PERCEPTRON INC/MI
SEVERANCE AGREEMENT BETWEEN THE COMPANY AND ALFRED A. PEASE
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>2
<FILENAME>k98373exv10w1.txt
<DESCRIPTION>SEVERANCE AGREEMENT BETWEEN THE COMPANY AND ALFRED A. PEASE
<TEXT>
<PAGE>
                                                                    Exhibit 10.1

                                PERCEPTRON, INC.
                               SEVERANCE AGREEMENT

     THIS SEVERANCE AGREEMENT, dated as of September 7, 2005, is between
Perceptron, Inc. (the "Company") and Alfred A. Pease, who is currently employed
by the Company in the position of President and Chief Executive Officer (the
"Executive").

     1. OPERATION OF AGREEMENT. This Agreement sets forth the severance
compensation that the Company shall pay the Executive if the Executive's
employment with the Company terminates under one of the applicable provisions
set forth herein. As used in this Agreement, employment with the Company shall
be deemed to include employment with a subsidiary of the Company.

     2. DEFINED TERMS. For purposes of this Agreement, the following terms shall
have the meanings set forth below:

          (a) "Cause" shall mean the Executive's

               (i) personal dishonesty in connection with the performance of
     services for the Company,

               (ii) willful misconduct in connection with the performance of
     services for the Company,

               (iii) conviction for violation of any law involving (A)
     imprisonment that interferes with performance of duties or (B) moral
     turpitude.

               (iv) repeated and intentional failure to perform stated duties,
     after written notice is delivered identifying the failure, and it is not
     cured within 10 days following receipt of such notice, or

               (v) breach of a fiduciary duty to the Company.

          (b) "Change in Control" shall be deemed to have occurred upon the
occurrence of any of the following events:

               (i) A merger involving the Company in which the Company is not
     the surviving corporation (other than a merger with a wholly-owned
     subsidiary of the Company formed for the purpose of changing the Company's
     corporate domicile);

               (ii) A share exchange in which the shareholders of the Company
     exchange their stock in the Company 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 Company, immediately prior to the transaction,
     exchange, on a pro rata basis, their voting stock of the Company, for more
     than 50% of the voting stock of such other corporation);

               (iii) A sale of all or substantially all of the assets of the
     Company; or

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               (iv) Any person or group of persons (as defined in 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 Company) becoming a beneficial owner, directly or indirectly, of
     securities of the Company representing more than 50% of either the then
     outstanding Common Stock of the Company, or the combined voting power of
     the Company's then outstanding voting securities.

          (c) "Disability" shall mean the Executive's inability to substantially
perform the Executive's duties for such period as would qualify the Executive
for benefits under the long-term disability insurance policy provided by the
Company or, if no such policy is provided, the Executive's total and permanent
disability which prevents the Executive from performing for a continuous period
exceeding six months the duties assigned to the Executive. The determination of
Disability shall be made by a medical board-certified physician mutually
acceptable to the Company and the Executive (or the Executive's legal
representative, if one has been appointed), and if the parties cannot mutually
agree to the selection of a physician, then each party shall select such a
physician and the two physicians so selected shall select a third physician who
shall make this determination.

     3. TERMINATION OF EMPLOYMENT. The Executive shall be entitled to the
Regular Severance Benefits (as defined in Section 3(b) below) set forth in this
Section 3 if the Executive has incurred a Termination of Employment. The
severance benefit provided under this Section 3 is in lieu of cash severance
payments offered under the Company's documented severance policy, if any.

          (a) For purposes of Section 3 of the Agreement, "Termination of
Employment" shall be defined as the Executive's involuntary termination by the
Company for any reason other than death, Disability or Cause.

          (b) Upon satisfaction of the requirements set forth in this Section 3,
upon the Executive's execution of a release (in the form attached hereto as
Exhibit A), the Executive shall be entitled to (the "Regular Severance
Benefits"):

               (i) A cash severance benefit equal to one times the Executive's
     current annual base salary, as in effect at the time of the Termination of
     Employment;

               (ii) A prorated portion of any bonus that the Executive would
     have earned for the year of termination had the Executive been employed by
     the Company at the end of the applicable bonus period;

