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                                                                    EXHIBIT 10.8

                       FOCAL COMMUNICATIONS CORPORATION

                  1998 EQUITY AND PERFORMANCE INCENTIVE PLAN

     1.   PURPOSE.  The purpose of the 1998 Equity and Performance Incentive
Plan is to attract and retain consultants, officers and other key employees of
Focal Communications Corporation, a Delaware corporation, and its Subsidiaries
and to provide to such persons incentives and rewards for superior performance.

     2.   DEFINITIONS.  As used in this Plan,

          "Appreciation Right" means a right granted pursuant to Section 5 of
this Plan and includes both Tandem Appreciation Rights and Free-Standing
Appreciation Rights.

          "Base Price" means the price to be used as the basis for determining
the Spread upon the exercise of a Free-Standing Appreciation Right and a Tandem
Appreciation Right.

          "Board" means the Board of Directors of the Company and, to the extent
of any delegation by the Board to a committee (or subcommittee thereof) pursuant
to Section 15 of this Plan, such committee (or subcommittee).

          "Change in Control" shall have the meaning ascribed thereto in Section
11 of this Plan.

          "Code" means the Internal Revenue Code of 1986, as amended from time
to time.

          "Common Shares" means the shares of Class A Common Stock, par value
$.01 per share, of the Company or any security into which such Common Shares may
be converted or exchanged by reason of any transaction or event of the type
referred to in Section 10 of this Plan.

          "Company" means Focal Communications Corporation, a Delaware
corporation.

          "Covered Employee" means a Participant who is, or is determined by the
Board to be likely to become, a "covered employee" within the meaning of Section
162(m) of the Code (or any successor provision).

          "Date of Grant" means the date specified by the Board on which a grant
of Option Rights, Appreciation Rights, Performance Shares or Performance Units
or a grant or sale of Restricted Shares or Deferred Shares shall become
effective (which shall not be earlier than the date on which the Board takes
action with respect thereto).
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          "Deferral Period" means the period of time during which Deferred
Shares are subject to deferral limitations under Section 7 of this Plan.

          "Deferred Shares" means an award pursuant to Section 7 of this Plan of
the right to receive Common Shares at the end of a specified Deferral Period.

          "Director" means a member of the Board of Directors of the Company.

          "Eligible Transferee" means one or more (i) one or more members of the
Participant's immediate family (as the term "immediate family" is defined in
Rule 16a-1(e) promulgated under Section 16(a) of the Exchange Act (or any
successor rule to the same effect), as in effect from time to time), (ii) one or
more trusts established solely for the benefit of one or more members of the
Participant's immediate family, (iii) one or more corporations or limited
liability companies in which the only equity holders are members of the
Participant's immediate family or (iv) one or more partnerships in which the
only partners are members of the Participant's immediate family.

          "Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder, as such statute, rules and regulations
may be amended from time to time.

          "Free-Standing Appreciation Right" means an Appreciation Right granted
pursuant to Section 5 of this Plan that is not granted in tandem with an Option
Right.

          "Incentive Stock Options" means Option Rights that are intended to
qualify as "incentive stock options" under Section 422 of the Code or any
successor provision.

          "Initial Public Offering" means the initial underwritten offering of
equity securities of the Company to the general public pursuant to a
registration statement filed with, and declared effective by, the Securities and
Exchange Commission pursuant to the Securities Act; provided that neither of the
following shall constitute an Initial Public Offering (i) any issuance of Common
Shares as consideration or financing for a merger or acquisition, or (ii) any
issuance of Common Shares or rights to acquire Common Shares to employees of the
Company as part of an incentive or compensation plan.

          "Management Objectives" means the measurable performance objective or
objectives established pursuant to this Plan for Participants who have received
grants of Performance Shares or Performance Units (or, when so determined by the
Board, Option Rights, Appreciation Rights, Restricted Shares and dividend
credits) under this Plan. Management Objectives may be described in terms of
Company-wide objectives or objectives that are related to the performance of the
individual Participant or the Subsidiary, division, department, region or
function within the Company or Subsidiary in which the Participant is employed.
The Management Objectives may be made relative to the performance of other
corporations. The Management Objectives applicable to any award to a Covered
Employee shall be based on specified levels of or growth in one or more of the
following criteria:

          (i)  market value;

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          (ii)   book value;                    
          (iii)  market share;                  
          (iv)   operating profit;              
          (v)    net income;                    
          (vi)   cash flow;                     
          (vii)  earnings, including earnings before interest, taxes,
                 depreciation and other non-cash items;          
          (viii) debt/capital ratio;            
          (ix)   return on capital;             
          (x)    return on equity;              
          (xi)   costs or expenses;             
          (xii)  net assets;                    
          (xiii) return on assets;              
          (xiv)  margins;                       
          (xv)   earnings per share growth;     
          (xvi)  revenue growth;                
          (xvii) product volume growth, including growth in lines in service or
                 minutes of use; and
          (xix)  total return to shareholders.  

