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<SEC-DOCUMENT>/in/edgar/work/0000950117-00-002409/0000950117-00-002409.txt : 20001109
<SEC-HEADER>0000950117-00-002409.hdr.sgml : 20001109
ACCESSION NUMBER:		0000950117-00-002409
CONFORMED SUBMISSION TYPE:	10-K405
PUBLIC DOCUMENT COUNT:		6
CONFORMED PERIOD OF REPORT:	20000930
FILED AS OF DATE:		20001108

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			BHA GROUP INC
		CENTRAL INDEX KEY:			0000801128
		STANDARD INDUSTRIAL CLASSIFICATION:	 [3564
]		IRS NUMBER:				431416730
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			0930
</COMPANY-DATA>

		FILING VALUES:
			FORM TYPE:		10-K405
			SEC ACT:		
			SEC FILE NUMBER:	000-15045
			FILM NUMBER:		755109
</FILING-VALUES>

			BUSINESS ADDRESS:	
				STREET 1:		8800 E 63RD ST
				CITY:			KANSAS CITY
				STATE:			MO
				ZIP:			64133
				BUSINESS PHONE:		8163568400
</BUSINESS-ADDRESS>

				MAIL ADDRESS:	
					STREET 1:		8800 E 63RD STREET
					CITY:			KANSAS CITY
					STATE:			MO
					ZIP:			64133
</MAIL-ADDRESS>
</FILER>
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>0001.txt
<DESCRIPTION>BHA GROUP HOLDINGS, INC. 10-K405
<TEXT>







<PAGE>





                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

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

<TABLE>

<S>                                                      <C>
For the Fiscal Year Ended                               Commission File Number
   September 30, 2000                                          0-15045
</TABLE>


                            BHA Group Holdings, Inc.
             (Exact name of Registrant as specified in its charter)

<TABLE>

<S>                                                     <C>
               Delaware                                      43-1416730
    (State or other jurisdiction of             (I.R.S. Employer Identification No.)
    incorporation or organization)

8800 East 63rd Street, Kansas City, Missouri                   64133
   (Address of principal executive offices)                  (Zip Code)

Registrant's telephone number, including area code:        (816) 356-8400

Securities registered pursuant to Section 12(b) of the Act:

                                                       Name of Each Exchange
          Title of each class                           on Which Registered
                 None                                       - - - - -

</TABLE>

Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, $.01 par value per share
                                (Title of class)

Indicate by checkmark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: 2

            Yes [X]                          No [ ]

Indicate by checkmark 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. [X]

As of October 31, 2000, the number of shares outstanding of the Registrant's
Common Stock was 6,485,943 shares.

The aggregate market value of the voting stock held by non-affiliates* of the
Registrant's Common Stock was $44,926,168, computed by reference to the closing
price of $14.00 as reported to Registrant at which such stock was quoted by the
NASDAQ National Market on October 31, 2000.

The Registrant's definitive proxy statement for the annual meeting of
stockholders to be held on February 20, 2001 (which will be filed within 120
days after the end of the fiscal year covered by the Form 10-K) is incorporated
to Part III, items 10, 11, 12 and 13, by reference.

*Excludes value of shares held by present officers, directors and principal
stockholders of the Registrant. The determination of "affiliate" status for
purposes of this Annual Report on Form 10-K shall not be deemed a determination
as to whether a person is an affiliate of the Registrant for any other purpose.


                                       -1-






<PAGE>





The statements contained in this Report on Form 10-K that are not purely
historical are forward looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21 E of the Securities Exchange Act of
1934, including statements regarding the Company's expectations, hopes,
intentions or strategies regarding the future. Forward-looking statements are
included in the "Factors Affecting Earnings and Stock Price" section,
"Management's Discussion and Analysis," and may be included in other sections
throughout the report. These forward-looking statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from historical results or those anticipated. The words "should," "believe,"
"anticipate," "expect," "see," and other expressions that indicate future events
and trends identify forward-looking statements. Actual future results and trends
may differ materially from historical results or those anticipated depending on
a variety of factors, including, but not limited to, the performance of newly
established domestic and international operations, demand and price for the
Company's products and services, and other factors. Certain of these factors are
discussed throughout this report on Form 10-K.

PART I

ITEM 1 - BUSINESS

BHA Group Holdings, Inc. (together with its domestic and international
subsidiaries, the "Company" or "BHA") is a global filtration company. Its
principal business is the design, manufacture and sale of replacement parts and
the performance of rehabilitation conversion services for the types of
industrial air pollution control ("APC") equipment known as "baghouses",
"cartridge collectors" and "electrostatic precipitators". This equipment is used
to eliminate particulate from the air by passing particulate laden gases through
fabric filters or filter bags, in the case of baghouses, pleated media filter
elements, in the case of cartridge collectors, and between electrically charged
collector plates, in the case of electrostatic precipitators. The Company's
business also includes the maintenance, conversion and rebuilding of this
equipment through a network of employees and independent contractors. The
Company's products and services are marketed throughout North America, South
America, Europe, the Near East, the Pacific Rim and China. While definitive
industry statistics are not available, based upon Dun & Bradstreet reports and
other financial information available to it, the Company believes it is a leader
in worldwide sales of air pollution control replacement parts and services.

The Company has also established BHA Technologies, Inc. ("BHA Technologies") as
a wholly-owned subsidiary that supplies expanded polytetrafluoroethylene
("ePTFE") membrane products for use in its APC product lines. Through BHA
Technologies, the Company is also supplying ePTFE membrane products to a new
base of customers for use outside of air pollution control.

DOMESTIC BUSINESS AND CORPORATE STRUCTURE

The following outlines a chronology relating to the establishment of the
Company's various domestic business units. The Company's international business
units are described below in the section entitled "International Business."

The Company was organized as an unincorporated division of Standard Havens, Inc.
("Standard Havens") in 1975 and was incorporated in Delaware as a wholly-owned
subsidiary of Standard Havens in 1986. The Company became publicly-owned when it
completed its

                                       -2-







<PAGE>




initial public offering of common stock in November 1986. Net proceeds from this
public offering amounted to approximately $3.6 million, which was applied to
outstanding bank debt. The Company completed a second public offering of common
stock in February 1989. Net proceeds from that public offering (approximately
$8.3 million) were used for working capital purposes and to finance several
acquisitions.

In April 1989, the Company formed PrecipTech, Inc. ("PrecipTech"), a Delaware
corporation, as a wholly-owned subsidiary. PrecipTech, which had previously been
a division of BHA, was formed for the purpose of conducting and expanding the
Company's business as it relates to replacement parts, accessories and services
for electrostatic precipitators.

During 1989, BHA and PrecipTech completed several acquisitions in efforts to
expand their product lines and services. In June 1989, BHA acquired the business
of developing and manufacturing acoustic horns for use in both baghouses and
electrostatic precipitators from Saracco Acoustic Sciences Corporation. Also in
1989, PrecipTech completed three acquisitions of privately held companies or
their operating assets. Such acquisitions included ESP Specialties, Inc., a
company that manufactured and sold replacement parts for electrostatic
precipitators; Kinetic Controls, Inc., a company that manufactured and sold
automatic voltage controllers for electrostatic precipitators; and Midwest Power
Corporation, a company that manufactured and sold replacement parts and
accessories and provided services for electrostatic precipitators.

During 1994, the Company established BHA Technologies as a Delaware Corporation.
This wholly-owned subsidiary was formed for the purpose of developing ePTFE
membranes. BHA Technologies successfully developed its own ePTFE membrane, which
it manufactures and markets for various applications both within and outside the
Company's traditional air pollution control equipment markets. In the air
pollution control market, ePTFE membrane is laminated using a thermal process to
a fabric substrate, which is then converted into a replacement filter and
marketed under the trade name BHA-TEX'r'. The benefits of this product line to
the customer include improved collection efficiency, increased throughput and
lower operating costs. The ePTFE membranes are widely used outside of air
pollution control applications. These applications include, but are not limited
to, wet filtration, industrial, electrical insulation, medical and apparel. Some
of the products and processes in these applications are currently under patent
protection. In addition to supplying the Company's air pollution control
business with ePTFE membranes for use on filter elements, BHA Technologies has
also identified other market niches and product opportunities. Products
currently being sold include membrane fabrics for use in high performance
outerwear marketed under the eVENT 'TM' trade name, high efficiency (HEPA)
filter media used in household appliances and industrial applications, cleanroom
garments and allergy relief products.

In November 1996, the Board of Directors approved certain changes to the
Company's corporate structure. The Board determined that servicing the domestic
APC customers of its corporate business through one company, instead of through
various subsidiaries, would yield the greatest sales, marketing and operational
efficiencies. To achieve this objective, three wholly-owned subsidiaries of the
Company that were involved in various air pollution control businesses were
merged into PrecipTech to form one company. On February 18, 1997, the
shareholders of the Company approved an amendment to the Certificate of
Incorporation of the Company to change PrecipTech's name to BHA Group, Inc. and
the Company's name to BHA Group Holdings, Inc.


                                       -3-







<PAGE>




The company has been doing business internationally since 1982 and has expanded
its presence throughout the world as seen in the chart below:


<TABLE>
<CAPTION>
Date                                   Company Name (1)                                        Location
- ----                                   ----------------                                        --------
<S>                          <C>                                              <C>
September 1982                          BHA Group GmbH                                   Ahlen, Germany
August 1994                              BHA Group AG                        Klus/Balsthal, Switzerland
March 1997                   BHA Environmental Technology Co. Ltd.                      Shanghai, China
April 1997                   BHA Group International Pvt. Ltd. (2)                          Pune, India
August 1997                            BHA U.K. Limited                      Birmingham, United Kingdom
November 1997                         BHA Purfilter S.L.                               Barcelona, Spain
March 1998                            BHA Technologies AG                    Klus/Balsthal, Switzerland
August 1998                  BHA Group International Holdings B.V.               Amsterdam, Netherlands
November 1998                         BHA do Brazil Ltda.                             Sao Paulo, Brazil
December 1998                   BHA Group Philippines, Inc. (2)                     Manila, Philippines
June 1999                            BHA Technologies K.K.                                 Tokyo, Japan

</TABLE>

1)   Each company is a wholly-owned subsidiary of BHA Group Holdings, Inc. or
     one of its subsidiaries.

2)   The Company's presence in the Philippines originated in 1997 and in India
     in 1994 as Representative and Liaison offices, respectively.

INTERNATIONAL BUSINESSES

The Company sells products and services in several geographical areas.
Operations of the domestic business are based in the United States (U.S.). The
domestic business provides products and services to the U.S. markets and exports
to Canada, Latin America, the Near East, the Pacific Rim and People's Republic
of China ("China"). The European business operations manufacture and sell
products and services in Europe, the Middle East, and North Africa. The
financial data for the Company's domestic and foreign businesses is disclosed in
note 8 to the consolidated financial statements.

EUROPE

BHA GROUP GMBH

BHA Group GmbH ("GmbH"), formerly Filtra GmbH, is a German corporation that
operates from Ahlen, Germany as an air pollution control replacement parts
marketer, selling products throughout Europe, the Middle East, and Northern
Africa. Until September 1999, GmbH manufactured APC parts, however, such
operations are now consolidated into the BHA Purfilter S.L. facility in
Barcelona, Spain.

BHA GROUP AG

BHA Group AG, formerly SF Air Filtration AG, is a Swiss corporation that designs
and produces high efficiency replacement cartridge filter elements. This
wholly-owned subsidiary manufactures the pleated media filter elements in
Klus/Balsthal, Switzerland and sells these products throughout Europe.

BHA UK LIMITED

BHA UK Limited sells industrial air pollution control parts and services to
customers throughout the United Kingdom and supports product sales from the
manufacturers in Spain and Switzerland helping the Company to expand its
presence in Europe.


                                       -4-







<PAGE>




BHA PURFILTER S.L.

BHA Purfilter S.L. ("Purfilter") is a Spanish corporation that manufactures and
sells replacement filters for industrial air pollution equipment. Purfilter
manufactures air pollution control replacement parts in Barcelona, Spain for the
European market and provides a sales presence in Southern Europe.

BHA TECHNOLOGIES AG

BHA Technologies AG, a Swiss corporation, is a wholly-owned subsidiary of BHA
Technologies that markets ePTFE membrane products for a wide variety of
applications both within and outside of the air pollution control industry. BHA
Technologies AG sells ePTFE membrane products throughout Europe and Asia.

BHA GROUP INTERNATIONAL HOLDINGS B.V.

BHA Group International Holdings B.V. is a holding corporation for the Company's
international businesses.  It is based in the Netherlands, which maintains an
extensive tax treaty network throughout the world.

LATIN AMERICA

BHA DO BRAZIL LTDA.

BHA do Brazil Ltda. ("BHA Brazil") is a Brazilian corporation that warehouses
and markets industrial air pollution control parts and services. BHA Brazil
stores the air pollution control parts in Sao Paulo, Brazil and sells them to
customers in Brazil and surrounding countries.

In addition to the office in Brazil, the Company supports the Latin American
operations through telemarketing and support services managed from its Kansas
City, Missouri headquarters.

ASIA

BHA GROUP PHILIPPINES, INC.

BHA Group Philippines, Inc. ("BHA Philippines") is located in Manila,
Philippines and operates as BHA's Asia-Pacific regional sales office to support
the export sales from the United States to customers in the Pacific Rim.

BHA ENVIRONMENTAL TECHNOLOGY COMPANY, LTD.

BHA Environmental Technology Company, Ltd. ("BHA China") is a corporation
established in China. BHA China assembles and sells APC products and provides
after-sale services and relevant technical support to customers throughout China
and surrounding regions.

BHA GROUP INTERNATIONAL PRIVATE LIMITED

BHA Group International Private Limited ("BHA India") is an Indian corporation
that provides sales and service assistance to customers in India including
support for exported product sales from the Company's manufacturing units in the
United States.

BHA TECHNOLOGIES K.K.

BHA Technologies K.K. ("BHA Technologies Japan"), a Japanese corporation, is a
wholly-owned subsidiary of BHA Technologies, Inc. that markets ePTFE membrane
products for a wide variety of applications both within and outside the air
pollution control industry. BHA Technologies Japan also provides support for
BHA's non-ePTFE APC business in Japan.


                                       -5-





<PAGE>




COMPETITION

Based upon Dun & Bradstreet reports and other publicly available financial
information, the Company believes that it is a global leader in the APC
equipment aftermarket. A number of regional offices have been established in
Asia and Latin America. As a result of this movement into the international
market, the Company is facing increased competition from competitors in those
specific markets, as well as existing competitors from the U.S. and Europe.
Several of the Company's competitors are, or are part of, large integrated
companies, which have much greater resources than the Company. The competition
also includes several dozen small to mid-size filter bag manufacturers that
compete in local and regional geographic markets. Potential competitors are also
planning e-business strategies for delivering filter products. Generally,
original equipment manufacturers in the U.S. have not effectively competed in
the aftermarket for baghouses, but have been a significant factor in the
aftermarket for electrostatic precipitators.

The domestic utility market for electrostatic precipitators has been
competitive, as this industry has been restructuring in response to
deregulation. Over the last several years, competition has had a negative impact
on the profitability of orders executed within this industry group. This overall
slowdown has increased competition for industrial replacement parts and
services. Competition remains intense in the ESP business based both upon price
and service. Outside of the U.S., it is important to note that electrostatic
precipitators are currently more prevalent than baghouses for use in air
pollution control systems. The Company continues to position itself for
additional growth in the international marketplace.

FACTORS AFFECTING EARNINGS AND STOCK PRICE

APC Business

The U.S. economy has had a number of years of sustained expansion and growth.
Although, the Company does not believe it is cyclical, its business has
benefitted as filtration and production related APC equipment spending tends to
be stronger when the economy is expanding. The Company believes that a dramatic
downturn in the U.S. economy would have a material adverse impact on its
operating results.

As previously noted, the domestic utility market for electrostatic precipitators
has been extremely competitive, as this industry has been restructuring in
response to deregulation. Over the last several years, competition has had a
negative impact on the profitability of orders executed within this industry
group. This overall slowdown has increased competition for industrial
replacement parts and services. The Company's domestic electrostatic
precipitator replacement parts and services ("ESP") business has become
increasingly volatile in terms of volume and profitability. Revenues of the ESP
business declined from $35 million in fiscal 1994 to $21 million in fiscal 1997
before rebounding to $26 million in fiscal 1998 and $37 million in fiscal 1999.
The fiscal 1999 business was bolstered by several large rebuilds. During the
first half of fiscal 1999, the risks of the ESP business were highlighted when
BHA incurred a $2.4 million charge for cost overruns on a large fixed-price
rebuild project for a domestic electric utility. In fiscal 2000, the domestic
ESP business contributed $27 million in revenues. The Company expects the ESP
business to continue to be volatile, however, it believes fiscal 2000 volume
represents a reasonable expectation for the Company's revenue stream from this
business. The Company further believes that a downturn in its ESP business could
have a material adverse effect on the Company's profitability.

                                       -6-





<PAGE>




The Company's APC business generates approximately $20 million in revenues
through U.S. exports of products and services to Asia, the Pacific Rim and Latin
America. During 1997, shortly after BHA established a sales and technical
support infrastructure in Asia, the region was hit with an economic crisis.
Although this market has been slow to recover, the Company has lowered its cost
structure such that management believes current sales volume of $5 million to $6
million represents a break-even point for the Asia region. The markets of Latin
America provided the Company with solid growth through most of the 1990's,
however, in fiscal 1999, the Asian economic crisis spread to Latin America,
resulting in a sales decline of approximately $3 million, primarily in the ESP
business. In fiscal 2000, shipments into Latin America increased by 8%, but
remain well below prior levels. Latin America and Asia are growth markets for
the Company and the ability of BHA to meet its ongoing financial targets will
depend, in part, on the economic recovery in these regions. Any prolonged delay
in the recovery in the demand of these markets for APC products and services
could result in a change in the Company's strategy and its long-term growth
targets.

The Company's APC operations in Europe have incurred substantial operating
losses in each of the past two years. During fiscal 1999 and 2000, the Company
incurred expense relating to its efforts to improve its European operations.
These efforts included a reduction in manufacturing overhead from the
consolidation of its fabric filter manufacturing into its Barcelona, Spain
facility and enhancements in sales management and training. During these
periods, the Company also incurred foreign exchange losses related to the
decline in the value of the Euro relative to the U.S. dollar. For fiscal 2001,
the Company is targeting breakeven results in Europe. In order to achieve the
fiscal 2001 target and return these operations to a sustained level of
repeatable and predictable profits, the Company needs to increase baseline
revenues by $3 million to $5 million over its Fiscal 2000 sales of $20 million
on its existing cost structure. Stabilization of the Euro relative to the U.S.
dollar is also necessary for the APC business in Europe to achieve its targets.
Failure to achieve these results could have a material adverse impact on the
Company's operating results.

BHA Technologies

Through BHA Technologies, the Company has established a business to supply PTFE
membrane products for use in applications outside of air pollution control. BHA
Technologies dramatically reduced its pretax losses from $6.5 million in fiscal
1999 (including $3.1 million in restructuring and other unusual charges) to $0.6
million in fiscal 2000. In fiscal 2000, sales by BHA Technologies to
non-affiliates were $6.6 million. The Company believes that, with anticipated
sales mix and pricing, fiscal 2001 sales to non-affiliates will need to be
approximately $15.0 million in order to achieve its target of break-even
operating results.

The Company believes that its core competency with respect to third party sales
for ePTFE membrane products outside of air pollution control will be in the
areas of new product development and manufacturing. The Company believes that a
substantial portion of its future business will be transacted through supply
agreements with third parties. The Company will be responsible for the product
and manufacturing issues. Its customers will incorporate the Company's products
into other product offerings that will then be sold to third parties. An example
of this business model relates to a multi-year contract the Company and a major
U.S. appliance company entered into during fiscal 2000. Under this agreement,
the Company will supply high efficiency (HEPA) filters for use in its customers
vacuum cleaner product line. Other examples of the Company's strategy include
the relationships it has established with (i) a large multi-national trading
company for the supply of ePTFE membranes to be used in apparel applications
and (ii) a Portland, Oregon based physician hub for the supply of allergy


                                       -7-





<PAGE>




avoidance bedding encasements through its distribution channels. The
Company's future success is dependant upon its ability to continue to develop,
establish and maintain its existing and targeted new supply arrangements.
Failure to execute this strategy could have a material adverse impact on the
Company's operating results.

For fiscal 2001, the Company is targeting break-even results for BHA
Technologies on $15 million in sales to non-affiliates. In order to establish a
business capable of meeting its longer-term targets, BHA Technologies will
continue its research and development efforts in fiscal 2001 and beyond. During
fiscal 2001, the Company will also increase its marketing and advertising
commitments to establish a brand name for its apparel products and will increase
its manufacturing capacity and overheads. Factors affecting BHA Technologies'
ability to achieve its fiscal 2001 sales and earnings targets include: (i)
successful commercialization of new PTFE stretching and thermal laminating
equipment, (ii) shipments of membrane sufficient to offset the higher
manufacturing overheads, (iii) the timing of customer orders and the ability to
manage product development and marketing commitments consistent with the
increasing revenue stream and (iv) continued strong demand for ePTFE membrane
products in the Company's core air pollution control business. Increased
competition could also impact the fiscal 2001 plan. Although the Company
believes that it has the resources and programs in place to meet its fiscal 2001
targets, failure to do so could have a material adverse impact on the operating
results of the Company, as well as on the carrying value of the Company's
investment in the property, plant and equipment of BHA Technologies.

Impact of Risk Factors on the Company's Outlook

The Company believes that its expectations for fiscal 2001 included in the
"Outlook" section of "Management's Discussion and Analysis" of this Annual
Report on Form 10-K are reasonable. Achievement of those targets is subject to
the above noted risk factors included in this "Factors Affecting Earnings and
Stock Price." Any of the above noted risk factors could cause the Company to
fall short of its financial targets.

Such conditions may cause the Company to re-evaluate its longer term strategies
with respect to certain product and market opportunities. In these instances, it
may be necessary to reduce expenses and take other steps to rationalize the
costs of these areas to make them profitable. These actions would likely result
in restructuring expenses that would impact future results.

PRODUCTS AND SERVICES

The Company believes it has the broadest product line in the air pollution
control equipment aftermarket. This, combined with its proprietary telemarketing
system, enables it to respond promptly to customer requests, thus providing it
with a competitive advantage.

The Company manufactures and sells a wide variety of filter bags, replacement
parts and accessories for the industrial air pollution control equipment
aftermarket. Filter bags are manufactured by the Company from fabric purchased
in bulk from fabric manufacturers. The Company manufactures industry standard
bags, as well as bags for customer specific applications. Most filter bags are
produced from fiberglass, polyester, aramid, acrylic, and polypropylene fabrics.
A market shift towards higher efficiency filtration has led to increased usage
of filters that have ePTFE membrane applied to the fabric and other more
specialized materials. The Company's wholly-owned subsidiary, BHA Technologies,
manufactures the expanded PTFE membrane (BHA-TEX'r') used on its filter bags and
elements. The Company is one of the few filter bag suppliers that manufactures
its own PTFE membrane (see "Business"),


                                       -8-





<PAGE>




which the Company believes provides it a competitive advantage as it is able to
control availability, raw material costs, quality and product development.
Baghouse replacement parts include support cages for the filter bags, clamps,
spring tensioning systems, continuous particulate monitoring systems and
gaskets. Electrostatic precipitator replacement parts include collecting plates,
wires, discharge electrodes, transformer/rectifiers, rappers and electronic
controls.

