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                                                                 EXHIBIT 10.1

                              EMPLOYMENT AGREEMENT


         THIS EMPLOYMENT AGREEMENT, dated May 7, 1997, by and between LC
MANAGEMENT COMPANY ("LC Management"), a wholly- owned Subsidiary of LIVING
CENTERS OF AMERICA, INC., a Delaware corporation (the "LCA"), and Charles B.
Carden (the "Employee");

                                   RECITALS:

         A.      LCA, through its operating subsidiaries, is an operator of
long-term health care centers, Progressive Care Centers providing subacute
care, Alzheimer's care centers, assisted living centers, retirement apartments,
a company providing rehabilitation services and other services, and a company
providing pharmaceutical services and supplies.

         B.      LC Management (sometimes "Employer") intends to employ or
continue to employ Employee in a position where Employee will have access to
Confidential Information (defined below), and therefore, Employer will be
vulnerable to unfair post-employment competition by Employee.

         C.      In consideration of the benefits provided for herein, Employee
is willing to enter into this Agreement with LC Management as a condition for
employment.

         NOW, THEREFORE, intending to be legally bound, the parties agree as
follows effective the date and date set opposite their signatures below:

         1.      EMPLOYMENT. Employer hereby employs the Employee, and the
Employee hereby accepts employment upon the terms and conditions set forth in
this Employment agreement effective as of October 1, 1996.





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         2.      DUTIES. The Employer agrees to employ the Employee and the
Employee agrees to accept employment by the Employer and to serve the employer
in such capacities and with such powers and duties as from time to time may be
assigned to him by Employer on a basis involving the employee's full working
time. Such duties will be performed in Houston, Texas and at such other places
as Employer may reasonably require without necessitating any change in the
employee's place of residence.

         3.      ANNUAL COMPENSATION. As his compensation for services to the
Employer under this employment Agreement, the Employer shall pay to the
Employee during the term of this Employment Agreement a salary, in the
aggregate of two hundred forty thousand ($240,000.00) per year, plus such
increases as may be granted ("Annual Compensation"), payable in equal
semi-monthly installments, subject only to such payroll and withholding
deductions as may be required by law or elected by the Employee. The Employee
shall be reimbursed for all reasonable costs and expenses incurred by him in
the performance of his services and duties hereunder, including travel and
entertainment expenses.

         4.      BONUSES, STOCK OPTIONS AND OTHER BENEFITS. The Employee shall
participate in the Employer's Management Incentive Bonus Plan ("MIB Plan"),
Stock Option Plan, Executive Benefits Plan, Employee Stock Purchase Plan and
other present or future benefits provided for other executives of the Employer.
The Annual Compensation to be paid to the Employee shall not operate as a
limitation upon or as a direction against the exercise by the Employer of its
power and discretion to grant bonuses, options, awards or other additional
direct or indirect benefits to or on behalf of the Employee if, in the judgment
of employer, such action is in the best interest of the Employer.





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         5.      TERM AND TERMINATION.

                 5.1      This Employment Agreement shall be for a term of two
(2) years, commencing on the effective date hereof. The term shall be extended
for additional one (1) year periods on the anniversary date of each one year
period of the term with the Employee's consent and the approval of the Board of
Directors, and all other provisions hereof shall apply during such extended
term. This Employment Agreement may be terminated at will, with or without
"good cause" (as defined below), by the Employer prior to the expiration of
such term upon thirty (30) days written notice of election so to terminate (or
pay in lieu of such notice); provided, however, that if this Employment
agreement is terminated by the Employer without good cause prior to the
expiration of the two year term, as Severance Payments hereunder, the
employee's Annual Compensation hereunder shall continue for the remainder of
the two (2) year term and the Employee shall be paid his bonus pursuant to the
MIB Plan for the fiscal year in which this employment Agreement is terminated.
However, notwithstanding the provision for Severance Payments in this Section
5.1 hereof, in the event of Employee's termination pursuant to a change of
control of LCA as provided in Section 9 hereof, Employee shall not receive
Severance Payments as provided herein, and will receive only that lump sum
payment provided in Section 9 hereof.

