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                                                                    EXHIBIT 10.3

                                  A.S.V., INC.
                    FORM OF INCENTIVE STOCK OPTION AGREEMENT
                                   (EMPLOYEE)

            Option Agreement, made and entered into this ___ day of ________,
____, between A.S.V., Inc., a Minnesota corporation (the "Company") and
____________, an individual resident of ____________, Minnesota ("Employee").

            WHEREAS, the Company has adopted the A.S.V., Inc. 1996 Incentive and
Stock Option Plan (the "Plan") which permits issuance of stock options for the
purchase of shares of common stock of the Company, and the Company has taken all
necessary actions to grant the following option pursuant and subject to the
terms of the Plan.

            NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Company and Employee hereby agree
as follows:

            1.    Grant of Option. The Company hereby grants Employee the right
                  and option (hereinafter called the "Option") to purchase all
or any part of an aggregate (minimum ___ shares) of _________________ (____)
shares of the Company's common stock at the option price of ______________
Dollars and _____ cents ($_____) per share on the terms and conditions set forth
in this agreement and in the Plan. It is understood and agreed that the Option
price is the per share fair market value of such shares on the date of grant.
The Company intends that the Option shall be an Incentive Stock Option governed
by the provisions of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"). The terms of the Plan and the Option shall be interpreted
and administered so as to satisfy the requirements of the Code. The Option is
issued pursuant to the Plan and is subject to its terms. A copy of the Plan will
be furnished upon request of Employee.

            2.    Vesting of Option Rights. Except as otherwise provided in
section 3 of this agreement, the Option may be exercised by Employee in
accordance with the following schedule:

<TABLE>
<CAPTION>
                                               Number of
On or after each of                     shares with respect to
the following dates                which the Option is exercisable
-------------------                -------------------------------
<S>                                <C>
-------------------                -------------------------------
-------------------                -------------------------------
-------------------                -------------------------------
-------------------                -------------------------------
</TABLE>

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            Notwithstanding the foregoing, the Option may be exercised as to
100% of the shares of common stock of the Company for which the Option was
granted on the date of a "change of control", as hereinafter defined. A "change
of control" shall mean any of the following: (i) a public announcement that any
person has acquired 51% or more of the then outstanding shares of common stock
of the Company and, for this purpose, the term "person" shall have the meaning
provided in Section 13(d) of the Securities Exchange Act of 1934 or related
rules promulgated by the Securities and Exchange Commission; (ii) the
commencement of or public announcement of an intention to make a tender or
exchange offer for 51% or more of the then outstanding shares of the common
stock of the Company; (iii) a sale of all or substantially all of the assets of
the Company, or (iv) the Board of Directors of the Company, in its sole and
absolute discretion, determines that there has been a sufficient change in the
stock ownership of the Company to constitute a change in control of the Company.
Employee understands that to the extent that the aggregate fair market value
(determined at the time the option was granted) of the shares of common stock of
the Company with respect to which all options that are incentive stock options
within the meaning of Section 422(d) of the Code are exercisable for the first
time by Employee during any calendar year exceed $100,000, in accordance with
Section 422(d) of the Code, such options shall be treated as options that do not
qualify as incentive stock options.

            The Option shall terminate at the close of business on _________,
____, or such shorter period as is prescribed herein. Employee shall not have
any of the rights of a shareholder with respect to the shares subject to the
Option until such shares shall be issued to Employee upon the proper exercise of
the Option.

            3.    Exercise of Option after Death or Termination of Employment.
The Option shall terminate and may no longer be exercised if Employee ceases to
be employed by the Company or its subsidiaries, except that:

            (a)   If Employee's employment shall be terminated for any reason,
      voluntary or involuntary, other than death or disability [as set forth in
      section 3(c)] or as a result of Employee's gross and willful misconduct,
      Employee may at any time within a period of three (3) months after such
      termination exercise the Option to the extent the Option was exercisable
      by Employee on the date of the termination of Employee's employment; and

