10-Q

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the Quarterly Period ended March 31, 2000.

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

For the transition Period from N/A to               .

Commission File No. 1-8467

BMC INDUSTRIES, INC.
(Exact Name of Registrant as Specified in its Charter)

Minnesota (State of Incorporation)	41-0169210 (IRS Employer Identification No.)
One Meridian Crossings, Suite 850, Minneapolis, Minnesota (Address of Principal Executive Offices)	55423 (Zip Code)

(952) 851-6000
(Registrant's Telephone Number, Including Area Code)

    Indicate by check mark whether 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 at least the past 90 days. Yes /x/  No / /

    BMC Industries, Inc. has outstanding 27,401,734 shares of common stock as of May 12, 2000. There is no other class of stock outstanding.

Exhibit Index Begins at Page 11

PART I:  FINANCIAL INFORMATION

Item 1:  Financial Statements

BMC INDUSTRIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands)

	March 31 2000			December 31 1999
ASSETS
Current Assets
Cash and cash equivalents	$	1,998		$	1,146
Trade accounts receivable, net of allowances		46,096			42,025
Inventories		81,576			82,312
Deferred income taxes		12,148			11,588
Other current assets		12,955			12,580
Total Current Assets		154,773			149,651
Property, plant and equipment		278,801			278,807
Less accumulated depreciation		130,664			127,569
Property, Plant and Equipment, Net		148,137			151,238
Deferred income taxes		10,383			9,221
Intangible assets, net		67,348			68,232
Other assets		5,313			5,211
Total Assets	$	385,954		$	383,553
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term borrowings	$	1,254		$	2,303
Accounts payable		30,823			30,342
Income taxes payable		8,630			8,093
Accrued expenses and other liabilities		24,225			19,197
Total Current Liabilities		64,932			59,935
Long-term debt		162,877			165,959
Other liabilities		18,552			18,522
Deferred income taxes		2,631			2,715
Stockholders' Equity
Common stock		49,121			49,077
Retained earnings		94,510			92,620
Accumulated other comprehensive income		(4,923	)		(3,495	)
Other		(1,746	)		(1,780	)
Total Stockholders' Equity		136,962			136,422
Total Liabilities and Stockholders' Equity	$	385,954		$	383,553

See accompanying Notes to Condensed Consolidated Financial Statements.

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BMC INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

(in thousands, except per share amounts)

	Three Months Ended March 31
	2000			1999
Revenues	$	88,751		$	84,645
Cost of products sold		76,687			71,078
Gross Margin		12,064			13,567
Selling		4,279			4,365
Administrative		1,290			1,233
Income from Operations		6,495			7,969
Other Income and (Expense)
Interest expense		(3,215	)		(3,463	)
Interest income		22			5
Other income (expense)		—			390
Earnings Before Income Taxes		3,302			4,901
Income taxes		1,001			1,710
Net Earnings	$	2,301		$	3,191
Net Earnings Per Share:
Basic	$	0.08		$	0.12
Diluted		0.08			0.12
Number of Shares Included in Per Share Computation:
Basic		27,384			27,201
Diluted		27,599			27,405
Dividends Declared Per Share	$	0.015		$	0.015

See accompanying Notes to Condensed Consolidated Financial Statements.

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BMC INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

	Three Months Ended March 31
	2000			1999
Net Cash Provided by Operating Activities
Net earnings	$	2,301		$	3,191
Depreciation and amortization		6,081			5,647
Deferred income taxes		16			2,037
Changes in operating assets and liabilities		530			(190	)
Total		8,928			10,685
Net Cash Used in Investing Activities
Additions to property, plant and equipment		(2,409	)		(2,504	)
Business acquisition, net of cash acquired		(1,219	)		—
Total		(3,628	)		(2,504	)
Net Cash Used in Financing Activities
Increase (decrease) in short-term borrowings		(1,017	)		248
Decrease in long-term debt		(3,082	)		(7,000	)
Common stock issued		44			42
Cash dividends paid		(411	)		(408	)
Other		34			17
Total		(4,432	)		(7,101	)
Effect of Exchange Rate Changes on Cash and Cash Equivalents		(16	)		(132	)
Net Increase in Cash and Cash Equivalents		852			948
Cash and Cash Equivalents at Beginning of Period		1,146			1,028
Cash and Cash Equivalents at End of Period	$	1,998		$	1,976

See accompanying Notes to Condensed Consolidated Financial Statements.

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BMC INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(in thousands, except per share amounts)

1. Financial Statements

    In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly the financial position of the Company as of March 31, 2000, and the results of operations and the cash flows for the periods ended March 31, 2000 and 1999. Such adjustments are of a normal recurring nature. Certain items in the financial statements for the period ended March 31, 1999 have been reclassified to conform to the presentation for the period ended March 31, 2000. The results of operations for the three-month period ended March 31, 2000 are not necessarily indicative of the results to be expected for the full year. The balance sheet as of December 31, 1999 is derived from the audited balance sheet as of that date. For further information, refer to the financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999.

2. Inventories

	March 31, 2000		December 31, 1999
Raw materials	$	21,299	$	24,167
Work in process		11,824		12,564
Finished goods		48,453		45,581
	$	81,576	$	82,312

3. Derivative Financial Instruments

    Derivative financial instruments are used by the Company to reduce foreign exchange and interest rate risks.

    Effective in the quarter ended June 30, 1999, the Company adopted SFAS No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activities." In doing so, the Company did not incur any transition adjustments to earnings. All derivatives are recognized on the balance sheet at their fair value. On the date a derivative contract is entered into, the derivative is designated as a fair value hedge, cash flow hedge or a foreign-currency net investment hedge. The Company hedges some selected foreign-currency denominated forecasted transactions (cash flow hedges), in which changes in the fair value of highly effective derivatives are recorded in Accumulated Other Comprehensive Income (Loss). The Company also has multiple interest rate swap agreements (cash flow hedges), which provide for the Company to swap a variable interest rate for fixed interest rates. Accounting for the Company's cross-currency swap agreements remains unchanged under SFAS 133 as these swaps continue to be accounted for under mark-to-market accounting.

    Interest Rate Swap Agreement—At various dates during 1998 and 1999, the Company entered into multiple interest rate swap agreements for a total of $100,000 of notional debt which provide for the Company to swap a variable interest rate for fixed interest rates ranging from 5.74% to 6.20%. At March 31, 2000, $75,000 of these swaps remained outstanding with the swaps expiring at various dates ranging from August 2000 to January 2001. The notional amount of debt is not a measure of the Company's exposure to credit or market risks and is not included in the Consolidated Balance Sheets.

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Fixing the interest rate minimizes the Company's exposure to the uncertainty of floating interest rates during this period. Amounts to be paid or received under the interest rate swap agreement are accrued and recorded as an adjustment to Interest Expense during the term of the interest rate swap agreement. At March 31, 2000, $158 of deferred net gains on the interest rate swap agreements were included in Accumulated Other Comprehensive Income.

    Cross-Currency Swap Agreement—In August 1999, the Company entered into a cross-currency swap agreement to swap $10,000 of notional debt for the equivalent amount of Japanese yen-denominated debt. Under this swap, the Company also effectively swapped a floating U.S. dollar-based interest rate (6.10% at March 31, 2000) for a floating Japanese yen-based interest rate (0.79% at March 31, 2000). This Japanese yen-based derivative is accounted for under mark-to-market accounting. The Company recorded as Other Expense a foreign exchange loss of $2 under this swap agreement in the period ended March 31, 2000. This swap agreement was closed out in May 2000. A gain of $341 was recorded during the period ended March 31, 1999, for a similar swap agreement.

    Forward Foreign Exchange Contracts—During 1999 and 2000, the Company entered into forward foreign exchange contracts to purchase a total of 33,500 German marks (DM) to hedge certain steel purchases. As of March 31, 2000, contracts to purchase 15,500 DM remained outstanding. At March 31, 2000, in accordance with SFAS 133, the fair market value of these contracts was recorded as a liability and as part of accumulated other comprehensive income (loss). At March 31, 2000, $338 of deferred net losses on these contracts were included in Accumulated Other Comprehensive Income. Assuming no change in underlying foreign exchange rates, these losses are all expected to be recorded into earnings within the next twelve months.

4. Comprehensive Income

    The components of comprehensive income, net of related tax, for the three-month periods ended March 31, 2000 and 1999 are as follows:

	2000			1999
Net earnings	$	2,301		$	3,191
Foreign currency translation adjustments		(1,279	)		(2,430	)
Gain (loss) on derivative instruments		(149	)		—
Comprehensive income	$	873		$	761

    Foreign currency translation adjustment for 2000 is primarily due to the change in cumulative translation adjustment resulting from the strengthening of the U.S. dollar against the DM/Euro during the quarter ended March 31, 2000.

5. Segment Information

    The Company has two operating segments which manufacture and sell a variety of products: Buckbee-Mears and Optical Products. Buckbee-Mears, made up of Mask Operations and Buckbee-Mears St. Paul (BMSP), principally manufactures aperture masks which are photochemically etched

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fine mesh grids used in the manufacture of color television tubes and computer monitors. Optical Products (Vision-Ease) manufactures ophthalmic lenses.

    The following is a summary of certain financial information relating to the two segments:

	Three Months Ended March 31
	Buckbee-Mears						Optical Products						Consolidated
	2000			1999			2000			1999			2000			1999
Revenues	$	53,318		$	49,999		$	35,433		$	34,646		$	88,751		$	84,645
Cost of products sold		46,229			45,089			30,458			25,989			76,687			71,078
Gross Margin		7,089			4,910			4,975			8,657			12,064			13,567
Gross Margin %		13.3	%		9.8	%		14.0	%		25.0	%		13.6	%		16.0	%
Selling		1,325			1,357			2,954			3,008			4,279			4,365
Unallocated corporate administration		—			—			—			—			1,290			1,233
Income from Oper.	$	5,764		$	3,553		$	2,021		$	5,649			6,495			7,969
Operating income %		10.8	%		7.1	%		5.7	%		16.3	%		7.3	%		9.4	%
Interest and other income (expense), net														(3,193	)		(3,068	)
Earnings before income taxes													$	3,302		$	4,901

6. Legal Matters

    During the quarter ended March 31, 2000, no significant new legal proceedings or environmental matters arose and there were no material changes in the status of the legal proceedings or environmental matters described in the Company's Annual Report on Form 10-K for the year ended December 31, 1999.

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BMC INDUSTRIES, INC.