In addition to standard replacement parts, the Company continues to aggressively
introduce new products and accessories that enhance the performance of a dust
collection system. These new products include continued enhancements to the
Company's electrical products for both baghouses and precipitators and the
introduction of pleated media filter elements and evaporative gas cooling
product lines. The Company is also uniquely positioned for potentially
significant revenues from conversions of precipitators to baghouses or cartridge
collectors. With expertise in each type of air pollution control equipment, BHA
can work with its customers to maximize the efficiency of their air pollution
control to meet regulatory standards or to increase plant operating
efficiencies. Internal product development continues to be supplemented with
strategic acquisitions such as the Drayton Corporation's sound-off acoustic
cleaner product line acquired in January 1999. By combining the Drayton horn
line with the Company's other acoustic products, BHA now has the most
comprehensive line of acoustic horns in the industry.

Product profitability varies considerably over different product groups, with
standard products typically providing a lower profit margin than replacement
parts and accessories.

The Company's business also includes the maintenance, conversion and rebuilding
of industrial air pollution control equipment through a network of independent
contractors and its own service crews. A comprehensive safety program enables
both the Company and customer to control costs from a risk management
perspective. Conversion and rebuilding services involve retrofitting a partial
or entire baghouse or electrostatic precipitator to restore it to original
operating parameters or improve overall performance. BHA is capable of supplying
a variety of other services specifically fitted to its customers' requirements,
including preventive maintenance, system/equipment analysis, inspections,
supervision of customer personnel and training. Information gathered during
preventive maintenance, analysis and inspections is stored in the Company's
database for future reference, and thus is a valuable source of important
customer information. In addition, knowledge gained in solving one customer's
problems is stored in the Company's database and made available on-line to the
Company's salespeople to enable them to respond promptly to similar problems
encountered by other customers. BHA believes it is one of the world leaders in
providing these services.

CUSTOMER BASE

The Company's APC customer base is diverse both industrially and geographically,
and includes customers in virtually all sectors of the industrial economy.
International markets include Canada, Europe, Latin America, the Near East, the
Pacific Rim and China. The Company's products and services are used in major
industrial environments such as cement kilns, asphalt plants, steel and iron
foundries, aluminum and copper smelters, rock and gypsum dryers, chemical
plants, grain and food processing plants, refuse to energy plants, waste and
hazardous waste incinerators and electric utilities, as well as many other
areas. In recent years, there has been an emergence of multinational companies
expanding their


                                      -9-





<PAGE>



worldwide presence in BHA's traditional target industries. Management believes
that this trend could have a positive impact on its international sales.

The vast majority of the Company's baghouse sales represent small transactions
with numerous customers. Precipitator replacement parts sales frequently
accompany conversion or rebuild services. No customer accounted for more than
10% of the Company's annual sales during any of its last three fiscal years. The
Company does not believe that it is dependent upon any single customer or group
of customers and has no unusual geographical or industry concentrations of
business or credit risk.

SALES AND MARKETING

One of the Company's principal competitive APC advantages is its proprietary
telesales system, the core of which is a computer database containing detailed
information on over 130,000 pieces of pollution control equipment (baghouses and
electrostatic precipitators) at over 60,000 accounts. Because of the large
number of different original equipment manufacturers and varying maintenance
procedures, many pieces of customer equipment have unique features. Included in
the Company's database is information on the location of the equipment; a phone
contact for the individuals responsible for maintaining the equipment; the type
of equipment (by manufacturer, design and unique attributes); date of
installation; fabric type, size and design of filter bags used; when the bags
were last serviced; additional accessories that were installed; application and
temperature requirements; as well as other detailed pieces of useful information
about the equipment and the customer. This information has been gathered since
the Company was established in 1975, and is continually updated following
customer calls, site inspections and maintenance jobs.

The ongoing population of the customer database is an important part of the
Company's sales strategy. In recent years, a substantial portion of the growth
in the customer database relates to the international marketplace and segments
of the U.S. market where the Company's newer fine filtration products have
application.

The Company keeps information in a central computer database that is accessed
on-line by its telesales representatives. The computer tracks customer calls and
pending orders, which helps make efficient use of the representative's time.
Each day, a list of the most important customer calls is provided to the
representative. This list includes contracts and orders in negotiation, as well
as reminders for calls to customers that have not been serviced for some time.
Once an order is taken, the information is routed electronically to the
operations department where invoices and contracts are generated. Invoice and
technical data about the filter bags, cages, precipitator replacement parts and
accessories is sent via computer connection to the Company's manufacturing
facilities. There the bags are sewn, the support cages and precipitator
replacement parts are manufactured, and the accessories are consolidated for
shipment. The order is packaged and sent to the customer according to a priority
schedule.


                                      -10-





<PAGE>




Each telesales representative is furnished with data to evaluate their
performance and enable them to focus on high opportunity sales calls. Historical
sales data is made available to each telesales representative showing (i)
performance by the month and year toward targeted goals (broken down by product
category) sales volume and profit margin, (ii) the sales history for each
customer, as well as the sales potential for such customer, and (iii) a summary
of each contact with each customer and its results, including notes of any
useful information for further follow-up opportunities. The Company believes
that the system provides effective feedback to telesales personnel to meet their
sales goals.

In addition to its use on a customer-by-customer basis, the Company's telesales
system and database is used to develop industry statistics and analyze market
trends. Information is also extracted for marketing and advertising campaigns
and new product evaluations.

GOVERNMENT REGULATION AND INITIATIVES

The Company is not subject to direct environmental protection regulation with
respect to the manufacture or sale of its products other than regulations
applicable to manufacturers generally. The Company's customers are required to
meet national primary and secondary ambient air quality standards for specific
pollutants, including particulate matter, which have been promulgated under the
Clean Air Act, as amended (the "Act"). Title V, the cornerstone of the Act,
establishes a national operating permit program. Title V requires appropriate
and sufficient record keeping, monitoring and reporting requirements to assure
compliance with the standards established by the permitting authorities. Also
included in the Act is the Maximum Achievable Control Technology ("MACT")
program. Under MACT, the EPA develops hazardous air pollutant emissions
limitations for various categories of pollutants that sharply reduce allowable
emissions. The states have primary responsibility for implementing these
standards, and in some cases, have adopted standards which are more stringent
than those adopted by the Environmental Protection Agency ("EPA") under the Act.
Revisions to the Act have expanded the type of emissions monitored and provided
the regulatory agencies more authority to enforce permits and issue fines. These
regulations will impact producers of cement, aluminum, chemicals, steel and
other industries. It is anticipated that efforts by industry to comply with MACT
standards will increase demand for the Company's fine filtration products.

In November 1996, the EPA announced its intentions to promulgate new National
Ambient Air Quality Standards (NAAQS) for the control of particulate matter
("PM"), which includes lead, ground-level ozone, sulfur dioxide, nitrogen
dioxide, carbon monoxide and other fine particulate matter. Currently, the
States do not monitor for small particulate (less than 2.5 microns), therefore
very little data has been collected to determine which areas meet or do not meet
the revised PM-fine standards. On December 1, 1996, the EPA proposed new and
more stringent monitoring requirements for PM-2.5 in conjunction with the
proposed NAAQS for fine particles. On July 18, 1997, the EPA further revised
these standards and since that time, PM-2.5 monitoring networks are being
installed and each state will have to prepare a State Implementation Plan that
documents its approach to meeting the new NAAQS. The network of required
monitors will be phased in over a three to four year period. When considering
the proposed regulations, the industries most likely to be impacted by the
changing air quality standards are the utility, automotive, chemical, petroleum
and manufacturing industries. The Company believes that the growing awareness of
the importance for better air quality and the adoption of the proposed
regulations are positive long-term indicators of the Company's growth potential.
Further, the Company is not aware of any likely statutory changes that may have
a negative impact on its business.

                                      -11-





<PAGE>





Additionally, the Company manufactures and sells its products in Europe, Latin
America, Canada, the Near East, the Pacific Rim and China. The Company's
domestic and international customers are required to operate in compliance with
certain standards established and promulgated by their respective permitting
authorities.

BACKLOG

On September 30, 2000, the backlog of orders for replacement parts and
industrial services was $52.7 million compared to $47.2 million at September 30,
1999 and $51.5 million at September 30, 1998. The improved backlog at September
30, 2000 includes $3.5 million for BHA Technologies. The backlog for the
domestic ESP business is $2.2 million higher than in the prior year while the
international and domestic fabric filter backlogs are consistent with prior year
levels.

EMPLOYEES

As of September 30, 2000, the Company employed approximately 1,100 persons, none
of whom are represented by labor unions. The Company restricts access to its
database and customarily requires its employees having access to proprietary
systems and information to execute confidentiality agreements and covenants not
to compete. The Company believes that its relations with its employees are good.

PATENTS, TRADEMARKS, COPYRIGHTS, AND PROPRIETARY INFORMATION

The Company owns patents, trademarks, and proprietary information and has
pending applications for patent, trademarks, and copyrights for parts,
accessories, and training materials for industrial air pollution control
equipment and non-air pollution control markets. The Company considers such
patents, trademarks, and proprietary information and applications for patents,
trademarks, and copyrights to be important. The business of the Company,
however, is not dependent on such patents, trademarks, and proprietary
information. Patents owned by the Company expire at various dates from 2001
through 2016.

                                      -12-





<PAGE>




ITEM 2 - PROPERTIES

CORPORATE HEADQUARTERS
The Company owns the facility in Kansas City, Missouri, which serves as its
Corporate Headquarters (approximately 66,000 square feet).

The table below provides certain information with respects to the domestic and
foreign properties owned and leased by the company.


<TABLE>
<CAPTION>
Location                                         Use                Owned/Leased       Square Feet
- --------                                         ---                ------------       -----------
<S>                                    <C>                            <C>                 <C>
Kansas City, Missouri                  Corporate Headquarters          Owned              66,000
Lee's Summit, Missouri (7)              Production/Warehouse           Leased             37,500
Slater, Missouri (1)                         Production                Owned             170,000
Slater, Missouri (7)                         Production                Owned              28,000
Slater, Missouri (1)                          Warehouse                Owned              10,000
Slater, Missouri (2)                     Leased to Supplier            Owned              54,000
Salisbury, Missouri (1)                      Production                Owned              20,000
Salisbury, Missouri (1)                      Production                Owned              65,000
Folkston, Georgia (3)                        Production                Owned             105,000
Newport News, Virginia (4)                   Production                Leased             21,000
Fredericksburg, Virginia (5)                  Warehouse                Leased              3,200
Covington, Kentucky (5)                       Warehouse                Leased              5,000
Germany (6)                               Office/Warehouse             Owned              30,000
Switzerland (1)                           Office/Production            Leased             20,000
Philippines (6)                             Office Space               Leased              1,000
China (6)                              Office/Product Assembly         Leased             17,000
India (6)                                   Office Space               Leased              3,000
Brazil (6)                                Office/Warehouse             Leased              5,100
Spain (1)                                 Office/Production            Leased             26,300
Japan (6)                                   Office Space               Leased              1,000
</TABLE>

1)   Operations include the manufacture of traditional and pleated filter
     elements, spot welding of metal cages, and warehouse and assembly
     operations.

2)   Leased to a raw material supplier of the Company.

3)   Operations include the manufacture of parts and accessories for
     electrostatic precipitators.

4)   Operations include the manufacture and assembly of computer based voltage
     control systems for electrostatic precipitators.

5)   Warehouse and office space for the Company's field service crews.

6)   Warehouse and office space for sales and service support in certain
     international markets.

7)   Operations include the manufacture of ePTFE membranes. The Lee's Summit
     facility is subject to a capital lease related to an industrial revenue
     bond obligation. The Slater facility is owned by the Company.

The facilities and office space owned and leased by the Company are considered
adequate for its present needs and, with the possible exception of the corporate
headquarters, are suitable for any foreseeable expansion.

ITEM 3 - LEGAL PROCEEDINGS

The Company is involved in no legal proceedings other than ordinary litigation
incidental to the Company's business.

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

No matters were submitted during the fourth quarter of fiscal year ended
September 30, 2000 to a vote of security holders through the solicitation of
proxies or otherwise.

                                      -13-





<PAGE>




PART II

ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS

The Company's common stock is traded in the over-the-counter market and quoted
under the symbol "BHAG" on the NASDAQ National Market ("NASDAQ").

The information set forth in response to Item 201 of Regulation S-K is included
in this Form 10-K in Part II Item 8, Financial Statement, and Supplementary Data
as Note 9, Quarterly Financial Data (Unaudited) ("Note 9"), and is incorporated
by reference in partial response to this Item 5. The prices set forth in Note 9
do not include commissions and do not necessarily represent actual transactions.
The closing price of the Company's common stock on the NASDAQ on October 31,
2000 was $14.00.

HOLDERS

As of October 31, 2000, there were 8,752,895 shares issued and 2,236,552 shares
in treasury. At October 31, 2000, the Company had 6,516,343 shares outstanding
that were owned by approximately 1,500 beneficial owners.

DIVIDENDS

During the years ended September 30, 1998, 1999 and 2000, the Company declared
and paid quarterly dividends each year aggregating $.12 per share to
shareholders. The Company's Board of Directors ("Board of Directors") has since
declared a dividend of $.03 per share, payable on November 27, 2000 to
shareholders of record on November 20, 2000.

The Company does not have a formal policy for paying cash dividends on its
stock. Future determinations concerning dividends will be made, at the
discretion of the Board of Directors, based upon the Company's earnings, its
capital requirements, its financial condition, restrictions placed against
payment of dividends under any financing agreements and such other factors as
the Board of Directors, at its discretion, may from time to time deem relevant.

RECENT SALES OF UNREGISTERED SECURITIES

The company has not sold any equity securities during the report period that
were not registered under the Securities Exchange Act of 1933, as amended.

TREASURY STOCK

The Company has periodically repurchased shares of BHA Common Stock since an
initial stock repurchase plan was authorized by the Board of Directors in 1994.
In the aggregate, the Company has repurchased 1,995,044 shares out of a total of
2,500,000 shares authorized by the Board of Directors. During fiscal 2000,
398,084 shares were repurchased at an average price of $9.14.

                                      -14-





<PAGE>




ITEM 6 - SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data set forth in the table below have been
derived from the consolidated financial statements of the Company and related
notes thereto. The selected income statement data for the years ended September
30, 1998, 1999 and 2000, and the selected balance sheet data as of September 30,
1999 and 2000, are derived from the consolidated financial statements of the
Company and the related notes thereto, which have been audited by KPMG LLP,
independent auditors and which are included in Item 8 in this Form 10-K. This
data should be read in conjunction with and is qualified by reference to,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in Item 7 in this Form 10-K and the Company's audited
consolidated financial statements, including the related notes and the
independent auditors' report thereon and the other financial information
included in Item 8 in this Form 10-K.

<TABLE>
<CAPTION>

                                                                    Years Ended September 30,
                                                        1996      1997        1998       1999       2000
                                                        ----      ----        ----       ----       ----
                                                              (In Thousands, Except per Share Data)
<S>                                                   <C>        <C>        <C>        <C>        <C>
Selected Income Statement Data
   Net Sales                                          $121,308   $130,599   $142,432   $155,725   $161,069
   Gross Margin                                         34,817     40,786     44,033     41,940     49,351
   Operating Expense*                                   24,048     28,196     31,853     38,297     37,894
   Interest Expense, Net                                   732      1,009      1,423      1,984      1,951
   Earnings Before Income Taxes*                        10,037     11,581     10,757      1,659      9,506
   Net Earnings*                                      $  6,707   $  8,101   $  7,332   $  1,084   $  6,016
   Basic Earnings per Share*                          $    .92   $   1.12   $   1.02   $    .15   $    .91
   Weighted Average Shares Outstanding--Basic            7,275      7,226      7,171      7,028      6,601
   Diluted Earnings per Share*                        $    .90   $   1.06   $    .97   $    .15   $    .90
   Weighted Average Shares Outstanding--Diluted          7,426      7,676      7,552      7,134      6,672

Selected Balance Sheet Data
   Working Capital                                    $ 28,451   $ 32,132   $ 42,223   $ 43,285   $ 43,275
   Total Assets                                         76,035     87,605    107,574   $108,148   $112,232
   Current Portion of Long-Term Debt and Capital
     Lease Obligations                                     595         62      3,988      2,922      2,669
   Long-Term Debt (Less Current Portion)                 8,244     12,415     23,029     20,345     17,638
   Capital Lease Obligations (Less Current Portion)       --         --         --        7,600      7,200
   Shareholders' Equity                                 51,696     56,918     61,953     58,892     59,807
   Cash Dividends Declared per Common Share           $    .10   $    .11   $    .12   $    .12   $    .12
</TABLE>

*  Operating expenses for the year ended September 30, 1999 include $2,167,000
   of restructuring charges ($1,408,000 after taxes or $0.20 per share).
   Additionally, cost of goods sold for the year ended September 30, 1999
   includes unusual charges of $4,200,000 ($2,730,000 after taxes or $0.38 per
   share).


                                      -15-





<PAGE>




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

GENERAL

For purposes of this "Management's Discussion and Analysis" as well as the
segment reporting information included in Note 8 to the Audited Financial
Statements, the Domestic Air Pollution Control ("Domestic APC") segment
represents all business for which the products or services are sold or managed
from the United States. Generally, this includes revenues to customers in the
U.S. and exports to customers in Canada, Latin America, and Asia. The Europe APC
segment represents all business for which the products or services are sold or
managed primarily from Europe. Such revenues are typically generated in Europe
and Northern Africa. BHA Technologies, a subsidiary engaged in the production
and sale of ePTFE membrane for both APC and non-APC applications, represents
BHA's third business segment.

FISCAL 2000 COMPARED TO FISCAL 1999

Consolidated net sales during the year ended September 30, 2000 ("fiscal 2000")
were $161.1 million compared to $155.7 million during the year ended September
30, 1999 ("fiscal 1999"), an increase of 3%. Sales in the Domestic APC segment
increased 0.5% from $133.8 million to $134.5 million. Sales in the Europe APC
segment were essentially unchanged at $20.1 million for each fiscal year. The
BHA Technologies business segment generated fiscal 2000 third party sales of
$6.6 million compared to prior year sales of $1.8 million

Within the Domestic APC segment, fabric filter replacement parts and service
sales to customers in the U.S. grew 11% to $88.0 million, and export sales also
increased 11% to $19.2 million. Export sales into Latin America increased 8% led
by higher sales of fabric filter replacement parts. Shipments to the Pacific Rim
and Asia also increased as the economies in those markets are showing some signs
of improvement. Sales of fine filtration products were especially strong across
both the Company's domestic and international markets. The strong growth in
these portions of the business was largely offset by a $10.4 million sales
decline in domestic electrostatic precipitator ("ESP") parts and services. The
decline in ESP sales was anticipated as fiscal 1999 included a number of larger
rebuild projects.

Sales for the Europe APC segment on a U.S. dollar basis were essentially
unchanged. Expressed in local currencies, sales of the Europe APC segment
increased 14%. Within the BHA Technologies segment, the noted increase in sales
was largely driven by a multi-year contract to supply high efficiency (HEPA)
filters to a major household vacuum cleaner manufacturer.

GROSS MARGIN

Consolidated gross margin was 30.6% of sales in fiscal 2000 compared to 26.9% in
fiscal 1999. Excluding unusual charges of $4.2 million, the fiscal 1999 gross
margin was 29.6%. The higher gross margin percentage in fiscal 2000 reflects an
improved mix of business emphasizing the Company's fine filtration products.
Increased sales volume also resulted in improved utilization of the Company's
fabric filter and ePTFE membrane production facilities. The noted gross margin
percentage improvement was offset in part by a decrease in the utilization of
ESP production facilities relating to the decline in sales volume of large
rebuild projects.


                                      -16-





<PAGE>




OPERATING EXPENSES

Selling and advertising expenses were $19.7 million (12.2% of sales) in fiscal
2000 compared to $20.2 million (13.0% of sales) in fiscal 1999. General and
administrative expenses were $18.2 million (11.3% of sales) in fiscal 2000
compared to $15.9 million (10.2% of sales) in fiscal 1999. Fiscal 1999 operating
expenses also included $2.2 million in restructuring charges. In total,
operating expenses exclusive of restructuring items increased 5% from $36.1
million to $37.9 million. The increase in operating expenses in part relates to
higher compensation and retirement plan funding costs that are tied to the
overall improvement in the results of the business. During fiscal 2000, the
Company also incurred incremental consulting expenses relating to an information
technology initiative and costs associated with foreign exchange losses
resulting from the weakening Euro.

INTEREST EXPENSE

Interest expense for fiscal 2000 was $2.0 million compared to $2.1 million in
fiscal 1999. The decline was the result of lower borrowings which more than
offset increasing interest rates. Strong cash flows during the year enabled the
Company to reduce the amounts outstanding under its bank lines. The majority of
the Company's borrowings are from banks at variable interest rates. The
Company's weighted average cost of borrowing during the year increased as U.S.
interest rates rose.

INCOME TAXES

The effective income tax rate was 36.7% in fiscal 2000 compared to 34.7% in
fiscal 1999. The higher income tax rate was the result of losses by certain
foreign subsidiaries for which the Company did not recognize income tax benefits
during the year.

NET EARNINGS

Net earnings were $6.0 million ($0.90 per diluted share) in fiscal 2000 and $1.1
million ($0.15 per diluted share) in fiscal 1999. The improved earnings was the
result of the higher sales and improved gross margins addressed above together
with the elimination of the adverse impact that restructuring and unusual
charges had on fiscal 1999 results. Weighted average common and common
equivalent shares outstanding decreased from 7.1 million shares to 6.7 million
shares primarily due to treasury stock repurchases.

OTHER

The U.S. inflation rate grew at a moderate pace during fiscal 2000. BHA believes
that its business is not affected by inflation except to the extent the economy
in general is affected.

FISCAL 1999 COMPARED TO FISCAL 1998

Consolidated net sales for BHA during the year ended September 30, 1999 ("fiscal
1999") were $155.7 million compared to $142.4 million during the year ended
September 30, 1998 ("fiscal 1998"), an increase of 9%. Domestic APC contributed
the majority of the increase due to continued growth in sales of fine filtration
products and an unusually strong year for sales of electrostatic precipitator
("ESP") replacement parts and services that resulted from a number of contracts
for large rebuild projects. Primarily as a result of the growth in fine
filtration, sales of

                                      -17-





<PAGE>




fabric filter products and services in baghouse applications within the U.S. and
Canada increased 7% to $79.0 million. Sales of electrostatic precipitator parts
and services in the U.S. and Canada increased 42% to $37.6 million. These
increases more than offset declines in export sales by the Domestic APC business
segment. Economic difficulties in BHA's key Asian and Latin American markets
contributed to a 19% decline in export sales to $17.2 million. Sales in Europe
were essentially unchanged at $20.1 million. BHA Technologies increased its
sales to third parties from $1.0 million to $1.8 million.

GROSS MARGIN

Consolidated gross margin was 26.9% of sales in fiscal 1999 compared to 30.9% of
sales in 1998. The margins in fiscal 1999 were adversely impacted by several
factors: (1) a cost overrun on a large fixed-price ESP rebuild project on which
a loss of $2.4 million was recognized, (2) substantial experimentation and
testing performed by BHA Technologies totaling $1.4 million related to adhesive
lamination to develop non-APC products, and (3) inventory write-downs of $0.4
million attributable to the Company's consolidation of manufacturing operations
in Europe. Excluding these three factors, gross margins were 29.6% in fiscal
1999. The balance of the decline in the gross margin percentage is largely the
result of a decline in gross margins as a percentage of sales in Europe due to a
combination of excess capacity and competition.

OPERATING EXPENSES

Selling and advertising expense as a percentage of sales was 13.0% in fiscal
1999 and 12.2% of sales in fiscal 1998. The increased expense as a percentage of
sales was the result of investments being made to develop new markets by BHA
Technologies in non-APC businesses and additional personnel hired and trained
during the year to pursue future APC sales in new domestic and international
markets. General and administrative expense increased from $14.5 million to
$15.9 million but remained constant at 10.2% of sales in both fiscal 1999 and
1998. Approximately $0.5 million of the increased cost was the result of higher
reserves for doubtful receivables, primarily in Europe.