               (iii) Subject to Section 6, continuation of Company-provided
     health (including vision and dental, if provided by the Company at the date
     of termination) and welfare benefits (including executive life insurance
     coverage, if provided by the Company to the Executive at the date of
     termination) for one year, on the terms (or comparable terms) provided by
     the Company to its employees from time to time during this period. Health
     benefits shall be provided through continued coverage under the Company's
     group health plan, if allowed under the terms of such plan, or by the
     reimbursement of COBRA continuation coverage premiums paid by the
     Executive, as determined by the Company; provided, however, if the health
     plan is self-insured by the


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<PAGE>

     Company, then the determination shall be made by the Executive. Any
     continuation of group health plan coverage under this paragraph shall run
     concurrently with the period of required COBRA continuation coverage under
     the Code. If COBRA continuation coverage is not available, the Company
     shall reimburse the Executive for premiums for comparable coverage,
     provided, however, that the reimbursement shall not exceed the greater of
     (i) two times the annual premium paid by the Company for such coverage at
     the date of termination or (ii) two times the then current amount of the
     COBRA premium under the Company's group health plan for coverage comparable
     to that elected by the Executive. Welfare benefits (other than health
     benefits) shall be continued only to the extent permitted under the terms
     of such plans;

               (iv) Continuation of the Executive's then current car benefit for
     one year in accordance with the Company car policy in effect at the time of
     termination.

          (c) The Executive's cash severance benefit under Section 3(b)(i) shall
be payable in the same manner as the Executive's base salary and the pro rata
share of any bonus under Section 3(b)(ii) shall be payable at the time set forth
in the bonus program, or, in each case, such earlier time as is required to
avoid such payments being subject to Section 409A of the Internal Revenue Code
of 1986, as amended (the "Code").

     4. TERMINATION OF EMPLOYMENT FOLLOWING A CHANGE IN CONTROL. Subject to
Section 11(a) hereunder, the Executive shall be entitled to the Change in
Control Severance Benefits (as defined in Section 4(c) below) set forth in this
Section 4, in lieu of the severance benefits the Executive is entitled to under
Section 3 of this Agreement, if there has been a Change in Control and the
Executive has incurred a Termination of Employment. The severance benefit
provided under this Section 4 is in lieu of cash severance payments offered
under the Company's documented severance policy, if any.

          (a) For purposes of Section 4 of the Agreement, "Termination of
Employment" shall be defined as:

               (i) The Executive's involuntary termination by the Company for
     any reason other than death, Disability or Cause; or

               (ii) The Executive's termination for "Good Reason," defined as
     the occurrence of any of the following events without the Executive's
     written consent, if the Executive terminates employment within one (1) year
     following the occurrence of such event:

                    (A) Any reassignment of the Executive to substantial duties
          materially inconsistent with the Executive's position, duties,
          responsibilities and status with the Company immediately prior to the
          Change in Control or a substantial diminution in the Executive's
          position, duties, responsibilities or status with the Company from his
          position, duties, responsibilities or status with the Company
          immediately prior to the Change in Control; provided that the fact
          that the Company is no longer a publicly traded company or the
          Executive no longer has duties and responsibilities associated
          exclusively with a publicly traded company, such as Securities and
          Exchange Commission or stock exchange


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<PAGE>

          reporting responsibilities or investor or analyst relations
          responsibilities, shall not be deemed to be a reassignment of the
          Executive to substantial duties materially inconsistent with the
          Executive's position, duties, responsibilities and status with the
          Company immediately prior to the Change in Control or a substantial
          diminution in the Executive's position, duties, responsibilities or
          status with the Company from his position, duties, responsibilities or
          status with the Company immediately prior to the Change in Control;

                    (B) Any reduction in the Executive's base salary or targeted
          incentive bonus or commissions in effect immediately prior to the
          Change in Control, or failure by the Company to continue any bonus,
          stock or other incentive plans in effect immediately prior to the
          Change in Control (without the implementation of comparable successor
          plans that provide comparable award opportunities/benefits), or any
          removal of the Executive from participation in such aforementioned
          plans;

                    (C) The discontinuance or reduction in benefits to the
          Executive under any qualified or nonqualified retirement or welfare
          plan maintained by the Company immediately prior to the Change in
          Control (without the implementation of comparable successor plans that
          provide comparable benefits), or the discontinuance of any fringe
          benefits or other perquisites that the Executive received immediately
          prior to the Change in Control (without the implementation of
          comparable successor plans that provide comparable benefits);

                    (D) Required relocation of the Executive's principal place
          of employment more than 50 miles from the Executive's place of
          employment prior to the Change in Control; or

                    (E) The Company's breach of any provision in this Agreement,
          provided that the Company has not cured such breach within 10 days
          following written notice by the Executive to the Company of such
          breach.

