Document:

AGREEMENT

          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

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          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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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.

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          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.

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          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

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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

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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.

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          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.

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          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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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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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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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.

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          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.

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                   (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.

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                   (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: ____________________________

                                       8SEPARATION AGREEMENT AND GENERAL RELEASE

         This Separation Agreement and General Release (the "Agreement") is made
and entered into as of the  Effective  Date of this  Agreement  (as set forth in
Paragraph 15 hereof),  by and between Stephen P. Griggs ("Griggs"),  residing at
440 Minnehaha Road,  Maitland,  FL 32751 and Integrated  Health  Services,  Inc.
("IHS"),  located at 910 Ridgebrook Road,  Sparks, MD 21152, on behalf of itself
and any and all past and present parents, affiliates and subsidiary corporations
(individually and collectively, the "Company").

         WHEREAS,  Griggs,  employment with the Company will be terminated as of
the Effective Date (as defined in Paragraph 15 hereof);

         WHEREAS, the Company and Griggs (the "Parties") wish to put any and all
disputes behind them;

         NOW,  THEREFORE,  for and in  consideration  of the mutual promises and
covenants  herein  contained  and  for  good  and  valuable  consideration,  the
sufficiency  of  which is  hereby  acknowledged,  the  Parties  hereby  agree as
follows:

         1.  TERMINATION  OF PRIOR  AGREEMENTS AND  UNDERSTANDINGS.  The Parties
agree that any prior agreements and understandings between them, whether oral or
written and of whatever nature,  are hereby canceled,  terminated and superseded
by this Agreement and shall be of no further force or effect.

         2. SPECIAL PAYMENT. The Company shall pay or cause to be paid to Griggs
$3,000,000 (three million U.S. dollars),  less applicable  payroll  withholdings
and deductions (the "Special Payment") as follows:

            (a) $1,000,000 (one million U.S. dollars),  within ten (10) business
days of the Effective Date; and

            (b)  $2,000,000   (two  million  U.S.   dollars)  in  equal  monthly
installments  over a period of three (3) years,  commencing  on the first day of
the first month following the Effective Date.

         The payments set forth in Paragraph  2(a) and (b) shall be made by wire
transfer,  payable to the order of  "Stephen  P.  Griggs"  and shall be wired to
Griggs at his bank address listed in Paragraph 16 below. Upon the effective date
of a confirmed plan of reorganization for the Company,  the balance of the funds
due  pursuant to Section  2(b) hereof shall be placed with an agreed upon escrow
agent who shall be directed to make each monthly  payment  unless  instructed by
Court order to cease or suspend such payment.

         3. PURPOSE OF SPECIAL  PAYMENT.  The Company is providing and Griggs is
accepting  the  Special  Payment  in full and  complete  satisfaction  of all of
Griggs'  Claims (as defined in Paragraph 5. hereof),  up to the Effective  Date,
against the Company, affiliated persons or partnerships, their successors and

<PAGE>

assigns,  and  any  and all of  their  past  and  present  directors,  officers,
shareholders,   consultants,  agents,  representatives,   attorneys,  employees,
employee benefit plans and plan fiduciaries (collectively,  the "Releases").  In
consideration of the Special  Payment,  Griggs shall transfer to the Company all
of his right,  title and interest in any equity security,  or option relating to
any equity  security,  of the Company,  Griggs shall cause to be sold within ten
(10) days of the Effective Date,  equity  securities held by his IRA, his spouse
or his children.  This Agreement is intended to be and is a complete termination
of Griggs'  interest in the Company.  Griggs  acknowledges  that he may not have
been, in the absence of this Agreement,  entitled to the consideration set forth
in this  Agreement.  Griggs  further  acknowledges  (i) the  sufficiency  of the
consideration  for this Agreement  generally and specifically for the release of
any such Griggs's Claims,  as defined in Paragraph 5 hereof, up to the Effective
Date of this  Agreement,  he may have  ever had,  may now have or may  hereafter
assert against the Releasees including without limitation,  claims arising under
the Age Discrimination in Employment Act of 1967, as amended by, inter alia, the
Older Workers  Benefit  Protection Act of 1990; and (ii) that no other monies or
other  consideration,  except as expressly set forth in this Agreement,  are due
and owing to him or on his behalf, or to his attorneys, by the Company or any of
the other Releasees. Griggs and his attorneys, represent, warrant and agree that
neither Griggs nor his attorneys  shall (a) make any claim,  or (b) commence any
action or proceeding  against the Company or any of the other  Releasees.  Among
other  things,  except for any claims that may arise  under  Sections 2 and 6 of
this Agreement,  Griggs hereby agrees not to file a Proof of Claim or a Proof of
Equity  Interest  in the  bankruptcy  case  of the  Company;  and to  waive  all
distributions to be made in such bankruptcy case.

         4. NO  ADMISSIONS.  This  Agreement does not constitute an admission by
the Company or any of the other Releasees of any violation of any contract or of
any  statute,  constitution  or  common  law  of any  federal,  state  or  local
government of the United States or of any other country or political subdivision
thereof,  and Griggs, the Company and each of the other Releasees expressly deny
any such violation or liability.