Restructuring expenses in the amount of $2.2 million were recognized during
fiscal 1999. A charge of $1.7 million was taken as a result of the decision by
BHA Technologies to discontinue its in-house adhesive lamination efforts and to
write down the related equipment to its net realizable value. Future efforts to
sell ePTFE membrane for apparel and other uses involving adhesive lamination
will either be outsourced or will be in the form of unlaminated film.
Additionally, severance costs of $0.5 million was incurred relative to the
consolidation of manufacturing operations in Europe.

INTEREST EXPENSE

Interest expense for fiscal 1999 and 1998 was $2.1 million and $1.4 million,
respectively. The increase was attributable to an increase in average
borrowings, including a capital lease. Such borrowings were used to fund
increased working capital requirements, investments in capital equipment, and
treasury stock repurchases.


                                      -18-





<PAGE>




INCOME TAXES

The effective income tax rate was 34.7% in fiscal 1999 compared to 31.8% in
fiscal 1998. The increase was the result of tax benefits recorded relative to
certain foreign losses at rates of less than 30% in fiscal 1999.

NET EARNINGS

Net earnings were $1.1 million ($0.15 per share) in fiscal 1999 and $7.3 million
($0.97 per share) in fiscal 1998. The decreased earnings is the result of
restructuring charges and substantial operating losses incurred in Europe and by
BHA Technologies together with the cost overrun on the ESP project discussed
above. Weighted average common and common equivalent shares outstanding
decreased by 0.4 million shares primarily due to treasury stock repurchases.

LIQUIDITY AND CAPITAL RESOURCES

Net working capital was $43.3 million at both September 30, 2000 and September
30, 1999. The current ratio was 2.8 in 2000 compared to a current ratio of 3.3
in 1999. Cash provided by operating activities was $15.2 million in fiscal 2000
compared to $9.2 million in fiscal 1999. The cash flow provided by operating
activities in fiscal 2000 reflects net earnings of $6.0 million combined with
depreciation and amortization of $5.6 million. Additionally, accounts payable
and accrued expenses increased by a combined $4.9 million, in particular,
accruals for warranties and employee benefits. The warranty accrual increased as
a result of trends to offer longer term warranties on certain products. The
higher employee benefit accruals reflect increased retirement and bonus payments
which are consistent with the Company's improved earnings levels. There was also
significant positive cash flow in fiscal 1999, despite lower earnings due, in
part to, a modest $1.1 million increase in working capital to support the $13.3
million increase in sales.

Investing activities have resulted in a net use of cash during each of the past
three years. Capital expenditures were $4.5 million, $5.8 million, and $8.3
million in fiscal 2000, 1999, and 1998, respectively. Capital expenditures over
the past three years have been used to expand capacity for ePTFE membrane,
invest in improved information systems, and develop new products and increased
manufacturing capacity for BHA's APC products. In fiscal 2000, the Company
received $1.1 million from the sale of assets relative to the Allergydirect.com
division of BHA Technologies. Additional investments made in recent years
include the acquisitions of product rights relative to Drayton's sound-off
acoustic cleaner product line in 1999 and acquisitions of APC businesses in
Spain and Venezuela in 1998.

During fiscal 2000, the Company used $7.7 million for financing activities
including $3.6 million to repurchase BHA stock and $0.8 million for the payment
of cash dividends. The Company also repaid $3.4 million in borrowings, net.
During fiscal 1999, net cash provided by financing activities was approximately
$0.1 million as cash generated from operations was generally sufficient to
support the Company's investing activities. The incremental borrowings of $3.9
million during fiscal 1999 were largely used to repurchase BHA stock. In fiscal
1998, the Company incurred $14.4 million in incremental borrowings in order to
fund the operating and investing activities as well as repurchase $1.8 million
of BHA stock.


                                      -19-





<PAGE>




At September 30, 2000, BHA had unused lines of credit of $12.3 million. The debt
structure includes commitments for: an $18.0 million revolving credit facility
maturing on October 1, 2002; $14.4 million under an amortizing term loan with a
final maturity in 2006; German term loan and revolving credit facilities
totaling the U.S. equivalent of $5.4 million and maturing in 2003; and a capital
lease related to an industrial revenue bond transaction for $7.6 million with
annual sinking fund payments and a final maturity in 2018.

The domestic term loans and revolving credit facility include financial
covenants regarding minimum net worth, minimum fixed charge coverage ratios, and
maximum borrowing to EBITDA ratios. The Company was in compliance with all such
covenants at September 30, 2000. With the exception of the capital lease
transaction, no assets of the Company are pledged to secure any indebtedness.
BHA believes that cash flows from operations and available credit lines will be
sufficient to meet its capital needs for the foreseeable future.

YEAR 2000

In previous years, the Company established a task force to address and assess
Year 2000 ("Y2K") compliance for the Company's computer system and software
applications, facilities throughout the world, the products that include
date-sensitive microprocessors, and suppliers providing both goods and services.
The Company did not experience any significant problems related to Y2K.

OUTLOOK

BHA provides the following guidance relative to its outlook for fiscal 2001 in
order to assist investors and analysts as they form their fiscal 2001
expectations for the Company. Readers should refer to "Factors Affecting
Earnings and Share Price" and other information included in this Annual Report
on Form 10-K.

FISCAL 2001

  Consolidated net sales are expected to increase 10% to 12%

  Operating income is expected to increase 12% to 17%

  Interest Expense for 2001 should be flat as compared to the current year

  BHA's consolidated effective tax rate should decrease from 37% in
  2000 to 35% or 36% in 2001

  Earnings per diluted share are expected to be in the range of $1.05 to $1.15

  EBITDA should increase 8% to 12%

  Capital expenditures are expected to be approximately $6 million to $8 million

  Depreciation and amortization should be generally comparable to fiscal
  2000 levels

FIRST QUARTER OF FISCAL 2001

  Consolidated net sales should increase 7% to 10% over consolidated
  net sales for the fourth quarter of fiscal 2000

  Earnings per diluted share are expected to be in the range of $.23 to $.26


                                      -20-





<PAGE>




NEW ACCOUNTING PRONOUNCEMENTS

Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 138, is
effective for BHA's fiscal year 2001. These statements establish accounting and
reporting standards for derivative instruments and all hedging activities. These
statements are not expected to have a significant impact on BHA's results of
operations as the Company's derivative instruments are designated as hedges
against foreign currency exposures.

FORWARD LOOKING INFORMATION

This report contains forward-looking statements that reflect BHA's current views
with respect to future events and financial performance. The statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from historical results or those anticipated. The words
"should," "believe," "anticipate," "expect," and other expressions that indicate
future events and trends identify forward-looking statements. Actual future
results and trends may differ materially from historical results or those
anticipated depending on a variety of factors, including, but not limited to,
competition, the performance of newly established domestic and international
operations, demand and price for BHA's products and services, and other factors.
You should consult the section entitled "Factors Affecting Earnings and Stock
Price".

ITEM 7a - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

FORWARD EXCHANGE CONTRACTS

BHA periodically enters into forward exchange contracts in order to fix the
currency exchange rate related to intercompany transactions with its foreign
subsidiaries. Changes in the value of these instruments due to currency
movements offset the foreign exchange gains and losses of the corresponding
intercompany transactions. At September 30, 2000 and 1999, the aggregate amount
of such forward exchange contracts was approximately $1,700,000 and $2,400,000,
respectively. The fair value of the outstanding forward exchange contracts at
September 30, 2000 exceeds the contract value by approximately $144,000. The
fair value of the outstanding contracts at September 30, 1999 approximated the
contract values.

                                      -21-





<PAGE>




ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEPENDENT AUDITORS' REPORT

The Board of Directors of BHA Group Holdings, Inc.:

We have audited the accompanying consolidated balance sheets of BHA Group
Holdings, Inc. and subsidiaries as of September 30, 2000 and 1999, and the
related consolidated statements of earnings, shareholders' equity, comprehensive
income and cash flows for each of the years in the three-year period ended
September 30, 2000. These consolidated financial statements are the
responsibility of BHA'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 auditing standards generally accepted
in the United States of America. 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 BHA Group Holdings,
Inc., and subsidiaries at September 30, 2000 and 1999, and the results of their
operations and their cash flows for each of the years in the three-year period
ended September 30, 2000 in conformity with accounting principles generally
accepted in the United States of America.

                                                         KPMG LLP

November 3, 2000
Kansas City, Missouri


                                      -22-





<PAGE>




                            BHA GROUP HOLDINGS, INC.
                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>

                                                                         SEPTEMBER 30,
                                                                        2000       1999
                                                                        ----       ----
<S>                                                                   <C>        <C>
ASSETS
Current assets:

    Cash and cash equivalents                                         $  3,877   $    877
    Accounts receivable, less allowance for doubtful
       receivables of $1,039 in 2000 and $1,238 in 1999                 31,569     28,356
    Inventories (note 1)                                                26,357     28,043
    Income taxes receivable                                               --          319
    Prepaid expenses                                                     2,495      1,989
    Deferred income taxes (note 4)                                       2,510      2,360
                                                                      --------   --------
           TOTAL CURRENT ASSETS                                         66,808     61,944
                                                                      --------   --------
Property, plant and equipment, at cost:
    Land and improvements                                                1,344      1,344
    Buildings and improvements                                          22,933     22,692
    Machinery and equipment                                             42,564     38,984
    Office furniture, fixtures and equipment                             4,923      4,654
                                                                      --------   --------
                                                                        71,764     67,674
    Less accumulated depreciation and amortization                      37,075     32,770
                                                                      --------   --------
           NET PROPERTY, PLANT AND EQUIPMENT                            34,689     34,904
                                                                      --------   --------
Intangible and other assets, less accumulated amortization (note 1)      5,378      5,748

Excess of cost over net assets of businesses acquired,
    less accumulated amortization                                        5,357      5,552
                                                                      --------   --------
                                                                      $112,232   $108,148
                                                                      ========   ========
</TABLE>


See accompanying notes to consolidated financial statements.

                                      -23-





<PAGE>




                            BHA GROUP HOLDINGS, INC.
                           CONSOLIDATED BALANCE SHEETS
                        (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>

                                                                             SEPTEMBER 30,
                                                                           2000        1999
                                                                           ----        ----

<S>                                                                    <C>          <C>
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

    Current installments of long-term debt (note 3)                     $  2,269     $  2,522
    Current lease obligations (note 3)                                       400          400
    Accounts payable                                                      10,357        8,881
    Accrued compensation and employee benefit costs                        4,342        2,547
    Accrued expenses and other current liabilities                         3,372        2,895
    Reserve for warranty and product service                               2,553        1,414
    Income taxes payable                                                     240         --
                                                                        --------     --------
           TOTAL CURRENT LIABILITIES                                      23,533       18,659
                                                                        --------     --------
Deferred income taxes (note 4)                                             2,096        1,715

Long-term debt, excluding current installments (note 3)                   17,638       20,345
Long-term lease obligations, excluding current installments (note 3)       7,200        7,600

Other long-term liabilities                                                1,958          937

Shareholders' equity:
    Common stock $.01 par value
       Authorized 20,000,000 shares:
          Issued 8,752,895 and 8,745,980 shares, respectively                 87           87
    Additional paid-in capital                                            61,854       61,792
    Retained earnings                                                     28,440       23,219
    Accumulated other comprehensive income                                (1,634)        (899)
    Unearned compensation                                                   --             (4)
    Less cost of 2,236,552 and 1,838,468 shares, respectively,
       of common stock in treasury                                       (28,940)     (25,303)
                                                                        --------     --------
           TOTAL SHAREHOLDERS' EQUITY                                     59,807       58,892
                                                                        --------     --------
Commitments and contingent liabilities (note 6)
                                                                        $112,232     $108,148
                                                                        ========     ========
</TABLE>
See accompanying notes to consolidated financial statements.

                                                      -24-





<PAGE>




                            BHA GROUP HOLDINGS, INC.
                       CONSOLIDATED STATEMENTS OF EARNINGS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)


<TABLE>
<CAPTION>

                                            FOR THE YEARS ENDED SEPTEMBER 30,
                                            2000          1999          1998
                                            ----          ----          ----

<S>                                        <C>          <C>          <C>
Net sales                                  $161,069     $155,725     $142,432
Cost of sales (note 7)                      111,718      113,785       98,399
                                            -------      -------       ------
    GROSS MARGIN                             49,351       41,940       44,033
                                            -------      -------       ------
Operating expenses:
    Selling and advertising expense          19,721       20,212       17,385
    General and administrative expense       18,173       15,918       14,468
    Restructuring expense (note 7)             --          2,167         --
                                            -------      -------       ------
           TOTAL OPERATING EXPENSES          37,894       38,297       31,853
                                            -------      -------       ------
           OPERATING INCOME                  11,457        3,643       12,180

Interest expense                             (2,022)      (2,069)      (1,449)
Other income, net                                71           85           26

                                            -------      -------       ------
           EARNINGS BEFORE INCOME TAXES       9,506        1,659       10,757
                                            -------      -------       ------
Income taxes (note 4):
    Current                                   3,977        1,321        4,419
    Deferred                                   (487)        (746)        (994)
                                            -------      -------       ------
           TOTAL INCOME TAXES                 3,490          575        3,425
                                            -------      -------       ------
           NET EARNINGS                    $  6,016     $  1,084     $  7,332
                                            =======      =======       ======
Basic earnings per common share            $   0.91     $    .15     $   1.02

Diluted earnings per common share          $   0.90     $    .15     $    .97
</TABLE>

See accompanying notes to consolidated financial statements.

                                      -25-





<PAGE>




                            BHA GROUP HOLDINGS, INC.
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>

                                                                    FOR THE YEARS ENDED SEPTEMBER 30,
                                                                      2000       1999        1998
                                                                      ----       ----        ----
<S>                                                                <C>         <C>         <C>
COMMON STOCK:
    Balance at beginning of year                                   $     87    $     87    $     78
    Issuance of 6,915 shares of common stock in 2000,
       79,627 shares in 1999 and 41,008 shares in 1998                 --          --             1
    Issuance of 787,556 shares in 1998 for 10% stock dividend          --          --             8
                                                                   --------    --------    --------
    BALANCE AT END OF YEAR                                               87          87          87
                                                                   --------    --------    --------
ADDITIONAL PAID-IN CAPITAL:
    Balance at beginning of year                                     61,792      61,310      47,607
    Excess over par value of common stock issued                         62         653         588
    Stock issued from treasury for stock option exercises              --          (303)     (1,189)
    Income tax benefit from stock option exercise                      --           132         628
    Issuance of 10% stock dividend                                     --          --        13,676
                                                                   --------    --------    --------
    BALANCE AT END OF YEAR                                           61,854      61,792      61,310
                                                                   --------    --------    --------


RETAINED EARNINGS:
    Balance at beginning of year                                     23,219      22,983      27,773
    Net earnings                                                      6,016       1,084       7,332
    Payment of cash dividends on common stock                          (795)       (848)       (806)
    Issuance of 10% stock dividend                                     --          --       (11,316)
                                                                   --------    --------    --------
    BALANCE AT END OF YEAR                                           28,440      23,219      22,983
                                                                   --------    --------    --------


ACCUMULATED OTHER COMPREHENSIVE INCOME:
    Balance at beginning of year                                       (899)       (293)       (148)
    Equity adjustment from foreign currency translation                (735)       (606)       (145)
                                                                   --------    --------    --------
    BALANCE AT END OF YEAR                                           (1,634)       (899)       (293)
                                                                   --------    --------    --------


UNEARNED COMPENSATION:
    Balance at beginning of year                                         (4)       (108)       (211)
    Recognition of compensation expense                                   4         104         103
                                                                   --------    --------    --------
    BALANCE AT END OF YEAR                                             --            (4)       (108)
                                                                   --------    --------    --------
TREASURY STOCK:
    Balance at beginning of year                                    (25,303)    (22,026)    (18,181)
    Acquisition of 398,084, 319,500, and 113,770 shares in 2000,
       1999 and 1998, respectively                                   (3,637)     (3,476)     (1,783)
    Issuance of 8,888 shares in 1999, and 57,399 shares in 1998
       for stock option exercises, net                                 --           199         306
    Issuance of 136,275 treasury shares in 1998 for 10%
       stock dividend                                                  --          --        (2,368)
                                                                   --------    --------    --------
    BALANCE AT END OF YEAR                                          (28,940)    (25,303)    (22,026)
                                                                   --------    --------    --------
           TOTAL SHAREHOLDERS' EQUITY                              $ 59,807    $ 58,892    $ 61,953
                                                                   ========    ========    ========
</TABLE>

                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>

                                                                FOR THE YEARS ENDED SEPTEMBER 30,
                                                                  2000         1999        1998
                                                                  ----         ----        ----
<S>                                                              <C>          <C>         <C>
Net earnings                                                     $6,016       $1,084      $7,332
Other comprehensive income:
    Foreign currency translation adjustment                        (735)        (606)       (145)
                                                                -------      -------      -------
Comprehensive income                                             $5,281       $  478      $7,187
                                                                =======      =======      =======
</TABLE>

See accompanying notes to consolidated financial statements.



                                      -26-





<PAGE>




                                             BHA GROUP HOLDINGS, INC.
                                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                  (IN THOUSANDS)


<TABLE>
<CAPTION>

                                                                2000        1999       1998
                                                                ----        ----       ----
<S>                                                           <C>         <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net earnings                                              $ 6,016     $ 1,084     $ 7,332
    Adjustments to reconcile net earnings to net cash
       (used in) provided by operating activities:
           Depreciation and amortization                        5,576       6,052       5,478
           Non-cash restructuring charges                        --         1,713        --
           Provision for deferred income taxes                    231        (911)     (1,469)
    Changes in assets and liabilities:
           Accounts receivable                                 (3,213)      2,982      (8,590)
           Inventories                                          1,686        (680)     (7,003)
           Prepaid expenses                                      (506)       (161)       (568)
           Income taxes                                           559        (546)      1,505
           Accounts payable                                     1,476         (14)        (86)
           Accrued expenses and other current liabilities       3,412        (351)       (470)
                                                               ------       -----      ------
       NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES     15,237       9,168      (3,871)
                                                               ------       -----      ------
CASH FLOWS FROM INVESTING ACTIVITIES:
    Additions to property, plant and equipment                 (4,531)     (5,836)     (8,313)
    Net assets of businesses or product rights acquired          --          (718)     (1,221)
    Assets sold                                                 1,100        --          --
    Change in other assets                                       (341)     (1,399)       (104)
                                                               ------       -----      ------
       NET CASH USED IN INVESTING ACTIVITIES                   (3,772)     (7,953)     (9,638)
                                                               ------       -----      ------
CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from issuance of common stock                         62         653         317
    Payment of cash dividends on common stock                    (795)       (848)       (806)
    Purchase of treasury stock                                 (3,637)     (3,476)     (1,783)
    Stock option exercise - net payments                         --          (104)       (883)
    Proceeds from long-term obligations                          --        25,997        --
    Repayments of long-term obligations                        (3,525)     (5,064)        (88)
    Borrowings (repayments) on lines of credit, net               165     (17,083)     14,500
                                                               ------       -----      ------
       NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES     (7,730)         75      11,257
                                                               ------       -----      ------
Effect of exchange rate changes                                  (735)       (606)       (145)
                                                               ------       -----      ------
    Net increase (decrease) in cash and cash equivalents        3,000         684      (2,397)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                    877         193       2,590
                                                               ------       -----      ------
CASH AND CASH EQUIVALENTS AT END OF YEAR                      $ 3,877    $    877    $    193
                                                               ======       =====      ======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
 Cash paid during the year for:
    Interest                                                  $ 2,105    $  2,058    $  1,530
    Income taxes                                              $ 2,699    $  2,032    $  3,543

Supplemental disclosure of non-cash investing and
  financing activities:
    Accrual of additional purchase price                         --      $    800        --
    Issuance of common stock to directors, officers and
       employees                                              $    62    $    105    $    272
</TABLE>

See accompanying notes to consolidated financial statements.


                                      -27-





<PAGE>




                            BHA Group Holdings, Inc.
                   Notes to Consolidated Financial Statements


  1.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

          PRESENTATION

          The consolidated financial statements include the accounts of BHA
          Group Holdings, Inc. (BHA) and its wholly-owned foreign and domestic
          subsidiaries. All significant intercompany balances and transactions
          have been eliminated in consolidation.

          REVENUE RECOGNITION

          BHA recognizes revenue at the time products are shipped or services
          are performed.

          USES OF ESTIMATES

          The preparation of financial statements in conformity with generally
          accepted accounting principles requires management to make estimates
          and assumptions that affect the reported amounts of assets and
          liabilities and disclosure of contingent assets and liabilities at the
          date of the financial statements and the reported amounts of revenues
          and expenses during the reporting period. Actual results could differ
          from those estimates.

          INVENTORIES

          BHA values its inventory at the lower of cost or market. Cost is
          determined using the first-in, first-out (FIFO) method. Components of
          inventories at September 30, 2000 and 1999 were as follows:

<TABLE>
<CAPTION>

          ($ IN THOUSANDS)              2000                 1999
                                      -------               -------
       <S>                            <C>                   <C>
          Raw materials               $16,760               $16,173
          Work-in-process               1,168                 2,150
          Finished goods                8,429                 9,720
                                      -------               -------
          TOTAL                       $26,357               $28,043
                                      =======               =======
</TABLE>

          PROPERTY, PLANT AND EQUIPMENT

          Property, plant and equipment are carried at cost. Major renewals and
          betterments are charged to the property accounts; replacements,
          maintenance and repairs that do not improve or extend the life of the
          respective assets are charged to expense as incurred.

          DEPRECIATION AND AMORTIZATION

          Depreciation and amortization of property, plant and equipment are
          computed on the straight-line method using estimated useful lives by
          major asset class as follows:

<TABLE>

               <S>                                          <C>
                 Buildings and improvements                    30 years
                 Machinery and equipment                      4-8 years
                 Office furniture, fixtures and equipment    3-10 years
</TABLE>


                                      -28-





<PAGE>




          INCOME TAXES

          Deferred tax assets and liabilities are recognized for the future tax
          consequences attributable to differences between the financial
          statement carrying amounts of existing assets and liabilities and
          their respective tax bases. Deferred tax assets and liabilities are
          measured using enacted tax rates expected to be recovered or settled.
          The effect on deferred tax assets and liabilities of a change in tax
          rates is recognized in earnings in the period that includes the
          enactment date.

          No provision is made for income taxes on undistributed earnings of the
          foreign subsidiaries because such earnings are considered permanently
          invested in the foreign subsidiaries.

          WARRANTY AND PRODUCT SERVICE

          BHA provides a reserve for estimated warranty and product service
          claims based on historical experience and consideration of changes in
          products, technology and warranty terms.

          FOREIGN CURRENCY TRANSLATION

          Financial statements of BHA's foreign subsidiaries are translated into
          U.S. dollars at current and average exchange rates. Translation gains
          and losses are included in other comprehensive income. Transaction
          gains and losses resulting from fluctuations in exchange rates between
          the functional currency (U.S. dollars) and the currency in which a
          foreign currency transaction is denominated are included in net
          earnings. Transaction gains (losses) included in the consolidated
          statements of earnings for 2000, 1999, and 1998 amounted to
          ($354,000), $71,000, and $141,000, respectively.

          FORWARD EXCHANGE CONTRACTS

          BHA periodically enters into forward exchange contracts in order to
          fix the currency exchange rate related to intercompany sales of
          inventories to its European subsidiaries. Changes in the value of
          these instruments due to currency movements offset the increases or
          decreases in the value of these purchases as expressed in local
          currencies. At September 30, 2000 and 1999, the aggregate amount of
          such forward exchange contracts was approximately $1,700,000 and
          $2,400,000, respectively. The fair value of the outstanding forward
          exchange contracts exceeds the contract value by approximately
          $144,000 at September 30, 2000. No gains have been recognized in the
          accompanying financial statements relative to these contracts, as
          their purpose is to hedge inventory purchases during fiscal 2001. The
          fair value of the outstanding contracts at September 30, 1999
          approximated the contract values.

