<PAGE>

                                                                    EXHIBIT 10.1

                            MEDICHEM RESEARCH, INC.

                          Incentive Compensation Plan


                                   Article 1

                          Purpose and Effective Date

     1.1  Purpose.  The purpose of this Plan is to permit the Company to grant
stock options and award restricted stock to selected officers, directors,
consultants and employees of the Company and its subsidiaries and to other
eligible persons, in order to reward them for their efforts on the Company's
behalf and to provide an additional incentive to contribute to the Company's
attainment of its performance objectives.

     1.2  Effective Date.  The Plan shall become effective on January 1, 1998.

     1.3  Term.  The Plan shall have a term of 10 years expiring on December 31,
2007.  No Option may be granted and no Restricted Stock may be awarded under the
Plan after its expiration.

                                   Article 2

                                  Definitions

     2.1  Board means the Company's Board of Directors or the committee of the
Board to which the Board has delegated its authority in accordance with
Paragraph 6.1.

     2.2  Common Stock means the Company's Common Stock, no par value.

     2.3  Company means MediChem Research, Inc., an Illinois corporation.

     2.4  Employee means a full-time or part-time employee of the Company or of
any wholly-owned subsidiary of the Company.

     2.5  Expiration Date means (i) in the case of an Option which is or may
become exercisable in full at one time, the last day on which the Option may be
exercised, and (ii) in the case of an Installment, the last day on which the
Installment may be exercised.

     2.6  Fair Market Value means the fair market value as determined by the
Board in good faith and a reasonable manner.

                                       1
<PAGE>

     2.7   Grant Date means the date that an Option is granted.

     2.8   Incentive Stock Option is defined in Article 4.

     2.9   Installment means an installment of an Option which is or may become
exercisable in installments.

     2.10  Nonstatutory Stock Option is defined in Article 4.

     2.11  Option means an option to purchase shares of Common Stock granted
under this Plan.

     2.12  Option Agreement is defined in Paragraph 7.6.

     2.13  Plan means this plan, as it may be amended.  The name of the Plan is
the "MediChem Research, Inc. Incentive Compensation Plan."

     2.14  Restricted Stock means shares of Common Stock awarded under the Plan.

     2.15  Restricted Stock Agreement is defined in Article 9.

     2.16  10% Shareholder means an Employee who, at the time that he or she is
granted an Incentive Stock Option, owns stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company.

     2.17  Termination Date means the date of termination of an Employee's
employment by the Company or a wholly-owned subsidiary of the Company.

     2.18  Underlying Shares means the shares of Common Stock for which an
Option or Installment is or may become exercisable.

                                   Article 3

                        Shares Available Under the Plan

     3.1   Maximum Number of Shares. The maximum combined total number of shares
of Common Stock for which Options may be granted and shares of Restricted Stock
may be awarded under this Plan is 40,000 (subject to adjustment as provided in
Paragraph 10.1).

     3.2   Shares Added Back. If an Option or Installment expires unexercised or
is surrendered prior to December 31, 2007, the number of Underlying Shares in
respect of the Option or Installment shall be added back to the number of shares
of Common Stock for which Options may be granted and shares of Restricted Stock
may be awarded under this Plan.

                                       2
<PAGE>

Similarly, if the Company repurchases any shares of Restricted Stock pursuant to
a Restricted Stock Agreement (or otherwise), the number of shares repurchased
shall be added back to the number of shares of Common Stock for which Options
may be granted and shares of Restricted Stock may be awarded under this Plan.

                                   Article 4

                               Types of Options

     Two types of Options may be granted under this Plan:  (i) incentive stock
options intended to satisfy the requirements of (S) 422 of the Internal Revenue
Code of 1986 ("Incentive Stock Options") and (ii) nonstatutory stock options
("Nonstatutory Stock Options").

                                   Article 5

                                  Eligibility

     Nonstatutory Stock Options may be granted, and Restricted Stock may be
awarded, only to (i) Employees and (ii) officers and directors of and
consultants to the Company who are not Employees.  Incentive Stock Options may
be granted only to Employees.

                                   Article 6

                                Administration

     6.1  Board.  This Plan shall be administered by the Board.  The Board may
delegate its authority to a standing committee of the Board or to a committee
appointed by the Board for that  purpose.