                 In addition, in the event of such a termination without good
cause, Employee shall be entitled to the following severance benefits:

                 (1)      Group medical and life insurance coverages shall
                          continue under then-prevailing terms for the
                          remainder of the then current term of this Employment
                          Agreement, provided that Employee continues to
                          contribute his share of the premiums for such
                          coverages. Group medical coverage provided





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                          during such period shall be applied against
                          Employer's obligation to continue group medical
                          coverage under the Consolidated Omnibus Budget
                          Reconciliation Act of 1985, as amended ("COBRA").
                          Upon termination of group medical and life insurance
                          coverages, Employee may convert, at his cost, to
                          individual policies.

                 (2)      Employee's eligibility to receive benefits under or
                          participate in all other benefit and compensation
                          plans, including but not limited to management
                          incentive bonus, long-term disability, retirement
                          savings and stock option plans, shall terminate as of
                          the effective date of Employee's termination except
                          as provided otherwise hereunder of under the terms of
                          any particular benefit or compensation plan.

                 (3)      Employee shall receive payment at the Employee's then
                          prevailing rate, for Employee's earned, but unused,
                          and accrued vacation days through the date of
                          termination.

                          5.2     Parachute Payment: If the Employee is liable
for the payment of any excise tax (the "Basis Excise Tax") because of Section
4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any
successor or similar provisions, with respect to any payments or benefits
received or to be received from LC Management or any successor to LC
Management, whether provided under this Agreement or otherwise, LC Management
shall pay the Employee an amount (the "Special Reimbursement") which, after
payment by the Employee, (or on the employee's behalf) of any federal, state
and local taxes applicable thereto, including, without limitation, any further
excise tax under such Section 4999 of the Code, on, with respect to or
resulting from the





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Special Reimbursement, equals the net amount of the Basic Excise Tax.

                          5.3     Termination for "good cause" shall include
only (a) fraud or dishonesty, (b) willful failure to perform assigned duties,
(c) willful violation of the Employer's Business Conduct Policy, or (d)
intentionally working against the best interests of the Employer; provided,
however, that in the case of actions described in Sections 5.2(b), (c) or (d),
such alleged activity by the Employee must have continued unabated for a period
in excess of five (5) days following receipt by the Employee of written notice
from the Employer.

                          5.4     Survival The provisions of this Section 5
shall survive the termination of Employee's employment with LC Management.

                 6.       Extent of Services. Consistent with the obligations
hereunder, the Employee shall regulate his own hours of employment, performing
the duties assigned to him from time to time by the Board of directors of the
employer in accordance with the terms of this Agreement to the best of his
ability and with reasonable care and diligence.

                 7.       OBLIGATIONS SURVIVING EMPLOYMENT.

                          7.1.    LCA, through its Subsidiaries operates
long-term health care centers and companies which provide pharmaceutical
supplies and services, and rehabilitation services. It has a valuable, special,
unique and proprietary interest in its various business methods and systems,
which include, but are not limited to, strategic operating plans and budgets,
policy and procedure manuals, computer programs, financial forms and
information, supplier information, accounting forms and procedures, personnel
policies, information on the needs of residents, techniques and methods of
operation, prospects, research and data developed by or for the benefit of LCA
and the Employer, and information relating to strategic plans, revenues, costs,
profits and the financial condition of LCA


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and the Employer, and all other information developed by or for the benefit of
LCA and the employer, all of which information is considered by the LCA and the
Employer to be confidential trade secrets ("Confidential Information"), to the
extent such information is not publicly disclosed or generally known in the
industry.

                          7.2     The Employer may, pursuant to Employee's
employment hereunder, provide and confide to Employee, and Employee will have
access to the Confidential Information, which was developed at great expense by
or on behalf of LCA and the employer, all of which Employee recognizes and
acknowledges to be unique, valuable and confidential assets of LCA and the
Employer. Further, as an adjunct of Employee performing his duties hereunder,
Employee may develop additional information, techniques and programs for the
LCA and the Employer which Employee agrees shall be the sole and exclusive
property of LCA and the Employer. Employee agrees that he shall not during or
after the term of employment hereunder, directly or indirectly, in any manner,
utilize, disclose or otherwise divulge to any person, firm, corporation,
association or other entity, for any reason whatsoever, any such Confidential
Information or other such information, techniques, methods of operations, or
programs, whether developed by him on behalf of LCA or the Employer, or by LCA
or the Employer independent of Employee, which is not generally known to the
public or recognized as standard practice in the industry in which LCA, the
Employer or LCA's operating Subsidiaries shall be engaged.