         5. GENERAL RELEASE BY GRIGGS.

            (a) Except for indemnification which Griggs is entitled to under the
By-laws of the Company,  and the Company's payment  obligation under Paragraph 2
hereof,  in  consideration  of this  Agreement and the monies and other good and
valuable  consideration  provided to Griggs pursuant to this  Agreement,  Griggs
hereby irrevocably and unconditionally  releases,  waives and forever discharges
the Company and each of the other Releasees, from any and all actions, causes of
action, claims, demands, damages, rights, remedies and liabilities of whatsoever
kind or character, in law or equity, suspected or unsuspected, known or unknown,
past or present, that he has ever had, may now have, or may later assert against
the Releasees,  whether or not arising out of or related to Griggs's  employment
with or the  performance  of any  services to or on behalf of the Company or the
termination  of that  employment  and those services or any other cause from the
beginning  of time  to the  Effective  Date  hereof,  (hereinafter  collectively
referred to as "Griggs's Claims"),  including without limitation: (i) any claims
arising  out of or related to any  federal,  state  and/or  local labor or civil
rights laws  including,  without  limitation,  the federal  Civil Rights Acts of
1866, 1871, 1964 and 1991, the Pregnancy Discrimination Act of 1978, the Age

                                       2
<PAGE>

Discrimination  in Employment  Act of 1967, as amended by, inter alia, the Older
Workers  Benefit  Protection Act of 1990, the National Labor  Relations Act, the
Worker Adjustment and Retraining  Notification Act, the Family and Medical Leave
Act  of  1993,  the  Employee  Retirement  Income  Security  Act  of  1974,  the
Consolidated  Omnibus  Budget  Reconciliation  Act of 1985,  the Americans  with
Disabilities  Act of 1990,  the Fair Labor  Standards  Act of 1938,  the Florida
Civil Rights Act of 1992,  Florida Labor laws and Florida Wage and Hour Laws as
each may have been amended  from time to time;  and (ii) any and all of Griggs's
Claims  arising out of or related to any  contract,  any and all other  federal,
state or local  constitutions,  statutes,  rules or  regulations,  or under  any
common  law right of any kind  whatsoever,  or under the laws of any  country or
political subdivision, including, without limitation, any of Griggs's Claims for
any kind of  tortious  conduct  (including,  but not  limited  to,  any claim of
defamation  or  distress),  promissory  or  equitable  estoppel,  breach  of the
Company's policies, rules, regulations,  handbooks or manuals, breach of express
or implied contract or covenants of good faith, wrongful discharge or dismissal,
and/or failure to pay or provide in whole or part any  relocation  allowances or
expense reimbursements,  compensation,  bonus,  incentive  compensation,  profit
sharing, deferred stock, stock bonus awards or stock bonus incentives,  stock or
unit Options, purchase, sale, or ownership of the stock of the Company or any of
the  other  Releasees,  overtime  compensation,  severance  pay or  benefits  or
payments of any kind whatsoever, including disability and medical benefits, back
pay, front pay or any compensatory,  special or consequential damages,  punitive
or liquidated damages, attorneys' fees, costs, disbursements or expenses, or for
any other reason or thing.

         (b) To the fullest extent permitted by law, Griggs represents, warrants
and agrees  that he shall not lodge any formal or informal  complaint  in court,
with any  federal,  state or local  agency or any other forum  arising out of or
related  to  Griggs's  Claims or  Griggs's  employment  with or  performance  of
services  to or on behalf of the  Company or any of the other  Releasees  or the
termination  of that  employment  or other  services,  or for any other  reason.
Griggs hereby  represents and warrants that he has brought no complaint,  claim,
charge,  action or proceeding  against the Company or any of the other Releasees
in any  jurisdiction or forum.  Griggs further  represents,  warrants and agrees
that he has not in the past and will not in the future  assign  any of  Griggs's
Claims to any person, corporation or other entity.

         (c)  Execution of this  Agreement by Griggs  operates as a complete bar
and defense  against any and all of Griggs's  Claims  against the Company and/or
the other  Releasees.  If Griggs should hereafter make any of Griggs's Claims in
any charge, complaint, action, claim or proceeding against the Company or any of
the  Releasees,  the Agreement may be raised as and shall  constitute a complete
bar to any such charge,  complaint,  action, claim or proceeding and the Company
and/or the  Releasees  shall be  entitled to and shall  recover  from Griggs all
costs  incurred,  cinlcuding  attorneys'  fees,  in  defending  against any such
charge, complaint, action, claim or proceeding.

         (d) Griggs shall indemnify the Company to the extent of any claims made
against the Company or the other Releasees by Griggs spouse, children or Griggs'
IRA.

                                       3

<PAGE>

         6. RELEASE AND INDEMNIFICATION BY THE COMPANY

            (a)  In  consideration   of  this  Agreement,   the  Company  hereby
irrevocably and unconditionally  releases,  waives and forever discharges Griggs
from any and all actions,  causes of action, claims, demands,  damages,  rights,
remedies and liabilities of whatsoever kind or character, in law or equity, past
or present,  that it has ever had,  may now have,  or may later  assert  against
Griggs arising out of or related to Griggs's  employment with the Company or the
termination of that  employment;  provided,  however,  that the Company does not
intend to and is not releasing Griggs of any actions, causes of actions, claims,
demands,  damages,  rights,  remedies and  liabilities  asserted or which may be
asserted against the Company or any of the other Releases by any federal,  state
or local government,  agency or authority ("Government Company"), arising out of
or  related to Griggs'  intentional  and  knowing  acts or  omissions,  provided
further that Griggs is and will be released of all  Government  Claims solely to
the extent  Griggs would  otherwise be entitled to  indemnification  pursuant to
Section 145(a) of the Delaware  General  Corporation  Law (as in existence as of
the  Effective  Date),  or under the  By-laws of IHS.  The  released  claims are
hereinafter collectively referred to as "Company Claims."

            (b) To the fullest extent permitted by law, the Company  represents,
warrants and agrees not to lodge any formal or informal complaint in court, with
any federal,  state or local agency or any other forum arising out of or related
to Company's  Claims.  The Company  hereby  represents  and warrants that it has
brought no complaint,  claim, charge, action or proceeding against Griggs in any
jurisdiction or forum.

