Exhibit 10.1

             ARTS WAY MANUFACTURING CO., INC.
               2007 NON-EMPLOYEE DIRECTORS
                   STOCK OPTION PLAN

  1. NAME.

  The name of this Plan is the Arts Way Manufacturing Co., Inc., 2007
Non-Employee Directors Stock Option Plan.

  2. DEFINITIONS.

  For the purposes of the Plan, the following terms shall be defined
  as set forth below:

  (a) Affiliate means any partnership, corporation, firm, joint venture,
association, trust, limited liability company, unincorporated organization,
or other entity (other than a Subsidiary) that, directly or indirectly
through one or more intermediaries, is controlled by the Company, where
the term "controlled by" means the possession, direct or indirect, of
the power to cause the direction of the management and policies of such
entity, whether through the ownership of voting interests or voting
securities, as the case may be, by contract or otherwise.

  (b) Board means the Board of Directors of the Company.

  (c) Code means the Internal Revenue Code of 1986, as amended from time
to time, and the Treasury regulations promulgated thereunder.

  (d) Common Stock means the common stock, $.01 par value per share, of the
Company or any security of the Company identified by the Board as having
been issued in substitution or exchange therefor or in lieu thereof.

  (e) Company means Arts Way Manufacturing Co., Inc., a Delaware corporation.

  (f) Effective Date means January 25, 2007.

  (g) Employee means an individual whose wages are subject to the
withholding of federal income tax under Section 3401 of the Code.

  (h) Exchange Act means the Securities Exchange Act of 1934, as amended
from time to time, or any successor statute.

  (i) Fair Market Value of a Share as of a specified date means the average
of the highest and lowest market prices of a Share as quoted on the OTC
Bulletin Board on such date, or, if no trading of Common Stock is
reported for that day, the next preceding day on which trading was
reported. In the event the Common Stock is not then quoted on the OTC
Bulletin Board, the Fair Market Value of a Share shall be
determined by reference to the principal market or exchange on which the
Shares are then traded.

  (j) Non-Employee Director means an individual who (i) is now or hereafter
becomes a member of the Board, and (ii) is not an Employee of the Company or
of any Subsidiary or Affiliate on the date of the grant of the NQSO.

  (k) NQSO means a stock option that is not qualified under Section 422 of
the Code.

  (l) Officer means an individual elected or appointed by the Board or by
the board of directors of a Subsidiary, or chosen in such other manner
as may be prescribed by the bylaws of the Company or a Subsidiary, as
the case may be, to serve as such.

  (m) Participant means a Non-Employee Director who is granted an NQSO
under the Plan.

  (n) Plan means this 2007 Non-Employee Directors Stock Option Plan.

  (o) Rule 16b-3 means Rule 16b-3 promulgated by the Securities and
Exchange Commission under the Exchange Act, or any successor or
replacement rule adopted by the Securities and Exchange Commission.

  (p) Share means one share of
Common Stock, adjusted in accordance with Section 9(b), if applicable.

  (q) Stock Option Agreement means the written agreement between the
Company and the Participant that contains the terms and conditions
pertaining to the NQSO.

  (r) Subsidiary means any corporation or entity of which the Company,
directly or indirectly, is the beneficial owner of fifty percent (50%)
or more of the total voting power of all classes of its stock having
voting power, unless the Board shall determine that any such corporation
or entity shall be excluded hereunder from the definition of the term
Subsidiary.

  3. PURPOSE.

The purpose of the Plan is to enable the Company to provide incentives,
which are linked directly to increases in stockholder value, to
Non-Employee Directors so that they will be encouraged to serve on the
Board and exert their best efforts on behalf of the Company.

  4. ADMINISTRATION.

  (a) Board of Directors.

      The Plan shall be administered by the Board of Directors, which shall
have the authority to administer the Plan in its sole and absolute
discretion to grant NQSOs, and to determine the number of Shares subject
to NQSOs and the price at which each Share covered by an NQSO may be
purchased pursuant to the Plan, all as set forth in Section 8. To this
end, the Board of Directors is authorized to construe and interpret the
Plan and to make all other determinations necessary or advisable for the
administration of the Plan. Subject to the foregoing, any determination,
decision or action of the Board of Directors in connection with the
construction, interpretation, administration or application of the Plan
shall be final, conclusive and binding upon all Participants and any
person validly claiming under or through a Participant.

  (b) Liability of Board Members.

      No member of the Board will be liable for any action or determination
made in good faith by the Board with respect to the Plan or any grant or
exercise of an NQSO thereunder.

  (c) NQSO Accounts.

      The Company shall maintain a journal in which a separate account for
each Participant shall be established. Whenever NQSOs are granted to or
exercised by a Participant, the Participants account shall be
appropriately credited or debited. Appropriate adjustment shall also be
made in the journal with respect to each account in the event of an
adjustment pursuant to Section 9(b).

