<SUBMISSION>
<ACCESSION-NUMBER>0000950136-01-501727
<TYPE>10-K
<PUBLIC-DOCUMENT-COUNT>4
<PERIOD>20010930
<FILING-DATE>20011106
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>BHA GROUP INC
<CIK>0000801128
<ASSIGNED-SIC>3564
<IRS-NUMBER>431416730
<STATE-OF-INCORPORATION>DE
<FISCAL-YEAR-END>0930
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>10-K
<ACT>34
<FILE-NUMBER>000-15045
<FILM-NUMBER>1775533
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>8800 E 63RD ST
<CITY>KANSAS CITY
<STATE>MO
<ZIP>64133
<PHONE>8163568400
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>8800 E 63RD STREET
<CITY>KANSAS CITY
<STATE>MO
<ZIP>64133
</MAIL-ADDRESS>
</FILER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>file001.txt
<DESCRIPTION>FORM 10-K
<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

For the Fiscal Year Ended                             Commission File Number
     September 30, 2001                                      0-15045

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

<TABLE>
<CAPTION>
<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:

               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 26, 2001, the number of shares outstanding of the Registrant's
Common Stock was 6,106,275 shares.

The aggregate market value of the voting stock held by non-affiliates* of the
Registrant's Common Stock was $42,043,380, computed by reference to the closing
price of $15.00 as reported to Registrant at which such stock was quoted by the
NASDAQ National Market on October 26, 2001.

The Registrant's definitive proxy statement for the annual meeting of
stockholders to be held on February 19, 2002 (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" ("ESPs"). This
equipment is used to eliminate particulate from the air by passing particulate
laden gases through fabric filters (filter bags) or pleated media filter
elements, in the case of baghouses, 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 initial public offering of common stock in November 1986. Net
proceeds from this public



                                      -2-





<PAGE>



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, military outerwear, 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 9 to the consolidated financial statements. Each of the entities identified
below is 100% owned, either directly or indirectly, by the Company.

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 and
Australia.

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 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. 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 market for electrostatic precipitators has been competitive in
recent years due largely to the utility industry, which has been restructuring
in response to deregulation. During the past year, tight energy supplies have
led to a surge in replacement parts and service business for ESPs. An ESP is the
prevalent piece of air pollution control equipment on coal-fired boilers for the
U. S. electrical utility industry. Due to tight supplies of electricity, many
customers in the industry have been focusing on increasing the capacity or
utilization of their coal-fired boilers while maintaining compliance with
environmental regulations. The electric utilities are looking to reduce downtime
and improve efficiency of their coal-fired generating capacity. The company
believes that it is well positioned in this market and is benefiting from
opportunities to work with these electric utility customers. 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.

The market in which BHA Technologies competes is much less fragmented than the
APC business. The primary competitors include the industry leader, W. L. Gore,
which developed the process for expanded PTFE in 1958. Other competitors include
Tetratec and Nitto Denko. Competition is based upon brand name, quality,
innovation and pricing.

FACTORS AFFECTING EARNINGS AND STOCK PRICE

General Business Conditions
---------------------------
The current business environment around the world is challenging. Planning has
become more complex as the uncertainties and threats associated with war,
terrorist activities and a global recession must be considered. The Company is
not immune from these significant external factors and a serious business
downturn resulting from any of those factors would have a material adverse
impact on its operating results.

The Company continues to monitor the global business environment very closely
and its potential impact on BHA's business. While the current environment poses
a serious threat to near term operating results, the Company believes it is well
positioned in its markets to generate positive earnings and consistent cash
flows during a period of slower business. The Company will use its free cash
flows to invest in its business to strengthen its competitive position. The
following briefly summarizes a few of the Company's key strategies and
competitive advantages:

                                      -6-
<PAGE>

o    The Company is a global leader in the APC replacement parts and service
     market and is looking to expand market share through its ability to deliver
     value to its customers.
o    The Company has a stronger financial position than many of its competitors
     and will use its free cash flow to invest in its people, new products,
     technology and its common stock repurchase program.
o    The Company is a world leader in the supply of innovative filtration
     products. Its business includes a diverse product line across numerous
     filtration applications. The business is also diverse from a geographic and
     industry perspective.
o    The Company is working to expand these and other competitive advantages
     during this period of economic uncertainty.

Although the Company has confidence in its strategies and business plans, it is
important to note that there are a number of risk factors that could have a
material adverse impact on future results. These factors are discussed in more
detail below.

Domestic Air Pollution Control (APC) Segment
--------------------------------------------
U.S. Fabric Filter
The Company is the leader in the supply of replacement parts and service to U.S.
operators of fabric filter dust collectors. During the Company's fiscal year
ended September 30, 2001 ("fiscal 2001"), its sales were $86 million in this
market, representing a 5% decrease from the prior year. Industry data indicates
that the U.S. market for these products contracted as much as 20% during that
period. Factors contributing to the market decline include customer efforts to
reduce on-hand inventories, delays in spending for major equipment upgrades and
reduced plant utilization. For its fiscal year ending September 30, 2002
("fiscal 2002"), the Company will be focused on further expanding its share in
this market. Although the Company believes it will be successful in expanding
its market presence, a severe and protracted downturn in the U.S. economy would
have a material adverse impact on the Company's near-term operating results due
to the cyclical nature of many of the industries its customers operate in. Such
weakness in the U.S. market could result in a further decline in sales and
possibly gross margin compression due to competitive pressures in the
marketplace.

U.S. Electrostatic Precipitator (ESP)
The fiscal 2001 results in this area were very strong as sales of $36 million
represented a 29% increase over the prior year. The electric utility industry
represents the primary industry group serviced by this portion of the Company's
business. The Company believes it is a leader in this market. ESP's are the
primary air pollution control technology utilized on coal-fired boilers at
electric utilities. The Company's internal project tracking system indicates
that in the near-term there appear to be good opportunities for large project
work. Demand for the Company's products and services are influenced in part by
the price of coal relative to natural gas and other alternatives. Demand is also
influenced by regulatory pressure. The longer-term dynamics for both of these
factors appear to be favorable for the Company. Any shorter-term volatility
would impact near-term results. A substantial portion of the sales derived in
this area is fixed price work on major field installations that carry their own
sets of risks. Any decline in fiscal 2002 sales in this area relative to fiscal
2001 results or substantial project cost overruns on fixed-price work would have
a material adverse impact on the Company's short-term operating results.

                                      -7-
<PAGE>

U.S. Exports to Latin America and Asia
The Company exports fabric filter and ESP replacement parts and service to
customers in Latin America and Asia. During fiscal 2001, sales were $21 million,
up 5% from the prior year. Although the Company does not have a substantial
investment in property, plant and equipment in either of these regions, the
uncertainty associated with world events holds additional risks for this portion
of the business. Specifically, the economies of many of the countries BHA sells
to in Latin America follow closely the U.S. economy. A severe and protracted
downturn in the U.S. economy would negatively impact many of the countries the
Company serves throughout Latin America. With respect to Asia, the primary
concerns relate to a decline in business that could occur if tensions and
conflict in the region continue to escalate. In the event that business
conditions remain uncertain in Latin America or Asia for an extended period of
time, the large project portion of exports to these markets could decline. Such
a decline, would have a material adverse impact on the Company's operating
results.

Europe APC Segment
------------------
The Company's Europe APC Segment posted a substantial turnaround in operating
results from fiscal 2000 to 2001. Sales for this segment were $22 million in
fiscal 2001. Moving into fiscal 2002, a significant risk factor relates to the
potential softening of the market in Europe as part of an overall deterioration
of the global economy. Approximately 15% of Europe's fiscal 2001 sales relate to
ESP project work. A substantial portion of this work is for customers in North
Africa and the Middle East and could be negatively impacted by world events.
Another risk to the Europe APC segment would be any substantial or prolonged
strengthening of the U.S. dollar as many of the products and raw materials sold
to customers in this market are sourced from the U.S. Any one or combination of
the above noted factors could have a material adverse impact on the Company's
operating results.

BHA Technologies Segment
------------------------
Through BHA Technologies, the Company has established a business to supply ePTFE
membrane products for use in applications outside of air pollution control. BHA
Technologies reduced its pre-tax losses from $0.6 million in fiscal 2000 to $0.2
million in fiscal 2001. In fiscal 2001, sales by BHA Technologies to
non-affiliates were $10.8 million, up from $6.6 million in fiscal 2000. The
Company is focused on establishing through BHA Technologies a business segment
that provides it with an additional vehicle for higher technology products and
for long-term growth. In the near-term, eliminating losses and improving cash
flows within this business segment is a priority. Moving into fiscal 2002, BHA
Technologies' supply contract for the supply of HEPA rated vacuum filters has
been restructured, which will result in a reduction in gross margin dollars. The
Company also expects that competitive factors will put some pressure on gross
margins related to the sale of inter-company and third party APC roll goods.
Success in fiscal 2002 requires the establishment of several new sales channels
and the expansion of sales through relationships that were established in fiscal
2001. The Company expects to achieve this goal and generate modest positive
earnings for this segment in fiscal 2002.

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




                                      -8-




<PAGE>



Company's products into other product offerings that will then be sold to third
parties. BHA Technologies' success in this regard is also tied in part to its
customers' success in delivering product through their supply chains. The nature
of this business will be to work with fewer customers on larger supply
agreements. The Company's future success is dependent upon its ability to
continue to develop, establish and maintain its existing and targeted new supply
arrangements. Failure to execute this strategy or the termination of a major
supply contract could have a material adverse impact on the Company's operating
results. Failure to execute its strategy could also impact the carrying value of
the Company's investment in BHA Technologies' property, plant and equipment.

Corporate
---------

The Company is in the process of implementing enterprise resource planning
("ERP") software for its primary air pollution control business. The planned
"Go-Live" for this project is the summer of fiscal 2002. During fiscal 2001, the
Company expended $2.2 million on this project of which $0.5 million was expensed
and $1.7 million has been capitalized. During fiscal 2002, the Company
anticipates spending an additional $3.3 million to $3.8 million. The objective
of the new information technology system is to improve BHA's profitability by
achieving a number of specific financial and operational measures. The goal of
the system is to improve working capital management and lower operating costs.
The new information technology system will also provide the Company with a
stable, long-term platform enabling the business to deliver value to its
customers through information sharing and electronic commerce as these issues
become more important in future periods.

ERP implementations are challenging initiatives that carry substantial project
risk in the areas of cost overruns, project delays and business interruption.
The Company has a number of risk management programs in place designed to
mitigate these risks. Notwithstanding these efforts, failure to properly
implement the new information technology systems could have a material adverse
impact on the Company's operating results.

Impact of Risk Factors on the Company's Outlook
-----------------------------------------------

The Company believes that its expectations for the first quarter of fiscal 2002
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 certain risks and uncertainties including the above noted risk
factors and other risks described elsewhere in this report. Any of such risks
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 could 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, and database of customer equipment specifications enables it to respond
promptly to customer requests, thus providing it with a competitive advantage.

                                      -9-
<PAGE>

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 expanded PTFE membrane (see "Business"), 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.

                                      -10-
<PAGE>

BHA Technologies provides BHA-TEX fabrics to BHA Group and to other air
pollution control companies for use in fabric filter bags and pleated media
filter elements. Additionally, BHA Technologies has developed numerous other
applications for its ePTFE membrane. These include outerwear and footwear for
consumers, as well as for military and industrial users. Other product
applications include High Efficiency Particulate Air filtration (HEPA) rated
vacuum cleaner filters, clean room apparel, allergen barriers such as mattress
encasings and other industrial applications.

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 worldwide presence in BHA's traditional target industries.
Management believes that over the longer term, this trend could have a positive
impact on its international business.

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.

The Company established its APC business with a strategy of marketing and
selling directly to the end user of the product. By contrast, BHA Technologies
does not sell to the end user of the product. Strategic alliances have been
formed with major companies in several markets. Under these relationships, BHA
Technologies is the exclusive supplier of ePTFE membrane goods to its partners.
These partners incorporate the membrane into their products which are then sold
to a third party. The Company's strategic alliance partners include Mitsui & Co.
Ltd. and Radici Tessuti SPA for consumer apparel, Tiong Liong Industrial Co.,
Ltd. for footwear, Fibrotek Industries, Inc. for industrial apparel and Salu,
Inc. for allergen barrier products.

                                      -11-
<PAGE>

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 135,000 pieces of pollution control equipment (baghouses and
electrostatic precipitators) at over 65,000 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.

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) for 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




                                      -12-




<PAGE>



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 may increase demand for the
Company's fine filtration and emissions monitoring 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.

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, 2001, the Company's backlog of orders was $46.4 million
compared to $52.7 million at September 30, 2000 and $47.2 million at September
30, 1999. The lower backlog primarily relates to a decline in orders for fabric
filter parts and services in the U.S. which results from the economic
environment as well as an increased tendency of the Company's customers to
provide shorter lead times with their orders. This decline was partly offset by
a strong backlog for the domestic ESP group. The backlog in Europe declined
slightly as the prior year numbers included an order for a significant ESP
rebuild project. BHA Technologies experienced a decline in its backlog related
to a restructuring of its supply agreement with a vacuum cleaner manufacturer.

                                      -13-
<PAGE>

EMPLOYEES

As of September 30, 2001, the Company employed approximately 1,050 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, copyrights, and proprietary information
and has pending applications for patents and trademarks for parts, accessories,
and electrical controls for industrial air pollution control equipment and
non-air pollution control markets. The Company considers such patents,
trademarks, copyrights, and proprietary information and applications for patents
and trademarks to be important. The business of the Company, however, is not
dependent on such patents, trademarks, copyrights, and proprietary information.
Patents owned by the Company expire at various dates from 2002 through 2016.

                                      -14-
<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 respect 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 modest ongoing capital expenditures,
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, 2001 to a vote of security holders through the solicitation of
proxies or otherwise.

                                      -15-
<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 10, Quarterly Financial Data (Unaudited) ("Note 10"), and is
incorporated by reference in partial response to this Item 5. The prices set
forth in Note 10 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 26, 2001 was $15.00.

HOLDERS
As of October 26, 2001, there were 8,816,292 shares issued and 2,710,017 shares
in treasury. At October 26, 2001, the Company had 6,106,275 shares outstanding
that were owned by approximately 2,500 beneficial owners.

DIVIDENDS
During the years ended September 30, 1999, 2000 and 2001, 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 26, 2001 to
shareholders of record on November 16, 2001.

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 reporting 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 2,480,331 shares out of a total of
3,500,000 shares authorized by the Board of Directors. During fiscal 2001,
485,287 shares were repurchased at an average price of $13.58.


                                      -16-
<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, 1999, 2000 and 2001, and the selected balance sheet data as of September 30,
2000 and 2001, 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,
                                                          2001         2000         1999*        1998        1997
                                                          ----         ----         -----        ----        ----
<S>                                                    <C>          <C>          <C>           <C>         <C>
                                                                   (In Thousands, Except per Share Data)
Selected Income Statement Data
   Net Sales                                           $ 174,923    $164,550     $159,047      $ 145,494    $133,407
   Gross Margin                                           52,688      49,351       41,940         44,033      40,786
   Operating Expense                                      40,173      37,894       38,297         31,853      28,196
   Interest Expense, Net                                   1,614       1,951        1,984          1,423       1,009
   Earnings Before Income Taxes                           10,901       9,506        1,659         10,757      11,581
   Net Earnings                                        $   7,223    $  6,016     $  1,084      $   7,332  $    8,101
   Basic Earnings per Share                            $    1.17    $    .91     $    .15      $    1.02  $     1.12
   Weighted Average Shares Outstanding--Basic              6,199       6,601        7,028          7,171       7,226
   Diluted Earnings per Share                          $    1.11    $    .90     $    .15      $     .97  $     1.06
   Weighted Average Shares Outstanding--Diluted            6,482       6,672        7,134          7,552       7,676

Selected Balance Sheet Data
   Working Capital                                     $  45,236    $ 42,275     $ 43,285      $  42,223     $32,132
   Total Assets                                          111,162     112,232      108,148        107,574      87,605
   Current Portion of Long-Term Debt and Capital Lease
     Obligations                                           2,499       2,669        2,922          3,988          62
   Long-Term Debt (Less Current Portion)                  17,769      17,638       20,345         23,029      12,415
   Capital Lease Obligations (Less Current Portion)        6,637       7,200        7,600             --          --
   Shareholders' Equity                                   61,134      59,807       58,892         61,953      56,918
   Cash Dividends Declared per Common Share            $     .12    $    .12     $    .12      $     .12  $      .11
</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).

                                      -17-
<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 9 to the Audited Financial
Statements, the Domestic Air Pollution Control ("Domestic APC") segment
represents all APC 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 2001 COMPARED TO FISCAL 2000
-----------------------------------

NET SALES
Consolidated net sales during the year ended September 30, 2001 ("fiscal 2001")
were $174.9 million compared to $164.6 million during the year ended September
30, 2000 ("fiscal 2000"), an increase of 6%. Sales in the Domestic APC segment
increased 3% from $137.9 million to $142.4 million. Sales in the Europe APC
segment increased 8% from $20.1 million to $21.7 million. The BHA Technologies
business segment generated fiscal 2001 third party sales of $10.8 million
compared to prior year sales of $6.6 million.

Within the Domestic APC segment, fabric filter replacement parts and service
sales to customers in the U.S. declined 5% to $85.6 million. The decline in
these product lines was the result of the economic contraction in the industrial
and manufacturing sectors of the U.S. economy and the decision by many customers
to defer expenditures for capital improvements and increases in production
capacity. The Company's domestic ESP sales increased 29% from $28.0 million to
$36.1 million as this portion of the business benefited from favorable business
conditions within the U.S. electric utility market for operators of coal-fired
boilers. Export sales increased 5% to $21.7 million as shipments into Asia and
the Pacific Rim more than offset a modest decline in shipments to Latin America
which resulted from lack of major project work in that region.

The Europe APC segment's sales increased 8% when expressed in U.S. dollars.
Sales for the year rose 20% on a local currency basis. The sales growth
primarily reflects work completed on two large ESP projects during the current
fiscal year together with modestly higher shipments of the Company's fabric
filter products.

Shipments of ePTFE membrane from BHA Technologies to third party customers
increased by 65% to $10.8 million. The increase reflects higher shipments of
HEPA rated filters to a major consumer products manufacturer under a contract
which commenced in the third quarter of fiscal 2000. Additional increases relate
to sales of membrane for apparel to be sold under the eVENT(R) brand name as
well as membrane sold for use in non-consumer apparel applications and clean
room products.

                                      -18-
<PAGE>

GROSS MARGIN
Consolidated gross margin was 30.1% in fiscal 2001 compared to 30.0% in fiscal
2000. In the Domestic APC segment, margins declined slightly. Despite the
adjustments made by the Company to its cost structure in the fabric filter
production facilities, the lower production volumes resulted in higher per unit
costs for these products. Gross margins improved in the Europe APC segment due
to the improved plant utilization. In the BHA Technologies segment, gross
margins declined slightly as a result of higher costs related to a second
manufacturing facility that was brought on line during the year and which was
not fully utilized.

OPERATING EXPENSES
Selling and advertising expenses were $20.8 million (11.9% of sales) in fiscal
2001 compared to $19.7 million (12.0% of sales) in fiscal 2000. General and
administrative expenses were $19.4 million (11.1% of sales) in fiscal 2001
compared to $18.2 million (11.0% of sales) in fiscal 2000. In total, operating
expenses increased 6.0% from $37.9 million to $40.2 million. Although the
personnel levels in fiscal 2001 were slightly lower than the prior year, there
were increases in operating expenses relative to per person salaries and health
care costs. Additionally, the Company incurred higher costs in its information
technology department including approximately $0.5 million related to training
and consulting for the enterprise resource planning software which will be
installed in fiscal 2002. The provision for bad debt expense was increased by
$0.3 million in fiscal 2001 as compared to the prior year as a result of the
higher sales together with the potential impact of the weakening U.S. economy on
the Company's industrial customers' ability to pay.

INTEREST EXPENSE
Interest expense for fiscal 2001 was $1.8 million compared to $2.0 million in
fiscal 2000. The decline was the result of a decrease in average borrowings from
$32.7 million to $30.0 million together with lower average interest rates which
were approximately 6.2% annually in fiscal 2000 compared to 5.8% in fiscal 2001.

EARNINGS BEFORE INCOME TAXES
Pre-tax earnings for the Domestic APC segment were $10.4 million (7.3% of sales)
in fiscal 2001 compared to $10.9 million (7.9% of sales) in fiscal 2000. The
decline in profitability for this segment is the result of lower profits in the
domestic fabric filter business resulting from the 5% decline in sales. This was
partially offset by improved profits from ESP and export sales.

The Europe APC segment generated pre-tax earnings in fiscal 2001 of $0.7 million
compared to a pre-tax loss of $0.8 million in fiscal 2000. Of the improvement,
approximately $0.6 million was the result of foreign exchange as the Company
incurred exchange rate gains in fiscal 2001 of approximately $0.2 million and
exchange rate losses of approximately $0.4 million in fiscal 2000. The balance
of the improvement was the result of the 20% increase in sales, expressed in
local currencies, which were generated with substantially the same overhead
structure.

BHA Technologies' pre-tax loss was $0.2 million in fiscal 2001 compared to a
pre-tax loss of $0.6 million in fiscal 2000. During fiscal 2001, sales increased
to $10.8 million from $6.6 million in the prior year. The cost structure also
increased as a second manufacturing facility was brought on line during the
year.

                                      -19-
<PAGE>

INCOME TAXES
The effective income tax rate was 33.7% in fiscal 2001 compared to 36.7% in
fiscal 2000. The effective tax rate in 2001 was lower than the statutory rate
due to credits for research and development, tax benefits on export sales and
net operating loss carry-forwards utilized by certain foreign subsidiaries. The
fiscal 2000 rate was higher than the Company's historical rate due to losses on
certain foreign subsidiaries for which the Company did not recognize any tax
benefits.

NET EARNINGS
Net earnings were $7.2 million ($1.11 per diluted share) in fiscal 2001 compared
to $6.0 million ($0.90 per diluted share) in fiscal 2000. The improved earnings
were the result of the turn-around in Europe and lower losses in BHA
Technologies combined with reduced interest expense. Improved earnings per share
were also partially the result of fewer average shares outstanding. Weighted
average common and common equivalent shares outstanding decreased from 6.7
million shares to 6.5 million shares due common stock repurchases.

FISCAL 2000 COMPARED TO FISCAL 1999
-----------------------------------

Consolidated net sales during fiscal 2000 were $164.6 million compared to $159.0
million during the year ended September 30, 1999 ("fiscal 1999"), an increase of
3%. Sales in the Domestic APC segment increased 0.6% from $137.2 million to
$137.9 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 12% to $90.3 million, and export sales
increased 11% to $19.7 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 showed 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 $10.6 million sales
decline in domestic 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 30.0% of sales in fiscal 2000 compared to 26.4% in
fiscal 1999. Excluding unusual charges of $4.2 million, the fiscal 1999 gross
margin was 29.0%. 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.


