Document:

Exhibit 10.18

                   AMENDMENT NO. 1 TO STOCK EXCHANGE AGREEMENT

          AMENDMENT NO. 1 TO STOCK EXCHANGE AGREEMENT, dated as of August 22,
2000 and effective as of August 1, 2000 (the "Original Agreement"), by and among
ProtoSource Corporation, a corporation existing under the laws of California
(the "Purchaser"), Suncoast Automation, Inc., a Delaware corporation (the
"Company"), and the shareholders of the Company (collectively the "Sellers")(the
"Amendment"). The Amendment is entered into as of January 16, 2001, by and among
Purchaser and the Sellers who are signatory hereto.

                              W I T N E S S E T H:
                               - - - - - - - - - -

          WHEREAS, the Sellers owned an aggregate of 143,282 shares of common
stock, $0.001 par value (the "Shares") of the Company, which Shares constituted
all of the issued and outstanding shares of all classes of capital stock of the
Company; and

          WHEREAS, the Sellers exchanged their Shares for an aggregate of
1,303,072 shares (including fees paid in connection therewith) of voting common
stock of the Purchaser ("Common Stock"); and

          WHEREAS, in order maintain the Purchaser's listing of its Common Stock
on The Nasdaq SmallCap Market ("Nasdaq Market"), certain of the shares of
Purchaser Common Stock issued to the Sellers must be returned to the Purchaser
until such time, if ever, as the Purchaser shall obtain the approval of its
stockholders for the reissuance of such shares.

          NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements hereinafter contained, the parties hereby agree as
follows:

     1. Sellers owning an aggregate of 866,988 shares of Purchaser Common Stock
(the "Returned Shares"), as set forth on Schedule A attached hereto, hereby
agree that within three business days of the date on which the Purchaser
receives notification from The Nasdaq Stock Market, Inc. ("Nasdaq") that the
terms of this Amendment are acceptable ("Nasdaq Notice") for the continued
inclusion of the Purchaser's Common Stock on the Nasdaq Market, or as soon as
practicable thereafter, such Sellers shall deliver duly endorsed certificates
representing the Returned Shares to the Purchaser for immediate cancellation.

     2. The Sellers further agree to relinquish all rights to receive additional
shares of the Purchaser's Common Stock as may have been required pursuant to the
terms of the Original Agreement, including but not limited to Section 2.3
thereof (the "Additional Shares").

     3. The Purchaser undertakes to use its best efforts to cause a preliminary
proxy statement to be filed with the Securities and Exchange Commission as soon
as practicable after the Nasdaq Notice, which includes a proposal for the

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approval by the Purchaser's stockholders of the issuance of shares of the
Purchaser's Common Stock as set forth in the Original Agreement (the
"Proposal"). The record date for voting on the Proposal will be January 25,
2000. The Purchaser further agrees to use its reasonable best efforts to have
such proposal approved by its stockholders.

     4. In the event the Proposal is approved by the Purchaser's stockholders,
the Purchaser agrees to reissue the Returned Shares to the Sellers, in the names
and amounts set forth on Schedule A, within three business days of the date of
stockholder approval. Furthermore, the Sellers shall be entitled to receive any
and all Additional Shares, as provided by the terms and conditions of the
Original Agreement.

     5. The Sellers agree and acknowledge that in the event the Proposal is not
approved by the Purchaser's stockholders, the Sellers will not receive any
additional shares of Purchaser Common Stock, cash or other consideration in
connection with the transactions contemplated by the Original Agreement, whether
or not the Purchaser continues to be listed on the Nasdaq Market.

     6. All other terms and conditions of the Original Agreement shall remain in
full force and effect. This Amendment shall be construed and interpreted in
accordance with the provisions of Section 11 of the Original Agreement.

          IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth above.

                          PROTOSOURCE CORPORATION

                          ------------------------------------------------------
                          By:  William Conis
                          Title: Chief Executive Officer

                          ANDREW, ALEXANDER, WISE & COMPANY, INC.

                          ------------------------------------------------------
                          By:
                          Title:

                                       2

<PAGE>

                          ------------------------------------------------------
                          Kent P. Spears

                          ------------------------------------------------------
                          Mark G. Blanchard

                          ------------------------------------------------------
                          Ted Triantafilu

                          ------------------------------------------------------
                          William Cawley

                          AS TO ESCROWED SHARES ONLY:

                          SOUTH OCEAN LLC

                          ------------------------------------------------------
                          By:  David Jennings

                          SHA CABLE HOLDINGS

                          ------------------------------------------------------
                          By:

                          ------------------------------------------------------
                          Virginia M. Blanchard

                          ------------------------------------------------------
                          Jeanne Jennings

                          ------------------------------------------------------
                          Mike Quale

                          ------------------------------------------------------
                          Jeff Beeko

                                       3

<PAGE>

                          ------------------------------------------------------
                          Glenn Viera

                          ------------------------------------------------------
                          Lisa Viera

                          ------------------------------------------------------
                          Troy Jones

                          ------------------------------------------------------
                          Rick Becker

                          ------------------------------------------------------
                          Robert Bradley

                          ------------------------------------------------------
                          Guy Ashley

                          ------------------------------------------------------
                          George Teichner

                          ------------------------------------------------------
                          Arthur Shinensky

                                       4

<PAGE>

                                   SCHEDULE A

Name                                        Shares
----                                        ------

Mark Blanchard                              335,657
Kent Spears                                 335,657
Ted Triantafilu                              63,562
Andrew, Alexander
   Wise & Co., Inc.                          31,184
Escrowed Shares                              61,949
William Cawley                               38,979

  Total                                     866,988

                                       5AGREEMENT

          THIS AGREEMENT is dated as of the 26th day of July, 2000 and is by and
between ROBERT N. ELKINS  ("Elkins"),  an individual with an address of 7583 Bay
Colony Road, Naples, Florida 34108, and INTEGRATED HEALTH SERVICES,  INC. ("IHS"
or the  "Company"),  a Delaware  corporation  with an address of 910  Ridgebrook
Road, Sparks, Maryland 21152, on behalf of itself and its subsidiaries,

          WHEREAS,  IHS and  affiliates are debtors and debtors in possession in
procedurally  consolidated  Chapter 11 cases (the "Case")  pending in the United
States  Bankruptcy Court for the District of Delaware (the "Court") (IHS and the
other  entities  who are  debtors  and  debtors  in  possession  in the Case are
sometimes collectively referred to as the "Debtors").

          WHEREAS,  Elkins and IHS are parties to an Employment  Agreement dated
as of January 1, 1994,  which was amended by Amendment No. 1 dated as of January
1, 1995, which was amended by Amendment No. 2 dated as of November 18, 1997, and
which was  supplemented by Supplemental  Agreement dated as of November 18, 1997
and Amendment  No. 1 to  Supplemental  Agreement  dated as of September 30, 1998
(collectively the "Employment Agreement"); and

          WHEREAS, Elkins is Chairman of the Board, Chief Executive Officer, and
President of IHS and is entitled to indemnity  from the Debtors  pursuant to the
Company's ByLaws, Certificate of Incorporation, and applicable law; and

          WHEREAS,  in  December  1997,  IHS sold an aircraft to RNE Skyview LLC
("Skyview"), a limited liability company in which Elkins is the sole member, and
simultaneously IHS and Skyview entered into an Aircraft Lease Agreement dated as
of December 12, 1997 (the "Aircraft Lease"),  which remains in force and effect;
and

<PAGE>

          WHEREAS,  IHS from time to time has advanced  Elkins money to purchase
stock in IHS, exercise stock options in IHS and pay taxes associated with option
exercise,  which  advances  are  memorialized  by the  documents  referred to in
Exhibit A (sometimes collectively referred to as the "Notes"); and

