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                                                                    EXHIBIT 10.9


                           HIGHLANDS INSURANCE GROUP
                          1997 RESTRICTED STOCK PLAN


 1.       PURPOSE

          This Plan's purpose is to align the interests of management more
closely with those of stockholders, by providing an incentive to invest in
Highlands Insurance Group, Inc. common stock, and by rewarding long service with
the Company and its Subsidiaries.

 2.       DEFINITIONS

          For purposes of this Plan, the following terms shall have the
definitions set forth below:

          (A) "BOARD."  The Company's Board of Directors.

          (B) "COMMITTEE."  The Compensation Committee appointed by the Board,
which manages the Plan.  No member of the Committee shall participate in the
administration of the Plan unless he is a nonemployee director described in Rule
16b-3(e)(3) promulgated by the Securities and Exchange Commission or any
successor definition thereto.  Each member of the Committee serves until he
resigns or is not reappointed or he ceases to be a director of the Company.

          (C) "COMPANY."  Highlands Insurance Group, Inc., a Delaware
corporation.

          (D) "DATE OF ISSUANCE."  The date Restricted Shares are issued to a
Participant.

          (E) "ESCROW AGENT."  The bank or other institution appointed by the
Company from time to time to hold Restricted Shares during the Restricted
Period.

          (F) "PARTICIPANT."  An employee of the Company or a Subsidiary
selected for participation in the Plan pursuant to Section 4.

          (G) "PLAN."  The Highlands Insurance Group 1997 Restricted Stock Plan.

          (H) "RESTRICTED PERIOD."  The period described in Section 6(c).

          (I) "RESTRICTED SHARES."  The shares of common stock of the Company
reserved pursuant to Section 3 hereof and any such shares issued to a
Participant pursuant to this Plan.
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          (J) "SUBSIDIARY" OR "SUBSIDIARIES."  A corporation or corporations of
which the Company owns, directly or indirectly, shares having a majority of the
ordinary voting power for the election of directors.

 3.       RESTRICTED SHARE RESERVE

          (A) ESTABLISHMENT.  The Company shall establish a Restricted Share
reserve to which shall be credited 100,000 shares of the common stock of the
Company, par value $.01 per share.  Should the shares of the Company's common
stock be increased or decreased, or changed into or exchanged for, a different
number or kind of shares of stock or other securities of the Company or of
another corporation, due to a stock split or stock dividend or combination of
shares or any other change, or exchange for other securities, by
reclassification, reorganization, merger, consolidation, recapitalization or
otherwise, the number of shares then remaining in the Restricted Share reserve
shall be adjusted appropriately to reflect such action.  If any such adjustment
results in a fractional share, the fraction shall be disregarded.

          (B) ADJUSTMENTS TO RESERVE.  Upon the grant of shares hereunder, the
reserve shall be reduced by the number of shares so granted.  Upon the
forfeiture of any Restricted Shares, the reserve shall be increased by such
number of shares, and such shares may again be the subject of grants hereunder.

          (C) SOURCE OF RESTRICTED SHARES.  As the Board shall in its sole
discretion determine, Restricted Shares may be authorized but unissued shares or
treasury shares.  All authorized and unissued shares issued as Restricted Shares
in accordance with the Plan shall be fully paid and non-assessable shares and
free from preemptive rights.

 4.       ELIGIBILITY

          (A) ELIGIBLE EMPLOYEES.  Any management employee of the Company or any
Subsidiary (including officers and directors, except for persons serving as
directors only) shall be eligible to receive a grant of Restricted Shares
pursuant to the Plan.

          (B) SELECTION BY THE COMMITTEE.  From the employees eligible to
receive grants pursuant to the Plan, the Committee may from time to time select
employees to receive grants.  The Committee shall base its selections on the
positions and responsibilities of the eligible employees, the value of their
services to the Company and its Subsidiaries and such other factors as the
Committee deems pertinent.

          (C) PARTICIPATION IN OTHER STOCK PLANS.  A person who has received
options or other rights to purchase stock of the Company or a Subsidiary may
exercise the same in accordance with their terms, and shall not by reason
thereof be ineligible to receive Restricted Shares under this Plan.  A person
who has received Restricted Shares hereunder shall not be ineligible for that
reason to be granted any option or other rights to purchase stock.

 5.       AMOUNTS OF GRANTS

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          (A) PARTICIPANT ELECTION.  The number of Restricted Shares granted to
each Participant shall be equal to the number of shares of common stock of the
Company, if any, that the Participant purchases under the Plan.  Each
Participant shall elect in writing, within the time specified by the Committee
on the Participant election form, how many shares of common stock of the Company
to purchase pursuant to the Plan.  Such an election shall be made by delivering
to the Secretary of the Company a written election on the form provided by the
Company.  Any such election shall be accompanied by a stock power endorsed in
blank in order to permit the Escrow Agent to transfer Restricted Shares to the
Company in the event they are forfeited.

