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                                                                   EXHIBIT 10.7


                           AMERICAN EAGLE GROUP, INC.

                        1994 DIRECTOR STOCK OPTION PLAN
                     (AS AMENDED THROUGH NOVEMBER 1, 1996)


         1.      PURPOSE.  This non-qualified stock option plan to be known as
the American Eagle Group, Inc. 1994 Director Stock Option Plan (hereinafter,
this "Plan") is intended to promote the interests of American Eagle Group, Inc.
(hereinafter, the "Company") by providing an inducement to obtain and retain
the services of qualified persons who are neither employees nor officers of the
Company to serve as members of its Board of Directors.  The options granted
pursuant hereto are intended by the Company and the optionees to be
nonstatutory stock options and will not qualify for any special tax benefits to
the optionees.  The Plan is intended to qualify under Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act") in
order to be exempt from the requirements of Section 16(b) of the Exchange Act.

         2.      DEFINITIONS.  For purposes of the Plan, the following terms
shall have the meanings set forth below:

                 "Board" means the Board of Directors of the Company, as
constituted from time to time.

                 "Code" means the Internal Revenue Code of 1986, as in effect
and as amended from time to time, or any successor statute thereto, together
with any rules, regulations and interpretations promulgated thereunder or with
respect thereto.

                 "Committee" means the Board or a committee appointed by the
Board which meets the requirements for a non-employee director committee under
Rule 16b-3, as adopted pursuant to SEC Release Number 34-37260 (May 31, 1996).

                 "Common Stock" means the Common Stock, par value $.01 per
share, of the Company or any security of the Company issued by the Company in
substitution or exchange therefor.

                 "Company" means American Eagle Group, Inc., a Delaware
corporation, or any successor corporation to American Eagle Group, Inc.

                 "Disability" means disability which, at least six months after
its commencement, is determined to be total and permanent by the Board.

                 "Exchange Act" means the Securities Exchange Act of 1934, as
in effect and as amended from time to time, or any successor statute thereto,
together with any rules, regulations and interpretations promulgated thereunder
or with respect thereto.
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                 "Fair Market Value" means on, or with respect to, any given
date, the closing price of the Common Stock on such date (or, if the Common
Stock was not traded on such date, then the next preceding day on which the
Common Stock was traded) as reported on the NASDAQ composite tape or, if the
Common Stock is not traded on such exchange, as reported on any other national
securities exchange on which the Common Stock may be traded.

                 "Offering" means the initial public offering of Common Stock
by the Company.

                 "Participant" means a member of the Board who is neither an
officer or employee of the Company or any subsidiary of the Company and who is
not elected solely by holders of any preferred stock of the Company.

                 "Plan" means the American Eagle Group, Inc. 1994 Director
Stock Option Plan, as set forth herein and as in effect and as amended from
time to time (together with any rules and regulations promulgated by the
Committee with respect thereto).

                 "Stock Option" means an option granted under Section 5 of the
Plan.

                 "Stock Option Agreement" means the agreement executed by a
Participant pursuant to Section 13 of the Plan in connection with the granting
of a Stock Option.

         3.      AVAILABLE SHARES.  The total number of shares of Common Stock
of the Company for which Stock Options may be granted under this Plan shall not
exceed 100,000 shares, subject to adjustment in accordance with paragraph 11 of
the Plan.  Shares subject to the Plan are authorized but unissued shares or
shares that were once issued and subsequently reacquired by the Company.  If
any options granted under this Plan are surrendered before exercise or lapse
without exercise, in whole or in part, the shares reserved therefor shall
continue to be available under this Plan.

         4.      ADMINISTRATION.  This Plan shall be administered by the
Committee.  The Committee shall, subject to the provisions of this Plan, have
the power to construe the Plan to determine all positions hereunder, and to
adopt and amend such rules and regulations for the administration of this Plan
as it may deem desirable.  The Committee shall have the power to reprice or
otherwise modify any automatic grant of a Stock Option made pursuant to this
Plan; provided, however, the Committee shall not have power to modify the
number of shares subject to an option previously granted pursuant to the Plan.

                 4.1      LIABILITY LIMITATION.  Neither the Board nor the
Committee, nor any member of either, shall be liable for any act, omission,
interpretation, construction or determination made in good faith in connection
with the Plan (or any Stock Option Agreement), and the members of the Board and
the Committee shall be entitled to indemnification and reimbursement by the
Company in respect of any claim, loss, damage or expense (including, without
limitation, attorneys' fees) arising or resulting therefrom to the fullest
extent permitted by law and/or under any directors and officers liability
insurance coverage which may be in effect from time to time.