                                      -20-


<PAGE>

OPERATING EXPENSES
Selling and advertising expenses were $19.7 million (12.0% of sales) in fiscal
2000 compared to $20.2 million (12.7% of sales) in fiscal 1999. General and
administrative expenses were $18.2 million (11.0% of sales) in fiscal 2000
compared to $15.9 million (10.0% 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 4.9% 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 2001. BHA believes
that its business is not affected by inflation except to the extent the economy
in general is affected.

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

Net working capital was $45.2 million at September 30, 2001 compared to $43.3
million at September 30, 2000. The current ratio was 3.0 in fiscal 2001 compared
to a current ratio of 2.8 in fiscal 2000. Cash provided by operating activities
was $16.5 million in fiscal 2001 compared to $15.3 million in fiscal 2000. The
cash flow provided by operating activities in fiscal 2001 reflects net earnings
of $7.2 million combined with depreciation and amortization of $5.8 million.
Additionally, reductions in accounts receivable and inventories generated
additional cash from operations which was partially offset by lower accounts
payable and income tax accruals.


                                      -21-
<PAGE>

Investing activities have resulted in a net use of cash during each of the past
three years. Capital expenditures were $4.4 million, $4.5 million, and $5.8
million, in fiscal 2001, 2000, and 1999, 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 acquisition of product rights relative to Drayton's sound-off
acoustic cleaner product line in 1999.

During fiscal 2001, the Company used $7.4 million for financing activities
including $6.6 million to repurchase BHA common stock and $0.7 million for the
payment of cash dividends. The Company also repaid $0.6 million in borrowings,
net. During fiscal 2000, the company used $7.8 million for financing activities
including $3.6 million to repurchase BHA common stock and $0.8 million for the
payment of cash dividends. The Company also repaid $3.4 million in borrowings,
net. During fiscal 1999, the Company used a nominal amount of cash for financing
activities 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 common stock.

Cash balances, including short-term investments increased from $3.9 million at
September 30, 2000 to $9.5 million at September 30, 2001.

At September 30, 2001, BHA had unused lines of credit of $15.2 million. The debt
structure includes commitments for: an $18.0 million revolving credit facility
maturing on April 30, 2004; $11.9 million under an amortizing term loan with a
final maturity in 2006; a European revolving credit facility of $5.0 million
with a maturity on April 30, 2004; and a capital lease related to an industrial
revenue bond transaction for $7.2 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, 2001. With the exception of the capital lease
transaction, no assets of the Company are pledged to secure any indebtedness.
BHA Group Holdings, Inc. and its primary U. S. affiliates have guaranteed the
European revolving credit facility. The company believes that cash flows from
operations and available credit lines will be sufficient to meet its capital
needs for the foreseeable future.

OUTLOOK
-------

The Company is focused on achieving consistent earnings growth and increasing
returns to its shareholders. Its specific longer-term financial goals are as
follows:

o        Increase compounded earnings per diluted share at a 12% to 15% annual
         rate over time.
o        Increase return on average equity to 15% by fiscal 2004. Moving beyond
         fiscal 2004, the longer-term goal is a 20% return on average equity.

Economic conditions around the world are challenging as businesses are faced
with the uncertainties and threats associated with war, terrorist activities and
the current recession. The Company is not immune from these significant external
factors and a substantial downturn in



                                      -22-

<PAGE>


business resulting from any of the above noted factors would negatively impact
financial results. The Company's record fiscal 2001 earnings per diluted share
represented a 23% increase over the previous year. Although the Company has
confidence in its business strategies and believes that its longer-term earnings
growth rate targets are achievable, it remains cautious about near-term
operating results.

The company does not believe it is appropriate to provide specific guidance with
respect to a range of sales or profits for fiscal 2002. Management anticipates
that sales and meaningful profit growth during the upcoming fiscal year will be
difficult and plans to continue to proactively manage the cost side of its
business. Although visibility with respect to future results is a challenge, the
Company expects to operate profitably, maximize cash flows and execute
strategies to strengthen its competitive position across key business lines.
Management believes that BHA is well positioned to weather a global recession
and emerge from it stronger than its competitors due to its diverse product
offerings, global presence and strong financial position.

FIRST QUARTER OF FISCAL 2002
o    Consolidated net sales will likely be lower than the first quarter of
     fiscal 2001 by as much as 5%
o    Earnings per diluted share are expected to be in the range of $0.24 to
     $0.29 before the impact of the $1.2 million pre-tax charge related to
     adoption of SFAS No. 142

IMPACT OF SFAS NO. 142
o    As discussed in more detail below, the Company will adopt Statement of
     Financial Accounting Standard (SFAS) 142 "Accounting for Goodwill and Other
     Intangible Assets" during the first quarter of fiscal 2002.
o    In the first quarter, the Company will recognize a pre-tax charge of $1.2
     million related to impairment of goodwill in its Europe APC segment. This
     charge will be presented as the cumulative effect of a change in accounting
     principle.
o    Amortization expense related to goodwill and other intangibles is expected
     to decrease by approximately $0.6 million in fiscal 2002 as compared to
     fiscal 2001 as a result of implementing SFAS 142.

Readers should refer to "Factors Affecting Earnings and Share Price" and other
information included in this Annual Report on Form 10-K.

NEW ACCOUNTING PRONOUNCEMENTS

Statement of Financial Accounting Standard (SFAS) No. 142. "Accounting for
Goodwill and Other Intangible Assets" was issued in July 2001 and must be
adopted by the Company in either the year beginning October 1, 2001 or 2002.
SFAS No. 142 will require that goodwill and intangible assets with indefinite
useful lives no longer be amortized, but instead tested for impairment at least
annually in accordance with the provisions of SFAS No. 142. This statement will
also require that intangible assets with estimable useful lives be amortized
over their respective estimated useful lives and reviewed for impairment in
accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
to be Disposed of.

The Company has determined that it will adopt SFAS No. 142 effective October 1,
2001. As such, it will be required to reassess the useful lives and residual
values of all intangible assets acquired, and make any necessary amortization
period adjustments by the end of its first fiscal





                                      -23-

<PAGE>

quarter at December 31, 2001. In addition, to the extent an intangible asset is
identified as having an indefinite useful life, the Company will be required to
test the intangible asset for impairment in accordance with the provisions of
SFAS No. 142 prior to December 31, 2001. Any impairment loss will be measured as
of the date of adoption and recognized as the cumulative effect of a change in
accounting principle in the first interim period.

In connection with the SFAS 142 transitional goodwill impairment evaluation, the
Statement requires that the Company perform an assessment of whether there is an
indication that goodwill is impaired as of the date of adoption. To accomplish
this, the Company must identify its reporting units and determine the carrying
value of each reporting unit by assigning the assets and liabilities, including
the existing goodwill and intangible assets to those reporting units as of the
date of adoption. The Company has performed this evaluation and has determined
that the carrying value of its Europe APC reporting unit exceeds it fair value
and as such the related goodwill is impaired. As a result, the Company
anticipates recognizing a pre-tax charge of approximately $1.2 million during
the quarter ending December 31, 2001 as the cumulative effect of the change in
accounting principle.

As of the date of adoption, the Company has unamortized and unimpaired goodwill
of $4.0 million, all of which relates to its Domestic APC reporting unit.
Additionally, it has other unamortized intangible assets with indeterminative
lives totaling $1.3 million and other intangibles with estimable lives of $1.0
million. As a result of the adoption of SFAS No. 142, it is anticipated that
amortization expense related to goodwill and other intangible assets will be
approximately $0.6 million lower for fiscal 2002 than that which would have been
recognized under the prior accounting rules. The lower amortization expense will
be more than offset by the aforementioned pre-tax charge of $1.2 million that
will be recognized as a result of the impairment of goodwill in the Europe APC
reporting unit.

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, general U.S. and
international business conditions and other factors. You should consult the
section entitled "Factors Affecting Earnings and Stock Price." The Company
cautions that the foregoing lists of important factors is not exclusive.

ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATES
All of the Company's indebtedness is at variable rates of interest. The Company
has not used derivative financial instruments to hedge its exposure to interest
rate changes. Based upon borrowings outstanding at September 30, 2001, a 1%
fluctuation in market rates would impact interest expense by approximately
$250,000 annually.

                                      -24-

<PAGE>

EXCHANGE RATES
The Company views its equity investment in a foreign subsidiary as a long-term
commitment and does not hedge the translation exposures relative to such equity
investments.

In addition to its equity investment, the Company from time-to-time has U. S.
dollar denominated trade payables and advances due from its European affiliates.
Such amounts are subject to translation exposure. At September 30, 2001, the
amount of such unhedged exposures was approximately $1.0 million, substantially
all of which is related to its affiliates in the European Common Market.

FORWARD EXCHANGE CONTRACTS
BHA periodically enters into forward exchange contracts with commercial banks 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, 2001, the aggregate
amount of such forward exchange contracts was approximately $2.6 million, and
the market value of these contracts was $136,000 lower than their face value.






                                      -25-
<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, 2001 and 2000, 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, 2001. 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, 2001 and 2000, and the results of their
operations and their cash flows for each of the years in the three-year period
ended September 30, 2001 in conformity with accounting principles generally
accepted in the United States of America.

                                       [GRAPHIC OMITTED]

                                       KPMG LLP

November 2, 2001
Kansas City, Missouri





                                      -26-

<PAGE>


                            BHA GROUP HOLDINGS, INC.
                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>

                                                                                                SEPTEMBER 30,
                                                                                           2001               2000
                                                                                           ----               ----
<S>                                                                                  <C>                <C>
ASSETS

Current assets:

    Cash and cash equivalents                                                         $       9,471        $     3,877
    Accounts receivable, less allowance for doubtful
       receivables of $1,385 in 2001 and $1,039 in 2000                                      29,803             31,569
    Inventories (note 1)                                                                     22,845             26,357
    Income taxes receivable                                                                     379                 --
    Prepaid expenses                                                                          2,187              2,495
    Deferred income taxes (note 5)                                                            2,655              2,510
                                                                                      ---------------    ---------------
           TOTAL CURRENT ASSETS                                                              67,340             66,808
                                                                                      ---------------    ---------------

Property, plant and equipment, at cost:
    Land and improvements                                                                     1,044              1,044
    Buildings and improvements                                                               18,416             18,221
    Machinery and equipment                                                                  40,976             41,103
    Office furniture, fixtures and equipment                                                  3,886              4,923
                                                                                      ---------------    ---------------
                                                                                             64,322             65,291
    Less accumulated depreciation and amortization                                           36,043             36,411
                                                                                      ---------------    ---------------
           NET PROPERTY, PLANT AND EQUIPMENT                                                 28,279             28,880
                                                                                      ---------------    ---------------

Property held under capital leases, net (note 1)                                              5,830              5,809
Intangible and other assets, less accumulated amortization (note 1)                           4,551              5,378
Excess of cost over net assets of businesses acquired,
    less accumulated amortization                                                             5,162              5,357
                                                                                      ---------------    ---------------
                                                                                           $111,162           $112,232
                                                                                      ===============    ===============

</TABLE>

See accompanying notes to consolidated financial statements.

                                      -27-
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                                SEPTEMBER 30,
                                                                                           2001               2000
                                                                                           ----               ----
<S>                                                                                    <C>                 <C>
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

    Current installments of long-term debt (note 3)                                     $     1,936        $     2,269
    Current lease obligations (note 4)                                                          563                400
    Accounts payable                                                                          8,946             10,357
    Accrued compensation and employee benefit costs                                           4,436              4,342
    Accrued expenses and other current liabilities                                            3,356              3,372
    Reserve for warranty and product service                                                  2,867              2,553
    Income taxes payable                                                                         --                240
                                                                                      ---------------    ----------------
           TOTAL CURRENT LIABILITIES                                                         22,104             23,533
                                                                                      ---------------    ----------------

Deferred income taxes (note 5)                                                                1,984              2,096

Long-term debt, excluding current installments (note 3)                                      17,769             17,638
Long-term lease obligations, excluding current installments (note 4)                          6,637              7,200

Other long-term liabilities                                                                   1,534              1,958

Shareholders' equity:
    Common stock $.01 par value, authorized 20,000,000 shares:
          Issued 8,814,492 and 8,752,895 shares, respectively                                    88                 87
    Additional paid-in capital                                                               62,536             61,854
    Retained earnings                                                                        34,916             28,440
    Accumulated other comprehensive income                                                     (856)            (1,634)
    Less cost of 2,706,417 and 2,236,552 shares, respectively,
       of common stock in treasury                                                          (35,550)           (28,940)
                                                                                      ---------------    ----------------
           TOTAL SHAREHOLDERS' EQUITY                                                        61,134             59,807
                                                                                      ---------------    ----------------

Commitments and contingent liabilities (notes 4 and 7)
                                                                                      $     111,162        $   112,232
                                                                                      ===============    ================
</TABLE>

See accompanying notes to consolidated financial statements.

                                      -28-
<PAGE>

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

                                                                    FOR THE YEARS ENDED SEPTEMBER 30,
                                                              2001                 2000                 1999
                                                              ----                 ----                 ----
<S>                                                       <C>                  <C>                  <C>
Net sales                                                 $   174,923          $   164,550          $   159,047
Cost of sales (note 8)                                        122,235              115,199              117,107
                                                        -----------------    -----------------    -----------------
    GROSS MARGIN                                               52,688               49,351               41,940
                                                        -----------------    -----------------    -----------------

Operating expenses:
    Selling and advertising expense                            20,807               19,721               20,212
    General and administrative expense                         19,366               18,173               15,918
    Restructuring expense (note 8)                                 --                   --                2,167
                                                        -----------------    -----------------    -----------------
           TOTAL OPERATING EXPENSES                            40,173               37,894               38,297
                                                        -----------------    -----------------    -----------------

           OPERATING INCOME                                    12,515               11,457                3,643

Interest expense                                               (1,753)              (2,022)              (2,069)
Other income, net                                                 139                   71                   85
                                                        -----------------    -----------------    -----------------

           EARNINGS BEFORE INCOME TAXES                        10,901                9,506                1,659
                                                        -----------------    -----------------    -----------------

Income taxes (note 5):
    Current                                                     4,001                3,977                1,321
    Deferred                                                     (323)                (487)                (746)
                                                        -----------------    -----------------    -----------------
           TOTAL INCOME TAXES                                   3,678                3,490                  575
                                                        -----------------    -----------------    -----------------

           NET EARNINGS                                   $     7,223          $     6,016          $     1,084
                                                        =================    =================    =================

Basic earnings per common share                           $      1.17          $      0.91          $     0.15

Diluted earnings per common share                         $      1.11          $      0.90          $     0.15
</TABLE>

See accompanying notes to consolidated financial statements.

                                      -29-
<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,
                                                                           2001               2000                 1999
                                                                           ----               ----                 ----
<S>                                                                   <C>                <C>                 <C>
COMMON STOCK:
    Balance at beginning of year                                        $        87        $        87         $        87
    Issuance of 61,597 shares of common stock in 2001,
       6,915 shares of common stock in 2000,
       and 79,627 shares in 1999                                                  1                 --                  --
                                                                      ---------------    ----------------    -----------------
    BALANCE AT END OF YEAR                                                       88                 87                  87
                                                                      ---------------    ----------------    -----------------

ADDITIONAL PAID-IN CAPITAL:
    Balance at beginning of year                                             61,854             61,792              61,310
    Excess over par value of common stock issued                                618                 62                 653
    Stock issued from treasury for stock option exercises                      (194)                --                (303)
    Income tax benefit from stock option exercises                              258                 --                 132
                                                                      ---------------    ----------------    -----------------
    BALANCE AT END OF YEAR                                                   62,536             61,854              61,792
                                                                      ---------------    ----------------    -----------------

RETAINED EARNINGS:
    Balance at beginning of year                                             28,440             23,219              22,983
    Net earnings                                                              7,223              6,016               1,084
    Payment of cash dividends on common stock                                  (747)              (795)               (848)
                                                                      ---------------    ----------------    -----------------
    BALANCE AT END OF YEAR                                                   34,916             28,440              23,219
                                                                      ---------------    ----------------    -----------------

ACCUMULATED OTHER COMPREHENSIVE INCOME:
    Balance at beginning of year                                             (1,634)              (899)               (293)
    Equity adjustment from foreign currency translation and
       derivative instruments                                                   778               (735)               (606)
                                                                      ---------------    ----------------    -----------------
    BALANCE AT END OF YEAR                                                     (856)            (1,634)               (899)
                                                                      ---------------    ----------------    -----------------

UNEARNED COMPENSATION:
    Balance at beginning of year                                                 --                 (4)               (108)
    Recognition of compensation expense                                          --                  4                 104
                                                                      ---------------    ----------------    -----------------
    BALANCE AT END OF YEAR                                                       --                 --                  (4)
                                                                      ---------------    ----------------    -----------------

TREASURY STOCK:
    Balance at beginning of year                                            (28,940)           (25,303)            (22,026)
    Acquisition of 485,287, 398,084, and 319,500 shares in 2001,
       2000 and 1999, respectively                                           (6,590)            (3,637)             (3,476)
    Issuance of 15,422 shares in 2001 and 8,888 shares in 1999
       for stock option exercises, net                                          (20)                --                 199
                                                                      ---------------    ----------------    -----------------
    BALANCE AT END OF YEAR                                                  (35,550)           (28,940)            (25,303)
                                                                      ---------------    ----------------    -----------------
           TOTAL SHAREHOLDERS' EQUITY                                   $    61,134        $    59,807         $    58,892
                                                                      ===============    ================    =================
</TABLE>

                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>

                                                                                 FOR THE YEARS ENDED SEPTEMBER 30,
                                                                           2001               2000                 1999
                                                                           ----               ----                 ----
<S>                                                                   <C>                  <C>                 <C>
Net earnings                                                            $     7,223        $     6,016         $     1,084
Other comprehensive income:
    Foreign currency translation adjustments                                    914               (735)               (606)
    Foreign exchange gains deferred on
       implementation of FAS 133                                                144                 --                  --
    Net change in foreign exchange gains
       deferred in accordance with FAS 133                                     (280)                --                  --
                                                                      ---------------    ----------------    -----------------
Comprehensive income                                                    $     8,001        $     5,281         $       478
                                                                      ===============    ================    =================
</TABLE>


See accompanying notes to consolidated financial statements.

                                      -30-

<PAGE>


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

<TABLE>
<CAPTION>


                                                                        2001           2000            1999
                                                                        ----           ----            ----
<S>                                                                   <C>           <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net earnings                                                       $ 7,223       $ 6,016          $ 1,084
    Adjustments to reconcile net earnings to net cash
       provided by operating activities:
           Depreciation and amortization                                 5,846         5,576            6,052
           Non-cash restructuring charges                                   --            --            1,713
           Provision for deferred income taxes                            (257)          231             (911)
           Issuance of common stock to directors, officers
               and employees                                                88            62              105

    Changes in assets and liabilities:
           Accounts receivable                                           1,766        (3,213)           2,982
           Inventories                                                   3,512         1,686             (680)
           Prepaid expenses                                                 64          (506)            (161)
           Income taxes                                                   (619)          559             (546)
           Accounts payable                                             (1,411)        1,476              (14)
           Accrued expenses and other current liabilities                  256         3,412             (351)
                                                                      ----------    -----------     -----------
       NET CASH PROVIDED BY OPERATING ACTIVITIES                        16,468        15,299            9,273
                                                                      ----------    -----------     -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Additions to property, plant and equipment                          (4,439)       (4,531)          (5,836)
    Net assets of businesses or product rights acquired                     --            --             (718)
    Assets sold                                                             --         1,100               --
    Change in other assets                                                  15          (341)          (1,399)
                                                                      ----------    -----------     -----------
       NET CASH USED IN INVESTING ACTIVITIES                            (4,424)       (3,772)          (7,953)
                                                                      ----------    -----------     -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from issuance of common stock                                 531            --              548
    Payment of cash dividends on common stock                             (747)         (795)            (848)
    Purchase of treasury stock                                          (6,590)       (3,637)          (3,476)
    Stock option exercise - net payments                                    44            --             (104)
    Proceeds from long-term obligations                                     --            --           25,997
    Repayments of long-term obligations                                 (2,900)       (3,525)          (5,064)
    Borrowings (repayments) on lines of credit, net                      2,298           165          (17,083)
                                                                      ----------    -----------     -----------
       NET CASH USED IN FINANCING ACTIVITIES                            (7,364)       (7,792)             (30)
Equity adjustment from foreign currency translation                        914          (735)            (606)
                                                                      ----------    -----------     -----------
    Net increase in cash and cash equivalents                            5,594         3,000              684
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                           3,877           877              193
                                                                      ----------    -----------     -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR                              $  9,471       $ 3,877        $     877
                                                                      ==========    ===========     ===========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
    Interest                                                           $ 1,764       $ 2,105         $  2,058
    Income taxes                                                       $ 4,554       $ 2,699         $  2,032

Supplemental disclosure of non-cash investing and financing activities:
    Accrual of additional purchase price                                    --            --         $    800
</TABLE>

See accompanying notes to consolidated financial statements.

                                      -31-

<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. In the case of contracts for certain ESP and baghouse
       rebuilds, the Company recognizes revenues using the percentage of
       completion method based upon its estimate of the completion of each
       project.

       SHIPPING AND HANDLING
       Several accounting and financial pronouncements were recently adopted by
       the Financial Accounting Standards Board and by the Securities and
       Exchange Commission relating to the recognition and measurement of
       revenues and the classifications of shipping and handling costs.

       In order to comply with these standards, the Company has, in the
       accompanying financial statements, recognized freight which has been paid
       by the Company and invoiced to the customer ("prepay and add freight") as
       revenue and cost of sales. Previously, prepay and add freight billed to
       customers was netted with cost of sales. During the year ended September
       30, 2001, prepay and add freight billed by the Company was $3.7 million.
       In order to present the financial statements on a consistent basis,
       revenues and cost of sales were each increased for fiscal 2000 and fiscal
       1999 in the amount of $3.5 million and $3.3 million, respectively.

       USES OF ESTIMATES
       The preparation of financial statements in conformity with accounting
       principles generally accepted in the United States of America 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, 2001 and 2000 were as follows:

($ IN THOUSANDS)                     2001                2000
                               -----------------    ----------------
Raw materials                     $  15,593             $  16,760
Work-in-process                         946                 1,168
Finished goods                        6,306                 8,429
                               -----------------    ----------------
TOTAL                             $  22,845             $  26,357
                               =================    ================

                                      -32-
<PAGE>

       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.

       PROPERTY HELD UNDER CAPITAL LEASES
       The Company's BHA Technologies' facility in Lee's Summit, Missouri is
       subject to a capital lease related to an industrial revenue bond
       obligation. The assets held under this lease at September 30, 2001 and
       2000 were as follows:

<TABLE>
<CAPTION>
                                                             2001                 2000
                                                       -----------------    -----------------
<S>                                                    <C>                  <C>
Land                                                      $     300             $     300
Building                                                      4,712                 4,712
Equipment                                                     1,883                 1,461
Less accumulated amortization                                (1,065)                 (664)
                                                       -----------------    -----------------
PROPERTY HELD UNDER CAPITAL LEASES, NET                   $   5,830             $   5,809
                                                       =================    =================
</TABLE>


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

                 Buildings and improvements                          30 years
                 Machinery and equipment                             4-8 years
                 Office furniture, fixtures and equipment            3-10 years

       During fiscal 2001, the Company recognized the retirement of $5.1 million
       in fully depreciated assets.