          (b) The Executive who believes the Executive is entitled to a
Termination of Employment for Good Reason, as defined in Section 4 above, may
apply in writing to the Company for confirmation of such entitlement prior to
the Executive's actual separation from employment, by following the claims
procedure set forth in Section 15 hereof. The submission of such a request by
the Executive shall not constitute "Cause" for the Company to terminate the
Executive as defined under Section 2(a) hereof. If the Executive's request for a
Good Reason Termination of Employment is denied under both the request and
appeal procedures set forth in paragraphs (b) and (c) of Section 15 hereof, then
the parties shall use their best efforts to resolve the claim within 90 days
after the claim is submitted to arbitration pursuant to Section 15(d).

          (c) Upon satisfaction of the requirements set forth in Sections 4 or
11(a) hereof and with respect to any one or more Changes in Control that may
occur during the term of


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<PAGE>

this Agreement, upon the Executive's execution of a release (in the form
attached hereto as Exhibit A), the Executive shall be entitled to (the "Change
in Control Severance Benefits"):

               (i) A cash severance benefit equal to two times the Executive's
     current annual base salary, as in effect at the time of the Change in
     Control;

               (ii) A prorated portion of the Executive's target bonus for the
     year of termination, based on the number of days worked in the year of
     termination;

               (iii) Subject to Section 6, continuation of (A) Company-provided
     health benefits (including vision and dental, if provided by the Company
     immediately prior to the Change in Control) until the Executive becomes
     eligible for Medicare benefits and (B) other Company-provided welfare
     benefits (including executive life insurance, if provided by the Company
     immediately prior to the Change in Control) for two years, in each case, on
     the terms (or comparable terms) provided by the Company to the Executive
     immediately prior to the Change in Control. Health benefits shall be
     provided through continued coverage under the Company's group health plan,
     if allowed under the terms of such plan, or by the reimbursement of COBRA
     continuation coverage premiums paid by the Executive, as determined by the
     Company; provided, however, if the health plan is self-insured by the
     Company, then the determination shall be made by the Executive. Any
     continuation of group health plan coverage under this paragraph shall run
     concurrently with the period of required COBRA continuation coverage under
     the Code. If COBRA continuation coverage is not available, the Company
     shall reimburse the Executive for premiums for comparable coverage,
     provided, however, that the reimbursement shall not exceed the greater of
     (i) two times the annual premium paid by the Company for such coverage at
     the date of termination or (ii) two times the amount of the COBRA premium
     under the Company's group health plan for coverage comparable to that
     elected by the Executive, (A) at the time of the Change of Control or (B)
     at the time of the required payment, whichever is greater. Welfare benefits
     (other than health benefits) shall be continued only to the extent
     permitted under the terms of such plans;

               (iv) Continuation of the Executive's then current car benefit for
     one year in accordance with the Company car policy in effect at the time of
     termination.

               (v) Continued coverage, during the six (6) years following the
     Executive's termination for his actions or omissions as an officer and, if
     applicable, director of the Company prior to the date of termination of his
     employment, under any directors and officers liability insurance policy
     maintained by the Company (or, if the Company does not maintain such a
     policy, by its affiliates) for its former directors and officers or, at the
     Company's election, for the current directors and officers. If the Company
     or its affiliates does not otherwise maintain such a policy, then the
     Company shall be required to provide the Executive with such a policy, to
     the extent available. The policy dollar coverage limits of any such policy
     shall be not less than the policy limit under any Company policy in place
     within the one (1) year prior to the Executive's termination of employment
     (the "Existing Policy") or, if less, the policy dollar coverage limit that
     can be purchased by the Company for all of its current and former directors
     and officers at an annual premium equal to two times the Company's annual
     premium for the Existing Policy.


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<PAGE>

          (d) Subject to Section 11(a) hereof, the Executive's cash severance
benefit under Section 4(c)(i) and (ii) shall be paid in a lump sum cash payment
within ten (10) days following the Executive's Termination of Employment, as
defined in Section 4. Any payment made later than 10 days following the
Executive's Termination of Employment (or applicable due date under Section
11(a) hereof) for whatever reason, shall include interest at the prime rate plus
two percent, which shall begin accruing on the 10th day following the
Executive's Termination of Employment (or applicable due date under Section
11(a) hereof). For purposes of this Section 4, "prime rate" shall be determined
by reference to the prime rate established by Comerica Bank (or its successor),
in effect from time to time commencing on the 10th day following the Executive's
Termination of Employment (or applicable due date under Section 11(a) hereof).

