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                                                                   Exhibit 10.12

                              EMPLOYMENT AGREEMENT
                              --------------------

         THIS AGREEMENT is made and entered into this 1st day of November, 2002,
by and between Rotech Healthcare Inc., a Delaware corporation (together with its
successors and assigns, the "Company"), and Philip L. Carter (the "Executive").

         WHEREAS, the Company desires to employ the Executive and to enter into
an agreement embodying the terms of such employment (this "Agreement"), and the
Executive desires to accept such employment and enter into this Agreement.

         NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein and for other good and valuable consideration, the Company and
the Executive (the "parties"), hereby agree as follows:

1     Employment; Duties; Acceptance and Term

1.1     The Company hereby employs the Executive as President and Chief
        Executive Officer ("CEO") and the Executive agrees to be so employed
        during the Employment Period (as defined in Section 1.4 hereof), and as
        such the Executive shall report directly to the Board of Directors of
        the Company (the "Board").

1.2     During the Employment Period (as defined in Section 1.4 hereof), the
        Executive will be responsible for (a) managing the business and affairs
        of the Company, (b) the day-to-day operations of the Company, (c) all
        personnel related decisions, including but not limited to, employee
        hiring and terminations and retention of consultants or other
        contractors, and (d) such other or changed responsibilities as shall be
        determined from time to time by the Board. All staff in the Company's
        offices are expected to report to the Executive through their managers
        or as otherwise determined by the Board. In addition, with the approval
        of the Board, the Executive shall serve on the boards of directors and
        hold executive positions at certain other subsidiary and affiliated
        companies of the Company (each such related entity referred to
        individually as a "Group Affiliate"). The Executive shall take all such
        actions as may be required to fulfill his duties as President and CEO or
        which may be necessary to carry out any additional responsibilities as
        may be given to the Executive by the Board, including responsibilities
        concerning or related to Group Affiliates.

1.3     The Executive shall devote his full business time and attention to the
        business of the Company, including such additional duties and
        responsibilities to which he is assigned by the Board, during the
        Employment Period and shall not, during such period, be engaged in any
        other business activity, whether or not such business activity is
        pursued for gain, profit or other pecuniary or non-pecuniary advantage,
        without the prior written and informed consent of the Board.
        Notwithstanding the above, the Executive may (a) serve on the boards of
        directors of charitable or other organizations and companies not
        competing with

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        the Company or any Group Affiliate or as an unpaid officer of a
        charitable organization, (b) manage his own personal investments and
        affairs, and (c) continue to serve as a director of Mazelle; provided,
        however, that such activities do not interfere with the execution of
        the Executive's duties hereunder, do not otherwise violate any
        provision of this Agreement or otherwise conflict in any way with the
        business of the Company or any Group Affiliate. The Executive shall not
        accept, directly or indirectly, any compensation, remuneration or other
        thing of value from any individual or entity which has or may have the
        prospect of a business relationship with the Company or any Group
        Affiliate, other than a gift of immaterial value, without the prior
        written and informed consent of the Board.

1.4     Unless earlier terminated pursuant to Section 3 of this Agreement, the
        Executive's employment with the Company under this Agreement shall be
        for an initial term of four (4) years, commencing no later than December
        9, 2002 and continuing until the four (4) year anniversary of the actual
        date the Executive commences his employment (the "Initial Employment
        Period"). The term of the Executive's employment under this Agreement
        shall be automatically renewed for additional one-year terms (each a
        "Renewal Period") upon the expiration of the Initial Employment Period
        or any Renewal Period unless the Company or the Executive delivers to
        the other, at least one hundred and eighty (180) days prior to the
        expiration of the Initial Employment Period or the then current Renewal
        Period, as the case may be, a written notice specifying that the term of
        the Executive's employment will not be renewed at the end of the Initial
        Employment Period or such Renewal Period, as the case may be. The period
        from the actual date the Executive commences his employment with the
        Company until the fourth anniversary of said date or, in the event that
        the Executive's employment hereunder is earlier terminated as provided
        in Section 3 hereof or renewed as provided in this Section 1.4, such
        shorter or longer period, as the case may be, is hereinafter called the
        "Employment Period".

1.5     The Executive acknowledges and agrees that he shall be required to
        observe all lawful rules and policies of the Company.

1.6     The Executive agrees that he shall not knowingly participate in any
        activity that is detrimental to the interests of the Company, interferes
        with the performance of his duties hereunder or otherwise constitutes a
        conflict of interest.

1.7     The Executive acknowledges that the Company and its Board will encourage
        the Executive to purchase at least 100,000 shares of Rotech Healthcare
        common stock in the open market no later than the six (6) month
        anniversary of the commencement of the Executive's employment; provided,
        however, that such purchase or purchases of shares shall comply with all
        internal Company policies, including, but not limited to, policies
        concerning the purchase or sale of Company securities, and any
        applicable securities laws.

1.8     The Executive's primary location of employment shall be at the Company's
        corporate headquarters located in Orlando, Florida.

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2     Compensation and Benefits

2.1     During the Employment Period and in consideration of the services
        performed by the Executive for the Company, the Company will pay to the
        Executive a Base Salary at an annual rate of Seven Hundred Thousand U.S.
        Dollars ($700,000.00), subject to applicable payroll withholdings and
        deductions, to be paid in substantially equal installments pursuant to
        the Company's standard payroll practice (such salary, as increased from
        time to time, being the "Base Salary"). The Executive's Base Salary
        shall be reviewed by the Board or the compensation committee thereof
        (the "Compensation Committee") a minimum of one time each year
        commencing on the one year anniversary of the Commencement Date.

2.2     In addition to Base Salary, the Executive shall be eligible to receive
        an annual bonus targeted at one hundred percent (100%) of his Base
        Salary ("Target Bonus"). The Board and/or the Compensation Committee, at
        its or their discretion, in conjunction with non-binding consultation
        with the Executive, shall determine the exact amount of such bonus, if
        any, based on Company and individual performance goals, criteria and
        targets established by the Board and/or the Compensation Committee,
        which terms shall be disclosed to the Executive in writing within one
        hundred and twenty (120) days of the Effective Date (as defined below)
        of this Agreement and thereafter on an annual basis. The annual
        incentive bonus provided for in this Section 2.2 may exceed the Target
        Bonus if the Board and/or the Compensation Committee determine(s) that
        the Executive and the Company's performance exceeded the targeted
        levels. Such Target Bonus shall be payable within ninety (90) days of
        the close of each calendar year during the Employment Period. The Board
        and/or the Compensation Committee shall review the Target Bonus and
        related terms on an annual basis and may increase (but not decrease) the
        Target Bonus.

2.3     The Company shall pay or reimburse the Executive for all reasonable
        expenses actually incurred or paid by him during the period of his
        employment hereunder in the performance of his services under this
        Agreement, upon timely presentation of expense statements or vouchers or
        such other supporting information as the Company may require.

2.4     The Company shall purchase the Executive's Mercedes Benz automobile at
        book value as determined by GECC Fleet Services, the Company's leasing
        vendor. Following the purchase, the Executive will be entitled to use of
        the vehicle during the Employment Term and the Company shall reimburse
        the Executive for all normal and customary expenses associated with the
        operation of such automobile (e.g., insurance, gasoline and
        maintenance).

2.5     The Company shall provide to the Executive medical and disability
        benefits and insurances and coverage under applicable employee benefit
        plans provided generally to senior executives of the Company, including,
        but not limited to, life insurance, accident, medical, dental,
        disability and retirement plans and programs, pursuant to the terms,
        conditions and limitations of the Company's plans and its regulations
        then in effect and as they may be modified from time to time; provided,
        however, that because the terms of the Executive's severance package is
        covered by this Agreement, he is not eligible to participate in or for

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        coverage under any Company separation, severance or change of control
        plan, policy or benefit or similar program, unless such program or
        policy explicitly states that it will apply to the Executive without
        limitation under this Section 2.5 of the Agreement.

2.6     The Executive shall be entitled to non-cumulative paid vacation in the
        amount of four (4) weeks of paid vacation per calendar year. No more
        than two (2) weeks of accrued but unused vacation in each calendar year
        shall be carried forward to the next year; provided, however, that at no
        time during the Employment Period, regardless of the amount of vacation
        accrued by the Executive, shall the Executive be entitled to take more
        than six (6) weeks of vacation in any single calendar year. The
        Executive shall not be entitled to receive a payment for any accrued but
        unused vacation unless and except as expressly set forth in this
        Agreement. The Executive will schedule his vacations subject to the
        operating needs of the Company.

2.7     The Board has approved and the Executive shall be issued pursuant to an
        agreement (the "Stock Option Agreement") a stock option to purchase
        750,000 shares of the Company's common stock, $0.01 par value per share
        (the "Options"), pursuant to the Rotech Healthcare Inc. 2002 Stock
        Option Plan (the "Plan").

        (a) Vesting; Exercisability. The Options shall vest (and thereby become
        exercisable) over a period of four (4) years pursuant to the terms of
        the Stock Option Agreement and the Plan; provided, however, that, on the
        first anniversary of the Effective Date of this Agreement, 150,000 of
        the Options may be cancelled by the Board of Directors of the Company in
        its reasonable discretion based upon performance.

        (b) Change of Control. In the event of a Change of Control, the Options
        shall immediately become fully vested and exercisable. For purposes of
        this Agreement, a "Change of Control" shall be deemed to have occurred
        if, after the Effective Date of this Agreement, there shall have
        occurred any of the following: (i) any "person," as such term is used in
        Section 13(d) and 14(d) of the Securities Exchange Act of 1934 (the
        "Exchange Act"), other than the Company, any trustee or other fiduciary
        holding securities under an employee benefit plan of the Company or a
        Group Affiliate, or any company owned, directly or indirectly, by the
        shareholders of the Company in substantially the same proportions as
        their ownership of stock of the Company, acquires beneficial ownership
        (as defined under Section 13(d) of the Exchange Act) of voting
        securities of the Company and immediately thereafter is a "50%
        Beneficial Owner." For purposes of this provision, a "50% Beneficial
        Owner" shall mean a person who is the "beneficial owner" (as defined
        under Section 13(d) of the Exchange Act), directly or indirectly, of
        securities of the Company representing more than 50% of the combined
        voting power of the Company's then-outstanding voting securities;
        provided, however, that the term "50% Beneficial Owner" shall not
        include any person who was a

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        beneficial owner of outstanding voting securities of the Company at the
        Effective Date (an "Existing Shareholder"), including any group that may
        be formed which is comprised solely of Existing Shareholders or any
        affiliate of an Existing Shareholder to whom voting securities may be
        transferred if and for so long as the Existing Shareholder remains an
        indirect beneficial owner of the voting securities following such
        transfer, unless and until such time after the Effective Date as any
        such Existing Shareholder shall have acquired beneficial ownership
        (other than by means of a stock dividend, stock split, gift, inheritance
        or receipt of securities in compensation for individual services as a
        director or officer of the Company) of any additional voting securities
        of the Company; (ii) during any period of two (2) consecutive years
        commencing on or after the Effective Date, individuals who at the
        beginning of such period constitute the Board, and any new director
        (other than a director designated by a "person" (as defined above) who
        has entered into an agreement with the Company to effect a transaction
        described in subsections (i), (iii) or (iv) of this definition) whose
        election by the Board or nomination for election by the Company's
        shareholders was approved by a vote of at least two-thirds (2/3) of the
        directors then still in office who either were directors at the
        beginning of the period or whose election or nomination for election was
        previously so approved (the "Continuing Directors"), cease for any
        reason to constitute at least a majority thereof; (iii) the shareholders
        of the Company have approved a merger, consolidation, recapitalization,
        or reorganization of the Company, or a reverse stock split of any class
        of voting securities of the Company, or the consummation of any such
        transaction if shareholder approval is not obtained, other than any such
        transaction which would result in at least 50% of the combined voting
        power of the voting securities of the Company or the surviving entity
        outstanding immediately after such transaction being beneficially owned
        by persons who together beneficially owned at least 80% of the combined
        voting power of the voting securities of the Company outstanding
        immediately prior to such transaction with the relative voting power of
        each such continuing holder compared to the voting power of each other
        continuing holder not substantially altered as a result of the
        transaction; provided that, for purposes of this Section 2.7(b)(iii),
        such continuity of ownership (and preservation of relative voting power)
        shall be deemed to be satisfied if the failure to meet such 50%
        threshold (or to substantially preserve such relative voting power) is
        due solely to the acquisition of voting securities by an employee
        benefit plan of the Company or Group Affiliate, such surviving entity or
        a subsidiary thereof; and provided further, that, if consummation of the
        corporate transaction referred to in this Section 2.7(b)(iii) is
        subject, at the time of such approval by shareholders, to the consent of
        any government or governmental agency or approval of the shareholders of
        another entity or other material contingency, no Change of Control shall
        occur until such time as such consent and approval has been obtained and
        any other material contingency has been satisfied; or (iv) the
        shareholders of the Company have approved a plan of complete liquidation
        of the Company or an agreement for the sale or disposition by the
        Company of all or substantially all of the Company's assets (or any
        transaction having a similar effect); provided that, if consummation of
        the transaction referred to in this Section 2.7(b)(iv) is subject, at
        the time of such approval by shareholders, to the consent of any
        government or governmental agency or approval of the shareholders of
        another entity or other material contingency, no Change of Control shall
        occur until such time as such consent and approval has been obtained and
        any other material

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        contingency has been satisfied.

        The foregoing notwithstanding, a transaction shall not constitute a
        Change of Control if its sole purpose is to change the state of the
        Company's incorporation. In addition, an initial public offering ("IPO")
        of the securities of the Company shall not constitute a Change of
        Control for purposes of this Agreement.

        (c) IPO. In the event of an IPO, the vesting of the Options shall
        accelerate by one (1) year.

        (d) Pricing of Options. The exercise or strike price of the Options
        shall be determined as follows: the highest average seven (7) day
        closing price of Rotech Healthcare, Inc. [ROHI.PK] common stock in the
        sixty (60) day period immediately following the announcement of the
        employment of the Executive as the CEO of the Company (the "Measurement
        Period"), with a minimum of $16 per share and a maximum of $20 per
        share. In the event that at any time during the Measurement Period the
        stock price exceeds $20 per share, the exercise price for the Options
        shall be set at $20 per share and the Measurement Period shall
        terminate.

        (e) General. Except as otherwise provided for in this Agreement, the
        terms and conditions regarding vesting, transfer, exercise and
        termination of the Option shall be set forth within and governed by the
        Stock Option Agreement and the Plan. The Executive shall be eligible for
        grants of additional stock options during the Employment Period, in
        accordance with the terms of Company plans and determinations of the
        administrators of such plans.

2.8     The Executive agrees to permanently relocate to the Orlando, Florida
        metropolitan area by no later than July 1, 2003. The Company will
        reimburse the Executive for all reasonable and customary real estate
        brokerage commissions and moving expenses incurred by the Executive with
        respect to the sale of his home in California as well as any loan
        origination fees. In addition, the Company will pay to the Executive one
        (1) months' base salary to cover miscellaneous costs and expenses
        associated with this relocation. The amount of relocation expenses and
        payments actually paid to the Executive pursuant to this paragraph shall
        be appropriately grossed up by the Company with all withholding taxes
        with respect thereto to be paid by the Company on behalf of the
        Executive.