                          7.3     Employee agrees that he, during the term
hereof and for a period of two (2) years following the expiration of the term
hereof or the earlier termination of his employment pursuant hereto, shall not,
without the employer's prior written permission, (i) directly or indirectly, on
Employee's behalf or on behalf of any other person, firm, corporation,
association or other entity,


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engage in, or in any way be employed by, connected with, concerned with,
involved with, consult for or negotiate for, or acquire or maintain any
ownership interest in any business or activity which is in competition with
(i.e., within a 25 mile radius of a center or facility operated by the
Employer) that conducted by the Employer; or (ii) or indirectly, at any time in
any manner, inducer or attempt to influence any employee of the Employer to
terminate his employment with the Employer. Notwithstanding anything in this
Employment Agreement to the contrary, the foregoing noncompetition restriction
shall not apply to the Employee when the term of this Employment Agreement
expires as a result of the Board of directors having elected to not extend the
term of this employment Agreement.

                          7.4     This Employment Agreement by Employee shall
cover and be enforceable by LCA and the Employer in all states in which LCA,
its operating subsidiaries and the Employer are engaged in business at the
termination of Employee's employment of have been so engaged at any time during
the term hereof. For purposes of this Article 7, the term "Employer" shall
include the Employer as herein defined and any direct or indirect subsidiary or
affiliate.

                 8.        REMEDIES:

                          8.1     Employee acknowledges that in the event of
any violation by Employee of the provisions set forth in Article 7 hereof LCA
and the Employer will sustain serious, irreparable and substantial harm to its
business, the extent of which will be difficult to determine and impossible to
remedy solely by an action at law for money damages. Accordingly, Employee
agrees that, in the event of such violation or threatened violation by
Employee, LCA and the Employer shall be entitled to, in addition to all such
other legal and equitable remedies as may be available to LCA and the Employer,
an injunction before trial from any court of competent jurisdiction as a matter
of course





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upon the posting of not more than a nominal bond, restraining Employee from such
violation or threatened violation.  Nothing herein contained shall be construed
as limiting or prohibiting LCA and the Employer from pursuing other remedies
available to LCA and the Employer therefor, including recovery of money damages
through an action at law against Employee. Employee further agrees that, in the
event any of the provisions of this Agreement are determined by a court of
competent jurisdiction to be contrary to any applicable statute, law or rule,
or for any reason unenforceable as written, such court may modify any of such
provisions so as to permit enforcement thereof as thus modified.

                          8.2     In the event a legal action is filed by
either party to enforce its rights under this Employment Agreement, the
prevailing party shall be reimbursed by the other party for the prevailing
party's reasonable enforcement costs, including without limitation, attorneys'
fees and costs of investigation and court. For purposes of the foregoing, the
parties agree that the judge or other trier of law assigned to the action shall
determine which party is the "prevailing party" in such action, and that there
shall be only one "prevailing party" in any action.

                 9.       CHANGE OF CONTROL OF LCA. In the event of a change of
control of LCA and either the Employee's (a) involuntary termination by the
Employer or (b) voluntary termination for good cause after a change of control,
then in lieu of Severance Payments as described in Section 5.1 hereof, (i)
employee shall be entitled to receive a lump-sum payment from the Employer of
an amount equal to two times (1) his Annual Compensation and (2) his average
annual bonus calculated over the last two years or $192,000.00 whichever amount
is greater; and (ii) all stock options granted to Employee under the Living
Centers of America, Inc. 1992 Stock Option Plan, as amended (the "Option
Plan"), as of the date of termination shall "vest" and become exercisable, as
that term is




