<PAGE>
 
                                                                    EXHIBIT 10.1

                          APPALACHIAN BANCSHARES, INC.

                 1997 DIRECTORS' NON-QUALIFIED STOCK OPTION PLAN

     1.  Establishment and Purpose.
         -------------------------

         (a)  Appalachian Bancshares, Inc., a Georgia corporation (the
"Company"), hereby adopts its 1997 Directors' Non-Qualified Stock Option 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 incentives 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) "Code" shall mean the Internal Revenue Code of 1986, as amended.

         (d) "Committee" shall mean the committee appointed by the Board
pursuant to Section 4.

         (e) "Company" shall mean Appalachian Bancshares, Inc., a Georgia
corporation.

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

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

         (h) "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.

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

         (j) "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
on Nasdaq, its Fair Market Value shall be the closing selling price for such
stock on the principal securities exchange 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, its Fair Market
Value shall be determined in good faith by the Board, and such determination
shall be conclusive and binding on all persons.

         (k) "Option" shall mean an option to purchase shares of Stock granted
pursuant to the Plan.
<PAGE>
 
         (l) "Option Agreement" shall mean the written agreement setting forth
the terms of an Option.

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

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

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

         (p) "Plan" shall mean this Appalachian Bancshares, Inc. 1997 Directors'
Non-Qualified Stock Option Plan.

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

         (r) "Stock" shall mean the common stock, $5.00 par value per share, of
the Company.

     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 100,000 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) 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; (iii) make all other determinations
deemed necessary or advisable for the implementation of the Plan and (iv) to
designate a Committee of the Board to act on behalf of the Board for all
purposes under this Plan. Members of the Committee shall serve at the pleasure
of the Board. The Committee shall select one of its members as chair of the
Committee and shall hold meetings at such times and places as it may determine.
A majority of the Committee shall constitute a quorum, and acts of the Committee
at which a quorum is present, or acts reduced to or approved in writing by all
the members of the Committee shall be the valid acts of the Committee. If the
Board does not delegate administration of the Plan to the Committee, each
reference in this Plan to the Committee shall be construed to refer to the
Board.

     5.  Option Grants.
         -------------

         The Board shall determine the form and amount of options for Outside
Directors. All options shall be subject to the terms and conditions of the Plan
and to such other terms and conditions as the Board deems appropriate.

     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.

                                       2
<PAGE>
 
         (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 Section 10
hereof, each Option shall vest and become exercisable with respect to 20% of the
shares of stock subject to the Option on the first anniversary of the date of
grant and with respect to an additional 20% on each subsequent anniversary of
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 shareholder of the Company as a result of the grant of an
Option under the Plan or his or her exercise of such 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 and Shareholder Approval.
         -----------------------------------------------------

         The Plan shall become effective on the Effective Date; provided that
continuance of the Plan shall be subject to approval by the shareholders of the
Company within twelve (12) months before or after the Effective Date. In
addition, any Options granted hereunder shall become effective only upon
shareholder approval of the Plan. The Board may grant Options hereunder prior to
shareholder approval of the Plan, but until such shareholder approval is
obtained, no such Option shall be exercisable. In the event that such
shareholder approval is not obtained, all affected Options shall terminate. If
such shareholder approval is obtained at a duly held shareholders' meeting, the
Plan must be approved by a majority of the votes cast at such shareholders'
meeting at which a quorum representing a majority of all outstanding voting
stock of the Company is, either in person or by proxy, present and voting on 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 and any applicable withholding amounts
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.

     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), 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.

                                       3
<PAGE>
 
         (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 death or total and permanent disability (as defined in Section
22(e)(3) of the Code), he or she (or his or her personal representative) 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) Notwithstanding the provisions of Sections 10(b) and 10(c) above,
in no event may any Option be exercised after expiration of its term set forth
in Section 6.

     11. Nontransferability of Options.
         -----------------------------

         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.

     12. Adjustment Upon Changes in Capitalization.
         -----------------------------------------

         If there is any change in the Stock 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 to
preserve, but not to increase the benefits to the outstanding options under the
Plan; provided, however, that no certificate or scrip representing fractional
shares shall be issued and any resulting fractions of a share shall be ignored.

     13. Change in Control.
         -----------------

         (a) For purposes of this Section 13, a "Change in Control" shall be
deemed to occur upon:

             (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.

         (b) For purposes of this Section 13, a "Corporate Transaction" shall be
deemed to occur upon any of the following transactions to which the Company is a
party:

              (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

                                       4
<PAGE>
 
              (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.

         (c) In its discretion, the Board may provide in any stock option
agreement (or in an amendment thereto) evidencing an option hereunder that, in
the event of any Corporate Transaction or an event giving rise to a Change in
Control, any outstanding options covered by such an agreement shall be fully
vested, nonforfeitable and become exercisable, as of the date of the Change in
Control or Corporate Transaction or such other date as determined by the Board.
However, the Board may provide in any such agreement that, in the case of a
Corporation Transaction, the Board may determine that an outstanding option will
not be so accelerated if and to the extent (i) such option is either to be
assumed by the successor or parent thereof or to be replaced with a comparable
option to purchase shares of the capital stock of the successor corporation or
parent thereof, or (ii) such option is to be replaced with a cash incentive
program of the successor corporation that preserves the option spread existing
at the time of the Corporate Transaction and provides for subsequent payment in
accordance with the same vesting schedule applicable to such option.