          WHEREAS, the Company maintains a primary policy of Directors, Officers
and  Corporate  Liability  insurance  with  National  Union  Fire  Ins.  Co.  of
Pittsburgh,  PA ("National  Union") (policy no.  858-35-56) (the "National Union
Primary  Policy"),  and excess policies with Zurich American  Insurance  Company
(policy no.  DOC202729302),  Gulf Insurance Company (policy no. GA0436277),  the
Chubb Group of Insurance  Companies (policy no.  7942-44-24-AKCO),  and National
Union  (policy  no.  858-35-55)  (said  insurance  policies,  together  with all
endorsements  through  the date  hereof,  collectively  referred  to as the "D&O
Policies"),  providing a total of $90 million in insurance coverage on the terms
and subject to the conditions set forth in the D&O Policies; and

          WHEREAS, as of February 1, 1998 IHS caused its wholly-owned subsidiary
Lyric  Health  Care LLC.  ("Lyric")  to sell a 50%  membership  interest  to TFN
Healthcare Investors, Inc. ("TFN"), an entity controlled by Timothy F. Nicholson
("Nicholson"), and Nicholson became Managing Director of Lyric; and

          WHEREAS,  as of December  31,  1998,  one or more of the Debtors  sold
twenty-seven (27) long term care facilities and five (5) specialty  hospitals to
Monarch  Properties,  LP  ("Monarch  LP") for  cash,  plus  contingent  earn out
payments.  As of March 25, 1999, the Company sold a nursing  facility to Monarch
Properties at Jacksonville, LLC ("Monarch Jacksonville"). Monarch LP and Monarch
Jacksonville leased those facilities to affiliates of

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<PAGE>

Lyric,  and an affiliate of IHS manages those  facilities  for Lyric pursuant to
management agreements (the "Management Agreements"); and

          WHEREAS, the Debtors after careful consideration,  have concluded that
entry into and performance of this Agreement  represents a sound exercise of the
Debtors' business judgment,  and is in the best interests of the Debtors,  their
estates and their Creditors; and

          WHEREAS,  the parties  intend this  Agreement to resolve,  among other
things,  all the Claims and causes of action  which  Elkins and the other Elkins
Released  Parties have or may have against the Debtors and all Equity  Interests
which the Elkins Released  Parties have in IHS,  including rights to purchase or
otherwise  acquire  stock in IHS, and to effect a total  termination  of Elkins'
interests in IHS and the other Debtors and their subsidiaries.

          NOW,  THEREFORE,   in  consideration  of  their  mutual  promises  and
covenants,  and intending to be legally  bound,  the parties  hereto  represent,
warrant, covenant and agree as follows:

          1.0 DEFINITIONS.  As used in this Agreement, the following capitalized
terms (not already  defined in the  Recitals  above) shall have the meanings set
forth below:

          1.1  "APPROVAL  ORDER"  means the Order of the Court  authorizing  the
Debtors to perform the transactions  contemplated by this Agreement, in form and
substance reasonably satisfactory to the parties.

                                       3
<PAGE>

          1.2  "AVOIDANCE  POWER  CAUSE OF ACTION"  means  rights  and  remedies
accruing  to or vested in the Debtors  pursuant  to Chapter 5 of the  Bankruptcy
Code, including 11 U.S.C. ss.ss. 544, 547, 548, 549, 550 or 553.

          1.3  "BANKRUPTCY  CODE" means the  Bankruptcy  Reform Act of 1978,  as
amended, and as codified in title 11 of the United States Code.

          1.4   "BANKRUPTCY   RULES"  means  the  Federal  Rules  of  Bankruptcy
Procedure.

          1.5 "BOARD" means the Board of Directors of IHS.

          1.6 "CLAIM" has the meaning set forth in 11 U.S.C.ss.101(5).

          1.7 "CLOSING" means the consummation of the transactions  contemplated
by this Agreement.

          1.8  "CLOSING   DATE"  means  the  date  on  which  the   transactions
contemplated  by this Agreement are  consummated,  and the Closing  occurs.

          1.9  "CLOSING  PAYMENT"  means the sum of  $1,494,000  in  immediately
available funds,  plus transfer of good and clear title to the Tangible Personal
Property..

          1.10 "COMMITTEE" means the Official  Committee of Unsecured  Creditors
duly appointed in the Case, as the same may be constituted from time to time.

          1.11 "COBRA" means the  Comprehensive  Omnibus  Budget  Reconciliation
Act.

          1.12  "CONSULTING  AGREEMENT"  means the Consulting  Agreement,  to be
entered  into  between  IHS and Elkins,  substantially  in the form of Exhibit B
annexed hereto.

          1.13  "CREDITOR"  means any  entity  with a claim  against  any of the
Debtors,  including  the holder of a Claim  arising from  ownership of an Equity
Security issued by any of the Debtors.

                                       4
<PAGE>

          1.14  "EFFECTIVE  DATE"  means  the date on  which  the  parties  have
executed  and  delivered  this  Agreement  and the  Committee  has  executed and
delivered to Elkins the letter agreement annexed hereto as Exhibit C.

          1.15 "ELKINS RELEASED PARTY" means Elkins,  his spouse,  his children,
his parents,  Skyview,  and those  Entities set forth on Schedule 1.15 which are
owned or controlled by Elkins, and their respective, successors, heirs, or legal
representatives.

          1.16 "ENTITY" has the meaning set forth in 11 U.S.C.ss.101(15).

          1.17   "EQUITY   SECURITY"   has  the   meaning   set   forth   in  11
U.S.C.ss.101(16).

          1.18 "FINAL  ORDER" means an order or judgment of the Court,  or other
court of competent  jurisdiction,  as entered on the docket of such court,  that
has not been  reversed  or  stayed,  and as to which  (a) the time to  appeal or
petition for  certiorari  has expired and no timely filed appeal or petition for
certiorari is pending,  or (b) any appeal taken or petition for certiorari filed
has been  resolved  by the  highest  court to which  the order or  judgment  was
appealed from or from which certiorari was sought.

          1.19 "INSURER" means the insurer under any of the D&O Policies.

          1.20 "LOSS" has the meaning set forth in the  National  Union  Primary
Policy.

          1.21  "MONARCH/LYRIC  RELEASED CLAIMS" means any Claim of the Debtors,
including any Avoidance Power Cause of Action,  against any of the Monarch/Lyric
Released  Parties seeking to unwind,  modify,  avoid or rescind the transactions
between any of the Debtors and the  Monarch/Lyric  Released Parties described in
the preamble to this Agreement, including any Claim to recover any property from
any Monarch/Lyric Released Party in connection with or related to any such Claim
to unwind, modify, avoid or rescind any such transaction;  provided, however, to
the extent any such Claim is based upon any written  contractual  obligations of
any

                                       5
<PAGE>

of the  Monarch/Lyric  Released Parties to any of the Debtors,  such Claim shall
not constitute a Monarch/Lyric Released Claim. Additionally, the Debtors' rights
under the Management  Agreements,  and any other agreements between or among the
Debtors  and the  Monarch/Lyric  Released  Parties  and the  Debtors'  rights to
receive any payments from any of the Monarch/Lyric  Released Parties pursuant to
any written  agreements  between the Debtors and any of such parties,  shall not
constitute a  Monarch/Lyric  Released  Claim,  and shall not be affected by this
Agreement.

          1.22 "MONARCH/LYRIC RELEASED PARTIES" means, collectively, Monarch LP,
Monarch Jacksonville,  the affiliates of Monarch LP and Monarch Jacksonville set
forth on Exhibit D hereto(the "Monarch Released Parties" or "Monarch Entities"),
Lyric, the affiliates of Lyric set forth on Exhibit E hereto,  TFN and Nicholson
(the "Lyric Released Parties" or "Lyric Entities").

          1.23 "PLAN" means any plan of reorganization for any of the Debtors.