            (c)  Execution  of  this  Agreement  by the  Company  operates  as a
complete bar and defense  against any and all of the  Company's  Claims  against
Griggs.  If the Company should hereafter make any of the Company's Claims in any
charge, complaint, action, claim or proceeding against Griggs, the Agreement may
be raised as and shall constitute a complete bar to any such charge,  complaint,
action, claim, proceeding and Griggs shall be entitled to and shall recover from
the Company all costs incurred,  including attorneys' fees, in defending against
any such charge, complaint, action, claim or proceeding.

            (d) The Company  recognizes that prior to its bankruptcy filing, the
By-laws of IHS provided for certain  indemnification  rights for Griggs  arising
out of or relating to his employment with Rotech Medical Corporation  ("Rotech")
and the Company  agrees that  notwithstanding  this  Agreement,  Griggs  remains
entitled to such  indemnification  rights.  However,  it is expressly agreed and
understood  that  nothing  set forth in this  Agreement, nor its  execution,  is
intended to eliminate, modify, expand, elevate or change the scope or bankruptcy
priority  status of any  indemnification  rights  Griggs  may have  against  the
Company or the indemnification  rights as set forth in the By-laws of IHS. Prior
to the Effective  Date, the Company will deliver to Griggs a copy of its current
Directors and Officers insurance policy, and it agrees not to modify that policy
as it relates to Griggs.

                                       4

<PAGE>

            (e) Each of the  foregoing  subparagraphs  (a),  (b), (c) and (d) of
this Paragraph 6 is conditional upon the validity of the representations made by
Griggs as set forth in this Agreement.

         7.  AGREEMENT  ENFORCEABLE.  Nothing  contained  herein is  intended to
prevent Griggs or the Company from enforcing this Agreement.

         8. CONFIDENTIALITY.

            (a)  Griggs  represents,  warrants  and  agrees  that he  will  not,
directly  or  indirectly,  use or  disclose,  or  permit  or aid  the  use by or
disclosure  to any  person,  firm,  entity or  corporation,  of any  privileged,
confidential  or  proprietary  business  information  relating  to the  business
affairs, clients,  customers,  business partners, plans, proposals,  finances or
financial  condition  of the  Company or any of the other  Releasees  which such
information  Griggs received as a consequence of his employment with the Company
("Confidential  Information"),  except (i) with the  Company's  express  written
consent;  (ii) in direct  response to any subpoena  initiated  against or served
upon Griggs; or (iii) in response to a request for information from an agency of
the  government  of the United  States or a sovereign  government of any foreign
nation  ("Government  Agency") as part of an active  investigation  ("Government
Request").   In  the  event  that   disclosure   is  sought  from  Griggs  under
subparagraphs  (ii) or (iii) in  response to any such  subpoena or  Governmental
Request, Griggs shall give the Company immediate written notice of such subpoena
or Governmental  Request.  Except as expressly  authorized here,  Griggs further
represents,  warrants  and  agrees  that he has not and will  not,  directly  or
indirectly,  use or  disclose,  or  permit or aid the use or  disclosure  to any
person, firm, entity or corporation of any information arising out of or related
to the business affairs of the Company.

            (b) Griggs is obligated to surrender and  represents  that he has or
will surrender to the Company on or before the Effective Date, all confidential,
proprietary  and  other  property  of the  Company  and the other  Releasees  in
whatever form retained (e.g., written,  mechanical,  electronic) including,  but
not limited to, all documents,  papers, contracts, drafts, data, records, plans,
proposals,  software, lists, indices, notes, files, papers, computers,  computer
tapes, computer files, e-mail and all other electronic  communications  records,
disks or  materials  and other  information  and  property,  in  whatever  form,
including  any copies  thereof,  in the  possession  of or under the  control of
Griggs including,  but not limited to, any such items in the possession or under
the control of his attorneys.  Griggs hereby certifies that he and his attorneys
have fully complied with this representation.

            (c) On and after the date of this  Agreement,  except as required by
law or in  connection  with any  authorized  governmental  investigation,  for a
period of twenty-seven  (27) months from the Effective  Date,  neither Griggs on
the one hand,  the Company  including  its officers or  directors,  on the other
hand, shall make disparaging oral or written comments as against the other.

            (d) The  provisions  of this  Paragraph 8 are  material and critical
terms of this Agreement.

                                       5

<PAGE>

         9. NON-COMPETITION.

            (a) Griggs hereby represents, warrants and agrees that, subject only
to the  express  exceptions  set  forth  in  Paragraph  9(b),  for a  period  of
twenty-seven  (27)  months,  commencing  on March 15,  2000  (the  "Commencement
Date").  Griggs shall not,  directly or  indirectly  in the  continental  United
States:

                (i) raid or  divert or  interfere  with the  Company's  business
      relationships  with  its  customers,  vendors,   advertisers,   investors,
      suppliers  or other  persons or entities  with which the Company  conducts
      business; or

                (ii)  own,  manage,  operate,  control  or  participate  in  the
      ownership,  management,  operation  or control of, or be  connected  as an
      officer,  employee,  consultant,  partner, director, or otherwise with, or
      have financial interest in, or aid or assist anyone else in the conduct of
      any entity or business that competes with the business of the Company.

                The  activities  set forth in  Paragraphs  9(1)(i)  and (ii) are
hereinafter collectively referred to as the "Competitive Activities."

            (b)  Expressly   excluded  from  Paragraph   9(a)  are   Competitive
Activities:

                (i)    At any time in  the following counties in Texas: Counties
      of Bexar, Comad, Guadalupe and all  counties  contiguous  to  these  three
      counties;

                (ii)   Commencing August 1, 2000 in Texas, New Mexico, Arkansas,
      Louisiana, Oklahoma and Kansas; and

                (iii)  Commencing  August  1,  2001  in all  states  west of the
      Mississippi River.