  5. EFFECTIVE DATE OF THE PLAN; TERM; PLAN YEAR.

  (a) Effective Date of the Plan.

      The Plan was adopted by the Board and became effective on January
25, 2007.

  (b) Term of the Plan.

      No NQSO shall be granted pursuant to the Plan on or after
January 25, 2017 but NQSOs theretofore granted may extend beyond that
date.

  (c) Plan Year.

      The initial Plan Year begins on the date of the 2007 annual meeting
of stockholders and ends on the day prior to the 2008 annual meeting of
the stockholders. Subsequent Plan Years begin on the date of the annual
meeting of stockholders of each year and end on the day prior to the
meeting of the following year.

  6. SHARES SUBJECT TO THE PLAN.

  The maximum aggregate number of Shares which may be subject to NQSOs
granted to Non-Employee Directors under the Plan shall be One Hundred
Thousand (100,000). The limitation on the number of Shares which may be
subject to NQSOs under the Plan shall be subject to adjustment as
provided in Section 9(b).

  If any NQSO granted under the Plan expires, or is terminated for any reason
without having been exercised in full, the Shares allocable to the
unexercised portion of such NQSO shall again become available for grant
pursuant to the Plan. At all times during the term of the Plan, the
Company shall reserve and keep available for issuance such number of
shares as the Company is obligated to issue upon the exercise of all
then outstanding NQSOs.

  7. SOURCE OF SHARES ISSUED UNDER THE PLAN.

  Common Stock issued under the Plan shall be authorized and unissued
Shares. No fractional Shares shall be issued under the Plan.

  8. NON-QUALIFIED STOCK OPTIONS.

  (a) Grant of NQSOs.

  On the beginning date of each Plan Year, NQSOs to purchase One Thousand
(1,000) Shares shall be granted automatically to each Non-Employee
Director. With respect to any Non-Employee Director who first becomes a
member of the Board after the beginning date of a Plan Year, NQSOs to
purchase One Thousand (1,000) Shares shall be granted automatically on
the next succeeding business day following his or her election to the
Board. Additional NQSOs may be granted to any Non-Employee Director by
the Board in its sole and absolute discretion.

  (b) The Exercise Price.

  The exercise price of a Share shall be the Fair Market Value of such
Share on the first day of the Plan Year for which the options are
granted (or the next business day if such date falls on a weekend or
holiday), or if granted on another day then the date of such grant.

  (c) Terms and Conditions.

  All NQSOs granted pursuant to the Plan shall be evidenced by a Stock
Option Agreement (which need not be the same for each Participant or
NQSO), approved by the Board, which shall be subject to the following
express terms and conditions and to the other terms and conditions
specified in this Section 8, and to such other terms and conditions as
shall be determined by the Board in its sole and absolute discretion
which are not inconsistent with the terms of the Plan:

      (i) all NQSOs automatically granted to a Participant shall vest
and become first exercisable immediately upon grant; those NQSOs
granted pursuant to the Boards discretion shall vest as provided by the
Board on the date of such grant;

      (ii) the failure of an NQSO to vest for any reason whatsoever shall
cause the NQSO to expire and be of no further force or effect;

      (iii) unless terminated earlier pursuant to this Plan, the term
of each NQSO shall be five (5) years from the date of grant;

      (iv) NQSOs shall not be transferable by the Participant otherwise
than by will or by the laws of descent and distribution, and shall be
exercisable during the lifetime of the Participant only by him or her,
or by his or her guardian or legal representative, and after death of
the Participant pursuant to will or applicable law provided, however,
that any exercise after death of the Participant shall occur within one
(1) year of the date of death or prior to the expiration of the term of
the NQSO, whichever is sooner;

      (v) no NQSO or interest therein may be transferred, assigned,
pledged or hypothecated by the Participant during his or her
lifetime whether by operation of law or otherwise, or be made subject to
execution, attachment or similar process; and

      (vi) payment for the Shares to be received upon exercise of an
NQSO may be made in cash, in Shares (determined with reference to their
Fair Market Value on the date of exercise) or any combination thereof.


  (d) Additional Means of Payment.

      Any Stock Option Agreement may, in the sole and absolute
discretion of the Board, permit payment by any other form of legal
consideration consistent with applicable law and any rules and
regulations relating thereto.

   (e) Exercise.

       The holder of an NQSO may exercise the same by filing with the
Corporate Secretary of the Company a written election, in such form as
the Board may determine, specifying the number of Shares with respect to
which such NQSO is being exercised. Such notice shall be accompanied by
payment in full of the exercise price for such Shares. Notwithstanding
the foregoing, the Board may specify a reasonable minimum number of
Shares that may be purchased on any exercise of an option, provided that
such minimum number will not prevent the holder from exercising the
option with respect to the full number of Shares as to which the option
is then exercisable.


