NON-QUALIFIED STOCK OPTION AGREEMENT


     THIS  AGREEMENT,  dated as of October 6, 1995 is made by and between  Medco
Behavioral Care Corporation,  a Delaware corporation  hereinafter referred to as
the  "Company,"  and Albert S.  Waxman,  an employee of, or  consultant  to, the
Company or a Subsidiary (as defined below) of the Company,  hereinafter referred
to as "Optionee."

     WHEREAS,  the Company  wishes to afford the  Optionee  the  opportunity  to
purchase shares of its $.01 par value Common Stock ("Common Stock");

     WHEREAS,  pursuant to the Stockholder's Agreement, the Optionee is entitled
to receive a grant of Non-Qualified Stock Options;

     WHEREAS,  the Company wishes to carry out the Plan (as defined below),  the
terms of which are  hereby  incorporated  by  reference  and made a part of this
Agreement; and

     WHEREAS,  the Committee (as defined below) appointed to administer the Plan
has  determined  that it would be to the  advantage  and  best  interest  of the
Company and its stockholders to grant the Non-Qualified Stock Option(s) provided
for herein to the Optionee as an incentive for increased efforts during his term
of  employment  with the  Company or its  Subsidiaries  or  Affiliates,  and has
advised the Company  thereof and  instructed the  undersigned  officers to issue
said Options;

     NOW,  THEREFORE,  in consideration of the mutual covenants herein contained
and  other  good  and  valuable  consideration,   receipt  of  which  is  hereby
acknowledged, the parties hereto do hereby agree as follows:


                                              ARTICLE I

                                             DEFINITIONS

               Whenever the  following  terms are used in this  Agreement,  they
shall have the meaning specified in the Plan or below unless the context clearly
indicates to the contrary.

Section 12. - Acceleration Event

               "Acceleration  Event" with respect to an Optionee shall mean that
each of the following has occurred:

          (a)  (i) a sale  of  all or  substantially  all of the  assets  of the
     Company  to a Person who is not an  Affiliate  of KKR or an entity in which
     the shareholders of the Company



<PAGE>


        immediately  prior to such  transaction  do not control more than 40% of
        the voting power of such entity  immediately  following the transaction,
        (ii) a sale by KKR or any of its Affiliates  resulting in 50% or more of
        the  voting  power of the  Company  being held by a Person or Group that
        does not  include  KKR or any of its  Affiliates  or  (iii) a merger  or
        consolidation  of  the  Company  into  another  Person  which  is not an
        Affiliate of KKR or an entity in which the  shareholders  of the Company
        immediately  prior to such  transaction  do not control more than 40% of
        the voting power  immediately  following the transaction.  "Group" means
        two  or  more  Persons  acting   together  as  a  partnership,   limited
        partnership,  syndicate  or other  group for the  purpose of  acquiring,
        holding or disposing of securities of the Company,

               (b)  Employees  and partners of KKR and its  Affiliates  or their
        designees  do not  collectively  constitute  a majority  of the Board of
        Directors of (in case of the event  described in subsection  (a)(i)) the
        acquiring  Person,  or (in case of the events  described  in  subsection
        (a)(ii) or (iii)) the Company, and

               (c)  if  the  Optionee  is  an  employee  of  the  Company  or  a
        Subsidiary,  such employment is terminated without "Cause" or with "Good
        Reason"  (as such  terms are  defined  in the  Stockholder's  Agreement)
        within  one  year  following  the  later  of  the  events  described  in
        subsections (a) and (b).


Section 13. - Affiliate

               "Affiliate" shall mean (a) with respect to any Person,  any other
Person  directly  or  indirectly  controlling,  controlled  by, or under  common
control with, such Person, and (b) with respect to the Company,  also any entity
designated  by the Board of Directors of the Company in which the Company or one
of its  Affiliates  has an  interest,  and (c) with  respect to Kohlberg  Kravis
Roberts & Co.,  L.P.  ("KKR"),  also any  Affiliate  of any partner of KKR.  For
purposes  of  this  Agreement,   "Person"  means  an  individual,   partnership,
corporation,   business  trust,  joint  stock  company,  trust,   unincorporated
association,  joint venture,  governmental authority or other entity of whatever
nature,  and "control"  shall have the meaning given such term under Rule 405 of
the Securities Act of 1933.

Section 14. - Code

               "Code" shall mean the Internal Revenue Code of 1986, as amended.

Section 15. - Committee

               "Committee" shall mean the Compensation Committee of the Company.

Section 16. - Grant Date

               "Grant  Date" shall mean the date on which the  Options  provided
for in this Agreement were granted.

