Document:

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EXHIBIT 10.14

                       STANADYNE AUTOMOTIVE HOLDING CORP.

                          MANAGEMENT STOCK OPTION PLAN

                  This Management Stock Option Plan (this "Plan"), adopted by
the Board of Directors of Stanadyne Automotive Holding Corp., a Delaware
corporation (the "Company"), as of June 5, 1998.

                                    ARTICLE I

                                 PURPOSE OF PLAN

                  The Plan is adopted by the Board for certain management
employees of the Company and its Subsidiaries as a part of the compensation and
incentive arrangements for such employees. The Plan is intended to advance the
best interests of the Company by allowing such employees to acquire an ownership
interest in the Company, thereby motivating them to contribute to the success of
the Company and to remain in the employ of the Company and its Subsidiaries. The
availability of stock options under the Plan will also enhance the Company's
ability to attract and retain individuals of exceptional talent to contribute to
the sustained progress, growth and profitability of the Company.

                                   ARTICLE II

                                   DEFINITIONS

                  For purposes of the Plan, except where the context clearly
indicates otherwise, the following terms shall have the meanings set forth
below:

                  "Accelerated Portion" shall have the meaning set forth in
Section 6.5 hereof.

                  "Affiliate" of a Person means any other Person controlling,
controlled by or under common control with such Person, whether by ownership of
voting securities, by contract or otherwise.

                  "Board" means the Board of Directors of the Company.

                  "Cause" means with respect to any Participant, termination of
employment of such Participant by the Company or any of Subsidiary thereof due
to: (i) such Participant's willful or negligent failure to comply with the
lawful directives of the Board (or such Subsidiary's board of directors) or such
Participant's supervisory personnel (provided such directives are consistent
with his or her position), (ii) any indictment for a felony, (iii) any
commission of any other criminal act (other than minor traffic offenses and
similar acts), any act of material dishonesty, disloyalty, fraud or embezzlement
or any act of moral turpitude or (iv) the failure to comply with the terms
hereof or the Stockholders Agreement.

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EXHIBIT 10.14

                  "CEO" means the President and Chief Executive Officer of the
Company.

                  "Closing Date" means December 11, 1997.

                  "Code" means the Internal Revenue Code of 1986, as amended,
and any successor statute.

                  "Commission" means the United States Securities and Exchange
Commission.

                  "Committee" means the Compensation Committee or such other
committee of the Board as the Board may designate to administer stock options
granted by the Company or, if for any reason the Board has not designated such a
committee, the Board. The Committee, if other than the Board, shall be composed
of two or more directors as appointed from time to time by the Board. At any
time when the Company is subject to the reporting requirements of Section 13 or
Section 15(d) of the Securities Exchange Act, this Plan will be administered by
a committee of one or more directors who are "disinterested persons," within the
meaning of Rule 16b-3 of the Securities Exchange Act.

                  "Common Stock" means the Company's common stock, par value
$0.01 per share, of which One Million Two Hundred Thousand shares are authorized
pursuant to the Company's Articles of Incorporation, as amended on May 8, 1998.

                  "Company" means Stanadyne Automotive Holding Corp., a Delaware
corporation.

                  "Company Sale" means a transaction with one or more
independent third parties pursuant to which such party or parties (i) acquire
(whether by merger, consolidation or transfer or issuance of capital stock)
capital stock of the Company (or any surviving or resulting corporation)
possessing the voting power to elect a majority of the board of directors of the
Company (or such surviving or resulting corporation) or (ii) acquire all or
substantially all of the Company's assets determined on a consolidated basis.

                  "Disability" means the inability of a Participant to perform
the essential functions of such Participant's job, with or without reasonable
accommodation, by reason of a physical or mental infirmity, for a continuous
period of six months. The period of six months shall be deemed continuous unless
such Participant returns to work for at least 30 consecutive business days
during such period and performs during such period at the level and competence
that existed prior to the beginning of the six-month period. The date of such
Disability shall be on the first day of such six-month period.

                  "EBITDA" means, for any period, the sum of the amounts for
such period of, without duplication, (a) net income, plus (b) income taxes paid
or accrued and deducted in determining net income, plus (c) interest expenses
paid or accrued and deducted in determining net income, plus (d) depreciation,
amortization and other non-cash charges deducted in determining net income,
minus (e) cash payments with respect to any non-recurring, non-cash charges
previously added back pursuant to clause (d), and (f) excluding the impact of
foreign currency translations, all determined in accordance with generally
accepted accounting principles.

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EXHIBIT 10.14

                  "EBITDA Target" means, with respect to each Plan Year, the
EBITDA Target set forth opposite such Plan Year in the following chart:

<TABLE>
<CAPTION>
                 PLAN YEAR                 EBITDA TARGET
<S>                                        <C>
              1/1/98 - 12/31/98            $39,100,000
              1/1/99 - 12/31/99             47,000,000
              1/1/00 - 12/31/00             52,200,000
              1/1/01 - 12/31/01             57,400,000
</TABLE>

The Committee will make equitable adjustments to the EBITDA Targets from time to
time to reflect (i) acquisitions and dispositions made by the Company and its
subsidiaries during the Performance Plan Term and (ii) the establishment of
accounting reserves prior to January 1, 1998 and, in each case, the anticipated
effect on the EBITDA Targets resulting therefrom.

                  "Employee" means any full-time employee of the Company or any
of its Subsidiaries.

                  "Exercise Price" means the amount payable for an Option Share
upon exercise of an Option.

                  "Fair Market Value" as of any date means (a) with respect to
publicly traded Common Stock, the market trading price of such Common Stock, (b)
with respect to non-publicly traded Common Stock, the fair market value of such
Common Stock (expressed on a per-share basis) as of such date, as determined in
good faith by the Committee based on such factors as the Committee may deem
appropriate, and (c) with respect to any Option (or portion thereof), the
difference of (i) the product of the amount described in clause (a) or (b) above
(as appropriate) multiplied by the number of Option Shares issuable upon
exercise of the Option (or portion thereof), minus (ii) the aggregate Exercise
Price of the Option (or portion thereof).

                  "Family Group" means, with respect to any individual, such
individual's spouse and descendants (whether natural or adopted) and any trust
established and maintained solely for the benefit of such individual, such
individual's spouse or such individual's descendants.

                  "Initial Options" has the meaning set forth in Section 5.2
hereof.

                  "Matured Shares" means, with respect to any Participant,
Common Stock owned by such Participant for longer than six months.

                  "Options" means the Initial Options and the Undesignated
Options.

                  "Option Shares" means, with respect to any Participant, (a)
any shares of Common Stock (or other shares of capital stock of the Company)
issued by the Company upon exercise of any Option by such Participant, and (b)
any shares of the capital stock of the Company issued in respect of any of the
securities described in clause (a) above, by way of stock dividend, stock split,
merger, consolidation, reorganization or other recapitalization.

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EXHIBIT 10.14

                  "Participant" means any Employee who is selected to
participate in the Plan in accordance with Article III of the Plan.

                  "Performance Plan Term" means the period beginning on the
Closing Date and ending on December 31, 2001.

                  "Performance Level" means with respect to any Plan Year, the
product of (i) 100 multiplied by (ii) a fraction, the numerator of which is the
actual EBITDA of such Plan Year (treated for this purpose as a single accounting
period) and the denominator of which is the EBITDA Target for such Plan Year.

                  "Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization and a governmental entity or any department, agency or political
subdivision thereof.

                  "Plan" means this Management Stock Option Plan, as amended or
supplemented from time to time in accordance with its terms.

                  "Plan Year" means any of the consecutive calendar years ended
December 31, 1998, 1999, 2000 and 2001, respectively.

                  "Qualified Public Offering" means the sale, in an underwritten
public offering registered under the Securities Act, of shares of the Company's
Common Stock having an aggregate offering value (before underwriters' discounts
and selling commissions) of at least $30 million.

                  "Securities Act" means the Securities Act of 1933, as amended.

                  "Securities Exchange Act" means the Securities Exchange Act of
1934, as amended.

                  "Stockholders Agreement" means the Stockholders Agreement
dated as of the Closing Date among the Company and its stockholders.

                  "Subsidiary" means any corporation of which the Company owns,
directly or through one or more Subsidiaries, securities having a majority of
the ordinary voting power in electing the board of directors of such
corporation.

                  "Transfer" means, with respect to any Option, the transfer,
pledge, encumbrance, bequest, assignment or sale of such Option or any interest
therein.

                  "Undesignated Options" has the meaning set forth in Section
5.3 hereof.

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EXHIBIT 10.14

                                   ARTICLE III

                                 ADMINISTRATION

                  The CEO shall be responsible for the routine administration of
the Plan, subject to the review and approval of the Committee. Subject to the
requirements and limitations of the Plan, the CEO shall have the authority to
select Participants and to grant Initial Options to Participants in such amounts
as the CEO shall in his discretion, determine. Subject to the requirements and
the limitations of the Plan, the Committee shall have the sole and complete
responsibility and authority to: (a) approve the award of Options under this
Plan; (b) interpret the Plan and adopt, amend and rescind administrative
guidelines and other rules and regulations relating to the Plan; (c) correct any
defect or omission or reconcile any inconsistency in the Plan or in any Option
granted hereunder; and (d) make all other determinations and take all other
actions necessary or advisable for the implementation and administration of the
Plan, including actions necessary or advisable in connection with the issuance
of Undesignated Options. All authority not expressly granted to the CEO
hereunder shall remain vested in the Committee. The Committee's determinations
on matters within its authority shall be conclusive and binding upon the
Participants, the Company and all other Persons. All expenses associated with
the administration of the Plan shall be borne by the Company.

