders.

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3.2 Class Plaintiffs’ Counsel and Derivative Counsel shall request that, after the Notices are mailed and published, the Court hold a hearing (the “Settlement Hearing”) to consider and determine whether an order approving the Settlement as fair, reasonable and adequate should be entered and whether Judgments should be entered thereon dismissing the Class Action and Derivative Action with prejudice, and that the Court thereafter approve the Settlement and dismiss the Class Action and Derivative Action with prejudice. At or after the Settlement Hearing, Class Plaintiffs’ Counsel also will request that the Court approve the Plan of Allocation and the Class Fee and Expense Application, and Derivative Counsel also will request that the Court approve the Derivative Fee and Expense Application.

4. Releases, Bar and Indemnification

4.1 Upon the Effective Date, the Class Plaintiffs, the Derivative Plaintiff and DHB, and each of the Class Members (whether or not any such Class Member executes and delivers a Proof of Claim and Release) and each of the Current DHB Shareholders, on behalf of themselves and each of their respective predecessors, successors, parents, subsidiaries, affiliates, custodians, agents, assigns, representatives, heirs, estates, executors, trusts, trustees, trust beneficiaries, administrators, spouses, marital communities, and immediate family members, having any legal or beneficial interest in the publicly traded securities of DHB during the Class Period, shall be deemed to have, and by operation of the Judgments shall have, fully, finally, and forever released, relinquished and discharged all Released Class Claims and all Released Derivative Claims, as the case may be, and any and all claims relating to or arising out of or connected with the Settlement or resolution of the Actions, against all of the Released Class Persons and the Released Derivative Persons, respectively.

4.2 Upon the Effective Date, the Class Plaintiffs, the Derivative Plaintiff and DHB, and each of the Class Members (whether or not any such Class Member executes and delivers a Proof of Claim and Release) and each of the Current DHB Shareholders, and each of their respective

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predecessors, successors, parents, subsidiaries, affiliates, custodians, agents, assigns, representatives, heirs, estates, executors, trusts, trustees, trust beneficiaries, administrators, spouses, marital communities, and immediate family members, having any legal or beneficial interest in the publicly traded securities of DHB during the Class Period, will be forever barred and enjoined from commencing, instituting or prosecuting any of the Released Class Claims or any of the Released Derivative Claims, as the case may be, in any action or other proceeding, against any of the Released Class Persons or any of the Released Derivative Persons, respectively.

4.3 The Derivative Plaintiff and DHB further agree that the approval of the Settlement and the dismissal of the Derivative Action shall act to bar the prosecution, by DHB or derivatively on behalf of DHB, of any duplicative or similar claims as those set forth in, or that could or might have been set forth in, the Derivative Action, or of any of the Released Derivative Claims.

4.4 The Proof of Claim and Release to be executed by Class Members shall release all Released Class Claims against all of the Released Class Persons and shall be substantially in the form contained in Exhibit B-2 attached hereto.

4.5 Upon the Effective Date, as more specifically provided for in the Judgments attached hereto as Exhibits D and E, each of the Released Class Persons and Released Derivative Persons shall be deemed to have, and by operation of the Judgments shall have, fully, finally, and forever released, relinquished and discharged the Class Plaintiffs, the Derivative Plaintiff, each and all of the Class Members, each and all of the Current DHB Shareholders, DHB, and Plaintiffs’ Counsel, as the case may be, from all Claims (including all Unknown Claims) relating to or arising out of or connected with the institution, prosecution, assertion, settlement or resolution of the Actions, except that nothing in this Stipulation shall affect any Person’s rights to enforce the terms of this Stipulation, any of the Non-Released Claims, or any agreements, claims, rights, or obligations that do or may hereafter exist between or among the Released Class Persons, or any of them, or the Released Derivative Persons, or any of them, as the case may be.

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4.6 Notwithstanding the foregoing releases, all of DHB’s obligations to David H. Brooks and to all of the other Defendants to whom DHB has indemnification obligations, of and for indemnification and reimbursement for fees, expenses and liabilities, as provided for in DHB’s Articles of Incorporation and By-Laws, in the laws of Delaware, and in this Stipulation, as the latter is approved by the Court, shall remain in full force and effect, and David H. Brooks’ undertaking to DHB regarding his indemnification by DHB and the undertakings of the other Defendants to whom DHB has indemnification obligations, shall also remain in full force and effect. Further, notwithstanding the foregoing releases, any and all obligations of any Defendant to any other Defendant under any existing contract or agreement between or among any of them shall also remain in full force and effect, including, without limitation, any agreement entered into in connection with the Settlement.

4.7 In addition, DHB shall indemnify defendants David H. Brooks and Dawn M. Schlegel, and each of them, against any liability under §304 of the Sarbanes-Oxley Act of 2002 incurred by them, or either of them, in any action brought by a third party under §304, and to pay to them, and to each of them, an amount equal to any payment made by them, or either of them, to DHB pursuant to any judgment in any such action.

4.8 Pending final determination of whether the Settlement should be approved and applied in the Actions, all proceedings and all further activity by, between or among the Settling Parties regarding or directed towards the Actions, save for those activities and proceedings relating to this Stipulation or the Settlement, shall be stayed.

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4.9 Pending final determination of whether the Settlement should be approved and applied in the Actions, neither the Class Plaintiffs, nor the Derivative Plaintiff, nor DHB, nor any of the Class Members, nor the Current DHB Shareholders, shall commence, maintain or prosecute against the Defendants, the other Released Class Persons, the other Released Derivative Persons, or any of them, any action or proceeding in any court or tribunal asserting or relating to any of the Released Class Claims or Released Derivative Claims.

5. Administration and Calculation of Claims, Final Awards and Supervision and Distribution of the Settlement Fund

5.1 The Claims Administrator, subject to such supervision and direction of the Court and/or Class Plaintiffs’ Counsel as may be necessary or as circumstances may require, shall administer and calculate the claims submitted by Class Members and shall oversee distribution of the Net Settlement Fund (defined below) to Authorized Claimants. The Settlement Fund shall be applied as follows:

(a) to pay all the costs and expenses reasonably and actually incurred in connection with providing notice, identifying and locating Class Members and Current DHB Shareholders, soliciting claims, assisting with the filing of claims, administering and distributing the Settlement Fund to Authorized Claimants, processing Proof of Claim and Release forms and paying escrow costs, if any;

(b) to pay the Taxes and Tax Expenses described in ¶2.10 above;

(c) to pay to Plaintiffs’ Counsel attorneys’ fees and expenses with interest thereon (the “Fee and Expense Award”), if and to the extent allowed by the Court; and

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(d) to reimburse the time and expenses of the Lead Plaintiffs, if and to the extent allowed by the Court.