2.9     Nothing contained herein shall prevent the Company from modifying or
        terminating at any time any Company-wide plan, policy, benefit or
        program. However, the Company may also make available other policies,
        benefits or programs.

3      Termination of Employment Relationship

3.1     The Executive's employment with the Company shall automatically
        terminate, and the Employment Term shall thereupon terminate:

3.1.1   Upon the Executive's death;

3.1.2   Upon the Company's written notice to the Executive (or his guardian if
        applicable) of the

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        termination of his employment due to Incapacity (as that term is defined
        hereinafter);

3.1.3   In the event this Agreement is not renewed by the Company at the
        expiration of the Initial Employment Period or any Renewal Period, if
        applicable, following delivery by the Company to the Executive of the
        non-renewal notice pursuant to Section 1.4 above;

3.1.4   Upon the Company's written notice to the Executive of the termination of
        his employment for Cause (as that term is defined below), provided that
        termination will deemed to be under this Section 3.1.4 only if Cause in
        fact exists;

3.1.5   Upon not less than thirty (30) days' written notice from the Company to
        the Executive of the termination of his employment without Cause;

3.1.6   Upon the termination of the Executive's employment by the Executive for
        Good Reason (as defined below);

3.1.7   Upon not less than thirty (30) days' written notice from the Executive
        to the Company of his voluntary resignation, if the termination is not
        otherwise subject to Section 3.1.6; provided, however, that such
        voluntary resignation shall not relieve or release the Executive from
        any breach of this Agreement at or prior to the time of such
        resignation; or

3.1.8   Upon the closing of a Change of Control (as that term is defined in
        Section 2.7(b), above) and the payment to the Executive of the
        Separation Benefit (as that term is defined in Section 4.2, below).

3.2     As used herein, the following terms shall have the meanings set forth
        below:

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3.2.1   For purposes of this Agreement "Cause" shall be limited to the
        following: (a) the conviction of the Executive, or the entry by the
        Executive of a plea of guilty or nolo contendere to any felony under the
        laws of the United States or any state or political subdivision thereof,
        (b) the Executive's engagement in conduct constituting breach of
        fiduciary duty, willful misconduct or gross negligence relating to the
        Company or the performance of the Executive's duties (including acts of
        employment discrimination or sexual harassment) or fraud, (c) the
        Executive's breach of any material term of this Agreement, (d) the
        Executive's willful failure to follow a reasonable and lawful directive
        of the Board within the scope of the Executive's duties (which shall be
        capable of being performed by the Executive with reasonable effort)
        after written notice specifying the performance required and the
        Executive's failure to perform within thirty (30) days after such
        notice, or (e) the Executive's substantial and continued failure to
        perform the Executive's material duties, including, without limitation,
        the responsibilities and duties set forth in Section 1.2 above, in a
        satisfactory manner after written notice specifying the areas in which
        performance is unsatisfactory and, if subject to cure, the Executive's
        failure to perform within thirty (30) days after such notice, (f) the
        Executive's breach of any of the Executives covenants under Section 6 of
        this Agreement, and (g) the Executive's disparagement of the Company or
        any Group Affiliate or any of their collective executives, shareholders,
        directors, or officers in any written or oral communication and such
        disparagement has a materially adverse effect on the reputation,
        goodwill or business of the Company or Group Affiliate. Any notice
        required to be provided to the Executive under this Section 3.2.1 shall
        state that failure to cure within the applicable period will result in
        termination under this Section 3.2.1.

3.2.2   For purposes of this Agreement, "Incapacity" shall mean: the Executive's
        incapacitation due to illness, accident or other disability which
        renders him substantially unable to perform his normal duties hereunder
        for a period aggregating at least one hundred eighty (180) days during
        any period of three hundred sixty-five (365) consecutive days, and no
        reasonable accommodation being available which would permit the
        Executive to perform the essential functions of the Executive's
        position.

3.2.3   For purposes of this Agreement, "Good Reason" shall mean the occurrence
        of one or more of the following events: (a) the Company's failure to pay
        the Executive's Base Salary, earned bonus or additional earned
        compensation or its material failure to continue benefits or perquisites
        to the Executive hereunder in accordance with the terms of this
        Agreement, (b) a decrease in the then-current Base Salary or Target
        Bonus of the Executive, (c) without the Executive's written consent,
        requiring the Executive to regularly report to work at a facility more
        than seventy-five (75) miles from the location of his employment at the
        time of the execution of this Agreement, (d) without the Executive's
        written consent, the directing to the Executive of any duties or
        responsibilities which are materially inconsistent with the Executive's
        then current duties, responsibilities, positions and/or titles, (e)
        without the Executive's written consent, a material reduction in the
        Executive's title, duties, positions or responsibilities or a
        substantial adverse alteration in the nature or status of the
        Executive's titles or

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        responsibilities, (f) without the Executive's written consent, the
        failure by the Company to continue in effect any material employee
        benefit or compensation plan including, but not limited to, any life
        insurance plan, health insurance plan or related covenant and accidental
        death or disability plan in which the Executive then participates unless
        (i) such benefit or compensation plan, life insurance plan, health
        insurance plan, or accidental death or disability plan or similar plan
        is replaced with a comparable plan in which the Executive will
        participate or which will provide the Executive with comparable
        benefits, or (ii) the Company requests that the Executive seek
        comparable coverage under another such plan(s) and the Company
        reimburses the Executive in full for such coverage, or (g) in the event
        of the assignment of this Agreement to a third party, the failure of the
        assignee or successor entity to agree to be bound to the terms of this
        Agreement. In the event the Executive believes Good Reason to exist, he
        must provide the Company with written notice, within ninety (90) days of
        his first knowledge of the incident, condition or event, specifying the
        bases for his belief that Good Reason exists. If the Company shall not
        have cured or eliminated the event constituting Good Reason within
        thirty (30) days after receipt of the Executive's written notice, upon
        expiration of such 30-day period, the Executive's employment hereunder
        shall automatically be terminated.

4     Effect of Termination.

4.1     Upon termination of the Executive's employment and the Employment Period
        for any reason, the Company shall compensate the Executive (or, in the
        event of the Executive's death, his surviving spouse, if any, or his
        estate) for: (a) accrued but unused vacation time, (b) any Base Salary
        earned but unpaid for services rendered to the Company on or prior to
        the date of termination, (c) any accrued and unpaid bonus earned or
        awarded to the Executive, (d) except in the case of a termination under
        Section 3.1.4 (termination for Cause) or 3.1.7 (voluntary termination by
        the Executive without Good Reason), an amount equal to a pro rata
        portion of the current year's Target Bonus based on the portion of the
        year expired as of the date of termination, and (e) unreimbursed
        business expenses in accordance with the Company's expense reimbursement
        policy in effect at the time the expenses were incurred, all without
        regard to the performance by the Executive of further services or the
        resolution of any contingency, but subject to any and all rights,
        remedies and claims of the Company against the Executive. These amounts
        will be paid in a lump-sum within thirty (30) days after termination.

4.2     In the event the Executive's employment is terminated or otherwise ends
        during the Employment Period pursuant to Section 3.1.5 or 3.1.6, the
        Company shall, in addition to the payments provided in Section 4.1, (a)
        pay to the Executive a lump-sum severance payment equal to three (3)
        times (3X) the sum of the Executive's then current Base Salary plus the
        full amount of the Target Bonus for the year in which the termination
        occurs, (b) continue to provide for a period of twenty-four (24) months
        following the date of termination of employment (or until such earlier
        date that substantially the same or better benefits are provided by a
        successor employer) all of the benefits set forth in Section 2.5
        (excluding further contributions in the 401(k) plan) herein, including,
        but not limited to,

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        health insurance benefits (for the Executive and his spouse and
        dependents, if applicable), life insurance and disability insurance
        benefits referenced herein (or if the Executive is not eligible to
        remain so covered by the Company's benefit plans, the Company shall pay
        for or reimburse the Executive for the cost of COBRA insurance premiums,
        and the costs associated with other continuing benefits provided herein,
        including the cost of life insurance and disability benefits on a
        monthly basis, in advance), and (c) pay the costs of up to twelve (12)
        months of executive-level outplacement services at a major outplacement
        services firm (collectively, the "Separation Benefit").

4.3     In the event the Executive's employment is terminated during the
        Employment Period pursuant to Sections 3.1.1 or 3.1.2, in addition to
        the payments provided for in Section 4.1, the Executive (or, in the
        event of the Executive's death, his surviving spouse, if any, or his
        estate) shall also be entitled to receive the full amount of the
        Executive's Target Bonus for the year in which the termination of
        employment occurs (less any pro rata portion separately paid under
        Section 4.1).

4.4     In the event the Executive's employment with the Company is terminated
        or otherwise ends during the Employment Period pursuant to Section
        3.1.8, the Executive shall be entitled to the Separation Benefit (as
        defined in Section 4.2, above).

4.5     The Separation Benefit is in lieu of any severance, salary or income
        continuation or protection under any Company plan, program or policy
        that may now or hereafter exist. One-third of the amounts payable under
        either Section 4.2 or Section 4.4 shall be deemed to be payment to the
        Executive for the Executive's compliance with the covenants and
        agreements under Section 5 hereof following termination of employment.
        The remaining portion of the Separation Benefit shall constitute
        liquidated damages and shall be deemed to satisfy and be in full and
        final settlement of all obligations to the Executive under this
        Agreement. In order to be eligible to receive the Separation Benefit:
        (a) the Executive must execute and deliver a full release of any and all
        claims the Executive may have against the Company and Group Affiliates,
        and their respective officers, directors, employees, shareholders,
        agents and assigns (collectively the "Releasees") arising through the
        date the release is executed and a covenant not to sue the Releasees,
        (b) any revocation period provided for in the release described in
        Section 4.5(a) must have expired, and (c) the Executive must be and
        remain in full compliance with his obligations under Section 5 of this
        Agreement.

5     Protection of Confidential Information; Non-Competition

5.1     The Executive and the Company acknowledge that the services the
        Executive provides to the Company and, if applicable, to any Group
        Affiliate are special and unique. The Executive and the Company further
        acknowledge that the business knowledge and relationships of the
        Executive acquired during his employment with the Company and
        assignments with any Group Affiliate is a critical asset of the Company
        and/or to the respective Group Affiliate. In addition, the Executive's
        work for the Company and the Group Affiliates will bring him into close
        contact with many confidential affairs of the

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        Company and the Group Affiliates that are not readily available to the
        public and plans for future developments of the Company and respective
        Group Affiliates. Accordingly, the Executive hereby agrees that, as a
        material and essential condition of his employment by the Company and in
        consideration of this Agreement and the compensation and other benefits
        provided for herein, he is subject to and encumbered by the restrictive
        covenants set forth in this Section 5 and that the Company shall have
        the right, on behalf of itself or any other Group Affiliate, to enforce
        these restrictive covenants. The Executive expressly agrees that the
        reference to the Company in this Section 5 shall mean the Company and/or
        the respective Group Affiliate and/or any of the entities or businesses
        thereof and that the restrictive covenants and other provisions to which
        he is subject pursuant to this Section 5 shall accrue to the benefit of
        and apply in favor of the Company and/or such respective Group Affiliate
        or any one of them.

5.2     The Executive hereby covenants, warrants and agrees that the Executive
        will not, during the period of his employment hereunder or at any time
        thereafter, directly or indirectly divulge, use, furnish, disclose or
        make available to anyone any Confidential Information, except as may be
        necessary for the Executive to communicate on a "need to know" basis in
        the ordinary course of performing his duties as an employee and
        executive of the Company or in his duly appointed position with one or
        more Group Affiliates.

5.3     For purposes of this Agreement, "Confidential Information" shall mean
        any and all information, data and knowledge that (a) has been created,
        discovered, developed or otherwise become known to the Company or any
        Group Affiliate (including, without limitation, information, data and
        knowledge created, discovered, developed, or made known by the Executive
        during the period of or arising out of his employment by the Company or
        assignment with any Group Affiliate) or in which property rights have
        been assigned or otherwise conveyed to the Company or Group Affiliate,
        which information, data or knowledge has commercial value in the
        business in which the Company or Group Affiliate is engaged, except such
        information, data or knowledge as is or becomes known to the public
        without violation of the terms of this Agreement, or (b) arises out of
        or relates to the business affairs of the Company or Group Affiliate
        (including without limitation, any information which the Company or
        Group Affiliate considers to be privileged). By way of illustration, but
        not limitation, Confidential Information includes financial information,
        referral source information, product information, supply and service
        information, marketing information, data compilations, source code,
        personnel information, customer information, trade secrets, business and
        customer links and relations, customer lists, contact lists or
        information, processes, know-how, improvements, discoveries,
        developments, designs, inventions, training methods, sales techniques,
        marketing plans, strategies, forecasts, new products, unpublished
        financial statements or parts thereof, budgets, projections, licenses,
        prices, costs, and employee, customer and supplier lists or parts
        thereof, terms of supply or service contracts, terms of agreements
        between customers and the Company and any information relating to the
        business affairs of the Company or Group Affiliate, in whatever form
        maintained. The Executive further acknowledges that such Confidential
        Information would inevitably be disclosed were he to become employed

                                       11

<PAGE>

        by, engaged by or otherwise provide competitive services to a competitor
        of the Company and/or any Group Affiliate.

5.4     The Executive represents and warrants that all ideas, creations,
        improvements and other works of authorship created, developed, written
        or received by the Executive at any time during his employment by the
        Company and relating to the Company's business and/or operations
        (collectively, "Resources") are (a) works for hire within the scope of
        his employment, and (b) the sole and exclusive property of the Company
        free of any claim whatsoever by the Executive and/or any person claiming
        any rights or interests through the Executive.

5.5     The Executive hereby covenants, warrants and agrees that he shall not,
        directly or indirectly, make or retain a copy of, nor make or cause to
        be made any notes of, nor remove or cause to be removed from the
        premises of the Company or any Group Affiliate, any document, notation
        or recording, whether mechanically or electronically or physically or
        mentally or otherwise maintained or copied, incorporating any trade
        secret, Resources or other Confidential Information belonging to or
        relating to the Company or any Group Affiliate unless such copying or
        making of notes is necessary for the proper and efficient discharge of
        his duties on behalf of the Company or Group Affiliate, provided,
        however, that if the Board had authorized removal or copying of such
        trade secrets, Resources or other Confidential Information, the
        Executive shall return such document, papers, copies or notes to the
        Company forthwith after the authorized purpose has ceased or has been
        completed or on the demand of the Company.