          1.24  "RELEASED  CLAIMS"  means all Claims,  rights,  causes of action
(including  Avoidance Power Causes of Action),  notes, debts,  accounts payable,
rights of reimbursement or contribution,  demands, judgments, suits, matters and
issues, known or unknown, whether individual, class, derivative, representative,
legal,  equitable,  or any other type, or in any other capacity, of the Debtors,
in each case against an Elkins  Released  Party.  Released  Claims (i) shall not
include  Claims giving rise to a Loss arising from  Wrongful  Acts, it being the
express intent of the parties to this Agreement that the insurance available, if
any,  pursuant to the D&O Policies  shall be the sole source of recovery for any
Claims  of the  Debtors  which  do not  constitute  Released  Claims;  provided,
however,  a Claim  against  Elkins giving rise to a Loss arising from a Wrongful
Act shall  constitute  a  Released  Claim if the Loss  incurred  by Elkins  with
respect  thereto  exceeds the amount  actually paid by the Insurer under any D&O
Policy  (but  shall

                                       6
<PAGE>

constitute a Released Claim only for the amount of such excess);  (ii) shall not
include conduct by Elkins which constitutes criminal fraud, for which Elkins has
been  convicted by Final Order of a court of competent  jurisdiction;  and (iii)
shall not include  Elkins'  obligations  under this  Agreement,  including under
sections 8.2 and 8.3 hereof.  Notwithstanding  anything  contained herein to the
contrary,  Released  Claims shall not include  Claims,  if any, held by Entities
other than the  Debtors or their  estates,  including  Claims,  if any,  held by
Creditors.

          1.25 "RELEASEE" means any Entity receiving a Release hereunder.

          1.26  "RELEASOR"  means any  Entity  granting  a Release  of any other
Entity under this Agreement.

          1.27  "TANGIBLE  PERSONAL  PROPERTY"  means  those  items of  personal
property set forth on Exhibit F hereto.

          1.28  "WRONGFUL  ACT" has the meaning set forth in the National  Union
Primary Policy.

          1.29 OTHER  DEFINITIONS.  A term used and not defined herein, but that
is defined in the Bankruptcy Code, shall have the meaning set forth therein. The
words  "herein",  "hereof",  "hereto",  "hereunder" and others of similar import
refer  to  this  Agreement  as a  whole  and  not  to  any  particular  section,
subsection,  or  clause  in this  Agreement.  The word  "including"  shall  mean
"including,  without limitation." The singular shall include the plural and vice
versa, unless the context otherwise requires.

          2.0      REPRESENTATIONS AND WARRANTIES OF ELKINS.

          2.1 Elkins has the legal  capacity,  power and authority to enter into
and perform (and to cause Skyview to perform)  this  Agreement.  The  execution,
delivery and  performance  of this  Agreement  will not violate any agreement to
which he or  Skyview  is a party,  nor will it  violate  any  provision  of law,
ordinance or regulation to which he or Skyview is subject.

                                       7
<PAGE>

          2.2 All of his representations and warranties will be true and correct
as of the Closing Date.

          2.3 Elkins,  Skyview and the other  Elkins  Released  Parties will not
transfer,  sell,  assign  or  convey  any of  their  Claims  against  or  Equity
Securities issued by any of the Debtors prior to the Closing Date, and they will
not acquire any other Claims against or Equity  Securities  issued by any of the
Debtors.

          2.4 No attachment, execution, assignment for the benefit of creditors,
or voluntary or involuntary  proceedings in bankruptcy,  or actions  pursuant to
any other debtor relief laws are pending against Elkins or Skyview.

          2.5  Elkins  has  performed  such  investigation,  and  consulted  his
professional  advisors,  as he deems  necessary to allow him to make an informed
determination  concerning the merits of this Agreement, and has determined it to
be in his best interests.

          2.6 Elkins  represents  and warrants  that all  agreements  between or
among  the  Debtors  and  the  Monarch/Lyric  Released  Parties,  including  the
Management  Agreements,  are in full  force and  effect  (except  to the  extent
enforceability  may be limited by application  of the Bankruptcy  Code) and that
the  transactions  contemplated by this Agreement  (including the termination of
Elkins  employment  and status as an officer or director of any of the  Debtors)
will not adversely impact the Debtors' rights under such agreements, or give any
of the Monarch/Lyric Released Parties the right or ability to terminate,  cancel
or materially amend or modify any such agreements.

          3.0      REPRESENTATIONS AND WARRANTIES OF DEBTORS.

                                       8
<PAGE>

          3.1 Subject to entry of the Approval  Order;  (a) the Debtors have the
legal capacity, power and authority to perform the transactions  contemplated by
this  Agreement,  and  (b)  the  execution,  delivery  and  performance  of this
Agreement  will not violate any agreement to which the Debtors are a party,  nor
will it violate any provision of law,  ordinance or regulation to which they are
subject.

          3.2 All of  their  representations  and  warranties  will be true  and
correct as of the Closing Date.

          3.3 The Debtors will not transfer, sell, assign or convey any of their
Claims  against any Elkins  Released Party or any  Monarch/Lyric  Released Party
prior to the Closing  Date,  and they will not acquire any other Claims  against
any Elkins Released Party or Monarch/Lyric Released Party.

          3.4 The  Debtors  believe  that  entry  into and  performance  of this
Agreement represents a sound exercise of their business judgment,  and is in the
best interests of the Debtors, their estates and their Creditors.

          4.0      COVENANTS OF THE DEBTORS, AND ELKINS.

          4.1 Promptly after execution of this Agreement,  the Debtors will file
a Motion (the "Motion"),  in form and substance  satisfactory to the Debtors and
Elkins, for entry of the Approval Order.  Notice of the Motion will be served on
Creditors  and other  parties in interest,  in  accordance  with the  Bankruptcy
Rules,  or as otherwise  ordered by the Court.  Concurrently  with filing of the
Motion,  the  Debtors  will  apply to the  Court for an Order  (the  "Scheduling
Order")  fixing the  hearing  date on the  Motion  and the  parties to be served
therewith.  The Debtors will seek to have the Scheduling  Order provide that the
time for any Elkins Released Party to file

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<PAGE>

a proof of claim or interest  against any of the Debtors will be extended to and
including September 30, 2000.

          4.2 The Debtors will diligently  prosecute the Motion, the Debtors and
Elkins  will  submit  pleadings  and such other  evidence  as are  necessary  or
appropriate  to support  the  Motion,  and the Debtors and Elkins will use their
best efforts to obtain entry of the Approval Order.

          4.3 If the  Approval  Order is  entered,  the  Debtors and Elkins will
fully and  timely  perform  their  obligations  under this  Agreement,  and will
promptly close the transactions contemplated by this Agreement.

          4.4 Without Elkins written  consent,  which shall not be  unreasonably
withheld, the Debtors will not take any action (whether by way of application to
any court, pursuant to a Plan, or otherwise) (a) to vacate, amend or modify this
Agreement or the Approval  Order, or (b) to deprive any Elkins Released Party of
the benefits of this Agreement.

