1997 AMERICAN CAPITOL INSURANCE COMPANY
                   KEY EMPLOYEE INCENTIVE STOCK OPTION PLAN

                                   ARTICLE I

                         PURPOSE AND SCOPE OF THE PLAN

1.1  Purpose

     The purpose of the Plan is to promote the long-term success of American
Capitol Insurance Company by providing financial incentives to key employees
who are in positions to make significant contributions toward such success. 
The Plan is designed to attract individuals of outstanding ability to
employment with American Capitol and to encourage key employees to acquire a
proprietary interest in American Capitol, to continue employment with
American Capitol, and to render superior performance during such employment.

1.2  Definitions

     Unless the context clearly indicates otherwise, the following terms
have the meanings set forth below.

     "Acap" mean Acap Corporation, a Delaware corporation and the parent
company of the Company.

     "American Capitol" means American Capitol Insurance Company, a Texas
corporation.

     "Board of Directors" means the Board of Directors of the Company.

     "Code" means The Internal Revenue Code of 1986, as amended.

     "Committee" means the Compensation Committee of the Board of Directors,
which committee shall be composed of two or more directors who shall not be
eligible to receive an award under the Plan at any time within a period of
one year immediately preceding the date of their appointment to such
committee, while serving on the committee, and for one year immediately
following the date on which membership on the committee terminated.

     "Common Stock" means the common stock of Acap, par value $.10 per
share.

     "Company" means American Capitol Insurance Company, a Texas
corporation.

     "Fair Market Value" of a share of Common Stock on any particular date
is the closing bid price of the share of Common Stock for such date, as
reported on the NASDAQ System.

     "Grant Date," as used with respect to a particular Option, means the
date as of which such option is granted by the Committee pursuant to the
Plan.

     "Grantee" means the individual to whom an Option is granted by the
Committee pursuant to the Plan.

     "NASDAQ System" means the National Association of Security Dealers,
Inc. Electronic Bulletin Board.

     "Option" means an option granted by the Committee pursuant to the Plan,
which option shall be an Incentive Stock Option (intended to qualify as such
under the provisions of section 422 of the Code).

     "Option Term" means ten (10) years from the Grant Date.

     "Plan" means the 1997 American Capitol Insurance Company Key Employee
Incentive Stock Option Plan as set forth herein and as may be amended from
time to time.

1.3  Aggregate Limitation

     (a)  The aggregate number of shares of Common Stock at any time with
respect to which Options may be granted shall not exceed five hundred (500)
shares of the shares of Common Stock owned by the Company.  Further, in no
event shall the aggregate fair market value (determined on the Grant Date)
of the Common Stock granted to an Optionee in any calendar year exceed
$100,000.

     (b)  Any shares of Common Stock to be delivered by the Company upon the
exercise of Options shall be transferred from the shares of Common Stock
owned by the Company.

     (c)  In the event that any Option expires, lapses or otherwise
terminates prior to being fully exercised, any share of Common Stock
allocable to the unexercised portion of such option may be again subject to
an Option.

1.4  Administration of the Plan

     (a)  The Plan shall be administered by the Committee which shall have
authority:

          (i)  to determine key employees of American Capitol to whom, and
               the time at which, Options shall be granted and the type and
               number of shares of Common Stock to be subject to each such
               option, taking into account the nature of the services
               rendered by the particular employee, the employee's potential
               contribution to the long-term success of American Capitol and
               such other factors as the Committee in its discretion shall
               deem relevant;

          (ii) to interpret the Plan and to establish rules and regulations
               relating to it;

          (iii)     to prescribe the terms and provisions of the agreements
                    for the grant of Options (which need not be identical);
                    and

          (iv) to make all other determinations necessary or advisable in
               order to administer the Plan.

     (b)  All decisions of the Committee upon questions concerning the Plan
or any Option shall be conclusive.

1.5  Eligibility for Awards

     The Committee shall designate from time to time the key employees of
American Capitol who are to be granted Options.

1.6  Effective Date and Duration of Plan

     The Plan shall become effective upon its adoption by the Board of
Directors.  Unless previously terminated by the Board of Directors, the Plan
shall terminate on the tenth anniversary of its adoption by the Board of
Directors.