  (f) Termination of NQSOs.

      NQSOs granted under the Plan shall be subject to the following
events of termination:

      (i) in the event a Participant is removed from the Board for cause
(as contemplated by the Companys bylaws), all unexercised NQSOs held by
such Participant on the date of such removal (whether or not vested) will
expire immediately;

      (ii) in the event a Participant is no longer a member of
the Board, other than by reason of removal for cause, all NQSOs which
have vested prior to such time shall expire twelve (12) months
thereafter unless by their terms they expire sooner; and

      (iii) in the event a Participant becomes an Officer or Employee
of the Company or a Subsidiary (whether or not such Participant remains
a member of the Board) all NQSOs which have vested prior to such time shall
expire twelve (12) months thereafter unless by their terms they expire sooner.


  9. RECAPITALIZATION.

  (a) Corporate Flexibility.

      The existence of the Plan and the NQSOs granted hereunder shall not
affect or restrict in any way the right or power of the Board or the
stockholders of the Company, in their sole and absolute discretion, to
make, authorize or consummate any adjustment, recapitalization,
reorganization or other change in the Companys capital structure or its
business, any merger or consolidation of the Company, any issue of
bonds, debentures, common stock, preferred or prior preference stocks
ahead of or affecting the Companys capital stock or the rights thereof,
the dissolution or liquidation of the Company, or any sale or transfer
of all or any part of its assets or business, or any other grant of
rights, issuance of securities, transaction, corporate act or
proceeding, notwithstanding the fact that any such activity,
proceedings, action, transaction or other event may have, or be expected
to have, an impact (whether positive or negative) on the value of any
NQSO.

  (b) Adjustments Upon Changes in Capitalization.

      Except as otherwise provided in Section 10 below and subject to any
required action by the stockholders of the Company, in the event of any change
in capitalization affecting the Common Stock of the Company, such as a stock
dividend, stock split or recapitalization, the Board shall make proportionate
adjustments with respect to:

      (i) the aggregate number of Shares available for issuance under the Plan;

      (ii) the number of Shares subject to each grant under the Plan;

      (iii) the number and exercise price of Shares subject to outstanding
NQSOs; and

      (iv) such other matters as shall be appropriate in light of
the circumstances; provided, however, that the number of Shares subject
to any NQSO shall always be a whole number and that no such adjustment
shall be made if the adjustment would cause the Plan to fail to comply
with the formula award exception, as set forth in Rule 16b-3(c)(2)(ii)
of the Exchange Act, for grants of NQSOs to Non-Employee Directors.

  10. CHANGE OF CONTROL.

  In the event of a Change of Control (as defined below), all options not
vested on or prior to the effective time of any such Change of Control
shall immediately vest as of such effective time. The Board in its
discretion may make provisions for the assumption of outstanding
options, or the substitution for outstanding options of new incentive
awards covering the stock of a successor corporation or a parent or
subsidiary thereof, with appropriate adjustments as to the number and
kind of shares and prices so as to prevent dilution or enlargement of
rights; provided, however, that no such adjustment shall be made if the
adjustment would cause the Plan to fail to comply with the formula award
exception, as set forth in Rule 16b-3(c)(2)(ii) of the Exchange Act, for
grants of NQSOs to Non-Employee Directors.

  A Change of Control will be deemed to occur on the date any of the
following events occur:

  (a) any person or persons acting together which would constitute a
group for the purpose of Section 13(d) of the Exchange Act (other than
the Company, any Subsidiary and any entity beneficiary owned by any of
the foregoing), beneficially owns (as defined in Rule 13d-3 under the
Exchange Act) without Board approval, directly or indirectly, at least
30% of the total voting power of the Company entitled to vote generally
in the election of the Board;

  (b) either (i) the Current Directors (as herein defined) cease for any
reason to constitute at least a majority of the members of the Board
(for these purposes, a Current Director means any member of the Board as
of January 25, 2007, and any successor of a Current Director, and any
additional director filling a vacancy created by an expansion of the
size of the Board, whose election, or nomination for election by the
Companys shareholders, was approved by at least a majority of the
Current Directors then on the Board), or (ii) at any meeting of the
stockholders of the Company called for the purpose of electing
directors, a majority of the persons nominated by the Board for election
as directors fail to be elected;

  (c) the stockholders of the Company approve (i) a plan of complete
liquidation of the Company, or (ii) an agreement providing for the
merger or consolidation of the Company (A) in which the Company is not
the continuing or surviving corporation (other than consolidation or
merger with a wholly-owned subsidiary of the Company in which all Shares
outstanding immediately prior to the effectiveness thereof are changed
into or exchanged for the same consideration), or (B) pursuant to which
the Shares are converted into cash, securities or other property, except
a consolidation or merger of the Company in which the holders of the
Shares immediately prior to the consolidation or merger have, directly
or indirectly, at least a majority of the common stock of the continuing
or surviving corporation immediately after such consolidation or merger,
or in which the Board immediately prior to the merger or consolidation
would, immediately after the merger or consolidation, constitute a
majority of the board of directors of the continuing or surviving
corporation; or

  (d) the stockholders of the Company approve an agreement
(or agreements) providing for the sale or other disposition (in one
transaction or a series of transactions) of all or substantially all of
the assets of the Company.