          If the Committee determines that a change in the business, operations,
corporate structure or capital structure of the Company, or the manner in which
the Company conducts its business, or other events or circumstances render the
Management Objectives unsuitable, the Committee may in its discretion modify
such Management Objectives or the related minimum acceptable level of
achievement, in whole or in part, as the Committee deems appropriate and
equitable; provided, however, the Committee shall not make any modification of
the Management Objectives or minimum acceptable level of achievement in the case
of a Covered Employee where such action would result in the loss of the
otherwise available exemption of the award under Section 162(m) of the Code.

          "MDCP" means Madison Dearborn Capital Partners, L.P., a Delaware
limited partnership.

          "Market Value per Share" means, as of any particular date, (i) the
closing sale price per Common Share as reported on the principal exchange on
which Common shares are then trading, if any, or, if applicable, the NASDAQ
National Market System, on the Date of Grant, or if there are no sales on such
day, on the next preceding trading day during which a sale occurred, or (ii) if
clause (i) does not apply, the fair market value of the Common Shares as
determined by the Board.

          "Non-Employee Director" means a person who is a "non-employee
director" of the Company within the meaning of Rule 16b-3.

          "Optionee" means the optionee named in an agreement evidencing an
outstanding Option Right.

          "Option Price" means the purchase price payable upon exercise of an
Option Right.

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          "Option Right" means the right to purchase Common Shares upon exercise
of an option granted pursuant to Section 4 of this Plan.

          "Outside Director" means a person who is an "outside director" of the
Company within the meaning of Section 162(m) of the Code.

          "Participant" means a person who is selected by the Board to receive
benefits under this Plan and who is at the time a consultant, an officer or
other key employee of the Company or any one or more of its Subsidiaries or who
has agreed to commence serving in any of such capacities.

          "Performance Period" means, in respect of a Performance Share or
Performance Unit, a period of time established pursuant to Section 8 of this
Plan within which the Management Objectives relating to such Performance Share
or Performance Unit are to be achieved.

          "Performance Share" means a bookkeeping entry that records the
equivalent of one Common Share awarded pursuant to Section 8 of this Plan.

          "Performance Unit" means a bookkeeping entry that records a unit
equivalent to $1.00 awarded pursuant to Section 8 of this Plan.

          "Plan" means this Focal Communications Corporation 1998 Equity and
Performance Incentive Plan.

          "Reload Option Rights" means additional Option Rights granted
automatically to an Optionee upon the exercise of Option Rights pursuant to
Section 4(g) of this Plan.

          "Restricted Shares" means Common Shares granted or sold pursuant to
Section 6 of this Plan as to which neither the substantial risk of forfeiture
nor the restrictions on transfer referred to in Section 6 of this Plan have
expired.

          "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act (or
any successor rule to the same effect), as in effect from time to time.

          "Securities Act" means the Securities Act of 1933, and the rules and
regulations promulgated thereunder, as amended from time to time.

          "Spread" means the excess of the Market Value per Share on the date
when an Appreciation Right is exercised, or on the date when Option Rights are
surrendered in payment of the Option Price of other Option Rights, over the
Option Price or Base Price provided for in the related Option Right or Free-
Standing Appreciation Right, respectively.

          "Subsidiary" means a corporation, company or other entity (i) more
than 50 percent of whose outstanding shares or securities (representing the
right to vote for the election of directors or other managing authority) are, or
(ii) which does not have outstanding shares or securities (as may be the case in
a partnership, joint venture or unincorporated association) but more than 50
percent

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of whose ownership interest representing the right generally to make decisions
for such other entity is, now or hereafter, owned or controlled, directly or
indirectly, by the Company except that, for the purposes of determining whether
any person may be a Participant for the purposes of any grant of Incentive Stock
Options, "Subsidiary" means any corporation in which the Company at the time of
grant, owns or controls, directly or indirectly, more than 50 percent of the
total combined voting power represented by all classes of stock issued by such
corporation.

          "Tandem Appreciation Right" means an Appreciation Right granted
pursuant to Section 5 of this Plan that is granted in tandem with an Option
Right.

          "Tax-Qualified Option" means an Option Right that is intended to
qualify under particular provisions of the Code, including but not limited to an
Incentive Stock Option.

          "Termination Date" means the tenth anniversary of the date on which
this Plan is first approved by the stockholders of the Company.

          "Voting Power" means at any time, the total votes relating to the
then-outstanding securities entitled to vote generally in the election of
Directors.

