EMPLOYMENT AGREEMENT


         THIS EMPLOYMENT  AGREEMENT (this  "Agreement") is made and entered into
as of this 26th day of  November,  1996 by and  between  MERIT  BEHAVIORAL  CARE
CORPORATION, a Delaware corporation (the "Company"), and John P. Docherty, M.D.,
an individual with an address at 21 Bloomingdale  Road,  White Plains,  New York
10605 ("Employee").

WHEREAS,  the Company desires to engage Employee to provide services pursuant to
the terms of this Agreement;

WHEREAS,  Employee  desires to provide such services to the Company  pursuant to
this Agreement;

WHEREAS, this Agreement shall be effective on March 1, 1997; and

WHEREAS,  both parties hereto  acknowledge  that the services to be performed by
Employee  under  this  Agreement  shall  require  a high  degree  of  diligence,
creativity and responsiveness appropriate to the Company's business intentions;

NOW,  THEREFORE,  in  consideration  of the  premises  and the mutual  covenants
contained in this Agreement, the parties agree as follows:


SELECTED DEFINITIONS

1.1 Defined  Terms.  As used  herein,  the terms below shall have the  following
meanings:

                           "Affiliate"  shall mean a  subsidiary  of the Company
                  and any other business entity controlled by,  controlling,  or
                  under common control with, the Company from time to time.

                           "Anniversary  Date" means March 1, the anniversary of
                  the Effective Date of this Agreement.

                           "Board" shall mean the Board of Directors of the 
                    Company.


                                                                    

<PAGE>



                           "Business" shall mean the business of the Company and
                  it subsidiaries,  including,  without limitation, the business
                  of providing  and  arranging  for the  provision of behavioral
                  health  (including  mental health and substance abuse) managed
                  care programs,  behavioral health care delivery services,  and
                  employee assistance programs.

                           "CEO" shall mean the Chairman of the Board and Chief
                  Executive Officer of the Company.

                           "Common Stock" shall mean the common stock, par value
                  $.01 per share, of the Company.

                           "Compensation  Committee" shall have the meaning such
                  term is given in Section 4.1 hereof.

                           "Confidential  Information"  shall  have the  meaning
                  such term is given in Section 5.1 hereof.

                           "Designated  Companies"  shall have the meaning  such
                  term is given in Section 5.3(b) hereof.

                           "Developments"  shall have the  meaning  such term is
                  given in Section 5.2 hereof.

                           "Disability Termination Right" shall have the meaning
                  such term is given in Section 3.5 hereof.

                           "Effective Date" of this Agreement shall mean 
                    March 1, 1997.

                           "Employee Note" has the meaning such term is given 
                    in Section 4.4 hereof.

                           "Employment  Period" shall have the meaning such term
                  is given in Section 3.1 hereof.

                           "MBC Corp." has the meaning such term is given in 
                    Section 2.1 hereof.

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

                           "Non-Competition  Period" shall have the meaning such
                  term is given in Section 5.3(a) hereof.


                                                                      
<PAGE>



                           "Option  Agreement"  shall have the meaning such term
                  is given in Section 4.3(a) hereof.

                           "Options"   shall  mean   non-qualified   options  to
                  purchase newly issued shares of Common Stock.

                           "Purchase Shares" shall have the meaning such term is
                  given in Section 4.4 hereof.

                           "Post-Employment  Compensation Period" shall mean the
                  period  (which  in no event  shall  exceed  three  (3)  years)
                  commencing on the date of termination of Employee's employment
                  with the  Company  under  Section 3.3 or 3.4 hereof and ending
                  twenty-four  (24) months  after the  Anniversary  Date of this
                  Agreement   next   succeeding   the  date  of  termination  of
                  Employee's  employment  with  the  Company.  For  example,  if
                  Employee's   employment  with  the  Company  terminates  under
                  Section   3.3  or  3.4   hereof   on  July   15,   1998,   the
                  Post-Employment  Compensation  Period  would  commence on such
                  date   and  end  on  March  1,   2001.   The   Post-Employment
                  Compensation  Period applies only in the case of a termination
                  under  Section 3.3 or 3.4 hereof  occurring  prior to March 1,
                  2000.

                           "Section  5.3(a)  Agreement"  shall have the  meaning
                  such term is given in Section 5.3(a).

                           "Stockholder's Agreement" shall have the meaning such
                  term is given in Section 4.4 hereof.

                           "Termination  for Cause"  shall have the meaning such
                  term is given in Section 3.2 hereof.

                           "Termination  for Good Reason" shall have the meaning
                  such term is given in Section 3.4 hereof.

                           "Territory"  means the United States of America,  its
                  territories and possessions (including Puerto Rico).

                           "Total Base Compensation" shall have the meaning such
                  term is given in Section 4.1 hereof.