5.6     In the event of the termination of employment of the Executive, whether
        by the Company or by the Executive and for whatever reason, the
        Executive hereby covenants, warrants and agrees that the Executive will
        immediately deliver to the Company, within three (3) days of such
        termination or as otherwise directed by the Board: (a) all Confidential
        Information, specifically including but not limited to Resources, in
        whatever form it is maintained or it exists; (b) all other documents,
        reports, notes, customer lists, customer data, business plans,
        specifications, programs, computer printouts and data and all other
        materials of any nature, whether originals or reproductions and is
        whatever form maintained or they exist, pertaining to the Company or any
        Group Affiliate, the business affairs of the Company or any Group
        Affiliate or the Executive's work with the Company or Group Affiliate,
        and the Executive will not, directly or indirectly, take or possess, or
        deliver to any other person or entity, any of the foregoing or any
        reproduction or variation of any of the foregoing; and (c) any and all
        other property or equipment which is properly the property of the
        Company or respective Group Affiliate.

5.7     During the period of his employment and for a period of eighteen (18)
        months following the voluntary or involuntary termination of his
        employment hereunder, and regardless of the circumstances of such
        termination, the Executive hereby covenants, warrants and agrees that
        the Executive will not, as an individual, agent, partner, investor,
        officer or

                                       12

<PAGE>

        employee of a corporation or any other entity or in any other capacity,
        directly or indirectly (a) solicit or induce, or in any manner attempt
        to solicit or induce, any person employed by or acting as an agent of
        the Company or any Group Affiliate to leave his or her employment with
        or engagement by the Company or Group Affiliate or to join another
        enterprise or company which is engaged in the Business of the Company or
        in any way competes with the Company or Group Affiliate in any of their
        business areas or interests or in any way competes with the Company or
        Group Affiliate as an employee or agent; or (b) hire, contract with or
        otherwise employ or engage any current employee of the Company (or any
        former employee who had been employed by the Company within sixty (60)
        days of such hire or engagement or attempt to hire, engage or contract
        by the Executive), agent or consultant of the Company or Group Affiliate
        to join another common enterprise or entity which is engaged in the
        Business. For purposes of this Agreement, the term "Business" shall mean
        an enterprise of which its primary business is durable medical equipment
        and/or home respiratory products or services (e.g., without limitation,
        Lincare Holdings Inc. or Apria Healthcare Essentials, LLP).

5.8     During the period of his employment and for a period of two (2) years
        following the voluntary or involuntary termination of his employment
        hereunder, and regardless of the circumstances of such termination, the
        Executive shall not, as an individual, agent, partner, investor, officer
        or employee of a corporation or any other entity or in any other
        capacity, directly or indirectly (a) induce or attempt to induce any
        customer or supplier of the Company or any Group Affiliate to cease
        being a customer or supplier of the Company or Group Affiliate; (b)
        induce or attempt to induce any customer or supplier of the Company or
        Group Affiliate to become a customer or supplier of any person, firm or
        corporation which is engaged in the business of home medical equipment,
        home oxygen therapy, products and services and durable medical equipment
        and related specialty healthcare services and products or in any way
        competes with the Company or Group Affiliate in any of their business
        areas or interests; (c) enter the employ of, or render any services to,
        any person, firm or corporation which is engaged in the Business or that
        in any way competes with the Company or Group Affiliate in any of its
        business areas or interests in the United States or any other
        jurisdictions as to which the Executive has performed services for the
        Company and/or any Group Affiliate; (d) interfere with the business
        relationships or prospective business relationships of the Company
        and/or any Group Affiliate; or (e) otherwise compete with the Company or
        Group Affiliate in the United States or any other jurisdiction as to
        which the Executive has performed services for the Company and/or Group
        Affiliate.

5.9     The Executive covenants, warrants and agrees that, during the period of
        his employment by the Company and for a period of two (2) years after
        the termination of his employment, regardless or the circumstances of
        such termination, he shall immediately provide a copy of this Agreement
        to any prospective employer or other entity in connection with any
        consideration of the Executive for employment or engagement elsewhere
        which may conflict with the Executive's obligations under this Agreement
        or which is in a business that competes in any manner with any of the
        business areas or interests of the Company or

                                       13

<PAGE>

        any Group Affiliate.

5.10    The Executive covenants, warrants and agrees that, during the period of
        his employment and at any time thereafter, he shall not make statements
        or representations, or otherwise communicate, directly or indirectly, in
        writing, orally, or otherwise, or take any action which may, directly or
        indirectly, disparage or be damaging to the Company, its successors,
        subsidiaries or any Group Affiliate or their respective officers,
        directors, employees, advisors, businesses or reputations, and the
        Company, its successors, subsidiaries and any Group Affiliates and their
        respective officers, employees, and agents shall not make any such
        statements or representations regarding the Executive. Notwithstanding
        the foregoing, nothing in this Agreement shall preclude the Executive or
        any other person from making truthful statements that are required by
        applicable law, regulation or legal process.

5.11    The Executive agrees to cooperate with the Company and any Group
        Affiliate, during the period of his employment and at any time
        thereafter, by making himself available to testify on behalf of the
        Company or any successor, subsidiary or affiliate of the Company, in any
        action, suit, or proceeding, whether civil, criminal, administrative, or
        investigative, and to assist the Company, or any successor, subsidiary
        or affiliate of the Company, in any such action, suit, or proceeding
        (excluding a proceeding brought by the Company or a Group Affiliate
        against the Executive or brought by the Executive against the Company or
        a Group Affiliate), by providing information and meeting and consulting
        with the Board or its representatives or counsel, or representatives or
        counsel to the Company, or any subsidiary or affiliate of the Company,
        as may be reasonably requested and after taking into account the
        Executive's responsibilities and obligations to third parties. The
        Company agrees to reimburse the Executive, on an after-tax basis, for
        all expenses actually incurred in connection with his provision of
        testimony or assistance hereunder.

5.12    If the Executive commits a breach of any of the provisions of Sections
        5.2, 5.4, 5.5, 5.6, 5.7, 5.8, 5.10 or 5.11, the Company shall have the
        right and remedy to have the provisions of this Agreement specifically
        enforced by way of a temporary restraining order and/or a preliminary
        and/or permanent injunction by any court having jurisdiction, without
        the posting of any bond or security by the Company, it being
        acknowledged and agreed by the Executive and the Company that any such
        breach will cause irreparable injury to the Company or respective Group
        Affiliate and that money damages will not provide an adequate remedy to
        the Company or to such Group Affiliate. Such right and remedy shall be
        in addition to, and not in lieu of, any other rights and remedies
        available to the Company and/or any Group Affiliate under law or in
        equity. Further, should the Company commence an action for injunctive
        relief; the Company shall have the right in the same proceeding and
        court to seek and obtain money damages caused by such breach.

5.13    If any of the covenants or other provisions contained in Sections 5.2,
        5.4, 5.5, 5.6, 5.7, 5.8, 5.10 or 5.11, or any part thereof, is hereafter
        construed to be invalid or unenforceable in any respect, the same shall
        not affect the remainder of the covenants, covenants or provisions which
        shall be given the maximum effect possible without regard to the invalid

                                       14

<PAGE>

        portions and the remainder shall then be fully enforceable.

5.14    If any of the covenants or other provisions contained in Sections 5.2,
        5.4, 5.5, 5.6, 5.7 or 5.8, or any part thereof, is hereafter held to be
        unenforceable because of the duration of such provision or the
        geographical or product/business area covered thereby, the parties agree
        that such provisions shall be reformed and construed to reduce the
        duration and/or area of such provision to the extent necessary for
        enforceability and, in its reduced form, said provision shall then be
        fully enforceable.

5.15    The covenants and other provisions of this Section 5 shall survive the
        termination of this Agreement or the voluntary or involuntary
        termination of the Executive's employment regardless of the
        circumstances of such termination.

6       Notices

        All notices or other communications given pursuant hereto by one party
        to another shall be in writing and deemed given when (a) delivered by
        hand, (b) sent by fax/telecopier (with receipt confirmed), provided that
        a copy is mailed the same day by registered or certified mail, postage
        prepaid, return receipt requested, or (c) when received by the
        addressee, if sent by Express Mail, Federal Express or other express
        delivery service (receipt requested), in each case to the appropriate
        addresses and fax/telecopier numbers for the Company and the Executive
        set forth below (or to such other address and/or fax/telecopier number
        as either party may designate by notice to the other from time to time).

         If to the Company:

                  Rotech Healthcare Inc.
                  2600 Technology Drive, Suite 300
                  Orlando, Florida 32804
                  Fax No. (407) 297-6214
                  Attn:  Chairman of the Board of Directors

         with a copy to:

                  Chief Legal Officer
                  Rotech Healthcare Inc.
                  2600 Technology Drive, Suite 300
                  Orlando, Florida 32804
                  Fax No. (407) 297-6214

         or in case of change of location of the Company at the new location,
         i.e., the Company's new business address.

         If to the Executive, to him at:

                                       15

<PAGE>

                  Philip L. Carter
                  108 Panorama
                  Coto De Caza, CA 92679
                  Fax No. (949) 766-1319

or, if delivered by hand, delivered to the Executive at the Company or to him at
home or such other place of his employment.

7     General

7.1     The Executive shall be under no duty to seek further employment or to
        mitigate any of the obligations or damages payable by the Company
        following termination of employment (although certain provisions hereof
        reduce the Company's obligations hereunder if comparable benefits are
        obtained by the Executive following termination).

7.2     This Agreement sets forth the entire agreement and understanding of the
        parties relating to the subject matter hereof, and supersedes all prior
        agreements, arrangements and understandings, written or oral, relating
        to the subject matter hereof.

7.3     This Agreement may not be amended, modified, superseded or waived,
        except by a written instrument executed by both parties hereto, or in
        the case of a waiver, by the party waiving compliance. The failure of
        either party at any time or times to require performance of any
        provision hereof, or any similar provision or policy applicable to any
        other individual, shall in no manner affect the right of either party at
        a later time to enforce the same. No waiver by either party of the
        breach of any term or covenant contained in this Agreement whether by
        conduct or otherwise, in any one or more instances, shall be deemed to
        be, or construed as, a further or continuing waiver of any such breach,
        or a waiver of the breach of any other term or covenant contained in
        this Agreement

7.4     The parties hereto agree that the Company shall have the right to
        enforce this Agreement on its own behalf and/or on behalf of the Group
        Affiliates or any of them.

7.5     This Agreement shall be subject to and governed by the laws of the State
        of Delaware.

7.6     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.

7.7     The article headings contained herein are for reference purposes only
        and shall not in any way affect the meaning or interpretation of this
        Agreement.

7.8     A telecopy signature on this Agreement shall have the same force and
        effect as an original signature.

8       Severability

                                       16

<PAGE>

        If any provision of this Agreement is hereafter construed to be invalid
        or unenforceable in any respect, the same shall not affect the
        retraining provisions of this Agreement, without regard to the invalid
        portion, and any such invalid provisions shall be reformed and construed
        to the extent necessary to permit their enforceability so as to reflect
        the intent of the parties hereto.

9       Representation

        The Company and the Executive represent and warrant that each is fully
        authorized and empowered to enter into this Agreement and that the
        performance of each of their respective obligations under this Agreement
        will not violate any agreement between each of them and any other
        person, firm or organization.

10      Survivorship

        The respective rights and obligations of the parties hereunder shall
        survive any termination of the Executive's employment or this Agreement
        to the extent necessary to the intended preservation of such rights and
        obligations.

11      Successors and Assigns

        The respective rights and obligations of the Company under this
        Agreement shall inure to the benefit of and shall be binding upon the
        respective successors and assigns of the Company. This Agreement is
        assignable by the Company to any corporate entity which acquires
        directly or indirectly by merger, consolidation, purchase or otherwise,
        all or substantially all of the assets or stock of the Company. Upon
        such assignment, the Company shall be released from all liability
        hereunder. This Agreement shall not be assignable by the Executive.

12      Effective Date

        This Agreement shall become effective and enforceable upon the execution
        of this Agreement by both parties (the "Effective Date").

        IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.

                                          ROTECH HEALTHCARE INC.

                                          By  ________________________________

                                          Date _______________________________

                                       17

<PAGE>

                                          EXECUTIVE

                                          _____________________________________
                                          Philip L. Carter

                                          Date ________________________________

                                       18<PAGE>

                                                                   Exhibit 10.13

                       CORPORATE INTEGRITY AGREEMENT
                                BETWEEN THE
                        Office of Inspector General
                                   of the
                  Department of Health and Human Services
                                    and
                        Rotech Medical Corporation

I.   Preamble
     --------

     Rotech Medical Corporation ("Rotech") hereby enters into this Corporate
Integrity Agreement ("CIA") with the Office of Inspector General ("OIG") of the
United States Department of Health and Human Services ("HHS") to ensure
compliance by Rotech and each of its subsidiaries that provides items or
services for which payment may be made by any Federal health care program and by
all of Rotech's officers, directors, employees, contractors, and agents, with
the requirements of Medicare, Medicaid and all other Federal health care
programs (as defined in 42 U.S.C. (S) 1320a-7b(f)) (hereinafter collectively
referred to as the "Federal health care programs"). Rotech's compliance with the
terms and conditions in this CIA shall constitute an element of Rotech's present
responsibility with regard to participation in the Federal health care programs.
Rotech is also entering into a Settlement with the United States, as embodied in
the Plan of Reorganization soon to be filed in the Integrated Health Services,
Inc.("IHS") Chapter 11 proceeding (In re IHS), Jointly Administered (the
"Bankruptcy Court")) (hereafter referred to as "Settlement Agreement") and this
CIA is incorporated by reference into the Settlement Agreement.

     A. Definitions

          1. "Covered Person": any (i) officer, director, or employee of Rotech;
          or (ii) agent or other individual who furnishes health care items or
          services at a Rotech owned or operated location for which Rotech
          claims reimbursement from any Federal health care program or who
          participates in the preparation or submission of claims for payment on
          behalf of Rotech with respect to items or services for which Rotech
          claims reimbursement from any Federal health care program (regardless
          of where such activity takes place).

Rotech Corporate Integrity Agreement

                                        1

<PAGE>

          2. "Contractor": any individual or entity whose work is performed at a
          location neither owned nor operated by Rotech, with whom Rotech has
          entered into a contract or other arrangement to furnish health care
          items or services for which Rotech claims reimbursement from any
          Federal health care program.

II.  Term of the CIA
     ---------------

     The period of the compliance obligations assumed by Rotech under this CIA
shall be five years (unless otherwise specified) from the effective date of this
CIA (unless otherwise specified). The effective date of this CIA will be the
date on which the final signatory of this CIA executes this CIA.

     Sections VII, VIII, IX, X and XI shall remain in effect until the OIG has
completed its review of the final annual report and any additional materials
submitted by Rotech pursuant to OIG's request.

III. Corporate Integrity Obligations
     -------------------------------

     Rotech warrants and represents that it currently operates and maintains a
compliance program ("Program"). Pursuant to and for the duration of this CIA,
Rotech shall maintain, and as necessary, amend its current Program such that it
adheres to or includes the following obligations or elements.