          COMPREHENSIVE INCOME

          Comprehensive income consists of net income and foreign currency
          translation adjustments and is presented in the Statement of
          Comprehensive Income. Comprehensive income has no impact on net
          earnings or stockholders' equity of the Company.


                                      -29-





<PAGE>




          TREASURY STOCK

          The Board of Directors of BHA have periodically approved the purchase
          of shares of the Company's common stock. The total shares authorized
          is 2,500,000 of which approximately 2,000,000 have been purchased. The
          purchases of common stock are recorded at cost on the date of
          purchase. Issuance of common stock from the treasury is recorded at
          the average cost of common stock held in the treasury.

          EARNINGS PER COMMON SHARE

          Basic earnings per share is computed by dividing net earnings
          available to common shareholders by the weighted average number of
          common shares outstanding for the period. Diluted earnings per share
          is computed based upon the weighted average number of common shares
          and dilutive common equivalent shares outstanding. Stock options,
          which are common stock equivalents, have a dilutive effect on earnings
          per share in all periods presented and are therefore included in the
          computation of diluted earnings per share. Stock options are described
          in Note 5. A reconciliation of the numerators and the denominators of
          the basic and diluted earnings per-share computations is as follows:

                     (IN THOUSANDS, EXCEPT PER SHARE DATA.)

<TABLE>
<CAPTION>

                                        2000                              1999                            1998
                           --------------------------------  ---------------------------------  ------------------------------
                           Net Earnings   Shares   Per-Share Net Earnings  Shares    Per-Share  Net Earnings Shares  Per-Share
                            (Numerator)  (Denom.)    Amt.     (Numerator)  (Denom.)    Amt.     (Numerator) (Denom.)    Amt.
                            -----------   ------    -----     ----------   -------    ------     ---------   ------     ----
<S>                              <C>       <C>       <C>        <C>          <C>        <C>        <C>        <C>       <C>
Basic earnings per share:
Earnings available to common
shareholders                    $6,016    6,601     $0.91      $1,084       7,028      $0.15      $7,332     7,171     $1.02

Effect of dilutive
securities--stock
options                          --          71                  --           106                   --         381

Diluted earnings per share:
Earnings available to
common shareholders
and assumed conversion          $6,016    6,672     $0.90      $1,084       7,134      $0.15      $7,332     7,552     $0.97
                               ========   ======    ======     ======       =====      =====      ======     =====     ======

</TABLE>

          Options to purchase 849,252 shares of common stock at prices ranging
          from $9.56 to $16.82 per share were outstanding at the end of 2000 but
          were not included in the computation of diluted earnings per share
          because the options' exercise price was greater than the average
          market price of the common shares. In 1999 and 1998, options to
          purchase 571,688 shares and 8,800 shares, respectively, were similarly
          excluded from the calculation.

          COST IN EXCESS OF NET ASSETS ACQUIRED AND INTANGIBLE ASSETS

          Cost in excess of net assets acquired is being amortized over periods
          ranging from thirty to forty years, and is presented in the
          accompanying consolidated balance sheets net of accumulated
          amortization of $1,555,000 and $1,360,000 at September 30, 2000 and
          1999, respectively.

          Other intangible assets are being amortized over periods ranging from
          five to seventeen years and are presented in the accompanying
          consolidated balance sheets net of accumulated amortization of
          $6,464,000 and $5,833,000 at September 30, 2000 and 1999,
          respectively.

          IMPAIRMENT OF LONG-LIVED ASSETS

          Long-lived assets and certain identifiable intangibles are reviewed
          for impairment whenever events or changes in circumstances indicate
          that the carrying amount may not be recoverable. Recoverability of
          assets to be held and used is measured by comparison of the carrying
          amount of the asset to future net cash flows expected to be generated
          by the




                                      -30-





<PAGE>




          asset. If such assets are considered to be impaired, the impairment to
          be recognized is measured by the amount by which the carrying amount
          of the assets exceed the fair value of the assets. Assets to be
          disposed of are reported at the lower of the carrying amount or fair
          value less costs to sell.

          STATEMENTS OF CASH FLOWS

          For purposes of the consolidated statements of cash flows, BHA
          considers overnight invested cash and investments in marketable
          securities, with maturities of three months or less to be cash
          equivalents.

          FAIR VALUE OF FINANCIAL INSTRUMENTS

          The carrying amounts of cash, accounts receivable and accounts payable
          approximate fair value because of the short maturities of these
          instruments. The fair value of long-term obligations are estimated by
          discounting future cash flows using current market rates. The carrying
          amounts of long-term debt and lease obligations approximate fair value
          at September 30, 2000.

  2.      ACQUISITIONS AND DISPOSITIONS OF ASSETS

          In September 2000, BHA Technologies sold certain assets of its
          Allergydirect.com division to Salu, Inc. and simultaneously entered
          into a supply agreement through which BHA Technologies will supply
          bedding encasements with ePTFE membrane to Salu. Under the terms of
          the agreement, the Company received cash of $1.1 million together with
          warrants to purchase Salu stock and additional future consideration of
          up to $300,000 contingent upon meeting volume targets. The value of
          the total consideration received in excess of net assets transferred
          will be recognized over the three-year term of the exclusive supply
          agreement.

          In January 1999, the Company acquired certain assets, including
          patents, trademarks, and other intangibles related to Drayton
          Corporation's Sound-Off Acoustic Cleaner product line. The purchase
          price consisted of a cash payment of $700,000 plus additional
          contingent payments to be made over the next five years based upon
          revenues of the product line. During fiscal 1999, the Company recorded
          additional purchase price of $800,000 at the date of acquisition based
          on their assessment of the likelihood of attaining such additional
          revenues. During fiscal 2000, the Company negotiated an amendment to
          this purchase agreement under which the parties agreed to total
          additional payments of $950,000 (including the $800,000 recorded at
          the date of acquisition) to be made through 2004 in lieu of the
          contingent payment schedule in the original contract. The total
          purchase price of $1,650,000 is being amortized on a straight-line
          basis over ten years.

          During fiscal 1998, the Company acquired 100% of the outstanding stock
          of Purificacion y Filtracion, S.L. (BHA Purfilter) located in
          Barcelona, Spain and Industrial Filtrantes Purfilter C.A. (BHA
          Venezuela) located in Puerto Ordaz, Venezuela for a combined purchase
          price of approximately $1,400,000. These acquisitions were accounted
          for as purchases, with each purchase price allocated to the assets
          acquired based upon estimated fair values as of the dates of the
          acquisitions. The excess of the purchase price over the net assets
          acquired is being amortized on a straight-line basis over thirty
          years.

          The proforma effect of these transactions are not material to the
          Company.


                                      -31-





<PAGE>




      3.  NOTES PAYABLE TO BANKS, LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS

          Notes Payable to Banks and Long-Term Debt A summary of notes payable
          to banks and long-term debt at September 30, 2000 and 1999 are as
          follows:

<TABLE>
<CAPTION>

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

         <S>                                                                       <C>              <C>
          Unsecured domestic line of credit with variable interest rate             $  --            $1,120
          Foreign line of credit with variable interest rate, secured by a
               standby Letter of Credit                                               2,877             803
          Notes payable to a domestic bank with variable interest rate               14,375          15,000
          Note payable to a domestic bank with fixed interest rate of 5.00%            --             2,500
          Notes payable to a foreign bank with a fixed interest rate of 4.75%
               secured by a standby Letter of Credit                                  2,260           2,997
          Other notes payable                                                           395             447
          Less current installments                                                  (2,269)         (2,522)
                                                                                    -------         -------
          LONG-TERM DEBT, EXCLUDING CURRENT INSTALLMENTS                            $17,638         $20,345
                                                                                    =======         =======
</TABLE>

          BHA has a domestic unsecured bank line of credit of $18,000,000 for
          working capital purposes, letters of credit and other corporate
          matters. This line of credit bears interest at variable rates based on
          either the prime rate or LIBOR and expires in October 2002. This
          facility is a revolving credit agreement on which BHA pays a 0.25%
          commitment fee on the unused portion. At September 30, 2000, there
          were no outstanding borrowings under this revolving credit facility,
          however, a standby Letter of Credit had been issued in the amount of
          $5,500,000 to secure the Company's German credit facilities. At
          September 30, 1999, $1,120,000 was outstanding under this domestic
          bank line of credit at an interest rate of 7.25%.

          BHA's German subsidiary maintains a foreign bank line of credit of DM
          6,860,000 (approximately $3,101,000 at September 30, 2000) for working
          capital purposes in Europe. This line of credit bears interest at
          variable rates based on the German prime rate and expires in fiscal
          2002. At September 30, 2000, DM 6,364,000 (approximately $2,877,000)
          was outstanding under this foreign bank line of credit at an interest
          rate of 5.79%.

          BHA's German subsidiary also maintains a DM 5,000,000 term loan
          (approximately $2,260,000 at September 30, 2000) with a German bank.
          This term loan has a fixed rate of 4.75% and is due in full at
          maturity in December 2003.

          BHA's foreign subsidiary located in Switzerland maintains a line of
          credit with a foreign bank in the amount of CHF 200,000 (approximately
          $116,000 at September 30, 2000). As of September 30, 2000 and 1999,
          there were no borrowings outstanding under this line of credit.

          In September 1999, BHA entered into a $15 million unsecured term loan,
          the proceeds of which were used to repay existing long-term debt and
          provide for general corporate matters. This term loan has a variable
          interest rate based on LIBOR (7.47% at September 30, 2000) and matures
          in October 2006. Quarterly principal payments are required in the
          amount of $625,000.


                                      -32-





<PAGE>




          At September 30, 2000, the Company had unused commitments under its
          bank facilities totaling $12.3 million. The term loans and domestic
          bank line of credit require BHA, among other things, to maintain
          minimum levels of net worth, minimum fixed charge coverage, minimum
          current ratio, and maximum debt to cash flow ratio. BHA was in
          compliance with all covenants at September 30, 2000. Under the most
          restrictive of these covenants, at September 30, 2000, $11,300,000 of
          retained earnings were available for cash dividends.

          Capital Lease Obligations

          In December 1998, BHA Technologies, Inc., a wholly-owned subsidiary,
          entered into a sale-leaseback transaction with the City of Lee's
          Summit, Missouri. In connection with this lease, the city issued
          tax-exempt Industrial Development Revenue Bonds ("Bonds") totaling
          $8,000,000 and placed the proceeds in a trust to fund future capital
          expenditures at the Lee's Summit manufacturing facility. BHA
          Technologies is obligated, through its lease, for the repayment of
          these bonds over the next 20 years. Annual lease payments of $400,000
          commenced in December 1999. The interest rate on the tax-exempt Bonds
          is variable based on a weekly published index that is approximately
          67% of LIBOR (5.70% as of September 30, 2000). As of September 30,
          2000 and 1999, BHA Technologies had $1.1 million and $1.2 million,
          respectively in restricted cash held in trust for the exclusive use
          for qualified capital expenditures in Lee's Summit. The restricted
          cash is included in Intangible and Other Assets in the accompanying
          Consolidated Balance Sheets.

          Scheduled payments on long-term debt, including capital lease
          obligations, for the next five fiscal years are as follows:

<TABLE>
<CAPTION>

                                  $ IN THOUSANDS
                                  --------------
          <S>                        <C>
               2001                    2,669
               2002                    2,900
               2003                    2,900
               2004                    8,038
               2005                    2,900
            Thereafter                 8,100
                                     --------
                                     $27,507
                                     ========
</TABLE>

   4.     INCOME TAXES

          The components of total income tax expense for the years ended
          September 30, 2000, 1999, and 1998 are as follows:

<TABLE>
<CAPTION>

          ($ IN THOUSANDS)                                       2000               1999               1998
                                                                ------             ------             ------
          <S>                                                   <C>                 <C>               <C>
          Current income tax expense (benefit):
               Federal                                          $3,230             $1,621             $3,716
               Foreign                                             269               (552)               160
               State and local                                     478                252                543
          Deferred income tax expense (benefit):
               Federal                                            (428)              (683)              (893)
               State                                               (59)               (63)              (101)
                                                                ------             ------             ------
                                                                $3,490             $  575             $3,425
                                                                ======             ======             ======
</TABLE>


                                      -33-





<PAGE>




          The effective tax rate differs from the expected tax rate for the
          respective years as follows:

<TABLE>
<CAPTION>

                                                                 2000                1999                1998
                                                                 -----               -----               -----
<S>                                                              <C>                 <C>                 <C>
          Expected income tax expense                            34.0%               34.0%               34.0%
          State income taxes, net                                 2.9                 7.5                 2.7
          Foreign subsidiaries                                    1.9                14.1                (2.2)
          Research and experimentation credits                   (2.6)              (12.1)               (1.7)
          Other, net                                               .5                (8.8)               (1.0)
                                                                 -----               -----               -----
               EFFECTIVE INCOME TAX RATE                         36.7%               34.7%               31.8%
                                                                 =====               =====               =====
</TABLE>

          The tax effects of temporary differences that give rise to significant
          portions of the deferred tax assets and deferred tax liabilities at
          September 30, 2000 and 1999 are presented as follows:

<TABLE>
<CAPTION>
          ($ IN THOUSANDS)                                     2000                   1999
                                                              ------                 ------
          <S>                                                 <C>                  <C>
          Deferred tax assets:
               Reserves and accruals not
                 currently deductible                         $1,946                 $1,947
               Inventories                                       353                    296
               Other, net                                        613                    329
                                                              ------                 ------
               Total gross deferred tax assets                 2,912                  2,572
                                                              ------                 ------
          Deferred tax liabilities:
               Intangible and other assets                       519                    570
               Property, plant and equipment                   1,186                  1,084
               Prepaid expenses                                  141                    206
               Deferred compensation                             ---                     39
               Other, net                                        652                     28
                                                              ------                 ------
               Total gross deferred tax liabilities            2,498                  1,927
                                                              ------                 ------
               NET DEFERRED TAX ASSET                         $  414                 $  645
                                                              ======                 ======
</TABLE>

          At September 30, 2000 and 1999, deferred tax assets and liabilities
          are classified in the accompanying consolidated balance sheets as
          follows:

<TABLE>
<CAPTION>
          ($ IN THOUSANDS)                                     2000                   1999
                                                              ------                 ------
          <S>                                                 <C>                     <C>
          Current deferred income tax asset                   $2,510                  $2,360
          Non-current deferred income tax liability            2,096                   1,715
                                                              ------                 -------
          NET DEFERRED TAX ASSET                              $  414                  $  645
                                                              ======                 =======
</TABLE>

          BHA has not recorded a valuation allowance relating to deferred tax
          assets, as taxable temporary differences are expected to be offset by
          deductible temporary differences and future taxable income.

          BHA has not provided deferred taxes on the cumulative undistributed
          earnings of its foreign subsidiaries, which approximated $1,627,000 at
          September 30, 1999 as management considers these earnings to be
          permanently invested. At September 30, 2000, the Company had a
          cumulative deficit for its foreign subsidiaries. Net earnings (losses)
          of these foreign subsidiaries were approximately $(167,000),
          $(3,449,000), and $359,000 for the years ended September 30, 2000,
          1999, and 1998, respectively.


                                      -34-





<PAGE>




     5.  INCENTIVE STOCK PLAN

          BHA has an incentive stock plan for key employees, officers and
          directors. The plan provides for 2,221,084 shares of common stock (as
          adjusted for the dilutive effect of stock dividends) available for
          issuance of stock options, restricted stock and payment to outside
          directors in lieu of cash. Stock options are granted at a price equal
          to the fair market value of BHA Common Stock at the date of grant for
          terms of up to ten years.

          BHA accounts for its stock-based employee compensation plans pursuant
          to Statement of Financial Accounting Standard No. 123, "Accounting for
          Stock-Based Compensation" (SFAS 123). SFAS 123 establishes a fair
          value-based method of accounting. BHA has chosen to adopt the
          pro-forma disclosure requirements of SFAS 123, and continue to record
          stock compensation in accordance with Accounting Principles Board
          Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25),
          as amended, which is permitted under SFAS 123. Under APB 25
          compensation expense is recorded on the date of grant for stock
          options granted only if the current market price of the underlying
          stock exceeds the exercise price.

           A summary of transactions in the incentive stock plan is as follows:

<TABLE>
<CAPTION>
                                          2000                       1999                        1998
                                               WEIGHTED-                  WEIGHTED-                  WEIGHTED-
                                    NUMBER      AVERAGE        NUMBER      AVERAGE       NUMBER       AVERAGE
                                   OF SHARES EXERCISE PRICE  OF SHARES EXERCISE PRICE  OF SHARES  EXERCISE PRICE
                                    -----------------------  ------------------------  -------------------------
<S>                                 <C>           <C>         <C>          <C>         <C>            <C>
Outstanding at beginning
of year                              1,077,150    $11.35      1,087,057    $10.63       1,099,431    $    8.83
  Granted                              169,750      9.45        312,800     13.37         251,140        16.02
  Expired                                 --        --           (3,492)     9.86           --           --
  Canceled                              (1,331)    12.77       (200,312)    12.67           --           --
  Exercised                               --        --         (118,903)     7.90        (263,514)        8.26
                                    --------------------     --------------------      -----------------------
Outstanding at end of
   year                              1,245,569    $11.09      1,077,150    $11.35       1,087,057    $   10.63
                                    --------------------     --------------------      -----------------------
Exercisable at end of yr.              396,317    $ 7.82        505,462    $ 8.27         773,045    $    8.93
                                    ====================     ====================      =======================
</TABLE>

<TABLE>
<CAPTION>

                       OPTIONS OUTSTANDING                                                   OPTIONS EXERCISABLE
 -------------------------------------------------------------------------           ----------------------------------
                          NUMBER           WEIGHTED-          WEIGHTED-                 NUMBER             WEIGHTED-
     RANGE OF          OUTSTANDING      AVG. CONTRACTED     AVG. EXERCISE             EXERCISABLE           AVERAGE
  EXERCISE PRICES       AT 9/30/00        LIFE IN YRS.          PRICE                 AT 9/30/99        EXERCISE PRICE
 -------------------------------------------------------------------------           ----------------------------------
<S>                      <C>                  <C>              <C>                     <C>                   <C>
   $6.20 - 10.47         675,212              5.2              $ 8.57                  396,317               $7.82
  $12.02 - 16.82         570,357              6.7              $14.08
                       ---------
                       1,245,569
                       =========
</TABLE>

          The per share weighted-average fair value of stock options granted
          during 2000, 1999, and 1998 was $4.03, $5.36, and $5.20, respectively,
          on the date of grant using the Black Scholes option-pricing model with
          the following assumptions: expected dividend yield of 1.24% for 2000,
          1.15% for 1999, and .80% for 1998; weighted average risk-free interest
          rate of 5.80% for 2000, 5.90% for 1999, and 4.73% for 1998; expected
          volatility factor of 32.36%, 29.38%, and 19.0% for 2000, 1999, and
          1998, respectively; and a weighted-average expected life of eight
          years.


                                      -35-





<PAGE>




          Since BHA applies APB 25 in accounting for its incentive stock plan,
          no compensation expense has been recognized for stock options in net
          earnings. Stock-based compensation expense, if recorded under SFAS 123
          would have reduced net earnings by $613,000 or $.09 per diluted share
          in 2000, $738,000 or $.10 per diluted share in 1999, and $470,000 or
          $.06 per diluted share in 1998.

          Compensation expense for options granted prior to October 1, 1995 is
          not considered. The full impact of calculating compensation expense
          for stock options under SFAS 123 is not reflected in the proforma net
          earnings amount above for fiscal 1998 since compensation expense is
          reflected over the option's vesting period of four years for all
          options.

     6.   COMMITMENTS AND CONTINGENT LIABILITIES

          EMPLOYEE BENEFIT PLANS

          BHA has a noncontributory Employee Stock Ownership Plan (ESOP) and a
          non-contributory Profit Sharing Plan. These plans include
          substantially all domestic employees who are not covered by collective
          bargaining agreements. BHA, with approval of its Board of Directors,
          makes discretionary contributions to the ESOP and Profit Sharing
          Plans. Benefits become vested according to years of service.
          Contributions charged to operating expense were $1,330,000, $435,000,
          and $884,000 for the years ended September 30, 2000, 1999, and 1998,
          respectively.

          BHA's eligible domestic employees participate in a voluntary 401(k)
          employee benefit plan (401(k) Plan). The 401(k) Plan covers eligible
          employees not covered by a collective bargaining agreement. For 2000,
          the Company matched 150% of a participant's contribution subject to a
          maximum contribution of $750 per employee. BHA matching contributions
          become vested based on years of service. BHA made matching
          contributions of $462,000, $330,000, and $270,000 for the years ended
          September 30, 2000, 1999, and 1998, respectively.

          LEASES

          A summary of noncancelable, long-term operating lease commitments on
          office facilities and equipment follows:

<TABLE>
<CAPTION>

            YEARS ENDING SEPTEMBER 30,                $ IN THOUSANDS
            --------------------------                --------------
               <S>                                   <C>
                       2001                                $1,515
                       2002                                   789
                       2003                                   676
                       2004                                   513
                       2005                                   468
                    Thereafter                                942
</TABLE>

          Total rental expense on noncancelable, long-term operating leases
          amounted to approximately $1,855,000, $2,780,000, and $2,210,000 for
          the years ended September 30, 2000, 1999, and 1998, respectively.


                                      -36-





<PAGE>




          LETTERS OF CREDIT

          The terms of certain contracts require that BHA issue standby letters
          of credit to assure performance. Open standby letters of credit
          (excluding those issued to secure indebtedness as disclosed in Note 3)
          amounted to $798,000 and $92,000 at September 30, 2000 and 1999,
          respectively.

          LITIGATION

          In the normal course of business, BHA is party to certain actions
          arising out of various allegations of product or professional
          liability. BHA has insurance coverage for substantially all such
          actions, subject to coverage limitations and deductibles for each
          claim. In the opinion of management, the amount of loss, if any, from
          the final outcome of these actions will not have a material adverse
          impact on the consolidated financial statements.

     7.   RESTRUCTURING AND UNUSUAL CHARGES

          The Company recognized restructuring expenses in the amount of
          $2,167,000 on a pretax basis during fiscal 1999. A charge of
          $1,713,000 was taken as a result of the decision by BHA Technologies
          to discontinue its in-house adhesive lamination efforts. Future
          efforts to sell PTFE membrane for apparel and other uses involving
          adhesive lamination will either be outsourced or will be in the form
          of unlaminated film. Additionally, severance cost of $454,000 was
          expensed and paid during fiscal 1999 relative to the consolidation of
          manufacturing operations in Europe.

          In addition, fiscal 1999 cost of sales includes unusual charges of
          $4,200,000 consisting of (1) a cost overrun on a large fixed-price ESP
          rebuild project on which a loss of $2,400,000 was recognized, (2)
          substantial experimentation and testing performed by BHA Technologies
          totaling $1,400,000 related to adhesive lamination to develop products
          for non-APC markets and (3) inventory write-downs of $400,000
          attributable to the Company's consolidation of manufacturing
          operations in Europe.

       8.  BUSINESS SEGMENTS

          SEGMENT REPORTING

          Effective September 30, 1999, BHA adopted Statement of Financial
          Accounting Standard No. 131, "Disclosures about Segments of an
          Enterprise and Related Information," (SFAS No. 131). SFAS No. 131
          requires reporting of segment information that is consistent with the
          way in which management operates the Company.