          (e) Section 4 of this Agreement shall terminate upon the first of the
following events to occur:

               (i) Three years from the date hereof if a Change in Control has
     not occurred within such three-year period;

               (ii) Termination of the Executive's employment with the Company
     prior to a Change in Control, provided, however, if there is a Change in
     Control within six months after the termination of the Executive's
     employment with the Company, other than a termination due to the
     Executive's death or Disability, an involuntary termination by the Company
     for Cause or a termination of employment by the Executive, then the
     Agreement shall not be deemed to have terminated and the Executive shall be
     entitled to receive the Change in Control Severance Benefits provided in
     Section 4, less any Regular Severance Benefits the Executive has been paid
     under Section 3, in lieu of the severance benefits the Executive is
     entitled to under Section 3;

               (iii) The expiration of two years following a Change in Control;

               (iv) Termination of the Executive's employment with the Company
     following a Change in Control due to the Executive's death or Disability;

               (v) Termination of the Executive's employment by the Company for
     Cause following a Change in Control; or

               (vi) Termination of employment by the Executive for other than
     Good Reason following the date of a Change in Control.

Unless Section 4 of this Agreement has first terminated under clauses (ii)
through (vi) hereof, commencing on the third anniversary of the date of this
Agreement, and on each one-year anniversary thereafter, Section 4 of this
Agreement shall be extended for one additional year, unless at least 180 days
prior to any such anniversary, the Company notifies the Executive in writing
that it shall not extend the term of Section 4 of this Agreement.


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<PAGE>

     5. GOLDEN PARACHUTE LIMIT.

     Payments under this Agreement, when aggregated with any other "golden
parachute" amounts (defined under Section 280G of the Code) as compensation that
becomes payable or accelerated due to a Change in Control) payable under this
Agreement or any other plans, agreements or policies of the Company, shall not
exceed to the golden parachute cap under Sections 280G and 4999 of the Code.

     6. NO MITIGATION OR DUTY TO SEEK REEMPLOYMENT. The Executive shall be under
no duty or obligation to seek or accept other employment after Termination of
Employment and shall not be required to mitigate the amount of any payments
provided for by this Agreement by seeking employment or otherwise. The Regular
Severance Benefit and Change in Control Severance Benefits payments shall not be
reduced or suspended if the Executive accepts other employment, except that
Company is not required to continue any health or welfare benefit payments which
duplicate employee benefits and perquisites received in such other employment.

     7. PRO RATA SHARE OF BONUS. For purposes of this Agreement, a pro rata
share of any bonus or target bonus shall mean the total bonus or target bonus
payable multiplied by a fraction, the numerator of which is the number of days
in the applicable bonus period prior to the date of the Executive's Termination
of Employment, Disability or death and the denominator of which is the number of
days in the bonus period.

     8. STOCK OPTIONS. The Executive's rights with respect to any options to
purchase Company stock shall be governed by the terms of the agreements pursuant
to which such options were issued.

     9. NON-COMPETITION AND RESTRICTIVE COVENANT.

     If, during the term that the Executive is receiving benefits under this
Agreement, Executive violates the terms of this Agreement or Section 8 of the
Employment Agreement dated February 14, 1996 between the Executive and the
Company (the "Prior Employment Agreement") or any other non-competition
agreement with the Company, the Company's obligations to the Executive under
this Agreement shall automatically terminate. For purposes of the Section 8 of
the Prior Employment Agreement, "Payment Completion Period" shall mean one year
if the Executive receives Regular Severance Benefits under Section 3 and two
years if the Executive receives Change in Control Severance Benefits under
Section 4.

     10. TAX WITHHOLDING. The Company may withhold from any cash amounts payable
to the Executive under this Agreement to satisfy all applicable Federal, State,
local or other income (including excise) and employment withholding taxes. In
the event the Company fails to withhold such sums for any reason, or withholding
is required for any non-cash payments provided in connection with the
Executive's Termination of Employment, the Company may require the Executive to
promptly remit to the Company sufficient cash to satisfy all applicable income
and employment withholding taxes.