ITEM 2:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Comparison of three months ended March 31, 2000 and 1999

    Total revenues for the first quarter of 2000 increased by $4.1 million or 5% from the first quarter of 1999. Revenues of the Optical Products group generated sales of $35.4 million in the first quarter of 2000, up 2%, or $0.8 million, over the prior year quarter due mainly to growth in sales of high-end products (polycarbonate, progressive and polarizing sun lenses). Sales of high-end products increased 21% in first quarter 2000 over first quarter 1999 and accounted for 62% of total Optical Products group revenue in first quarter 2000 compared to 52% in first quarter 1999. This growth in revenue was dampened by year-on-year declines in glass and plastic lens sales as growth in the ophthalmic lens market continues to shift towards polycarbonate. Revenues of the Buckbee-Mears group for the first quarter increased 7%, or $3.3 million, from $50.0 million in 1999 to $53.3 million in 2000 due primarily to incremental revenue from the Cortland monitor mask line that was restarted in first quarter 1999 and the continued migration to larger-sized entertainment and monitor masks. Total sales of entertainment masks declined 4% in first quarter 2000 as compared to the prior year quarter, however, sales of higher-margin jumbo screen entertainment masks increased 42% in first quarter 2000 over the prior year quarter. BMSP sales in the first quarter declined from the same period a year ago due primarily to a strategic effort to concentrate on higher-volume business opportunities, which is expected to diversify its sales base.

    Cost of products sold were 86.4% of net sales for the first quarter of 2000, compared to 84.0% in the same period of 1999. The increased cost of products sold percentage was due primarily to higher product costs for Optical Product sales, which offset higher margins at Buckbee-Mears. The Optical Products gross margin percentage decreased from first quarter 1999 reflecting higher product costs related to lenses produced during 1999. Vision-Ease has addressed these production issues by implementing several changes, including expanding production capabilities at its existing Jakarta, Indonesia facility and optimizing lens production among its facilities. Increased research and development spending and higher bad debt reserves due to the bankruptcy filing of a major customer during the quarter also negatively impacted Vision-Ease's first quarter earnings. The 2000 Buckbee-Mears gross margin percentage reflects the improved revenue mix, improved production yields across all manufacturing lines and lower inspection costs attributable to the automated inspection system that was installed on both monitor mask lines. Automated inspection is scheduled for installation on the entertainment mask manufacturing lines over the course of 2000.

    Selling expenses were $4.3 million or 4.8% of revenues and $4.4 million or 5.2% of revenues for the first quarter of 2000 and 1999, respectively.

    Interest expense in the first quarter of 2000 decreased $0.2 million from the prior year quarter. This decrease is primarily due to paydown of debt from operating cash flows.

    The provision for income taxes was 30% and 35% of pre-tax income in the first quarter of 2000 and 1999, respectively. The decrease in the tax rate is due primarily to a decrease in taxes on foreign operations.

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MARKET RISK

    There were no significant changes in market risks from those disclosed in the Company's Form 10-K for the year ended December 31, 1999.

FOREIGN CURRENCY

    Fluctuations in foreign currency exchange rates may affect, and in the past have affected, the Company's financial results. The Company has an overall indirect exposure to Asian currencies, primarily the Japanese yen and the Korean won, because the Mask Operations' most significant competitors are Japanese and Korean manufacturers. The Company's strategy is to partially offset this business exposure through the cross-currency swaps discussed below. The Company's German subsidiary has a large portion of its sales denominated in U.S. dollars. As most of the German subsidiary's expenses are denominated in the German mark, this also represents an element of the Company's exposure to currency rate fluctuations. This exposure is generally addressed as needed through the purchase of forward contracts and options. Exposure to foreign currency exchange rate fluctuations also exists with respect to transactions within the Company's Indonesian, French and Hungarian operations.

INTEREST RATE SWAPS

    At various dates during 1998 and 1999, the Company entered into multiple interest rate swap agreements for a total of $100 million of notional debt which provide for the Company to swap a variable interest rate for fixed interest rates ranging from 5.74% to 6.20%. At March 31, 2000, $75 million of these swaps remained outstanding with the swaps expiring at various dates ranging from August 2000 to January 2001. These swaps are discussed more fully in footnote 3.

CROSS-CURRENCY SWAPS

    In August 1999, the Company entered into a cross-currency swap, which provided for the Company to swap a total of $10 million of notional debt for the equivalent amount of Japanese yen-denominated debt. Under this swap, the Company also effectively swapped a floating U.S. dollar-based interest rate (6.10% at March 31, 2000) for a floating Japanese yen-based interest rate (0.79% at March 31, 2000). The Company recorded as Other Income a foreign exchange loss of $2 in the period ended March 31, 2000 related to this swap. This swap agreement was closed out in May 2000.

FINANCIAL POSITION AND LIQUIDITY

    Debt decreased approximately $4.1 million during the first three months of 2000 primarily due to cash flow from operations. Working capital was $89.8 million at March 31, 2000 compared to $89.7 million at December 31, 1999. The current ratio was 2.4 at March 31, 2000 compared to 2.5 at December 31, 1999. The ratio of debt to capitalization was 0.55 at March 31, 2000 and December 31, 1999.

    There were no significant changes in the Company's credit facilities during the quarter ended March 31, 2000. The Company was in compliance with all covenants related to credit facilities at March 31, 2000. The Company continues to expect that the combination of present capital resources, internally-generated funds and unused financing sources will be adequate to meet the Company's financing requirements for 2000.

ENVIRONMENTAL

    There were no material changes in the status of the legal proceedings and environmental matters described in the Company's Annual Report on Form 10-K for the year ended December 31, 1999.

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IMPACT OF YEAR 2000

    The Company is not aware of any material problems resulting from Year 2000 issues, either with its products, its internal systems or the products and services of third parties. The Company will continue to monitor its mission critical computer applications and those of its suppliers and vendors throughout the year 2000 to ensure that any latent Year 2000 matters that may arise are addressed promptly.

CAUTIONARY STATEMENTS

    Certain statements included in this Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this Form 10-Q by the Company or its representatives, as well as other communications, including reports to shareholders, news releases and presentations to securities analysts or investors, contain forward-looking statements made in good faith by the Company pursuant to the "Safe Harbor" provisions of the Private Securities Litigation Reform Act of 1995. These statements relate to non-historical information and include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements. The Company wishes to caution the reader not to place undo reliance on any such forward-looking statements, which reflect our opinion as of the date of this Form 10-Q. These statements are not guarantees of future performance and are subject to certain risks and uncertainties that could cause actual results to differ materially from those presently anticipated or projected and include, among others, lower demand for televisions, computer monitors and ophthalmic lenses; further mask and ophthalmic lens price declines and imbalances of supply and demand; ability to implement the Optical Products group's initiatives in strategic polycarbonate marketing and manufacturing; ability to grow European sales through the operation of processing laboratories; unsuccessful customer part qualifications; liability and other claims asserted against the Company; continued slowdown at BMSP; ability to partner with new BMSP customers or transition development relationships into full scale production; ability to develop and introduce new products; cost reduction and reorganization efforts; competition with alternative technologies and products, including laser surgery for the correction of visual impairment and LCD monitors; continued higher manufacturing costs; adjustments to inventory valuations; negative foreign currency fluctuations, including adverse fluctuations affecting cross-currency swaps; ability to recruit and retain key personnel; and the effect of regional or global economic slowdowns. These and other factors are more particularly described in "Item 1—Business" of the Company's Form 10-K for the year ended December 31, 1999, which in some cases have affected and in the future could adversely affect the Company's actual results and could cause the Company's actual financial performance to differ materially from that expressed in any forward-looking statement. These factors should not, however, be considered an exhaustive list. The Company does not undertake the responsibility to update any forward-looking statement that may be made from time to time by or on behalf of the Company.

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Part II:  OTHER INFORMATION

Item 1.  Legal Proceedings

    With regard to legal proceedings and certain environmental matters, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" which begins on page 8 and Note 6 of the "Notes to Condensed Consolidated Financial Statements" on page 7.

Item 3.  Quantitative and Qualitative Disclosure About Market Risk.

    See "Management's Discussion and Analysis of Financial Condition and Results of Operations" on page 9.

Item 6.  Exhibits and Reports on Form 8-K.

(a)

Exhibits

10.1	Restated and Amended 1994 Stock Incentive Plan, dated May 11, 2000
10.2	Employment Agreement by and between the Company and Kathleen P. Pepski, dated April 19, 2000
27.	Financial Data Schedule (filed only in electronic format).
99.1	News Release, dated April 25, 2000, announcing the first quarter 2000 operating results (filed herein).
99.2	News Release, dated April 19, 2000, announcing the appointment of new chief financial officer.
99.3	News Release, dated April 5, 2000, announcing the resignation of chief financial officer.

(b)

Reports on Form 8-K.

    The Company did not file any reports on Form 8-K for the quarter ended March 31, 2000.

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SIGNATURES

    Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

BMC INDUSTRIES, INC.

 
/s/ KATHLEEN P. PEPSKI Kathleen P. Pepski
Senior Vice-President and Chief Financial Officer (Principal Financial Officer)

 
/s/ KEVIN E. ROE Kevin E. Roe
Acting Controller (Principal Accounting Officer)

Dated: May 15, 2000

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QuickLinks

PART I: FINANCIAL INFORMATION

Item 1: Financial Statements

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Part II: OTHER INFORMATION

Item 1. Legal Proceedings
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
Item 6. Exhibits and Reports on Form 8-K.

SIGNATURES

EX-10.1

                                                                    EXHIBIT 10.1

                              BMC INDUSTRIES, INC.

                  RESTATED AND AMENDED 1994 STOCK INCENTIVE PLAN

                            (Effective May 11, 2000)

1.       PURPOSE OF PLAN.

     The purpose of this Restated and Amended 1994 Stock Incentive Plan of BMC
     Industries, Inc. (the "Plan") is to advance the interests of BMC
     Industries, Inc. (the "Company") and its shareholders by enabling the
     Company and its Subsidiaries to attract and retain persons of ability to
     perform services for the Company and its Subsidiaries by providing an
     incentive to such individuals through equity participation in the Company
     and by rewarding such individuals who contribute to the achievement by the
     Company of its economic objectives.

2.       DEFINITIONS

     The following terms will have the meanings set forth below, unless the
context clearly otherwise requires:

         2.1 "BOARD" means the Board of Directors of the Company.

         2.2 "BROKER EXERCISE NOTICE" means a written notice pursuant to which a
Participant, upon exercise of an Option, irrevocably instructs a broker or
dealer to sell a sufficient number of shares or loan a sufficient amount of
money to pay all or a portion of the exercise price of the Option and/or any
related withholding tax obligations and remit such sums to the Company and
directs the Company to deliver stock certificates to be issued upon such
exercise directly to such broker or dealer.

         2.3 "CHANGE IN CONTROL" means an event described in Section 13.1 of the
Plan.

         2.4 "CODE" means the Internal Revenue Code of 1986, as amended.

         2.5 "COMMITTEE" means the group of individuals administering the Plan,
as provided in Section 3 of the Plan.

         2.6 "COMMON STOCK" means the common stock of the Company, no par value,
or the number and kind of shares of stock or other securities into which such
Common Stock may be changed in accordance with Section 4.3 of the Plan.