     3.   SHARES AVAILABLE UNDER THE PLAN. (a) Subject to adjustment as provided
in Section 3(b) and Section 10 of this Plan, the number of Common Shares that
may be issued or transferred (i) upon the exercise of Option Rights or
Appreciation Rights, (ii) as Restricted Shares and subsequently released from
substantial risks of forfeiture, (iii) as Deferred Shares, (iv) in payment of
Performance Shares or Performance Units that have been earned, or (v) in payment
of dividend equivalents paid with respect to awards made under this Plan, shall
not in the aggregate exceed a number of Common Shares equal to (x) 11,500, minus
(y) [INSERT NUMBER OF COMMON SHARES AUTHORIZED BY THE BOARD IN AUGUST 1998 FOR
THE MEGA-GRANTS UNDER THE 1997 PLAN], minus [INSERT THE NUMBER OF COMMON SHARES
NOW REMAINING UNDER THE 1997 PLAN (PRE-AMENDMENT) FOR NEW OPTION GRANTS (I.E.,
5,260 - X)], plus (z) any Common Shares described in Section 3(b). Such Common
Shares may be shares of original issuance or treasury shares or a combination
thereof.

          (b) The number of Common Shares available in Section 3(a) above shall
be adjusted to account for Common Shares relating to awards that expire, are
forfeited or are transferred, surrendered or relinquished upon the payment of
any Option Price by the transfer to the Company of Common Shares or upon
satisfaction of any withholding amount.  Upon payment in cash of the benefit
provided by any award granted under this Plan, any Common Shares that were
covered by that award shall again be available for issuance or transfer
hereunder.

          (c) Notwithstanding anything in this Section 3 or elsewhere in this
Plan to the contrary and subject to adjustment as provided in Section 10 of this
Plan, (i) the aggregate number of Common Shares actually issued or transferred
by the Company upon the exercise of Incentive Stock Options shall not exceed
5,000 Common Shares; (ii) no Participant shall be granted Option Rights and
Appreciation Rights for more than an aggregate of 1,000 Common Shares during any
calendar year; and (iii) the number of Common Shares issued as Restricted Shares
shall not in the aggregate exceed 2,500.

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          (d) Notwithstanding any other provision of this Plan to the contrary,
          in no event shall any Participant in any calendar year receive an
          award of Performance  Shares or Performance Units having an aggregate
          maximum value as of their respective Dates of Grant in excess of
          $5,000,000.

     4.   OPTION RIGHTS.  The Board may from time to time authorize grants to
Participants of options to purchase Common Shares.  Each such grant may utilize
any or all of the authorizations, and shall be subject to all of the
requirements, contained in the following provisions:

          (a) Each grant shall specify the number of Common Shares to which it
pertains, subject to the limitations set forth in Section 3 of this Plan.

          (b) Each grant shall specify an Option Price per share, which may not
be less than the Market Value per Share on the Date of Grant.

          (c) Each grant shall specify the form of consideration to be paid in
satisfaction of the Option Price and the manner of payment of such
consideration, which may include (i) cash in the form of currency or check or
other cash equivalent acceptable to the Company, (ii) by the tender to the
Company of Common Shares owned by the Participant and registered in the name of
the Participant having an aggregate fair market value on the date of exercise
equal to the total Option Price, such fair market value to be determined based
on the Market Value per Share on the date of exercise, (iii) by delivery of
irrevocable instructions to a financial institution or broker to deliver
promptly to the Company sale or loan proceeds with respect to the Common Shares
sufficient to pay the total Option Price, (iv) through the written election of
the Optionee to have Common Shares withheld by the Company from the Common
Shares otherwise to be received, with such withheld shares having an aggregate
fair market value on the date of exercise equal to the total Option Price of the
shares being purchased, and (v) any combination of the foregoing methods of
payment.

          (d) The Board may determine, at or after the Date of Grant, that
payment of the Option Price of any Option Right (other than an Incentive Stock
Option) may also be made in whole or in part in the form of Restricted Shares or
other Common Shares that are forfeitable or subject to restrictions on transfer,
Deferred Shares, Performance Shares (based, in each case, on the Market Value
per Share on the date of exercise), other Option Rights (based on the Spread on
the date of exercise) or Performance Units. Unless otherwise determined by the
Board at or after the Date of Grant, whenever any Option Price is paid in whole
or in part by means of any of the forms of consideration specified in this
Section 4(d), the Common Shares received upon the exercise of the Option Rights
shall be subject to such risks of forfeiture or restrictions on transfer as may
correspond to any that apply to the consideration surrendered, but only to the
extent determined with respect to the consideration surrendered, of (i) the
number of shares or Performance Shares, (ii) the Spread of any unexercisable
portion of Option Rights, or (iii) the stated value of Performance Units.

          (e) Any grant may provide for deferred payment of the Option Price
from the proceeds of sale through a broker on a date satisfactory to the Company
of some or all of the Common Shares to which such exercise relates.

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          (f) Any grant may provide for payment of the Option Price, at the
election of the Optionee, in installments (with or without interest) upon terms
determined by the Board.