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<PAGE>

     11. BINDING EFFECT.

          (a) This Agreement shall be binding upon the successors and assigns of
the Company. The Company shall take whatever actions are necessary to ensure
that any successor to its operations (whether by purchase, merger,
consolidation, sale of substantially all assets or otherwise) assumes the
obligations under this Agreement and shall cause such successor to evidence the
assumption of such obligations in an agreement satisfactory to the Executive.
Notwithstanding any other provisions in this Agreement, if the Company fails to
obtain an agreement evidencing the assumption of the Company's obligations by
any such successor, the Executive shall be entitled to immediate payment of the
severance compensation provided under Section 4, irrespective of whether the
Executive's employment has then terminated. For purposes of implementing the
foregoing, the date on which any succession becomes effective shall be deemed to
constitute the date of the Executive's Termination of Employment.

          (b) This Agreement shall be binding upon the Executive and shall inure
to the benefit of and be enforceable by the Executive's legal representatives
and heirs. However, the rights of the Executive under this Agreement shall not
be assigned, transferred, pledged, hypothecated or otherwise encumbered, except
by operation of law.

     12. AMENDMENT OF AGREEMENT. This Agreement may not be modified or amended
except by instrument in writing signed by the parties hereto. The parties agree
that this Agreement may be amended to comply with applicable law, including, but
not limited to, Code Section 409A.

     13. VALIDITY. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall continue in full force and effect.

     14. LIMITATION ON RIGHTS.

          (a) This Agreement shall not be deemed to create a contract of
employment between the Company and the Executive and shall create no right in
the Executive to continue in the Company's employment for any specific period of
time, or to create any other rights in the Executive or obligations on the part
of the Company, except as set forth herein. This Agreement shall not restrict
the right of the Company to terminate the Executive, or restrict the right of
the Executive to terminate employment.

          (b) Subject to the exception for cash severance payments under the
Company's documented severance policy referenced in Sections 3 and 4 above, this
Agreement shall not be construed to exclude the Executive from participation in
any other compensation or benefit programs in which the Executive is
specifically eligible to participate either prior to or following the execution
of this Agreement, or any such programs that generally are available to other
executive personnel of the Company, nor shall it affect the kind and amount of
other compensation to which the Executive is entitled.

          (c) The rights of the Executive under this Agreement shall be solely
those of an unsecured general creditor of the Company.


                                        8

<PAGE>

     15. CLAIMS PROCEDURE.

          (a) The administrator for purposes of this Agreement shall be the
Company ("Administrator"), whose address is 47827 Halyard Drive, Plymouth,
Michigan 48170, and whose telephone number is (734) 414-6100. The "Named
Fiduciary" as defined in Section 402(a)(2) of ERISA, also shall be the Company.
The Company shall have the right to designate one or more Company employees as
the Administrator and the Named Fiduciary at any time, and to change the address
and telephone number of the same. The Company shall give the Executive written
notice of any change in the Administrator and Named Fiduciary, or in the address
or telephone number of the same.

          (b) The Administrator shall make all determinations as to the right of
any person to receive benefits under the Agreement. Any denial by the
Administrator of a claim for benefits by the Executive ("the claimant") shall be
stated in writing by the Administrator and delivered or mailed to the claimant
within 10 days after receipt of the claim, unless special circumstances require
an extension of time for processing the claim. If such an extension is required,
written notice of the extension shall be furnished to the claimant prior to the
termination of the initial 10-day period. In no event shall such extension
exceed a period of 10 days from the end of the initial period. Any notice of
denial shall set forth the specific reasons for the denial, specific reference
to pertinent provisions of this Agreement upon which the denial is based, a
description of any additional material or information necessary for the claimant
to perfect the claim, with an explanation of why such material or information is
necessary, and any explanation of claim review procedures, written to the best
of the Administrator's ability in a manner that may be understood without legal
or actuarial counsel.