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         5.      GRANT OF OPTIONS.

                 (a)  GRANTS.  On the date of the closing of the Offering each
individual who is a Participant on such date shall automatically be granted a
Stock Option to purchase that number of shares of Common Stock equal to the
quotient (rounded to the nearest whole number) of 100,000 divided by the price
per share in U.S. dollars of the Common Stock in the Offering.  All individuals
who first become Participants after the date of the closing of the Offering
shall be granted an initial Stock Option, as of the date of the first annual
meeting of the Board that occurs on or after the date such individuals first
become Participants, to purchase that number of shares of Common Stock equal to
the quotient (rounded to the nearest whole number) of 100,000 divided by the
Fair Market Value in U.S. dollars of a share of the Common Stock on the date of
such annual meeting of the Board.  Subsequent to such initial grants of Stock
Options to Participants, each Participant shall be granted additional options
to purchase 2,500 shares of Common Stock on each of the dates of the subsequent
annual meetings of the Board on which such individual qualifies as a
Participant; provided, however, that the first such grant of an option to
purchase 2,500 shares shall be made, in the case of any Participants existing
on the date of the closing of the Offering, on the date of the annual meeting
of the Board that occurs in calendar year 1995.  In the event that there are
not sufficient shares available under the Plan to allow for the grant to a
Participant of a Stock Option provided for above, such Participant shall be
granted a Stock Option to purchase the remaining shares that are reserved under
the Plan.  If two or more Participants are entitled to grants of Stock Options
hereunder under such circumstances, then such Participants shall receive grants
of Stock Options to purchase shares of Common Stock equal to their respective
pro rata shares of the total number of shares of Common Stock remaining and
available under the Plan.  Each Participant's pro rata share of the options to
be granted in such instance shall be the number of the remaining shares of
Common Stock available under the Plan multiplied by a fraction, the numerator
of which is the number of shares for which Stock Options would be granted to
the Participant if sufficient shares were remaining and available under the
Plan and the denominator of which is the total number of shares for which Stock
Options would be granted to all Participants on such date if a sufficient
number of shares were remaining and available under the Plan.  Except for the
specific options referred to above, no other options shall be granted under
this Plan.

        6.       OPTION PRICE.  The purchase price of the Common Stock covered
by a Stock Option granted pursuant to this Plan shall be 100% of the Fair
Market Value of such shares on the date of grant.  The option price will be
subject to adjustment in accordance with the provisions of paragraph 11 of this
Plan.

        7.       PERIOD OF OPTION.  Unless sooner terminated in accordance with
the provisions of this Plan, a Stock Option granted hereunder shall expire on a
date which is ten (10) years after the date of grant of the option.

        8.       VESTING AND NON-TRANSFERABILITY OF OPTIONS.

                 (a)      VESTING.  A Stock Option may be exercised during its
specified term as follows:  (a) for up to 33 1/3% of the shares of Common Stock
subject to such Stock Option on





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and after the first anniversary of the date of grant, (b) for up to 66 2/3% of
the shares of Common Stock subject to such Stock Option on and after the second
anniversary of the date of grant, and (c) for up to 100% of the shares of
Common Stock subject to such Stock Option on and after the third anniversary of
the date of grant.  Notwithstanding the preceding sentence, in no event shall
any Stock Option granted under the Plan be exercisable prior to the date which
is the one (1) year anniversary of the date on which the Stock Option is
granted.

                 (b)      LEGEND ON CERTIFICATES.  The certificates
representing such shares shall carry such appropriate legend, and such written
instructions shall be given to the Company's transfer agent, as may be deemed
necessary or advisable by counsel to the Company in order to comply with the
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
or any state securities laws.

                 (c)      NON-TRANSFERABILITY OF STOCK OPTIONS.  No Stock
Option under the Plan or any Stock Option Agreement, and no rights or interests
herein or therein, shall or may be assigned, transferred, sold, exchanged,
pledged, disposed of or otherwise hypothecated or encumbered by a Participant
or any beneficiary hereof or thereof, except by testamentary disposition or the
laws of descent and distribution.  No such interest shall be subject to seizure
for the payment of the Participant's (or any beneficiary's) debts, judgments,
alimony, or separate maintenance or be transferable by operation of law in the
event of the Participant's (or any beneficiary's) bankruptcy or insolvency.
During the lifetime of a Participant Stock Options are exercisable only by the
Participant.