         2.7 "DISABILITY" means the disability of the Participant such as would
entitle the Participant to receive disability income benefits pursuant to the
long-term disability plan of the Company or Subsidiary then covering the
Participant or, if no such plan exists or is applicable to the Participant, the
permanent and total disability of the Participant within the meaning of Section
22(e)(3) of the Code.




         2.8 "ELIGIBLE RECIPIENTS" means all employees (including without
limitation, officers and directors who are also employees) of the Company or any
Subsidiary and any non-employee directors, consultants and independent
contractors of the Company or any Subsidiary.

         2.9 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

         2.10 "FAIR MARKET VALUE" means, with respect to the Common Stock, as of
any date (or, if no shares were traded or quoted on such date, as of the next
preceding date on which there was such a trade or quote), the mean between the
reported high and low sale prices of the Common Stock on the New York Stock
Exchange.

         2.11 "FUNDAMENTAL CHANGE" means a dissolution or liquidation of the
Company, a sale of substantially all of the assets of the Company, a merger or
consolidation of the Company with or into any other corporation, or a statutory
share exchange involving capital stock of the Company.

         2.12 "INCENTIVE AWARD" means an Option, Stock Appreciation Right,
Restricted Stock Award, Performance Unit or Stock Bonus granted to an Eligible
Recipient pursuant to the Plan.

         2.13 "INCENTIVE STOCK OPTION" means a right to purchase Common Stock
granted to an Eligible Recipient pursuant to Section 6 of the Plan that
qualifies as an "incentive stock option" within the meaning of Section 422 of
the Code.

         2.14 "NON-EMPLOYEE DIRECTOR" means any member of the Board of Directors
of the Company who is a non-employee director within the meaning of Rule 16a-1
under the Exchange Act.

         2.15 "NON-STATUTORY STOCK OPTION" means a right to purchase Common
Stock granted to an Eligible Recipient pursuant to Section 6 of the Plan that
does not qualify as an Incentive Stock Option.

         2.16 "OPTION" means an Incentive Stock Option or a Non-Statutory Stock
Option.

         2.17 "PARTICIPANT" means an Eligible Recipient who receives one or more
Incentive Awards under the Plan.

         2.18 "PERFORMANCE UNIT" means a right granted to an Eligible Recipient
pursuant to Section 9 of the Plan to receive a payment from the Company, in the
form of stock, cash or a combination of both, upon the achievement of
established performance goals.

         2.19 "PREVIOUSLY ACQUIRED SHARES" means shares of Common Stock that are
already owned by the Participant, or with respect to any Incentive Award, that
are to be issued upon the grant, exercise or vesting of such Incentive Award.

         2.20 "RESTRICTED STOCK AWARD" means an award of Common Stock granted to
an Eligible Recipient pursuant to Section 8 of the Plan that is subject to the
restrictions on transferability and the risk of forfeiture imposed by the
provisions of such Section 8.




         2.21 "RETIREMENT" means termination of employment or service pursuant
to and in accordance with the regular (or, if approved by the Board for purposes
of the Plan, early) retirement/pension plan or practice of the Company or
Subsidiary then covering the Participant, provided that if the Participant is
not covered by any such plan or practice, the Participant will be deemed to be
covered by the Company's plan or practice for purposes of this determination.

         2.22 "SECURITIES ACT" means the Securities Act of 1933, as amended.

         2.23 "STOCK APPRECIATION RIGHT" means a right granted to an Eligible
Recipient pursuant to Section 7 of the Plan to receive a payment from the
Company, in the form of stock, cash or a combination of both, equal to the
difference between the Fair Market Value of one or more shares of Common Stock
and the exercise price of such shares under the terms of such Stock Appreciation
Right.

         2.24 "STOCK BONUS" means an award of Common Stock granted to an
Eligible Recipient pursuant to Section 10 of the Plan.

         2.25 "SUBSIDIARY" means any entity that is directly or indirectly
controlled by the Company or any entity in which the Company has a significant
equity interest, as determined by the Committee.

         2.26 "TAX DATE" means the date any withholding tax obligation arises
under the Code for a Participant with respect to an Incentive Award.

3.       PLAN ADMINISTRATION.

         3.1 THE COMMITTEE. The Plan will be administered by the Board or by a
committee of the Board consisting of not less than two directors, each of whom
will be a Non-Employee Director. As used in this Plan, the term "Committee" will
refer to the Board or to such a committee, if established. To the extent
consistent with corporate law, the Committee may delegate to any officers of the
Company the duties, power and authority of the Committee under the Plan pursuant
to such conditions or limitations as the Committee may establish; provided,
however, that only the Committee may exercise such duties, power and authority
with respect to Eligible Recipients who are subject to Section 16 of the
Exchange Act. Each determination, interpretation or other action made or taken
by the Committee pursuant to the provisions of the Plan will be conclusive and
binding for all purposes and on all persons, and no member of the Committee will
be liable for any action or determination made in good faith with respect to the
Plan or any Incentive Award granted under the Plan.

         3.2 INDEMNIFICATION. To the full extent permitted by law, (i) no member
of the Committee or person to whom authority under this Plan is delegated shall
be liable for any action or determination taken or made in good faith with
respect to this Plan or any Incentive Award granted hereunder and (ii) the
members of the Committee and each person to whom authority under this Plan is
delegated shall be entitled to indemnification by the Company against and from
any loss incurred by such member or person by reason of any such actions and
determinations.




         3.3      AUTHORITY OF THE COMMITTEE.

                  (a) In accordance with and subject to the provisions of the
         Plan, the Committee will have the authority to determine all provisions
         of Incentive Awards as the Committee may deem necessary or desirable
         and as consistent with the terms of the Plan, including, without
         limitation, the following: (i) the Eligible Recipients to be selected
         as Participants; (ii) the nature and extent of the Incentive Awards to
         be made to each Participant (including the number of shares of Common
         Stock to be subject to each Incentive Award, any exercise price, the
         manner in which Incentive Awards will vest or become exercisable and
         whether Incentive Awards will be granted in tandem with other Incentive
         Awards) and the form of written agreement, if any, evidencing such
         Incentive Award; (iii) the time or times when Incentive Awards will be
         granted; (iv) the duration of each Incentive Award; and (v) the
         restrictions and other conditions to which the payment or vesting of
         Incentive Awards may be subject. In addition, the Committee will have
         the authority under the Plan in its sole discretion to pay the economic
         value of any Incentive Award in the form of cash, Common Stock or any
         combination of both.

                  (b) The Committee will have the authority under the Plan to
         amend or modify the terms of any outstanding Incentive Award in any
         manner, including, without limitation, the authority to modify the
         number of shares or other terms and conditions of an Incentive Award,
         extend the term of an Incentive Award, accelerate the exercisability or
         vesting or otherwise terminate any restrictions relating to an
         Incentive Award, accept the surrender of any outstanding Incentive
         Award or, to the extent not previously exercised or vested, authorize
         the grant of new Incentive Awards in substitution for surrendered
         Incentive Awards; provided, however that the amended or modified terms
         are permitted by the Plan as then in effect and that any Participant
         adversely affected by such amended or modified terms has consented to
         such amendment or modification.

4.       SHARES AVAILABLE FOR ISSUANCE.

         4.1 MAXIMUM NUMBER OF SHARES. Subject to adjustment as provided in
Section 4.3 of the Plan, the maximum number of shares of Common Stock that will
be available for issuance under the Plan will be 4,840,000 shares.
Notwithstanding any other provision of the Plan to the contrary, no Participant
in the Plan may be granted any Options or Stock Appreciation Rights, or any
other Incentive Awards relating to more than 400,000 shares of Common Stock in
the aggregate in any fiscal year of the Company (subject to adjustment as
provided in Section 4.3 of the Plan).

         4.2 ACCOUNTING FOR INCENTIVE AWARDS. Shares of Common Stock that are
issued under the Plan or that are subject to outstanding Incentive Awards will
be applied to reduce the maximum number of shares of Common Stock remaining
available for issuance under the Plan. Any shares of Common Stock that are
subject to an Incentive Award that lapses, expires, is forfeited or for any
reason is terminated unexercised or unvested and any shares of Common Stock that
are subject to an Incentive Award that is settled or paid in cash or any form
other than shares of Common Stock will automatically again become available for
issuance under the Plan.




         4.3 ADJUSTMENTS TO SHARES AND INCENTIVE AWARDS. In the event of any
reorganization, merger, consolidation, recapitalization, liquidation,
reclassification, stock dividend, stock split, combination of shares, rights
offering, divestiture or extraordinary dividend (including a spin-off) or any
other change in the corporate structure or shares of the Company, the Committee
(or, if the Company is not the surviving corporation in any such transaction,
the board of directors of the surviving corporation) will make appropriate
adjustment (which determination will be conclusive) as to the number and kind of
securities available for issuance under the Plan and, in order to prevent
dilution or enlargement of the rights of Participants, the number, kind and,
where applicable, exercise price of securities subject to outstanding Incentive
Awards.

5.       PARTICIPATION.

Participants in the Plan will be those Eligible Recipients who, in the judgment
of the Committee, have contributed, are contributing or are expected to
contribute to the achievement of economic objectives of the Company or its
Subsidiaries. Eligible Recipients may be granted from time to time one or more
Incentive Awards, singly or in combination or in tandem with other Incentive
Awards, as may be determined by the Committee in its sole discretion. Incentive
Awards will be deemed to be granted as of the date specified in the grant
resolution of the Committee, which date will be the date of any related
agreement with the Participant.

6.       OPTIONS.

         6.1 GRANT. An Eligible Recipient may be granted one or more Options
under the Plan, and such Options will be subject to such terms and conditions,
consistent with the other provisions of the Plan, as may be determined by the
Committee in its sole discretion. The Committee may designate whether an Option
is to be considered an Incentive Stock Option or a Non-Statutory Stock Option.

         6.2 EXERCISE PRICE. The per share price to be paid by a Participant
upon exercise of an Option will be determined by the Committee in its discretion
at the time of the Option grant, provided that (a) such price will not be less
than 100% of the Fair Market Value of one share of Common Stock on the date of
grant with respect to an Incentive Stock Option (110% of the Fair Market Value
if, at the time the Incentive Stock Option is granted, the Participant owns,
directly or indirectly, more than 10% of the total combined voting power of all
classes of stock of the Company or any parent or subsidiary corporation of the
Company), and (b) such price will not be less than 85% of the Fair Market Value
of one share of Common Stock on the date of grant with respect to a
Non-Statutory Stock Option.

         6.3 EXERCISABILITY AND DURATION. An Option will become exercisable at
such times and in such installments as may be determined by the Committee in its
sole discretion at the time of grant; provided, however, that no Incentive Stock
Option may be exercisable after 10 years from its date of grant.

         6.4 PAYMENT OF EXERCISE PRICE. The total purchase price of the shares
to be purchased upon exercise of an Option will be paid entirely in cash
(including check, bank draft or money order); provided, however, that the
Committee, in its sole discretion and upon terms and conditions established by
the Committee, may allow such payments to be made, in whole or in




part, by tender of a Broker Exercise Notice, Previously Acquired Shares, a
promissory note (on terms acceptable to the Committee in its sole discretion) or
by a combination of such methods.

