Exhibit 10.5


    Exhibit
      10.5

     

    


    MATRIA
      HEALTHCARE, INC.

    2005
      DIRECTORS' NON-QUALIFIED STOCK OPTION PLAN

    


    1. Establishment
      and Purpose.

    


    (a) Matria
      Healthcare, Inc. a Delaware corporation (the "Company"), hereby adopts its
      2005
      Directors' Non-Qualified Stock Option Plan (the "Plan"). The Plan is intended
      to
      provide a means whereby eligible members of the Board may be given an
      opportunity to purchase shares of Stock pursuant to options which are not
      intended to qualify as incentive stock options under Section 422 of the
      Code.

    


    (b) The
      purpose of the Plan is to enable the Company to attract qualified individuals
      to
      serve as members of the Board, to provide additional performance incentive
      to
      such individuals while serving as directors, and to encourage their continued
      service on the Board.

    


    2. Definitions.
      As used
      herein, the following definitions shall apply:

    


    (a) "Affiliate"
      shall mean any parent or subsidiary corporations of the Company, as defined
      in
      Sections 424(e) and (f) of the Code (but substituting "the Company" for
      "employer corporation"), including parents or subsidiaries of the Company that
      become such after adoption of the Plan.

    


    (b) "Board"
      shall mean the Board of Directors of the Company.

    


     

    (c) "Change
      in Control" shall mean a change in ownership or control of the Company effected
      through either of the following transactions:

     

     

    


     

    (i) the
      direct or indirect acquisition by any person or related group of persons (other
      than an acquisition from or by the Company or by a Company-sponsored employee
      benefit plan) of beneficial ownership (within the meaning of Rule 13d-3 of
      the
      Securities Exchange Act of 1934, as amended (the "Exchange Act") of securities
      possessing more than fifty percent (50%) of the total combined voting power
      of
      the Company's outstanding Stock;

    


    (ii) a
      change
      in the composition of the Board over a period of thirty-six (36) months or
      less
      such that a majority of the Board members (rounded up to the next whole number)
      ceases, by reason of one or more contested elections for Board membership or
      by
      one or more actions by written consent of shareholders, to be comprised of
      individuals who either (A) have been Board members continuously since the
      beginning of such period or (B) have been elected or nominated for election
      as
      Board members during such period by at least a majority of the Board members
      described in clause (A) who were still in office at the time such election
      or
      nomination was approved by the Board.

    


    (d) "Code
      shall mean the Internal Revenue Code of 1986, as amended.

    


    (e) "Company"
      shall mean Matria Healthcare, Inc. a Delaware corporation.

    


    (f) "Continuous
      Status as a Director" shall mean the absence of any interruption or termination
      of service as a Director.

    


    (g) "Corporate
      Transaction" shall mean any of the following stockholder-approved transactions
      to which the Company is a party:


    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    


    


    (i) approval
      by the Company's shareholders of a merger or consolidation in which the Company
      is not the surviving entity, except for a transaction the principal purpose
      of
      which is to change the state in which the Company is incorporated;

    


    (ii) approval
      by the Company's shareholders of the sale, transfer or other disposition of
      all
      or substantially all of the assets of the Company (including the capital stock
      of the Company's subsidiary corporations) in connection with a complete
      liquidation or dissolution of the Company; or

    


    (iii) approval
      by the Company's shareholders of any reverse merger in which the Company is
      the
      surviving entity but in which securities possessing more than fifty percent
      (50%) of the total combined voting power of the Company's outstanding securities
      are transferred to a person or persons different from those who held such
      securities immediately prior to such merger.

    


    (h) "Director"
      shall mean a member of the Board.

    


    (i) "Effective
      Date" shall mean the date this Plan is adopted by the Board.

    


    (j) "Employee"
      shall mean any person who is an employee of the Company, or any Affiliate of
      the
      Company, for purposes of tax withholding under the Code. The payment of a
      director's fee by the Company shall not be sufficient to render the recipient
      of
      such fee an Employee.

    


    (k) "Exchange
      Act" shall mean the Securities Exchange Act of 1934, as amended.

