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                                                                    EXHIBIT 10.1


                                PERCEPTRON, INC.

                            2004 STOCK INCENTIVE PLAN


                              I. GENERAL PROVISIONS

         1.1 ESTABLISHMENT. On October 22, 2004, the Board of Directors
("Board") of Perceptron, Inc., a Michigan corporation ("Corporation"), adopted
the 2004 Stock Incentive Plan ("Plan").

         1.2 PURPOSE. The purpose of the Plan is (i) to promote the best
interests of the Corporation and its shareholders by encouraging Employees,
Consultants and non-employee directors of the Corporation and its Subsidiaries
to acquire an ownership interest in the Corporation through Options, Stock
Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Share
Awards, Director Stock Purchase Rights and Deferred Stock Units, thus
identifying their interests with those of shareholders, and (ii) to enhance the
ability of the Corporation to attract and retain qualified Employees,
Consultants and non-employee directors. It is the further purpose of the Plan to
permit the granting of Stock Options, Stock Appreciation Rights, Restricted
Stock, Restricted Stock Units and Performance Share Awards that will constitute
performance based compensation, as described in Section 162(m) of the Code, and
regulations promulgated thereunder. After the Effective Date, the Corporation
shall no longer issue any awards under the 1992 Stock Option Plan and the
Directors Stock Option Plan.

         1.3 DEFINITIONS. As used in this Plan, the following terms have the
meaning described below:

                  (a) "Agreement" means the written agreement that sets forth
the terms of a Participant's Option, Stock Appreciation Right, Restricted Stock
grant, Restricted Stock Unit, Performance Share Award, Director Stock Purchase
Right or Deferred Stock Unit.

                  (b) "Approval Date" means October 22, 2004, the date the Plan
was approved by the Board.

                  (c) "Award" means Options, Stock Appreciation Rights,
Restricted Stock, Restricted Stock Units, Performance Share Awards, Deferred
Stock Units and Director Stock Purchase Rights.

                  (d) "Board" means the Board of Directors of the Corporation.

                  (e) "Change in Control" means (i) a merger involving the
Corporation in which the Corporation is not the surviving corporation (other
than a merger with a wholly-owned subsidiary of the Corporation formed for the
purpose of changing the Corporation's corporate domicile); (ii) a share exchange
in which the shareholders of the Corporation exchange their stock in the
Corporation for stock of another corporation (other than a share exchange in
which all or substantially all of the holders of the voting stock of the
Corporation, immediately prior to the transaction, exchange, on a pro rata
basis, their voting stock of the Corporation for more than 50% of the voting
stock of such

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other corporation); (iii) the sale of all or substantially all of the assets of
the Corporation; or (iv) any person or group of persons (as defined by Section
13(d) of the Securities Exchange Act of 1934, as amended) (other than any
employee benefit plan or employee benefit trust benefitting the employees of the
Corporation) becoming a beneficial owner, directly or indirectly, of securities
of the Corporation representing more than fifty (50%) percent of either the then
outstanding Common Stock of the Corporation, or the combined voting power of the
Corporation's then outstanding voting securities.

                  (f) "Code" means the Internal Revenue Code of 1986, as
amended.

                  (g) "Committee" means the Management Development, Compensation
and Stock Option Committee of the Corporation or other committee of the Board
duly appointed to administer the Plan and having such powers as shall be
specified by the Board. If no committee of the Board has been appointed to
administer the Plan, the Board shall exercise all of the powers of the Committee
granted herein, and, in any event, the Board may in its discretion exercise any
or all of such powers. The Committee shall be comprised of two or more members
of the Board.

                  (h) "Common Stock" means shares of the Corporation's
authorized common stock.

                  (i) "Consultant" means a person engaged to provide consulting
or advisory services (other than as an Employee or a member of the Board) to the
Corporation, provided that the identity of such person, the nature of such
services or the entity to which such services are provided would not preclude
the Corporation from offering or selling securities to such person pursuant to
the Plan in reliance on a Form S-8 Registration Statement under the Securities
Act.

                  (j) "Corporation" means Perceptron, Inc. a Michigan
corporation.

                  (k) "Deferred Stock Unit" means a bookkeeping entry
representing a right granted to a Participant pursuant to Article VII of the
Plan to receive a share of Common Stock on a date determined in accordance with
the provisions of Article VII of the Plan.

                  (l) "Director" means a member of the Corporation's Board of
Directors.

                  (m) "Director Fee Payment Date" shall mean each March 1, June
1, September 1 and December 1.

                  (n) "Director Stock Purchase Right" means an election by a
Director to purchase Common Stock in accordance with Article VI of the Plan.

                  (o) "Disability" means total and permanent disability, as
defined in Code Section 22(e).

                  (p) "Dividend Equivalent" means a credit, made at the
discretion of the Committee or as otherwise provided by the Plan, to the account
of a Participant in an amount equal to the cash dividends paid on one share of
Common Stock for each share of Common Stock represented by an Award held by such
Participant.


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                  (q) "Effective Date" means the day after the Plan is approved
by shareholders of the Corporation.

                  (r) "Employee" means an individual who has an "employment
relationship" with the Corporation or a Subsidiary, as defined in Treasury
Regulation 1.421-7(h), and the term "employment" means employment with the
Corporation, or a Subsidiary of the Corporation.

                  (s) "Exchange Act" means the Securities Exchange Act of 1934,
as amended from time to time and any successor thereto.

                  (t) "Fair Market Value" means for purposes of determining the
value of Common Stock on the Grant Date:

                           (i) the average of the closing sales prices of the
Common Stock on the principal securities exchange on which the Common Stock may
at the time be listed (or, if there have been no sales on such exchange on any
day, the average of the closing high bid and low asked prices on such exchange
at the end of such day) for the five (5) consecutive trading days on such
exchange immediately preceding the Grant Date; or

                           (ii) if the Common Stock is not listed on a
securities exchange, the average of the closing sales prices of the Common Stock
on The Nasdaq Stock Market (or, if there have been no sales on The Nasdaq Stock
Market on any such day, the average of the closing high bid and low asked prices
on The Nasdaq Stock Market at the end of such day) for the five (5) consecutive
trading days on The Nasdaq Stock Market immediately preceding the Grant Date; or

                           (iii) if the Common Stock is not listed on any
domestic stock exchange or The Nasdaq Stock Market, the average of the mean
between the closing high bid and low asked price as reported by the OTC Bulletin
Board for the five (5) consecutive trading days on the OTC Bulletin Board
immediately preceding the Grant Date; or

                           (iv) if none of the foregoing clauses apply, the fair
value as determined in good faith by the Committee.

Unless otherwise specified in the Plan, "Fair Market Value" for purposes of
determining the value of Common Stock on the date of exercise means the
applicable definitions under (i)-(iv) above, substituting the date of exercise
for the Grant Date, unless otherwise required by applicable law.

                  (u) "Grant Date" means the date on which the Committee
authorizes an individual Option, Stock Appreciation Right, Restricted Stock
grant, Restricted Stock Unit, Performance Share Award, or a Director Fee Payment
Date in the case of a Director Stock Purchase Right, or such later date as shall
be designated by the Committee.

                  (v) "Incentive Stock Option" means an Option that is intended
to meet the requirements of Section 422 of the Code.

                  (w) "Indexed Option" means an Option with an exercise price
which either increases by a fixed percentage over time or changes by reference
to a published index, as determined by the Committee.


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                  (x) "Nonqualified Stock Option" means an Option that is not
intended to constitute an Incentive Stock Option.

                  (y) "Option" means either an Incentive Stock Option, a
Nonqualified Stock Option or an Indexed Option.

                  (z) "Participant" means an Employee or non-employee director
or Consultant designated by the Committee to participate in the Plan.

                  (aa) "Performance Measures" shall mean the measures of
performance of the Corporation and its Subsidiaries used to determine a
Participant's entitlement to an award under the Plan. Performance Measures shall
have the same meanings as used in the Corporation's financial statements, or, if
such terms are not used in the Corporation's financial statements, they shall
have the meaning applied pursuant to generally accepted accounting principles,
or as used generally in the Corporation's industry. Performance Measures shall
be calculated with respect to the Corporation and each Subsidiary consolidated
therewith for financial reporting purposes or such division or other business
unit as may be selected by the Committee. For purposes of the Plan, the
Performance Measures shall be calculated in accordance with generally accepted
accounting principles, but, unless otherwise determined by the Committee, prior
to the accrual or payment of any award under this Plan for the same performance
period and excluding the effect (whether positive or negative) of any change in
accounting standards or any extraordinary, unusual or nonrecurring item, as
determined by the Committee, occurring after the establishment of the
performance goals. Performance Measures may be one or more of the following, or
a combination of the any of the following, as determined by the Committee:

                           (i)        revenue;

                           (ii)       gross margin;

                           (iii)      operating margin;

                           (iv)       operating income;

                           (v)        pre-tax profit;

                           (vi)       earnings before interest, taxes and
                                      depreciation;

                           (vii)      net income;

                           (viii)     cash flow;

                           (ix)       expenses;

                           (x)        the market price of the Common Stock;

                           (xi)       earnings per share;

                           (xii)      operating income per share


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                           (xiii)     return on stockholder equity;

                           (xiv)      return on capital;

                           (xv)       return on net assets;

                           (xvi)      economic value added;

                           (xvii)     market share;

                           (xviii)    return on investment;

                           (xix)      profit after tax;

                           (xx)       product approval;

                           (xxi)      market capitalization;

                           (xxii)     new products; and

                           (xxiii)    research and development activity.

         Performance measures are required to be reapproved by shareholders of
the Corporation, to the extent required by Section 162(m) of the Code, which
currently requires such reapproval at the first shareholders meeting that occurs
in the fifth year following the Effective Date.

                  (bb) "Performance Share Award" means a performance share award
that is granted in accordance with Article V of the plan.

                  (cc) "Performance Share Award Unit" means a Performance Share
Award described in Section 5.2(d)(ii).

                  (dd) "Plan" means the Perceptron, Inc. 2004 Stock Incentive
Plan, the terms of which are set forth herein, and amendments thereto.

                  (ee) "Restriction Period" means the period of time during
which a Participant's Restricted Stock or Restricted Stock Unit grant is subject
to restrictions and is nontransferable.

                  (ff) "Restricted Stock" means Common Stock that is subject to
restrictions.

