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ALLEGIANCE CORPORATION
1996 INCENTIVE COMPENSATION PROGRAM


1.  PURPOSE.  The purpose of the Allegiance Corporation 1996 Incentive
    Compensation Program ("Program") is to increase stockholder value and to
    advance the interests of Allegiance Corporation ("Allegiance") and its
    subsidiaries (collectively, the "Company") by providing a variety of
    economic incentives designed to attract, retain, and motivate officers and
    other key employees and by strengthening the mutuality of interest between
    such employees and the Company's stockholders.  As used in this Program,
    the term "subsidiary" means any business, whether or not incorporated, in
    which Allegiance has a direct or indirect ownership interest.

2.  ADMINISTRATION.

    2.1  ADMINISTRATION BY COMMITTEE.  The Program shall be administered by the
         Compensation Committee of the Allegiance Board of Directors
         ("Committee"), which shall consist of two or more non-employee
         directors within the meaning of Rule 16b-3 of the Securities Exchange
         Act of 1934, as amended ("Exchange Act") who also qualify as outside
         directors within the meaning of Section 162(m) and the related
         regulations under the Internal Revenue Code of 1986, as amended.  The
         Chief Executive Officer of the Company may exercise any or all
         authority otherwise delegated to the Committee under the terms of the
         Program with respect to the grant or administration of incentives made
         to or held by persons who, at the time of the exercise of such
         authority, are not subject to Section 16(a) of the Exchange Act.

    2.2  AUTHORITY.  Subject to the provisions of the Program, the Committee
         shall have the authority to (a) interpret the provisions of the
         Program, and prescribe, amend, and rescind rules and procedures
         relating to the Program, (b) grant incentives under the Program, in
         such forms and amounts and subject to such terms and conditions as it
         deems appropriate, including, without limitation, incentives which are
         made in combination with or in tandem with other incentives (whether
         or not contemporaneously granted) or compensation or in lieu of
         current or deferred compensation, (c) modify the terms of, cancel and
         reissue, or repurchase outstanding incentives, subject to subsection
         12.7, and (d) make all other determinations and take all other actions
         as it deems necessary or desirable for the administration of the
         Program; provided, however, that in no event shall the Committee
         cancel any outstanding stock option for the purpose of reissuing an
         option to the option holder at a lower exercise price.  The
         determination of the Committee on matters within its authority shall
         be conclusive and binding on the Company and all other 


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         persons.  The Committee shall comply with all applicable law in
         administering the Plan.
    
3.  PARTICIPATION.  Subject to the terms and conditions of the Program, the
    Committee shall designate from time to time the employees of the Company
    (including employees who are directors of Allegiance) who shall receive
    incentives under the Program ("Participants").  All officers and other
    full-time employees of the Company are eligible to receive incentives under
    the Program.  Participation, the grant of incentives and any related
    performance goals for persons subject to Section 16(a) of the Exchange Act
    must be determined by the Committee.


4.  SHARES SUBJECT TO THE PROGRAM
   
    4.1  NUMBER OF SHARES RESERVED.  Subject to adjustment in accordance with
         subsections 4.2 and 4.3, the aggregate number of shares of Allegiance
         Common Stock ("Common Stock") available for incentives under the
         Program shall be           shares.  All shares of Common Stock issued
         under the Program may be authorized and unissued shares or treasury
         shares.  All of such shares may, but need not, be issued pursuant to
         the exercise of Incentive Stock Options.  The maximum number of shares
         of Common Stock which may be granted in the form of Restricted Stock 
         shall be 750,000.  The maximum number of shares that may be granted 
         in the form of a Stock Option or Stock Appreciation Right pursuant to 
         any award granted in any fiscal year to a Participant shall be 
         1,000,000 shares.
    
    4.2  REUSAGE OF SHARES.

         (a)  In the event of the exercise or termination (by reason of
              forfeiture, expiration, cancellation, surrender, or otherwise) of
              any incentive under the Program, that number of shares of Common
              Stock that was subject to the incentive but not delivered shall
              be available again for incentives under the Program.

         (b)  In the event that shares of Common Stock are delivered under the
              Program and are thereafter forfeited or reacquired by the Company
              pursuant to rights reserved upon the award thereof, such
              forfeited or reacquired shares shall be available again for
              incentives under the Program.

    4.3  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 

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         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 incentives under the Program and the 
         terms of any outstanding incentives (including the price at which 
         shares of stock may be issued pursuant to an outstanding incentive) 
         shall be equitably adjusted by the Committee, in its sole discretion, 
         to preserve the value of incentives awarded or to be awarded to 
         Participants under the Program.

