SUBORDINATION AGREEMENT



         THIS  SUBORDINATION  AGREEMENT (this  "Agreement") dated as of April 9,
1997, is by and among NATIONSBANK,  N.A. (SOUTH),  as Agent for and on behalf of
the Lenders  under and in  connection  with the Senior Bank Credit  Agreement as
hereinafter  referenced  (such Lenders as holders of the Senior Debt hereinafter
defined,  including their respective  successors and assigns, may be hereinafter
referred to as the "Senior  Creditors");  INTEGRATED  HEALTH  SERVICES,  INC., a
Delaware corporation  (hereinafter together with its successors and assigns, the
"Subordinated  Creditor");  and INTEGRATED LIVING COMMUNITIES,  INC., a Delaware
corporation (the "Company").

                              W I T N E S S E T H:

         WHEREAS,   NationsBank,  N.A.  (South)  and  various  other  banks  and
financial  institutions  as may now or hereafter  become a party  thereto  (such
banks and financial  institutions,  together with their  successors and assigns,
may hereinafter be referred to collectively as the "Lenders" and individually as
a "Lender")  have agreed to establish a credit  facility in favor of  Integrated
Living Communities Holding, Inc. (the "Borrower"),  a Delaware corporation and a
wholly-owned  subsidiary  of the  Company  pursuant  to the terms of that Credit
Agreement  dated as of the date hereof  among the Company,  as a guarantor,  the
Borrower,  certain subsidiaries of the Company and the Borrower,  as guarantors,
the Lenders and  NationsBank,  N.A.  (South),  as Agent (as  amended,  modified,
extended,  renewed  or  replaced  from time to time,  the  "Senior  Bank  Credit
Agreement") and as evidenced by those certain  promissory notes issued from time
to time by the  Borrower to the Lenders  under and  pursuant to the terms of the
Senior Bank Credit Agreement  (hereinafter such promissory notes may be referred
to collectively as the "Senior Notes" or individually as a "Senior Note");

         WHEREAS,  the  Subordinated  Creditor has made a loan to the Company in
the  original  aggregate  principal  amount  of  $3,445,024  as  evidenced  by a
promissory  note of the  Company  dated as of  November  20,  1996 (as  amended,
modified,  extended,  renewed or replaced  from time to time with the consent of
the  Required  Lenders or the Agent  acting  with the  consent  of the  Required
Lenders, the "Subordinated Note");

         WHEREAS,  the Lenders have  required as a condition to the extension of
the credit  facility  pursuant  to the Senior  Bank  Credit  Agreement  that the
Subordinated  Debt (as  hereinafter  defined) be  subordinated  to the loans and
extensions  of credit  made  pursuant  to the terms of the  Senior  Bank  Credit
Agreement and evidenced by the Senior Notes on terms acceptable to them;

         NOW,  THEREFORE,  in  consideration  of the premises and other good and
valuable  consideration,   the  receipt  and  sufficiency  of  which  is  hereby
acknowledged, the parties hereto agree as follows:
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SECTION 1         Definitions.

         1.1      Definitions. Terms used but not otherwise defined herein shall
have the meanings provided in the Senior Bank Credit Agreement. As used herein:

         "Agent" means NationsBank, N.A. (South), as agent for the Lenders under
the Senior Bank Credit Agreement and related Senior Bank Credit  Documents,  and
any successors and assigns in such capacity.

         "Change of Control" shall have the meaning assigned to such term in the
Senior Bank Credit Agreement.

         "Commitments"  shall  have the  meaning  assigned  to such  term in the
Senior Bank Credit Agreement.

         "Guarantor"  means the Company and any  subsidiary  or affiliate of the
Company or the  Borrower  which may  guarantee  the Senior  Debt or any  portion
thereof.

         "Lender" or "Lenders" means the Lenders party to the Senior Bank Credit
Agreement,  together  with their  successors  and assigns as  referenced  in the
Recitals of this Agreement.

         "Person" means any individual,  corporation, company, limited liability
company, voluntary association,  partnership,  trust, unincorporated association
or government (or any agency, instrumentality or political subdivision thereof).

