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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
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For the Fiscal Year Ended Commission File Number
September 30, 1999 0-15045
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BHA Group Holdings, Inc.
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(Exact name of Registrant as specified in its charter)
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Delaware 43-1416730
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8800 East 63rd Street, Kansas City, Missouri 64133
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (816) 356-8400
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Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of each class on Which Registered
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None - - - - -
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
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(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
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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
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As of November 10, 1999, the number of shares outstanding of the Registrant's
Common Stock was 6,907,512 shares.
The aggregate market value of the voting stock held by non-affiliates* of the
Registrant's Common Stock was $31,511,707, computed by reference to the
closing price of $9.25 as reported to Registrant at which such stock was
quoted by the NASDAQ National Market on November 10, 1999.
The Registrant's definitive proxy statement for the annual meeting of
stockholders to be held on February 22, 2000 (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.
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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. 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," "see," and other expressions that indicate future events
and trends identify forward-looking statements. Actual future results and trends
may differ materially from historical results or those anticipated depending on
a variety of factors, including, but not limited to, the performance of newly
established domestic and international operations, demand and price for the
Company's products and services, and other factors. Certain of these factors are
discussed throughout this report on Form 10-K.
PART I
ITEM 1 - BUSINESS
BHA Group Holdings, Inc. (together with its domestic and international
subsidiaries, the "Company" or "BHA") is a global filtration company. Its
principal business is the design, manufacture and sale of replacement parts and
the performance of rehabilitation conversion services for the types of
industrial air pollution control ("APC") equipment known as "baghouses",
"cartridge collectors" and "electrostatic precipitators". This equipment is used
to eliminate particulate from the air by passing particulate laden gases through
fabric filters or filter bags, in the case of baghouses, pleated media filter
elements, in the case of cartridge collectors and between electrically charged
collector plates, in the case of electrostatic precipitators. The Company's
business also includes the maintenance, conversion and rebuilding of this
equipment through a network of employees and independent contractors. The
Company's products and services are marketed throughout North America, South
America, Europe, the Near East, the Pacific Rim and China. While definitive
industry statistics are not available, based upon Dun & Bradstreet reports and
other financial information available to it, the Company believes it is a leader
in worldwide sales of air pollution control replacement parts and services.
The Company has also established BHA Technologies, Inc. ("BHA Technologies") as
a wholly-owned subsidiary that supplies expanded polytetrafluoroethylene
("ePTFE") membrane products for use in its APC product lines. Through BHA
Technologies, the Company plans to supply 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
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initial public offering of common stock in November 1986. Net proceeds from this
public offering amounted to approximately $3.6 million, which was applied to
outstanding bank debt. The Company completed a second public offering of common
stock in February 1989. Net proceeds from that public offering (approximately
$8.3 million) were used for working capital purposes and to finance several
acquisitions.
In April 1989, the Company formed PrecipTech, Inc. ("PrecipTech"), a Delaware
corporation, as a wholly-owned subsidiary. PrecipTech, which had previously been
a division of BHA, was formed for the purpose of conducting and expanding the
Company's business as it relates to replacement parts, accessories and services
for electrostatic precipitators.
During 1989, BHA and PrecipTech completed several acquisitions in efforts to
expand their product lines and services. In June 1989, BHA acquired the business
of developing and manufacturing acoustic horns for use in both baghouses and
electrostatic precipitators from Saracco Acoustic Sciences Corporation. Also in
1989, PrecipTech completed three acquisitions of privately held companies or
their operating assets. Such acquisitions included ESP Specialties, Inc., a
company that manufactured and sold replacement parts for electrostatic
precipitators; Kinetic Controls, Inc., a company that manufactured and sold
automatic voltage controllers for electrostatic precipitators; and Midwest Power
Corporation, a company that manufactured and sold replacement parts and
accessories and provided services for electrostatic precipitators.
During 1994, the Company established BHA Technologies as a Delaware Corporation.
This wholly-owned subsidiary was formed for the purpose of developing ePTFE
membranes. BHA Technologies successfully developed its own ePTFE membrane, which
it manufactures and markets for various applications both within and outside the
Company's traditional air pollution control equipment markets. In the air
pollution control market, ePTFE membrane is laminated using a thermal process to
a fabric substrate, which is then converted into a replacement filter and
marketed under the trade name BHA-TEX(R). The benefits of this product line to
the customer include improved collection efficiency, increased throughput and
lower operating costs. The ePTFE membranes are widely used outside of air
pollution control applications. These applications include, but are not limited
to, wet filtration, industrial, electrical insulation, medical and apparel. Some
of the products and processes in these applications are currently under patent
protection. In addition to supplying the Company's air pollution control
businesses with ePTFE membranes for use on filter elements, BHA Technologies
will evaluate the market niches and product opportunities available to pursue
and develop custom products and services to meet the needs of this new base of
customers.
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.
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The company has been doing business internationally since 1982 and has expanded
its presence throughout the world as seen in the chart below:
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Date Company Name (1) Location
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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
May 1998 BHA Group C.A. Valencia, Venezuela
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
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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 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 7 to the consolidated financial
statements.
EUROPE
BHA GROUP GMBH
BHA Group GmbH ("GmbH"), formerly Filtra GmbH, is a German corporation that
operates from Ahlen, Germany as an air pollution control replacement parts
marketer, selling products throughout Europe, the Middle East, and Northern
Africa. Prior to September 1999, GmbH manufactured APC parts, however, such
operations have been 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.
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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 GROUP C.A.
BHA Group C.A. ("BHA Venezuela"), a wholly owned subsidiary of Purfilter, is a
Venezuelan corporation that manufactures replacement filters for industrial air
pollution equipment. BHA Venezuela currently manufactures the air pollution
control equipment in Valencia, Venezuela and sells these products to surrounding
countries of 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.
ASIA
BHA GROUP PHILIPPINES, INC.
BHA Group Philippines, Inc. ("BHA Philippines") is located in Manila,
Philippines and operates as BHA's Asia-Pacific regional sales office to support
the export sales from the United States to customers in the Pacific Rim.
BHA ENVIRONMENTAL TECHNOLOGY COMPANY, LTD.
BHA Environmental Technology Company, Ltd. ("BHA China") is a corporation
established in the People's Republic of 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 India also develops software for use in the Company's
electronic product lines that are sold throughout the world.
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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.
FACTORS AFFECTING EARNINGS AND STOCK PRICE
COMPETITION - Based upon Dun & Bradstreet reports and other publicly available
financial information, the Company believes that it is a global leader in the
APC equipment aftermarket. A number of regional offices have been established in
Asia and Latin America. As a result of this movement into the international
market, the Company is facing increased competition from competitors in those
specific markets, as well as existing competitors from the U.S. and Europe.
Several of the Company's competitors are, or are part of, large integrated
companies, which have much greater resources than the Company. The competition
also includes several dozen small to mid-size filter bag manufacturers that
compete in local and regional geographic markets. Generally, original equipment
manufacturers in the U.S. have not effectively competed in the aftermarket for
baghouses, but have been a significant factor in the aftermarket for
electrostatic precipitators.
The domestic utility market for electrostatic precipitators has been
competitive, as this industry has been restructuring in response to
deregulation. Over the last several years, competition has had a negative impact
on the profitability of orders executed within this industry group. This overall
slowdown has increased competition for industrial replacement parts and
services. The Company's domestic electrostatic precipitator replacement parts
and services ("ESP") business has become increasingly volatile in terms of
volume and profitability. Revenues of the ESP business declined from $35 million
in fiscal 1994 to $21 million in fiscal 1997 before rebounding to $26 million in
fiscal 1998 and $37 million in fiscal 1999. Recent business has been bolstered
by several large rebuilds. Competition remains intense in the ESP business based
both upon price and service. During the fiscal year ended September 30, 1999
("fiscal 1999"), the risks of the ESP business were highlighted in the Company's
second quarter when BHA announced a $2.4 million charge for cost overruns on a
large fixed-price rebuild project for a domestic electric utility contract. In
contrast, during the fourth quarter of the fiscal year, BHA successfully
executed several profitable ESP projects including two which were emergency
rebuilds following industrial explosions. The Company expects the ESP business
to continue to be volatile and believes that a downturn could have a material
adverse effect on its business. 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.
EXPORT SALES - The Company's domestic APC business generates significant
revenues through the sale of products and services in international markets,
primarily Asia, the Pacific Rim and Latin America. During 1997, shortly after
BHA established a sales and technical support infrastructure in Asia, the region
was hit with an economic crisis. Although this market has been slow to recover,
the Company has lowered its cost structure such that management believes current
sales volume of $5 million to $6 million represents a break-even point for the
Asia region. The markets of Latin America provided the Company with solid growth
through most of the 1990's, however, in fiscal 1999, the Asian economic crisis
spread to Latin America, resulting in a sales decline of approximately $3
million. Most of the decline was in the ESP
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business, and thus, the Company re-deployed its resources to support the growth
of its ESP sales in the U.S. Latin America and Asia are key markets for the
Company and the ability of BHA to meet its ongoing financial targets will
depend, in part, on the economic recovery in these regions. Any prolonged delay
in the recovery of these markets for APC products and services could result in a
change in the Company's strategy and its long-term growth targets.
EUROPE - The profitability of BHA's European operations have declined in each of
the past two years and this business segment incurred significant losses in
fiscal 1999. With the consolidation of the Company's European fabric filter
manufacturing into one facility during the past year, the Company has
significantly reduced its manufacturing overhead costs. However, in order to
achieve a reasonable return on its European investment, the Company will need to
significantly increase its revenues by increasing its market share in this
region.
BHA TECHNOLOGIES - Through BHA Technologies, the Company has established a
business to supply PTFE membrane products for use in applications outside of air
pollution control. BHA Technologies remains in a startup phase in which its
investment in research and development are not currently matched by an ongoing
revenue stream. During fiscal 1999, BHA Technologies invested in marketing,
product development, technology, and the sales infrastructure necessary to meet
the anticipated demands of these new potential markets. As a result of these
efforts, BHA Technologies has developed several lines of products that are being
introduced to the marketplace.
The original business plan for expanding BHA Technologies business to include
products for non-APC applications (such as apparel, allergy and clean room
products) was to develop and manufacture expanded PTFE membrane films which,
depending on the customer application, would be laminated to a fabric. A
significant investment in equipment and technology was made relating to the
adhesive lamination process. BHA Technologies incurred $1.4 million of expense
in fiscal 1999 in its efforts to commercialize the lamination equipment with the
goal of being able to cost-effectively produce laminate product. The current
target customer base for laminated product and the challenges associated with
the lamination process have led management to conclude that using third party
laminators will be a more cost-effective method for approaching the market for
these products. As a result of this conclusion, the Company recognized a $1.7
million restructuring charge in the fourth quarter of fiscal 1999 to write such
equipment down to its estimated net realizable value. BHA Technologies will
continue its efforts relating to the development and sale of high quality
expanded PTFE membrane films for sale to customers in applications outside of
air pollution control.
For the fiscal year ending September 30, 2000 ("fiscal 2000"), BHA Technologies
is targeting a significantly lower loss, as it anticipates that revenue from
non-APC products will partially offset its ongoing investments in marketing and
product development. Additionally, BHA Technologies has reduced its cost
structure as a result of the discontinuation of in-house adhesive lamination
efforts.
Factors affecting BHA Technologies' ability to achieve its fiscal 2000 sales and
earnings targets include equipment delivery and start-up, product development
issues, customer order timelines, and production schedules. Increased
competition could also impact the fiscal 2000 plan. Although the Company
believes that it has the resources and programs in place to meet its fiscal 2000
targets, failure to do so could have a material adverse impact on the fiscal
2000 operating results of the Company, as well as on the carrying value of the
Company's investment in the property, plant, and equipment of BHA Technologies.
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PRODUCTS AND SERVICES
The Company believes it has the broadest product line in the air pollution
control equipment aftermarket. This, combined with its proprietary telemarketing
system, enables it to respond promptly to customer requests, thus providing it
with a competitive advantage.
The Company manufactures and sells a wide variety of filter bags, replacement
parts and accessories for the industrial air pollution control equipment
aftermarket. Filter bags are manufactured by the Company from fabric purchased
in bulk from fabric manufacturers. The Company manufactures industry standard
bags, as well as bags for customer specific applications. Most filter bags are
produced from fiberglass, polyester, aramid, acrylic, and polypropylene fabrics.
A market shift towards higher efficiency filtration has led to increased usage
of filters that have ePTFE membrane applied to the fabric and other more
specialized materials. The Company's wholly-owned subsidiary, BHA Technologies,
manufactures the expanded PTFE membrane (BHA-TEX(R)) used on its filter bags and
elements. The Company is one of the few filter bag suppliers that manufactures
its own PTFE membrane (see "Business"), which it 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. 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
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to the Company's salespeople to enable them to respond promptly to similar
problems encountered by other customers. BHA believes it is one of the world
leaders in providing these services.
CUSTOMER BASE
The Company's APC customer base is diverse both industrially and geographically,
and includes customers in virtually all sectors of the industrial economy.
International markets include Canada, Europe, Latin America, the Near East, the
Pacific Rim and China. The Company's products and services are used in major
industrial environments such as cement kilns, asphalt plants, steel and iron
foundries, aluminum and copper smelters, rock and gypsum dryers, chemical
plants, grain and food processing plants, refuse to energy plants, waste and
hazardous waste incinerators and electric utilities, as well as many other
areas. In recent years, there has been an emergence of multinational companies
expanding their worldwide presence in BHA's traditional target industries.
Management believes that this trend could have a positive impact on its
international sales.
The vast majority of the Company's baghouse sales represent small transactions
with numerous customers. Precipitator replacement parts sales frequently
accompany conversion or rebuild services. No customer accounted for more than
10% of the Company's annual sales during any of its last three fiscal years. The
Company does not believe that it is dependent upon any single customer or group
of customers and has no unusual geographical or industry concentrations of
business or credit risk.
SALES AND MARKETING
One of the Company's principal competitive APC advantages is its proprietary
telesales system, the core of which is a computer database containing detailed
information on over 120,000 pieces of pollution control equipment (baghouses and
electrostatic precipitators) at over 55,000 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); when it was
installed; what fabric, size and design filter bags are 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
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well as reminders for calls to customers that have not been serviced for some
time. Once an order is taken, the information is routed to the operations area
that uses the computer to generate invoices and contracts. 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) 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 contacts. The Company believes that the system
provides effective feedback to telesales personnel to meet their sales goals.
In addition to its use on a customer-by-customer basis, the Company's telesales
system and database is used to develop industry statistics and analyze market
trends. Information is also extracted for marketing and advertising campaigns
and new product evaluations.
GOVERNMENT REGULATION AND INITIATIVES
The Company is not subject to direct environmental protection regulation with
respect to the manufacture or sale of its products other than regulations
applicable to manufacturers generally. The Company's customers are required to
meet national primary and secondary ambient air quality standards for specific
pollutants, including particulate matter, which have been promulgated under the
Clean Air Act, as amended (the "Act"). Title V, the cornerstone of the Act,
establishes a national operating permit program. Title V requires appropriate
and sufficient record keeping, monitoring and reporting requirements to assure
compliance with the standards established by the permitting authorities. 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. As provisions in the Act are
implemented, the regulations and enforcement practices will force industry to
take a more proactive approach toward the operation and maintenance practices of
their facilities, which may have a positive impact on the Company.
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. If the proposed regulations are put into
effect, different versions of the PM-2.5 monitoring networks will be required in
large metropolitan areas, small cities and rural areas, and each state will have
to prepare a State Implementation Plan that documents its
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approach to meeting the new NAAQS. The network of required monitors will be
phased in over a three to four year period beginning in 1998. 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
international customers, as do the domestic customers, operate in compliance
with certain standards established and promulgated by the permitting
authorities.
BACKLOG
On September 30, 1999, the backlog of orders for replacement parts and
industrial services was $47.2 million compared to $51.5 million at September 30,
1998 and $40.8 million at September 30, 1997. The lower backlog at September
1999 is the result of large ESP projects that were in the September 1998
figures. The September 1999 backlog has increased as compared to the prior year
for the Company's European business and its domestic fabric filter products. The
Company believes that more than 75% of its backlog is shippable by September 30,
2000.
EMPLOYEES
As of September 30, 1999, 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, and proprietary information and has
pending applications for patent, trademarks, and copyrights for parts,
accessories, and training materials for industrial air pollution control
equipment and non-air pollution control markets. The Company considers such
patents, trademarks, and proprietary information and applications for patents,
trademarks, and copyrights to be important. The business of the Company,
however, is not dependent on such patents, trademarks, and proprietary
information. Patents owned by the Company are enforceable from 2000
through 2016.