       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.

                                      -33-
<PAGE>

       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 2001, 2000, and 1999 amounted to $124,000, ($354,000), and
       $71,000, respectively.

       ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
       On October 1, 2000, the Company adopted Statement of Financial Accounting
       Standard (SFAS) No. 133, "Accounting for Derivative Instruments and
       Hedging Activities," as amended. SFAS 133 establishes accounting and
       reporting standards for derivative instruments and requires that all
       derivative instruments be recognized on the balance sheet at their fair
       value. The adoption of SFAS 133 impacts the Company's accounting for
       foreign currency forward exchange contracts.

       The company has entered into forward exchange contracts with commercial
       banks 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 which primarily
       relate to the purchases by the Company's European subsidiaries of
       inventory from their U. S. affiliates. In accordance with SFAS 133, these
       transactions have been determined to be effective hedges. Subsequent to
       adoption of SFAS 133, the fair value of these contracts have been
       recognized in prepaid expenses or accrued liabilities in the consolidated
       balance sheet. The related gains and losses are deferred in shareowners'
       equity (as a component of comprehensive income). These deferred gains and
       losses are recognized in income in the period in which the related
       purchases being hedged are acquired. The notional amount of such
       contracts at September 30, 2001 was $2.6 million and the market value of
       these contracts was $136,000 lower than the face value. All of the
       deferred gains or losses under these contracts will be reclassified into
       net earnings within the next twelve months.

       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
       of the Company.

       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
       3,500,000 of which approximately 2,480,000 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




                                      -34-
<PAGE>




       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 6. A reconciliation of the numerators and the
       denominators of the basic and diluted earnings per-share computations is
       as follows:

<TABLE>
<CAPTION>
                                                         (IN THOUSANDS, EXCEPT PER SHARE DATA.)
                                           2001                            2000                             1999
                              -------------------------------  ---------------------------------  --------------------------------
                                Net         Shares   Per-Share     Net        Shares   Per-Share     Net        Shares   Per-Share
                               Earnings    (Denom.)    Amt.      Earnings    (Denom.)    Amt.      Earnings    (Denom.)    Amt.
                              (Numerator)  -------     ---      (Numerator)  -------    -----     (Numerator)  --------    ---
                              -----------                      -----------                       -----------
<S>                           <C>        <C>        <C>         <C>        <C>        <C>         <C>        <C>         <C>
    Basic earnings per share:
    Earnings available to
    common shareholders         $7,223     6,199      $1.17       $6,016     6,601      $0.91       $1,084     7,028       $0.15

    Effect of dilutive
    securities--stock options     --         283                      --        71                      --       106

    Diluted earnings per
    share:  Earnings
    available to common
    shareholders and assumed
    conversion                $  7,223     6,482      $1.11       $6,016     6,672      $0.90       $1,084     7,134       $0.15
                              ========     =====      =====       ======     =====      =====       ======     =====       =====
</TABLE>

       Options to purchase 211,590 shares of common stock at prices ranging from
       $15.23 to $16.82 per share were outstanding at the end of 2001 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 2000 and 1999, options to purchase 849,252 shares and
       571,688 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 $1,750,000
       and $1,555,000 at September 30, 2001 and 2000, 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 $7,097,000
       and $6,464,000 at September 30, 2001 and 2000, 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 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.


                                      -35-
<PAGE>

       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, 2001.

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 is being
       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.

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

3.     NOTES PAYABLE TO BANKS AND LONG-TERM DEBT

       A summary of notes payable to banks and long-term debt at September 30,
       2001 and 2000 are as follows:

<TABLE>
<CAPTION>
       ($ IN THOUSANDS)                                                               2001           2000
                                                                                   -----------    ------------
<S>                                                                                <C>            <C>
       Unsecured domestic line of credit with variable interest rate               $   3,028      $      --
       Foreign line of credit with variable interest rate, secured by
            guarantees of U. S. affiliates                                             4,741             --
       Foreign line of credit with variable interest rate, secured by a
            standby letter of credit                                                      --          2,877
       Term loan payable to a domestic bank with variable interest rate               11,875         14,375
       Notes payable to a foreign bank with a fixed interest rate of 4.75%
            secured by a standby letter of credit                                         --          2,260
       Other notes payable                                                                61            395
       Less current installments                                                      (1,936)        (2,269)
                                                                                   -----------    ------------
       LONG-TERM DEBT, EXCLUDING CURRENT INSTALLMENTS                                $17,769        $17,638
                                                                                   ===========    ============
</TABLE>

                                      -36-
<PAGE>

       BHA has a domestic unsecured bank line of credit of $18,000,000,
       including approximately $3,000,000 which can be borrowed in foreign
       currencies, 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, LIBOR or Euribor and expires in April
       2004. This facility is a revolving credit agreement on which BHA pays a
       0.25% commitment fee on the unused portion. At September 30, 2001,
       borrowings under this revolving credit facility where Euro 3,300,000 (USD
       3,028,000) at an average interest rate of approximately 5.3%. 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 foreign bank
       lines of credit.

       BHA's German subsidiary maintains a foreign bank line of credit for
       borrowings in local currencies up to the U. S. equivalent of $5,000,000.
       This credit facility is secured by the guarantees of BHA Group Holdings,
       Inc. This facility is a revolving credit agreement on which the Company
       pays a 0.25% commitment fee on the unused portion. At September 30, 2001,
       borrowings under this revolving credit facility were Euro 5,168,000 (USD
       4,741,000) at an average interest rate of 6.25%.

       At September 30, 2000, BHA's German subsidiary maintained a revolving
       credit facility and a term loan, each of which were secured by a standby
       Letter of Credit. Borrowings under the revolver at September 30, 2000
       were DM 6,364,000 (USD 2,877,000) at an average interest rate of 5.79%.
       Borrowings under the term loan at September 30, 2000 were DM 5,000,000
       (USD 2,260,000) at a fixed interest rate of 4.75%. These borrowings were
       repaid with the proceeds from a replacement credit facility negotiated
       during fiscal 2001.

       BHA's foreign subsidiary located in Switzerland maintains a line of
       credit with a foreign bank in the amount of CHF 600,000 (approximately
       USD 372,000 at September 30, 2001). As of September 30, 2001 and 2000,
       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 (3.49% at September 30, 2001) and matures in
       October 2006. Quarterly principal payments are required in the amount of
       $625,000.

       At September 30, 2001, the Company had unused commitments under its bank
       facilities totaling $15.2 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, 2001. Under the most restrictive of these covenants, at
       September 30, 2001, $13.3 million of retained earnings were available for
       cash dividends.

                                      -37-
<PAGE>

       Scheduled payments on long-term debt for the next five fiscal years are
       as follows:

        YEAR               $ IN THOUSANDS
---------------------      --------------------
        2002                  $    1,936
        2003                       2,500
        2004                      10,269
        2005                       2,500
        2006                       2,500
     Thereafter                       --
                           --------------------
                              $   19,705
                           ====================

4.     LEASES
       In December 1998, BHA Technologies, Inc., a wholly-owned subsidiary,
       entered into a capital lease in the form of 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
       (2.4% as of September 30, 2001). As of September 30, 2001 and 2000, BHA
       Technologies had $0.7 million and $1.1 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.

       The Company also enters into operating leases from time-to-time relative
       to its facilities, office equipment and manufacturing equipment.

       At September 30, 2001, future minimum lease payments for capital leases
       and for noncancelable, long-term operating leases for the next five
       fiscal years were as follows (amounts in thousands):

<TABLE>
<CAPTION>
                                                    MINIMUM LEASE PAYMENTS
                   YEAR                     CAPITAL LEASES         OPERATING LEASES
                   ----                     --------------         ----------------
                 <S>                         <C>                    <C>
                   2002                        $      563             $    1,224
                   2003                               554                    783
                   2004                               544                    521
                   2005                               534                    440
                   2006                               525                    440
                Thereafter                          5,949                    403
                                               ----------             ----------
Total                                               8,669             $    3,811
                                                                      ==========
Less imputed interest                               1,469
                                               ----------
Present value of capital leases                     7,200
Less current portion                                  563
                                               ----------
Obligations under capital leases,
     less current portion                      $    6,637
                                               ==========
</TABLE>

       Total rental expense on noncancelable, long-term operating leases
       amounted to approximately $1,776,000, $1,855,000, and $2,780,000 for the
       years ended September 30, 2001, 2000, and 1999, respectively.

                                      -38-
<PAGE>

5.     INCOME TAXES

       The components of total income tax expense for the years ended September
       30, 2001, 2000, and 1999 are as follows:

<TABLE>
<CAPTION>
($ IN THOUSANDS)                                        2001            2000             1999
                                                    -------------    ------------    --------------
<S>                                                 <C>              <C>             <C>
Current income tax expense (benefit):
     Federal                                          $ 3,175          $ 3,230         $ 1,621
     Foreign                                              352              269            (552)
     State and local                                      474              478             252
Deferred income tax expense (benefit):
     Federal                                             (272)            (428)           (683)
     State                                                (51)             (59)            (63)
                                                    -------------    ------------    --------------
                                                      $ 3,678          $ 3,490         $   575
                                                    =============    ============    ==============
</TABLE>

      The effective tax rate differs from the expected tax rate for the
      respective years as follows:
<TABLE>
<CAPTION>
                                                        2001             2000             1999
                                                    -------------    -------------    -------------
<S>                                                 <C>              <C>              <C>
Expected income tax expense                            34.0%            34.0%            34.0%
State income taxes, net                                 2.6              2.9              7.5
Foreign subsidiaries                                   (2.0)             1.9              14.1
Research and experimentation credits                   (2.3)            (2.6)            (12.1)
Other, net                                              1.4               .5             (8.8)
                                                    -------------    -------------    -------------
   EFFECTIVE INCOME TAX RATE                           33.7%            36.7%            34.7%
                                                    =============    =============    =============
</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, 2001 and 2000 are presented as follows:

<TABLE>
<CAPTION>
($ IN THOUSANDS)                                            2001                  2000
                                                       ----------------      ----------------
<S>                                                    <C>                   <C>
Deferred tax assets:
     Reserves and accruals not
        currently deductible                               $  2,242              $  1,946
     Inventories                                                336                   353
     Other, net                                                 552                   613
                                                       ----------------      ----------------
     Total gross deferred tax assets                          3,130                 2,912
                                                       ----------------      ----------------
Deferred tax liabilities:
     Intangible and other assets                                468                   519
     Property, plant and equipment                            1,304                 1,186
     Prepaid expenses                                            63                   141
     Other, net                                                 624                   652
                                                       ----------------      ----------------
     Total gross deferred tax liabilities                     2,459                 2,498
                                                       ----------------      ----------------
     NET DEFERRED TAX ASSET                                $    671              $    414
                                                       ================      ================
</TABLE>
                                      -39-
<PAGE>

       At September 30, 2001 and 2000, deferred tax assets and liabilities are
       classified in the accompanying consolidated balance sheets as follows:

<TABLE>
<CAPTION>
($ IN THOUSANDS)                                                 2001                 2000
                                                           -----------------     ----------------
<S>                                                        <C>                   <C>
Current deferred income tax asset                              $  2,655              $  2,510
Non-current deferred income tax liability                         1,984                 2,096
                                                           -----------------     ----------------
NET DEFERRED TAX ASSET                                         $    671              $    414
                                                           =================     ================
</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 $106,000 at
       September 30, 2001 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 $942,000, $(167,000), and
       $(3,449,000) for the years ended September 30, 2001, 2000, and 1999,
       respectively. During fiscal 2001, the Company utilized net operating loss
       carry-forwards ("NOLs") which had the effect of reducing income tax
       expense by approximately $53,000 as compared to the expense that would
       have been incurred without the benefit of such NOLs.

6.     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.

                                      -40-
<PAGE>

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

<TABLE>
<CAPTION>

                                      2001                           2000                            1999
                                          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                      1,273,569      $11.06         1,077,150        $11.35         1,087,057        $10.63
  Granted                       31,500       13.12           197,750          9.48           312,800         13.37
  Expired                           --         --                 --           --             (3,492)         9.86
  Canceled                     (41,000)      12.25            (1,331)        12.77          (200,312)        12.67
  Exercised                   (152,056)      10.52                --           --           (118,903)         7.90
                           --------------------------------------------------------------------------------------------
Outstanding at end of
year                         1,112,013      $11.19         1,273,569        $11.06         1,077,150        $11.35
                           ----------------------------  ------------------------------  ------------------------------
Exercisable at end of yr.      456,673     $  8.59           396,317       $  7.82           505,462       $  8.27
                           ============================  ==============================  ==============================

                           OPTIONS OUTSTANDING                                         OPTIONS EXERCISABLE
 -------------------------------------------------------------------------    --------------------------------------
                          NUMBER          WEIGHTED-         WEIGHTED-              NUMBER            WEIGHTED-
 RANGE OF EXERCISE     OUTSTANDING     AVG. CONTRACTED    AVG. EXERCISE          EXERCISABLE          AVERAGE
       PRICES           AT 9/30/01       LIFE IN YRS.         PRICE              AT 9/30/01        EXERCISE PRICE
 -------------------------------------------------------------------------    --------------------------------------
   $6.20 - 10.47          604,839            4.57              8.63                409,589               8.12
   $12.02 - 16.82         507,174            6.45             14.25                 47,084              12.67
                     -----------------
                        1,112,013
                     =================
</TABLE>

       The per share weighted-average fair value of stock options granted during
       2001, 2000, and 1999 was $5.80, $4.03, and $5.36, respectively, on the
       date of grant using the Black Scholes option-pricing model with the
       following assumptions: expected dividend yield of 0.80% for 2001, 1.24%
       for 2000, and 1.15% for 1999; weighted average risk-free interest rate of
       4.60% for 2001, 5.80% for 2000, and 5.90% for 1999; expected volatility
       factor of 34.74%, 32.36%, and 29.38% for 2001, 2000, and 1999,
       respectively; and a weighted-average expected life of eight years.

       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 $373,000 or $0.05 per diluted share in
       2001, $613,000 or $.09 per diluted share in 2000, and $738,000 or $.10
       per diluted share in 1999.

7.     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. 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 $1,166,000, $1,330,000, and $435,000
       for the years ended September 30, 2001, 2000, and 1999, respectively.

       BHA's eligible domestic employees participate in a voluntary 401(k)
       employee benefit plan (401(k) Plan). For 2001, the Company matched 150%
       of a participant's contribution subject to a maximum contribution of $900
       per employee. BHA matching contributions become vested based on years of
       service. BHA made matching contributions of $ 557,000, $462,000, and
       $330,000 for the years ended September 30, 2001, 2000, and 1999,
       respectively.

                                      -41-
<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
       $55,000 and $798,000 at September 30, 2001 and 2000, 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.

8.     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.

9.     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.

                                      -42-
<PAGE>

       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.

       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, 2001, 2000, and
       1999 were as follows:

       NET SALES

<TABLE>
<CAPTION>
    ($ IN THOUSANDS)            2001                   2000                  1999
                          ------------------     -----------------     -----------------
<S>                       <C>                    <C>                   <C>
Domestic APC                    $142,421               $137,940              $137,168
Europe APC                        21,693                 20,056                20,076
BHA Technologies                  10,809                  6,554                 1,803
                          ------------------     ---------------------------------------
TOTAL                           $174,923               $164,550              $159,047
                          ==================     =================     =================
</TABLE>

       Net sales represent revenues from sales to unaffiliated customers.

       INTEREST EXPENSE

<TABLE>
<CAPTION>
    ($ IN THOUSANDS)            2001                   2000                  1999
                          ------------------     -----------------     -----------------
<S>                       <C>                    <C>                   <C>
Domestic APC                     $1,196                 $1,328                $1,014
Europe APC                          292                    222                   369
BHA Technologies                    265                    472                   686
                          ------------------     ---------------------------------------
TOTAL                            $1,753                 $2,022                $2,069
                          ==================     =================     =================
</TABLE>

       EARNINGS (LOSS) BEFORE INCOME TAXES

<TABLE>
<CAPTION>
    ($ IN THOUSANDS)            2001                   2000                  1999
                          ------------------     -----------------     -----------------
<S>                       <C>                    <C>                   <C>
Domestic APC                    $10,363                $10,893               $10,925
Europe APC                          737                   (761)               (2,744)
BHA Technologies                   (199)                  (626)               (6,522)
                          ------------------     ---------------------------------------
TOTAL                           $10,901               $  9,506              $  1,659
                          ==================     =================     =================
</TABLE>

                                      -43-
<PAGE>

       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 8 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.

       ASSETS

<TABLE>
<CAPTION>
    ($ IN THOUSANDS)            2001                   2000                  1999
                          ------------------     -----------------     -----------------
<S>                       <C>                    <C>                   <C>
Domestic APC                  $  55,560              $  63,502             $  66,829
Europe APC                       16,759                 16,673                16,234
BHA Technologies                 17,581                 18,932                14,153
Corporate                        21,262                 13,125                10,932
                          ------------------     ---------------------------------------
TOTAL                          $111,162               $112,232              $108,148
                          ==================     =================     =================
</TABLE>

       DEPRECIATION AND AMORTIZATION

<TABLE>
<CAPTION>
    ($ IN THOUSANDS)            2001                   2000                  1999
                          ------------------     -----------------     -----------------
<S>                       <C>                    <C>                   <C>
Domestic APC                     $2,765                 $2,886                $3,100
Europe APC                          473                    597                   690
BHA Technologies                  1,166                    783                   843
Corporate                         1,442                  1,310                 1,419
                          ------------------     ---------------------------------------
TOTAL                            $5,846                 $5,576                $6,052
                          ==================     =================     =================
</TABLE>

       CAPITAL EXPENDITURES

<TABLE>
<CAPTION>
    ($ IN THOUSANDS)            2001                   2000                  1999
                          ------------------     -----------------     -----------------
<S>                       <C>                    <C>                   <C>
Domestic APC                   $    421                $   208                $1,493
Europe APC                          182                    424                   665
BHA Technologies                    992                  2,711                 2,600
Corporate                         2,844                  1,188                 1,078
                          ------------------     ---------------------------------------
TOTAL                            $4,439                 $4,531                $5,836
                          ==================     =================     =================
</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."

                                      -44-
<PAGE>

       GEOGRAPHIC INFORMATION BY COUNTRY

       NET SALES

       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.

<TABLE>
<CAPTION>
    ($ IN THOUSANDS)            2001                   2000                  1999
                          ------------------     -----------------     -----------------
<S>                       <C>                    <C>                   <C>
United States                  $127,948               $120,551              $116,797
All Other Countries              46,975                 43,999                42,250
                          ------------------     -----------------     -----------------
TOTAL                          $174,923               $164,550              $159,047
                          ==================     =================     =================
</TABLE>

       LONG-LIVED ASSETS

       The following table presents all non-current tangible 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.

     ($ IN THOUSANDS)           2001                   2000
                          ------------------     -----------------
United States                   $32,055                $32,445
All Other Countries               4,066                  4,461
                          ------------------     -----------------
TOTAL                           $36,121                $36,906
                          ==================     =================

10.    QUARTERLY FINANCIAL DATA (UNAUDITED)

       Summarized quarterly financial data are as follows:

<TABLE>
<CAPTION>
                                                    DEC. 31         MARCH 31          JUNE 30         SEPT. 30
THREE MONTHS ENDED                              --------------- ------------------ --------------- ----------------
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                             <C>             <C>                <C>             <C>
2001
Net sales                                         $   44,351      $    49,868        $   41,930      $   38,774
Gross margin                                          13,272           14,134            12,629          12,653
Net earnings                                           1,933            2,169             1,671            1,450
Diluted earnings per share                        $     0.29      $      0.34        $    0.26       $     0.23

Common Stock Price Range, High Low                $    17.19      $     18.75        $   17.75       $    16.49
                                                  $    12.25      $     11.38        $   13.05       $    12.95

2000
Net sales                                            $39,733          $45,144           $40,716          $38,957
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 Low                    $10.00           $ 9.75            $10.50           $14.25
                                                      $ 7.38           $ 6.53            $ 7.63           $ 9.25

</TABLE>

                                      -45-
<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, 2001                            $          1,039                896               550   $        1,385
                                                             ==============    ===============    ==============    ==============

Year ended September 30, 2000                            $          1,238                341               540   $        1,039
                                                             ==============    ===============    ==============    ==============

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

RESERVE FOR WARRANTY AND PRODUCT SERVICE:
Year ended September 30, 2001                            $          2,553              2,020             1,706   $        2,867
                                                             ==============    ===============    ==============    ==============

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

</TABLE>


                                      -46-

<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, 2001,
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).

                                      -47-
<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 Amended and Restated Credit Agreement between BHA
               Group Holdings, Inc. and Bank of America, N.A. dated as
               of May 7, 2001 (10).

         (21)  Subsidiaries of the Registrant (10).

         (23)  Independent Auditors' Consent (10).

(b)      Reports on Form 8-K:  No reports on Form 8-K were filed by the Company
         during the quarter ended September 30, 2001.

(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 to the Company's Annual Report on Form 10-K for the
         fiscal year ended September 30, 2000, which exhibit is incorporated
         herein by reference.

(10)     Filed as an exhibit hereto.

                                      -48-

<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>
<CAPTION>
<S>           <C>                                 <C>     <C>
Dated:        November 6, 2001                    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 6, 2001                    By:     /s/ James E. Lund
                                                          ------------------------------------------------------------
                                                          James E. Lund, President
                                                          Principal Executive Officer and Director

Dated:        November 6, 2001                    By:     /s/ Lamson Rheinfrank, Jr.
                                                          ------------------------------------------------------------
                                                          Lamson Rheinfrank, Jr.
                                                          Chairman of the Board

Dated:        November 6, 2001                    By:     /s/ Don H. Alexander
                                                          ------------------------------------------------------------
                                                          Don H. Alexander
                                                          Director

Dated:        November 6, 2001                    By:     /s/ Robert Freeland
                                                          ------------------------------------------------------------
                                                          Robert Freeland
                                                          Director

Dated:        November 6, 2001                    By:     /s/ Thomas A. McDonnell
                                                          ------------------------------------------------------------
                                                          Thomas A. McDonnell
                                                          Director

Dated:        November 6, 2001                    By:     /s/ James J. Thome
                                                          ------------------------------------------------------------
                                                          James J. Thome
                                                          Executive Vice President,
                                                          Principal Operating Officer and Director

Dated:        November 6, 2001                    By:     /s/ Richard C. Green, Jr.
                                                          ------------------------------------------------------------
                                                          Richard C. Green, Jr.
                                                          Director

Dated:        November 6, 2001                    By:     /s/ James C. Shay
                                                          ------------------------------------------------------------
                                                          James C. Shay
                                                          Senior Vice President, Finance and Administration,
                                                          Principal Financial & Accounting Officer
</TABLE>


                                      -49-

<PAGE>


                            BHA Group Holdings, Inc.
                                  Exhibit Index

<TABLE>
<CAPTION>
     EXHIBIT NO.                                      DESCRIPTION
<S>                     <C>
         10k            Amended and Restated Credit Agreement between BHA Group Holdings, Inc.,
                                   and Bank of America N.A. dated as of May 7, 2001.