         "Proceeding"  shall have the  meaning  assigned  in Section 2.2 of this
Agreement.

         "Required  Lenders" shall have the meaning assigned to such term in the
Senior Bank Credit Agreement.

         "Senior Bank Credit  Agreement" shall have the meaning assigned to such
term in the Recitals of this Agreement.

         "Senior Bank Debt" means the principal of and interest on the loans and
obligations  owing from time to time, and all other amounts  (including  without
limitation  all  fees,  indemnities,   charges,   expenses  and  other  monetary
obligations)  from time to time owing by the Borrower,  the Company or any other
Guarantor  to any  Lender or the  Agent,  under any of the  Senior  Bank  Credit
Documents.

         "Senior Bank Credit  Documents" means the Senior Bank Credit Agreement,
the  Senior  Notes  and all other  promissory  notes,  agreements,  assignments,
guarantees, mortgages, security agreements, pledge agreements and documents that
have been or may  hereafter be given by the  Borrower,  the Company or any other
Guarantor in  connection  with the Senior Bank Credit  Agreement  and the Senior
Debt  existing  thereunder,   and 

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includes without  limitation,  the "Credit Documents"  referred to in the Senior
Bank Credit Agreement.

         "Senior Bank  Refinancing  Debt" means all obligations of the Borrower,
the Company and each of the other  Guarantors  outstanding  from time to time in
respect of any  refinancing,  refunding,  renewal or restructuring of all or any
part of the Senior Bank Debt.

         "Senior  Creditors" shall have the meaning assigned to such term in the
preamble of this Agreement and,  unless the context  otherwise  requires,  shall
include all holders of the Senior Debt from time to time.

         "Senior Debt" means,  collectively,  (a) all Senior Bank Debt;  (b) all
Senior Bank  Refinancing  Debt;  and (c) without  limiting  the  foregoing,  any
interest  on  any  of the  foregoing  Senior  Debt  accruing  subsequent  to the
commencement  of a Proceeding  with respect to the Borrower,  the Company or any
other  Guarantor,  whether or not such interest is allowed as a claim under such
Proceeding.

         "Senior  Note" or "Senior  Notes" shall have the  meanings  assigned to
such terms in the Recitals of this Agreement.

         "Subordinated Creditor" shall have the meaning assigned to such term in
the preamble of this Agreement and, unless the context otherwise requires, shall
include all holders of the Subordinated Debt from time to time.

         "Subordinated  Debt" means all  principal  of and  interest on, and all
other  obligations  and  liabilities of the Company and the Guarantors  owing in
respect of or arising under,  the  Subordinated  Debt  Documents,  and including
without limitation, amounts advanced or accreted in respect of interest accruing
on the Subordinated Note.

         "Subordinated  Debt  Documents"  means the  Subordinated  Note, and any
other  documents or  agreements  that have been or may hereafter be given by the
Company  or a  Guarantor  to a  Subordinated  Creditor  in  connection  with the
Subordinated Debt.

         "Subordinated Note" shall have the meaning assigned to such term in the
Recitals of this Agreement.

SECTION 2         Subordination Provisions.

         2.1  Subordination to Senior Debt. The Company covenants and agrees for
itself and its successors and assigns,  and the Subordinated  Creditor  likewise
covenants  and  agrees,  that the  payment  of the  Subordinated  Debt is hereby
expressly  subordinated,  to the extent that and in the manner  hereinafter  set
forth,  in right and order of  payment  to the prior  payment in full in cash or
cash equivalents of all Senior Debt. While any Senior Debt shall be outstanding,
the Company  shall not make any  payment on or in respect  of, or  transfer  any
property or interest in property as collateral  security  for, the  Subordinated
Debt and the  Subordinated  Creditor  (including any 

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subsequent holders of the Subordinated Debt) shall not demand or accept any such
payment  or  collateral  security,  or  take  any  action  with  respect  to the
Subordinated  Debt  inconsistent  with the priority  position of the Senior Debt
established by these subordination provisions,  except as expressly permitted by
these  subordination  provisions.   The  provisions  of  this  Section  2  shall
constitute  a  continuing  offer to all  Persons  who,  in  reliance  upon  such
provisions,  become  holders  of, or  continue to hold,  Senior  Debt,  and such
provisions are made for the benefit of the holders of Senior Debt, and each such
holder is hereby  made an  obligee  hereunder  the same as if their  names  were
written herein as such and is entitled to enforce the provisions of this Section
2, subject to provisions thereof, without any act or notice of acceptance hereof
or in reliance hereon.