         6.5 MANNER OF EXERCISE. An Option may be exercised by a Participant in
whole or in part from time to time, subject to the conditions contained in the
Plan and in the agreement evidencing such Option, by delivery in person, by
facsimile or electronic transmission or through the mail of written notice of
exercise to the Company (Attention: Secretary) at its principal executive office
in Minneapolis, Minnesota (such notice to specify the particular Option that is
being exercised and the number of shares with respect to which the Option is
being exercised) accompanied by payment of the total purchase price of the
shares to be purchased in accordance with Section 6.4 of the Plan.

         6.6 AGGREGATE LIMITATION OF STOCK SUBJECT TO INCENTIVE STOCK OPTIONS.
To the extent that the aggregate Fair Market Value (determined as of the date an
Incentive Stock Option is granted) of the shares of Common Stock with respect to
which incentive stock options (within the meaning of Section 422 of the Code)
are exercisable for the first time by a Participant during any calendar year
(under the Plan and any other incentive stock option plans of the Company or any
subsidiary or parent corporation of the Company (within the meaning of the
Code)) exceeds $100,000 (or such other amount as may be prescribed by the Code
from time to time), such excess Options will be treated as Non-Statutory Stock
Options. The determination will be made by taking incentive stock options into
account in the order in which they were granted. If such excess only applies to
a portion of an incentive stock option, the Committee, in its discretion, may
designate which shares will be treated as shares to be acquired upon exercise of
an incentive stock option.

         6.7      AUTOMATIC GRANTS TO NON-EMPLOYEE DIRECTORS.

                  (a) GRANTS OF OPTIONS. At such time as, following the
         effective date of the Plan, new Non-Employee Directors are first
         elected or appointed to the Board of Directors to fill new
         directorships or to fill vacancies, such Non-Employee Directors will be
         granted automatically, on a one-time basis on the date of their
         election or appointment, a Non-Statutory Stock Option to purchase
         10,000 shares of Common Stock (subject to adjustment as provided in
         Section 4.3 of the Plan). In addition, on the date of each Annual
         Meeting of Shareholders of the Company following the date a
         Non-Employee Director is first elected or appointed to the Board of
         Directors, each person who is a Non-Employee Director as of such date
         will be granted automatically a Non-Statutory Stock Option to purchase
         4,000 shares of Common Stock (subject to adjustment as provided in
         Section 4.3 of the Plan).

                  (b) OPTION EXERCISE PRICE. The per share price to be paid by
         the Non-Employee Director at the time such an Option is exercised will
         be 100% of the Fair Market Value of one share of Common Stock on the
         date the Option is granted.

                  (c) DURATION OF OPTIONS. Each such Option will terminate five
         years after its date of grant and will become exercisable in full three
         years after its date of grant.

                  (d) EFFECT OF TERMINATION OF DIRECTORSHIP. In the event a
         Non-Employee Director's service as a director of the Company is
         terminated for any reason other than



         death, Disability or Retirement, all such Options then held by the
         Non-Employee Director will continue to become exercisable and expire in
         accordance with their terms. In the event a Non-Employee Directors'
         service as a director of the Company is terminated due to death,
         Disability or Retirement in accordance with the Board's then current
         Retirement policy, all Options then held by the Non-Employee Director
         will become immediately exercisable in full and will expire in
         accordance with their terms. Such Options will not be subject to the
         termination provisions of Section 11 of the Plan.

                  (e) COMMITTEE MODIFICATION. The Committee has the authority to
         amend the eligibility requirements for, or modify the terms or
         accelerate the vesting of, such Options (including, without limitation,
         the authority to modify the rights of Non-Employee Directors in
         connection with termination of service as a director or a change in
         control of the Company).

                  (f) MANNER OF OPTION EXERCISE. An Option may be exercised by a
         Non-Employee Director in whole or in part from time to time, subject to
         the conditions contained in the Plan and in the agreement evidencing
         such Option, by delivery in person, by facsimile or electronic
         transmission or through the mail of written notice of exercise to the
         Company (Attention: Secretary) at its principal executive office in
         Minneapolis, Minnesota (such notice to specify the particular Option
         that is being exercised and the number of shares with respect to which
         the Option is being exercised) accompanied by payment of the total
         purchase price of the shares to be purchased in accordance with Section
         6.4 of the Plan.

7.       STOCK APPRECIATION RIGHTS.

         7.1 GRANT. An Eligible Recipient may be granted one or more Stock
Appreciation Rights under the Plan, and such Stock Appreciation Rights shall be
subject to such terms and conditions, consistent with the other provisions of
the Plan, as will be determined by the Committee in its sole discretion.

         7.2 EXERCISE PRICE. The exercise price of a Stock Appreciation Right
will be determined by the Committee, in its discretion, at the date of grant but
will not be less than 100% of the Fair Market Value of one share of Common Stock
on the date of grant.

         7.3 EXERCISABILITY AND DURATION. A Stock Appreciation Right will become
exercisable at such time and in such installments as may be determined by the
Committee in its sole discretion at the time of grant; provided, however, that
no Stock Appreciation Right may be exercisable after 10 years from its date of
grant. A Stock Appreciation Right will be exercised by giving notice in the same
manner as for Options, as set forth in Section 6.5 of the Plan.

8.       RESTRICTED STOCK AWARDS.

         8.1 GRANT. An Eligible Recipient may be granted one or more Restricted
Stock Awards under the Plan, and such Restricted Stock Awards will be subject to
such terms and conditions, consistent with the other provisions of the Plan, as
may be determined by the Committee in its sole discretion. The Committee may
impose such restrictions or conditions, not inconsistent with the provisions of
the Plan, to the vesting of such Restricted Stock Awards as it




deems appropriate, including, without limitation, that the Participant remain in
the continuous employ or service of the Company or a Subsidiary for a certain
period or that the Participant or the Company (or any Subsidiary or division
thereof) satisfy certain performance goals or criteria. Any Restricted Stock
that is not vested shall be forfeited.

         8.2 RIGHTS AS A SHAREHOLDER; TRANSFERABILITY. Except as otherwise
expressly provided herein, a Participant will have all voting, dividend,
liquidation and other rights with respect to shares of Common Stock issued to
the Participant as a Restricted Stock Award under this Section 8 upon the
Participant becoming the holder of record of such shares as if such Participant
were a holder of record of shares of unrestricted Common Stock.

         8.3 DIVIDENDS AND DISTRIBUTIONS. Unless the Committee determines
otherwise in its sole discretion (either in the agreement evidencing the
Restricted Stock Award at the time of grant or at any time after the grant of
the Restricted Stock Award), any dividends or distributions (including regular
quarterly cash dividends) paid with respect to shares of Common Stock subject to
the unvested portion of a Restricted Stock Award will be subject to the same
restrictions as the shares to which such dividends or distributions relate. In
the event the Committee determines not to pay such dividends or distributions
currently, the Committee will determine in its sole discretion whether any
interest will be paid on such dividends or distributions. In addition, the
Committee in its sole discretion may require such dividends and distributions to
be reinvested (and in such case the Participants consent to such reinvestment)
in shares of Common Stock that will be subject to the same restrictions as the
shares to which such dividends or distributions relate.

         8.4 ENFORCEMENT OF RESTRICTIONS. To enforce the restrictions referred
to in this Section 8, the Committee may place a legend on the stock certificates
referring to such restrictions and may require the Participant, until the
restrictions have lapsed, to keep the stock certificates, together with duly
endorsed stock powers, in the custody of the Company or its transfer agent or to
maintain evidence of stock ownership, together with duly endorsed stock powers,
in a certificateless book-entry stock account with the Company's transfer agent.

9.       PERFORMANCE UNITS.

     An Eligible Recipient may be granted one or more Performance Units under
     the Plan, and such Performance Units will be subject to such terms,
     conditions, and restrictions consistent with the other provisions of the
     Plan, as may be determined by the Committee in its sole discretion. The
     Committee will have the sole discretion either to determine the form in
     which payment of the economic value of vested Performance Units will be
     made to the Participant (i.e., cash, Common Stock or any combination
     thereof) or to consent to or disapprove the election by the Participant of
     the form of such payment.

10.      STOCK BONUSES.

     An Eligible Recipient may be granted one or more Stock Bonuses under the
     Plan, and such Stock Bonuses will be subject to such terms and conditions,
     consistent with the other provisions of the Plan, as may be determined by
     the Committee in its sole discretion. The Participant will have all voting,
     dividend, liquidation and other rights with respect to the




     shares of Common Stock issued to a Participant as a Stock Bonus under this
     Section 10 upon the Participant becoming the holder of record of such
     shares; provided, however, that the Committee may impose such restrictions
     on the assignment or transfer of a Stock Bonus as it deems appropriate.

11.      EFFECT OF TERMINATION OF EMPLOYMENT OR OTHER SERVICE.

         11.1 TERMINATION DUE TO DEATH OR DISABILITY. In the event a
Participant's employment or other service with the Company and all Subsidiaries
is terminated by reason of death or Disability;

                  (a) All outstanding Options and Stock Appreciation Rights then
         held by the Participant will become immediately exercisable in full and
         will remain exercisable for a period of one year after such termination
         (but in no event after the expiration date of any such Option or Stock
         appreciation Right);

                  (b) All outstanding Restricted Stock Awards then held by the
         Participant will become immediately fully vested and non-forfeitable;
         and

                  (c) All outstanding Performance Units and Stock Bonuses then
         held by the Participant will vest and/or continue to vest in the manner
         determined by the Committee and set forth in the agreement evidencing
         such Performance Units or Stock Bonuses.

         11.2 TERMINATION DUE TO RETIREMENT. In the event a Participant's
employment or other service with the Company and all Subsidiaries is terminated
by reason of Retirement:

                  (a) Subject to the advance approval of the Committee, all
         outstanding Options and Stock Appreciation Rights then held by the
         Participant may become immediately exercisable in full and will remain
         exercisable for a period of six months after such termination (but in
         no event after the expiration date of any such Option or Stock
         Appreciation Right);

                  (b) All outstanding Restricted Stock Awards then held by the
         Participant will become immediately fully vested and non-forfeitable;
         and

                  (c) All outstanding Performance Units and Stock Bonuses then
         held by the Participant will vest and/or continue to vest in the manner
         determined by the Committee and set forth in the agreement evidencing
         such Performance Units or Stock Bonuses.