    


    (l) "Fair
      Market Value" shall mean, as of any date, the value of a share of Stock
      determined as follows:

    


    (i) If
      the
      Stock is listed on any established stock exchange or a national market system,
      including without limitation the Nasdaq National Market, its Fair Market Value
      shall be the closing selling price for such stock on the principal securities
      exchange or national market system on which the Common Stock is at the time
      listed for trading. If there are no sales of Common Stock on that date, then
      the
      closing selling price for the Common Stock on the next preceding day for which
      such closing selling price is quoted shall be determinative of Fair Market
      Value; or

    


    (ii) If
      the
      Stock is not traded on any exchange or a national market system, its Fair Market
      Value shall be determined in good faith by the Board, and such determination
      shall be conclusive and binding on all persons.

    


    (m) "Option"
      shall mean an option to purchase shares of Stock granted pursuant to the
      Plan.

    


    (n) "Option
      Agreement" shall mean the written agreement setting forth the terms of an Option
      in the form attached as Exhibit A hereto.

    


    (o) "Optionee"
      shall mean an Outside Director who receives an Option.

    


    (p) "Outside
      Director" shall mean a Director who is not an Employee.

    


    (q) "Person"
      shall mean a natural person, corporation, partnership, limited liability
      company, joint venture, trust, or any other entity and any government or
      instrumentality of government.

    


    (r) "Plan"
      shall mean this Matria Healthcare, Inc. 2005 Directors' Non-Qualified Stock
      Option Plan.

    


    (s) "Securities
      Act" shall mean the Securities Act of 1933, as amended.

    


    (t) "Stock"
      shall mean the common stock, $0.01 par value per share, of the
      Company.


    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    


    3. Stock
      Subject to the Plan.
      Subject
      to the provisions of Section 12 of the Plan, the maximum number of shares of
      Stock which may be made subject to Options and sold under the Plan is 165,000
      shares of Stock. If an Option expires or becomes unexercisable for any reason
      and has not been exercised in full, the Stock subject to such Option shall
      be
      available for future grant under the Plan. If Stock which was acquired upon
      exercise of an Option is subsequently repurchased by the Company, such Stock
      shall not be available for future grants under the Plan.

    


    4. Interpretation
      and Administration of the Plan.

    


    (a) The
      Plan
      is intended to be self-executing pursuant to the terms hereof. However, any
      questions concerning interpretation or execution of the Plan or grants hereunder
      shall be decided by the Board. All decisions, determinations and interpretations
      of the Board shall be final and binding on all holders of any Options granted
      under the Plan.

    


    (b) Subject
      to the provisions and restrictions of the Plan, the Board shall have the
      authority to: (i) authorize any person to execute on behalf of the Company
      any
      agreements or other documents in connection with the grant of an Option under
      the Plan; (ii) approve forms of agreement for use under the Plan consistent
      with
      the terms of the Plan; and (iii) make all other determinations deemed necessary
      or advisable for the implementation of the Plan.

    


    5. Option
      Grants.

    


    (a) All
      grants of Options hereunder shall be automatic and nondiscretionary and shall
      be
      made strictly in accordance with the provisions of this Section 5. Neither
      the
      Board nor any person shall have any discretion to select which Outside Directors
      shall be granted Options, or to determine the number of shares of Stock to
      be
      covered by Options granted to Outside Directors, the timing of such Option
      grants or the exercise price thereof.

    


    (b) An
      option
      to purchase 6,000 shares of Stock shall be granted ("Initial Grant") to each
      Outside Director, such Initial Grant to be made to Outside Directors elected
      or
      appointed to the Board upon the date each such Outside Director becomes an
      Outside Director of the Company. Beginning with the first annual meeting of
      the
      Company's stockholders following the Initial Grant Date and thereafter at each
      subsequent annual meeting of the Company's stockholders, each Outside Director
      who continues as an Outside Director immediately following each such annual
      meeting shall be granted an option to purchase 6,000 shares of Stock
      ("Subsequent Grant"); provided that no Subsequent Grant shall be made to any
      Outside Director who has not served as an Outside Director of the Company,
      as of
      the time of such annual meeting, for at least one year. Each Subsequent Grant
      shall be made on the date of the annual stockholders' meeting in question.
      If
      any Option ceases to be exercisable in whole or in part, the shares which were
      subject to such Option but as to which the Option had not been exercised shall
      continue to be available under the Plan.