          BHA reports its operations as three business segments, Domestic Air
          Pollution Control (Domestic APC), Europe Air Pollution Control (Europe
          APC), and BHA Technologies. Domestic APC consists of the air pollution
          control products and services sold or managed from the United States.
          Such sales include shipments and services throughout North America,
          Latin America, Asia, and the Pacific Rim as such revenues are derived
          from BHA's U.S. based management group. The Europe APC segment
          represents sales of products and services managed from BHA's European
          manufacturing, distribution, and sales offices. BHA Europe generally
          services customers throughout Europe, as well as in Northern Africa.
          BHA Technologies supplies ePTFE membrane products for APC
          applications, primarily to BHA, and is also selling such products
          outside of the air pollution control market.

                                      -37-





<PAGE>





          The accounting policies for the segments are the same as those
          described in the summary of significant accounting policies. BHA
          manages these segments as strategic business units. Europe APC
          represents a distinct business unit as it maintains its own
          manufacturing, sales, marketing, and project management resources.
          Sales to other international locations are included in the Domestic
          APC business segment, as most or all of the key manufacturing,
          engineering, and sales support functions are performed from the United
          States. BHA Technologies operates as a distinct entity due to its
          unique technologies, as well as the marketing of products unrelated to
          air pollution control.

          Reportable segment data for the years ended September 30, 2000, 1999,
          and 1998 were as follows:

           NET SALES
<TABLE>
<CAPTION>


          ($ IN THOUSANDS)            2000                   1999                  1998
                                    --------              --------               --------
          <S>                       <C>                   <C>                    <C>
          Domestic APC              $134,459              $133,846               $121,254
          Europe APC                  20,056                20,076                 20,226
          BHA Technologies             6,554                 1,803                    952
                                    --------              --------               --------
          TOTAL                     $161,069              $155,725               $142,432
                                    --------              --------               --------
</TABLE>


           Net sales represent revenues from sales to unaffiliated customers.

           INTEREST EXPENSE

<TABLE>
<CAPTION>
          ($ IN THOUSANDS)            2000                   1999                    1998
                                    --------              --------               --------
          <S>                       <C>                   <C>                    <C>
          Domestic APC                $1,328                $1,014                 $  878
          Europe APC                     222                   369                    196
          BHA Technologies               472                   686                    375
                                    --------              --------               --------
          TOTAL                       $2,022                $2,069                 $1,449
                                    ========              ========               =========
</TABLE>

           EARNINGS (LOSS) BEFORE INCOME TAXES

<TABLE>
<CAPTION>

          ($ IN THOUSANDS)            2000                   1999                  1998
                                    --------              --------               --------
          <S>                       <C>                   <C>                    <C>
          Domestic APC               $10,893               $10,925                $11,050
          Europe APC                    (761)               (2,744)                   436
          BHA Technologies              (626)               (6,522)                  (729)
                                    --------              --------               --------
          TOTAL                       $9,506                $1,659                $10,757
                                    ========              ========               =========
</TABLE>

          The aggregate amount of all corporate expenses is allocated to the
          three business segments based upon the judgement of management. The
          fiscal 1999 pretax loss for Europe APC includes restructuring charges
          of $0.5 million related to the closure of German manufacturing
          operations. The fiscal 1999 pretax loss for BHA Technologies includes
          a restructuring charge in the amount of $1.7 million related to the
          discontinuation of its adhesive lamination efforts.

          Additionally, the unusual charges recognized in fiscal 1999 as
          discussed in Note 7 are included in the preceding summary and reduced
          fiscal 1999 pretax earnings of the segments by: Domestic APC,
          $2,400,000; Europe APC, $400,000; and BHA Technologies, $1,400,000.



                                      -38-





<PAGE>





           ASSETS

<TABLE>
<CAPTION>

         ($ IN THOUSANDS)             2000                1999                   1998
                                    --------            --------               --------
          <S>                       <C>                   <C>                    <C>
          Domestic APC              $63,502             $66,829                $69,380
          Europe APC                 16,673              16,234                 15,486
          BHA Technologies           18,932              14,153                 12,252
          Corporate                  13,125              10,932                 10,456
                                    -------             -------                -------
          TOTAL                    $112,232            $108,148               $107,574
                                    =======             =======                =======

           DEPRECIATION AND AMORTIZATION


</TABLE>
<TABLE>
<CAPTION>

          ($ IN THOUSANDS)            2000                1999                    1998
                                    --------            --------               --------
          <S>                       <C>                   <C>                    <C>
          Domestic APC               $2,886              $3,100                 $3,142
          Europe APC                    597                 690                    530
          BHA Technologies              783                 843                    408
          Corporate                   1,310               1,419                  1,398
                                     -------             ------                 ------
          TOTAL                      $5,576              $6,052                 $5,478
                                     =======             =======                ======
</TABLE>

           CAPITAL EXPENDITURES

<TABLE>
<CAPTION>

              ($ IN THOUSANDS)        2000                 1999                   1998
                                    --------             --------               --------
          <S>                       <C>                   <C>                    <C>
          Domestic APC               $  208              $1,493                 $1,766
          Europe APC                    424                 665                  1,235
          BHA Technologies            2,711               2,600                  4,031
          Corporate                   1,188               1,078                  1,281
                                     ------              ------                 ------
          TOTAL                      $4,531              $5,836                 $8,313
                                     ======              ======                 ======
</TABLE>

          Certain corporate assets including intangibles and computer equipment
          are not allocated to specific business segments and are thus included
          in the above tables of assets, depreciation and amortization, and
          capital expenditures as "Corporate."

          GEOGRAPHIC INFORMATION BY COUNTRY

          The following table presents revenues by country based on the location
          of the use of the product or service. No single country, other than
          the United States, comprised more than 10% of BHA's net sales.

           NET SALES

<TABLE>
<CAPTION>

          ($ IN THOUSANDS)            2000                1999                  1998
                                    --------            --------               --------
          <S>                       <C>                 <C>                    <C>
          United States             $117,070            $113,475               $ 98,694
          All Other Countries         43,999              42,250                 43,738
                                    --------            --------               --------
          TOTAL                     $161,069            $155,725               $142,432
                                    ========            ========               ========
</TABLE>

          The following table presents all noncurrent assets by country based on
          the location of the asset. No single country, other than the United
          States, comprised more than 10% of the Company's long-lived assets.


                                      -39-





<PAGE>





           LONG-LIVED ASSETS

<TABLE>
<CAPTION>

              ($ IN THOUSANDS)        2000                 1999                    1998
                                   --------               --------               --------
          <S>                      <C>                   <C>                    <C>
          United States             $38,861               $39,177                $38,037
          All Other Countries         6,563                 7,027                  6,965
                                   --------               -------                -------
          TOTAL                     $45,424               $46,204                $45,002
                                   ========               =======                =======
</TABLE>

       9.  QUARTERLY FINANCIAL DATA (UNAUDITED)

           Summarized quarterly financial data are as follows:
<TABLE>
<CAPTION>

THREE MONTHS ENDED                                     DEC. 31           MARCH 31            JUNE 30           SEPT. 30
($ IN THOUSANDS, EXCEPT PER SHARE DATA)              -------------------------------------------------------------------

<S>                                                     <C>                 <C>               <C>               <C>
2000
Net sales                                               $39,036             $44,201           $39,828           $38,004
Gross margin                                             11,622              13,514            11,732            12,483
Net earnings                                              1,255               1,983             1,324             1,454
Diluted earnings per share                              $  0.18             $  0.30           $  0.20           $  0.22

Common Stock Price Range, High                          $ 10.00             $  9.75           $ 10.50           $ 14.25
                          Low                           $  7.38             $  6.53           $  7.63           $  9.25

1999
Net sales                                               $35,228             $40,331           $38,943           $41,223
Gross margin                                             10,689               9,380            10,588            11,283
Net earnings (loss) *                                     1,316                (155)              597              (674)
Diluted earnings (loss) per share                       $  0.18            ($  0.02)          $  0.08           ($ 0.10)

Common Stock Price Range, High                          $ 14.25             $ 13.63           $ 10.50            $10.00
                          Low                           $ 10.25             $  9.13           $  8.00            $ 7.88
</TABLE>

*    Net earnings reflect Restructuring Expenses of $2,167,000 ($1,416,000 after
     tax) in the September 1999 quarter. Net earnings for fiscal 1999 also
     reflect Unusual Charges (see Note 7) of $250,000 ($163,000 after tax) in
     the December 1998 quarter, $2,750,000 ($1,800,000 after tax) in the March
     1999 quarter, $740,000 ($483,000 after tax) in the June 1999 quarter, and
     $500,000 ($327,000 after tax) in the September 1999 quarter.


                                      -40-





<PAGE>




                    BHA GROUP HOLDINGS, INC. AND SUBSIDIARIES
                        VALUATION AND QUALIFYING ACCOUNTS
                            (IN THOUSANDS OF DOLLARS)


<TABLE>
<CAPTION>
                                                                          Charged To
                                                        Beginning         Costs and                       Ending
                                                         Balance           Expenses      Deductions      Balance
<S>                                                      <C>                 <C>            <C>            <C>
ALLOWANCE FOR DOUBTFUL RECEIVABLES:
Year ended September 30, 2000                            $1,238             341            540            1,039
                                                         ========        ========       ========         ========

Year ended September 30, 1999                            $1,139             837            738            1,238
                                                         ========        ========       ========         ========

Year ended September 30, 1998                            $  965             254             80            1,139
                                                         ========        ========       ========         ========

RESERVE FOR WARRANTY AND PRODUCT SERVICE:
Year ended September 30, 2000                            $1,414           2,724          1,585            2,553
                                                         ========        ========       ========         ========

Year ended September 30, 1999                            $1,140           1,533          1,259            1,414
                                                         ========        ========       ========         ========

Year ended September 30, 1998                            $  915           1,629          1,404            1,140
                                                         ========        ========       ========         ========
</TABLE>


                                      -41-





<PAGE>



ITEM 9 - DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There were no disagreements with the Company's principal accountants, which
require disclosure pursuant to this item.

PART III

Part III (Items 10, 11, 12 and 13) is omitted by the Company in accordance with
General Instruction G to Form 10-K. The Company intends to file with the
Commission a definitive proxy statement pursuant to Regulation 14A not later
than 120 days following the close of its fiscal year ending September 30, 2000,
which is incorporated herein by reference.

PART IV

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

(a) (1)  Financial Statements:  See accompanying Index to Consolidated Financial
         Statements and Schedules.

(a) (2)  Financial Statement Schedules:  See accompanying Index to Consolidated
         Financial Statements and Schedules. All schedules not listed have been
         omitted because they are not applicable or the information has been
         otherwise supplied in the Registrant's Financial Statements and
         Schedules.

(a) (3)  Exhibits:

         (3a)  Certificate of Incorporation, as amended (7).

         (3b)  By-Laws, as amended (6).

         (10a) BHA Group, Inc. 1986 Stock Option Plan as amended, including form
               of Option Agreement (2).

         (10b) Second Amendment to the BHA Group, Inc. 1986 Stock Option
               Plan (3).

         (10c) Employee Stock Ownership Plan of BHA as amended on May 1, 2000
               (9).

         (10d) 401(k) Plan of BHA (1).

         (10e) Employment Agreement dated February 1, 2000 between BHA Group,
               Inc. and Lamson Rheinfrank, Jr. (4).

         (10f) Employment Agreement dated February 1, 2000 between BHA Group,
               Inc. and James E. Lund (4).

         (10g) Employment Agreement dated February 1, 2000 between BHA Group,
               Inc. and James J. Thome (4).

         (10h) Employment Agreement dated February 1, 2000 between BHA Group,
               Inc. and James C. Shay (4).

         (10i) Rights Agreement dated as of December 13, 1995, between BHA
               Group, Inc., and Boatmen's Trust Company, including Form of
               Rights Certificate (Exhibit A) and Summary of Rights to
               Purchase Common Stock (Exhibit B) (5).

                                       -42-





<PAGE>



         (10j) $15,000,000 Term Loan Agreement between BHA Group Holdings, Inc.
               and Commerce Bank N.A. dated as of September 20, 1999 (8).

         (10k) $18,000,000 Revolving Credit Agreement between BHA Group
               Holdings, Inc. and Bank of America, N.A. dated as of
               September 30, 1999 (8).

         (11)  Computation of earnings per common share (9).

         (21)  Subsidiaries of the Registrant (9).

         (23)  Independent Auditors' Consent (9).

         (27)  Financial Data Schedule - Article 5 (9).

(b)      Reports on Form 8-K:  No reports on Form 8-K were filed by the Company
         during the quarter ended September 30, 2000.

(c)      Exhibits:  See (a) (3) above.

(d)      Financial Statement Schedules:  See (a) (2) above.

NOTES TO INDEX
(1)      Filed as an exhibit to the Company's Registration Statement on Form
         S-1, as amended (Registration No. 33-8644) which exhibit is
         incorporated herein by reference.

(2)      Filed as an exhibit to the Company's Annual Report on Form 10-K for the
         fiscal year ended September 30, 1990, which exhibit is incorporated
         herein by reference.

(3)      Filed as an exhibit to the Company's Annual Report on Form 10-K for the
         fiscal year ended September 30, 1992, which exhibit is incorporated
         herein by reference.

(4)      Filed as an exhibit to the Company's Form 10-Q for the quarter ended
         March 31, 2000, which exhibit is incorporated herein by reference.

(5)      Filed as an exhibit to the Company Current Report on Form 8-K filed
         with the Securities and Exchange Commission on December 15, 1995, which
         exhibit is incorporated herein by reference.

(6)      Filed as an exhibit to the Company's Annual Report on Form 10-K for the
         fiscal year ended September 30, 1995, which exhibit is incorporated
         herein by reference.

(7)      Filed as an exhibit to the Company's Annual Report on Form 10-K for the
         fiscal year ended September 30, 1996, which exhibit is incorporated
         herein by reference.

(8)      Filed as an exhibit to the Company's Annual Report on Form 10-K for the
         fiscal year ended September 30, 1999, which exhibit is incorporated
         herein by reference.

(9)      Filed as an exhibit hereto.



                                      -43-








<PAGE>




                                   SIGNATURES

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

                            BHA GROUP HOLDINGS, INC.

<TABLE>
<S>           <C>                         <C>
Dated:        November 7, 2000            By:     /s/ James E. Lund
                                                  ------------------------------
                                                  James E. Lund, President

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

Dated:        November 7, 2000            By:     /s/ James E. Lund
                                                  ------------------------------
                                                  James E. Lund, President
                                                  Principal Executive Officer
                                                  and Director

Dated:        November 7, 2000            By:     /s/ Lamson Rheinfrank, Jr.
                                                  ------------------------------
                                                  Lamson Rheinfrank, Jr.
                                                  Chairman of the Board

Dated:        November 7, 2000            By:     /s/ Don H. Alexander
                                                  ------------------------------
                                                  Don H. Alexander
                                                  Director

Dated:        November 7, 2000            By:     /s/ Robert Freeland
                                                  ------------------------------
                                                  Robert Freeland
                                                  Director

Dated:        November 7, 2000            By:     /s/ Thomas A. McDonnell
                                                  ------------------------------
                                                  Thomas A. McDonnell
                                                  Director

Dated:        November 7, 2000            By:     /s/ James J. Thome
                                                  ------------------------------
                                                  James J. Thome
                                                  Executive Vice President,
                                                  Principal Operating Officer
                                                  and Director

Dated:        November 7, 2000            By:     /s/ Richard C. Green, Jr.
                                                  ------------------------------
                                                  Richard C. Green, Jr.
                                                  Director

Dated:        November 7, 2000            By:     /s/ James C. Shay
                                                  ------------------------------
                                                  James C. Shay
                                                  Senior Vice President, Finance
                                                  and Administration, Principal
                                                  Financial & Accounting Officer
</TABLE>



                                      -44-







<PAGE>



                            BHA Group Holdings, Inc.
                                  Exhibit Index


<TABLE>
<CAPTION>
 EXHIBIT NO.                      DESCRIPTION

<S>                    <C>
    10c                Employee Stock Ownership Plan of BHA

    11                   Computation of Per Share Earnings

    21                Subsidiaries of BHA Group Holdings, Inc.

    23                    Independent Auditors' Report

    27                  Financial Data Schedule - Article 5
</TABLE>

                                      -45-


                       STATEMENT OF DIFFERENCES

The trademark symbol shall be expressed as.................................'TM'

The registered trademark symbol shall be expressed as.......................'r'





</TEXT>

</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>2
<FILENAME>0002.txt
<DESCRIPTION>EXHIBIT-10C
<TEXT>



<PAGE>

                                                                Exhibit 10C
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------







                                 BHA GROUP, INC.
                              AMENDED AND RESTATED
                          EMPLOYEE STOCK OWNERSHIP PLAN







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










<PAGE>



                                 BHA GROUP, INC.
                              AMENDED AND RESTATED
                          EMPLOYEE STOCK OWNERSHIP PLAN


              THIS AMENDED AND RESTATED BHA GROUP HOLDINGS, INC. EMPLOYEE STOCK
OWNERSHIP PLAN made this 1st day of May 2000, by BHA Group Holdings, Inc. (the
"Employer"), a corporation organized and existing under the laws of the State of
Delaware.

              WHEREAS, the Employer previously established the BHA Group
Holdings, Inc. Employee Stock Ownership Plan, effective originally August 1,
1986 (the "Prior Plan");

              WHEREAS, the Employer reserved the right to amend the Prior Plan
pursuant to Section 9.01 of the Prior Plan; and

              WHEREAS, the Employer wishes to amend and restate the Prior Plan
pursuant to the provisions thereof to conform to the requirements of the Tax
Reform Act of 1986, the Revenue Act of 1987, the Technical and Miscellaneous
Revenue Act of 1988, the Omnibus Budget Reconciliation Acts of 1986, 1987, 1989
and 1993 and the Unemployment Compensation Amendments of 1992, and in certain
other respects.

              NOW, THEREFORE, effective May 1, 2000, the Employer hereby amends
and restates the Prior Plan in its entirety as follows:

                                   SECTION 1.
                               DEFINITION OF TERMS

              The following definitions shall apply to all words and phrases
listed below unless the context in which the word or phrase appears reasonably
requires a broader, narrower or different meaning:

1.01:      ACCOUNT
              Account shall mean the interest of a Participant in the Trust Fund
and shall include the Contingent Employer Stock Account, the Non-Stock Account
and the Employer Stock Account.

1.02:      ADMINISTRATOR
              Administrator shall mean the person or group of persons designated
by the Employer as Administrator of the Plan or, if no Administrator is
specifically so designated, the Employer shall be the Administrator.


                                      -2-









<PAGE>



1.03:      ALLOCATION DATE
              Allocation Date shall mean September 30 of each year and such
other valuation dates as the Administrator shall direct.

1.04:      BOARD OF DIRECTORS
              Board of Directors shall mean the Board of Directors of BHA Group
Holdings, Inc., a Delaware corporation.

1.05:      BREAK IN SERVICE
              Break in Service shall mean a Plan Year during which a Participant
has not completed more than five hundred (500) Hours of Service.

              Solely for purposes of determining whether a Break in Service for
participation and vesting service has occurred with respect to an Employee who
is absent on account of a Maternity/Paternity Leave of Absence, such Employee
shall be credited with the following hours, up to a maximum of 501 hours, as
Hours of Service.

                           (a) the Hours of Service which otherwise would
              normally have been credited to such Employee but for the
              Maternity/Paternity Leave of Absence, or

                           (b) in any case in which the Administrator is unable
              to determine the Hours of Service described in paragraph (a),
              eight (8) Hours of Service per day of such absence.

              The hours described in paragraphs (a) and (b) above shall be
treated as Hours of Service:

                                 (i) only in the Plan Year in which the
                      Maternity/Paternity Leave of Absence begins, if the
                      Employee would be prevented from incurring a Break in
                      Service in such Plan Year solely because the period of
                      absence is treated as Hours of Service as provided above,
                      or

                                 (ii) in any other case, in the immediately
                      following Plan Year.

              The term "Maternity/Paternity Leave" means a temporary cessation
from active employment for any of the following reasons:

                                  (A) the pregnancy of the Employee,

                                  (B) the birth of a child of the Employee,

                                  (C) the placement of a child with the Employee
                      in connection with the adoption of such child by the
                      Employee, or


                                      -3-









<PAGE>



                                  (D) caring for such child for a period
                      beginning immediately following such birth or placement;

provided, however, that in order for the absence to qualify as a
Maternity/Paternity Leave of Absence, the Employee must furnish the
Administrator in a timely manner with such information and documentation as
shall establish that the absence from work is for reasons referred to above and
the number of days for which there was such absence.

1.06:      CODE
              Code shall mean the Internal Revenue Code of 1986, as it may be
amended from time to time.

1.07:      COMPENSATION
              Compensation shall mean the entire amount paid or accrued to each
Employee or Participant with respect to the Plan Year by the Employer and shall
mean the entire amount of all salary, wages, commissions, overtime pay, bonuses,
and other benefits paid or accrued by the Employer to such Employee or
Participant, together with any such amounts which are deferred pursuant to (A) a
salary deferral agreement under the BHA Group, Inc. 401 (k) Profit Sharing Plan
and Trust (the "401 (k) Plan") and (B) an elective contribution to a Cafeteria
Plan within the meaning of Section 125 of the Code, with respect to the year for
services rendered by such Employee or Participant for the Employer, but
excluding contributions to or benefits under this Plan or any other pension,
profit sharing or retirement plans.

              Notwithstanding anything contained herein to the contrary, the
amount of Compensation taken into account for all purposes of the Plan for Plan
Years commencing on or after September 1, 1989 and before September 1, 1994,
shall not exceed $200,000, adjusted for changes in the cost of living as
provided in Section 415 (d) of the Code. The amount of Compensation taken into
account for all purposes of the Plan for Plan Years commencing on or after
September 1, 1994, shall not exceed $150,000, adjusted for changes in the cost
of living as provided in Section 401 (a) (17) (B) of the Code. For purposes of
these compensation limitations other than calculating the limitations pursuant
to Section 415 of the Code, the Compensation of any Participant who is either
(x) a five percent (5%) owner of the Employer, as determined under Section 414
(q) of the Code, or (y) one of the 10 highly compensation employees, as
determined under Section 414 (q) of the Code, paid the greatest compensation
during the Plan Year by the Employer, shall be aggregated with the Compensation,
if any, of such Participant's Family Group, so that the amount of compensation
of the Family Group taken into account for all purposes of the Plan may not
exceed the applicable compensation limitation. A Participant's Family Group
shall mean the Member, his spouse and any of his lineal descendants who have not
attained age 19 before the close of the Plan Year.


                                      -4-









<PAGE>



1.08:      COMPUTATION PERIOD
              Computation Period shall mean a period of 12 months commencing on
any October 1 and ending on September 30 of the following year.

1.09:      CONTINGENT EMPLOYER STOCK ACCOUNT
              Contingent Employer Stock Account shall mean that portion of the
Account of a Participant which is credited with shares of Employer Stock
purchased by the Trustee or contributed to the Trust Fund, and which may not be
distributed to Participants until the removal of a contingency restriction or
other encumbrance.

1.10:      EFFECTIVE DATE AND ANNIVERSARY DATE
              Effective Date of this amendment and restatement of the Existing
Plan shall mean October 1, 1989. Anniversary Date for any year shall mean
October 1 of such year.

1.11:      EMPLOYEE
              Employee shall mean each individual who now or hereafter is
employed by the Employer. Employee shall include an individual considered a
leased employee of the Company under Section 414 (n) or (o) for the Code, unless
such leased employee is covered by a plan described in Section 414 (n) (5) of
the Code and all such leased employees do not constitute more than 20% of the
Company's non-highly compensated work force.