         11.3 TERMINATION FOR REASONS OTHER THAN DEATH, DISABILITY OR
RETIREMENT.

                  (a) In the event a Participant's employment or other service
         is terminated with the Company and all Subsidiaries for any reason
         other than death, Disability or Retirement, or a participant is in the
         employ or service of a Subsidiary and the Subsidiary ceases to be a
         Subsidiary of the Company (unless the Participant continues in the
         employ or service of the Company or another Subsidiary), all rights of
         the Participant under the




         Plan and any agreements evidencing an Incentive Award will immediately
         terminate without notice of any kind, and no Options or Stock
         Appreciation Rights then held by the Participant will thereafter be
         exercisable, all Restricted Stock Awards, Performance Units and Stock
         Bonuses then held by the Participant that have not vested will be
         terminated and forfeited, however, that if such termination is due to
         any reason other than termination by the Company or any Subsidiary for
         "cause," all outstanding Incentive Awards then held by such Participant
         will remain exercisable to the extent exercisable as of such
         termination for a period of three months after such termination (but in
         no event after the expiration date of any such Incentive Award), or for
         such greater or lesser period as the Committee may determine.

                  (b) For purposes of this Section 11.3, "cause" (as determined
         by the Committee) will be as defined in any employment or other
         agreement or policy applicable to the Participant or, if no such
         agreement or policy exists, will mean (i) dishonesty, fraud,
         misrepresentation, embezzlement or deliberate injury or attempted
         injury, in each case related to the Company or any Subsidiary, (ii) any
         unlawful or criminal activity of a serious nature, (iii) any
         intentional and deliberate breach of a duty or duties that,
         individually or in the aggregate, are material in relation to the
         Participant's overall duties, or (iv) any material breach of any
         employment, service, confidentiality or non-complete agreement entered
         into with the Company or any Subsidiary.

         11.4 MODIFICATION OF RIGHTS UPON TERMINATION. Notwithstanding the other
provisions of this Section 11, upon a Participant's termination of employment or
other service with the Company and all Subsidiaries, the Committee may, in its
sole discretion (which may be exercised at any time on or after the date of
grant, including following such termination), cause Options, Stock Appreciation
Rights, Performance Units and Stock Bonuses (or any part thereof) then held by
such Participant to become or continue to become exercisable and/or remain
exercisable following such termination of employment or service and Restricted
Stock Awards, Performance Units and Stock Bonuses then held by such Participant
to vest and/or continue to vest or become free of transfer restrictions, as the
case may be, following such termination of employment or service, in each case
in the manner determined by the Committee; provided, however, that no Option or
Stock Appreciation Right may remain exercisable beyond its expiration date.

         11.5 BREACH OF CONFIDENTIALITY OR NON-COMPETE AGREEMENTS.
Notwithstanding anything in this Plan to the contrary, in the even that a
Participant materially breaches the terms of any confidentiality or non-compete
agreement entered into with the Company or any Subsidiary, whether such breach
occurs before or after termination of such Participant's employment or other
service with the Company or any Subsidiary, the Committee in its sole discretion
may immediately terminate all rights of the Participant under the Plan and any
agreements evidencing an Incentive Award then held by the Participant without
notice of any kind.

         11.6 DATE OF TERMINATION OF EMPLOYMENT OR OTHER SERVICE. Unless the
Committee otherwise determines in its sole discretion, a Participant's
employment or other service will, for purposes of the Plan, be deemed to have
terminated on the date recorded on the personnel or other records of the Company
or the Subsidiary for which the Participant provides employment or other
service, as determined by the Committee in its sole discretion based upon such
records.




12.      PAYMENT OF WITHHOLDING TAXES.

         12.1 GENERAL RULES. The Company is entitled to (a) withhold and deduct
from future wages of the Participant (or from other amounts that may be due and
owing to the Participant from the Company or a Subsidiary), or make other
arrangements for the collection of, all legally required amounts necessary to
satisfy any and all federal, state and local withholding and employment-related
tax requirements attributable to an Incentive Award, including, without
limitation, the grant, exercise or vesting of, or payment of dividends with
respect to, an Incentive Award or a disqualifying disposition of stock received
upon exercise of an Incentive Stock Option, or (b) require the Participant
promptly remit the amount of such withholding to the Company before taking any
action, including issuing any shares of Common Stock with respect to an
Incentive Award.

         12.2 SPECIAL RULES. The Committee may, in its sole discretion and upon
terms and conditions established by the Committee, permit or require a
Participant to satisfy, in whole or in part, any withholding or
employment-related tax obligation described in Section 12.1 of the Plan by
electing to tender Previously Acquired Shares, a Broker Exercise Notice or a
promissory note (on terms acceptable to the Committee in its sole discretion),
or by a combination of such methods.

13.      CHANGE IN CONTROL.

         13.1 CHANGE IN CONTROL. For purposes of this Section 13.1, a "Change in
Control" of the Company will mean the following;

                  (a) the sale, lease, exchange or other transfer, directly or
         indirectly, of substantially all of the assets of the Company (in one
         transaction or in a series of related transactions) to a person or
         entity that is not controlled by the Company.

                  (b) the approval by the shareholders of the Company of any
         plan or proposal for the liquidation or dissolution of the Company;

                  (c) a merger or consolidation to which the Company is a party
         if the shareholders of the Company immediately prior to the effective
         date of such merger or consolidation have "beneficial ownership" (as
         defined in Rule 13d-3 under the Exchange Act), immediately following
         the effective date of such merger or consolidation, of securities of
         the surviving corporation representing (i) more than 50%, but not more
         than 80%, of the combined voting power of the surviving corporation's
         then outstanding securities ordinarily having the right to vote at
         elections of directors, unless such merger or consolidation has been
         approved in advance by the Incumbent Directors (as defined in Section
         13.2 below), or (ii) 50% or less of the combined voting power of the
         surviving corporation's then outstanding securities ordinarily having
         the right to vote at elections of directors (regardless of any approval
         by the Incumbent Directors);

                  (d) any person becomes after the effective date of the Plan
         the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
         Act), directly or indirectly, of (i) 20% or more, but not 50% or more,
         of the combined voting power of the Company's




         outstanding securities ordinarily having the right to vote at elections
         of directors, unless the transaction resulting in such ownership has
         been approved in advance by the Incumbent Directors, or (ii) 50% or
         more of the combined voting power of the Company's outstanding
         securities ordinarily having the right to vote at elections of
         directors (regardless of any approval by the Incumbent Directors);

                  (e) the Incumbent Directors cease for any reason to constitute
         at least a majority of the Board; or

                  (f) a change in control of the Company of a nature that would
         be required to be reported pursuant to Section 13 or 15(d) of the
         Exchange Act, whether or not the Company is then subject to such
         reporting requirements.

         13.2 INCUMBENT DIRECTORS. For purposes of this Section 13, "Incumbent
Directors" of the Company means any individuals who are members of the Board on
the effective date of the Plan and any individual who subsequently becomes a
member of the Board whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the Incumbent
Directors (either by specific vote or by approval of the Company's proxy
statement in which such individual is named as a nominee for director without
objection to such nomination).

         13.3 ACCELERATION OF VESTING. Without limiting the authority of the
Committee under Section 3.1 of the Plan, if a Change in Control of the Company
occurs, then (a) all outstanding Options and Stock Appreciation Rights then held
by a Participant and not already exercised in full or otherwise terminated,
expired or canceled shall become immediately exercisable in full and will remain
exercisable for the remainder of their terms, regardless of whether the
Participant to whom such Options or Stock Appreciation Rights have been granted
remains in the employ or service of the Company or any Subsidiary; (b) all
outstanding Restricted Stock Awards then held by the Participant will become
immediately fully vested and non-forfeitable; and (c) all outstanding
Performance Units and Stock Bonuses then held by the Participant will vest
and/or continue to vest in the manner determined by the Committee and set forth
in the agreement evidencing such Performance Units or Stock Bonuses or
otherwise.

         13.4 CASH PAYMENT FOR OPTIONS. If a Change in Control of the Company
occurs, then the Committee may determine in its sole discretion either in an
agreement evidencing an Incentive Award at the time of grant or at any time
after the grant of an Incentive Award, and without the consent of any
Participant affected thereby, that some or all Participants holding outstanding
Options will receive, with respect to some or all of the shares of Common Stock
subject to such Options, as of the effective date of any such Change in Control
of the Company, cash in an amount equal to the excess of the Fair Market Value
of such shares immediately prior to the effective date of such Change in Control
of the Company over the exercise price per share of such Options. Any Options as
to which a Participant receives such cash payment shall be cancelled.

         13.5 LIMITATION ON CHANGE IN CONTROL PAYMENTS. Notwithstanding anything
in Section 13.3 or 13.4 of the Plan to the contrary, if, with respect to a
Participant, the acceleration of the vesting of an Incentive Award as provided
in Section 13.3 or the payment of cash in exchange for all or part of an
Incentive Award as provided in Section 13.4 (which acceleration or payment




could be deemed a "payment" within the meaning of Section 280G(b)(2) of the
Code), together with any other payments which such Participant has the right to
receive from the Company or any corporation that is a member of an "affiliated
group" (as defined Section 1504(a) of the Code without regard to Section 1504(b)
of the Code) of which the Company is a member, would constitute a "parachute
payment" (as defined in Section 280G(b)(2) of the Code), then the payments to
such Participant pursuant to Section 13.3 or 13.4 will be reduced to the largest
amounts as will result in no portion of such payments being subject to the
excise tax imposed by Section 4999 of the Code; provided, however, that if such
Participant is subject to a separate agreement with the Company or a Subsidiary
which specifically provides that payments attributable to one or more forms of
employee stock incentives or to payments made in lieu of employee stock
incentives will not reduce any other payments under such agreement, even if it
would constitute an excess parachute payment, or provide that the Participant
will have the discretion to determine which payments will be reduced in order to
avoid an excess parachute payment, then the limitations of this Section 13.5
will, to that extent, not apply.

14. FUNDAMENTAL CHANGE. In the event of a proposed Fundamental Change:

         (a)      involving a merger, consolidation or statutory share exchange,
                  unless appropriate provision shall be made (which the
                  Committee may, but shall not be obligated to, make) for the
                  protection of the outstanding Options and Stock Appreciation
                  Rights by the substitution of options or stock appreciation
                  rights of the corporation surviving any such merger or
                  consolidation or, if appropriate, the parent corporation of
                  such surviving corporation.