    


    6. Terms
      and Conditions of Options.

    


    (a) Each
      Option granted pursuant to the Plan shall be evidenced by an Option Agreement
      executed by the Company and the Optionee.

    


    (b) The
      exercise price per share of Options granted under the Plan shall be 100% of
      the
      Fair Market Value per share of Stock on the date of grant of the Option, subject
      to adjustment to the extent provided in Section 12 hereof.

    


    (c) Subject
      to the provisions in the Option Agreement and Sections 10(e) and 10(f) hereof,
      each Option shall vest and become exercisable in twelve (12) monthly
      installments after the date of grant.

    


    (d) The
      term
      of each Option shall be ten (10) years from the date of grant, unless a shorter
      period is required to comply with any applicable law, in which case such shorter
      period shall apply.

    


    7. Eligibility.
      Options
      may be granted only to Outside Directors. No Optionee shall have any rights
      as a
      stockholder of the Company as a result of the grant of an Option under the
      Plan
      or his or her exercise of such 


    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    


    Option
      pending the actual issuance by the Company of the Stock subject to such Option.
      The Plan shall not confer upon any Outside Director any right with respect
      to
      continuation of service as a Director or nomination to serve as a Director,
      nor
      shall it interfere in any way with any rights that the Director or the Company
      may have to terminate his or her directorship at any time.

    


    8. Term
      of Plan; Effective Date.
      The
      Plan shall become effective on the Effective Date, subject to approval of the
      Plan by the stockholders of the Company. If the Effective Date precedes such
      stockholder approval, any Option granted under the Plan prior to such approval
      shall be conditioned upon approval by stockholders of the Plan. Options may
      be
      granted under the Plan at any time on or before the tenth anniversary of the
      date of adoption of the Plan.

    


    9. Payment
      Upon Exercise.
      Payment
      of the exercise price upon exercise of any Option shall be made in cash, by
      optionee's personal check, a certified check, bank draft, or postal or express
      money order payable to the order of the Company in lawful money of the United
      States; provided, however, that the Board, in its sole discretion, may permit
      an
      optionee to pay the option price in whole or in part (i) with shares of Stock
      owned by the optionee or with shares of Stock withheld from the shares otherwise
      deliverable to the optionee upon exercise of an option (in each case only to
      the
      extent that such an exercise of the option would not result in an accounting
      compensation charge with respect to the shares used to pay the option price);
      (ii) by delivery on a form prescribed by the Board of an irrevocable direction
      to a securities broker approved by the Board to sell shares of Stock and deliver
      all or a portion of the proceeds to the Company in payment for the Stock; (iii)
      by delivery of the optionee's promissory note with such recourse, interest,
      security, and redemption provisions as the Board in its discretion determines
      appropriate (provided, however, no promissory note may be accepted from an
      optionee that would be in violation of the Sarbanes-Oxley Act of 2002 or any
      other federal or state law); or (iv) in any combination of the foregoing. Any
      Stock used to exercise options shall be valued at its fair market value on
      the
      date of the exercise of the option.

    


    10. Exercise
      of Option.

    


    (a) An
      Option
      shall be deemed to be exercised when written notice of such exercise has been
      given to the Company in accordance with the terms of the Option Agreement by
      the
      person entitled to exercise the Option and full payment for the Stock has been
      received by the Company in accordance with Section 9 hereof. An Option may
      not
      be exercised for a fraction of a share of Stock.

    


    (b) If
      an
      Optionee ceases to serve as a Director (other than as a result of disability
      or
      death, or following a Change in Control), he or she may, but only within three
      (3) months after the date he or she ceases to be a Director, exercise his or
      her
      then outstanding Options to the extent that he or she was entitled to exercise
      them at the date of such termination. To the extent that the Optionee was not
      entitled to exercise an Option at the date of such termination, or does not
      exercise such Option (that he or she was entitled to exercise) within the time
      specified herein, the Option shall terminate.