     A. Compliance Officers and Committee
        ---------------------------------

          1. Corporate Compliance Officer. For the duration of this CIA, Rotech
shall continue to maintain an individual to serve as Corporate Compliance
Officer, in adherence with the following requirements. The Corporate Compliance
Officer shall be responsible for ensuring the development and implementation of
policies, procedures, and practices designed to ensure compliance with the
requirements set forth in this CIA and with the requirements of the Federal
health care programs. The Corporate Compliance Officer shall be a member of
senior management of Rotech, shall make regular (at least quarterly) reports
regarding compliance matters directly to the CEO and/or to the Board of
Directors of Rotech and shall be authorized to report to the Board of Directors
at any time. The Corporate Compliance Officer shall be responsible for
monitoring the day-to-day activities engaged in by Rotech to further its
compliance objectives, as well as any reporting obligations created under this
CIA.

Rotech Corporate Integrity Agreement

                                        2

<PAGE>

          2. Compliance Liaisons.

               Within 90 days of the execution of this CIA, Rotech shall also
appoint a Compliance Liaison for each of its six Divisions. The Compliance
Liaison will cooperate with the Corporate Compliance Officer to ensure the
development and implementation of policies, procedures, and practices designed
to ensure compliance with applicable Federal health care program requirements
and with the requirements of this CIA. The Compliance Liaisons shall serve on
the Compliance Committee on a rotating basis. The Compliance Liaisons also shall
be responsible for assisting the Corporate Compliance Officer in meeting the
reporting obligations created by this Agreement and shall report to the
Compliance Officer at least quarterly.

          3. Changes in Compliance Officer. In the event a new Corporate
Compliance Officer is appointed during the term of this CIA, Rotech shall notify
the OIG, in writing, within 15 days of such a change. Changes in Compliance
Liaisons will be reported annually.

          4. Corporate Compliance Committee. For the duration of this CIA,
Rotech shall continue to maintain its "Corporate Compliance Committee" and, to
the extent necessary, shall amend the Program within 90 days after the effective
date of this CIA to ensure that the Corporate Compliance Committee meets the
following requirements. The Corporate Compliance Committee shall, at a minimum,
include the Compliance Officer, at least one of the six Compliance Liaisons, and
any other member of senior management within the provider's corporate structure
as necessary to meet the requirements of this CIA (e.g., senior executives
                                                   ----
responsible for major functions, such as billing, clinical, human resources,
audit, and operations). The Compliance Officer shall chair the Corporate
Compliance Committee and the Committee shall support the Compliance Officer in
fulfilling his/her responsibilities.

     B. Written Standards.
        -----------------

          1. Code of Conduct. For the duration of this CIA, Rotech shall
continue to maintain its "Code of Conduct" or similar code however denominated
(hereinafter referred to as "Code of Conduct") and, to the extent necessary,
shall amend the Program and/or Code of Conduct within 120 days of the effective
date of this CIA to ensure that the Code of Conduct meets the following
requirements. The Code of Conduct shall be distributed within 120 days of the
effective date of this CIA to all Covered Persons who

Rotech Corporate Integrity Agreement

                                        3

<PAGE>

have not already received the Code of Conduct. Rotech shall make adherence to
Company policies and procedures designed to ensure compliance with Federal
health care program requirements an element in evaluating the performance of
managers, supervisors, and all other employees. The Code of Conduct shall, at a
minimum, set forth:

               a. Rotech's commitment to full compliance with Federal health
               care program requirements, including its commitment to prepare
               and submit accurate billings;

               b. a requirement that all of its Covered Persons shall be
               expected to comply with all applicable Federal health care
               program requirements and with Rotech's own policies and
               procedures;

               c. a requirement that all Covered Persons shall be expected to
               report to Rotech suspected violations of any Federal health care
               program requirements or of Rotech's own policies and procedures;

               d. the possible consequences to both Rotech and Covered Persons
               of their failure to comply with the Federal health care program
               requirements or with Rotech's own policies and procedures, or of
               their failure to report such non-compliance; and

               e. the right of all Covered Persons to use the Confidential
               Disclosure Program, as well as Rotech's commitment to
               confidentiality and non-retaliation with respect to disclosures.

     Within 120 days of the effective date of the CIA, each Covered Person shall
certify, in writing, or electronically, that he or she has received, read,
understood, and will abide by Rotech's Code of Conduct. New Covered Persons
shall receive the Code of Conduct within 30 days after becoming a Covered Person
and shall complete the required certification within 30 days after becoming a
Covered Person or within 120 days of the effective date of the CIA, whichever is
later.

     Rotech shall annually review the Code of Conduct to determine if revisions
are appropriate and shall make any necessary revisions based on such a review.
Any such revised Code of Conduct shall be distributed within 45 days of
finalizing such changes. Covered persons shall certify that they have received,
read, understand and will abide by the revised Code of Conduct within 30 days of
the distribution of such revisions.

Rotech Corporate Integrity Agreement

                                        4

<PAGE>

          2. Policies and Procedures. For the duration of this CIA Rotech shall
continue to maintain its current written policies and procedures regarding the
operation of Rotech's compliance program and its compliance with Federal health
care program requirements. Within 120 days of the effective date of this CIA,
Rotech shall review its existing policies and procedures and, amend them if
necessary, to ensure that they at a minimum address the following specific risk
areas identified below associated with the provision and reimbursement of home
oxygen and other durable medical equipment and supplies under Federal health
care programs.

               a. Coverage rules and criteria;
               b. Medical Necessity requirements;
               c. Certificates of Medical Necessity;
               d. Physician's Orders;
               e. Qualification of Patients for Oxygen Therapy;
               f. Billing;
               g. Selection of HCPCS Codes;
               h. Capped rentals;
               h. Collection of Medicare co-pay and deductibles; and
               i. Kickbacks and Self-Referrals.

     Within 120 days of the effective date of the CIA, the relevant portions of
the Policies and Procedures shall be distributed to all individuals whose job
functions are related to those Policies and Procedures. Appropriate and
knowledgeable staff should be available to explain the Policies and Procedures.

     At least annually (and more frequently if appropriate), Rotech shall assess
and update as necessary the Policies and Procedures. Within 45 days of the
effective date of any revisions, the relevant portions of any such revised
Policies and Procedures shall be distributed to all individuals whose job
functions are related to those Policies and Procedures.

     C. Training and Education. For the duration of this CIA, Rotech shall
        ----------------------
continue to maintain its Training and Education program and further develop its
compliance training program to provide necessary training and information to
Covered Persons about applicable Federal health care program requirements and
related Rotech policies and procedures. At a minimum, the compliance training
program shall include the following elements:

Rotech Corporate Integrity Agreement

                                        5

<PAGE>

          1. General Compliance Training. Within 120 days of the effective date
             ---------------------------
of this CIA, Rotech shall provide at least 1 hour of general training to each
Covered Person. This training, at a minimum, shall explain Rotech's:

               a. Corporate Integrity Agreement requirements; and

               b. Compliance Program (including the Code of Conduct and the
               policies and procedures pertaining to general compliance issues)

New Covered Persons shall receive the general training described above within 30
days of becoming a Covered Person or within 120 days after the effective date of
this CIA, whichever is later. After receiving the initial training described
above, each Covered Person shall receive at least one hour of general training
annually.

          2. Specialized Training. In addition to the general compliance
             --------------------
training described above, all Covered Persons who participate in the delivery of
patient care items or services or participate in the preparation or submission
of claims for reimbursement, (either in paper or electronic format) to any
Federal health care program shall receive at least 3 hours additional training
relating to legal and regulatory issues specifically affecting their
billing-related responsibilities. This training shall cover relevant Federal
health care program requirements, and the specifically identified policies and
procedures risk areas identified in Section III.B.2 above. Additionally, the
training shall address:

               a. the submission of correct and accurate bills for services
               rendered to all Federal health care program beneficiaries;

               b. the personal obligation of each individual to make reasonable
               efforts to ensure that information provided in support of a
               submission for reimbursement for items or services furnished to
               beneficiaries of the Federal health care programs is accurate;

               c. applicable Federal health care program requirements;

               d. examples of improper billing and documentation practices; and

               e. the legal, regulatory, and internal Rotech sanctions for
               improper billings.

Persons providing the training must be knowledgeable about the subject area.

Rotech Corporate Integrity Agreement

                                        6

<PAGE>

     Rotech shall conduct regional specialized training sessions on a quarterly
basis. Those individuals who are Relevant Covered Persons upon the effective
date of this CIA shall receive this training at the first available training
session in their region or within 120 days of the effective date of this CIA,
which ever is later. New Relevant Covered Persons shall receive this training at
the first available training session in their region following the beginning of
their employment or becoming Relevant Covered Persons or within 120 days of the
effective date of this CIA, whichever is later. A Rotech employee who has
completed the specific training shall review a new Relevant Covered Person's
work, to the extent that the work relates to the delivery of patient care items
or services and/or in the preparation or submission of claims for reimbursement
from any Federal health care program, until such time as the new Relevant
Covered Person completes applicable training.

     Any training that has been provided by the Rotech Compliance Department
within the 6 months prior to the effective date of this CIA and that satisfies
the requirement with respect to Relevant Covered Persons shall be deemed to have
satisfied the requirements of this provision, so long as such training can be
documented to the OIG.

     After receiving the initial training described in this section, every
Relevant Covered Person shall receive at least 2 hours of specialized training
annually.

          3. Certification. Each individual who is required to attend training
shall certify, in writing, or electronically, that he or she has received the
required training. The certification shall specify the type of training
received and the date received. The Compliance Officer (or his or her designee)
shall retain the certifications, along with all course materials. These shall be
made available to OIG, upon request.

     D. Review Procedures.
        -----------------

          1. General Description.

          a. Internal Claims Review Option. For the first Reporting Period (as
             -----------------------------
          defined in Section III.D.1.d), Rotech may conduct an internal review
          of its billing and coding practices with respect to the Federal health
          care programs. The review shall comply with all of the requirements
          outlined in Section III.D and in Appendix A to this CIA ("Claims
          Review"). Rotech will continue to perform the internal Claims Review
          in conformance with

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<PAGE>

          the requirements of Section III.D and Appendix A to this CIA for the
          next Reporting Period of this CIA, unless the OIG, in its sole
          discretion, determines that Rotech's internal Claims Review has not
          been performed satisfactorily. To the extent that OIG permits Rotech
          to perform internal Claims Reviews, Rotech shall submit all
          information required by the provisions outlined in Section III.D and
          in Appendix A to this CIA.

          b. Retention of Independent Review Organization. Within 90 days of the
             --------------------------------------------
          effective date of this CIA, Rotech shall retain an entity such as an
          accounting, auditing or consulting firm (hereinafter "Independent
          Review Organization" or "IRO"), to perform review engagements to
          assist Rotech in assessing and evaluating its billing and coding
          practices and systems pursuant to this CIA and the Settlement
          Agreement. Prior to performing any review engagements required under
          this CIA, the IRO and Rotech shall design agreed upon procedures as
          defined in the AICPA "attest standards" for Agreed Upon Procedures
          Engagements (hereafter "agreed upon procedures") outlining the
          specific work to be performed by the IRO, and the agreed upon
          procedures shall be submitted to the OIG for review. Each IRO retained
          by Rotech shall have expertise in the billing, coding, reporting and
          other requirements of the particular section of the health care
          industry pertaining to this CIA and in the general requirements of the
          Federal health care program(s) from which Rotech seeks reimbursement.
          Each IRO shall assess, along with Rotech, whether it can perform the
          IRO engagement in a professionally independent fashion taking into
          account any other business relationships or other engagements that may
          exist.

          c. IRO Verification or Claims Review
             ---------------------------------

               i. For the first Reporting Period, the IRO shall perform an
               agreed upon procedures Verification Review of 7 of the Lawson
               Units reviewed by Rotech in its internal Claims Review
               ("Verification Review"). Such review shall consist of an
               assessment of 25 claims for each Lawson Unit.

               ii. For any Lawson Units reviewed by Rotech in its internal
               Claims Review which are subject to a full sample, the IRO shall
               perform a Verification Review of 10% of the sampling units in
               each full sample. These sampling units shall be randomly
               selected.

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<PAGE>

               iii. If the IRO's Verification Review, for the previous year, if
               applicable, results in (i) no more than a 5% sampling unit
               variance from Rotech's internal review; or (ii) neither Rotech's
               primary compliance staff nor its internal audit policies and
               procedures substantially change, then the IRO shall perform a
               Verification Review for the fourth year of the CIA only.

               iv. If the IRO's Verification Review, for the previous year, if
               applicable, results in (i) more than a 5% sampling unit variance
               from Rotech's internal review; or (ii) either Rotech's primary
               compliance staff or its internal audit policies and procedures
               substantially change; and if Rotech is permitted to perform the
               internal Claims Review, the IRO shall, at a minimum, perform a
               Verification Review for the next year Reporting Period and for
               the fourth year of the CIA.

               v. If the OIG does not allow Rotech to perform the Claims Review
               internally for any year after the first Reporting Period, the IRO
               shall perform a Claims Review for each successive year of the
               CIA, unless the OIG in its sole discretion allows Rotech to
               recommence internal claims review.

          As part of Rotech's Annual Report, the IRO shall submit a report that
          verifies that the requirements outlined in Section III.D and in
          Appendix A to this CIA have been satisfied and shall report the
          results, sampling unit by sampling unit, of any Verification Review or
          Claims Review performed.

          d. Frequency of Claims Review. The Claims Review shall be performed
             --------------------------
          annually and shall cover each of the one-year periods of the CIA
          beginning with the effective date of this CIA ("Reporting Period").
          Rotech and/or the IRO shall conduct the Claims Review in accordance
          with Section III.D and Appendix A to this CIA.

          e. Frequency of Unallowable Cost Review. To the extent applicable, the
             ------------------------------------
          Unallowable Cost Review shall be performed by the IRO for the first
          one-year Reporting Period beginning with the effective date of the
          CIA.

          f. Retention of Records. Rotech and the IRO(s) shall retain and make
             --------------------
          available to the OIG, upon request, all work papers, supporting

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<PAGE>

          documentation, correspondence, and draft reports exchanged between the
          IRO and Rotech related to the Claims Review.