                                  ARTICLE II

                                 STOCK OPTIONS

2.1  Grant of Options

      The Committee may from time to time, subject to the provisions of the
plan, grant Options to key employees to purchase shares of Common Stock
allotted in accordance with Section 1.3.

2.2  Option Requirements

     (a)  An Option shall be evidenced by a written instrument specifying
the type and number of shares of Common Stock that may be purchased by its
exercise and containing such terms and conditions consistent with the Plan
as the Committee shall determine.

     (b)  An Option shall not be granted on or after the tenth anniversary
of the date upon which the Plan was adopted by  the Committee.

     (c)  The option price per share of Common Stock shall be equal to the
Fair Market Value of a share of Common Stock on the Grant Date, or, in the
case of an employee who owns more than 10% of the voting stock of the
Company, the option price per share of Common stock shall be equal to 110%
of the Fair Market Value of a share of Common Stock on the Grant Date.

     (d)  An Option shall not be transferable other than by will or the laws
of descent and distribution and, during the Grantee's lifetime, an Option
shall be exercisable only by the Grantee; except, that the Committee may
permit:

          (i)  exercise, during Grantee's lifetime, by Grantee's guardian or
               legal representative; and

          (ii) transfer, upon Grantee's death, to beneficiaries designated
               by Grantee in a manner authorized by the Company; provided,
               that the Committee determines that such exercise and such
               transfer are consistent with requirements for exemption from
               Section 16(b) of the Securities and Exchange Act of 1934, as
               amended.

     (e)  Except as provided in Section 3.1, the shares of Common Stock
subject to an Option that are available for purchase at a particular time
shall be as follows:

          Anniversary of                     Percentage of
             Grant Date                 Shares Available for Purchases

          Prior to the 5th                           Zero
          After the 5th                              100%
          After the 10th                             Zero

provided that, in the case of an Grantee who owns more than 10% of the
voting stock of the Company, the shares of Common Stock subject to an Option
that are available for purchase at a particular time shall be zero per cent
prior to the 4th anniversary of the Grant Date, the percentage of shares
available to purchase shall be 100% after the 4th anniversary of the Grant
Date, and shall be zero per cent after the 5th anniversary of the Grant
Date.

     (f)  A person electing to exercise an Option shall give written notice,
in such form as the Committee may require, of such election to the Company
and shall tender to the Company the full purchase price of the shares of
Common Stock for which the election is made.  Payment of the purchase price
shall be made in cash or in such other form as the Company may approve.

                                  ARTICLE III

                              GENERAL PROVISIONS

3.1  Adjustment Provisions

     (a)  If:

          (i)  any recapitalization, reclassification, split-up or
               consolidation of Common Stock is effected;

          (ii) the outstanding shares of Common Stock are exchanged, in
               connection with a merger or consolidation of Acap or a sale
               by Acap of all or a part of its assets, for a different
               number or class of shares of stock or other securities of
               Acap or for shares of the stock or other securities of any
               other corporation;

          (iii)     new, different or additional shares or other securities
                    of Acap or of another corporation are received by the
                    holders of Common Stock; or

          (iv) any distribution is made to the holders of Common Stock other
               than a cash dividend;

     then the Committee shall make appropriate adjustments to:

          (i)  the number and class of shares or other securities that may
               be transferred pursuant to Options, and

          (ii) the purchase price to be paid per share under outstanding
               Options.

     (b)  Upon the dissolution or liquidation of Acap, all Options to
purchase Acap Common Stock shall terminate; however, all Options previously
granted to purchase Acap Common Stock shall be exercisable, to the extent
otherwise exercisable with regard to subsection (3) of Section 2.23, prior
to such termination.

     (c)  Adjustments under subsection (a) shall be made according to the
sole discretion of the Committee and its decision shall be binding and
conclusive.

     (d)  Except as provided in subsections (a) and (b), the issuance by
Acap of shares of stock of any class, or securities convertible into shares
of stock of any class shall not affect the Options.

3.2  Termination of Option

     (a)  The Option and all rights hereunder with respect thereto, to the
extent such rights shall not have been exercised, shall terminate and become
null and void after the expiration of the Option Term.