          (c) A claimant whose claim for benefits has been wholly or partially
denied by the Administrator may request, within 60 days following the date of
such denial, in a writing addressed to the Administrator, a review of such
denial. The claimant shall be entitled to submit such issues or comments in
writing or otherwise, as the claimant shall consider relevant to a determination
of the claim, and the claimant may include a request for a hearing in person
before the Administrator. Prior to submitting the request, the claimant shall be
entitled to review such documents as are pertinent to the claim. The claimant
may, at all stages of review, be represented by counsel, legal or otherwise, of
the claimant's choice. All requests for review shall be promptly resolved. The
Administrator's decision with respect to any such review shall be set forth in
writing and shall be mailed to the claimant not later than 10 days following
receipt by the Administrator of the claimant's request unless special
circumstances, such as the need to hold a hearing, require an extension of time
for processing, in which case the Administrator's decision shall be so mailed
not later than 20 days after receipt of such request.

          (d) A claimant who has followed the procedure in paragraphs (b) and
(c) of this Section, but who has not obtained full relief on the claim for
benefits, may, within 60 days following the claimant's receipt of the
Administrator's written decision on review, apply in writing to the
Administrator for binding arbitration of the claim before an arbitrator mutually
acceptable to both parties, the arbitration to be held in Plymouth, Michigan, in
accordance with the arbitration rules of the American Arbitration Association,
Commercial Disputes Resolution Procedures, as then in effect. If the parties are
unable to mutually agree upon an arbitrator, then the arbitration proceedings
shall be held before three arbitrators, one of which shall be designated by the
Company, one of which shall be designated by the claimant and the third of


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<PAGE>

which shall be designated mutually by the first two arbitrators in accordance
with the arbitration rules referenced above. The arbitrator(s) sole authority
shall be to interpret and apply the provisions of this Agreement; the
arbitrator(s) shall not change, add to, or subtract from, any of the Agreement's
provisions. The arbitrator(s) shall have the power to compel attendance of
witnesses at the hearing. Any court having jurisdiction may enter a judgment
based upon such arbitration. All decisions of the arbitrator(s) shall be final
and binding on the claimant and the Company without appeal to any court. The
Executive and the Company hereby acknowledge that as arbitration is the
exclusive remedy with respect to any grievance hereunder, neither party has the
right to resort to any federal, state or local court or administrative agency
concerning breaches of this Agreement, and the decision of the arbitrator shall
be a complete defense to any suit, action or proceeding instituted in any
federal, state or local court or before any administrative agency with respect
to any dispute which is arbitrable as herein set forth.

     16. LEGAL FEES AND EXPENSES.

          (a) Except as otherwise provided in Section 16(b), in the event any
arbitration or litigation is brought to enforce any provision of this Agreement
and the Executive prevails, then the Executive shall be entitled to recover from
the Company the Executive's reasonable costs and reasonable expenses of such
arbitration or litigation, including reasonable fees and disbursements of
counsel (both at trial and in appellate proceedings), ("Expenses). Except as
otherwise provided in Section 16(b), if the Company prevails, then each party
shall be responsible for its/his respective costs, expenses and attorneys fees,
and the costs of the arbitrator shall be equally divided.

          (b) Except to the extent prohibited by applicable law, in the event
any arbitration or litigation is brought to enforce any provision of Section 4
of this Agreement, the Company shall advance to the Executive one half of the
amount of the Executive's Expenses and shall pay the costs of the arbitrator.
The Executive shall be obligated to repay such advances to the Company only if
the Company prevails in the arbitration or litigation.

          (c) In the event that it is determined that the Executive is entitled
to compensation, legal fees and expenses hereunder, the Executive also shall be
entitled to interest thereon, from the date payment thereof was due, payable to
the Executive at the prime rate of interest plus two percent.

          (d) For purposes of this Section 16, "prevails" means that the
Executive receives an award of severance benefits in such arbitration or
litigation in excess of the amount offered to be paid by the Company to the
Executive prior to the initiation of the arbitration or litigation. For purposes
of this Section 16, "prime rate" shall be determined by reference to the prime
rate established by Comerica Bank as in effect from time to time during the
period from the date such amounts should have been paid to the date of actual
payment. For purposes of determining the date when legal fees and expenses are
payable, such amounts are not due until 30 days after notification to the
Company of such amounts.

     17. NONALIENATION OF BENEFITS. Except in so far as this provision may be
contrary to applicable law, no sale, transfer, alienation, assignment, pledge,
collateralization or attachment of any benefits under this Agreement shall be
valid or recognized by the Company.


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<PAGE>

     18. ERISA. This Agreement is an unfunded compensation arrangement for a
member of a select group of the Company's management and any exemptions under
ERISA, as applicable to such an arrangement, shall be applicable to this
Agreement.