To the  extent  any  payment  of  Senior  Debt  (whether  by or on behalf of the
Borrower,  the  Company or any other  Guarantor,  as  proceeds  of  security  or
enforcement of any right of set-off,  or otherwise) is declared to be fraudulent
or  preferential,  set aside or  required  to be paid to a trustee,  receiver or
similar  party  under  any  bankruptcy,  insolvency,  receivership,   fraudulent
conveyance  or similar law,  then if such payment is recovered  by, or paid over
to, such  trustee,  receiver  or other  similar  party,  the Senior Debt or part
thereof originally intended to be satisfied shall be deemed to be reinstated and
outstanding as if such payment had not occurred.

For purposes of this Section 2, the Senior Bank Debt shall not be  considered to
be paid in full unless at the time of such payment or thereafter the commitments
relating thereto shall have expired or been terminated.

         2.2      Payment of Proceeds Upon Dissolution, etc.

                  (a) Upon any payment or  distribution  of assets or securities
         of the  Borrower,  the  Company  or any  other  Guarantor  or upon  any
         dissolution, winding up, liquidation or reorganization of the Borrower,
         the Company or any other Guarantor, whether voluntary or involuntary or
         in bankruptcy, insolvency, reorganization,  receivership,  liquidation,
         administrative supervision or similar proceedings or upon an assignment
         for the benefit of creditors or any other marshalling of the assets and
         liabilities of the Borrower,  the Company or any other Guarantor (each,
         a "Proceeding"), then and in any such event:

                         (i) the  holders  of all  Senior  Debt  shall  first be
                  entitled  to receive  indefeasible  payment in full in cash or
                  cash  equivalents  of  all  amounts  due  thereon   (including
                  interest accruing  subsequent to the commencement of or filing
                  of a petition in any  bankruptcy or  insolvency  proceeding at
                  the rate  provided  for under the terms of such Senior  Debt),
                  before the holders of the  Subordinated  Debt are  entitled to
                  receive  any  payment  upon  the  Subordinated   Debt  or  any
                  distribution of assets in respect of the Subordinated Debt;

                        (ii)  any  payment  or  distribution  of  assets  of the
                  Borrower,  the Company or any other  Guarantor  of any kind or
                  character,  whether in cash, property or securities,  to which
                  the  holders of the  Subordinated  Debt would be  entitled  to
                  except for these subordination provisions shall be paid by the
                  liquidating  trustee  or  agent or other  person  making  such
                  payment or  distribution,  whether a trustee in bankruptcy,  a
                  receiver or liquidating trustee or otherwise, 

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<PAGE>

                 directly   to  the   holders  of  the  Senior   Debt  or  their
                 representative or representatives or to the trustee or trustees
                 under any indenture under which any instruments  evidencing any
                 of such Senior Debt may have been issued,  ratably according to
                 the aggregate amounts remaining unpaid on account of the Senior
                 Debt held or  represented  by each, to the extent  necessary to
                 make payment in full of all Senior Debt  remaining  unpaid,  or
                 adequate  provision  therefor,   after  giving  effect  to  any
                 concurrent  payment  or  distribution  to the  holders  of such
                 Senior Debt; and

                       (iii) in the event that,  notwithstanding  the foregoing,
                  any payment or  distribution  of assets of the  Borrower,  the
                  Company  or any  other  Guarantor  of any  kind or  character,
                  whether in cash, property or securities,  shall be received by
                  the holders of the Subordinated Debt after the commencement of
                  such  marshalling of assets and before all Senior Debt is paid
                  in full, or adequate provision is made therefor,  such payment
                  or  distribution  shall be paid  over to the  holders  of such
                  Senior Debt or their  representative or  representatives or to
                  the trustee or trustees  under any  indenture  under which any
                  instruments  evidencing  any such  Senior  Debt may have  been
                  issued,  ratably as aforesaid,  for application to the payment
                  of all Senior Debt remaining unpaid until all such Senior Debt
                  shall  have  been paid in full,  or  adequate  provision  made
                  therefor,  after giving  effect to any  concurrent  payment or
                  distribution to the holders of such Senior Debt.