          4.5 The  Debtors  shall  not take any  action  to  redeem,  terminate,
reduce,  cancel or otherwise adversely affect the continuation or maintenance of
the D&O Policies,  (including seeking a premium refund,  reduction or recovery),
in a manner that would adversely  affect the rights of any Elkins Released Party
under this  Agreement  or under the D&O  Policies.  The  Debtors  shall take all
actions  reasonably  necessary to maintain and continue the D&O Policies in full
force and effect,  including the timely payment of all premiums due or to become
due.  Elkins shall have no liability for any Retention  amount (as defined under
the National Union Primary Policy). If and to the extent National Union contends
that  Elkins or the  Company  are  liable  for any  Retention  amount  under the
National Union Primary Policy,  the Company shall fully discharge and pay all of
such  Retention  amount.  The Debtors  shall pay any and all  Defense  Costs (as
defined in the National  Union  Primary  Policy)  reasonably  incurred by Elkins
within  thirty  (30) days of demand for  payment,  and will be entitled to claim
Elkins'  rights of  reimbursement

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<PAGE>

from the Insurer under any D&O Policy for all such Defense Costs  actually paid.
In the event any Insurer  refuses to reimburse  Defense Costs,  which refusal is
sustained as proper by a final judgment of a court of competent  jurisdiction in
an action in which Elkins had adequate  notice and an opportunity to be heard on
the issue,  then Elkins shall  promptly  refund to IHS any Defense Costs paid to
him by the Debtors but not reimbursed to the Debtors by such Insurer.

          4.6 As of the Closing, and for a period of 20 days thereafter, Elkins'
personal  assistant,  Laura  Stouffer,  shall be entitled to resign her position
with the Company.  If she elects to do so, then within ten days after receipt of
notice of such  election  from Ms.  Stouffer,  (a) the Debtors  will execute and
deliver to Ms. Stouffer a general release of all Claims against her, if any, and
will pay Ms. Stouffer the sum of $35,000 in full settlement and  satisfaction of
all her Claims  against  the  Company,  and (b) Ms.  Stouffer  will  execute and
deliver to the  Company a general  release of all  Claims,  if any,  against the
Debtors held by her.

          4.7 The  Debtors  will not take any  action  to  affect  the  Tangible
Personal Property prior to Closing, without the prior written consent of Elkins.

          4.8 The  Debtors  and  Elkins  agree  that the  Approval  Order  shall
authorize the Committee to execute and perform the letter  agreement  annexed as
Exhibit  C and  shall  also  contain  decretal  paragraphs  effective  upon  the
occurrence of the Closing that will provide:

                   (a) The  Debtors and all  Entities  are  permanently  barred,
enjoined and restrained from  commencing,  prosecuting or asserting any Released
Claim against any of the Elkins  Released  Parties,  in any court,  arbitration,
administrative  agency or forum,  or in any other manner,  and that all Released
Claims against any of the Elkins Released Parties are extinguished,  discharged,
satisfied and unenforceable. The Elkins Released Parties are permanently barred,
enjoined and  restrained  from  commencing,  prosecuting or asserting any Claims
against the

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<PAGE>

Debtors in any court,  arbitration,  administrative  agency or forum,  or in any
other manner, which have been released under this Agreement, and all such Claims
against the Debtors are extinguished, discharged, satisfied and unenforceable.

                   (b) The  Debtors and all  Entities  are  permanently  barred,
enjoined  and  restrained   from   commencing,   prosecuting  or  asserting  any
Monarch/Lyric  Released Claim against the Monarch/Lyric Released Parties, in any
court, arbitration,  administrative agency or forum, or in any other manner, and
that all Monarch/Lyric Released Claims are extinguished,  discharged,  satisfied
and unenforceable.

                   (c) To the extent any Debtor sues an Entity and in connection
with such suit such Entity  asserts a claim for  contribution,  indemnification,
recovery of loss or potential loss, or otherwise,  however denominated,  arising
under state or federal law,  including  claims  based upon tort or contract,  as
direct claims,  crossclaims,  counterclaims  or third party claims in any court,
arbitration,  administrative  agency  or forum or in any  other  manner  (each a
"Contribution Claim" and collectively  "Contribution Claims") against any Elkins
Released Party or Monarch/Lyric  Released Party which  Contribution Claim is not
precluded by the Approval  Order,  then such Debtor,  shall  automatically,  and
without any further act on the part of any party,  credit  against or reduce the
amount of any  judgment it may obtain  against such Entity by an amount equal to
the amount as is  determined  by trial or  otherwise  in a Final Order to be the
amount  due to such  Entity  from such  Elkins  Released  Party in excess of any
amounts  payable  by any  Insurer  under any of the D&O  Policies,  or from such
Monarch/Lyric  Released  Party,  by  reason  of  such  Entity's

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assertion  of a  Contribution  Claim  against  such  Elkins  Released  Party  or
Monarch/Lyric Released Party.

          (d) For  termination  of the  Aircraft  Lease as of the Closing  Date,
releasing  and  discharging  all  Claims  held  by  Skyview  arising  from  such
termination,  and providing that IHS shall pay Skyview all normal lease payments
due pursuant to the Aircraft Lease through the Closing Date.

          4.9 After the  Closing  Date,  the Debtors  will not seek,  request or
demand,  with or  without  formal  legal  process,  any  discovery,  records  or
information,  pursuant to the  Bankruptcy  Rules or  otherwise,  from any Elkins
Released Party directly relating to any Released Claim.  After the Closing Date,
Elkins  will  respond  promptly  to  reasonable  requests  by  the  Debtors  for
information with respect to other matters.

          4.10 To the extent the Debtors  seek to include in a Plan  exoneration
of,  indemnity for, or a release of Claims against any of the debtors'  officers
or  directors,  then the  Debtors  shall use their  reasonable  efforts to cause
Elkins to receive  the  benefits  of such  exoneration,  indemnity  or  release;
provided, however, that any such release shall not include Claims giving rise to
a Loss  arising  from  Wrongful  Acts,  unless the Loss  incurred by Elkins with
respect  thereto  exceeds the amount  actually paid by the Insurer under any D&O
Policy,  but such release shall apply only to the amount of such excess.  To the
extent the Debtors apply to any court for an injunction against the commencement
or  continuation  of any action against any of their  officers or directors,  in
which Elkins is  threatened  to be named or is a named party,  the Debtors shall
use their  reasonable  efforts to cause  Elkins to receive  the  benefits of any
injunction which may be sought or issued.

                                       13
<PAGE>

          4.11  Elkins  and  Laura  Stouffer  (in  the  event  she  resigns  her
employment with IHS after the Closing Date) shall be entitled to continuation of
their existing  health  insurance  benefits for a period of eighteen (18) months
after  the  Closing  Date,  in  accordance  with  COBRA,  and the  costs of such
continued benefits will be paid by the Company.

          4.12 Elkins shall vacate his office at the Company's Sparks,  Maryland
headquarters  no later than the Closing  Date.  The Debtors will provide  Elkins
with  reasonable  access to their business  records and accounting  personnel on
reasonable advance notice for purposes of facilitating his filing of tax returns
and compliance with this Agreement.

          5.0      CLOSING CONDITIONS.

          5.1 Conditions to Obligation of Each Party to Effect the Closing.  The
respective  obligations  of each party to effect the Closing shall be subject to
the  fulfillment  at or  prior  to the  Closing  Date of  each of the  following
conditions:

                   (a)  The Approval Order has been entered.

                   (b)  No   restraining   order,   preliminary   or   permanent
injunction,  or  other  order  issued  by any  court of  competent  jurisdiction
prohibiting the consummation of the transactions contemplated hereby shall be in
effect.

          5.2 Additional Conditions to Obligations of Elkins. The obligations of
Elkins to effect the Closing are also subject to the following  conditions  (any
one or more of which may be waived by Elkins in a writing signed by him).

(a) Each of the  representations  and warranties of the Debtors set forth herein
shall be true and correct,  individually  and in the aggregate,  in all material
respects.

                                       14
<PAGE>

                   (b) The  Debtors  shall have  performed  or  complied  in all
material  respects with all of their agreements and covenants  contained in this
Agreement,  to be  performed  or complied  with by any one or more of them at or
prior to the Closing Date.

                   (c) The Approval Order has become a Final Order.

                   (d) The Committee is not in default of its obligations  under
Exhibit C.

          5.3 Additional  Conditions to Obligations of Debtors.  The obligations
of the  Debtors  to  effect  the  Closing  are  also  subject  to the  following
conditions (any one or more of which may be waived by Debtors and Committee in a
writing signed by both of them).