          (B) PURCHASE OF SHARES.  The Secretary of the Company shall arrange
for purchase in the market, at the price(s) then available, of the number of
shares elected by Participants.  The Secretary shall inform each Participant
promptly in writing of the amount needed to purchase the shares elected by the
Participant, including the brokerage commission, and of the date by which
payment must be received.  The election of any Participant who fails to make
timely payment in full to the Secretary shall be null and void.

          (C) DISPOSITION OF PURCHASED SHARES.  The Secretary of the Company
shall cause all shares purchased at the election of Participants to be delivered
to the respective Participants or their designees by the broker executing the
transaction.

          (D) LISTING ON STOCK EXCHANGE.  The Company shall take such action as
shall be necessary to cause any Restricted Shares issued pursuant to this Plan
and not previously listed to be listed on the New York Stock Exchange and/or
such other exchange(s) on which shares of the same class as the Restricted
Shares are then listed.

          (E) DELIVERY OF WRITTEN NOTICE.  All elections and notices in writing
required pursuant to this Plan shall be sufficient only if actually delivered or
if sent via registered or certified mail, postage prepaid, to the Company,
attention Secretary, and/or the Escrow Agent at its principal office, and shall
be conclusively deemed given on the third business day following the date of
such mailing, if mailed.

 6.       RESTRICTIONS

          (A) TRANSFER/ISSUANCE.  Restricted Shares shall be issued or
transferred to Participants promptly after completion of the purchases pursuant
to Section 5(b), and certificates for such shares shall be issued in the
respective Participants' names.  Each Participant shall thereupon be the record
owner of all the shares represented by the certificate or certificates.  As
such, the Participant shall have all the rights of a shareholder with respect to
such shares, including the right to vote them and to receive all dividends and
other distributions (subject to (b), below) paid with respect to them, provided,
however, that the shares shall be subject to the restrictions in (d), below.
The shares represented thereby may not be sold, exchanged, transferred, pledged,
hypothecated, or otherwise disposed of during the Restricted Period, and each
transfer agent for the common stock shall be instructed to that effect.  In aid
of such restrictions, all certificates for Restricted Shares shall be deposited
by the Company with the Escrow Agent.

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          (B) ADJUSTMENTS TO RESTRICTED SHARES.  If, due to a stock split, stock
dividend, combination of shares, or any other change or exchange for other
securities by reclassification, reorganization, merger, consolidation,
recapitalization or otherwise, the Participant, as the owner of Restricted
Shares subject to restrictions hereunder, shall be entitled during the
Restricted Period to new, additional, or different shares of stock or other
securities, the certificate or certificates for, or other evidences of, such
new, additional, or different shares or securities also shall be deposited by
the issuer with the Escrow Agent.  If any of the event(s) described in the
preceding sentence occur, all Plan provisions relating to restrictions and lapse
of restrictions shall apply to such new, additional, or different shares or
securities, provided, however, that if the Participant shall receive rights,
warrants or fractional interests in respect of any of such Restricted Shares,
such rights or warrants may be held, exercised, sold or otherwise disposed of,
and such fractional interests may be settled, by the Participant free and clear
of the restrictions hereinafter set forth.

          (C) RESTRICTED PERIOD.  The restrictions set forth in (d), below,
shall apply to Restricted Shares during a period starting on the Date of
Issuance of such shares and ending on the fifth anniversary of such date.

          (D) RESTRICTIONS.  The restrictions to which Restricted Shares shall
be subject are the following:

                (i) During the Restricted Period applicable to Restricted
Shares, none of such shares shall be sold, exchanged, transferred, pledged,
hypothecated, or otherwise disposed of.

                (ii) If a Participant's employment with the Company and its
Subsidiaries terminates for any reason, including such Participant's death or
disability, at any time before the third anniversary of the Date of Issuance of
Restricted Shares, the Restricted Shares shall be forfeited and transferred to
the Company.

                (iii) If a Participant resigns, or is terminated for cause, from
employment with the Company and its Subsidiaries at any time before the
Restricted Period ends, the Participant's Restricted Shares shall be forfeited
and transferred to the Company.

                (iv) If the price on the date the Restricted Period ends is less
than 161% of the price at the Date of Issuance, all or a portion of the
Restricted Shares shall be forfeited, and transferred to the Company, as
determined by the following table.

                    Price at End Compared with
                   Beginning of Restricted Period       Forfeited Percentage
                   ------------------------------       --------------------

                   Less than 140%                               100%
                   140% but less than 150%                       75%
                   150% but less than 161%                       50%

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          (E) SPECIAL DEFINITIONS.  For purposes of this Section 6, the
following terms shall have the definitions set forth below.