          (d) If the Board determines to incorporate a Change in Control or
Corporate Transaction acceleration provision in any option agreement hereunder,
the agreement shall provide that, (i) in the event of a Change in Control or
Corporate Transaction described in clauses (a)(i), (a)(ii) and (b)(iii) of
Section 13 above, the option shall remain exercisable for the remaining term of
the option and (ii) in the event of a Corporate Transaction described in clauses
(i) or (ii) of Section 13(b) above, the option shall terminate as of the
effective date of the Corporate Transaction described therein unless such option
is assumed by a successor corporation in the event of a Corporate Transaction
described in clause (i) of Section 13(b). If an option is assumed in the event
of a Corporate Transaction described in clause (i) of Section 13(b) above, the
option shall remain exercisable for the remaining term of the option. In no
event shall any option under the Plan be exercised after the expiration of the
term provided for in the related stock option agreement pursuant to Section
6(d).

     14. Amendment, Suspension, or Termination of the Plan.
         -------------------------------------------------

         (a) The Board may at any time amend, suspend or terminate the Plan as
it deems advisable; provided that such amendment, suspension or termination
complies with all applicable requirements of state and federal law, including
any applicable requirement that the Plan or an amendment to the Plan be approved
by the shareholders.

         (b) No option may be granted under the Plan during any suspension or
after the termination of the Plan, and no amendment, suspension, or termination
of the Plan shall, without the affected individual's consent, alter or impair
any rights or obligations under any option previously granted under the Plan.
The Plan shall terminate with respect to the grant of stock options on the tenth
anniversary of the date of adoption of the Plan, unless previously terminated by
the Board pursuant to this Section 14.

     15. 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.

     16. Reservation of Stock.
         --------------------

                                       5
<PAGE>
 
         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.

     17. 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 or Committee fails
to so 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, such provision
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 shareholder
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.

     18. Right of First Refusal.
         ----------------------

         (a) As a condition to the grant of any option hereunder, the Optionee
shall agree not to transfer, sell, assign, pledge, or in any manner dispose of
or encumber any of the Stock acquired pursuant to the exercise of an Option
until he shall have offered to sell such Stock to the Company at the price per
share calculated pursuant to subsection (b) below. Notwithstanding the
foregoing, the Optionee may pledge the Stock as security for a loan from an
affiliate of the Company and may assign such Stock to his or Spouse and/or
children for estate planning purposes; provided, however, that any such assignee
shall be subject to the restrictions of this Section 18 with respect to such
Stock. Upon a determination by the Optionee that he desires to sell any or all
of the Stock, the Optionee shall give the Company not less than ten (10) days
prior written notice (the "Notice of Disposition") of such Optionee's desire to
dispose of a specific number of the shares of Stock (the "Notice Securities").
The Notice of Disposition (i) shall be signed by the Optionee and (ii) shall be
mailed by registered mail to the Company, at its then principal place of
business. Upon receipt of the Notice of Disposition, the Company (or its
respective designee, as allowed below) shall have five (5) business days from
the time of receipt of the Notice of Disposition to notify the Optionee that it
intends to purchase the Notice Securities, free and clear of all claims, liens,
or encumbrances, at the price per share calculated pursuant to subsection (b)
below. The closing of any such purchases shall be at a time and place mutually
agreed to by the parties thereto, provided that if the parties are unable to
make such an agreement, the closing shall be held at the principal office of the
Company at 10:00 a.m. on the tenth business day following the day on which the
Notice of Disposition is received by the required recipient thereof. The Company
may designate an Affiliate as the purchaser of all or any portion of Notice
Securities which the Company has the right to purchase hereunder; provided
however, that if the Company cannot legally purchase the Notice Securities at
the time of receipt of the Notice of Disposition, then such designation of the
Affiliate as an alternative purchaser, as the case may be, shall be deemed to
have been made.

         (b) Purchase Price. In the event that the Company (or any designee)
does elect to purchase any of the Notice Securities pursuant to subsection (a)
hereof, it shall purchase Notice Securities for the price per share determined
by the Committee as the average of the highest and lowest sales price of the
Stock in the ninety (90) day period immediately preceding the date the Company
receives the Notice of Disposition. The Committee shall have absolute discretion
to determine the prices at which Stock has traded in such ninety (90) day
period, and any determination of the Committee shall be conclusive and binding
on all persons notwithstanding that the information used by the Committee in
making its determination may be incomplete or unreliable if there is no
established trading market for the Stock.

         (c) Non-exercise of Right of First Refusal. If the Company, or its
respective assignees do not exercise their rights hereunder to purchase all of
the Notice Securities, the Optionee may sell all, but not less than all, of the
unpurchased Notice Securities, for a period of ninety (90) days following the

                                       6
<PAGE>
 
delivery of the Notice of Disposition to the Company (the "Unrestricted Transfer
Period"). After expiration of the Unrestricted Transfer Period, the provisions
of Subsections (a) and (b) shall again be applicable to any transfer of the
former Notice Securities.

                                       7