SECTION 2.  EMPLOYMENT

2.1 Title;  Duties.  The  Company  agrees to employ  Employee  as Chief  Medical
Officer of the Company and Executive Vice  President,  Clinical  Services of MBC
Corp., the behavioral health managed care division of the Company ("MBC Corp."),
for the Employment


<PAGE>



Period, and Employee hereby accepts such employment. In such position,  Employee
shall report to Richard C. Surles, Ph.D.,  Executive Vice President,  Operations
of the  Company;  provided,  that if Dr.  Surles  is no longer  employed  by the
Company,  Employee shall report to the then current  Executive  Vice  President,
Operations of the Company. Employee shall perform such duties with regard to the
Business as are assigned to him by Dr. Surles and as are generally  performed by
such an employee of a company, and such other duties as may from time to time be
reasonably requested by the CEO or the Board.

2.2 Performance of Duties.  (a) Subject to the other  provisions of this Section
2.2:

(i)  Employee  agrees to devote his  exclusive  and full  professional  time and
attention to his duties as an employee of the Company and to perform such duties
in an efficient,  trustworthy and  businesslike  manner.  In addition,  Employee
agrees  that he will not render to others  any  service of any kind or engage in
any other business activity (including,  without limitation,  any involvement in
any   business  in  which   Employee   has  any   administrative   or  operating
responsibility)  which  conflicts with the  performance of his duties under this
Agreement  (except as to any other  activities  which are approved in writing by
the Board, Dr. Surles or the CEO).

(ii)  During  the term of this  Agreement,  Employee  agrees to devote  his full
business time and efforts,  and to otherwise use his best efforts, to manage the
operations  of the  Company and its  subsidiaries,  to  maximize  the  Company's
results of operations and profits,  to satisfy the directions of the Board,  Dr.
Surles and the CEO, and to otherwise  fulfill the  agreements  and covenants set
forth in this Agreement.  Employee  acknowledges that the failure to satisfy any
covenant set forth in this Agreement may cause the Company  irreparable harm and
shall have denied the Company and the  Affiliates of a substantial  and valuable
asset.

(b) Employee  represents  and warrants  that he is not bound by any  employment,
consulting,  noncompetition,   confidentiality,   finders,  marketing  or  other
agreement  or  arrangement  that would,  or might  reasonably  be  expected  to,
prohibit  or  restrict  him  in  any  manner  from  performing  his  duties  and
obligations hereunder.

(c) The Company  acknowledges that Employee is involved in, and will continue to
participate  in,  certain other  businesses and  professional  activities in the
health care field  during the course of his  employment  with the  Company.  The
Company agrees that,  notwithstanding  the other  provisions of this Section 2.2
and Article 5 hereof,  Employee  shall be permitted  to engage in the  following
activities:

(i) professional conferences and speaking engagements;


                                                                 
<PAGE>



(ii) professional consultations with drug companies, hospitals and universities,
provided,  that such consultations  shall not involve more than 100 hours in the
aggregate in any year during the term of this  Agreement  without the consent of
Dr. Surles or the CEO;

(iii) the  businesses  described in the last sentence of Section  5.3(a) hereof;
and

(iv)  business  and   professional   activities  not  related  to  the  Business
specifically  and the behavioral  health business  generally  (i.e.,  except for
those described in the last sentence of Section 5.3(a) hereof, Employee will not
engage in the  Business  or the  behavioral  health  business  other  than as an
employee of the Company).

With respect to the foregoing provisions, the Company and Employee agree that:

(A) in the event Employee  contemplates  engaging in any activity which might be
construed as the Business or another  business in the  behavioral  health field,
Employee  shall  consult  with Dr.  Surles and the CEO prior to engaging in such
activity. Employee, Dr. Surles and the CEO will mutually determine in good faith
whether such  activity  constitutes  the Business or another  behavioral  health
business.

(B) Notwithstanding any other term of this Section 2.2(c), Employee shall not be
permitted   to  engage  in  any  of  the   activities   described   in   Section
2.02(c)(i)-(iv) above to the extent such activities interfere (in the reasonable
judgment  of Dr.  Surles or the CEO) in the prompt and  effective  discharge  by
Employee of his duties described in Section 2.1 hereof or would prevent Employee
from  devoting  his full (i.e.,  at least 40 hours per week)  business  time and
attention to his responsibilities to the Company.

2.3 Support.  Employee shall be provided appropriate  administrative  support at
the  Company's  headquarters  in  Park  Ridge,  New  Jersey,  including  both an
Executive Assistant and a Research Assistant.

2.4  Relocation  Agreement.  The  Company and  Employee  agree to enter into the
Relocation Agreement attached hereto as Exhibit F.

SECTION 3.  EMPLOYMENT PERIOD; TERMINATION OF EMPLOYMENT

         3.1 Employment Period. Subject at all times to Section 3.3 hereof, this
Agreement and Employee's employment hereunder shall continue until terminated by
the earliest of (a) the Company's  discharge of Employee and termination of this
Agreement  pursuant to Sections 3.2, 3.3 or 3.5 hereof; (b) Employee's death; or
(c) Employee's  termination  of his  employment  and this Agreement  pursuant to
Section 3.4 or 3.6 hereof. If Employee shall continue in the employ

                                                                               
<PAGE>



of the Company beyond the termination of this Agreement,  such employment  shall
be deemed to continue on a  month-to-month  basis  terminable by either party on
thirty (30) days prior  written  notice.  The period  during  which  Employee is
employed by the Company under this  Agreement or otherwise is referred to herein
as the "Employment  Period." In all events, the  post-termination  provisions of
Section 5 hereof shall survive  termination  of the  Employment  Period and this
Agreement.