         9.      TERMINATION OF BOARD MEMBERSHIP.

                 9.1.     GENERAL.  Subject to the terms and conditions of
Section 12 of the Plan, the following terms and conditions shall apply:

                          9.1.1  Except as otherwise provided in this Section
         9.1.1, if a Participant's membership on the Board is terminated for
         any reason, such Participant's rights, if any, to exercise any then
         exercisable Stock Options, if any, shall terminate ninety (90) days
         after the date of such termination and thereafter the Participant (and
         such Participant's estate, designated beneficiary or other legal
         representative) shall forfeit any rights or interests in or with
         respect to any such Stock Options.  If any termination of Board
         membership is due to Disability, a Participant shall have the right,
         subject to the applicable terms and provisions of the Plan (and any
         rules or procedures thereunder), to exercise any Stock Options at any
         time within 180 days following such termination due to Disability (to
         the extent such Participant was entitled to exercise any such options
         immediately prior to such termination).  If any Participant dies while
         entitled to exercise a Stock Option, if any, such Participant's
         estate, designated beneficiary or other legal representative, as the
         case may be, shall have the right, subject to the applicable
         provisions of the Plan (and any rules or procedures thereunder), to
         exercise such then exercisable Stock Options, if any, at any time
         within 180 days from the date of such Participant's death (but in no
         event more than one (1) year from the date of such Participant's
         termination due to Disability).





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         10.     EXERCISE OF OPTION.  Subject to the terms and conditions of
this Plan and the Stock Option Agreements, a Stock Option granted hereunder
shall, to the extent then exercisable, be exercisable in whole or in part by
giving written notice to the Company by mail or in person addressed to the
Secretary of the Company, at its principal executive offices, stating the
number of shares with respect to which the option is being exercised,
accompanied by payment in full for such shares, which payment may be in whole
or in part in shares of the Common Stock of the Company already owned by the
optionee (subject to such restrictions and guidelines as the Board may adopt
from time to time), valued at Fair Market Value.  The Company's transfer agent
shall, on behalf of the Company, prepare a certificate or certificates
representing such shares acquired pursuant to exercise of the option, shall
register the optionee as the owner of such shares on the books of the Company
and shall cause the fully executed certificate(s) representing such shares to
be delivered to the optionee as soon as practicable after payment of the option
price in full.  The holder of an option shall not have any rights of a
shareholder with respect to the shares covered by the option, except to the
extent that one or more certificates for such shares shall be delivered to him
upon the due exercise of the option.  Participants may simultaneously exercise
Stock Options and sell the shares of Common Stock thereby acquired, pursuant to
a brokerage "cashless exercise" arrangement, selected by and approved of in all
respects in advance by the Committee, and use the proceeds from such sale as
payment of the exercise price of such Stock Options.  In addition, the
Committee may, in the relevant Stock Option Agreement, also permit Participants
(either on a selective or group basis) to exercise Stock Options in the manner
of stock appreciation rights by the issuance of stock to Participants in the
amount of the appreciation or "spread" in the Stock Option without the
requirement of payment of the exercise price.  The proceeds received by the
Company upon exercise of any Stock Option may be used by the Company for
general corporate purposes.

         11.     CHANGES IN CAPITALIZATION AND OTHER MATTERS.

                 11.1.    NO CORPORATE ACTION RESTRICTION.  The existence of
the Plan, any Stock Option Agreement and/or the Stock Options granted hereunder
shall not limit, affect or restrict in any way the right or power of the Board
or the shareholders of the Company to make or authorize (a) any adjustment,
recapitalization, reorganization or other change in the Company's or any
affiliate's capital structure or its business, (b) any merger, consolidation or
change in the ownership of the Company or any affiliate, (c) any issue of
bonds, debentures, capital, preferred or prior preference stock ahead of or
affecting the Company's or any affiliate's capital stock or the rights thereof,
(d) any dissolution or liquidation of the Company or any affiliate, (e) any
sale or transfer of all or any part of the Company's or any affiliate's assets
or business, or (f) any other corporate act or proceeding by the Company or any
affiliate.  No Participant, beneficiary or any other person shall have any
claim against any member of the Board or the Committee, the Company or any
affiliate as a result of any such action.