          2. Claims Review. The Claims Review shall include a Discovery Sample
and, if necessary, a Full Sample. The applicable definitions, procedures, and
reporting requirements are outlined in Appendix A to this CIA, which is
incorporated by reference.

          a. Discovery Sample. With respect to each facility selected pursuant
             ----------------
          to the facility selection methodology set forth in Appendix A, Rotech
          or the IRO shall randomly select and review a sample of 50 Medicare
          Paid Claims submitted by or on behalf of Rotech. The Paid Claims shall
          be reviewed based on the supporting documentation available at Rotech
          or under Rotech's control and applicable billing and coding
          regulations and guidance to determine whether the claim submitted was
          correctly coded, submitted and reimbursed.

               i. Results of Discovery Sample. If the Error Rate (as defined in
                  ---------------------------
               Appendix A) is less than 5%, no additional sampling is required,
               nor is the Systems Review required. (Note: The threshold listed
               above does not imply that this is an acceptable error rate.
               Accordingly, Rotech should, as appropriate, further analyze any
               errors identified in the Discovery Sample. Rotech recognizes that
               the OIG or other HHS component, in its discretion and as
               authorized by statute, regulation, or other appropriate authority
               may also analyze or review Paid Claims included, or errors
               identified, in the Discovery Sample.)

               ii. If the Discovery Sample indicates that the Error Rate is 5%
               or greater, Rotech or the IRO shall perform a Full Sample and a
               Systems Review, as described below.

          b. Full Sample. If necessary, as determined by procedures set forth in
             -----------
          Sections III.D.l and III.D.2.a, Rotech or the IRO shall perform an
          additional sample of Paid Claims using commonly accepted sampling
          methods and in accordance with Appendix A. The Full Sample should be
          designed to (i) estimate the actual Overpayment in the population with
          a 90% confidence level and with a maximum relative precision of 25% of
          the point estimate and (ii) conform with the Centers for Medicare and
          Medicaid Services' statistical sampling for overpayment estimation
          guidelines. The

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<PAGE>

          Paid Claims shall be reviewed based on supporting documentation
          available at Rotech or under Rotech's control and applicable billing
          and coding regulations and guidance to determine whether the claim
          submitted was correctly coded, submitted, and reimbursed. For purposes
          of calculating the size of the Full Sample, the Discovery Sample may
          serve as the probe sample, if statistically appropriate. Additionally,
          Rotech may use the Items sampled as part of the Discovery Sample, and
          the corresponding findings for those 50 Items, as part of its Full
          Sample. The OIG, in its full discretion, may refer the findings of the
          Full Sample (and any related workpapers) received from Rotech to the
          appropriate Federal health care program payor, including the Medicare
          contractor (e.g., carrier, fiscal intermediary, or DMERC), for
          appropriate follow-up by that payor.

          c. Systems Review. If the Discovery Sample identifies an Error Rate of
             --------------
          5% or greater, Rotech or the IRO, as determined by the procedures set
          forth in section III.D.1, shall also conduct a Systems Review.
          Specifically, for each Item in the Discovery Sample and Full Sample
          that resulted in an Overpayment, Rotech or the IRO should perform a
          "walk through" of the system(s) and process(es), that generated the
          claim to identify any problems or weaknesses that may have resulted in
          the identified Overpayments. Rotech or the IRO shall generate a report
          summarizing its observations and recommendations on suggested
          improvements to the system(s) and the process(es) that generated the
          claim.

          d. Repayment of Identified Overpayments. In accordance with section
             ------------------------------------
          III.I.1 of the CIA, Rotech agrees to repay within 30 days any
          Overpayment(s) identified in the Discovery Sample or the Full Sample
          (if applicable), regardless of the Error Rate, to the appropriate
          payor and in accordance with payor refund policies. Rotech agrees to
          make available to the OIG any and all documentation that reflects the
          refund of the Overpayment(s) to the payor.

          3. Unallowable Cost Review. If applicable, the IRO shall conduct a
review of Rotech's compliance with the unallowable cost provisions of the
Settlement Agreement during the first year of this CIA only.

          a. The IRO shall determine whether Rotech has complied with its
          obligations not to charge to, or otherwise seek payment from, Federal
          or

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<PAGE>

          State payors for unallowable costs (as defined in the Settlement
          Agreement) and its obligation to identify to applicable Federal or
          State payors any unallowable costs included in payments previously
          sought from the United States, or any State Medicaid program. This
          unallowable cost analysis shall include, but not be limited to,
          payments sought in any cost reports, cost statements, information
          reports, or payment requests already submitted by Rotech or any of its
          subsidiaries. To the extent such cost reports, cost statements,
          information reports or payment requests, even if already settled, have
          been adjusted to account for the effect of the inclusion of the
          unallowable costs, the IRO will determine if such adjustments were
          proper. In making this determination, the IRO may need to review cost
          reports and/or financial statements from the year in which the
          Settlement Agreement was executed, as well as from previous years.

          4. Unallowable Cost Review Report. If applicable, the IRO shall
prepare a report based upon the Unallowable Cost Review performed. The
Unallowable Cost Review Report shall include the IRO's findings and supporting
rationale regarding the Unallowable Costs Review and whether Rotech has complied
with its obligation not to charge to, or otherwise seek payment from, Federal or
State payors for unallowable costs (as defined in the Settlement Agreement) and
its obligation to identify to applicable Federal or State payors any unallowable
costs included in payments previously sought from such payor.

     5. Claims Review Report. Depending on whether Rotech conducted an internal
Claims Review with an IRO Verification Review or the IRO conducted the Claims
Review, Rotech and/or the IRO shall prepare a report based upon the Claims
Review performed (the "Claims Review Report"). Information to be included in the
Claims Review Report is detailed in Appendix A to this CIA.

     6. Validation Review. In the event the OIG has reason to believe that: (a)
Rotech's Claims Review or Unallowable Cost Review fails to conform to the
requirements of this CIA; or (b) Rotech's and/or the IRO's findings or Claims
Review results are inaccurate, the OIG may, at its sole discretion, conduct its
own review to determine whether the Claims Review or Unallowable Cost Review
complied with the requirements of the CIA and/or the findings or Claims Review
results are inaccurate ("Validation Review"). Rotech agrees to pay for the
reasonable cost of any such review performed by the OIG or any of its designated
agents so long as it is initiated before one year after Rotech's final
submission (as described in section II) is received by the OIG.

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<PAGE>

Prior to initiating a Validation Review, the OIG shall notify Rotech of its
intent to do so and provide a written explanation of why the OIG believes such a
review is necessary. To resolve any concerns raised by the OIG, Rotech may
request a meeting with the OIG to discuss the results of any Claims Review or
Unallowable Cost Review submissions or findings; present any additional or
relevant information to clarify the results of the Claims Review or Unallowable
Cost Review to correct the inaccuracy of the Claims Review; and/or propose
alternatives to the proposed Validation Review. Rotech agrees to provide any
additional information as may be requested by the OIG under this section in an
expedited manner. The OIG will attempt in good faith to resolve any Claims
Review or Unallowable Cost Review with Rotech prior to conducting a Validation
Review. However, the final determination as to whether or not to proceed with a
Validation Review shall be made at the sole discretion of the OIG.

     7. Independence Certification. The IRO shall include in its report(s) to
Rotech a certification or sworn affidavit that it has evaluated its professional
independence with regard to the Claims Review or Unallowable Cost Review and
that it has concluded that it was, in fact, independent.

     E. Acquisition Compliance Assessment
        ---------------------------------

     In the event that during the term of this CIA, Rotech acquires, merges
with, purchases the stock or assets of, or otherwise gains an ownership or
control interest of 5% or more in an entity that delivers health care items or
services for which Federal health care program reimbursement is sought
(hereinafter, "Acquisition" or "Acquisition Entity"), Rotech shall complete the
following Acquisition Compliance Assessment ("ACA") procedures prior to
finalizing the Acquisition in order to ensure the appropriateness of Rotech's
consummating the proposed transaction.

     Rotech warrants and represents that as part of its Compliance Program it
currently has in place an Acquisition Due Diligence review process, including an
Acquisition Committee. For the duration of this CIA, Rotech shall continue to
maintain as part of its Compliance Program its Acquisition Due Diligence review
process, including the Acquisition Committee, subject to the additional
requirements set forth below. In fulfilling the obligations of the ACA as set
forth below, Rotech may continue to use its current Due Diligence review process
to the extent that it satisfies and/or is consistent with the ACA procedures set
forth below.

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                                       13

<PAGE>

          1. Scope of ACA. In the event that the Acquisition Entity consists of
more than a single business and/or operating facility (e.g., a corporate
headquarters, five storefronts or facilities, and one billing center --
hereinafter collectively referred to as "facilities" regardless of composition),
the ACA shall be performed, in the following manner: For any Acquisition Entity
that consists of 2 to 10 total facilities, an ACA of 100% of the facilities
shall be performed. For any Acquisition Entity that consists of 11 to 25
facilities, an ACA of 50% of the facilities shall be performed; but in no event
more than 10. For any Acquisition Entity that consists of 26 to 50 facilities,
an ACA of 25% of the facilities shall be performed, but in no event more than
10. For any Acquisition Entity that consists of more than 50 facilities, an ACA
of 10% of the facilities shall be performed; however, no less than ten and no
more than fifteen total facilities shall be included/1/. For any less than 100%
review of an Acquisition Entity, the facilities shall be randomly selected. All
the ACA steps described below shall be performed at all the facilities required
to be included in the ACA by the aforementioned provisions

          2. Responsibility of Acquisition Committee and Compliance Officer. The
Acquisition Committee shall review all potential Rotech Acquisitions. The
Acquisition Committee shall, at a minimum, include the Rotech Corporate
Compliance Officer and members of his or her staff as deemed appropriate. The
Compliance Officer and his or her Compliance Department shall have primary
responsibility for performing any ACA. An Acquisition shall only be consummated
when approved by Rotech's Chief Executive Officer, Chief Operating Officer,
Chief Legal Officer, Chief Financial Officer, and Chief Compliance Officer.

          3. Compliance Program Infrastructure Evaluation. Rotech shall
undertake a comprehensive review of the Acquisition Entity's existing compliance
program (to the extent that such program exists) in order to assess whether it
is operating in compliance with Federal health care program requirements. Such
review shall include, at a minimum, an evaluation of the entity's compliance
officer and compliance committee structure and personnel; compliance policies
and procedures, the training and education program; the reporting system; the
disciplinary mechanisms, employee screening process and its overall commitment
to compliance as evidenced by involvement of the board of directors and/or
senior management in the compliance program. The Diligence Questionnaire
attached hereto at Appendix C sets forth the criteria to be used for such an
assessment.

----------
     /1/ To the extent that the required percentage of operational facilities is
not a whole number, Rotech shall round up to the next whole number as the number
of facilities subject to the ACA.

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                                       14

<PAGE>

          4. ACA Operational Review. Rotech shall undertake a comprehensive
review of the Acquisition Entity's operations and participation in Federal
health care programs in order to assess whether it is operating in compliance
with Federal health care program requirements. At a minimum, such review shall
focus on eliciting information about the Acquisition Entity's operations that
are associated with the risk areas set forth in the Office of Inspector
General's Compliance Program Guidance for the Durable Medical Equipment,
Prosthetics, Orthotics and Supply Industry (June 1999) (published in 64 Fed.
Reg. 36368) and any updates to this document. At a minimum, such review shall
include the following:

               a. interviews of key personnel (including managerial or
               supervisory as well as front line employees) available to Rotech
               who are involved in the provision of health care items or
               services for which the entity seeks reimbursement from any
               Federal health care program or who participate in the preparation
               or submission of claims for payment on behalf of the entity with
               respect to items or services for which the entity seeks
               reimbursement from any Federal health care program;

               b. review of documents, including policies and procedures and
               third party contracts, relevant to the operations of the
               Acquisition Entity and its participation in Federal health care
               programs; and

               c. completion of the Due Diligence Questionnaire (attached as
               Appendix C), including a certification as to truthfulness and
               accuracy of the responses by the owner.

          5. ACA Chart Review. At a minimum, Rotech shall perform a chart review
consisting of at least 50 Medicare oxygen charts and at least 50 DME charts, for
any facility covered by the ACA. For any facility with less than 50 oxygen or 50
DME charts, Rotech shall review all the charts. For multi-facility entities,
pursuant to section III.E.5 above regarding scope of the ACA, the chart reviews
shall be performed at each facility required to be included in the ACA. Such
reviews shall be selected randomly. Nothing in this provision precludes Rotech
from performing as many chart reviews (at as many locations if a multi-facility
entity) as it deems appropriate as part of its acquisition due diligence
process.

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                                       15

<PAGE>

          6. ACA Final Report. Within 60 days of closing an Acquisition subject
to an ACA as described above, Rotech shall submit in writing a report to the
OIG, indicating that it performed the steps required under this section of the
CIA and providing an enumeration and description of the procedures performed as
well as a description and timetable for any corrective actions, if needed, being
taken to address compliance issues at the Acquisition Entity, including the
process for assimilating the Acquisition Entity into Rotech's own compliance
program.

          7. Validation Review. In the event the OIG has reason to believe that:
(a) Rotech's ACA fails to conform to the requirements of this CIA; or (b) the
ACA Final Report(s) are inaccurate, the OIG may, at its sole discretion, conduct
its own review to determine whether the ACA complies with the requirements of
the CIA and/or the ACA Final Report(s) are inaccurate. Rotech agrees to pay for
the reasonable cost of any such review performed by the OIG or any of its
designated agents so long as it is initiated before one year after Rotech's
final submission (as described in section II) is received by the OIG.

          Prior to initiating a Validation Review, the OIG shall notify Rotech
of its intent to do so and provide an explanation for believing why such a
review is necessary. In order to resolve any concerns raised by the OIG, Rotech
may request a meeting with the OIG to discuss the results of any ACA submissions
or any ACA Final Report(s); present any additional or relevant information to
clarify the results of the ACA or to correct the inaccuracy of the ACA Final
Report(s); and/or propose alternatives to the proposed Validation Review. Rotech
agrees to provide any additional information as may be requested by the OIG
under this section in an expedited manner. The OIG will attempt in good faith to
resolve any issues related to the ACA with Rotech prior to conducting a
Validation Review. However, the final determination as to whether or not to
proceed with a Validation Review shall be made at the sole discretion of the
OIG.

     F. Disclosure Program.
        ------------------

     For the duration of this CIA, Rotech shall continue to maintain its
"Compliance Hotline" or similar reporting mechanism however denominated
(hereinafter referred to as "Disclosure Program") and, to the extent necessary,
shall amend the Program and/or Disclosure Program within 90 days of the
effective date of this CIA to ensure that the Disclosure Program meets the
following requirements. The Disclosure Program must include a mechanism (e.g., a
                                                                         ----
toll-free compliance telephone line) to enable individuals to disclose, to the
Compliance Officer or some other person who is not in the disclosing

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<PAGE>

individual's chain of command, any identified issues or questions associated
with Rotech's policies, conduct, practices, or procedures with respect to a
Federal health care program, believed by the individual to be a potential
violation of criminal, civil or administrative law. Rotech shall appropriately
publicize the existence of the disclosure mechanism (e.g., via periodic e-mails
                                                     ----
to employees or by posting the information in prominent common areas).

     The Disclosure Program shall emphasize a non-retribution, non-retaliation
policy, and shall include a reporting mechanism for anonymous, confidential
communications. Upon receipt of a disclosure, the Compliance Officer (or
designee) shall gather all relevant information from the disclosing individual.
The Compliance Officer (or designee) shall make a preliminary, good faith
inquiry into the allegations set forth in every disclosure to ensure that he or
she has obtained all of the information necessary to determine whether a further
review should be conducted. For any disclosure that is sufficiently specific so
that it reasonably: (1) permits a determination of the appropriateness of the
alleged improper practice; and (2) provides an opportunity for taking corrective
action, Rotech shall conduct an internal review of the allegations set forth in
such a disclosure and ensure that proper follow-up is conducted.

     The Compliance Officer (or his or her designee) shall maintain a disclosure
log, which shall include a record and summary of each disclosure received
(whether anonymous or not), the status of the respective internal reviews, and
any corrective action taken in response to the internal reviews. The disclosure
log shall be available to OIG, upon request.