            (c) Paragraph 9(a) does not apply to any business which  exclusively
manufactures products, equipment, or medication for the medical industry, except
that,  notwithstanding the foregoing,  Paragraph 9(a) will apply to any business
which is in the  business of home health  services,  home  medical  equipment or
which otherwise competes with the Company.

            (d) The  provisions  of this  Paragraph 9 are  material and critical
terms of this Agreement.

        10. NON-SOLICITATION.

            (a) Griggs hereby represents, warrants and agrees that, subject only
to the express  exceptions set forth in Paragraph  10(b),  for a period of three
(3) years,  commencing on the Commencement  Date,  Griggs shall not, directly or
indirectly solicit or induce any employee, agent

                                       6

<PAGE>

or  consultant  of the  Company  to leave the  employ of or to cease  performing
services for the Company and to become employed or engaged or otherwise work for
or with another person,  firm,  enterprise  corporation or other entity.  Griggs
further represents,  warrants and agrees not to hire, contract with or otherwise
employ or engage any  employee,  agent or consultant of the Company or cause any
employee, agent or consultant to be hired away from the Company. For purposes of
this Paragraph 10(a),  "any employee,  agent or consultant of the Company" shall
include any individual  employed or performing services for by the company as of
February 2, 2000, or thereafter.  Notwithstanding the foregoing,  nothing herein
is intended to prohibit  Griggs from hiring an employee,  agent or consultant at
least one year after the  termination of that employee's  employment,  agency or
consultancy with the Company.

            (b) Nothing set forth herein shall prohibit Griggs from employing an
agent or consultant in the medical industry which already provides services to a
multitude of companies including the Company at the same time.

            (c) The  non-solicitation  restrictions set forth in Paragraph 10(a)
shall not  apply to  employees,  agents  or  consultants  of the  Company  whose
annualized  total  compensation  paid  by  the  Company  was  less  than $45,000
(forty-five thousand U.S. dollars) per year as of the time immediately preceding
any offer to such employees, agents or consultants by Griggs; provided, however,
that  notwithstanding  anything  contained  herein,  Griggs may not, directly or
indirectly solicit or induce any employee, agent or consultant of the Company to
leave the employ of or cease  performing  services for the Company and to become
employed or engaged or otherwise  work with another  person,  firm,  enterprise,
corporation or other entity for the first three months after the Effective Date.

            (d) The  provisions  of this  Paragraph 10 are material and critical
terms of this Agreement.

       11.  REMEDIES FOR BREACH.

            (a) In the event that  either  Party  breaches,  violates,  fails or
refuses to comply with any of the provisions,  terms or conditions or any of the
warranties or representations of this Agreement (the "Breach"),  the Other Party
shall have sole  discretion to bring an action to recover  against the breaching
Party damages, including reasonable attorneys' fees, accruing to the Other Party
as a consequence of the Breach.

            (b)  Regardless  of and in  addition  to any  right  to  damages  or
equitable  relief  the  Company  may have,  in the event that  Griggs  breaches,
violates fails or refuses to comply with any of his warranties, representations,
or covenants in this  Agreement,  the Company  shall be entitled to cease making
payments under this  Agreement and to recover  against Griggs the full amount of
all  payments  the  Company had  provided  to or on behalf of Griggs  under this
Agreement  only if the Company  first obtains a judgment or finding by any court
having  jurisdiction  that  Griggs was in Breach and that the  Company  has been
damaged in that amount.

                                       7

<PAGE>

            (c) Griggs acknowledges and agrees (i) that the services he provided
to  the  Company  were  of  a  special,   unique,  unusual,   extraordinary  and
intellectual  character giving them a peculiar value; (ii) that in the course of
performing his duties on behalf of the Company,  Griggs was permitted  access to
some or all of the Company's trade secrets and other confidential or proprietary
information;  and (iii) that the foregoing  acknowledgment and agreements by him
in  this  Paragraph  11(c)  are  an  adequate  and  appropriate  basis  for  his
representations,  warranties and agreements in the above  Paragraphs 8, 9 and 10
and for the remedies for breach to which he is agreeing in this Paragraph 11(c).
Accordingly,  Griggs  acknowledges  and agrees that money  damages would be both
incalculable and an insufficient remedy for any breach of Paragraphs 8, 9 and 10
of this  agreement and that any such actual or  threatened or continuing  breach
will cause the Company irreparable harm. In the event of any actual,  threatened
or continuing  breach of Paragraphs 8, 9 and 10  specifically  enforced  against
Griggs by way of temporary, preliminary and/or permanent injunction by any court
having jurisdiction, without the posting of any bond or security by the Company.
Such right and  remedy  shall be in  addition  to, and not in lieu of, any other
rights and remedies  available to the Company  under law or in equity.  Further,
Griggs agrees that should the Company commence an action for injunctive  relief,
the  Company  shall have the right in the same  proceeding  and court to recover
against  Griggs the money  damages  causes by such  breach,  including,  but not
limited to, the reasonable attorneys' fees and costs of the Company.

            (d) The General Release by Griggs and the Release by the Company and
all other terms and conditions of this Agreement  shall remain in full force and
effect  regardless of the remedies and/or damages available under this Paragraph
11.

            (e) Upon violation of any of Paragraphs  12(a) through (c) and 13(a)
through (c) of this Agreement,  the Company's obligation to make any prospective
payments to Griggs  hereunder shall terminate and, in lieu thereof,  the Company
shall make such prospective payments to Kaye, Scholer,  Fierman, Hays & Handler,
LLP, as counsel for the Company, pursuant to an escrow agreement as set forth in
Exhibit B. Thereafter, such payments shall only be made to Griggs by the Company
upon order of the Bankruptcy Court (as defined in Paragraph 14(e) hereof).