Section 17. - Options

               "Options" shall mean the Non-Qualified  Stock Options to purchase
Common Stock granted under this Agreement.

Section 18. - Permanent Disability

               The Optionee shall be deemed to have a "Permanent  Disability" if
the Optionee is unable to engage in the activities required by the job by reason
of any medically  determined physical or mental impairment which can be expected
to  result  in  death or  which  has  lasted  or can be  expected  to last for a
continuous  period of not less than 12 months,  as reasonably  determined by the
Board of Directors of the Company in good faith and in its discretion.

Section 19. - Plan

     "Plan" shall mean the 1995 Stock  Purchase and Option Plan for Employees of
     Medco Behavioral Care Corporation and Subsidiaries.

Section 20. - Permitted Retirement

               "Permitted  Retirement"  shall mean  retirement at age 65 or over
(or such other age as may be approved by the Board of  Directors of the Company)
after  having  been  employed  by the  Company  or one  of its  Subsidiaries  or
Affiliates for at least three years after the Grant Date.

Section 21. - Pronouns

               The masculine pronoun shall include the feminine and neuter,  and
the singular the plural, where the context so indicates.

Section 1.11 - Purchase Date

               "Purchase Date" shall mean October __, 1995.

Section 1.12 - Secretary

               "Secretary" shall mean the Secretary of the Company.

Section 1.13 - Stockholder's Agreement

               "Stockholder's  Agreement" shall mean that certain  Stockholder's
Agreement dated as of January 1, 1996 between the Optionee and the Company.

Section 1.14 - Subsidiary

               "Subsidiary"   with   respect  to  any  entity   shall  mean  any
corporation  (or other entity) in an unbroken  chain of  corporations  (or other
entities)  beginning with such entity if each of the corporations (or entities),
or group of commonly controlled corporations (or entities),  other than the last
corporation (or entity) in the unbroken chain,  then owns stock (or other equity
interest)  possessing  50% or more of the  total  combined  voting  power of all
classes of equity in one of the other entities in such chain.

Section 1.15 - Value

               "Value" of a share of Common Stock for periods prior to a "Public
Offering" (as defined in the Stockholder's Agreement) shall mean the "Base Value
Per  Share" (as  defined  in the  Stockholder's  Agreement)  and for  subsequent
periods shall mean the "Market Price Per Share" (as defined in the Stockholder's
Agreement).

                                             ARTICLE II

                                          GRANT OF OPTIONS

Section 22. - Grant of Options

               For good and valuable consideration, on and as of the date hereof
the Company irrevocably grants to the Optionee an Option to purchase any part or
all of an  aggregate of the number of shares set forth with respect to each such
Option on the signature  page hereof of its $.01 par value Common Stock upon the
terms and conditions set forth in this Agreement.

Section 23. - Exercise Price

               The  exercise  price  of  the  shares  of  stock  covered  by the
Option(s) shall be $5.00 per share without commission or other charge.

Section 24. - Consideration to the Company

               In  consideration  of the  granting  of  these  Option(s)  by the
Company,  the Optionee agrees to render  faithful and efficient  services to the
Company  or one  of  its  Subsidiaries  or  Affiliates,  with  such  duties  and
responsibilities  as the Company shall from time to time  prescribe.  Nothing in
this  Agreement  or in the Plan  shall  confer  upon the  Optionee  any right to
continue in the employ of the Company or any of its  Subsidiaries  or Affiliates
or shall interfere with or restrict in any way the rights of the Company and its
Subsidiaries and Affiliates,  which are hereby expressly reserved,  to terminate
the  employment of the Optionee at any time for any reason  whatsoever,  with or
without Cause.

Section 25. - Adjustments in Options

               Subject  to  Section  9 of  the  Plan,  in  the  event  that  the
outstanding  shares of the stock  subject to an Option  are,  from time to time,
changed  into or exchanged  for cash or a different  number or kind of shares of
the  Company  or  other  securities  of  the  Company  by  reason  of a  merger,
consolidation, recapitalization,  reclassification, stock split, stock dividend,
combination of shares, or otherwise, the Committee shall make an appropriate and
equitable adjustment in the number and kind of shares or other consideration and
the  exercise  price  as  to  which  such  Option,   or  portions  thereof  then
unexercised, shall be exercisable in order to prevent dilution or enlargement of
the benefits intended to be made available with respect to any Option.  Any such
adjustment  made by the Committee  shall be final and binding upon the Optionee,
the Company and all other interested persons.