  11. SECURITIES LAW REQUIREMENTS.

  No Shares shall be issued under the Plan unless and until: (i) the
Company and the Participant have taken all actions required to register
the Shares under the Securities Act of 1933, as amended, or perfect an
exemption from the registration requirements thereof; (ii) any
applicable requirement of Nasdaq or any stock exchange on which the
Common Stock is listed has been satisfied; and (iii) any other
applicable provisions of state or federal law have been satisfied. The
Company shall be under no obligation to register the Shares under the
Securities Act of 1933, as amended, or to effect compliance with the
registration or qualification requirements of any state securities laws.


  12. AMENDMENT AND TERMINATION.

  (a) Modifications to the Plan.

      The Board may, insofar as permitted by law, from time to time,
with respect to any Shares at the time not subject to NQSOs, suspend or
terminate the Plan or, subject to Sections 8(a) through 8(c), revise or
amend the Plan in any respect whatsoever. However, unless the Board
specifically otherwise provides, any revision or amendment that would
cause the Plan to fail to comply with Rule l6b-3 or any other
requirement of applicable law or regulation if such amendment were not
approved by the stockholders of the Company, shall not be effective
unless and until such approval is obtained.

  (b) Rights of Participant.

      No amendment, suspension or termination of the Plan that would
adversely affect the right of any Participant with respect to an NQSO
previously granted under the Plan will be effective without the written
consent of the affected Participant.


  13. MlSCELLANEOUS.

  (a) Stockholders Rights.

      Neither a Participant, nor a beneficiary, nor other person claiming
under or through such Participant shall acquire any rights as a
stockholder of the Company by virtue of such Participant having been
granted an NQSO under the Plan. No Participant and no beneficiary or
other person claiming under or through such Participant will have any
right, title or interest in or to any Shares allocated or reserved under
the Plan or subject to any NQSO except as to Shares, if any, that have
been issued or transferred to such Participant. No adjustment shall be
made for cash dividends for which the record date is prior to the date
of exercise.

  (b) Other Compensation Arrangements.

      Nothing contained in the Plan shall prevent the Board from adopting
other compensation arrangements, subject to
stockholder approval if such approval is required. Such other
arrangements may be either generally applicable or applicable only in
specific cases.

  (c) Treatment of Proceeds.

      Proceeds realized from the exercise of NQSOs under the Plan shall
constitute general funds of the Company.

  (d) Costs of the Plan.

      The costs and expenses of administering the Plan shall be borne by
the Company.

  (e) No Right to Continue as Director.

      Nothing contained in the Plan or in any instrument executed
pursuant to the Plan will confer upon any Participant any right to
continue as a member of the Board or affect the right of the Company,
the Board or the stockholders of the Company to terminate the
directorship of any Participant at any time with or without cause.

  (f) Severability.

      The provisions of the Plan shall be deemed severable and
the validity or unenforceability of any provision shall not affect the
validity or enforceability of the other provisions hereof.

  (g) Binding Effect of Plan.

      The Plan shall inure to the benefit of the Company, its
successors and assigns.

  (h) No Waiver of Breach.

      No waiver by any party hereto at any time of any breach by another party
hereto of, or compliance with, any condition or provision of the Plan to
be performed by such other party shall be deemed a waiver of the same,
any similar or any dissimilar provisions of conditions at the same or at
any prior or subsequent time.

  (i) Governing Law.

      The Plan and all actions taken thereunder shall be enforced, governed
and construed by and interpreted under the laws of the State of Delaware
applicable to contracts made and to be performed wholly within such State
without giving effect to the principles of conflict of laws thereof.

  (j) Headings.

      The headings contained in the Plan are for reference purposes
only and shall not affect in any way the meaning or interpretation of
the Plan.

  14. EXECUTION.

  To record the adoption of the Plan to read as set forth herein, the
Company has caused the Plan to be signed by its Chief financial Officer
and Secretary as of January 25, 2007.

                                          ARTS WAY MANUFACTURING CO., INC.,
                                          a Delaware corporation


                                          By: Carrie L. Majeski
                                          Chief Financial Officer and Secretary