          (g) On or after the Date of Grant of any Option Rights, the Board may
provide for the automatic grant of Reload Option Rights to an Optionee upon the
exercise of Option Rights (including Reload Option Rights) using Common Shares
or other consideration specified in Section 4(d). Reload Option Rights shall
cover up to the number of Common Shares, Deferred Shares, Option Rights or
Performance Shares (or the number of Common Shares having a value equal to the
value of any Performance Units) surrendered to the Company upon any such
exercise in payment of the Option Price or to meet any withholding obligations.
Reload Options may have an Option Price that is less than the applicable Market
Value per Share at the time of exercise and shall be on such other terms as may
be specified by the Directors, which may be the same as or different from those
of the original Option Rights.

          (h) Successive grants may be made to the same Participant regardless
of whether any Option Rights previously granted to such Participant remain
unexercised.

          (i) Each grant shall specify the period or periods of continuous
service by the Optionee with the Company or any Subsidiary or shall specify such
different or additional conditions as the Board may determine (including the
achievement of Management Objectives), that must be satisfied before the Option
Rights or installments thereof will become exercisable and may provide for the
earlier exercise of such Option Rights in the event of a Change in Control or
other events.

          (j) Option Rights granted under this Plan may be (i) options,
including, without limitation, Incentive Stock Options, that are intended to
qualify under particular provisions of the Code, (ii) options that are not
intended so to qualify, or (iii) combinations of the foregoing.

          (k) On or after the Date of Grant of any Option Rights (other than
Incentive Stock Options), the Board may provide for the payment of dividend
equivalents to the Optionee on a current, deferred or contingent basis or may
provide that any such equivalents shall be credited against the Option Price.

          (l) The exercise of an Option Right shall result in the cancellation
on a share-for-share basis of any Tandem Appreciation Right authorized under
Section 5 of this Plan.

          (m) No Option Right shall be exercisable more than 10 years from the
Date of Grant.

          (n) Each grant of Option Rights shall be evidenced by an agreement
executed on behalf of the Company by an officer thereof and delivered to the
Optionee and containing such terms and provisions as the Board may approve
consistent with this Plan.

     5.   APPRECIATION RIGHTS.  (a) The Board may authorize the granting of (i)
Tandem Appreciation Rights to any Optionee in respect of Option Rights granted
under this Plan, and (ii) Free-Standing Appreciation Rights to any Participant.
A Tandem Appreciation Right shall be a right of the Optionee, exercisable by
surrender of the related Option Right, to receive from the

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Company an amount determined by the Board, which shall be expressed as a
percentage of the Spread (not exceeding 100 percent) at the time of exercise.
Tandem Appreciation Rights may be granted at any time prior to the exercise or
termination of the related Option Rights; provided, however, that a Tandem
Appreciation Right awarded in respect of an Incentive Stock Option must be
granted concurrently with the Incentive Stock Option. A Free-Standing
Appreciation Right shall be a right of the Participant to receive from the
Company an amount determined by the Board, which shall be expressed as a
percentage of the Spread (not exceeding 100 percent) at the time of exercise.

          (b)  Each grant of Appreciation Rights may utilize any or all of the
authorizations, and shall be subject to all of the requirements, contained in
the following provisions:

               (i)   Any grant may specify that the amount payable upon exercise
     of an Appreciation Right may be paid by the Company in cash, in Common
     Shares or in any combination thereof and may either grant to the
     Participant or retain in the Board the right to elect among those
     alternatives.

               (ii)  Any grant may specify that the amount payable upon exercise
     of an Appreciation Right may not exceed a maximum specified by the Board at
     the Date of Grant.

               (iii) Any grant may specify waiting periods before exercise and
     permissible exercise dates or periods.

               (iv)  Any grant may specify that the Appreciation Right may be
     exercised only in the event of, or earlier in the event of, a Change in
     Control.

               (v)   Any grant may provide for the payment to the Participant of
     dividend equivalents thereon in cash or Common Shares on a current,
     deferred or contingent basis.

               (vi)  Any grant may specify Management Objectives that must be
     achieved as a condition of the exercise of the subject Appreciation Rights.

               (vii) Each grant of Appreciation Rights shall be evidenced by an
     agreement executed on behalf of the Company by an officer thereof and
     delivered to the Participant, which agreement shall describe such
     Appreciation Rights, identify any related Option Rights, state that such
     Appreciation Rights are subject to all of the terms and conditions of this
     Plan, and contain such other terms and provisions as the Board may approve
     consistent with this Plan.

          (c)  Any grant of Tandem Appreciation Rights shall provide that the
Tandem Appreciation Rights may be exercised only at a time when the related
Option Rights are also exercisable and the Spread is positive and by surrender
of the related Option Rights for cancellation.