1.12:      EMPLOYER
              Employer shall mean BHA Group Holdings, Inc., or any other
affiliated business entities adopting this Plan and Trust with approval of the
Board of Directors. In the case of a group of employers which constitutes a
controlled group of corporations (as defined in Section 414 (b) of the Code) or
which constitutes trades or businesses (whether or not incorporated) which are
under common control (as defined in Section 414 (c) of the Code) or which
constitutes an affiliated service group (as defined in Section 414 (m)), all
such employers shall be considered a single employer for purposes of
participation and vesting.

1.13:      EMPLOYER STOCK
              Employer Stock shall mean stock which is issued by the Employer
and shall mean common, voting shares.

1.14:      EMPLOYER STOCK ACCOUNT
              Employer Stock Account shall mean that portion of the Account of a
Participant which is credited with shares of Employer Stock purchased by the
Trustee or contributed to the Trust Fund, except shares allocated to the
Contingent Employer Stock Account. Employer Stock purchased with the proceeds of
an exempt loan shall be accounted for separately form other Employer Stock.

1.15:      HIGHLY COMPENSATED EMPLOYEES
              Highly Compensated Employee shall mean any Employee who, during
the relevant Plan Year or the next preceding Plan Year:


                                      -5-









<PAGE>



                           (a) was at any time a 5% owner (as defined in Section
              416 (i) of the Code) of any Employer;

                           (b) received compensation from the Employer in excess
              of $85,485;

                           (c) received compensation from the Company in excess
              of $50,000 and was in the top-paid group of employees (as defined
              in Section 414 (q) of the Code) for such year; or

                           (d) was at any time an officer of an Employer and
              received compensation greater than 50% of the amount in effect
              under Section 415 (b) (1) (A) of the Code for such year.

              The definition of a Highly Compensated Employee shall be
determined pursuant to Section 414 (q) of the Code, any regulations issued
thereunder, and any cost of living adjustments (as issued by the Secretary of
the Treasury or his delegate) applicable to the dollar figures specified above.

1.16:      HOUR OF SERVICE
              Hour of Service for any Plan Year after the first Plan Year shall
mean each Hour of Service with Employer. Hour of Service for the first Plan Year
shall mean each Hour of Service with Employer and each Hour of Service with
Standard Havens during the period commencing on October 1, 1985 and ending on
September 30, 1986. Hour of Service for years prior to the first Plan Year shall
mean each Hour of Service with Standard Havens.

1.17:      HOUR OF SERVICE WITH EMPLOYER
                           Hour of service with Employer shall mean the sum of:

                           (a) each hour for which an Employee is paid, or
              entitled to payment, for the performance of duties for the
              Employer during the applicable Computation Period.

                           (b) each hour for which an Employee is paid, or
              entitled to payment, by the Employer on account of a period of
              time during which no duties are performed (irrespective of whether
              the employment relationship has terminated) due to vacation,
              holiday, illness, incapacity (including disability), layoff, jury
              duty, military duty or leave of absence; provided, however,
              notwithstanding the preceding sentence,

                                  (i) no more than 501 hours of Service with
                      Employer shall be credited to an Employee on account of
                      any single continuous period during which such Employee
                      performs no duties (whether or not such period occurs in a
                      single Computation Period),


                                      -6-









<PAGE>



                                  (ii) an hour for which an Employee is directly
                      or indirectly paid, or entitled to payment, on account of
                      a period during which no duties are performed shall not be
                      credited to the Employee if such payment is made or due
                      under a plan maintained solely for the purpose of
                      complying with applicable workmen's compensation or
                      unemployment compensation or disability insurance laws,
                      and

                                  (iii) Hours of Service with Employer shall not
                      be credited for a payment which solely reimburses an
                      Employee for medical or medically related expenses
                      incurred by the Employee.

For purposes of this paragraph (b), a payment shall be deemed to be made by or
due from the Employer regardless of whether such payment is made by or due from
the Employer directly or indirectly, through, among others, a trust fund, or
insurer, to which the Employer contributes or pays premiums and regardless of
whether contributions made or due to the trust fund, insurer or other entity are
for the benefit of particular Employees or are on behalf of a group of employees
in the aggregate.

                           (c) each hour for which backpay, irrespective of
              mitigation of damages, is either awarded or agreed to by the
              Employer. The same Hours of Service with the Employer shall not be
              credited both under paragraph (a) or paragraph (b), as the case
              may be, and under this paragraph (c). Crediting of Hours of
              Service with the Employer for backpay awarded or agreed to with
              respect to periods described in paragraph (b) shall be subject to
              the limitations set forth in that paragraph.

In the case of paragraph (a) above, each such Hour of Service with the Employer
shall be credited to the applicable Computation Period in which the duties were
performed. In the case of paragraph (c) above, each such Hour of Service with
the Employer shall be credited to the applicable Computation Period to which the
award or agreement pertains, rather than the Computation Period in which the
award, agreement or payment is made. In the case of paragraph (b) above, each
such additional Hour of Service with the Employer shall be credited pursuant to
Section 2530.200b-2 of the U.S. Department of Labor Regulations which are
incorporated herein by reference.

1.18:      HOUR OF SERVICE WITH STANDARD HAVENS
              Hour of Service with Standard Havens shall mean the sum of:

                           (a) each hour for which an Employee is paid, or
              entitled to payment, for the performance of duties for Standard
              Havens during the applicable Computation Period prior to October
              1, 1986.


                                      -7-









<PAGE>



                           (b) each hour for which an Employee is paid, or
              entitled to payment, by Standard Havens on account of a period of
              time prior to October 1, 1986 during which no duties are performed
              (irrespective of whether the employment relationship has
              terminated) due to vacation, holiday, illness, incapacity
              (including disability), layoff, jury duty, military duty or leave
              of absence; provided, however, notwithstanding the preceding
              sentence,

                                 (i) no more than 501 Hours of Service with
                      Standard Havens shall be credited to an Employee on
                      account of any single continuous period during which such
                      Employee performs no duties (whether or not such period
                      occurs in a single Computation Period),

                                 (ii) an hour for which an Employee is directly
                      or indirectly paid, or entitled to payment, on account of
                      a period during which no duties are performed shall not be
                      credited to the Employee if such payment is made or due
                      under a plan maintained solely for the purpose of
                      complying with applicable workmen's compensation or
                      unemployment compensation or disability insurance laws,
                      and

                                 (iii) Hours of Service with Standard Havens
                      shall not be credited for a payment which solely
                      reimburses an Employee for medical or medically related
                      expenses incurred by the Employee.

For purposes of this paragraph (b), a payment shall be deemed to be made by or
due from Standard Havens regardless of whether such payment is made by or due
from Standard Havens directly or indirectly, through, among others, a trust
fund, or insurer, to which Standard Havens contributes or pays premiums and
regardless of whether contributions made or due to the trust fund, insurer or
other entity are for the benefit of particular Employees or are on behalf of a
group of Employees in the aggregate.

                           (c) each hour for which backpay on account of a
              period of time prior to October 1, 1986, irrespective of
              mitigation of damages, is either awarded or agreed to by Standard
              Havens. The same Hours of Service with Standard Havens shall not
              be credited both under paragraph (a) or paragraph b, as the case
              may be, and under this paragraph (c). Crediting of Hours of
              Service with Standard Havens for backpay awarded or agreed to with
              respect to periods described in paragraph (b) shall be subject to
              the limitations set forth in that paragraph.

In the case of paragraph (a) above, each such Hours of Service with Standard
Havens shall be credited to the applicable Computation Period in which the
duties were performed. In the case of paragraph (c) above, each such Hour of
Service with Standard Havens shall be credited to the applicable Computation
Period to which the award or agreement pertains, rather than the Computation
Period in which the award, agreement or payment is made.


                                      -8-









<PAGE>



In the case of paragraph (b) above, each such additional Hour of Service with
Standard Havens shall be credited pursuant to Section 2530.20O. b-2 of the U.S.
Department of Labor Regulations which are incorporated herein by reference.

1.19:      NON-STOCK ACCOUNT
              Non-Stock Account shall mean that portion of the Account of a
Participant which is funded with assets or cash other than Employer Stock.

1.20:      NORMAL RETIREMENT DATE
              Normal Retirement Date shall mean the first day of the calendar
month of the Participant's sixty-fifth (65th) birthday.

1.21:      PARTICIPANT
              Participant shall mean an individual who has qualified for
participation in accordance with the requirements of the Plan.

1.22:      PERSON
              Person shall mean any natural person, partnership, joint venture,
corporation, mutual company, joint stock company, trust, estate, unincorporated
organization, association or employee organization.

1.23:      PLAN
              Plan shall mean the Amended and Restated Employee Stock Ownership
Plan of the Employer described herein, as from time to time supplemented and
amended.

1.24:      PLAN YEAR
              The first Plan Year shall mean the period commencing on August 1,
1986 and ending on September 30, 1986. Each Plan Year thereafter shall mean a
period of 12 months commencing on any October 1 and ending on September 30 of
the following year.

1.25       PRIOR PLAN
              The Plan as in effect on August 31, 1989.

1.26       SPOUSE
              Spouse shall mean the person to whom the Participant is legally
married on the date of the participant's death and any former Spouse to the
extent provided under a qualified domestic relations order as described in
Section 414 (p) of the Code.

1.27       STANDARD HAVENS
              Standard Havens shall mean Standard Havens, Inc., a corporation
organized and existed under the laws of the State of Missouri.

1.28:      TRUST
              Trust shall mean the Trust embodied in the Trust Agreement and all
supplements thereto.


                                      -9-









<PAGE>



1.29       TRUST AGREEMENT
              Trust Agreement shall mean the agreement between the Trustee and
the Employer establishing the Trust and specifying the duties of the Trustee.

1.30:      TRUST FUND
              Trust Fund shall mean the cash, bonds, stock, insurance policies
and other properties, including liabilities attributable thereto, held by the
Trustee pursuant to the terms of the Trust Agreement.

1.31:      TRUSTEE
              Trustee shall mean the Trustee or Trustees, or any successor
Trustee or Trustees appointed by the Employer, acting at any time under the
terms of the Trust Agreement or duly appointed successor Trustee or Trustees.

1.32:      YEAR OF SERVICE
              Year of Service shall mean, for purposes of vesting and benefit
accrual, a consecutive twelve-month Computation Period during which an Employee
has completed at least one thousand (1,000) Hours of Service.

                                   SECTION 2.
                           PARTICIPATION - ELIGIBILITY

2.01:      ELIGIBILITY FOR PARTICIPATION
              Each Participant of the Prior Plan shall continue to be a
participant this restated Plan.

              Except as provided in the next paragraph of this Section 2.01,
each other Employee of the Employer shall become a Participant as of the first
day of the first Plan Year following the date on which he first performs an Hour
of Service during which Plan Year such Employee completes at least five hundred
(500) Hours of Service.

              Notwithstanding the foregoing, independent contractors, leased
employees (within the meaning of Section 414 (n) (2) of the code), employees of
affiliated service groups (within the meaning of Section 414 (m) of the Code),
nonresident aliens of the U.S. and persons described in Section 2.04 shall be
ineligible to participate in the Plan.

2.02:      CESSATION OF PARTICIPATION
              An Employee shall remain a Participant until his employment with
the Employer is terminated (under conditions whereby a return to active
employment is not reasonably contemplated). An Employee's participation shall
cease upon his becoming a member of a union or group described in Section 2.04.


                                      -10-









<PAGE>



              Upon ceasing to be a Participant, an Employee shall remain an
inactive Participant until the entire amount held to his credit under the Plan
is distributed or forfeited in accordance with the provisions of the Plan.

              Provided, however, in the case of termination of employment
because of death (Section 6.03), disability (Section 6.02), or retirement at or
after Normal Retirement Date (Section 6.01), a Participant's participation shall
cease as of the last day of the Plan Year in which such event occurs.

2.03:      NOTICE TO ADMINISTRATOR
              The Employer shall advise the Administrator as to the Employees
who are initially eligible to participate in the Plan, and as to those who shall
have become eligible for each Plan Year thereafter. In the event that any
question arises as to the eligibility of any Employee, the decision of the
Administrator as to such Employee's eligibility shall be binding upon the
Employer, the Employees, the Participants, their beneficiaries, and any and all
other persons having any interest hereunder.

2.04:      EMPLOYEES COVERED BY COLLECTIVE BARGAINING
              For purposes of the Plan an Employee shall not be eligible to
participate in the Plan if he is a member of a group with which the Employer has
a collective bargaining agreement directly or through an employer's association,
provided it is shown that retirement benefits have been a subject of good faith
bargaining between the Employer or employers' association and such Employees of
the Employer who are covered by the collective bargaining contract. All such
Employees who are not described in the preceding sentence shall be eligible to
participate in the Plan if they are otherwise qualified.

2.05:      RE-EMPLOYMENT
              For purposes of Section 2.01, if a Participant who has ceased to
be employed by the Employer is later re-employed or if a Participant has a Break
in Service, he shall receive credit for his prior service, and shall become a
Participant immediately, only if (a) he had, at the time of his termination of
services, a vested right to all or a portion of his Account derived from
Employer contributions or (b) the number of his consecutive Breaks in Service is
less than the greater of (i) five (5), or (ii) the aggregate number of his Years
of Service before such break. In all other cases, a re-employed former
Participant must fulfill the requirements of Section 2.01 to be eligible to
participate in the Plan.

                                   SECTION 3.
                            CONTRIBUTIONS BY EMPLOYER

3.01:      NO REQUIRED PARTICIPANT CONTRIBUTIONS
              No contribution shall be required of any Participant as a
condition of his participation in the Plan, and Participants shall not be
permitted to contribute to the Trust Fund.


                                      -11-









<PAGE>



3.02:      ANNUAL EMPLOYER CONTRIBUTIONS
              On or before the last business day of each Plan Year, the Board of
Directors of the Employer, in its sole discretion, shall determine the amount,
if any, that the Employer shall contribute to the Trust Fund for that Plan Year.
Such Employer contributions may be made to the Trust Fund in cash or stock of
the Employer or in other property in kind valued at fair market value thereof at
the time of contribution.

3.03:      DATE OF PAYMENT
              No later than the time prescribed by law, including extension of
time, for filing the Employer's Federal income tax return for each Plan Year,
the Employer shall pay over to the Trustee of the Trust Fund the Employer's
contribution.

3.04:      PAYMENT OF EXPENSES
              In addition to its contribution, the Employer may elect to pay all
the administrative expenses of the Plan and all fees and retainers of the Plan's
Trustee, actuary, accountant, counsel, consultant, administrator, or other
specialist, so long as the Plan or Trust Fund remains in effect. If the Employer
does not elect to pay all or part of such expenses, the Trustee shall pay
expenses and charge the payment thereof against the Trust Fund. Any expenses
directly relating to the investments of the Trust Fund, such as taxes, brokerage
commissions, registrations, charges and the like, shall be paid from the Trust
Fund.

                                   SECTION 4.
                           ALLOCATION OF CONTRIBUTIONS

4.01:      PARTICIPANT ACCOUNTS
              The Trustee shall maintain a separate Account for each Participant
to which the Administrator shall instruct the Trustee to credit and debit all
appropriate amounts, including investment appreciation and depreciation, income
and expenses, forfeitures, contributions, and distributions. The Trustee shall
keep records which shall indicate the Account balances of each Participant.

4.02:      VALUATION DATE
              The Trustee, as of the Allocation Date, and at such other time or
times as the Administrator shall direct, shall determine the net worth of the
Trust Fund and the Plan's Recordkeeper shall make allocations for the purpose of
determining the value of Participant's Accounts. Such determination shall be
reported in writing to the Administrator, and to such other persons as the
Administrator directs.

4.03:      ALLOCATIONS
              As of the Allocation Date the Account of each Participant shall be
credited and debited as follows:


                                      -12-









<PAGE>



                           (a) The Employer Stock Account and Contingent
              Employer Stock Account of each Participant will be credited with
              their allocable shares of changes in the value of Employer Stock
              held in such Accounts, with their allocable share of Employer
              Stock (including fractional shares) purchased and paid for by the
              Trustee or contributed in kind by the Employer, with forfeitures
              of Employer Stock, and with stock dividends on Employer Stock held
              in such Stock Account and Contingent Employer Stock Account.

                           (b) The Non-Stock Account of each Participant will be
              credited (or debited) with its share of the change in net worth of
              the Trust Fund (exclusive of contributions, distributions, and
              changes in value of Employer Stock), with cash dividends on
              Employer stock in such Participant's Employer Stock Account and
              Contingent Employer Stock Account, and with Employer contributions
              and forfeitures in other than Employer Stock. It will be debited
              for any payments on purchases of Employer Stock or for repayment
              of debt (including principle and interest) incurred for the
              purchase of Employer Stock.

4.04       MANNER OF MAKING ALLOCATIONS
              The allocations under Section 4.03 shall be made as follows:

                           (a) Employer contributions will be allocated as of
              such Allocation Date among the Accounts of Participants so
              entitled in the ratio in which the Compensation of each bears to
              the aggregate Compensation of all such Participants for that Plan
              Year. Only Employees who are Participants with at least five
              hundred (500) Hours of Service during the Plan Year which includes
              the applicable Allocation Date are entitled to an allocation of an
              Employer contribution for such Plan Year.

                           (b) All shares of Employer Stock acquired with the
              proceeds of an exempt loan will be credited to a suspense account
              (the "Employer Stock Suspense Account") prior to their allocation
              to the Contingent Employer Stock Accounts of Participants. Such
              Employer Stock shall be allocated as of the Allocation Date from
              the Employer Stock Suspense Account to the Contingent Employee
              Stock Accounts of Participants in accordance with paragraph (a)
              above in an amount equal to the number of shares of Employer Stock
              in the Employer Stock Suspense Account as of such date multiplied
              by a fraction the numerator of which is the amount of principle
              and interest paid for the year and the denominator of which is the
              sum of the numerator and the principle and interest to be paid for
              all future years. Employer Stock allocated pursuant hereto shall
              be maintained in Participants' Contingent Employer Stock Accounts
              until the time that the full principle amount of the related
              indebtedness shall actually have been paid, at which time such
              Employer Stock shall be transferred to Participants' Employer
              Stock Accounts.


                                      -13-









<PAGE>



                           (c) Forfeitures will be allocated as of such
              Allocation Date among the Accounts of remaining Participants so
              entitled in the ratio in which the Compensation of each bears to
              the aggregate Compensation of all such Participants for that Plan
              Year. Only Employees who are Participants as of the applicable
              Allocation Date are entitled to an allocation of Forfeitures.

                           (d) The change in net worth of the Trust Fund will be
              allocated to each Participant's Account in the ratio in which the
              balance of his Account on the preceding Allocation Date bears to
              the sum of the balances of all Participants' Accounts on that
              date.

4.05:      LIMITATION ON ALLOCATION
                            (a) The Annual Additions for each Plan Year with
              respect to any Participant under this Plan may not exceed the
              lesser of:

                                 (i)  Twenty-five percent (25%) of his
                      Compensation, or

                                 (ii) $30,000, as adjusted for increases in the
                      cost of living pursuant to Section 415 (d) of the Code.

For this purpose, "Annual Additions" shall be, except as provided in sub-section
(b) below, the total of the Employer contributions, forfeitures (including any
income attributable to forfeitures) and all Employee contributions for the Plan
Year under this Plan, the 401 (k) Plan and any other defined contribution plan
(as defined in Section 3 (34) of ERISA) of the Employer which is qualified under
Section 401 (a) of the Code. In determining such Annual Additions, forfeitures
of Employer Stock shall be included at the fair market value of Employer Stock
as of the Allocation Date. Reductions in Annual Additions where required, shall
be accomplished first by reductions under the 401 (k) Plan pursuant to the terms
of such plan.

              Any forfeitures which cannot be allocated to any Participant's
Account by reason of these limitations shall be credited to a "Forfeiture
Suspense Account" and allocated as forfeitures under Section 4.04 for the next
succeeding Plan Year (prior to the allocation of Employer contributions for such
succeeding Plan Year).

              Any other amounts which cannot be allocated to a Participant's
Account by reason of these limitations shall be reapplied to reduce Employer
contributions under the Plan for the next Plan Year (and for succeeding Plan
Years, as necessary).

                           (b) Employer contributions which are used by the
              Trust (not later than the due date, including extensions, for
              filing the Employer's Federal income tax return for the Plan Year)
              to pay interest on an exempt loan and any shares of Employer Stock
              held in Participant's Contingent Employer Stock Accounts, which
              are allocated as forfeitures, shall not be included as Annual
              Additions


                                      -14-









<PAGE>


              under sub-section (a) above; provided, however, that the
              provisions of this sub-section shall be applicable only for a Plan
              Year in which not more than one-third (1/3) of the Employee
              contributions applied to pay principle and/or interest on an
              exempt loan are allocated to Participants who are Highly
              Compensated Employees and the Administrator shall reallocate such
              Employee contributions to the extent necessary to satisfy this
              special rule.

                           (c) In any case where a Participant under this Plan
              is also a Participant under a "defined benefit plan" as defined in
              ERISA Section 3 (35) or is a Participant under a defined benefit
              plan and other defined contribution plans maintained by the
              Employers, the sum of the "defined benefit plan fraction" (as
              defined in Section 415 (e) (2) of the Code) and the "defined
              contribution plan fraction" (as defined in Section 415 (e) (3) of
              the Code) shall not exceed 1.25. Reduction of contributions to or
              benefits from all plans, where required, shall be accomplished by
              first reducing benefits under such other defined benefit plan or
              plans.

4.06:      NET WORTH OF THE TRUST FUND
              The Trustee, as of each Allocation Date, shall determine the net
worth of the Trust Fund. In determining such net worth, the Trustee shall
evaluate the assets of the Trust at their fair market value as of the last
business day on or preceding such Allocation Date and shall deduct the principle
amount and accrued interest thereon of any outstanding debts incurred by the
Trust for the purchase of Employer Stock or otherwise and all expenses for which
the Trustee has not been reimbursed by the Employer or from the Trust Fund. Such
net worth valuation shall not include contributions made by the Employer or
forfeitures for the Plan Year in which the Allocation Date occurs. The Trustee
may use its discretion as to the most suitable manner of determining fair market
value and net worth in accordance with the directions provided in this Plan and
the Trust Agreement; provided, however if the Employer Stock is or becomes not
readily tradeable on an established securities market, then any valuation under
the Plan shall be based upon a written appraisal prepared by an independent
appraiser (as defined in Section 401 (a) (28) of the Code).

4.07:      STATEMENT OF ACCOUNT
              As soon as practicable after the Trustee or the Plan's
Recordkeeper, as applicable, has completed and reported the allocations provided
for as of the end of each Plan Year, the Administrator shall present to each
Participant a statement of his Account showing the credit to his Account at the
beginning of such Plan Year, any changes during the Plan Year, his Account at
the end of the Plan Year, and such other information as the Administrator may
determine or as may be required by law. However, neither the maintenance of
Accounts, the allocation of credits to Accounts, nor the statements of account
shall operate to vest in any Participant any right or interest in or to any
assets of the Trust except as the Plan and Trust specifically provide.


                                      -15-









<PAGE>



4.08:      DISCRETION TO MAKE EQUITABLE ALLOCATIONS AND VALUATIONS
              This Section 4 shall be administered in a uniform and
non-discriminatory manner, and pursuant thereto the Trustee and Administrator
(and the plan's Recordkeeper if a different entity from the Trustee) shall
establish procedures for the purpose of making the required allocations,
valuations, and adjustments. Should the Administrator and the Trustee (and/or
the Plan's Recordkeeper, as applicable) determine that the strict application of
the procedures so established or set forth herein will not result in an
equitable and nondiscriminatory allocation or valuation, they may modify such
procedures for the purpose of achieving what is in their opinion an equitable
and nondiscriminatory allocation or valuation in accordance with the general
purposes of this Section and of the Plan; provided, such modifications shall be
for the exclusive benefit of the participants and shall not reduce the vested
portion of a participant's interest.