                                             ARTICLE III

                                      PERIOD OF EXERCISABILITY

Section 3.1 - Commencement of Exercisability
<TABLE>
<CAPTION>
 
               (a)    The Option shall become exercisable as follows:
          Date Option                                                   Number of Option Shares
          Becomes Exercisable                                              As to Which Option
                                                                            Is Exercisable
<S>                                                                                <C>
          Grant Date through the first anniversary of the Grant                    0%
          Date
          After the first anniversary of the Grant Date                           20%
          After the second anniversary of the Grant Date                          40%
          After the third anniversary of the Grant Date                           60%
          After the fourth anniversary of the Grant Date                          80%
          After the fifth anniversary of the Grant Date                           100%
</TABLE>


               (b)  Notwithstanding  the  foregoing,  the  Option  shall  become
exercisable  for the period set forth in Section 3.2 as to 100% of the shares of
Common Stock subject to such Option upon the happening of an Acceleration  Event
(but only to the extent such Option has not otherwise terminated).

               (c)  Notwithstanding  the  foregoing,   no  Option  shall  become
exercisable  as  to  any  additional   shares  of  Common  Stock  following  the
termination  of employment  of the Optionee for any reason.  Any Option which is
non-exercisable  as  of  the  Optionee's  termination  of  employment  shall  be
immediately cancelled.

Section 3.2 - Expiration of Options

               Except  as   otherwise   provided  in  Section  5  or  6  of  the
Stockholder's  Agreement,  the  Options  may not be  exercised  to any extent by
Optionee after the first to occur of the following events:

               (a)    The tenth anniversary of the Grant Date; or

               (b)  The  first   anniversary  of  the  date  of  the  Optionee's
          termination of employment by reason of death,  Permanent Disability or
          Permitted Retirement; or

               (c) The first  business day which is fifteen  calendar days after
        the  earlier  of (i) 75 days  after  termination  of  employment  of the
        Optionee  for any reason not  specified  in  subsection  (b) or (ii) the
        delivery  of notice by the  Company  that it does not intend to exercise
        its call right under Section 6 of the Stockholder's Agreement; provided,
        however,  that in any event the Options shall remain  exercisable  under
        this  subsection  3.2(c)  until at least 45 days  after  termination  of
        employment  of the  Optionee  for  any  reason  other  than  for  death,
        Permanent Disability or Permitted Retirement; or

               (d) The date the Option is terminated pursuant to Section 5, 6 or
          10(b) of the Stockholder's Agreement;

               (e) If the Committee so  determines  pursuant to Section 9 of the
        Plan,  the effective date of either the merger or  consolidation  of the
        Company into another  Person,  or the exchange or acquisition by another
        Person of all or  substantially  all of the  Company's  assets or 80% or
        more of its then  outstanding  voting  stock,  or the  recapitalization,
        reclassification,  liquidation or  dissolution of the Company.  At least
        ten (10) days prior to the effective date of such merger, consolidation,
        exchange, acquisition, recapitalization,  reclassification,  liquidation
        or  dissolution,  the Committee  shall give the Optionee  notice of such
        event if the Option has then  neither  been fully  exercised  nor become
        unexercisable under this Section 3.2.

                                             ARTICLE IV

                                         EXERCISE OF OPTION

Section 4.1 - Person Eligible to Exercise

               During the  lifetime  of the  Optionee,  only he may  exercise an
Option or any portion thereof.  After the death of the Optionee, any exercisable
portion of an Option may, prior to the time when an Option becomes unexercisable
under Section 3.2, be exercised by his personal  representative or by any person
empowered to do so under the Optionee's  will or under the then  applicable laws
of descent and distribution.

Section 4.2 - Partial Exercise

               Any  exercisable  portion of an Option or the entire  Option,  if
then wholly exercisable,  may be exercised in whole or in part at any time prior
to the time when the  Option or  portion  thereof  becomes  unexercisable  under
Section 3.2;  provided,  however,  that any partial  exercise shall be for whole
shares of Common Stock only.