     6.2  Powers.  The Board shall have sole authority to grant Options and to
award Restricted Stock.  Subject to the express provisions of this Plan, the
Board may: (i) select the persons to whom Options are granted or Restricted
Stock is awarded; (ii) designate an Option as an Incentive Stock Option or
Nonstatutory Stock Option; (iii) determine the number of shares of Common Stock
for which an Option is granted or Restricted Stock is awarded; and (iv)
determine the other terms, conditions, restrictions and limitations applicable
to an Option or an award of Restricted Stock.

     6.3  Interpretation.  Subject to the express provisions of this Plan, the
Board may interpret this Plan, adopt and revise policies and procedures to
administer this Plan, and make all determinations required for this Plan's
administration.  The actions of the Board shall be final and binding.

                                       3
<PAGE>

                                   Article 7

                                 Stock Options

     7.1  Exercise Price. The Board shall determine the exercise price of each
Option. The exercise price of an Incentive Stock Option may not be less than the
Fair Market Value of the Underlying Shares on the Grant Date.

     7.2  Term. The Board shall determine (i) whether each Option shall be
exercisable in full at one time or in Installments at different times and (ii)
the time or times at which the Option or Installments shall become and remain
exercisable. No Option or Installment may have an Expiration Date more than 10
years from the Grant Date. The Board may accelerate the exercisability of any
Option or Installment at any time.

     7.3  Termination of Employment. Any Option or Installment held by an
Employee which is unexercisable as of the Employee's Termination Date shall
expire on the Termination Date. Any Option or Installment held by an Employee
which is exercisable on the Employee's Termination Date shall expire on the
Termination Date unless otherwise provided in the Option Agreement (as defined
below) or unless the expiration date is extended by the Board. The Board may
extend the expiration of an exercisable Nonstatutory Stock Option (or
Installment of a Nonstatutory Stock Option) to any date ending on or before the
applicable Expiration Date. The Board may extend the expiration of an
exercisable Incentive Stock Option (or Installment of an Incentive Stock Option)
to the earlier of (i) a date no later than 90 days after the Termination Date or
(ii) the applicable Expiration Date, unless the Employee's termination occurred
as a result of the Employee's death. In that case, the Board may extend the
expiration to the earlier of (i) a date no later than the first anniversary of
the Employee's death or (ii) the applicable Expiration Date.

     7.4  Transferability. No Option or Installment may be transferred, assigned
or pledged (whether by operation of law or otherwise), except as provided by
will or the applicable laws of intestacy, and no Option shall be subject to
execution, attachment or similar process. An Option or Installment may be
exercised only by the person to whom it was granted, except in the case of his
or her death, when it may be exercised by the person or persons to whom it
passes by will or inheritance.

     7.5  ISO Limitations. Notwithstanding anything to the contrary in
Paragraphs 7.1 and 7.2: (i) the exercise price of an Incentive Stock Option
granted to a 10% Shareholder shall not be less than 110% of the Fair Market
Value of the Underlying Shares on the Grant Date; (ii) no Incentive Stock Option
granted to a 10% Shareholder may have an Expiration Date more than five years
from the Grant Date; and (iii) the aggregate Fair Market Value (determined in
respect of each Incentive Stock Option as of the Grant Date) of the Underlying
Shares of all Incentive Stock Options which become exercisable by an Employee
for the first time in any calendar year shall not exceed $100,000.

                                       4
<PAGE>

     7.6  Option Agreements.  Each Option shall be evidenced by a written
agreement (an "Option Agreement"), in a form approved by the Board, entered into
by the Company and the person to whom the Option is granted.  Each Option
Agreement shall contain the terms, conditions, restrictions and limitations
applicable to the Option and any other provisions that the Board considers
advisable to include.

                                       5
<PAGE>

                                   Article 8

                              Exercise of Options

     8.1  Manner of Exercise.  An exercisable Option or Installment may be
exercised in full or in part (but only in respect of a whole number of
Underlying Shares) by (i) written notice to the President of the Company (or his
designee) stating the number of Underlying Shares in respect of which the Option
or Installment is being exercised and (ii) full payment of the exercise price of
those shares.