         3.2  Termination by the Company for "Cause." The Company shall have the
right immediately (except as provided below) to discharge Employee and terminate
this Agreement,  by written notice  provided to Employee,  for any or all of the
following "causes" (a "Termination for Cause"):

(a) Employee's  conviction  for, or entry of a plea of guilty or nolo contendere
with respect to, any felony or any crime  involving an act of moral turpitude or
misuse or  misappropriation  of money or other  property  of the  Company or any
Affiliate;

(b) Employee's  commission of any act of fraud or dishonesty with respect to his
duties under this Agreement;

(c) Employee's  conduct which is  intentionally  detrimental to the Company's or
any Affiliate's reputation, goodwill or business operations;

(d)  Employee's  gross or  habitual  neglect  of his duties or his breach of his
duties or his misconduct in discharging his duties;

(e) Employee's  absence from his duties  without the consent of Dr. Surles,  his
designee or his successor for a period of at least ten (10) business days, which
consent shall not be unreasonably withheld or delayed; or

(f)  Employee's  failure or refusal to comply with the directions of Dr. Surles,
his designee or his successor,  or with the policies,  standards and regulations
of the  Company  as may from time to time be made known to  Employee;  provided,
that -------- such  directions,  policies,  standards  and  regulations  are not
inconsistent  with the provisions and terms of this Agreement or with applicable
law or regulations or with applicable professional ethical  considerations;  and
provided, further, that -------- ------- such failure or refusal is not remedied
by  Employee  within  five (5)  business  days  after  notice  from the  Company
demanding such remedy.

3.3 Termination by the Company without "Cause." The Company shall have the right
to discharge  Employee and terminate this Agreement,  by written notice provided
to  Employee  not less than  thirty  (30)  days  prior to the  intended  date of
discharge and  termination,  without  "cause" at any time during the  Employment
Period, for any reason or for no reason.


                                                                       

<PAGE>



3.4  Termination  by Employee  for "Good  Reason."  Employee may  terminate  his
employment  with the Company and this  Agreement,  by written notice provided to
the  Company  not more than  thirty  (30)  days  prior to the  intended  date of
termination,  for any or all of the following  reasons (a "Termination  for Good
Reason"):

(a) a material adverse change in the nature of Employee's job duties without his
consent;

(b) a material reduction in the rate of Employee's Total Base Compensation; or

(c) a material breach by the Company of the Stockholder's Agreement;

and, in any such case, the Company fails to remedy the  applicable  situation or
cure such breach prior to the end of such thirty (30) day period.

3.5 Termination by the Company due to Disability of Employee.  The Company shall
have the right to discharge  Employee and terminate this  Agreement,  by written
notice provided to Employee not less than thirty (30) days prior to the intended
date of discharge and termination,  upon the  determination by the Board in good
faith and in its  discretion  that  Employee  is unable to engage in  activities
required by his employment (or  reasonable  substitute  employment) 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  twelve  (12)  months  (referred  to  herein  as the
"Disability Termination Right").

3.6  Termination  by  Employee   without  "Good  Reason."  In  addition  to  his
termination  right under  Section 3.4 hereof,  Employee  also may  terminate his
employment  with the Company and this  Agreement,  by written notice provided to
the  Company  not more than  thirty  (30)  days  prior to the  intended  date of
termination, for any reason.

3.7 Death.  The Employment  Period shall  terminate  forthwith upon the death of
Employee.

SECTION 4.  COMPENSATION

4.1 Annual  Salary.  The  Company  shall pay to Employee  during the  Employment
Period  base  compensation  at the  rate  of  $250,000  per  year  ("Total  Base
Compensation"),   payable  in  equal  installments  pursuant  to  the  Company's
customary  payroll  policies  in  force  at the  time of  payment  (but not less
frequently than monthly),  less required payroll  deductions.  Employee shall be
entitled to annual  increases of Total Base  Compensation  as may be  determined
from time to time by the Board, or any compensation  committee designated by the
Board from its members  (the  "Compensation  Committee"),  in either case in its
sole discretion.


                                                                        
<PAGE>



4.2 Bonus.  In addition to Total Base  Compensation,  Employee shall be eligible
for a bonus based upon Employee's Total Base  Compensation  with respect to each
calendar year or portion of a calendar year during the Employment  Period.  Such
bonus  shall be awarded  pursuant to the  existing  bonus plan of the Company (a
copy of which has been  provided  to  Employee  prior to the date  hereof)  or a
successor plan  applicable to executive  officers of the Company  adopted by the
Board or the  Compensation  Committee.  For purposes of the existing bonus plan,
Employee's "Target  Percentage" is twenty-five  percent (25%); for any successor
plan,  Employee's bonus percentage (subject to the applicable terms of the plan)
also shall be twenty-five percent (25%).  Employee  acknowledges and agrees that
bonuses under such existing plan (and any successor  plan) are determined by the
CEO, the Board or the Compensation Committee, in his or its absolute discretion,
based upon the attainment of agreed financial targets and other factors, are not
guaranteed for any calendar year or period or in any specified  amount,  and may
be less than or greater than Employee's "Target Percentage" or bonus percentage,
as applicable, of his Total Base Compensation.

