INDEMNIFICATION AGREEMENT

         This indemnity is made part of an agreement, dated July 25, 2000 (which
together  with any renewals,  modifications  or  extensions  thereof,  is herein
referred to as the "Agreement") by and between Alvarez & Marsal,  Inc.  ("A&M"),
Joseph A. Bondi (the  "Officer")  and  Integrated  Health  Services,  Inc.  (the
"Company") for services to be rendered to the Company by A&M.

A. The Company  agrees to indemnify and hold harmless each of A&M, its partners,
employees,   agents  and  representatives  (each,  an  "Indemnified  Party"  and
collectively,  the "Indemnified  Parties")  against any and all losses,  claims,
damages, liabilities,  penalties,  obligations and expenses (including the costs
for  counsel  or others as and when  incurred  in  investigating,  preparing  or
defending any action or claim,  whether or not in connection  with litigation in
which any Indemnified  Party is a party, or enforcing this agreement) caused by,
relating  to,  based  upon  or  arising  out of  (directly  or  indirectly)  the
Indemnified  Parties'  acceptance of or the  performance or  non-performance  of
their obligations under the Agreement,  provided,  however, such indemnity shall
not apply to any such loss, claim, damage, liability or expense to the extent it
is found in a final judgment by a court of competent  jurisdiction  (not subject
to further appeal) to have resulted primarily and directly from such Indemnified
Party's gross negligence or willful  misconduct (an "Excluded  Liability").  The
Company also agrees that no Indemnified Party shall have any liability  (whether
direct or indirect,  in contract or tort or  otherwise) to the Company for or in
connection  with  the  engagement  of A&M,  except  to the  extent  of any  such
liability for losses, claims, damages, liabilities or expenses that are found in
a final  judgment by a court of competent  jurisdiction  (not subject to further
appeal) to have resulted  primarily and directly from such  Indemnified  Party's
gross negligence or willful misconduct.  The Company further agrees that it will
not, without the prior consent of an Indemnified Party,  settle or compromise or
consent to the entry of any judgment in any pending or threatened claim, action,
suit  or   proceeding  in  respect  of  which  such   Indemnified   Party  seeks
indemnification  hereunder  (whether or not such Indemnified  Party is an actual
party to such  claim,  action,  suit or  proceedings)  unless  such  settlement,
compromise  or consent  includes an  unconditional  release of such  Indemnified
Party  from  all  liabilities  arising  out  of  such  claim,  action,  suit  or
proceeding.

B. These indemnification  provisions shall be in addition to any liability which
the Company may otherwise have to the Indemnified Parties.

C. If any  action,  proceeding  or  investigation  is  commenced  to  which  any
Indemnified Party proposes to demand indemnification hereunder, such Indemnified
Party will notify the Company with  reasonable  promptness;  provided,  however,
that any  failure  by such  Indemnified  Party to notify  the  Company  will not
relieve the Company from its  obligations  hereunder,  except to the extent that
such failure  shall

<PAGE>

have actually  prejudiced the defense of such action. The Company shall promptly
pay  expenses  reasonably  incurred by any  Indemnified  Party in  defending  or
settling any action, proceeding or investigation in which such Indemnified Party
is a party or is threatened to be made a party by reason of the engagement under
the Agreement,  in advance of the final disposition of such action,  proceeding,
or investigation  upon submission of invoices  therefor.  Each Indemnified Party
hereby undertakes, and the Company hereby accepts its undertaking,  to repay any
and all such amounts so advanced if it shall  ultimately be determined that such
Indemnified  Party  is not  entitled  to be  indemnified  therefor.  If any such
action,  proceeding or investigation in which an Indemnified Party is a party is
also against the Company,  the Company may, in lieu of advancing the expenses of
separate counsel for such Indemnified  Party provide such Indemnified Party with
legal  representation  by the same counsel who represents the Company,  provided
such counsel is reasonably satisfactory to such Indemnified Party, at no cost to
such Indemnified Party;  provided,  however,  that if such counsel or counsel to
the  Indemnified  Party shall  determine  that due to the existence of actual or
potential  conflicts of interest between such Indemnified  Party and the Company
such counsel is unable to represent both the Indemnified  Party and the Company,
then the Indemnified  Party shall be entitled to use separate counsel of its own
choice,  and the Company shall promptly advance its reasonable  expenses of such
separate  counsel upon  submission of invoices  therefor.  Nothing  herein shall
prevent an Indemnified  Party from using  separate  counsel of its own choice at
its own  expense.  The Company  will be liable for any  settlement  of any claim
against an  Indemnified  Party made with the Company's  written  consent,  which
consent shall not be unreasonably withheld.

