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                                                                    EXHIBIT 10.3

                                                      INITIAL USAGE DATE: 1/2/06

                INCENTIVE STOCK OPTION AGREEMENT TERMS - OFFICER
              UNDER THE PERCEPTRON, INC. 2004 STOCK INCENTIVE PLAN

      THESE STOCK OPTION AGREEMENT TERMS pertain to stock options granted
effective ________________ under the 2004 Stock Incentive Plan (the "Plan") as
detailed in the accompanying Notice of Grant of Stock Options and Option
Agreement (the "Notice") between Perceptron, Inc., a Michigan corporation (the
"Corporation"), and the employee named in the Notice who is currently employed
by the Corporation or one of its subsidiaries (the "Optionee"). A copy of the
2004 Stock Incentive Plan is not attached hereto but is available upon written
request made to the Secretary of the Corporation.

1.    GRANT OF OPTION. Subject to the terms and conditions hereof, the
      Corporation hereby grants to the Optionee an option to purchase from the
      Corporation up to, but not exceeding in the aggregate, the number of
      shares of the Corporation's Common Stock detailed in the accompanying
      Notice at the price per share designated in the Notice. This option is
      intended to constitute an "incentive stock option" within the meaning of
      Section 422 of the Internal Revenue Code ("Code").

2.    RIGHT TO EXERCISE OPTION. Unless otherwise indicated in the Notice, the
      Optionee may purchase from the Corporation on and after the first
      anniversary of the date of grant, 25% of the shares covered by this
      option, and on each succeeding one year anniversary thereof may exercise
      an additional 25% of the shares covered by the option, so that on the
      fourth anniversary of the date of grant this option shall be fully
      exercisable. To the extent not exercised, installments shall accumulate
      and the Optionee may exercise them in whole or in part in any subsequent
      period. Unless a shorter period is specified in the Notice under the
      "Expiration" column, and notwithstanding any provision of this Agreement,
      no portion of this option shall be exercisable on or after the tenth
      anniversary of the date of grant. The Committee (as defined in the Plan),
      in its sole discretion, may accelerate the time at which this option may
      be exercised in whole or in part.

3.    TERMINATION OF EMPLOYMENT. If, prior to the date that this option shall
      first become exercisable, the Optionee's employment with the Corporation
      or any of its subsidiaries shall be terminated for any reason, the
      Optionee's right to exercise this option shall terminate and all rights
      hereunder shall cease. As used in this Agreement, the term "subsidiary" of
      the Corporation means any "subsidiary corporation" as defined in Section
      424(f) of the Code, the term "employment" means employment with the
      Corporation or any subsidiary of the Corporation, and the term
      "disability" means "total and permanent disability," as defined in Section
      22(e) of the Code.

      If, on or after the date that this option shall first become exercisable,
      the Optionee's employment shall be terminated for any reason other than
      death or disability, the Optionee shall have the right to exercise this
      option to the extent that it shall have been exercisable and

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      unexercised on the date of such termination of services, at any time on or
      before the earlier of: (i) the expiration date of the option, or (ii)
      three (3) months after the date of such termination of employment, subject
      to any other limitation on the exercise of such option in effect at the
      date of exercise.

      If on or after the date that this option shall first become exercisable
      the Optionee's employment shall be terminated due to death or disability,
      the Optionee or the executor or administrator of the estate of the
      Optionee (as the case may be) or the person or persons to whom the option
      shall have been transferred by will or by the laws of descent and
      distribution, shall have the right to exercise this option, at any time on
      or before the earlier of: (i) the expiration date of the option, or (ii)
      one (1) year from the date of the Optionee's death or disability, to the
      extent that it was exercisable and unexercised on the date of the
      Optionee's death or disability, subject to any other limitation on
      exercise in effect at the date of exercise.

      The transfer of the Optionee from one corporation to another among the
      Corporation and any of its subsidiaries, or a leave of absence with the
      written consent of the Corporation, shall not be a termination of services
      for purposes of this option.

4.    CHANGE IN CONTROL. Notwithstanding the provisions of Section 2 "Right to
      Exercise Option" and Section 3 "Termination of Employment" of this
      Agreement, in the event of a Change in Control, any portion of this option
      that is then not exercisable shall become immediately exercisable. For
      purposes hereof, a "Change in Control" shall be deemed to have occurred in
      the event of (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 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 benefiting 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.

      In the event of a Change of Control, the Committee may, in its sole
      discretion and without the consent of the Optionee, cancel this option in
      exchange for a payment with respect to each vested share of Common Stock
      as provided in Section 9.2(b) of the Plan.