     8.2 Payment of Exercise Price. Payment of the exercise price of an Option
or Installment shall be made by certified or bank cashier's check or, if
permitted by the Company (either in the applicable Option Agreement or at the
time of exercise): (i) by delivering shares of Common Stock held by the Option
holder for at least six (6) months and having a Fair Market Value on the date of
exercise equal to the exercise price; (ii) by directing the Company to withhold,
from the Underlying Shares otherwise issuable upon exercise of the Option or
Installment, Underlying Shares having a Fair Market Value on the date of
exercise equal to the exercise price; (iii) by surrendering exercisable Options
or Installments having a fair market value on the date of exercise equal to the
exercise price (measuring the fair market value of the Options or Installments
surrendered by the excess of (A) the aggregate Fair Market Value on the date of
exercise of the Underlying Shares over (B) the aggregate exercise price); (iv)
by any combination of the preceding methods of payment; or (v) by any other
method of payment authorized by the Board.

     8.3  Withholding.  Each person exercising a Nonstatutory Stock Option or an
Installment of a Nonstatutory Option shall remit to the Company an amount
sufficient to satisfy its federal, state and local withholding tax obligation in
connection with the exercise.

                                   Article 9

                          Restricted Stock Agreements

     Each person to whom Restricted Stock is awarded shall enter into a written
agreement with the Company (a "Restricted Stock Agreement"), in a form approved
by the Board.  Each Restricted Stock Agreement shall contain the terms,
conditions, restrictions and limitations applicable to the award of Restricted
Stock and any other provisions that the Board considers advisable to include.

                                       6
<PAGE>

                                  Article 10

                           Miscellaneous Provisions

     10.1  Capitalization Adjustments.  The aggregate number of shares of Common
Stock for which Options may be granted and Restricted Stock may be awarded under
this Plan, the aggregate number of Underlying Shares in respect of each
outstanding Option, and the exercise price of each outstanding Option may be
adjusted by the Board as it considers appropriate in the event of changes in the
number of outstanding shares of Common Stock by reason of stock dividends, stock
splits, recapitalizations, reorganizations and the like.  Adjustments under this
Paragraph 10.1 shall be made in the Board's discretion, and its decisions shall
be final and binding.

     10.2  Amendment and Termination.  The Board may amend, suspend or terminate
this Plan at any time.  If this Plan is terminated, the provisions of this Plan
shall continue to apply to Options granted or Restricted Stock awarded prior to
termination, and no amendment, suspension or termination of the Plan shall
adversely affect the rights of the holder of any outstanding Option or any
shares of Restricted Stock without his or her consent.

     10.3  No Right To Employment.  Nothing in this Plan or in any Option
Agreement or Restricted Stock Agreement shall confer on any person the right to
continue in the employ of the Company or any wholly-owned subsidiary or limit
the right of the Company or of such subsidiary to terminate his or her
employment.

     10.4  Notices.  Notices required or permitted under this Plan shall be
considered to have been duly given if sent by certified or registered mail
addressed to the Board at the Company's principal office or to any other person
at his or her address as it appears on the Company's payroll or other records.

     10.5  Severability.  If any provision of this Plan is held illegal or
invalid for any reason, the illegality or invalidity shall not affect the
remaining provisions, and the Plan shall be construed and administered as if the
illegal or invalid provision had not been included.

     10.6  Governing Law.  This Plan and all Option Agreements and Restricted
Stock Agreements shall be governed in accordance with the laws of the State of
Illinois.

                                       7
<PAGE>

                              FIRST AMENDMENT TO
                            MEDICHEM RESEARCH, INC.
                          INCENTIVE COMPENSATION PLAN

     WHEREAS, MediChem Research, Inc. ("Company") adopted the MediChem Research,
Inc. Incentive Compensation Plan ("Plan"), effective as of January 1, 1998; and

     WHEREAS, the Company has reserved the right to further amend the Plan;

     NOW THEREFORE, BE IT RESOLVED, that the Plan shall be amended as follows,
effective upon adoption:

     1.   Article 2 is amended by adding a new Section 2.2 defining "Cause" as
follows, and renumbering the remaining sections in Article 2 accordingly:

               "2.2  Cause means (i) conviction of a felony or crime involving
          moral turpitude, or (ii) dishonesty or fraud with respect to the
          Company or any of its subsidiaries."

     2.   Article 2 is amended by adding a new Section 2.3 defining "Disability"
and "Disabled" as follows, and renumbering the remaining sections in Article 2
accordingly:

               "2.3  Disability or Disabled means the total and permanent
          disability of the Employee, as defined in Section 22(e)(3) of the
          Internal Revenue Code of 1986, as amended."