Subject to the provisions of ¶5.2(c) below, the balance of the Settlement Fund (the “Net Settlement Fund”) shall be distributed to Authorized Claimants as allowed by this Stipulation, the Plan of Allocation, and the Court.

5.2 Upon the Effective Date and thereafter, and in accordance with the terms of this Stipulation, the Plan of Allocation, and such further approval and further order(s) of the Court as may be necessary or as circumstances may require, the Net Settlement Fund shall be distributed to Authorized Claimants, subject to and in accordance with the following:

(a) Within ninety (90) days after the mailing of the Notice or such other time as may be set by the Court, each Person claiming to be an Authorized Claimant shall be required to submit to the Claims Administrator a completed Proof of Claim and Release, substantially in the form of Exhibit B-2 attached hereto, signed under penalty of perjury and supported by such documents as specified in the Proof of Claim and Release and as are reasonably available to such Person.

(b) Except as otherwise ordered by the Court, all Class Members who fail to timely submit a Proof of Claim and Release within such period, or such other period as may be ordered by the Court, or otherwise allowed, and all Class Members whose claims are not approved by the Court (in the event the same are rejected in whole or in part by the Claims Administrator and the Court resolves the dispute involved) shall be forever barred from receiving any Settlement payment pursuant to this Stipulation, or otherwise, but will in all other respects be subject to and bound by the provisions of this Stipulation, the releases contained herein, and the Judgments, and be enjoined and barred from bringing any action against any of the Released Class Persons asserting any of the Released Class Claims. Notwithstanding the foregoing, Class Plaintiffs’ Counsel shall have the discretion to accept late submitted claims for processing, so long as the distribution of the Net Settlement Fund to Authorized Claimants is not materially delayed.

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(c) The Net Settlement Fund shall be distributed to the Authorized Claimants substantially in accordance with a Plan of Allocation to be described in the Notice to the Class Members and approved by the Court. However, if there is any balance remaining in the Net Settlement Fund after six (6) months from the date of distribution of the Net Settlement Fund (whether by reason of tax refunds, uncashed checks or otherwise), such balance shall be donated to an appropriate 501(c)(3) non-profit organization(s) to be selected by Class Plaintiffs’ Counsel, with prior written notice to Defendants’ counsel.

5.3 Subject to the terms of the Escrow Agreement, the Released Persons shall have no responsibility for, interest in, or liability whatsoever with respect to the investment or distribution of the Settlement Fund, the Net Settlement Fund, the Plan of Allocation, the determination, administration, or calculation of claims, the payment or withholding of Taxes, the payment of Tax Expenses, the payment of any attorneys’ fees and expenses incurred on behalf of Plaintiffs to the Actions, or any losses incurred in connection therewith.

5.4 No Person shall have any claim against Class Plaintiffs, Class Plaintiffs’ Counsel, the Claims Administrator, any agent designated by Class Plaintiffs’ Counsel, Defendants or their respective counsel, based on the investment or distributions made substantially in accordance with this Stipulation, the Plan of Allocation, or further orders of the Court.

5.5 It is understood and agreed by the Settling Parties that the proposed Plan of Allocation including, but not limited to, any adjustments to an Authorized Claimant’s claim set forth therein, is not a part of this Stipulation and is to be considered by the Court separately from the Court’s consideration of the fairness, reasonableness and adequacy of the Settlement, and any order

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or proceeding relating to the Plan of Allocation shall not operate to terminate or cancel this Stipulation or affect the finality of the Court’s Judgments, or any other orders entered pursuant to this Stipulation. The Plan of Allocation shall be prepared by Class Plaintiffs’ Counsel, and Defendants shall have no responsibility or liability therefor.

6. Plaintiffs’ Counsel’s Attorneys’ Fees and Reimbursement of Expenses and Reimbursement of the Lead Plaintiffs

6.1 If so ordered by the Court upon preliminary approval of the Settlement by the Court, Class Plaintiffs’ Counsel and Derivative Counsel shall be entitled to provisional reimbursement of 75% of their out-of-pocket expenses, subject to Class Plaintiffs’ Counsel’s and Derivative Counsel’s several obligation to make appropriate refunds or repayments to the Settlement Fund plus interest at the same rate as earned on the cash portion of the Settlement Fund if, and when, as a result of any order, the final fee and/or expense award is lower than that amount, or there shall ultimately be no award of fees and expenses.

6.2 Class Plaintiffs’ Counsel may submit an application or applications (the “Fee and Expense Application”) for distributions from the Settlement Fund for: (a) an award of attorneys’ fees; (b) plus reimbursement of expenses incurred in connection with prosecuting the Class Action; (c) plus any interest on such attorneys’ fees and expenses at the same rate and for the same periods as earned by the cash portion of the Settlement Fund (until paid) as may be awarded by the Court; and (d) reimbursement of the costs and expenses of the Lead Plaintiffs prosecuting the Class Action. Class Plaintiffs’ Counsel reserve the right to make additional applications for fees and expenses incurred.

6.3 The Fee and Expense Award shall be paid to Class Plaintiffs’ Counsel from the Settlement Fund, as ordered, immediately after the Court executes a written order awarding such fees and expenses, notwithstanding the existence of any timely filed objections thereto, or any

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potential appeal therefrom, subject to the several obligation of Class Plaintiffs’ Counsel to make appropriate refund repayments to the Settlement Fund as more particularly set forth below in ¶6.4. Class Plaintiffs’ Counsel shall thereafter allocate the attorneys’ fees amongst Class Plaintiffs’ Counsel in a manner in which Class Plaintiffs’ Counsel in good faith believe reflects the contributions of such counsel to the institution, prosecution and settlement of the Actions.

6.4 In the event that the Effective Date does not occur, or the Judgments or the order making the Fee and Expense Award are/is reversed or modified, or this Stipulation is terminated for any reason, and in the event that the Fee and Expense Award shall have been paid to any extent, then Class Plaintiffs’ Counsel shall, within five (5) business days from Class Plaintiffs’ Counsel receiving notice from DHB’s or David H. Brooks’ counsel or from a court of appropriate jurisdiction, refund to the Settlement Fund, the fees and expenses previously paid to them from the Settlement Fund, plus interest thereon at the same rate as earned by the cash portion of the Settlement Fund, in an amount consistent with such reversal or modification. Each Class Plaintiffs’ Counsel’s law firm, as a condition of receiving such fees and expenses, on behalf of itself and each partner and/or shareholder of it, agrees that the law firm and its partners and/or shareholders are subject to the jurisdiction of the Court for the purpose of enforcing the provisions of this subparagraph. Without limitation, each such law firm and its partners and/or shareholders agree that the Court may, upon application of counsel for DHB or David H. Brooks, on notice to Class Plaintiffs’ Counsel, summarily issue orders, including, but not limited to, judgments and attachment orders, and may make appropriate findings of or sanctions for contempt, against them or any of them should such law firm fail timely to repay fees, expenses and interest pursuant to this ¶6.4.

