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                                ALLEGIANCE CORPORATION
                  1996 OUTSIDE DIRECTOR INCENTIVE COMPENSATION PLAN


1.  PURPOSE.  The purpose of the Allegiance Corporation 1996 Outside Director
    Incentive Compensation Plan (the "Plan") is to foster and promote the 
    long-term financial success of Allegiance Corporation (the "Company") by
    (i) more closely aligning the personal interests of the directors with
    those of the Company's stockholders and (ii) attracting and retaining
    outstanding persons to serve as directors by enabling them to participate
    in the Company's growth through stock ownership.


2.  SHARES RESERVED.

    2.1  NUMBER OF SHARES RESERVED.   There is hereby reserved for issuance
         under the Plan an aggregate of 350,000 shares of Common Stock of the
         Company ("Common Stock") which may be authorized and unissued or
         treasury shares.  If the Company shall at any time change the number
         of issued shares of Common Stock without new consideration to the
         Company (such as by stock dividend or stock split), the number of
         shares reserved for issuance under this Plan shall be correspondingly
         changed.

    2.2  REUSAGE OF SHARES.  In the event of the termination (by reason of
         expiration, cancellation, surrender, or otherwise) of any Annual
         Option under the Plan, that number of shares of Common Stock that was
         subject to the Annual Option but not delivered shall be available
         again for an Annual Option under the Plan.

    2.3  ADJUSTMENTS TO SHARES RESERVED.  In the event of any merger,
         consolidation, reorganization, recapitalization, spinoff, stock
         dividend, stock split, reverse stock split, exchange, or other
         distribution with respect to shares of Common Stock or other change in
         the corporate structure or capitalization affecting the Common Stock,
         the type and number of shares of stock which are or may be subject to
         Annual Options under the Plan and the terms of any outstanding Annual
         Option (including the Option Price ) shall be equitably adjusted by
         the Board of Directors to preserve the value of the Annual Options
         awarded or to be awarded under the Plan.


3.  PARTICIPATION.  Participation in this Plan is limited to members of the
    Board of Directors of the Company (a "Director") who are not salaried
    officers or employees of the Company or any subsidiary (an "Outside
    Director").  Each Outside Director shall 


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    begin participation in the Plan on the first day of his or her first term as
    a Director and participation shall continue until the Outside Director no 
    longer serves as a Director.

   
4.  ADMINISTRATION.  This Plan is intended to be self-governing.  All grants of
    options to Outside Directors under the Plan shall be automatic and
    nondiscretionary and shall be made strictly in accordance with the terms of
    the Plan.  To the extent that questions of administration arise, they shall
    be resolved by the entire Board of Directors and the Board of Directors
    shall comply with all applicable law in administering the Plan. 
    

5.  PAYMENT OF ANNUAL RETAINER IN OPTIONS.  As soon as practicable after the
    first day of each Term Year (as defined below), in lieu of an annual cash
    retainer, each Outside Director shall be granted an option to purchase
    shares of Common Stock (an "Annual Option").  The terms of each Annual
    Option shall be as follows:

         5.1  TERM.  The term of the Annual Option shall be ten (10) years.

         5.2  EXERCISE.  Except as provided in subsection 6.2 below, the Annual
              Option shall be exercisable only while the Outside Director
              remains a Director of the Company.

         5.3  OPTION PRICE.  The exercise price per share of Common Stock (the
              "Option Price") shall equal the Fair Market Value of a share of
              Common Stock determined on the date the Annual Option is granted.

         5.4  VESTING.  Subject to subsection 6.2 below, the Annual Option
              shall become exercisable as to all of the shares subject to the
              option on the last day of the Term Year in which the Annual
              Option is granted.

         5.5  NUMBER OF SHARES. Each Annual Option shall be to purchase 
              10,000 shares of Common Stock; provided, that in the case of
              a Term Year which is other than 12 months in duration, the
              Annual Option shall be to purchase that number of shares of
              Common Stock which is equal to 10,000 multiplied by a
              fraction the numerator of which is the number of months in
              the Term Year and the denominator of which is 12.

    For purposes of this Section 5, a "Term Year" shall mean the period
    beginning on the first day following the annual meeting of the Company's
    stockholders, or if later, the 

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    first day a person first serves as an Outside Director, and ending on the 
    day of the succeeding annual meeting; provided, that with respect to the 
    Outside Directors serving on the effective date of the Plan, the first Term 
    Year for such Outside Directors shall mean the period beginning October 1, 
    1996 and ending on the day of the annual meeting of the Company's 
    stockholders occurring in 1998.


