Exhibit 10.4

ROTECH HEALTHCARE INC.

AMENDED AND RESTATED NONEMPLOYEE DIRECTOR

RESTRICTED STOCK AND STOCK OPTION PLAN

FORM OF

NONQUALIFIED STOCK OPTION AGREEMENT

THIS AGREEMENT (the “Agreement”) made as of             , by and between Rotech
Healthcare Inc., a Delaware corporation (the “Company”), and
                     (the “Optionee”).

WITNESSETH:

WHEREAS, the Company has adopted the Rotech Healthcare Inc. Amended and Restated
Nonemployee Director Restricted Stock and Stock Option Plan (the “Plan”) for the
benefit of its nonemployee directors; and

WHEREAS, the Committee has authorized the grant to the Optionee of a
Nonqualified Stock Option under the Plan, on the terms and conditions set forth
in the Plan and as hereinafter provided.

NOW, THEREFORE, in consideration of the premises contained herein, the Company
and the Optionee hereby agree as follows:

 

  1. Definitions.

Terms used in this Agreement which are defined in the Plan shall have the same
meaning as set forth in the Plan.

 

  2. Grant of Option.

The Committee granted to the Optionee on                     , an option to
purchase                  shares of the Company’s Common Stock (the “Shares”)
for an option price per Share equal to                      (the “Option”). The
Option is intended by the Committee to be a Nonqualified Stock Option and the
provisions hereof shall be interpreted on a basis consistent with such intent.

 

  3. Exercise of Option.

(a) Exercisability. Subject to Subsection (b) below and such other applicable
conditions set forth in this Agreement and the Plan, all or part of the Option
may be exercised prior to its expiration to the extent it has vested; provided,
however, that the Option may not be exercised for a fraction of a Share unless
such exercise is with respect to the final installment of stock subject to the
Option and a fractional share (or cash in lieu thereof) must be issued to permit
the Optionee to exercise completely such final installment. Any fractional share
with respect to which an installment of the Option cannot be exercised because
of the limitation contained in the preceding sentence shall remain subject to
the Option and shall be available for later purchase by the Optionee in
accordance with the terms hereof.

(b) Vesting. The Option shall vest over the period of one (1) year from the

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date of grant, with fifty percent (50%) of the Option vesting on each of the
first two six-month anniversaries of the date of grant; provided, however, that:
(i) in the event of a Change of Control, the entire unvested portion of the
Option shall vest upon the closing of the Change of Control; and (ii) in the
event of an Initial Public Offering (as defined in the Rotech Healthcare Inc.
Common Stock Option Plan), one-quarter (25%) of the aggregate number of Shares
purchasable upon exercise of the Option shall vest and the remaining unvested
portion of the Option, if any, shall continue to vest according to the vesting
schedule set forth in this Section 3(b).

(c) For purposes of this Agreement, the term “Change of Control” shall mean the
earliest of the following to occur:

(i) any “person” (as defined in Sections 13(d) and 14(d) of the Exchange Act)
(other than the Company or any subsidiary or any trustee or other fiduciary
holding securities under an employee benefit plan of the Company), becomes the
beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act)
directly or indirectly, of securities of the Company representing fifty percent
(50%) or more of the combined voting power of the Company’s then outstanding
securities; or

(ii) during any two (2)-year period, individuals who at the date on which the
period commences constitute a majority of the Board (the “Incumbent Directors”)
cease to constitute a majority thereof for any reason; provided, however, that a
Board member who was not an Incumbent Director shall be deemed to be an
Incumbent Director if such Board member was elected by, or on the recommendation
of, at least two-thirds of the Incumbent Directors (either actually or by prior
operation of this provision), other than any Board Member who is so approved in
connection with any actual or threatened contest for election to positions on
the Board; or

(iii) the stockholders of the Company approve a merger or consolidation (other
than a transaction involving only the Company and one or more of its
subsidiaries) of the Company with any other company other than (i) a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than fifty percent (50%) of the combined voting power of
the voting securities of the Company (or such surviving entity) outstanding
immediately after such merger or consolidation, or (ii) a merger or
consolidation effected to implement a recapitalization of the Company (or
similar transaction) in which no “person” (as defined in Sections 13(d) and
14(d) of the Exchange Act) acquires more than fifty percent (50%) of the
combined voting power of the Company’s then outstanding securities; or

(iv) the stockholders of the Company approve an agreement or adopt a plan
relating to the complete liquidation of the Company or approve an agreement for
the sale or disposition by the Company of all or substantially all of the
Company’s assets.