                  (b) If the holders of  Subordinated  Debt do not file a proper
         claim or proof of claim or proof of debt or other document or amendment
         thereof in the form required in any Proceeding  prior to 30 days before
         the  expiration  of the  time to file  such  claim  or  proof  or other
         document or amendment thereof, then the Agent, on behalf of the holders
         of the  Senior  Debt,  has the right (but not the  obligation)  in such
         Proceeding to, and is hereby irrevocably  appointed the lawful attorney
         of the holders of the Subordinated Debt for the purpose of enabling the
         holders of Senior Debt to, demand,  sue for, collect,  receive and give
         receipt for the payments and  distributions  in respect of Subordinated
         Debt that are made in such  Proceeding and that are required to be paid
         or  delivered  to the  holders  of  Senior  Debt  as  provided  in this
         Agreement, and to file and prove all claims therefor and to execute and
         deliver all documents in such  Proceeding in the name of the holders of
         Subordinated  Debt or  otherwise  in  respect  of such  claims,  as the
         Required   Lenders  may   reasonably   determine  to  be  necessary  or
         appropriate for the enforcement of the provisions of this Agreement.

         2.3      Payments on Subordinated Debt.

         (a)  Notwithstanding  Section 2.1 hereof,  prior to the occurrence of a
Senior Payment Default (as hereinafter defined) or a Payment Blockage Period (as
hereinafter defined) and written notice thereof by the Agent to the Subordinated
Creditor  stating either that (i) such a Senior  Payment  Default exists or (ii)
the Agent is electing to initiate the Payment  Blockage  Period as a result of a
Change of Control,  the  Subordinated  Creditor shall be entitled to receive all
regularly scheduled payments of principal and interest on the Subordinated Debt.
No direct or indirect payment in respect of any Subordinated  Debt shall be made
by the Borrower,  the

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Company or any other Guarantor after the occurrence and during the  continuation
of any Senior Payment Default or any Payment Blockage Period.

         (b) As used  herein (i)  "Senior  Payment  Default"  means a Default or
Event of Default in the payment of all or any portion of principal of,  premium,
if any,  interest or any fees or expenses on or with respect to any Senior Debt,
whether by  acceleration  or otherwise  where the Agent has given written notice
thereof to the Borrower and the  Subordinated  Creditor and such Senior  Payment
Default  shall not have been cured by the  Borrower or waived by the Lenders and
(ii) "Payment Blockage Period" means the period which (A) begins on the date the
Agent gives  written  notice to the  Borrower and the  Subordinated  Creditor as
described in Section  2.3(a)  stating that the Agent is  initiating  the Payment
Blockage  Period as a result of the  occurrence  of a Change of Control  and (B)
which  ends on the date that is 60 days  after the  occurrence  of the Change of
Control  referred  to in  subclause  (A).  Upon the  expiration  of the  Payment
Blockage Period  (without an acceleration of the Senior Debt which  acceleration
will constitute a Senior Payment Default),  the Subordinated Creditor shall have
the right to (1) again receive all regularly scheduled payments of principal and
interest  on the  Subordinated  Debt,  (2) recover all  principal  and  interest
payments  which  otherwise  would  have been made to the  Subordinated  Creditor
during such  Payment  Blockage  Period,  and (3) if the Senior Debt has not been
accelerated  as a result  of the  respective  Change  of  Control,  declare  the
Subordinated  Debt due and payable  before its stated  maturity (and the Company
hereby  agrees  that  the   Subordinated   Note  may  be   accelerated  in  such
circumstance)  and receive payments on the Subordinated Debt as a result of such
acceleration.