6.5 Derivative Counsel may apply for fees and expenses to be paid from the Settlement Fund. The amount of such fees and expenses shall not exceed $300,000 (the “Derivative Fee and

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Expense Application”), subject to such further negotiations as may occur between Class Plaintiffs’ Counsel and Derivative Counsel in the Actions. Any amount awarded shall be subject to the same payment and repayment obligations by Derivative Counsel as set forth in ¶¶6.3 and 6.4 above.

6.6 The procedure for and the allowance or disallowance by the Court of any applications by any of the Plaintiffs’ Counsel for attorneys’ fees and expenses to be paid out of the Settlement Fund, are not part of the Settlement set forth in this Stipulation, and are to be considered by the Court separately from the Court’s consideration of the fairness, reasonableness and adequacy of the Settlement set forth in this Stipulation, and any order or proceeding relating to any Fee and Expense Application, or any appeal from any order relating thereto or reversal or modification thereof, shall not operate to terminate or cancel this Stipulation, or affect or delay the finality of the Judgments approving this Stipulation and the Settlement of the Actions set forth herein.

6.7 The Released Persons shall have no responsibility for, and no liability whatsoever with respect to, any payment to Counsel for any Plaintiff in the Actions, including any payment from the Settlement Fund, and no Plaintiffs’ Counsel shall have recourse to the Related Persons, or any of them, for any such payments.

6.8 The Released Persons shall have no responsibility for, and no liability whatsoever with respect to, the allocation among Plaintiffs’ Counsel, and/or any other Person who may assert some claim thereto, of any Fee and Expense Award that the Court may make in the Actions.

7. Conditions of Settlement, Effect of Disapproval, Cancellation or Termination

7.1 This Stipulation, the Settlement and the Effective Date shall be conditioned on the occurrence of all of the following events:

(a) the cash portion of the Settlement Fund shall have been deposited with the Escrow Agent as required by ¶¶2.1 and 2.2 above;

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(b) the Court shall have entered the Notice Orders, as required by ¶3.1, above and the same have been complied with;

(c) the Defendants shall not have exercised the option to terminate this Stipulation pursuant to ¶7.3 hereof;

(d) the Court shall have entered the Judgments substantially in the form of Exhibits D and E attached hereto; and

(e) each of the Judgments shall have become Final, as defined in ¶1.17, above.

7.2 A condition of this Stipulation is that this Stipulation and Settlement shall be approved by the Court as provided herein. However, if (a) the Court enters a judgment, but not the Judgments substantially in the form of Exhibits D and E; or (b) the Court enters the Judgments and appellate review is sought and on such review either of the Judgments is materially modified or reversed; or (c) any of the conditions of ¶7.1 is not met, or satisfied, this Stipulation shall be canceled and terminated unless counsel to Class Plaintiffs’ and Derivative Plaintiff and counsel for DHB and David H. Brooks (together with counsel for any other Defendants who is materially and adversely affected by any such change or failure), within ten days from the receipt of such ruling or written notice of such circumstances, agree in writing to proceed with this Stipulation and Settlement. For purposes of this ¶7.2, no order of the Court or modification or reversal on appeal of any order of the Court or modification or reversal on appeal of any order of the Court concerning the Plan of Allocation or the amount of any attorneys’ fees, expenses and interest awarded by the Court, shall be deemed a material modification of or a part of the material terms of the Judgments or this Stipulation, or shall constitute grounds for cancellation or termination of this Stipulation.

7.3 Defendants DHB and/or David H. Brooks, in their, its or his absolute discretion, as the case may be, shall have the option to cancel and terminate this Stipulation and the Settlement in

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the event that Class Members who purchased or otherwise acquired more than a certain number of DHB shares of common stock during the Class Period choose to exclude themselves from the Class, all as set forth in a separate agreement (the “Supplemental Agreement”) executed among the signatories to this Stipulation. The Supplemental Agreement will not be filed with the Court unless and until a dispute arises between the Class Plaintiffs and Defendants concerning its interpretation or application. Copies of all requests for exclusion from the Class shall be delivered by overnight delivery to counsel for DHB and David H. Brooks by Class Plaintiffs’ Counsel or the Claims Administrator as soon as practicable after receipt.

7.4 In the event the Settlement is not approved by the Court or this Stipulation shall terminate or shall not become Effective for any reason, within seven (7) business days after written notification of such event is sent by same day or overnight delivery by counsel for DHB, David H. Brooks or Class Plaintiffs’ Counsel to the Escrow Agent and all of the other parties hereto, the Settlement Fund (including accrued interest), plus any amount then remaining in the Notice and Administration Fund (including accrued interest), less expenses and any costs which have either been disbursed pursuant to ¶5.1(a) or (b) hereto, or are chargeable to the Notice and Administration Fund, shall be refunded or paid out by the Escrow Agent as directed by the terms of the Escrow Agreement. At the request of counsel for DHB, or David H. Brooks, the Escrow Agent or its designee shall apply for any tax refund owed to the Settlement Fund and pay the proceeds, after deduction of any reasonable fees or expenses incurred in connection with such application(s) for refund, to such other person or entity as counsel for DHB and David H. Brooks may designate.

7.5 In the event that the Settlement is not approved by the Court or this Stipulation shall terminate or shall not become Effective for any reason, the Settling Parties shall be restored to their respective positions in the Actions as of July 12, 2006, before the MOU was executed, and all

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negotiations, proceedings, documents prepared and statements made in connection herewith shall be without prejudice to the Settling Parties, shall not be deemed or construed to be an admission by any Settling Party of any act, matter or proposition and shall not be used in any manner or for any purpose in any subsequent proceeding in the Actions or in any other action or proceeding. In such event, the terms and provisions of this Stipulation, with the exception of ¶¶1.1-1.32, 2.3, 2.5-2.11, 6.1, 6.4-6.8, 7.1-7.7, 8.4-8.15 herein, shall have no further force and effect with respect to the Settling Parties and shall not be used in the Actions or in any other proceeding for any purpose, and any Judgment or order entered by the Court in accordance with the terms of this Stipulation shall be treated as vacated, nunc pro tunc.