     G. Ineligible Persons.
        ------------------

          1. Definition. For purposes of this CIA, an "Ineligible Person" shall
be any individual or entity who: (a) is currently excluded, debarred or
otherwise ineligible to participate in the Federal health care programs or in
Federal procurement or non procurement programs; or (b) has been convicted of a
criminal offense related to the provision of health care items or services, but
has not yet been excluded, debarred or otherwise declared ineligible.

          2. Screening Requirements. Rotech shall not hire as employees or
engage as Contractors any Ineligible Person. To prevent hiring or contracting
with any Ineligible Person, Rotech shall screen all prospective employees and
prospective Contractors prior to engaging their services by: (a) requiring
applicants to disclose whether they are

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<PAGE>

Ineligible Persons; and (b) reviewing the General Services Administration's List
of Parties Excluded from Federal Programs (available through the Internet at
http://epls.arnet.gov) and the HHS/OIG List of Excluded Individuals/Entities
(available through the Internet at http://www.hhs.gov/oig) (these lists will
hereinafter be referred to as the "Exclusion Lists").

          3. Review and Removal Requirement. Within 90 days of the effective
date of this CIA, Rotech shall review its list of current employees and
Contractors against the Exclusion Lists. Thereafter, Rotech shall review its
list of current employees and Contractors against the Exclusion Lists
semi-annually. In addition, Rotech shall require employees and Contractors to
disclose immediately any debarment, exclusion or other event that makes the
employee an Ineligible Person.

     If Rotech has notice that an employee or Contractor has become an
Ineligible Person, Rotech shall remove such person from responsibility for, or
involvement with, Rotech's business operations related to the Federal health
care programs and shall remove such person from any position for which the
person's salary or the items or services rendered, ordered, or prescribed by the
person are paid in whole or part, directly or indirectly, by Federal health care
programs or otherwise with Federal funds at least until such time as the person
is reinstated into participation in the Federal health care programs.

          4. Pending Charges and Proposed Exclusions. If Rotech has notice that
an employee or Contractor is charged with a criminal offense related to any
Federal health care program, or is proposed for exclusion during his or her
employment or contract, the Rotech shall take all appropriate actions to ensure
that the responsibilities of that employee or Contractor have not and shall not
adversely affect the quality of care rendered to any beneficiary, patient or
resident, or the accuracy of any claims submitted to any Federal health care
program.

     H. Notification of Government Investigation or Legal Proceedings.
        -------------------------------------------------------------

     Within 30 days of discovery, Rotech shall notify OIG, in writing, of any
ongoing investigation or legal proceeding conducted or brought by a governmental
entity or its agents involving an allegation that Rotech has committed a crime
or has engaged in fraudulent activities. This notification shall include a
description of the allegation, the identity of the investigating or prosecuting
agency, and the status of such investigation or legal proceeding. Rotech shall
also provide written notice to OIG within 30 days of the

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<PAGE>

resolution of the matter, and shall provide OIG with a description of the
findings and/or results of the proceedings, if any.

     I. Reporting.
        ---------

          1. Overpayments

               a. Definition of Overpayments. For purposes of this CIA, an
               "overpayment" shall mean the amount of money Rotech has received
               in excess of the amount due and payable under any Federal health
               care program requirements.

               b. Reporting of Overpayments. If, at any time, Rotech identifies
               or learns of any overpayments, Rotech shall notify the payor
               (e.g., Medicare fiscal intermediary or carrier) within 30 days of
                ----
               identification of the overpayment and take remedial steps within
               60 days of discovery (or such additional time as may be agreed to
               by the payor) to correct the problem, including preventing the
               underlying problem and the overpayments from recurring. Also,
               within 30 days of identification of the overpayment, Rotech shall
               repay the overpayment to the appropriate payor to the extent such
               overpayment has been quantified. If not yet quantified, within 30
               days of identification, Rotech shall notify the payor of its
               efforts to quantify the overpayment amount along with a schedule
               of when such work is expected to be completed. Notification and
               repayment to the contractor should be done in accordance with the
               contractor policies, and for Medicare contractors, must include
               the information contained on the Overpayment Refund Form,
               provided as Appendix B to this CIA, unless otherwise approved by
               the payor. Notwithstanding the above, notification and repayment
               of any overpayment amount that routinely is reconciled or
               adjusted pursuant to policies and procedures established by the
               payor should be handled in accordance with such policies and
               procedures.

          2. Material Deficiencies.

               a. Definition of Material Deficiency. For purposes of this CIA, a
               "Material Deficiency" means anything that involves:

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<PAGE>

                    (i) a substantial overpayment;

                    (ii) a matter that a reasonable person would consider a
                    potential violation of criminal, civil, or administrative
                    laws applicable to any Federal health care program for which
                    penalties or exclusion may be authorized.

               A Material Deficiency may be the result of an isolated event or a
               series of occurrences.

               b. Reporting of Material Deficiencies. If Rotech determines
               through any means that there is a Material Deficiency, Rotech
               shall notify OIG, in writing, within 30 days of making the
               determination that the Material Deficiency exists. The report to
               the OIG shall include the following information:

                    (i) If the Material Deficiency results in an overpayment,
                    the report to the OIG shall be made at the same time as the
                    notification to the payor required in section III.H.1, and
                    shall include all of the information on the Overpayment
                    Refund Form, as well as:

                         (A) the payor's name, address, and contact person to
                         whom the overpayment was sent; and

                         (B) the date of the check and identification number (or
                         electronic transaction number) on which the overpayment
                         was repaid/refunded, or the offset date;

                    (ii) a complete description of the Material Deficiency,
                    including the relevant facts, persons involved, and legal
                    and Federal health care program authorities implicated;

                    (iii) a description of Rotech's actions taken to correct the
                    Material Deficiency; and

                    (iv) any further steps Rotech plans to take to address the
                    Material Deficiency and prevent it from recurring.

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<PAGE>

IV.  New Business Units or Locations
     -------------------------------

     In the event that, after the effective date of this CIA, Rotech changes
locations or purchases or establishes new business units related to the
furnishing of items or services that may be reimbursed by Federal health care
programs, Rotech shall notify OIG of this fact as soon as possible, but no later
than within 60 days of the date of a purchase and no less than annually with
respect to changes of existing locations or establishments. This notification
shall include the location of the new operation(s), phone number, fax number,
Medicare Rotech number(s) (if any), and the corresponding contractor's name and
address that has issued each Medicare Rotech number. All Covered Persons at such
locations shall be subject to the applicable requirements in this CIA (e.g.,
                                                                       ----
completing certifications and undergoing training).

V.   Implementation and Annual Reports
     ---------------------------------

     A. Implementation Report. Within 150 days after the effective date of this
        ---------------------
CIA, Rotech shall submit a written report to OIG summarizing the status of its
implementation of the requirements of this CIA. This Implementation Report shall
include:

          1. the name, address, phone number, position description, and summary
          of other non-compliance job responsibilities of the Compliance Officer
          and Compliance Liaisons required by section III.A;

          2. the names and positions of the members of the Compliance Committee
          required by section III.A;

          3. a copy of Rotech's Code of Conduct required by section III.B.1, in
          the event it was revised pursuant to the CIA;

          4. a copy of all compliance-related Policies and Procedures required
          by section III.B.2 and a summary of all other Policies and Procedures
          required by section III.B.2, in the event they were revised or newly
          created pursuant to the CIA;

          5. a representative sample of training materials used for the training
          required by section III.C, a description of such training, including a

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<PAGE>

          description of the targeted audiences, length of sessions, which
          sessions were mandatory and for whom, percentage of attendance, and a
          schedule of when the training sessions were held. A copy of all
          training materials used for the training required by section III.C
          shall be made available to OIG upon request.;

          6. a certification by the Compliance Officer that:

               a. the Policies and Procedures required by section III.B have
               been developed, are being implemented, and have been distributed
               to all appropriate Covered Persons;

               b. all Covered Persons have completed the Code of Conduct
               certification required by section III.B.1; and

               c. all Covered Persons have completed the applicable training and
               executed the certification(s) required by section III.C.;

          The documentation supporting this certification shall be available to
          OIG, upon request.

          7. a description of the Disclosure Program required by section III.F,
          in the event it was revised pursuant to the CIA;

          8. the identity of the IRO(s), a summary/description of all
          engagements between Rotech and the IRO, including, but not limited to,
          any outside financial audits, compliance program engagements, or
          reimbursement consulting, and the proposed start and completion dates
          of the first annual review;

          9. a certification from the IRO regarding its professional
          independence from Rotech;

          10. a summary of personnel actions (other than hiring) taken pursuant
          to section III.G.;

          11. a list of all of Rotech's locations (including locations and
          mailing addresses), the corresponding name under which each location
          is doing

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<PAGE>

          business, the corresponding phone numbers and fax numbers, each
          location's Medicare Rotech identification number(s) and the
          contractor's name and address that issued each Rotech identification
          number;

          12. to the extent not already furnished to OIG, or if modified, a
          description of Rotech's corporate structure, including identification
          of any parent and sister companies, subsidiaries and their respective
          lines of business; and

          13. the certification required by section V.C.

     B. Annual Reports. Rotech shall submit to OIG Annual Reports with respect
        --------------
to the status of, and findings regarding, Rotech's compliance activities for
each of the five one-year periods beginning on the effective date of the CIA.
(The one-year period covered by each Annual Report shall be referred to as "the
Reporting Period").

Each Annual Report shall include:

          1. any change in the identity, position description, or other
          non-compliance job responsibilities of the Compliance Officer and
          Compliance Liaisons and any change in the membership of the Compliance
          Committee described in section III.A or the Acquisition Committee
          described in section III. E.;

          2. a certification by the Compliance Officer that:

               a. all Covered Persons have completed any Code of Conduct
               certifications required by section III.B.1;

               b. all Covered Persons have completed the applicable training and
               executed the certification(s) required by section III.C;

               c. Rotech has complied with its obligations under the Settlement
               Agreement: (i) not to resubmit to any Federal health care program
               payors any previously denied claims related to the Covered
               Conduct addressed in the Settlement Agreement, and not to appeal
               any such denials of claims; (ii) not to charge to or otherwise
               seek payment from Federal or State payors for unallowable costs
               (as defined in the Settlement Agreement); and (iii) to identify
               and adjust any past charges or claims for unallowable costs;

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               d. for all Acquisitions, Rotech has complied with its obligations
               to perform an Acquisition Compliance Assessment and submit an ACA
               Final Report to the OIG in accordance with section III.E.

          The documentation supporting this certification shall be available to
          OIG, upon request.

          3. a summary of any significant changes or amendments to the Policies
          and Procedures required by section III.B and the reasons for such
          changes (e.g., change in contractor policy) and copies of any
                   ----
          compliance-related Policies and Procedures;

          4. a representative sample of training materials used for the training
          required by section III.C (to the extent it has not already been
          provided as part of the Implementation Report), a description of such
          training conducted during the Reporting Period, including a
          description of the targeted audiences, length of sessions, which
          sessions were mandatory and for whom, percentage of attendance, and a
          schedule of when the training sessions were held. A copy of all
          training materials used for the training; required by section III.C
          shall be made available to OIG upon request.;

          5. a complete copy of all reports prepared pursuant to the IRO's
          billing and compliance engagements, including a copy of the
          methodology used, along with a copy of the IRO's engagement letter;

          6. Rotech's response and corrective action plan(s) related to any
          issues raised by the IRO(s);

          7. a revised summary/description of all engagements between Rotech and
          the IRO, including, but not limited to, any outside financial audits,
          compliance program engagements, or reimbursement consulting, if
          different from what was submitted as part of the Implementation
          Report;

          8. a copy of Rotech's and/or the IRO's Claims Review reports;

          9. a summary of Material Deficiencies (as defined in III.I) identified
          during the Reporting Period and the status of any corrective and
          preventative action relating to all such Material Deficiencies;

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<PAGE>

          10. a report of the aggregate overpayments that have been returned to
          the Federal health care programs. Overpayment amounts should be broken
          down into the following categories: inpatient Medicare, outpatient
          Medicare, Medicaid (report each applicable state separately) and other
          Federal health care programs;

          11. a summary of the disclosures in the disclosure log required by
          section III.F that: (a) relate to Federal health care programs; or (b)
          allege abuse or neglect of patients;

          12. a description of any personnel actions (other than hiring) taken
          by Rotech as a result of the obligations in section III.G, and the
          name; title, and responsibilities of any person that falls within the
          ambit of section III.G.4, and the actions taken in response to the
          obligations set forth in that section;

          13. a summary describing any ongoing investigation or legal proceeding
          required to have been reported pursuant to section III.H. The summary
          shall include a description of the allegation, the identity of the
          investigating or prosecuting agency, and the status of such
          investigation or legal proceeding;

          14. a description of all changes to the most recently provided list
          (as updated) of Rotech's locations (including locations and mailing
          addresses) as required by section V.A.11, the corresponding name under
          which each location is doing business, the corresponding phone numbers
          and fax numbers, each location's Federal health care program Rotech
          identification number(s), and the contractor name and address that
          issued each Rotech identification number; and

          15. the certification required by section V.C.

     The first Annual Report shall be received by the OIG no later than 90 days
after the end of the first Reporting Period. Subsequent Annual Reports shall be
received by OIG no later than the anniversary date of the due date of the first
Annual Report.

     C. Certifications. The Acquisition Compliance Assessment Reports, the
        --------------
Implementation Report, and the Annual Reports shall include a certification by
the Compliance Officer that: (1)except as otherwise described in the applicable
report,

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<PAGE>

Rotech is in compliance with all of the requirements of this CIA, to the best of
his or her knowledge; and (2) the Compliance Officer has reviewed the Report and
has made reasonable inquiry regarding its content and believes that the
information is accurate and truthful.

     D. Designation of Information: Rotech shall clearly identify any portions
        --------------------------
of its submissions that it believes are trade secrets, or information that is
commercial or financial and privileged or confidential, and therefore
potentially exempt from disclosure under the Freedom of Information Act
("FOIA"), 5 U.S.C. (S) 552. Rotech shall refrain from identifying any
information as exempt from disclosure if that information does not meet the
criteria for exemption from disclosure under FOIA.

VI.  Notifications and Submission of Reports
     ---------------------------------------

     Unless otherwise stated in writing after the effective date of this CIA,
all notifications and reports required under this CIA shall be submitted to the
following entities:

OIG:

          Civil Recoveries Branch - Compliance Unit
          Office of Counsel to the Inspector General
          Office of Inspector General
          U.S. Department of Health and Human Services
          Cohen Building, Room 5527
          330 Independence Avenue, SW
          Washington, DC 20201
          Phone 202.619.2078
          Fax   202.205.0604

Rotech:
------

          Robin Menchen
          Chief Compliance Officer
          Rebecca Myers
          Chief Legal Officer
          Rotech Medical Corporation
          2600 Technology Drive
          Suite 300

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<PAGE>

          Orlando, FL 32804
          Phone 407.822.4600
          Fax   407.297.8568

Unless otherwise specified, all notifications and reports required by this CIA
may be made by certified mail, overnight mail, hand delivery or other means,
provided that there is proof that such notification was received. For purposes
of this requirement, internal facsimile confirmation sheets do not constitute
proof of receipt.