          (d)  Regarding Free-Standing Appreciation Rights only:

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               (i)   Each grant shall specify in respect of each Free-Standing
          Appreciation Right a Base Price, which shall be equal to or greater or
          less than the Market Value per Share on the Date of Grant;

               (ii)  Successive grants may be made to the same Participant
          regardless of whether any Free-Standing Appreciation Rights previously
          granted to the Participant remain unexercised; and

               (iii) No Free-Standing Appreciation Right granted under this
          Plan may be exercised more than 10 years from the Date of Grant.

     6.   RESTRICTED SHARES.  The Board may authorize the granting or sale of
Restricted Shares to Participants. Each such grant or sale may utilize any or
all of the authorizations, and shall be subject to all of the requirements,
contained in the following provisions:

          (a) Each such grant or sale shall constitute an immediate transfer of
the ownership of Common Shares to the Participant in consideration of the
performance of services, entitling such Participant to voting, dividend and
other ownership rights, subject in each case to the substantial risk of
forfeiture and restrictions on transfer hereinafter referred to.

          (b) Each such grant or sale may be made without additional
consideration or in consideration of a payment by such Participant that is less
than Market Value per Share at the Date of Grant.

          (c) Each such grant or sale shall provide that the Restricted Shares
covered by such grant or sale shall be subject to a "substantial risk of
forfeiture" within the meaning of Section 83 of the Code for a period to be
determined by the Board at the Date of Grant and may provide for the earlier
lapse of such substantial risk of forfeiture in the event of a Change in Control
or other events.

          (d) Each such grant or sale of Restricted Shares shall provide that
during the period for which such substantial risk of forfeiture is to continue,
the transferability of the Restricted Shares shall be prohibited or restricted
in the manner and to the extent prescribed by the Board at the Date of Grant
(which restrictions may include, but shall not be limited to, rights of
repurchase or first refusal in the Company or provisions subjecting the
Restricted Shares to a continuing substantial risk of forfeiture in the hands of
any transferee).

          (e) Any grant of Restricted Shares may specify Management Objectives
that, if achieved, will result in termination or early termination of the risk
of forfeiture and restrictions on transfer applicable to the subject Restricted
Shares. Each grant may specify in respect of any such Management Objectives a
minimum acceptable level of achievement and may set forth a formula for
determining the number of Restricted Shares on which restrictions will terminate
if performance is at or above such minimum level but falls short of full
achievement of the specified Management Objectives.

          

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          (f) Any such grant or sale of Restricted Shares may require that any
or all dividends or other distributions paid on the Restricted Shares during the
period of a risk of forfeiture and restrictions on transfer be automatically
deferred and reinvested in additional Restricted Shares, which may be subject to
the same restrictions as the underlying award.

          (g) Each grant or sale of Restricted Shares shall be evidenced by an
agreement executed on behalf of the Company by any officer and delivered to the
Participant and shall contain such terms and provisions as the Board may approve
consistent with this Plan. Unless otherwise directed by the Board, all
certificates representing Restricted Shares shall be held in custody by the
Company, together with a stock power or powers endorsed in blank by the
Participant in whose name such certificates are registered, until all
restrictions thereon shall have lapsed.

     7.   DEFERRED SHARES.  The Board may authorize the granting or sale of
Deferred Shares to Participants.  Each such grant or sale may utilize any or all
of the authorizations, and shall be subject to all of the requirements,
contained in the following provisions:

          (a) Each such grant or sale shall constitute the agreement by the
Company to deliver Common Shares to the Participant in the future in
consideration of the performance of services and subject to the fulfillment of
such conditions during the Deferral Period as the Board may specify.

          (b) Each such grant or sale may be made without additional
consideration or in consideration of a payment by the Participant that is less
than the Market Value per Share at the Date of Grant.

          (c) Each such grant or sale shall be subject to a Deferral Period as
determined by the Board at the Date of Grant, and may provide for the earlier
lapse or other modification of such Deferral Period in the event of a Change in
Control or other event.

          (d) During the Deferral Period, a Participant shall not have any
rights of ownership in the Deferred Shares, shall not have any right to vote the
Deferred Shares and, except as provided in Section 9(c) of this Plan, shall not
have any right to transfer any rights under his or her award, but at or after
the Date of Grant, the Board may authorize the payment of dividend equivalents
on the Deferred Shares on a current, deferred or contingent basis, in either
cash or additional Common Shares.

          (e) Each grant or sale of Deferred Shares shall be evidenced by an
agreement executed on behalf of the Company by any officer and delivered to the
Participant and shall contain such terms and provisions as the Board may approve
consistent with this Plan.

     8.   PERFORMANCE SHARES AND PERFORMANCE UNITS.  The Board may authorize the
granting of Performance Shares and Performance Units that will become payable to
a Participant upon achievement of specified Management Objectives.  Each such
grant may utilize any or all of the authorizations, and shall be subject to all
of the requirements, contained in the following provisions:

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          (a) Each grant shall specify the number of Performance Shares or
Performance Units to which it pertains, which may be subject to adjustment to
reflect changes in compensation or other factors; provided, however, that no
such adjustment shall be made in the case of a Covered Employee where such
action would result in the loss of the otherwise available exemption of the
award under Section 162(m) of the Code.