          21                            Subsidiaries of BHA Group Holdings, Inc.

          23                                  Independent Auditors' Report
</TABLE>






                                      -50-


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.K
<SEQUENCE>3
<FILENAME>file002.txt
<DESCRIPTION>AMENDED AND RESTATED CREDIT AGREEMENT
<TEXT>
<PAGE>






                      AMENDED AND RESTATED CREDIT AGREEMENT

                     Amended and Restated as of May 7, 2001




                                    Borrower

                            BHA GROUP HOLDINGS, INC.




                                   Guarantors

                                 BHA GROUP, INC.

                             BHA TECHNOLOGIES, INC.




                                     Lender

                              BANK OF AMERICA, N.A.



                      $18,000,000 Revolving Line of Credit



<PAGE>


                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                      Page
<S>                                                                                                   <C>
ARTICLE 1 DEFINITIONS AND INTERPRETIVE PROVISIONS........................................................1
   1.1   Definitions.....................................................................................1
   1.2   Interpretive Provisions.........................................................................1
   1.3   Exchange Rates; Alternative Currency Equivalents................................................1
   1.4   Redenomination of Certain Alternative Currencies................................................2
ARTICLE 2 REVOLVING LINE OF CREDIT.......................................................................2
   2.1   Agreement to Lend...............................................................................2
   2.2   Revolving Note..................................................................................3
ARTICLE 3 OTHER CREDIT FACILITIES........................................................................3
   3.1   Letters of Credit...............................................................................3
   3.2   Conversion of Revolving Loans...................................................................4
ARTICLE 4 TYPES OF LOANS, DISBURSEMENTS, INTEREST, PAYMENTS..............................................4
   4.1   Types of Loans..................................................................................4
   4.2   Loan Disbursement Procedures....................................................................4
   4.3   Interest........................................................................................5
   4.4   Optional and Mandatory Payments.................................................................6
   4.5   Payments........................................................................................6
   4.6   Direct Debit and Pre-Billing....................................................................7
   4.7   Minimum Amounts.................................................................................8
   4.8   Certain Requests and Notices....................................................................8
ARTICLE 5 GUARANTIES, FEES, COLLATERAL...................................................................9
   5.1   Guaranties......................................................................................9
   5.2   Unused Commitment and Letter of Credit Fees.....................................................9
   5.3   Additional LIBOR and EURIBOR Rate Loan Costs...................................................10
   5.4   Collateral.....................................................................................11
ARTICLE 6 CONDITIONS TO MAKING LOANS....................................................................11
   6.1   Delivery of Loan Documents.....................................................................11
   6.2   Proper Proceedings; Charter Documents..........................................................11
   6.3   Legal Opinions.................................................................................11
   6.4   No Adverse Changes; Representations; No Default................................................11
   6.5   No Material Impairment.........................................................................12
   6.6   Required Consents and Approvals................................................................12
   6.7   Legality.......................................................................................12
   6.8   General........................................................................................12
ARTICLE 7 REPRESENTATIONS AND WARRANTIES................................................................12
   7.1   Corporate Existence and Standing...............................................................13
   7.2   Authorization and Validity.....................................................................13
   7.3   No Conflict; Governmental Consent..............................................................13
   7.4   Compliance with Laws; Environmental and Safety Matters.........................................13
   7.5   Financial Statements...........................................................................14
   7.6   Ownership of Properties; Collateral Liens......................................................14
   7.7   Subsidiaries...................................................................................14

                                       i
<PAGE>

   7.8   Litigation.....................................................................................15
   7.9   Material Agreements; Labor Matters.............................................................15
   7.10     Investment Company Act; Public Utility Holding Company Act..................................15
   7.11     Taxes.......................................................................................15
   7.12     Accuracy of Information.....................................................................16
   7.13     Employee Benefit Plans......................................................................16
   7.14     No Undisclosed Dividend Restrictions........................................................16
   7.15     Absence of Default or Event of Default......................................................16
   7.16     Disclosure..................................................................................16
   7.17     Solvency....................................................................................16
   7.18     Margin Regulations..........................................................................16
   7.19     Copyrights, Patents and Other Rights........................................................16
   7.20     Year 2000 Compliance........................................................................17
ARTICLE 8 AFFIRMATIVE COVENANTS.........................................................................17
   8.1   Conduct of Business and Maintenance of  Properties.............................................17
   8.2   Insurance......................................................................................17
   8.3   Compliance with Laws and Taxes.................................................................17
   8.4   Financial Statements, Reports, etc.............................................................18
   8.5   Other Notices..................................................................................20
   8.6   Access to Properties and Inspections...........................................................20
   8.7   Use of Proceeds................................................................................20
   8.8   Year 2000 Compliance...........................................................................20
   8.9   Payment of Claims..............................................................................21
ARTICLE 9 FINANCIAL COVENANTS...........................................................................21
   9.1   Minimum Consolidated Tangible Net Worth........................................................21
   9.2   Consolidated Funded Debt/EBITDA Ratio..........................................................21
   9.3   Consolidated Fixed Charge Coverage Ratio.......................................................21
   9.4   Minimum Consolidated EBITDA....................................................................22
   9.5   Consolidated Current Ratio.....................................................................22
   9.6   Funded Debt to Tangible Capital Ratio..........................................................22
ARTICLE 10 NEGATIVE COVENANTS...........................................................................22
   10.1     Indebtedness................................................................................22
   10.2     Liens.......................................................................................22
   10.3     Sale and Lease-Back Transactions............................................................23
   10.4     Mergers, Transfers of Assets, Acquisitions..................................................23
   10.5     Transactions with Affiliates................................................................24
   10.6     Subsidiary Dividend Restrictions............................................................24
   10.7     Use of Proceeds.............................................................................24
   10.8     Loans, Advances and Investments.............................................................25
   10.9     Negative Pledge.............................................................................25
   10.10    Liquidation or Change in Business...........................................................25
ARTICLE 11 EVENTS OF DEFAULT............................................................................25
   11.1     Events of Default...........................................................................25
   11.2     Rights and Remedies.........................................................................27
ARTICLE 12 MISCELLANEOUS................................................................................28
   12.1     Notices.....................................................................................28

                                       ii
<PAGE>

   12.2     Survival of Agreement.......................................................................28
   12.3     Binding Effect..............................................................................28
   12.4     Successors and Assigns; Participations......................................................29
   12.5     Expenses; Indemnity.........................................................................29
   12.6     Right of Setoff.............................................................................30
   12.7     Applicable Law..............................................................................30
   12.8     Waivers; Amendment..........................................................................30
   12.9     Interest Rate Limitation....................................................................30
   12.10    Entire Agreement............................................................................31
   12.11    Severability................................................................................31
   12.12    Counterparts................................................................................31
   12.13    Headings....................................................................................31
   12.14    Jurisdiction; Consent to Service of Process.................................................31
   12.15    Terms Generally.............................................................................32
   12.16    ARBITRATION.................................................................................32
</TABLE>



                                      iii
<PAGE>


LIST OF EXHIBITS:
         Exhibit 1-       Definitions
         Exhibit 2.2 -    Revolving Note
         Exhibit 4.8-A -  Notice of Borrowing, Prepayment or Termination or
                             Reduction of Commitment
         Exhibit 4.8-B -  Notice of Continuation or Conversion
         Exhibit 5.1 -    Loan Guaranty
         Exhibit 8.4 -    Compliance Certificate

LIST OF SCHEDULES:
         Schedule 7.4  -  Environmental Matters
         Schedule 7.7  -  Subsidiaries of Borrower
         Schedule 7.9  -  Material Contracts
         Schedule 10.1 -  Existing Indebtedness
         Schedule 10.2 -  Existing Liens
         Schedule 10.8 -  Loans, Advances and Investments




                                       iv
<PAGE>

                      AMENDED AND RESTATED CREDIT AGREEMENT

         THIS AMENDED AND RESTATED CREDIT AGREEMENT is made as of the 7th day of
May, 2001, by and among BHA GROUP HOLDINGS, INC., a Delaware corporation
("Borrower"), BHA GROUP, INC., a Delaware corporation, and BHA TECHNOLOGIES,
INC., a Delaware corporation (each a "GUARANTOR" and together "GUARANTORS"), and
BANK OF AMERICA, N.A., a national banking association (the "BANK").

         WHEREAS, Borrower has requested the Bank to amend the existing Credit
Agreement among Borrower, Guarantors and the Bank dated September 30, 1999 (the
"EXISTING CREDIT AGREEMENT"), to permit borrowings in U.S. dollars or certain
alternate currencies, to continue the unsecured revolving line of credit
thereunder in the amount of $18,000,000, with a sublimit of $3,000,000 for
borrowings denominated in such alternate currencies, and to continue to make
available, on the request of Borrower, letters of credit to be applied against
the amount available under the revolving line of credit; and

         WHEREAS, the Bank has agreed to amend the Existing Credit Agreement and
to continue to make such credit and loans available to Borrower upon the terms
and conditions set forth herein;

         NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, the parties agree as follows:


                                    ARTICLE 1
                     DEFINITIONS AND INTERPRETIVE PROVISIONS

         1.1 DEFINITIONS. Certain terms used in this Agreement are defined
herein. Certain other terms are defined in Exhibit 1 attached hereto and
incorporated herein by this reference.

         1.2 INTERPRETIVE PROVISIONS. In addition to the interpretive provisions
set forth in Sections 1.3, 1.4 and 1.5, other interpretive provisions are in
Section 12.15 below and in other Articles of this Agreement.

         1.3 EXCHANGE RATES; ALTERNATIVE CURRENCY EQUIVALENTS. On each
Calculation Date, the Bank shall determine the exchange rate as of such
Calculation Date to be used for calculating relevant Dollar equivalent and
Alternative Currency equivalent amounts. The exchange rates so determined shall
become effective on such Calculation Date and shall for all purposes of this
Agreement (other than any provision expressly requiring the use of a current
exchange rate) be the exchange rates employed in converting any amounts between
the applicable currencies. Wherever in this Agreement in connection with a Loan,
a conversion or continuation of a Loan or the issuance of a Letter of Credit, an
amount (such as a required minimum or multiple amount) is expressed in Dollars
but such Loan or Letter of Credit is denominated in an Alternative

<PAGE>

Currency, such amount shall be the relevant Alternative Currency Equivalent of
such Dollar amount (rounded to the nearest 1,000 units of such Alternative
Currency), as determined by the Bank.

         1.4 REDENOMINATION OF CERTAIN ALTERNATIVE CURRENCIES. Each obligation
of Borrower to make a payment denominated in the national currency unit of any
member state of the European Union that adopts the Euro as its lawful currency
after the date hereof shall be redenominated into Euro at the time of such
adoption (in accordance with the EMU Legislation). If, in relation to the
currency of any such member state, the basis of accrual of interest expressed in
this Agreement in respect of that currency shall be inconsistent with any
convention or practice in the London interbank market for the basis of accrual
of interest in respect of the Euro, such expressed basis shall be replaced by
such convention or practice with effect from the date on which such member state
adopts the Euro as its lawful currency; provided that if any Loan in the
currency of such member state is outstanding immediately prior to such date,
such replacement shall take effect, with respect to such Loan, at the end of the
then current Interest Period. Each provision of this Agreement shall be subject
to such reasonable changes of construction as the Bank may from time to time
specify to be appropriate to reflect the adoption of the Euro by any member
state of the European Union and any relevant market conventions or practices
relating to the Euro.

                                    ARTICLE 2
                            REVOLVING LINE OF CREDIT

         2.1      AGREEMENT TO LEND.

                  (a) The Bank agrees, on the terms and subject to the
conditions set forth in this Agreement, to make loans (each a "REVOLVING LOAN")
to Borrower in Dollars or in one or more Alternative Currencies from time to
time before the Revolving Credit Termination Date, in such amounts as Borrower
shall request as provided in Section 4.8 hereof and to treat each draw under any
Letter of Credit as a Revolving Loan as provided in Section 3.1 below; provided,
however, that the Bank shall have no obligation to make a requested Revolving
Loan if, after the making of such Revolving Loan, (i) the aggregate unpaid
principal balance of all Revolving Loans, plus the aggregate undrawn amount
under all outstanding Letters of Credit would exceed the Revolving Credit
Commitment; (ii) the aggregate unpaid principal balance of all Revolving Loans
denominated in Alternative Currencies plus the aggregate undrawn amount under
all outstanding Letters of Credit denominated in Alternative Currencies would
exceed the Alternative Currency Sublimit; (iii) a Default or Event of Default
has occurred and is continuing; or (iv) the Loan requested is a LIBOR Rate Loan
or a EURIBOR Rate Loan and the requested LIBOR Rate or EURIBOR Rate election
would cause more than five (5) LIBOR Rate Loans or five (5) EURIBOR Rate Loans
to be outstanding. Borrower may terminate or reduce the unused portion of the
Revolving Credit Commitment at any time by giving notice to the Bank as provided
in Section 4.8 below, provided that any partial reduction shall be in an amount
of at least $1,000,000. Revolving Loans shall be used to pay existing
indebtedness to the Bank, for working



                                       2


<PAGE>


capital, for Acquisitions up to an aggregate of $3,000,000 during the term of
this Agreement, to purchase or redeem its own stock and for other corporate
purposes.

                  (b) If the aggregate principal indebtedness of Borrower under
the Revolving Note (as defined below), plus the aggregate undrawn amount under
all outstanding Letters of Credit, at any time exceeds the Revolving Credit
Commitment, Borrower shall immediately, without demand or notice, pay principal
under the Revolving Note so that the aggregate principal amount outstanding
thereunder, plus the aggregate undrawn amount under all outstanding Letters of
Credit, does not exceed the Revolving Credit Commitment.

         2.2 REVOLVING NOTE. The Revolving Loans shall be evidenced by and
repaid in accordance with a Revolving Credit Note executed by Borrower, in the
form of Exhibit 2.2 hereto, dated as of the date hereof, and payable to the
order of the Bank. Such note and any and all amendments, extensions,
modifications, renewals, reaffirmations, restatements, replacements and
substitutions thereof and therefor are herein referred to as the "REVOLVING
NOTE." Interest shall accrue on the unpaid principal balance of the Revolving
Note outstanding from time to time at a rate or rates determined as provided in
Section 4.3 below. The Revolving Note shall be paid in full on the Revolving
Credit Termination Date.


                                    ARTICLE 3
                             OTHER CREDIT FACILITIES

         3.1 LETTERS OF CREDIT. From time to time after the date hereof until
the Revolving Credit Termination Date, Borrower may apply to the Bank to issue,
in Dollars or in an Alternative Currency, or extend the expiration date of one
or more standby letters of credit for the account of Borrower (all such letters
of credit, together with all letters of credit issued by the Bank for the
account of Borrower outstanding on the date of this Agreement and all renewals
and extensions of any thereof, "LETTERS OF CREDIT"), each of which:

                  (a) shall be in a stated amount which, together with the
aggregate undrawn amount then outstanding under all Letters of Credit and the
principal amount then outstanding of all Revolving Loans, does not exceed the
Revolving Credit Commitment;

                  (b) shall, if it is denominated in an Alternative Currency, be
in a stated amount which, together with the aggregate undrawn amount then
outstanding under all Letters of Credit in Alternative Currencies and the
principal amount then outstanding of all Revolving Loans denominated in
Alternative Currencies, does not exceed the Alternative Currency Sublimit;

                  (c) shall, by its terms, not exceed a term of one year and
shall expire not later than the Revolving Credit Termination Date;

                                       3
<PAGE>

                  (d) shall require payment by Borrower of fees as described in
Section 5.2 hereof; and

                  (e) shall be issued, to the extent applicable, pursuant to the
Bank's  then-current standard form of application for letters of credit.

Borrower authorizes and directs the Bank to cause the repayment of each draw
under the Letters of Credit to be made immediately by charging such repayment
against the Revolving Note as a Prime Rate Loan; any draw under a Letter of
Credit denominated in an Alternative Currency shall be charged against the
Revolving Note as a Loan denominated in Dollars, with the Dollar equivalent
determined at the exchange rate in effect on the date of such draw.

         3.2 CONVERSION OF REVOLVING LOANS. Borrower may convert all or any
portion of the outstanding Revolving Loans to a loan with a fixed rate of
interest pursuant to an interest rate swap agreement or other similar agreement
that has terms and conditions acceptable to the Bank. The effective fixed rate
offered by the Bank will be based upon market conditions on the date of the
closing of any swap. Borrower may, at any time, prepay all or any portion of
such a converted loan, without premium or penalty; if Borrower prepays any such
loan, Borrower shall pay all fees and expenses associated with unwinding any
interest rate swap.


                                    ARTICLE 4
                TYPES OF LOANS; DISBURSEMENTS; INTEREST; PAYMENTS

         4.1 TYPES OF LOANS. All loans denominated in an Alternative Currency
shall be EURIBOR Rate Loans. Loans denominated in Dollars may, subject to the
terms and conditions of this Agreement, be Prime Rate Loans or LIBOR Rate Loans
(each being referred to as a "type" of Loan) as specified in the applicable
request for borrowing referred to in Section 4.8 hereof. Borrower may continue
Loans of one type as Loans of the same type or convert Dollar-denominated Loans
of one type into Loans of the other type, at any time or from time to time,
provided that if any LIBOR Rate Loan is converted on any day other than the last
day of the Interest Period for such Loan, Borrower shall pay all applicable fees
and amounts described in Section 5.3 below.

         4.2      LOAN DISBURSEMENT PROCEDURES.

                  (a) Loans shall be disbursed by the Bank upon request by
Borrower from time to time, in such amounts and in Dollars or an Alternative
Currency as is requested as provided in Section 4.8 below or in Section 3.1
above, subject to the limitations on the Bank's obligations to make Loans as set
forth in Section 2.1 and other provisions hereof. Subject to the terms of this
Agreement, Borrower may borrow, repay and reborrow Revolving Loans at any time
prior to the Revolving Credit Termination Date.

                                       4
<PAGE>

         Each request for a Loan shall be delivered to the Bank in writing or by
telex or facsimile transmission in the manner provided in Section 12.1 hereof,
or as otherwise agreed by the Bank, not later than 1:00 p.m., Kansas City,
Missouri time, on the date described in Section 4.8 below, which date shall be a
Business Day and shall be specified in the request (a "Disbursement Date"). The
Bank may rely and act upon any such request which is received from a person
believed by the Bank in good faith to be authorized to make such request on
behalf of Borrower. The Bank shall record in its records all Loans made by the
Bank to Borrower pursuant to this Agreement and all payments made on the Loans.

         4.3      INTEREST.

                  (a) Borrower shall pay to the Bank interest on the unpaid
principal amount of each Revolving Loan for the period commencing on and
including the date of such Loan to but excluding the date such Loan is paid in
full, at the following rates per annum:

         (i) during any period while such Loan is a Prime Rate Loan, the Prime
Rate (as in effect from time to time) less 1%; and

         (ii) during any period while such Loan is a LIBOR Rate Loan or an
EURIBOR Rate Loan, for each Interest Period relating thereto, the LIBOR Rate or
EURIBOR Rate for such Interest Period plus the Applicable Margin (as defined
below) in effect on the Disbursement Date, the date of conversion (with respect
to a LIBOR Rate Loan) or the date of continuation, as applicable and as adjusted
as provided in this Agreement. The Applicable Margin will be calculated and
adjusted, as shown below, on the first day of the month following the receipt by
the Bank of each quarterly Compliance Certificate; any change in the Applicable
Margin shall be effective with respect to Interest Periods beginning on or after
each such date. The interest rate with respect to each outstanding LIBOR Rate
Loan or EURIBOR Rate Loan shall not change during any Interest Period. The
"APPLICABLE MARGIN" will be as follows:

<TABLE>
<CAPTION>
         ---------------------------------------------- --------------------------------------
                         CONSOLIDATED
                  FUNDED DEBT / EBITDA RATIO                      APPLICABLE MARGIN
         ---------------------------------------------- --------------------------------------
         <S>                                                 <C>
                          >=2.75:1.00                                   1.35%
         ---------------------------------------------- --------------------------------------
                  >=2.01:1.00 and <=2.74:1.00                           1.20%
         ---------------------------------------------- --------------------------------------
                  >=1.25:1.00 and <=2.00:1.00                           1.05%
         ---------------------------------------------- --------------------------------------
                  >=.75:1.00 and <=1.24:1.00                            .95%
         ---------------------------------------------- --------------------------------------
                          <.75 :1.00                                    .85%
         ---------------------------------------------- --------------------------------------
</TABLE>

                  (b) Notwithstanding the provisions of Section 4.3 (a) above,
Borrower shall pay interest at the Default Rate on any principal of any Loan and
on any interest or other amount payable by Borrower hereunder or under the Note
(i) that is not paid in full when due (whether at maturity, by acceleration or
otherwise), for the period commencing


                                       5
<PAGE>

on and including the due date thereof until the same is paid in full and (ii)
upon and during the continuance of any failure to comply with or violation of
any of the financial covenants set forth in Article 10 of this Agreement as
shown on and as of the last day of a fiscal quarter as reflected on any
Compliance Certificate.

                  (c) Accrued interest on each Loan shall be payable (i) in the
case of a Prime Rate Loan, on the last Business Day of each calendar quarter,
and (ii) in the case of a LIBOR Rate Loan or EURIBOR Rate Loan, on the last day
of each Interest Period therefor; provided that interest payable at the Default
Rate shall be payable, to the extent applicable, from time to time on demand of
the Bank.

                  (d) The Bank shall, as part of its interest statements, notify
Borrower of any change in the Prime Rate and shall, on the request of Borrower
at any time, notify Borrower of the LIBOR Rate and EURIBOR Rate then in effect.

         4.4 OPTIONAL AND MANDATORY PAYMENTS. Borrower shall have the right to
prepay the Loans in whole or in part at any time without premium or penalty,
subject to giving the Bank prior notice in accordance with the provisions of
Section 4.8 hereof, provided that (i) each such partial prepayment shall be in
the aggregate principal amount of not less than $100,000 with respect to Prime
Rate Loans and $500,000 with respect to LIBOR Rate Loans, and (ii) if any
prepayment of a LIBOR Rate Loan is made on any day other than the last day of
the Interest Period therefor, it may be prepaid only upon three (3) Business
Days prior notice to the Bank and Borrower shall pay to the Bank any applicable
fees and amounts described in Section 5.3(a) below. Amounts prepaid in respect
of Loans under this Section 4.4 may be reborrowed subject to the terms and
conditions hereof. Borrower shall make mandatory principal payments on the Loans
as provided in Section 2.1(b) above.