         (c) Any such payments made to the holders of the Subordinated  Debt and
any amounts  recovered  by any such holder  upon the  exercise of such  holder's
remedies and  applicable  to payments on the  Subordinated  Debt or otherwise in
contravention of these subordination provisions shall be held for, paid over to,
and be subject to claim and  recovery  by or on behalf of, the holders of Senior
Debt to be applied  ratably to the Senior Debt then due (or otherwise among such
holders  of  Senior  Debt as a court  of  competent  jurisdiction  may  direct),
whereupon the rights of the holders of the Subordinated Debt against the Company
shall be the same as though the  payments  so paid over or  recovered  had never
been made by the Company.

         2.4      Limitations on Rights of Action.

                  (a)  Notwithstanding  anything  contained in the  Subordinated
         Debt  Documents  to the  contrary,  so long  as the  Company  shall  be
         prohibited  from  making  any  payment  of cash on or in respect of the
         Subordinated Debt hereunder, the holders of the Subordinated Debt shall
         not take any action to (i) collect, demand payment of or accelerate any
         of the Subordinated  Debt, (ii) foreclose or otherwise realize upon any
         security for the  Subordinated  Debt,  (iii) initiate any Proceeding or
         (iv) exercise any of their other rights or remedies against the Company
         under the  Subordinated  Debt  Documents or otherwise in respect of the
         Subordinated  Debt,  unless and until the  maturity  of the Senior Debt
         shall  have  been   accelerated,   provided   that  in  any  event  the
         Subordinated Debt may be accelerated only after at least 10 days' prior
         written  notice  shall  have been  given to the  Agent  for the  Senior
         Creditors of the intent of the holders of  Subordinated  Debt to effect
         such an acceleration.

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<PAGE>

                  (b) Subject to the limitations on the rights of the holders of
         the  Subordinated  Debt to accelerate the maturity of the  Subordinated
         Debt set forth herein, the failure to make a payment on account of this
         Section 2 shall not be  construed as  preventing  the  occurrence  of a
         default  or event of default  under or in  respect of the  Subordinated
         Debt Documents.

         2.5 Notices of Conditions  under this Section 2. Notices by the holders
of the Senior Debt under Section 2.3 or by the holders of the Subordinated  Debt
under Section 2.4, shall be deemed  effective when given in writing to the Agent
on  behalf  of  the  holders  of  the  Senior  Debt  or to  the  holders  of the
Subordinated  Debt, as appropriate,  to the address set out in, and otherwise in
accordance with the terms of, Section 4.2.

         2.6 Right to Join in Actions.  Nothing  contained herein shall prohibit
the holders of the Subordinated Debt from joining any bankruptcy, reorganization
or  insolvency  proceedings  once  commenced by other  creditors of the Company;
provided,  that in any such  proceedings  the holder of such  Subordinated  Debt
shall exercise such holder's rights with respect to the  Subordinated  Debt in a
manner  consistent with these  subordination  provisions and the priority of the
Senior  Debt  herein  established  or any of the  liens and  security  interests
relating thereto,  and shall, to the extent permitted by law and consistent with
these subordination  provisions,  and as requested by the Agent on behalf of the
holders of the Senior Debt for such purpose,  assign such rights  (including the
right to file proofs of claim and to vote  claims on any plan of  reorganization
or  arrangement)  to the Agent on behalf of the holders of the Senior Debt,  pro
rata in  accordance  with  their  claims or as they may  otherwise  agree  among
themselves.

