Argonaut Group, Inc.








	




Exhibit 10.1 




ARGONAUT GROUP, INC.

NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN 
(as amended 3/26/2004) 



1. Purpose. 



The purpose of this Non-Employee
 Director Stock Option Plan (the “Plan”) of Argonaut Group,  Inc., a Delaware
 corporation (the “Company”),  is to attract and retain qualified and competent  persons
to serve as members of the Board of Directors of the Company (the “Board of Directors”)
by providing a means whereby such persons may acquire stock  ownership in the Company.
 The Plan will provide a means  whereby such  directors  may purchase  shares of the
Common Stock of the Company  pursuant to options  which are not  “incentive  stock
options” under Section 422 of the Internal Revenue Code, as amended (the “Code”). 



2. Administration. 



The Plan shall be administered by
the Board of Directors or by a Committee selected by the Board of Directors  consisting
of two or more persons, to whom administration of the Plan has been duly delegated (the
 “Committee”).  Any action of the Board of Directors or the Committee with respect to
 administration  of the Plan shall be taken by a majority vote or written consent of its
members. 



Subject to the  provisions of the
Plan,  the Board of Directors or Committee  shall have  authority  (i) to construe and
interpret the Plan,  (ii) to define the terms used therein, (iii) to prescribe,  amend
and rescind rules and regulations  relating to the Plan, and (iv) to make all other
 determinations  necessary or advisable for the administration of the Plan.  All
 determinations  and  interpretations  made by the Board of  Directors or  Committee
 shall be binding and  conclusive  on all  participants  in the Plan and their legal
representatives and beneficiaries. 



The Board of Directors and the
Committee  shall have no discretion  with respect to the selection of directors to
receive  options,  the number of shares  subject to the Plan or to each option granted
 hereunder,  or the purchase  price for shares  subject to option grants  hereunder.  The
Board of Directors and the Committee  shall have no authority  (absent stockholder
approval) to materially increase benefits under the Plan. 



3. Shares Subject to the Plan. 



Subject to adjustment as provided in
paragraph 15 hereof,  the shares to be offered under the Plan shall consist of the
 Company’s  authorized  but unissued  Common Stock,  and the aggregate  amount of such
stock which may be issued upon exercise of all options under the Plan shall not exceed
250,000 of such shares.  If any option granted under the Plan shall expire or terminate
for any reason,  without  having been  exercised in full, the  unpurchased  shares
subject  thereto shall again be available for options to be granted under the Plan. 



4. Eligibility and Participation. 



Only Directors of the Company who
are not regular employees of the Company (“Non-Employee Directors”) are eligible to
participate in the Plan. 



5. Schedule of Option Grants. 



Subject to paragraph 15, grants
under the Plan shall be made in accordance with the following schedule: 


















	




          (a)
Initial  Grants.  Each  Non-Employee  Director who is serving on the date on which the
 stockholders  of this Company  approve this Plan shall receive an option to purchase
5,000 shares of Common Stock on such date. 



          (b)
Annual Grants.  Immediately after each annual meeting of stockholders of the Company
(beginning with the Company’s 2004 annual meeting),  each Non-Employee  Director who is
in office at such time shall be granted an option to purchase 5,000 shares of Common
Stock. 



          (c)
Grants to New  Non-Employee  Directors.  Upon the appointment or election to the Board of
Directors of a Non-Employee  Director who was not previously a member of the Board of
 Directors,  such  Non-Employee  Director  shall be granted an option to purchase  5,000
shares of Common Stock on the date of  appointment  or election;  provided,  however,  a
Non-Employee  Director who is first made a member of the Board of Directors in connection
 with the vote of  stockholders of the Company at its annual meeting shall not be
entitled to receive the grant described in this subparagraph (c). 



6. Duration
of Options.  



Each option
and all rights  associated  therewith  shall  expire  seven (7) years after the date on
which such option is  granted,  and shall be subject to earlier  termination  as provided
herein.  



7. Purchase
Price.  



The purchase
 price of the stock  covered by each option shall be equal to one hundred  percent
 (100%) of the fair market value of such stock on the date the option is granted as
determined  in paragraph  9. The purchase  price of the shares upon  exercise of an
option shall be paid in full at the time of exercise (i) in cash or by  certified,
 cashier’s or personal  check  payable to the order of the Company or (ii) by delivery of
shares of Common  Stock of the Company  already  owned by, and in the  possession  of the
option  holder (subject to any required holding period imposed by the Board of Directors
or the Committee),  or any combination thereof.  Shares of Common Stock used to satisfy
the exercise price of an option shall be valued at their fair market value  determined
(in accordance  with paragraph 9 hereof) as of the close of business on the date of
exercise (or if such date is not a business day, as of the close of the business day
immediately preceding such date).  



8. Exercise
of Options.  



Subject to
the other  provisions of this Plan,  the option  granted under this Plan shall become
vested in one of two ways: (1) one year after the date of grant if granted at other than
the annual meeting or, (2) one day prior to the next scheduled annual meeting if granted
at the previous annual meeting; provided,  however, upon the occurrence of a Change of
Control (as defined below), each option shall become immediately vested and exercisable.
 No option may be exercised for a fraction of a share and no partial exercise of any
option may be for less than one hundred (100) shares.  