                  (gg) "Restricted Stock Unit" means a right granted pursuant to
Article IV to receive Restricted Stock or an equivalent value in cash pursuant
to the terms of the Plan and the related Agreement.

                  (hh) "Retirement" means termination of employment on or after
the attainment of age 65 and completion of three (3) years of service with the
Corporation.

                  (ii) "Securities Act" means the Securities Act of 1933, as
amended.


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                  (jj) "Stock Appreciation Right" means the right to receive a
cash or Common Stock payment from the Corporation, in accordance with Article
III of the Plan.

                  (kk) "Subsidiary" means a corporation or other entity defined
in Code Section 424(f).

                  (ll) "Tandem Stock Appreciation Right" means a Stock
Appreciation Right granted in tandem with an Option.

                  (mm) "Vested" means the extent to which an Option or Stock
Appreciation Right granted hereunder has become exercisable in accordance with
this Plan and the terms of the respective Agreement pursuant to which such
Option or Stock Appreciation Right was granted.

         1.4 ADMINISTRATION.

                  (a) The Plan shall be administered by the Committee. At all
times it is intended that the directors appointed to serve on the Committee
shall be "disinterested persons" (within the meaning of Rule 16b-3 promulgated
under the Exchange Act) and "outside directors" (within the meaning of Code
Section 162(m)); however, the mere fact that a Committee member shall fail to
qualify under either of these requirements shall not invalidate any award made
by the Committee if the award is otherwise validly made under the Plan. The
members of the Committee shall be appointed by, and may be changed at any time
and from time to time, at the discretion of the Board.

                  (b) The Committee shall interpret the Plan, prescribe, amend,
and rescind rules and regulations relating to the Plan, and make all other
determinations necessary or advisable for its administration. The decision of
the Committee on any question concerning the interpretation of the Plan or its
administration with respect to any Option, Stock Appreciation Right, Restricted
Stock grant, Restricted Stock Unit, Performance Share Award or Deferred Stock
Unit granted under the Plan or any Director Stock Purchase Right shall be final
and binding upon all Participants. No member of the Committee shall be liable
for any action or determination made in good faith with respect to the Plan or
any grant or award hereunder.

                  (c) In addition to any other powers set forth in the Plan and
subject to the provisions of the Plan, but, in the case of Options, Stock
Appreciation Rights and other Awards designated as Awards under Code Section
162(m), subject to the requirements of Code Section 162(m), the Committee shall
have the full and final power and authority, in its discretion:

                           (i) to amend, modify, extend, cancel or renew any
Option, Stock Appreciation Right, Restricted Stock grant, Restricted Stock Unit,
Performance Share Award, Deferred Stock Unit or Director Stock Purchase Right or
to waive any restrictions or conditions applicable to any Option, Stock
Appreciation Right, Restricted Stock grant, Restricted Stock Unit, Performance
Share Award, Deferred Stock Unit or Director Stock Purchase Right or any shares
acquired pursuant thereto;

                           (ii) to accelerate, continue, extend or defer the
exercisability or vesting of any Option, Stock Appreciation Right, Restricted
Stock grant, Restricted Stock Unit, Performance Share Award, Deferred Stock Unit
or Director Stock Purchase Right or any shares acquired pursuant thereto,
including with respect to the period following a Participant's termination of
employment with the Corporation;

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                           (iii) to authorize, in conjunction with any
applicable deferred compensation plan of the Corporation, that the receipt of
cash or Common Stock subject to any Option, Stock Appreciation Right, Restricted
Stock grant, Restricted Stock Unit, Performance Share Award, Deferred Stock Unit
or Director Stock Purchase Right under this Plan may be deferred under the terms
and conditions of such deferred compensation plan;

                  (d) To the extent permitted by applicable law, the Committee
may delegate to one or more officers of the Corporation or a committee of such
officers, the authority, subject to such terms and limitations as the Committee
shall determine, to grant Options, Stock Appreciation Rights, Restricted Stock,
Restricted Stock Units, Performance Share Awards and Deferred Stock Units to, or
to cancel, modify, waive rights with respect to, alter, discontinue or terminate
any of the foregoing, held by Participants who are not officers or directors of
the Corporation for purposes of Section 16 of the Exchange Act.

         1.5 PARTICIPANTS. Participants in the Plan shall be such Employees
(including Employees who are directors), non-employee directors of, or
Consultants to, the Corporation and its Subsidiaries as the Committee in its
sole discretion may select from time to time. The Committee may grant Options,
Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance
Share Awards and Deferred Stock Units to an individual upon the condition that
the individual become an Employee of the Corporation or of a Subsidiary,
provided that the Option, Stock Appreciation Right, Restricted Stock, Restricted
Stock Unit, Performance Share Award or Deferred Stock Unit shall be deemed to be
granted only on the date that the individual becomes an Employee. Awards covered
by Code Section 162(m) shall be made to key Employees designated by the
Committee.

         1.6 STOCK. The Corporation has reserved 600,000 shares of the
Corporation's Common Stock for issuance in conjunction with all Options and
other stock-based awards to be granted under the Plan. All of the 600,000 shares
of the Corporation's Common Stock so reserved may be granted as ISOs. Shares
subject to any unexercised portion of a terminated, cancelled or expired Option,
Stock Appreciation Right, Restricted Stock grant, Restricted Stock Unit, or
Performance Share Award granted hereunder may again be subjected to grants and
awards under the Plan. In the event that an Option granted under the Plan is
exercised by delivering shares of Common Stock that previously were acquired by
exercising Options granted under the Plan, such shares of previously-acquired
Common Stock so delivered to the Corporation may again be subject to grants
under the Plan. Shares of Common Stock shall not be deemed to have been granted
pursuant to the Plan (a) with respect to any portion of an Award that is settled
in cash or (b) to the extent such shares are withheld in satisfaction of tax
withholding obligations pursuant to Section 10.6. Upon payment in shares of
Common Stock pursuant to the exercise of a Stock Appreciation Right, the number
of shares available for grant under the Plan shall be reduced only by the number
of shares actually issued in such payment. All provisions in this Section 1.6
shall be adjusted, as applicable, in accordance with Article VIII.

         1.7 NO REPRICING. Without the affirmative vote of holders of a majority
of the shares of Common Stock cast in person or by proxy at a meeting of the
shareholders of the Corporation at which a quorum representing a majority of all
outstanding shares of Common Stock is present or represented by proxy, the Board
shall not approve a program providing for either (a) the cancellation of
outstanding Options and/or Stock Appreciation Rights and the grant in
substitution therefore of any new awards under the Plan having a lower exercise
price or (b) the amendment of outstanding Options and/or Stock Appreciation
Rights to reduce the exercise price thereof. This paragraph shall


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not be construed to apply to "issuing or assuming a stock option in a
transaction to which section 424(a) applies," within the meaning of Section 424
of the Code.

                                II. STOCK OPTIONS

         2.1 GRANT OF OPTIONS. The Committee, at any time and from time to time,
subject to the terms and conditions of the Plan, may grant Options to such
Participants and for such number of shares of Common Stock (whole or fractional)
as it shall designate; provided, however, that no Participant may be granted
Options during any one fiscal year of the Corporation to purchase more than
200,000 shares of Common Stock. Any Participant may hold more than one Option
under the Plan and any other Plan of the Corporation or Subsidiary. The
Committee shall determine the general terms and conditions of exercise,
including any applicable vesting requirements, which shall be set forth in a
Participant's Option Agreement. The Committee may designate any Option granted
as either an Incentive Stock Option or a Nonqualified Stock Option, or the
Committee may designate a portion of an Option as an Incentive Stock Option or a
Nonqualified Stock Option. At the discretion of the Committee, an Option may be
granted in tandem with a Stock Appreciation Right. Options are intended to
satisfy the requirements of Code Section 162(m) and the regulations promulgated
thereunder, to the extent applicable. No Option shall be granted with an
exercise term that extends beyond ten (10) years from the Grant Date.

         2.2 INCENTIVE STOCK OPTIONS. Any Option intended to constitute an
Incentive Stock Option shall comply with the requirements of this Section 2.2.
An Incentive Stock Option may only be granted to an Employee. No Incentive Stock
Option shall be granted with an exercise price below the Fair Market Value of
Common Stock on the Grant Date nor with an exercise term that extends beyond ten
(10) years from the Grant Date. An Incentive Stock Option shall not be granted
to any Participant who owns (within the meaning of Code Section 424(d)) stock of
the Corporation or any Subsidiary possessing more than 10% of the total combined
voting power of all classes of stock of the Corporation or a Subsidiary unless,
at the Grant Date, the exercise price for the Option is at least 110% of the
Fair Market Value of the shares subject to the Option and the Option, by its
terms, is not exercisable more than five (5) years after the Grant Date. The
aggregate Fair Market Value of the underlying Common Stock (determined at the
Grant Date) as to which Incentive Stock Options granted under the Plan
(including a plan of a Subsidiary) may first be exercised by a Participant in
any one calendar year shall not exceed $100,000. To the extent that an Option
intended to constitute an Incentive Stock Option shall violate the foregoing
$100,000 limitation (or any other limitation set forth in Code Section 422), the
portion of the Option that exceeds the $100,000 limitation (or violates any
other Code Section 422 limitation) shall be deemed to constitute a Nonqualified
Stock Option.

         2.3 OPTION PRICE. The Committee shall determine the per share exercise
price for each Option granted under the Plan; provided, however, that the option
price of an option shall not be less than 100% of the Fair Market Value of the
shares of Common Stock covered by the Option on the Grant Date. Notwithstanding
anything to the contrary in this Section 2.3, in the case of an Indexed Option,
the Committee shall determine the exercise price of such Indexed Option and the
terms and conditions that affect, if any, any adjustments to the exercise price
of such Indexed Option. Notwithstanding the foregoing, an Option may be granted
with an exercise price lower than the minimum exercise price set forth above if
such Option is granted pursuant to an assumption or substitution for another
option in a manner qualifying under the provisions of Section 424(a) of the
Code. The option price will be subject to adjustment in accordance with the
provisions of Section 9.1 of this Plan.