-11-
<PAGE>
ITEM 2 - PROPERTIES
CORPORATE HEADQUARTERS
The Company owns the facility in Kansas City, Missouri, which serves as its
Corporate Headquarters (approximately 66,000 square feet).
The table below provides certain information with respects to the domestic and
foreign properties owned and leased by the company.
<TABLE>
<CAPTION>
Location Use Owned/Leased Square Feet
- -------- --- ------------ -----------
<S> <C> <C> <C>
Kansas City, Missouri Corporate Headquarters Owned 66,000
Lee's Summit, Missouri (7) Production/Warehouse Leased 37,500
Slater, Missouri (1) Production Owned 170,000
Slater, Missouri (7) Production Owned 28,000
Slater, Missouri (1) Warehouse Owned 10,000
Slater, Missouri (2) Leased to Supplier Owned 54,000
Salisbury, Missouri (1) Production Owned 20,000
Salisbury, Missouri (1) Production Owned 65,000
Folkston, Georgia (3) Production Owned 105,000
Newport News, Virginia (4) Production Leased 21,000
Baltimore, Maryland (5) Warehouse Leased 3,500
Covington, Kentucky (5) Warehouse Leased 5,000
St. Louis, Missouri (5) Warehouse Leased 4,300
Germany (6) Office/Warehouse Owned 30,000
Switzerland (1) Office/Production Leased 20,000
Philippines (6) Office Space Leased 1,000
China (6) Office/Production Leased 17,000
India (6) Office Space Leased 3,000
Brazil (6) Office/Warehouse Leased 5,100
Spain (1) Office/Production Leased 26,300
Venezuela (1) Office/Production Leased 12,000
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 facility is
subject to a capital lease related to an industrial revenue bond obligation.
The facilities and office space owned and leased by the Company are considered
adequate for its present needs and, with the possible exception of the corporate
headquarters, are suitable for any foreseeable expansion.
-12-
<PAGE>
ITEM 3 - LEGAL PROCEEDINGS
The Company is involved in no material 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, 1999 to a vote of security holders through the solicitation of
proxies or otherwise.
-13-
<PAGE>
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The Company's common stock is traded in the over-the-counter market and quoted
under the symbol "BHAG" on the NASDAQ National Market ("NASDAQ").
The information set forth in response to Item 201 of Regulation S-K is included
in this Form 10-K in Part II Item 8, Financial Statement, and Supplementary Data
as Note 9, Quarterly Financial Data (Unaudited) ("Note 9"), and is incorporated
by reference in partial response to this Item 5. The prices set forth in Note 9
do not include commissions and do not necessarily represent actual transactions.
The closing price of the Company's common stock on the NASDAQ on September 30,
1999 was $9.67.
HOLDERS
As of November 10, 1999, there were 8,745,980 shares issued and 1,838,468 shares
in treasury. At November 10, 1999, the Company had 6,907,512 shares outstanding
that were owned by approximately 1,500 beneficial owners.
DIVIDENDS
During the years ended September 30, 1997, 1998 and 1999, the Company declared
and paid quarterly dividends each year aggregating $.12 per share to
shareholders (excluding the consideration of stock dividends). The Company's
Board of Directors ("Board of Directors") has since declared a dividend of $.03
per share, payable on December 1, 1999, to shareholders of record on November
22, 1999.
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.
During 1998, the Company's Board of Directors declared a 10% stock dividend,
payable June 11, 1998 to shareholders of record on May 26, 1998. Under the
dividend, shareholders were issued .10 share of common stock for each share of
common stock held as of the record date. A 10% stock dividend was also declared
and paid in fiscal 1997. Future determinations concerning stock dividends will
be made at the discretion of the Board of Directors.
RECENT SALES OF UNREGISTERED SECURITIES
The company has not sold any equity securities during the report period that
were not registered under the Securities Exchange Act of 1933, as amended.
TREASURY STOCK
The Company has periodically repurchased shares of BHA Common Stock since an
initial stock repurchase plan was authorized by the Board of Directors in 1994.
In the aggregate, the Company has repurchased 1,596,960 shares out of a total of
2,000,000 shares authorized by the Board of Directors. During fiscal 1999,
319,500 shares were repurchased at an average price of $10.88.
-14-
<PAGE>
ITEM 6 - SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth in the table below have been
derived from the consolidated financial statements of the Company and related
notes thereto. The selected income statement data for the years ended September
30, 1997, 1998 and 1999, and the selected balance sheet data as of September 30,
1998 and 1999, 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,
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
(In Thousands, Except per Share Data)
<S> <C> <C> <C> <C> <C>
Selected Income Statement Data
Net Sales $ 114,723 $ 121,308 $ 130,599 $142,432 $155,725
Gross Margin 31,206 34,817 40,786 44,033 41,940
Operating Expense* 21,235 24,048 28,196 31,853 38,297
Interest Expense, Net 367 732 1,009 1,423 1,984
Earnings Before Income Taxes* 9,604 10,037 11,581 10,757 1,659
Net Earnings* $ 5,954 $ 6,707 $ 8,101 $ 7,332 $ 1,084
Basic Earnings per Share* $ .79 $ .92 $ 1.12 $ 1.02 $ .15
Weighted Average Shares Outstanding--Basic 7,547 7,275 7,226 7,171 7,028
Diluted Earnings per Share* $ .77 $ .90 $ 1.06 $ .97 $ .15
Weighted Average Shares Outstanding--Diluted 7,711 7,426 7,676 7,552 7,134
Selected Balance Sheet Data
Working Capital $ 24,887 $ 28,451 $ 32,132 $ 42,223 $ 43,285
Total Assets 71,789 76,035 87,605 107,574 $108,148
Short-Term Debt Including Current Portion of
Long-Term Debt and Capital Lease Obligations 757 595 62 3,988 2,922
Long-Term Debt (Less Current Portion) 9,899 8,244 12,415 23,029 20,345
Capital Lease Obligations - - - - 7,600
Shareholders' Equity 46,440 51,696 56,918 61,953 58,892
Cash Dividends Declared per Common Share $ .09 $ .10 $ .11 $ .12 $ .12
</TABLE>
*Operating expenses for the year ended September 30, 1999 include $2,167,000 of
restructuring charges.
-15-
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
For purposes of this "Management's Discussion and Analysis" as well as the
segment reporting information included in Note 7 to the Audited Financial
Statements, Domestic Air Pollution Control ("Domestic APC") represents all
business for which the products or services are sold or managed from the United
States. Generally, this includes revenues to customers in the U.S. and exports
to customers in Canada, Latin America, and Asia. Europe APC 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 1999 COMPARED TO FISCAL 1998
Consolidated net sales for BHA during the year ended September 30, 1999 ("fiscal
1999") were $155.7 million compared to $142.4 million during the year ended
September 30, 1998 ("fiscal 1998"), an increase of 9%. Domestic APC contributed
the majority of the increase due to continued growth in sales of fine filtration
products and an unusually strong year for sales of electrostatic precipitator
("ESP") replacement parts and services that resulted from a number of contracts
for large rebuild projects. Primarily as a result of the growth in fine
filtration, sales of fabric filter products and services in baghouse
applications within the U.S. and Canada increased 7% to $79.0 million. Sales of
electrostatic precipitator parts and services in the U.S. and Canada increased
42% to $37.6 million. These increases more than offset declines in export sales
by the Domestic APC business segment. Economic difficulties in BHA's key Asian
and Latin American markets contributed to a 19% decline in export sales to $17.2
million. Sales in Europe were essentially unchanged at $20.1 million. BHA
Technologies increased its sales to third parties from $0.9 million to $1.8
million.
GROSS MARGIN
Consolidated gross margin was 26.9% of sales in fiscal 1999 compared to 30.9% of
sales in 1998. The margins in fiscal 1999 were adversely impacted by several
factors: (1) a cost overrun on a large fixed-price ESP rebuild project on which
a loss of $2.4 million was recognized, (2) substantial experimentation and
testing performed by BHA Technologies totaling $1.4 million related to adhesive
lamination to develop non-APC products, and (3) inventory write-downs of $0.4
million attributable to the Company's consolidation of manufacturing operations
in Europe. Excluding these three factors, gross margins were 29.6% in fiscal
1999. The balance of the decline in the gross margin percentage is largely the
result of a decline in gross margins as a percentage of sales in Europe due to a
combination of excess capacity and competition.
-16-
<PAGE>
OPERATING EXPENSES
Selling and advertising expense as a percentage of sales was 13.0% in fiscal
1999 and 12.2% of sales in fiscal 1998. The increased expense as a percentage of
sales was the result of investments being made to develop new markets by BHA
Technologies in non-APC businesses and additional personnel hired and trained
during the year to pursue future APC sales in new domestic and international
markets. General and administrative expense increased from $14.5 million to
$15.9 million but remained constant at 10.2% of sales in both fiscal 1999 and
1998. Approximately $0.5 million of the increased cost was the result of higher
reserves for doubtful receivables, primarily in Europe.
Restructuring expenses in the amount of $2.2 million were recognized during
fiscal 1999. A charge of $1.7 million was taken as a result of the decision by
BHA Technologies to discontinue its in-house adhesive lamination efforts and to
write down the related equipment to its net realizable value. Future efforts to
sell ePTFE membrane for apparel and other uses involving adhesive lamination
will either be outsourced or will be in the form of unlaminated film.
Additionally, severance costs of $0.5 million was incurred relative to the
consolidation of manufacturing operations in Europe.
INTEREST EXPENSE
Interest expense for fiscal 1999 and 1998 was $2.1 million and $1.4 million,
respectively. The increase was attributable to an increase in average
borrowings, including a capital lease. Such borrowings were used to fund
increased working capital requirements, investments in capital equipment, and
treasury stock repurchases.
INCOME TAXES
The effective income tax rate was 34.7% in fiscal 1999 compared to 31.8% in
fiscal 1998. The increase was the result of tax benefits recorded relative to
certain foreign losses at rates of less than 30% in fiscal 1999.
NET EARNINGS
Net earnings were $1.1 million ($0.15 per share) in fiscal 1999 and $7.3 million
($0.97 per share) in fiscal 1998. The decreased earnings is the result of
restructuring charges and substantial operating losses incurred in Europe and by
BHA Technologies together with the cost overrun on the ESP project discussed
above. Weighted average common and common equivalent shares outstanding
decreased by 0.4 million shares primarily due to treasury stock repurchases.
OTHER
The U.S. inflation rate grew at a moderate pace during 1999. BHA believes that
its business is not affected by inflation, except to the extent the economy in
general is affected.
-17-
<PAGE>
FISCAL 1998 COMPARED TO FISCAL 1997
Consolidated net sales for BHA during fiscal 1998 were $142.4 million compared
to $130.6 million during the year ended September 30, 1997 ("fiscal 1997"), a 9%
improvement. The overall change included a 26% increase in sales of
electrostatic precipitator replacement parts and services in the U.S. and
Canada. The improvement in sales to $26.4 million was due to an increase in
major project work in both the electric utility and industrial markets. Sales of
fabric filter products and services in baghouse applications in the U.S. and
Canada increased 3% to $74.1 million during fiscal 1998 as sales of BHA's fine
filtration products showed continued growth. Export sales from the U.S. in
fiscal 1998 were $21.4 million which was consistent with the prior year. Fiscal
1998 sales in Europe were $20.5 million representing a 25% increase over the
prior year. The fiscal 1998 results included the sales of Purfilter in Spain
which was acquired during that year. Sales in Europe, exclusive of Purfilter,
increased 10% over fiscal 1997.
GROSS MARGIN
Consolidated gross margin as a percentage of sales was 30.9% and 31.2% during
fiscal 1998 and 1997, respectively. During fiscal 1998, BHA's U.S. sales of
fabric filter products and services generated an improved gross margin
percentage due to a sales mix favoring its fine filtration product lines. The
increase was offset by an overall lower blended gross margin percentage in the
rest of its business caused by the combination of an increase in sales of lower
gross margin ESP replacement parts and services in the U.S., a decrease in
higher gross margin sales to customers in Asia and a decrease in the gross
margin percentage on sales in Europe.
OPERATING EXPENSE
Selling and advertising expense as a percentage of sales was 12.2% and 11.4% for
fiscal 1998 and 1997, respectively. The increase during fiscal 1998 was largely
attributable to higher selling expense relating to BHA Technologies' efforts in
pursuing opportunities outside of air pollution control. General and
administrative expense as a percentage of sales was 10.2% in both fiscal 1998
and 1997.
INTEREST EXPENSE
Interest expense for fiscal 1998 and 1997 was $1.4 million and $1.0 million,
respectively. The increase was attributable to an increase in bank borrowings
during fiscal 1998 to fund acquisitions, capital expenditures and treasury share
repurchase.
INCOME TAXES
The effective income tax rates were 31.8% and 30.1% in fiscal 1998 and 1997,
respectively. The increase was attributable to a decrease in research and
experimentation tax credits earned during fiscal 1998 as compared to the prior
year.
-18-
<PAGE>
NET EARNINGS
Net earnings were $7.3 million ($0.97 per share) in fiscal 1998 and $8.1 million
($1.06 per share) in fiscal 1997. The decrease in net earnings was attributable
to a decline in profits relating to BHA's international APC businesses and
operating losses incurred in BHA Technologies. Weighted average common and
equivalent shares outstanding decreased by 0.1 million shares due to treasury
stock repurchases.
LIQUIDITY AND CAPITAL RESOURCES
Net working capital was $43.3 million at September 30, 1999 compared to $42.2
million at September 30, 1998. The current ratio was 3.3 in 1999 compared to a
current ratio of 3.1 in 1998. Cash provided by operating activities was $9.2
million during fiscal 1999 while cash used by operating activities was $3.9
million in 1998. In fiscal 1997, $10.6 million in cash was provided by operating
activities. The positive cash flow provided by operating activities in fiscal
1999 reflects a modest $1.1 million increase in working capital to support the
$13.3 million increase in sales. The large use of cash in fiscal 1998 was the
result of a substantial increase in accounts receivable and inventory during
that year.
Investing activities have resulted in a net use of cash during each of the past
three years. Capital expenditures were $5.8 million, $8.3 million, and $10.5
million in fiscal 1999, 1998, and 1997, 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. Additional investments in recent
years include the acquisitions of product rights relative to Drayton's sound-off
acoustic cleaner product line in 1999 and acquisitions of APC businesses in
Spain and Venezuela in 1998.
During fiscal 1999, net cash provided by financing activities was approximately
$0.1 million as cash generated from operations was sufficient to support the
Company's investing activities. Incremental borrowings of $3.9 million were
largely used to repurchase BHA stock. In fiscal 1998, the Company incurred $14.4
million in incremental borrowings in order to fund the operating and investing
activities as well as repurchase $1.8 million of BHA stock. During fiscal 1997,
net cash provided by financing activities of $0.3 million included a net
increase in bank borrowings of approximately $3.6 million of which $2.7 million
was used to repurchase BHA stock.
At September 30, 1999, BHA had unused lines of credit of $17.5 million. During
the year, BHA refinanced most of its borrowings resulting in a year end debt
structure that includes commitments for: an $18.0 million revolving credit
facility maturing on October 1, 2002; a $15.0 million amortizing term loan with
a final maturity in 2006; a $2.5 million term loan with a maturity in June 2000;
German term loan and revolving credit facilities totaling the U.S. equivalent of
$4.1 million and maturing in 2003; and a capital lease related to an industrial
revenue bond transaction for $8.0 million with annual sinking fund payments and
a final maturity in 2018.
-19-
<PAGE>
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, 1999. With the exception of the capital lease
transaction, no assets of the Company are pledged to secure any indebtedness.
BHA believes that cash flows from operations and available credit lines will be
sufficient to meet its capital needs for the foreseeable future.
YEAR 2000
The Company has established a task force to address and assess Year 2000
compliance for the Company's computer system and software applications, its
facilities throughout the world, the products it sells that include
date-sensitive microprocessors, and suppliers providing the Company with goods
and services.
THE STATE OF READINESS OF THE COMPANY
During the past several years, the Company has replaced its significant computer
software applications through normal system upgrades. These computer systems
include personal computers, mid-range computer systems, and worldwide network
applications. All of the new systems are, according to the software vendors,
Year 2000 compliant to support the proper processing of date-sensitive
transactions. Internal testing of all of the Company's critical computer systems
and software applications have been completed. Corrective actions remaining
generally consist of installing "Y2K patches" to be provided by personal
computer software vendors.
The task force has also finalized its review of inventory lists of all
machinery, office equipment, and building equipment that utilize microprocessors
at the Company's facilities around the world. The Company has identified all
Year 2000-compliance issues which the Company believes could have a material
impact on the business and has completed final system testing and all
remediation believed to be significant.