     19. REPORTING AND DISCLOSURE. The Company, from time to time, shall provide
government agencies with such reports concerning this Agreement as may be
required by law, and the Company shall provide the Executive with such
disclosure concerning this Agreement as may be required by law or as the Company
may deem appropriate.

     20. NOTICES. Any notice required or permitted by this Agreement shall be in
writing, sent by registered or certified mail, return receipt requested,
addressed to the Board and the Company at the Company's then principal office,
or to the Executive at the Executive's last address on file with the Company, as
the case may be, or to such other address or addresses as any party hereto may
from time to time specify in writing for the purpose of this Agreement in a
notice given to the other parties in compliance with this section. Notices shall
be deemed given when received.

     21. MISCELLANEOUS/SEVERABILITY. A waiver of the breach of any term or
condition of this Agreement shall not be deemed to constitute a waiver of any
subsequent breach of the same or any other term or condition. This Agreement is
intended to be performed in accordance with, and only to the extent permitted
by, all applicable laws, ordinances, rules and regulations. To the extent that
any provision or benefit under this Agreement is not deemed to be in accordance
with any applicable law, ordinance, rule or regulation, the noncomplying
provision shall be construed, or benefit limited, to the extent necessary to
comply with all applicable laws, ordinances and regulations and any such
provision or benefit shall not affect the validity of any other provision or
benefit provided by this Agreement. The headings in this Agreement are inserted
for convenience of reference only and shall not be a part of or control or
affect the meaning of any provision hereof.

     22. GOVERNING LAW. To the extent not preempted by Federal law, this
Agreement shall be governed and construed in accordance with the laws of the
State of Michigan, without regard to its conflicts of law rules.

     23. ENTIRE AGREEMENT. This document represents the entire agreement and
understanding of the parties with respect to the subject matter of the Agreement
(other than Section 8 of the Prior Employment Agreement, and the Company's
Proprietary Information and Inventions Agreement, which shall remain in full
force and effect after the execution of this Agreement) and it may not be
altered or amended except by an agreement in writing that is executed by both
parties to this Agreement. Specifically, this Agreement supersedes any severance
pay provisions in the Prior Employment Agreement.


                                       11

<PAGE>

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first written above.

                                        PERCEPTRON, INC.


                                        By: /s/ John J. Garber
                                            ------------------------------------
                                            John J. Garber,
                                            Vice President - Finance


                                        /s/ A. A. Pease
                                        ----------------------------------------
                                        Alfred A. Pease


                                       12
<PAGE>
                                    EXHIBIT A
                                RELEASE AGREEMENT

     THIS AGREEMENT ("Agreement") is made by and between _____________________
("Employee") and Perceptron, Inc. (the "Company").

                                    RECITALS

     A. Employee has terminated employment with the Company, effective
__________, ____.

     B. Employee has been given the opportunity to review this Agreement, to
consult with legal counsel, and to ascertain his rights and remedies.

     C. Employee and Company, without any admission of liability, desire to
settle with finality, compromise, dispose of, and release any and all claims and
demands asserted or which could be asserted arising out of Employee's employment
at and separation from Company.

     In consideration of the foregoing and of the promises and mutual covenants
contained herein, it is hereby agreed between Employee and Company as follows:

                                    AGREEMENT

     1. In exchange for the good and valuable consideration set forth in that
certain Agreement, made as of ______________, between the Company and Employee
(the "Severance Agreement"), Employee hereby releases, waives and discharges any
and all manner of action, causes of action, claims, rights, charges, suits,
damages, debts, demands, obligations, attorneys fees, and any and all other
liabilities or claims of whatsoever nature, whether in law or in equity, known
or unknown, including, but not limited to, age discrimination under the Age
Discrimination in Employment Act of 1967 (as amended), employment discrimination
prohibited by other federal, state or local laws, and any other claims, which
Employee has claimed or may claim or could claim in any local, state or federal
or other forum, against Company, its directors, officers, employees, agents,
attorneys, successors and assigns as a result of or relating to Employee's
employment at and separation from Company and as an officer of Company as a
result of any acts or omissions by Company or any of its directors, officers,
employees, agents, attorneys, successors or assigns ("Covered Acts or
Omissions") which occurred prior to the date of this Agreement; excluding only
those for indemnification under the Company's articles of incorporation, bylaws
or applicable law by reason of his service as an officer or director of the
Company and those arising under the Severance Agreement between the Parties
dated _______________.