          (b) The Performance Period with respect to each Performance Share or
Performance Unit shall be such period of time commencing with the Date of Grant,
as shall be determined by the Board at the time of grant, which may be subject
to earlier lapse or other modification in the event of a Change in Control or
other events as set forth in the agreement specified in Section 8(g).

          (c) Each grant shall specify Management Objectives that, if achieved,
will result in payment or early payment of the award, and each grant may specify
in respect of the specified Management Objectives a minimum acceptable level of
achievement and shall set forth a formula for determining the number of
Performance Shares or Performance Units that will be earned if performance is at
or above the minimum level but falls short of full achievement of the specified
Management Objectives. The grant shall specify that, before the Performance
Shares or Performance Units shall be earned and paid, the Board must certify
that the specified Management Objectives have been satisfied.

          (d) Each grant shall specify the time and manner of payment of
Performance Shares or Performance Units that have been earned.  Any grant may
specify that the amount payable with respect thereto may be paid by the Company
in cash or Common Shares or any combination thereof and may either grant to the
Participant or retain in the Board the right to elect among those alternatives.

          (e) Any grant of Performance Shares may specify that the amount
payable with respect thereto may not exceed a maximum specified by the Board at
the Date of Grant.  Any grant of Performance Units may specify that the amount
payable or the number of Common Shares issuable or transferable with respect
thereto may not exceed maximums specified by the Board at the Date of Grant.

          (f) At or after the Date of Grant of Performance Shares, the Board may
provide for the payment of dividend equivalents to the holder thereof on a
current, deferred or contingent basis, in either cash or additional Common
Shares.

          (g) Each grant of Performance Shares or Performance Units shall be
evidenced by an agreement executed on behalf of the Company by any officer and
delivered to the Participant, which agreement shall state that such Performance
Shares or Performance Units are subject to all the terms and conditions of this
Plan and shall contain such other terms and provisions as the Board may approve
consistent with this Plan.
 
     9.   TRANSFERABILITY.  (a) Except as otherwise determined by the Board, but
subject to Section 9(c), no Option Right, Appreciation Right or other derivative
security granted under the Plan shall be transferable by a Participant other
than by will or the laws of descent and distribution.  

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Except as otherwise determined by the Board, Option Rights and Appreciation
Rights shall be exercisable during the Optionee's lifetime only by him or her or
by his or her guardian or legal representative.

          (b) The Board may specify at the Date of Grant that part or all of the
Common Shares that are to be issued or transferred by the Company upon the
exercise of Option Rights or Appreciation Rights, upon the termination of the
Deferral Period applicable to Deferred Shares or upon payment under any grant of
Performance Shares or Performance Units or are no longer subject to the
substantial risk of forfeiture and restrictions on transfer referred to in
Section 6 of this Plan, shall be subject to further restrictions on transfer.

          (c) Notwithstanding the provisions of Section 9(a), but subject to
prior authorization by the Board, Option Rights (other than Incentive Stock
Options), Appreciation Rights, Restricted Shares, Deferred Shares, Performance
Shares and Performance Units shall be transferable by a Participant to an
Eligible Transferee, without payment of consideration therefor; provided,
however, that (i) no such transfer shall be effective unless reasonable prior
notice thereof is delivered to the Company and such transfer is thereafter
effected in accordance with any terms and conditions that shall have been made
applicable thereto by the Company or the Board and (ii) any such transferee
shall be subject to the same terms and conditions hereunder as the Participant.

     10.  ADJUSTMENTS.  The Board shall make or provide for such adjustments in
the numbers of Common Shares covered by outstanding Option Rights, Appreciation
Rights, Deferred Shares, and Performance Shares granted hereunder, in the Option
Price and Base Price provided in outstanding Option Rights and Appreciation
Rights, and in the kind of shares or other securities covered thereby, as the
Board, in its sole discretion, exercised in good faith, may determine is
equitably required to prevent dilution or expansion of the rights of
Participants or Optionees that otherwise would result from (a) any stock
dividend, stock split, combination of shares, recapitalization or other change
in the capital structure of the Company, or (b) any merger, consolidation, spin-
off, split-off, spin-out, split-up, reorganization, partial or complete
liquidation or other distribution of assets, issuance of rights or warrants to
purchase securities, or (c) any other corporate transaction or event having an
effect similar to any of the foregoing. In the event of any such transaction or
event, the Board, in its discretion, may provide in substitution for any or all
outstanding awards under this Plan such alternative consideration as it, in good
faith, may determine to be equitable in the circumstances and may require in
connection therewith the surrender of all awards so replaced. The Board shall
also make or provide for such adjustments in the numbers of shares specified in
Section 3 of this Plan as the Board in its sole discretion, exercised in good
faith, may determine is appropriate to reflect any transaction or event
described in this Section 10; provided, however, that any such adjustment to the
number specified in Section 3(c)(i) shall be made only if and to the extent that
such adjustment would not cause any Option Right intended to qualify as an
Incentive Stock Option to fail so to qualify.