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         2.4 PAYMENT FOR OPTION SHARES. The purchase price for shares of Common
Stock to be acquired upon exercise of an Option granted hereunder shall be paid
in full in cash or by personal check, bank draft or money order at the time of
exercise; provided that the Committee may (but is not obligated to) permit
payment to be made by (a) delivery to the Corporation of outstanding shares of
Common Stock on such terms and conditions as may be specified in the optionee's
Agreement, (b) by delivery to the Corporation of a properly executed exercise
notice, acceptable to the Corporation, together with irrevocable instructions to
the Participant's broker to deliver to the Corporation sufficient cash to pay
the exercise price and any applicable income and employment withholding taxes,
in accordance with a written agreement between the Corporation and the brokerage
firm ("cashless exercise procedure"), (c) other means determined by the
Committee, or (d) any combination of the foregoing. Shares of Common Stock
surrendered upon exercise shall be valued at Fair Market Value as of the date of
exercise, and the certificate(s) for such shares, duly endorsed for transfer or
accompanied by appropriate stock powers, shall be surrendered to the
Corporation. Participants who are subject to short swing profit restrictions
under the Exchange Act and who exercise an Option by tendering
previously-acquired shares shall do so only in accordance with the provisions of
Rule 16b-3 of the Exchange Act. Notwithstanding the foregoing, an Option may not
be exercised by delivery to the Corporation of shares of Common Sock to the
extent such delivery would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Corporation's stock.
Until the optionee has been issued a certificate or certificates for the shares
of Common Stock so purchased, he or she shall possess no rights as a record
holder with respect to any such shares. In the event any Common Stock is
delivered to or retained by the Corporation to satisfy all or any part of the
purchase price, the part of the purchase price deemed to have been satisfied by
such Common Stock shall be equal to the product derived by multiplying the Fair
Market Value as of the date of exercise times the number of shares of Common
Stock delivered to or retained by the Corporation. The number of shares of
Common Stock delivered to or retained by the Corporation in satisfaction of the
purchase price shall not be a number which when multiplied by the Fair Market
Value as of the date of exercise would result in a product greater than the
purchase price. No fractional shares of Common Stock shall be delivered to or
retained by the Corporation in satisfaction of the purchase price. In the event
that an optionee exercises both an Incentive Stock Option and a Nonqualified
Stock Option, separate share certificates shall be issued for shares acquired
pursuant to the Incentive Stock Option and for shares acquired pursuant to the
Nonqualified Stock Option.

                         III. STOCK APPRECIATION RIGHTS

         3.1 GRANT OF STOCK APPRECIATION RIGHTS. Stock Appreciation Rights may
be granted, held and exercised in such form and upon such general terms and
conditions as determined by the Committee on an individual basis. A Stock
Appreciation Right may be granted to a Participant with respect to such number
of shares of Common Stock of the Corporation as the Committee may determine;
provided, however, that no Participant may be granted a Stock Appreciation Right
during any one fiscal year of the Corporation for more than 200,000 shares of
Common Stock. A Stock Appreciation Right may be granted on a stand-alone basis
or as a Tandem Stock Appreciation Right. If a Tandem Stock Appreciation Right,
the number of shares covered by the Stock Appreciation Right shall not exceed
the number of shares of stock which the Participant could purchase upon the
exercise of the related Option. Stock Appreciation Rights are intended to
satisfy the requirements of Code Section 162(m) and the regulations promulgated
thereunder, to the extent applicable. No Stock Appreciation Right shall be
granted with an exercise term that extends beyond ten (10) years from the Grant
Date.


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         3.2 EXERCISE PRICE. The Committee shall determine the per share
exercise price for each Stock Appreciation Right granted under the Plan;
provided, however, that (i) the exercise price of a Stock Appreciation Right
shall not be less than 100% of the Fair Market Value of the shares of Common
Stock covered by the Stock Appreciation Right on the Date such Stock
Appreciation Right is granted, except that the exercise price of a Tandem Stock
Appreciation Right may be less than the Fair Market Value on the date of grant
if the Tandem Stock Appreciation Right is added to an Option following the date
of grant of the Option; and (ii) the per share exercise price subject to a
Tandem Stock Appreciation Right shall be the per share exercise price under the
related Option.

         3.3 EXERCISE OF STOCK APPRECIATION RIGHTS. A Stock Appreciation Right
shall be deemed exercised upon receipt by the Corporation of written notice of
exercise from the Participant. Except as permitted under Rule 16b-3, notice of
exercise of a Stock Appreciation Right by a Participant subject to the insider
trading restrictions of Section 16(b) of the Securities Exchange Act of 1934,
shall be limited to a period determined by the Committee or, if no period is so
determined, the period beginning on the second day following the release of the
Corporation's quarterly or annual summary of earnings and ending on the 15th day
of the third month of the calendar quarter in which such release is made. The
exercise term of each Stock Appreciation Right shall be limited to such period
as set by the Committee or in a related Option. If a Tandem Stock Appreciation
Right, a Stock Appreciation Right shall be exercisable only at such times and in
such amounts as the related Option may be exercised. A Tandem Stock Appreciation
Right shall terminate and cease to be exercisable no later than the date on
which the related Option expires or is terminated or canceled. Upon the exercise
of a Tandem Stock Appreciation Right with respect to some or all of the shares
subject to such Stock Appreciation Right, the related Option shall be canceled
automatically as to the number of shares with respect to which the Tandem Stock
Appreciation Right was exercised. Upon the exercise of an Option related to a
Tandem Stock Appreciation Right as to some or all of the shares subject to such
Option, the related Tandem Stock Appreciation Right shall be canceled
automatically as to the number of shares with respect to which the related
Option was exercised.

         3.4 STOCK APPRECIATION RIGHT ENTITLEMENT. Upon exercise of a Stock
Appreciation Right, a Participant shall be entitled to payment from the
Corporation, in cash, shares of Common Stock, or partly in each (as determined
by the Committee in accordance with any applicable terms of the Agreement), of
an amount equal to the difference between the aggregate Fair Market Value on the
date of exercise for the specified number of shares being exercised and the
aggregate exercise price of the Stock Appreciation Right being exercised. If the
Stock Appreciation Right is granted in tandem with an Option, the payment shall
be equal to the difference between:

                  (a) the Fair Market Value of the number of shares subject to
the Stock Appreciation Right on the exercise date; and

                  (b) the option price of the associated Option multiplied by
the number of shares available under the Option.

         3.5 MAXIMUM STOCK APPRECIATION RIGHT AMOUNT PER SHARE. The Committee
may, at its sole discretion, establish (at the time of grant) a maximum amount
per share which shall be payable upon the exercise of a Stock Appreciation
Right, expressed as a dollar amount or as a percentage or multiple of the Option
price of a related Option.


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                      IV. RESTRICTED STOCK GRANTS AND UNITS

         4.1 GRANT OF RESTRICTED STOCK AND RESTRICTED STOCK UNITS. Subject to
the terms and conditions of the Plan, the Committee, at any time and from time
to time, may grant shares of Restricted Stock and Restricted Stock Units under
this Plan to such Participants and in such amounts as it shall determine.

         4.2 RESTRICTED STOCK AGREEMENT. Each grant of Restricted Stock or
Restricted Stock Units shall be evidenced by an Agreement that shall specify the
terms of the restrictions, including the Restriction Period, or periods, the
number of Common Stock shares subject to the grant or units, the purchase price
for the shares of Restricted Stock, if any, the form of consideration that may
be used to pay the purchase price of the Restricted Stock, including those
specified in Section 2.4, and such other general terms and conditions, including
performance goals, as the Committee shall determine.

         4.3 TRANSFERABILITY. Except as provided in this Article X, Section 10.4
or Section 10.5 of the Plan, the shares of Common Stock subject to a Restricted
Stock grant or Restricted Stock Unit hereunder may not be transferred, pledged,
assigned, or otherwise alienated or hypothecated until the termination of the
applicable Restriction Period or for such period of time as shall be established
by the Committee and as shall be specified in the applicable Agreement, or upon
the earlier satisfaction of other conditions as specified by the Committee in
its sole discretion and as set forth in the applicable Agreement.

         4.4 OTHER RESTRICTIONS. The Committee shall impose such other
restrictions on any shares of Common Stock subject to a Restricted Stock grant
or Restricted Stock Unit under the Plan as it may deem advisable including,
without limitation, restrictions under applicable federal or state securities
laws, and may legend the certificates representing such shares to give
appropriate notice of such restrictions.

         4.5 CERTIFICATE LEGEND. In addition to any legends placed on
certificates pursuant to Sections 4.3 and 4.4, each certificate representing
shares of Common Stock subject to a Restricted Stock grant or Restricted Stock
Unit shall bear the following legend:

                  The sale or other transfer of the shares of stock represented
         by this certificate, whether voluntary, involuntary or by operation of
         law, is subject to certain restrictions on transfer set forth in the
         Perceptron, Inc. 2004 Stock Incentive Plan ("Plan"), rules and
         administrative guidelines adopted pursuant to such Plan and an
         Agreement dated ___________________. A copy of the Plan, such rules
         and such Agreement may be obtained from the Secretary of Perceptron,
         Inc.

         4.6 REMOVAL OF RESTRICTIONS. Except as otherwise provided in this
Article IV of the Plan, and subject to applicable federal and state securities
laws, shares of Common Stock subject to a Restricted Stock grant or Restricted
Stock Unit under the Plan shall become freely transferable by the Participant
after the last day of the Restriction Period. Once the shares are released from
the restrictions, the Participant shall be entitled to have the legend required
by Section 4.5 of the Plan removed from the applicable Common Stock certificate.
Provided further, except as set forth in Section 4.9, the Committee shall have
the discretion to waive the applicable Restriction Period with respect to all or
any part of the Common Stock subject to a Restricted Stock grant or Restricted
Stock Unit.


                                       11
<PAGE>


         4.7 VOTING RIGHTS.

                  (a) During the Restriction Period, Participants holding shares
of Common Stock subject to a Restricted Stock grant hereunder may exercise full
voting rights with respect to the Restricted Stock.

                  (b) Participants shall have no voting rights with respect to
shares of Common Stock represented by Restricted Stock Units until the date of
the issuance of such shares (as evidenced by the appropriate entry on the books
of the Corporation or of a duly authorized transfer agent of the Corporation).