                   (a) Each of the  representations and warranties of Elkins set
forth herein shall be true and correct,  individually  and in the aggregate,  in
all material respects.

                   (b) Elkins  shall have  performed or complied in all material
respects with all of his agreements and covenants  contained in this  Agreement,
to be performed or complied with by him at or prior to the Closing Date.

                   (c) The Approval Order has become a Final Order.

          6.0      THE CLOSING.

          6.1 The  Closing  will  occur  on a date  and at a  location  mutually
agreeable  to the parties,  within three  business  days after  satisfaction  or
waiver of all conditions to Closing.

          6.2 At the Closing, Elkins and/or Skyview shall execute and deliver to
the Debtors the following:

                   (a) Written resignations by Elkins of all of his positions as
an officer or director of any of the Debtors, effective as of the Closing Date.

                                       15
<PAGE>

                   (b) An instrument effective to transfer and convey to IHS all
of Elkins'  common  stock,  and rights to acquire  common  stock or other equity
interests in IHS.

                   (c)  The Consulting Agreement.

                   (d)  Documents   executed  by  the  Elkins  Released  Parties
providing  for the releases  granted by such parties  under  Section 7.1 of this
Agreement.

          6.3 At the Closing, the Debtors shall execute,  deliver or transfer to
Elkins all of the  following,  free and clear of any and all  liens,  claims and
encumbrances:

                   (a) The Closing Payment (which shall constitute prepayment in
full by the  Debtors  of all  considerations  due  Elkins  under the  Consulting
Agreement).

                   (b) The Notes.

                   (c) The Consulting Agreement.

          6.4 At Closing, IHS shall pay directly to the federal, and appropriate
state and local  taxing  authorities  for the  account of Elkins  the  following
amounts:

                   (i) to the Internal Revenue Service,  an amount equal to: (a)
1.389  multiplied  by (b) twenty eight percent (28%) of the sum of (x) the total
amount of  outstanding  principal  plus interest  accrued on the Notes as of the
Closing Date, (y) all principal and interest forgiven on the Notes since January
1, 2000 (the sum of clauses (x) and (y) in this subsection referred to herein as
the "Released  Amount"),  and (z) amounts payable  pursuant to Sections 6.4 (ii)
and (iii) (to the extent applicable).

                   (ii) to the  appropriate  state  and local  taxing  authority
which  imposes a tax on all or any part of Elkins'  income:  the amount which is
required under  applicable state or local law to be withheld by IHS and remitted
to such taxing authority based upon the Released Amount, and any federal,  state
or local tax payment, being treated as employee compensation to Elkins as of

                                       16
<PAGE>

the Closing,  grossed up for any additional state or local withholding taxes due
on any amounts payable pursuant to this Section 6.4..

                   (iii) to the applicable taxing  authorities:  all employment,
excise and payroll taxes imposed on Elkins or IHS by any federal, state or local
taxing  authorities on account of Elkins'  constructive  receipt of the Released
Amount or of any of the payments to be made by IHS pursuant to this Section 6.4.

          Both IHS and Elkins shall treat and report the Released Amount and all
amounts payable under Section 6.4 (i), (ii) and (iii) (to the extent applicable)
as employee compensation to Elkins subject to withholding for all tax purposes.

          7.0      RELEASES; COVENANTS NOT TO SUE; INDEMNITY.

          7.1 As of the conclusion of the Closing,  and without the need for any
further act by any party,  and without a separate  release being  executed:  (i)
Elkins,  Skyview and the other Elkins Released  Parties shall be deemed to have,
and shall have, fully, finally and forever released, relinquished and discharged
all  Claims  that  they   individually  or   collectively,   whether   directly,
representatively,  derivatively or in any other capacity, ever had, now have, or
hereafter  can,  shall or may have against the Debtors;  (ii) the Debtors  shall
have,  and  shall  be  deemed  to have  fully,  finally  and  forever  released,
relinquished and discharged all Elkins Released Parties from all Released Claims
that they  individually or  collectively,  whether  directly,  representatively,
derivatively  or in any other  capacity,  ever had, now have, or hereafter  can,
shall or may have ; (iii) the Debtors  shall  have,  and shall be deemed to have
fully,   finally  and  forever   released,   relinquished   and  discharged  all
Monarch/Lyric  Released Parties from all Monarch/Lyric Released Claims; and (iv)
the Elkins  Released  Parties  shall  have,  and shall be

                                       17
<PAGE>

deemed to have fully, finally and forever released,  relinquished and discharged
all present or former  members of the Board of Directors of the Debtors from any
Claims  they may hold  against  such  persons  arising  from the service by such
persons on the Debtors' Boards of Directors.  Nothing  contained herein shall be
deemed to constitute a release, waiver or discharge of any Entity's rights under
this Agreement.

          7.2 Each Releasor hereby expressly agrees that it waives and releases,
with respect to the Claims to be released by it pursuant to this Agreement,  any
and all provisions,  rights and benefits conferred either (i) by ss. 1542 of the
California Civil Code, which reads: "A general release does not extend to claims
which the creditor does not know or suspect to exist in his favor at the time of
executing the release,  which if known by him must have materially  affected his
settlement with the debtor," or (ii) by any law of any state or territory of the
United  States,  or principle  of common law,  which is similar,  comparable  or
equivalent to ss. 1542 of the California Civil Code.

          7.3 Each Releasor hereby  covenants and agrees not to bring,  commence
or institute any action,  proceeding or claim in any court,  arbitration  panel,
agency or other tribunal  against any Releasee  seeking to recover on the Claims
released pursuant to the provisions of this Agreement.

          7.4 The Debtors shall indemnify the Elkins  Released  Parties and hold
them harmless from all loss,  cost or expense,  including  reasonable  attorneys
fees,  which any of them may  incur or suffer  arising  from or  related  to the
prosecution by any Entity,  including the Debtors, the Committee,  any Creditor,
any trustee for any of the Debtors who may be  appointed  or elected in the Case
or in any superseding case under Chapter 7 of the Bankruptcy Code for any of the

                                       18
<PAGE>

Debtors, or any successor of the Debtors,  against any one or more of the Elkins
Released Parties of any of the Released Claims.

          8.0      EMPLOYMENT AGREEMENT, NON-COMPETITION, NON-SOLICITATION

          8.1 Elkins'  Employment  Agreement shall be deemed terminated with the
consent of the parties as of conclusion of the Closing. IHS shall pay Elkins all
amounts  earned by and due to him under his  Employment  Agreement  for  salary,
benefits,  and  reimbursement  of his ordinary and necessary  business  expenses
through the Closing Date . The terms and  conditions  and all  provisions of the
Employment  Agreement  shall be deemed  terminated,  canceled  and of no further
force and effect as of the  conclusion  of the  Closing,  with the  exception of
Article  4.1  thereof.  No  party to the  Employment  Agreement  shall  have any
continuing  rights or  obligations  under  the  Employment  Agreement  after the
Closing, except with respect to Article 4.1 of such agreement.