7.6 If the Effective Date does not occur, or if this Stipulation is terminated or shall not become Effective for any reason, neither the Class Plaintiff, the Derivative Plaintiff nor any of their counsel shall have any obligation to repay any amounts actually and properly incurred or disbursed pursuant to ¶5.1(a) or (b).

7.7 In the event that a material part of the amount paid for the benefit of the Class is determined to be a preference, voidable transfer, fraudulent transfer, or similar transaction under Title 11 of the United States Code (Bankruptcy) or applicable state law by a final order of a court of competent jurisdiction and the Lead Plaintiffs in the Class Action are required to return such amount to any of the Defendants, then such Lead Plaintiffs shall have the right to either: (i) return that amount of the settlement, less the deductions specified in ¶5.1(a) or (b) applicable thereto, to that Defendant(s) and bring, revive, or reinstate all claims against that Defendant(s); or (ii) return the entire amount of the Settlement, less the deductions specified in ¶5.1(a) or (b), and bring, revive, or reinstate all claims against the Settling Defendants.

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7.8 The Settling Parties agree that the Escrow Agent’s receipt of the cash portion of the Settlement Fund, the Claims Administrator’s receipt of the common stock described in ¶2.4 above, DHB’s agreement to adopt the corporate governance provisions set forth in ¶2.13 above, and the additional consideration set forth in ¶¶2.14-2.16 above, constitutes the transfer of value in exchange for, among other things, the non-necessity of the Defendants defending the Class and Derivative Actions.

8. Miscellaneous Provisions

8.1 The Settling Parties (a) acknowledge that it is their intent to consummate the terms and conditions of this Stipulation; and (b) agree to cooperate to the extent reasonably necessary to effectuate and implement all terms and conditions of this Stipulation and to exercise their best efforts to accomplish the foregoing terms and conditions of this Stipulation.

8.2 Each Defendant warrants as to himself, herself, or itself that the transfer of the cash portion of the Settlement by or on his, her or its behalf will not render him, her or it insolvent. This representation is made by each Defendant as to himself, herself or itself and is not made by any counsel for the Defendants.

8.3 The Settling Parties intend this Settlement to be a final and complete resolution of all disputes among them with respect to the Actions. The Settlement compromises claims that are contested and shall not be deemed an admission by any Settling Party as to the merits of any claim or defense. While the Defendants deny that the claims advanced in the Actions were meritorious, and that any Member of the Class or DHB sustained any injury, Defendants agree and the Judgments in the Actions will state, that the Actions were filed in good faith and in accordance with the applicable Federal Rules of Civil Procedure, including Rule 11 of the Federal Rules of Civil Procedure, and are being settled voluntarily after consultation with competent legal counsel.

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8.4 Neither this Stipulation nor the Settlement, nor any act performed or document executed pursuant to or in furtherance of this Stipulation or the Settlement: (a) is or may be deemed to be or may be used as an admission of, or evidence of, the validity of any Released Class Claims or Released Derivative Claim, or of any wrongdoing or liability of any of the Released Persons; or (b) is or may be deemed to be or may be used as an admission of, or evidence of, any fault or omission of any of the Released Class Persons or Released Derivative Persons in any civil, criminal or administrative proceeding in any court, administrative agency or other tribunal. Any of the Released Class Persons or Released Derivative Persons may file this Stipulation and/or the Judgments in any related litigation as evidence of the Settlement and in any action that may be brought against them in order to support a defense or counterclaim based on principles of res judicata, collateral estoppel, release, good faith settlement, judgment bar or reduction or any other theory of claim preclusion or issue preclusion or similar defense or counterclaim.

8.5 All agreements made and orders entered during the course of the Actions relating to the confidentiality of information shall survive this Stipulation.

8.6 All of the Exhibits to this Stipulation are material and integral parts hereof and are fully incorporated herein by this reference.

8.7 This Stipulation may be amended or modified only by a written instrument signed by or on behalf of all of the Settling Parties or their respective successors-in-interest.

8.8 This Stipulation and the Exhibits attached hereto, and the Supplemental Agreement constitute the entire agreement among the Settling Parties and no representations, warranties or inducements have been made to any party concerning this Stipulation, the Exhibits, or the Supplemental Agreement other than the representations, warranties and covenants contained and memorialized in such documents. This Stipulation supersedes and replaces any prior or

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contemporaneous writing, statement or understanding, including, without limitation, the Memorandum of Understanding pertaining to the Actions. Except as otherwise provided herein, all parties shall bear their own costs.

8.9 Counsel for the Settling Parties are expressly authorized by their respective clients to take all appropriate actions required or permitted to be taken pursuant to this Stipulation to effectuate its terms and conditions, including, without limitation, entering into any modifications or amendments to the Stipulation they deem appropriate.

8.10 Each counsel or other Person executing this Stipulation or any of its Exhibits on behalf of any party hereto hereby warrants that such Person has the full authority to do so.

8.11 This Stipulation may be executed in one or more counterparts. All executed counterparts including facsimile counterparts and each of them shall be deemed to be one and the same instrument. A complete set of original executed counterparts shall be filed with the Court by Class Plaintiffs’ Counsel.

8.12 This Stipulation shall be binding upon, and inure to the benefit of, the Settling Parties and their respective successors, assigns, heirs, spouses, marital communities, executors, administrators and legal representatives.

8.13 Without affecting the finality of the Judgments entered in accordance with this Stipulation, the Court shall retain jurisdiction with respect to implementation and enforcement of the terms of this Stipulation and the Judgments, and the Settling Parties hereto submit to the jurisdiction of the Court for purposes of implementing and enforcing the Settlement embodied in this Stipulation and the Judgments.

8.14 This Stipulation and the Exhibits hereto shall be considered to have been negotiated, executed and delivered, and to be wholly performed, in the State of New York, and the rights and

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obligations of the Settling Parties to this Stipulation shall be construed and enforced in accordance with, and governed by, the internal, substantive laws of the State of New York without giving effect to that State’s choice of law principles.

8.15 Wherever in this Stipulation or in the Exhibits “notice,” “notification,” or the like is provided for, such “notice,” “notification,” or the like shall be in writing.

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IN WITNESS WHEREOF, the parties hereto have caused this Stipulation to be executed, by their duly authorized attorneys, as of November 30, 2006.