    


    (c) Notwithstanding
      the provisions of Section 10(b) above, in the event an Optionee is unable to
      continue his or her service as a Director as a result of his or her total and
      permanent disability (as defined in Section 22(e) (3) of the Code), he or she
      may, within twelve (12) months from the date of such termination, exercise
      his
      or her then outstanding Options to the extent he or she was entitled to exercise
      them at the date of such termination. To the extent that the Optionee was not
      entitled to exercise an Option at the date of such termination, or does not
      exercise such Option (that he or she was entitled to exercise) within the time
      specified herein, the Option shall terminate.

    


    (d) If
      during
      the term of his or her Option, an Optionee (A) dies and had been in Continuous
      Status as a Director at the time of his or her death, or (B) dies within three
      (3) months after termination of Continuous Status as a Director, at any time
      within twelve (12) months following the date of the Optionee's death the Option
      may be exercised by the Optionee's personal representative or by a person who
      acquired the right to exercise the Option by bequest or intestate succession,
      but only to the extent the Optionee was entitled to exercise the Option at
      the
      time of his or her termination of Continuous Status as a Director.
      Notwithstanding the foregoing, in no event may the Option be exercised after
      the
      expiration of the term set forth in Section 6.


    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    


    (e) Should
      any Corporate Transaction occur while an Optionee remains in Continuous Status
      as a Director, then each outstanding Option held by such Optionee shall become
      fully exercisable, immediately prior to the specified effective date of such
      Corporate Transaction, for all or any portion of the shares at the time
      represented by such Option and may be exercised with respect to any or all
      of
      such shares represented by the Option immediately prior to the specified
      effective date of such Corporate Transaction. Immediately following the
      consummation of the Corporate Transaction, each such option shall terminate
      unless assumed by the successor company or its parent, in which case the option
      shall remain so exercisable until the expiration or sooner termination of the
      Option term.

    


    (f) Should
      a
      Change in Control occur while an Optionee remains in Continuous Status as a
      Director, then each outstanding Option held by such Optionee shall become fully
      exercisable, immediately prior to the effective date of such Change in Control,
      for all of the shares at the time subject to such Option and may be exercised
      with respect to any or all of such shares represented by the Option. The Option
      shall remain so exercisable until the expiration or sooner termination of the
      Option term.

    


    (g) Notwithstanding
      the provisions of Sections 10(b) through 10(f) above, in no event may any Option
      be exercised after expiration of its term set forth in Section 6.

    


    11. Nontransferability
      of Options.
      To the
      extent required by Rule 16b-3 of the Exchange Act, no Option shall be
      transferable by an Optionee other than by operation of law or by will or by
      the
      laws of descent or distribution; provided that, if Rule 16b-3 is amended after
      the Board's adoption of the Plan to permit greater transferability of an Option
      hereunder, all Options hereunder shall be transferable to the fullest extent
      provided by Rule 16b-3 as so amended. In the event of any Rule 16b-3 permitted
      transfer of an Option, the transferee shall be entitled to exercise the Option
      in the same manner and only to the same extent as the Optionee (or his personal
      representative or the person who would have acquired the right to exercise
      the
      Option by bequest or intestate succession) would have been entitled to exercise
      the Option under Sections 9 and 10 had the Option not been
      transferred.

    


    12. Adjustment
      Upon Changes in Capitalization.
      In the
      event that the number of outstanding shares of Stock of the Company is changed
      through merger, consolidation, reorganization, recapitalization,
      reincorporation, stock split, stock dividend (in excess of 2%) or other change
      in the capital structure of the Company without consideration, the number of
      shares of Stock available under the Plan, the number of shares of Stock
      deliverable in connection with any Option and the exercise price per share
      of
      such Option shall be proportionately adjusted; provided, however, that no
      certificate or scrip representing fractional shares shall be issued and any
      resulting fractions of a share shall be ignored.