6.  OPTION EXERCISES.

         6.1  MANNER AND EFFECT OF EXERCISE.  An Annual Option may be exercised
              by written notice to the Company specifying the number of shares
              of Common Stock to be purchased and shall be accompanied by
              payment of the option price by check or by the delivery of shares
              of Common Stock then owned by the Outside Director or
              certification of such ownership.  Payment may also be made by
              delivering a properly-executed exercise notice to the Company,
              together with a copy of irrevocable instructions to a broker to
              deliver promptly to the Company the amount of sale or loan
              proceeds to pay the exercise price.  The exercise notice shall
              include such other documentation as the Company or broker or
              transfer agent, if applicable, shall require to effect an
              exercise of the Annual Option and delivery to the Company of the
              sale or loan proceeds required to pay the exercise price.  An
              Annual Option may not be exercised for a fraction of a share.  A
              share certificate for the number of shares of Common Stock
              acquired shall be issued to the Outside Director  as soon as
              practicable after exercise of an Annual Option.  No adjustment
              shall be made for a dividend or other right for which the record
              date is prior to the date the stock certificate is issued, except
              as provided in Section 2.  An exercise of an Annual Option in any
              manner shall result in a decrease in the number of shares of
              Common Stock which thereafter may be available, both for purposes
              of the Plan and for sale under the Annual Option, by the number
              of shares of Common Stock as to which the Annual Option is
              exercised.

         6.2  TERMINATION OF OUTSIDE DIRECTOR.  In the event an Outside
              Director's status as a Director terminates for any reason, all of
              the Outside Director's Annual Options shall become fully
              exercisable and all such Annual Options shall remain exercisable
              for a period of twelve (12) months following the date the Outside
              Director's status as a Director terminates (but in no event later
              than the expiration of the ten (10) year term of any Annual
              Option).  To the extent that the terminating Outside Director
              does not exercise any Annual Option within the time specified
              herein, the Annual Option shall terminate.

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7.  GENERAL

    7.1  EFFECTIVE DATE.  The Plan will become effective upon its approval by
         Baxter International, Inc., the Company's sole stockholder.

    7.2  DURATION.  The Plan shall remain in effect until all Annual Options
         granted under the Plan have been satisfied by the issuance of shares
         of Common Stock, or have been terminated in accordance with the terms
         of the Plan.  No option may be granted under the Plan after the tenth
         anniversary of its effective date.

    7.3  NON-TRANSFERABILITY OF OPTION.  No Annual Option granted under the
         Plan may be transferred, pledged, or assigned by an Outside Director
         except by will or the laws of descent and distribution in the event of
         death, and the Company shall not be required to recognize any
         attempted assignment of such rights by any Outside Director.  During
         an Outside Director's lifetime, options may be exercised only by the
         Outside Director or by the Outside Director's guardian or legal
         representative.  Notwithstanding the foregoing, an Outside Director
         may transfer an Annual Option to members of the Director's immediate
         family or trusts or family partnerships for the benefit of such
         persons, subject to such terms and conditions as may be established by
         the Board of Directors.

    7.4  COMPLIANCE WITH APPLICABLE LAW.  The award of any Annual Option under
         the Plan may also be made subject to such other provisions as may be
         appropriate to comply with federal and state securities laws or stock
         exchange requirements.  If, at any time, the Company determines that
         the listing, registration, or qualification of any Annual Option, or
         the shares of Common Stock issuable pursuant thereto, is necessary on
         any securities exchange or under any federal or state securities or
         blue sky law, or that the consent or approval of any governmental
         regulatory body is necessary or desirable, the issuance of shares of
         Common Stock pursuant to any Annual Option, or the removal of any
         restrictions imposed on shares subject to an Annual Option, may be
         delayed until such listing, registration, qualification, consent, or
         approval is effected.

    7.5  NO CONTINUED RETAINER.  Participation in the Plan will not give any
         Outside Director the right to be retained as a Director of the Company
         or any right or claim to any benefit under the Plan unless such right
         or claim has specifically accrued under the terms of the Plan.

    7.6  TREATMENT AS A STOCKHOLDER.  No Annual Option granted to an Outside
         Director under the Plan shall create any rights in such Outside
         Director as a stockholder of the Company until shares of Common Stock
         are registered in the name of the Outside Director.

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    7.7  AMENDMENT OR DISCONTINUATION OF THE PROGRAM.  The Board of
         Directors may amend, suspend or discontinue the Plan at any time; 
         provided, however, that no amendment, suspension or discontinuance 
         shall adversely affect any outstanding Annual Option and if any 
         law, agreement or exchange on which the Company's Common Stock is
         traded  requires stockholder approval for an amendment to become
         effective, no such amendment shall become effective unless approved by
         vote of the Company's stockholders.
    
    7.8  FAIR MARKET VALUE.  Except as otherwise determined by the Board of
         Directors, the Fair Market Value of a share of Common Stock as of any
         date shall be equal to the closing sale price of a share of Common
         Stock on that date as reported on the New York Stock Exchange
         Composite Reporting Tape.





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