4.3 Options.  Employee  shall be granted  Options to purchase  96,000  shares of
Common Stock on the Effective  Date. The exercise price for such Options will be
$5.00 per share.  Such Options will be granted pursuant to, and governed by, the
1995  Option  Plan (a copy of which is  attached  hereto as  Exhibit  A) and the
Non-Qualified  Stock Option Agreement to be entered into between the Company and
Employee  on the  Effective  Date  attached  hereto as  Exhibit  B (the  "Option
Agreement").

4.4 Purchase of Common Stock.  On the Effective  Date,  the Company and Employee
will enter into the  Stockholder's  Agreement  attached hereto as Exhibit C (the
"Stockholder's  Agreement"),  providing for the issuance and sale by the Company
to Employee,  and the purchase by Employee from the Company, of 32,000 shares of
Common  Stock at the price of $5.00 per share.  The  purchase  of such shares of
Common Stock (the  "Purchase  Shares")  will take place on the  Effective  Date.
Employee  will  effect  payment  for 16,000 of such  shares by  delivery  to the
Company of $80,000 in cash, and will effect payment for the other 16,000 of such
shares by delivery to the Company of Employee's  promissory note to the order of
the Company,  attached  hereto as Exhibit D, in the principal  amount of $80,000
(the  "Employee  Note")  in  accordance  with  the  terms  of the  Stockholder's
Agreement.  The payment of the  principal  amount of, and all accrued and unpaid
interest  under,  the Employee Note will be secured by the pledge by Employee of
the 16,000  shares  financed by the Employee  Note pursuant to the Repayment and
Stock Pledge Agreement attached hereto as Exhibit E.

4.5  Reimbursement of Expenses.  During the term of this Agreement,  the Company
will  reimburse  Employee  for all  ordinary  and  necessary  business  expenses
incurred by Employee in  connection  with the  Business.  Reimbursement  of such
expenses  shall be paid on a regular  basis,  upon  submission  by  Employee  of
vouchers itemizing such expenses in a form satisfactory to the Company, properly
identifying the nature and business purpose of any expenditures.


                                                                     

<PAGE>



4.6  Benefits.  During the term of this  Agreement,  the Company  shall  provide
Employee with such insurance, medical, sick leave, holiday and other benefits as
may be given  from time to time to other  officers  of the  Company as set forth
from time to time by the Board and management of the Company.  Employee may take
such vacation period or periods during each year as shall be consistent,  in the
Company's judgment, with Employee's  responsibilities and the Company's vacation
policies and practices for other officers of the Company, but not more than four
(4) weeks during any full calendar year of the Employment Period.

4.7 Effect of  Termination  of  Employment.  (a)  Termination by the Company for
"Cause," pursuant to the Disability  Termination Right or upon Employee's Death.
In the event of termination  of Employee's  employment and this Agreement by the
Company  pursuant  to  Sections  3.2,  3.5  or  3.7  hereof,  Employee  (or,  if
applicable,  his estate) shall be entitled to receive only payment of his earned
and  unpaid  compensation  and  benefits  through  the  effective  date  of such
termination.

(b) Termination by the Company without "Cause" or by Employee for "Good Reason."
(i) Prior to March 1, 2000. In the event of termination of Employee's employment
and this  Agreement by the Company under Section 3.3 hereof or by Employee under
Section 3.4 hereof prior to the third  Anniversary Date of this Agreement (i.e.,
March 1, 2000),  Employee  shall be entitled to (A) continue to receive from the
Company Total Base  Compensation  in accordance  with Section 4.1 hereof for the
Post-Employment  Compensation  Period  and  (B)  subject  to  the  terms  of the
Stockholder's Agreement, exercise all Options granted in accordance with Section
4.3 hereof  which are vested as of the date of  termination  (subject  to and in
accordance with the terms of the 1995 Option Plan and the Option Agreement). The
shares of Common Stock  purchased by Employee as described in Section 4.4 hereof
shall continue to be governed by the provisions of the Stockholder's Agreement.

(ii) On or after  March 1,  2000 and  prior to March 1,  2001.  In the  event of
termination  of Employee's  employment  and this  Agreement by the Company under
Section 3.3 hereof or by Employee under Section 3.4 hereof on or after the third
Anniversary  Date, but prior to the fourth  Anniversary Date, of this Agreement,
Employee  shall be entitled to (A)  continue to receive  from the Company  Total
Base  Compensation  in  accordance  with  Section  4.1 hereof  through the fifth
Anniversary  Date  of  this  Agreement  and  (B)  subject  to the  terms  of the
Stockholder's Agreement, exercise all Options granted in accordance with Section
4.3 hereof  which are vested as of the date of  termination  (subject  to and in
accordance with the terms of the 1995 Option Plan and the Option Agreement). The
shares of Common Stock  purchased by Employee as described in Section 4.4 hereof
shall continue to be governed by the provisions of the Stockholder's Agreement.