          8.2 Beginning on the first day after the Closing Date,  and continuing
for a period of one year  thereafter,  and so long as no  default on the part of
the  Debtors,  or of  the  Committee  under  Exhibit  C,  has  occurred  and  is
continuing,  Elkins agrees that he will not, without the express written consent
of IHS and the Committee (if the Committee is still in  existence),  directly or
indirectly,  for  himself  or on behalf of any other  person,  (i)  solicit  for
employment,  or recommend that any subsequent employer of Elkins seek to employ,
any person who, at the time of such solicitation or recommendation,  is employed
by any of the Debtors;  (ii) solicit,  or endeavor to entice away, or direct any
other Entity to solicit or endeavor to entice away,  any customer of the Debtors
who, at the time of such  solicitation,  diversion  or  enticement,  is known by
Elkins to be a customer of any of the Debtors ; or (iii)  except for Monarch LP,
Monarch

                                       19
<PAGE>

Jacksonville,  and the  affiliates  of Monarch LP and Monarch  Jacksonville  set
forth on  Exhibit  D hereto  (the  "Monarch  Entities"),  be  employed  by, be a
director,  officer or manager of, act as a consultant for, be a partner in, have
a material  proprietary  interest in, or otherwise render material assistance to
any Entity that then derives 5% or more of its consolidated  gross revenues from
(a)  operating or managing  subacute  healthcare  facilities,  or (b)  providing
oxygen or  durable  medical  equipment  in the home in a manner  similar  to the
current business  operations of the Company's Rotech Medical  subsidiaries  (the
"Rotech  Business")  (any  such  Entity  being  hereinafter  referred  to  as  a
"Competitor"). This provision shall not be construed to prohibit Elkins from (a)
acting as an employee, member, manager, officer, director, or consultant for, or
owning more than 10% of, the outstanding  voting shares of the equity securities
of the  Monarch  Entities;  or (b)  owning up to 10% of the  outstanding  voting
shares of the equity  securities of any company whose  securities are listed for
trading on any national securities exchange, or (c) serving as a director of any
company  which is not  directly in the  business of  operating  or managing  any
subacute  healthcare  facility or in the Rotech Business,  or (d) being employed
by, acting as an officer or director of, investing in or rendering  services to,
any  subsidiary  or division of a Competitor  so long as (A) such  subsidiary or
division does not itself  compete  directly with the Debtors in the operation or
management of any subacute healthcare facilities, or in the Rotech Business, and
(B) Elkins  has no  duties,  responsibilities  or  investment  in respect of any
portion of the business of the  Competitor  that does compete  directly with the
Debtors in any  subacute  healthcare  market or in the Rotech  Business;  or (e)
investing in, owning shares or interests in, or acting as an officer,  director,
employee,  member, manager or consultant for any Entity which acquires assets or
properties  from any of the Debtors and which  after such  acquisition  is not a
Competitor;  or (f)  acting  as an  investor,  consultant,  employee,  director,

                                       20
<PAGE>

member,  manager, or in any other capacity in a company which provides advice to
Entities (other than a Competitor)  undergoing the restructuring of their assets
and liabilities; or (g) acting as in investor,  consultant,  employee, director,
member, manager or in any other capacity in respect of any Entity which is not a
Competitor  of the Debtors  and sells,  leases,  or  otherwise  provides  goods,
services, personnel,  equipment or products of any kind to any of the Debtors or
to any other Entity in the ordinary  course of business on arms length terms and
conditions.

          8.3  Elkins  agrees  to hold all  Trade  Secrets  (as  defined  in his
Employment Agreement) in confidence and to not discuss,  communicate or transmit
to others,  or make any  unauthorized  use of the Trade Secrets in any capacity,
position or business;  provided, however, nothing contained herein or in Article
4.1 of the Employment  Agreement  shall preclude Elkins from using Trade Secrets
in connection  with the  acquisition by Elkins or his affiliate of any assets or
properties from any of the Debtors.

          9.0      DEFAULT, REMEDIES

          9.1      A default hereunder shall include any of the following:

                   (a) Any promise, covenant,  representation or warranty by any
party hereto  contained  herein shall prove to be  materially  false,  untrue or
incorrect when made, or shall contain a material omission,  the absence of which
renders  said   representation,   warranty,   promise  or  covenant   materially
misleading.

                   (b) Any party  shall fail to timely and fully  perform any of
its obligations,  promises,  representations,  warranties or covenants set forth
herein.  If the  Committee  defaults on its  obligations  under  Exhibit C, such
default shall constitute a default hereunder by the Debtors.

          9.2 If a  default  shall  occur  and if such  default  shall  continue
unremedied  for a period of ten (10) days after notice thereof has been provided
to the defaulting  party and to the Committee,  the  non-defaulting  party shall
have and may exercise all rights available to it at law or equity.

                                       21
<PAGE>

          9.3 Because of the difficulty in ascertaining the damages which may be
suffered by the Debtors if Elkins  breaches  the  provisions  of sections 8.2 or
8.3,  Elkins agrees that  equitable  relief,  including a temporary or permanent
injunction, is proper to redress his actual or threatened breach of sections 8.2
or 8.3 of this Agreement.

          9.4 In any action to enforce the  provisions  of this  Agreement,  the
prevailing  party  shall be entitled to recover  from the  defaulting  party the
prevailing  party's  actual costs of enforcement  of this  Agreement,  including
attorneys fees and other costs of suit.

          9.5 If the Approval  Order has not been entered by August 25, 2000, or
if the Closing Date has not  occurred by  September  30, 2000 (or, in each case,
such later date or dates as may be agreed  upon by the  Debtors,  Elkins and the
Committee),  then either the  Debtors,  Elkins or the  Committee  shall have the
right to terminate this Agreement (and the letter agreement substantially in the
form of Exhibit C) which termination shall occur  automatically  upon the giving
of notice of such termination to the other parties in accordance with the notice
provisions  hereof. A party that is in default shall not be entitled to elect to
terminate  this  Agreement  or Exhibit C based upon the failure of the  Approval
Order to be entered or the Closing Date to occur by the dates set forth above in
this  Section  9.5 (or such later  dates as may be agreed  upon by the  Debtors,
Elkins and the Committee).

          10.  EFFECTIVE  DATE This  Agreement  shall take effect,  and shall be
binding and enforceable, on and after the Effective Date.

          11. FURTHER  ASSURANCES.  The  obligations of the parties require that
they employ their good faith and best efforts in effectuating and fulfilling the
obligations contemplated

                                       22
<PAGE>

hereunder.  In furtherance  thereof,  the parties agree at any time from time to
time to execute any and all documents  reasonably requested by the other parties
to carry out and further the intent of this Agreement.

          12.  ACTIONS AT CLOSING TO BE CONCURRENT  All  proceedings to be taken
and  all  documents  to  be  executed  and  delivered  in  connection  with  the
consummation  of the  transactions  contemplated  hereby shall be deemed to have
been taken and executed simultaneously,  and no proceeding shall be deemed taken
or any documents delivered until all have been taken and delivered.

          13.  GOVERNING LAW;  CONSENT TO  JURISDICTION  This Agreement shall be
construed and enforced in accordance with the laws of the State of Delaware. The
parties consent to the  jurisdiction of the Court in all actions to enforce this
Agreement  until  the Case is  closed or  dismissed;  thereafter,  the state and
federal courts of Delaware shall have jurisdiction to enforce this Agreement.

          14.  COUNTERPART  EXECUTION  This  Agreement may be executed in one or
more  counterparts,  each of which shall be deemed an original.  It shall not be
necessary in making proof of this  Agreement to produce or account for more than
one such counterpart.

          15.  INTEGRATION  This is the entire  agreement  of the  parties  with
respect  to the  subject  matter  hereof.  There  are no other  oral or  written
understandings,  terms or  conditions  not contained in this  Agreement,  and no
party has relied upon any  representation  or  warranty  not  contained  in this
Agreement. Exhibits are an integral part of this Agreement.

          16.  CONSTRUCTION  OF AGREEMENT AND DOCUMENTS The parties hereto agree
that the terms and language of this  Agreement  were the result of  negotiations
between  the  parties  and,  as a result,  there  shall be no  presumption  that
ambiguities,  if any, in this Agreement shall be

                                       23
<PAGE>

resolved against either party; further, any controversy over the construction of
this  Agreement  shall be  decided  without  regard to events of  authorship  or
negotiation.