     (b)  Upon the occurrence of the Grantee's ceasing for any reason to be
employed by the Employer (such occurrence being a "termination of the
Grantee's employment," the Option, to the extent not previously exercised,
shall terminate and become null and void immediately upon such termination
of the Grantee's employment, except in a case where the termination of the
Grantee's employment is by reason of retirement, disability or death.  Upon
a termination of the Grantee's employment by reason of retirement,
disability or death, the Option may be exercised during the following
periods, but only to the extent that the Option was outstanding and
exercisable on any such date of retirement, disability or death: (i) the
one-year period following the date of such termination of the Grantee's
employment in the case of a disability (within the meaning of Section
22(e)(3) of the Code), (ii) the six-month period following the date of
issuance of letters testamentary or letters of administration to the
executor or administrator of a deceased Grantee, in the case of the
Grantee's death during his employment by the Employer, but not later than
one year after the Grantee's death, and (iii) the three-month period
following the date of such termination in the case of retirement on or after
attainment of age 65, or in the case of disability other than as described
in (i) above.  In no event, however, shall any such period extend beyond the
Option Term.

     (c)  In the event of the death of Grantee, the Option may be exercised
by the Grantee's legal representative(s), but only to the extent that the
Option would otherwise have been exercisable by the Grantee.

     (d)  A transfer of the Grantee's employment between the Company and any
affiliate of the Company shall not be deemed to be a termination of the
Grantee's employment.

     (e)  Notwithstanding any other provisions set forth herein or in the
Plan, if the Grantee shall (i) commit any act of malfeasance or wrongdoing
affecting the Company or any affiliate of the company, (ii) breach any
covenant not to compete, or obligation of confidentiality, or employment
contract, with the Company or any affiliate of the Company, or (iii) engage
in conduct that would warrant the Grantee's discharge for cause, any
unexercised portion of the Option shall immediately terminate and be void,
and any exercise of such a voidable Option shall be rescindable by the
Committee.

3.3  Additional Conditions, Including Right of First Refusal

     Any shares of Common Stock transferred under any provision of the Plan
may be transferred subject to such conditions, in addition to those
specifically provided in the Plan, as the Committee or Company may impose. 
By accepting the Option, the Grantee does hereby grant to the Company a
right of first refusal as set forth in this section.  Prior to a sale of
such shares (or portion thereof) by Grantee, Grantee or his/her successor
shall first offer such shares, or portion thereof, as the case may be, to
the Company at the same price per share at which Grantee intends to sell
same.  Such offer shall be in writing dated and signed by the Grantee,
stating the number of shares to be sold and the price per share ("Offer
Notice") and delivered to the Company in compliance with the notice
provisions set forth herein.  The Company shall reply to such offer no later
than the third business day following the receipt of the Offer Notice (the
day on which such Offer Notice is received being the first day, if it is a
business day, otherwise, the first day shall be the first business day
thereafter).  Such reply shall be in writing dated and signed by an officer
of the Company offering to purchase all of the Common Stock that is the
subject of the Offer Notice and at the price stated in the Offer Notice,
committing to close and pay for such purchase of said Common Stock in cash
within three business days thereafter.  If the Company notifies the Grantee
in writing that the Company elects not to exercise its right to purchase
such Common Stock, or fails to reply in writing to the Offer Notice as
hereinabove set forth and within the time hereinabove set forth, the Grantee
shall thereafter be free to sell said shares of Common Stock provided such
sale takes place within thirty (30) days following the date of the Offer
Notice and that such sale is at the same price and for the same number of
shares as stated in the Offer Notice.  The failure by Grantee to sell such
shares as set forth in the immediately preceding sentence shall mean that
the Grantee must again offer the subject shares of Common Stock to the
Company, following the procedure above set forth, regarding and renewed
effort on the part of Grantee to sell the subject shares of Common Stock.

3.4  No Right to Employment

     Nothing in the Plan or in any instrument executed pursuant thereto
shall confer upon any employee any right to continue in the employ the
Company or shall affect the right of the Company to terminate the employment
of any employee, with or without cause.