 

  4. Method of Exercising Option.

(a) Notice of Exercise. The Optionee or the Optionee’s representative may
exercise the Option by giving written notice to the Company. The notice shall
specify the election to exercise the Option, the number of Shares for which it
is being exercised and

 

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the form of payment. The notice shall be signed by the person exercising the
Option. In the event that the Option, or portion thereof, is being exercised by
the representative of the Optionee, the notice shall be accompanied by proof
(satisfactory to the Company) of the representative’s right to exercise the
Option. The Optionee or the Optionee’s representative shall deliver to the
Company, at the time of giving the notice, payment in a form permissible under
Section 5 for the full amount of the Purchase Price. For purposes of this
Agreement, “Purchase Price” shall mean the exercise price set forth in Section 2
above multiplied by the number of Shares with respect to which the Option is
being exercised.

(b) Issuance of Shares. After receiving a proper notice of exercise, the Company
shall cause to be issued a certificate or certificates for the Shares as to
which the Option has been exercised, registered in the name of the person
exercising the Option (or in the names of such person and his or her spouse as
community property or as joint tenants with right of survivorship). The Company
shall cause such certificate or certificates to be delivered to or upon the
order of the person exercising the Option.

(c) Withholding Taxes. In the event that the Company determines that it is
required to withhold any tax as a result of the exercise of the Option, the
Optionee, as a condition to the exercise of the Option, shall make arrangements
satisfactory to the Company to enable it to satisfy all withholding
requirements. The Optionee shall also make arrangements satisfactory to the
Company to enable it to satisfy any withholding requirements that may arise in
connection with the vesting or disposition of Shares purchased by exercising the
Option.

 

  5. Payment For Stock.

The Purchase Price for any Shares purchased pursuant to the exercise of an
Option may be paid as set forth below and otherwise in accordance with
Section 8.2 of the Plan:

(a) Cash. All or part of the Purchase Price may be paid in cash or cash
equivalents.

(b) Surrender of Stock. At the discretion of the Committee, all or any part of
the Purchase Price may be paid by surrendering, or attesting to the ownership
of, Shares that are already owned by the Optionee. Such Shares shall be
surrendered to the Company in good form for transfer and shall be valued at
their Fair Market Value on the day preceding the date when the Option is
exercised. The Optionee shall not surrender, or attest to the ownership of,
Shares in payment of the purchase price if such action would cause the Company
to recognize compensation expense (or additional compensation expense) with
respect to the Option for financial reporting purposes.

(c) Exercise/Sale. At the discretion of the Committee, all or part of the
Purchase Price and any withholding taxes may be paid by the delivery (on a form
prescribed by the Company) of an irrevocable direction to a securities broker
approved by the Company to sell Shares and to deliver all or part of the sales
proceeds to the Company.

 

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  6. Option Terms and Exercise Period.

(a) The Option shall be exercised, and payment by the Optionee of the Option
price shall be made, pursuant to the terms of the Plan and this Agreement.

(b) Except as otherwise provided for in the Plan or in this Agreement, the
Option shall terminate on the earlier of (i) the tenth (10th) anniversary (the
fifth (5th) anniversary if the Optionee is a Ten Percent Shareholder) of the
date of this Agreement, or (ii) the date the Option is fully exercised.

(c) Upon the termination of the Optionee’s service as a director of the Company
for any reason other than death, such Optionee is Totally and Permanently
Disabled or retirement on or after the age of 65 of the Optionee, the Option
shall expire and terminate on the earliest of the following occasions:

(i) The termination date determined pursuant to Subsection (b) above; or

(ii) The date ninety (90) days after the termination of the Optionee’s service
as a director of the Company for any reason.