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defined in the Option Plan, as of the termination date, and Employee shall
thereupon have all rights applicable thereto as set forth in the Option Plan
pertaining to Employee's Stock Option. For purposes of this Article 9
"voluntary termination for good cause after a change of control" shall occur
when, within the six-month time period after a change of control, the Employer
effects a substantial change in the employee's authority or working
responsibilities and the Employee voluntarily terminates his employment. For
purposes of this Article 9, "change of control" is the occurrence of one or
more of the following events: (I) any person or entity, together with all
associates of such person or entity, becomes the beneficial owner of 15% or
more of LCA's outstanding common stock, except when such person or entity is
bound by the terms of a standstill agreement under which the parties cannot
acquire more than 15% of the outstanding common stock or (ii) during any
two-year period, directors of LCA serving at the beginning of such period cease
for any reason to constitute a majority of the directors of LCA serving, unless
the election of at least 75% of the new directors of LCA was approved by at
least 75% of the directors in office at the time of election. The provisions of
this Section 9. shall service the termination of Employee's Employment with LC
Management.

                 10.      MISCELLANEOUS.

                          10.1    Definition. As used throughout this
Agreement, "LCA" shall include LCA, all subsidiaries of LCA, affiliates, and
any corporation, joint venture, or other entity in which LCA or its
subsidiaries or affiliates has an equity interest in excess of ten percent
(10%).

                          10.2    Binding Effect. The respective rights and
obligations of LCA and the Employer and the Employee under this Employment
Agreement shall inure to the benefit of and shall be binding upon LCA and the
employer and the Employee and the respective successors and assigns





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of LCA and the employer and Employee. This Employment Agreement shall not be
assignable by the Employee. As used herein, the term "successors and assigns"
shall include any corporation or corporations which acquire all or
substantially all of the assets and businesses of the employer whether by
purchase, merger, consolidation or otherwise and which, in the case of a
purchase, assumes the employer's obligations hereunder.

                          10.3    Supersede. This Agreement shall supersede and
substitute for any previous employment or severance agreement between Employee
and LCA or LC Management, and is entered into in consideration of the mutual
undertakings of the parties the cancellation of all previous agreements, and
the release of the parties of their respective rights and obligations under any
previous employment or severance agreement, excepting only such rights and
obligations which by their nature are intended to survive termination or
cancellation of such employment agreement.

                          10.4.   Arbitration. Any dispute under this
Employment Agreement, except for those arising under paragraphs 7 and 8 hereof,
shall be resolved by arbitration. The arbitration shall be conducted in
Houston, Texas, under the auspices of the American Arbitration Association and
under its rules for commercial arbitrations generally.  The prevailing party in
such proceedings shall be entitled to its costs and attorneys' fees. For
purposes of the foregoing, the parties agree that the judge or other trier of
law assigned to the action shall determine which party is the "prevailing
party" in such action and that there shall be only one "prevailing party" in
any action.

                          10.5    Applicable Law. This Employment agreement
shall be interpreted and construed in accordance with the laws of the State of
Texas. The parties agree to venue and personal jurisdiction in the state or
federal courts of Harris County, Texas.





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                          10.6.   LCA Guaranty. It is understood and agreed
that LCA will benefit from the covenants and agreements of Employee hereunder,
and, therefore by its execution hereof, guarantees the performance by LC
Management of its obligations and agreements hereunder. Further, LCA agrees
that Employee shall initially hold the offices of Executive Vice President and
Chief Financial Officer of LCA, at the continued discretion of LCA's Board of
Directors, but such title or office shall in no way diminish or inhibit the
authority of the Board of Directors of the Employer to reasonable enlarge or
restrict the duties and functions of the Employee.

                 IN WITNESS WHEREOF, LC Management, LCA and the Employee have
executed this Employment Agreement in duplicate originals as of the date first
above written.



Date:    May 7, 1997                        /s/ Charles B. Carden   
     ---------------------                  --------------------------------
                                                   "EMPLOYEE"



                                            LC MANAGEMENT COMPANY


Date:    May 7, 1997                        By: /s/ Sydney K. Boone   
     ---------------------                     --------------------------------
                                                  "LC MANAGEMENT"




                                            LIVING CENTERS OF AMERICA, INC.


Date:    May 7, 1997                        By: /s/ Leroy D. Williams  
     ---------------------                     --------------------------------





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