The Company has a number of products that have date-sensitive microprocessors.
The task force has identified those products that have Year 2000 compliance
issues and proactively notified the customers to whom these products have been
sold, providing recommendations regarding actions to be taken by the customer.
The task force has prepared a list of significant suppliers of goods and
services whose Year 2000 compliance could potentially impact the Company's
business. The Company has proactively addressed and evaluated Year 2000
compliance with these suppliers, determining the impact on the Company's
business and developing necessary contingency plans. The Company will continue
to monitor the impact of any changes in key suppliers' announcements regarding
Year 2000 readiness.
-20-
<PAGE>
THE COSTS OF YEAR 2000 COMPLIANCE
The costs incurred to upgrade the Company's computer systems and software
applications were normal, planned system upgrades. In 1996, the Company made the
decision to consolidate its business into one entity for operating purposes.
This consolidation process included an upgrade to the Company's primary
mid-range legacy computer systems. The Company believes that all Year 2000
issues were addressed and corrected at that time. The Company completed its
personal computer rollout during 1998. The rollout was part of an overall
strategy to standardize on a single platform using a current level of
technology. Based on representations received from vendors, the Company believes
that all new equipment and software purchased is Year 2000 compliant.
The costs associated with the Year 2000 compliance of the Company's equipment
was not material. The company believes that the costs associated with any
potential non-compliance of the Company's products for Year 2000 are mitigated
by the Terms and Conditions under which these products were sold. The Company's
Terms and Conditions do not include any representations or warranties regarding
Year 2000 compliance and exclude any liability for incidental or consequential
damages including those which could arise out of a Year 2000 issue. The Company
does not anticipate that the costs associated with Year 2000 relating to its
products will be material.
The costs associated with the Year 2000 compliance of the Company's suppliers of
goods and services are not expected to be material. These plans will include
procuring additional quantities of inventory from certain vendors during the
fourth quarter of calendar 1999, but such incremental inventories, which will be
temporary, are not expected to exceed $2.0 million.
The Company does not separately track the internal costs incurred relating to
Year 2000 compliance since theses costs are principally payroll and related
costs for the task force and Management Information Systems department.
THE RISKS OF YEAR 2000 NON-COMPLIANCE TO THE COMPANY
The task force believes that the most significant risk that relates to Year 2000
compliance may be the state of readiness of the Company's significant suppliers
of goods and services, especially those outside of the U.S. Although the Company
has taken a proactive approach to communicate with its suppliers, the Company's
relationship with these suppliers cannot ensure their Year 2000 compliance or
their ability to continue to provide the necessary goods and services to the
Company.
Although the Company has completed the evaluation and testing of all of its
business systems, products, and vendor relationships, the Year 2000 readiness is
largely dependent upon numerous entities outside of the direct control of BHA.
The Company can make no guarantee that such factors will not have a material
adverse impact on the Company or its operations.
-21-
<PAGE>
THE YEAR 2000 CONTINGENCY PLANS OF THE COMPANY
The task force believes that its contingency plans are substantially complete,
however, due to the inter-relationship of numerous entities throughout the
world, management recognizes that new issues could develop that would require a
change in such plans. The Company will continue to monitor events domestically
as well as internationally.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities" is effective for BHA's fiscal
year 2001. The statement establishes accounting and reporting standards for
derivative instruments and all hedging activities. This statement will not have
any impact on BHA's results of operations as all derivative instruments are
designated as hedges against foreign currency exposures.
FORWARD LOOKING INFORMATION
This report contains forward-looking statements that reflect BHA's current views
with respect to future events and financial performance. The statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from historical results or those anticipated. The words
"should," "believe," "anticipate," "expect," and other expressions that indicate
future events and trends identify forward-looking statements. Actual future
results and trends may differ materially from historical results or those
anticipated depending on a variety of factors, including, but not limited to,
competition, the performance of newly established domestic and international
operations, demand and price for BHA's products and services, and other factors.
You should consult the section entitled "Factors Affecting Earnings and Stock
Price".
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FORWARD EXCHANGE CONTRACTS
BHA periodically enters into forward exchange contracts in order to fix the
currency exchange rate related to intercompany transactions with its foreign
subsidiaries. Changes in the value of these instruments due to currency
movements offset the foreign exchange gains and losses of the corresponding
intercompany transactions. At September 30, 1999 and 1998, the aggregate amount
of such forward exchange contracts was approximately $2,400,000 and $1,950,000,
respectively. The fair value of the outstanding forward exchange contracts
approximates the aggregate amount outstanding at September 30, 1999.
-22-
<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, 1999 and 1998, 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, 1999. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our 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, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended September 30, 1999 in conformity with generally accepted accounting
principles.
[KPMG LLP GRAPHIC]
November 10, 1999
Kansas City, Missouri
-23-
<PAGE>
BHA GROUP HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999 1998
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 877 $ 193
Accounts receivable, less allowance for doubtful
receivables of $1,238 in 1999 and $1,139 in 1998 28,356 31,338
Inventories (note 1) 28,043 27,363
Income taxes receivable 319 --
Prepaid expenses 1,989 1,828
Deferred Income taxes (note 4) 2,360 1,850
--------------- ---------------
TOTAL CURRENT ASSETS 61,944 62,572
--------------- ---------------
Property, plant and equipment, at cost:
Land and improvements 1,344 1,344
Buildings and improvements 22,692 24,241
Machinery and equipment 38,984 35,947
Office furniture, fixtures and equipment 4,654 4,149
--------------- ---------------
67,674 65,681
Less accumulated depreciation and amortization 32,770 29,125
--------------- ---------------
NET PROPERTY, PLANT AND EQUIPMENT 34,904 36,556
--------------- ---------------
Intangible and other assets, less accumulated amortization (note 3) 5,748 2,699
Excess of cost over net assets of businesses acquired,
less accumulated amortization 5,552 5,747
--------------- ---------------
$108,148 $ 107,574
=============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
-24-
<PAGE>
BHA GROUP HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999 1998
---- ----
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term (note 3) $ 2,522 $ 3,988
Current lease obligations (note 3) 400 --
Accounts payable 8,881 8,896
Accrued compensation and employee benefit costs 2,547 3,695
Accrued expenses and other current liabilities 2,895 2,271
Reserve for warranty and product service 1,414 1,140
Income taxes payable -- 359
--------------- ----------------
TOTAL CURRENT LIABILITIES 18,659 20,349
--------------- ----------------
Deferred income taxes (note 4) 1,715 2,116
Long-term debt, excluding current installments (note 3) 20,345 23,029
Long-term lease obligations, excluding current installments (note 3) 7,600
Other Long-Term Liabilities 937 127
Shareholders' equity (note 5):
Common Stock $.01 par value.
Authorized 20,000,000 shares:
Issued 8,745,980 and 8,666,353 shares, respectively 87 87
Additional paid-in capital 61,792 61,310
Retained earnings 23,219 22,983
Accumulated other comprehensive income (899) (293)
Unearned compensation (note 5) (4) (108)
Less cost of 1,838,468 and 1,527,856 shares, respectively,
of common stock in treasury (25,303) (22,026)
--------------- ----------------
TOTAL SHAREHOLDERS' EQUITY 58,892 61,953
=============== ================
Commitments and contingent liabilities (note 6)
$ 108,148 $ 107,574
=============== ================
</TABLE>
See accompanying notes to consolidated financial statements.
-25-
<PAGE>
BHA GROUP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net sales $ 155,725 $ 142,432 $ 130,599
Cost of sales 113,785 98,399 89,813
----------------- ----------------- -----------------
GROSS MARGIN 41,940 44,033 40,786
----------------- ----------------- -----------------
Operating expenses:
Selling and advertising expense 20,212 17,385 14,888
General and administrative expense 15,918 14,468 13,308
Restructuring expense (note 7) 2,167 -- --
----------------- ----------------- -----------------
TOTAL OPERATING EXPENSES 38,297 31,853 28,196
----------------- ----------------- -----------------
OPERATING INCOME 3,643 12,180 12,590
Interest expense (2,069) (1,449) (1,048)
Other income, net 85 26 39
----------------- ----------------- -----------------
EARNINGS BEFORE INCOME TAXES 1,659 10,757 11,581
----------------- ----------------- -----------------
Income taxes (note 4):
Current 1,321 4,419 3,214
Deferred (746) (994) 266
----------------- ----------------- -----------------
TOTAL INCOME TAXES 575 3,425 3,480
----------------- ----------------- -----------------
NET EARNINGS $ 1,084 $ 7,332 $ 8,101
================= ================= =================
Basic earnings per common share .15 1.02 1.12
Diluted earnings per common share .15 .97 1.06
</TABLE>
See accompanying notes to consolidated financial statements.
-26-
<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,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
COMMON STOCK:
Balance at beginning of year $ 87 $ 78 $ 71
Issuance of 79,627 shares of common stock in 1999,
41,008 shares in 1998 and 34,490 shares in 1997 -- 1 --
Issuance of 787,556 shares in 1998 and 712,088 shares in
1997 for 10% stock dividend -- 8 7
--------------- ---------------- -----------------
BALANCE AT END OF YEAR 87 87 78
--------------- ---------------- -----------------
ADDITIONAL PAID-IN CAPITAL:
Balance at beginning of year 61,310 47,607 33,392
Excess over par value of common stock issued 653 588 433
Stock issued from treasury for stock option exercises (303) (1,189) (165)
Income tax benefit from stock option exercise 132 628 157
Issuance of 10% stock dividend -- 13,676 13,790
--------------- ---------------- -----------------
BALANCE AT END OF YEAR 61,792 61,310 47,607
--------------- ---------------- -----------------
RETAINED EARNINGS:
Balance at beginning of year 22,983 27,773 31,963
Net earnings 1,084 7,332 8,101
Payment of cash dividends on common stock (848) (806) (740)
Issuance of 10% stock dividend -- (11,316) (11,551)
--------------- ---------------- -----------------
BALANCE AT END OF YEAR 23,219 22,983 27,773
--------------- ---------------- -----------------
ACCUMULATED OTHER COMPREHENSIVE INCOME:
Balance at beginning of year (293) (148) (138)
Equity adjustment from foreign currency translation (606) (145) (10)
--------------- ---------------- -----------------
BALANCE AT END OF YEAR (899) (293) (148)
--------------- ---------------- -----------------
UNEARNED COMPENSATION (NOTE 5):
Balance at beginning of year (108) (211) (315)
Recognition of compensation expense 104 103 104
--------------- ---------------- -----------------
BALANCE AT END OF YEAR (4) (108) (211)
--------------- ---------------- -----------------
TREASURY STOCK:
Balance at beginning of year (22,026) (18,181) (13,277)
Acquisition of 319,500, 113,770 and 149,990 shares in 1999,
1998 and 1997, respectively (3,476) (1,783) (2,669)
Issuance of 8,888 shares in 1999, 57,399 shares in 1998
and 8,534 shares in 1997 for stock option exercises, net 199 306 11
Issuance of 136,275 treasury shares in 1998 and
115,967 treasury shares in 1997 for 10% stock dividend -- (2,368) (2,246)
--------------- ---------------- -----------------
BALANCE AT END OF YEAR (25,303) (22,026) (18,181)
=============== ================ =================
TOTAL SHAREHOLDERS' EQUITY 58,892 $ 61,953 $ 56,918
=============== ================ =================
</TABLE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net earnings $ 1,084 $ 7,332 $ 8,101
Other comprehensive income:
Foreign currency translation adjustment (606) (145) (10)
--------------- ---------------- -----------------
Comprehensive income 478 7,187 8,091
=============== ================ =================
</TABLE>
See accompanying notes to consolidated financial statements.
-27-
<PAGE>
BHA GROUP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $1,084 $ 7,332 $ 8,101
Adjustments to reconcile net earnings to net cash
(used in) provided by operating activities:
Depreciation and amortization 6,052 5,478 4,490
Non-cash restructuring charges 1,713 -- --
Provision for deferred income taxes (911) (1,469) 266
Changes in assets and liabilities:
Accounts receivable 2,982 (8,590) (2,583)
Inventories (680) (7,003) (1,578)
Prepaid expenses (161) (568) (145)
Income taxes (546) 1,505 (926)
Accounts payable (14) (86) 2,577
Accrued expenses and other current liabilities (351) (470) 429
---------- ----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 9,168 (3,871) 10,631
---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (5,836) (8,313) (10,523)
Net assets of businesses acquired, excluding cash -- (1,221) --
Acquisition of product rights (718) -- --
Change in other assets (1,399) (104) (82)
---------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (7,953) (9,638) (10,605)
---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 653 317 195
Payment of cash dividends on common stock (848) (806) (740)
Purchase of treasury stock (3,476) (1,783) (2,669)
Stock option exercise - net payments (104) (883) (154)
Proceeds from long-term obligations 25,997 -- 7,500
Repayments of long-term obligations (5,064) (88) (1,708)
Borrowings (repayments) on lines of credit, net (17,083) 14,500 (2,154)
---------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 75 11,257 270
---------- ----------- -----------
Effect of exchange rate changes (606) (145) (10)
---------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 684 (2,397) 286
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 193 2,590 2,304
---------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 877 $ 193 $ 2,590
========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 2,058 $ 1,530 $ 1,025
Income taxes $ 2,032 $ 3,543 $ 4,297
Supplemental disclosure of non-cash investing and financing activities:
Accrual of additional purchase price $ 800 -- --
Issuance of common stock to directors, officers and
employees $ 105 $ 272 $ 238
</TABLE>
See accompanying notes to consolidated financial statements.
-28-
<PAGE>
BHA Group Holdings, Inc.
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRESENTATION
The consolidated financial statements include the accounts of BHA Group
Holdings, Inc. (BHA) and its wholly-owned foreign and domestic
subsidiaries. All significant intercompany balances and transactions have
been eliminated in consolidation.
REVENUE RECOGNITION
BHA recognizes revenue at the time products are shipped or services are
performed.
USES OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
INVENTORIES
BHA values its inventory at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method. Components of
inventories at September 30, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
($ IN THOUSANDS) 1999 1998
----------------- ----------------
<S> <C> <C>
Raw materials $ 16,173 $ 17,036
Work-in-process 2,150 1,174
Finished goods 9,720 9,153
================= ================
TOTAL 28,043 $ 27,363
================= ================
</TABLE>
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost. Major renewals and
betterments are charged to the property accounts; replacements,
maintenance and repairs that do not improve or extend the life of the
respective assets are charged to expense as incurred.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization of property, plant and equipment are
computed on the straight-line method using estimated useful lives by
major asset class as follows:
Buildings and improvements 30 years
Machinery and equipment 4-8 years
Office furniture, fixtures and equipment 3-10 years
-29-
<PAGE>
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in earnings
in the period that includes the enactment date.
No provision is made for income taxes on undistributed earnings of the
foreign subsidiaries because such earnings are considered permanently
invested in the foreign subsidiaries.
WARRANTY AND PRODUCT SERVICE
BHA provides a reserve for estimated warranty and product service claims
based on historical experience and consideration of changes in products
and technology.
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 included in the consolidated statements of earnings for
1999, 1998 and 1997 amounted to $71,000, $141,000 and $93,000,
respectively.
FORWARD EXCHANGE CONTRACTS
BHA periodically enters into forward exchange contracts in order to fix
the currency exchange rate related to intercompany transactions with its
foreign subsidiaries. Changes in the value of these instruments due to
currency movements offset the foreign exchange gains and losses of the
corresponding intercompany transactions. At September 30, 1999 and 1998,
the aggregate amount of such forward exchange contracts was approximately
$2,400,000 and $1,950,000, respectively. The fair value of the
outstanding forward exchange contracts approximates the aggregate amount
outstanding at September 30, 1999.
COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued Statement
No. 130, "Reporting Comprehensive Income" which establishes rules for the
reporting of comprehensive income and its components. Comprehensive
income consists of net income and foreign currency translation
adjustments and is presented in the Statement of Comprehensive Income.
The adoption of Statement No. 130 had no impact on net earnings or
stockholders' equity of the Company.
TREASURY STOCK
Since June 1994, the Board of Directors of BHA have periodically approved
the purchase of up to 2,000,000 shares of the Company's common stock. 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.
-30-
<PAGE>
EARNINGS PER COMMON SHARE
Basic earnings per share is computed by dividing net earnings available
to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share is computed based
upon the weighted average number of common shares and dilutive common
equivalent shares outstanding. Stock options, which are common stock
equivalents, have a dilutive effect on earnings per share in all periods
presented and are therefore included in the computation of diluted
earnings per share. Stock options are described in Note 5. A
reconciliation of the numerators and the denominators of the basic and
diluted earnings per-share computations is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA.)
