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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 9,683,000 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 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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