Document:

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                                                                    EXHIBIT 10.3

                                                      INITIAL USAGE DATE: 1/1/05

              NON-QUALIFIED 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 not 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, (i) in the event of a termination by the Corporation of the
         Optionee's employment Without Cause (as defined below) or Diminishment
         of the Optionee's Responsibilities Without Cause (as defined below),
         following a Change in Control of the Corporation, or (ii), in the event
         of a Change in Control, if one of the corporations surviving the Change
         in Control or the person purchasing the Corporation's assets in the
         Change in Control does not assume this option, any portion of this
         option that is then not exercisable shall become immediately
         exercisable. For purposes hereof, "Without Cause" shall mean the
         Optionee's employment is terminated by the Corporation, or there is a
         Diminishment of the Optionee's Responsibilities, for any reason except
         (i) personal dishonesty; (ii) willful misconduct; (iii) breach of
         fiduciary duty to the Corporation; (iv) conviction for violation of any
         law (other than traffic violations or similar offenses); or (v)
         repeated or intentional failure to perform duties, after written notice
         is delivered identifying the failure, and it is not cured within ten
         (10) days following receipt of such notice. For purposes hereof,
         "Diminishment of the Optionee's Responsibilities" shall mean the
         Corporation, or any successor thereto, (i) reassigning the Optionee
         substantial duties which are materially inconsistent with the
         Optionee's position, duties and responsibilities with the Corporation
         immediately prior to the Change in Control, except for reassignments of
         duties which constitute a bona fide promotion of the Optionee, or (ii)
         reducing the Optionee's compensation such that (a) the Optionee's
         annual base salary is less than eighty (80%) percent of the Optionee's
         annual base salary prior to the Change in Control; and (b) the
         Optionee's annual base salary and the annual cash bonus which the
         Optionee is eligible to earn (including any performance based bonus),
         combined, is not at least equal to the combination of the Optionee's
         annual base salary prior to the Change in Control and the average of
         the annual cash bonuses which the Optionee was eligible to earn
         (including any performance based bonus, but excluding any bonus payable
         to the Optionee for completing the Change in Control), whether or not
         actually earned, for the year in which
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         the Change in Control occurred and for the year prior thereto. 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 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) and 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
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                  (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 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
<PAGE>
         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 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.
<PAGE>

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.

21.      WITHHOLDING. The Optionee hereby authorizes the Corporation to withhold
         from his compensation or agrees to tender the applicable amount to the
         Corporation to satisfy any requirements for withholding of income and
         employment taxes in connection with the exercise of the option granted
         hereby.

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

Perceptron, Inc.
47827 Halyard Drive
Plymouth, MI  48170

Dear Sir:

A non-qualified 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 non-qualified stock option with respect to shares
for an aggregate purchase price of $________. I hereby elect to pay for such
shares as follows:

         Personal Check                              $_______
         Cash                                        $_______
         Bank Draft                                  $_______
         Money Order                                 $_______
         Cashless Exercise                           $_______
         Perceptron Common Stock                     $_______

         Total                                       $_______

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 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
         ------------------------------             ---------------------------exv10w1

 

Exhibit 10.1

First Amendment to the

I-SECTOR CORP. INCENTIVE PLAN

(As Amended and Restated Effective July 28, 2003)

WHEREAS, the I-Sector Corp. Incentive Plan as amended and restated effective July 28, 2003 (the
“Plan”), was adopted by the Board of Directors of I-Sector Corp. and approved by shareholders on
July 28, 2003; and

WHEREAS, under Section 7.7 of the Plan the Board has the authority to amend the Plan subject to
certain shareholder approval requirements; and

WHEREAS, the Board has authorized this first amendment of the Plan subject to stockholder approval
as provided herein.

NOW THEREFORE, the Plan is hereby amended as follows:

1. The first paragraph of Section 1.2(f) shall be amended as follows

     (f) Committee. A committee appointed by the Board consisting of not less than two
directors as appointed by the Board to administer the Plan. During such period that the Company is
a Publicly Held Corporation, the Plan shall be administered by a committee appointed by the Board
consisting of not less than two directors who fulfill the “non-employee director” requirements of
Rule 16b-3 under the Exchange Act, the “outside director” requirements of Section 162(m) of the
Code and the “independent” requirements of the rules of any national securities exchange or the
NASDAQ, as the case may be, on which any of the securities of the Company are traded, listed or
quoted. The Committee may be the Compensation Committee of the Board, or any subcommittee of the
Compensation Committee, provided that the members of the Committee satisfy the requirements of the
previous provisions of this paragraph.

2. Section 1.2(bb), Other Stock-Based Award. An award granted by the Committee to a
Grantee under Section 5.1 that is valued in whole or in part by reference to, or is
otherwise based upon Common Stock, and is payable in Common Stock or cash.