         4.8 DIVIDENDS AND OTHER DISTRIBUTIONS.

                  (a) Except as otherwise provided in Section 4.9 or in the
Participant's Agreement, during the Restriction Period, a Participant shall be
entitled to receive all dividends and other distributions paid with respect to
shares of Common Stock subject to a Restricted Stock grant. If any dividends or
distributions are paid in shares of Common Stock during the Restriction Period,
the dividend or other distribution shares shall be subject to the same
restrictions on transferability as the shares of Common Stock with respect to
which they were paid.

                  (b) The Committee, in its discretion, may provide in the
Agreement evidencing any Restricted Stock Unit that the Participant shall be
entitled to receive Dividend Equivalents with respect to the payment of cash
dividends on Common Stock having a record date prior to date on which Restricted
Stock Units held by such Participant are settled. Such Dividend Equivalents, if
any, shall be paid by crediting the Participant with additional whole Restricted
Stock Units as of the date of payment of such cash dividends on Common Stock.
The number of additional Restricted Stock Units (rounded to the nearest whole
number) to be so credited shall be determined by dividing (a) the amount of cash
dividends paid on such date with respect to the number of shares of Common Stock
represented by the Restricted Stock Units previously credited to the Participant
by (b) the Fair Market Value per share of Common Stock on such date. Such
additional Restricted Stock Units shall be subject to the same terms and
conditions and shall be settled in the same manner and at the same time (or as
soon thereafter as practicable) as the Restricted Stock Units originally subject
to the Restricted Stock Unit. In the event of a dividend or distribution paid in
shares of Common Stock or any other adjustment made upon a change in the capital
structure of the Corporation as described in Section 9.1, appropriate
adjustments shall be made in the Participant's Restricted Stock Unit so that it
represents the right to receive upon settlement any and all new, substituted or
additional securities or other property (other than normal cash dividends) to
which the Participant would entitled by reason of the shares of Common Stock
issuable upon settlement of the Restricted Stock Unit, and all such new,
substituted or additional securities or other property shall be immediately
subject to the same restrictions as are applicable to the Restricted Stock Unit.

         4.9 RESTRICTED STOCK GRANTS AND UNITS UNDER CODE SECTION 162(m). The
Committee, at its discretion, may designate certain Restricted Stock grants or
Restricted Stock Units as being granted pursuant to Code Section 162(m). Such
Restricted Stock and Restricted Stock Units must comply with the following
additional requirements, which override any other provision set forth in this
Article IV:


                                       12
<PAGE>


                  (a) Each Code Section 162(m) Restricted Stock Award or
Restricted Stock Unit shall be based upon pre-established, objective performance
goals that are intended to satisfy the performance-based compensation
requirements of Code Section 162(m) and the regulations promulgated thereunder.
Further, at the discretion of the Committee, a Restricted Stock Award or
Restricted Stock Unit also may be subject to goals and restrictions in addition
to the performance requirements.

                  (b) Each Code Section 162(m) Restricted Stock Award or
Restricted Stock Unit shall be based upon the attainment of specified levels of
Corporation or Subsidiary performance during a specified performance period, as
measured by any or all of the Performance Measures.

                  (c) For each designated performance period, the Committee
shall (i) select those Employees who shall be eligible to receive a Restricted
Stock Award or Restricted Stock Unit, (ii) determine the performance period,
which may be a one to five fiscal year period, (iii) determine the target levels
of Corporation or Subsidiary performance, and (iv) determine the number of
shares subject to a Restricted Stock Award or Restricted Stock Unit to be paid
to each selected Employee. Unless otherwise permitted in compliance with the
requirements under Section 162(m) with respect to "performance-based
compensation," the Committee shall establish the performance goal(s) applicable
to each Restricted Stock grant or Restricted Stock Unit no later than the
earlier of (a) the date ninety (90) days after the commencement of the
applicable performance period or (b) the date on which 25% of the performance
period has elapsed, and, in any event, at a time when the outcome of the
performance goals remains substantially uncertain, or such other period as is
permitted by Code Section 165(m).

                  (d) For each performance period, the Committee shall certify,
in writing: (i) if the Corporation has attained the performance targets, and
(ii) the number of shares pursuant to the Code Section 162(m) Restricted Stock
Award or Restricted Stock Unit that are to become freely transferable. The
Committee shall have no discretion to waive all or part of the conditions, goals
and restrictions applicable to the receipt of full or partial payment of a Code
Section 162(m) Restricted Stock Award or Restricted Stock Unit. Any certificate
for shares under a Code Section 162(m) Restricted Stock Unit shall be issued
only after the Committee certifies in writing that the performance goals and
restrictions have been satisfied.

                  (e) No shares under a Code Section 162(m) Restricted Stock
Award or Restricted Stock Unit shall become transferable until the Committee
certifies in writing that the performance goals and restrictions have been
satisfied. Any dividends paid during the Restriction Period automatically shall
be reinvested on behalf of the Employee in additional shares of Common Stock
under the Plan, and such additional shares shall be subject to the same
performance goals and restrictions as the other shares under the Code Section
162(m) Restricted Stock Award or Restricted Stock Unit.

                  (f) Except as otherwise provided in this Article X, Section
10.4 and Section 10.5 of the Plan, and subject to applicable federal and state
securities laws, shares covered by each Code Section 162(m) Restricted Stock
Award or Restricted Stock Unit made under the Plan may not be transferred,
pledged, assigned, or otherwise alienated or hypothecated until the applicable
performance targets and other restrictions are satisfied, as shall be certified
in writing by the Committee. At such time, shares covered by the Code Section
162(m) Restricted Stock Award or Restricted Stock Unit shall become freely
transferable by the Employee. Once the shares are released from the
restrictions, the Employee shall be entitled to have the legend required by
Section 4.5 of the Plan removed from the applicable Common Stock certificate.


                                       13
<PAGE>


                  (g) No Participant may be granted a Code Section 162(m)
Restricted Stock Award or Restricted Stock Units during any one fiscal year of
the Corporation for more than 200,000 shares of Common Stock.

         4.10 SETTLEMENT OF RESTRICTED STOCK UNIT AWARDS. If a Restricted Stock
Unit is payable in Common Stock, the Corporation shall issue to a Participant on
the date on which Restricted Stock Units subject to the Participant's Restricted
Stock Unit vest or on such other date determined by the Committee, in its
discretion, and set forth in the Agreement, one (1) share of Common Stock
(and/or any other new, substituted or additional securities or other property
pursuant to an adjustment described in Section 4.8 or Section 9.1) for each
Restricted Stock Unit then becoming vested or otherwise to be settled on such
date, subject to the withholding of applicable taxes. Notwithstanding the
foregoing, if permitted by the Committee and set forth in the Agreement, the
Participant may elect in accordance with terms specified in the Agreement to
defer receipt of all or any portion of the shares of Common Stock, cash or other
property otherwise issuable to the Participant pursuant to this Section 4.10.

                           V. PERFORMANCE SHARE AWARDS

         5.1 GRANT OF PERFORMANCE SHARE AWARDS. The Committee, at its
discretion, may grant Performance Share Awards to Participants and may
determine, on an individual or group basis, the performance goals to be attained
pursuant to each Performance Share Award.

         5.2 TERMS OF PERFORMANCE SHARE AWARDS.

                  (a) Performance Share Awards shall consist of rights to
receive cash, Common Stock or a combination of each, if designated performance
goals are achieved.

                  (b) The terms of a Participant's Performance Share Award shall
be set forth in his or her individual Performance Share Agreement. Each
Agreement shall specify the performance goals applicable to a particular
Participant or group of Participants, the period over which the targeted goals
are to be attained, the payment schedule if the goals are attained, and any
other general terms and conditions applicable to an individual Performance Share
Award as the Committee shall determine.

                  (c) Except as set forth in Section 5.3 of the Plan, the
Committee, at its discretion, may waive all or part of the conditions, goals and
restrictions applicable to the receipt of full or partial payment of a
Performance Share Award.

                  (d) Performance Share Awards may be granted in two different
forms, at the discretion of the Committee as follows:

                           (i) Under one form, the Participant shall receive a
Performance Share Award that consists of a legended certificate of Common Stock,
restricted from transfer prior to the satisfaction of the designated performance
goals and restrictions, as determined by the Committee and specified in the
Participant's Performance Share Agreement.

                           (ii) Under the second form (a "Performance Share
Award Unit"), the Participant shall receive a Performance Share Agreement from
the Committee that specifies the performance goals and restrictions that must be
satisfied before the Corporation shall issue the payment, which may be cash, a
designated number of shares of Common Stock or a combination of the two.


                                       14
<PAGE>


                  (e) Each certificate representing shares under a Performance
Share Award shall bear the following legend:

                           The sale or other transfer of the shares of stock
                  represented by this certificate, whether voluntary,
                  involuntary or by operation of law, is subject to certain
                  restrictions on transfer set forth in the Perceptron, Inc.
                  2004 Stock Incentive Plan ("Plan"), rules and administrative
                  guidelines adopted pursuant to such Plan and a Performance
                  Share Agreement dated . A copy of the Plan, such rules and
                  such Performance Share Agreement may be obtained from the
                  Secretary of Perceptron, Inc.

                  (f) In its discretion, the Committee may, either at the time
it grants a Performance Share Award or at any time thereafter, provide for the
positive or negative adjustment of the performance goals applicable to a
Performance Share Award granted to any Participant whose Performance Share Award
has not been designated as a Code Section 162(m) Performance Share Award to
reflect such Participant's individual performance in his or her position with
the Corporation or such other factors as the Committee may determine.

                  (g) An Agreement may provide for deferred payment in a lump
sum or in installments. If any payment is to be made on a deferred basis, the
Committee may, but shall not be obligated to, provide for the payment during the
deferral period of Dividend Equivalents or interest.

                  (h) If payment is to be made in shares of Common Stock, the
number of such shares shall be determined by dividing the final value of the
Performance Share Award by the value of a share of Common Stock determined by
the method specified in the Agreement.

                  (i) Participants holding Performance Share Awards or
Performance Share Award Units shall have the same voting rights and rights to
dividends and other distributions as would Participants holding Restricted Stock
or Restricted Stock Units under Article IV.

         5.3 PERFORMANCE SHARE AWARDS GRANTED UNDER CODE SECTION 162(m). The
Committee, at its discretion, may designate certain Performance Share Awards as
granted pursuant to Code Section 162(m). Such Performance Share Awards must
comply with the following additional requirements, which override any other
provision set forth in this Article V:

                  (a) The Committee, at its discretion, may grant Code Section
162(m) Performance Share Awards based upon pre-established, objective
performance goals that are intended to satisfy the performance-based
compensation requirements of Code Section 162(m) and the regulations promulgated
thereunder. Further, at the discretion of the Committee, a Performance Share
Award also may be subject to goals and restrictions in addition to the
performance requirements.