VII. OIG Inspection, Audit and Review Rights
     ---------------------------------------

     In addition to any other rights OIG may have by statute, regulation, or
contract, OIG or its duly authorized representative(s) may examine or request
copies of Rotech's books, records, and other documents and supporting materials
and/or conduct on-site reviews of any of Rotech's locations for the purpose of
verifying and evaluating: (a) Rotech's compliance with the terms of this CIA;
and (b) Rotech's compliance with the requirements of the Federal health care
programs in which it participates. The documentation described above shall be
made available by Rotech to OIG or its duly authorized representative(s) at all
reasonable times for inspection, audit or reproduction. Furthermore, for
purposes of this provision, OIG or its duly authorized representative(s) may
interview any of Rotech's employees, contractors, or agents who consent to be
interviewed at the individual's place of business during normal business hours
or at such other place and time as may be mutually agreed upon between the
individual and OIG. Rotech agrees to assist OIG or its duly authorized
representative(s) in contacting and arranging interviews with such individuals
upon OIG's request. Rotech's employees may elect to be interviewed with or
without a representative of Rotech present.

VIII. Document and Record Retention
      -----------------------------

     Rotech shall maintain for inspection all documents and records relating to
reimbursement from the Federal health care programs, or to compliance with this
CIA, for 6 years (or longer if otherwise required by law).

IX.  Disclosures
     -----------

     Consistent with HHS's FOIA procedures, set forth in 45 C.F.R. Part 5, the
OIG shall make a reasonable effort to notify Rotech prior to any release by OIG
of information submitted by Rotech pursuant to its obligations under this CIA
and identified upon

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                                       27

<PAGE>

submission by Rotech as trade secrets, or information that is commercial or
financial and privileged or confidential, under the FOIA rules. With respect to
such releases, Rotech shall have the rights set forth at 45 C.F.R. (S)5.65(d).
Rotech shall refrain from identifying any information as exempt from release if
that information does not meet the criteria for exemption from disclosure under
FOIA.

X.   Breach and Default Provisions
     -----------------------------

     Rotech is expected to fully and timely comply with all of its CIA
obligations.

     A. Stipulated Penalties for Failure to Comply with Certain Obligations. As
        -------------------------------------------------------------------
a contractual remedy, Rotech and OIG hereby agree that failure to comply with
certain obligations set forth in this CIA may lead to the imposition of the
following monetary penalties (hereinafter referred to as "Stipulated Penalties")
in accordance with the following provisions.

          1. A Stipulated Penalty of $2,500 (which shall begin to accrue on the
day after the date the obligation became due) for each day Rotech fails to have
in place any of the obligations described in section III:

               a.   a Compliance Officer and Compliance Liaisons;

               b.   a Compliance Committee;

               c.   a written Code of Conduct;

               d.   written Policies and Procedures;

               e.   a requirement that Covered Persons be trained; and

               f.   a Disclosure Program.

          2. A Stipulated Penalty of $2,500 (which shall begin to accrue on the
day after the date the obligation became due) for each day Rotech fails to
retain an IRO, as required in section III.D.

          3. A Stipulated Penalty of $2,500 (which shall begin to accrue on the
day after the date the obligation became due) for each day Rotech fails to meet
any of the

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<PAGE>

deadlines for the submission of the Acquisition Compliance Assessment Reports,
Implementation Report, or the Annual Reports to OIG.

          4. A Stipulated Penalty of $2,000 (which shall begin to accrue on the
date the failure to comply began) for each day Rotech employs or contracts with
an Ineligible Person and that person: (i) has responsibility for, or involvement
with, Rotech's business operations related to the Federal health care programs;
or (ii) is in a position for which the person's salary or the items or services
rendered, ordered, or prescribed by the person are paid in whole or part,
directly or indirectly, by Federal health care programs or otherwise with
Federal funds (the Stipulated Penalty described in this paragraph shall not be
demanded for any time period during which Rotech can demonstrate that it did not
discover the person's exclusion or other ineligibility after making a reasonable
inquiry (as described in section III.G) as to the status of the person).

          5. A Stipulated Penalty of $1,500 for each day Rotech fails to grant
access to the information or documentation as required in section VII of this
CIA. (This Stipulated Penalty shall begin to accrue on the date Rotech fails to
grant access.)

          6. A Stipulated Penalty of $1,000 for each day Rotech fails to comply
fully and adequately with any obligation of this CIA. In its notice to Rotech,
OIG shall state the specific grounds for its determination that Rotech has
failed to comply fully and adequately with the CIA obligation(s) at issue and
steps the Rotech must take to comply with the CIA. (This Stipulated Penalty
shall begin to accrue 10 days after the date that OIG provides notice to Rotech
of the failure to comply.) A Stipulated Penalty as described in this paragraph
shall not be demanded for any violation for which the OIG has sought a
Stipulated Penalty under paragraphs 1-5 of this section.

     B. Timely Written Requests for Extensions. Rotech may, in advance of the
        --------------------------------------
due date, submit a timely written request for an extension of time to perform
any act or file any notification or report required by this CIA. Notwithstanding
any other provision in this section, if OIG grants the timely written request
with respect to an act, notification, or report, Stipulated Penalties for
failure to perform the act or file the notification or report shall not begin to
accrue until one day after Rotech fails to meet the revised deadline set by OIG.
Notwithstanding any other provision in this section, if OIG denies such a timely
written request, Stipulated Penalties for failure to perform the act or file the
notification or report shall not begin to accrue until three business days after
Rotech receives OIG's written denial of such request or the original due date,
whichever is later. A "timely written request" is defined as a request in
writing received by OIG at least five business

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<PAGE>

days prior to the date by which any act is due to be performed or any
notification or report is due to be filed.

     C. Payment of Stipulated Penalties.
        -------------------------------

          1. Demand Letter. Upon a finding that Rotech has failed to comply with
any of the obligations described in section X.A and after determining that
Stipulated Penalties are appropriate, OIG shall notify Rotech of: (a) Rotech's
failure to comply; and (b) the OIG's exercise of its contractual right to demand
payment of the Stipulated Penalties (this notification is hereinafter referred
to as the "Demand Letter").

          2. Response to Demand Letter. Within 10 days of the receipt of the
Demand Letter, Rotech shall either: (a) cure the breach to OIG's satisfaction
and pay the applicable Stipulated Penalties; or (b) request a hearing before an
HHS administrative law judge ("ALT") to dispute OIG's determination of
noncompliance, pursuant to the agreed upon provisions set forth below in section
X.E. In the event Rotech elects to request an ALJ hearing, the Stipulated
Penalties shall continue to accrue until Rotech cures, to OIG's satisfaction,
the alleged breach in dispute. Failure to respond to the Demand Letter in one of
these two manners within the allowed time period shall be considered a material
breach of this CIA and shall be grounds for exclusion under section X.D.

          3. Form of Payment. Payment of the Stipulated Penalties shall be made
by certified or cashier's check, payable to: "Secretary of the Department of
Health and Human Services," and submitted to OIG at the address set forth in
section VI.

          4. Independence from Material Breach Determination. Except as set
forth in section X.D.l.c, these provisions for payment of Stipulated Penalties
shall not affect or otherwise set a standard for OIG's decision that Rotech has
materially breached this CIA, which decision shall be made at OIG's discretion
and shall be governed by the provisions in section X.D, below.

     D. Exclusion for Material Breach of this CIA
        ------------------------------------------

          1. Definition of Material Breach. A material breach of this CIA
means:

               a. a failure by Rotech to report a material deficiency, take
               corrective action and make the appropriate refunds, as required
               in section III.H;

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<PAGE>

               b. a repeated or flagrant violation of the obligations under this
               CIA, including, but not limited to, the obligations addressed in
               section X.A:

               c. a failure to respond to a Demand Letter concerning the payment
               of Stipulated Penalties in accordance with section X.C; or

               d. a failure to retain and use an Independent Review Organization
               in accordance with section III.D; or

               e. a failure to perform an Acquisition Compliance Assessment as
               required in section III.E.

          2. Notice of Material Breach and Intent to Exclude. The parties agree
that a material breach of this CIA by Rotech constitutes an independent basis
for Rotech's exclusion from participation in the Federal health care programs.
Upon a determination by OIG that Rotech has materially breached this CIA and
that exclusion should be imposed, OIG shall notify Rotech of: (a) Rotech's
material breach; and (b) OIG's intent to exercise its contractual right to
impose exclusion (this notification is hereinafter referred to as the "Notice of
Material Breach and Intent to Exclude").

          3. Opportunity to Cure. Rotech shall have 30 days from the date of
receipt of the Notice of Material Breach and Intent to Exclude to demonstrate to
OIG's satisfaction that:

               a. Rotech is in compliance with the obligations of the CIA cited
               by the OIG as being the basis for the material breach;

               b. the alleged material breach has been cured; or

               c. the alleged material breach cannot be cured within the 30-day
               period, but that: (i) Rotech has begun to take action to cure the
               material breach; (ii) Rotech is pursuing such action with due
               diligence; and (iii) Rotech has provided to OIG a reasonable
               timetable for curing the material breach.

          4. Exclusion Letter. If at the conclusion of the 30-day period, Rotech
fails to satisfy the requirements of section X.D.3, OIG may exclude Rotech from
participation

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<PAGE>

in the Federal health care programs. OIG will notify Rotech in writing of its
determination to exclude Rotech (this letter shall be referred to hereinafter as
the "Exclusion Letter"). Subject to the Dispute Resolution provisions in
section X.E, below, the exclusion shall go into effect 30 days after the date of
the Exclusion Letter. The exclusion shall have national effect and shall also
apply to all other Federal procurement and non-procurement programs.
Reinstatement to program participation is not automatic. If at the end of the
period of exclusion, Rotech wishes to apply for reinstatement, Rotech must
submit a written request for reinstatement in accordance with the provisions at
42 C F.R. (S)(S) 1001.3001-.3004.

     E. Dispute Resolution
        ------------------

          1. Review Rights. Upon OIG's delivery to Rotech of its Demand Letter
or of its Exclusion Letter, and as an agreed-upon contractual remedy for the
resolution of disputes arising under this CIA, Rotech shall be afforded certain
review rights comparable to the ones that are provided in 42
U.S.C.(S).1320a-7(f) and 42 C.F.R. Part 1005 as if they applied to the
Stipulated Penalties or exclusion sought pursuant to this CIA. Specifically,
OIG's determination to demand payment of Stipulated Penalties or to seek
exclusion shall be subject to review by an HHS ALJ and, in the event of an
appeal, the HHS Departmental Appeals Board ("DAB"), in a manner consistent with
the provisions in 42 C.F.R. (S)(S) 1005.2-1005.21. Notwithstanding the language
in 42 C F.R. (S) 1005.2(c), the request for a hearing involving Stipulated
Penalties shall be made within 10 days of the receipt of the Demand Letter and
the request for a hearing involving exclusion shall be made within 25 days of
receipt of the Exclusion Letter.

          2. Stipulated Penalties Review. Notwithstanding any provision of Title
42 of the United States Code or Chapter 42 of the Code of Federal Regulations,
the only issues in a proceeding for Stipulated Penalties under this CIA shall
be: (a) whether Rotech was in full and timely compliance with the obligations of
this CIA for which the OIG demands payment; and (b) the period of
noncompliance. Rotech shall have the burden of proving its full and timely
compliance and the steps taken to cure the noncompliance, if any. If the ALJ
agrees with OIG with regard to a finding of a breach of this CIA and orders
Rotech to pay Stipulated Penalties, such Stipulated Penalties shall become due
and payable 20 days after the ALJ issues such a decision unless Rotech requests
review of the ALJ decision by the DAB. If the ALJ decision is properly appealed
to the DAB and the DAB upholds the determination of OIG, the Stipulated
Penalties shall become due and payable 20 days after the DAB issues its
decision.

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<PAGE>

          3. Exclusion Review. Notwithstanding any provision of Title 42 of the
United States Code or Chapter 42 of the Code of Federal Regulations, the only
issues in a proceeding for exclusion based on a material breach of this CIA
shall be:

               a. whether Rotech was in material breach of this CIA;

               b. whether such breach was continuing on the date of the
               Exclusion Letter; and

               c. whether the alleged material breach could not have been cured
               within the 30 day period, but that:

                    (i) Rotech had begun to take action to cure the material
                    breach within that period;

                    (ii) Rotech has pursued and is pursuing such action with due
                    diligence; and

                    (iii) Rotech provided to OIG within that period a reasonable
                    timetable for curing the material breach and Rotech has
                    followed the timetable.

For purposes of the exclusion herein, exclusion shall take effect only after an
ALJ decision favorable to OIG, or, if the ALJ rules for the Rotech, only after a
DAB decision in favor of OIG. Rotech's election of its contractual right to
appeal to the DAB shall not abrogate the OIG's authority to exclude Rotech upon
the issuance of an ALJ's decision in favor of the OIG. If the ALJ sustains the
determination of the OIG and determines that exclusion is authorized, such
exclusion shall take effect 20 days after the ALJ issues such a decision,
notwithstanding that Rotech may request review of the ALJ decision by the DAB.
If the DAB finds in favor of OIG after an ALJ decision adverse to OIG, the
exclusion shall take effect 20 days after the DAB decision. Rotech agrees to
waive its/his/her right to any notice of such an exclusion if a decision
upholding the exclusion is rendered by the ALJ or DAB.

          4. Finality of Decision. The review by an ALJ or DAB provided for
above shall not be considered to be an appeal right arising under any statutes
or regulations. Consequently, the parties to this CIA agree that the DAB's
decision (or the ALJ's decision if not appealed) shall be considered final for
all purposes under this CIA.

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                                       33

<PAGE>

XI.  EFFECTIVE AND BINDING AGREEMENT
     -------------------------------

     Consistent with the provisions in the Settlement Agreement pursuant to
which this CIA is entered, and into which this CIA is incorporated, Rotech and
OIG agree as follows:

     A. This CIA shall be binding on the successors, assigns, and transferees of
Rotech;

     B. This CIA shall become final and binding on the date the final signature
is obtained on the CIA;

     C. Any modifications to this CIA shall be made with the prior written
consent of the parties to this CIA;

     D. OIG may agree to a suspension of Rotech's obligations under the CIA in
the event of Rotech's cessation of participation in Federal health care
programs. If Rotech withdraws from participation in Federal health care programs
and is relieved from its CIA obligations by the OIG, Rotech agrees to notify OIG
30 days in advance of Rotech's intent to reapply as a participating Rotech or
supplier with the Federal health care programs. Upon receipt of such
notification, OIG will evaluate whether the CIA should be reactivated or
modified.

     E. The undersigned Rotech signatories represent and warrant that they are
authorized to execute this CIA. The undersigned OIG signatory represents that he
is signing this CIA in his official capacity and that he is authorized to
execute this CIA.