1999 1998 1997
---------------------------------- ---------------------------------- --------------------------------
Net Earnings Shares Per-Share Net Earnings Shares Per-Share Net Earnings Shares Per-Share
(Numerator) (Denom.) Amt. (Numerator) (Denom.) Amt. (Numerator) (Denom.) Amt.
----------- -------- --------- ------------ -------- --------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic earnings per share:
Earnings available to
common shareholders $1,084 7,028 $ 0.15 $7,332 7,171 $ 1.02 $8,101 7,226 $ 1.12
Effect of dilutive
securities--stock options -- 106 -- 381 -- 450
Diluted earnings per
share: Earnings
available to common
shareholders and assumed
conversion $1,084 7,134 $ 0.15 $7,332 7,552 $ 0.97 $8,101 7,676 $ 1.06
================================== ================================= ==================================
</TABLE>
Options to purchase 571,688 shares of common stock at prices ranging from
$12.02 to $16.82 per share were outstanding at the end of 1999 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 1998 and 1997, options to purchase 8,800 shares and 0
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 $1,360,000
and $1,165,000 at September 30, 1999 and 1998, respectively.
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 $5,833,000 and
$5,482,000 at September 30, 1999 and 1998, 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.
-31-
<PAGE>
STATEMENTS OF CASH FLOWS
For purposes of the consolidated statements of cash flows, BHA considers
overnight invested cash and investments in marketable securities, with
maturities of three months or less to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, accounts receivable and accounts payable
approximate fair value because of the short maturities of these
instruments. The fair value of long-term obligations are estimated by
discounting future cash flows using current market rates. The carrying
amounts of long-term debt and lease obligations approximate fair value at
September 30, 1999.
2. ACQUISITIONS
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 consists 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. 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. The total purchase price of $1,500,000 is being
amortized on a straight-line basis over ten years.
During fiscal 1998, the Company acquired 100% of the outstanding stock of
Purificacion y Filtracion, S.L. (BHA Purfilter) located in Barcelona,
Spain and Industrial Filtrantes Purfilter C.A. (BHA Venezuela) located in
Puerto Ordaz, Venezuela for a combined purchase price of approximately
$1,400,000. These acquisitions were accounted for as purchases, with each
purchase price allocated to the assets acquired based upon estimated fair
values as of the dates of the acquisitions. The excess of the purchase
price over the net assets acquired is being amortized on a straight-line
basis over thirty years.
The proforma effect of these acquisitions are not material to the
Company.
3. NOTES PAYABLE TO BANKS, LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Notes Payable to Banks and Long-Term Debt
A summary of notes payable to banks and long-term debt at September 30,
1999 and 1998 are as follows:
<TABLE>
<CAPTION>
($ IN THOUSANDS) 1999 1998
----------- ------------
<S> <C> <C>
Unsecured domestic line of credit with variable interest rate $ 1,120 $19,300
Unsecured foreign line of credit with variable interest rate 803 --
Notes payable to a domestic bank with variable interest rate 15,000 --
Notes payable to a domestic bank with fixed interest rates of
5.00% and 7.02% 2,500 7,500
Notes payable to a foreign bank with a fixed interest rate of 4.75% 2,997 --
Other notes payable 447 217
Less current installments (2,522) (3,988)
=========== ============
LONG-TERM DEBT, EXCLUDING CURRENT INSTALLMENTS $20,345 23,029
=========== ============
</TABLE>
-32-
<PAGE>
BHA has a domestic unsecured bank line of credit of $18,000,000 for
working capital purposes and other corporate matters. This line of credit
bears interest at variable rates based on either the prime rate or LIBOR
and expires in October 2002. This facility is a revolving credit
agreement in which BHA pays a 0.25% commitment fee on the unused portion.
At September 30, 1999, $1,120,000 was outstanding under this domestic
bank line of credit at an interest rate of 7.25%.
BHA also maintains a foreign unsecured bank line of credit of DM
2,500,000 (approximately $1,367,000 at September 30, 1999) for working
capital purposes in Europe. This line of credit bears interest at
variable rates based on the German prime rate and expires in fiscal 2002.
At September 30, 1999, DM 1,340,000 (approximately $732,000) was
outstanding under this foreign bank line of credit at an interest rate of
4.1%.
BHA's foreign subsidiary located in Switzerland maintains a line of
credit with a foreign bank in the amount of CHF 200,000 (approximately
$133,000 at September 30, 1999). As of September 30, 1999 and 1998, 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 (6.23% at September 30, 1999) and matures in
October 2006. Quarterly principal payments of $625,000 begin in October
2000.
In October 1998, BHA's German subsidiary entered into a DM 5,000,000 term
loan (approximately $2,733,999 at September 30, 1999) with a German bank.
The proceeds of the loan were used for working capital purposes. This
term loan has a fixed rate of 4.75% and is due in full at maturity in
December 2003.
BHA also has a $2.5 million unsecured term loan which was renewed during
fiscal year 1999 with an interest rate of 5.0% and matures in June 2000.
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, 1999. At September
30, 1999, $9,500,000 of retained earnings were available for cash
dividends.
-33-
<PAGE>
Capital Lease Obligations
In December 1998, BHA Technologies, Inc., a wholly-owned subsidiary,
entered into a sale-leaseback transaction with the City of Lee's Summit,
Missouri. In connection with this lease, the city issued tax-exempt
Industrial Development Revenue Bonds ("Bonds") totaling $8,000,000 and
placed the proceeds in a trust to fund future capital expenditures at the
Lee's Summit manufacturing facility. BHA Technologies is obligated,
through its lease, for the repayment of these bonds over the next 20
years. Annual lease payments of $400,000 begin 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 (3.50% as of September
30, 1999). As of September 30, 1999, BHA Technologies has $1.2 million 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 at September 30, 1999.
Scheduled payments on long-term debt, including capital lease
obligations, for the next five fiscal years are as follows:
<TABLE>
<CAPTION>
$ IN THOUSANDS
------------------
<S> <C>
2000 $ 2,922
2001 3,325
2002 4,823
2003 2,900
2004 5,897
Thereafter 11,000
==================
$ 30,867
==================
</TABLE>
4. INCOME TAXES
The components of total income tax expense for the years ended September
30, 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
($ IN THOUSANDS) 1999 1998 1997
------------- ------------ --------------
<S> <C> <C> <C>
Current income tax expense (benefit):
Federal $ 1,621 $ 3,716 $ 2,260
Foreign (552) 160 548
State and local 252 543 406
Deferred income tax expense (benefit):
Federal (683) (893) 250
State (63) (101) 16
------------- ------------ --------------
$ 575 $ 3,425 $ 3,480
============= ============ ==============
</TABLE>
-34-
<PAGE>
The effective tax rate differs from the expected tax rate for the respective
years as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- --------------
<S> <C> <C> <C>
Expected income tax expense 34.0% 34.0% 34.0%
State income taxes, net 7.5 2.7 2.3
Difference in tax rates of foreign
subsidiaries 14.1 (2.2) (3.6)
Research and experimentation credits (12.1) (1.7) (3.4)
Other, net (8.8) (1.0) .8
------------- ------------- --------------
EFFECTIVE INCOME TAX RATE 34.7% 31.8% 30.1%
============= ============= ==============
</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, 1999
and 1998 are presented as follows:
<TABLE>
<CAPTION>
($ IN THOUSANDS) 1999 1998
---------------- ----------------
<S> <C> <C>
Deferred tax assets:
Reserves and accruals not
currently deductible $ 1,947 $ 1,641
Inventories 296 234
Other, net 329 165
---------------- ----------------
Total gross deferred tax assets $ 2,572 2,040
---------------- ----------------
Deferred tax liabilities:
Intangible and other assets 570 621
Property, plant and equipment 1,084 813
Prepaid expenses 206 244
Deferred compensation 39 92
Other, net 28 536
---------------- ----------------
Total gross deferred tax liabilities 1,927 2,306
---------------- ----------------
NET DEFERRED TAX (ASSET)/LIABILITY $ (645) $ 266
================ ================
</TABLE>
At September 30, 1999 and 1998, deferred tax assets and liabilities are
classified in the accompanying consolidated balance sheets as follows:
<TABLE>
<CAPTION>
($ IN THOUSANDS) 1999 1998
----------------- ----------------
<S> <C> <C>
Current deferred income tax asset $ 2,360 $ 1,850
Non-current deferred income tax liability 1,715 2,116
================= ================
NET DEFERRED INCOME TAX ASSET/(LIABILITY) $ 645 $ (266)
================= ================
</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 approximate $1,627,000, $2,702,000 and
$2,142,000 at September 30, 1999, 1998, and 1997, respectively, as management
considers these earnings to be permanently invested. Net earnings (losses) of
these foreign subsidiaries were approximately $(3,449,000), $359,000 and
$1,058,000 for the years ended September 30, 1999, 1998, and 1997, respectively.
-35-
<PAGE>
5. INCENTIVE STOCK PLAN
BHA has an incentive stock plan for key employees, officers and directors. The
plan provides for 2,221,084 shares of common stock (as adjusted for the dilutive
effect of stock dividends) available for issuance of stock options, restricted
stock and payment to outside directors in lieu of cash. Stock options are
granted at a price equal to the fair market value of BHA Common Stock at the
date of grant for terms of up to ten years.
During 1995, BHA awarded 45,000 shares of restricted stock, under the incentive
stock plan, to certain employees. The market value of the awards at the date of
issuance has been recognized as compensation expense ratably over the five-year
vesting period ending in fiscal 1999.
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) which is permitted under SFAS 123. Under APB 25 compensation
expense is recorded on the date of grant for stock options granted only if the
current market price of the underlying stock exceeds the exercise price.
A summary of transactions in the incentive stock plan is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
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 1,087,057 $10.63 1,099,431 $ 8.83 1,158,193 $ 8.71
of year
Granted 312,800 13.37 251,140 16.02 6,050 15.23
Expired (3,492) 9.86 -- -- -- --
Canceled (200,312) 12.67 -- -- (11,647) 9.58
Exercised (118,903) 7.90 (263,514) 8.26 (53,165) 6.84
--------------------------------------------------------------------------------------------
Outstanding at end of
year 1,077,150 $11.35 1,087,057 $ 10.63 1,099,431 $ 8.83
============================ ============================== ==============================
Exercisable at end of yr. 505,462 $ 8.27 773,045 $ 8.93 891,935 $ 8.85
============================ ============================== ==============================
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------------------------- --------------------------------------
NUMBER WEIGHTED- WEIGHTED- NUMBER WEIGHTED-
RANGE OF EXERCISE OUTSTANDING AVG. CONTRACTED AVG. EXERCISE EXERCISABLE AVERAGE
PRICES AT 9/30/99 LIFE IN YRS. PRICE AT 9/30/99 EXERCISE PRICE
------------------- ----------------- ----------------- ----------------- ------------------ -------------------
<S> <C> <C> <C> <C> <C>
$6.20 - 9.58 505,462 4.9 $ 8.27 505,462 $ 8.27
$12.02 - 16.82 571,688 7.7 $14.07 -- --
================= ==================
1,077,150 505,462
================= ==================
</TABLE>
-36-
<PAGE>
The per share weighted-average fair value of stock options granted during 1999,
1998, and 1997 was $5.36, $5.20 and $5.44, respectively, on the date of grant
using the Black Scholes option-pricing model with the following assumptions:
expected dividend yield of 1.15% for 1999, .80% for 1998, and 1.00% for 1997;
weighted average risk-free interest rate of 5.90% for 1999, 4.73% for 1998, and
6.10% for 1997; expected volatility factor of 29.38%, 19.0% and 18.9% for 1999,
1998, and 1997, 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 $738,000 or $.10 per diluted share in 1999, $470,000 or $.06 per
diluted share in 1998, and $12,000 in 1997 with no effect on earnings per share.
Compensation expense for options granted prior to October 1, 1995 is not
considered. The full impact of calculating compensation expense for stock
options under SFAS 123 is not reflected in the proforma net earnings amounts
above since compensation expense is reflected over the option's vesting period
of four years for all options.
6. COMMITMENTS AND CONTINGENT LIABILITIES
EMPLOYEE BENEFIT PLANS
BHA has a noncontributory Employee Stock Ownership Plan (ESOP) which includes
substantially all domestic employees who are not covered by collective
bargaining agreements. BHA, with approval of its Board of Directors, makes
discretionary contributions to the ESOP. Benefits become vested according to
years of service. Contributions charged to operating expense were $435,000,
$884,000, and $1,175,000 for the years ended September 30, 1999, 1998, and 1997,
respectively.
BHA's eligible domestic employees participate in a voluntary 401(k) employee
benefit plan (401(k) Plan). The 401(k) Plan covers eligible employees not
covered by a collective bargaining agreement. The 401(k) Plan provides that 100%
of a participant's contribution will be matched by BHA subject to a maximum
contribution which is determined annually at the discretion of the Board of
Directors. BHA matching contributions become vested based on years of service.
BHA made matching contributions of $330,000, $270,000, and $253,000 for the
years ended September 30, 1999, 1998, and 1997, respectively.
LEASES
A summary of noncancelable, long-term operating lease commitments on office
facilities and equipment follows:
<TABLE>
<CAPTION>
YEARS ENDING SEPTEMBER 30, $ IN THOUSANDS
-------------------------- --------------
<S> <C>
2000 $ 1,969
2001 936
2002 364
2003 310
2004 76
Thereafter 178
</TABLE>
-37-
<PAGE>
It is expected that in the normal course of business, expiring leases will be
renewed or replaced by similar leases on other properties. Total rental expense
on noncancelable, long-term operating leases amounted to approximately
$2,780,000, $2,210,000 and $1,036,000 for the years ended September 30, 1999,
1998, and 1997, respectively.
LETTERS OF CREDIT
The terms of certain contracts require that BHA issue standby letters of credit
to assure performance. Open standby letters of credit amounted to $92,000 and
$57,000 at September 30, 1999 and 1998, respectively.
LITIGATION
In the normal course of business, BHA is party to certain actions arising out of
various allegations of product or professional liability. BHA has insurance
coverage for substantially all such actions, subject to coverage limitations and
deductibles for each claim. In the opinion of management, the amount of loss, if
any, from the final outcome of these actions will not have a material adverse
impact on the consolidated financial statements.
7. RESTRUCTURING
The Company recognized restructuring expenses in the amount of $2,167,000 on a
pretax basis during the fourth quarter of 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. The charge primarily related to the
write-down of lamination equipment to its net realizable value. 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 the fourth
quarter relative to the consolidation of manufacturing operations in Europe. In
June, the Company announced a decision to combine its European fabric filter
manufacturing into one facility located in Spain. As part of this consolidation,
the manufacturing facility in Germany was closed effective September 30, 1999.
In addition, cost of sales includes Unusual Charges of $4,200,000 consisting of
(1) a cost overrun on a large fixed-price ESP rebuild project on which a loss of
$2,400,000 was recognized, (2) substantial experimentation and testing performed
by BHA Technologies totaling $1,400,000 related to adhesive lamination to
develop products for non-APC markets and (3) inventory write-downs of $400,000
attributable to the Company's consolidation of manufacturing operations in
Europe.
8. BUSINESS SEGMENTS
SEGMENT REPORTING
Effective September 30, 1999, BHA adopted Statement of Financial Accounting
Standard No. 131, "Disclosures about Segments of an Enterprise and Related
Information," (SFAS No. 131). SFAS No. 131 requires reporting of segment
information that is consistent with the way in which management operates the
Company. The disclosure requirements of SFAS No. 131 have been presented for
each of the years ended September 30, 1999, 1998 and 1997.
-38-
<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 to BHA's APC business and is also
developing a market for such products outside of air pollution control.
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, 1999, 1998, and 1997
were as follows:
NET SALES
<TABLE>
<CAPTION>
($ IN THOUSANDS) 1999 1998 1997
------------------ ----------------- -----------------
<S> <C> <C> <C>
Domestic APC $133,846 $121,254 $114,004
Europe APC 20,076 20,226 16,431
BHA Technologies 1,803 952 164
------------------ ----------------- -----------------
TOTAL $155,725 $142,432 $130,599
================== ================= =================
</TABLE>
Net sales represent revenues from sales to unaffiliated customers.