5.  STOCK OPTIONS.
   
    5.1  AWARDS.  Subject to the terms and conditions of the Program, the
         Committee shall designate the employees to whom options to purchase
         shares of Common Stock ("Stock Options") are to be awarded under the
         Program and shall determine the number, type, and terms of the Stock
         Options to be awarded to each of them.  Each Stock Option shall expire
         not later than 10 years and one day after the date of grant.  The
         option price per share ("Option Price") for any Stock Option awarded
         shall not be less than the Fair Market Value of a share of Common
         Stock on the date the Stock Option is granted.  Each Stock Option
         awarded under the Program shall be a "nonqualified stock option" for
         tax purposes unless the Stock Option satisfies all of the requirements
         of Section 422 of the Internal Revenue Code of 1986, as amended, and
         the Committee designates such Stock Option as an "Incentive Stock
         Option".
    
    5.2  MANNER OF EXERCISE.  A Stock 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, in the discretion of the Committee, by the delivery of
         shares of Common Stock then owned by the Participant or certification
         of such ownership.  In the discretion of the Committee, 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.

    5.3  DIVIDEND EQUIVALENTS.  The Committee may grant dividend equivalents in
         connection with any option granted under this Program.  Such dividend
         equivalents may be payable in cash or in shares of Common Stock upon
         such terms and conditions as the Committee in its sole discretion
         deems appropriate.

6.  STOCK APPRECIATION RIGHTS.

    6.1  GRANT OF SARS.  Subject to the terms and conditions of the Program,
         the Committee shall designate the employees to whom stock appreciation
         rights ("SARs") are to be awarded under the Program and shall
         determine the number, 

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         type and terms of the SARs to be awarded to each of them. An SAR may be
         granted in tandem with a stock option granted under the Program, or the
         SAR may be granted on a free-standing basis. Tandem SARs may be granted
         either at or after the time of grant of a stock option, provided that, 
         in the case of an Incentive Stock Option a tandem SAR may be granted 
         only at the time of the grant of such option. The grant price of a 
         tandem SAR shall equal the option price of the related option. The 
         grant price of a free-standing SAR shall be equal to the Fair Market 
         Value of a share of Common Stock on the date of grant of the SAR.

    6.2  EXERCISE OF TANDEM SARS.  Tandem SARs may be exercised for all or part
         of the shares subject to the related option upon the surrender of the
         right to exercise the equivalent portion of the related option.  A
         tandem SAR shall terminate and no longer be exercisable upon
         termination or exercise of the related stock option.  A tandem SAR may
         be exercised only with respect to the shares for which its related
         option is then exercisable.

    6.3  EXERCISE OF FREE-STANDING SARS.  Free-standing SARs may be exercised
         upon such terms and conditions as the Committee, in its sole
         discretion, determines.

    6.4  TERM OF SARS.  The term of an SAR granted under the Program shall be
         determined by the Committee in its sole discretion; provided, however,
         that such term shall not exceed the option term in the case of a
         tandem SAR, or ten years in the case of a free-standing SAR.

    6.5  PAYMENT OF SAR AMOUNT.  Upon exercise of an SAR, a Participant shall
         be entitled to receive payment from the Company in an amount
         determined by multiplying:

         (a)  The excess of the Fair Market Value of a share of Common Stock on
              the date of exercise over the grant price of the SAR by

         (b)  The number of shares with respect to which the SAR is exercised.

         At the discretion of the Committee, the payment to be made upon an SAR
         exercise may be in cash, in shares of Common Stock of equivalent
         value, or in some combination thereof.

7.  STOCK AWARDS.  Subject to the terms and conditions of the Program, the
    Committee shall designate the employees who shall be awarded shares of
    Common Stock without restrictions ("Stock Awards"), under the Program and
    shall determine the number and terms of the Stock Awards to be awarded to
    each of them.  No person subject to Section 16(a) of the Exchange Act may
    receive a Stock Award, and no 

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    person eligible to receive a Stock Award may receive a Stock Award 
    representing more than 2,500 shares of Common Stock in any calendar year.

8.  RESTRICTED STOCK.

    8.1  AWARDS.  Subject to the terms and conditions of the Program, the
         Committee shall designate the employees to whom shares of Common
         Stock, subject to restrictions ("Restricted Stock"), shall be awarded
         or sold under the Program and determine the number of shares and the
         terms and conditions of each such award.