5.    EXERCISE OF OPTION.

      (a)   At any time that this option may be exercised as provided in this
            Agreement, the Optionee may exercise any portion of this option
            which is then exercisable, in whole

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      or in part, by delivery to the Corporation of a written notice, in the
      form attached hereto, signed by the Optionee.

      (b)   In addition, the Optionee shall deliver, on the date of exercise:

            (i)   cash equal to the purchase price of the shares being
                  purchased,

            (ii)  such documents as are or may be required under the terms of
                  Section 2.4(b) of the Plan to effect a cashless exercise,
                  except to the extent that the Corporation determines that the
                  Optionee is not permitted to use a cashless exercise under
                  applicable law, or

            (iii) Permitted Shares with a Fair Market Value (as defined in the
                  Plan and determined as of the date of exercise of the option)
                  equal to the purchase price of the shares being purchased and
                  in accordance with Section 2.4 of the Plan (the "Delivered
                  Shares Method").

      (c)   "Permitted Shares" are shares of Corporation Common Stock to be
            delivered to pay the exercise price of the option (the "Delivered
            Shares"):

            (i)   which have been owned by the Optionee for at least six months
                  prior to the date of delivery, or

            (ii)  if they have not been owned by the Optionee for at least six
                  months prior to the date of delivery, the Optionee then owns,
                  and has owned for at least six months prior thereto, a number
                  of shares of Corporation Common Stock at least equal in number
                  to the Delivered Shares.

      (d)   Shares which have been counted during the prior six months as owned
            by the Optionee for purposes of determining whether the Optionee may
            exercise options to purchase Common Stock pursuant to the Delivered
            Shares Method:

            (i)   may not be used as Delivered Shares, and

            (ii)  may not be counted as owned by the Optionee for purposes of
                  making calculations under the Delivered Shares Method.

6.    COMPLIANCE WITH SECURITIES LAWS. Anything to the contrary herein
      notwithstanding, the Corporation's obligation to sell and deliver stock
      under this option is subject to such compliance with federal and state
      laws, rules and regulations applying to the authorization, issuance or
      sale of securities, and applicable stock exchange requirements, as the
      Corporation deems necessary or advisable.

7.    NON-ASSIGNABILITY. The option hereby granted shall not be transferable by
      the Optionee other than by will or the laws of descent and distribution,
      and the option may be exercised during the Optionee's lifetime only by the
      Optionee. Any transferee of the option shall take the same subject to the
      terms and conditions of this Agreement. No such transfer of the option
      shall be effective to bind the Corporation unless the Corporation shall
      have been

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      furnished with written notice thereof and a copy of the will and/or such
      other 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 this Agreement. No assignment
      or transfer of this option, or of the rights represented thereby, whether
      voluntary or involuntary, by operation of law or otherwise, except a
      transfer by the Optionee by will or by the laws of descent and
      distribution, shall vest in the purported assignee or transferee any
      interest or right herein whatsoever.

8.    DISPUTES. As a condition of the granting of the option granted hereby, the
      Optionee and the Optionee's successors and assigns agree that any dispute
      or disagreement which shall arise under or as a result of this Agreement
      shall be determined by the Committee in its sole discretion and judgment
      and that any such determination and any interpretation by the Committee of
      the terms of this Agreement shall be final and shall be binding and
      conclusive for all purposes.

9.    ADJUSTMENTS. In the event of any stock dividend, subdivision or
      combination of shares, reclassification, or similar transaction affecting
      the shares covered by this option, determined by the Committee to be
      covered by this Section 9, a proposed dissolution or liquidation of the
      Corporation, a merger of the Corporation with or into another corporation
      where the Corporation is not the surviving corporation, but its stock is
      exchanged for stock of the parent Corporation 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, a proposed
      spin-off or a transfer by the Corporation of a portion of its assets
      resulting in the employment of the Optionee by the spin-off entity or the
      entity acquiring assets of the Corporation, the rights of the Optionee
      shall be as provided in Section 9.1 of the Plan and any adjustment therein
      provided shall be made in accordance with Section 9.1 of the Plan.

10.   RIGHTS AS SHAREHOLDER. The Optionee shall have no rights as a shareholder
      of the Corporation with respect to any of the shares covered by this
      option until the issuance of a stock certificate or certificates upon the
      exercise of the option in full or in part, and then only with respect to
      the shares represented by such certificate or certificates.

11.   NOTICES. Every notice relating to this Agreement shall be in writing and
      if given by mail shall be given by registered or certified mail with
      return receipt requested. All notices to the Corporation shall be
      delivered to the Secretary of the Corporation at the Corporation's
      headquarters or addressed to the Secretary of the Corporation at the
      Corporation's headquarters. All notices by the Corporation to the Optionee
      shall be delivered to the Optionee personally or addressed to the Optionee
      at the Optionee's last residence address as then contained in the records
      of the Corporation or such other address as the Optionee may designate.
      Either party by notice to the other may designate a different address to
      which notices shall be addressed. Any notice given by the Corporation to
      the Optionee at the Optionee's last designated address shall be effective
      to bind any other person who shall acquire rights hereunder.