                 11.2.    RECAPITALIZATION ADJUSTMENTS.  In the event of any
change in capitalization affecting the Common Stock of the Company, including,
without limitation, a stock dividend or other distribution, stock split,
reverse stock split, recapitalization, consolidation, subdivision, split-up,
spin-off, split-off, combination or exchange of shares or other form of
reorganization, or any other change affecting the Common Stock, the Board shall
authorize and





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make such adjustments, if any, as are appropriate to reflect such change,
including, without limitation, with respect to the aggregate number of shares
of the Common Stock for which Stock Options in respect thereof may be granted
under the Plan, the maximum number of shares of the Common Stock which may be
sold to any Participant, the number of shares of the Common Stock covered by
each outstanding Stock Option, and the exercise price per share of Common Stock
in respect of outstanding Stock Options.

                 11.3.    REORGANIZATIONS.  The foregoing provisions of Section
11 notwithstanding, the following provisions of Section 11 shall control, where
applicable:

                          11.3.1  If the Company shall at any time participate
         in a reorganization of a type described in Section 424(a) of the Code
         and in which (A) the Company is not the surviving entity, or (B) the
         Company is the surviving entity and the shareholders of Common Stock
         are required to exchange their shares for property and/or securities,
         the Company shall give the Participants written notice of any such
         proposed reorganization on or before thirty (30) days before such
         reorganization, and any outstanding Stock Options shall be exercisable
         after receipt of such notice and prior to such reorganization in full
         for all of the shares of Common Stock covered by the Stock Options;
         provided, however, either the Participant or the Company may make the
         exercise of outstanding Stock Options after Participant's receipt of
         such notice effective only immediately prior to the consummation of
         such reorganization.  To the extent not exercised prior to such
         reorganization, the Stock Options shall expire on the occurrence of
         such reorganization.  A sale of all or substantially all the assets of
         the Company for a consideration (apart from the assumption of
         obligations) consisting primarily of securities shall be deemed a
         reorganization for the foregoing purposes.  Notwithstanding the
         foregoing, the provisions of this Section shall be subject to Section
         7.

                          11.3.2  In the event of the proposed dissolution or
         liquidation of the Company, the Stock Options granted hereunder shall
         terminate as of a date to be fixed by the Board, provided that not
         less than thirty (30) days' prior written notice of the date so fixed
         shall be given to the Participants, and the Participants shall have
         the right, during the period of thirty (30) days preceding such
         termination, to exercise their Stock Options in full for all of the
         shares of Common Stock covered by the Stock Options; provided,
         however, either the Participant or the Company may make the exercise
         of the outstanding Stock Options after Participant's receipt of such
         notice effective only immediately prior to the consummation of such
         dissolution.  Notwithstanding the foregoing, the provisions of this
         Section shall be subject to Section 7 and shall be subject to Section
         11.3.1 if the optionee received notice under Section 11.3.1 at a time
         earlier than the notice provided for herein.





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         12.     CHANGE OF CONTROL.

                 12.1.    ACCELERATION OF VESTING.  Except as otherwise
provided in Section 12.2 of the Plan, if a Change of Control of the Company
occurs all Stock Options then unexercised and outstanding shall become fully
vested and exercisable as of the date of the Change of Control.

                 12.2.    SIX-MONTH RULE.  The provisions of Section 12.1 of
the Plan shall not apply to any Stock Option that is outstanding for less than
six (6) months as of the date of the Change of Control.

                 12.3.    CHANGE OF CONTROL.  For the purposes of this
Agreement, "Change of Control" shall mean:

                          12.3.1  The acquisition, after the Effective Date (as
         defined in Section 14.6 of the Plan), by an individual, entity or
         group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
         Exchange Act) of beneficial ownership (within the meaning of Rule
         13d-3 promulgated under the Exchange Act) of 20% or more of either (a)
         the shares of the Common Stock, or (b) the combined voting power of
         the voting securities of the Company entitled to vote generally in the
         election of directors (the "Voting Securities"); provided, however,
         that the following acquisitions shall not constitute a Change of
         Control:  (x) any acquisition by any employee benefit plan (or related
         trust) sponsored or maintained by the Company or any affiliate, or (y)
         any acquisition by any corporation if, immediately following such
         acquisition, more than 80% of the then outstanding shares of common
         stock of such corporation and the combined voting power of the then
         outstanding voting securities of such corporation (entitled to vote
         generally in the election of directors), is beneficially owned,
         directly or indirectly, by all or substantially all of the individuals
         and entities who, immediately prior to such acquisition, were the
         beneficial owners of the Common Stock and the Voting Securities in
         substantially the same proportions, respectively, as their ownership,
         immediately prior to such acquisition, of the Common Stock and Voting
         Securities; or