        12. REPRESENTATIONS BY GRIGGS

            To the best of Griggs' personal knowledge,  Griggs hereby represents
that:

            (a) Rotech Medical Corporation  ("Rotech") is in compliance with all
Governmental   Requirements   (as  defined   herein).   Except  for  notices  of
non-compliance  as to which Rotech has taken corrective action acceptable to the
applicable governmental agency, Griggs has not, within the period of twelve (12)
months  preceding the date of this  Agreement,  received any written notice from
any governmental agency that Rotech fails to comply in any material respect with
any applicable  federal,  state, local or other governmental laws or ordinances,
or any  applicable  order,  rule or regulation of any federal,  state,  local or
other  governmental  agency having  jurisdiction  over Rotech and its operations
("Governmental Requirements").

                                       8

<PAGE>

            (b)  Rotech is  qualified  for  participation  in the  Medicare  and
Medicaid  programs.  Griggs is aware of  pending  government  investigations  in
Montana; Mississippi,  Iowa; New Mexico; and the Lincare Qui Tam Litigation (the
"Government Investigations"). With the exception of previous disclosures made in
connection with the Government  Investigations,  to the best of Griggs' personal
knowledge  (i) he is not aware of any facts which  would give rise to  liability
under the  Government  Investigations;  (ii) the Company has no  liability  with
respect to recoupment from the Medicare or Medicaid programs, or any other third
party reimbursement source. Griggs had no personal knowledge of the assertion of
any recoupment claim that arose out of any  transactions  completed prior to the
date  hereof,  and no Medicare or Medicaid  investigation,  survey,  or audit is
pending or, to the personal knowledge of Griggs,  threatened with respect to the
operation of Rotech,  except to the extent that such  investigation,  survey, or
audit is routine and is not reasonably  likely to have a material adverse effect
on Rotech. To Grigg's personal knowledge, no Rotech employees have committed any
offense which may serve as the basis for suspension,  restriction,  or exclusion
of Rotech from the  Medicare  and  Medicaid  programs  and Rotech is in material
compliance with all Conditions and Standards of Participation in the Medicare or
Medicaid Programs.

            (c) The Health Care Compliance Questionnaire heretofore delivered to
Griggs by the  Company  will,  as of the  Effective  Date,  have been  fully and
accurately completed and will not contain any material  misstatement of any fact
and will not omit any fact that  would  have to be stated in order not to render
any response to such questionnaire materially misleading.

            (d) Neither Griggs, nor any director/trustee,  officer,  controlling
person or  employee  of Rotech,  and no  affiliate  of Rotech,  (a) has used any
corporate  funds of  Rotech  to make any  illegal  or  unlawful  payment  to any
officer, employee, representative,  agent of any corporation,  government, or to
any political party or official thereof,  including,  without limitation, any of
same that would violate the Foreign  Corrupt  Practices Act of 1977, as amended;
or (b) has made or received  any illegal  payment,  bribe,  kickback,  political
contribution  or  other  similar  questionable  payment  for  any  referrals  or
recommendations, or otherwise, in connection with the operation of Rotech.

            (e) Griggs has not received any improper  payments  from the Company
or the other Releasees.

            (f) Prior to the  commencement of the litigation  entitled Rotech v.
Loftis et al.  Adv.  No.  00473  pending  in the  Bankruptcy  Court in  Delaware
("Loftis  Litigation"),  Griggs did not participate in nor did he have knowledge
that Rotech employees may have stolen or were planning to steal assets, business
records or corporate  opportunities of Rotech, all as more particularly  alleged
in the Loftis Litigation.

            (g) None of the representations and warranties made pursuant to this
Agreement  contains any untrue  statement  of material  fact or omits to state a
material fact necessary,  in light of the circumstance  under which it was made,
in order to make any such representation not misleading in any material respect.

                                       9

<PAGE>

     13.  The  Company believes, based on information made known to it as of the
date hereof and the representations made by Griggs herein:

     (a)  Griggs  on behalf of the Company and Rotech acted in good faith and in
a  manner  he  reasonably believed to be in or not  to the best interests of the
Company and Rotech.

     (b)  Griggs  on behalf of the Company and Rotech had no reasonable cause to
believe his conduct was unlawful.

     (c)  Griggs  complied  in  all  material  respects  with  all  Governmental
Requirements.

     14. MISCELLANEOUS PROVISIONS.

     (a)  No oral understanding, statements, promises or inducements contrary to
the  terms  of  this  Agreement  exist.  This  Agreement  cannot  be  changed or
terminated orally.

     (b)  Failure  to enforce my provision of this Agreement shall not prejudice
or  constitute  a  waiver  of  the  enforcement  of  that provision in any other
instance.

     (c)  Should  any  provision  of  this Agreement be held invalid, illegal or
unenforceable,  it  shall  be  deemed  to  be  modified  so that its purpose can
lawfully  be  effectuated and the balance of this Agreement shall remain in full
force and effect.

     (d)  This  Agreement  shall  extend  to,  be binding upon, and inure to the
benefit of the Parties and their respective successors, heirs and assigns.

     (e) This  Agreement  shall be governed by and construed in accordance  with
the laws of the State of Delaware.  Any dispute over any term in this Agreement,
or any action or  proceeding  between the  Parties to enforce  the terms  hereof
shall be commenced  only in the  Bankruptcy  Court  administering  the Company's
Bankruptcy  Court  administering  the  Company's  bankruptcy  case  ("Bankruptcy
Court"),  and the Parties  hereby  submit to the exclusive  jurisdiction  of the
Bankruptcy Court and further agree not to assert that any action brought in such
jurisdiction has been brought in an inconvenient  forum.  The Company's  payment
obligations  set  forth  in  Paragraph  2(b)  hereof  shall  be  entitled  to an
administrative expense priority.