12.   "OPTIONEE" TO INCLUDE CERTAIN TRANSFEREES. Whenever the word "Optionee" is
      used in

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      any provision of this Agreement under circumstances where the provision
      should logically apply to any other person or persons to whom the option,
      in accordance with the provisions of Section 6 hereof, may be transferred,
      the word "Optionee" shall be deemed to include such person or persons.

13.   GOVERNING LAW. This Agreement has been made in and shall be construed in
      accordance with the laws of the State of Michigan, without regard to its
      choice of law rules.

14.   PROVISIONS OF PLAN CONTROLLING. The provisions hereof are subject to the
      terms and provisions of the Plan, copies of which are available for review
      upon request. In the event of any conflict between the provisions of this
      option and the provisions of the Plan, the provisions of the Plan shall
      control, except to the extent that the provisions of this option limit or
      restrict the rights of the Optionee to a greater extent than set forth in
      the Plan.

15.   COUNTERPARTS. This Agreement may be executed in counterparts, each of
      which shall be deemed an original but all of which together shall
      constitute one and the same instrument.

16.   CAPTIONS. The captions to the sections and subsections contained in this
      Agreement are for reference only, do not form a substantive part of this
      Agreement and shall not restrict or enlarge substantive provisions of this
      Agreement.

17.   PARTIES IN INTEREST. This Agreement shall bind and shall inure to the
      benefit of the parties hereto, their respective permitted successors and
      assigns.

18.   COMPLETE AGREEMENT. This Agreement shall constitute the entire agreement
      between the parties hereto and shall supersede all proposals, oral or
      written, and all other communications between the parties relating to the
      subject matter of this Agreement.

19.   MODIFICATIONS. The terms of this Agreement cannot be modified except in
      writing and signed by each of the parties hereto.

20.   SEVERABILITY. In the event that any one or more of the provisions of this
      Agreement should be invalid, illegal or unenforceable in any respect, the
      validity, legality and enforceability of the remaining provisions
      contained herein shall not in any way be affected or impaired thereby.

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                  NOTICE OF EXERCISE OF INCENTIVE STOCK OPTION
              UNDER THE PERCEPTRON, INC. 2004 STOCK INCENTIVE PLAN

Perceptron, Inc.
47827 Halyard Drive
Plymouth, MI 48170

Dear Sir:

An incentive stock option was granted to me on ___________ ,_______ to purchase
________ shares of Perceptron, Inc. Common Stock at a price of $ ________ per
share.

I hereby elect to exercise my incentive stock option with respect to shares for
an aggregate purchase price of $___________ . I hereby elect to pay for such
shares as follows:

<TABLE>
<S>                                <C>
Personal Check                     $_______
Cash                               $_______
Bank Draft                         $_______
Money Order                        $_______
Cashless Exercise                  $_______
Perceptron Common Stock            $_______

Total                              $_______
</TABLE>

A personal check or cash, bank draft or money order for the purchase price is
enclosed herewith.

Documents as are required to effect a cashless exercise are enclosed.

I hereby elect to exercise my stock option with respect to __________ shares
through a combination of cash payments and shares of Perceptron, Inc. Common
Stock, as described on the attached Exhibit A. A personal check for the purchase
price to be paid in cash is enclosed herewith. Certificates for ________ shares
of Perceptron, Inc. Common Stock are enclosed herewith, along with a duly
executed stock power in proper form for transfer, with all signatures properly
guaranteed by a national bank or member firm of the NYSE or AMEX. I represent
that the shares of Perceptron, Inc. Common Stock enclosed herewith have been
owned by me for more than six months or I currently own more than ______ shares
of Perceptron, Inc. Common Stock which have been owned by me for more than six
months. Such shares have not been counted during the prior six months as owned
by me for purposes of determining whether I may exercise options to purchase
Common Stock pursuant to the Delivered Shares Method. I agree to notify the
Corporation if prior to two years from the date of grant and one year from the
exercise date, I dispose of any shares acquired pursuant to my exercise of this
incentive stock option. I represent that the shares of stock that I am
purchasing upon this exercise of my option are being purchased for investment
purposes and not with a view to resale. This representation shall not be binding
upon me if the shares of Common Stock that I am purchasing are subject to an
effective Registration Statement under the Securities Act of 1933.

Optionee ________________________                 Dated ______________________