INTEREST EXPENSE
<TABLE>
<CAPTION>
($ IN THOUSANDS) 1999 1998 1997
------------------ ----------------- -----------------
<S> <C> <C> <C>
Domestic APC $1,014 $ 878 $ 999
Europe APC 369 196 --
BHA Technologies 686 375 49
------------------ ----------------- -----------------
TOTAL $2,069 $ 1,449 $ 1,048
================== ================= =================
</TABLE>
EARNINGS (LOSS) BEFORE INCOME TAXES
<TABLE>
<CAPTION>
($ IN THOUSANDS) 1999 1998 1997
------------------ ----------------- -----------------
<S> <C> <C> <C>
Domestic APC $10,925 $11,050 $ 9,333
Europe APC (2,744) 436 1,441
BHA Technologies (6,522) (729) 807
------------------ ----------------- -----------------
TOTAL $ 1,659 $10,757 $11,581
================== ================= =================
</TABLE>
-39-
<PAGE>
The aggregate amount of all corporate expenses is allocated to the three
business segments based upon the judgement of management. The pretax loss for
Europe APC includes restructuring charges of $0.5 million related to the closure
of German manufacturing operations in fiscal 1999. The 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 in 1999.
Additionally, the Unusual Charges recognized in fiscal 1999 as discussed in Note
7 are included in the preceding summary and reduced pre-tax 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) 1999 1998 1997
------------------ ----------------- -----------------
<S> <C> <C> <C>
Domestic APC $ 66,829 $ 69,380 $61,186
Europe APC 16,234 15,486 9,704
BHA Technologies 14,153 12,252 6,928
Corporate 10,932 10,456 9,787
------------------ ----------------- -----------------
TOTAL $108,148 $107,574 $87,605
================== ================= =================
</TABLE>
DEPRECIATION AND AMORTIZATION
<TABLE>
<CAPTION>
($ IN THOUSANDS) 1999 1998 1997
------------------ ----------------- -----------------
<S> <C> <C> <C>
Domestic APC $3,100 $3,142 $2,711
Europe APC 690 530 308
BHA Technologies 843 408 286
Corporate 1,419 1,398 1,185
------------------ ----------------- -----------------
TOTAL $6,052 $5,478 $4,490
================== ================= =================
</TABLE>
CAPITAL EXPENDITURES
<TABLE>
<CAPTION>
($ IN THOUSANDS) 1999 1998 1997
------------------ ----------------- -----------------
<S> <C> <C> <C>
Domestic APC $1,493 $1,766 $2,135
Europe APC 665 1,235 1,941
BHA Technologies 2,600 4,031 3,254
Corporate 1,078 1,281 3,193
------------------ ----------------- -----------------
TOTAL $5,836 $8,313 $10,523
================== ================= =================
</TABLE>
Certain corporate assets including intangibles and computer equipment are not
allocated to specific business segments and are thus included in the above
tables of assets, depreciation and amortization, and capital expenditures as
"Corporate."
GEOGRAPHIC INFORMATION BY COUNTRY
The following table presents revenues by country based on the location of the
use of the product or service. No single country, other than the United States,
comprised more than 10% of BHA's net sales.
-40-
<PAGE>
NET SALES
<TABLE>
<CAPTION>
($ IN THOUSANDS) 1999 1998 1997
------------------ ----------------- -----------------
<S> <C> <C> <C>
United States $113,475 $ 98,694 $ 89,202
All Other Countries 42,250 43,738 41,397
------------------ ----------------- -----------------
TOTAL $155,725 $142,432 $130,599
================== ================= =================
</TABLE>
The following table presents all noncurrent assets by country based on the
location of the asset. No single country, other than the United States,
comprised more than 10% of the Company's long-lived assets.
LONG-LIVED ASSETS
<TABLE>
<CAPTION>
($ IN THOUSANDS) 1999 1998 1997
------------------ ----------------- -----------------
<S> <C> <C> <C>
United States $39,177 $38,037 $33,437
All Other Countries 7,027 6,965 6,711
------------------ ----------------- -----------------
TOTAL $46,204 $45,002 $40,148
================== ================= =================
</TABLE>
9. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED DEC. 31 MARCH 31 JUNE 30 SEPT. 30
--------------- ------------------ --------------- ----------------
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1999
Net sales 35,228 40,331 38,943 41,223
Gross margin 10,689 9,380 10,588 11,283
Net earnings (loss) * 1,316 (155) 597 (674)
Diluted earnings (loss) per share .18 (.02) .08 (.10)
Common Stock Price Range, High $14.25 $13.63 $10.50 $10.00
Low $10.25 $ 9.13 $ 8.00 $ 7.88
1998
Net sales $30,022 $38,881 $35,917 $37,612
Gross margin 9,710 11.672 11,179 11,472
Net earnings 1,390 2,100 1,895 1,947
Diluted earnings per share .18 .28 .25 .26
Common Stock Price Range, High $17.96 $17.96 $19.00 $16.50
Low $15.68 $15.78 $15.25 $11.75
</TABLE>
* Net earnings reflect Restructuring Expenses of $2,167,000 ($1,416,000 after
tax) in the September 1999 quarter. Net earnings for fiscal 1999 also reflect
Unusual Charges (see Note 7) of $250,000 ($163,000 after tax) in the December
1998 quarter, $2,750,000 ($1,800,000 after tax) in the March 1999 quarter,
$740,000 ($483,000 after tax) in the June 1999 quarter, and $500,000
($327,000 after tax) in the September 1999 quarter.
-41-
<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, 1999 $ 1,139 837 738 1,238
=============== =============== =============== ==============
Year ended September 30, 1998 $ 965 254 80 1,139
=============== =============== =============== ==============
Year ended September 30, 1997 $ 932 385 352 965
=============== =============== =============== ==============
Reserve for Warranty and Product Service
Year ended September 30, 1999 $ 1,140 1,533 1,259 1,414
=============== =============== =============== ==============
Year ended September 30, 1998 $ 915 1,629 1,404 1,140
=============== =============== =============== ==============
Year ended September 30, 1997 $ 970 1,715 1,770 915
=============== =============== =============== ==============
</TABLE>
-42-
<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, 1999,
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 (1).
(10d) 401(K) Plan of BHA (1).
(10e) Employment Agreement dated September 1, 1993 between BHA Group,
Inc. and Lamson Rheinfrank, Jr. (4).
(10f) Employment Agreement dated September 1, 1993 between BHA Group,
Inc. and James E. Lund (4).
(10g) Employment Agreement dated September 1, 1993 between BHA Group,
Inc. and James J. Thome (4).
(10h) Employment Agreement dated January 1, 1995 between BHA Group, Inc.
and James C. Shay (6).
-43-
<PAGE>
(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).
(10j) $15,000,000 Term Loan Agreement between BHA Group Holdings, Inc.
and Commerce Bank N.A. dated as of September 20, 1999 (8).
(10k) $18,000,000 Revolving Credit Agreement between BHA Group Holdings,
Inc. and Bank of America, N.A. dated as of September 30, 1999 (8).
(11) Computation of earnings per common share (8).
(21) Subsidiaries of the Registrant (8).
(23) Independent Auditors' Consent (8).
(27) Financial Data Schedule - Article 5 (8).
(b) Reports on Form 8-K: No reports on Form 8-K were filed by the Company during
the quarter ended September 30, 1999.
(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 Annual Report on Form 10-K for the
fiscal year ended September 30, 1993, 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 hereto.
-44-
<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.
Dated: November 16, 1999 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 16, 1999 By: /s/ James E. Lund
----------------------------------------
James E. Lund, President
Principal Executive Officer and Director
Dated: November 16, 1999 By: /s/ Lamson Rheinfrank, Jr.
----------------------------------------
Lamson Rheinfrank, Jr.
Chairman of the Board
Dated: November 16, 1999 By: /s/ Don H. Alexander
----------------------------------------
Don H. Alexander
Director
Dated: November 16, 1999 By: /s/ Robert Freeland
----------------------------------------
Robert Freeland
Director
Dated: November 16, 1999 By: /s/ Thomas A. McDonnell
----------------------------------------
Thomas A. McDonnell
Director
Dated: November 16, 1999 By: /s/ James J. Thome
----------------------------------------
James J. Thome
Executive Vice President,
Principal Operating Officer and
Director
Dated: November 16, 1999 By: /s/ Richard C. Green, Jr.
----------------------------------------
Richard C. Green, Jr.
Director
Dated: November 16, 1999 By: /s/ James C. Shay
----------------------------------------
James C. Shay
Senior Vice President, Finance and
Administration, Principal
Financial & Accounting Officer
-45-
<PAGE>
BHA Group Holdings, Inc.
Exhibit Index
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
10j Term Loan Agreement
10k Credit Agreement
11 Computation of Per Share Earnings
21 Subsidiaries of BHA Group Holdings, Inc.
23 Independent Auditors' Report
27 Financial Data Schedule - Article 5
</TABLE>
-46-
<PAGE>
TERM LOAN AGREEMENT
THIS TERM LOAN AGREEMENT ("AGREEMENT") is made and entered into
as of the 20th day of September, 1999, by and between BHA Group Holdings,
Inc., a Delaware corporation ("BORROWER") and Commerce Bank, N.A. (Kansas City,
Missouri), a national banking association ("BANK");
In consideration of the mutual benefits accruing to each of the
parties, the receipt and sufficiency of which are hereby acknowledged, and in
further consideration of the mutual performance of this Agreement, the parties
hereto agree as follows:
ARTICLE I
LOAN
1.01. DEFINITIONS. For purposes of this Agreement, certain terms
used herein shall be defined as follows:
(a) "COMMERCE PRIME RATE" shall mean the per annum rate of
interest established as such from time to time by Bank, and
no representation is made that the Prime Rate is the lowest,
the best or a favored rate of interest; the rate of interest
charged shall change with, and be effective on, the date of
each change in the Prime Rate.
(b) "EBITDA" shall mean the sum of Borrower's: (i) net income,
plus (ii) interest expense, plus (iii) income tax expense,
plus (iv) depreciation and amortization expense, (v) plus or
minus a loss/gain on sale of assets and as a result of other
non-recurring items. For purposes of this definition, the
non-recurring items described in subclause (v) shall
specifically include the add back of the approximately
$2,400,000 charge with respect to the Georgia Power project
and the approximately $1,500,000 charge with respect to
restructure of Borrower's international operations.
(c) "FIXED CHARGE" shall mean the sum of all scheduled payments
of principal and/or interest on Total Funded Debt of
Borrower.
(d) "LEVERAGE RATIO" shall mean the ratio of Total Funded Debt
to EBITDA.
(e) "LIBOR RATE" shall mean (i) from the date hereof through the
first Principal Payment Date, the thirty-day London
Interbank Offered Rate, and (ii) commencing on the first
Principal Payment Date and continuing thereafter, the
ninety-day London Interbank Offered Rate, each as quoted in
the Money Rates section of The Wall Street Journal, the
Knight-Ridder News Service, or such other news service used
by Bank, on the business
<PAGE>
day immediately preceding the date of the applicable
borrowing (or the business day immediately preceding the
date of any adjustment date, as applicable).
(f) "TANGIBLE NET WORTH" shall mean Borrower's consolidated net
worth, as determined in accordance with generally accepted
accounting principles applied on an accrual basis, less,
without duplication and taking into consideration the
effects of consolidation:
(i) Accounts and notes receivable due
Borrower from any shareholder or any director or
officer of Borrower;
(ii) Accounts or notes receivable from
any non-consolidated Affiliate of Borrower;
(iii) Accounts or notes receivable from
employees of Borrower to Borrower; provided,
however, that the items listed in this subpart
(iii) shall only be subtracted from Tangible Net
Worth to the extent the aggregate amount of such
items exceeds $100,000;
(iv) Goodwill and organizational costs;
and
(v) Any other assets which Bank
reasonably deems intangible.
(g) "TOTAL FUNDED DEBT" shall mean the sum of: (i) outstanding
borrowings under the Loan, plus (ii) the face amount of
issued and outstanding standby or commercial letters of
credit, except to the extent such issued and outstanding
standby letters of credit are secured by or secure
indebtedness already included within this defined term, plus
(iii) the aggregate outstanding principal balance of all
other obligations for borrowed money, plus (iv) guarantees,
less monies advanced on Chapter 100 bonds but not yet spent
on the applicable project.
(h) "PERMITTED INDEBTEDNESS" shall mean the indebtedness which
falls within the indebtedness permitted in Section 5.01 (b).
(i) "PRINCIPAL PAYMENT DATE" shall mean the first day of each
fiscal quarter, commencing on the first day of the first
fiscal quarter following the first anniversary hereof.
1.02. AMOUNT. Subject to the terms of this Agreement, Bank
agrees to lend to Borrower (the "LOAN") the sum of Fifteen Million Dollars
($15,000,000) (the "LOAN AMOUNT").
2
<PAGE>
The proceeds of the Loan will first be used to repay all sums due from Borrower
to Bank in connection with Borrower's existing Fifteen Million Dollar
($15,000,000) revolving line of credit at Bank, and the balance of the proceeds,
if any, shall be used to pay down any other outstanding bank debt.
1.03. TERM NOTE. On the date of closing Borrower will execute
and deliver its promissory note to Bank, in form and substance satisfactory to
Bank, and in the principal amount of the Loan (the "TERM NOTE").
1.04. INTEREST.
(a) Accrued interest on the Loan shall be calculated on the
actual number of days outstanding based on a year consisting of 360
days. Interest after or during the continuation of any Event of Default
under Section 7.01 shall be at a rate equal to the Commerce Prime Rate
plus two percent (2.0%), but not exceeding the maximum rate permitted by
applicable law (the "DEFAULT RATE").
(b) Commencing on the date hereof, and continuing until the
first Principal Payment Date, the interest rate shall be adjusted on the
first day of each calendar month based upon the then applicable LIBOR
Rate. Commencing on the first Principal Payment Date, the interest rate
shall be subject to adjustment based upon the applicable LIBOR Rate and
the Borrower's Leverage Ratio as herein provided.
(c) From the date hereof up to the first Principal Payment Date,
the Loan shall bear interest at a per annum variable rate equal to the
LIBOR Rate plus eighty-five (85) basis points, payable in monthly
installments in arrears on the first of each calendar month.
(d) Commencing on the first Principal Payment Date, the interest
rate borne by the Loan shall be subject to adjustment (and thereafter
subject to readjustment) based upon Borrower's Leverage Ratio, as
defined herein, for the immediately preceding fiscal quarter, as set
forth below:
<TABLE>
<CAPTION>
Leverage Ratio Interest Rate
-------------- -------------
<S> <C>
greater than 2.75:1 LIBOR Rate plus 115 basis points
2.75:1 to 2.01:1 LIBOR Rate plus 100 basis points
2.00:1 to 1.25:1 LIBOR Rate plus 85 basis points
less than 1.24:1 LIBOR Rate plus 75 basis points
</TABLE>
The Borrower's Leverage Ratio shall be determined by reference to
Borrower's Compliance Certificates, required under Section 4.02 hereof.
The interest adjustment shall be effective upon the first day of the
first month following Bank's receipt of Borrower's Compliance
Certificate for the preceding fiscal quarter and subsequent interest
adjustments shall similarly be effective on the first day of the first
month following Bank's receipt of the applicable Compliance Certificate.
3
<PAGE>
1.05. PRINCIPAL. Commencing on the first Principal Payment Date,
and continuing on each Principal Payment Date thereafter, principal shall be due
in advance in twenty-four (24) equal quarterly installments of Six Hundred
Twenty Five Thousand Dollars ($625,000) each.
1.06. AUTOMATIC PAYMENT. Borrower hereby authorizes Bank
automatically to deduct from Borrower's Account, number 2340340 (the "ACCOUNT"),
the amount of any Loan payment hereunder, whether interest, principal or other
amounts due hereunder. If the funds in the Account are insufficient to cover any
such payment, Bank shall not be obligated to advance funds to cover such
payment. At any time and for any reason, either Bank or Borrower may voluntarily
terminate such automatic payments, effective upon written notice from one to the
other.
1.07. FACILITY FEE. A non-refundable facility fee equal to one
percent (1.0%) of the Loan Amount shall be due and payable on the date of
execution of this Agreement to Bank by Borrower. Additionally, a facility fee
equal to one tenth of one percent (0.10%) of the Loan Amount shall be deemed
earned and non-refundable on the date of execution hereof and will be due and
payable on the first Principal Payment Date, or on such earlier date on which
the entire Loan becomes due and payable in full.