Section 4.3 - Manner of Exercise

               An Option, or any exercisable  portion thereof,  may be exercised
solely by delivering  to the Secretary or his office all of the following  prior
to the time when the Option or such portion becomes  unexercisable under Section
3.2:

               (a) Notice in writing  signed by the Optionee or the other person
        then  entitled to exercise the Option or portion  thereof,  stating that
        the  Option  or  portion  thereof  is  thereby  exercised,  such  notice
        complying with all applicable rules established by the Committee;

               (b) Full payment for the shares with respect to which the Option,
        or portion thereof,  is exercised in one or more of the following forms:
        (i) cash;  (ii)  surrender of shares of Common Stock then  issuable upon
        exercise of the Option (or owned by Optionee  duly endorsed for transfer
        to the Company)  having a Value on the date of Option  exercise equal to
        the  necessary  aggregate  exercise  price of the  Option  or  exercised
        portion thereof;

               (c) A bona fide written  representation and agreement,  in a form
        reasonably  satisfactory  to the  Committee,  signed by the  Optionee or
        other person then entitled to exercise  such Option or portion  thereof,
        stating that the shares of stock are being acquired for his own account,
        for  investment  and without any present  intention of  distributing  or
        reselling  said shares or any of them except as may be  permitted  under
        the Securities Act of 1933, as amended (the "Act"),  and then applicable
        rules and regulations thereunder,  and that the Optionee or other person
        then entitled to exercise such Option or portion  thereof will indemnify
        the Company against and hold it free and harmless from any loss, damage,
        expense  or   liability   resulting  to  the  Company  if  any  sale  or
        distribution   of  the  shares  by  such   person  is  contrary  to  the
        representation and agreement referred to above; provided,  however, that
        the Committee may, in its absolute discretion,  take whatever additional
        actions it deems appropriate to ensure the observance and performance of
        such  representation and agreement and to effect compliance with the Act
        and any other federal or state securities laws or regulations;

               (d) Full  payment to the  Company  of all  amounts  which,  under
        federal, state or local law, it is required to withhold upon exercise of
        the  Option,  in one or more of the  following  forms:  (i)  cash;  (ii)
        surrender of shares of Common Stock then  issuable  upon exercise of the
        Option (or owned by Optionee  duly endorsed for transfer to the Company)
        having a Value  on the date of  Option  exercise  equal to the  required
        amount; and

               (e) In the event the Option or portion thereof shall be exercised
        pursuant  to  Section  4.1 by any  person  or  persons  other  than  the
        Optionee,  appropriate  proof of the right of such  person or persons to
        exercise the Option.

Without  limiting the generality of the foregoing,  the Committee may require an
opinion of counsel  acceptable to it to the effect that any subsequent  transfer
of shares  acquired on  exercise of an Option does not violate the Act,  and may
issue stop-transfer orders covering such shares.  Share certificates  evidencing
stock  issued on  exercise  of this  Option  shall  bear an  appropriate  legend
referring to the provisions of subsection  (c) above and the agreements  herein.
The written  representation  and agreement  referred to in subsection  (c) above
shall,  however,  not be  required  if the shares to be issued  pursuant to such
exercise  have been  registered  under the Act,  and such  registration  is then
effective in respect of such shares.

Section 4.4 - Conditions to Issuance of Stock Certificates
               The shares of stock  deliverable  upon the exercise of an Option,
or any portion thereof, may be either previously  authorized but unissued shares
or issued  shares which have then been  reacquired  by the Company.  Such shares
shall be fully paid and  nonassessable.  The  Company  shall not be  required to
issue or deliver any certificate or  certificates  for shares of stock purchased
upon the exercise of an Option or portion thereof prior to fulfillment of all of
the following conditions:

               (a) The obtaining of approval or other  clearance  from any state
        or  federal  governmental  agency  which  the  Committee  shall,  in its
        absolute discretion, determine to be necessary or advisable; and

               (b) The lapse of such  reasonable  period of time  following  the
        exercise of the Option as the Committee may from time to time  establish
        for reasons of administrative convenience.

Section 4.5 - Rights as Stockholder

               The holder of an Option  shall not be, nor have any of the rights
or  privileges  of, a  stockholder  of the  Company  in  respect  of any  shares
purchasable  upon the exercise of the Option or any portion  thereof  unless and
until  certificates  representing  such  shares  shall  have been  issued by the
Company to such holder.


                                              ARTICLE V

                                            MISCELLANEOUS

Section 5.1 - Administration

               The Committee shall have the power to interpret the Plan and this
Agreement  and to adopt such rules for the  administration,  interpretation  and
application of the Plan as are  consistent  therewith and to interpret or revoke
any such rules.  All actions taken and all  interpretations  and  determinations
made by the Committee shall be final and binding upon the Optionee,  the Company
and all other interested persons. No member of the Committee shall be personally
liable for any action,  determination or interpretation  made in good faith with
respect to the Plan or the  Options.  In its absolute  discretion,  the Board of
Directors  may at any time and from time to time exercise any and all rights and
duties of the Committee under the Plan and this Agreement.

