PERCEPTRON, INC. SEVERANCE AGREEMENT - EXECUTIVE

THIS SEVERANCE AGREEMENT, dated as of December 18, 2008 (the “Agreement”), is between Perceptron, Inc. (the “Company”) and Mark S. Hoefing, who is currently employed by the Company in the position of Senior Vice President – Industrial Business Unit (the “Executive”).  The parties acknowledge that the Company and the Executive previously entered into a severance agreement dated September 26, 2005 (the “Prior Agreement”), and the Company and the Executive agree that this Agreement supersedes and renders void the Prior Agreement in all respects.

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.  The severance provided under this Agreement is intended either to be exempt from or comply with the provisions of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”).

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

(a)           “ Administrator ” is defined in Section 15(a).

(b)           “ Agreement ” is defined in the preamble.

(c)           “ Benefit Continuation Period ” is defined in Section 3(b)(iii).

(d)           “ 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,

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

(vi)           breach of the Proprietary Information and Invention Agreement or the Perceptron Executive Agreement Not to Compete, or

(vii)           prior to a Change in Control, engaging in activities detrimental to the interests of the Company that have a demonstrable adverse effect on the Company.

(e)           “ 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

(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.

(f)           “ Change in Control Benefit Continuation Period ” is defined in Section 4(c)(iii).

(g)           “ Change in Control Severance Benefits ” is defined in Section 4(c).

(h)           “ Claimant ” is defined in Section 15(b).

(i)           “ Code ” is defined in Section 1.

(j)           “ Company ” is defined in the preamble.

(k)           “ 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.

(l)           “ Executive ” is defined in the preamble.

(m)           “ Good Reason ” is defined in Section 4(a)(ii).

(n)           “ Outside Date ” is defined in Section 16(e).

(o)           “ Perceptron Executive Agreement Not to Compete ” is defined in Section 23.

(p)           “ Prime Rate ” is defined in Section 3(c).

(q)           “ Prior Agreement ” is defined in the preamble.

(r)           “ Proprietary Information and Invention Agreement ” shall mean the Proprietary Information and Invention Agreement dated February 28, 2001 between the parties to this Agreement.

(s)           “ Regular Severance Benefits ” is defined in Section 3(b).

(t)           “ Release ” is defined in Sections 3(b) and 4(c).

(u)           “ Termination of Employment ” is defined in Sections 3 and 4.

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; provided such termination constitutes a “separation from service” as defined in Code Section 409A.

(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 “Release”), the Executive shall be entitled to (the “Regular Severance Benefits”):

(i)           A cash severance benefit equal to one-half of 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 six months or, if earlier, the death of the Executive (the “Benefit Continuation Period”), at the same level and on comparable terms as provided by the Company to its employees from time to time during this period, with the Company paying any monthly premiums otherwise required to be paid by the Executive to continue such coverage.  Health benefits provided during the Benefit Continuation Period shall be provided in such a manner that the benefits (including the associated costs and premiums) are excluded from the Executive’s income for federal income tax purposes and, if the Company reasonably determines that providing continued coverage under one or more of the health care benefit plans maintained by the Company could cause the benefits to be taxable to the Executive, the Company shall provide the benefits at the required level through the reimbursement of the Executive for premiums for the purchase of individual insurance coverage; provided, however, that the Company shall only be required to reimburse premiums for such coverage to the extent the premiums do 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 comparable coverage.  Any continuation of group health plan coverage under this paragraph shall run concurrently with the period of required COBRA continuation coverage under the Code.  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 six months or, if earlier, the death of the Executive, 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 Code.  Notwithstanding the foregoing, if at the time of Termination of Employment the Executive constitutes a “Specified Employee” as defined in Code Section 409A, and the Executive’s aggregate severance benefit is not exempt from Code Section 409A, commencing at Termination of Employment, the Executive shall receive the benefits that are exempt from Code Section 409A and shall receive any payments that are not exempt from Code Section 409A until the attainment of any applicable Code Section 409A cap, at which time, the remaining non-exempt payments shall be suspended.  When a period of six months has lapsed from the Executive’s Termination of Employment or, if earlier, the death of the Executive, any suspended payments shall be aggregated and paid in a lump sum, and the remaining compensation, if any, shall be paid in accordance with its regular schedule.  Any payment, including amounts suspended under Code Section 409A, made later than 10 days following the Executive’s Termination of Employment (or applicable due date under this Section 3 or Section 11(a) hereof) for whatever reason, shall include interest at the Prime Rate plus two percent, which shall begin accruing on the 10 ^th day following the Executive’s Termination of Employment (or applicable due date under this Section 3 or Section 11(a) hereof).  “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 10 ^th day following the Executive’s Termination of Employment (or applicable due date under Sections 3, 4, 11(a) or 16 hereof).

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; provided such termination constitutes a “separation from service” as defined in Code Section 409A; 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)             material 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 material diminution in the Executive’s base salary in effect immediately prior to the Change in Control, which shall be a reduction in such base salary of five (5%) percent or more unless a greater reduction is required by Code Section 409A to constitute an “involuntary separation from service”;

(C)             A material required relocation of the Executive’s principal place of employment which shall be a relocation of more than 50 miles from the Executive’s place of employment prior to the Change in Control unless a relocation of a greater distance is required by Code Section 409A to constitute an “involuntary separation from service”; or

(D)             The Company’s breach of any provision in this Agreement.

(b)           The Executive who believes the Executive is entitled to a Termination of Employment for Good Reason, as defined in Section 4 above, shall provide written notice of the existence of the condition to the Company within 90 days after existence of the condition and shall provide the Company with a period of at least 30 days in which to cure the condition and not be required to pay the Good Reason severance.  The submission of such written notification 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 this Agreement, upon the Executive’s execution of a release (in the form attached hereto as Exhibit A ) (the “Release”), the Executive shall be entitled to (the “Change in Control 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 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 Company-provided health (including vision and dental, if provided by the Company immediately prior to the Change in Control) and welfare benefits (including executive life insurance coverage, if provided by the Company to the Executive immediately prior to the Change in Control) for one year or, if earlier, the death of the Executive (the “Change in Control Benefit Continuation Period”), in each case, at the same level and on comparable terms as provided by the Company to the Executive immediately prior to the Change in Control, with the Company paying any monthly premiums otherwise required to be paid by the Executive to continue such coverage.  Health benefits provided during the Change in Control Benefit Continuation Period shall be provided in such a manner that the benefits (including the associated costs and premiums) are excluded from the Executive’s income for federal income tax purposes and, if the Company reasonably determines that providing continued coverage under one or more of the health care benefit plans maintained by the Company could cause the benefits to be taxable to the Executive, the Company shall provide the benefits at the required level through the reimbursement of the Executive for premiums for the purchase of individual insurance coverage; provided, however, that the Company shall only be required to reimburse premiums for such coverage to the extent the premiums do 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.  Any continuation of group health plan coverage under this paragraph shall run concurrently with the period  of required COBRA continuation coverage under the Code.  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 or, if earlier, the death of the Executive, 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.

(d)           Subject to Section 11(a) hereof, and the Code Section 409A limitations set forth below, 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.&nbs