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                                       34

<PAGE>

                     On Behalf of Rotech Medical Corporation

/s/ Stephen D. Linehan                                                   2/11/02
--------------------------                                               -------
Stephen D. Linehan                                                       DATE
President and CEO
Rotech Medical Corporation

/s/ Roger S. Goldman                                                     1/7/02
--------------------------                                               -------
Roger S. Goldman                                                         DATE
Latham & Watkins

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                                       35

<PAGE>

                  On Behalf of the Office of Inspector General
                 Of the Department of Health and Human Services

---------------------------------------------                               ----
LEWIS MORRIS                                                                DATE
Assistant Inspector General for Legal Affairs
Office of Inspector General
U. S. Department of Health and Human Services

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                                       36

<PAGE>

                                   APPENDIX A

A.   Claims Review.
     -------------

     1.   Facility Selection Methodology: Rotech assigns each of its storefront
          locations a unique identifier known as a "Lawson Unit." For each
          annual Claims Review, the Lawson Units shall be stratified for
          purposes of these Reviews. The basis for such strata determination
          shall be the sales recorded by such Lawson Units in the preceding
          calendar year. Based on such data any Lawson Units with annual revenue
          of $9 million or greater shall be placed into a "special" strata. All
          remaining Lawson Units shall be equally divided (to the extent
          possible) into "small," "medium" and "large" strata based on sales
          revenue (i.e., the largest strata contains the top 3rd Lawson Units
          with the highest revenues; the medium strata the next 3rd in revenues;
          and the small strata the lowest 3rd in revenues).

               a. The Claims Review shall annually be performed for each Lawson
               Unit within the special strata, however, if the special strata
               contains more than 5 Lawson Units, no more than 5 Lawson Units in
               the special strata will be randomly selected for review. After
               the 2d annual Claims Review, (i) Rotech may request that the OIG
               reevaluate the revenue threshold for determining the special
               strata or (ii) the OIG may reevaluate the revenue threshold for
               determining the special strata. The OIG will make the final
               decision on the revenue threshold for the special strata.

               b. For each annual Claims Review, the remainder of the Lawson
               Units that do not meet the criteria for inclusion in the special
               strata, shall be divided into three equal strata based on the
               annual revenues of the Lawson Units. The Lawson Units shall be
               assigned to a strata at the end of each CIA reporting period. On
               an annual basis, Rotech or the IRO shall perform a Claims Review
               on a sample of Lawson Units using the following methodology:
               randomly select 20% of the Lawson Units in the large strata, 15%
               of Lawson Units in the medium strata, and 10% of the Lawson Units
               in the small strata for a Claims Review.

               c. Rotech or the IRO shall select the Lawson Units for the Claims
               Review by using a random number generator. Every Lawson Unit in

Rotech CIA App. A

<PAGE>

               each strata shall be included in the facility selection process
               for each annual Claims Review.

     2.   Definitions. For the purposes of the Claims Review, the following
          definitions shall be used:

          a. Overpayment: The amount of money Rotech has received in excess of
             -----------
          the amount due and payable under any Federal health care program
          requirements.

          b. Item: Any discrete unit that can be sampled (e.g., code, line item,
             ----                                         ----
          beneficiary, patient encounter, etc.).

          c. Paid Claim: A code or line item submitted by Rotech and for which
             ----------
          Rotech has received reimbursement from the Medicare program.

          d. Population: All Items for which Rotech has submitted a code or line
             ----------
          item and for which Rotech has received reimbursement from the Medicare
          program (i.e., a Paid Claim) during the 12-month period covered by the
                   ----
          Claims review, except in the first year of the CIA as explained below.
          To be included in the Population, an Item must have resulted in at
          least one Paid Claim.

          e. Treatment of Reviews in First Year: Notwithstanding the other
             ----------------------------------
          provisions of this Appendix, Rotech or the IRO may choose to conduct
          its Claims Review in the first year after the effective date of the
          CIA in the follow manner. The Claims Review shall cover Items related
          to the time period from the date of Rotech's Bankruptcy confirmation,
          to the date of the Claims Review (rather than always relating to the
          full preceding 12-month time period as is required in other years).

               i. At least 25% of each Claims Review conducted shall cover the
               period from the date of Rotech's Bankruptcy confirmation to a
               date at least one year after the effective date of the CIA.

               ii. At least 25% of each Claims Review conducted shall cover the
               period from the date of Rotech's Bankruptcy confirmation to a
               date at least 9 months after the effective date of the CIA.

Rotech CIA App. A

<PAGE>

               iii. The remaining Claims Review (that not described in i. and
               ii. above) shall include the period from the date of Rotech's
               Bankruptcy confirmation to a date at least 6 months after the
               effective date of the CIA.

               iv. If Rotech or the IRO chooses to conduct the first year
               reviews in accordance with this paragraph, the Lawson Units in
               the special strata shall be reviewed first followed by the Lawson
               Units in the large strata, the medium strata and finally the
               small strata.

          f. Error Rate: The Error Rate shall be the percentage of net
             ----------
          overpayments identified in the sample. The Error Rate is calculated by
          dividing the net Overpayment identified in the sample by the total
          dollar amount associated with the Items in the sample. If Rotech is
          permitted to perform the Claims Review internally with the IRO
          verification, the following payment errors should be included in
          calculating the error rate: (i) all payment errors identified by
          Rotech and not verified by the IRO; (ii) all payment errors identified
          by Rotech and verified by the IRO; and (iii) all payment errors
          identified by the IRO and not identified by Rotech.

     3.   Other Requirements.

          a. Paid Claims without Supporting Documentation. For the purpose of
             --------------------------------------------
          appraising Items included in the Claims Review, any Paid Claim for
          which Rotech cannot produce documentation sufficient to support the
          Paid Claim shall be considered an error and the total reimbursement
          received by Rotech for such Paid Claim shall be deemed an Overpayment.
          Replacement sampling for Paid Claims with missing documentation is not
          permitted.

          b. Use of First Samples Drawn. For the purposes of all samples
             --------------------------
          (Discovery Sample(s) and Full Sample(s)) discussed in this Appendix,
          the Paid Claims associated with the Items selected in each first
          sample (or first sample for each strata, if applicable) shall be used.
          In other words, it is not permissible to generate more than one list
          of random samples and then select one for use with the Discovery
          Sample or Full Sample.

B.   Claims Review Report. The following information shall be included in each
     --------------------
     Claims Review Report for the Claims Review(s) performed:

     1.   Claims Review Methodology

Rotech CIA App. A

<PAGE>

          a. Sampling Unit. A description of the Item as that term is utilized
             -------------
          for the Claims Review. For purposes of this Claims Review, the term
          "Item" may refer to any discrete unit that can be sampled (e.g.,
                                                                     ----
          claim, line item, beneficiary, patient encounter, etc.).

          b. Claims Review Population. A description of the Population subject
             ------------------------
          to the Claims Review.

          c. Claims Review Objective. A clear statement of the objective
             -----------------------
          intended to be achieved by the Claims Review.

          d. Sampling Frame: A description of the sampling frame, which is the
             --------------
          totality of Items from which the Discovery Sample and, if any, Full
          Sample has been selected and an explanation of the methodology used to
          identify the sampling frame. In most circumstances, the sampling frame
          will be identical to the Population.

          e. Source of Data: A description of the specific documentation relied
             --------------
          upon by Rotech or the IRO when performing the Claims Review (e.g.,
                                                                       ----
          medical records, physician orders, certificates of medical necessity,
          requisition forms, local medical review policies, CMS program
          memoranda, Medicare carrier or intermediary manual or bulletins, other
          policies, regulations, or directives).

          f. Review Protocol: A narrative description of how the Claims Review
             ---------------
          was conducted and what was evaluated.

          g. Lawson Unit Data: The annual revenue for each Lawson Unit with the
             ----------------
          strata designations

     2.   Statistical Sampling Documentation

          a. The number of Items appraised in the Discovery Sample and, if
          applicable, in the Full Sample.

          b. A copy of the printout of the random numbers generated by the
          "Random Numbers" function of the statistical sampling software used by
          Rotech or the IRO.

Rotech CIA App. A

<PAGE>

          c. A description or identification of the statistical sampling
          software package used to conduct the sampling.

          d. A copy of the statistical software printout(s) estimating how many
          Items are to be included in the Full Sample.

     3.   Claims Review Results

          a. Narrative Results.
             -----------------

               i. A description of Rotech's billing and coding system(s),
               including the identification, by position description, of the
               personnel involved in the coding and billing.

               ii. A narrative explanation of Rotech's findings and supporting
               rationale (including reasons for errors, patterns noted, etc.)
               regarding the Claims Review, including the results of the
               Discovery Sample, and the results of the Full Sample (if any)
               with the gross Overpayment amount, the net Overpayment amount,
               and the corresponding Error Rate(s) related to the net
               Overpayment.

          b. Quantitative Results.
             --------------------

               i. Total number and percentage of instances (based on Rotech's
               internal Claims Review, if applicable) in which Rotech determined
               that the Paid Claims submitted by Rotech ("Claims Submitted")
               differed from what should have been the correct claim ("Correct
               Claim"), regardless of the effect on the payment.

               ii. Total number and percentage of instances (based on Rotech's
               internal Claims Review, if applicable) in which the Claim
               Submitted differed from the Correct Claim and in which such
               difference resulted in an Overpayment to Rotech.

               iii. Based on Rotech's or the IRO's Claims Review, total dollar
               amount of paid Items included in the sample and the net
               Overpayment associated with the sample.

               iv. Error Rate in the sample(s), as defined in section A.l.e of
               this Appendix.

Rotech CIA App. A

<PAGE>

               v. For each Discovery and Full Sample performed by Rotech: (1)
               the number of Items the IRO verified; (2) the number of instances
               in which the IRO disagreed with Rotech's payment determinations;
               and (3) the dollars associated with the difference between the
               IRO's and Rotech's payment determinations.

               vi. A spreadsheet of the Claims Review results that includes the
               following information for each Paid Claim appraised: Federal
               health care program billed, beneficiary health insurance claim
               number, date of service, procedure code submitted, procedure code
               reimbursed, allowed amount reimbursed by payor, correct procedure
               code (as determined by the Rotech's internal billing review)
               correct procedure code (as determined by the IRO verification),
               correct allowed amount (as determined by Rotech's internal
               billing review), correct allowed amount (as determined by the IRO
               verification), dollar difference between allowed amount
               reimbursed by payor and the correct allowed amount (as determined
               by Rotech's internal billing review); and dollar difference
               between allowed amount reimbursed by payor and the correct
               allowed amount (as determined by the IRO verification). (See
               Attachment 1 to this Appendix.)

     4. Systems Review. Observations and recommendations on possible
     improvements to the system(s) and process(es) that generated the
     Overpayment(s) in the sample Population.

     5. Credentials. The names and credentials of the individuals who: (1)
     designed the statistical sampling procedures and the review methodology
     utilized for the Claims Review and Unallowable Costs Review; (2) performed
     the Claims Review and Unallowable Costs Review; and (3) performed the
     verification review, if applicable.

Rotech CIA App. A

<PAGE>

                                                                    Attachment 1

                              Claim Review Results

<TABLE>
<CAPTION>
                                                                                   Correct
Federal                                                              Correct       Allowed Amt   Dollar Difference
Health Care   Bene             Procedure   Procedure    Allowed      Procedure     Reimbursed    between Amt
Program       HIC    Date of   Code        Code         Amount       Code(IRO      (IRO          Reimbursed and
Billed        #      Service   Submitted   Reimbursed   Reimbursed   determined)   determined)   Correct Allowed Amt
--------------------------------------------------------------------------------------------------------------------
<S>           <C>    <C>       <C>         <C>          <C>          <C>           <C>           <C>

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

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

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

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

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

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

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

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

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

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

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

--------------------------------------------------------------------------------------------------------------------
</TABLE>

Rotech CIA Attachment 1 Final.wpd

Rotech Corporate Integrity Agreement

<PAGE>

APPENDIX B
                               OVERPAYMENT REFUND

<TABLE>
<S>                                                         <C>
-------------------------------------------------------------------------------------------------------
                             TO BE COMPLETED BY MEDICARE CONTRACTOR
                             --------------------------------------

Date:
     -----------
Contractor Deposit Control #                                Date of Deposit:
                             ----------------------------                   ---------------------------
Contractor Contact Name:                                                                          Phone
                        --------------------------------------------------------------------------
#
 -------------
C           o          n          t          r           a          c          t          o           r
Address:
        -----------------------------------------------------------------------------------------------
Contractor Fax:
               ---------------------------
-------------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------------
                           TO BE COMPLETED BY PROVIDER/PHYSICIAN/SUPPLIER
                           ----------------------------------------------
Please complete and forward to Medicare Contractor. This form, or a similar document containing the
following information, should accompany every voluntary refund so that receipt of check is properly
recorded and applied.
PROVIDER/PHYSICIAN/SUPPLIERNAME
                                -----------------------------------------------------------------------
ADDRESS
       ------------------------------------------------------------------------------------------------
PROVIDER/PHYSICIAN/SUPPLIER #                                                                     CHECK
                              -------------------------------------------------------------------
NUMBER#
       --------------
CONTACT PERSON:                                                                                   PHONE
               ----------------------------------------------------------------------------------
#                                            AMOUNT OF CHECK $                                   CHECK
 -------------------------------------------                  ----------------------------------
DATE
    ---------------

                                           REFUND INFORMATION
                                           ------------------
For each Claim, provide the following:
-------------------------------------
Patient Name                                                                                      HIC
             -------------------------------------------------------------------------------------
#
 ------------------------
Medicare  Claim  Number                                                          Claim Amount Refunded
                        ---------------------------------------------------------
$
 -------------------
Reason Code for Claim Adjustment:                (Select reason code from list below. Use one reason
                                 ---------------
per claim)
              (Please list all claim numbers involved. Attach separate sheet, if necessary)
                           ---
Note:  If Specific Patient/HIC/Claim #/Claim Amount data not available for all claims due to
       Statistical Sampling, please indicate methodology and formula used to determine amount
       a     n     d             r      e      a      s      o      n             f    o    r
       overpayment:
                   ------------------------------------------------------------------------------------
For Institutional Facilities Only:
---------------------------------
Cost Report Year(s)
                   ---------------------------------
(If-multiple cost report years are involved, provide a breakdown by amount and corresponding cost
report year.)
For OIG Reporting Requirements:
-------------------------------
Do you have a Corporate Integrity Agreement with OIG?              Yes                 No
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
Reason Codes:
-------------
Billing/Clerical Error           MSP/Other Payer Involvement            Miscellaneous
----------------------           ---------------------------            -------------
01 - Corrected Date of Service   08 - MSP Group Health Plan Insurance   13 - Insufficient Documentation
02 - Duplicate                   09 - MSP No Fault Insurance            14 - Patient Enrolled in an HMO
03 - Corrected CPT Code          10 - MSP Liability Insurance           15 - Services Not Rendered
04 - Not Our Patient(s)          11 - MSP, Workers Comp.(Including      16 - Medical Necessity
05 - Modifier Added/Removed           Black Lung                        17 - Other (Please Specify)
06 - Billed in Error             12 - Veterans Administration
07 - Corrected CPT Code                                                 -------------------------

-------------------------------------------------------------------------------------------------------
</TABLE>

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