1.08. SWAP OPTION. At any time upon prior written notice,
Borrower may elect to convert all, but not less than all, of the Loan from a
variable interest rate loan to a fixed interest rate loan. Borrower shall give
written notice to Bank of its election to convert the Loan, and such notice
shall specify the date on which Borrower wishes the fixed rate of interest
determined. Bank shall use its best efforts to determine the fixed rate of
interest on the date specified in Borrower's notice but Bank shall have no less
than five (5) Business Days following receipt of Borrower's notice in which to
quote the fixed interest rate to Borrower. Should Borrower elect to convert the
Loan to the rate quoted by Bank, Bank will implement such conversion by entering
into a swap contract (the "SWAP CONTRACT") pursuant to the terms of the 1992
International Swap Dealer's Association Master Loan and Appendices. The fixed
interest rate may only become effective on a regularly scheduled interest
payment date or a Principal Payment Date. The Swap Contract shall bear whatever
interest rate is available at such time. Borrower shall pay all fees and
expenses of Bank in connection with the Swap Contract, including Bank's
reasonable administrative fees to cover its services in implementing the Swap
Contract. In addition, should Borrower wish to prepay the Loan following such
conversion to a fixed rate, Borrower shall pay any and all fees, costs and
expenses incurred by Bank in connection with such prepayment, including, if
necessary, implementation of a second Swap Contract to ensure that Bank suffers
no loss or detriment arising out of Borrower's election to convert the Loan to a
fixed interest rate as herein provided.
1.09. PREPAYMENT. Provided Borrower has not elected to fix the
interest rate of the Loan pursuant to Section 1.08, Borrower may prepay the
Loan, in part or in full, at any time without the payment of a prepayment fee.
Partial prepayments shall be applied to principal in inverse order of maturity,
and shall not affect the regularly scheduled payments provided for herein.
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<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES
In borrowing hereunder, Borrower represents and warrants to Bank
(which representations and warranties will survive the delivery of the Term Note
and shall continue so long as any sums remain outstanding under the Loan
Documents) that:
2.01. BORROWER'S AFFILIATES. Borrower has eight (8) wholly-owned
subsidiaries, BHA Group, Inc., BHA International, Inc., BHA Purifilter S.L., BHA
Group Ltd., BHA Group International Holdings, B.V., BHA Group GmbH, BHA Group
International, Inc. and BHA Technologies, Inc., and other indirectly
wholly-owned subsidiaries. Each of the foregoing subsidiaries and any future
subsidiaries, whether wholly-owned or not, are herein collectively referred to
as "AFFILIATES".
2.02. CORPORATE STANDING. Borrower is a corporation duly
organized and in good standing under the laws of the State of Delaware. Borrower
is qualified to do business as a foreign corporation in Missouri and is in good
standing under the laws of Missouri. Borrower and each Affiliate has the power
to own its property and to carry on its business and is qualified to do business
and is in good standing in each jurisdiction in which the character of the
properties owned by it or in which the transaction of its business makes such
qualification necessary.
2.03. AUTHORITY. Borrower has the full power and authority to
execute and deliver this Agreement, the Term Note, and the other instruments
referred to herein or therein which Borrower is required to execute (the
foregoing sometimes hereinafter collectively referred to as the "LOAN
DOCUMENTS"), and the same constitute the binding and enforceable obligations of
Borrower in accordance with their terms.
2.04. LITIGATION. There are no actions, suits or proceedings
pending or, to the knowledge of Borrower, threatened, or any basis therefor,
against or affecting Borrower or any Affiliate, at law or in equity, in any
court or before any governmental department or agency, which may result in any
material adverse change in the properties, assets, business or condition,
financial or otherwise, of Borrower or the ability of Borrower to perform the
obligations under the other Loan Documents.
2.05. NO VIOLATION OR BREACH. The execution, delivery and
performance by Borrower of the Loan Documents does not and will not conflict
with, or constitute a violation, breach or default under the provisions of (a)
the articles of incorporation or bylaws of Borrower or any Affiliate, or (b) the
provisions of any existing mortgage, indenture, contract or any other agreement
binding on Borrower or any Affiliate or affecting their respective properties.
2.06. TITLE AND LIENS. Borrower and each Affiliate has good,
valid and marketable title of record to all of its property and assets, both
tangible and intangible, all of which is owned free and clear of all mortgages,
liens, pledges, charges and other security interests
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<PAGE>
and encumbrances, except as provided in this Agreement or disclosed to Bank in
writing prior to the date of this Agreement.
2.07. TAXES. Borrower and each Affiliate has filed all federal,
state and other tax and similar returns and has paid or provided for the payment
of all taxes and assessments due thereunder through the date of this Agreement,
including, without limitation, all withholding, FICA and franchise taxes.
2.08. ADVANCES. Borrower's request for the advancement of the
Loan amount shall be deemed to be a representation and warranty of Borrower
that:
(a) all representations and warranties are true and correct as
of the date of each advance;
(b) no default or Event of Default then exists or would result
from such advance;
(c) there has been no material adverse change in the financial
condition or prospects of Borrower, its Affiliates, or their respective
businesses;
(d) the use of the proceeds does not contravene, violate or
conflict with any law, rule or regulation of any court of law or other
governmental authority; and
(e) all legal proceedings and other matters in connection with
the authorization, legality, validity and enforceability of the Loan
Documents shall be satisfactory to Bank.
2.09. OTHER STATEMENTS. All statements by Borrower or any
Affiliate contained in any certificate, statement, document or other instrument
delivered by or on behalf of Borrower or any Affiliate at any time pursuant to
the Loan Documents shall constitute representations and warranties made by
Borrower hereunder.
2.10. REGULATION U. No part of the proceeds of the Loan will be
used to purchase or carry any margin stock or to extend credit to others for the
purpose of purchasing or carrying any such margin stock or to reduce or retire
any indebtedness incurred for any such purpose. If requested by Bank, Borrower
will furnish to Bank a statement in conformity with the requirements of Federal
Reserve Form U-1 referred to in Regulation U to the foregoing effect.
2.11. HAZARDOUS SUBSTANCES. To the Borrower's actual knowledge,
and except as disclosed to Bank in a memorandum dated August 27, 1999 relating
to a facility of Borrower's Affiliate located in Slater, Missouri, the Real
Property (hereinafter defined) has never been used for either a sanitary
landfill or as a disposal site for waste, petroleum products, pesticides, PCBs,
or toxic or hazardous substances or materials of any kind (the foregoing being
collectively referred to as "HAZARDOUS SUBSTANCES") and no Hazardous Substances
or underground storage tanks have been deposited or are located in, under or
upon the Real Property and no such part of
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the Real Property is presently contaminated by Hazardous Substances including
asbestos. Bank, its agents and representatives shall have the right to inspect
the Real Property upon the occurrence of any Event of Default (as hereinafter
defined). To Borrower's actual knowledge, and except as disclosed in writing to
Bank, no parcel adjacent to the Real Property has ever been used for either a
sanitary landfill or as a disposal site for Hazardous Substances, and no
Hazardous Substances or underground storage tanks have been deposited or are
located in, under or upon any parcel adjacent to the Real Property, and no part
of any parcel adjacent to the Real Property is presently contaminated by
Hazardous Substances. Borrower represents and warrants that neither it nor any
Affiliate has received, or has, actual notice of any violation of any
environmental laws or regulations with respect to the Real Property. Borrower
represents and warrants that no Hazardous Substances shall be used or stored in,
under or upon the Real Property, except Hazardous Substances in such quantities
and of such types as are commonly and customarily used in the operation,
cleaning and maintenance of the Real Property (subject, however, to compliance
with applicable environmental laws, statutes and regulations). Borrower
covenants and agrees to execute and deliver to Bank an Environmental
Indemnification Agreement in form and substance mutually acceptable to Bank and
Borrower, if requested by Bank. The term "REAL PROPERTY" shall mean any real
property, including buildings and improvements located thereon, now, previously
or hereafter owned or occupied by Borrower or any Affiliate.
2.12 ERISA. Each Benefit Plan, as defined herein, maintained by
or to which contributions are made by Borrower or any Affiliate, is in
compliance with ERISA, and neither Borrower nor any Affiliate has received any
notice that a Benefit Plan is not in compliance with ERISA. Neither Borrower nor
any Affiliate has incurred any material liability to the Pension Benefit
Guaranty Corporation. No Termination Event as defined in ERISA has occurred.
There are no unfunded vested accrued benefits under any Benefit Plan. The term
"BENEFIT PLAN" as used herein, means an employee benefit plan as defined in
Section 3(35) of ERISA in respect of which Borrower or any affiliate is, or
within the immediately preceding six (6) years was an "EMPLOYER" as defined in
Section 3(5) of ERISA, including such plans as may be established after the date
hereof.
ARTICLE III
SECURITY
The Loan shall be unsecured.
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<PAGE>
ARTICLE IV
AFFIRMATIVE COVENANTS
Borrower covenants and agrees that during the term of this
Agreement and so long as any sums remain outstanding under the Loan Documents,
Borrower and its Affiliates will duly perform and observe each and all of the
covenants and agreements hereinafter set forth:
4.01. BOOKS AND RECORDS; INSPECTIONS. Maintain proper books and
records, and account for financial transactions in accordance with generally
accepted accounting practices, consistently applied, and permit Bank's officers
and/or its authorized representatives or accountants to visit and inspect
Borrower's offices and properties, examine its books and records, and discuss
its accounts and business with its respective officers, employees, accountants
and auditors, all at reasonable times upon reasonable notice.
4.02. FINANCIAL REPORTING. Deliver to Bank financial information
in such form and detail and at such times as are satisfactory to Bank,
including, without limitation:
(a) Borrower's quarterly consolidating (i) financial statements
(to include but not be limited to balance sheet and statement of income
and expenses), and (ii) certificates signed by Borrower's chief
financial officer or treasurer certifying Borrower's continuing
compliance with all affirmative covenants, negative covenants and
financial covenants contained in the Loan Documents (collectively, the
"COVENANTS") and the continuing accuracy of all representations and
warranties made in the Loan Documents (collectively, the
"REPRESENTATIONS") (the certificates regarding compliance with the
Covenants and the accuracy of the Representations herein collectively
the "COMPLIANCE CERTIFICATES"), within forty-five (45) days of the end
of each quarter. The Compliance Certificates shall be in the form
attached hereto as EXHIBIT A, with such changes and modifications as
Bank may reasonably require.
(b) Borrower's audited financial statement as of the end of each
fiscal year and Borrower's internally-prepared annual consolidating
balance sheet and profit and loss statement and Compliance Certificates,
as described above, and Borrower's annual budgets and forecasts in such
detail as Bank may reasonably request, within one hundred twenty (120)
days of the end of the fiscal year; and
(c) such other financial information concerning Borrower and its
Affiliates as Bank may reasonably require from time to time.
All financial statements required hereunder shall be complete and correct in all
material respects and shall be prepared in reasonable detail.
4.03. PAYMENT OF DEBTS, TAXES AND CLAIMS. Promptly pay and
discharge prior to delinquency all debts, accounts, liabilities, taxes,
assessments and other governmental charges or levies imposed upon, or due from,
Borrower and any Affiliate, as well as all claims of any kind
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<PAGE>
(including claims for labor, materials and supplies) which, if unpaid, might by
law become a lien or charge upon any of its property, except that nothing herein
contained shall be interpreted to require the payment of any such debt, account,
liability, tax, assessment or charge so long as its validity is being contested
in good faith by appropriate legal proceedings and against which, if requested
by Bank, reserves satisfactory to Bank have been made therefor.
4.04. INSURANCE. Maintain adequate property damage, casualty
loss and liability insurance with responsible insurance companies on such of its
properties and in such amounts consistent with Borrower's current practice or as
is customarily maintained by similar businesses.
4.05. PROPERTY MAINTENANCE. Keep its properties in good repair,
working order, and condition and from time to time make any needful and proper
repairs, renewals, replacements, extensions, additions, and improvements thereto
so that the business of Borrower will be conducted at all times in accordance
with prudent business management.
4.06. CORPORATE EXISTENCE; COMPLIANCE WITH LAWS. Take or cause
to be taken such action as from time to time may be necessary to maintain its
organizational existence as a corporation qualified to conduct business in the
State of Missouri and use due diligence to comply with all laws pertaining to
the business or property of Borrower or any Affiliate, or any part thereof, and
with all other lawful government requirements relating to their business and
property.
4.07. LITIGATION; ADVERSE EVENTS. Promptly inform Bank in
writing of (i) the commencement of any material action, suit, proceeding or
investigation against Borrower or any Affiliate; (ii) the making of any material
counterclaim against Borrower or any Affiliate; or (iii) the granting or
presence of any liens against any of Borrower's or an Affiliate's property; (iv)
of any other condition, event or act which comes to Borrower's attention that
would or might prejudice Bank's rights under the Loan Documents; and (v) the
filing by any person, firm or entity of a Schedule 13D, 13G or 14D-1 under the
provisions of the Securities Exchange Act of 1934 or any similar provisions of
such or subsequent laws (the "ACT") which reflects that such person, firm or
entity has acquired securities of Borrower with the purpose or effect of
changing the control of Borrower as contemplated under Regulation 13D-G
promulgated under the Act.
4.08. NOTIFICATION. Notify Bank immediately if it becomes aware
of the occurrence of any Event of Default (as defined under Article VII hereof)
or of any fact, condition, or event that, only with the giving of notice or
passage of time or both, would become an Event of Default, or if it becomes
aware of a material adverse change in the business prospects, financial
condition (including, without limitation, proceedings in bankruptcy, insolvency,
reorganization, or the appointment of a receiver or trustee), or results of
operations of Borrower or any Affiliate, or the failure of Borrower to observe
any of its undertakings under the Loan Documents.
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<PAGE>
ARTICLE V
NEGATIVE COVENANTS
5.01. NEGATIVE COVENANTS. From and after the date hereof, and
so long as this Agreement remains in effect, or as long as any sums remain
outstanding under the Loan Documents, Borrower shall not, without the prior
written consent of Bank:
(a) make any advances to Borrower's Affiliates, including
without limiting the generality of the foregoing, BHA Technologies,
Inc., in excess of Four Million Dollars ($4,000,000) in the aggregate
among all Borrower's Affiliates;
(b) incur any indebtedness or permit any Affiliate to incur any
indebtedness of any kind whatsoever, other than (i) indebtedness under
the Loan Documents; (ii) indebtedness of Borrower or an Affiliate on
terms approved in advance by Bank in its reasonable discretion and Bank
hereby approves Borrower's indebtedness to Bank of America in the
maximum amount of Eighteen Million Dollars ($18,000,000); (iii)
operating leases, the expenditures for which in any fiscal year do not
exceed Three Million Five Hundred Thousand Dollars ($3,500,000) in the
aggregate among Borrower and its Affiliates; (iv) capital lease
obligations which do not exceed Three Million Dollars ($3,000,000) at
any time in the aggregate among Borrower and its Affiliates; and (v)
purchase money indebtedness the outstanding balance of which does not
exceed Three Million Dollars ($3,000,000) at any time in the aggregate
among Borrower and its Affiliates;
(c) undertake, undergo or permit any Change of Control, as such
term is defined herein. The term "Change of Control" as used with
respect to Borrower, shall be deemed to occur if (i) the board of
directors of Borrower approves a sale of all or substantially all of the
assets of Borrower or provides a positive recommendation with respect to
any tender offer or approves the terms of any merger, which, in either
event, will result in the persons who are the shareholders of Borrower
immediately prior to the consummation of such transaction owning less
than 50% of the voting securities of Borrower or the resulting entity
into which Borrower is merged (if Borrower is not the surviving entity
in such merger) upon consummation of such transaction; or (ii) any
person, firm or entity, or group of persons, firms or entities acting in
concert, acquires in excess of 25% of the voting securities of Borrower;
(d) make any investment in any line of business outside of
Borrower's primary line of business of the development, manufacturing
and marketing of filtration devices for industrial air pollution control
equipment and services related thereto or outside any Affiliate's
primary line of business;
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(e) incur any Change in Management, as such term is defined
herein. A "CHANGE IN MANAGEMENT" shall be deemed to occur if the Chief
Executive Officer and the Chief Operating Officer, as of the date
hereof, cease to be employees of Borrower.
(f) (i) 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 inconsistent
with current practices conducted by Borrower and its Affiliates,
except that the Borrower or any Affiliate may engage in any of the
foregoing transactions in the ordinary course of business at prices
and on terms and conditions which, taken as a whole, are not less
favorable to the Borrower or any Affiliate than would prevail in an
arm's-length transaction with unrelated third parties;
(ii) Notwithstanding the foregoing, Borrower shall be
permitted to make acquisitions without the prior written consent of
Bank, provided that: (A) the target company is in the same line of
business as Borrower; (B) the cash portion of the purchase price for
any one acquisition does not exceed $15,000,000; (C) the aggregate
purchase price of all such acquisitions does not exceed 25% of
Capital Funds, as defined herein; (D) no later than 30 business days
prior to the consummation of the acquisition, Borrower has provided
Bank with pro forma financial statements giving effect to the
acquisition which demonstrate continued compliance with the
Covenants and Representations contained herein; (E) Borrower or an
Affiliate is the surviving entity; and (F) the acquisition would not
result in an event of default under the Credit Agreement. As used
herein, the term "CAPITAL FUNDS" shall mean Borrower's stockholders'
equity as defined in accordance with generally accepted accounting
principles as of the end of the fiscal quarter preceding the date of
closing of the acquisition; and
(g) grant or permit a security interest in or a lien or
encumbrance on any of its assets without Bank's prior written consent,
except in respect of Permitted Indebtedness.