         2.7  Subrogation.  Subject to the  indefeasible  payment in full of all
Senior Debt in cash or cash equivalents,  the holders of the Subordinated  Debt,
ratably in  accordance  with the amounts due them,  shall be  subrogated  to the
rights of the holders of the Senior Debt to receive payments or distributions of
cash,  property or securities of the Company applicable to the Senior Debt until
the principal of and interest on the Subordinated Debt shall be paid in full and
no such  payments  or  distributions  to the holders of the Senior Debt of cash,
property  or  securities   otherwise   distributable   to  the  holders  of  the
Subordinated Debt (but for these subordination provisions) shall, as between the
Company,  its  creditors  other than the  holders of the  Senior  Debt,  and the
holders of the  Subordinated  Debt,  be deemed to be a payment by the Company on
account of the Senior Debt. It is understood that these subordination provisions
are and are intended  solely for the purpose of defining the relative  rights of
the holders of the  Subordinated  Debt, on the one hand,  and the holders of the
Senior Debt, on the other hand. Nothing contained herein is intended to or shall
impair,  as between the  Company,  its  creditors  other than the holders of the
Senior Debt,  and the holders of the  Subordinated  Debt,  the obligation of the
Company,  which is  unconditional  and  absolute,  to pay to the  holders of the
Subordinated  Debt,  ratably in accordance with the respective amounts due them,
the  principal  of and  interest on the  Subordinated  Debt as and when the same
shall become due and payable in  accordance  with their terms,  or to affect the
relative rights of the holders of the Subordinated Debt and the creditors of the
Company  other than the holders of the Senior Debt. No failure of the Company to
pay principal of or interest on the  Subordinated  Debt when due hereunder shall
be excluded  from the  definition of "Events of Default"  herein solely  because
such payment is prohibited by these subordination provisions.

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<PAGE>


         2.8      No Waiver of Subordination Provisions.

                  (a)  No  right  of  any   present   or   future   holder   (or
         representative  thereof) of any Senior Debt to enforce subordination as
         herein  provided shall at any time in any way be prejudiced or impaired
         by any act or failure  to act on the part of the  Company or by any act
         or failure to act by any such holder,  or by any  non-compliance by the
         Company with the terms  provisions  and  covenants of the  Subordinated
         Debt Documents, regardless of any knowledge thereof any such holder (or
         representative thereof) may have or be otherwise charged with.

                  (b)  Without in any way  limiting  the  generality  of Section
         2.08(a) hereof, the holders of Senior Debt (or their representative, if
         applicable)  may,  at any  time  and  from  time to time  and in  their
         absolute  discretion,  without incurring duties or other obligations to
         any holders of Subordinated Debt and without impairing or releasing the
         subordination  and other  benefits  provided in this  Agreement  or the
         obligations of the holders of the  Subordinated  Debt to the holders of
         the  Senior  Debt,  do any one or more of the  following,  all  without
         notice to or assent from the holders of the Subordinated  Debt and even
         if any right of  reimbursement  or subrogation or other right or remedy
         of any such holder is affected, impaired or extinguished thereby:

                           (i) change the  manner,  place or terms of payment or
                  change or extend the time of payment  of, or renew,  exchange,
                  amend or alter,  the terms of any Senior  Debt,  any  security
                  therefor  or  guarantee   thereof  of  any  liability  of  the
                  Borrower,  the Company or any other  Guarantor to such holder,
                  or any  liability  incurred  directly or indirectly in respect
                  thereof,  or  otherwise  amend,  renew,  exchange,  modify  or
                  supplement  in  any  manner  Senior  Debt  or  any  instrument
                  evidencing  or  guaranteeing  or  securing  the  same  or  any
                  agreement under which Senior Debt is outstanding;

                           (ii)  sell,  exchange,  release,  surrender,  realize
                  upon,  enforce  or  otherwise  deal with in any manner and any
                  order any property  pledged,  mortgaged or otherwise  securing
                  Senior Debt or any liability of the  Borrower,  the Company or
                  any other Guarantor to such holder, or any liability  incurred
                  directly or indirectly in respect thereof;

                           (iii)  settle or  compromise  any Senior  Debt or any
                  other  liability  of the  Borrower,  the  Company or any other
                  Guarantor  of the Senior Debt to such  holder or any  security
                  therefor or any liability  incurred  directly or indirectly in
                  respect  thereof  and  apply any sums by  whomsoever  paid and
                  however   realized  to  any  liability   (including,   without
                  limitation, Senior Debt) in any manner or order; and

                           (iv) fail to take or to record or otherwise  perfect,
                  for any reason or for no reason, any lien or security interest
                  securing Senior Debt by whomsoever granted,  exercise or delay
                  in or refrain from  exercising any right or remedy against the
                  Borrower, the Company or any other Guarantor or any collateral
                  or other 

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<PAGE>


                  security or any other  Person, elect any  remedy and otherwise
                  deal  freely   with  the   Borrower,   the  Company   and  any
                  collateral or other security.