                  (b) Each Code Section 162(m) Performance Share Award shall be
based upon the attainment of specified levels of Corporation or Subsidiary
performance during a specified performance period, as measured by any or all of
the Performance Measures.


                                       15
<PAGE>


                  (c) For each designated performance period, the Committee
shall (i) select those Employees who shall be eligible to receive a Code Section
162(m) Performance Share Award, (ii) determine the performance period, which may
be a one to five fiscal year period, (iii) determine the target levels of
Corporation or Subsidiary performance, and (iv) determine the Performance Share
Award to be paid to each selected Employee. Unless otherwise permitted in
compliance with the requirements under Section 162(m) with respect to
"performance-based compensation," the Committee shall establish the performance
goal(s) applicable to each Performance Share Award no later than the earlier of
(a) the date ninety (90) days after the commencement of the applicable
performance period or (b) the date on which 25% of the performance period has
elapsed, and, in any event, at a time when the outcome of the performance goals
remains substantially uncertain, or such other period as is permitted by Code
Section 165(m).

                  (d) For each performance period, the Committee shall certify,
in writing: (i) if the Corporation has attained the performance targets; and
(ii) the cash or number of shares (or combination thereof) pursuant to the Code
Section 162(m) Performance Share Award that shall be paid to each selected
Employee (or the number of shares that are to become freely transferable, if a
Code Section 162(m) Performance Share Award is granted subject to attainment of
the designated performance goals). The Committee shall have no discretion to
waive all or part of the conditions, goals and restrictions applicable to the
receipt of full or partial payment of a Code Section 162(m) Performance Share
Award. Any certificate for shares under a Code Section 162(m) Performance Share
Award Unit shall be issued only after the Committee certifies in writing that
the performance goals and restrictions have been satisfied.

                  (e) No shares under a Code Section 162(m) Performance Share
Award shall become transferable until the Committee certifies in writing that
the performance goals and restrictions have been satisfied.

                  (f) Except as otherwise provided in this Article V or Section
10.4 of the Plan, and subject to applicable federal and state securities laws,
shares covered by each Code Section 162(m) Performance Share Award made under
the Plan may not be transferred, pledged, assigned, or otherwise alienated or
hypothecated until the applicable performance targets and other restrictions are
satisfied, as shall be certified in writing by the Committee. At such time,
shares covered by the Code Section 162(m) Performance Share Award shall become
freely transferable by the Participant. Once the shares are released from the
restrictions, the Employee shall be entitled to have the legend required by
Section 5.2(e) removed from the applicable Common Stock certificate.

                  (g) Participants holding Code Section 162(m) Performance
Awards or Performance Share Award Units shall have the same voting rights and
rights to dividends and other distributions as would Participants holding Code
Section 162(m) Restricted Stock or Restricted Stock Units under Article IV.

                  (h) No Participant may be granted a Code Section 162(m)
Performance Share Award during any one fiscal year for more than 200,000 shares
of Common Stock, except that if a Performance Share Award Unit payout is not
based upon a set number of shares of Common Stock for achievement of the
performance goals, then no Employee may receive a Code Section 162(m)
Performance Share Award Unit which could result in such Employee receiving more
than Five Hundred Thousand Dollars ($500,000) for each fiscal year of the
Corporation contained in the performance period for such Award. No Employee may
be granted more than one Performance Share Award for the same performance
period.


                                       16
<PAGE>


                  (i) If permitted under the Employee's Agreement, the Committee
shall have the discretion, on the basis of such criteria as may be established
by the Committee, to reduce some or all of the value of the Code Section 162(m)
Performance Share Award that would otherwise be paid to the Employee upon its
settlement notwithstanding the attainment of any performance goal. No such
reduction may result in an increase in the amount payable upon settlement of
another Participant's Code Section 162(m) Performance Share Award.

                       VI. DIRECTOR STOCK PURCHASE RIGHTS

         6.1 ELIGIBILITY. A Director of the Corporation may elect to purchase
shares of Common Stock under the Plan using all or a portion of his or her cash
fees received for services as a director of the Corporation for which the
Director has not yet received payment (including but not limited to, quarterly
retainer and Board/Committee meeting fees).

         6.2 ELECTIONS. Elections to purchase Common Stock under the Plan in
lieu of cash compensation may be submitted to the Corporation annually, prior to
the end of December of each calendar year or such other period established by
the Committee. An election shall cover director cash compensation payable in the
next calendar year.

         6.3 PURCHASE PRICE. Common Stock purchased by a Director hereunder
shall have a purchase price equal to 100% of the Fair Market Value of the
Corporation's Common Stock on the first day of the month in which the quarterly
Director Fee Payment Date falls.

         6.4 TERMINATION OF SERVICES. If a Director ceases to remain on the
Board for any reason, including but not limited to, voluntary or forced
resignation, removal, failure to be re-elected as a director, death, Disability
or retirement, the Director (or executor, administrator or legal representative,
if applicable) shall receive share certificates for all cash director fees
earned prior to the Director's departure from the Board for which the Director
elected to receive Common Stock pursuant to this Article VI, but for which the
Director has not yet received a share certificate. Such share certificates shall
be issued following the next quarterly Director Fee Payment Date.

         6.5 NON-ASSIGNABILITY. Any Common Stock purchase right granted
hereunder shall be exercised by the Director only and is nontransferable. Upon
the death of a Director, any earned, but unpaid cash director fees for which the
Director elected to receive Common Stock pursuant to this Article VI, shall be
paid in the form of share certificates to the Director's executor, administrator
or legal representative in accordance with Section 6.4 above.

         6.6 ADJUSTMENTS. The total amount of Common Stock to be received by a
Director at the time of any issuance of a share certificate shall be
appropriately adjusted for any increase or decrease in the number of outstanding
shares of Common Stock resulting from stock dividends, stock splits,
recapitalizations, reorganizations, mergers, combinations, exchanges or other
relevant changes in the capital structure of the Corporation occurring from the
Director Fee Payment Date on which such shares of Common Stock were earned to
the date of issuance of the share certificate for such shares. The foregoing
adjustments and the manner of application of the foregoing provisions shall be
determined by the Board in its sole discretion.

         6.7 RULE 16B-3 REQUIREMENTS. Notwithstanding any provision of the Plan,
the Committee may impose such conditions on the purchase of shares of Common
Stock hereunder as may be required to satisfy the requirements of Rule 16b-3 of
the Exchange Act, as amended from time to


                                       17
<PAGE>


time (or any successor rule). Notwithstanding any provision in the Plan to the
contrary, the Committee shall have no discretion with respect to the terms of
purchase made pursuant to this Article VI, except to the extent such discretion
would not result in the purchase or the Plan failing to qualify for the
exemption provided under Rule 16b-3.

         6.8 DELIVERY OF SHARES; RIGHTS PRIOR TO DELIVERY OF SHARES. By December
15th of each year, Directors electing to receive Common Stock will receive share
certificates for shares earned during the year. A Director may request to
receive Common Stock at any or each quarterly Director Fee Payment Date. No
Participant shall have any rights as a shareholder with respect to shares of
Common Stock covered by a purchase right until the issuance of a stock
certificate. No adjustment shall be made for dividends or other rights with
respect to such shares for which the record date is prior to the date the
certificate is issued.

                            VII. DEFERRED STOCK UNITS

         7.1 ESTABLISHMENT OF DEFERRED STOCK UNIT PROGRAM. The Committee, in its
discretion and upon such terms and conditions as it may determine, may establish
one or more programs pursuant to the Plan under which:

                  (a) Participants designated by the Committee who are among a
select group of management or highly compensated Employees may irrevocably
elect, prior to a date specified by the Committee, to reduce such Participant's
compensation otherwise payable in cash (subject to any minimum or maximum
reductions imposed by the Committee) and to be granted automatically at such
time or times as specified by the Committee one or more awards of Deferred Stock
Units with respect to such numbers of shares of Common Stock as determined in
accordance with the rules of the program established by the Committee and having
such other terms and conditions as established by the Committee.

                  (b) Participants designated by the Committee who are among a
select group of management or highly compensated Employees may irrevocably
elect, prior to a date specified by the Committee, to be granted automatically
an award of Deferred Stock Units with respect to such number of shares of Common
Stock and upon such other terms and conditions as established by the Committee
in lieu of:

                           (i) shares of Common Stock otherwise issuable to such
Participant upon the exercise of an Option;

                           (ii) cash or shares of Common Stock otherwise
issuable to such Participant upon the exercise of a Stock Appreciation Right;

                           (iii) shares of Common Stock otherwise issuable to
such Participant upon the settlement of a Restricted Stock Unit;

                           (iv) cash or shares of Common Stock otherwise
issuable to such Participant upon the settlement of a Performance Share Award;
or

                           (v) shares of Common Stock otherwise issuable in
connection with a Director Stock Purchase Right.


                                       18
<PAGE>


         7.2 TERMS AND CONDITIONS OF DEFERRED STOCK UNITS. Deferred Stock Units
granted pursuant to this Section 7.2 shall be evidenced by Agreements in such
form as the Committee shall from time to time establish. No such Deferred Stock
Unit or purported Deferred Stock Unit shall be a valid and binding obligation of
the Corporation unless evidenced by a fully executed Agreement. Agreements
evidencing Deferred Stock Units may incorporate all or any of the terms of the
Plan by reference and shall comply with and be subject to the following terms
and conditions:

                  (a) Deferred Stock Units shall not be subject to any vesting
conditions.