ARTICLE VI
FINANCIAL COVENANTS
6.01. FINANCIAL COVENANTS. So long as this Agreement remains
in effect, or as long as any sums remain outstanding under the Loan Documents,
Borrower hereby covenants that it and, where applicable, its Affiliates, shall
continuously comply with the following financial covenants, all of which are
calculated on a consolidated basis:
(a) The ratio of: (i) Total Funded Debt to (ii) EBITDA, measured
as of the last day of each fiscal quarter using EBITDA for the four
fiscal quarters then ended, may not exceed the ratio set forth below in
the following table:
Period
---------------------------------------
11
<PAGE>
<TABLE>
<CAPTION>
From and Including Up until Ratio
------------------ -------- -----
<S> <C> <C>
07/01/99 12/31/01 4.00:1
12/31/01 12/31/02 3.75:1
12/31/02 12/31/03 3.50:1
12/31/03 and thereafter 3.25:1
</TABLE>
(b) Borrower's Tangible Net Worth, measured as of the last day
of each fiscal quarter, shall not fall below the amount set forth below
in the following table:
<TABLE>
<CAPTION>
Period
--------------------------------------
From and Including Up until Amount
------------------ -------- ------
<S> <C> <C>
07/01/99 12/31/01 $40,000,000
12/31/01 12/31/02 $44,000,000
12/31/02 12/31/03 $47,000,000
12/31/03 12/31/04 $50,000,000
12/31/04 12/31/05 $53,000,000
12/31/05 12/31/06 $56,000,000
12/31/06 and thereafter $59,000,000
</TABLE>
(c) The ratio of Borrower's (i) EBITDA to (ii) Fixed Charge,
measured as of the last day of each fiscal quarter using EBITDA and
Fixed Charge for the four fiscal quarters then ended, shall not fall
below 1.50:1 at any time.
ARTICLE VII
DEFAULT
7.01. EVENTS OF DEFAULT. The occurrence of one or more of the
following events ("EVENTS OF DEFAULT") shall constitute a "DEFAULT" by Borrower
hereunder:
(a) nonpayment of interest or principal hereunder when payment
is due as herein provided; or
(b) any representation or warranty made by Borrower herein or in
any writing furnished in connection with or pursuant to the Loan
Documents shall prove to be false in any material respect as of the date
on which it is made; or
(c) a material breach by Borrower or any Affiliate in the
performance or observance of any agreement, term, covenant or condition
contained herein (other than in (a) above), and such breach shall not
have been remedied within thirty (30) days after written notice thereof
shall have been given by Bank to Borrower or such Affiliate, provided,
however, if Borrower or such Affiliate has commenced to remedy such
breach, and continues to diligently pursue such remedy, the time period
to remedy such breach
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<PAGE>
shall be extended for an additional period of time, not to exceed sixty
(60) days, necessary for Borrower or such Affiliate to complete the
remedy of such breach; or
(d) any report, certificate, financial statement or other
instrument furnished in connection with this Agreement shall prove to be
false or misleading in any material respect; or
(e) default in the performance of the obligations of the
Borrower or any Affiliate on any other note, agreement (including but
not limited to security agreements), or obligations owed by Borrower or
any Affiliate to Bank; or
(f) any default by Borrower or any Affiliate under any other
contract for borrowed money in an amount (either individually or in the
aggregate with other defaults) of $100,000 or more and which entitles
the obligee to accelerate the maturity thereof, or any failure by
Borrower or any Affiliate to pay any indebtedness when due, whether by
acceleration or otherwise; or
(g) commencement by Borrower or any Affiliate of a voluntary
case under the Bankruptcy Act of 1986 or similar law, federal or state,
whether now or hereafter existing; or a trustee or receiver shall be
appointed for Borrower or any Affiliate or all or a substantial part of
their properties in any involuntary proceeding, or any court shall have
taken any jurisdiction of all or a substantial part of the properties of
Borrower or any Affiliate in any involuntary proceeding for the
reorganization, dissolution, liquidation or winding up of the business
of Borrower or any Affiliate and such trustee or receiver shall not be
discharged or such jurisdiction relinquished or vacated or stayed on
appeal or otherwise within thirty (30) days; or Borrower or any
Affiliate shall file a petition or answer consenting to or acquiescing
in a petition against it in bankruptcy or under any chapter of the
Bankruptcy Act of 1986 or any similar law, state or federal, whether now
or hereafter existing, or such petition filed against Borrower shall be
approved and not vacated or stayed within thirty (30) days; or Borrower
or any Affiliate shall become insolvent, or shall make an assignment for
the benefit of creditors or shall admit in writing its inability to pay
its debts generally as they become due, or shall consent to the
appointment of a receiver or trustee or liquidator of all its properties
or a substantial part thereof, or shall have failed within thirty (30)
days to pay a bond or otherwise discharge any judgment or attachment
which is not stayed on appeal or otherwise being contested in good
faith; or
(h) Borrower or any Affiliate suffers any judgment in excess of
$750,000.00, writ of attachment or execution or similar process to be
issued or levied against all or a substantial part of its property and
which is not released, stayed, bonded, insured or vacated within thirty
(30) days; or
(i) any material adverse change in the financial condition of
Borrower or any Affiliate, or the nature of Borrower's or any
Affiliate's business, the result of which causes Bank to deem itself
insecure.
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<PAGE>
7.02. REMEDIES. Upon an Event of Default, Bank may resort to
any and all security and to any remedy existing at law or in equity for the
collection of the Term Note according to its tenor and enforcement of the
covenants and provisions hereof, including without limiting the generality of
the foregoing, all costs, penalties and expenses owed to the Bank hereunder,
including those relating to any applicable Swap Contract, and Bank's resort to
any remedy shall not prevent the concurrent or subsequent employment of any
other remedy. In addition to the remedies provided herein, in the event the Term
Note is due and payable or upon an Event of Default, the Bank shall have the
right of setoff, without demand or notice to anyone, against the funds of
Borrower or any Affiliate on deposit with it.
7.03. EXPENSES OF COLLECTION. All reasonable costs, expenses and
liabilities incurred by Bank in collecting or attempting to collect on the Term
Note, including costs and expenses, and all reasonable attorneys' fees in
connection with such matters, and specifically including any costs, charges,
penalties, administrative charges and fees associated with any applicable Swap
Contract, shall constitute a demand obligation of Borrower and shall bear
interest from the date of expenditure until paid at the per annum rate equal to
the Default Rate.
7.04. WAIVER. Any waiver of an Event of Default by Bank shall
not extend to or affect any subsequent Event of Default. No failure or delay by
Bank in exercising any right hereunder shall operate as a waiver, nor shall any
single or partial exercise of any right preclude the exercise of any other right
hereunder.
ARTICLE VIII
CLOSING
Bank will not be obligated to make the Loan until it has
received from Borrower fully executed copies of all documents required by this
Agreement and any other documents, instruments and reports as Bank may
reasonably require.
ARTICLE IX
MISCELLANEOUS
9.01. PAYMENT ON HOLIDAYS. Whenever any payment to be made
pursuant to the Loan Documents shall be stated to be due on a public holiday,
Saturday or Sunday, such payment may be made on the next succeeding business day
of Bank and such extension of time shall in such case be included in computing
interest, if any, in connection with such payment.
9.02. WAIVERS. No omission or delay by Bank in exercising any
right, power or privilege under the Loan Documents, will impair such right,
power or privilege or be construed to be a waiver of any Event of Default or
acquiescence therein and any single or partial exercise of any right, power or
privilege will not preclude other or further exercise of any other right, power
or privilege and no waiver will be valid unless in writing and signed by Bank
and then only to the
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<PAGE>
extent specified. All remedies herein by law afforded will be cumulative and
will be available to Bank until payment in full of all sums due under the Loan
Documents. No omission or delay by the Borrower in exercising any right, power
or privilege under this Agreement, the Term Note or any other agreement executed
in connection herewith, will impair such right, power or privilege or be
construed to be a waiver or acquiescence therein and any single or partial
exercise of any right, power or privilege will not preclude other or further
exercise of any other right, power or privilege and no waiver will be valid
unless in writing and signed by Borrower and then only to the extent specified.
All remedies herein by law afforded will be cumulative.
9.03. BINDING EFFECT. This Agreement shall continue until
payment in full of all sums due under the Loan Documents and shall be binding
upon Borrower and its successors and assigns and shall be binding upon and inure
to the benefit of Bank, its successors and assigns.
9.04. NOTICES. All notices, requests or demands required or
permitted by this Agreement shall be given to, or made upon, the respective
parties hereto by depositing the same in the United States mail, postage
prepaid, or by overnight (next day) courier, charges prepaid, to the following
addresses:
Commerce Bank, N.A.
1000 Walnut Street
P.O. Box 419248
Kansas City, Missouri 64141-6248
Attention: Peter W. Shriver
BHA Group Holdings, Inc.
8800 East 63rd Street
Kansas City, Missouri 64133
Attention: James C. Shay
9.05. AMENDMENTS. Borrower and Bank may from time to time enter
into written agreements supplemental hereto for the purpose of modifying or
adding any provision to this Agreement or changing the rights and privileges of
Bank or Borrower hereunder. Any such supplemental agreement shall be binding
upon Borrower and Bank and their respective successors and assigns.
9.06. HEADINGS. Article and Section headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
9.07. SEVERABILITY OF PROVISIONS. Any provision of this
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provisions in any other
jurisdiction.
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<PAGE>
9.08. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Missouri.
9.09. COUNTERPART AGREEMENTS. This Agreement may be executed in
any number of counterparts, each of which shall be deemed an original and all of
which together shall constitute one and the same Agreement.
9.10. STATUTORY NOTICE. ORAL AGREEMENTS OR COMMITMENTS TO LOAN
MONEY, EXTEND CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING
PROMISES TO EXTEND OR RENEW SUCH DEBT ARE NOT ENFORCEABLE. TO PROTECT YOU
(BORROWER) 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.
BY SIGNING BELOW, YOU AND WE AGREE THAT THERE ARE NO UNWRITTEN
ORAL AGREEMENTS BETWEEN US.
- ----------------------------------------------------------------
THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed on the day and year first above written.
BHA GROUP HOLDINGS, INC.
By: ________________________________
James C. Shay
Chief Financial Officer
COMMERCE BANK, N.A.
(KANSAS CITY, MISSOURI)
By: ________________________________
Title: _____________________________
17
<PAGE>
EXHIBIT A
FORM OF COMPLIANCE CERTIFICATE
18
<PAGE>
CREDIT AGREEMENT
Dated as of September 30, 1999
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
Termination Date: October 1, 2002
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 DEFINITIONS....................................................................................
ARTICLE 2 REVOLVING LINE OF CREDIT.......................................................................
2.1 AGREEMENT TO LEND......................................................................
2.2 REVOLVING NOTE.........................................................................
ARTICLE 3 OTHER CREDIT FACILITIES........................................................................
3.1 LETTERS OF CREDIT......................................................................
3.2 CONVERSION OF REVOLVING LOANS..........................................................
ARTICLE 4
TYPES OF LOANS; DISBURSEMENTS; INTEREST; PAYMENTS........................................................
4.1 TYPES OF LOANS.........................................................................
4.2 LOAN DISBURSEMENT PROCEDURES...........................................................
4.3 INTEREST...............................................................................
4.4 OPTIONAL AND MANDATORY PAYMENTS........................................................
4.5 PAYMENTS...............................................................................
4.6 DIRECT DEBIT AND PRE-BILLING...........................................................
4.7 MINIMUM AMOUNTS........................................................................
4.8 CERTAIN REQUESTS AND NOTICES...........................................................
ARTICLE 5 GUARANTIES; FEES; COLLATERAL...................................................................
5.1 GUARANTIES.............................................................................
5.2 UNUSED COMMITMENT AND LETTER OF CREDIT FEES............................................
5.3 ADDITIONAL EURODOLLAR RATE LOAN COSTS..................................................
5.4 COLLATERAL.............................................................................
ARTICLE 6 CONDITIONS TO MAKING LOANS.....................................................................
6.1 DELIVERY OF LOAN DOCUMENTS.............................................................
6.2 PROPER PROCEEDINGS; CHARTER DOCUMENTS..................................................
6.3 LEGAL OPINIONS.........................................................................
6.4 NO ADVERSE CHANGES; REPRESENTATIONS; NO DEFAULT........................................
6.5 NO MATERIAL IMPAIRMENT.................................................................
6.6 REQUIRED CONSENTS AND APPROVALS........................................................
6.7 LEGALITY...............................................................................
6.8 GENERAL................................................................................
ARTICLE 7 REPRESENTATIONS AND WARRANTIES.................................................................
7.1 CORPORATE EXISTENCE AND STANDING.......................................................
7.2 AUTHORIZATION AND VALIDITY.............................................................
7.3 NO CONFLICT; GOVERNMENTAL CONSENT......................................................
7.4 COMPLIANCE WITH LAWS; ENVIRONMENTAL AND SAFETY MATTERS.................................
7.5 FINANCIAL STATEMENTS...................................................................
7.6 OWNERSHIP OF PROPERTIES; COLLATERAL LIENS..............................................
7.7 SUBSIDIARIES...........................................................................
7.8 LITIGATION.............................................................................
</TABLE>
<PAGE>
<TABLE>
<S> <C>
7.9 MATERIAL AGREEMENTS; LABOR MATTERS.....................................................
7.10 INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY ACT.............................
7.11 TAXES..................................................................................
7.12 ACCURACY OF INFORMATION................................................................
7.13 EMPLOYEE BENEFIT PLANS.................................................................
7.14 NO UNDISCLOSED DIVIDEND RESTRICTIONS...................................................
7.15 ABSENCE OF DEFAULT OR EVENT OF DEFAULT.................................................
7.16 DISCLOSURE.............................................................................
7.17 SOLVENCY...............................................................................
7.18 MARGIN REGULATIONS.....................................................................
7.19 COPYRIGHTS, PATENTS AND OTHER RIGHTS...................................................
7.20 YEAR 2000 COMPLIANCE...................................................................
ARTICLE 8 AFFIRMATIVE COVENANTS..........................................................................
8.1 CONDUCT OF BUSINESS AND MAINTENANCE OF PROPERTIES.....................................
8.2 INSURANCE..............................................................................
8.3 COMPLIANCE WITH LAWS AND TAXES.........................................................
8.4 FINANCIAL STATEMENTS, REPORTS, ETC.....................................................
8.5 OTHER NOTICES..........................................................................
8.6 ACCESS TO PROPERTIES AND INSPECTIONS...................................................
8.7 USE OF PROCEEDS........................................................................
8.8 YEAR 2000 COMPLIANCE...................................................................
8.9 PAYMENT OF CLAIMS......................................................................
ARTICLE 9 FINANCIAL COVENANTS............................................................................
9.1 MINIMUM CONSOLIDATED TANGIBLE NET WORTH................................................
9.2 CONSOLIDATED FUNDED DEBT/EBITDA RATIO..................................................
9.3 CONSOLIDATED FIXED CHARGE COVERAGE RATIO...............................................
9.4 MINIMUM CONSOLIDATED EBITDA............................................................
9.5 CONSOLIDATED CURRENT RATIO.............................................................
ARTICLE 10 NEGATIVE COVENANTS............................................................................
10.1 INDEBTEDNESS...........................................................................
10.2 LIENS..................................................................................
10.3 SALE AND LEASE-BACK TRANSACTIONS.......................................................
10.4 MERGERS, TRANSFERS OF ASSETS, ACQUISITIONS.............................................
10.5 TRANSACTIONS WITH AFFILIATES...........................................................
10.6 SUBSIDIARY DIVIDEND RESTRICTIONS.......................................................
10.7 USE OF PROCEEDS........................................................................
10.8 LOANS, ADVANCES AND INVESTMENTS........................................................
10.9 NEGATIVE PLEDGE........................................................................
10.10 LIQUIDATION OR CHANGE IN BUSINESS......................................................
ARTICLE 11 EVENTS OF DEFAULT.............................................................................