            (b)   If Employee's employment is terminated as a result of
      Employee's gross and willful misconduct, including but not limited to
      wrongful appropriation of funds or the commission of a gross misdemeanor
      or felony, the Option shall be terminated as of the date of the
      misconduct; and

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            (c)   If Employee dies in the employ of the Company or a subsidiary
      or within three (3) months after the termination of such employment for
      any reason other than Employee's gross and willful misconduct, or
      Employee's employment is terminated because Employee has become disabled
      [within the meaning of Code section 22(e)(3)] while in the employ of the
      Company or a subsidiary, the Option may, within twelve (12) months after
      Employee's death or the date of termination for such disability, be
      exercised to the extent that Employee was entitled to exercise the Option
      on the date of Employee's death or termination of employment, if earlier,
      by Employee or Employee's personal representatives, if applicable, or by
      the person or persons to whom Employee's rights under the Option pass by
      will or by the applicable laws of descent and distribution; provided,
      however, that the Option may not be exercised to any extent by anyone
      after the termination date of the Option.

            4.    Method of Exercise of Option. Subject to the foregoing, the
Option may be exercised in whole or in part from time to time by serving written
notice of exercise on the Company at its principal office at Grand Rapids,
Minnesota 55744. The notice shall set forth the number of shares as to which the
Option is being exercised and shall be accompanied by payment of the purchase
price. Payment of the purchase price shall be made in cash (including bank
check, personal check or money order payable to the Company), or, at the
discretion of the Company, by delivering to the Company for cancellation shares
of the Company's common stock already owned by Employee having a fair market
value equal to the full purchase price of the shares being acquired or a
combination of cash and such shares. The fair market value of any shares
delivered by Employee upon the exercise of the Option shall be determined as
provided in section 5 of the Plan.

            5.    Miscellaneous.

            (a)   This agreement shall not confer on Employee any right with
      respect to continuance of employment with the Company or any subsidiary of
      the Company, nor will it interfere in any way with the right of the
      Company to terminate such employment at any time.

            (b)   The exercise of all or any parts of the Option shall only be
      effective at such time that the sale of shares of common stock pursuant to
      such exercise will not violate any state or federal securities or other
      laws.

            (c)   The Option may not be transferred, except by will or the laws
      of descent and distribution to the extent provided in subsection 3(c), and
      during Employee's lifetime the Option is exercisable only by Employee.

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            (d)   If there shall be any change in the common stock subject to
      the Option through merger, consolidation, reorganization,
      recapitalization, stock dividend, stock split or other change in the
      corporate structure of the Company, appropriate adjustments shall be made
      by the Company in the number of shares and the price per share of the
      shares subject to the Option in order to prevent dilution or enlargement
      of the option rights granted hereunder.

            (e)   The Company shall at all times during the term of the Option
      reserve and keep available such number of shares of the Company's common
      stock as will be sufficient to satisfy the requirements of this agreement.

            (f)   If Employee shall dispose of any of the shares of common stock
      acquired upon exercise of the Option within two (2) years from the date
      the Option was granted or within one (1) year after the date of exercise
      of the Option, then, in order to provide the Company with the opportunity
      to claim the benefit of any income tax deduction, Employee shall promptly
      notify the Company of the dates of acquisition and disposition of such
      shares, the number of shares so disposed of, and the consideration, if
      any, received for such shares. In order to comply with all applicable
      federal or state income tax laws or regulations, the Company may take such
      action as it deems appropriate to assure (i) notice to the Company of any
      disposition of the shares of the Company within the time periods described
      above, and (ii) that, if necessary, all applicable federal or state
      payroll, withholding, income or other taxes are withheld or collected from
      Employee.

            (g)   Employee shall not disclose either the contents or any of the
      terms and conditions of the Option to any other person and agrees that
      such disclosure may result in both immediate termination of the Option
      without the right to exercise any part thereof and termination of
      employment with the Company.

            IN WITNESS WHEREOF, the Company and Employee have executed this
agreement on the date set forth in the first paragraph.

                                                A.S.V., INC.

                                                By: ____________________________
                                                Name: __________________________
                                                Title:    ______________________

                                                Optionee _______________________
                                                Name:   ________________________

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