                  (b) Participants shall have no voting rights with respect to
shares of Common Stock represented by Deferred Stock Units until the date of the
issuance of such shares (as evidenced by the appropriate entry on the books of
the Corporation or of a duly authorized transfer agent of the Corporation).
However, a Participant shall be entitled to receive Dividend Equivalents with
respect to the payment of cash dividends on Common Stock having a record date
prior to date on which Deferred Stock Units held by such Participant are
settled. Such Dividend Equivalents shall be paid by crediting the Participant
with additional whole and/or fractional Deferred Stock Units as of the date of
payment of such cash dividends on Common Stock. The method of determining the
number of additional Deferred Stock Units to be so credited shall be specified
by the Committee and set forth in the Agreement. Such additional Deferred Stock
Units shall be subject to the same terms and conditions and shall be settled in
the same manner and at the same time (or as soon thereafter as practicable) as
the Deferred Stock Units originally subject to the Deferred Stock Unit award. In
the event of a dividend or distribution paid in shares of Common Stock or any
other adjustment made upon a change in the capital structure of the Corporation
as described in Section 9.1, appropriate adjustments shall be made in the
Participant's Deferred Stock Unit so that it represents the right to receive
upon settlement any and all new, substituted or additional securities or other
property (other than normal cash dividends) to which the Participant would be
entitled by reason of the shares of Common Stock issuable upon settlement of the
award.

                  (c) A Participant electing to receive an award of Deferred
Stock Units pursuant to this Section 7.2, shall specify at the time of such
election a settlement date with respect to such award. The Corporation shall
issue to the Participant as soon as practicable following the earlier of the
settlement date elected by the Participant or the date of termination of the
Participant's employment, a number of whole shares of Common Stock equal to the
number of whole Deferred Stock Units subject to the Deferred Stock Unit Award.
Such shares of Common Stock shall be fully vested, and the Participant shall not
be required to pay any additional consideration (other than applicable tax
withholding) to acquire such shares. Any fractional Deferred Stock Unit subject
to the Deferred Stock Unit Award shall be settled by the Corporation by payment
in cash of an amount equal to the Fair Market Value as of the payment date of
such fractional share.

                   VIII. TERMINATION OF EMPLOYMENT OR SERVICES

         8.1 OPTIONS AND STOCK APPRECIATION RIGHTS.

                  (a) If, prior to the date that an Option or Stock Appreciation
Right first becomes Vested, a Participant terminates employment or services for
any reason, the Participant's right to exercise the Option or Stock Appreciation
Right shall terminate and all rights thereunder shall cease.


                                       19
<PAGE>


                  (b) If, on or after the date that an Option or Stock
Appreciation Right first becomes Vested, a Participant terminates employment or
services for any reason other than death or Disability, the Participant shall
have the right within the period specified in the Participant's Agreement to
exercise the Option or Stock Appreciation Right to the extent that it was
exercisable and unexercised on the date of the Participant's termination of
employment or services, subject to any other limitation on the exercise of the
Option or Stock Appreciation Right in effect on the date of exercise; provided,
however, that the beneficial tax treatment of an Incentive Stock Option may be
forfeited if the Option is exercised more than three months after a
Participant's termination of employment.

                  (c) If, on or after the date that an Option or Stock
Appreciation Right first becomes Vested, a Participant terminates employment or
services due to death while an Option or Stock Appreciation Right is still
exercisable, the person or persons to whom the Option or Stock Appreciation
Right shall have been transferred by will or by the laws of descent and
distribution, shall have the right within the exercise period specified in the
Participant's Agreement to exercise the Option or Stock Appreciation Right to
the extent that it was exercisable and unexercised on the Participant's date of
death, subject to any other limitation on exercise in effect on the date of
exercise; provided, however, that the beneficial tax treatment of an Incentive
Stock Option may be forfeited if the Option is exercised more than one year
after a Participant's date of death. If the Participant dies after termination
of employment or services while the Option or Stock Appreciation Right is still
exercisable, the Option or Stock Appreciation Right shall be exercisable in
accordance with the terms of paragraph (c) above.

                  (d) If, on or after the date that an Option or Stock
Appreciation Right first becomes Vested, a Participant terminates employment or
services due to Disability, the Participant shall have the right, within the
exercise period specified in the Participant's Agreement to exercise the Option
or Stock Appreciation Right to the extent that it was exercisable and
unexercised on the date of the Participant's termination of employment or
services, subject to any other limitation on the exercise of the Option or Stock
Appreciation Right in effect on the date of exercise; provided, however, that
the beneficial tax treatment of an Incentive Stock Option may be forfeited if
the Option is exercised more than one year after a Participant's termination of
employment due to Disability.

                  (e) The Committee may designate in a Participant's Agreement
that an Option or Stock Appreciation Right shall terminate at an earlier or
later time than set forth above.

                  (f) The Committee, at the time of a Participant's termination
of employment or services, may accelerate a Participant's right to exercise an
Option or extend the exercise period of an Option or Stock Appreciation Right
(but in no event past the tenth anniversary of the Grant Date of such Option or
Stock Appreciation Right); provided, however that the extension of the exercise
period for an Incentive Stock Option may cause such Option to forfeit its
preferential tax treatment.

                  (g) Shares subject to Options and Stock Appreciation Rights
that are not exercised in accordance with the provisions of paragraph (a)
through (f) above shall expire and be forfeited by the Participant as of their
expiration date and, subject to Section 1.6, shall become available for new
grants and awards under the Plan as of such date.

         8.2 RESTRICTED STOCK GRANTS AND UNITS. If a Participant terminates
employment or services for any reason, the Participant's rights to shares of
Common Stock subject to a Restricted Stock grant or Restricted Stock Unit that
are still subject to the Restriction Period automatically shall terminate and be
forfeited by the Participant (or, if the Participant was required to pay a
purchase price for the Restricted Stock, other than the performance of services,
the Corporation shall have the option to


                                       20
<PAGE>


repurchase for the purchase price paid by the Participant any shares acquired by
the Participant which are still subject to the Restriction Period) and, subject
to Section 1.6, said shares shall be available for new grants and awards under
the Plan as of such termination date; provided, however, that the Committee, in
its sole discretion, may include a provision in a Participant's Restricted Stock
or Restricted Stock Unit Agreement providing for the continuation of a
Restricted Stock grant or Restricted Stock Unit after a Participant terminates
employment or services or waiving or changing the remaining restrictions or
adding additional restrictions with respect to any Restricted Stock grant or
Restricted Stock Unit that would otherwise be forfeited, as it deems
appropriate, or may otherwise waive or change all or part of the remaining
restrictions or add additional restrictions to any such Restricted Stock grant
or Restricted Stock Unit. Notwithstanding the foregoing, the Committee shall not
waive any restrictions on a Code Section 162(m) Restricted Stock Award or
Restricted Stock Unit, but the Committee may include a provision in an
Employee's Code Section 162(m) Restricted Stock or Restricted Stock Unit
Agreement stating that upon the Employee's termination of employment due to (i)
death, (ii) Disability, or (iii) involuntary termination by the Corporation
without cause (as defined in such agreement) prior to the attainment of the
associated performance goals and the termination of the Restriction Period, that
the performance goals and restrictions shall be deemed to have been satisfied on
terms determined by the Committee.

         8.3 PERFORMANCE SHARES. Performance Share Awards shall expire and be
forfeited by a Participant upon the Participant's termination of employment or
services for any reason, and, subject to Section 1.6, such shares shall be
available for new grants and awards under the Plan as of such termination date;
provided, however, that the Committee, in its discretion, may include a
provision in a Participant's Performance Share Award Agreement providing for the
continuation of a Performance Share Award after a Participant terminates
employment or services or waiving or changing all or part of the conditions,
goals and restrictions applicable to the receipt of full or partial payment of a
Performance Share Award or may otherwise waive or change all or part of the
conditions, goals and restrictions applicable to such Performance Share Award.
Notwithstanding the foregoing, the Committee shall not waive any restrictions on
a Code Section 162(m) Performance Share Award, but the Committee may include a
provision in an Employee's Code Section 162(m) Performance Share Agreement
stating that upon the Employee's termination of employment due to (i) death,
(ii) Disability, or (iii) involuntary termination by the Corporation without
cause (as defined in such Agreement) prior to the attainment of the associated
performance goals and restrictions, that the performance goals and restrictions
shall be deemed to have been satisfied on terms determined by the Committee.

         8.4 OTHER PROVISIONS. The transfer of an Employee from one corporation
to another among the Corporation and any of its Subsidiaries, or a leave of
absence under the leave policy of the Corporation or any of its Subsidiaries,
shall not be a termination of employment for purposes of the Plan, unless a
provision to the contrary is expressly stated by the Committee in a
Participant's Agreement issued under the Plan.

                      IX. ADJUSTMENTS AND CHANGE IN CONTROL

         9.1 ADJUSTMENTS.

                  (a) The total amount of Common Stock for which Options, Stock
Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Share
Awards, Director Stock Purchase Rights and Deferred Stock Units may be issued
under the Plan, the number of shares subject to any such grants, awards or
purchases (both as to the number of shares of Common Stock


                                       21
<PAGE>


and exercise price), and the limit on the number of shares that can be included
in an Award under Sections 2.1, 3.1, 4.9(g) and 5.3(h), shall be adjusted pro
rata for any increase or decrease in the number of outstanding shares of Common
Stock resulting from payment of a stock dividend on Common Stock, a subdivision
or combination of shares of Common Stock, a reclassification of Common Stock or
other similar transaction determined by the Committee to be covered by this
Section 9.1(a); provided, however, in each case, that, with respect to Incentive
Stock Options, any such adjustment shall be made in accordance with Section 422
of the Code or any successor provision thereto to the extent that such Option is
intended to remain an Incentive Stock Option. Such adjustment shall be made by
the Committee or the Board, whose determination in that respect shall be final,
binding and conclusive.

                  (b) In the event of a proposed dissolution or liquidation of
the Corporation, the Committee shall notify each Participant as soon as
practicable prior to the effective date of such proposed transaction. The
Committee in its discretion may provide for a Participant to have the right to
exercise his or her Option, Stock Appreciation Right, Restricted Stock grant,
Restricted Stock Units, Performance Share Award or Deferred Stock Unit in full
for a period specified by the Committee as to all of the shares of Common Stock
covered thereby, including shares as to which the Option, Stock Appreciation
Right, Restricted Stock grant, Restricted Stock Unit, Performance Share Award or
Deferred Stock Unit would not otherwise be exercisable, subject to the proposed
dissolution or liquidation taking place at the time and in the manner
contemplated. In addition, the Committee may provide that any re-purchase option
of the Corporation applicable to the shares purchased upon exercise of an
Option, Stock Appreciation Right, Restricted Stock grant, Restricted Stock Unit,
Performance Share Award, Director Stock Purchase Rights or Deferred Stock Unit
shall lapse as to all such shares, provided that the proposed dissolution or
liquidation takes place at the time and in the manner contemplated. To the
extent it has not been previously exercised, an Option, Stock Appreciation
Right, Restricted Stock grant, Restricted Stock Unit, Performance Share Award or
Deferred Stock Unit shall terminate immediately prior to the consummation of the
proposed dissolution or liquidation.