     (f) This  Agreement may be executed in any number of  counterparts  each of
which when so executed  shall be deemed to be an original  and all of which when
taken together shall constitute one and the same agreement. A telecopy signature
on this Agreement shall have the same force and effect as an original signature.
10
<PAGE>

     (g) As used in this  Agreement,  the  connectives  "and" and "or"  shall be
construed either disjunctively or conjunctively as necessary to bring within the
meaning or scope of the  provisions  of this  Agreement  all meanings that might
otherwise be construed to be outside of the meaning or scope of such provision.

     (h)  In  the  event  of  ambiguity, this Agreement or any of its provisions
shall  not  be construed for or against either Party on the basis of which Party
drafted the particular language at issue.

     15. EFFECTIVE DATE/REVOCATION.  Griggs may revoke this Agreement in writing
at any time during a period of seven (7)  calendar  days after the  execution of
this Agreement by both of the Parties (the "Revocation Period").  This Agreement
shall be  effective  and  enforceable  automatically  on the first day after the
occurrence of the following  two events:  (a) the date of the actual  receipt by
the Company's  counsel,  Kaye,  Scholer,  Fierman,  Hays & Handler,  LLP (to the
attention of Michael  Crames,  Esq.) of the  Certificate  of  Non-Revocation  of
Separation  Agreement and General  Release (the form of which is attached hereto
as Exhibit A) executed and dated by Griggs at least one day after  expiration of
the  Revocation  Period  and (b) the entry of an order of the  Bankruptcy  Court
approving  this Agreement  which order has not been appealed,  vacated or stayed
and the time period for taking an appeal  thereof has  expired  (the  "Effective
Date").

     16.  NOTICES.  Any  notices  or  requests  under this Agreement shall be in
writing, addressed as follows:

          (a)      If to Griggs:

                   Stephen P. Griggs
                   440 Minnehaha Road
                   Maitland, FL 32751
                   Telephone No. (407) 647-4711
                   Fax No. (407) 647-2972

                   Wire Transfer Instructions:

                   For the Account of Stephen P. Griggs
                   Suntrust Bank, Central Florida
                   Orlando, FL 32801
                   Account No. 0700-700722901
                   ABA Number 063102152
                                       11
<PAGE>

                   With a copy to:

                   Brown, Rudnick, Freed & Gesmer
                   One Financial Center
                   Boston, MA 02111
                   Telephone No. (617) 856-8513
                   Fax No. (617) 856-8201

                   Attention: Peter J. Antoszyk, Esq.

          (b)      If to the Company:

                   Integrated Health Services, Inc.
                   910 Ridgebrook Road
                   Sparks, MD 21152
                   Telephone No. (410) 773-100
                   Fax No. (410) 773-1325

                   Attention: Marshall Elkins, Esq., General Counsel

                   With a copy to:

                   Kaye, Scholer, Fierman, Hays & Handler, LLP
                   425 Park Avenue
                   New York, NY 10022
                   Telephone No. (212) 836-8564
                   Fax No. (212) 836-6157

                   Attention: Arthur Steinberg, Esq.

     17.  COOPERATION.  Through the Effective Date, Griggs shall continue to act
in  accordance  with the best  interests  of Rotech to the extent  requested  by
Robert Elkins.  Griggs recognizes that after the execution of this Agreement and
the filing of the  pleading  for approval  thereof,  but prior to the  Effective
Date, the Company may replace him as president;  however he will remain employed
by the Company until the Effective  Date,  and the Company  agrees to diligently
act in good faith to have the Agreement approved by the Bankruptcy Court.

     IN SIGNING THIS SEPARATION AGREEMENT AND GENERAL RELEASE (THE "AGREEMENT"),
GRIGGS ACKNOWLEDGES THAT:

     (A)  HE HAS READ AND UNDERSTANDS THIS AGREEMENT AND HE IS HEREBY ADVISED IN
WRITING TO CONSULT WITH AN ATTORNEY PRIOR TO SIGNING THIS AGREEMENT;

                                       12
<PAGE>

     (B)  HE  HAS  SIGNED THIS AGREEMENT VOLUNTARILY, AFTER BEING ADVISED BY HIS
ATTORNEYS,  AND  UNDERSTANDS  THAT  THIS  AGREEMENT  CONTAINS  A  FULL AND FINAL
RELEASE OF ALL OF GRIGGS' CLAIM;

     (C)  HE HAS BEEN OFFERED AT LEAST TWENTY-ONE (21) CALENDAR DAYS TO CONSIDER
THIS AGREEMENT; AND

     (D)  THIS  AGREEMENT  IS  NOT  MADE IN CONNECTION WITH AN EXIT INCENTIVE OR
OTHER EMPLOYEE TERMINATION PROGRAM OFFERED TO A GROUP OR CLASS OF EMPLOYEES.

---------------------------                 ------------------------- , 2000
   Stephen P. Griggs                         Date of Execution by Griggs

INTEGRATED HEALTH, SERVICES INC.

By:-------------------------                ------------------------- , 2000
   C. Taylor Pickett                        Date of Execution by Company

                                       13

<PAGE>

                                   EXHIBIT A

                       CERTIFICATION OF NON-REVOCATION OF
                    SEPARATION AGREEMENT AND GENERAL RELEASE

     I  hereby  certify  and  represent that seven (7) calendar days have passed
since  the  Parties  signed  the  Separation  Agreement and General Release (the
"Agreement")  and  that  I  have NOT exercised my right to revoke that Agreement
pursuant  to the Older Workers Benefit Protection Act of 1990. I understand that
the  Company  and  the  other  Releases, in providing me with benefits under the
Agreement,  are relying on this Certificate, and that I can no longer revoke the
Agreement.