For purposes
of this Plan, “Change of Control” shall mean the occurrence of any of the following:  



          a)
Any “Person” or “Group” (as such terms are defined in Section 13(d) of the  Securities
 Exchange Act of 1934 (the  “Exchange  Act”) and the rules and  regulations  promulgated
thereunder) is or becomes the “Beneficial Owner” (within the meaning of Rule 13d-3 under
the Exchange Act),  directly or indirectly,  of securities of the Company, or of any
entity resulting from a merger or consolidation  involving the Company,  representing
more than fifty percent (50%) of the combined voting power of the then outstanding
 securities of the Company or such entity. 



          b)
The individuals who, as of the date that this Plan is approved by the  stockholders of
the Company,  are members of the Board of Directors (the “Existing  Directors”),  cease,
for any reason,  to  constitute  more than fifty  percent  (50%) of the number of
 authorized  directors of the Company as  determined  in the manner  prescribed  in the
 Company’s Certificate of Incorporation and Bylaws;  provided,  however, that if the
election, or nomination for election, by the Company’s  stockholders of any new director
was approved by a vote of at least fifty percent (50%) of the Existing Directors,  such
new director shall be considered an Existing Director;  provided further, however, that
no individual shall be considered  an Existing  Director if such  individual  initially
 assumed  office as a result of either an actual or  threatened  “Election  Contest”  (as
 described in Rule 14a-11 promulgated under the Exchange Act) or other actual or
threatened  solicitation of proxies by or on behalf of anyone other than the Board (a
“Proxy  Contest”),  including by reason of any agreement intended to avoid or settle any
Election Contest or Proxy Contest. 


















	




          c)
The consummation of (x) a merger,  consolidation or reorganization to which the Company
is a party,  whether or not the Company is the Person surviving or resulting therefrom,
or (y) a sale, assignment,  lease, conveyance or other disposition of all or
substantially all of the assets of the Company, in one transaction or a series of related
transactions, to any Person other than the Company,  where any such transaction or series
of related  transactions as is referred to in clause (x) or clause (y) above in this
subparagraph (c) (a “Transaction”)  does not  otherwise  result in a “Change in Control”
 pursuant to  subparagraph  (a) of this  definition  of “Change in Control”;  provided,
 however,  that no such Transaction  shall  constitute a “Change in Control” under this
 subparagraph if the Persons who were the  stockholders of the Company  immediately
 before the consummation of such Transaction  are the  Beneficial  Owners,  immediately
 following the  consummation  of such  Transaction,  of fifty percent (50%) or more of
the combined  voting power of the then outstanding voting securities of the Person
surviving or resulting from any merger,  consolidation or reorganization referred to in
clause (x) above in this subparagraph (c) or the Person to whom the assets of the Company
are sold, assigned,  leased,  conveyed or disposed of in any transaction or series of
related transactions  referred in clause (y) above in this subparagraph (c). 



9. Fair Market Value of Common Stock. 



The fair market value of a share of
Common Stock of the Company shall be determined  for purposes of the Plan by reference to
the closing price on the principal  stock  exchange on which such shares are then listed
or, if such shares are not then listed on an exchange,  by reference to the closing price
(if a National Market Issue) or the mean between the bid and asked price (if other
 over-the-counter  issue) of a share as supplied by the National Association of
Securities Dealers through Nasdaq (or its successor in function),  in each case as
reported by The Wall Street  Journal,  for the date on which the option is granted or
 exercised,  or if such date is not a business  day, for the business day  immediately
preceding  such date (or, if for any reason no such price is available,  in such other
manner as the Board of Directors or the Committee  may deem  appropriate  to reflect the
then fair market value thereof). 



10. Withholding Tax. 



Upon the exercise of options,  the
Company shall have the right to require the  participant to pay the Company the amount of
any taxes which the Company may be required to withhold (if any) with respect to such
shares. 



11. Nontransferability. 



An option granted under the Plan
shall, by its terms, be  non-transferable  by the option holder,  either  voluntarily or
by operation of law, otherwise than by will or the laws of descent and distribution,  and
shall be exercisable  during option holder’s lifetime only by the option holder,
 regardless of any community property interest therein of the spouse of the option
holder,  or such spouse’s  successors in interest.  If the spouse of the option holder
shall have acquired a community  property  interest in such option,  the option holder,
or the option holder’s permitted successors in interest, may exercise the option on
behalf of the spouse of the option holder or such spouse’s successors in interest. 



12. Holding of Stock After Exercise
of Option. 



At the discretion of the Board of
Directors or Committee, any option may provide that the option holder, by accepting such
option,  represents and agrees, for the option holder and the option holder’s permitted
 transferees (by will or the laws of descent and distribution),  that none of the shares
purchased upon exercise of the option will be acquired with a view to any sale,  transfer
or distribution  of said shares in violation of the Securities Act of 1933, as amended,
 and the rules and regulations  promulgated  thereunder,  or any applicable state “blue
sky” laws, and the person entitled to exercise the same shall furnish evidence
 satisfactory to the Company  (including a written and signed  representation) to that
effect in form and substance  satisfactory to the Company,  including an indemnification
of the Company in the event of any violation of the Securities Act of 1933 or state blue
sky law by such person. 


