LERACH COUGHLIN STOIA GELLER

    RUDMAN & ROBBINS LLP

SAMUEL H. RUDMAN (SR-7957) 58

South Service Road, Suite 200

Melville, NY  11747

Telephone: 631/367-7100

631/367-1173 (fax)

LERACH COUGHLIN STOIA GELLER

RUDMAN & ROBBINS LLP

WILLIAM S. LERACH

KEITH F. PARK

THOMAS G. WILHELM

/s/ Keith F. Park

KEITH F. PARK

655 West Broadway, Suite 1900

San Diego, CA 92101

Telephone: 619/231-1058

619/231-7423 (fax)

LABATON SUCHAROW & RUDOFF LLP

LYNDA J. GRANT (LG-4784)

NICOLE M. ZEISS (NZ-3894)

/s/ Lynda J. Grant

LYNDA J. GRANT

100 Park Avenue, 12th Floor

New York, NY 10017-5563

Telephone: 212/907-0700

212/818-0477 (fax)

Co-Lead Counsel for Plaintiffs

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CAVANAGH & O’HARA

PATRICK O’HARA

407 East Adams Street

Springfield, IL 62701

Telephone: 217/544-1771

217/544-9894 (fax)

Additional Counsel for Plaintiffs

LAW OFFICES OF THOMAS AMON

/s/ Thomas Amon

THOMAS AMON

500 Fifth Avenue, Suite 1650

New York, NY 10110

Telephone: 212/810-2430

212/810-2427 (fax)

ROBBINS UMEDA & FINK, LLP

BRIAN ROBBINS

/s/ Brian Robbins

BRIAN ROBBINS

610 West Ash Street, Suite 1800
San Diego, CA 92101

Telephone: 619/525-3990

619/525-3991 (fax)

Co-Lead Counsel in the Derivative Action

BRYAN CAVE LLP

ERIC RIEDER

DAVID P. KASAKOVE

/s/ David P. Kasakove

DAVID P. KASAKOVE

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1290 Avenue of the Americas

New York, NY 10104

Telephone: 212/541-2000

212/541-4630 (fax)

Counsel for Defendant DHB Industries, Inc.

MILBANK TWEED HADLEY

    & McCLOY LLP

GEORGE S. CANELLOS

C. NEIL GRAY

DANIEL M. PERRY

ROBERT C. HORA

/s/ C. Neil Gray

C. NEIL GRAY

1 Chase Manhattan Plaza

New York, NY 10005-1413

Telephone: 212/530-5000

212/530-5219 (fax)

MINTZ LEVIN COHN FERRIS

GLOVSKY AND POPEO, P.C.

R. ROBERT POPEO

JOHN F. SYLVIA

/s/ R. Robert Popeo

R. ROBERT POPEO

One Financial Center

Boston, MA 02111

Telephone: 617/542-6000

617/542-2241 (fax)

MINTZ LEVIN COHN FERRIS

GLOVSKY AND POPEO, P.C.

JEROME GOTKIN

/s/ Jerome Gotkin

JEROME GOTKIN

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666 Third Avenue

New York, NY 10017-4011

Telephone: 212/935-3000

212/983-3115 (fax)

Counsel for Defendant David H. Brooks

MILBANK TWEED HADLEY &

McCLOY LLP

GEORGE S. CANELLOS

C. NEIL GRAY

DANIEL M. PERRY

ROBERT C. HORA

/s/ C. Neil Gray

C. NEIL GRAY

1 Chase Manhattan Plaza

New York, NY 10005-1413

Telephone: 212/530-5000

212/530-5219 (fax)

Counsel for Defendants David Brooks International Inc., Andrew Brooks Industries Inc., sued as Andrew Brooks International Inc., Elizabeth Brooks Industries Inc., sued as Elizabeth Brooks International Inc.

SERCARZ & RIOPELLE, LLP

ROLAND G. RIOPELLE

/s/ Roland G. Riopelle

ROLAND G. RIOPELLE

Carnegie Hall Tower

152 W. 57th Street, Suite 24C

New York, NY 10019

Telephone: 212/586-4900

212/586-1234 (fax)

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Counsel for Defendant Sandra Hatfield

KOBRE & KIM LLP

STEVEN G. KOBRE

/s/ Steven G. Kobre

STEVEN G. KOBRE

800 Third Avenue

New York, NY 10022

Telephone: 212/488-1200

212/488-1220 (fax)

Counsel for Defendant Dawn Schlegel

CLIFFORD CHANCE US LLP

MARK HOLLAND

ROBERT G. HOUCK

MARY K. DULKA

/s/ Mark Holland

MARK HOLLAND

31 West 52^nd Street

New York, NY 10019

Telephone: 212/878-8000

212/878-8375 (fax)

Counsel for Defendants Cary Chasin, Jerome Krantz, Gary Nadelman, and Barry Berkman

DLA PIPER US LLP

STEPHANIE K. VOGEL

/s/ Stephanie K. Vogel

STEPHANIE K. VOGEL

1251 Avenue of the Americas

New York, NY 10020

Telephone: 212/335-4500

212/335-4501 (fax)

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Counsel for Defendant Larry R. Ellis

BRACEWELL & GIULIANI LLP

MARC LEE MUKASEY

/s/ Marc Lee Mukasey

MARC LEE MUKASEY

1177 Avenue of the Americas

New York, NY 10036

Telephone: 212/508-6100

212/508-6101 (fax)

Counsel for Defendants Tactical Armor Products, Inc. and Terry Brooks

BRAFMAN & ASSOCIATES, P.C.

BENJAMIN BRAFMAN

BRIAN E. KLEIN

/s/ Benjamin Brafman

BENJAMIN BRAFMAN

767 Third Avenue

New York, NY 10017

Telephone: 212/750-7800

212/750-3906 (fax)

Counsel for Defendant Jeffrey Brooks

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CERTIFICATE OF SERVICE

I hereby certify that on March 12, 2007, I electronically filed the foregoing with the Clerk of the Court using the CM/ECF system which will send notification of such filing to the e-mail addresses denoted on the attached Electronic Mail Notice List, and I hereby certify that I have mailed the foregoing document or paper via the United States Postal Service to the non-CM/ECF participants indicated on the attached Manual Notice List.

/s/ Keith F. Park

KEITH F. PARK

LERACH COUGHLIN STOIA GELLER             RUDMAN & ROBBINS LLP

655 West Broadway, Suite 1900

San Diego, CA 92101

Telephone: 619/231-1058

619/231-7423 (fax)

E-mail: KeithP@lerachlaw.com

Mailing Information for a Case 2:05-cv-04296-JS-ETB

Electronic Mail Notice List

The following are those who are currently on the list to receive e-mail notices for this case.