11.1 EVENTS OF DEFAULT......................................................................
11.2 RIGHTS AND REMEDIES....................................................................
ARTICLE 12 MISCELLANEOUS.................................................................................
12.1 NOTICES................................................................................
12.2 SURVIVAL OF AGREEMENT..................................................................
</TABLE>
<PAGE>
<TABLE>
<S> <C>
12.3 BINDING EFFECT.........................................................................
12.4 SUCCESSORS AND ASSIGNS; PARTICIPATIONS.................................................
12.5 EXPENSES; INDEMNITY....................................................................
12.6 RIGHT OF SETOFF........................................................................
12.7 APPLICABLE LAW.........................................................................
12.8 WAIVERS; AMENDMENT.....................................................................
12.9 INTEREST RATE LIMITATION...............................................................
12.10 ENTIRE AGREEMENT.......................................................................
12.11 SEVERABILITY...........................................................................
12.12 COUNTERPARTS...........................................................................
12.13 HEADINGS...............................................................................
12.14 JURISDICTION; CONSENT TO SERVICE OF PROCESS............................................
12.15 TERMS GENERALLY........................................................................
12.16 ARBITRATION............................................................................
</TABLE>
<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
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is made as of the 30th day of September, 1999, 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 applied to the Bank for a three-year unsecured
revolving line of credit in the amount of $18,000,000; and
WHEREAS, Borrower has applied to the Bank 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 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
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.
ARTICLE 2
REVOLVING LINE OF CREDIT
2.1 Agreement to Lend.
(1) 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 from time to time beginning on the Closing Date and ending on 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, together with the aggregate undrawn amount under all
outstanding Letters of Credit, would exceed the Revolving Credit Commitment;
(ii) a Default or Event of Default has occurred and is continuing; or (iii) the
Loan requested is a Eurodollar Rate Loan and the requested Eurodollar Rate
election would cause more than five (5) Eurodollar Rate Loans to be outstanding.
Borrower may terminate or reduce the unused portion of
<PAGE>
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 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.
(2) 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 Closing Date, 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
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:
(1) shall be for 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;
(2) shall, by its terms, not exceed a term of one year and
shall expire not later than the Revolving Credit Termination Date;
(3) shall require payment by Borrower of fees as described in
Section 5.2 hereof (such fees are not, however, applicable to any Letters of
Credit outstanding prior to the date of this Agreement but they are applicable
to any renewals or extensions thereof); and
(4) shall be issued, to the extent applicable, pursuant to the
Bank's then-current standard form of application for letters of credit.
2
<PAGE>
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.
3.2 CONVERSION OF REVOLVING LOANS. Borrow 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. The Loans made on each Disbursement Date may,
subject to the terms and conditions of this Agreement, be Prime Rate Loans or
Eurodollar 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, and
Borrower may convert Loans of one type into Loans of the other type or continue
Loans of one type as Loans of the same type, at any time or from time to time,
provided that if any Eurodollar 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.
(1) Loans shall be disbursed by the Bank upon request by
Borrower from time to time on or after the Closing Date, in such amounts as is
requested as provided in Section 4.8 below or as provided in Section 3.1 above,
subject to the limitations on the Bank's obligations to make Loans as set forth
in Section 2.1 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.
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 on which Borrower desires disbursement of the Loan,
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.
3
<PAGE>
(1) 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
Eurodollar Rate Loan, for each Interest Period relating thereto, the
Eurodollar Rate for such Interest Period plus the Applicable Margin in
effect on the Disbursement Date, the date of conversion or the date of
continuation, as applicable and as adjusted as provided in this
Agreement. The "APPLICABLE MARGIN" will be .85% from the date of this
Agreement to and including September 30, 2000. Thereafter, 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 Eurodollar Rate Loan shall not change during any Interest
Period. On and after October 1, 2000, the Applicable Margin will be as
follows:
<TABLE>
<CAPTION>
CONSOLIDATED APPLICABLE MARGIN ON AND AFTER
FUNDED DEBT/EBITDA RATIO 10/1/00
------------------------ -------
<S> <C>
>3.25:1.00 1.35%
>=2.75:1.00 and <=3.25:1.00 1.15%
>=2.01:1.00 and <=2.74:1.00 1.00%
>=1.25:1.00 and <=2.00:1.00 .85%
>= .75:1.00 and <=1.24:1.00 .75%
<.75:1.00 .65%
</TABLE>
(2) 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 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.
(3) 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 Eurodollar 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.
4
<PAGE>
(4) The Bank shall, as part of its interest statements, notify
Borrower of any change in the Prime Rate and of the Eurodollar Rates in effect
and shall, on the request of Borrower at any time, notify Borrower of the
Eurodollar Rate or Rates then in effect.
(5) In the event that Borrower fails to select the type of
Loan or the duration of any Interest Period for any Eurodollar Rate Loan within
the time period and otherwise as provided in Section 4.8, such Loan (if
outstanding as a Eurodollar Rate Loan) will be automatically converted into a
Prime Rate Loan on the last day of the then current Interest Period for such
Loan or (if outstanding as a Prime Rate Loan) will remain as, or will be made
as, a Prime Rate Loan.
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 Eurodollar Rate Loans, and (ii) if any
prepayment of a Eurodollar 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 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,
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.
5
<PAGE>
(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"). 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.
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 Eurodollar Rate Loans shall be in an amount of $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
6
<PAGE>
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, conversion into or continuation as a Eurodollar Rate Loan or any
selection of Interest Period for a Eurodollar Rate Loan.
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.
ARTICLE 5
GUARANTIES; FEES; COLLATERAL
5.1 Guaranties. At the Closing, the Guarantors are each delivering to
Bank a Guaranty Agreement in substantially the form of Exhibit 5.1. If Borrower
or any Subsidiary acquires or creates any subsidiary after the Closing Date 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 on the
Closing Date, 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 unused Revolving
Credit Commitment; such fees shall be calculated daily. In making such
calculations, the unused Revolving Credit Commitment shall be reduced by the
undrawn amount of each outstanding Letter of Credit. 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, after October 1, 2000,
to appropriate adjustment after the Bank's receipt of Borrower's Compliance
Certificate respecting such quarter.
7
<PAGE>
All fees shall be calculated on a 360-day year basis, if applicable.
5.3 Additional Eurodollar Rate Loan Costs.
(1) 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 Eurodollar 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 Eurodollar 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, continue or convert a Eurodollar 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 Eurodollar 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.
(2) Determinations by the Bank of the effect of any Regulatory
Change on its rate of return or cost of maintaining the Eurodollar Rate Loans,
on its obligation to make Eurodollar Rate Loans or on amounts receivable by it
in respect of the Eurodollar 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.
(3) Anything herein to the contrary notwithstanding, if it
becomes unlawful for the Bank to honor its obligation to make or maintain
Eurodollar Rate Loans hereunder or if, on or prior to the determination of any
Eurodollar Rate for any Interest Period, the Bank determines (which
determination shall be conclusive) that quotations of
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interest rates for the relevant deposits referred to in the definition of
"Eurodollar 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 Eurodollar Rate 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 additional Eurodollar Rate Loans, to continue
Eurodollar Rate Loans or to convert Prime Rate Loans into Eurodollar Rate Loans,
and Borrower shall, on the last day(s) of the then current Interest Period(s)
for the outstanding Eurodollar Rate Loans, either prepay such Loans or convert
such Loans 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 obligation hereunder to make the Loans, extend credit and
enter into transactions referred to in Article 3 shall be subject to the
satisfaction of the following conditions on or prior to the Closing Date and, in
the case of the conditions set forth in Sections 6.4, 6.5, 6.6, 6.7 and 6.8, as
of each Disbursement Date and 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, the Guaranties, 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 Closing Date 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 its charter documents, including all amendments thereto, certified by the
appropriate officer, and copies of its bylaws, including all amendments thereto,
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 Closing Date, 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, 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
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becoming Subsidiaries as a result of an Acquisition) shall be true and correct
as though made on and as of the Closing Date 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 Closing Date or 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:
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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.
(1) 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.
(2) 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 wastes, hazardous substances, hazardous materials,
toxic substances, toxic pollutants or substances ("HAZARDOUS MATERIALS")
similarly denominated, as those terms or similar terms are used in
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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, 1998,
and (b) an unaudited consolidated balance sheet and unaudited statements of
earnings and cash flows as of and for quarter ended June 30, 1999. 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 June 30,
1999, 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 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.
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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.
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.
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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 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
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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 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.
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8.4 Financial Statements, Reports, etc. Maintain a system of accounting
established and administered in accordance with GAAP and furnish to the Bank:
(1) 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.
(2) 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.
(3) 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
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Default or Event of Default exists or, if any Default or Event of Default
exists, stating the nature and status thereof.
(4) 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.
(5) 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.
(6) 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.
(7) Reportable Events. If at any time after the Closing Date,
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.
(8) 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
Closing Date.
(9) Other Information. Such other information (including
consolidating financial reports and other financial information) as the Bank may
from time to time reasonably request.
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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 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:
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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 and of at least $44,000,000 on December 31, 2001 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
4.00 to 1.00 to and including September 30, 2001, and no greater than 3.75 to
1.00 on December 31, 2001 and thereafter, 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 the fiscal quarter date 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). "EBITDA"
means, for any period, the earnings before interest, taxes, depreciation and
amortization for such period, plus expected, nonrecurring expenses in an amount
not to exceed $2,400,000 related to the Georgia project taken during fiscal year
ending September 30, 1999, and expected, nonrecurring charges in an amount not
to exceed $1,500,000 related to the international restructuring of BHA Group,
Inc. taken during fiscal year ending September 30, 1999; 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 other
than the fiscal year ending Sept. 30, 1999.
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" 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, 2000 and
September 30, 2001, a Consolidated EBITDA of at least $10,000,000 for the fiscal
year ending on such dates. "CONSOLIDATED EBITDA" means EBITDA of Borrower and
its consolidated Subsidiaries for each such period, determined on a consolidated
basis in accordance with GAAP.
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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.
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:
(1) Liens in favor of the Bank;
(2) 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;
(3) 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;
(4) 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;
(5) 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
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(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 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;
(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;
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(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 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;
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(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 Closing Date 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:
(1) 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;
(2) 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;
(3) 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;
(4) 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;
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(5) 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;
(6) 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;
(7) 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;
(8) 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;
(9) 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
(10) 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
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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.
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:
(1) 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).
(2) if to the Bank, to it at 10th & Baltimore, P. O. Box
419038, Kansas City, Missouri 64183, Attention: Bruce Easterly (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
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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.
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.
(1) 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.
(2) 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
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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.
(3) 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 either 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 either 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
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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.
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.
(1) 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
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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.
(2) 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 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.
(3) 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. 1.1
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
29
<PAGE>
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.
(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.
30
<PAGE>
(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 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 on the 6th
day of October, 1999, by their duly authorized officers, effective for all
purposes as of September 30, 1999.
[SEAL] _____________________________, ________
ATTEST:
[SEAL]
By:_______________________________
______________,__________ ATTEST:
By: ___________________________
[SEAL] ______________,__________
ATTEST:
By:_______________________________
31
<PAGE>
BHA GROUP HOLDINGS, INC.
By: ___________________________
______________,__________
BHA GROUP, INC.
By: ___________________________
______________,__________
BHA TECHNOLOGIES, INC.
By: ___________________________
______________,__________
BANK OF AMERICA, N.A., a national banking
association
By: ___________________________
______________,__________
32
<PAGE>
EXHIBIT 1
DEFINITIONS
For purposes of said 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 Eurodollar 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
Eurodollar Rate Loans or its obligation to make any Eurodollar 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.
"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.
"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
33
<PAGE>
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.
"Closing Date" shall mean October 6, 1999.
"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.
34
<PAGE>
"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.
"EBITDA" is defined in Section 9.2 of the Agreement.
"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.
"Eurodollar 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 Days prior to the first day
of such Interest Period for a term comparable to such Interest Period.
"Eurodollar Rate Loan" shall mean a Loan that accrues interest at a
Eurodollar 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.
35
<PAGE>
"Guarantor" shall mean each maker of a Loan Guaranty.
"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 Eurodollar Rate Loan,
each period commencing on the date such Loan is made or 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 Eurodollar 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.
"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.
36
<PAGE>
"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.
"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.
37
<PAGE>
"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.
"Revolving Credit Termination Date" shall mean October 1, 2002 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.
38
<PAGE>
"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.
"Year 2000 Compliant" and "Year 2000 Problem" are defined in Section
7.20 of the Agreement.
39
<PAGE>
Exhibit 11
BHA Group Holdings, Inc.
Computation of Per Share Earnings
(in thousands of dollars, except per share data)
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------- ------------------------------ --------------------------------
Net Net Net
Earnings Shares Per-Share Earnings Shares Per-Share Earnings Shares Per-Share
(Numerator) (Denom.) Amt. (Numerator) (Denom.) Amt. (Numerator) (Denom.) Amt.
----------- -------- ---- ----------- -------- ---- ---------- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic earnings per share:
Earnings available to
common shareholders $1,084 7,028 $ 0.15 $7,332 7,171 $1.02 $8,101 7,226 $ 1.12
Effect of dilutive
securities--stock options -- 106 -- 381 -- 450
Diluted earnings per
share: Earnings
available to common
shareholders and assumed
conversion $1,084 7,134 $ 0.15 $7,332 7,552 $ 0.97 $8,101 7,676 $ 1.06
============================ =============================== ===============================
</TABLE>
40
<PAGE>
Exhibit 21
Subsidiaries of BHA Group Holdings, Inc.
BHA Group, Inc., a Delaware corporation; PrecipTech, Ltd., a Canadian
corporation; BHA Group, Ltd., a Canadian corporation; BHA International, Inc., a
U.S. Virgin Islands corporation; BHA Group GmbH, a German corporation; BHA Group
International, Inc., a Delaware corporation; and BHA Technologies, Inc., a
Delaware corporation; BHA Purfilter S.L., a Spanish corporation; and BHA Group
International Holdings B.V., a Dutch corporation, are the only subsidiaries of
the Company, each of which are wholly-owned. Tool Rental and Supply Company,
Inc., a Delaware corporation; Midwest Precipitator Corporation, an Illinois
corporation (DBA Midwest Power Corporation); BHA Group AG, a Swiss corporation;
BHA Environmental Technology Company, Ltd., a China corporation; and BHA Group
Philippines, Inc., a Philippine corporation, are wholly-owned subsidiaries of
BHA Group, Inc. BHA Group International Pvt. Ltd., an India corporation, is a
wholly-owned subsidiary of BHA Group International, Inc.; BHA Technologies AG, a
Swiss corporation; and BHA Technologies K.K., a Japan corporation, are
wholly-owned subsidiaries of BHA Technologies, Inc.; BHA Group, C.A., a
Venezuelan corporation, is a wholly-owned subsidiary of BHA Purfilter S.L.; BHA
do Brazil Ltda, a Brazilian corporation; and BHA U.K. Ltd., a United Kingdom
corporation, are wholly-owned subsidiaries of BHA Group International Holdings
B.V.
41
<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 9, 1999 included the related
financial statement schedule as of September 30, 1999 and for each of the years
in the three-year period ended September 30, 1999, included in the 1999 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
9, 1999 relating to the consolidated balance sheets of BHA Group Holdings, Inc.
and subsidiaries as of September 30, 1999 and 1998, 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, 1999,
and the related schedule, which reports are included in the September 30, 1999
annual report on Form 10-K of BHA Group Holdings, Inc.
/s/ KPMG LLP
Kansas City, Missouri
November 16, 1999
42
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from unaudited
condensed consolidated financial statements for the year ended September 30,
1999 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<CASH> 877
<SECURITIES> 0
<RECEIVABLES> 29,594
<ALLOWANCES> 1,238
<INVENTORY> 28,043
<CURRENT-ASSETS> 61,944
<PP&E> 67,674
<DEPRECIATION> 32,770
<TOTAL-ASSETS> 108,148
<CURRENT-LIABILITIES> 18,659
<BONDS> 20,345
<COMMON> 87
0
0
<OTHER-SE> 58,805
<TOTAL-LIABILITY-AND-EQUITY> 108,148
<SALES> 89,823
<TOTAL-REVENUES> 155,725
<CGS> 65,842
<TOTAL-COSTS> 113,785
<OTHER-EXPENSES> 37,460
<LOSS-PROVISION> 837
<INTEREST-EXPENSE> 1,984
<INCOME-PRETAX> 1,659
<INCOME-TAX> 575
<INCOME-CONTINUING> 1,084
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,084
<EPS-BASIC> .15
<EPS-DILUTED> .15
</TABLE>