	




13. Termination of Status as
Non-Employee Director. 



If an option holder ceases to be a
Non-Employee  Director for any reason any unvested  options held by such option holder
shall  immediately  become void and of no further force or effect.  Any options which are
vested as of the date of cessation  (“Termination  Date”) shall be  exercisable  for a
period of three (3) months after the  Termination  Date to the extent exercisable on the
Termination Date and shall thereafter expire and be void and of no further force or
effect; provided,  however, where such cessation occurs as a result of the option
 holder’s death or permanent and total  disability  (within the meaning of Section
 22(e)(3) of the Code),  the vested portion of the option shall be exercisable for one
year following the Termination Date; provided, further, in no event shall any options be
exercisable after the scheduled expiration date of such options. 



14. Privileges of Stock Ownership. 



No person  entitled to exercise any
option  granted  under the Plan shall have any of the rights or  privileges  of a
 stockholder  of the Company in respect of any shares of stock issuable upon exercise of
such option until  certificates  representing such shares shall have been issued and
delivered.  No shares shall be issued and delivered upon the exercise of any option
unless and until there shall have been full  compliance  with all applicable
 requirements  of the Securities Act of 1933 (whether by  registration or satisfaction of
exemption  conditions),  all applicable listing requirements of any national securities
exchange on which shares of the same class are then listed and any other requirements of
law or of any regulatory bodies having jurisdiction over such issuance and delivery. 



15. Adjustments. 



If the  outstanding  shares of the
Common Stock of the Company are  increased,  decreased,  changed into or exchanged for a
different  number or kind of shares or securities of the Company through reorganization,
recapitalization,  reclassification, stock dividend, stock split, reverse stock split or
other similar transaction, an appropriate and proportionate adjustment  shall be made in
the maximum  number and kind of shares as to which  options  may be granted  under this
Plan  pursuant to  paragraph 3 and the numbers of options to be granted  pursuant to
paragraph 5. A corresponding  adjustment  changing the number or kind of shares
 allocated to unexercised  options or portions  thereof,  which shall have been granted
prior to any such change,  shall likewise be made. Any such adjustment in the outstanding
options shall be made without change in the aggregate purchase price applicable to the
unexercised portion of the option but with a corresponding adjustment in the price for
each shares or other unit of any security covered by the option. 



Upon the dissolution or liquidation
of the Company, or upon a reorganization,  merger or consolidation of the Company with
one or more corporations as a result of which the Company is not the  surviving
 corporation,  or upon a sale of  substantially  all the property or more than eighty
 percent (80%) of the then  outstanding  stock of the Company to another corporation, the
Plan shall terminate, and all options theretofore granted hereunder shall terminate. 



Notwithstanding  the foregoing,  the
Board of Directors or the Committee may provide in writing in connection  with such
 transaction  for any or all of the following  alternatives (separately or in
combinations):  (i) for the options theretofore granted to become immediately
 exercisable  notwithstanding the provisions of paragraph 8; (ii) for the assumption by
the successor  corporation  of the options  theretofore  granted or the  substitution  by
such  corporation  for such options of new options  covering the stock of the successor
corporation,  or a parent or  subsidiary  thereof,  with  appropriate  adjustments  as to
the number and kind of shares and prices;  (iii) for the  continuance  of the Plan by
such successor  corporation in which event the Plan and the options theretofore granted
shall continue in the manner and under the terms so provided;  or (iv) for the payment in
cash or stock in lieu of and in complete satisfaction of such options. 



Adjustments under this paragraph 15
shall be made by the Board of Directors or Committee,  whose  determination as to what
adjustments shall be made, and the extent thereof,  shall be final, binding and
conclusive. No fractional shares of stock shall be issued under the Plan on any such
adjustment. 



16. Amendment and Termination of
Plan. 



The Board of Directors or the
 Committee  may at any time suspend or terminate  the Plan.  The Board of Directors or
the Committee may also at any time amend or revise the terms of the Plan, provided that
no such amendment or revision shall, unless permitted under the provisions of paragraph
15 or unless appropriate  stockholder  approval of such amendment or revision is
obtained,  (i) increase the maximum number of shares in the aggregate  which may be sold
pursuant to options granted under the Plan pursuant to paragraph 3, (ii) permit the
granting of options to anyone other than as provided in paragraph 4, (iii) increase the
number of options to be granted  pursuant to paragraph 5, (iv) increase the maximum term
of stock options provided for in paragraph 6, or (v) change the purchase price of stock
options set forth in paragraph 7. 



















	




17. Effective Date of Plan. 



Effectiveness of the Plan is subject
to approval by the holders of the outstanding voting stock of the Company.  The Plan
shall be deemed approved by the holders of the outstanding voting  stock of the Company
by the  affirmative  vote of the holders of a majority of the voting  shares of the
Company  represented  and voting at a duly held  meeting at which a quorum is present.