         (b)      involving the dissolution or liquidation of the Company,

the Committee may, but shall not be obligated to, declare, at least twenty (20)
days prior to the occurrence of the Fundamental Change, and provide written
notice to each holder of an Option or Stock Appreciation Right of the
declaration, that each outstanding Option and Stock Appreciation Right, whether
or not then exercisable, shall be canceled at the time of, or immediately prior
to the occurrence of, the Fundamental Change in exchange for a cash payment to
each holder of an Option or Stock Appreciation Right, within 20 days after the
Fundamental Change, for each share covered by the canceled Option or Stock
Appreciation Right in the amount, if any, by which the Fair Market Value (as
defined in this Section 14) per share exceeds the exercise price per share
covered by such Option or Stock Appreciation Right. At the time of the
declaration provided for in the immediately preceding sentence, each Stock
Appreciation Right and each Option shall immediately become exercisable in full
and each person holding an Option or Stock Appreciation Right shall have the
right, during the period preceding the time of cancellation of the Option or
Stock Appreciation Right, to exercise the Option as to all or any part of the
shares covered thereby or the Stock Appreciation Right in whole or in part, as
the case may be. In the event of a declaration pursuant to this Section 14, each
outstanding Option and Stock Appreciation Right that shall not have been
exercised prior to the Fundamental Change shall be canceled at the time of, or
immediately prior to the Fundamental Change, as provided in the declaration.
Notwithstanding the foregoing, no person holding an Option or Stock Appreciation
Right shall be entitled to the payment provided for in this Section 14 if such
Option or Stock Appreciation Right shall have terminated, expired or been
cancelled. For purposes of this Section 14 ONLY, "Fair Market Value" per Share
means the cash plus the fair market value, as determined in good faith by the
Committee, of the non-cash consideration to be received per




Share by the shareholders of the Company upon the occurrence of the Fundamental
Change, notwithstanding anything to the contrary provided in this Plan.

15.      RIGHTS OF ELIGIBLE RECIPIENTS AND PARTICIPANTS; TRANSFERABILITY.

         15.1 EMPLOYMENT OR SERVICE. Nothing in the Plan will interfere with or
limit in any way the right of the Company or any Subsidiary to terminate the
employment or service of any Eligible Recipient or Participant at any time, nor
confer upon any Eligible Recipient or Participant any right to continue in the
employ or service of the Company or any Subsidiary.

         15.2 RIGHTS AS A SHAREHOLDER. As a holder of Incentive Awards (other
than Restricted Stock Awards and Stock Bonuses), a Participant will have no
rights as a shareholder unless and until such Incentive Awards are exercised for
or paid in the form of, shares of Common Stock and the Participant becomes the
holder of record of such shares. Except as otherwise provided in the Plan, no
adjustment will be made for dividends or distributions with respect to such
Incentive Awards as to which there is a record date preceding the date the
Participant becomes the holder of record of such shares, except as the Committee
may determine in its discretion.

         15.3 TRANSFERABILITY. During the lifetime of a holder of Incentive
Awards, only such holder of Incentive Awards, or his or her guardian or legal
representative, may exercise Incentive Awards granted under this Plan, and no
Incentive Award granted under this Plan shall be assignable or transferable by
the holder of the Incentive Award otherwise than by will or the laws of descent
and distribution or pursuant to a domestic relations order as defined by the
Code or Title I of the Employee Retirement Income Security Act, or the rules
thereunder; provided, however, that any holder of Incentive Awards may transfer
a Non-Statutory Stock Option granted under this Plan to a member or members of
his or her immediate family (i.e., his or her children, grandchildren and
spouse) or to one or more trusts for the benefit of such family members or
partnerships in which such family members are the only partners, if (i) the
agreement with respect to such Non-Statutory Stock Option expressly so provides
either at the time of initial grant or by amendment to an outstanding agreement
and (ii) the holder of the Non-Statutory Stock Option does not receive any
consideration for the transfer. Any Non-Statutory Stock Options held by any such
transferee shall continue to be subject to the same terms and conditions that
were applicable to such Non-Statutory Stock Options immediately prior to their
transfer and may be exercised by such transferee as and to the extent that such
Non-Statutory Stock Option has become exercisable and has not terminated in
accordance with the provisions of the Plan and the applicable agreement. For
purposes of any provision of this Plan relating to notice to a holder of a
Non-Statutory Stock Option or to vesting or termination of a Non-Statutory Stock
Option upon the death, disability or termination of employment of a holder of a
Non-Statutory Stock Option, references to the holder of a Non-Statutory Stock
Option shall mean the original grantee of a Non-Statutory Stock Option and not
any transferee.

         15.4 NON-EXCLUSIVITY OF THE PLAN. Nothing contained in the Plan is
intended to modify or rescind any previously approved compensation plans or
programs of the Company or create any limitations on the power or authority of
the Board to adopt such additional or other compensation arrangements as the
Board may deem necessary or desirable.

16.      SUBSTITUTE OPTIONS.




         Options may be granted under this Plan from time to time in
substitution for stock options held by employees of other corporations who are
about to become employees of the Company, or any parent or subsidiary thereof,
or whose employer is about to become a subsidiary of the Company, as the result
of a merger or consolidation of the Company or a subsidiary of the Company with
another corporation, the acquisition by the Company or a subsidiary of the
Company of all or substantially all the assets of another corporation or the
acquisition by the Company or a subsidiary of the Company of at least 50% of the
issued and outstanding stock of another corporation. The terms and conditions of
the substitute options so granted may vary from the terms and conditions set
forth in this Plan to such extent as the Board at the time of the grant may deem
appropriate to conform, in whole or in part, to the provisions of the stock
options in substitution for which they are granted, but with respect to stock
options which are incentive stock options, no such variation shall be permitted
which affects the status of any such substitute option as an incentive stock
option.

17.      SECURITIES LAW AND OTHER RESTRICTIONS.

         Notwithstanding any other provision of the Plan or any agreements
entered into pursuant to the Plan, the Company will not be required to issue any
shares of Common Stock under this Plan, and a Participant may not sell, assign,
transfer or otherwise dispose of shares of Common Stock issued pursuant to
Incentive Awards granted under the Plan, unless (a) there is in effect with
respect to such shares a registration statement under the Securities Act and any
applicable state securities laws or an exemption from such registration under
the Securities Act and applicable state securities laws, and (b) there has been
obtained any other consent, approval or permit from any other regulatory body
which the Committee, in its sole discretion, deems necessary or advisable. The
Company may condition such issuance, sale or transfer upon the receipt of any
representations or agreements from the parties involved, and the placement of
any legends on certificates representing shares of Common Stock, as may be
deemed necessary or advisable by the Company in order to comply with such
securities law or other restrictions.

18.      PLAN AMENDMENT, MODIFICATION AND TERMINATION

         The Board may suspend or terminate the Plan or any portion thereof at
any time, and may amend the Plan from time to time in such respects as the Board
may deem advisable in order that Incentive Awards under the Plan will conform to
any change in applicable laws or regulations or in any other respect the Board
may deem to be in the best interests of the Company. No termination, suspension
or amendment of the Plan may adversely affect any outstanding Incentive Award
without the consent of the affected Participant; provided, however, that this
sentence will not impair the right of the Committee to take whatever action it
deems appropriate under Sections 3.2(c), 4.3 and 13 of the Plan.

19.      EFFECTIVE DATE AND DURATION OF THE PLAN

         The changes to the Plan effected by the Restated and Amended Plan shall
be effective on the date that the Restated and Amended Plan is approved by the
shareholders. The Plan will terminate at midnight on May 10, 2010, and may be
terminated prior to such time by Board action, and no Incentive Award will be
granted after such termination. Incentive Awards outstanding upon termination of
the Plan may continue to be exercised, or become free of restrictions, in
accordance with their terms.




20.      MISCELLANEOUS

         20.1 GOVERNING LAW. The validity, construction, interpretation,
administration and effect of the Plan and any rules, regulations and actions
relating to the Plan will be governed by and construed exclusively in accordance
with the laws of the State of Minnesota.

         20.2 SUCCESSORS AND ASSIGNS. The Plan will be binding upon and inure to
the benefit of the successors and permitted assigns of the Company and the
Participants.

EX-10.2

                                                                    EXHIBIT 10.2
                              EMPLOYMENT AGREEMENT

This Employment Agreement ("Agreement") is entered into and made effective April
19, 2000 by and between BMC Industries, Inc., its subsidiaries and divisions
("Company") and Kathleen P. Pepski ("Employee").

WHEREAS, Company desires to employ Employee and Employee desires be employed by
the Company; and

WHEREAS, Employee and Company desire to formalize their relationship, and
provide for certain benefits and certain protections to Employee and Company
subject to and in accordance with this Agreement;

NOW THEREFORE, in consideration of the mutual covenants and agreements contained
herein and for good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:

1. EMPLOYMENT AND TERM. Company agrees to employ Employee in the capacity of
Senior Vice-President and Chief Financial Officer, for a period of two years,
commencing on April 19, 2000 and continuing until April 19, 2002 (the "Agreement
Termination Date"), unless sooner terminated as provided in this Agreement.
Employee agrees to serve and remain in such employment in accordance with this
Agreement. Throughout the term of this Agreement, Employee shall devote her full
time and attention during normal business hours to the business and affairs of
Company, except for vacations, Company holidays or periods of illness or
incapacity.

         This Agreement may be renewed on the Agreement Termination Date with
the mutual consent of the parties.

2. POSITION AND DUTIES. Employee shall serve full-time in the position of Senior
Vice-President and Chief Financial Officer, or such other position(s) as
designated by the Chief Executive Officer of the Company. Employee shall perform
such duties in this position as may be prescribed by Company management.
Employee agrees to devote her full-time business efforts, attention and energies
to the diligent performance of her duties on behalf of the Company, and will
not, during the term of her employment by the Company, engage in any activity or
accept employment, full or part-time, from any other person, firm, corporation,
governmental agency or other entity which, in the opinion of the Company, would
conflict with or detract from the capable performance of Employee's duties and
obligations to the Company. Employee further agrees to comply faithfully with
all policies established by Company.

3.       COMPENSATION.

                  (a) BASE SALARY. As compensation for the services rendered
under this Agreement, Company agrees to pay Employee a base salary of
$225,000.00 per annum, less applicable deductions and withholdings as required
by law, subject to annual adjustment at the discretion of Company's Board of
Directors. Employee shall be paid a portion of her base salary






as frequently as similarly situated employees. Currently, similarly situated
employees are paid on a bi-weekly basis.

                  (b) OTHER WAGE BASED BENEFITS. During the term of this
Agreement, Employee shall be eligible for participation in Company's Executive
Perk and Flex Benefit Plans and the 2000 Management Incentive Plan (MIP)
(attached as Exhibit A to this Agreement) with a targeted bonus opportunity of
50% of base salary (pro-rated for Employee's term of employment in the year
2000) and a maximum opportunity of 75% of Employee's base compensation,
depending upon the financial performance of BMC. Employee shall also receive a
Non-Qualified Stock Option (NQSO) grant for 100,000 shares of BMC common stock,
effective on the first date of employment. The option exercise price will be the
average of the high and low trading price of BMC stock on the New York Stock
Exchange on your first date of employment. THIS OPTION WILL HAVE A THREE (3)
YEAR VESTING PERIOD FOR 50,000 SHARES AND A FIVE (5) YEAR VESTING PERIOD FOR THE
REMAINING 50,000 SHARES, with the first installment of each becoming exercisable
on the first anniversary of Employee's employment date. Under the vesting
schedule for these options, which is attached as Exhibit B to the Agreement,
partial year vesting is not allowed.