     11   CHANGE IN CONTROL.  For the purposes of this Plan, except as may be
otherwise prescribed by the Board in an agreement evidencing a grant or award
made under the Plan, a "Change in Control" shall mean if at any time any of the
following events shall have occurred:

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<PAGE>
 
          (a) The Company is merged or consolidated or reorganized with or into
another corporation or other legal person, and as a result of such merger,
consolidation or reorganization less than a majority of the combined voting
power of the then-outstanding securities of such corporation or person
immediately after such transaction are held in the aggregate by the holders of
securities entitled to vote generally in the election of Directors immediately
prior to such transaction;

          (b) The Company sells or otherwise transfers all or substantially all
of its assets to any other corporation or other legal person, and less than a
majority of the combined voting power of the then-outstanding securities of such
corporation or person immediately after such sale or transfer is held in the
aggregate by the holders of Common Stock immediately prior to such sale or
transfer;

          (c) There is a report filed on Schedule 13D or Schedule 14D-1 (or any
successor schedule, form or report), as promulgated in each case pursuant to the
Exchange Act, disclosing that any person (as the term "person" is used in
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the
beneficial owner (as the term "beneficial owner" is defined in Rule 13d-3
promulgated under the Exchange Act or any successor rule or regulation
promulgated thereunder) of securities representing 50% or more of the Voting
Power; or

          (d) If during any period of two consecutive years, individuals who at
the beginning of any such period constitute the Directors and any new Directors
whose election or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the Directors then still in office
who either were Directors at the beginning of the period or whose election was
previously so approved cease for any reason to constitute a majority of the
Directors.

          Notwithstanding the provisions of subparagraph (c) above, a "Change in
Control" shall not be deemed to have occurred for the purposes of this Agreement
(i) solely because MDCP either files or becomes obligated to file a report on
Schedule 13D (or any successor schedule or report), as promulgated pursuant to
the Exchange Act, disclosing beneficial ownership by it of securities
representing 50% or more of the Voting Power, (ii) solely because the Company or
any Company-sponsored employee stock ownership plan or other employee benefit
plan of the Company either files or becomes obligated to file a report or proxy
statement under or in response to Schedule 13D, Schedule 14D-1, Form 8-K or
Schedule 14A (or any successor schedule, form or report or item therein), as
promulgated in each case pursuant to the Exchange Act, disclosing beneficial
ownership by it of securities representing 50% or more of the Voting Power or
otherwise, or because the Company reports that a change in control of the
Company has or may have occurred or will or may occur in the future by reason of
such beneficial ownership or (iii) solely because of a change in control of any
subsidiary (as the term "subsidiary" is defined in Section 424(f) of the Code)
of the Company.

     12   FRACTIONAL SHARES.  The Company shall not be required to issue any
fractional Common Shares pursuant to this Plan.  The Board may provide for the
elimination of fractions or for the settlement of fractions in cash.

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<PAGE>
 
     13   WITHHOLDING TAXES.  To the extent that the Company is required to
withhold federal, state, local or foreign taxes in connection with any payment
made or benefit realized by a Participant or other person under this Plan, and
the amounts available to the Company for such withholding are insufficient, it
shall be a condition to the receipt of such payment or the realization of such
benefit that the Participant or such other person make arrangements satisfactory
to the Company for payment of the balance of such taxes required to be withheld,
which arrangements (in the discretion of the Board) may include relinquishment
of a portion of such benefit. The Company and a Participant or such other person
may also make similar arrangements with respect to the payment of any taxes with
respect to which withholding is not required.

     14   FOREIGN EMPLOYEES.  In order to facilitate the making of any grant or
combination of grants under this Plan, the Board may provide for such special
terms for awards to Participants who are foreign nationals or who are employed
by the Company or any Subsidiary outside of the United States of America as the
Board may consider necessary or appropriate to accommodate differences in local
law, tax policy or custom. Moreover, the Board may approve such supplements to
or amendments, restatements or alternative versions of this Plan as it may
consider necessary or appropriate for such purposes, without thereby affecting
the terms of this Plan as in effect for any other purpose, and the Secretary or
other appropriate officer of the Company may certify any such document as having
been approved and adopted in the same manner as this Plan. No such special
terms, supplements, amendments or restatements, however, shall include any
provisions that are inconsistent with the terms of this Plan as then in effect
unless this Plan could have been amended to eliminate such inconsistency without
further approval by the stockholders of the Company.