          17. AMENDMENT, WAIVER No consent or waiver, express or implied, by any
party to any  breach  hereof  shall be deemed or  construed  to be a consent  or
waiver to a breach hereof at any other time. No failure or delay of any party in
enforcing  any remedy for default  hereunder  shall  constitute a waiver of that
party's  right to enforce  such  remedy.  This  Agreement  may not be changed or
modified  except by a writing  signed by all  parties  and  consented  to by the
Committee.

          18. SUCCESSORS BOUND This Agreement is binding upon and shall inure to
the benefit of the parties hereto and their  respective  heirs,  administrators,
legal representatives, successors and assigns.

          19.  CONSIDERATION  This  Agreement is entered  into without  force or
duress,  in the free will of the  parties,  and on  account  of the  receipt  of
consideration.  All parties  acknowledge  that they have not  entered  into this
Agreement in reliance upon any  inducement  or promise not  otherwise  contained
herein.  The parties have consulted  extensively with their  respective  counsel
regarding the terms of this Agreement and the Exhibits  hereto.  The decision of
the parties to execute  this  Agreement  and the  Exhibits  is a fully  informed
decision, and the parties are aware of all legal and other ramifications of such
decision.

          20.  HEADINGS  Headings,  titles and captions  preceding  the sections
hereof  are  provided  for  convenience  of  reference  and shall not be used to
explain or to restrict the meaning,  purpose or effect of any provision to which
they refer.

                                       24
<PAGE>

          21. ADMISSIBILITY OF THE AGREEMENT After the Effective Date, the terms
of this  Agreement  shall be fully  admissible in any court.  The parties hereto
waive any objection  that may be interposed  under any state or federal rules of
evidence as to the admissibility of this document.

          22. NO THIRD  PARTY  RIGHTS  Except for rights  accruing to the Elkins
Released Parties and Monarch/Lyric Released Parties, it is not the intent of the
parties who are signatories to this Agreement to grant any rights  whatsoever to
parties who are not  signatories  to this  Agreement,  and no  provision of this
Agreement  should be  construed  to grant  any  rights to any party who is not a
signatory hereto.

          23. NO ADMISSION Nothing contained in this Agreement, or in any of the
negotiations  leading up to the making of this Agreement,  shall be construed as
an admission of any sort whatsoever by any party to this Agreement.

          24.  NOTICES  Notice of any event as to which  notice may be  required
hereunder  shall be given in writing by certified  mail,  by  overnight  courier
service, or by hand delivery, to each of the parties at the following addresses,
and shall be effective  three days after mailing or one day after delivery to an
overnight courier service, or upon receipt if delivered by hand:

                   25.1     If to Robert N. Elkins
                            7583 Bay Colony Road
                            Naples, Florida 34108

                   25.2     If to the Debtors:
                            Integrated Health Services, Inc.
                            910 Ridgebrook Road
                            Sparks, Maryland 21152
                            Attention:  General Counsel

                            With a copy (until the effective date of a Plan) to:
                            Kaye Scholer Fierman Hays & Handler LLP
                            425 Park Avenue
                            New York, New York 10022
                            Attention: Michael J.Crames

                                       25
<PAGE>

                   Any  notice to be given to or by the  Debtors  shall  also be
given to counsel to the Committee at the address set forth on Exhibit C hereto.

          IN WITNESS  WHEREOF,  the parties  hereto have executed this Agreement
the day and the year first above written.

          WITNESS OR ATTEST:

-----------------------------                  ------------------------------
                                                        ROBERT N. ELKINS

                                               RNE SKYVIEW, LLC

                                               By:____________________________

                                               INTEGRATED HEALTH SERVICES, INC.

_______________________________                By:____________________________

                                       26

<PAGE>

                          AMENDMENT NO. 1 TO AGREEMENT

          THIS AMENDMENT NO. 1 TO AGREEMENT  (THE "AMENDED  AGREEMENT") is dated
as of  the  day  of  October,  2000  and  is by and  between  ROBERT  N.  ELKINS
("Elkins"),  an  individual  with an address of 7583 Bay  Colony  Road,  Naples,
Florida 34108, and INTEGRATED HEALTH SERVICES, INC. ("IHS" or the "Company"),  a
Delaware  corporation with an address of 910 Ridgebrook Road,  Sparks,  Maryland
21152, on behalf of itself and its subsidiaries,

          WHEREAS,  IHS and Elkins are parties to an Agreement  dated as of July
26, 2000 (the  "Agreement"),  and the parties wish to amend the Agreement on the
terms and subject to the conditions set forth herein, and

          WHEREAS,  on July 27, 2000 the Debtors filed a motion seeking entry of
an Order of the Court  approving the Agreement and  authorizing  consummation of
the  transactions  contemplated  thereby  (the "  Motion"),  and duly served the
Motion in  compliance  with the Court's Order  Limiting and  Approving  Form and
Manner of Notice.  The only objections which were filed and served in opposition
to the  Motion  are set  forth on  Schedule  1. The  hearing  on the  Motion  is
presently scheduled for November 17, 2000, and

          WHEREAS, since the filing of the Motion, the parties and the Committee
have  entered  into a series of  Stipulations,  which have been  approved by the
Court,  extending the dates for (i) entry of the Approval  Order to November 30,
2000,  and (ii)  Closing and for the Elkins  Released  Parties to file proofs of
claims or interests in the Cases to December 14, 2000, and

          WHEREAS,  as of December  31,  1998,  one or more of the Debtors  sold
twenty-seven (27) long term care facilities and five (5) specialty  hospitals to
Monarch Properties,  LP ("Monarch LP") a subsidiary of Monarch  Properties,  LLC
("Monarch LLC") for cash,  plus

<PAGE>

contingent  earn out payments.  As of March 25, 1999, the Company sold a nursing
facility to Monarch Properties at Jacksonville, LLC ("Monarch Jacksonville"),  a
subsidiary of Monarch Advisory Group, LLC ("MAG"); and

          WHEREAS,  Elkins  is  the  Chairman  and  manager  of  the  Management
Committee  and a member of Monarch LLC and MAG and jointly  with his wife owns a
membership  interest in the  Monarch  Entities as set forth on Exhibit A annexed
hereto, subject to the terms and conditions set forth in the existing agreements
governing  membership  interests in, and  borrowings  by, the Monarch  Entities,
including  the  Operating  Agreements  of Monarch LLC and MAG,  (such  ownership
interest is referred to herein as "Elkins Monarch  Interest" and such agreements
are referred to herein as the "Monarch Agreements"), and

          WHEREAS, the Debtors after careful consideration,  have concluded that
entry into and performance of this amendment to the Agreement represents a sound
exercise of the Debtors' business judgment,  and is in the best interests of the
Debtors, their estates and their Creditors;

          NOW,  THEREFORE,   in  consideration  of  their  mutual  promises  and
covenants,  and intending to be legally bound, the parties hereto agree to amend
and modify the Agreement as follows:

          1.0 Amendments to Section 1.0 DEFINITIONS.  The following  definitions
as contained in the Agreement are hereby amended and modified.

          1.1 The  definition of "CLOSING  PAYMENT"  contained in Section 1.9 of
the Agreement is hereby amended to provide as follows:  "CLOSING  PAYMENT" means
the sum of $1,494,000 in immediately available funds."

          1.2 The  definition of  "MONARCH/LYRIC  RELEASED  CLAIMS" set forth in
Section 1.21 of the Agreement is eliminated from the Agreement.

                                       2
<PAGE>

          1.3  Former  Section  1.21 is  eliminated  from the  Agreement  and is
replaced with a new Section 1.21 to provide as follows:  "1.21 "LYRIC  ENTITIES"
means,  collectively,  Lyric,  the  affiliates  of Lyric set forth on  Exhibit E
hereto, TFN and Nicholson."