• Mario Alba, Jr

malba@lerachlaw.com,drosenfeld@lerachlaw.com,e_file_ny@lerachlaw.com

• William E Bernarducl

wbernarduci@snlaw.net

• Aaron L. Brody

ssbny@aol.com

• George S. Canellos

gcanellos@milbank.com,cngray@milbank.com

• Celia Cohen

celia.cohen@kobrekim.com

• Mary K Dulka

mary.dulka@cliffordchance.com

• Mary Gail Gearns

marygail.gearns@bingham.com

• Jerome Gotkin

jgotkin@mintz.com

• Lynda J. Grant

lgrant@labaton.com,ElectronicCaseFiling@glrslaw.com

• Christopher Neil Gray

cngray@milbank.com

• Mark Holland

mark.holland@cliffordchance.com

• Nancy Kaboolian

nkaboolian@abbeyspanier.com

• David Paul Kasakove

dpkasakove@bryancave.com

• Christopher Joseph Keller

ckeller@labaton.com

• Steven Gary Kobre

steven.kobre@kobrekim.com

• Kim Elaine Miller

kimmiller225@yahoo.com,kim.miller@kglg.com

• Jeffrey M Norton

jmn@whesq.com,tsawchuk@whesq.com

• Keith Park

keithp@lerachlaw.com

• Robert Popeo

rrpopeo@mintz.com

• Roland G. Riopelle

rriopelle@sercarzandriopelle.com,rriopelle@juno.com

• Howard M. Rogatnick

hmrogatnick@bryancave.com,dortiz@bryancave.com

• Samuel H. Rudman

SRudman@lerachlaw.com

• Peter E. Seidman

pseidman@milbergweiss.com

• Adam L. Sisitsky

asisitsky@mintz.com

• Joel B. Strauss

jstrauss@kaplanfox.com

• John F. Sylvia

jsylvia@mintz.com

• Catherine A. Torell

ctorell@cmht.com,lawinfo@cmht.com

• Nicole M. Zeiss

nzeiss@labaton.com,ElectronicCaseFiling@glrslaw.com

Manual Notice List

The following is the list of attorneys who are not on the list to receive e-mail notices for this case (who therefore require manual noticing). You may wish to use your mouse to select and copy this list into your word processing program in order to create notices or labels for these recipients.

William S. Lerach

Lerach Coughlin Stoia Geller Rudman & Robbins LLP

401 B Street

Suite 2600

San Diego, CA 92101

EX-10.41

Exhibit 10.41

EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT (this “Agreement”) made as of the __th day of August, 2006 by and between James F. Anderson (“Employee”) and DHB Industries, Inc., a Delaware corporation (together with all divisions, subsidiaries and groups, the “Company”).

NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and sufficiency of which is acknowledged, the parties agree as follows:

1. Term.

1.1 Initial Term The Company agrees to employ Employee, and Employee agrees to be employed by the Company, subject to the terms and conditions of this Agreement, for an initial three year period (“the Initial Employment Period”) commencing on the date hereof (the “Effective Date”).

1.2 Renewal Period(s). The Agreement will automatically renew for successive one year periods (“Renewal Period”) at the conclusion of the Initial Employment Period or Renewal Period, unless notice of non-renewal of the Agreement is provided to the Employee by the Employer ninety days before the expiration of the Initial Employment Period or Renewal Period.

2. Employment Duties.

2.1 Title. Employee shall be employed in the business of the Company. Employee shall serve with the title of Chief Accounting Officer. Employee shall devote substantially all of his working time and efforts to the performance of his duties under this Agreement.

2.2 Location. In performing his duties hereunder, Employee shall be available for reasonable travel, as the needs of the business of the Company may require. Employee shall be based at the Company’s Pompano Beach, Florida facility.

2.3 Reporting. Employee shall report to the Controller, or such other persons as the Chief Executive Officer of the Company shall direct from time to time.

3. Compensation/Benefits. In consideration of Employee’s services hereunder, the Company shall provide Employee the following:

3.1 Base Salary. The Employee shall receive an annual rate of base salary (“Base Salary”) not less than $300,000, which may be increased periodically based on performance.

3.2 Bonuses. Commencing at the close of each fiscal year of the Company, the Company shall review the performance of the Company and of Employee during the prior fiscal year, and the Company may provide Employee with additional compensation as a bonus if

the Board of Directors of the Parent, or any compensation committee thereof, in its sole discretion, determines that Executive’s contribution to the Company warrants such additional payment and the Company’s anticipated financial performance of the present period permits such payment. Bonuses shall be paid as a lump sum not later than sixty (60) days after the end of the Company’s preceding fiscal year, provided Employee remains employed and has not given notice of termination at the time such payment is due.

3.3 Equity Compensation. To induce Employee to enter into this Agreement, Employee may be granted by the Company a warrant or option to purchase shares of common stock of the Company, pursuant to a separate agreement.

3.4 Vacations. Employee shall be entitled to three (3) weeks of paid vacation per calendar year. Unused vacation shall not be carried over to any subsequent year.

3.5 Other Benefits. The Company shall provide to Employee such other benefits, including the right to participate in medical and other benefit plans, as are made generally available to executives of the Company from time to time. Employee shall also receive $10,000 to cover relocation expenses.

4. Expenses; Indemnification.

4.1 Expenses. The Company shall reimburse Employee for the reasonable business expenses incurred by Employee in the course of performing his duties for the Company, upon submission of invoices, vouchers or other appropriate documentation, as may be required in accordance with the policies in effect from time to time for executive employees of the Company.

4.2 Indemnity. To the fullest extent permitted by law, the Company shall indemnify Employee with respect to any actions commenced against Employee in his capacity as an officer, director, employee, agent or fiduciary or former officer, director, employee, agent or fiduciary of the Company, or any affiliate thereof for which Employee may render service in such capacity, whether by or on behalf of the Company, its shareholders or third parties, and the Company shall advance to Employee on a timely basis an amount equal to the reasonable fees and expenses incurred in defending such actions, after receipt of an itemized request for such advance, and an undertaking from Employee to repay the amount of such advance if it shall ultimately be determined that Employee is not entitled (as a matter of law or by judicial determination) to be indemnified against such expenses. This indemnity shall survive any termination of employment under this Agreement and is in addition to and not in limitation of any other right to indemnification or exoneration to which Employee is entitled at law, or under the governing charter documents of the Company. The Company agrees to use its best efforts to secure and maintain officers’ and directors’ liability insurance, including coverage for Employee.