     3.   Section 7.3 is amended by deleting the existing provision in its
entirety and replacing it with the following:

               "7.3  Termination of Employment. Any Option or Installment held
          by an Employee which is exercisable or unexercisable as of the
          Employee's Termination Date shall expire on the Termination Date
          unless otherwise provided hereinafter in this section or in the Option
          Agreement (as defined below).

                                       8
<PAGE>

               Notwithstanding the above:

               (1)  If an Employee's Termination Date occurs due to retirement
               after attaining age 62 and completing five years of service with
               the Company, or in the alternative, after attaining age 55 and
               completing ten years of service with the Company, the Employee
               may exercise any or all of such Employee's Nonqualified Stock
               Options or Installments in accordance with the exercise schedule
               provided in the applicable Option Agreement and the terms of the
               Plan prior to the first to occur of the following, at which time
               such Nonqualified Stock Options or Installments shall expire:
               (i) the applicable Expiration Date; or (ii) a date no later than
               five years after the Termination Date.

               (2)  If the Employee's Termination Date occurs as a result of the
               Employee's death or Disability, the person or persons to whom
               such Nonqualified Stock Options or Installments pass by will or
               inheritance, or the Employee, respectively, may exercise such
               Options or Installments in accordance with the exercise schedule
               provided in the applicable Option Agreement and the terms of the
               Plan prior to the first to occur of the following, at which time
               such Options or Installments shall expire: (i) the applicable
               Expiration Date; or (ii) a date no later than five years after
               the Termination Date.

               (3)  If an Employee is terminated for Cause, all of such
               Employee's Options or Installments, whether or not currently
               exercisable, shall expire immediately as of the Termination Date.

               (4)  The Board may accelerate the exercise schedule, or extend
               the date for expiration of a Nonstatutory Stock Option (or
               Installment of a Nonstatutory Stock Option), to any date ending
               on or before the applicable Expiration Date.

                                       9
<PAGE>

               (5)  The Board may extend the date for expiration of an Incentive
               Stock Option (or Installment of an Incentive Stock Option) to the
               earlier of (i) a date no later than 90 days after the Termination
               Date or (ii) the applicable Expiration Date, unless the
               Employee's termination occurred as a result of the Employee's
               death.  In that case, the Board may extend the date for
               expiration to the earlier of (i) a date no later than the first
               anniversary of the Employee's death or (ii) the applicable
               Expiration Date.

                                       10
<PAGE>

                              SECOND AMENDMENT TO
                            MEDICHEM RESEARCH, INC.
                          INCENTIVE COMPENSATION PLAN

     WHEREAS, MediChem Research, Inc. ("Company") adopted the MediChem Research,
Inc. Incentive Compensation Plan ("Plan"), effective as of January 1, 1998; and

     WHEREAS, the Company amended the Plan effective January 1, 1998, and has
reserved the right to further amend the Plan;

     NOW THEREFORE, BE IT RESOLVED, that the Plan shall be amended as follows,
effective upon adoption:

     1.   Section 2.3 is amended by deleting the existing provision in its
entirety and replacing it with the following:

          "2.3   Common Stock means the Company's Class B non-voting Common
                 Stock."

     2.   Section 2.4 is amended by deleting the existing provision in its
entirety and replacing it with the following:

          "2.4   Company means MCR Holdings, Inc., an Illinois corporation,
                 formerly MediChem Research, Inc."

     3.   Section 2.15 is amended by deleting the existing provision in its
          entirety and replacing it with the following:

          "2.15  Plan means this plan, as it may be amended. The name of the
                 Plan is the "MCR Holdings, Inc. Incentive Compensation Plan."

     4.   Article 2 is amended by adding a new Section 2.20 as follows:

          "2.20  Preferred Stock means the Company's Class D cumulative
                 preferred stock."

     5.  Section 3.1 is amended by deleting the existing provision in its
entirety and

                                       11
<PAGE>

replacing it with the following:

          "3.1  Maximum Number of Shares. The maximum combined total number of
                shares of Common Stock for which Options may be granted and
                shares of Restricted Stock may be awarded under this Plan is
                80,000 (subject to adjustment as provided in Paragraph 10.1).
                The maximum combined number of shares of Preferred Stock for
                which Options may be granted under this Plan is 40,000 (subject
                to adjustment as provided in Paragraph 10.1)."