D. In  order to  provide  for just and  equitable  contribution  if a claim  for
indemnification  pursuant to these indemnification  provisions is made but it is
found in a final judgment by a court of competent  jurisdiction  (not subject to
further appeal) that such indemnification may not be enforced in such case, even
though the  express  provisions  hereof  provide for  indemnification:  then the
Company, on the one hand, and the Indemnified  Parties, on the other hand, shall
contribute to the losses, claims, damages,  liabilities and expenses so that the
Indemnified Parties are responsible in the aggregate for a percentage of losses,
claims, damages,  liabilities and expenses equal to a fraction, the numerator of
which is the fees  previously  received by the Indemnified  Parties  pursuant to
this Agreement  (less any amounts  previously  paid by the  Indemnified  Parties
through application of the provisions of this paragraph), and the denominator of
which is the market  value of the  outstanding  shares of the  Company's  common
stock on the date hereof, and the Company shall be responsible for the remainder
of such losses,  claims,  damages,  liabilities and expenses;  provided however,
that if such  allocation is not  permitted by applicable  law, then the relative
fault of the Company, on the one hand, and the Indemnified Parties, on the other
hand, in connection  with the  statements,  acts or omissions  which resulted in
such losses, claims, damages, liabilities and costs and other relevant equitable
considerations  shall also be considered;  and further provided that in no event
will the Indemnified  Parties'

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<PAGE>

aggregate contribution for all losses, claims, damages, liabilities and expenses
with respect to which  contribution is available  hereunder exceed the amount of
fees actually received by the Indemnified Parties pursuant to the Agreement.  No
person  found  liable for a  fraudulent  misrepresentation  shall be entitled to
contribution  hereunder  from any person  who is not also found  liable for such
fraudulent misrepresentation.

E. In  connection  with the process of seeking  judicial  authorization  for the
Agreement and the  engagement of A&M, and in the event the Company's  case under
chapter  11 of the  United  States  Bankruptcy  Code is  converted  to one under
chapter 7 and the Company and A&M seek judicial  approval for the  assumption of
the Agreement or authorization to enter into a new engagement agreement pursuant
to either of which A&M would continue to be engaged by the Company,  the Company
shall  promptly pay expenses  reasonably  incurred by the  Indemnified  Parties,
including attorneys' fees and expenses, in connection with any motion, action or
claim made  either in  support  of or in  opposition  to any such  retention  or
authorization  whether in advance of or following  any judicial  disposition  of
such motion,  action or claim promptly upon submission of invoices therefor and,
in the event of a  conversion  of the  chapter  11 case to one under  Chapter 7,
regardless of whether such retention or  authorization  is approved by any court
provided  that the  indemnified  parties  will give the Company  prior notice if
their counsel will attend or participate in any court hearing.  The Company will
also promptly pay the Indemnified  Parties for any expenses  reasonable incurred
by them,  including  attorneys'  fees and  expenses,  in seeking  payment of all
amounts owed it under the Agreement (or any new  engagement  agreement)  whether
through submission of a fee application or in any other manner,  without offset,
recoupment  or  counterclaim,  whether  as a secured  claim,  an  administrative
expense claim, an unsecured claim, a prepetition claim or a postpetition claim.

F. Neither  termination of the Agreement nor termination of A&M's engagement nor
the  conversion  of the existing  case to one under chapter 7 shall affect these
indemnification  provisions,  which shall hereafter remain operative and in full
force and effect.

G. The rights provided herein shall not be deemed  exclusive of any other rights
to which the  Indemnified  Parties  may be  entitled  under the  certificate  of
incorporation  or  bylaws of the  Company,  any  other  agreements,  any vote of
stockholders or  disinterested  directors of the Company,  any applicable law or
otherwise.

                                                ACCEPTED AND AGREED:

Alvarez & Marsal, Inc.                          Integrated Health Services, Inc.


By:  /s/ Joseph A. Bondi                        By: /s/ C. Taylor Pickett
    ------------------------                       -----------------------------
    Joseph A. Bondi                                C. Taylor Pickett
    Managing Director                              EVP and CFO


/s/ Joseph A. Bondi
-------------------
Joseph A. Bondi



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