  /s/ Stephen P. Griggs                      7/12
 -------------------------      ------------------------- , 2000
   Stephen P. Griggs            Date of Execution by Griggs

IMPORTANT:

     THIS  CERTIFICATE  SHOULD BE SIGNED,  DATED AND  RETURNED TO THE  COMPANY'S
COUNSEL,  KAYE,  SCHOLER,  FIERMAN,  HAYS & HANDLER,  LLP (TO THE  ATTENTION  OF
MICHAEL  CRAMES,  ESQ.),  425 PARK AVENUE,  NEW YORK, NEW YORK 10022, NO EARLIER
THAT ON THE EIGHTH (8TH)  CALENDAR  DAY AFTER THE  AGREEMENT IS EXECUTED BY BOTH
PARTIES.

<PAGE>

                                   EXHIBIT B

                                ESCROW AGREEMENT

     This  ESCROW  AGREEMENT  (the  "Escrow  Agreement")  is dated July __, 2000
among  Integrated  Health  Services, Inc. ("IHS"), Stephen P. Griggs ("Griggs"),
and  Kaye,  Scholer,  Fierman,  Hays  &  Handler,  LLP, as escrow agent ("Escrow
Agent").

     IHS  and  Griggs  have  entered  into  a  Separation  Agreement and General
Release,   as   amended,   dated  as  of  ____________,  2000  (the  "Separation
Agreement").  Upon  an  alleged  breach  of  any of Paragraphs 12(a) through (c)
and/or  13(a)  through (c) of the Separation Agreement, IHS's obligation to make
any  prospective  payments  to Griggs pursuant to the Separation Agreement shall
terminate  and,  in  lieu thereof, IHS shall make such prospective payments (the
"Deposit")  to  the  Escrow  Agent.  This Escrow Agreement shall control how the
Deposit  is  to  be  maintained  by  the  Escrow Agent and is to be disbursed to
either IHS or Griggs.

     It is agreed as follows:

     1. ESCROW  DEPOSIT. The Deposit shall be held in escrow by the Escrow Agent
pursuant  to  and  in  accordance  with  this Escrow Agreement. The Escrow Agent
shall  invest the Deposit in (i) interest or non-interest bearing accounts in or
certificates  of  deposit  of  any  of the following banks: Fleet National Bank,
Bankers  Trust  Company,  The  Chase  Manhattan  Bank, Citibank, N.A., or Morgan
Guaranty  Trust Company of New York, or (ii) obligations of the United States of
America  maturing  within  ten  days of the date of investment. Escrow Agent may
invest  the Deposit in one or more of the investments permitted by the preceding
sentence,  and  may  change  those  investments from time to time, all as it may
determine  in  its sole and absolute discretion. Escrow Agent shall have no duty
to  maximize  the  return  on the Deposit and shall be fully protected in making
any investment or combination of investments permitted by this Section.

     2. DISBURSEMENT  AFTER  ORDER OF THE COURT. Upon receipt by Escrow Agent of
an  order (the "Order") of the Bankruptcy Court stating how the Deposit is to be
disbursed,  Escrow  Agent  shall  release  the  sum  specified  in  the Order in
accordance  with  the  Order.  The "Bankruptcy Court" means the bankruptcy court
administering IHS's bankruptcy case.

     3. ESCROW  AGENT  AS  COUNSEL  TO IHS. Griggs acknowledges that he is aware
that  Escrow  Agent is acting as counsel to IHS and its affiliates in connection
with  the  Separation  Agreement,  the  bankruptcy  case  of  IHS,  this  Escrow
Agreement  and  other  matters, and agrees that Escrow Agent's acting under this
Escrow  Agreement  shall not affect its ability to act as counsel to IHS and its
affiliates  in  any  manner, including, but not limited to, any claim, action or
proceeding  with  respect  to  this  Escrow  Agreement  or the disposition of or
entitlement to the Deposit.

     4. ESCROW AGENT.
<PAGE>

     4.1 GENERAL. Escrow  Agent  shall act as escrow agent and hold and disburse
the  Deposit  pursuant to the terms and conditions of this Escrow Agreement. Its
duties  under  this  Escrow  Agreement  shall  cease  upon  disbursement  of the
Deposit.

     4.2 LIMITED  DUTIES. Escrow Agent undertakes to perform only such duties as
are  expressly  set  forth in this Escrow Agreement. Escrow Agent shall incur no
liability  whatsoever to IHS or Griggs, except for its own willful misconduct in
its capacity as escrow agent.

     4.3 LIMITED   RESPONSIBILITIES. Escrow  Agent's  sole  responsibility  upon
receipt  of  the  Order  is  to  follow  the  provisions thereto relating to the
disbursement of the Deposit.

     4.4 RESIGNATION. Escrow  Agent may resign and be discharged from its duties
or  obligations hereunder by giving notice of such resignation to IHS and Griggs
specifying  a  date  upon  which such resignation shall take effect, whereupon a
successor  escrow agent shall be appointed by IHS and Griggs or, if no agreement
is   reached  by  IHS  and  Griggs  within  ten  (10)  days  of  Escrow  Agent's
resignation,  by the Bankruptcy Court. Escrow Agent shall be entitled to release
the Deposit to any successor escrow agent so appointed.