                                   ARTICLE IV

                      LIMITATION ON AVAILABLE OPTION SHARES

                  4.1 Option Shares. The aggregate number of shares of Common
Stock with respect to which Options may be granted under the Plan shall not
exceed One Hundred Twenty Thousand (120,000) shares; provided, however, that the
aggregate number of shares of Common Stock with respect to which Options may be
granted shall be subject to adjustment in accordance with the provisions of
Section 10.3 below.

                  4.2 Status of Option Shares. The shares of Common Stock for
which Options may be granted under the Plan may be either authorized and
unissued shares, treasury shares or a combination thereof, as the Committee
shall determine and shall be reserved by the Committee for issuance as provided
in the Plan. To the extent any Undesignated Options are not awarded under the
Plan, the Option Shares reserved for issuance in respect thereof shall become
available for issuance for any purpose that the Committee, in its discretion,
determines. To the extent any outstanding Options expire or are terminated prior
to exercise, the Option Shares in respect of which such Options were issued
shall remain available for reissuance to employees of the Company and its
Subsidiaries pursuant to this Plan or any other plan or agreement approved by
the Board.

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EXHIBIT 10.14

                                    ARTICLE V

                                GRANT OF OPTIONS

                  5.1 Options. The CEO shall grant Initial Options to
Participants and shall recommend to the Committee any subsequent grant of
Undesignated Options (as defined below) to Participants in accordance with this
Article V.

                  5.2 Initial Options. On the date hereof, Options (the "Initial
Options") will be issued to Participants selected by the CEO.

                  5.3 Undesignated Options. Additional Options (the
"Undesignated Options") will be available for award to Employees under this Plan
from time to time. Undesignated Options will be awarded on such terms, at such
times, in such amounts and to such Employees as shall be determined by the
Committee.

                  5.4 Form of Options.

                           (a) Initial Options granted under this Plan shall be
         non-qualified stock options and are not intended to be "incentive stock
         options" within the meaning of Section 422A of the Code or any
         successor provisions.

                           (b) The Exercise Price of each Initial Option granted
         pursuant to this Plan shall be $60.28 (subject to adjustment pursuant
         to Section 10.3).

                           (c) Initial Options shall be exercisable upon vesting
         (as determined pursuant to Article VI) and shall thereafter be
         exercisable until they expire or are terminated (as determined pursuant
         to Article VIII).

                  5.5 Option Agreement. Each Option granted hereunder to a
  Participant shall be evidenced by a certificate substantially in the form
  attached hereto as Annex I (or in such other form as the Committee may from
  time to time adopt) (the "Option Certificate") which shall be signed by the
  CEO or such other officer of the Company as the Committee shall designate. For
  purposes of the Plan, no Option shall be deemed to be outstanding until it has
  been granted to a Participant by the Committee and an Option Certificate has
  been executed and delivered by the Company and an Option shall cease to be
  outstanding when it is repurchased by the Company, terminates or is exercised
  pursuant to the Plan.

                  5.6 Joinder Agreement. As a condition to exercising any
  Options hereunder, any Participant who is not already a party to the
  Stockholders Agreement shall be required to execute a Joinder Agreement
  substantially in the form attached hereto as Annex II (the "Joinder") and
  thereby become a party to the Stockholders Agreement with respect to any
  Option Shares issued in connection with such exercise.

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EXHIBIT 10.14

                                   ARTICLE VI

                               VESTING OF OPTIONS

                  6.1 Vesting of Initial Options. Initial Options issued
pursuant to this Plan may be exercised only to the extent that they have vested.
Not later than 90 days after the end of each Plan Year (so long as no Company
Sale has been consummated prior to such date) the Committee shall determine the
Performance Level for such Plan Year (such determination to be made in good
faith based upon the annual audited consolidated financial statements for the
latest fiscal year of the Company and its Subsidiaries ended on the last day of
such Plan Year).

                  6.2 Accelerated Vesting of Initial Options. All Initial
Options awarded under the Plan will vest on the seventh anniversary of the date
of grant, subject to acceleration of vesting as set forth in sections 6.3 and
6.5 below; provided, in each case, that the Participant remains continuously
employed with the Company or its Subsidiaries from the date of award through the
date of determination. For purposes of accelerated vesting, each Participant
will be deemed to be employed by the Company or its Subsidiaries with respect to
any Plan Year if such Participant has been continuously employed by the Company
or its Subsidiaries from January 1 of such Plan Year through December 31 of such
Plan Year.

                  6.3 Performance-Based Acceleration. The vesting of each
Participant's Initial Options shall be subject to acceleration as follows:

                  (a)      No Initial Options will vest for any Plan Year with a
                           Performance Level at or below 90.

                  (b)      If the Performance Level for a given Plan Year is
                           less than 100 but exceeds 90, a number of Initial
                           Options equal to the product of (i) 25% of such
                           Participant's Initial Options and (ii) a fraction the
                           numerator of which equals the Performance Level for
                           such Plan Year minus 90 and the denominator of which
                           is ten, will vest as of the last day of such Plan
                           Year.

                  (c)      If the Performance Level for a given Plan Year equals
                           or exceeds 100, Initial Options representing 25% of
                           such Participant's Initial Options will vest as of
                           the last day of such Plan Year.

                  (d)      If (i) the Performance Level for any of the Plan
                           Years ended December 31, 1998, 1999 or 2000 is less
                           than 100 (the amount by which 100 exceeds the
                           Performance Level for such Plan Year, the
                           "Shortfall") and (ii) the Performance Level for the
                           next successive Plan Year exceeds 100 by an amount
                           equal to or exceeding such Shortfall, then, in
                           addition to the acceleration of vesting for such
                           successive Plan Year effected pursuant to subsection
                           (c), above, Initial Options representing the excess
                           (if any) of (i) the number of Initial Options that
                           would have vested (not to exceed 25% of such
                           Participant's Initial Options) if the actual EBITDA
                           for the preceding Plan Year was increased by the
                           amount by which the actual EBITDA for the current
                           year exceeded the EBITDA Target for the current year
                           over (ii) the number of Initial Options that vested
                           in the preceding Plan Year, shall vest as of the last
                           day of such successive Plan Year.

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EXHIBIT 10.14

                  6.4 Termination of Employment. On the date of termination of
employment, all unvested Initial Options held by a terminated Participant shall
cease to vest.

                  6.5 Vesting on Company Sale. If (a) a Company Sale is
consummated prior to the end of the Performance Plan Term and (b) the
Performance Level for the Plan Year immediately prior to the year in which such
Company Sale is consummated equals or exceeds 100, then the Accelerated Portion
of the remaining Initial Options held by a Participant will vest immediately
prior to the consummation of such Company Sale. For purposes of this Section
6.5, "Accelerated Portion" shall mean that portion of the Initial Options held
by a Participant eligible to vest during each of the Plan Years ended after the
date such Company Sale is consummated that would have vested if the Performance
Level for each such Plan Year was equal to the product of (i) 100 and (ii) a
fraction, the numerator of which is the actual cumulative EBITDA for the Company
and its Subsidiaries during all Plan Years ended before the date such Company
Sale is consummated (treated for this purpose as a single accounting period) and
the denominator of which is the sum of the EBITDA Targets for all such Plan
Years.

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EXHIBIT 10.14

                                   ARTICLE VII

                               EXERCISE OF OPTIONS

                  7.1 Right to Exercise. Initial Options may not be Transferred
other than by will or the laws of descent and distribution and, during the
lifetime of the Participant, Initial Options may be exercised only by such
Participant (or his legal guardian or legal representative). Any Transfer or
attempted Transfer of an Initial Option contrary to this Section 7.1 shall be
void, and the Company shall not record such Transfer on its books or treat any
purported transferee of such Initial Option as the owner of such Initial Option
for any purpose. In the event of the death of a Participant, exercise of Initial
Options granted hereunder shall be made only by the executor or administrator of
the estate of the deceased Participant or the Person or Persons to whom the
deceased Participant's rights under the Initial Option shall pass by will or the
laws of descent and distribution.

                  7.2 Procedure for Exercise. Any Participant may exercise all
or any portion of any of such Participant's Initial Options, to the extent they
have vested pursuant to Article VI and are outstanding, at any time and from
time to time prior to its expiration, by completing, signing and delivering to
the Company (to the attention of the Company's Secretary) a notice of exercise
substantially in the form attached hereto as Annex III (or in such other form as
the Committee may from time to time adopt and provide to the Participant) (the
"Exercise Notice"), accompanied by a Joinder (if such Participant is not already
a party to the Stockholders Agreement) together with the related Option
Certificate(s) and payment in full of an amount equal to the product of (i) the
Exercise Price multiplied by (ii) the number of Option Shares to be acquired
(the "Aggregate Exercise Price"). Payment of the Aggregate Exercise Price shall
be made in cash (including check, bank draft or money order); provided that at
any time when the Company is publicly traded, if a Participant owns Matured
Shares with a Fair Market Value exceeding the Aggregate Exercise Price in
connection with such exercise, such Participant may, in lieu of paying the
Aggregate Exercise Price in cash, deliver an Exercise Notice accompanied by the
certificate for the Matured Shares (duly executed) and indicate in such Exercise
Notice that such Participant intends to effect a cash less exercise thereof and
be entitled to receive, in respect of the exercise of the Initial Option and the
cancellation of Matured Shares with an aggregate Fair Market Value equal to the
Aggregate Exercise Price, (x) the number of Option Shares that otherwise would
be issued hereunder if the Aggregate Exercise Price were paid in cash and (y)
the number of Matured Shares with an aggregate Fair Market Value equal to the
excess of the aggregate Fair Market Value of the Matured Shares before such
cashless exercise minus the Aggregate Exercise Price. Notwithstanding anything
in this Section 7.2(a) to the contrary, in the event that any Initial Option
Certificate representing Initial Options granted to a Participant is lost,
stolen or destroyed, the Participant may, in lieu of delivering such Initial
Option Certificate at the time of exercise, deliver an affidavit as to its loss,
theft or destruction and any indemnity that the Company may reasonably request.
A Participant's right to exercise the Initial Option shall be subject to the
satisfaction of all conditions set forth in the Exercise Notice. If a
Participant exercises any Initial Options for less than all of the Option Shares
covered by the relevant Option Certificate, the Company shall issue a new Option
Certificate to such Participant in respect of the portion of such Initial Option
remaining unexercised.