         4.5 PAYMENTS. Except as otherwise provided herein and subject to
Section 4.8 below, all payments of principal, interest, Fees, taxes, charges,
expenses and other items payable by Borrower hereunder and under the Note shall
be made in U.S. dollars or, with respect to principal and interest on Loans
denominated in an Alternative Currency, in such Alternative Currency (except
with respect to payment made by direct debit as provided in Section 4.6 below)
and shall be credited on the date of receipt by the Bank if received by the Bank
at its principal office in Kansas City, Missouri, in immediately available
funds, prior to 1:00 p.m., Kansas City, Missouri time, on a Business Day.
Payments made in funds which are not immediately available shall be credited
only when the funds are collected by the Bank, and payments received (whether
from Borrower in immediately available funds or through the collection of funds
which were not immediately available at the time payment was tendered by
Borrower) after 1:00 p.m. will be credited on the next Business Day. The Bank
reserves the right to apply all payments received by it from Borrower and
designated or authorized to be applied to a Note first to any Fees and other
charges then due to the Bank, then to accrued interest on such Note and then to
reduction of the principal balance of such Note, or such other order as the Bank
may determine in its sole discretion. The Bank shall also record in its records,
in accordance with customary accounting practice, all interest, Fees, taxes,



                                       6



<PAGE>



charges, expenses and other items properly chargeable to Borrower with respect
to the Loans, all payments received by the Bank for application to the
Obligations, and all other appropriate debits and credits. The Bank's records
shall constitute prima facie evidence of the amount of Obligations outstanding
from time to time.

         4.6      DIRECT DEBIT AND PRE-BILLING.

         (a) Borrower agrees that Bank will debit deposit account number
020100039303 or such other of Borrower's accounts with the Bank as designated in
writing by either Borrower (the "DESIGNATED ACCOUNT") on the date each payment
of principal, interest and all other Obligations, including the fees described
in Section 5.2 and fees, amounts and costs described in Section 5.3, become due
(the "DUE DATE"). Payments by direct debit with respect to Loans denominated in
an Alternative Currency will be converted to Dollars at the exchange rate in
effect at approximately 9:00 a.m. Central Time on the date of the debit. If the
Due Date is not a Business Day, the Designated Account will be debited on the
next Business Day.

         (b) Approximately 10 days prior to each Due Date, Bank will mail to
Borrower a statement of the amounts that will be due on that Due Date (the
"BILLED AMOUNT"). The calculation will be made on the assumption that no new
extensions of credit or payments will be made between the date of the billing
statement and the Due Date and that there will be no changes in the applicable
interest rate.

         (c) Bank will debit the Designated Account for the Billed Amount,
regardless of the actual amount due on that date (the "ACCRUED AMOUNT"). If the
Billed Amount debited to the Designated Account differs from the Accrued Amount,
the discrepancy will be treated as follows:

                  (i) If the Billed Amount is less than the Accrued Amount, the
Billed Amount for the following Due Date will be increased by the amount of the
discrepancy. Borrower will not be in default and an Event of Default will not
occur by reason of any such discrepancy.

                  (ii) If the Billed Amount is more than the Accrued Amount, the
Billed Amount for the following Due Date will be decreased by the amount of the
discrepancy.

         Regardless of any such discrepancy, interest will continue to accrue
based on the actual amount of principal outstanding without compounding. Bank
will not pay Borrower interest on any overpayment.

         (d) Borrower will maintain sufficient funds in the Designated Account
to cover each debit. If there are insufficient funds in the Designated Account
on the date Bank enters any debit authorized by this Agreement, the debit will
be reversed.

         (e) Borrower may terminate this direct debit arrangement at any time
by sending written notice to Bank.

                                       7
<PAGE>

         4.7 MINIMUM AMOUNTS. Each borrowing or conversion of Prime Rate Loans
shall be in an amount of at least $100,000 and each borrowing, conversion or
continuation of LIBOR Rate Loans and each borrowing or continuation of EURIBOR
Rate Loan shall be in an amount of or equivalent to $500,000 or a multiple of
$100,000 in excess thereof.

         4.8 CERTAIN REQUESTS AND NOTICES. Borrower will request borrowings and
give notice to the Bank of all terminations or reductions of Commitments,
conversions, continuations and prepayments of Loans and the duration of Interest
Periods, such requests and notices to be substantially in the form of Exhibits
4.8-A and 4.8-B hereto. Each such notice shall be irrevocable and shall be
effective only if received by the Bank not later than 1:00 p.m. Kansas City time
(i) on the Business Day prior to the effective date of the requested termination
or reduction of a Commitment, (ii) on the same date if it is a notice of a
borrowing or prepayment of a Prime Rate Loan (except that if such date is not a
Business Date, then on the next Business Day), or (iii) three (3) Business Days
prior to the requested effective date for a borrowing or prepayment of or
continuation as a LIBOR or EURIBOR Rate Loan or a conversion of a LIBOR Rate
Loan or any selection of Interest Period for a LIBOR or EURIBOR Rate Loan.

         Except as otherwise specifically provided in this Agreement, a LIBOR
Rate Loan may be converted to a Prime Rate Loan only on the last day of the
Interest Period for such Loan. A LIBOR Rate Loan or an EURIBOR Rate Loan may be
continued only on the last day of the Interest Period for such Loan. An EURIBOR
Rate Loan may not be converted.

         If Borrower fails to specify a currency for a borrowing, then the Loan
so requested shall be made in Dollars. If Borrower fails to specify a type
(whether Prime Rate or LIBOR Rate) of Dollar-denominated Loan in a request for a
borrowing or if Borrower fails to give a timely notice requesting a conversion
or continuation of a Dollar-denominated Loan, then the applicable Loan shall be
made or continued as, or converted to, a Prime Rate Loan. Any automatic
conversion to a Prime Rate Loan shall be effective as of the last day of the
Interest Period then in effect with respect to the applicable LIBOR Rate Loan.
In the case of a failure to timely request a continuation of a Loan denominated
in an Alternative Currency, such Loan shall be continued as a EURIBOR Rate Loan
in its original currency with an Interest Period of one month. If Borrower
requests a borrowing of or continuation of a LIBOR or EURIBOR Rate Loan or a
conversion of a Prime Rate Loan to a LIBOR Rate Loan but fails to specify an
Interest Period, Borrower will be deemed to have specified an Interest Period of
one month. No Loan may be converted into or continued as a Loan denominated in a
different currency but instead must be prepaid in the original currency of such
Loan and reborrowed in the other currency.

         For purposes of calculating the number of Business Days, the date the
notice is received shall be included if received not later than 1:00 p.m. Kansas
City time and excluded if received after 1:00 p.m. Kansas City time.

                                       8
<PAGE>

                                    ARTICLE 5
                          GUARANTIES; FEES; COLLATERAL

         5.1 GUARANTIES. Each of the Guarantors is delivering to the Bank, on
the date of this Agreement, a confirmation of its Guaranty Agreement. If
Borrower or any Subsidiary acquires or creates any subsidiary after the date of
this Agreement or if the Bank so requests with respect to any Subsidiary,
Borrower shall cause each such newly acquired or created Subsidiary and each
such other Subsidiary to become a Guarantor by causing it to deliver to the Bank
(i) a Guaranty Agreement executed by the Subsidiary in substantially the form
attached hereto as Exhibit 5.1 with such additional matters included therein as
may be required by the Bank (whether delivered at the Closing or thereafter,
each, a "LOAN GUARANTY"), (ii) if requested by Bank, an opinion of such
Subsidiary's counsel, satisfactory in form and substance to the Bank, as to the
enforceability of such Loan Guaranty and other matters required by the Bank;
such opinion shall be substantially the same as the opinion delivered with
respect to the initial Guarantors, with such additional matters included therein
as may be required by the Bank and shall include, if requested by the Bank, the
opinion of counsel from the Subsidiary's jurisdictions of organization and
operation, and (iii) copies of such Subsidiary's charter documents, certified by
the appropriate public official, and of its bylaws, certified by its secretary.

         5.2 UNUSED COMMITMENT AND LETTER OF CREDIT FEES. Borrower agrees to pay
a quarterly unused commitment fee equal to .25% of the Revolving Credit
Commitment less (i) the daily average outstanding balance of all Loans
denominated in Dollars, (ii) the aggregate undrawn amounts of all outstanding
Letters of Credit denominated in Dollars as of the Calculation Date, (iii) the
outstanding balance, in Dollars, as of the Calculation Date of all Loans
denominated in an Alternative Currency, using the exchange rate in effect on
such date, and (iv) the aggregate undrawn amount, in Dollars, of all outstanding
Letters of Credit denominated in an Alternative Currency as of the Calculation
Date, using the exchange rate in effect on such date. Borrower shall pay the
unused Commitment fees with respect to each quarter within 15 days after the end
of such quarter.

         Borrower agrees to pay an initial issuance fee on the date that each
standby Letter of Credit is issued in an amount equal to .125% of the amount of
such Letter of Credit and to pay the Bank's then standard fee for any renewals
and extensions of any Letter of Credit. Borrower also agrees to pay a fee in an
amount equal to the Applicable Margin rate per annum times the undrawn amount of
all outstanding Letters of Credit; such fee will be calculated and paid on last
business day of each fiscal quarter and shall be subject to appropriate
adjustment after the Bank's receipt of Borrower's Compliance Certificate
respecting such quarter.

         All fees shall be calculated on a 360-day year basis, if applicable.

                                       9
<PAGE>

         5.3      ADDITIONAL LIBOR AND EURIBOR RATE LOAN COSTS.

                  (a) Borrower shall pay to the Bank from time to time, upon
request of the Bank, (i) such amounts as the Bank may determine to be necessary
to compensate it for any Additional LIBOR and EURIBOR Rate Loan Costs respecting
Regulatory Changes and (ii) an administrative fee of $300 plus such amounts as
the Bank may determine to be necessary to compensate it for any loss, cost or
expense which the Bank incurs (including, without limitation, any loss, cost or
expense incurred by reason of the liquidation or re-employment of deposits, but
excluding loss of anticipated profits) that is attributable to (A) any payment,
prepayment or conversion of a LIBOR Rate Loan or EURIBOR Rate Loan made by
either Borrower for any reason on a date other than the last day of an Interest
Period for such Loan or (B) any failure by either Borrower for any reason
(including, without limitation, the failure of any condition specified in
Article 6 hereof to be satisfied) to borrow or continue or convert a LIBOR or
EURIBOR Rate Loan or convert a LIBOR Rate Loan on the date therefor specified in
the request for borrowing or notice given pursuant to Section 4.8 hereof. Such
compensation may include an amount equal to the excess, if any, of (i) the
amount of interest which would have accrued on the amount so prepaid, or not so
borrowed, converted or continued, for the period from the date of such
prepayment or of such failure to borrow, convert or continue to the last day of
the applicable Interest Period (or, in the case of a failure to borrow, convert
or continue, the Interest Period that would have commenced on the date of such
failure) in each case at the applicable rate of interest for such Loans provided
for herein (excluding, however, the Applicable Margin included therein, if any)
over (ii) the amount of interest (as reasonably determined by the Bank) which
would have accrued to the Bank on such amount by placing such amount on deposit
for a comparable period with leading banks in the interbank LIBOR market. The
covenants of Borrower set forth in this Section 5.3 shall survive the
termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder. The Bank will notify Borrower of any event which will entitle
the Bank to compensation pursuant to this Section 5.3 as promptly as practicable
after the Bank determines to require such compensation and will furnish Borrower
with a certificate setting forth in reasonable detail the basis and amount of
such compensation.

                  (b) Determinations by the Bank of the effect of any Regulatory
Change on its rate of return or cost of maintaining the LIBOR or EURIBOR Rate
Loans, on its obligation to make LIBOR or EURIBOR Rate Loans or on amounts
receivable by it in respect of the LIBOR or EURIBOR Rate Loans and
determinations of the amounts required to compensate such Bank under this
Section 5.3 shall be conclusive, provided that such determinations are made on a
reasonable basis and are set forth in reasonable detail in the certificates
referred to in Section 5.3(a) above.

                  (c) Anything herein to the contrary notwithstanding, if it
becomes unlawful for the Bank to honor its obligation to make or maintain LIBOR
or EURIBOR Rate Loans hereunder or if, on or prior to the determination of any
LIBOR Rate or EURIBOR Rate for any Interest Period, the Bank determines (which
determination shall be conclusive) that quotations of interest rates for the
relevant deposits referred to in the


                                       10

<PAGE>

definition of "LIBOR Rate" or "EURIBOR Rate" in Exhibit 1 hereto are not being
provided in the relevant amounts or for the relevant maturities for purposes of
determining rates of interest for such Loans, then the Bank shall give Borrower
prompt notice thereof, and, so long as such condition remains in effect, the
Bank shall be under no obligation to make or continue such Loans or to convert
Prime Rate Loans into LIBOR Rate Loans, and Borrower shall, on the last day(s)
of the then current Interest Period(s) for the outstanding LIBOR or EURIBOR Rate
Loans, either prepay such Loans or, with respect to LIBOR Rate Loans, convert
them into Prime Rate Loans.

         5.4 COLLATERAL. The Note will be unsecured. All assets of Borrower,
Guarantors and other Subsidiaries will be subject to the negative pledge set
forth in Section 10.9 below.


                                    ARTICLE 6
                           CONDITIONS TO MAKING LOANS

         The Bank's entering into this Credit Agreement is subject to the
satisfaction of the conditions set forth in this Article 6 and the Bank's
obligation hereunder to, after the date hereof, make any additional Loans
hereunder, extend any additional credit or enter into any additional
transactions referred to in Article 3 shall be subject to the satisfaction of
the conditions set forth in Sections 6.4, 6.5, 6.6, 6.7 and 6.8, as of each
Disbursement Date and as of each date a Letter of Credit is issued, renewed or
extended:

         6.1 DELIVERY OF LOAN DOCUMENTS. Borrower and Guarantors shall have
executed, as applicable, this Agreement, the Note, a confirmation of the
Guaranties by executing the confirmation on the signature pages hereof, any UCC
financing statements relating thereto requested by the Bank and any other Loan
Documents, all of which shall be in form and substance satisfactory to the Bank
and its counsel, and delivered them to the Bank.

         6.2 PROPER PROCEEDINGS; CHARTER DOCUMENTS. Borrower and each Guarantor
shall have taken all corporate proceedings necessary to authorize the Loan
Documents and the transactions contemplated hereby. Borrower and Guarantors
shall have delivered to the Bank certificates, dated the date hereof and signed
by their respective Secretaries, satisfactory to the Bank, respecting such
proceedings and the incumbency of the officers executing the Loan Documents.
Borrower shall have and each Guarantor shall have delivered to the Bank copies
of any amendment to its charter documents or bylaws adopted or made after
September 1, 1999, certified by the appropriate officer.

         6.3 LEGAL OPINIONS. The Bank shall have received opinions from counsel
to Borrower and Guarantors, dated as of the date hereof, satisfactory to the
Bank.

         6.4 NO ADVERSE CHANGES; REPRESENTATIONS; NO DEFAULT. Since the date
hereof, there shall have been no material adverse change in the business,
operations,



                                       11



<PAGE>


financial condition or prospects of Borrower or any Subsidiary. The
representations and warranties contained in Article 7 hereof with respect to
Borrower and the Subsidiaries (including entities becoming Subsidiaries as a
result of an Acquisition) shall be true and correct as though made on and as of
the date hereof or such Disbursement Date or such date of issuance, renewal or
extension of a Letter of Credit, as the case may be, except that the
representations and warranties set forth in the first sentence of Section
7.4(b), Section 7.7 and the second sentence of Section 7.9 (which relate to
disclosure schedules 7.4, 7.7 and 7.9) are not required by this Section 6.4 to
be made as of any Disbursement Date or date of issuance, renewal or extension of
a Letter of Credit. No Default or Event of Default shall have occurred and be
continuing. The Bank shall have received certifications of Borrower in form
satisfactory to the Bank and dated the date of the request for borrowing or for
issuing, renewing or extending a Letter of Credit, as applicable, certifying as
to each matter set forth in this Section 6.4, which certifications may be
included in the notice of borrowing described in Section 4.8 hereof.

         6.5 NO MATERIAL IMPAIRMENT. The Bank shall have determined that the
prospect of payment of the Loans has not been materially impaired.

         6.6 REQUIRED CONSENTS AND APPROVALS. All consents, approvals and
authorizations of any Governmental Authority or any other Person with respect to
the execution and performance of the Loan Documents, the consummation of the
transactions contemplated hereby or the making of the Loans hereunder shall have
been obtained and shall be in full force and effect.

         6.7 LEGALITY. The making of any Loan shall not subject the Bank to any
penalty or special tax, shall not be prohibited by any law or governmental order
or regulations applicable to the Bank or to Borrower and shall not violate any
voluntary credit restraint program of the executive branch of the government of
the United States or any other Governmental Authority, and all necessary
consents, approvals and authorizations of any Governmental Authority to or of
such Loan shall have been obtained.

         6.8 GENERAL. All instruments and legal and corporate proceedings in
connection with the transactions contemplated by this Agreement shall be
satisfactory in form and substance to the Bank and its counsel, and the Bank
shall have received copies of all other documents, including records of
corporate proceedings and opinions of counsel, which the Bank may have requested
in connection therewith, such documents where appropriate to be certified by
proper corporate or governmental authorities, and such other conditions shall
have been fulfilled as may have been requested by the Bank.


                                    ARTICLE 7
                         REPRESENTATIONS AND WARRANTIES

         Borrower, with respect to itself and with respect to each of the
Subsidiaries, and each of Guarantors, with respect to itself, represent and
warrant to the Bank that:

                                       12

<PAGE>

         7.1 CORPORATE EXISTENCE AND STANDING. Borrower is and each Subsidiary
is a corporation duly incorporated, validly existing and in good standing under
the laws of its jurisdiction of incorporation and has all requisite authority to
own its property and to carry on its business in each jurisdiction where the
failure to so qualify would have a material adverse effect on its business,
properties, assets, operations or condition (financial or otherwise).

         7.2 AUTHORIZATION AND VALIDITY. Borrower has and each Guarantor has the
corporate power and authority and legal right to execute and deliver the Loan
Documents to which it is a party and to perform its obligations thereunder. Such
execution and delivery have been duly authorized by proper proceedings, and the
Loan Documents constitute the legal, valid and binding obligations of Borrower
and the Guarantors, enforceable against them in accordance with their respective
terms.

         7.3 NO CONFLICT; GOVERNMENTAL CONSENT. The execution, delivery and
performance of the Loan Documents will not violate any law, rule, regulation,
order, writ, judgment, injunction, decree or award binding on Borrower or any
Subsidiaries, any provision of their respective articles or certificate of
incorporation, by-laws or other charter document, or the provisions of any
indenture, instrument or other written or oral agreement to which Borrower or
any Subsidiary is a party or is subject or by which Borrower or any Subsidiary
or any of their property is bound, or conflict therewith or constitute a default
thereunder, or result in the creation or imposition of any Lien in, of or on any
of their property pursuant to the terms of any such indenture, instrument or
agreement. No order, consent, approval, license, authorization or validation of,
or filing, recording or registration with, or exemption by, any Governmental
Authority is required to authorize or is required in connection with the
execution, delivery and performance of or the enforceability of any of the Loan
Documents.

         7.4      COMPLIANCE WITH LAWS; ENVIRONMENTAL AND SAFETY MATTERS.

                  (a) Borrower has and each Subsidiary has complied with all
applicable statutes, rules, regulations, orders and restrictions of any domestic
or foreign government or Governmental Authority having jurisdiction over the
conduct of its businesses or the ownership of its respective properties except
to the extent that such non-compliance will not have a material adverse effect
on the financial condition or business operations of Borrower, on a consolidated
or unconsolidated basis, or of either Guarantor.

                  (b) Borrower and the Subsidiaries have each, except as
disclosed in Schedule 7.4 hereto and to Borrower's and Guarantors' actual
knowledge, complied with all federal, national, state, local and other statutes,
ordinances, orders, judgments, rulings and regulations relating to environmental
pollution, environmental regulation or control, or employee health or safety,
except to the extent that such non-compliance will not have a material adverse
effect on their respective financial conditions or business operations; they
have not received any written notice of any failure so to comply except as
disclosed in Schedule 7.4 hereto; and their facilities do not treat, store or
dispose of any hazardous





                                       13



<PAGE>



wastes, hazardous substances, hazardous materials, toxic substances,
toxic pollutants or substances ("HAZARDOUS MATERIALS") similarly denominated, as
those terms or similar terms are used in RCRA, CERCLA, the Hazardous Materials
Transportation Act, the Toxic Substances Control Act, the Clean Air Act, the
Clean Water Act, the Occupational Safety and Health Act or any other state,
local or federal applicable law, ordinance, rule or regulation relating to
environmental pollution, environmental regulation or control or employee health
and safety ("ENVIRONMENTAL LAWS") in a quantity or manner that requires a
permit, registration, or another notification or authorization from a
Governmental Authority except for the treatment, storage, or disposal of
Hazardous Materials in a quantity or manner which, if in non-compliance with
Environmental Laws, would not have a material adverse effect on their respective
financial conditions or business operations except as disclosed in Schedule 7.4
hereto. The conduct of the business and the condition of the property of
Borrower and each of the Subsidiaries do not violate any Environmental Laws or
any judicial interpretation thereof relating primarily to the environment or
Hazardous Materials. Neither Borrower nor any Subsidiary is aware of any events,
conditions or circumstances involving environmental pollution or contamination
or employee health or safety that could reasonably be expected to result in
material liability on the part of Borrower or any Subsidiary.

         7.5 FINANCIAL STATEMENTS. Borrower has heretofore furnished to the Bank
its (a) consolidated balance sheet and related consolidated statements of
earnings and cash flows as of and for the fiscal year ended September 30, 2000,
and (b) an unaudited consolidated balance sheet and unaudited statements of
earnings and cash flows as of and for quarter ended March 31, 2001. Such
financial statements fairly state the consolidated financial condition and
results of operations of Borrower and the Subsidiaries as of such dates and for
such periods. Neither Borrower nor any of the Subsidiaries had on said date any
material (on a consolidated basis) contingent liabilities, material (on a
consolidated basis) liabilities for taxes, unusual forward or long-term
commitments or unrealized or anticipated losses from any unfavorable
commitments, except as referred to or reflected or provided for in said balance
sheet or the notes thereto as at said date. Such financial statements were
prepared in accordance with GAAP applied on a consistent basis. Since March 31,
2001, no material adverse change has occurred in the business, properties,
financial condition, prospects or results of operations of Borrower (on a
consolidated or unconsolidated basis) or of either Guarantor.

         7.6 OWNERSHIP OF PROPERTIES; COLLATERAL LIENS. Borrower has and each
Subsidiary has good title, free and clear of all Liens (other than those
permitted by Section 10.2 hereof), to all of the properties and assets reflected
in its financial statements as owned by it, and its interest in all other
properties and assets in or to which it has an interest as a lessee, licensee or
otherwise is free and clear of all Liens (other than those permitted under
Section 10.2 hereof).

         7.7 SUBSIDIARIES. Neither Borrower nor any Subsidiary has any
subsidiaries except as disclosed in Schedule 7.7. Except as described in
Schedule 7.7, all of the issued and outstanding shares of capital stock or other
ownership interests of each


                                       14


<PAGE>

Subsidiary, have been duly authorized and issued to Borrower or to a Subsidiary
and are fully paid and non-assessable, free and clear of all liens,
restrictions and rights.