(iii) On or after  March 1,  2001.  In the event of  termination  of  Employee's
employment  and this  Agreement  by the Company  under  Section 3.3 hereof or by
Employee  under  Section 3.4 hereof on or after the fourth  Anniversary  Date of
this  Agreement,  Employee shall be entitled to (A) continue to receive from the
Company Total Base Compensation in

                                                                     
<PAGE>



accordance  with  Section 4.1 hereof for a period of twelve (12) months from the
date of termination and (B) subject to the terms of the Stockholder's Agreement,
exercise  all Options  granted in  accordance  with Section 4.3 hereof which are
vested as of the date of  termination  (subject  to and in  accordance  with the
terms of the 1995  Option Plan and the Option  Agreement).  The shares of Common
Stock purchased by Employee as described in Section 4.4 hereof shall continue to
be governed by the provisions of the Stockholder's Agreement.

(c)  Termination by Employee  without "Good Reason." In the event of termination
of  Employee's  employment  and this  Agreement  by Employee  under  Section 3.6
hereof,  Employee  shall not be  entitled  to any  compensation  (other than the
payment  of his  earned  and  unpaid  compensation  and  other  benefits  to the
effective date of termination)  and,  subject to the terms of the  Stockholder's
Agreement,  shall be entitled to exercise all Options granted in accordance with
Section 4.3 hereof  which are vested as of the date of  termination  (subject to
and in  accordance  with  the  terms  of the 1995  Option  Plan  and the  Option
Agreement).  The shares of Common  Stock  purchased  by Employee as described in
Section  4.4  hereof  shall  continue  to  be  governed  by  the  terms  of  the
Stockholder's Agreement.

4.8 Release.  The  payments  and other  rights of Employee  described in Section
4.7(b) hereof may, at the  Company's  option,  be  conditioned  upon  Employee's
execution and delivery of a general  release of the Company and the  Affiliates,
and its and their respective directors, officers, employees and agents, from any
claims or obligations  arising out of this Agreement and the termination hereof,
other than the  express  obligations  of the Company to make such  payments  and
provide such rights,  if any, as are  described in Section  4.7(b) hereof and to
pay to Employee  his earned and unpaid  compensation  and other  benefits to the
effective  date of  termination.  Employee  acknowledges  that the  payments and
rights under Section  4.7(b) hereof are in lieu of all such claims that Employee
may have against the Company and the Affiliates and are liquidated  damages (and
not a penalty).  Notwithstanding  any termination  hereunder,  the Company shall
have no  obligation  to make such  payments or provide such rights under Section
4.7(b) hereof,  and the Options shall terminate  immediately,  in the event of a
breach by Employee of his covenants in Section 5 hereof.

SECTION 5.  CONFIDENTIAL INFORMATION, DEVELOPMENTS,
NON-COMPETITION/NON-SOLICITATION AND RELATED MATTERS

5.1 Restrictions on Use and Disclosure. Employee will not disclose or use at any
time,  for so long as Employee is employed by the Company or any  Affiliate  and
for a period of five years thereafter,  any Confidential Information (as defined
below) of which Employee is or becomes aware, whether or not such information is
developed by him,  except to the extent that such  disclosure or use is directly
related to and required by Employee's performance of duties, if any, assigned to
Employee by Dr. Surles,  the CEO or the Company,  such Confidential  Information
becomes  public other than  through  action of Employee or is compelled by legal
process. In the event that Employee plans to speak at a professional  conference
and   information  to  be  presented   includes  or  may  include   Confidential
Information, Employee shall consult with

                                                                     
<PAGE>



Dr.  Surles  or the  CEO  concerning  such  Confidential  Information  prior  to
participating  in such  conference and presenting such  information.  As used in
this Agreement,  the term  "Confidential  Information" means information that is
not generally known to the public and that is used, developed or obtained by the
Company or any Affiliate in connection  with its  business,  including,  but not
limited to: (i) products or services,  (ii) fees, costs and pricing  structures,
(iii) designs, (iv) computer software, including operating systems, applications
and program  listings,  (v) flow charts,  manuals and  documentation,  (vi) data
bases, (vii) accounting and business methods,  (viii) inventions,  devices,  new
developments,  methods and processes,  whether  patentable or  unpatentable  and
whether or not reduced to practice, (ix) customers,  clients and providers,  and
customer,  client and provider lists, (x) other  copyrightable  works,  (xi) all
technology and trade secrets,  and (xii) all similar and related  information in
whatever form.  Confidential  Information  will not include any information that
has been published in a form generally available to the public prior to the date
Employee proposes to disclose or use such information. Employee will perform all
actions  reasonably  requested  by the  Company  (whether  during  or after  the
Non-Competition Period) to establish and confirm such ownership at the Company's
expense  (including,  without  limitation,   assignments,  consents,  powers  of
attorney and other instruments).