                  7.3 Securities Laws Restrictions on Transfer of Option Shares.
Each Participant exercising an Initial Option will be required to represent to
the Company in the Exercise Notice that when such Participant exercises his or
her Initial Option such Participant will be purchasing Option Shares for his or
her own account for investment and not on behalf of others or otherwise with a
view toward distributing them. Each Participant is advised that federal and
state securities laws govern and restrict each Participant's right to Transfer,
or offer to

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EXHIBIT 10.14

Transfer, any Option Shares unless such Participant's Transfer, or offer to
Transfer, is registered under the Securities Act and state securities laws, or
such Transfer, or offer to Transfer, is exempt from registration or
qualification thereunder. Each Participant is further advised that the
Stockholders Agreement, to which each Participant will become a party upon
exercising of such Participant's Initial Options, imposes additional
restrictions on the transfer of Option Shares, and that the certificates for any
Option Shares issued in connection with such exercise will bear such legends as
the Company deems necessary or desirable in connection with the Securities Act
or other rules, regulations or laws.

                  7.4 Withholding of Taxes. The Company shall be entitled, if
necessary or desirable, to withhold from any Participant from any amounts due
and payable by the Company to such Participant (or secure payment from such
Participant in lieu of withholding) the amount of any withholding or other tax
due from the Company with respect to any Option Shares issuable under the Plan,
and the Company may defer such issuance unless indemnified to its satisfaction.

                  7.5 Listing, Registration and Compliance with Laws and
Regulations. Initial Options shall be subject to the requirement that if at any
time the Committee shall make a good faith determination that the listing,
registration or qualification of Option Shares upon any securities exchange or
under any state or federal securities or other law or regulation, or the consent
or approval of any governmental regulatory body, is necessary or desirable as a
condition to or in connection with the granting of the Initial Options or the
issuance or purchase of Option Shares thereunder, no Initial Options may be
granted or exercised, in whole or in part, unless such listing, registration,
qualification, consent or approval shall have been effected or obtained free of
any conditions not reasonably acceptable to the Committee. The Company shall in
good faith, and to the extent consistent with its reasonable business judgment,
exercise all reasonable efforts to obtain any such listing, registration,
qualification or approval. The holders of such Initial Options will supply the
Company with such certificates, representations and information as the Company
shall request and shall otherwise cooperate with the Company in obtaining such
listing, registration, qualification, consent or approval.

                                  ARTICLE VIII

                              EXPIRATION OF OPTIONS

                  8.1 Expiration Date. In no event shall any part of any Initial
Option be exercisable after 5:00 p.m. Eastern Standard Time on the tenth
anniversary of the date hereof (the "Expiration Date").

                  8.2 Accelerated Expiration: Company Sale. Any Initial Options
not exercised or deemed exercised in connection with a Company Sale pursuant to
Section 7.2(b) hereof shall expire upon the consummation of the first Company
Sale occurring after the Closing Date.

                  8.3 Accelerated Expiration: Termination of Employment. All
unvested Initial Options held by a Participant shall expire and be forfeited on
the date of such Participant's termination of employment. All vested Initial
Options held by a Participant not previously exercised shall expire and be
forfeited

<PAGE>   11

EXHIBIT 10.14

                           (a) on the date of termination in the event such
         Participant shall cease to be an employee of the Company or its
         Subsidiaries by reason of such Participant's (i) resignation for any
         reason other than retirement during the Performance Plan Term or (ii)
         termination for Cause; and

                           (b) on the thirtieth (30th) day after the date of
         termination in the event such Participant shall cease to be an employee
         of the Company or its Subsidiaries by reason of such Participant's (i)
         retirement during the Performance Plan Term, (ii) resignation for any
         reason, including retirement, after the Performance Plan Term or (iii)
         termination without Cause.

Anything to the contrary notwithstanding, in the event of the death or
Disability of a Participant, all Initial Options, vested and unvested, held by
such Participant shall not expire or be forfeited but shall be subject to the
provisions of Article IX hereof.

                                   ARTICLE IX

                            COMPANY REPURCHASE OPTION

         Section 9.1 Repurchase Option. In the event a Participant ceases to be
an Employee as a result of such Participant's death or Disability, then the
Company shall have the right, but not the obligation (the "Company Option"), to
purchase from such Participant (or the successors in interest of such
Participant) all or any portion of such Participant's Initial Options at a
purchase price equal to the Fair Market Value of the options to be purchased
(the "Repurchase Price"). The Company Option shall be of no further force and
effect from and after the consummation of a Qualified Public Offering.

         Section 9.2 Exercise of Repurchase Option. The Company shall exercise
the Company Option by delivering written notice (the "Repurchase Notice") to the
Participant (or the successors in interest of such Participant) within ninety
days after the date of such Participant's termination of employment (the
"Repurchase Period"), which Repurchase Notice shall set forth the aggregate
number of Option Shares covered by the Initial Option or Initial Options to be
repurchased (the "Repurchase Options"). If the Company exercises the Company
Option as provided herein, the Company shall, within thirty days after delivery
of the Repurchase Notice, pay to the Participant (or the successors in interest
of such Participant), by certified check, the Repurchase Price; provided,
however, that in the event that any such repurchase is prohibited by or would
cause a default under any of the Company's or its Subsidiaries' agreements for
borrowed money, the thirty day time period referred to in this Section 9.2 shall
be tolled for so long as such prohibition or potential default exists. If the
Company exercises the Company Option for only a portion of the Initial Options
evidenced by a single Option Certificate, the Company shall issue an Option
Certificate to the Participant representing the Initial Options remaining after
such exercise.

         Section 9.3 Failure to Exercise Repurchase Option. If the Company does
not deliver a Repurchase Notice within the Repurchase Period, the related
Initial Option shall no longer be subject to the provisions of this Article IX.

<PAGE>   12

EXHIBIT 10.14

         Section 9.4 Assignment. The Company may assign its rights pursuant to
this Article IX to American Industrial Partners Capital Fund II, L.P. or any of
its Affiliates, in whole or in part, at any time and from time to time. Upon
such an assignment, all references to "the Company" in this Article IX shall be
deemed to be references to the assignee of the Company to the extent of the
interest so assigned.

                                    ARTICLE X

                                  MISCELLANEOUS

                  10.1 Rights of Participants. Nothing in this Plan shall
interfere with or limit in any way any right of the Company or any of its
Subsidiaries to terminate any Participant's employment at any time (with or
without Cause), nor confer upon any Participant any right to continued
employment by the Company or any of its Subsidiaries for any period of time or
to continue such employee's present (or any other) rate of compensation.
Transfer of an Employee from the Company to a Subsidiary, from a Subsidiary to
the Company and from one Subsidiary to another shall not be considered a
termination of such Employee's employment for purposes of this Plan. No Employee
shall have a right to be selected as a Participant or, having been so selected,
to be selected again as a Participant.

                  10.2 Supplementation Amendment Suspension and Termination of
Plan. The Committee reserves the right to supplement the Plan in order to
specify the terms and conditions under which the Company shall issue the
Undesignated Options. The Committee may not suspend, terminate or materially
amend the Plan or any portion thereof at any time without the consent of
Participants who hold a majority of the Option Shares issued or issuable
pursuant to Options issued under the Plan or without such greater or other
stockholder approval to the extent such approval is required, by law, agreement
or the rules of any exchange upon which the Common Stock is listed.
Notwithstanding the foregoing, no suspension, termination or amendment of or to
the Plan will affect adversely the rights of any holder of Options with respect
to Options issued hereunder prior to the date of such suspension, termination or
amendment without the consent of such holder.

                  10.3 Adjustments. In the event of a reorganization,
recapitalization, stock dividend, stock split, share combination or other change
in the shares of Common Stock, the Committee shall make such adjustments in the
number and type of shares authorized by the Plan, the number and type of shares
covered by outstanding Options and the Exercise Prices specified therein and
other amendments to the Plan as the Committee, in good faith, determines to be
appropriate and equitable in order to prevent the dilution or enlargement of the
rights granted hereunder or under any outstanding Options.

                  10.4 Construction of Plan. The validity, construction,
interpretation, administration and effect of the Plan shall be determined in
accordance with the local law, and not the law of conflicts, of the State of
Delaware.

                  10.5 Indemnification. The Company will, and will cause each of
its Subsidiaries to, indemnify the CEO and the members of the Committee against
all costs and expenses reasonably incurred by them in connection with any
action, suit or proceeding to which they or any of them may be a party by reason
of any action taken or failure to act under or in connection with the Plan or
any Option granted thereunder or any Option Shares issued pursuant to the
exercise of an Option, and against all amounts paid by them in settlement

<PAGE>   13

EXHIBIT 10.14

thereof (provided such settlement is approved by independent legal counsel
selected by the Company) or paid by them in satisfaction of a judgment in any
such action, suit or proceeding; provided, however, that any such Person shall
be entitled to the indemnification rights set forth in this Section 10.5 only if
such Person has acted in good faith and in a manner that such Person reasonably
believed to be in or not opposed to the best interests of the Company and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
that such conduct was unlawful, and provided further that upon the institution
of any such action, suit or proceeding such Person shall give the Company
written notice thereof and an opportunity, at its own expense, to handle and
defend the same before such Person undertakes to handle and defend it on his or
her own behalf.

                            [END OF TEXT OF DOCUMENT]

<PAGE>   14

EXHIBIT 10.14

                                                                         Annex I

                  THIS OPTION AND THE OPTION SHARES ISSUABLE UPON THE EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
UNDER THE SECURITIES LAWS OF ANY STATE. THIS OPTION IS ISSUED PURSUANT TO A
MANAGEMENT STOCK OPTION PLAN ADOPTED JUNE 5,1998 BY THE BOARD OF DIRECTORS OF
THE ISSUER (THE "PLAN") AND THIS OPTION IS SUBJECT TO THE TERMS SET FORTH IN THE
PLAN.

              OPTION TO PURCHASE__________________________SHARES OF

                                 COMMON STOCK OF

                       STANADYNE AUTOMOTIVE HOLDING CORP.

                     OPTION NO._____________ [JUNE 5, 1998]

                            VOID AFTER [JUNE 5,2008]

                  This certifies that _______________, ("Participant") is
entitled, upon the due exercise hereof, to purchase up to _____ shares of Common
Stock, par value $0.01 per share (the "Option Shares") of Stanadyne Automotive
Holding Corp., a Delaware corporation (the "Company") at a price (the "Exercise
Price") of [$60.28] per Option Share. This option (this "Option") is issued
pursuant to a Management Stock Option Plan adopted June 5, 1998 by the Company's
Board of Directors (the "Plan") and is subject in its entirety to the terms and
conditions of the Plan, as amended from time to time, all of which are hereby
incorporated in the terms of this Option. Capitalized terms, which are used but
not defined herein shall have the respective meanings ascribed to them in the
Plan.

                  To the extent otherwise permitted by the Plan, the Participant
may exercise all or any portion of the Option by executing and delivering to the
Company an Exercise Notice and a Joinder to Stockholders Agreement (copies of
which may be obtained from the Company) together with full payment of the
aggregate Exercise Price for all Option Shares being so purchased, such payment
to be made (i) if to be paid in cash, by cash, check, bank draft or money order
made payable to "Stanadyne Automotive Holding Corp." or (ii) if to be paid by
delivery of Matured Shares, by delivery of the certificate(s) for the Matured
Shares (duly executed). Except as otherwise expressly provided by the Plan, this
Option shall be deemed to have been exercised and the Option Shares issuable
upon such exercise shall be deemed to have been issued as of the close of
business on the date upon which all of the foregoing items are received by the
Company.

                  In the event of reorganization, recapitalization, stock
dividend, stock split, share combination or other change in the Common Stock of
the Company, the number and, if applicable, the type of Option Shares issuable
upon exercise of this Option and the Exercise Price therefor shall be adjusted
as provided in the Plan.

<PAGE>   15

EXHIBIT 10.14

                  THIS OPTION MAY NOT BE TRANSFERRED BY THE PARTICIPANT EXCEPT
IF AND AS OTHERWISE PERMITTED BY THE PLAN.

                  Prior to the exercise of this Option as permitted by the Plan,
the Participant shall not, with respect to the Option Shares issuable upon the
due exercise hereof be entitled to any of the rights of a stockholder of the
Company including, without limitation, the right as a stockholder to (i) vote on
or consent to any proposed action of the Company, or (ii) receive dividends or
other distributions made to stockholders, (iii) receive notice of or attend any
meetings of stockholders of the Company, or (iv) receive notice of any other
proceedings of the Company.

                  IN WITNESS WHEREOF, the Company has executed this Option as of
the date first above written.

                                        STANADYNE AUTOMOTIVE HOLDING CORP.
                                        By: _______________________________
                                        Its:_______________________________

                  [SEAL]

Attest: _____________________________

<PAGE>   16

EXHIBIT 10.14

                                                                        Annex II

                             FORM OF JOINDER TO THE

                             STOCKHOLDERS AGREEMENT

                  This Joinder (this "Agreement") is made as of the date written
below by the undersigned (the "Joining Party") in favor of and for the benefit
of Stanadyne Automotive Holding Corp. and the other parties to the Stockholders
Agreement, dated as of December 11, 1997 (the "Stockholders Agreement").
Capitalized terms used but not defined herein shall have the meanings given such
terms in the Stockholders Agreement.

                  The Joining Party hereby acknowledges, agrees and confirms
that, by his or her execution of this Joinder, the Joining Party will be deemed
to be a party to the Stockholders Agreement and shall have all of the
obligations of an Employee Stockholder thereunder as if he or she had executed
the Stockholders Agreement. The Joining Party hereby ratifies, as of the date
hereof, and agrees to be bound by, all of the terms, provisions and conditions
contained in the Stockholders Agreement.

                  IN WITNESS WHEREOF, the undersigned has executed this Joinder
as of the date written below.

Date:
     --------------------------------

                                                --------------------------------
                                                Name:

<PAGE>   17

EXHIBIT 10.14

                                                                       Annex III

                                 EXERCISE NOTICE

                  This Exercise Notice (this "Notice") is given by the
undersigned participant ("Participant") to Stanadyne Automotive Holding Corp., a
Delaware corporation (the "Company") in connection with the Participant's
exercise of an Option granted pursuant to the Company's Management Stock Option
Plan, adopted June 5, 1998 (the "Plan") to purchase Option Shares (as defined in
the Plan). Capitalized terms used but not defined herein shall have the
respective meanings ascribed to them in the Plan.

                  1.       Purchase and Sale of Option Shares.

                           (a) Upon delivery to the Company of this Notice and
         the Option to which it relates, the Company will sell and issue to
         Participant, the Option Shares that Participant elects to purchase
         hereunder. Participant will deliver to the Company herewith the
         aggregate Exercise Price for the Option Shares purchased hereunder (if
         payable in cash) by check, bank draft or money order made payable to
         "Stanadyne Automotive Holding Corp."

                           PARTICIPANT IS ADVISED THAT IT MAY BE IN
         PARTICIPANT'S OWN BEST INTEREST TO MAKE AN EFFECTIVE ELECTION WITH THE
         INTERNAL REVENUE SERVICE UNDER SECTION 83(b) OF THE INTERNAL REVENUE
         CODE AND THE REGULATIONS PROMULGATED THEREUNDER, AND THAT PARTICIPANT
         SHOULD CONSULT WITH PARTICIPANT'S TAX ADVISOR ABOUT THE DESIRABILITY OF
         AND PROCEDURE FOR MAKING SUCH AN ELECTION BEFORE EXERCISING THE OPTION
         TO WHICH THIS NOTICE RELATES.

                           (b) In connection with the purchase and sale of the
         Option Shares hereunder, Participant represents and warrants to the
         Company that:

                                    (i) The Option Shares to be acquired by
                  Participant pursuant to Participant's exercise of the Option
                  will be acquired for Participant's own account and not with a
                  view to, or intention of, distribution thereof in violation of
                  the Securities Act, or any applicable state securities laws,
                  and the Option Shares will not be disposed of in contravention
                  of the Securities Act or any applicable state securities laws;

                                    (ii) Participant is sophisticated in
                  financial matters and is able to evaluate the risks and
                  benefits of the investment in the Option Shares;

                                    (iii) Participant is able to bear the
                  economic risk of his or her investment in the Option Shares
                  for an indefinite period of time because the Option Shares
                  have not been registered under the Securities Act and,
                  therefore, cannot be sold unless subsequently registered under
                  the Securities Act or an exemption from such registration is
                  available;

                                    (iv) Participant has had an opportunity to
                  ask questions and receive answers concerning the terms and
                  conditions of the Option Shares and has had full access to
                  such other

<PAGE>   18

EXHIBIT 10.14

                  information concerning the Company as he or she has requested;
                  and

                                    (v) Participant is a resident and
                  domiciliary of the state or other jurisdiction hereinafter set
                  forth opposite such Participant's signature and Participant
                  has no present intention of becoming a resident of any other
                  state or jurisdiction. If Participant is a resident and
                  domiciliary of a state that requires the Company to ascertain
                  certain other information regarding the Participant, the
                  Company may attach a page to this Notice containing additional
                  representations to be made by Participant in connection with
                  such Participant's investment in Option Shares, and by signing
                  this Notice, Participant shall be deemed to have made such
                  additional representations to the Company.

                           (c) Participant further acknowledges and agrees that:

                                    (i) neither the issuance of the Option
                  Shares to Participant nor any provision contained herein shall
                  entitle Participant to remain in the employment of the Company
                  and its Subsidiaries or affect any right of the Company to
                  terminate Participant's employment at any time for any reason;

                                    (ii) the Company shall have no duty or
                  obligation to disclose to Participant and Participant shall
                  have no right to be advised of, any material information
                  regarding the Company and its Subsidiaries in connection with
                  the repurchase of Option Shares upon the termination of
                  Participant's employment with the Company and its Subsidiaries
                  or as otherwise provided hereunder; and

                                    (iii) the Company shall be entitled to
                  withhold from participant from any amounts due and payable by
                  the Company to Participant (or secure payment from Participant
                  in lieu of withholding) the amount of any withholding or other
                  tax due from the Company with respect to such Option Shares
                  and the Company may defer issuance until indemnified to its
                  satisfaction.

                           (d) The Company and Participant acknowledge and agree
         that the Option Shares issued in connection herewith hereunder, are
         issued as a part of the compensation and incentive arrangements between
         the Company and Participant.

                  2. Restriction on Option Shares. Participant acknowledges that
the Option Shares being purchased hereunder are being issued pursuant to the
Plan, the terms and conditions of which are incorporated herein as if set forth
fully herein, and that such Option Shares are subject to certain restrictions on
transfer, rights of repurchase and other provisions set forth in the Plan and
the Stockholders Agreement. Purchaser acknowledges that the certificates
evidencing such Option Shares shall be imprinted with a legend providing notice
of such restrictions substantially in the form set forth in the Stockholders
Agreement.

                                    * * * * *

<PAGE>   19

EXHIBIT 10.14

                  IN WITNESS WHEREOF, the Participant has executed this Notice
as of the date written below.

No. of Shares of Common Stock:
Aggregate Exercise Price Therefor:
Cashless Exercise (by Delivery of
Matured Shares):                                Yes          No

Signature of Participant                       Date

Print Participant's Name                       Participant's Social Security No.

Participant's Residence Address:               Mailing Address, if different
                                               from Residence Address:

Street                                         Street

City         State    Zip Code                 City         State    Zip Code

Acknowledged Receipt of Notice as of______________________.

STANADYNE AUTOMOTIVE HOLDING CORP.

By:

Its:<PAGE>

                                                                    EXHIBIT 10.1

                          PRIME RESPONSE GROUP, INC.

                     1998 STOCK OPTION/STOCK ISSUANCE PLAN
                     -------------------------------------

                                  ARTICLE ONE

                              GENERAL PROVISIONS
                              ------------------

     I.   PURPOSE OF THE PLAN

          This 1998 Stock Option/Stock Issuance Plan is intended to promote the
interests of Prime Response Group, Inc., a Delaware corporation, by providing
eligible persons in the Corporation's employ or service with the opportunity to
acquire a proprietary interest, or otherwise increase their proprietary
interest, in the Corporation as an incentive for them to continue in such employ
or service.

          Capitalized terms herein shall have the meanings assigned to such
terms in the attached Appendix.

     II.  STRUCTURE OF THE PLAN

          A.  The Plan shall be divided into two (2) separate equity programs:

              (i) the Option Grant Program under which eligible persons may, at
     the discretion of the Plan Administrator, be granted options to purchase
     shares of Common Stock, and

              (ii) the Stock Issuance Program under which eligible persons may,
     at the discretion of the Plan Administrator, be issued shares of Common
     Stock directly, either through the immediate purchase of such shares or as
     a bonus for services rendered the Corporation (or any Parent or
     Subsidiary).

          B.  The provisions of Articles One and Four shall apply to both equity
programs under the Plan and shall accordingly govern the interests of all
persons under the Plan.

     III. ADMINISTRATION OF THE PLAN

          A.  The Plan shall be administered by the Board.  However, any or all
administrative functions otherwise exercisable by the Board may be delegated to
the Committee.  Members of the Committee shall serve for such period of time as
the Board may determine and shall be subject to removal by the Board at any
time.  The Board may also at any time terminate the functions of the Committee
and reassume all powers and authority previously delegated to the Committee.

          B.  The Plan Administrator shall have full power and authority
(subject to the provisions of the Plan) to establish such rules and regulations
as it may deem appropriate for proper administration of the Plan and to make
such determinations under, and issue such
<PAGE>

interpretations of, the Plan and any outstanding options thereunder as it may
deem necessary or advisable. Decisions of the Plan Administrator shall be final
and binding on all parties who have an interest in the Plan or any option
thereunder.

     IV.  ELIGIBILITY

          A.  The persons eligible to participate in the Plan are as follows:

              (i)  Employees,

              (ii) non-employee members of the Board or the non-employee members
     of the board of directors of any Parent or Subsidiary, and

              (iii) consultants and other independent advisors who provide
services to the Corporation (or any Parent or Subsidiary).

          B.  The Plan Administrator shall have full authority to determine,
(i) with respect to the grants under the Option Grant Program, which eligible
persons are to receive the option grants, the time or times when those grants
are to be made, the number of shares to be covered by each such grant, the
status of the granted option as either an Incentive Option or a Non-Statutory
Option, the time or times when each option is to become exercisable, the vesting
schedule (if any) applicable to the option shares and the maximum term for which
the option is to remain outstanding, and (ii) with respect to stock issuances
under the Stock Issuance Program, which eligible persons are to receive such
stock issuances, the time or times when such issuances are to be made, the
number of shares to be issued to each Participant, the vesting schedule (if any)
applicable to the issued shares and the consideration to be paid by the
Participant for such shares.

          C.  The Plan Administrator shall have the absolute discretion either
to grant options in accordance with the Option Grant Program or to effect stock
issuances in accordance with the Stock Issuance Program.

     V.   STOCK SUBJECT TO THE PLAN

          A.  The stock issuable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock. The maximum number of shares of Common
Stock which may be issued over the term of the Plan shall not exceed 1,666,000
shares.

          B.  Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent (i) the options
expire or terminate for any reason prior to exercise in full or (ii) the options
are cancelled in accordance with the cancellation-regrant provisions of Article
Two. Unvested shares issued under the Plan and subsequently repurchased by the
Corporation, at the option exercise price or direct issue price paid per share,
pursuant to the Corporation's repurchase rights under the Plan shall be added
back to the number of shares of Common Stock reserved for issuance under the
Plan and shall accordingly be available for reissuance through one or more
subsequent option grants or direct stock issuances under the Plan.

                                       2
<PAGE>

          C.  Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and/or class of securities issuable
under the Plan and (ii) the number and/or class of securities and the exercise
price per share in effect under each outstanding option in order to prevent the
dilution or enlargement of benefits thereunder. The adjustments determined by
the Plan Administrator shall be final, binding and conclusive. In no event shall
any such adjustments be made in connection with the conversion of one or more
outstanding shares of the Corporation's preferred stock into shares of Common
Stock.

                                       3
<PAGE>

                                  ARTICLE TWO

                             OPTION GRANT PROGRAM
                             --------------------

     I.   OPTION TERMS

          Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
                                    --------
shall comply with the terms specified below.  Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.

          A.  Exercise Price.

              1.  The exercise price per share shall be fixed by the Plan
Administrator in accordance with the following provisions:

                  (i)  The exercise price per share shall not be less than
     eighty-five percent (85%) of the Fair Market Value per share of Common
     Stock on the option grant date.

                  (ii) If the person to whom the option is granted is a 10%
     Stockholder, then the exercise price per share shall not be less than one
     hundred ten percent (110%) of the Fair Market Value per share of Common
     Stock on the option grant date.

              2.  The exercise price shall become immediately due upon exercise
of the option and shall, subject to the provisions of Section I of Article Four
and the documents evidencing the option, be payable in cash or check made
payable to the Corporation. Should the Common Stock be registered under Section
12 of the 1934 Act at the time the option is exercised, then the exercise price
may also be paid as follows:

                  (i)  in shares of Common Stock held for the requisite period
     necessary to avoid a charge to the Corporation's earnings for financial
     reporting purposes and valued at Fair Market Value on the Exercise Date, or

                  (ii) to the extent the option is exercised for vested shares,
     through a special sale and remittance procedure pursuant to which the
     Optionee shall concurrently provide irrevocable instructions (A) to a
     Corporation-designated brokerage firm to effect the immediate sale of the
     purchased shares and remit to the Corporation, out of the sale proceeds
     available on the settlement date, sufficient funds to cover the aggregate
     exercise price payable for the purchased shares plus all applicable
     Federal, state and local income and employment taxes required to be
     withheld by the Corporation by reason of such exercise and (B) to the
     Corporation to deliver the certificates for the purchased shares directly
     to such brokerage firm in order to complete the sale.

                                       4
<PAGE>

          Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.

          B.  EXERCISE AND TERM OF OPTIONS.  Each option shall be exercisable at
              ----------------------------
such time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option grant. However, no option shall have a term in excess of ten (10)
years measured from the option grant date.

          C.  EFFECT OF TERMINATION OF SERVICE.
              --------------------------------

              (i)  The following provisions shall govern the exercise of any
     options held by the Optionee at the time of cessation of Service or death:

              (ii) Should the Optionee cease to remain in Service for any reason
     other than death, Disability or Misconduct, then the Optionee shall have a
     period of three (3) months following the date of such cessation of Service
     during which to exercise each outstanding option held by such Optionee.

              (iii)  Should Optionee's Service terminate by reason of
     Disability, then the Optionee shall have a period of twelve (12) months
     following the date of such cessation of Service during which to exercise
     each outstanding option held by such Optionee.

              (iv) If the Optionee dies while holding an outstanding option,
     then the personal representative of his or her estate or the person or
     persons to whom the option is transferred pursuant to the Optionee's will
     or the laws of inheritance shall have a twelve (12)-month period following
     the date of the Optionee's death to exercise such option.

              (v)  Under no circumstances, however, shall any such option be
     exercisable after the specified expiration of the option term.

              (vi) During the applicable post-Service exercise period, the
     option may not be exercised in the aggregate for more than the number of
     vested shares for which the option is exercisable on the date of the
     Optionee's cessation of Service. Upon the expiration of the applicable
     exercise period or (if earlier) upon the expiration of the option term, the
     option shall terminate and cease to be outstanding for any vested shares
     for which the option has not been exercised. However, the option shall,
     immediately upon the Optionee's cessation of Service, terminate and cease
     to be outstanding with respect to any and all option shares for which the
     option is not otherwise at the time exercisable or in which the Optionee is
     not otherwise at that time vested.

              (vii)  Should Optionee's Service be terminated for Misconduct,
     then all outstanding options held by the Optionee shall terminate
     immediately and cease to remain outstanding.

                                       5
<PAGE>

              2.  The Plan Administrator shall have the discretion, exercisable
either at the time an option is granted or at any time while the option remains
outstanding, to:

                  (i)  extend the period of time for which the option is to
     remain exercisable following Optionee's cessation of Service or death from
     the limited period otherwise in effect for that option to such greater
     period of time as the Plan Administrator shall deem appropriate, but in no
     event beyond the expiration of the option term, and/or

                  (ii) permit the option to be exercised, during the applicable
     post-Service exercise period, not only with respect to the number of vested
     shares of Common Stock for which such option is exercisable at the time of
     the Optionee's cessation of Service but also with respect to one or more
     additional installments in which the Optionee would have vested under the
     option had the Optionee continued in Service.

          D.   STOCKHOLDER RIGHTS.  The holder of an option shall have no
               ------------------
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become the
recordholder of the purchased shares.

          E.  UNVESTED SHARES.  The Plan Administrator shall have the discretion
              ---------------
to grant options which are exercisable for unvested shares of Common Stock.
Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right. The Plan Administrator may not impose a vesting schedule upon
any option grant or the shares of Common Stock subject to that option which is
more restrictive than twenty percent (20%) per year vesting, with the initial
vesting to occur not later than one (1) year after the option grant date.
However, such limitation shall not be applicable to any option grants made to
individuals who are officers of the Corporation, non-employee Board members or
independent consultants.

          F.  FIRST REFUSAL RIGHTS.  Until such time as the Common Stock is
              --------------------
first registered under Section 12 of the 1934 Act, the Corporation shall have
the right of first refusal with respect to any proposed disposition by the
Optionee (or any successor in interest) of any shares of Common Stock issued
under the Plan. Such right of first refusal shall be exercisable in accordance
with the terms established by the Plan Administrator and set forth in the
document evidencing such right.

          G.  LIMITED TRANSFERABILITY OF OPTIONS.  During the lifetime of the
              ----------------------------------
Optionee, the option shall be exercisable only by the Optionee and shall not be
assignable or transferable other than by will or by the laws of descent and
distribution following the Optionee's death.

          H.  WITHHOLDING.  The Corporation's obligation to deliver shares of
              -----------
Common Stock upon the exercise of any options granted under the Plan shall be
subject to the satisfaction of all applicable Federal, state and local income
and employment tax withholding requirements.

                                       6
<PAGE>

     II.  INCENTIVE OPTIONS

          The terms specified below shall be applicable to all Incentive
Options.  Except as modified by the provisions of this Section II, all the
provisions of the Plan shall be applicable to Incentive Options.  Options which
are specifically designated as Non-Statutory Options shall not be subject to the
terms of this Section II.

          A.  ELIGIBILITY.  Incentive Options may only be granted to Employees.
              -----------

          B.  EXERCISE PRICE.  The exercise price per share shall not be less
              --------------
than one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the option grant date.

          C.  DOLLAR LIMITATION.  The aggregate Fair Market Value of the shares
              -----------------
of Common Stock (determined as of the respective date or dates of grant) for
which one or more options granted to any Employee under the Plan (or any other
option plan of the Corporation or any Parent or Subsidiary) may for the first
time become exercisable as Incentive Options during any one (1) calendar year
shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the Employee holds two (2) or more such options which become exercisable
for the first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.

          D.  10% STOCKHOLDER.  If any Employee to whom an Incentive Option is
              ---------------
granted is a 10% Stockholder, then the option term shall not exceed five (5)
years measured from the option grant date.

     III. CORPORATE TRANSACTION

          A.  The shares subject to each option outstanding under the Plan at
the time of a Corporate Transaction shall automatically vest in full so that
each such option shall, immediately prior to the effective date of the Corporate
Transaction, become fully exercisable for all of the shares of Common Stock at
the time subject to that option and may be exercised for any or all of those
shares as fully-vested shares of Common Stock. However, the shares subject to an
outstanding option shall NOT vest on such an accelerated basis if and to the
extent: (i) such option is assumed by the successor corporation (or parent
thereof) in the Corporate Transaction and the Corporation's repurchase rights
with respect to the unvested option shares are concurrently assigned to such
successor corporation (or parent thereof) or (ii) such option is to be replaced
with a cash incentive program of the successor corporation which preserves the
spread existing on the unvested option shares at the time of the Corporate
Transaction and provides for subsequent payout in accordance with the same
vesting schedule applicable to those unvested option shares or (iii) the
acceleration of such option is subject to other limitations imposed by the Plan
Administrator at the time of the option grant.

          B.  All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Corporate Transaction,
except to the extent: (i) those repurchase rights are assigned to the successor
corporation (or parent thereof) in connection with such Corporate

                                       7
<PAGE>

Transaction or (ii) such accelerated vesting is precluded by other limitations
imposed by the Plan Administrator at the time the repurchase right is issued.

          C.  Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).

          D.  Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction, had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class of
securities available for issuance under the Plan following the consummation of
such Corporate Transaction and (ii) the exercise price payable per share under
each outstanding option, provided the aggregate exercise price payable for such
securities shall remain the same.

          E.  The Plan Administrator shall have the discretion, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to provide for the automatic acceleration (in whole or in part) of
one or more outstanding options (and the immediate termination of the
Corporation's repurchase rights with respect to the shares subject to those
options) upon the occurrence of a Corporate Transaction, whether or not those
options are to be assumed in the Corporate Transaction.

          F.  The Plan Administrator shall also have full power and authority,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to structure such option so that the shares subject
to that option will automatically vest on an accelerated basis should the
Optionee's Service terminate by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Corporate Transaction in which the option is assumed and the
repurchase rights applicable to those shares do not otherwise terminate. Any
option so accelerated shall remain exercisable for the fully-vested option
shares until the earlier of (i) the expiration of the option term or (ii) the
expiration of the one (1)-year period measured from the effective date of the
Involuntary Termination. In addition, the Plan Administrator may provide that
one or more of the outstanding repurchase rights with respect to shares held by
the Optionee at the time of such Involuntary Termination shall immediately
terminate on an accelerated basis, and the shares subject to those terminated
rights shall accordingly vest at that time.

          G.  The portion of any Incentive Option accelerated in connection with
a Corporate Transaction shall remain exercisable as an Incentive Option only to
the extent the applicable One Hundred Thousand Dollar limitation is not
exceeded. To the extent such dollar limitation is exceeded, the accelerated
portion of such option shall be exercisable as a Non-Statutory Option under the
Federal tax laws.

          H.  The grant of options under the Plan shall in no way affect the
right of the Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.

                                       8
<PAGE>

     IV.  CANCELLATION AND REGRANT OF OPTIONS

          The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Plan and to grant in
substitution therefor new options covering the same or different number of
shares of Common Stock but with an exercise price per share based on the Fair
Market Value per share of Common Stock on the new option grant date.

                                       9
<PAGE>

                                 ARTICLE THREE

                            STOCK ISSUANCE PROGRAM

     I.   STOCK ISSUANCE TERMS

          Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening option grants.
Each such stock issuance shall be evidenced by a Stock Issuance Agreement which
complies with the terms specified below.

          A.  PURCHASE PRICE.
              --------------

              1.  The purchase price per share shall be fixed by the Plan
Administrator but shall not be less than eighty-five percent (85%) of the Fair
Market Value per share of Common Stock on the issue date. However, the purchase
price per share of Common Stock issued to a 10% Stockholder shall not be less
than one hundred and ten percent (110%) of such Fair Market Value.

              2.  Subject to the provisions of Section I of Article Four, shares
of Common Stock may be issued under the Stock Issuance Program for any of the
following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:

                  (i)  cash or check made payable to the Corporation, or

                  (ii) past services rendered to the Corporation (or any Parent
or Subsidiary).

          B.  VESTING PROVISIONS.
              ------------------

              1.  Shares of Common Stock issued under the Stock Issuance Program
may, in the discretion of the Plan Administrator, be fully and immediately
vested upon issuance or may vest in one or more installments over the
Participant's period of Service or upon attainment of specified performance
objectives. However, the Plan Administrator may not impose a vesting schedule
upon any stock issuance effected under the Stock Issuance Program which is more
restrictive than twenty percent (20%) per year vesting, with initial vesting to
occur not later than one (1) year after the issuance date. Such limitation shall
not apply to any Common Stock issuances made to the officers of the Corporation,
non-employee Board members or independent consultants.

              2.  Any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to

                                       10
<PAGE>

the Participant's unvested shares of Common Stock and (ii) such escrow
arrangements as the Plan Administrator shall deem appropriate.

              3.  The Participant shall have full stockholder rights with
respect to any shares of Common Stock issued to the Participant under the Stock
Issuance Program, whether or not the Participant's interest in those shares is
vested. Accordingly, the Participant shall have the right to vote such shares
and to receive any regular cash dividends paid on such shares.

              4.  Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further stockholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to such surrendered shares.

              5.  The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock (or
other assets attributable thereto) which would otherwise occur upon the non-
completion of the vesting schedule applicable to such shares. Such waiver shall
result in the immediate vesting of the Participant's interest in the shares of
Common Stock as to which the waiver applies. Such waiver may be effected at any
time, whether before or after the Participant's cessation of Service or the
attainment or non-attainment of the applicable performance objectives.

          C.  FIRST REFUSAL RIGHTS.  Until such time as the Common Stock is
              --------------------
first registered under Section 12 of the 1934 Act, the Corporation shall have
the right of first refusal with respect to any proposed disposition by the
Participant (or any successor in interest) of any shares of Common Stock issued
under the Stock Issuance Program. Such right of first refusal shall be
exercisable in accordance with the terms established by the Plan Administrator
and set forth in the document evidencing such right.

     II.  CORPORATE TRANSACTION

          A.  Upon the occurrence of a Corporate Transaction, all outstanding
repurchase rights under the Stock Issuance Program shall terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, except to the extent: (i) those repurchase
rights are assigned to the successor corporation (or parent thereof) in
connection with such Corporate Transaction or (ii) such accelerated vesting is
precluded by other limitations imposed by the Plan Administrator at the time the
repurchase right is issued.

          B.  The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase rights with respect to those shares remain
outstanding, to provide that those rights shall

                                       11
<PAGE>

automatically terminate on an accelerated basis, and the shares of Common Stock
subject to those terminated rights shall immediately vest, in the event the
Participant's Service should subsequently terminate by reason of an Involuntary
Termination within a designated period (not to exceed eighteen (18) months)
following the effective date of any Corporate Transaction in which those
repurchase rights are assigned to the successor corporation (or parent thereof).

     III. SHARE ESCROW/LEGENDS

          Unvested shares may, in the Plan Administrator's discretion, be held
in escrow by the Corporation until the Participant's interest in such shares
vests or may be issued directly to the Participant with restrictive legends on
the certificates evidencing those unvested shares.

                                       12
<PAGE>

                                 ARTICLE FOUR

                                 MISCELLANEOUS

     I.   FINANCING

          The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by delivering a
full-recourse, interest bearing promissory note payable in one or more
installments.  The terms of any such promissory note (including the interest
rate and the terms of repayment) shall be established by the Plan Administrator
in its sole discretion.  In no event may the maximum credit available to the
Optionee or Participant exceed the sum of (i) the aggregate option exercise
price or purchase price payable for the purchased shares (less the par value of
those shares) plus (ii) any Federal, state and local income and employment tax
liability incurred by the Optionee or the Participant in connection with the
option exercise or share purchase.

     II.  EFFECTIVE DATE AND TERM OF PLAN

          A.  The Plan shall become effective when adopted by the Board, but no
option granted under the Plan may be exercised, and no shares shall be issued
under the Plan, until the Plan is approved by the Corporation's stockholders. If
such stockholder approval is not obtained within twelve (12) months after the
date of the Board's adoption of the Plan, then all options previously granted
under the Plan shall terminate and cease to be outstanding, and no further
options shall be granted and no shares shall be issued under the Plan. Subject
to such limitation, the Plan Administrator may grant options and issue shares
under the Plan at any time after the effective date of the Plan and before the
date fixed herein for termination of the Plan.

          B.  The Plan shall terminate upon the earliest of (i) the expiration
of the ten (10)-year period measured from the date the Plan is adopted by the
Board, (ii) the date on which all shares available for issuance under the Plan
shall have been issued as vested shares or (iii) the termination of all
outstanding options in connection with a Corporate Transaction. All options and
unvested stock issuances outstanding at the time of a clause (i) termination
event shall continue to have full force and effect in accordance with the
provisions of the documents evidencing such options or issuances.

     III. AMENDMENT OF THE PLAN

          A.  The Board shall have complete and exclusive power and authority to
amend or modify the Plan in any or all respects. However, no such amendment or
modification shall adversely affect the rights and obligations with respect to
options or unvested stock issuances at the time outstanding under the Plan
unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require stockholder approval
pursuant to applicable laws and regulations.

          B.  Options may be granted under the Option Grant Program and shares
may be issued under the Stock Issuance Program which are in each instance in
excess of the number

                                       13
<PAGE>

of shares of Common Stock then available for issuance under the Plan, provided
any excess shares actually issued under those programs shall be held in escrow
until there is obtained stockholder approval of an amendment sufficiently
increasing the number of shares of Common Stock available for issuance under the
Plan. If such stockholder approval is not obtained within twelve (12) months
after the date the first such excess issuances are made, then (i) any
unexercised options granted on the basis of such excess shares shall terminate
and cease to be outstanding and (ii) the Corporation shall promptly refund to
the Optionees and the Participants the exercise or purchase price paid for any
excess shares issued under the Plan and held in escrow, together with interest
(at the applicable Short Term Federal Rate) for the period the shares were held
in escrow, and such shares shall thereupon be automatically cancelled and cease
to be outstanding.

     IV.  USE OF PROCEEDS

          Any cash proceeds received by the Corporation from the sale of shares
of Common Stock under the Plan shall be used for general corporate purposes.

     V.   WITHHOLDING

          The Corporation's obligation to deliver shares of Common Stock upon
the exercise of any options or upon the vesting of any shares issued under the
Plan shall be subject to the satisfaction of all applicable Federal, state and
local income and employment tax withholding requirements.

     VI.  REGULATORY APPROVALS

          The implementation of the Plan, the granting of any options under the
Plan and the issuance of any shares of Common Stock (i) upon the exercise of any
option or (ii) under the Stock Issuance Program shall be subject to the
Corporation's procurement of all approvals and permits required by regulatory
authorities having jurisdiction over the Plan, the options granted under it and
the shares of Common Stock issued pursuant to it.

     VII. NO EMPLOYMENT OR SERVICE RIGHTS

          Nothing in the Plan shall confer upon the Optionee or the Participant
any right to continue in Service for any period of specific duration or
interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.

    VIII. FINANCIAL REPORTS

          The Corporation shall deliver a balance sheet and an income statement
at least annually to each individual holding an outstanding option under the
Plan, unless such individual is a key Employee whose duties in connection with
the Corporation (or any Parent or Subsidiary) assure such individual access to
equivalent information.

                                       14
<PAGE>

                                   APPENDIX
                                   --------

     A.  The following definitions shall be in effect under the Plan:

     B.  BOARD shall mean the Corporation's Board of Directors.
         -----

     C.  CODE shall mean the Internal Revenue Code of 1986, as amended.
         ----

     D.  COMMITTEE shall mean a committee of two (2) or more Board members
         ---------
appointed by the Board to exercise one or more administrative functions under
the Plan.

     E.  COMMON STOCK shall mean the Corporation's common stock.
         ------------

     F.  CORPORATE TRANSACTION shall mean either of the following stockholder-
approved transactions to which the Corporation is a party:

         (i)  a merger or consolidation in which securities possessing more than
     fifty percent (50%) of the total combined voting power of the Corporation's
     outstanding securities are transferred to a person or persons different
     from the persons holding those securities immediately prior to such
     transaction, or

         (ii) the sale, transfer or other disposition of all or substantially
     all of the Corporation's assets in complete liquidation or dissolution of
     the Corporation.

     G.  CORPORATION shall mean Prime Response Group, Inc., a Delaware
         -----------
corporation.

     H.  DISABILITY shall mean the inability of the Optionee or the Participant
         ----------
to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment and shall be determined by the Plan
Administrator on the basis of such medical evidence as the Plan Administrator
deems warranted under the circumstances.

     I.  EMPLOYEE shall mean an individual who is in the employ of the
         --------
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.

     J.  EXERCISE DATE shall mean the date on which the Corporation shall have
         -------------
received written notice of the option exercise.

     K.  FAIR MARKET VALUE per share of Common Stock on any relevant date shall
         -----------------
be determined in accordance with the following provisions:

         (i) If the Common Stock is at the time traded on the Nasdaq National
     Market, then the Fair Market Value shall be the closing selling price per
     share of Common Stock on the date in question, as such price is reported by
     the

                                     A-1.
<PAGE>

     National Association of Securities Dealers on the Nasdaq National Market.
     If there is no closing selling price for the Common Stock on the date in
     question, then the Fair Market Value shall be the closing selling price on
     the last preceding date for which such quotation exists.

         (ii) If the Common Stock is at the time listed on any Stock Exchange,
     then the Fair Market Value shall be the closing selling price per share of
     Common Stock on the date in question on the Stock Exchange determined by
     the Plan Administrator to be the primary market for the Common Stock, as
     such price is officially quoted in the composite tape of transactions on
     such exchange. If there is no closing selling price for the Common Stock on
     the date in question, then the Fair Market Value shall be the closing
     selling price on the last preceding date for which such quotation exists.

         (iii) If the Common Stock is at the time neither listed on any Stock
     Exchange nor traded on the Nasdaq National Market, then the Fair Market
     Value shall be determined by the Plan Administrator after taking into
     account such factors as the Plan Administrator shall deem appropriate.

     L.  INCENTIVE OPTION shall mean an option which satisfies the requirements
         ----------------
of Code Section 422.

     M.  INVOLUNTARY TERMINATION shall mean the termination of the Service of
         -----------------------
any individual which occurs by reason of:

         (i) such individual's involuntary dismissal or discharge by the
     Corporation for reasons other than Misconduct, or

         (ii) such individual's voluntary resignation following (A) a change in
     his or her position with the Corporation which materially reduces his or
     her duties and responsibilities or the level of management to which he or
     she reports, (B) a reduction in his or her level of compensation (including
     base salary, fringe benefits and target bonuses under any corporate
     performance-based bonus or incentive programs) by more than fifteen percent
     (15%) or (C) a relocation of such individual's place of employment by more
     than fifty (50) miles, provided and only if such change, reduction or
     relocation is effected without the individual's consent.

     N.  MISCONDUCT shall mean the commission of any act of fraud, embezzlement
         ----------
or dishonesty by the Optionee or Participant, any unauthorized use or disclosure
by such person of confidential information or trade secrets of the Corporation
(or any Parent or Subsidiary), or any other intentional misconduct by such
person adversely affecting the business or affairs of the Corporation (or any
Parent or Subsidiary) in a material manner. The foregoing definition shall not
be deemed to be inclusive of all the acts or omissions which the Corporation (or
any Parent or Subsidiary) may consider as grounds for the dismissal or discharge
of any Optionee, Participant or other person in the Service of the Corporation
(or any Parent or Subsidiary).

     O.  1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
         --------

                                     A-2.

<PAGE>

     P.  NON-STATUTORY OPTION shall mean an option not intended to satisfy the
         --------------------
requirements of Code Section 422.

     Q.  OPTION GRANT PROGRAM shall mean the option grant program in effect
         --------------------
under the Plan.

     R.  OPTIONEE shall mean any person to whom an option is granted under the
         --------
 Plan.

     S.  PARENT shall mean any corporation (other than the Corporation) in an
         ------
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.

     T.  PARTICIPANT shall mean any person who is issued shares of Common Stock
         -----------
under the Stock Issuance Program.

     U.  PLAN shall mean the Corporation's 1998 Stock Option/Stock Issuance
         ----
Plan, as set forth in this document.

     V.  PLAN ADMINISTRATOR shall mean either the Board or the Committee acting
         ------------------
in its capacity as administrator of the Plan.

     W.  SERVICE shall mean the provision of services to the Corporation (or any
         -------
Parent or Subsidiary) by a person in the capacity of an Employee, a non-employee
member of the board of directors or a consultant or independent advisor, except
to the extent otherwise specifically provided in the documents evidencing the
option grant.

     X.  STOCK EXCHANGE shall mean either the American Stock Exchange or the New
         --------------
York Stock Exchange.

     Y.  STOCK ISSUANCE AGREEMENT shall mean the agreement entered into by the
         ------------------------
Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.

     Z.  STOCK ISSUANCE PROGRAM shall mean the stock issuance program in effect
         ----------------------
under the Plan.

     AA. SUBSIDIARY shall mean any corporation (other than the Corporation) in
         ----------
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.

     BB. 10% STOCKHOLDER shall mean the owner of stock (as determined under Code
         ---------------
Section 424(d)) possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Corporation (or any Parent or
Subsidiary).

                                     A-3.
<PAGE>

                          PRIME RESPONSE GROUP, INC.

               ADDENDUM TO 1998 STOCK OPTION/STOCK ISSUANCE PLAN

          1.  The Purpose of the Addendum.  The purpose of this Addendum is to
              ---------------------------
amend the Prime Response Group, Inc. 1998 Stock Option/Stock Issuance Plan (the
"Plan") in such respects as are necessary to enable it to be treated for the
purposes of taxation in the United Kingdom and in particular the Income and
Corporation Taxes Act 1988, Sections 185 - 187 and Schedule 9 as an Approved
Share Option Scheme in relation to the grant of any Option under the Plan or the
exercise of any Option under the Plan by a person who is an subject to taxation
in the United Kingdom.

          2.  Definitions.
              -----------

              2.1  Except where the context requires otherwise or as provided
herein terms defined in the Plan shall bear the same meanings in the Addendum.

              2.2  Addendum shall mean this Addendum to the 1998 Stock
                   --------
Option/Stock Issuance Plan.

                   Associated Company shall have the meaning as assigned to such
                   ------------------
term in Section 416 of ICTA 1988.

                   Eligible U.K. Employee shall mean any director of the
                   ----------------------
Corporation who is required to devote to his duties not less than 25 hours per
week (excluding meal breaks) or any employee (other than one who is a director)
of the Corporation who is required under the terms of his employment to provide
no less than an aggregate of 20 hours per week of service (excluding meal
breaks), provided that the director or employee is not precluded by paragraph 8
of Schedule 9 from participating in the Plan as amended by the Addendum.

                   ICTA 1988 shall mean The Income And Corporation Taxes Act
                   ---------
1988 (of the United Kingdom).

                   Inland Revenue shall mean the Inland Revenue of the United
                   --------------
Kingdom.

                   Market Value per share of Common Stock as of any date shall
                   ------------
be determined as follows:

                   (i) on any day when the Common Stock is not quoted on the New
                   York Stock Exchange or the American Stock Exchange its market
                   value as determined in accordance with Part VIII of the
                   Taxation of Chargeable Gains Act 1992 (of the U.K.) and
                   agreed for the purposes of the Plan with the Inland Revenue
                   Shares Valuation Division on or before that day; on any day
                   when the Common Stock is quoted on the New York Stock
                   Exchange or the American Stock Exchange, its Market Value
                   shall be the closing sales price for such stock (or the
                   closing bid, if no sales were reported) as

                                     A-4.
<PAGE>

                   quoted on such Exchange or by the National Association of
                   Securities Dealers for the last market trading day prior to
                   that day as reported in The Wall Street Journal.

                   Schedule 9 shall mean Schedule 9 ICTA 1988.
                   ----------

                   Subsisting Option shall mean a U.K. Option which has neither
                   -----------------
lapsed nor been exercised.

                   U.K. Option shall mean an Option granted to an Employee or
                   -----------
Consultant which is an Option to acquire Common Stock which satisfies the
conditions specified in paragraphs 10-14 inclusive of Schedule 9.

              2.3  Where the context admits the singular shall include the
plural and vice versa and the masculine shall include the feminine.

              2.4  Any references in the Addendum to any enactment includes a
reference to that enactment as from time to time modified, extended or re-
enacted.

          3.  General Limitations on Grants to Employees.
              ------------------------------------------

              3.1  In relation to all Employees and the grant of any U.K. Option
to, or the exercise of any U.K. Option by, such a person, the provisions of the
Plan shall be read and take effect subject to the terms of this Addendum.

              3.2  A U.K. Option shall only be capable of exercise in conformity
with the provisions of this Addendum.

          4.  Administration of the Plan.
              --------------------------

              4.1 The powers conferred on the Plan Administrator by Section IV
of Article Two of the Plan shall not apply in relation to a U.K. Option.

              4.2 None of the other powers conferred on the Plan Administrator
by the Plan shall be exercisable so as to prejudice Inland Revenue approval of
the Addendum under Schedule 9.

          5.  Eligibility.
              -----------

              5.1  Any U.K. Option granted to an Eligible U.K. Employee shall be
limited and take effect so that the aggregate Market Value of the shares of
Common Stock subject to that U.K. Option when aggregated with the Market Value
of the shares of Common Stock subject to Subsisting Options shall not exceed
(Pounds)30,000 sterling.

              5.2  For the purposes of Clause 5.1 above:

                   5.2.1  U.K. Options shall include all U.K. Options granted
pursuant to this Addendum and all options granted under any other scheme,
approved under

                                     A-5.
<PAGE>

Schedule 9, and established by the Corporation or any Associated Company, not
being a savings related share option scheme.

                   5.2.2  The Market Value of the shares of Common Stock shall
be calculated as of the Grant Date or such earlier time as may have been agreed
with the Inland Revenue.

                   5.2.3  The Market Value of the shares of Common Stock at any
time if quoted or determined in a currency other than Pounds Sterling shall be
converted to sterling at the exchange rate in force at that time.

          6.  Term of Plan.  The provisions of Section II of Article Four
              ------------
of the Plan shall apply save that no U.K. Option shall be granted prior to the
date on which the Addendum is approved by the Board of Inland Revenue under
Schedule 9.

              7.  Option Exercise Price.
                  ---------------------

                  7.1  Notwithstanding the provisions of Section I.A of
Article Two of the Plan, the per share exercise price for the shares of Common
Stock subject to a U.K. Option shall not be less than the Market Value of the
shares on the date of grant.

                  7.2  Notwithstanding clause (i) Section I.A.2 of Article Two
and Section I of Article Four of the Plan, the exercise price of an option may
not be paid in shares of Common Stock or through a promissory note.

              8.  Exercise of U.K. Options.
                  ------------------------

                  8.1  Subject to Section I.C of Article Two of the Plan any
U.K. Option which has not lapsed may not be exercised before the third
anniversary of the Grant Date.

                  8.2  Any performance criteria to which exercise of any U.K.
Option may be subject shall be of no effect until it is accepted by the Inland
Revenue.

                  8.3  No U.K. Option may be exercised by an individual at any
time when he is precluded by paragraph 8 of Schedule 9 from participating in the
Plan as amended by the Addendum.

                  8.4  No U.K. Option may be exercised at any time when the
shares of Common Stock which may be thereby acquired do not satisfy the
conditions specified in paragraphs 10-14 of Schedule 9.

                  8.5  Shares of Common Stock shall be allotted and issued
pursuant to a notice of exercise within 30 days of the date of exercise and a
definitive stock certificate issued to the Optionee in respect thereof.

                                     A-6.
<PAGE>

              9.  Adjustments Upon Changes in Capitalization or Corporate
                  -------------------------------------------------------
          Transaction.
          -----------

                  9.1  No adjustment to a U.K. Option made pursuant to Section
V.C.C of Article One of the Plan shall:

                       9.1.1  be made until it has prior approval of the Board
of Inland Revenue;

                       9.1.2  cause the aggregate amount payable on exercise of
a U.K. Option in full to increase;

                       9.1.3  cause the subscription price for a share of Common
Stock to fall below its nominal value;

                       9.1.4  result in the shares of Common Stock, which are
the subject of a U.K. Option, ceasing to satisfy the conditions specified in
paragraphs 10-14 inclusive of Schedule 9.

                  9.2  The provisions of Section III of Article Two of the Plan
shall not apply for the benefit of the Optionee of a U.K. Option so as to confer
any new rights (within the meaning of paragraph 15 of Schedule 9) on the
Optionee unless those new rights satisfy the conditions contained in the said
paragraph 15 and are obtained by the Optionee within the appropriate period as
also defined in the said paragraph 15.

              10. Amendment and Termination of the Plan.
                  -------------------------------------

                  10.1  No amendment to the Plan as amended by the Addendum
which in any way affects the grant or exercise of any U.K. Option or the rights
of any Optionee in relation to a U.K. Option shall take effect until approved by
the Board of Inland Revenue.

              11.  Exchange of Options.  The exchange of an option granted under
                   -------------------
the Addendum under the provisions of Section III of Article Two of the Plan
shall only take place in accordance with the provisions of Paragraph 15 of
Schedule 9 to the Act.

              12.  Stock Issuance Program.  Not stock shall be issued under this
                   ----------------------
Addendum pursuant to Article Three of the Plan.

              13.  Effective Date.  No U.K. options may be granted until such
                   --------------
time as the Plan (including the Addendum) has been approved by the Board of
Inland Revenue as an Approved Share Option Scheme.

                                     A-7.

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