         7.8 LITIGATION. All litigation, arbitration, mediation, governmental
investigations, proceedings or inquiries before any Governmental Authority,
arbitrator or mediator that are pending or, to the knowledge of any of its
officers, threatened against or affecting Borrower or any Subsidiary (other than
those covered by insurance, but only to the extent so covered) are not
reasonably expected to exceed, in the aggregate, $750,000.

         7.9 MATERIAL AGREEMENTS; LABOR MATTERS. Any agreement or instrument of
either Borrower or any Subsidiary that has or is likely to have a material
effect on the assets, prospects, business, operations, financial condition,
liabilities or capitalization of Borrower or Guarantor as a separate company or
of Borrower on a consolidated basis is referred to in this Section 7.9 as a
"MATERIAL CONTRACT." As of the date hereof, all of the Material Contracts are
listed on Schedule 7.9 hereto. Neither Borrower nor any Guarantor is in default
under any Material Contract in any manner that could materially and adversely
affect its assets, prospects, business, operations, financial condition,
liabilities or capitalization of or in any manner that could jeopardize its
right to require the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in any Material Contract. There
are no strikes or walkouts relating to any labor contracts with Borrower or any
Subsidiary pending or threatened, and no labor contracts are scheduled to expire
during the term of this Agreement, and no efforts are being made by any
employees to form a union or collectively bargain with Borrower or any
Subsidiary.

         7.10 INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY ACT.
Neither Borrower nor any Subsidiary is an "investment company" or a company
"controlled" by an "investment company," within the meaning of the Investment
Company Act of 1940, as amended, or a "holding company," a "subsidiary company"
of a "holding company" or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company," within the meaning of the Public
Utility Holding Company Act of 1935, as amended.

         7.11 TAXES. Borrower has and each Subsidiary has filed all United
States federal tax returns and all other tax returns which, to Borrower's or
either Guarantor's actual knowledge, are required to be filed and paid all taxes
due pursuant to said returns or pursuant to any assessment received by it,
including without limitation all federal and state withholding taxes and all
taxes required to be paid pursuant to applicable law, except such taxes, if any,
as are being contested in good faith, by appropriate proceedings and as to which
adequate charges, accruals and reserves have been set aside. No tax Liens have
been filed, and no claims are being asserted with respect to any such taxes,
except such tax Liens and claims that will not have a material adverse effect,
individually or in the aggregate, on the assets, business, operations or
financial condition of Borrower or either Guarantor, on a consolidated or
unconsolidated basis. The charges, accruals and reserves on the books of
Borrower, on a consolidated basis, in respect of any taxes or other governmental
charges are adequate.

                                       15
<PAGE>

         7.12 ACCURACY OF INFORMATION. No information, exhibit or report
furnished by Borrower or any Subsidiary to the Bank in connection with the
negotiation of the Loan Documents contained any material misstatement of fact or
omitted to state a material fact or any fact necessary to make the statements
contained therein not misleading.

         7.13 EMPLOYEE BENEFIT PLANS. Neither Borrower nor any Subsidiary
maintains, sponsors or contributes to any Defined Benefit Pension Plan.

         7.14 NO UNDISCLOSED DIVIDEND RESTRICTIONS. Except for limitations on
the payment of dividends under applicable corporate statutes, neither Borrower
nor any Subsidiary is subject to any agreement, covenant or understanding that
limits or restricts its ability to declare or pay dividends.

         7.15 ABSENCE OF DEFAULT OR EVENT OF DEFAULT. No Default and no Event of
Default has occurred and is continuing.

         7.16 DISCLOSURE. The pro forma financial information contained in
financial statements delivered to the Bank will be based upon good faith
estimates and assumptions believed by Borrower to be reasonable at the time
made. There is no fact known to Borrower (other than matters of a general
economic nature) that has had or could reasonably be expected to have a material
adverse effect and that has not been disclosed herein or in such other
documents, certificates and statements furnished to the Bank for use in
connection with the transactions contemplated by this Agreement.

         7.17 SOLVENCY. Based upon its financial and accounting records,
Borrower has and each Subsidiary has assets of a value that exceeds the amount
of its liabilities (excluding, for purposes of this representation, all
intercompany loans from liabilities). Borrower reasonably anticipates that it
and each of its Subsidiaries will be able to meet their respective debts as they
mature. Borrower and each Subsidiary have adequate capital to conduct the
business in which it is engaged.

         7.18 MARGIN REGULATIONS. Neither the making of the Loans hereunder, nor
the use of the proceeds thereof, will violate or be inconsistent with the
provisions of Regulation G, T, U or X of the Board of Governors of the Federal
Reserve System. No part of the proceeds of any Loan will be used, whether
directly or indirectly, and whether immediately, incidentally or ultimately, to
purchase or to extend credit to others for the purpose of purchasing or carrying
Margin Stock (as defined in said Regulation U).

         7.19 COPYRIGHTS, PATENTS AND OTHER RIGHTS. Borrower possesses and each
Subsidiary possesses all licenses, patents, patent rights and patent licenses,
trademarks, trademark rights and licenses, trade names, copyrights and all other
intellectual property rights which are required or desirable to conduct its
business as presently conducted; to the best of its knowledge, such rights do
not infringe on or conflict with the rights of any other Person; and Borrower
has and each Subsidiary has, and is current and in good



                                       16


<PAGE>


standing with respect to, all governmental approvals, permits and certificates
required to conduct its businesses as heretofore conducted.

         7.20 YEAR 2000 COMPLIANCE. Borrower has (a) initiated a review and
assessment of all areas within its and each of its Subsidiaries' business and
operations (including those affected by material suppliers and vendors) that
could be adversely affected by the risk that computer applications used by
Borrower or any Subsidiary or any of such suppliers and vendors may be unable to
recognize and properly perform date-sensitive functions involving certain dates
prior to and any date after December 31, 1999 (the "YEAR 2000 PROBLEM"), (b)
developed a plan and time line for addressing the Year 2000 Problem on a timely
basis, and (c) implemented that plan in accordance with that timetable. Borrower
reasonably believes that all computer applications (including those of its
suppliers and vendors) that are material to its or any of its Subsidiaries'
business and operations will on a timely basis be able to perform properly
date-sensitive functions for all dates before and after January 1, 2000 (that
is, be "YEAR 2000 COMPLIANT"), except to the extent that a failure to do so
could not reasonably be expected to have material adverse effect on the
financial condition or operations of Borrower, on a consolidated or
unconsolidated basis, or of either Guarantor.


                                    ARTICLE 8
                              AFFIRMATIVE COVENANTS

         Unless the Bank shall otherwise consent in writing, Borrower agrees
that it will, and will cause each of the Subsidiaries to, and each Guarantor
agrees that it will:

         8.1 CONDUCT OF BUSINESS AND MAINTENANCE OF PROPERTIES. Carry on and
conduct its business in substantially the same manner and in substantially the
same fields of enterprise as it is presently conducted and do all things
necessary to remain duly incorporated, validly existing and in good standing in
its jurisdiction of organization and maintain all requisite authority to conduct
its business in each jurisdiction in which its business is conducted; maintain,
preserve, protect and keep its properties in good repair, working order and
condition; and comply in all material respects with all agreements and
instruments to which it is a party.

         8.2 INSURANCE. Maintain with financially sound and reputable insurance
companies insurance on all its property, covering such liabilities and such
risks (including business interruption risks) and in such amounts as is
consistent with sound business practice and reasonably satisfactory to the Bank
and furnish to the Bank upon request full information as to the insurance
carried.

         8.3 COMPLIANCE WITH LAWS AND TAXES. Comply with any and all laws,
statutes, rules, regulations orders, judgments, decrees and awards, a violation
of which, in any respect, may materially and adversely affect its business,
assets, operations or condition, financial or otherwise, including, without
limitation, those regarding the collection, payment and deposit of employees'
income, unemployment, and Social


                                       17

<PAGE>

Security taxes and those regarding environmental matters; pay when due all
taxes, assessments and governmental charges and levies upon it or its income,
profits or property, except those which are being contested in good faith by
appropriate proceedings and with respect to which adequate reserves have been
set aside; make a timely payment or deposit of all FICA payments and withholding
taxes required of it under applicable law; and, upon request, furnish to the
Bank evidence satisfactory to the Bank that such payments have been made.

         8.4 FINANCIAL STATEMENTS, REPORTS, ETC.  Maintain a system of
accounting established and administered in accordance with GAAP and furnish to
the Bank:

                  (A) ANNUAL AND CONSOLIDATING FINANCIAL STATEMENTS. Within 120
days after the close of its fiscal year, audited financial statements, prepared
in accordance with GAAP, including a balance sheet and statements of
stockholders' equity, income and cash flows, prepared on a consolidated basis
and setting forth in comparative form the corresponding figures for the
preceding fiscal year, all in reasonable detail, accompanied by an unqualified
opinion thereon or an unqualified opinion with explanatory language added to the
auditors' standard report of independent certified public accountants
satisfactory to the Bank, which opinion shall state that the financial
statements fairly present the financial condition and results of operations and
cash flows of Borrower and its consolidated Subsidiaries as of the end of and
for such fiscal year in conformity with GAAP, and a certificate of such
accountants stating that, in making the examination necessary for their opinion,
they obtained no knowledge, except as specifically stated, of any Default or
Event of Default continuing as of the date of such certificate; such financial
statements shall also include an unaudited balance sheet and income statement on
a consolidating basis.

                  (B) QUARTERLY REPORTING. Within 45 days after the end of each
of the first three fiscal quarters and within 120 days after the end of the last
fiscal quarter, (i) financial statements for Borrower and its Subsidiaries for
the quarter or fiscal year, as applicable, then ended, including a balance sheet
and statements of stockholders' equity, income and cash flows for such quarter
and for the period from the beginning of the respective fiscal year to the end
of such quarter, prepared on a consolidated basis and, with respect to each
balance sheet and income statement, a consolidating basis, and setting forth in
each case in comparative form the corresponding figures for the corresponding
period in the preceding fiscal year, accompanied by (ii) a certificate of the
chief financial officer or treasurer of Borrower stating that said financial
statements fairly present the financial condition and results of operations of
Borrower and its consolidated Subsidiaries in accordance with, as to the
financial statements referred to in clause (i) above, GAAP consistently applied,
as of the end of and for such period (subject to normal year-end adjustments and
to the absence of footnote disclosures) and that, to the best of such officer's
knowledge, no Default or Event of Default has occurred under this Agreement or,
if any Default or Event of Default exists, stating the nature and status
thereof.

                                       18
<PAGE>

                  (C) COMPLIANCE CERTIFICATE. Together with each set of
financial statements required under paragraphs (a) and (b) of this Section 8.4,
a compliance certificate of Borrower in substantially the form of Exhibit 8.4 (a
"COMPLIANCE CERTIFICATE"), signed on its behalf by the chief financial officer
or treasurer of Borrower, showing the calculations necessary to determine
compliance with all financial covenants contained in Article 9 of this Agreement
and stating that all of the representations and warranties set forth in Article
7 hereof (including those referring to the Schedules to the Agreement) with
respect to Borrower and the Subsidiaries, including Subsidiaries that are
Acquired Companies, shall be true and correct as though made on and as of the
date of the Compliance Certificate, except for matters specifically updated or
described in the Compliance Certificate, and (ii) that no Default or Event of
Default exists or, if any Default or Event of Default exists, stating the nature
and status thereof.

                  (D) SEC AND OTHER FILINGS. Promptly upon their becoming
publicly available, copies of all registration statements and annual, periodic
or other regular reports, final proxy statements and such other similar
information as shall be filed by either Borrower or any Subsidiary with the
Securities and Exchange Commission (the "SEC"), any national securities exchange
or (to the extent not duplicative) any other similar U.S. or foreign
Governmental Authority and, promptly upon the mailing thereof to the
shareholders of either Borrower generally, copies of all notices, financial
statements, reports and proxy statements so mailed.

                  (E) LITIGATION. Prompt notice of all legal, arbitration or
mediation proceedings and of all proceedings by or before any Governmental
Authority affecting Borrower or any Subsidiary which, if adversely determined,
might result in a monetary loss in an amount in excess of $750,000 individually
or in excess of $750,000 in the aggregate for all such proceedings and of the
issuance by any Governmental Authority of any injunction, order or other
restraint prohibiting, or having the effect of prohibiting or delaying, any
action on the part of Borrower or any Subsidiary, which injunction, order or
restraint might materially and adversely affect the business, properties or
affairs of Borrower or of either Guarantor (on a consolidated or unconsolidated
basis) or the institution of any proceedings seeking any such injunction, order
or other restraint.

                  (F) MANAGEMENT LETTERS. Promptly upon receipt by Borrower, a
copy of any management letter sent by Borrower's independent certified public
accountants, and promptly upon completion of any response report, a copy of such
response report.

                  (G) REPORTABLE EVENTS. If at any time after the date hereof,
Borrower or any Subsidiary adopts, sponsors or contributes to any Defined
Benefit Pension Plan, as soon as possible and in any event within ten (10) days
after Borrower or any Subsidiary knows that any Reportable Event has occurred
with respect to any such Defined Benefit Pension Plan, a statement, signed by an
authorized officer of Borrower, describing said Reportable Event and the action
which such Borrower or such Subsidiary proposes to take with respect thereto.

                                       19
<PAGE>

                  (H) ENVIRONMENTAL NOTICES. As soon as possible and in any
event within 10 days after receipt, a copy of (i) any notice or claim to the
effect that Borrower or any Subsidiary is or may be liable to any person as a
result of the release by such Borrower, such Subsidiary or any other person of
any toxic or hazardous waste or substance into the environment or that all or
any of its properties is subject to an Environmental Lien and (ii) any notice
alleging any violation of any federal, state or local environmental, health or
safety law or regulation by Borrower or any Subsidiary received after the date
hereof.

                  (I) OTHER INFORMATION. Such other information (including
consolidating financial reports and other financial information) as the Bank
may from time to time reasonably request.

         On request of the Bank, Borrower shall deliver a letter to Borrower's
accountants (i) authorizing them to comply with the provisions of this
paragraph, (ii) directing them to send to the Bank true, correct, and exact
copies of any and all financial statements and reports which are prepared as a
result of any audit or other review of operations, finances or internal controls
of Borrower or any Subsidiary (specifically including any reports dealing with
improper accounting or financial practices, defalcation, financial
irregularities, financial reporting errors or misstatements or fraud), and (iii)
authorizing the Bank to rely on financial statements of Borrower issued by such
accountants, which letter shall be acknowledged and consented to in writing by
such accountants.

         8.5 OTHER NOTICES. Give prompt notice in writing to the Bank of the
occurrence of any Default or Event of Default and of any other development,
financial or otherwise, which might materially and adversely affect its
business, properties or affairs of Borrower or any Subsidiaries or the ability
of Borrower or any Guarantor to repay the Obligations.

         8.6 ACCESS TO PROPERTIES AND INSPECTIONS. Permit the Bank to make
reasonable inspections of the properties, corporate books and financial records
of Borrower and each Subsidiary, to make reasonable examinations and copies of
their respective books of account and other financial records and to discuss
their respective affairs, finances and accounts with, and to be advised as to
the same by, their officers, auditors, accountants and attorneys at such
reasonable times and intervals as the Bank may designate. All of the Bank's
reasonable expenses incurred for travel in connection with such audits and
inspections shall be paid for by Borrower.

         8.7 USE OF PROCEEDS. Use the proceeds of the Revolving Loans to pay
indebtedness to the Bank existing on the date of this Agreement, to provide
working capital, to make Acquisitions in an amount up to an aggregate $3,000,000
over the term of this Agreement and for other corporate purposes.

         8.8 YEAR 2000 COMPLIANCE. Promptly notify the Bank in the event that it
discovers or determines that any computer application (including those of any of
its suppliers or vendors that could affect the business or operations of
Borrower or any of its



                                       20

<PAGE>


Subsidiaries) will not be Year 2000 Compliant (as defined in Section 7.20
above) on a timely basis, except to the extent that such failure
could not reasonably be expected to have a material adverse effect on the
financial condition or operations of Borrower or any Subsidiary.

         8.9 PAYMENT OF CLAIMS. Promptly pay when due all lawful claims,
whether for labor, materials or otherwise.

                                    ARTICLE 9
                               FINANCIAL COVENANTS

         Borrower will, so long as this Agreement shall remain in effect or any
Obligations shall be unpaid:

         9.1 MINIMUM CONSOLIDATED TANGIBLE NET WORTH. Maintain as of the end of
each fiscal quarter a Consolidated Tangible Net Worth of at least $40,000,000 up
to December 31, 2001; of at least $44,000,000 on December 31, 2001 and
thereafter up to December 31, 2002; and of at least $47,000,000 on December 31,
2002 and thereafter. "CONSOLIDATED TANGIBLE NET WORTH" means, at any date, (i)
the aggregate book value of all assets (after deducting all applicable reserves
and excluding any reappraisal or write-up of assets) which, under GAAP, would
appear as assets on the consolidated balance sheet of Borrower and its
consolidated Subsidiaries, but excluding all patents, franchises and operating
rights, research and development expenditures, treasury stock, goodwill, all
other intangibles, and the net amount owed to Borrower or any of its
Subsidiaries by any Affiliates, employees or shareholders and minus (ii) the
aggregate amount of liabilities of Borrower and its consolidated Subsidiaries,
all on a consolidated basis as determined in accordance with GAAP.

         9.2 CONSOLIDATED FUNDED DEBT/EBITDA RATIO. Maintain as of the last day
of each fiscal quarter a Consolidated Funded Debt/EBITDA Ratio no greater than
3.25 to 1.00, determined in accordance with GAAP. "CONSOLIDATED FUNDED
DEBT/EBITDA RATIO" means the ratio of (i) the aggregate outstanding principal
amount of Funded Debt of Borrower and its consolidated Subsidiaries as of the
last day of each fiscal quarter to (ii) EBITDA of Borrower and its consolidated
Subsidiaries for the four quarters ending on such date. "FUNDED DEBT" means,
without duplication, all long term and current Indebtedness as described in
subsections (i) and (iii) of the definition of "Indebtedness" in Exhibit 1
hereto (including any such Indebtedness to non-consolidated Subsidiaries,
shareholders and other Affiliates but excluding any documentary letters of
credit). "EBITDA" means, for any period, the earnings before interest, taxes,
depreciation and amortization for such period; non-recurring charges must be
reported on a quarter-by-quarter basis, and no non-recurring expenses or charges
of any type may be added to EBITDA for any four-quarter period.

         9.3 CONSOLIDATED FIXED CHARGE COVERAGE RATIO. Maintain as of the last
day of each fiscal quarter a Fixed Charge Coverage Ratio of at least 1.50 to
1.00, determined on a consolidated basis in accordance with GAAP. "FIXED CHARGE
COVERAGE RATIO"





                                       21

<PAGE>

means, as of the last day of any fiscal quarter, the ratio of (i) EBITDA for the
four fiscal quarters ending on such day, to (ii) the sum of interest expense,
tax expense, scheduled principal payments and dividends paid during such four
fiscal quarters.

         9.4 MINIMUM CONSOLIDATED EBITDA. Maintain as of September 30, 2001, and
as of the last day of each fiscal quarter thereafter, on a rolling four-quarter
basis, a Consolidated EBITDA of at least $10,000,000. "CONSOLIDATED EBITDA"
means EBITDA of Borrower and its consolidated Subsidiaries for each such period,
determined on a consolidated basis in accordance with GAAP.

         9.5 CONSOLIDATED CURRENT RATIO. Maintain as of the last day of each
fiscal quarter a Consolidated Current Ratio of at least 2.00 to 1.00.
"CONSOLIDATED CURRENT RATIO" means the ratio of Borrower's current assets to
current liabilities, determined on a consolidated basis in accordance with GAAP,
excluding, however, any current Indebtedness under the Revolving Note unless an
Event of Default (or event which, with the giving of notice or the passage of
time, will become an Event of Default) exists.

         9.6 FUNDED DEBT TO TANGIBLE CAPITAL RATIO. Maintain as of the last day
of each fiscal quarter a Funded Debt to Tangible Capital Ratio of no more than
50%. "FUNDED DEBT TO TANGIBLE CAPITAL RATIO" means the ratio of (i) the
aggregate outstanding principal amount of Funded Debt of Borrower and its
consolidated Subsidiaries as of the last day of each fiscal quarter, to (ii)
such amount plus Borrower's Consolidated Tangible Net Worth as of such date,
determined on a consolidated basis in accordance with GAAP.

                                   ARTICLE 10
                               NEGATIVE COVENANTS

         So long as this Agreement shall remain in effect or any of the
Obligations shall be unpaid, unless the Bank shall otherwise consent in writing,
each Borrower agrees that it will and will cause each of its Subsidiaries to,
and each Guarantor agrees that it will:

         10.1 INDEBTEDNESS. Not incur, create or suffer to exist any
Indebtedness (other than to the Bank), except (a) trade payables incurred in the
ordinary course of business; (b) Indebtedness existing on the date of this
Agreement and disclosed in Schedule 10.1 hereto; and (c) in addition to the
Indebtedness described in Sections 10.1(a) and (b), Indebtedness on a
consolidated basis not exceeding, at any time outstanding, an aggregate
principal amount of $100,000.

         10.2 LIENS. Not create, incur, or suffer to exist any other Lien in, of
or on any of their respective properties (now owned or hereafter acquired) or on
any income or revenues or rights in respect of any thereof, except:

                  (a) Liens in favor of the Bank;

                                       22

<PAGE>

                  (b) Liens for taxes, assessments or governmental charges or
levies, if the same shall not at the time be delinquent or thereafter can be
paid without penalty, or are being contested in good faith and by appropriate
proceedings;

                  (c) Liens imposed by law, such as carriers', warehousemen's
and mechanics' liens and other similar Liens arising in the ordinary course of
business, that secure payment of obligations not more than 60 days past due
except for such Liens as are being contested in good faith by appropriate
proceedings;

                  (d) Liens arising out of pledges or deposits under laws
relating to worker's compensation, unemployment insurance, old age pensions, or
other social security or retirement benefits, or under similar laws;

                  (e) Liens existing on the date of this Agreement and
disclosed in Schedule 10.2 hereto;

                  (f) Liens securing Indebtedness permitted in Section 10.1(c)
above; and

                  (g) Options to purchase stock of Borrower under stock-based
compensation plans or arrangements in favor of employees of Borrower or of any
Subsidiary and non-employee directors of Borrower.

         10.3 SALE AND LEASE-BACK TRANSACTIONS. Not enter into any arrangement,
directly or indirectly, with any person whereby it shall sell or transfer any
property, real or personal, used or useful in its business, whether now owned or
hereafter acquired, and thereafter rent or lease such property or other property
which it intends to use for substantially the same purpose or purposes as the
property being sold or transferred, provided that Borrower or any Subsidiary may
enter into any sale and lease-back transaction if (a) at the time of such
transaction no Default or Event of Default shall have occurred and be
continuing, (b) the proceeds from the sale of the subject property shall be at
least equal to its fair market value and (c) the subject property shall have
been acquired by such Borrower or such Subsidiary after the date of this
Agreement and held by it for not more than one year.

         10.4 MERGERS, TRANSFERS OF ASSETS, ACQUISITIONS. Not merge into or
consolidate with any other person, or permit any other person to merge into or
consolidate with it; sell, transfer, lease or otherwise dispose of (in one
transaction or in a series of transactions) any assets or any capital stock of
any Subsidiary or be a party to any Acquisition of another Person or of all of
substantially all another Person's assets, other than:

                  (a) sales of inventory in the ordinary course of business;

                                       23
<PAGE>

                  (b) the disposition of obsolete or worn-out fixed assets or
other property no longer required by or useful to it in connection with the
operation of its business;

                  (c) sales, assignments, transfers or other dispositions of
assets (other than stock of Subsidiaries) for cash consideration, but only so
long as the aggregate fair market value of the assets so disposed of does not
exceed $10,000,000 in the aggregate during the term of this Agreement;

                  (d) any Acquisition by Borrower, so long as not less than 15
days prior to the consummation of any Acquisition, Borrower shall provide to the
Bank, if the Bank so requests, the following information: pro forma financial
statements and projections and a pro forma Compliance Certificate, demonstrating
that Borrower will be, after giving effect to the Acquisition, in compliance
with each of the financial covenants set forth in Article 9 of this Agreement.
For purposes of such pro forma financial statements and pro forma compliance
certificate, to calculate the Borrower's compliance with the financial covenants
set forth in Article 9 hereof, after an acquisition of 100% of the stock or
assets of a company (an "ACQUIRED COMPANY"), the EBITDA of the Acquired Company,
based upon pro forma numbers acceptable to the Bank, from its last four rolling
quarters may be included to the extent that such numbers reflect cash flow from
assets fully transferred to Borrower as a result of the acquisition of the
Acquired Company, with adjustments for any transactions not in the ordinary
course of business. If Borrower acquires less than 100% of the stock or assets
of an Acquired Company, the Bank shall make a good faith determination of what
portion of such Acquired Company's EBITDA to include in the proforma financial
statements;

                  (e) any merger or consolidation of Borrower and any
Subsidiary, provided that Borrower is the surviving corporation thereof, or of
any Subsidiary with another Subsidiary or any sale or other transfer of assets
by a Subsidiary to Borrower.

         10.5 TRANSACTIONS WITH AFFILIATES. Not sell or transfer any property or
assets to, or purchase or acquire any property or assets from, or otherwise
engage in any other transactions with, any of its Affiliates (other than any
Subsidiary as provided in Section 10.4 above), except that Borrower or a
Subsidiary may engage in any of the foregoing transactions in the ordinary
course of business at prices and on terms and conditions not less favorable to
it than could be obtained on an arm's-length basis from unrelated third parties.

         10.6 SUBSIDIARY DIVIDEND RESTRICTIONS. Not permit any Subsidiary to be
bound by or enter into any agreement, amendment, covenant, understanding or
revision to any agreement which prohibits or restricts the ability of any
Subsidiary to declare and pay dividends or make any other distribution to
Borrower.

         10.7 USE OF PROCEEDS. Not use any of the proceeds of the Loans (a) for
any purpose that entails a violation of, or that is inconsistent with, the
provisions of the regulations of the Board of Governors of the Federal Reserve
System, including without


                                       24

<PAGE>

limitation Regulations G, T, U and X or (b) to make any acquisition for which
the board of directors of the target company has not given its consent or
approval.

         10.8 LOANS, ADVANCES AND INVESTMENTS. Not make any loans, advances or
extensions of credit to, or investments (whether acquisitions of stock or
securities or otherwise) in, or acquire any assets of, any Persons, including,
without limitation, any Affiliates of Borrower or any of its partners,
shareholders, officers or employees (collectively, "INVESTMENTS"), other than:

                  (a) expenses advanced in the ordinary course of business.

                  (b) investments in short-term obligations issued or fully
guaranteed by the U.S. Government and funds comprised of such obligations;

                  (c) certificates of deposit and other time deposits with, and
any other Investment purchased through any Bank;

                  (d) commercial paper rated A-1 by Standard & Poor's
Corporation or P-1 by Moody's Investors Service, Inc.;

                  (e) existing Investments listed on Schedule 10.8 hereto;

                  (f) Investments made to acquire Acquisitions permitted under
Section 10.4(d) above;

                  (g) Investments of Borrower in or to any one or more
Subsidiaries in an aggregate amount not in excess of $3,000,000 at any time
outstanding (in addition to those existing at the date of this Agreement and
listed on Schedule 10.8 hereto).

         10.9 NEGATIVE PLEDGE. Not permit or allow any Subsidiary to permit, to
exist any Lien on any of its property, except as permitted under Section 10.2
above; on the request of the Bank, Borrower will and each Guarantor will execute
acknowledgments or other forms of notice of such negative pledge, and the Bank
may record or file the same in the appropriate filing offices.

         10.10 LIQUIDATION OR CHANGE IN BUSINESS. Not liquidate, dissolve,
discontinue business, materially change its general business purpose or the
character of its business, engage in any type of business not reasonably related
to its business as conducted on the date hereof or take any action with a view
towards the same.


                                   ARTICLE 11
                                EVENTS OF DEFAULT

         11.1 EVENTS OF DEFAULT. Each of the following events shall constitute
an Event of Default under this Agreement:


                                       25
<PAGE>

                  (A) MISREPRESENTATION. Any representation or warranty made or
deemed made by or on behalf of Borrower or any Subsidiary to the Bank under or
in connection with this Agreement, any Loan, or any certificate or information
delivered in connection with this Agreement or any other Loan Document shall be
materially false on the date as of which made;

                  (B) NONPAYMENT. Borrower shall fail to pay any principal of
the Note, any interest upon the Note, any reimbursement obligation respecting
any Letter of Credit or any Fee or other Obligations within five (5) days after
the same becomes due;

                  (C) NON-PERFORMANCE OF OTHER COVENANTS. Borrower shall fail to
perform or comply with any of the terms or provisions of Article 8 of this
Agreement and such failure is not cured within fifteen (15) days or Borrower
shall fail to perform or comply with or violates any covenant set forth in
Article 9, Article 10 or any other covenant, term or provision hereof;

                  (D) OTHER INDEBTEDNESS. The failure of Borrower or any
Subsidiary to make any payment of principal or interest within five (5) days
after the same becomes due on any Indebtedness to the Bank or any of the Bank's
affiliates or subsidiaries (other than Indebtedness relating to the Loans) or
with respect to any Indebtedness to Commerce Bank, N.A. or to any other Person
or Persons or any default occurs under any agreement which evidences, secures or
relates to, any such Indebtedness;

                  (E) INSOLVENCY. Borrower or any Subsidiary shall (i) have an
order for relief entered with respect to it under the federal Bankruptcy Code,
(ii) not pay, or admit in writing its inability to pay, its debts generally as
they become due, (iii) make an assignment for the benefit of creditors, (iv)
apply for, seek, consent to, or acquiesce in, the appointment of a receiver,
custodian, trustee, examiner, liquidator or similar official for it or any
substantial part of its property, (v) institute any proceeding seeking an order
for relief under the federal Bankruptcy Code or under any other laws relating to
bankruptcy, insolvency, dissolution, winding up, liquidation or reorganization
or relief of debtors, (vi) take any corporate action to authorize or effect any
of the foregoing actions set forth in this paragraph (e), or (vii) fail to
contest in good faith any appointment or proceeding described in paragraph (f)
of this Section 11.1;

                  (F) APPOINTMENT OF RECEIVERS. Without the application,
approval or consent of Borrower or Subsidiary, a receiver, trustee, examiner,
liquidator or similar official shall be appointed for Borrower or any Subsidiary
or any substantial part of its property, or a proceeding described in clause (v)
of paragraph (e) of this Section 11.1 shall be instituted against either
Borrower or any Subsidiary;

                  (G) JUDGMENT. Borrower or any Subsidiary shall fail within 45
days to pay, bond or otherwise discharge any judgment or order for the payment
of money in excess of $750,000 that is not stayed on appeal or otherwise being
appropriately contested in good faith;

                                       26
<PAGE>

                  (H) ERISA. Any Reportable Event shall occur in connection with
any Defined Benefit Pension Plan adopted or sponsored by Borrower or any
Subsidiary or to which Borrower or any Subsidiary makes contributions, which
occurrence may have a materially adverse effect on such entity's business or
financial condition;

                  (I) MATERIAL ADVERSE CHANGE. Upon the occurrence of any event
or condition which the Bank, in its sole discretion, determines is a material
adverse change in the business or financial condition of Borrower on an
unconsolidated or on a consolidated basis or which materially and adversely
affects its ability to perform its obligations to Bank; or

                  (J) OWNERSHIP OR MANAGEMENT CHANGE. Any transfer of Control of
Borrower or any 50% or more change in the ownership of Borrower shall occur or
the employment of Borrower's chief executive officer and the employment of its
chief operating officer terminate, for any reason, at the same time or during
any one month period.

         11.2 RIGHTS AND REMEDIES. Upon the occurrence of each and every Event
of Default (other than an event with respect to Borrower or any Subsidiary
described in paragraph (e) or (f) of Section 11.1 above), and at any time
thereafter during the continuance of such event, the Bank may, by notice to
Borrower, take either or both of the following actions, at the same or different
times: (i) terminate forthwith the Commitment and (ii) declare the Loans then
outstanding to be forthwith due and payable in whole or in part, whereupon the
principal of the Loans so declared to be due and payable, together with all
accrued interest thereon and all other Obligations shall become forthwith due
and payable, without presentment, demand, protest or any other notice of any
kind, all of which are hereby expressly waived by Borrower, anything contained
herein or in any other Loan Document to the contrary notwithstanding; and in any
event with respect to either Borrower or any Subsidiary described in paragraph
(e) or (f) of Section 11.1 above, the Commitments shall automatically terminate
and the principal of the Loans then outstanding, together with all accrued
interest thereon and all other Obligations shall automatically become due and
payable, without presentment, demand, protest or any other notice of any kind,
all of which are hereby expressly waived by Borrower, anything contained herein
or in any other Loan Document to the contrary notwithstanding.

         Upon the occurrence and during the continuance of any Event of Default,
the Bank may also exercise any or all of its rights and remedies, whether
existing under this Agreement, other Loan Documents, applicable law or
otherwise.

                                       27

<PAGE>

                                   ARTICLE 12
                                  MISCELLANEOUS

         12.1 NOTICES. Notices and other communications provided for herein
shall be in writing and shall be delivered by hand or overnight courier service,
mailed or sent by telecopy or other telegraphic communications equipment of the
sending party, as follows:

                  (a) if to either Borrower or a Subsidiary, to it at 8800 East
63rd Street, Kansas City, Missouri, 64133, Attention: Stanley D. Biggs
(Facsimile: 816-353-1873).

                  (b) if to the Bank, to it at 1200 Main Street, Kansas City,
Missouri 64105-1702, Attention: Tom Mahoney (Facsimile: 816/979-7561) (if by
hand delivery or overnight courier service then the post office box is
eliminated and the zip code is 64105) with a required copy to Steven H. Graham,
Lathrop & Gage L.C., 2345 Grand Boulevard, Kansas City, Missouri 64108
(Facsimile: 816/292-2001);

or to such other address or telecopy number as any party may direct by notice
given as provided in this Section 12.1. All notices and other communications
given to any party hereto in accordance with the provisions of this Agreement
shall be deemed to have been given on the date of receipt if delivered by hand
or overnight courier service or sent by telecopy or other telegraphic
communications equipment of the sender, if received on or before 5:00 p.m.,
local time of the recipient, on a Business Day, or on the next Business Day if
received after 5:00 p.m. on a Business Day or on a day that is not a Business
Day, or on the date five (5) Business Days after dispatch by certified or
registered mail if mailed, in each case delivered, sent or mailed (properly
addressed) to such party as provided in this Section 12.1 or in accordance with
the latest unrevoked direction from such party given in accordance with this
Section 12.1.

         12.2 SURVIVAL OF AGREEMENT. All covenants, agreements, representations
and warranties made by Borrower herein and in the certificates or other
instruments prepared or delivered in connection with or pursuant to this
Agreement or any other Loan Document shall be considered to have been relied
upon by the Bank and shall survive the making by the Bank of the Loans and the
execution and delivery to the Bank of the Notes, regardless of any investigation
made by the Bank or on its behalf, and shall continue in full force and effect
as long as the principal of or any accrued interest on any Loan or any other
Obligations are outstanding.

         12.3 BINDING EFFECT. This Agreement shall become effective when it
shall have been executed by Borrower, Guarantors and the Bank and thereafter
shall be binding upon and inure to the benefit of Borrower, Guarantors, the Bank
and their respective successors and permitted assigns, except that Borrower and
Guarantors shall not have the right to assign or delegate any of their
respective rights or duties hereunder or any interest herein without the prior
consent of the Bank.

                                       28
<PAGE>

         12.4 SUCCESSORS AND ASSIGNS; PARTICIPATIONS. Whenever in this Agreement
any of the parties hereto is referred to, such reference shall be deemed to
include the successors and permitted assigns of such party. The Bank may assign
or delegate to one or more of its Affiliates all or a portion of its interests,
rights and obligations under this Agreement (including all or a portion of the
Loans and the Note). The Bank may sell participations to one or more of its
Affiliates in all or a portion of its rights and obligations under this
Agreement (including all or a portion of the Loans and the Notes). The Bank may,
in connection with any assignment or participation or proposed assignment or
participation pursuant to this Section 12.4, disclose to the assignee or
participant or proposed assignee or participant any information relating to
Borrower and any Subsidiaries furnished to the Bank by or on behalf of Borrower
or any Subsidiaries.

         12.5     EXPENSES; INDEMNITY.

                  (a) Borrower agree to pay all out-of-pocket expenses incurred
by the Bank in connection with the preparation of this Agreement and the other
Loan Documents or in connection with any amendments, modifications or waivers of
the provisions hereof or thereof (whether or not the transactions hereby
contemplated shall be consummated) or incurred by the Bank in connection with
the enforcement or protection of its rights in connection with this Agreement
and the other Loan Documents or in connection with the Loans made or the Note
issued hereunder, including, but not limited to, all appraisal fees (equipment
or otherwise), filing fees and search fees, the fees, charges and disbursements
of Lathrop & Gage L.C., counsel for the Bank, and, in connection with any such
amendment, modification or waiver or any such enforcement or protection, the
fees, charges and disbursements of any other counsel for the Bank. Borrower
further agrees that it shall indemnify the Bank from and hold it harmless
against any documentary taxes, assessments or charges made by any Governmental
Authority by reason of the Loans or this Agreement or any of the other Loan
Documents.

                  (b) Borrower agree to indemnify the Bank and its directors,
officers, employees and agents (each such person being called an "INDEMNITEE")
against, and to hold each Indemnitee harmless from, any and all losses, claims,
damages, liabilities and related expenses, including reasonable counsel fees,
charges and disbursements, incurred by or asserted against any Indemnitee
arising out of, in any way connected with, or as a result of (i) the execution
or delivery of this Agreement or any other Loan Document or any agreement or
instrument contemplated thereby, the performance by the parties thereto of their
respective obligations thereunder or the consummation of the transactions
contemplated thereby, (ii) the making of any loans or the use of the proceeds of
the Loans or (iii) any claim, litigation, investigation or proceeding relating
to any of the foregoing, whether or not any Indemnitee is a party thereto;
provided that such indemnity shall not, as to any Indemnitee, be available to
the extent that such losses, claims, damages, liabilities or related expenses
(i) are determined by a court of competent jurisdiction by final and
nonappealable judgment to have resulted from the negligence or wilful misconduct
of such Indemnitee and (ii) have not, in whole or in part, arisen out of or
resulted from any act, or omission to act, of either Borrower or any of their
Affiliates.

                                       29
<PAGE>

                  (c) The provisions of this Section 12.5 shall remain operative
and in full force and effect regardless of the expiration of the term of this
Agreement, the consummation of the transactions contemplated hereby, the
repayment of any of the Loans, the invalidity or unenforceability of any term or
provision of this Agreement or any other Loan Document or any investigation made
by or on behalf of the Bank. All amounts due under this Section 12.5 shall be
payable on written demand therefor.

         12.6 RIGHT OF SETOFF. If an Event of Default shall have occurred and be
continuing, the Bank is hereby authorized at any time and from time to time, to
the fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other indebtedness at any time owing by the Bank to or for the credit or the
account of Borrower or any Guarantor against any and all of the Obligations,
irrespective of whether or not the Bank shall have made any demand under this
Agreement or such other Loan Document and notwithstanding that such Obligations
may be unmatured. The rights of the Bank under this Section 12.6 are in addition
to other rights and remedies (including other rights of setoff) which the Bank
may have.

         12.7 APPLICABLE LAW. This Agreement and the other loan documents shall
be governed by and construed and enforced under and in accordance with the laws
of the State of Missouri applicable to contracts made and to be performed wholly
within said state, without giving effect to choice of law or conflict of law
principles.

         12.8 WAIVERS; AMENDMENT. No failure or delay of the Bank in exercising
any power or right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right or power preclude any other or
further exercise thereof or the exercise of any other right or power. The rights
and remedies of the Bank hereunder and under the other Loan Documents are
cumulative and are not exclusive of any rights or remedies which they would
otherwise have. No waiver of any provision of this Agreement or any other Loan
Document or consent to any departure by Borrower or any Guarantor therefrom
shall in any event be effective unless the same shall be contained in a written
instrument signed by the Bank, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No
notice or demand on Borrower in any case shall entitle Borrower or any
Subsidiary to any other or further notice or demand in similar or other
circumstances.

         12.9 INTEREST RATE LIMITATION. Notwithstanding anything herein or in
the Note to the contrary, if at any time the applicable interest rate, together
with all fees and charges which are treated as interest under applicable law
(collectively the "CHARGES"), as provided for herein or in any other document
executed in connection herewith, or otherwise contracted for, charged, received,
taken or reserved by the Bank, shall exceed the maximum lawful rate (the
"MAXIMUM RATE") which may be contracted for, charged, taken, received or
reserved by the Bank in accordance with applicable law, the rate of interest
payable under the Note, together with all Charges payable to the Bank, shall be
limited to the Maximum Rate.

                                       30
<PAGE>

         12.10 ENTIRE AGREEMENT. This Agreement and the other Loan Documents
constitute the entire contract between the parties relative to the subject
matter hereof. Any previous agreement among the parties with respect to the
subject matter hereof is superseded by this Agreement and the other Loan
Documents. Nothing in this Agreement or in the other Loan Documents, expressed
or implied, is intended to confer upon any party other than the parties hereto
and thereto any rights, remedies, obligations or liabilities under or by reason
of this Agreement or the other Loan Documents.

         12.11 SEVERABILITY. In the event any one or more of the provisions
contained in this Agreement or in any other Loan Document should be held
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein and therein shall
not in any way be affected or impaired thereby. The parties shall endeavor in
good faith negotiations to replace the invalid, illegal or unenforceable
provisions with valid provisions the economic effect of which comes as close as
possible to that of the invalid, illegal or unenforceable provisions.

         12.12 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which when taken together shall constitute but one
contract, and shall become effective as provided in Section 12.3.

         12.13 HEADINGS. Section headings and the Table of Contents used herein
are for convenience of reference only, are not part of this Agreement and are
not to affect the construction of, or to be taken into consideration in
interpreting, this Agreement.

         12.14    JURISDICTION; CONSENT TO SERVICE OF PROCESS.

                  (a) Borrower and each Guarantor hereby irrevocably and
unconditionally submits, for itself and its property, to the nonexclusive
jurisdiction of any Missouri state court or the federal court for the Western
District of Missouri, any appellate court from any thereof, in any action or
proceeding arising out of or relating to this Agreement or the other Loan
Documents or for recognition or enforcement of any judgment, and each of the
parties hereto hereby irrevocably and unconditionally agrees that all claims in
respect of any such action or proceeding may be heard and determined in such
Missouri state or, to the extent permitted by law, in such federal court. Each
of the parties hereto agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. Nothing in this
Agreement shall affect any right that the Bank may otherwise have to bring any
action or proceeding relating to this Agreement or the other Loan Documents
against Borrower or any Subsidiary or its properties in the courts of any
jurisdiction.

                  (b) Borrower and each Subsidiary hereby irrevocably and
unconditionally waive, to the fullest extent it may legally and effectively do
so, any objection which it may now or hereafter have to the laying of venue of
any suit, action or proceeding arising out of or relating to this agreement or
the other Loan Documents in any Missouri state court or federal court for the
Western District of Missouri. Each of the


                                       31

<PAGE>

parties hereto hereby irrevocably waives, to the fullest extent permitted by
law, the defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.

                  (c) Each party to this Agreement irrevocably consents to
service of process in the manner provided for notices in Section 12.1. Nothing
in this Agreement will affect the right of any party to this Agreement to serve
process in any other manner permitted by law.

         12.15 TERMS GENERALLY. The definitions contained in this Agreement and
in Exhibit 1 hereto shall apply equally to both the singular and plural forms of
the terms defined. Whenever the context may require, any pronoun shall include
the corresponding masculine, feminine and neuter forms. The words "INCLUDE,"
"INCLUDES" and "INCLUDING" shall be deemed to be followed by the phrase "WITHOUT
LIMITATION." All references herein to Articles, Sections, Exhibits and Schedules
shall be deemed references to Articles and Sections of, and Exhibits and
Schedules to, this Agreement unless the context shall otherwise require. Except
as otherwise expressly provided herein, all terms of an accounting or financial
nature shall be construed in accordance with GAAP, as in effect from time to
time, provided, however, that, for purposes of determining compliance with any
covenant set forth in Article 9, such terms shall be construed in accordance
with GAAP as in effect on the date of this Agreement applied on a basis
consistent with the application used in preparing the Borrower' financial
statements referred to in Article 9.

         12.16 ARBITRATION. EXCEPT AS SET OUT BELOW, ANY CONTROVERSY OR CLAIM
BETWEEN OR AMONG THE PARTIES HERETO, INCLUDING BUT NOT LIMITED TO THOSE ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR ANY RELATED DOCUMENTS, INCLUDING ANY
CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT (COLLECTIVELY "CLAIM"), SHALL BE
DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT
(OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND
PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR
ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW. IN
THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON
ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY
TO THIS AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED
PROCEEDING, TO COMPEL ARBITRATION OF ANY CLAIM IN ANY COURT HAVING JURISDICTION
OVER SUCH ACTION. THE INSTITUTION AND MAINTENANCE OF AN ACTION FOR ANY JUDICIAL
RELIEF SHALL NOT CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE
PLAINTIFF, TO SUBMIT THE CLAIM TO ARBITRATION IF ANY OTHER PARTY CONTESTS SUCH
ACTION FOR JUDICIAL RELIEF.