                  (c) In the event of a merger of the Corporation with or into
another corporation where the Corporation is not the surviving corporation, a
reverse triangular merger where the Corporation is the surviving corporation,
but its stock is exchanged for stock of the parent company of the other party to
the merger, the sale of substantially all of the assets of the Corporation, the
reorganization of the Corporation or other similar transaction determined by the
Committee to be covered by this Section 9.1(c), it is intended that each
outstanding Option, Stock Appreciation Right, Restricted Stock grant, Restricted
Stock Unit, Performance Share Award, Director Stock Purchase Right or Deferred
Stock Unit shall be assumed or an equivalent option or right substituted by the
successor corporation, the parent or a subsidiary of the successor corporation
or the parent of the Corporation following a reverse triangular merger. In the
event that such successor corporation (or the parent or a subsidiary thereof or
the parent of the Corporation following a reverse triangular merger) refuses to
assume or substitute for the Option, Stock Appreciation Right, Restricted Stock
grant, Restricted Stock Unit, Performance Share Award, Deferred Stock Unit, or
Director Stock Purchase Right, the Participant shall fully vest in and have the
right to exercise the Option, Stock Appreciation Right, Restricted Stock grant,
Restricted Stock Unit, Performance Share Award or Deferred Stock Unit in full,
including shares which would not otherwise be vested or exercisable, and the
Participant shall have his or her Director Stock Purchase Right paid in full in
Common Stock for services through the date of the consummation of the
transaction. If an Option, Stock Appreciation Right, Restricted Stock grant,
Restricted Stock Unit, Performance Share Award or Deferred Stock Unit becomes
fully vested and exercisable in lieu of assumption or substitution in the event
of a



                                       22
<PAGE>


merger, sale of assets, reorganization or other transaction, the Committee shall
notify the Participant in writing or electronically that the Option, Stock
Appreciation Right, Restricted Stock grant, Restricted Stock Unit, Performance
Share Award or Deferred Stock Unit shall be fully vested and exercisable for a
period specified by the Committee from the date of such notice, provided that if
such period expires prior to the consummation of the merger, sale of assets,
reorganization or other transaction, any exercise shall be subject to the
proposed merger, sale of assets or other transaction taking place, and the
Option, Stock Appreciation Right, Restricted Stock grant, Restricted Stock Unit,
Performance Share Award or Deferred Stock Unit shall terminate upon the
expiration of such period (or the consummation of the merger, sale of assets,
reorganization or other transaction, if later). For the purposes of this
paragraph, the Option, Stock Appreciation Right, Restricted Stock grant,
Restricted Stock Unit, Performance Share Award or Deferred Stock Unit shall be
considered assumed if, following the merger, sale of assets, reorganization or
other transaction, the option or right confers the right to purchase or receive,
for each share covered by the Participant's Option, Stock Appreciation Right,
Restricted Stock grant, Restricted Stock Unit, Performance Share Award or
Deferred Stock Unit immediately prior to such transaction, the consideration
(whether stock, cash, or other securities or property) received in the merger,
sale of assets, reorganization, or other transaction, by holders of Common Stock
for each share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration determined by
the Committee); provided, however, that if such consideration received in the
merger, sale of assets, reorganization, or other transaction, is not solely
common stock of the successor corporation (or the parent or a subsidiary
thereof), the Committee may, with the consent of the successor corporation,
provide for the consideration to be received upon the exercise of the Option,
Stock Appreciation Right, Restricted Stock grant, Restricted Stock Unit,
Performance Share Award or Deferred Stock Unit, for each share of Common Stock
subject to the Option, Stock Appreciation Right, Restricted Stock grant,
Restricted Stock Unit, Performance Share Award or Deferred Stock Unit to be
solely (i) common stock of the successor corporation (or the parent or a
subsidiary thereof) equal in Fair Market Value to the per share consideration
received by holders of Common Stock in the merger, sale of assets,
reorganization or other transaction, or (ii) cash.

                  (d) In the event of a proposed spin-off or a transfer by the
Corporation of a portion of its assets resulting in the employment of certain
Participants by the spin-off entity or the entity acquiring assets of the
Corporation, the Committee may make whatever adjustments it determines
appropriate with respect to such terminating Participants.

                  (e) The foregoing adjustments shall be made by the Committee.
Any such adjustment may provide for the elimination of any fractional share
which might otherwise become subject to an Option, Stock Appreciation Right,
Restricted Stock grant, Restricted Stock Unit, Performance Share Award, Director
Stock Purchase Right or Deferred Stock Unit. The Committee need not make the
same adjustments for each Participant.

         9.2 CHANGE IN CONTROL.

                  (a) The Committee in its discretion may provide in a
Participant's Agreement or otherwise, notwithstanding anything contained herein
to the contrary, that in the event of a Change in Control, or the occurrence of
a Change in Control and such other event or events as determined by the
Committee, any or all of the following will occur: (i) any outstanding Option or
Stock Appreciation Right granted to such Participant hereunder immediately shall
become fully Vested and exercisable in full, regardless of any installment
provision applicable to such Option or Stock Appreciation Right; (ii) the
remaining Restriction Period on any shares of Common Stock subject to


                                       23
<PAGE>


a Restricted Stock grant or Restricted Stock Unit hereunder immediately shall
lapse and the shares shall become fully transferable, subject to any applicable
federal or state securities laws; (iii) all performance goals and conditions
shall be deemed to have been satisfied and all restrictions shall lapse on any
outstanding Performance Share Awards granted to such Participant hereunder, and
such Awards shall become payable in full; (iv), for purposes of any Deferred
Stock Unit granted to such Participant hereunder, payments due under the
Deferred Stock Unit should become immediately payable; or (v) such other
treatment as the Committee may determine.

                  (b) The Committee may, in its sole discretion and without the
consent of any Participant, determine that, upon the occurrence of a Change in
Control, each or any Option or Stock Appreciation Right outstanding immediately
prior to the Change in Control shall be canceled in exchange for a payment with
respect to each vested share of Common Stock subject to such canceled Option or
Stock Appreciation Right in (i) cash, (ii) stock of the Corporation or of a
corporation or other business entity a party to the Change in Control, or (iii)
other property which, in any such case, shall be in an amount having a Fair
Market Value equal to the excess of the Fair Market Value of the consideration
to be paid per share of Common Stock in the Change in Control over the exercise
price per share under such Option or Stock Appreciation Right (the "Spread"). In
the event such determination is made by the Committee, the Spread (reduced by
applicable withholding taxes, if any) shall be paid to Participants in respect
of their canceled Options and Stock Appreciation Rights as soon as practicable
following the date of the Change in Control.

                                X. MISCELLANEOUS

         10.1 PARTIAL EXERCISE/FRACTIONAL SHARES. The Committee may permit, and
shall establish procedures for, the partial exercise of Options and Stock
Appreciation Rights granted under the Plan. No fractional shares shall be issued
in connection with the exercise of an Option, a Stock Appreciation Right or
Director Stock Purchase Right or payment of a Restricted Stock award, Restricted
Stock Unit, Performance Share Award or Deferred Stock Unit; instead, the Fair
Market Value of the fractional shares shall be paid in cash, or at the
discretion of the Committee, the number of shares shall be rounded down to the
nearest whole number of shares and any fractional shares shall be disregarded,
and, in the case of an Option, the number of shares subject to the Option shall
be rounded down to the nearest whole number of shares and any fractional shares
shall be disregarded.

         10.2 RULE 16B-3 REQUIREMENTS. Notwithstanding any other provision of
the Plan, the Committee may impose such conditions on the exercise of an Option
or Stock Appreciation Right (including, without limitation, the right of the
Committee to limit the time of exercise to specified periods), the grant of
Restricted Stock or Restricted Stock Unit, the payment of a Performance Share
Award or Deferred Stock Unit, or a Director Stock Purchase Right, as may be
required to satisfy the requirements of Rule 16b-3 of the Exchange Act.

         10.3 RIGHTS PRIOR TO ISSUANCE OF SHARES. No Participant shall have any
rights as a shareholder with respect to shares covered by an Option, Stock
Appreciation Right, Restricted Stock grant, Restricted Stock Unit, Performance
Share Award, Director Stock Purchase Right, or Deferred Stock Unit until the
issuance of a stock certificate for such shares. Except as otherwise provided in
the Plan, no adjustment shall be made for dividends or other rights with respect
to such shares for which the record date is prior to the date the certificate is
issued.

         10.4 NON-ASSIGNABILITY. Except as otherwise determined by the Committee
in its discretion, the following restrictions on assignability of any award
under the Plan shall apply to all


                                       24
<PAGE>


Participants: (i) no Option, Stock Appreciation Right, Restricted Stock grant,
Restricted Stock Unit, Performance Share Award, Director Stock Purchase Right or
Deferred Stock Unit shall be transferable by a Participant except by will or the
laws of descent and distribution; (ii) during the lifetime of a Participant, an
Option, Stock Appreciation Right, Restricted Stock grant, Restricted Stock Unit,
Director Stock Purchase Right or Deferred Stock Unit shall be exercised only by
the Participant, except in the event of the Participant's Disability, in which
case the Participant's legal guardian or the individual designated in the
Participant's durable power of attorney may exercise the Option, Stock
Appreciation Right, Restricted Stock grant, Restricted Stock Unit, Director
Stock Purchase Right or Deferred Stock Unit; and (iii) any transferee of the
Option, Stock Appreciation Right, Restricted Stock grant, Restricted Stock Unit,
Performance Share Award, Director Stock Purchase Right or Deferred Stock Unit
shall take the same subject to the terms and conditions of this Plan. No
transfer of an Option, Stock Appreciation Right, Restricted Stock grant,
Restricted Stock Unit, Performance Share Award, Director Stock Purchase Right or
Deferred Stock Unit by will or the laws of descent and distribution, or as
otherwise permitted by the Committee, shall be effective to bind the Corporation
unless the Corporation shall have been furnished with written notice thereof and
a copy of the will and/or such evidence as the Corporation may deem necessary to
establish the validity of the transfer and the acceptance by the transferee or
transferees of the terms and conditions of the Option, Stock Appreciation Right,
Restricted Stock grant, Restricted Stock Unit, Performance Share Award, Director
Stock Purchase Right or Deferred Stock Unit.