    8.2  RESTRICTIONS.  All shares of Restricted Stock shall be subject to such
         restrictions as the Committee may determine, including, without
         limitation, any of the following:

         (a)  a prohibition against the sale, assignment, transfer, pledge,
              hypothecation, or other encumbrance of the shares of Restricted
              Stock for a specified period;

         (b)  a requirement that the holder of shares of Restricted Stock
              forfeit (or in the case of shares sold to a Participant, resell
              to the Company at his or her cost) such shares in the event of
              termination of his or her employment during any period in which
              such shares are subject to restrictions; or

         (c)  a prohibition against employment of the holder by any competitor
              of the Company or against such holder's dissemination of any
              confidential information belonging to the Company.

         All restrictions shall expire at such time as the Committee shall
         specify.

    8.3  STOCKHOLDER RIGHTS.  Shares of Restricted Stock shall be registered in
         the name of the Participant.  Each Participant who has been awarded
         shares of Restricted Stock shall have such rights of a stockholder
         with respect to such shares as the Committee may designate at the time
         of the award, including the right to vote such shares and the right to
         receive dividends paid on such shares.  Unless otherwise provided by
         the Committee, stock dividends or non-cash dividends and any other
         securities distributed with respect to Restricted Stock shall be
         subject to the same restrictions and other terms and conditions as the
         Restricted Stock to which they are attributable.

    8.4  LAPSE OF RESTRICTIONS.  Shares of Restricted Stock will be delivered
         free of all restrictions to the Participant (or to the Participant's
         legal representative, 

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         beneficiary, or heir) when the shares are no longer subject to 
         forfeiture or restrictions on transfer.

9.  PERFORMANCE SHARES.

    9.1  AWARDS.  Subject to the terms and conditions of the Program, the
         Committee shall designate the employees to whom Performance Shares are
         to be awarded and determine the number of shares and the terms and
         conditions of each such award.  Each Performance Share shall entitle
         the Participant to a payment in the form of one share of Common Stock
         upon the attainment of performance goals and other terms and
         conditions specified by the Committee.

    9.2  NO ADJUSTMENTS.  Except as otherwise provided by the Committee or in
         section 4.3 hereof, no adjustment shall be made in Performance Shares
         awarded on account of cash dividends which may be paid or other rights
         which may be provided to the holders of Common Stock prior to the end
         of any performance period.

    9.3  SUBSTITUTION OF CASH.  The Committee may, in its sole discretion,
         substitute cash equal to the Fair Market Value (determined as of the
         date of the issuance) of shares of Common Stock otherwise required to
         be issued to a Participant hereunder.

10. OTHER INCENTIVES.  In addition to the incentives described in Sections 5
    through 9 above and subject to the terms and conditions of the Program, the
    Committee may grant other incentives ("Other Incentives"), payable in cash
    or in stock, under the Program as it determines to be in the best interest
    of the Company.

11. PERFORMANCE GOALS.  Awards of Restricted Stock, Performance Shares and
    other incentives under the Program may be made subject to the attainment of
    performance goals relating to one or more business criteria within the
    meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended,
    including, but not limited to, stock price, market share, sales, earnings
    per share, return on equity, costs and cash flow, as determined by the
    Committee from time to time.

12. GENERAL

    12.1 EFFECTIVE DATE.  The Program will become effective upon its approval
         by Baxter International, Inc., Allegiance's sole stockholder.

    12.2 DURATION.  The Program shall remain in effect until all incentives
         granted under the Program have been satisfied by the issuance of
         shares of Common Stock, lapse of restrictions or the payment of cash,
         or have been terminated in 

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         accordance with the terms of the Program or the incentive. No incentive
         may be granted under the Program after the tenth anniversary of its 
         effective date.

    12.3 NON-TRANSFERABILITY OF INCENTIVES.  No incentive granted under the
         Program may be transferred, pledged, or assigned by the employee
         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 Participant.  During a
         Participant's lifetime, awards may be exercised only by the
         Participant or by the Participant's guardian or legal representative.
         Notwithstanding the foregoing, at the discretion of the Committee, a
         grant of an award may permit the transfer of the award by the
         Participant solely to members of the Participant'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 Committee.

    12.4 COMPLIANCE WITH APPLICABLE LAW AND WITHHOLDING.

    (a)  The award of any benefit under the Program may also be made subject to
         such other provisions as the Committee determines appropriate,
         including, without limitation, provisions to comply with federal and
         state securities laws or stock exchange requirements.