                                       32
<PAGE>

(a) SPECIAL RULES. ANY ARBITRATION SHALL BE CONDUCTED IN THE COUNTY OF
BORROWER'S DOMICILE AT THE TIME OF THE EXECUTION OF THIS AGREEMENT, OR IF THERE
IS REAL OR PERSONAL PROPERTY COLLATERAL, IN THE COUNTY WHERE SUCH REAL OR
PERSONAL PROPERTY IS LOCATED, AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN
ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE
ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL
ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR
ARBITRATION; FURTHER, THE ARBITRATION SHALL ONLY, UPON A SHOWING OF CAUSE, BE
PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60
DAYS. ANY DISPUTE CONCERNING THIS ARBITRATION PROVISION OR WHETHER A CLAIM IS
ARBITRABLE SHALL BE DETERMINED BY THE ARBITRATOR. THE ARBITRATOR SHALL HAVE THE
POWER TO AWARD LEGAL FEES PURSUANT TO THE TERMS OF THIS AGREEMENT.

(b) RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION SHALL BE DEEMED
TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS AGREEMENT; OR (II)) BE A
WAIVER BY BANK OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY
SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF ANY PARTY HERETO
(A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B)
TO FORECLOSE AGAINST OR SELL ANY REAL OR PERSONAL PROPERTY OR COLLATERAL, OR (C)
TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT
LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT OF A
RECEIVER, ANY PARTY MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE OR SELL
COLLATERAL OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR
AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS
AGREEMENT. NONE OF THESE ACTIONS SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY
PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE
CLAIM OCCASIONING RESORT TO SUCH REMEDIES OR PROCEDURES.

(C) WAIVER OF CERTAIN DAMAGES. THE PARTIES HERETO WAIVE ANY RIGHT OR REMEDY
EITHER MAY HAVE AGAINST THE OTHER TO RECOVER PUNITIVE OR EXEMPLARY DAMAGES
ARISING OUT OF ANY CLAIM WHETHER THE CLAIM IS RESOLVED BY ARBITRATION OR BY
JUDICIAL ACTION.

                  ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR
         TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING PROMISES




                                       33
<PAGE>

         TO EXTEND OR RENEW SUCH DEBT ARE NOT ENFORCEABLE. TO PROTECT YOU
         (BORROWERS) AND US (CREDITOR) FROM MISUNDERSTANDING OR DISAPPOINTMENT,
         ANY AGREEMENTS WE REACH COVERING SUCH MATTERS ARE CONTAINED IN THIS
         WRITING, WHICH IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT
         BETWEEN US, EXCEPT AS WE MAY LATER AGREE IN WRITING TO MODIFY IT.

                  THIS DOCUMENT, TOGETHER WITH OTHER WRITTEN AGREEMENTS BETWEEN
        BORROWERS AND BANK OF AMERICA, N.A., IS THE FINAL EXPRESSION OF THE
        CREDIT AGREEMENT BETWEEN SUCH PARTIES. THIS DOCUMENT MAY NOT BE
        CONTRADICTED BY EVIDENCE OF PRIOR OR CONTEMPORANEOUS ORAL CREDIT
        AGREEMENTS OR PRIOR WRITTEN CREDIT AGREEMENTS BETWEEN SUCH PARTIES
        RELATING TO THE SUBJECT MATTER HEREOF. ANY ADDITIONAL TERMS OF THE
        CREDIT AGREEMENT BETWEEN SUCH PARTIES ARE SET FORTH BELOW.

         THERE ARE NO SUCH ORAL AGREEMENTS BETWEEN SUCH PARTIES.


IN WITNESS WHEREOF, the parties have executed this Agreement as of the 7th day
of May, 2001, by their duly authorized officers, effective for all purposes as
of such date.

<TABLE>
<CAPTION>
<S>                                                  <C>
[SEAL]                                               BHA GROUP HOLDINGS, INC.

ATTEST:
                                                     By: ___________________________________
By: ________________________________________                        James C. Shay, Senior
         Stanley D. Biggs, Secretary                                Vice President - Finance
                                                                    and Administration


[SEAL]                                               BHA GROUP, INC.

ATTEST:

By:_________________________________________         By: _____________________________________
         Stanley D. Biggs, Assistant                                 James C. Shay, Senior
         Secretary                                                   Vice President - Finance
                                                                     and Administration and
                                                                     Chief Financial Officer
</TABLE>


                                       34
<PAGE>

<TABLE>
<CAPTION>
<S>                                                  <C>
[SEAL]                                               BHA TECHNOLOGIES, INC.

ATTEST:

By:___________________________________________       By: ______________________________________
         Christopher Dierks, Secretary                                 James E. Lund, President


                                                     BANK OF AMERICA, N.A., a national banking
                                                     association


                                                      By: _______________________________________
                                                                       Thomas R. Mahoney, Senior
                                                                       Vice President
</TABLE>


                                       35
<PAGE>


              CONFIRMATION OF GUARANTY AGREEMENT BY EACH GUARANTOR

         Each of the undersigned Guarantors hereby confirms all terms and
provisions of its Guaranty Agreement dated as of September 30, 1999 in favor of
the Bank and agrees that all references to the Credit Agreement therein shall be
references to the foregoing Amended and Restated Credit Agreement; that all
references to the Revolving Note therein shall be references to the Revolving
Note described above; and that all provisions thereof are ratified and in full
force and effect with respect to the foregoing Amended and Restated Credit
Agreement and such Revolving Note.

Date:  As of May 7, 2001          BHA GROUP, INC.

                                  By: ______________________________________
                                           James C. Shay, Senior Vice
                                           President - Finance and
                                           Administration and Chief
                                           Financial Officer


Date:  As of May 7, 2001          BHA TECHNOLOGIES, INC.

                                  By: _______________________________________
                                           James E. Lund, President


                                       36
<PAGE>


                                                                    EXHIBIT 1

                                   DEFINITIONS

         For purposes of the Credit Agreement, the following terms shall have
the meanings specified below:

         "Acquired Company" is defined in Section 10.4(d) of the Agreement.

         "Acquisition" shall mean any transaction, or any series of related
transactions, consummated after the date of this Agreement, by which Borrower or
any Subsidiary (in one transaction or as the most recent transaction in a series
of transactions) (i) acquires any going business or all or substantially all of
the assets of any Person (including, in the case of a corporation, any division
thereof), whether through purchase of assets, merger or otherwise, (ii) directly
or indirectly acquires control of at least a majority (in number of votes) of
the securities of a corporation which have voting power for the election of
directors, or (iii) directly or indirectly acquires control of a majority
ownership interest in any partnership or joint venture.

         "Additional LIBOR and EURIBOR Rate Loan Costs" shall mean any costs or
expenses resulting from any Regulatory Change (i) which imposes, modifies or
deems applicable any reserve, special deposit, minimum capital, capital ratio or
similar requirements relating to any extensions of credit or other assets of, or
any deposits with or other liabilities of, the Bank or any Commitment of the
Bank and (ii) which is attributable to the Bank's making or maintaining any
LIBOR Rate Loans or EURIBOR Rate Loans or its obligation to make any LIBOR Rate
Loans or EURIBOR Rate Loans hereunder.

         "Affiliate" shall mean, when used with respect to a specified person,
another person that directly, or indirectly through one or more intermediaries,
Controls or is Controlled by or is under common Control with the person
specified and in any case shall include, when used with respect to either
Borrower or any Subsidiary, any joint venture in which such Borrower or such
Subsidiary holds an equity interest.

         "Agreement" or "Credit Agreement" shall mean this Agreement, together
with all exhibits and schedules hereto, as it may be amended from time to time.

         "Alternative Currency" means Euro and each other currency (other than
Dollars) that is freely available, freely transferrable or convertible into
Dollars and approved by the Bank.

         "Alternative Currency Loan" means any Loan denominated in an
Alternative Currency. Each Alternative Currency Loan must be an EURIBOR Rate
Loan.

         "Alternative Currency Equivalent" means, with respect to any amount
denominated in Dollars on any date of determination, the amount of an
Alternative




<PAGE>






Currency that could be purchased with such amount of Dollars using the
reciprocal of the foreign exchange rate(s) specified in the definition of
"Dollar Equivalent," as determined by the Bank.

         "Alternative Currency Sublimit" means $3,000,000.

         "Applicable Margin" is defined in Section 4.3 of the Agreement.

         "Assets" shall mean all assets which, under GAAP, would appear as
assets on the balance sheet of Borrower.

         "Business Day" shall mean any day (other than a day which is a
Saturday, Sunday or legal holiday in the State of Missouri) on which banks in
the State of Missouri are open for business.

         "Calculation Date" means (a) with respect to each Loan denominated in
an Alternative Currency, the date falling two Business Days (or such other
period as is customary in the relevant foreign exchange market for delivery on
the date of the relevant Loan) prior to the date of such Loan or the date of
continuation of such Loan pursuant to Section 2.02, (b) each date a draw on a
Letter of Credit denominated in an Alternative Currency that is charged against
the Revolving Loan as a Loan denominated in Dollars, (c) each date fees relating
to Letters of Credit, denominated in an Alternative Currency, are due, (d) each
date that is a Due Date under Section 4.6 of the Credit Agreement with respect
to a Loan that is denominated in an Alternative Currency, or (e) such additional
dates as the Bank may determine are necessary or appropriate shall specify.

         "Capital Expenditures" shall mean, without duplication, (i)
expenditures (whether paid in cash or accrued as a liability) for fixed assets,
tooling, plant and equipment (including without limitation the incurrence of
Capital Lease Obligations), and (ii) any other expenditures that would be
classified as capital expenditures under GAAP. Capital Expenditures shall not
include the amount of consideration paid or any monetary obligation incurred in
respect of the purchase price for any Acquisition.

         "Capital Lease Obligations" shall mean, as to any Person, the
obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) real or personal property which
obligations are required to be classified and accounted for as a capital lease
on a balance sheet of such Person under GAAP; and, for purposes of this
Agreement, the amount of such obligations shall be the capitalized amount
thereof, determined in accordance with GAAP.

         "CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended by the Superfund Amendments
and Reauthorization Act of 1986.

         "Charges" is defined in Section 12.9 of the Agreement.

                                       2
<PAGE>

         "Code" shall mean the Internal Revenue Code of 1986, as the same may be
amended from time to time.

         "Commitment" shall mean the Revolving Credit Commitment.

         "Compliance Certificate" is defined in Section 8.4(c) of the Agreement.

         "Consolidated EBITDA," "Consolidated Current Ratio," "Consolidated
Fixed Charge Coverage," "Consolidated Funded Debt/EBITDA Ratio" and
"Consolidated Tangible Net Worth" are defined in Article 9 of the Agreement.

         "Control" shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a
person, whether through the ownership of voting securities, by contract or
otherwise, and "Controlling" and "Controlled" shall have meanings correlative
thereto.

         "Controlled Group" shall mean all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with either Borrower or any Subsidiary, are
treated as a single employer under Section 414(b) or 414(c) of the Code.

         "Default" shall mean any event or condition which upon notice, lapse of
time or both would constitute an Event of Default.

         "Default Rate" shall mean the Prime Rate plus 2% per annum.

         "Defined Benefit Pension Plan" shall mean any employee pension benefit
plan that is covered by Title IV of ERISA or subject to the minimum funding
standards under Section 412 of the Code as to which Borrower or any Subsidiary
may have any liability.

         "Disbursement Date" is defined in Section 4.2 of the Agreement.

         "Dollars" or "$" shall mean lawful money of the United States of
America.

         "Dollars Equivalent" means, as of any date of determination (a) with
respect to any amount denominated in Dollars, such amount, and (b) with respect
to any amount denominated in any currency other than Dollars, the amount of
Dollars that would be required to purchase the amount of the relevant
Alternative currency based on the spot rate for the purchase by Bank of America
of such Alternative Currency through its foreign exchange trading office at
approximately 9:00 a.m. Central Time on such date.

         "EBITDA" is defined in Section 9.2 of the Agreement.

         "EMU" means the economic and monetary union in accordance with the
Treaty of Rome 1957, as amended by the Single European Act 1986, the Maastricht
Treaty of 1992 and the Amsterdam Treaty of 1998, as amended from time to time.

                                       3
<PAGE>

         "EMU Legislation" means the legislative measures of the European
Council for the introduction of, changeover to or operation of a single or
unified European currency (whether known as the "euro" or otherwise).

         "Environmental Laws" is defined in Section 7.4(b) of the Agreement.

         "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time.

         "Euro" and "o" mean the lawful currency of the Participating Member
States introduced in accordance with the EMU Legislation.

         "EURIBOR Rate" shall mean, at any date, with respect to any applicable
Interest Period, the rate per annum (rounded upwards, if necessary, to the
nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as
the London interbank offered rate for deposits in the applicable Alternative
Currency at approximately 11:00 a.m. (London time) two Business Days prior to
the first day of such Interest Period for a term comparable to such Interest
Period.

         "EURIBOR Rate Loan" means a Loan that accrues interest at an EURIBOR
Rate.

         "Event of Default" is defined in Article 11 of the Agreement.

         "Fees" shall mean the unused commitment and Letter of Credit fees
payable under Article 5 of the Agreement.

         "Funded Debt" is defined in Section 9.2 of the Agreement.

         "GAAP" shall mean generally accepted accounting principles, applied on
a consistent basis.

         "Governmental Authority" shall mean any federal, state, local or
foreign court or governmental agency, board, authority, instrumentality or
regulatory body.

         "Guarantee" or "Guaranty" of a person shall mean any agreement by which
such person assumes, guarantees, endorses, contingently agrees to purchase or
provide funds for the payment of, or otherwise becomes liable upon, the
obligation of any other person, or agrees to maintain the net worth or working
capital or other financial condition of any other person or otherwise assures
any creditor of such other person against loss, including, without limitation,
any comfort letter, operating agreement or take-or-pay contract and shall
include, without limitation, the contingent liability of such person in
connection with any application for a letter of credit. The term "Guarantee"
used as a verb has a corresponding meaning.

         "Guarantor" shall mean each maker of a Loan Guaranty.

                                       4
<PAGE>

         "Hazardous Materials" is defined in Section 7.4(b) of the Agreement.

         "Indebtedness" shall mean, as to any Person, on a consolidated basis
with such Person's Subsidiaries (unless otherwise specified), without
duplication: (i) all obligations of such Person for borrowed money or evidenced
by bonds, debentures, notes or similar instruments (including all indebtedness
to stockholders, howsoever evidenced), (ii) all obligations of such Person for
the deferred purchase price of property or services, except trade accounts
payable and accrued liabilities arising in the ordinary course of business which
are not overdue by more than 60 days or which are being contested in good faith
by appropriate proceedings, (iii) all Capital Lease Obligations of such Person,
(iv) all Indebtedness of others secured by a Lien on any properties, assets or
revenues of such Person to the extent of the value of the property subject to
such Lien, (v) all Indebtedness of others Guaranteed by such Person and (vi) all
obligations of such Person, contingent or otherwise, in respect of any letters
of credit or bankers' acceptances. The Indebtedness of any Person shall include
the Indebtedness of any partnership in which such Person is a general partner.

         "Interest Period" shall mean, with respect to any LIBOR or EURIBOR Rate
Loan, each period commencing on the date such Loan is made or, with respect to
LIBOR Rate Loans, is converted from a Prime Rate Loan type or the last day of
the next preceding Interest Period for such Loan, and ending on the numerically
corresponding day in the first, second or third calendar month thereafter, as
Borrower may select, except that each Interest Period which commences on the
last Business Day of a calendar month (or on any day for which there is no
numerically corresponding day in the appropriate subsequent calendar month)
shall end on the last Business Day of the appropriate subsequent calendar month.
Notwithstanding the foregoing: (i) any Interest Period for any Loan which would
otherwise extend beyond the Revolving Credit Termination Date shall end on such
Date; (ii) each Interest Period that would otherwise end on a day which is not a
Business Day shall end on the immediately succeeding Business Day (or, if such
next succeeding Business Day falls in the next succeeding calendar month, on the
immediately preceding Business Day); and (iii) Borrower shall select the
duration of Interest Periods in such a way so that notwithstanding clauses (i)
and (ii) above, no Interest Period shall have a duration of less than one month
(and, if any LIBOR Rate Loans would otherwise have an Interest Period of a
shorter duration, they shall be Prime Rate Loans for the relevant period).

         "Investments" is defined in Section 10.8 of the Agreement.

         "Letters of Credit" is defined in Section 3.1 of the Agreement.

         "LIBOR Rate" shall mean, at any date, with respect to any applicable
Interest Period, the rate per annum (rounded upwards, if necessary, to the
nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as
the London interbank offered rate for deposits in U.S. Dollars at approximately
11:00 a.m. (London time) two Business


                                       5



<PAGE>



Days prior to the first day of such Interest Period for a term comparable to
such Interest Period.

         "LIBOR Rate Loan" shall mean a Loan that accrues interest at a LIBOR
Rate.

         "Lien" shall mean, with respect to any asset, (a) any mortgage, deed of
trust, lien, pledge, encumbrance, charge or security interest in or on such
asset, (b) the interest of a vendor or a lessor under any conditional sale
agreement, capital lease or title retention agreement relating to such asset,
and (c) in the case of securities, any purchase option, call, restriction on
right to sell or similar right of a third party with respect to such securities.

         "Loan" shall mean any Revolving Loan or any advance under the Credit
Agreement, and "Loans" shall mean all Revolving Loans and advances thereunder
collectively.

         "Loan Documents" shall mean, collectively, the Agreement, the Note, any
Loan Guaranties and all other documents, agreements and instruments executed by
either Borrower or any Subsidiary in favor of the Bank in connection with the
transactions contemplated by the Agreement.

         "Loan Guaranty" is defined in Section 5.1 of the Agreement.

         "Material Contracts" is defined in Section 7.9 of the Agreement.

         "Net Income" shall mean, for any period, all operating and
non-operating revenue, less all operating and non-operating expenses, including
taxes, depreciation, amortization and interest expenses, all as determined in
accordance with GAAP. In calculating Net Income, there shall be excluded
extraordinary gains and losses (as determined in accordance with GAAP), any
revenues and expenses from disposition of capital assets and insurance policies
and condemnation awards and gifts, donations, grants, pledges, devises,
legacies, requests and contributions which are specifically designated or
restricted as to use by their terms.

         "Note" shall mean the Revolving Note.

         "Obligations" shall mean all unpaid principal of and accrued and unpaid
interest on the Note, all accrued and unpaid Fees, and all other obligations and
liabilities of Borrower to the Bank now existing or hereafter arising under the
Loan Documents, including, without limitation, all renewals, replacements,
extensions and modifications thereof and thereto and any and all draws under any
and all Letters of Credit and any other letters of credit issued by Bank for the
account of Borrower or any Subsidiary.

         "PBGC" shall mean the Pension Benefit Guarantee Corporation referred to
and defined in ERISA.

                                       6
<PAGE>

         "Participating Member State" means each state so described in any EMU
Legislation.

         "Person" or "person" shall mean any natural person, corporation,
business trust, joint venture, association, company, partnership or government,
or any agency or political subdivision thereof.

         "Prime Rate" shall mean, at any date, the rate of interest per annum
then most recently established by the Bank as its "prime rate," it being
understood and agreed that such rate is set by the Bank as a general reference
rate of interest, taking into account such factors as the Bank may deem
appropriate, that it is not necessarily the lowest or best rate actually charged
to any customer or a favored rate, that it may not correspond with future
increases or decreases in interest rates charged by other lenders or market
rates in general, and that the Bank may make various business or other loans at
rates of interest having no relationship to such rate.

         "Prime Rate Loan" shall mean a Loan that accrues interest at the Prime
Rate.

         "RCRA" shall mean the Resource Conservation and Recovery Act, as the
same may be amended from time to time.

         "Regulation G, T, U or X" shall mean Regulation G, T, U or X,
respectively, of the Board of Governors of the Federal Reserve System as from
time to time in effect and all official rulings and interpretations thereunder
or thereof.

         "Regulatory Change" shall mean, with respect to either Bank, any change
after the date of this Agreement in United States federal or state law or
regulations, or the entry, adoption, or making after such date of any order,
interpretation, directive, or request of or under any United States federal or
state law or regulations (whether or not having the force of law) by any court
or governmental or monetary authority charged with the interpretation or
administration thereof, applying to a class of banks including such Bank.

         "Reportable Event" shall mean any reportable event, as defined in
Section 4043 of ERISA and the regulations issued under such Section, with
respect to a Defined Benefit Pension Plan, excluding, however, such events as to
which the PBGC by regulation has waived the requirement of Section 4043(a) of
ERISA that it be notified within 30 days of the occurrence of such event;
provided that a failure to meet the minimum funding standard of Section 412 of
the Code and of Section 302 of ERISA involving an amount aggregating $50,000 or
more shall be a Reportable Event regardless of the issuance of any waiver in
accordance with Section 412(d) of the Code.

         "Revolving Credit Commitment" shall mean Eighteen Million Dollars
($18,000,000) or such amount reduced as provided in Section 2.1(a) of the
Agreement.

                                       7
<PAGE>

         "Revolving Credit Termination Date" shall mean April 30, 2004 or such
other date as may be agreed to by Bank and Borrower from time to time.

         "Revolving Loan" is defined in Section 2.1 of the Agreement.

         "Revolving Note" is defined in Section 2.2 of the Agreement.

         "Subordinated Debt" shall mean Indebtedness subordinated in right of
payment to the Indebtedness to the Bank on terms and conditions satisfactory to
the Bank.

         "subsidiary" shall mean, with respect to any person (herein referred to
as the "parent"), any corporation, partnership, association or other business
entity (a) of which securities or other ownership interests representing more
than 50% of the equity or more than 50% of the voting power or more than 50% of
the general partnership interests are, at the time any determination is being
made, owned, controlled or held by the parent, or (b) which is, at the time any
determination is made, otherwise Controlled by the parent or one or more
subsidiaries of the parent or by the parent and one or more subsidiaries of the
parent.

         "Subsidiary" shall mean any subsidiary of Borrower, direct or indirect,
now existing or hereafter acquired or created.

         "Telerate Page 3750" shall mean the British Bankers Association Libor
Rates (determined at 11:00 a.m. London, England time) that are published by
Bridge Information Systems, Inc.

         "Type" or "type" means, with respect to a Loan denominated in Dollars,
its character as a Prime Rate Loan or as a LIBOR Rate Loan.

         "Year 2000 Compliant" and "Year 2000 Problem" are defined in Section
7.20 of the Agreement.


                                       8

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>4
<FILENAME>file003.txt
<DESCRIPTION>SUBSIDIARIES OF BHA GROUP HOLDINGS, INC.
<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; BHA Group
International Holdings B.V., a Dutch corporation; and The 63rd Street and Blue
Ridge Redevelopment Corporation, a Missouri 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 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>file004.txt
<DESCRIPTION>INDEPENDENT AUDITORS REPORT
<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 2, 2001 included the related
financial statement schedule as of September 30, 2001 and for each of the years
in the three-year period ended September 30, 2001, included in the 2001 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
2, 2001 relating to the consolidated balance sheets of BHA Group Holdings, Inc.
and subsidiaries as of September 30, 2001 and 2000, 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, 2001,
and the related schedule, which reports are included in the September 30, 2001
annual report on Form 10-K of BHA Group Holdings, Inc.

/s/ KPMG LLP

Kansas City Missouri
November 6, 2001


</TEXT>
</DOCUMENT>
</SUBMISSION>