3. Section 1.4 shall be amended in its entirety to read as follows:

1.4 Shares of Common Stock Available for Incentive Awards

     Subject to adjustment under Section 6.5, there shall be available for Incentive Awards
that are granted wholly or partly in Common Stock (including rights or Options that may be
exercised for or settled in Common Stock) 900,000 Shares of Common Stock. The total number of
Shares reserved for issuance under the Plan (pursuant to the previous sentence) shall be available
for any one of the following types of grants: Incentive Stock Options, Nonstatutory Stock Options,
SAR, Restricted Stock, a payment of a Performance Share in Shares, a payout of a Performance Unit
in Shares, a payout of an Other Stock-Based Award in Shares described in Section 5 (which includes,
without limitation, Deferred Stock, purchase rights, shares of Common Stock awarded which are not
subject to any restrictions or conditions, convertible or

 

 

exchangeable debentures, other rights convertible into Shares, Incentive Awards valued by
reference to the value of securities of or the performance of a specified Subsidiary, division or
department, and settlement in cancellation of rights of any person with a vested interest in any
other plan, fund, program or arrangement that is or was sponsored, maintained or participated in by
the Company or any Parent or Subsidiary. The number of Shares of Common Stock that are the
subject of Incentive Awards under this Plan, that are forfeited or terminated, expire unexercised,
are settled in cash in lieu of Common Stock or in a manner such that all or some of the Shares
covered by an Incentive Award are not issued to a Grantee or are exchanged for Incentive Awards
that do not involve Common Stock, shall again immediately become available for Incentive Awards
hereunder. The Committee may from time to time adopt and observe such procedures concerning the
counting of Shares against the Plan maximum as it may deem appropriate. The Board and the
appropriate officers of the Company shall from time to time take whatever actions are necessary to
file any required documents with governmental authorities, stock exchanges and transaction
reporting systems to ensure that Shares are available for issuance pursuant to Incentive Awards.

     During any period that the Company is a Publicly Held Corporation, then unless and until the
Committee determines that a particular Incentive Award granted to a Covered Employee is not
intended to comply with the Performance-Based Exception, the following rules shall apply to grants
of Incentive Awards to Covered Employees:

     (a) Subject to adjustment as provided in Section 6.5, the maximum aggregate
number of Shares of Common Stock (including Stock Options, SARs, Restricted Stock,
Performance Units and Performance Shares paid out in Shares, or Other Stock-Based Awards
paid out in Shares) that may be granted or that may vest, as applicable, in any calendar
year pursuant to any Incentive Award held by any individual Employee shall be 900,000
Shares.

     (b) The maximum aggregate cash payout (including SARs, Performance Units and
Performance Shares paid out in cash, or Other Stock-Based Awards paid out in cash) with
respect to Incentive Awards granted in any calendar year which may be made to any individual
Employee shall be Twenty Million dollars ($20,000,000).

     (c) With respect to any Stock Option or Stock Appreciation Right granted to a Covered
Employee that is canceled or repriced, the number of Shares subject to such Stock Option or
Stock Appreciation Right shall continue to count against the maximum number of Shares that
may be the subject of Stock Options or Stock Appreciation Rights granted to such Employee
hereunder to the extent such is required in accordance with Section 162(m) of the Code.

     (d) The limitations of subsections (a), (b) and (c) above
shall be construed and administered so as to comply with the Performance-Based Exception.

4. Section 6.5(e) shall be amended in its entirety as follows:

     (e) Assumption under the Plan of Outstanding Stock Options.
Notwithstanding any other provision of the Plan, the Committee, in its absolute
discretion, may authorize

2

 

the assumption and continuation under the Plan of outstanding and unexercised stock options
or other types of stock-based incentive awards that were granted under a stock option plan
(or other type of stock incentive plan or agreement) that is or was maintained by a newly
acquired or currently owned corporation or other entity that was merged into, restructured,
or consolidated with, or whose stock or assets were acquired by, the Company or a Subsidiary
of the Company as the surviving corporation. Any such action shall be upon such terms and
conditions as the Committee, in its discretion, may deem appropriate, including provisions
to preserve the holder’s rights under the previously granted and unexercised stock option or
other stock-based incentive award, such as, for example, retaining an existing exercise
price under an outstanding stock option. Any such assumption and continuation of any such
previously granted and unexercised incentive award shall be treated as an outstanding
Incentive Award under the Plan and shall thus count against the number of Shares reserved
for issuance pursuant to Section 1.4. In addition, any Shares issued by the Company
through assumption or substitution or exchange of outstanding grants from an acquired
company shall reduce the Shares available for grants under Section 1.4.

5. Section 6.5 of the Plan shall be amended by inserting the following new paragraph:

     (g) Substitute Awards. Incentive Awards granted under the Plan may, at the
discretion of the Committee, be granted in substitution or exchange for, any other award
granted under another plan of the Company or any Subsidiary of the Company. Such
substitution and exchange may be granted at any time. If an Incentive Award is granted in
substitution or exchange for another award under another plan of the Company or a plan of a
Subsidiary, the Committee shall require the surrender of such other award. Any Shares
issued by the Company through substitution or exchange of outstanding grants under this
Section 6.5(g) shall reduce the Shares available for grants under Section 1.4.

The Plan as amended hereby is effective on December 16, 2004, subject to approval of the
stockholders of the Company within one year from December 16, 2004. Incentive Awards may be
granted under the Plan pursuant to this amendment prior to the receipt of such stockholder
approval; provided however, that if the requisite stockholder approval is not obtained then any
such Incentive Awards granted hereunder shall automatically become null and void and have no force
and effect.

	 	 	 	 	 
	 	I-SECTOR CORP.

 	 
	 	By:  	/s/ James H. Long
 	 
	 	 	James H. Long, Chairman of the Board and Chief Executive Officer 	 
	 	 	 	 
	 

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