          1.4 Section  1.22 of the  Agreement is amended and restated to provide
as follows:  "1.22 "MONARCH  ENTITIES"  means,  collectively,  Monarch LLC, MAG,
Monarch LP, Monarch  Jacksonville,  and the affiliates of Monarch LP and Monarch
Jacksonville set forth on Exhibit D hereto."

          1.5 Section 1.27 of the Agreement is  eliminated  and is replaced with
the following: "1.27 Intentionally Omitted."

          2.0  Amendments  to Section  2.0  REPRESENTATIONS  AND  WARRANTIES  OF
ELKINS.

          2.1 Section 2.6 of the  Agreement is deleted and is replaced  with new
Section 2.6 which shall provide as follows:

          "2.6 Elkins  represents and warrants (which  representation  as to the
Lyric Entities is based upon  representations made to him by the duly authorized
officers of the Lyric Entities) that all agreements between or among the Debtors
and the  Monarch  Entities  and the Lyric  Entities,  including  the  Management
Agreements,  are in full force and effect  (except to the extent  enforceability
may be limited by application of the Bankruptcy  Code) and that the transactions
contemplated by this Agreement  (including the termination of Elkins  employment
and status as an officer or director of any of the Debtors)  will not  adversely
impact the  Debtors'  rights under such  agreements,  or give any of the Monarch
Entities  or Lyric  Entities  the  right or  ability  to  terminate,  cancel  or
materially amend or modify any such agreements."

                                       3
<PAGE>

          2.2 New  Section  2.7 and 2.8 are added to the  Agreement  as follows:
"2.7 The Aircraft Lease was duly terminated in accordance with the Consent Order
Terminating  Lease  entered  in the  Case on or  about  October  12,  2000.  All
references to  termination  of the Aircraft  Lease in the Approval  Order may be
deleted. Elkins represents and warrants that in connection with such termination
and  otherwise,  no Elkins  Released  Party has  received  or will  receive  any
distribution  of cash,  securities  or other  property,  except  as set forth in
exhibits to the Consent Order Terminating Lease."

          "2.8 Elkins represents that the only property of the Company in Elkins
possession  is set forth on Exhibit B to Amendment  No. 1 to  Agreement.  Elkins
will take no action to  adversely  affect  any  property  of the  Company in his
possession,  and will deliver all property of the Company in his  possession  to
the Company at or within 14 days of Closing.  At the  Closing,  the Company will
obtain all  appropriate  insurance  for its  interest in all of the  property on
Exhibit B."

          3.0  Amendments  to Section  3.0  REPRESENTATIONS  AND  WARRANTIES  OF
DEBTORS.

          3.1 Section 3.3 of the  Agreement is amended to delete  references  to
"Monarch/Lyric Released Party".

          4.0 Amendments to Section 4.0 COVENANTS OF THE DEBTORS, AND ELKINS.

          4.1 Section 4.7 of the  Agreement is deleted and is replaced  with the
following new Section 4.7:

                   "4.7 At  Closing,  Elkins and his spouse  shall  execute  and
deliver  such  documents  and  instruments  in  form  and  substance  reasonably
satisfactory  to the  Debtors,

                                       4
<PAGE>

effective  to grant to IHS or its  designee  the  option to  acquire  the Elkins
Monarch Interest or the proceeds thereof (the "Monarch  Interest  Option").  The
term of the Monarch Interest Option shall commence on the Closing Date and shall
expire  on the  effective  date of a Plan.  The  exercise  price of the  Monarch
Interest  Option  shall be $1.00.  Elkins and his spouse  shall not  voluntarily
transfer,  convey, encumber, or hypothecate the Elkins Monarch Interest from the
date hereof until the expiry of the Monarch Interest Option.  Elkins  represents
and  warrants  that there are no security  interests  in, or liens on the Elkins
Monarch Interest, and that there is no Entity that has any superior rights in or
to the Elkins Monarch Interest.  Elkins further represents and warrants that (a)
he and his spouse have the right and  authority  to grant the  Monarch  Interest
Option as provided  herein ( subject to the terms and  conditions of the Monarch
Agreements)  and (b) except to the  extent,  if any,  precluded  by the  Monarch
Agreements,  he is aware of no reason why IHS  cannot  succeed to all of Elkins'
and his  spouse's  rights in and to the Elkins  Monarch  Interest if the Monarch
Interest  Option  is  exercised.  Except as set forth  herein,  Elkins  makes no
representation  or warranty  as to the  enforceability  of the Monarch  Interest
Option.  Upon  closing  of  the  transfer  of the  Elkins  Monarch  Interest  in
accordance with the Monarch Interest Option,  Elkins shall resign as Chairman of
the Management Committee of Monarch LLC and MAG."

          4.2 Section 4.8 of the Agreement is amended as follows:

          4.2.1 Section 4.8(b) is eliminated from the Agreement.

          4.2.2 Section 4.8(c) is  redesignated as Section 4.8(b) and is amended
to eliminate all references to "Monarch/Lyric Released Party".

          5.0 Amendments to Section 5.0 CLOSING CONDITIONS.

                                       5
<PAGE>

          5.1 Section 5.2 of the Agreement is amended by eliminating Section 5.2
(c) and redesignating Section 5.2 (d) as new Section 5.2 (c).

          5.2 Section 5.3 of the Agreement is amended by eliminating Section 5.3
(c).

          6.0 Amendments to Section 6.0 THE CLOSING.

          6.1 Section 6.2 of the  Agreement  is amended by adding  thereto a new
Section "6.2(e) providing as follows:

          "6.2 (e)  Documents  effective to create and convey to the Company the
Monarch Interest Option."

          7.0  Amendments  to  Section  7.0  RELEASES;  COVENANTS  NOT  TO  SUE;
INDEMNITY.

          7.1 Section 7.1 of the  Agreement  is amended to  eliminate  therefrom
clause (iii) in its entirety..

          8.0 Amendment to Section 8.0  EMPLOYMENT  AGREEMENT,  NON-COMPETITION,
NON-SOLICITATION

          8.1 Section 8.2 of the  Agreement  is amended to provide that the term
of Elkins' agreement as set forth in such section shall continue for a period of
three years after the Closing Date.

          9.0 Amendment to Section 9.0 DEFAULT, REMEDIES

          9.1 The first  sentence of Section 9.5 of the  Agreement is amended to
provide as follows:  "9.5 If the Approval Order has not been entered by November
30,  2000,  or if the Closing Date has not occurred by December 14, 2000 (or, in
each case, such later date or

                                       6
<PAGE>

dates as may be agreed  upon by the  Debtors,  Elkins and the  Committee),  then
either the Debtors,  Elkins or the  Committee  shall have the right to terminate
this Agreement (and the letter agreement substantially in the form of Exhibit C)
which  termination shall occur  automatically  upon the giving of notice of such
termination  to the other  parties  in  accordance  with the  notice  provisions
hereof."

          10.0 Amendment to Section 22 NO THIRD PARTY RIGHTS

          10.1 Section 22 of the Agreement is amended to delete reference to the
"Monarch/Lyric Released Parties".

          11.0 CONTINUATION OF AGREEMENT; EFFECTIVE DATE OF AMENDMENT. Except as
specifically  modified or amended as provided herein, the Agreement shall remain
in full force and effect.  The  Effective  Date of this  Amendment  No. 1 to the
Agreement  shall be the date on which it has been fully  executed by the parties
and the Committee has delivered to Elkins and the Company a letter consenting to
this Amendment No. 1 to the Agreement.

          IN WITNESS  WHEREOF,  the parties  hereto have executed this Amendment
No. 1 to Agreement the day and the year first above written.

                                       7
<PAGE>

-----------------------------                 ------------------------------
                                                       ROBERT N. ELKINS

                                               INTEGRATED HEALTH SERVICES, INC.

_____________________________                  By: ____________________________

                                       8

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