Section 5.2 - Options Not Transferable

               Except as provided in the  Stockholder's  Agreement,  neither the
Options nor any interest or right  therein or part  thereof  shall be liable for
the debts,  contracts  or  engagements  of the  Optionee  or his  successors  in
interest  or  shall  be  subject  to   disposition   by  transfer,   alienation,
anticipation,  pledge,  encumbrance,  assignment or any other means whether such
disposition  be  voluntary  or  involuntary  or by operation of law by judgment,
levy,  attachment,  garnishment  or any  other  legal or  equitable  proceedings
(including bankruptcy),  and any attempted disposition thereof shall be null and
void and of no  effect;  provided,  however,  that  this  Section  5.2 shall not
prevent transfers by will or by the applicable laws of descent and distribution.

Section 5.3 - Shares to Be Reserved

               The  Company  shall at all times  during the term of the  Options
reserve and keep  available such number of shares of stock as will be sufficient
to satisfy the requirements of this Agreement.

Section 5.4 - Notices

               Any notice to be given under the terms of this  Agreement  to the
Company  shall be  addressed  to the Company in care of its  Secretary,  and any
notice to be given to the  Optionee  shall be  addressed  to him at the  address
given beneath his signature  hereto.  By a notice given pursuant to this Section
5.4, either party may hereafter  designate a different address for notices to be
given to him. Any notice which is required to be given to the Optionee shall, if
the  Optionee  is  then   deceased,   be  given  to  the   Optionee's   personal
representative if such representative has previously informed the Company of his
status and address by written  notice  under this  Section 5.4. Any notice shall
have been  deemed  duly given when  enclosed  in a properly  sealed  envelope or
wrapper  addressed as  aforesaid,  deposited  (with  postage  prepaid) in a post
office or branch post office  regularly  maintained  by the United States Postal
Service.

Section 5.5 - Titles

               Titles are provided  herein for  convenience  only and are not to
serve as a basis for interpretation or Construction of this Agreement.

Section 5.6 - Applicability of Plan and Stockholder's Agreement

               The Options and the shares of Common Stock issued to the Optionee
upon exercise of the Options shall be subject to all of the terms and provisions
of the Plan and the  Stockholder's  Agreement,  to the extent  applicable to the
Options and such shares. In the event of any conflict between this Agreement and
the Plan,  the terms of the Plan  shall  control.  In the event of any  conflict
between  this  Agreement  and the  Stockholder's  Agreement,  the  terms  of the
Stockholder's Agreement shall control.

Section 5.7 - Amendment

               This  Agreement may be amended only by a writing  executed by the
parties hereto which specifically states that it is amending this Agreement.

Section 5.8 - Governing Law

               The   laws  of  the   State  of   Delaware   shall   govern   the
interpretation,  validity  and  performance  of  the  terms  of  this  Agreement
regardless  of the law that might be applied  under  principles  of conflicts of
laws.

Section 5.9 - Jurisdiction

               Any suit, action or proceeding  against the Optionee with respect
to this  Agreement,  or any  judgment  entered  by any court in  respect  of any
thereof,  may be brought in any court of competent  jurisdiction in the State of
Delaware or New York, as the Company may elect in its sole  discretion,  and the
Optionee hereby submits to the non-exclusive jurisdiction of such courts for the
purpose of any such suit,  action,  proceeding or judgment.  The Optionee hereby
irrevocably  waives any  objections  which he may now or  hereafter  have to the
laying of the venue of any suit, action or proceeding arising out of or relating
to this Agreement brought in any court of competent jurisdiction in the State of
Delaware or New York, and hereby further  irrevocably  waives any claim that any
such suit,  action or  proceeding  brought in any such court has been brought in
any inconvenient  forum. No suit, action or proceeding  against the Company with
respect to this Agreement may be brought in any court,  domestic or foreign,  or
before  any  similar  domestic  or  foreign  authority  other than in a court of
competent  jurisdiction  in the State of Delaware or New York,  and the Optionee
hereby  irrevocably  waives any right which he may  otherwise  have had to bring
such an action in any other  court,  domestic or foreign,  or before any similar
domestic or foreign authority. The Company hereby submits to the jurisdiction of
such courts for the purpose of any such suit, action or proceeding.



                                      [signature page follows]



<PAGE>




               IN  WITNESS  WHEREOF,   this  Agreement  has  been  executed  and
delivered by the parties hereto.





                                    MEDCO BEHAVIORAL CARE CORPORATION


                             By       /s/ Michael G. Lenahan
                             Its         EVP


 /s/ Albert S. Waxman               Aggregate number of shares
 Optionee                           of Common Stock for which the
                                    Option is granted hereunder:


Address

Optionee's Taxpayer
Identification Number: