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                                                                    EXHIBIT 10.2

                              EMPLOYMENT AGREEMENT

        THIS AGREEMENT is between the undersigned individual ("Employee") and
LC MANAGEMENT COMPANY ("LC Management"), a wholly owned subsidiary of Living
Centers of America, Inc. ("LCA").

                                   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,
centers and programs for people with mental retardation and developmental
disabilities, and a company providing pharmaceutical services and supplies.

        B.  LCA and LC Management have a proprietary interest in its business
methods, opportunities, operations and systems which include, but are not
limited to, internal financial and operating reports and data, strategic
plans, business acquisition and development opportunities, policy and procedure
manuals, management information programs and systems, financial forms and
information, supplier and vendor information, accounting forms and procedures,
personnel policies and information on the needs of residents, clients and
patients and their families, and the financial condition of LCA all of which
information ("Corporation Information") not publicly disclosed is considered by
LCA and LC Management and recognized by Employee to be confidential.

        C.  LC Management intends to employ or continue to employ Employee in a
position where Employee will have access to this Corporate Information, and
therefore, LCA will be vulnerable to unfair post-employment competition by 
Employee.




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        D.      In consideration of the severance and other employment benefits
provided for herein, Employee is willing to enter into this Agreement with LC
Management as a condition of employment, upon the terms expressed herein and
the initial provisions described in the attached letter dated April 9, 1996 and
its attachments, affixed hereto as Addendum A.

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

                                   ARTICLE 1

                              TERMS OF EMPLOYMENT

        Employee acknowledges that LC Management has the right to terminate
Employee's employment at any time for any reason whatsoever; provided, however,
that any termination by LC Management for reasons other than "good and
sufficient cause," as defined in Article 2., Paragraph E below, shall result in
the severance benefits described in Article 2 below, to become due in
accordance with the terms of this Agreement. Employee further acknowledges that
should he accept the severance payments made and other benefits provided by LC
Management, such are in full satisfaction of any claims that Employee may have
against LC Management resulting from LC Management's exercise of its right to
terminate Employee's employment, except for those fringe benefits which are
intended to survive termination such as the rights to receive payments pursuant
to retirement plans and similar rights.




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                                   ARTICLE 2.

                               SEVERANCE BENEFITS

        If Employee's employment with LC Management is terminate by LC
Management for any reason other than "good and sufficient cause," Employee
shall be entitled to the following severance benefits:

        A.      Severance Pay: Employee shall receive severance payments
equivalent to Employee's base salary in effect at the time of termination for
the number of months set forth below:

----------------------------------------------
  Years of Living Centers Continuous Service
        Completed from Last Hire Date
----------------------------------------------
              0-2   3    4   5+
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           Months of Severance Pay
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               6    8   10   12
----------------------------------------------


        B.      Other Severance Benefits:

        (1)     Group medical and life insurance coverages shall continue under
then prevailing terms as long as severance payments are being made to Employee.
Deductions for Employee's share of the premiums will be made from Employee's
severance payments. Group medical coverage provided during such period shall be
applied against LC Management's obligation to continue group medical coverage
under the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA").
Upon termination of group medical and life insurance coverage, under COBRA,
Employee may convert, at his cost, to individual policies.




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       (2)    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.

       (3)    Employee's eligibility to 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 or under the terms of a particular benefit or compensation
plan.

       C.   Change of Control of the Employer. In addition to the Severance Pay
and Other Severance benefits provided for in Paragraphs A and B, immediately
above, in the event of a "change of control" of LCA and either the Employee's
(a) involuntary termination or (b) "voluntary termination for good cause in
anticipation of, during or after a change of control";

       (1)   The Employee shall be entitled to receive an additional lump sum
payment from LC Management of an amount equal to twelve (12) month's salary,
which shall be the Employee's base salary in effect at the date of termination
plus Employee's base bonus for Employee's grade as of the date of termination 
as set forth in LCA'S policy statement on the Management Incentive Bonus 
Program; and

       (2)   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
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 Options.

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        For purposes of this Agreement, "voluntary termination for good cause
in anticipation of during or after a change of control" shall mean Employee's
electing to terminate his employment with LC Management as a result of an
adverse change in title or working responsibilities of the Employee within the
six (6) month time period before and the twelve (12) month time period after a
"change of control." For purposes of this Paragraph C, "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
owner, beneficial or otherwise, of 30% or more of the then outstanding common
stock of LCA, or (ii) during any two (2) year period, directors of LCA serving
at the beginning of such period cease for any reason to constitute a majority
of the directors serving, unless the election of at least 75% of the new
directors was approved by at least 75% of the directors in office immediately
prior to the election.

        D.  Right to Terminate Severance Pay and Benefits.  If Employee is
terminated by LC Management for reasons other than "good and sufficient cause,"
as that term is defined in Section E of this Article 2, Employee will receive
the severance payments and benefits described in Paragraphs A, B and C of this
Article 2. Notwithstanding the foregoing, if Employee commences other
employment while receiving such severance payments and benefits said severance
payments and benefits shall cease as of the date Employee commences such other
employment, but in no event shall the severance payments and benefits provided
in Paragraphs A and B of this Article 2 be terminated prior to Employee's
receiving severance payments and benefits for a two (2) month period. However,
if Employee commences other employment and the base salary Employee is paid in
the course of the other employment is less than the base salary



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Employee received from LC Management at Employee's termination, LC Management
shall pay to employee the difference in said base salaries each month for the
remaining number of months Employee would otherwise be entitled to severance
pay as provided in Section A of this Article 2 at the commencement of said
other employment, starting with the first full month after Employee commences
said other employment. Notwithstanding the foregoing, in the event of a "change
of control" of LCA and either the Employee's (a) involuntary termination or 
(b) "voluntary termination for good cause in anticipation of, during or after a
change of control" and if Employee commences other employment while receiving
severance payments and benefits described in Paragraphs A, B, and C of this
Article 2, said severance payments and benefits shall not cease as of the date
Employee commences such other employment, and shall continue pursuant to
paragraph A of this Article 2. LC Management reserves the right to terminate all
continuing severance payments and benefits described in Paragraphs A and B of
this Article 2 if Employee violates any of the non-disclosure covenants set
forth in Article 3 or the non-piracy covenants set forth in Article 4 below.

        E.  "Good and Sufficient Cause" Defined.  Termination for "good and
sufficient cause" shall include termination for such things as fraud or
dishonesty, willful failure to perform assigned duties, willful violation of
LCA's Business Conduct Policy, or intentional working against the best
interests of LCA.

        F.  Termination for Good and Sufficient Cause.  If Employee's
employment with LC Management is terminated by LC Management for "good and
sufficient cause" as that term is defined in Section E of this Article 2,
Employee will not receive the severance payments and benefits described in
Paragraphs A, B, C, and D of this Article 2.


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        G.      Voluntary Termination by Employee. If Employee voluntary
terminates his/her employment with LC Management Company, (and said termination
is other than "voluntary termination for good cause in anticipation of, during
or after a change of control" as defined in this agreement), Employee will not
receive the severance payments and benefits described in Paragraphs A, B, C,
and D of this Article 2.

        H.      Parachute Payment. If the Employee is liable for the payment
of any excise tax (the "Basic Excise Tax") because of Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code"), or any successor or
similar provision, with respect to any payments or benefits received or to be
received from LC Management or 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 Special
Reimbursement, equals the net amounts of the Basic Excise Tax.

        I.      Survival. The provision of this Article 2 shall survive the
termination of Employee's employment with LC Management.

                                   ARTICLE 3

                            NON-DISCLOSURE AGREEMENT





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        Employee acknowledges and recognizes that in the course of Employee's
employment, Employee has had and will continue to have or will have access to
Corporate Information, and that LC Management may provide and confide to
Employee Corporation Information, techniques and methods of operation developed
at great expense by LCA, all of which Employee recognizes to be unique assets
of LCA. Employee agrees that Employee shall not, during or after the term of
employment, directly or indirectly, in any manner utilize, appropriate,
disclose, communicate, divulge, copy or relate to any person, firm,
corporation, association or other entity, except where required by law, or use
or make use of any such Corporate Information, any such techniques or methods
of operation; data of any kind; or any information relating to strategic
plans, revenues, costs, profits or the financial condition of LCA, which is
not generally known to the public or recognized as standard practice in the
industry in which LCA is or shall be engaged. The provisions of this Article 3
shall survive the termination of Employee's employment with LC Management.


                                   ARTICLE 4

                              NON-PIRACY AGREEMENT

        A.      Non-Piracy. Employee further agrees that Employee shall not for
a period of two (2) years following the termination of Employee's employment
for any reason, directly or indirectly, or through third parties, for himself
or for others, at any time in any manner, induce or attempt to influence any
employees of any subsidiary of LCA to terminate their employment with such
subsidiary, nor shall Employee have an interest in, directly or indirectly, any
entity which shall, with Employee's direct or indirect 





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participation, induce or attempt to influence any employee of any subsidiary of
LCA to terminate their employment with such subsidiary.

        B.      Remedies.  Employees acknowledges that in the event of any
violation or threatened violation by Employee of the provisions set forth in
Article 3 of this Article 4, LCA will sustain serious, irreparable, continuing
and substantial harm and damage to its business, the extent of which will be
difficult to determine and impossible to remedy by any action at law for money
damages. Accordingly, Employee agrees that, in the event of such violation or
threatened violation by Employee, LCA shall be entitled to an injunction
preventing such violation or threatened violation before trial from any court
of competent jurisdiction as a matter of course in addition to and not in lieu
of any and all such other legal equitable remedies as may be available to LCA.
Should any court of competent jurisdiction determine, consistent with the
established precedent of the forum jurisdiction, that the public policy of such
jurisdiction requires a more limited restriction in geographic area, duration,
nature of restricted activities, or any combination thereof, it would be in
furtherance of the intentions of the parties hereto for the court to so
interpret and construe the terms of this Article 4 to apply only to the extent
of such more limited restrictions.

        C.      Survival.  The provisions of this Article 4 shall survive the
termination of Employee's employment with LC Management.

                                   ARTICLE 5

                                 MISCELLANEOUS



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        A.      Definition.  As used throughout this Agreement, "LC Management"
shall include 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%).

        B.      Gender.  Reference to the masculine gender shall include the 
feminine gender.


        C.      Supersede.  This Agreement shall supersede and substitute for
an 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.

        D.      Hire Date.  Employee and LC Management acknowledge that for
purpose of Article 2, Employee's last hire date with LC Management is that date
provided in Addendum B hereof, which is attached hereto and incorporated by
reference herein as if reproduced verbatim.

        E.      Binding Effect.  The respective rights and obligations of LC
Management and the Employee under this Employment Agreement shall inure to
the benefit of and shall be binding upon LCA, LC Management and the Employee
and the respective successors and assigns of LCA and LC Management. This
Employment Agreement shall not be assignable by the Employee, but shall inure to
the benefit of Employees' heirs, legal and personal representatives. As used
herein, the term "successors and assigns"





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shall include any corporation or corporations which acquire a controlling
interest in or a majority of the assets and businesses of LCA whether by
purchase, merger, consolidation or otherwise, including without limitation a
surviving corporation upon a "change in control" as defined herein.

        F.      Arbitration. Any dispute under this Employment Agreement,
except for those arising under Articles 3 and 4 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.

        G.      Applicable Law. This Employment Agreement shall be interpreted
and construed in accordance with the laws of the State of Texas.

        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.





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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:      4/11/96                      By:     /s/ DAVID L. WARD
     -----------------------               -------------------------------
                                                     "EMPLOYEE"
                                                LC MANAGEMENT COMPANY


Date:      4/9/96                       By:       /s/ FRED GREEN
     -----------------------               -------------------------------
                                                  "LC MANAGEMENT"
                                           LIVING CENTERS OF AMERICA, INC.


Date: 
     -----------------------              --------------------------------
                                                       "LCA"





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                                                           ADDENDUM A

April 9, 1996 letter







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                                                           ADDENDUM B

Employee's last hire date: ________________________







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<PAGE>   15
                [AMERICAN REHABILITATION MANAGEMENT LETTERHEAD]


April 9, 1996

David L. Ward
803 Ridgedale Court
Southlake, Texas 76092



Dear David:

I am pleased to offer you the position of Senior Vice President of American
Rehabilitation Services, Inc., and Senior Vice President of American Therapy
Services Group. In this position you will report directly to me, and your
office will be based in Brentwood, Tennessee.

I would like for you to begin employment no later than June 1, 1996, at a base
monthly salary of $14,166.66, which on an annualized basis is $170,000, with
provisions for an annual performance review beginning with your first
anniversary date.

In addition to your base compensation, you will be eligible to participate in
the Management Incentive Bonus Plan. You may earn up to 35% of the midpoint of
your salary grade E-18. Based on a salary range midpoint of $145,700, your
bonus target would be $50,995. The exact amount of your bonus will be based
upon the number of months you are eligible to participate, as well as the
Company's performance and your achievement of specific goals.

A Company leased automobile will be provided for business as well as personal
use. The Company will provide maintenance, insurance and gasoline credit cards.
You will be provided with an approved list of automobiles from which to make
your choice. Some of your choices may include Chevrolet Suburban, Buick Park
Avenue Ultra, Ford Explorer Limited, Chevy Tahoe 4 Dr., Jeep Grand Cherokee
Limited, Chrysler LHS and Oldsmobile Aurora.

You will become eligible for consideration to participate in Living Centers of
America's Stock Option Plan. You will be eligible for 15,000 shares, which vest
over a five year period at 20% per year. Grants are subject to approval by the
Company's Board of Directors.




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Page 2

You will be eligible to participate in a Retirement Plan (401K) after 6 months
of service. The Company will pay the full cost for $200,000 of group term life
insurance and will also  provide long-term disability insurance. You and your
dependents will be eligible to purchase group medical and dental coverage
according to company policy. In addition, you will be covered under our
Executive Benefits Program consisting of survivor benefits, long-term
disability benefits and an annual physical.

The Company will pay for reasonable expenses incurred in the movement of your
household goods from Southlake, Texas to Brentwood, Tennessee, including
packing, shipping, delivery and insurance against loss or damage. Finally, the
Company will assist you by paying reasonable and customary closing costs
associated with the sale of your current residence and the purchase of a new
residence, within your first year of employment. Qualified relocation expenses
incurred during the move that may be covered include:

         o Home finding trips                o Temporary living
         o Return trips home                 o Home sale closing fees
         o Transportation of household       o Home purchase closing fees
             goods                          
         o Storage of household goods as
             needed

It may be necessary for temporary living arrangements to be made until you are
able to locate a home in the Brentwood area; therefore, we will arrange for up
to three months of temporary housing. Specific guidelines will be provided at a
later time. Please contact Pam Merickle at 1-800-753-8087, Ext 192 for
assistance in beginning your relocation process.

The cost of this move is offered to you as a two year forgivable loan. It will
be forgiven by American Rehabilitation Services in equal installments over a
24 month period, beginning on the first of the month following the date of
employment. If you voluntarily sever your employment with American
Rehabilitation Services prior to completing two years of employment, that
portion of the loan remaining unforgiven becomes immediately due and payable.

Your signature on a return copy of this letter will verify your acceptance of
our offer. A self-addressed, postage paid envelope is included for your
convenience.

David, we look forward to your becoming a part of the management team at
American Rehabilitation Services.

Sincerely,


/s/  KELLY GILL
------------------------
Kelly Gill
President
American Rehabilitation Services





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Page 3

I acknowledge and accept these terms of employment with the understanding that
the offer and acceptance is not an employment contract, express or implied,
between the company and myself for any specific period of employment, nor for
continuing or long-term employment. The company and I each have the right to
terminate employment, with or without cause.



       DAVID L. WARD                                4/11/96
----------------------------                  -------------------
Signature                                     Date


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