    (b)  If, at any time, the Company, in its sole discretion, determines that
         the listing, registration, or qualification of any type of incentive,
         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 incentive, or the removal of any
         restrictions imposed on shares subject to an incentive, may be delayed
         until such listing, registration, qualification, consent, or approval
         is effected.

    (c)  The Company shall have the right to withhold from any award under the
         Program or to collect as a condition of any payment under the Program,
         as applicable, any taxes required by law to be withheld.  To the
         extent permitted by the Committee, a Participant may elect to have any
         distribution, or a portion thereof, otherwise required to be made
         under the Program to be withheld or to surrender to the Company
         previously owned shares of Common Stock to fulfill any tax withholding
         obligation.

    12.5 NO CONTINUED EMPLOYMENT.  Participation in the Program will not give
         any Participant the right to be retained in the employ of the Company
         or any right or claim to any benefit under the Program unless such
         right or claim has specifically accrued under the terms of any
         incentive under the Program.

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    12.6 TREATMENT AS A STOCKHOLDER.  No incentive granted to a Participant
         under the Program shall create any rights in such Participant as a
         stockholder of the Company until shares of Common Stock related to the
         incentive are registered in the name of the Participant.
   
    12.7 AMENDMENT OR DISCONTINUATION OF THE PROGRAM.  The Board of Directors
         may amend, suspend, or discontinue the Program at any time; provided,
         however, that no amendment, suspension or discontinuance shall
         adversely affect any outstanding benefit and if any law, agreement or
         exchange on which Common Stock of Allegiance is traded requires
         stockholder approval for an amendment to become effective, no such
         amendment shall become effective unless approved by vote of 
         Allegiance's stockholders.
    
    12.8 ACCELERATION OF INCENTIVES.  Notwithstanding any provision in this
         Program to the contrary or the normal terms of vesting in any
         incentive,(a)  the restrictions on all shares of Restricted Stock
         shall lapse immediately,(b) all outstanding Stock Options will become
         exercisable immediately, and (c) all performance goals shall be deemed
         to be met and payment made immediately if a Change in Control occurs. 
         For purposes of this Program, a "Change in Control" shall have
         occurred if:

         (1)  any "Person", as such term is used in Section 13(d) and 14(d) of
              the Exchange Act (other than Allegiance, any corporation owned,
              directly or indirectly, by the stockholders of Allegiance in
              substantially the same proportions as their ownership of stock of
              Allegiance, and any trustee or other fiduciary, holding
              securities under an employee benefit plan of Allegiance or such
              proportionately owned corporation), is or becomes the "beneficial
              owner" (as defined in Rule 13d-3 under the Exchange Act),
              directly or indirectly, of securities of Allegiance representing
              20% or more of the combined voting power of Allegiance's then
              outstanding securities;

         (2)  during any period of not more than 24 months, individuals who at
              the beginning of such period constitute the Board of Directors of
              Allegiance, and any new director (other than a director
              designated by a Person who has entered into an agreement with
              Allegiance to effect a transaction described in paragraph (1),
              (3), or (4) of this subsection 13.8) whose election by the board
              or nomination for election by Allegiance'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 or nomination for election 

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              was previously so approved, cease for any reason to constitute at
              least a majority thereof;

         (3)  the stockholders of Allegiance approve a merger or consolidation
              of Allegiance with any other corporation, other than (A) a merger
              or consolidation which would result in the voting securities of
              Allegiance outstanding immediately prior thereto continuing to
              represent (either by remaining outstanding or by being converted
              into voting securities of the surviving entity) more than 60% of
              the combined voting power of the voting securities of Allegiance
              or such surviving entity outstanding immediately after such
              merger or consolidation, or (B) a merger or consolidation
              effected to implement a recapitalization of Allegiance (or
              similar transaction) in which no Person acquires more than 20% of
              the combined voting power of Allegiance's then outstanding
              securities; or

         (4)  the stockholders of Allegiance approve a plan of complete
              liquidation of Allegiance or an agreement for the sale or
              disposition by Allegiance of all or substantially all of its
              assets (or any transaction having a similar effect).

         The Committee may also determine, in its discretion, that a sale of a
         substantial portion of Allegiance's assets or one of its businesses
         constitutes a "Change of Control" with respect to incentives held by
         Participants employed in the affected operation.

    12.9 DEFINITION OF FAIR MARKET VALUE.  Except as otherwise determined by
         the Committee, 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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