     2. Employee agrees to immediately return to Company all property, assets,
manuals, materials, information, notes, reports, agreements, memoranda, customer
lists, formulae, data, know-how, inventions, trade secrets, processes,
techniques, and all other assets, materials and information of any kind or
nature, belonging or pertaining to Company ("Company Information and Property"),
including, but not limited to, computer programs and diskettes or other media
for electronic storage of information containing Company Information and
Property, in Employee's
<PAGE>
possession, and Employee shall not retain copies of any such Company Information
and Property. Employee further agrees that from and after the date hereof he
will not remove from Company's offices any Company Information and Property, nor
retain possession or copies of any Company Information and Property.

     3. Employee agrees that he shall never make any statement that negatively
affects the goodwill or good reputation of the Company, or any officer or
director of Company, except as required by law, and except that such statements
may be made to members of the Board of Directors of the Company.

     4. Employee covenants and agrees that he shall never commence or prosecute,
or knowingly encourage, promote, assist or participate in any way, except as
required by law, in the commencement or prosecution, of any claim, demand,
action, cause of action or suit of any nature whatsoever against Company or any
officer, director, employee or agent of Company ("Covered Litigation") that is
based upon any claim, demand, action, cause of action or suit released pursuant
to this Agreement or involving or based upon the Covered Acts and Omissions.

     5. Employee further agrees that he has read this Agreement carefully and
understands all of its terms.

     6. Employee understands and agrees that he was advised to consult with an
attorney and did so prior to executing this Agreement.

     7. Employee understands and agrees that he has been given twenty-one (21)
days within which to consider this Agreement.

     8. Employee understands and agrees that he may revoke this Agreement for a
period of seven (7) calendar days following the execution of this Agreement (the
"Revocation Period"). This Agreement is not effective until this revocation
period has expired. Employee understands that any revocation, to be effective,
must be in writing and either (a) postmarked within seven (7) days of execution
of this Agreement and addressed to Perceptron, Inc., 47827 Halyard Drive,
Plymouth, Michigan 48170 or (b) hand delivered within seven (7) days of
execution of this Agreement to Perceptron, Inc., 47827 Halyard Drive, Plymouth,
Michigan 48170. Employee understands that if revocation is made by mail, mailing
by certified mail, return receipt requested, is recommended to show proof of
mailing.

     9. In agreeing to sign this Agreement and separate from Company, Employee
is doing so completely voluntarily and of his own free-will and without any
encouragement or pressure from Company and agrees that in doing so he has not
relied on any oral statements or explanations made by Company or its
representatives.

     10. Both parties agree not to disclose the terms of this Agreement to any
third party, except as is required by law, or as is necessary for purposes of
securing counsel from either parties' attorneys or accountants.

     11. This Agreement shall not be construed as an admission of wrongdoing by
Company.


                                       2
<PAGE>
     12. This Agreement contains the entire agreement between Employee and
Company regarding the matters set forth herein. Any modification of this
Agreement must be made in writing and signed by Employee and each of the
entities constituting the Company.

     13. This Agreement shall be governed by and construed in accordance with
the domestic laws of the State of Michigan, without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of Michigan or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Michigan.

     14. In the event any provision of this Agreement or portion thereof is
found to be wholly or partially invalid, illegal or unenforceable in any
judicial proceeding, then such provision shall be deemed to be modified or
restricted to the extent and in the manner necessary to render the same valid
and enforceable, or shall be deemed excised from this Agreement, as the case may
require, and this Agreement shall be construed and enforced to the maximum
extent permitted by law, as if such provision had been originally incorporated
herein as so modified or restricted, or as if such provision had not been
originally incorporated herein, as the case may be.

     15. If there is a breach or threatened breach of the provisions of this
Agreement, Company may, in addition to other available rights and remedies,
apply to any court of competent jurisdiction for specific performance and/or
injunctive relief in order to enforce, or prevent any violation of, any of the
provisions of this Agreement.

     The parties hereto have entered into this Agreement as of this _______ day
of _____, ______.

                                        PERCEPTRON, INC.


                                        By:
                                            ------------------------------------
                                        Name:
                                              ----------------------------------
                                        Title:
                                               ---------------------------------


                                        EMPLOYEE


                                        ----------------------------------------


                                       3
</TEXT>
</DOCUMENT>