         10.5 SECURITIES LAWS.

                  (a) Anything to the contrary herein notwithstanding, the
Corporation's obligation to sell and deliver Common Stock pursuant to the
exercise of an Option or Stock Appreciation Right or deliver Common Stock
pursuant to a Restricted Stock grant, Restricted Stock Unit, Performance Share
Award, Director Stock Purchase Rights or Deferred Stock Unit is subject to such
compliance with federal and state laws, rules and regulations applying to the
authorization, issuance or sale of securities as the Corporation deems necessary
or advisable. The Corporation shall not be required to sell and deliver or issue
Common Stock unless and until it receives satisfactory assurance that the
issuance or transfer of such shares shall not violate any of the provisions of
the Securities Act of 1933 or the Securities Exchange Act of 1934, or the rules
and regulations of the Securities Exchange Commission promulgated thereunder or
those of The Nasdaq Stock Market or any stock exchange, recognized trading
market or quotation system on which the Common Stock may be listed or traded, or
the provisions of any state securities laws, or that there has been compliance
with the provisions of such acts, rules, regulations and laws.

                  (b) The Committee may impose such restrictions on any shares
of Common Stock acquired pursuant to the exercise of an Option, Stock
Appreciation Right or a Deferred Stock Unit, the grant of Restricted Stock or a
Restricted Stock Unit, the payment of a Performance Share Award or pursuant to a
Director Stock Purchase Right under the Plan as it may deem advisable,
including, without limitation, restrictions (i) under applicable federal
securities laws, (ii) under the requirements of The Nasdaq Stock Market or any
other securities exchange, recognized trading market or quotation system upon
which such shares of Common Stock are then listed or traded, and (iii) under any
state securities laws applicable to such shares. No shares shall be issued until
counsel for the Corporation has determined that the Corporation has complied
with all requirements under appropriate securities laws.



                                       25
<PAGE>


         10.6 WITHHOLDING TAXES.

                  (a) The Corporation shall have the right to withhold from a
Participant's compensation or require a Participant to remit sufficient funds to
satisfy applicable withholding for income and employment taxes upon the exercise
of an Option or Stock Appreciation Right, the lapse of the Restriction Period on
shares of Common Stock subject to a Restricted Stock grant or Restricted Stock
Unit or the payment of a Performance Share Award, Director Stock Purchase Right
or Deferred Stock Unit, to the extent the Corporation is required to withhold
such taxes. The Committee may permit a Participant to make a written election to
tender previously-acquired shares of Common Stock or have shares of stock
withheld from the exercise to satisfy applicable withholding for income and
employment taxes associated with an Award under this Plan; provided that the
shares have an aggregate Fair Market Value sufficient to satisfy in whole or in
part the applicable withholding taxes. The Committee may permit a Participant to
use the cashless exercise procedure of Section 2.4 to satisfy the withholding
requirements related to the exercise of an Option. At no point shall the
Corporation withhold more shares than are necessary to meet the established tax
withholding requirements of federal, state and local obligations.

                  (b) A Participant subject to the insider trading restrictions
of Section 16(b) of the Exchange Act may use Common Stock to satisfy the
applicable withholding requirements only if such disposition is approved in
accordance with Rule 16b-3 of the Exchange Act. Any election by a Participant to
utilize Common Stock for withholding purposes is further subject to the
discretion of the Committee.

         10.7 TERMINATION AND AMENDMENT.

                  (a) The Plan shall continue in effect until the earlier of
October 22, 2014, its termination by the Board or the date on which all of the
shares of Common Stock available for issuance under the Plan have been issued
and all restrictions on such shares under the terms of the Plan and the
agreements evidencing Awards granted under the Plan have lapsed. The Board may
terminate the Plan, the granting of Options, Stock Appreciation Rights,
Restricted Stock, Restricted Stock Units, Performance Share Awards or Deferred
Stock Units under the Plan, or purchases of Common Stock pursuant to the
Director Stock Purchase Rights, at any time.

                  (b) The Board may amend or modify the Plan at any time and
from time to time, but no amendment or modification shall, without the approval
of the shareholders of the Corporation, (i) materially increase the benefits
accruing to Participants under the Plan; (ii) increase the amount of Common
Stock for which grants and awards may be made under the Plan, except as
permitted under Sections 1.6 and 9.1; (iii) change the provisions relating to
the eligibility of individuals to whom grants and awards may be made under the
Plan; (iv) permit the repricing of Options or Stock Appreciation Rights as
prohibited by Section 1.7; or (v) permit the granting of Options (other than
Indexed Options) with exercise prices less than Fair Market Value on the date of
grant. In addition, so long as the Corporation's Common Stock is listed on The
Nasdaq Stock Market or another stock exchange, the Board may not amend the Plan
in a fashion requiring approval of the shareholders of the Corporation under the
rules of The Nasdaq Stock Market or such other stock exchange, without obtaining
the approval of the shareholders.


                                       26
<PAGE>


                  (c) No amendment, modification, or termination of the Plan
shall in any manner affect (i) any Option, Stock Appreciation Right, Restricted
Stock grant, Restricted Stock Unit, Performance Share Award or Deferred Stock
Unit granted under the Plan without the consent of the Participant holding the
Option, Stock Appreciation Right, Restricted Stock grant, Restricted Stock Unit,
Performance Share Award or Deferred Stock Unit, except as set forth in any
Agreement relating to such Option, Stock Appreciation Right, Restricted Stock
grant, Restricted Stock Unit, Performance Share Award or Deferred Stock Unit
granted under the Plan or (ii) any election to purchase Common Stock pursuant to
a Director Stock Purchase Right made prior to such amendment, modification or
termination of the Plan, without the consent of the Participant who made such
election.

         10.8 EFFECT ON EMPLOYMENT. Neither the adoption of the Plan nor the
granting of any Option, Stock Appreciation Right, Restricted Stock, Restricted
Stock Unit, Performance Share Award, Director Stock Purchase Right or Deferred
Stock Unit pursuant to the Plan shall be deemed to create any right in any
individual to be retained or continued in the employment, or as a non-employee
director or Consultant, of the Corporation or a Subsidiary.

         10.9 USE OF PROCEEDS. The proceeds received from the sale of Common
Stock pursuant to the Plan will be used for general corporate purposes of the
Corporation.

         10.10 REPURCHASE RIGHTS. Shares of Common Stock issued under the Plan
may be subject to one or more repurchase options, or other conditions and
restrictions, as determined by the Committee in its discretion at the time the
Award is granted. The Corporation shall have the right to assign at any time any
repurchase right it may have, whether or not such right is then exercisable, to
one or more persons as may be selected by the Corporation. Upon request by the
Corporation, each Participant shall execute any agreement evidencing such
transfer restrictions prior to the receipt of shares of Common Stock hereunder
and shall promptly present to the Corporation any and all certificates
representing shares of Common Stock acquired hereunder for the placement on such
certificates of appropriate legends evidencing any such transfer restrictions.

         10.11 SEVERABILITY. If any one or more of the provisions (or any part
thereof) of this Plan or of any Agreement issued hereunder, shall be held to be
invalid, illegal or unenforceable in any respect, such provision shall be
modified so as to make it valid, legal and enforceable, and the validity,
legality and enforceability of the remaining provisions (or any part thereof) of
the Plan or of any Agreement shall not in any way be affected or impaired
thereby. The Corporation may, without the consent of any Participant, and in a
manner determined necessary solely in the discretion of the Corporation, amend
the Plan and any outstanding Agreement as the Corporation deems necessary to
ensure the Plan and all Awards remain valid, legal or enforceable in all
respects.

         10.12 BENEFICIARY DESIGNATION. Subject to local laws and procedures,
each Participant may file with the Corporation a written designation of a
beneficiary who is to receive any benefit under the Plan to which the
Participant is entitled in the event of such Participant's death before he or
she receives any or all of such benefit. Each designation will revoke all prior
designations by the same Participant, shall be in a form prescribed by the
Corporation, and will be effective only when filed by the Participant in writing
with the Corporation during the Participant's lifetime. If a married Participant
designates a beneficiary other than the Participant's spouse, the effectiveness
of such designation may be subject to the consent of the Participant's spouse.
If a Participant dies without an effective designation of a beneficiary who is
living at the time of the Participant's death, the Corporation will pay any
remaining unpaid benefits to the Participant's legal representative.


                                       27
<PAGE>


         10.13 UNFUNDED OBLIGATION. Participants shall have the status of
general unsecured creditors of the Corporation. Any amounts payable to
Participants pursuant to the Plan shall be unfunded and unsecured obligations
for all purposes, including, without limitation, Title I of the Employee
Retirement Income Security Act of 1974. The Corporation shall not be required to
segregate any monies from its general funds, or to create any trusts, or
establish any special accounts with respect to such obligations. The Corporation
shall retain at all times beneficial ownership of any investments, including
trust investments, which the Corporation may make to fulfill its payment
obligations hereunder. Any investments or the creation or maintenance of any
trust or any Participant account shall not create or constitute a trust or
fiduciary relationship between the Committee or the Corporation and a
Participant, or otherwise create any vested or beneficial interest in any
Participant or the Participant's creditors in any assets of the Corporation. The
Participants shall have no claim against the Corporation for any changes in the
value of any assets which may be invested or reinvested by the Corporation with
respect to the Plan.

         10.14 APPROVAL OF PLAN. Unless this Plan has been approved by the
shareholders of the Corporation within 12 months after adoption of the Plan by
the Board, as required by Section 422 of the Code, this Plan, and any grants or
awards made hereunder, shall be of no further force or effect.

         IN WITNESS WHEREOF, this 2004 Stock Incentive Plan has been executed on
behalf of the Corporation on the 22nd day of October, 2004.

                                    PERCEPTRON, INC.


                                    By: /s/ Alfred A. Pease
                                        -------------------------------------
                                        Alfred A. Pease,
                                        President and Chief Executive Officer

                      BOARD OF DIRECTORS APPROVAL: 10/22/04
                          SHAREHOLDER APPROVAL: 12/6/04



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