Employee further agrees that he will not disclose to the Company,  any Affiliate
or any of its or their  respective  directors,  officers,  employees,  agents or
representatives,  any of the information  described in Section IV of the Section
5.3(a)  Agreement (as defined below),  and will not use any such  information in
connection with the performance of his duties  described in Sections 2.1 and 2.2
hereof.

5.2  Assignment of  Developments.  All  Developments  that are at any time made,
conceived or suggested by Employee,  whether acting alone or in conjunction with
others,  as a result of or in connection  with  Employee's  employment  with the
Company or any Affiliate shall be the sole and absolute property of the Company,
free of any reserved or other rights of any kind on Employee's  part,  provided,
that the Company will have no ownership  interest in any Developments  conceived
or developed by Employee which do not relate to the Business or do not arise out
of the  activities  of Employee in his capacity as an  executive  officer of the
Company.  Employee shall promptly make full disclosure of any such  Developments
to the Company and, at the  Company's  cost and expense,  do all acts and things
(including,  among others,  the execution and delivery  under oath of patent and
copyright  applications and instruments of assignment)  deemed by the Company to
be necessary or desirable at any time in order to effect the full  assignment to
the Company of Employee's  right and title,  if any, to such  Developments.  For
purposes  of this  Agreement,  the term  "Developments"  shall  mean  all  data,
discoveries,  findings,  reports, designs,  inventions,  improvements,  methods,
practices,  techniques,  developments,  programs, concepts and ideas, whether or
not  patentable,  relating  to the  present  or  planned  activities,  or future
activities  of which  Employee is aware,  or the  products  and  services of the
Company or any  Affiliate  except  for those  relating  to or  arising  from the
activities permitted under Section 5.3(d) hereof.


                                                                        

<PAGE>



5.3 Restriction on Competitive  Employment.  (a) Except under the  circumstances
described in Section 5.3(b) or 5.3(c) below (which Section 5.3(b) or 5.3(c),  as
applicable, will govern for all purposes), Employee shall not (as an individual,
principal,  agent, employee,  consultant or otherwise),  directly or indirectly,
during the period  commencing on the  Effective  Date and ending on the later of
(x) the first  anniversary  of  termination  of Employee's  employment  with the
Company or (y) if applicable, the date the Company is no longer required to make
the payments to Employee  contemplated  by Section 4.7(b) hereof (the applicable
period being the "Non-Competition  Period"),  absent the Company's prior written
approval,  engage in activities  in the Territory  for, on behalf of or relating
to, or render services to, or have any equity, ownership or profit participation
interest  in (other than as a 5% or less  holder of the equity  securities  of a
public company),  any firm or business engaged or about to become engaged in (i)
the Business or (ii) any other  business in which the Company or any  subsidiary
of the Company was engaged during Employee's  employment with the Company and as
to  which  Employee  had   involvement   during  such   employment  or  obtained
Confidential Information.

(b) In the event of  termination  of Employee's  employment  and this  Agreement
under Section  4.7(b)(i),  (ii) or (iii) hereof,  Employee  agrees that Employee
shall  not  (as  an  individual,   principal,  agent,  employee,  consultant  or
otherwise),  directly or indirectly,  during the Non- Competition Period, absent
the Company's prior written approval,  engage in activities in the Territory for
or on behalf of, or render services to, or have any equity,  ownership or profit
participation  interest  in (other  than as a 5% or less  holder  of the  equity
securities of a public  company),  any of the companies  listed on Schedule I or
any of their affiliates (as that term is defined in the federal securities laws)
(the "Designated  Companies");  provided, that in the event Employee desires, at
any time after the first anniversary of the effective date of the termination of
his  employment  and this  Agreement,  to engage in  activities on behalf of, or
render services to (as an individual,  principal, agent, employee, consultant or
otherwise),  any of the Designated Companies,  Employee shall notify the Company
of such  desire to do so. In such  event,  effective  the date of receipt by the
Company  of  such  notification,   (i)  Employee  shall  be  released  from  his
obligations  under this  Section  5.3(b) and (ii) the Company  shall be released
from its obligations to make the payments  described in Section 4.7(b) (i), (ii)
or (iii),  as  applicable;  provided,  further,  that  nothing in the  foregoing
provision  shall be deemed to release  Employee  or the Company of any of his or
its  obligations  relating to the period prior to the Company's  receipt of such
notification.

(c) In the event of  termination  of Employee's  employment  and this  Agreement
under Section  4.7(c)  hereof,  Employee  agrees that Employee  shall not (as an
individual,  principal, agent, employee,  consultant or otherwise),  directly or
indirectly,  during the period  commencing on the date of such  termination  and
ending on the first  anniversary of such termination  date, absent the Company's
prior written  approval,  engage in activities in the Territory for or on behalf
of, or render services to, or have an equity,  ownership or profit participation
interest  in (other than as a 5% or less  holder of the equity  securities  of a
public company), any of the Designated Companies or their respective affiliates.