5. Covenants and Confidential Information.

5.1 Restrictive Covenants. Employee acknowledges the Company’s reliance on and expectation of Employee’s continued commitment to performance of his duties and responsibilities during the Employment Period. In light of such reliance and expectation on the part of the Company, during the applicable period hereafter specified in Section 5.2, Employee shall not, directly or indirectly, do or suffer either of the following:

(a)(1) own, manage, control or participate in the ownership, management or control of, or be employed or engaged by or otherwise affiliated or associated as an employee, agent, representative, consultant, independent contractor or otherwise with, any other corporation, partnership, proprietorship, firm, association or other business entity engaged in the business of, or otherwise engage in the business of, manufacturing, selling or distributing body armor or body armor related products within the United States in direct or indirect competition with the Company or any of its affiliates;

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(2) solicit any business or contracts from any customers of the Company or its affiliates, any past customers of the Company or its affiliates, or any prospective customers of the Company or its affiliates (i.e., potential customers from which the Company or its affiliates has solicited business at any time during the twelve (12) month period preceding the expiration or termination of the Employment Period), except as necessitated by Employee’s position with the Company and then only in furtherance of the business interests of the Company or its affiliates;

(3) induce or attempt to induce any such customer to alter its business relationship with the Company or its affiliates except as necessitated by Employee’s position with the Company and then only in furtherance of the business interests of the Company or its affiliates;

(4) solicit or induce or attempt to solicit or induce any employee of the Company or its affiliates to leave the employ of the Company or any of its affiliates for any reason whatsoever or hire any employee or any person who was an employee of the Company or its affiliates within the twelve (12) month period prior to such hiring; or

(5) directly or indirectly, engage in any conduct or make any statement, whether in commercial or noncommercial speech, disparaging or criticizing in any way the Company or any of its affiliates, or any products or services offered by any of them, nor shall Employee engage in any other conduct or make any other statement that could be reasonably expected to impair the goodwill of any of the Company or any if its affiliates, the reputation of any products or services of the Company or any of its affiliates or the marketing of such products or services.

(b) disclose, divulge, discuss, copy or otherwise use or suffer to be used in any manner, other than in accordance with Employee’s duties hereunder, any confidential or proprietary information relating to the Company’s or any of its affiliates’ businesses, prospects, finances, operations or properties or other trade secrets of the Company or any of its affiliates, it being acknowledged by Employee that all such information regarding the business of the Company or any of its affiliates compiled or obtained by, or furnished to, Employee while Employee shall have been employed by or associated with the Company is confidential and/or proprietary information and the Company’s exclusive property; provided, however, that the foregoing restrictions shall not apply to the extent that such information: (A) is clearly obtainable in the public domain; (B) becomes obtainable in the public domain, except by reason of the breach by Employee of the terms hereof or by another person barred by a similar duty of confidentiality; or (C) is required to be disclosed by rule of law or by order of a court or governmental body or agency.

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5.2 Applicable Periods. The applicable periods shall be:

(a) so long as Employee is an employee of the Company; and

(b) for a period of twelve (12) months after termination of employment or the expiration of the Employment Period.

5.3 Injunctive Relief. Employee agrees and understands that the remedy at law for any breach by his of this Section 5 will be inadequate and that the damages flowing from such breach are not readily susceptible to being measured in monetary terms. Accordingly, it is acknowledged that the Company shall be entitled to immediate injunctive relief and may obtain a temporary order restraining any threatened or further breach. Nothing in this Section 5 shall be deemed to limit the Company’s remedies at law or in equity for any breach by Employee of any of the provisions of this Section 5 which may be pursued or availed of by the Company.

5.4 Acknowledgment by Employee. Employee has carefully considered the nature and extent of the restrictions upon his and the rights and remedies conferred upon the Company under this Section 5, and hereby acknowledges and agrees that the same are reasonable in time and territory, do not stifle the inherent skill and experience of Employee, would not operate as a bar to Employee’s sole means of support, are fully required to protect the legitimate interests of the Company, and do not confer a benefit upon the Company disproportionate to the detriment of Employee.

6. Proprietary Rights.

6.1 Copyrights. At all times during the Employment Period, all right, title and interest in all copyrightable material which Employee shall conceive or originate, either individually or jointly with others, and which arise out of the performance of this Agreement, will be the property of the Company and are by this Agreement assigned to the Company along with ownership of any and all copyrights in the copyrightable material. At all times during the Employment Period, Employee agrees to execute all papers and perform all other acts necessary to assist the Company to obtain and register copyrights on such materials in any and all countries, and the Company agrees to pay expenses associated with such copyright registration. Works of authorship created by Employee for the Company in performing his responsibilities under this Agreement shall be considered “works made for hire” as defined in the U.S. Copyright Act. In addition, Employee hereby assignees to the Company all proprietary rights, including but not limited to, all patents, copyrights, trade secrets and trademarks Employee might otherwise have, by operation of law or otherwise, in all inventions, discoveries, works, ideas, information, knowledge and data related to Employee’s access to confidential information of the Company during the Employment Period.

6.2 Know-How and Trade Secret. All know-how and trade secret information conceived or originated by Employee which arises out of the performance of his obligations or responsibilities under this Agreement during the Employment Period or otherwise shall be the property of the Company, and all rights therein are by this Agreement assigned to the Company.

6.3 Joint Ventures, etc. If, during the Employment Period, Employee is engaged in or associated with the planning or implementing of any project, program or venture involving the Company and a third party or parties, all rights in such project, program or venture shall belong to the Company. Except as formally approved by the Board of Directors of the Parent, Employee shall not be entitled to any interest in such project, program or venture or to any commission, finder’s fee or other compensation in connection therewith other than the compensation to be paid to Employee as provided in this Agreement.

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6.4 Return of Materials. Upon termination of the Employment Period, Employee shall deliver promptly to the Company all records, manuals, books, documents, letters, memoranda, notes, notebooks, reports, data, tables, calculations, customer and prospective customer lists, and copies of all of the foregoing, which are the property of the Company, and all other property, trade secrets and confidential information of the Company, including, but not limited to, all documents which in whole or in part contain any trade secrets or confidential information of the Company, which in any of these cases are in his possession or under his control.

7. Termination; Change of Control.

7.1 At-Will Employment. Employee’s employment hereunder is “at will” and may be terminated at any time, with or without cause, at the option of the Company, subject only to the obligations under Section 7.2 below. Additionally, this Agreement may be terminated by Employee by delivering written notice to the Company in the manner specified below. Simultaneous with any termination or resignation hereunder, the Initial Employment Period or Renewal Period shall expire.

7.2 Rights Upon Termination; Payment of Benefits Earned Through Date of Termination. Upon any termination of Employee’s employment, Employee shall in all events be paid all accrued but unpaid Base Salary and all earned but unpaid compensation (vacation) earned through his Date of Termination (as defined below). Employee shall also retain all such rights with respect to vested equity-based awards as are provided under the circumstances under the applicable grant or award agreement, and shall be entitled to all other benefits which are provided under the circumstances in accordance with the provisions of the Company’s generally applicable employee benefit plans, practices and policies and Employee shall have no further entitlements with respect thereto. Further, if this Agreement is terminated by the Company, other than for cause or as a result of Employee’s death, or if the Agreement is not renewed, Employee shall be entitled to a sum equivalent to 12 months salary. For purposes of this Agreement, “cause” shall be defined as gross negligence, willful misconduct, or constructive abandonment on the part of Employee.

7.3 Notice of Termination. Notice of termination of this Agreement or of any termination of Employee’s employment (other than by reason of death) shall be communicated by written notice (a “Notice of Termination”) from one party to the other in accordance with this Section 7 and Section 8. “Date of Termination,” with respect to any termination of Employee’s employment during the Initial Employment Period or Renewal Period, shall mean the effective date of termination specified in the Notice of Termination.

8. Notice. Any notice required or permitted hereunder shall be in writing and shall be deemed sufficient when given by hand or by nationally recognized overnight courier or by express, registered or certified mail, postage prepaid, return receipt requested, and addressed, if to the Company at 2102 S.W. 2^nd Street, Pompano Beach, FL 33069, and if to Employee at the address set forth in the Company’s records (or to such other address as may be provided by notice). Notice shall be effective three (3) days after it is delivered to any courier, or immediately if delivered in hand.

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9. Miscellaneous. This Agreement constitutes the entire agreement between the parties concerning the subjects hereof and supersedes any and all prior agreements, term sheets or understandings. This Agreement may not be assigned by Employee, and may be assigned by the Company and shall be binding upon, and inure to the benefit of, the Company’s successors and assigns. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. Headings herein are for convenience of reference only and shall not define, limit or interpret the contents hereof.

10. Amendment. This Agreement may be amended, modified or supplemented by the mutual consent of the parties in writing, but no oral amendment, modification or supplement shall be effective. No waiver by either party of any breach by the other party of any condition or provision contained in this Agreement to be performed by such other party shall be deemed a waiver of a similar or dissimilar condition or provision at the same or any prior or subsequent time. Any waiver must be in writing and signed by Employee or an authorized officer of the Company, as the case may be.

11. Severability. The provisions of this Agreement are severable. The invalidity of any provision shall not affect the validity of any other provision, and each provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.

12. Resolution of Disputes; Enforcement. Any controversy or claim seeking equitable relief pursuant to this Agreement, all controversies and claims arising under or in connection with this Agreement or relating to the interpretation, breach or enforcement hereof and all other disputes between the parties in connection with the employment of the Employee shall be heard in the courts of the State of Florida, County of Broward (“Court”) which shall have exclusive jurisdiction of any and all such disputes and which shall apply the law specified in Section 17 below. Each party shall pay the cost of his or its own legal fees and expenses incurred in connection with any such litigation. No party to any such litigation shall be liable to the other for multiple, punitive, exemplary or consequential damages. All parties consent to the jurisdiction of the Court, and agree inter alia that service may be had pursuant to the provisions of any “long-arm statute” so-called applicable to proceedings pending within such Court.

13. Survivorship. The provisions of Sections 4, 5 and 6 of this Agreement shall survive Employee’s termination of employment. Other provisions of this Agreement shall survive any termination of Employee’s employment to the extent necessary to the intended preservation of each party’s respective rights and obligations.

14. Withholding. All amounts required to be paid by the Company shall be subject to reduction in order to comply with applicable federal, state and local tax withholding requirements.

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15. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. The execution of this Agreement may be by actual or facsimile signature.

16. Definition of Terms. The term “affiliate,” when used in this Agreement with respect to any person, means any other person that, directly or indirectly, controls, is controlled by or is under common control with the first person. The term “person,” when used in this Agreement, means any natural person or entity with legal status.

17. Governing Law. This Agreement shall be construed and regulated in all respects under the internal laws of the State of Florida, without regard to principles of conflict of laws of such state.

18. Captions. All captions are provided for convenience, do not form a part of this Agreement, and are not admissible for purposes of construction.

IN WITNESS WHEREOF, this Agreement is entered into as of the date first written above.

DHB INDUSTRIES, INC.
By:
	Name:	Larry Ellis
	Its:	President/Acting CEO
	James F. Anderson

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EX-21.1

Exhibit 21.1

SIGNIFICANT SUBSIDIARIES

Corporation Name	% Owned		State of Inc.	Date Incorporated
NDL Products, Inc.	100	%	FL	12/16/94
Point Blank Body Armor, Inc.	99	%*	DE	01/27/95
Protective Apparel Corporation of America	100	%	NY	01/09/75

* In December 2003, Point Blank Body Armor, Inc. (“PB”) issued a 0.65% equity interest to an unaffiliated third party, thereby reducing the Company’s percentage ownership of PB to 99.35%.

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors

DHB Industries, Inc.

We consent to the incorporation by reference in the registration statement (No. 33-99032) on Form S-8 of DHB Industries, Inc. of our reports dated September 28, 2007, with respect to the consolidated balance sheets of DHB Industries, Inc. as of December 31, 2006, 2005, 2004 and 2003, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended, and the effectiveness of internal control over financial reporting as of December 31, 2006, which reports appear in the December 31, 2006 Annual Report on Form 10-K of DHB Industries, Inc.

/s/ Rachlin Cohen & Holtz, LLP

Fort Lauderdale, Florida

September 28, 2007

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER

I, Larry Ellis, certify that:

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

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

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

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13(a)-15(f) and 15(d)-15(f)) for the registrant and have:

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

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: September 28, 2007

/s/    LARRY ELLIS        

Larry Ellis

President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, James F. Anderson, certify that:

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

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

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

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13(a)-15(f) and 15(d)-15(f)) for the registrant and have:

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

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: September 28, 2007

/s/    JAMES F. ANDERSON        

James F. Anderson

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of DHB Industries, Inc. (the “Company”) on Form 10-K for the year ending December 31, 2006, as filed with the Securities and Exchange Commission (the “Report”), I, Larry Ellis, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: September 28, 2007	By:	/s/    LARRY ELLIS
		Larry Ellis President and Chief Executive Officer

This certification accompanies this Report on Form 10-K pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of DHB Industries, Inc. (the “Company”) on Form 10-K for the year ending December 31, 2006, as filed with the Securities and Exchange Commission (the “Report”), I, James F. Anderson, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: September 28, 2007	By:	/s/    JAMES F. ANDERSON
		James F. Anderson
		Chief Financial Officer

This certification accompanies this Report on Form 10-K pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.