SECTION 3         Other Agreements.

         3.1 Amendments to Subordinated Debt Documents. Each of the Subordinated
Creditors  agrees that it shall not,  without the prior  consent of the Required
Lenders or the Agent on behalf of the Required Lenders,  agree or consent to any
amendment,  waiver or other  modification  of any provision of any  Subordinated
Debt Document.

         3.2 Transfer of Subordinated Debt. The holders of the Subordinated Debt
shall not,  without the prior  written  consent of the  Required  Lenders or the
Agent on behalf of the Required Lenders, which consent shall not be unreasonably
withheld,  assign or otherwise transfer, in whole or in part, or encumber any of
its rights in respect of, the Subordinated  Debt,  provided that, in the case of
any such  assignment,  transfer or  encumberance  to which the Required  Lenders
shall have consented,  the transferee shall agree in writing,  contemporaneously
therewith,  to  become  a party  hereto  on the same  terms as the  Subordinated
Creditor.

         3.3      Notices to Senior Creditors.

                  (a) Each Subordinated  Creditor (or its representative)  shall
         notify the Senior  Creditors (or their  representatives)  promptly upon
         the happening of any of the following:

                           (i) the occurrence,  and the Subordinated  Creditors'
                  waiver, of any default under or in respect of the Subordinated
                  Debt  Documents,  but only if the  existence  of such  default
                  would  entitle  the  holders  of  the  Subordinated   Debt  to
                  accelerate any Subordinated Debt;

                           (ii) acceleration of the maturity of any Subordinated
                  Debt held by it;

                           (iii)  when  proposed  and if the same  shall  become
                  effective, any amendment,  waiver or other modification of any
                  provision of any Subordinated Debt Document; and

                           (iv)  the   transfer   of  any   Subordinated   Debt,
                  specifying   the  name  and  address  of  the  transferee  and
                  enclosing an executed  counterpart  of the agreement  required
                  under Section 3.2 hereof.

                  (b)  Failure of any party to give notice  required  under this
         Section 3.3 shall not relieve any other party of its obligations  under
         this Agreement.

         3.4 Further Assurances.  Each Subordinated  Creditor agrees to promptly
execute and deliver such further  documents and do such other acts and things as
any holder of Senior Debt may  reasonably  request from time to time in order to
more fully effect the purposes of this Agreement.

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SECTION 4         Miscellaneous.

         4.1 No  Waiver.  No  failure  on the part of the  Senior  Creditors  to
exercise and no delay in  exercising,  and no course of dealing with respect to,
any right,  power or privilege  under this  Agreement  shall operate as a waiver
thereof,  nor shall any  single  or  partial  exercise  of any  right,  power or
privilege under this Agreement preclude any other or further exercise thereof or
the  exercise of any other right,  power or  privilege.  The  remedies  provided
herein are cumulative and not exclusive of any remedies provided by law.

         4.2 Notices. Except as otherwise expressly provided herein, all notices
and other  communications  shall have been duly given and shall be effective (i)
when  personally  delivered,  (ii)  when  transmitted  via  telecopy  (or  other
facsimile  device) to the number set out below,  (iii) the day following the day
on which the same has been delivered prepaid to a reputable  national  overnight
air courier  service,  or (iv) the third Business Day following the day on which
the same is sent by  certified  or  registered  mail,  postage  prepaid,  to the
address set out on the signature pages hereto,  or at such other address as such
party may specify by written  notice to the other  parties.  Any notice or other
communication  required  to be  given  or  delivered  hereunder  to  the  Senior
Creditors  shall be deemed  given or  delivered  to the  Senior  Creditors  upon
effective delivery hereunder of such notice or communication to the Agent.

         4.3  Amendments;  Waivers;   Modifications.   This  Agreement  and  the
provisions hereof may not be amended, waived, modified,  changed,  discharged or
terminated  except with the prior written  consent of the Company,  the Required
Lenders  and  the  holders  of  the  Subordinated   Debt.  Any  such  amendment,
modification  or waiver  shall be binding  upon all  holders of Senior  Debt and
Subordinated Debt.