         4. BENEFITS. During the term of this Agreement, Employee shall have the
right to participate in any group insurance and other fringe benefit plans which
are generally provided to its employees at the same or similar level, subject,
however, to the Employee's qualification for participation in such benefit plans
pursuant to the terms and conditions under which such benefit plans are offered.

         5. EXPENSES. The Company agrees to reimburse Employee for ordinary and
necessary business expenses incurred by her in performing services for the
Company in accordance with established corporate policies as may be in effect
from time to time.

         6. REPRESENTATION OF EMPLOYEE. Employee represents and warrants that
she is not party to or otherwise subject to or bound by the terms of any
contract, agreement or understanding that in any manner will limit or otherwise
affect her ability to perform her obligations under this Agreement.

         7. TERMINATION OF EMPLOYMENT. This Agreement shall terminate on the
first to occur of the following events (the "Events of Termination"):

         (a)      The Agreement Termination Date;
         (b)      On the date of the Employee's death;
         (c)      On the date of Employee's total disability, subject to
                  Employee's right to Separation Pay Upon a Determination of
                  Total Disability as defined in paragraph 10 of this Agreement.
                  As used herein, the term "total disability" shall mean any
                  disability, whether caused by illness, injury or other
                  incapacity, which prevents Employee from fulfilling her
                  regular duties for a period of ninety days or more, despite
                  the availability of a reasonable accommodation;




         (d)      Company may terminate Employee for Cause, as defined in
                  paragraph 8 of this Agreement; or
         (e)      Company may terminate Employee without cause, subject to
                  Employee's right to Separation Pay or Change in Control Pay,
                  as described in paragraph 9 of this Agreement.

Employee's employment under this Agreement (but not Employee's rights and
obligations under Paragraph 11 of this Agreement), and all of Company's rights
and obligations under this Agreement (but not its rights and obligations under
Paragraph 11) shall terminate upon the termination of this Agreement.

         8. TERMINATION FOR CAUSE. Company may discharge Employee and terminate
her employment immediately, without any prior notice, at any time, for Cause. As
used in this Employment Agreement, the term "Cause" shall include:

         (a)      any act of fraud or dishonesty by Employee;
         (b)      any continued act of insubordination or refusal by Employee to
                  perform assigned duties after Employee has been provided at
                  least ten (10) days notice in writing of what performance is
                  required;
         (c)      Employee's willful violation of any Company rule or policy; or
         (d)      Employee's willful breach of any promise or obligation under
                  this Agreement.

         9. SEPARATION PAY. If Employee is terminated for Cause or voluntarily
resigns, she is not entitled to Separation Pay. If at any time prior to the
Agreement Termination Date, Employee's employment is terminated by Company OTHER
THAN (a) for Cause, (b) on account of Employee's death or total disability, or
(c) for reasons which invoke section 2 of the Change in Control Agreement
attached as Exhibit C, then Company shall pay Employee Separation Pay in an
amount equal to Employee's annual salary under this Agreement. This Separation
Pay shall be disbursed to Employee within sixty (60) days after Employee's
termination date. No Separation Pay shall be due to Employee or her estate in
the event of Employee's death. Employee shall not be entitled to receive both
Separation Pay and Change in Control Pay.

         10. SEPARATION PAY UPON A DETERMINATION OF TOTAL DISABILITY. If Company
determines that Employee is totally disabled, as defined in Paragraph 7(c),
Company may terminate this Agreement. As Separation Pay upon such a
determination, Company shall pay Employee an amount equal to Employee's annual
salary under this Agreement. This Separation Pay shall be disbursed to Employee
within sixty (60) days after Company's termination of this Agreement in
accordance with the terms of this Paragraph 10.

         11. CONFIDENTIALITY. Employee recognizes and acknowledges that due to
the nature of her employment and the position of trust that she will hold, she
will have special access to,







learn, be provided with, and in some cases, will prepare and create for the
Company, trade secrets and other confidential and proprietary information
relating to the Company's business, including, but not limited to financial
information, business plans, marketing information, business strategies,
methods, operations and procedures, correspondence, customer lists, special
customer requirements and methods of servicing the customers, and other
information concerning the Company's customers and customer contacts. Employee
acknowledges and agrees that such information is the exclusive property of the
Company, that it has been and will continue to be of central importance to the
business of the Company, and that the disclosure of it to, or use by, others
will cause the Company substantial and irreparable losses. Accordingly, Employee
will not, either during her employment or at any time after the termination of
her employment with the Company for any reason, use, reproduce or disclose any
trade secrets or other confidential or proprietary information relating to the
business of the Company or its customers which is not generally available to the
public, except as may be necessary in discharging her assigned duties as an
employee of the Company. Employee's confidentiality obligations under this are
in addition to, and not in lieu of, any confidentiality obligations that may
apply to Employee under any rule or policy of the Company, and any other
agreement, statute or common law.

         12. COMPANY PROPERTY. All correspondence, records and other documents,
including all copies, which come into Employee's possession by, through, or in
the course of her employment with the Company, regardless of the source and
whether or not created by Employee, are the sole and exclusive property of the
Company, and immediately upon the termination of Employee's employment for any
reason, Employee shall return to the Company all such documents and other
property of the Company. Employee agrees that the Company may withhold any sums
otherwise due to Employee upon termination until Employee has satisfied all
obligations under this Paragraph.

         13. REASONABLENESS OF RESTRICTIONS. Employee has carefully read and
considered the provisions of Paragraph 11 of this Agreement and, having done so,
agrees that the restrictions set forth in such paragraph are fair and reasonable
and are reasonably required for the protection of the interests of Company, its
directors, officers, and other employees.

         14. RIGHT TO INJUNCTIVE RELIEF. Employee agrees that in the event of
any breach by Employee of Paragraph 11 of this Agreement, the Company shall be
entitled to immediate and permanent injunctive relief restraining said breach,
in addition to and not in lieu of any action for damages or any other legal,
equitable remedies available to the Company for said breach.

         15. SEVERABILITY. This Agreement is intended to limit disclosure and
competition by Employee to the maximum extent permitted by law. If it shall be
finally determined by any court of competent jurisdiction ruling on this
Agreement that the scope or duration of any limitation contained in this
Agreement is too extensive to be legally enforceable, then the parties hereto
agree that the scope or duration of such limitation shall be deemed to be the
maximum scope or duration of such limitation shall be deemed to be the maximum
scope or duration that shall be determined by a court of competent jurisdiction
to be legally enforceable and Employee hereby consents to the enforcement of
such limitation as so modified.







         16. APPLICABLE LAW. This Agreement shall be construed in accordance
with and governed by the substantive laws of the State of Minnesota (except with
respect to conflicts of law). The parties agree that all actions or proceedings
in any way, manner or respect, arising out of or from or related to this
Agreement shall be litigated in courts which have situs within the State of
Minnesota. The parties further consent to and submit to the jurisdiction of any
local, state or federal court located within Minnesota and each party hereby
waives any right it may have to transfer or change the venue of any litigation
brought against such party by the other in accordance with this Agreement.

         17. BINDING EFFECT. The Agreement is binding upon and shall inure to
the benefit of the parties and their legal representatives, successors and
assigns.

17.      COMPLETE AGREEMENT. This Agreement reflects the entire understanding of
         the parties with respect to the subject matter hereof and may not be
         changed or altered except by a writing signed by the parties hereto.

         19. WAIVER. The waiver by either party of any breach of any provision
of this Agreement shall not be construed to be a waiver by such party of any
succeeding breach of such provision or a waiver by such party of any breach of
any other provision.

         20. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall together constitute one and the same instrument. IN WITNESS
WHEREOF, the parties have duly executed this Agreement as of the date first
above written.

Dated:  April 19, 2000                  BMC INDUSTRIES, INC.

                                        By: /s/Paul B. Burke
                                           ------------------------

                                        Its: Chairman and CEO
                                           ------------------------

Dated:  April 19, 2000                  KATHLEEN P. PEPSKI


                                        /s/Kathleen P. Pepski
                                        ---------------------------

EX-99.1

                                                                    EXHIBIT 99.1





NEWS RELEASE


CONTACT:         Investor Relations            (NYSE-BMC)
                 (612) 851-6000                FOR IMMEDIATE RELEASE


            BMC INDUSTRIES, INC. REPORTS FIRST QUARTER 2000 EARNINGS

April 25, 2000 - Minneapolis, MN - BMC Industries, Inc. reported net earnings
for the first quarter ended March 31, 2000 of $2.3 million, or $0.08 per diluted
share. This compares to net earnings of $3.2 million, or $0.12 per diluted
share, in the first quarter of 1999. Total first quarter revenue increased 5%
from $84.6 million in 1999 to $88.8 million in 2000.

Paul B. Burke, BMC's Chairman and Chief Executive Officer, stated, "Both of our
businesses have started the year on a positive note. Vision-Ease showed revenue
growth during the quarter and improved revenue mix driven by strong sales of
higher-margin Outlook(TM) polycarbonate progressive and SunRx -Registered
Trademark- polarized polycarbonate lenses. Buckbee-Mears revenue increased 7%
over the prior year quarter and more importantly showed improving revenue mix
reflecting favorable market shifts to larger-sized entertainment and computer
monitor masks. Improved manufacturing processes also contributed to a 62%
increase in earnings for Buckbee-Mears over the prior year period."

BMC's Optical Products group generated revenue of $35.4 million in the first
quarter of 2000, up 2%, or $0.8 million, over the prior year quarter. Sales of
high-end products (polycarbonate, progressive and polarizing sun lenses)
increased 21% in first quarter 2000 from the prior year quarter and accounted
for 62% of total first quarter 2000 revenues, compared to 52% in first quarter
1999.

High-end sales growth was due primarily to strong sales of Outlook(TM)
progressive polycarbonate lenses, which were introducEd last year and a 103%
increase in SunRx -Registered Trademark- polarized polycarbonate lens sales.

                                     -more-






First quarter Optical Product's earnings were $2.0 million compared to $5.6
million in the prior year quarter. Earnings were negatively impacted by higher
product costs related to lenses produced during 1999. Vision-Ease has addressed
these production issues by implementing several changes, including expanding
production capabilities at its existing Jakarta, Indonesia facility and
optimizing lens production among its facilities. Increased research and
development spending and higher bad debt reserves due to the bankruptcy filing
of a major customer during the quarter also negatively impacted Vision-Ease's
first quarter earnings.

During the quarter, Vision-Ease continued its European polycarbonate expansion
efforts by acquiring the assets of La Haute Lunette De Paris SA (HLP), an
optical lens laboratory located outside Paris, France, which has been renamed
Vision-Ease France, SAS. Vision-Ease France will specialize in polycarbonate
lens processing and joins the existing optical laboratory operation in Mullheim,
Germany. These labs are the foundation for Vision-Ease's expanded polycarbonate
distribution capabilities as European optical markets begin to transition from
plastic to polycarbonate ophthalmic lenses.

First quarter revenue from Buckbee-Mears, which includes both the Mask
Operations and Buckbee-Mears St. Paul ("BMSP"), increased 7% from $50.0 million
in 1999 to $53.3 million in 2000.