                                                                      
<PAGE>



(d) Notwithstanding anything in Section 5.3(a), (b) or (c) above, Employee shall
be permitted (A) to continue as a director,  officer and  shareholder  of Expert
Knowledge Systems, (B) to invest in, consult with and become a director of, Mood
Sciences,  Inc., (C) to continue the work in which he is involved on the date of
this Agreement in the field of disability  remediation services, (D) to continue
as a director of HealthCare America, (E) to continue to provide private clinical
consultations,  but only to patients in treatment  with  Employee on the date of
this  Agreement or others as may from time to time be approved by Dr.  Surles or
his  successor  (which  approval  will  not be  unreasonably  withheld),  (F) to
continue the work in which he is engaged described in the agreement described in
Schedule II (the "Section  5.3(a)  Agreement") and (G) to engage in any activity
permitted pursuant to Section 2.2(c) hereof.

5.4 Restriction on Solicitation.  During Employee's  employment with the Company
and until the end of the Non-Competition Period, Employee shall not, directly or
indirectly,  (i) solicit or contact for business purposes any existing customer,
provider or  patient,  or  prospective  customer,  provider  or patient,  of the
Company or any subsidiary of the Company, (ii) induce, or attempt to induce, any
employees,  agents,  consultants  or  providers  of or to  the  Company  or  any
subsidiary  of the Company to do anything  from which  Employee is restricted by
reason of Sections  5.1 through 5.4 hereof,  (iii)  interfere  with  existing or
proposed  contracts,  business  agreements or other  arrangements,  or knowingly
interfere  with future  contracts,  business  agreements or other  arrangements,
between the Company or any subsidiary of the Company and any individual, firm or
enterprise including, but not limited to, third party payors, through disrupting
or diverting or  attempting  to divert such  contracts,  business  agreements or
other  arrangements  to any other  individual,  firm or enterprise  (including a
competitor of the Company or any subsidiary of the Company) or (iv) offer or aid
others to offer employment to anyone who is an employee,  agent or consultant of
or to the Company or any subsidiary of the Company.

5.5  Equitable  Relief.  Employee  acknowledges  that a breach of the  covenants
contained  herein,  including  without  limitation  the  covenants  contained in
Sections 5.1 through 5.4 hereof,  may cause irreparable damage to the Company or
one or more of its subsidiaries,  the exact amount of which will be difficult to
ascertain,  and that the remedies at law for any such breach will be inadequate.
Accordingly,  Employee agrees that, in addition to any other remedy which may be
available  at law or in equity,  the  Company and any such  subsidiary  shall be
entitled to specific  performance  and injunctive  relief to prevent any actual,
intended  or likely  breach.  The  parties  acknowledge  that the  time,  scope,
geographic  area and other  provisions  of Sections  5.1 through 5.4 hereof have
been specifically negotiated by sophisticated  commercial parties and agree that
all such provisions are reasonable  under the  circumstances of the transactions
contemplated by this Agreement, including the compensation to Employee described
in Section 4 hereof. In the event that the agreements in Section 5.1 through 5.4
hereof or any other provision contained in this Agreement shall be determined by
any  court of  competent  jurisdiction  to be  unenforceable  by reason of their
extending for too great a period of time or over too great a  geographical  area
or by reason of their being too extensive in any other respect,  such agreements
or provisions  shall be  interpreted  to extend only over the maximum  period of
time for which they may be enforceable and/or over the maximum geographical area
as to which they

                                                                                

<PAGE>



may be  enforceable  and/or to the  maximum  extent in all other  respects as to
which they may be enforceable, all as determined by such court in such action so
as to be  enforceable to the extent  consistent  with then  applicable  law. The
existence  of any claim or cause of action  which  Employee may have against the
Company or any such  subsidiary  of the  Company,  as the case may be, shall not
constitute  a defense  or bar to the  enforcement  of any of the  provisions  of
Sections  5.1 through  5.4 hereof and shall be pursued  through  separate  court
action by Employee.

5.6 Survival.  Unless otherwise provided, the provisions of Sections 5.1 through
5.5 hereof shall survive the termination of this Agreement.

SECTION 6. INDEMNIFICATION

During the Employment  Period, the Company shall provide Employee with directors
and  officers   indemnification   as  provided  in  the  Company's  articles  of
incorporation and bylaws and directors and officers liability insurance coverage
as is generally afforded executive officers of the Company.

Employee  agrees  to  indemnify,  defend  and hold  harmless  the  Company,  the
Affiliates and its and their respective directors,  officers,  employees, agents
and  representatives  from any  liabilities,  losses or  expenses  arising  from
Employee's  breach or alleged  breach of the  Section  5.3(a)  Agreement  or his
breach or alleged breach of the second paragraph of Section 5.1 hereof.

SECTION 7.  MISCELLANEOUS PROVISIONS

7.1 Assignment and  Successors.  The rights and obligations of the Company under
this Agreement may be assigned, and shall inure to the benefit of and be binding
upon the successors and assigns of the Company. Employee's rights or obligations
hereunder  may not be  assigned  to or  assumed  by any other  person.  No other
persons shall have any right, benefit or obligation hereunder.