                                   SECTION 5.
                            INVESTMENTS AND TRANSFERS

5.01:      TRUST FUND
              As set forth in the Plan and the Trust Agreement the Trustee shall
receive contributions from the Employer and hold them subject to the Plan and
Trust Agreement and shall invest the same as set forth in this Section and other
provisions of the Plan and Trust Agreement for the purpose of accumulating
values to provide benefits to Participants. The Administrator shall have
authority and discretion to manage and control the Trust Fund. The primary
purpose of the Plan is to acquire Employer Stock for the Account of each
Participant. The Trustee shall be a directed, custodial Trustee responsible for
only those duties assigned to it under the Trust Agreement.

5.02:      INVESTMENTS
              The primary purpose of the Plan is to invest in and hold Employer
Stock for the benefit of Participants and beneficiaries. Therefore, upon the
written direction of the Administrator, the Trustee shall invest and retain all
or any portion of the Trust Fund in Employer Stock. Employer Stock may be
purchased or otherwise acquired from the Employer, Participants, other holders
of outstanding Employer Stock, or as newly issued Employer Stock. All purchases
of Employer Stock shall be made at prices which, in the best judgment of the
Administrator, do not exceed the fair market value of such shares of Employer
Stock. The Trustee may also, as directed by the Administrator, invest funds in
savings accounts (which may be in its own banking department), in Certificates
of Deposit issued by itself or by any other bank or savings and loan
association, in stocks, shares and obligations of corporations or of
unincorporated associations or trusts or investment companies, in any kind of
investment funds, mutual funds (open-end or otherwise including mutual funds for
which the Trustee or any affiliate serves as the investment advisor, custodian
or other service provider as disclosed in the current prospectuses for such
mutual funds) or common trust funds, in any insurance policies on the life of
any Participant, in any other kind of realty or personalty including purchase
and leaseback transactions, in natural resources, or in any other kind of
investment.


                                      -16-









<PAGE>



5.03:      AGREEMENTS TO PURCHASE
              As directed by the Administrator the Trustee shall have the power
at any time to enter into legally binding agreements to purchase shares or other
securities of the Employer, as specified in Section 5.02, from any person,
whether or not such person shall own such shares or securities at the time such
agreement is entered into, including Participants in this Trust. The purchase
price set forth in the agreement shall be determined by the fair market values
of such shares at the time of the purchase.

5.04:      STOCK DIVIDENDS, SPLITS, RIGHTS, WARRANTS, OPTIONS AND OTHER
           CAPITAL REORGANIZATIONS

              Any securities received by the Trustee as a stock split or
dividend or as a result of a reorganization or other recapitalization of the
Employer shall be allocated as of each Allocation Date in the same manner as the
stock to which it is attributable is then allocated. In the event any rights,
warrants or options are issued on common shares or other securities of the
Employer held in the Trust, the Trustee shall exercise them for the acquisition
of additional common shares or other securities of the Employer to the extent
that cash is then available. Any shares or other securities of the Employer
acquired in this fashion shall be treated as shares or other securities of the
Employer bought by the Trustee for the net price paid. Any rights, warrants or
options on shares or other securities of the Employer which cannot be exercised
for lack of cash may be sold by the Trustee as directed by the Administrator and
the proceeds treated as a current cash dividend received on shares or other
securities of the Employer.

5.05:      VOTING AND OTHER ACTION WITH RESPECT TO EMPLOYER STOCK
              Shares or other securities of the Employer (entitled to vote)
which are held by the Trustee in Participants' Employer Stock Accounts and
Contingent Employer Stock Accounts shall be voted by each such Participant to
the extent that such shares are whole shares and are not subject to any liens,
encumbrances, or any agreement or restrictions limiting such right to vote. All
shares which are not so eligible to be voted by Participants shall be voted by
the Trustee as directed by the Administrator. To the extent such direction as to
voting has not been received, the Trustee shall not vote such shares.

              The Administrator, in consultation with the Trustee, shall
establish the method of furnishing to each Participant all notices,
prospectuses, financial statements, proxies, and proxy soliciting materials with
respect to such unencumbered shares held in such Participant's Employer Stock
Account, and the Administrator shall develop other uniform procedures for
effecting the voting of such Employer Stock.

5.06:      BORROWING BY TRUSTEE TO ACQUIRE STOCK
              Since the primary purpose of the Plan is to acquire Employer Stock
for the benefit of Participants and their beneficiaries, the Trustee shall, as
directed by the Administrator, act as a seeker of Employer Stock and shall have
the power, as directed by the Administrator, to borrow money to purchase
Employer Stock and for other purposes of


                                      -17-










<PAGE>




the Trust Fund from itself as a bank, from the Employer, from any stockholder of
the Employer, from any Participant, or from any other lender, and for the sum so
advanced or borrowed to issue its promissory note as Trustee and to accept the
Employer or any other Person as guarantor of such note; provided, however:

                           (a) such loan is primarily for the benefit of
              Participants and beneficiaries of the Plan,

                           (b) such loan is at an interest rate which is not in
              excess of a reasonable rate,

                           (c) no Trust Fund assets, except Employer Stock
              purchased with the proceeds of such loan (or Employer Stock
              pledged as security for a prior exempt loan which was repaid with
              the proceeds of the current loan), may be pledged as security for
              the loan,

                           (d) such loan shall be repaid only from those amounts
              (other than Employer Stock) contributed by the Employer to the
              Trust Fund and from amounts earned on Employer Stock pledged as
              security and on investments of such amounts contributed,

                           (e) in the event of default, the value of Plan assets
              transferred in satisfaction of the loan may not exceed the amount
              of default, and

                           (f) the Employer must contribute to the Trust Fund
              amounts sufficient to enable the Trust Fund to pay each
              installment of principle and interest on such loan on or before
              the date such installment is due, even if no tax benefit results
              from such contribution.

5.07       DIVERSIFICATION ELECTION
              Notwithstanding anything herein to the contrary, any Participant
who has attained age 55 and completed 10 years of Plan participation shall have
the right to make an election to direct the Trustee as to investment of his
account. Such a Participant may elect within 90 days after the close of each
Plan Year in the qualified election period (as defined in Section 401 (a) (28)
of the Code) to diversify 25% of his account, less any amount to which a prior
election applies. In the case of the last year to which an election applies, 50%
shall be substituted for 25%.

              The Plan may meet the requirements of Section 401 (a) (28) of the
Code by either (i) offering at least 3 investment options or (ii) distributing
the portion of the account covered by the election to the Participant within the
90 day period after the election is made.


                                      -18-









<PAGE>



                                   SECTION 6.
                                  DISTRIBUTIONS

6.01:      RETIREMENT
              When a Participant's employment by the Employer is terminated
through retirement at or after his Normal Retirement Date, the Administrator
shall direct the Trustee to distribute to him as provided in Section 6.05 hereof
the full value of his Account as of the valuation date next following his
retirement.

6.02:      DISABILITY
              When a Participant's employment by the Employer is terminated for
disability, the Administrator shall direct the Trustee to distribute to him as
provided in Section 6.05 hereof the full value of his Account as of the
valuation date next following his termination. A Participant shall be deemed to
be disabled for purposes of the Plan when the Administrator finds that he is
unable to engage in substantial gainful activity for the Employer by reason of a
medically determinable physical or mental impairment that can be expected to
result in death or to be of long-continued and indefinite duration and which may
be evidenced by approval of his application for disability benefits under the
Federal Social Security Act, as amended, or by other competent medical evidence.

6.03:      DEATH
              In the event that a Participant dies while in the employ of the
Employer, the Administrator shall direct the Trustee to distribute to his
beneficiary as provided in Section 6.05 hereof the full value of his Account as
of the valuation date next following his death. In the event an inactive
Participant dies, the administrator shall direct the Trustee to distribute to
his beneficiary as provided in Section 6.05 hereof the remaining vested value of
his Account, if any.

6.04:      OTHER TERMINATION OF EMPLOYMENT
                            (a) When a Participant's employment by the Employer
              is terminated for any reason other than retirement, disability, or
              death, the Participant's participation shall cease. If such
              termination occurs before a Break in Service takes place, the
              Participant's Account shall not be distributable immediately, but
              shall be held intact until the completion of a Break in Service.
              Upon the completion of a Break in Service following such
              termination the Administrator shall direct the Trustee to
              distribute to him, as provided in Section 6.05 hereof, a
              percentage of his Account at the Allocation Date coinciding with
              or next following the completion of such Break in Service. Such
              percentage, if any, shall be determined by the number of full
              Years of Service that he had at the time participation ceases, as
              follows:


                                      -19-









<PAGE>



             Number of Full Years of                         Percentage of
             Service of a Participant                       Account Vested

           Less than 1                                           None
            At least 1 but less than 2                            10%
            At least 2 but less than 3                            20%
            At least 3 but less than 4                            30%
            At least 4 but less than 5                            40%
            At least 5 but less than 6                            60%
            At least 6 but less than 7                            80%
                     7 Years or more                             100%

                           (b) That percentage of such Participant's Account not
              so vested, if any, shall be forfeited at the end of five (5)
              consecutive Breaks in Service and shall be allocated as provided
              in Section 4 hereof. Such forfeiture and allocation shall occur as
              of the last day of the Plan Year in which the Participant has
              incurred the fifth consecutive Break in Service as a result of
              such termination.

                           (c) Notwithstanding the above vesting schedule, any
              Participant who has attained age 55 while employed by the Employer
              shall thereupon become fully (100%) vested in his Account.

                           (d) If the Plan's vesting schedule is amended or the
              Plan is amended in any way that directly or indirectly affects the
              computation of a Participant's vested percentage, or if the Plan
              is deemed amended by an automatic change to or from a top-heavy
              vesting schedule, each Participant with at least five (5) Years of
              Service with the Employer may elect within a reasonable period
              after the adoption of the amendment or change to have his vested
              percentage computed under the Plan without regard to such
              amendment or change. The period during which the election may be
              made shall commence on the date the amendment is adopted or deemed
              to be made and shall end on the latest of:

                                   (i) sixty (60) days after the amendment is
                       adopted;

                                   (ii) sixty (60) days after the amendment
                       becomes effective; or

                                   (iii) sixty (60) days after the Participant
                       is given written notice of the amendment by the Employer
                       or Administrator.


                                      -20-









<PAGE>



6.05:      METHOD AND TIMING OF DISTRIBUTION
                           (a) The value of a Participant's Account will be
              computed as soon as possible after the applicable Allocation Date.
              If the value of such Account does not exceed $3,500, the
              Administrator shall direct the Trustee to distribute the full
              amount thereof in a lump sum immediately. Otherwise, the amount in
              such Account shall be distributed in one or more of the methods
              following as the Participant may select:

                                 (i) In a single distribution immediately, or
                      upon some future date selected by the Participant, but not
                      later than his Normal Retirement Date.

                                 (ii) In equal installments payable monthly,
                      quarterly, or annually over any period selected not
                      exceeding the life expectancy of the Participant or the
                      joint life expectancy of the Participant and his
                      beneficiary.

              In no event shall any distribution to a Participant commence as of
a date later than sixty (60) days subsequent to the close of the Plan Year in
which the latest of the Participant's 65th birthday, his Break in Service or the
tenth anniversary of the date he commenced participation has occurred.

              Any part of a Participant's Account which is retained in the Trust
after the date on which his participation ends will continue to be treated as a
Employer Stock or as a Non-Stock Account, as the case may be. However, such
Accounts will not be credited with any further Employer contributions or
forfeitures.

                           (b) Notwithstanding the provisions of Section 6.05,
              with respect to any Participant who continues to be an Employee
              and who attains age seventy and one-half (70-1/2) on or after
              January 1, 1988 and any Participant who attained age 70-1/2 before
              January 1, 1988 and who was a "5-percent owner" (as defined in
              Section 416 (i) of the Code) at any time during the Plan Year
              ending with or within the calendar year in which the Participant
              attained age sixty-six and one-half (66-1/2) or any subsequent
              Plan Year, other than a Participant with a valid designation in
              effect under Section 242 (b) (2) of the Tax Equity and Fiscal
              Responsibility Act of 1982, the interest of each such Participant
              shall be distributed to him in accordance with Section 6.05
              commencing no later than April 1 following the calendar year in
              which he attains age seventy and one-half (70-1/2).

                           (c) Notwithstanding the provisions of Section 6.05,
              in the event a Participant dies before benefits commence, the
              Participant's entire Account shall be distributed no later than
              five (5) years after the date of the Participant's death except to
              the extent provided in (i) or (ii) below:


                                      -21-









<PAGE>



                                 (i) if any portion of the Participant's
                      interest in the Plan is payable to (or for the benefit of)
                      his designated beneficiary, distribution of the
                      Participant's Account may be made over the life of the
                      designated beneficiary (or over a period not exceeding the
                      life expectancy of the designated beneficiary), commencing
                      no later than one year after the date of the Participant's
                      death or such later date as may be provided in Treasury
                      Regulations under the applicable provisions of the Code;

                                 (ii) if the designated beneficiary is the
                      Participant's surviving Spouse, the date on which
                      distribution is required to begin in accordance with
                      sub-section (i) above shall not be earlier than the date
                      on which the Participant would have attained age 70-1/2,
                      and if the surviving Spouse dies before distribution to
                      such Spouse begins, subsequent distributions shall be made
                      as if the surviving Spouse were the Participant.

              For purposes of this section, any amount paid to a child of a
Participant shall be treated as if it had been paid to the surviving Spouse if
such amount becomes payable to the surviving Spouse when the child reaches the
age of majority (or such designated event as may be permitted under Treasury
Regulations).

                           (d) For purposes of Paragraphs (b) and (c) of this
              Section 6.05, the life expectancy of the Participant and the
              Participant's Spouse, if any, may be redetermined but no more
              frequently than annually. However, in the case of any other
              designated beneficiary, such life expectancy shall be calculated
              at the time payment first commences without recalculation.

6.06       RE-EMPLOYMENT
              For purposes of vesting in the Plan any Employee who is
re-employed following termination of employment shall be credited with all
services and Years of Services he had accumulated prior to such termination
except for Years of Service before any period of consecutive Breaks in Service
if the number of consecutive Breaks in Service equals or exceeds the greater of
(a) five (5), or (b) the aggregate number of his Years of Service before such
break, and the Participant did not have any vested right to his Account. In
addition, if such re-employment takes place before five (5) consecutive Breaks
in Service have occurred, the nonvested portion of the Participant's Account
shall be restored.

              Provided, however, service and Years of Service completed by a
Participant upon re-employment after five (5) consecutive Breaks in Service
shall not affect the vested percentage of his Account accrued prior to such
five-year period and shall not act to restore any nonvested portion of such
Account forfeited upon any prior Break in Service. Thus, such restoration of
service and Years of Service shall be for the purpose of determining the
Participant's vested percentage in amounts accruing after his re-employment.


                                      -22-









<PAGE>



              Amounts in a re-employment Participant's Account attributable to
the period prior to five (5) consecutive Breaks in Service shall be accounted
for separately from amounts in such participant's Account attributable to the
period after such five (5) consecutive Breaks in Service.

6.07:      FORM OF DISTRIBUTION
              Distribution of a participant's Account may be made entirely in
Employer Stock or in cash, or in any combination thereof, as the Administrator
shall direct; provided, however, that a participant may demand that some or all
of his distribution be made in Employer Stock.

6.08:      RESTRICTIONS AND RIGHTS ON DISTRIBUTED SHARES
              Shares of Employer Stock, other than Employer Stock purchased with
the proceeds of an exempt loan, distributed by the Trustee may, as determined by
the Employer or the Administrator, be subject to a "right of refusal;" provided,
however, such right may not be exercised at a time when the Employer Stock is
publicly traded. Such a "right" shall provide that, prior to any subsequent
transfer, the shares must first be offered by written offer to the Trust and
then if refused by the Trust, to the Employer at the then fair market value, as
determined by the Trustee. A bona fide written offer received from a prospective
buyer shall be deemed to be the fair market value of such shares for this
purpose. The Trust or Employer, as the case may be, may accept the offer at any
time during a period not exceeding thirty (30) days after receipt of such offer.

6.09:      PROTECTIONS AND RIGHTS; NONTERMINABILITY; PUT OPTION
                           (a) Except as provided in sub-section (b) below or as
              otherwise required by applicable law, no Employer security
              acquired with the proceeds of an exempt loan may be subject to a
              put, call or other option, or buy-sell or similar arrangement
              while held by and when distributed from the Plan, whether or not
              the Plan is then an ESOP. The provisions hereof shall be
              nonterminable.

                           (b) Employer securities acquired by the Plan shall be
              subject to a put option if such securities when distributed to a
              Participant, his donees or beneficiaries (herein "Distributees")
              are not readily tradable on an established market. The put option
              shall be exercised only by Distributees. A Distributee shall have
              the right to sell all or a portion of such securities to the
              Employer for a period of sixty (60) days following the date of
              such distribution of such securities. If the put option is not
              exercised within such sixty-day period, the Distributee shall have
              an additional sixty (60) days, commencing with the first day of
              the following Plan Year, in which to exercise the put option. The
              Distributee desiring to exercise the put option shall give written
              notice to the Employer of such desire, which notice shall contain
              the Distributee's name and address and the number of shares to be
              sold. Such shares shall be purchased by the Employer at their fair
              market value.


                                      -23-










<PAGE>




6.10:      VOLUNTARY PARTIAL WITHDRAWALS
              A Participant may make a withdrawal election, while still employed
by the Employer, to receive up to fifty percent (50%) of fully vested shares in
his Employer Stock Account which have been held in such account for at least
seven (7) full Plan Years. Provided, however, only shares which are free of
encumbrances or liens shall be subject to such election, and provided, further,
that if the Participant has a Spouse, the Spouse must consent to such withdrawal
in the manner prescribed by Section 7.01 hereof.

              Any Participant who makes such a withdrawal shall not participate
in Employer contributions or forfeitures for the Plan Year in which such a
withdrawal is made, although for purposes of the Plan his participation shall
continue if it would otherwise do so.

              A participant may make several withdrawal elections, but the
aggregate of such elections shall not entitle him to withdraw more than fifty
percent (50%) of the shares in his Account (which would be there had he made no
such elections). The Administrator and Trustee shall adopt uniform rules and
procedures for implementing this withdrawal election.

6.11:      ADVANCE DISTRIBUTION AND DIVIDENDS
              Except as otherwise provided in this Section 6.11 and Section
6.10, a Participant is not entitled to any payment, withdrawal, or distribution
under the Plan during his participation.

              To mitigate any hardship to a participant after his service has
ended and before his Account is fully distributable, the Administrator may
direct the Trustee to advance to him or to his beneficiary a partial
distribution of Employer Stock not to exceed one-half of his Account as then
estimated by the Administrator. If any such partial distribution is made, the
participant's Account when computed will be reduced by the amount of any such
advance.

6.12:      DIRECT ROLLOVERS
              This Section 6.12 applies to distributions made on or after
January 1, 1993. Notwithstanding any provision of the Plan to the contrary that
would otherwise limit a distributee's election under this paragraph, a
distributee may elect, at the time and in the manner prescribed by the
Administrator, to have any portion of an eligible rollover distribution paid
directly to an eligible retirement plan specified by the distributee in a direct
rollover. For purposes of this paragraph the following definitions shall apply:

                           (a) An eligible rollover distribution is any
              distribution of all or any portion of the balance to the credit of
              the distributee, except that an eligible rollover distribution
              does not include: any distribution that is one of a series of
              substantially equal periodic payments (not less frequently than
              annually) made for the life (or life expectancy) of the
              distributee or the joint lives (or joint life expectancies) of the
              distributee and the distributee's designated beneficiary, or


                                      -24-










<PAGE>



              for a specified period of ten years or more; any distribution to
              the extent such distribution is required under Section 401 (a) (9)
              of the Code; and the portion of any distribution that is not
              includible in gross income (determined without regard to the
              exclusion for net unrealized appreciation with respect to employer
              securities).

                           (b) An eligible retirement plan is an individual
              retirement account described in Section 408 (a) of the Code, an
              individual retirement annuity described in Section 408 (b) of the
              Code, an annuity plan described in Section 403 (a) of the Code, or
              a qualified trust described in Section 401 (a) of the Code, that
              accepts the distributee's eligible rollover distribution. However,
              in the case of an eligible rollover distribution to the surviving
              Spouse, an eligible retirement plan is an individual retirement
              account or individual retirement annuity.

                           (c) A distributee includes a Participant or the
              Participant's surviving Spouse and the Participant's Spouse or
              former Spouse who is the alternate payee under a qualified
              domestic relations order, as defined in Section 414 (p) of the
              Code, as distributees with regard to the interest of the Spouse or
              former Spouse.

                           (d) A direct rollover is a payment by the Plan to the
              eligible retirement plan specified by the distributee.

                                   SECTION 7.
                           DESIGNATION OF BENEFICIARY

7.01:      DESIGNATION OF BENEFICIARY
              Each Participant may designate a person or persons as beneficiary
to receive payments in the event of his death by filing with the Administrator a
designation in writing signed by him in such form as the Administrator shall
prescribe, and may change or revoke the designation from time to time and at any
time by filing with the Administrator a new designation; provided, however, that
if the Participant is survived by a Spouse, then the Participant's Spouse shall
be the Participant's sole beneficiary unless the Spouse consents in writing to
the Participant's designation of one or more persons, other than the Spouse, as
a beneficiary of all or a portion of the Participant's Account. Any beneficiary
designation made by a Participant may be changed or revoked by the Participant
at any time or from time to time during his lifetime with the consent of his
Spouse. Any written consent required of a Participant's Spouse shall acknowledge
the effect of the consent and shall be witnessed by a representative of the Plan
or a notary public. The consent of a Spouse shall not be required if the
Administrator determines that the Spouse cannot be located or that the Code and
ERISA otherwise do not require such consent. In the event that at the death of a
Participant no beneficiary has been so designated or no beneficiary so
designated shall survive him, then his Spouse, followed by his descendants per
stirpes (including adopted children), and lastly, his estate, shall be deemed to
be his beneficiary. In the event that the


                                      -25-










<PAGE>



surviving beneficiary of a deceased Participant dies while any distributable
part of the Account of the Participant remains undistributed, the Administrator
shall direct the Trustee to distribute the distributable balance of such Account
in a single payment to the personal representative of the beneficiary.

7.02:      APPLIED FOR BENEFIT OF BENEFICIARY
              In the event that the Administrator shall find that any person to
whom a benefit is payable under the Plan is unable to care for his affairs
because of illness or accident, or otherwise, the Administrator may direct that
any benefit payments due shall be paid to the duly appointed legal
representative of such person, or if there by no duly appointed legal
representative to the spouse, a child, a parent or other blood relative of the
person, or to any person deemed by the Administrator to have incurred expense
for the benefit of such person, and any such payments so made shall be a
complete discharge of the liabilities of the Plan.

                                   SECTION 8.
                                 ADMINISTRATION

8.01:      TRUSTEE
              All contributions of the Employer shall be paid into, and all
benefits herein provided for shall be paid from, a Trust Fund established by
agreement between the Employer and a Trustee or Trustees, which shall be in such
form and contain such provisions as the Employer may deem appropriate,
including, but not limited to, provisions with respect to the powers and
authority of the Trustee, the authority of the Employer to amend the Trust
Agreement and the authority of the Employer to settle the accounts of the
Trustee on behalf of all persons having an interest in the Trust Fund. The
Administrator shall have exclusive authority and discretion to manage and
control the assets of the Trust Fund. The Trustee shall be a directed, custodial
Trustee. When entered into, the Trust Agreement shall be taken to form a part of
the Plan and all rights and benefits that may accrue to any person under the
plan shall be subject to all the terms and provisions of the Trust Agreement.

8.02       EXCLUSIVE BENEFIT OF PARTICIPANTS
              Under the Plan and Trust Agreement it shall be impossible, at any
time prior to the satisfaction of all liabilities with respect to Participant's
and their beneficiaries entitled to benefits under the plan for any part of the
corpus or income of the Trust Fund to be used for, or diverted to, purposes
other than for the exclusive benefit of such Participants or their
beneficiaries. Except as provided in Section 8.03, the assets of the Trust Fund
shall never inure to the benefit of the Employer and shall be held for the
exclusive purpose of providing benefits to Participants in the Plan and their
beneficiaries and defraying the reasonable expenses of administering the Trust
Fund.


                                      -26-










<PAGE>



8.03:      RETURN OF EMPLOYER CONTRIBUTION
                           (a) Section 8.02 shall not prohibit the return to the
              Employer of contributions made by the Employer if:

                                 (i) the contribution is conditioned on the
                      qualification of the plan under the Code, the Plan does
                      not so qualify and the contribution is returned within one
                      year after the plan is found to not so qualify;

                                 (ii) the contribution is made due to a mistake
                      of fact, the contribution is returned within one year of
                      the mistaken payment of the contribution and the return
                      satisfies the requirements of sub-section (b) below; or

                                 (iii) the contribution is conditioned on its
                      deductibility under Section 404 of the Code, the deduction
                      is disallowed, the contribution is returned within one
                      year of the disallowance of the deduction, and the return
                      satisfies the requirements of sub-section (b) below.

                           (b) The return of a contribution to the Employer
              satisfies the requirements of this sub-section if the amount so
              returned (i) does not exceed the excess of the actual contribution
              over the amount which would have been contributed had there been
              no mistake of fact or error in determining the deduction, as the
              case may be, and (ii) does not include the earnings attributable
              to such contribution. However, a return will not satisfy the
              requirements of this sub-section unless (A) the amount of the
              contribution so returned is reduced by any losses attributable to
              the contribution, and (B) no Participant's Account is reduced by
              the return of the contribution to less than such Account would
              have been had the returned contribution never been made.

8.04:      ADMINISTRATION
                           (a) The Employer shall appoint one or more persons as
              Administrators of the Plan, to be known individually and
              collectively as the Administrator. The Administrator shall be the
              "named fiduciary" within the meaning of ERISA and shall be in
              charge of the operation and the administration of the Plan. Such
              persons shall hold office at the pleasure of the Employer, and no
              person shall be disqualified from being an Administrator by reason
              of being a Participant. One person may serve in several capacities
              under the Plan and the Trust Agreement.

                           (b) The Administrator shall have the power to
              delegate specific fiduciary responsibilities (other than those of
              the Trustee with respect to control of the assets of the Trust
              Fund). Such delegations may be to officers or employees of the
              Employer or to other persons, all of whom shall serve at the
              pleasure of the Administrator and, if full-time employees of the
              Employer,


                                      -27-










<PAGE>



              without compensation. Any such person, including a person serving
              as an Administrator, may resign by delivering a written
              resignation to the Administrator, or if no Administrators remain,
              to the Employer. Vacancies of Administrators may be filled by the
              Employer, and other vacancies may be filled by the Administrator
              or the assigned responsibilities may be reabsorbed or redelegated
              by the Administrator.

                           (c) The Administrator shall administer the Plan in
              accord with its terms and shall have all powers necessary to carry
              out its terms. All interpretations of the Plan, and questions
              concerning its administration and application, shall be determined
              by the Administrator, and such determination shall be binding on
              all persons except as otherwise expressly provided herein.

                           (d) The Administrator and those to whom the
              Administrator has delegated fiduciary duties shall keep a record
              of all their proceedings and actions, and shall maintain all such
              books of account, records, and other data as shall be necessary
              for the proper administration of the Plan and to meet the
              disclosure and reporting requirements of ERISA. In no event shall
              a corporate trustee be designated or deemed to be the
              Administrator.

8.05:      NOTICE OF DENIAL OF CLAIMS
              In accordance with applicable regulations of the Secretary of
Labor or Treasury, the Administrator shall (a) notice in writing to any
Participant or beneficiary whose claim for benefits under the Plan has been
denied, setting forth the specific reasons for such denial, written in a manner
calculated to be understood by the Participant, and (b) afford a reasonable
opportunity to any Participant whose claim for benefits has been denied for a
full and fair review by the Administrator under uniform and nondiscriminatory
procedures (to be adopted by the Administrator in accordance with applicable
laws and regulation) of the decision denying the claim.

8.06:      PRUDENT MAN RULE
              Consistent with the purposes of the Plan the Administrator shall
discharge its duties under the Plan solely in the interest of the Participants
and their beneficiaries and (a) for the exclusive purpose of providing benefits
to such Participants and their beneficiaries and defraying reasonable expenses
of administering the Plan; (b) with the care, skill, prudence, and diligence
under the circumstances then prevailing that a prudent man acting in like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims; and (c) in accordance with
the provisions of the Plan, insofar as the Plan is consistent with ERISA as in
effect at the time.

8.07:      ADMINISTRATOR'S AUTHORITY, LIABILITY, AND INDEMNIFICATION
              The Administrator shall be entitled to rely upon all certificates
of the Employer and upon all opinions of law given by duly appointed counsel
(who may be of counsel to the Employer) and shall be fully protected in respect
to any act done or permitted or


                                      -28-










<PAGE>



determination made in good faith in reliance upon any such certificate or
opinion. The Employer agrees, to the extent permitted by law, to indemnify and
hold the Administrator and each of its members, if more than one Administrator,
and agents harmless from and against any claims, losses, damages, expenses, or
liability it or they may incur in the administration of the Plan or Trust Fund,
unless the same is determined to be due to their own gross negligence or willful
misconduct.

                                   SECTION 9.
                            AMENDMENT AND TERMINATION

9.01:      AMENDMENT
              The Board of Directors of the Employer at any time, by written
notice to the Administrator and to the Trustee, may amend in whole or in part
any or all of the provisions of the Plan; provided, however, that no such
amendment shall authorize or permit any part of the Trust Fund to be used for or
diverted to purposes other than the exclusive benefit of the Participants and
their beneficiaries; and provided, further, that no such amendment (except to
the extent that it is made retroactive to secure a favorable determination as to
the initial or subsequent qualification of the Plan under the Code) shall reduce
any interest of any Participant or beneficiary existing immediately prior to
such amendment and no such amendment shall increase the role or responsibility
of the Trustee without the express written consent of the Trustee thereto.

9.02:      TERMINATION
              The Board of Directors of the Employer at any time, by written
notice to the Administrator and to the Trustee, may direct the Administrator to
terminate the Plan. Upon such termination or partial termination or upon a
complete discontinuance of the Employer's contributions hereunder, the rights of
all affected Participants and beneficiaries having an interest in the Trust
Fund, at the effective date of such termination or discontinuance, to the
amounts credited to their respective Accounts shall be nonforfeitable. The
Administrator shall direct the Trustee to distribute to each Participant and
beneficiary the full value of his undistributed account as soon as practicable
after that date by whatever appropriate method or methods the Administrator in
its sole discretion shall select. Generally the Administrator shall pay the full
amount to be distributed in one single payment. Notwithstanding such termination
or discontinuance, the provisions of Section 8 hereof and of the Trust Agreement
shall continue in effect until the Trustee shall have completed the distribution
of the Trust Fund and its accounts have been settled.

9.03:      MERGER OR CONSOLIDATION OF PLAN
              In case of any merger or consolidation of the Plan with, or
transfer of its assets or liabilities to, any other plan, each Participant shall
be entitled, immediately after the merger, consolidation or transfer, to receive
(if the Plan were then terminated) a benefit equal to or greater than the
benefit he would have been entitled to receive immediately before the merger,
consolidation, or transfer (if the Plan had then been terminated).


                                      -29-










<PAGE>



                                   SECTION 10.
                              TOP-HEAVY PROVISIONS

10.01:     TOP-HEAVY PROVISIONS
              If the Plan is or becomes top-heavy in any Plan Year, Sections
10.03-10.06 shall become effective and shall supersede any conflicting
provisions in the plan.

10.02:     DETERMINATION OF TOP-HEAVY STATUS
              The Plan will be considered to be top-heavy for the Plan Year if,
as of the Anniversary Date of the preceding Plan Year, (a) the sum of the
Accounts (including contributions which are due but unpaid as of such
Anniversary Date and including any part of any Account distributed in the
five-year period ending on such Anniversary Date) of participants who are key
employees (as defined in Section 416 (i) of the Code) ("Key Employees") exceeds
60% of the sum of the Accounts (including contributions which are due but unpaid
as of such Anniversary Date and including any part of any Account distributed in
the five-year period ending on such Anniversary Date) of all Participants (the
"60% Test"), or (b) the plan is part of a required aggregation group (within the
meaning of Section 416 (g) of the Code) and the required aggregation group is
top-heavy. However, and notwithstanding the results of the 60% Test, the plan
shall not be considered a top-heavy plan for any Plan Year in which the Plan is
part of a required or permissive aggregation group (within the meaning of
Section 416 (g) of the Code) which is not top-heavy.

10.03:     MINIMUM ALLOCATION
              Notwithstanding the provisions of Section 4.04 (a) as now or
hereafter in effect, for any Plan Year in which the Plan is top-heavy, the total
Employer contributions made by the Required Aggregation Group which are
allocated on behalf of any Participant who is not a Key Employee shall not be
less than the lesser of (a) three percent (3%) of such Participant's
Compensation, or (b) the largest percentage of Employer contributions (as a
percentage of the Key Employee's Compensation) allocated on behalf of any Key
Employee for the Plan Year. The minimum allocation shall be determined without
regard to any Employer contributions to Social Security. The minimum allocation
shall be made even though, under other Plan provisions, the participant would
not otherwise be entitled to receive an allocation because of his failure to
complete one thousand (1000) Hours of Service during the Plan Year.
Notwithstanding the above, no allocation shall be made to the Account of a
participant who is not in the employ of the Employer on the Anniversary Date.
The minimum allocation required (to the extent required to be non-forfeitable
under Section 416 (b) of the Code) may not be forfeited under Sections 411 (a)
(3) (B) or 411 (a) (3) (D) of the Code.


                                      -30-










<PAGE>



10.04:     MINIMUM VESTING
              Notwithstanding the provisions of Section 6.04, if a Participant's
termination of employment for reasons other than attainment of his Normal
Retirement Date, disability or death occurs while the Plan is top-heavy, such
participant's vested percentage of his Account shall be as determined under the
following schedule:

      Years of Service at                       Percentage of
       Termination Date                         Account Vested

          Less than 2                                 0%
               2                                     20%
               3                                     40%
               4                                     60%
               5                                     80%
               6                                    100%

10.05:   CHANGE IN VESTING SCHEDULE

              In the event the plan becomes top-heavy and thereafter ceases to
be top-heavy, the vesting schedule may be changed to that set forth in Section
6.04. In the event the vesting schedule is so changed, all Participants with at
least five (5) Years of Service at the time such change is adopted shall be
entitled to the greater of the vested percentage under the vesting schedule
existing before such change or the vested percentage existing under the vesting
schedule after such change. If the vesting schedule in the Plan is changed, the
vested percentage of any Participant's Account derived from Employer
contributions shall not be less than the vested percentage computed under the
Plan without regard to such change.

                                   SECTION 11.
                                  MISCELLANEOUS

11.01:     NO CONTRACT AND RIGHT LIMITED TO PLAN
              No Employee or Participant shall have any right or claim to any
benefit under the Plan except in accordance with the provisions of the Plan, and
then only to the extent that there are funds available therefor in the hands of
the Trustee. The establishment of the Plan shall not be construed as creating
any contract of employment between the Employer and any Employee or otherwise
conferring upon any Employee or other person any legal right to continuation of
employment, nor as limiting or qualifying the right of the Employer to discharge
any Employee without regard to the effect that such discharge might have upon
his rights under the Plan.

11.02:     SPENDTHRIFT CLAUSE
              Except in the case of a qualified domestic relations order as
provided for in Section 11.03 hereof, no interest, right or claim in or to any
part of the Trust Fund or any payment therefrom shall be assignable,
transferable or subject to sale, mortgage, pledge,


                                      -31-










<PAGE>



hypothecation, commutation, anticipation, garnishment, attachment, execution or
levy of any kind, and the Trustee shall not recognize any attempt to assign,
transfer, sell, mortgage, pledge, hypothecate, commute or anticipate the same,
except to the extent required by law. If any person entitled to any benefit
under the Plan shall be adjudicated bankrupt or shall attempt to assign,
transfer, sell, mortgage, pledge, hypothecate, commute, or anticipate the same,
then the Administrator in its discretion forthwith terminate the right of such
person to such benefit and direct the Trustee to hold or apply the amount
thereof for the benefit of such person, his Spouse, children or other
dependents, or any of them, in such manner and in such proportion as the
Administrator in its discretion shall determine.

11.03:     QUALIFIED DOMESTIC RELATIONS ORDER
              A Qualified Domestic Relations Order is a judgment, decree or
order (including approval of a property settlement agreement) made pursuant to a
state domestic relations law including community property law) that relates to
the provision of child support, alimony payments or marital property rights to a
spouse, former spouse, child or other dependent of a Participant ("Alternate
Payee") and which:

                           (a) creates or recognizes the existence of an
              Alternate Payee's right to, or assigns to an Alternate Payee the
              right to, receive all or a portion of the benefits payable to a
              Participant under this Plan; and

                           (b) specifies (i) the name and last known mailing
              address (if any) of the Participant and each Alternate Payee
              covered by the order, (ii) the amount or percentage of the
              Participant's Plan benefits to be paid to any Alternate Payee, or
              the manner in which such amount or percentage is to be determined
              and (iii) the number of payments or the period to which the order
              applies and each plan to which the order relates; and

                           (c)   does not require the Plan to

                                  (i) provide any type or form of benefit or any
                       option not otherwise provided under the Plan;

                                  (ii) pay any benefits to any Alternate Payee
                       prior to the earlier of the affected Participant's
                       termination of employment or the earlier of either (I)
                       the earliest date benefits are payable under the Plan to
                       a Participant or (II) the later of the date the
                       Participant attains age 50 or the earliest date on which
                       the Participant could obtain a distribution from the Plan
                       if the Participant separated from service;

                                  (iii) pay any benefits which are not vested
                       under the Plan;

                                  (iv) provide increased benefits; or


                                      -32-










<PAGE>



                                  (v) pay benefits to an Alternate Payee that
                       are required to be paid to another Alternate Payee under
                       a prior Qualified Domestic Relations Order.

              For purposes of this Plan, an Alternate Payee who had been married
to the Participant for at least one year may be treated as a spouse with respect
to the portion of the Participant's benefit in which such Alternate Payee has an
interest provided that the Qualified Domestic Relations Order provides for such
treatment. However, under no circumstances may the spouse of an Alternate Payee
(who is not a Participant hereunder) be treated as a spouse under the terms of
the Plan.

              Upon receipt of any judgment, decree or order (including approval
of a property settlement agreement) relating to the provision of payment by the
Plan to an Alternate Payee pursuant to a state domestic relations law, the
Administrator shall promptly notify the affected Participant and any Alternate
Payee of the receipt of such judgment decree order and shall notify the affected
Participant and any Alternate Payee of the Administrator's procedure for
determining whether or not the judgment, decree or order is a Qualified Domestic
Relations Order.

              The Administrator shall establish a procedure to determine the
status of a judgment, decree or order as a Qualified Domestic Relations Order
and to administer Plan distributions in accordance with Qualified Domestic
Relations Order. Such procedure shall be in writing, shall include a provision
specifying the notification requirements enumerated in the preceding paragraph,
shall permit an Alternate Payee to designate a representative for receipt of
communications from the Administrator and shall include such other provisions as
the Administrator shall determine, including provisions required under
regulations promulgated by the Secretary of the Treasury.

              During any period in which the issue of whether a judgment, decree
or order is a Qualified Domestic Relations Order is being determined (by the
Administrator, a court of competent jurisdiction or otherwise), the
Administrator shall account for separately the amount, if any, which would have
been payable to the Alternate Payee during such period if the judgment, decree
or order had been determined to be a Qualified Domestic Relations Order.

              If the judgment, decree or order is determined to be a Qualified
Domestic Relations Order within the 18-month period following the receipt by the
Administrator of the Qualified Domestic Relations Order, then payment of the
amount shall be paid to the appropriate Alternate Payee. If such a determination
is not made within the 18-month period, the amount shall be returned to the
Participant's accounts under the Plan and shall be paid at the time and the
manner provided under the Plan as if no order, judgment or decree had been
received by the Administrator.


                                      -33-










<PAGE>




11.04:     INTERPRETATIONS
              Whenever in the language of the Plan the masculine gender is used,
it shall be deemed equally to refer to the female sex. Headings and titles in
the Plan are solely for convenience only and shall not be construed as affecting
the meaning expressed in the sections therein. The Plan shall be interpreted,
construed and administered in accordance with the Employee Retirement Income
Security Act of 1974, as in effect at that time, and the laws of the State of
Delaware.

              IN WITNESS WHEREOF, the Employer has caused this instrument in
several counterparts to be executed in its name and its corporate seal to be
hereunto affixed by its officers thereunto duly authorized.


ATTEST:                                BHA GROUP HOLDINGS, Inc.

/s/ Stanley D. Biggs                    By /s/ James C. Shay
- ---------------------------------         -------------------------------------
                                                  (Corporate Seal)



                                   -34-






</TEXT>

</DOCUMENT>
<DOCUMENT>
<TYPE>EX-11
<SEQUENCE>3
<FILENAME>0003.txt
<DESCRIPTION>EXHIBIT 11
<TEXT>



<PAGE>


                                                                      EXHIBIT 11

                            BHA Group Holdings, Inc.

                        Computation of Per Share Earnings
                (in thousands of dollars, except per share data)


<TABLE>
<CAPTION>
                                         2000                               1999                             1998
                            -------------------------------  -------------------------------  ---------------------------------
                            Net Earnings  Shares  Per-Share  Net Earnings  Shares  Per-Share   Net Earnings  Shares   Per-Share
                            (Numerator)  (Denom.)   Amt.     (Numerator)  (Denom.)   Amt.      (Numerator)  (Denom.)    Amt.
                            -----------  --------   ----     -----------  --------   ----      -----------  --------    ----
<S>                            <C>         <C>     <C>         <C>         <C>      <C>            <C>       <C>        <C>
Basic earnings per share:
Earnings available to common
shareholders                   $6,016     6,601    $0.91       $1,084      7,028    $0.15          $7,332    7,171      $1.02

Effect of dilutive
securities--stock options        --          71                   --         106                      --       381

Diluted earnings per
share: Earnings
available to common
shareholders and assumed
conversion                     $6,016     6,672    $0.90       $1,084      7,134   $ 0.15          $7,332    7,552      $0.97
                              ==========================       ==========================          ==========================
</TABLE>









</TEXT>

</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>4
<FILENAME>0004.txt
<DESCRIPTION>EXHIBIT 21
<TEXT>


<PAGE>




                                                                      EXHIBIT 21

                    Subsidiaries of BHA Group Holdings, Inc.


BHA Group, Inc., a Delaware corporation; PrecipTech, Ltd., a Canadian
corporation; BHA Group, Ltd., a Canadian corporation; BHA International, Inc., a
U.S. Virgin Islands corporation; BHA Group GmbH, a German corporation; BHA Group
International, Inc., a Delaware corporation; and BHA Technologies, Inc., a
Delaware corporation; BHA Purfilter S.L., a Spanish corporation; and BHA Group
International Holdings B.V., a Dutch corporation, are the only subsidiaries of
the Company, each of which are wholly-owned. Tool Rental and Supply Company,
Inc., a Delaware corporation; Midwest Precipitator Corporation, an Illinois
corporation (DBA Midwest Power Corporation); BHA Group AG, a Swiss corporation;
BHA Environmental Technology Company, Ltd., a China corporation; and BHA Group
Philippines, Inc., a Philippine corporation, are wholly-owned subsidiaries of
BHA Group, Inc. BHA Group International Pvt. Ltd., an India corporation, is a
wholly-owned subsidiary of BHA Group International, Inc.; BHA Technologies AG, a
Swiss corporation; and BHA Technologies K.K., a Japan corporation, are
wholly-owned subsidiaries of BHA Technologies, Inc.; BHA Group, C.A., a
Venezuelan corporation, is a wholly-owned subsidiary of BHA Purfilter S.L.; BHA
do Brazil Ltda, a Brazilian corporation; and BHA U.K. Ltd., a United Kingdom
corporation, are wholly-owned subsidiaries of BHA Group International Holdings
B.V.










</TEXT>

</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>5
<FILENAME>0005.txt
<DESCRIPTION>EXHIBIT 23
<TEXT>


<PAGE>



                                                                    EXHIBIT 23

                    INDEPENDENT AUDITORS' REPORT ON FINANCIAL
                         STATEMENT SCHEDULES AND CONSENT

The Board of Directors
BHA Group Holdings, Inc.:

The audits referred to in our report dated November 3, 2000 included the related
financial statement schedule as of September 30, 2000 and for each of the years
in the three-year period ended September 30, 2000, included in the 2000 annual
report on Form 10-K. This financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.

We consent to the incorporation by reference in the registration statement (No.
33-58782) on Form S-8 of BHA Group Holdings, Inc. of our reports dated November
3, 2000 relating to the consolidated balance sheets of BHA Group Holdings, Inc.
and subsidiaries as of September 30, 2000 and 1999, and the related consolidated
statements of earnings, shareholders' equity, comprehensive income and cash
flows for each of the years in the three-year period ended September 30, 2000,
and the related schedule, which reports are included in the September 30, 2000
annual report on Form 10-K of BHA Group Holdings, Inc.

/s/ KPMG LLP

Kansas City Missouri
November 7, 2000








</TEXT>

</DOCUMENT>
<DOCUMENT>
<TYPE>EX-27
<SEQUENCE>6
<FILENAME>0006.txt
<DESCRIPTION>EXHIBIT 27
<TEXT>

<TABLE> <S> <C>

<ARTICLE>                                5
<LEGEND>
This schedule contains summary financial information extracted from
unaudited condensed consolidated financial statements for the year
ended September 30, 2000 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER>                             1,000

<S>                                                        <C>
<PERIOD-TYPE>                                             12-MOS
<FISCAL-YEAR-END>                                      SEP-30-2000
<PERIOD-START>                                         OCT-01-1999
<PERIOD-END>                                           SEP-30-2000
<CASH>                                                     3,877
<SECURITIES>                                                   0
<RECEIVABLES>                                             31,569
<ALLOWANCES>                                               1,039
<INVENTORY>                                               26,357
<CURRENT-ASSETS>                                          66,808
<PP&E>                                                    71,764
<DEPRECIATION>                                            37,075
<TOTAL-ASSETS>                                           112,232
<CURRENT-LIABILITIES>                                     23,533
<BONDS>                                                   17,638
<COMMON>                                                      87
<PREFERRED-MANDATORY>                                          0
<PREFERRED>                                                    0
<OTHER-SE>                                                59,720
<TOTAL-LIABILITY-AND-EQUITY>                             112,232
<SALES>                                                  107,393
<TOTAL-REVENUES>                                         161,069
<CGS>                                                     83,814
<TOTAL-COSTS>                                            111,718
<OTHER-EXPENSES>                                          37,553
<LOSS-PROVISION>                                             341
<INTEREST-EXPENSE>                                         2,022
<INCOME-PRETAX>                                            9,506
<INCOME-TAX>                                               3,490
<INCOME-CONTINUING>                                        6,016
<DISCONTINUED>                                                 0
<EXTRAORDINARY>                                                0
<CHANGES>                                                      0
<NET-INCOME>                                               6,016
<EPS-BASIC>                                                .91
<EPS-DILUTED>                                                .90



</TABLE>
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