     15   ADMINISTRATION OF THE PLAN.  (a) (i) Subject to subsection (ii) of
this Section 15(a), this Plan shall be administered by the Board, which may from
time to time delegate all or any part of its authority under this Plan to a
committee of the Board (or subcommittee thereof) consisting of not less than two
Non-Employee Directors appointed by the Board.

          (ii) Awards of Option Rights and Appreciation Rights are, and certain
awards of Restricted Shares, Performance Shares and Performance Units may be,
intended to qualify as performance-based compensation under Section 162(m) of
the Code. The grant of such awards, and the administration thereof and any
determinations to be made in connection therewith, shall be carried out only by
a committee of the Board (or subcommittee thereof) consisting of not less than
two Outside Directors appointed by the Board. Such committee shall grant such
awards in a manner consistent with the rules governing performance-based
compensation under Section 162(m) of the Code.

          (b)  To the extent of any such delegation, references in this Plan to
the Board shall be deemed to be references to any such committee (or
subcommittee). The interpretation and construction by the Board of any provision
of this Plan or of any agreement, notification or document evidencing the grant
of Option Rights, Appreciation Rights, Restricted Shares, Deferred Shares,
Performance Shares or Performance Units and any determination by the Board
pursuant to any provision of this Plan or of any such agreement, notification or
document shall be final and conclusive.  No member of the Board shall be liable
for any such action or determination made in good faith.

                                       14
<PAGE>
 
     16   AMENDMENTS, ETC. (a) The Board may at any time and from time to time
amend this Plan in whole or in part; provided, however, any amendment that must
be approved by the stockholders of the Corporation in order to comply with
applicable law or the rules of the principal exchange on which the Common Shares
are then trading (or, if applicable, the NASDAQ National Market System) shall
not be effective unless and until such approval shall have been obtained. The
submission of this Plan or any amendment hereto for stockholder approval shall
not be construed to limit the Company's authority to offer similar or dissimilar
benefits under other plans without stockholder approval.

          (b) With the concurrence of the affected Optionee, the Board may
cancel any agreement evidencing Option Rights granted under this Plan. In the
event of any such cancellation, the Board may authorize the granting of new
Option Rights hereunder, which may or may not cover the same number of Common
Shares as had been covered by the canceled Option Rights, at such Option Price,
in such manner and subject to such other terms, conditions and discretion as
would have been permitted under this Plan had the canceled Option Rights not
been granted.

          (c) The Board also may permit Participants to elect to defer the
issuance of Common Shares or the settlement of awards in cash under the Plan
pursuant to such rules, procedures or programs as it may establish for the
purposes of this Plan.  The Board may also provide that deferred issuances and
settlements include the payment or crediting of dividend equivalents or interest
on the deferral amounts.

          (d) The Board may condition the grant of any award or combination of
awards authorized under this Plan on the surrender or deferral by the
Participant of his or her right to receive a cash bonus or other compensation
otherwise payable by the Company or a Subsidiary to the Participant.

          (e) In the event of termination of employment by reason of death,
disability or normal or early retirement, or in the case of hardship or other
special circumstances, of a Participant who holds an Option Right or
Appreciation Right not immediately and fully exercisable, or any Restricted
Shares as to which the substantial risk of forfeiture or the restrictions on
transfer have not lapsed, or any Deferred Shares as to which the Deferral Period
has not been completed, or any Performance Shares or Performance Units that have
not been fully earned, or who holds Common Shares subject to any transfer
restriction imposed pursuant to Section 9(b) of this Plan, the Board may in its
sole discretion accelerate the time at which such Option Right or Appreciation
Right may be exercised or the time at which such substantial risk of forfeiture
or restrictions on transfer will lapse or the time when such Deferral Period
will end or the time at which such Performance Shares or Performance Units will
be deemed to have been fully earned or the time when such transfer restriction
will terminate or may waive any other limitation or requirement under any such
award.

          (f) This Plan shall not confer upon any Participant any right with
respect to continuance of employment or other service with the Company or any
Subsidiary and shall not interfere in any way with any right the Company or any
Subsidiary would otherwise have to terminate any Participant's employment or
other service at any time.

                                       15
<PAGE>
 
          (g) To the extent that any provision of this Plan would prevent any
Option Right that was intended to qualify as an Incentive Stock Option from
qualifying as such, such provision shall be null and void with respect to such
Option Right; provided, however, that such provision shall remain in effect for
other Option Rights, and there shall be no further effect on any provision of
this Plan.

     17   EFFECTIVE DATE AND TERMINATION. (a) The effective date of this Plan
shall be the date immediately prior to the date on which the Company consummates
its Initial Public Offering.

          (b) No grant shall be made under this Plan after the Termination Date,
but all grants made on or before the Termination Date shall continue in effect
thereafter subject to the terms thereof and the terms of this Plan.

                                       16