7.2 Notices. Any notice, request, instruction or other document or communication
to be given  hereunder shall be in writing and shall be deemed to have been duly
given (i) if mailed,  at the time when mailed in any general or branch office of
the  United  States  Postal  Service,  enclosed  in a  registered  or  certified
postage-paid envelope, (ii) if sent by facsimile transmission,  when so sent and
receipt acknowledged by an appropriate  telephone or facsimile receipt, or (iii)
if sent by other means, when actually received by the party to which such notice
has been directed, in each case at the respective addresses or numbers set forth
below or such other address or number as such party may have fixed by notice:

                  If to the Company:

                  Merit Behavioral Care Corporation
                  One Maynard Drive

                                                                     

<PAGE>



                  Park Ridge, NJ 07656
                  Attn: Executive Vice President and General Counsel
                  Fax: (201) 573-1324

                  If to Employee:

                  John P. Docherty, M.D.
                  _____________________
                  _____________________

7.3  Severability.  If any  provision or portion of this  Agreement  shall be or
become  illegal,  invalid or  unenforceable  in whole or in part for any reason,
such  provision  shall be  ineffective  only to the  extent of such  illegality,
invalidity  or  unenforceability  without  invalidating  the  remainder  of such
provision or the remaining provisions of this Agreement. Upon such determination
that any term or other  provision  is  invalid,  illegal or  incapable  of being
enforced,  the  parties  hereto  shall  negotiate  in good faith to modify  this
Agreement  so as to effect  the  original  intent of the  parties  as closely as
possible in an  acceptable  manner to the end that the  agreements  contemplated
hereby are fulfilled to the extent possible.

7.4  Amendment.  This Agreement  constitutes  the entire  agreement  between the
parties  hereto with respect to the subject  matter  hereof and may be modified,
amended or waived only by a written instrument signed by both parties hereto.

7.5  Counterparts.  This  Agreement may be executed and delivered  (including by
facsimile  transmission)  in  one or  more  counterparts,  and by the  different
parties  hereto in separate  counterparts,  each of which when so  executed  and
delivered  shall be deemed to be an  original,  but all of which taken  together
shall constitute one and the same agreement.

7.6  Interpretation.  The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or  interpretation  of
this  Agreement.  The language in all parts of this Agreement shall in all cases
be construed according to its fair meaning,  and not strictly for or against any
party hereto.  In this Agreement,  unless the context  otherwise  requires,  the
masculine,  feminine and neuter  genders and the singular and the plural include
one another.

7.7  Non-Waiver of Rights and Breaches.  No failure or delay of any party hereto
in the exercise of any right given to such party  hereunder  shall  constitute a
waiver thereof  unless the time specified  herein for the exercise of such right
has  expired,  nor shall any single or partial  exercise  of any right  preclude
other or further  exercise  thereof or of any other right. The waiver of a party
hereto of any  default of any other  party shall not be deemed to be a waiver of
any  subsequent  default or other  default  by such  party,  whether  similar or
dissimilar in nature.


                                                                   
<PAGE>



7.8 Governing Law; Consent to Jurisdiction. THIS AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW JERSEY APPLICABLE
TO CONTRACTS  EXECUTED IN AND TO BE  PERFORMED IN THAT STATE.  Each party hereby
irrevocably  (i) submits to the  jurisdiction of any New Jersey State or federal
court sitting in the City of Newark, New Jersey, with respect to matters arising
out of or relating  hereto;  (ii)  agrees  that all claims with  respect to such
action or  proceeding  may be heard and  determined  in such New Jersey State or
federal court;  (iii) waives, to the fullest possible extent,  the defense of an
inconvenient  forum;  (iv)  consents to service of process upon it by mailing or
delivering such service, in the case of the Company, as specified in Section 7.2
hereof or, in the case of Employee,  to CT Corporation  System as his agent (the
costs of which agent shall be borne by the Company), and Employee authorizes and
directs his agent to accept such service;  and (v) agrees that a final  judgment
in any such  action or  proceeding  shall be  conclusive  and may be enforced in
other  jurisdictions  by suit on the judgment or in any other manner provided by
law.

                                                     EXECUTION

         The parties,  intending to be legally bound, executed this Agreement as
of the date first above  written,  whereupon it became  effective in  accordance
with its terms.

MERIT BEHAVIORAL CARE CORPORATION


By:       /s/ Richard C. Surles
         Richard C. Surles, Ph.D.
         Executive Vice President, Operations


          /s/ John P. Docherty
         John P. Docherty, M.D.


                                                                    

<PAGE>



                                                    Schedule I

         1.       Value Behavioral Health, Inc.

         2.       CMG Health, Inc.

         3.       FHC Options, Inc.

         4.       Foundation Health PsychCare Services, Inc.

         5.       Green Spring Health Services, Inc.

         6.       Human Affairs International, Inc.

         7.       MCC Behavioral Care, Inc.

         8.       United Behavioral Systems, Inc.

         9.       United States Behavioral Health

         10.      Pacificare



                                                                
<PAGE>






                                                    Schedule II

Agreement dated as of February 1, 1995 by and among Value Health Sciences, Inc.,
Employee and Dr. Joshua E. Freedman.

                                                                     
<PAGE>