     6.  The Plan is amended to add a new Article 11, Effect of Reorganization
and Recapitalization on Outstanding Options, as follows:

               EFFECT OF REORGANIZATION AND RECAPITALIZATION ON
                              OUTSTANDING OPTIONS

     (a)  Pursuant to the Reorganization and Recapitalization of the Company
          ("Recapitalization"), all Options outstanding on the effective date of
          the Recapitalization shall be converted to Options to purchase (1)  an
          equal number of shares of Common Stock, plus (2) an equal number of
          shares of Preferred Stock.

                                     -12-
<PAGE>

                                Third Amendment
                                ---------------
                                    of the
                                    ------
                MCR Holdings, Inc. Incentive Compensation Plan
                ----------------------------------------------
                          (Effective January 1, 1998)

          Whereas, MCR Holdings, Inc. (the "Company") maintains the MCR
Holdings, Inc. Incentive Compensation Plan (the "Plan"); and

          Whereas,  the Company previously has amended the Plan, and the Company
now considers it desirable to further amend the Plan and make a capitalization
adjustment under the terms of Paragraph 10.1 of the Plan;

     Now, Therefore, Be it Resolved, that pursuant to the power reserved to the
Company by Paragraph 10.2 of the Plan, the Plan, as previously amended, is
hereby further amended, effective as of November 8, 1999, in the following
particulars:

     1.   By inserting the following sentence at the end of Paragraph 2.11 of
the Plan:

          "'Option' also includes an option to purchase shares of Preferred 'C'
          Stock or Preferred 'D' Stock acquired under Paragraph 11.1."

     2.   By inserting the following sentence at the end of Section 2.18 of the
Plan:

          "'Underlying Shares' also includes the shares of Preferred 'C' Stock
          and Preferred 'D' Stock acquired pursuant to Paragraph 11.1, for which
          an Option or Installment is or may become exercisable."

     3.   By substituting the phrase "Preferred 'D' Stock" for the phrase
"Preferred Stock" wherever the latter appears in the Plan.

     4.   By inserting the following as a new Paragraph 2.21:

               "2.21 Preferred 'C' Stock means the Company's Class C preferred
          stock."

                                     -13-
<PAGE>

     5.   By inserting the following sentence at the end of Paragraph 3.1 of the
Plan:
          "The maximum combined number of shares of Preferred 'C' Stock for
          which Options may be granted under this Plan is 40,000 (subject to
          adjustment as provided in Paragraph 10.1)."

     5.   By substituting the following for Article 11 of the Plan:

                                  "Article 11

     Effect of Reorganization and Recapitalization on Outstanding Options

               11.1  Conversion of Options.  Pursuant to the Reorganization and
          Recapitalization of the Company ('Recapitalization'), all Options
          outstanding on the effective date of the Recapitalization shall be
          converted to Options to purchase (1) an equal number of shares of
          Common Stock, (2) an equal number of shares of Preferred 'C' Stock,
          and (3) an equal number of shares of Preferred 'D' Stock.

               11.2  Exercise of Options Converted Under Section 11.1. An Option
          for a share of Common Stock acquired pursuant to Paragraph 11.1 may
          only be exercised if the Employee holding the Option also exercises an
          Option for a like number of shares of Preferred 'C' Stock. Similarly,
          an Option for a share of Preferred 'C' Stock may only be exercised if
          the Employee holding the Option also exercises an Option for a like
          number of shares of Common Stock, which were acquired pursuant to
          Paragraph 11.1. The existing exercise price for an Option outstanding
          on the effective date of the Recapitalization, $9.80, shall be
          allocated to the Option for Preferred 'D' Stock $.99 and the Option
          for Common Stock and Preferred 'C' Stock $8.81. In all other respects,
          the Options acquired pursuant to Paragraph 11.1 may be exercised in
          accordance with Article 8."

     6.   By inserting the phrase "or other classes of stock issued by the
Company" after the phrase "Common Stock" where the latter appears in Paragraph
10.1 of the Plan.

                                     -14-
<PAGE>

     IN WITNESS WHEREOF, the Company has caused this amendment to be executed by
its duly authorized officer this ____ day of ____________, 1999.


                                        MCR Holdings, Inc.


                                        By:  ______________________________
                                        Its: _____________________________

                                     -15-