     4.5 INDEMNIFICATION. IHS  and  Griggs hereby jointly and severally agree to
indemnify  Escrow  Agent  for,  and  to  hold  it  harmless  against,  any loss,
liability,  damage  or  expense incurred without bad faith on the part of Escrow
Agent  arising  out of or in connection with its entering into and/or performing
under  this Escrow Agreement, including the cost and expense (including, but not
limited  to,  attorneys' fees, which may consist in whole or in part of the time
charges  at their standard rates of partners of and attorneys employed by Escrow
Agent) of investigating or defending itself against any claim or liability.

     5. ESCROW  AGENT  NOT  AFFECTED  BY OTHER AGREEMENTS. This Escrow Agreement
expressly  sets forth all the duties of Escrow Agent with respect to any and all
matters  pertinent  hereto.  No implied duties or obligations shall be read into
this  Escrow  Agreement  against  Escrow Agent. Escrow Agent, in its capacity as
such,  shall  not  be bound by the provisions of any agreement among the parties
except  this Escrow Agreement and shall have no duty to inquire into, or to take
into  account  its  knowledge of, the terms and conditions of any agreement made
or entered into in connection with this Escrow Agreement.

     6. NOTICES. All  notices,  requests, demands and other communications under
this  Agreement  shall be in writing and shall be deemed to have been duly given
(i)  on  the date of service if served personally on the party to whom notice is
to  be given, (ii) on the day of transmission if sent by facscimile transmission
to  the  facsimile number given below, and telephonic confirmation of receipt is
obtained  promptly  after  completion  of  transmission,  (iii) on the day after
delivery  to  Federal  Express  or similar overnight courier or the Express Mail
service  maintained  by  the United States Postal Service, or (iv) upon receipt,
if  mailed  to  the  party  to  whom notice is to be given, by first class mail,
registered  or  certified,  postage prepaid and properly addressed, to the party
as follows:

                                       2
<PAGE>

If to IHS:              Integrated Health Services, Inc.
                        910 Ridgebrook Road
                        Sparks, MD 21152
                        Attn: Marshall Elkins, Esq.
                        Telephone: (410) 773-1000
                        Facsimile: (410) 773-1325

Copy to:                Kaye, Scholer, Fierman, Hays & Handler, LLP
                        425 Park Avenue
                        New York, NY 10022
                        Attention: Arthur Steinberg, Esq.
                        Telephone: (212) 836-8201
                        Facsimile: (212) 836,8211

If to Griggs:           Stephen P. Griggs
                        440 Minnehaha Road
                        Maitland, FL 32751
                        Telephone: (407) 647-4711
                        Facsimile:(407) 647-2972

Copy to:                Brown, Rudnick, Freed & Gesmer
                        One Financial Center
                        Boston, MA 02111
                        Telephone: (617) 856-8513
                        Facsimile: (617) 856-8201
                        Attention: Peter J. Antoszyk Esq.

If to Escrow Agent:     Kaye, Scholer, Fierman, Hays & Handler, LLP
                        425 Park Avenue
                        New York, NY 10022
                        Attention: Arthur Steinberg, Esq.
                        Telephone: (212) 836-8201
                        Facsimile: (212) 836-8211

Any  party  may  change  its address for the purpose of this Section 6 by giving
the other party notice of its new address in the manner set forth above.

     7. MISCELLANEOUS.

     7.1 JURISDICTION. Any   action   or   proceeding  seeking  to  enforce  any
provision  of, or based on any right arising out of, this Escrow Agreement shall
be brought against any of the parties only

                                       3
<PAGE>

in  the  Bankruptcy  Court  and  the  parties  hereby  consent  to the exclusive
jurisdiction  of  the  Bankruptcy Court and further agree not to assert that any
action brought in such jurisdiction has been brought in an inconvenient form.

     7.2 CAPTIONS. The  captions in this Escrow Agreement are for convenience of
reference  only  and  shall not be given any effect in the interpretaion of this
Escrow Agreement.

     7.3 NO  WAIVER. The  failure  of a party of insist upon strict adherence to
any  term  of  this  Escrow  Agreement on any occasion shall not be considered a
waiver  or  deprive  that  party  of  the right thereafter to insist upon struct
adherence  to  that  term or any other term of this Escrow Agreement. Any waiver
must be in writing.

     7.4 EXCLUSIVE   AGREEMENT;  AMENDMENT;  ASSIGNMENT. This  Escrow  Agreement
supersedes  all  prior  agreements among the parties with respect to its subject
matter,  is  intended  as a complete and exclusive statement of the terms of the
agreement  among  the  parties  with  respect  thereto  and cannot be changed or
terminated  orally. No party may assign any rights or delegate any of its duties
under  this  Escrow  Agreement  without  the  prior written consent of the other
parties  hereto,  and  this  Escrow Agreement shall be binding upon and inure to
the  benefit  of  the  successors  and  assigns of the parties hereto and to any
successor escrow agent appointed in accordance with Section 4.4.

     7.5 COUNTERPARTS. This  Escrow  Agreement  may be executed in counterparts,
each  which  shall  be  considered  an original, but all of which together shall
constitute  the  same  instrument.  Telecopy  signatures  shall  be  treated  as
original for purposes hereof.

     7.6 GOVERNING  LAW. This  Escrow  Agreement  and  all amendments hereof and
waivers  and  consents  hereunder shall be governed by, and all disputes arising
hereunder  shall  be  resolved  in  accordance with the laws of the State of New
York, without regard to the conflicts of law principles thereof.

                                   * * * * *

                                     INTEGRATED HEALTH SERVICES, INC.

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

                                     Title:
                                          -------------------------------------

                                     STEPHEN P. GRIGGS

                                     ------------------------------------------

                                       4
<PAGE>

                                     ESCROW AGENT:

                                     KAYE, SCHOLER, FIERMAN,
                                      HAYS & HANDLER, LLP, as Escrow Agent

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

                                     Title:
                                          -------------------------------------

                                       5

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