         4.4  Counterparts.  This  Agreement  may be  executed  in any number of
counterparts,  each of  which  where  so  executed  and  delivered  shall  be an
original,  but all of which shall  constitute  one and the same  instrument.  It
shall not be necessary  in making proof of this  Agreement to produce or account
for more than one such counterpart.

         4.5 Headings.  The headings of the sections and subsections  hereof are
provided  for  convenience  only and shall not in any way affect the  meaning or
construction of any provision of this Agreement.

         4.6      Governing Law; Submission to Jurisdiction; Venue.

                  (a) THIS  AGREEMENT  AND THE  RIGHTS  AND  OBLIGATIONS  OF THE
         PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
         ACCORDANCE  WITH THE LAWS OF THE STATE OF FLORIDA.  Any legal action or
         proceeding  with respect to this Agreement may be brought in the courts
         of the State of Florida,  or of the federal courts of the United States
         located in Florida,  and, by execution and delivery of this  Agreement,
         each party hereby irrevocably  accepts for itself and in respect of its
         property,  generally  and  unconditionally,  the  jurisdiction  of such
         courts.  Each party  further  irrevocably  consents  to the  service of
         process out of any of the  aforementioned  courts in any such action or
         proceeding by the 

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         mailing of copies  thereof by  registered  or certified  mail,  postage
         prepaid,  to such party at its address for notices  pursuant to Section
         4.2.  Nothing  herein  shall  affect  the  right of any  party to serve
         process in any other manner permitted by law.

                  (b) Each party hereby  irrevocably  waives any objection which
         it may now or  hereafter  have to the  laying  of  venue  of any of the
         aforesaid  actions or proceedings  arising out of or in connection with
         this Agreement or any other Senior Bank Credit Document  brought in the
         courts  referred  to  in  subsection  (a)  hereof  and  hereby  further
         irrevocably  waives  and agrees not to plead or claim in any such court
         that any such action or  proceeding  brought in any such court has been
         brought in an inconvenient forum.

                  (c)  EACH  PARTY  HEREBY  IRREVOCABLY  WAIVES,  TO THE  EXTENT
         PERMITTED BY APPLICABLE  LAW, ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
         PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT
         OR THE TRANSACTIONS CONTEMPLATED THEREBY.

         4.7  Severability.  If  any  provision  of  any of  this  Agreement  is
determined to be illegal,  invalid or  unenforceable,  such  provision  shall be
fully severable and the remaining

                  [remainder of page intentionally left blank]

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<PAGE>



provisions shall remain in full force and effect and shall be construed  without
giving effect to the illegal, invalid or unenforceable provisions.

         4.8 Entirety. This Agreement together with the other Senior Bank Credit
Documents represent the entire agreement of the parties hereto and thereto,  and
supersede all prior  agreements  and  understandings,  oral or written,  if any,
including any commitment  letters or correspondence  relating to the Senior Bank
Credit Documents or the transactions contemplated herein and therein.

         4.9  Successors and Assigns.  This Agreement  shall be binding upon and
inure to the benefit of the Borrower,  the Company,  each other Guarantor,  each
Senior Creditor and the  Subordinated  Creditor and each other present or future
holder of Subordinated Debt and their respective successors and assigns.

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.

                                            INTEGRATED LIVING COMMUNITIES, INC.
Address for Notice:
Integrated Living Communities, Inc.         By:_________________________________
24850 Old 41 Road, Suite 10                 Name:_______________________________
Bonita Springs, Florida 34135               Title:______________________________
Attention:  Geralyn Kidera


                                            NATIONSBANK, N.A. (SOUTH),
Address for Notice:                         as Agent for the Senior Creditors
NationsBank, N.A. (South)
Downtown Sarasota Banking Center            By:_________________________________
1605 Main Street                            Name:_______________________________
Sarasota, Florida 34236                     Title:______________________________
Attention:  Mark A. McDonell


                                            INTEGRATED HEALTH SERVICES, INC.
Address for Notice:
Integrated Health Services, Inc.            By:_________________________________
10065 Red Run Boulevard                     Name:_______________________________
Owing Mills, Maryland 21117                 Title:______________________________
Attention:  Michael Tan

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