Sales of computer monitor masks increased 59% in first quarter 2000 as compared
to first quarter 1999. This increase is due to incremental revenue from the
Cortland monitor mask line that was restarted in first quarter 1999 and the
continued migration to larger-sized monitor masks. Sales of entertainment masks
declined 4% in first quarter 2000 as compared to the prior year quarter.
However, more important is the migration to higher-margin jumbo screen
entertainment masks, which increased 42% over the prior year quarter. BMSP sales
in the first quarter declined from the same period a year ago due primarily to a
strategic effort to concentrate on higher-volume business opportunities, which
is expected to diversify its sales base.

Buckbee-Mears first quarter earnings increased $2.2 million, or 62%, from $3.6
million in 1999 to $5.8 million in 2000. This increase is due primarily to the
improved revenue mix, improved production yields across all manufacturing lines
and lower product costs attributable to the automated inspection system that was
installed on both monitor mask lines. Automated inspection is scheduled for
installation on the entertainment mask manufacturing lines over the course of
2000.

This press release contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 that are intended to be covered by the safe harbors created
thereby. Statements made in this press release which are not strictly
historical, including statements regarding future performance, are
forward-looking statements and as such are subject to a number of risks and
uncertainties, including, among others, ability to implement the Optical
Products group's initiatives in strategic polycarbonate marketing and
manufacturing adjustments;

                                     -more-







ability to grow European sales through the operation of processing laboratories;
lower demand for televisions, computer monitors and ophthalmic lenses; further
mask and ophthalmic lens price declines and imbalances of supply and demand;
customer product qualifications; liability and other claims asserted against the
Company; continued slowdown at BMSP; ability to partner with new BMSP customers
or transition development relationships into full scale production; new product
development, introduction and acceptance; cost reduction and reorganization
efforts; competition with alternative technologies and products, including laser
surgery for the correction of visual impairment and LCD monitors; continued
higher manufacturing costs; adjustments to inventory valuations; negative
foreign currency fluctuations, including adverse fluctuations affecting
cross-currency swaps; ability to recruit and retain key personnel; and the
effect of regional or global economic slowdowns. Certain of these and other
risks and uncertainties are discussed in further detail in BMC's Annual Report
and Form 10-K for the year ended December 31, 1999 and other documents filed
with the Securities and Exchange Commission.

BMC Industries, Inc. is a leading producer of polycarbonate, glass and plastic
eyewear lenses. BMC is also one of the world's largest manufacturers of aperture
masks for color picture tubes used in televisions and computer monitors. BMC's
common stock is traded on the New York Stock Exchange under the symbol "BMC".
For more information about BMC Industries, Inc., visit the Company's website:
WWW.BMCIND.COM.

                                     -more-







                              BMC INDUSTRIES, INC.

                  CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
                                   (Unaudited)
                    (in thousands, except per share amounts)





                                                                      Three Months Ended
                                                                                March 31
                                                               -----------------------------------
                                                                         2000              1999
- --------------------------------------------------------------------------------------------------
                                                                             
Revenues                                                        $      88,751      $     84,645
Cost of products sold                                                  76,687            71,078
- --------------------------------------------------------------------------------------------------
Gross Margin                                                           12,064            13,567
Selling                                                                 4,279             4,365
Administrative                                                          1,290             1,233
- --------------------------------------------------------------------------------------------------
Income from Operations                                                  6,495             7,969
- --------------------------------------------------------------------------------------------------
Other Income and (Expense)
     Interest expense                                                  (3,215)           (3,463)
     Interest income                                                       22                 5
     Other income (expense)                                                 -               390
- --------------------------------------------------------------------------------------------------
Earnings Before Income Taxes                                            3,302             4,901
Income taxes                                                            1,001             1,710
- --------------------------------------------------------------------------------------------------

Net Earnings                                                    $       2,301      $      3,191
==================================================================================================

Net Earnings Per Share:
     Basic                                                      $        0.08      $       0.12
     Diluted                                                             0.08              0.12
==================================================================================================
==================================================================================================

Number of Shares Included in Per Share Computation:
     Basic                                                             27,384            27,201
     Diluted                                                           27,599            27,405
==================================================================================================



                                     -more-





                              BMC INDUSTRIES, INC.

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)
                                 (in thousands)



- --------------------------------------------------------------------------------------------------------
                                                                   MARCH 31                DECEMBER 31
                                                                       2000                        1999
- --------------------------------------------------------------------------------------------------------

                                                                            
ASSETS
Cash and cash equivalents                                 $            1,998      $              1,146
Trade accounts receivable, net                                        46,096                    42,025
Inventories                                                           81,576                    82,312
Deferred income taxes                                                 12,148                    11,588
Other current assets                                                  12,955                    12,580
- --------------------------------------------------------------------------------------------------------
     Total Current Assets                                            154,773                   149,651
- --------------------------------------------------------------------------------------------------------

Property, plant and equipment                                        278,801                   278,807
Less accumulated depreciation                                        130,664                   127,569
- --------------------------------------------------------------------------------------------------------
     Property, Plant and Equipment, Net                              148,137                   151,238
- --------------------------------------------------------------------------------------------------------
Deferred income taxes                                                 10,383                     9,221
Intangible assets, net                                                67,348                    68,232
Other assets, net                                                      5,313                     5,211
========================================================================================================

TOTAL ASSETS                                              $          385,954      $            383,553
========================================================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------------

Short-term borrowings                                     $            1,254      $              2,303
Accounts payable                                                      30,823                    30,342
Income taxes payable                                                   8,630                     8,093
Accrued expenses and other current liabilities                        24,225                    19,197
- --------------------------------------------------------------------------------------------------------
     Total Current Liabilities                                        64,932                    59,935
- --------------------------------------------------------------------------------------------------------

Long-term debt                                                       162,877                   165,959
Other liabilities                                                     18,552                    18,522
Deferred income taxes                                                  2,631                     2,715

Stockholders' equity
     Common stock                                                     49,121                    49,077
     Retained earnings                                                94,510                    92,620
     Accumulated other comprehensive income (loss)                    (4,923 )                  (3,495 )
     Other                                                            (1,746 )                  (1,780 )
- --------------------------------------------------------------------------------------------------------
         TOTAL STOCKHOLDERS' EQUITY                                  136,962                   136,422
- --------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                $          385,954      $            383,553
========================================================================================================


                                     -more-






                              BMC INDUSTRIES, INC.

                               SEGMENT INFORMATION
                                   (Unaudited)
                                 (in thousands)



                                                       Three Months Ended March 31
                        -------------------------------------------------------------------------------------------------
                                 Buckbee-Mears               Optical Products                   Consolidated
                        -------------------------------------------------------------------------------------------------
                               2000               1999       2000              1999           2000              1999
- -------------------------------------------------------------------------------------------------------------------------

                                                                                       
Revenues                $    53,318        $    49,999  $  35,433       $    34,646    $    88,751       $    84,645
Cost of products sold        46,229             45,089     30,458            25,989         76,687            71,078
- -------------------------------------------------------------------------------------------------------------------------
Gross Margin                  7,089              4,910      4,975             8,657         12,064            13,567
Gross Margin %                 13.3%               9.8%      14.0%             25.0%          13.6%             16.0%
Selling                       1,325              1,357      2,954             3,008          4,279             4,365
Unallocated corporate
    administration                -                  -          -                 -          1,290             1,233
- -------------------------------------------------------------------------------------------------------------------------
Income from Operations  $     5,764        $     3,553      2,021       $     5,649    $     6,495       $     7,969
=========================================================================================================================

Operating income %             10.8%               7.1%       5.7%             16.3%           7.3%              9.4%

Capital spending                                                                       $     3,217       $     2,504

Depreciation and
amortization                                                                           $     6,081       $     5,647

EBITDA                                                                                 $    12,598       $    14,011

EBITDA %                                                                                      14.2%             16.6%



                                      -30-

EX-99.2

                                                                    EXHIBIT 99.2





NEW RELEASE


CONTACT:  Investor Relations                          (NYSE-BMC)
          (612) 851-6000                              FOR IMMEDIATE
RELEASE




                  BMC INDUSTRIES, INC. ANNOUNCES APPOINTMENT OF

                           NEW CHIEF FINANCIAL OFFICER


April 19, 2000 - Minneapolis, MN - BMC Industries, Inc. today announced that
Kathleen P. Pepski has joined the Company as Senior Vice President and Chief
Financial Officer. She will be responsible for the Company's worldwide financial
and accounting operations. Ms. Pepski brings over 20 years of broad experience
in corporate finance and accounting management.

Paul B. Burke, BMC's Chairman and Chief Executive Officer, stated, "We are
delighted that Kathleen has joined the BMC team. She is a proven leader with the
strong financial, accounting and administrative experience needed to help drive
BMC's strategic growth opportunities."

Prior to joining BMC, Ms. Pepski served for six years as Vice President and
Controller of The Valspar Corporation, a $1.4 billion global coatings
manufacturing company. She served as Vice President Finance and Administration
of the School Products Group of Jostens, Inc. from 1993 to 1994 and held several
positions with Noram Energy Corp. from 1986 to 1993, most recently as Vice
President, Chief Financial Officer of its Arkla Pipeline Group. Ms. Pepski has
an undergraduate degree in accounting from Concordia College in Moorhead,
Minnesota. She was named one of Minnesota's Leading Business Women by CORPORATE
REPORT in 1989.

BMC Industries, Inc. is a leading producer of polycarbonate, glass and plastic
eyewear lenses. BMC is also one of the world's largest manufacturers of aperture
masks for color picture tubes used in televisions and computer monitors. BMC's
common stock is traded on the New York Stock Exchange under the symbol "BMC".
For more information about BMC Industries, Inc., visit the companies website:
WWW.BMCIND.COM.


                                      -30-

EX-99.3

                                                                    EXHIBIT 99.3







NEWS RELEASE


Contact: Investor Relations                            (NYSE-BMC)
         (612) 851-6000                                FOR IMMEDIATE
RELEASE




      BMC INDUSTRIES, INC. ANNOUNCES RESIGNATION OF CHIEF FINANCIAL OFFICER


April 5, 2000 -- Minneapolis, Minnesota - BMC Industries, Inc. (NYSE: BMC) today
announced that Jeffery J. Hattara has elected to resign as Chief Financial
Officer of BMC Industries, Inc., effective April 4, 2000. Hattara joined BMC as
Vice President, Finance and Administration, Chief Financial Officer in January
1998.

BMC Industries, Inc. is one of the world's largest manufacturers of aperture
masks for color picture tubes used in televisions and computer monitors. The
Company is also a leading producer of polycarbonate, glass and plastic eyewear
lenses. BMC's common stock is traded on the New York Stock Exchange under the
symbol BMC.



                                      -30-

EX-27

 


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<NAME> BMC INDUSTIES, INC.
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