3.5  Legal Restrictions

     The Company will not be obligated to transfer shares of Common Stock if
counsel to the Company determines that such transfer would violate any law
or regulation of any governmental securities exchange upon which the Common
Stock is listed.  In connection with any stock transfer, the person
acquiring the shares shall, if requested by the Company, give assurances
satisfactory to counsel to the Company regarding such matters as the Company
may deem desirable to assure compliance with all legal requirements.  Except
as provided below, the Company shall in no event be obliged to take any
affirmative action in order to cause the exercise of any Option or the
resulting delivery of shares of Common Stock by the Company to comply with
any law or regulation of any governmental authority.  Notwithstanding the
foregoing, the Company shall cause a legend in the following form to be
placed on each certificate evidencing shares of Common Stock purchased upon
the exercise of Options:

          THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
     FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
     1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE.  SUCH SECURITIES
     MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED AT ANY
     TIME WHATSOEVER, EXCEPT UPON REGISTRATION, OR UPON DELIVERY TO THE
     COMPANY OF AN OPINION OF COUNSEL TO THE COMPANY SATISFACTORY TO THE
     COMPANY THAT REGISTRATION IS NOT REQUIRED FOR SUCH TRANSFER OR THE
     SUBMISSION TO THE COMPANY OF SUCH OTHER EVIDENCE AS MAY BE SATISFACTORY
     TO THE COMPANY TO THE EFFECT THAT ANY SUCH TRANSFER SHALL NOT BE IN
     VIOLATION OF THE SECURITIES ACT OF 1933, AS AMENDED, APPLICABLE STATE
     SECURITIES LAWS OR ANY RULE OR REGULATION PROMULGATED THEREUNDER.  IN
     ADDITION, THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
     A RIGHT OF FIRST REFUSAL VESTED IN AMERICAN CAPITOL INSURANCE COMPANY
     AS SET FORTH IN THAT CERTAIN 1997 AMERICAN CAPITOL INSURANCE COMPANY
     KEY EMPLOYEE STOCK OPTION PLAN, A COPY OF WHICH MAY BE OBTAINED BY
     CONTACTING AMERICAN CAPITOL INSURANCE COMPANY, HOUSTON, TEXAS.

3.6  No Rights as Shareholders

     No grantee, and no beneficiary or other person claiming through a
Grantee, shall have an interest in any shares of Common Stock allocated for
the purposes of the Plan or subject to any Option until such shares of
Common Stock shall have been transferred to the Grantee or such person. 
Furthermore, the existence of the Options shall not affect; the right or
power of Acap, or its stockholders to make adjustments, recapitalizations,
reorganizations or other changes in Acap's capital structure or business;
any issue of bonds, debentures, preferred or prior preference stocks
affecting the Common Stock or the rights thereof; the dissolution or
liquidation of Acap, or sale or transfer of any part of their respective
assets or business; or any other corporate act, whether of a similar
character or otherwise.

3.7  Withholding Taxes

     The Company may require a Grantee, as a condition of exercise of an
Option, to pay or reimburse any taxes which the Company determines it is
required to withhold in connection with the grant or exercise of the Option.

3.8  Choice of Law

     The place of administration of the Plan shall be within the State of
Texas and the validity, interpretation and administration of the Plan and of
any rules, regulations, determinations or decisions made thereunder, and the
rights of any and all persons having or claiming to have an interest therein
or thereunder, shall be determined exclusively in accordance with the laws
of the State of Texas.  Without limiting the generality of the foregoing,
the period within which any action in connection with the Plan must be
commenced shall be governed by the laws of the State of Texas, without
regard to the place where the act or omission complained of took place, the
residence of any party to such action or the place where the action may be
brought.

     IN WITNESS WHEREOF, and as conclusive evidence of its adoption of the
1997 American Capitol Insurance Company Key Employee Incentive Stock Option
Plan, the Board of Directors of American Capitol Insurance Company has
authorized the execution of this acknowledgment as of the 2nd day of
September, 1997.


/s/ H. Kathleen Musselwhite              /s/William F. Guest
----------------------------------      ---------------------------------
H. Kathleen Musselwhite, Secretary      William F. Guest, Chairman