The Optionee may exercise all or part of the Option at any time before its
termination under the preceding sentence, but only to the extent that the Option
had become exercisable (i.e., vested) before the effective date of the
termination of the Optionee’s service as a director of the Company. In the event
that the Optionee dies after his or her termination of service as a director of
the Company but before the expiration of the Option, all or part of the Option
may be exercised (prior to expiration) by the executors or administrators of the
Optionee’s estate or by any person who has acquired the Option directly from the
Optionee by beneficiary designation, bequest or inheritance, but only to the
extent that the Option had become exercisable before the Optionee’s service as a
director of the Company terminated.

(d) Upon the termination of the Optionee’s service as a director of the Company
by reason of death, such Optionee is Totally and Permanently Disabled or
retirement on or after the age of 65 of the Optionee, the Option shall expire
and terminate on the termination date determined pursuant to Subsection
(b) above.

All or part of the Option may be exercised at any time before its expiration
under the preceding sentence by the executors or administrators of the
Optionee’s estate or by any person who has acquired this option directly from
the Optionee by beneficiary designation, bequest or inheritance, but only to the
extent that the Option had become exercisable before the Optionee’s death. When
the Optionee dies, the Option shall expire immediately with respect to the
number of Shares for which the Option is not yet exercisable.

 

  7. Restrictions on Transfer of Option.

This Agreement and the Option shall not be transferable otherwise than by will
or by the laws of descent and distribution, and the Option shall be exercisable,
during the Optionee’s lifetime, solely by the Optionee or his or her guardian or
legal representative; provided, however, that the Optionee may transfer the
Option, or a part thereof, by gift to his or her Family Members. The terms of
the Option shall be binding upon the Family Members, beneficiaries, executors,
administrators, heirs and successors of the Optionee

 

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  8. Regulation by the Committee.

This Agreement and the Option shall be subject to any administrative procedures
and rules as the Committee shall adopt. All decisions of the Committee upon any
question arising under the Plan or under this Agreement, shall be conclusive and
binding upon the Optionee and any person or persons to whom any portion of the
Option has been transferred by will or by the laws of descent and distribution.

 

  9. Rights as a Shareholder.

The Optionee shall have no rights as a shareholder with respect to Shares
subject to the Option until certificates for Shares are issued to the Optionee.

 

  10. Reservation of Shares.

With respect to the Option, the Company hereby agrees to at all times reserve
for issuance and/or delivery upon payment by the Optionee of the Option price,
such number of Shares as shall be required for issuance and/or delivery upon
such payment pursuant to the Option.

 

  11. Delivery of Share Certificates.

Within a reasonable time after the exercise of the Option, the Company shall
cause to be delivered to the Optionee, his or her legal representative or his or
her beneficiary, a certificate for the Shares purchased pursuant to the exercise
of the Option.

 

  12. Amendment.

The Board may amend this Agreement at any time and from time to time; provided,
however, that no amendment of this Agreement that would alter or impair any of
the Optionee’s rights or obligations with respect to the Option shall be
effective without the written consent of the Optionee.

 

  13. Capital Changes and Business Successions.

It is the purpose of this Option to encourage the Optionee to work for the best
interests of the Company and its stockholders. Since, for example, that might
require the issuance of a stock dividend or a merger with another corporation,
the purpose of this Option would not be served if such a stock dividend, merger
or similar occurrence would cause the Optionee’s rights hereunder to be diluted
or terminated and thus be contrary to the Optionee’s interest. Therefore,
provisions in the Plan for adjustment with respect to stock subject to options
and the related provisions with respect to successors to the business of the
company are hereby made applicable hereunder and are incorporated herein by
reference.

 

  14. Plan Terms.

The terms of the Plan are hereby incorporated herein by reference.

 

  15. Effective Date of Grant.

The Option shall be effective as of the date first written above.

[Signature Page Follows]

 

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  16. Optionee Acknowledgment.

By executing this Agreement, the Optionee hereby acknowledges that he or she has
received and read the Plan and this Agreement and that he or she agrees to be
bound by all of the terms of both the Plan and this Agreement.

 

ATTEST:    ROTECH HEALTHCARE INC.

 

   By:  

 

   Its:  

 

WITNESS:     

 

  

 

   OPTIONEE    Print name

 

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