    


    13. Amendment
      and Termination of Plan.

    


    (a) The
      Board
      may amend the Plan from time to time; provided that no amendment may become
      effective until stockholder approval is obtained if the amendment (i) materially
      increases the aggregate number of shares of Stock that may be issued under
      the
      Plan, (ii) materially changes the class of individuals eligible to receive
      Options under the Plan, (iii) materially increases the benefits that may accrue
      to participants under the Plan, or (iv) modifies the Plan in such a way that
      stockholder approval of such modification is required pursuant to the rules
      under Section 16 of the Securities Exchange Act of 1934, as amended, by any
      national securities exchange or system on which the Stock is then listed or
      reported, by any regulatory body having jurisdiction with respect thereto or
      under any other applicable laws, rules or regulations. Notwithstanding the
      foregoing, the provisions set forth in Sections 5 and 6 of the Plan (and any
      other Sections of the Plan that affect the formula award terms required to
      be
      specified in the Plan by Rule 16b-3 of the Exchange Act and any successor to
      such Rule) shall not be amended periodically and in no event more than once
      every six (6) months, other than to comport with changes in the Code, the
      Employee Retirement Income Security Act of 1974, as amended, or any applicable
      rules and regulations thereunder.

    


    (b) The
      Board, without further approval of the stockholders, may at any time terminate
      or suspend the Plan. Except as otherwise provided herein, any such termination
      or suspension of the Plan shall not affect Options already granted hereunder,
      and such Options shall remain in full force and effect as if the Plan had not
      been terminated or suspended.


    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    


    (c) Except
      as
      otherwise provided herein, rights and obligations under any outstanding Option
      shall not be adversely altered or impaired by amendment, suspension or
      termination of the Plan, except with the consent of the person to whom the
      Option was granted or transferred.

    


    14. Conditions
      Upon Issuance of Stock.

    


    (a) Stock
      shall not be issued pursuant to the exercise of an Option unless the exercise
      of
      such Option and the issuance and delivery of such Stock pursuant thereto shall
      comply with all relevant provisions of law, including, without limitation,
      the
      Securities Act, the Exchange Act, the rules and regulations promulgated
      thereunder, state securities laws, and the requirements of any stock exchange
      or
      national market system upon which the Stock may then be listed, and shall be
      further subject to the approval of counsel for the Company with respect to
      such
      compliance.

    


    (b) Inability
      of the Company to obtain authority from any regulatory body having
      jurisdictional authority deemed by the Company's counsel to be necessary for
      the
      lawful issuance and sale of any Stock hereunder shall relieve the Company of
      any
      liability for failure to issue or sell such Stock.

    


    15. Reservation
      of Stock.
      The
      Company, during the term of the Plan, will at all times reserve and keep
      available such number of shares of Stock as shall be sufficient to satisfy
      the
      requirements of the Plan.

    


    16. Rule
      16b-3.

    


    (a) Transactions
      under the Plan are intended to comply with all applicable conditions of Rule
      16b-3 or its successors under the Exchange Act. To the extent any provision
      of
      the Plan or action by the Board fails to comply, it shall be deemed null and
      void, to the extent permitted by law and deemed advisable by the Board.
      Moreover, in the event the Plan does not include a provision required by Rule
      16b-3 to be stated therein in order to qualify the Plan as a formula plan,
      such
      provision (other than one relating to eligibility requirements, or the price
      and
      amount of awards) shall be deemed automatically to be incorporated by reference
      into the Plan.

    


    (b) If,
      subsequent to adoption of the Plan, Rule 16b-3 is amended to delete any of
      the
      Rule 16b-3 requirements addressed by the provisions of the Plan governing grants
      or awards to persons subject to Section 16(b) of the Exchange Act ("Insiders"),
      the Board may amend the Plan without stockholder approval (unless such approval
      is required by Rule 16b-3 as so amended) to delete or otherwise amend any such
      provisions no longer required for grants of Options under the Plan to be exempt
      from Section 16(b) liability under the Exchange Act or for Outside Directors
      to
      be able to make exempt Rule 16b-3 grants of stock options or other stock awards
      to Insiders under other stock option or stock incentive plans of the
      Company.