                (i) Cause means fraud, dishonesty or similar willful misconduct
on the part of a Participant; a material breach by a Participant of any of his
obligations under any employment agreement with the Company or any of its
Subsidiaries or otherwise in connection with any position that such Participant
holds, or in the future may hold, at the Company or any Subsidiary (provided
that the Participant shall first be notified of and be given a reasonable
opportunity to cure such breach); gross negligence by a Participant in the
performance of the services contemplated by such Participant's employment
agreement (if any) or performed in connection with the Participant's position as
an employee of the Company or its Subsidiary; or conviction of a Participant (or
the entering of a plea of guilty, nolo contendere, or request for deferred
adjudication) for fraud, misappropriation, embezzlement, financial misconduct,
any felony, or any lesser criminal offense which carries a potential penalty of
imprisonment for a term of one year or more and/or a fine of $5,000 or more
(other than such a lesser criminal offense that relates solely to the action or
omission of one or more persons other than the Participant), whether or not a
lesser penalty or fine is assessed.

                (ii) Price on a given date means the average closing price of
the common stock of the Company on the preceding five trading days, as reported
on the principal national securities exchange on which the common stock is then
listed, or if there were no sales on any of such days, on the most recent five
days on which there were sales.

 7.       DELIVERY OF VESTED SHARES

          (A) LAPSE OF RESTRICTED PERIOD.  After the end of the Restricted
Period, the Escrow Agent shall transfer to the Company any Restricted Shares
that are forfeited pursuant to Section 6(d), above.  Subject to (b), below, the
Escrow Agent shall release to the respective Participants, free of such
restrictions, the remaining Restricted Shares.

          (B) TAX WITHHOLDING.  The Escrow Agent shall not release shares from
escrow to a Participant or executor or administrator until the Participant or
executor or administrator has remitted to the Company or its Subsidiary all
federal, state and local taxes that the Company or its Subsidiary determines it
is required to withhold.

 8.       DEATH OF A PARTICIPANT

          In the event of the death of a Participant prior to the third
anniversary of the Date of Issuance, the Restricted Shares shall be forfeited
and the Escrow Agent shall transfer them to the Company.  If a Participant dies
after the third anniversary of the Date of Issuance, but before the end of the
Restricted Period, the Restricted Shares that are not forfeited pursuant to
Section 6(d), if any, shall be released as provided in Section 7 to the
Participant's executor or administrator.

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 9.       FINALITY OF DETERMINATION

          The Committee shall administer this Plan and construe its provisions.
Any determination by the Committee in carrying out, administering, or construing
this Plan shall be final and binding for all purposes and upon all interested
persons and their heirs, successors, and personal representatives.  Participants
may obtain additional information about the Plan and its administrators from
Stephen J. Greenberg, Esq., Corporate Secretary, 1000 Lenox Drive,
Lawrenceville, New Jersey 08648, telephone no. 609-895-3007.

 10.      NO RIGHT TO CONTINUED EMPLOYMENT

          Neither the Company's action in establishing the Plan, nor any action
taken by it or by the Board or the Committee under the Plan, nor any provision
of the Plan, shall be construed as giving to any person the right to be retained
in the employ of the Company or any Subsidiary.

 11.      AMENDMENT, SUSPENSION OR TERMINATION OF PLAN

          (A) The Plan shall be submitted for approval by the stockholders of
the Company at the 1998 annual meeting of stockholders.  If the Plan is not
approved by a majority of shares present in person or by proxy, it shall be void
and of no effect, and all Restricted Shares shall be transferred to the Company.

          (B) The Board may amend, suspend or terminate the Plan in whole or in
part at any time; provided that such amendment shall not affect adversely rights
or obligations with respect to grants previously made.

 12.      GOVERNING LAW

          The Plan shall be governed by the laws of the State of New Jersey.  It
is not subject to the federal Employee Retirement Income Security Act of 1974.

 13.      EXPENSES OF ADMINISTRATION

          All costs and expenses incurred in the operation and administration of
this Plan shall be borne by the Company.

 14.      REGISTRATION OF RESTRICTED SHARES

          The Company, at its expense, shall register the Plan under the
Securities Act of 1933.  Each Participant may obtain without charge from Stephen
J. Greenberg, Esq., Corporate Secretary, 1000 Lenox Drive, Lawrenceville, New
Jersey 08648, telephone no. 609-895-3007, by written or oral request, the
documents incorporated by reference in Item 3 of Part II of the Registration
Statement on Form S-8 relating to the Plan, which are incorporated by reference
into the Plan, and copies of all other reports,

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proxy statements and communications distributed to its security holders
generally and any other documents required to the delivered pursuant to Rule
428(b) under the Securities Act.

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