                          12.3.2  Individuals who, as of the day after the
         first annual meeting of the Company's shareholders following the
         Effective Date, constitute the Board (the "Incumbent Board") cease for
         any reason to constitute at least a majority of the Board; provided,
         however, that any individual becoming a director subsequent to the day
         after the first annual meeting of the Company's shareholders following
         the Effective Date hereof whose election, or nomination for election
         by the Company's shareholders, was approved by a vote of at least a
         majority of the directors then serving and comprising the Incumbent
         Board shall be considered as though such individual were a member of
         the Incumbent Board, but excluding, for this purpose, any such
         individual whose initial assumption of office occurs as a result of
         either an actual or threatened election contest (as such terms are
         used in Rule 14a-11 of Regulation 14A promulgated under the Exchange
         Act) or other actual or threatened solicitation of proxies or
         consents; or





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                          12.3.3  Approval by the shareholders of the Company
         of a reorganization, merger or consolidation, other than a
         reorganization, merger or consolidation with respect to which all or
         substantially all of the individuals and entities who where the
         beneficial owners, immediately prior to such reorganization, merger or
         consolidation, of the Common Stock and Voting Securities beneficially
         own, directly or indirectly, immediately after such reorganization,
         merger or consolidation more than 80% of the then outstanding common
         stock and voting securities (entitled to vote generally in the
         election of directors) of the corporation resulting from such
         reorganization, merger or consolidation in substantially the same
         proportions as their respective ownership, immediately prior to such
         reorganization, merger or consolidation, of the Common Stock and the
         Voting Securities; or

                          12.3.4  Approval by the shareholders of the Company
         of (a) a complete liquidation or dissolution of the Company, or (b)
         the sale or other disposition of all or substantially all of the
         assets of the Company, other than to an affiliate, wholly-owned,
         directly or indirectly, by the Company.  For purposes of the Plan, and
         without limiting the generality of the preceding sentence, the sale or
         other disposition by the Company of more than 50% of the Common Stock
         or the Voting Securities (entitled to vote generally in the election
         of directors) of American Eagle Insurance Company shall be deemed to
         constitute a sale or other disposition of substantially all the assets
         of the Company.

         13.     STOCK OPTION AGREEMENTS.  Each Participant receiving a "Stock
Option" under the Plan shall enter into a Stock Option Agreement with the
Company in a form not inconsistent with the Plan or any determinations made by
the Committee.  Each such Participant shall agree to the restrictions, terms
and conditions of the Stock Option set forth therein.

         14.     MISCELLANEOUS.

                 14.1.    TAX WITHHOLDING.  With respect to the exercise of any
Stock Option the Company shall have the right to withhold or cause to be
withheld by any lawful means any federal, state, local or other taxes,
assessments or amounts of any kind which the Committee, in its sole discretion,
deems necessary to be withheld to comply with the Code and/or any other
applicable law, rule or regulation.  If the Committee, in its sole discretion,
permits shares of Common Stock to be used to satisfy any such withholding, such
Common Stock shall be valued based on the Fair Market Value of such stock as of
the date the withholding is required to be made, such date to be determined by
the Committee.  The Committee may establish rules limiting the use of Common
Stock to meet withholding requirements by Participants who are subject to
Section 16 of the Exchange Act.

                 14.2.    UNFUNDED PLAN.  The Plan shall be unfunded and the
Company shall not be required to segregate any assets in connection with any
Stock Options under the Plan.  Any liability of the Company to any person with
respect to any Stock Option under the Plan or any Stock Option Agreement shall
be based solely upon the contractual obligations that may be created as a
result of the Plan or any such award or agreement.  No such obligation of the





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Company shall be deemed to be secured by any pledge of, encumbrance on, or
other interest in, any property or asset of the Company or any affiliate.
Nothing contained in the Plan or any Stock Option Agreement shall be construed
as creating in respect of any Participant (or beneficiary thereof or any other
person) any equity or other interest of any kind in any assets of the Company
or any affiliate or creating a trust of any kind or a fiduciary relationship of
any kind between the Company, any affiliate and/or any such Participant, any
beneficiary thereof or any other person.

                 14.3.    LISTING, REGISTRATION AND OTHER LEGAL COMPLIANCE.
No shares of the Common Stock shall be issued under the Plan unless legal
counsel for the Company shall be satisfied that such issuance will be in
compliance with all applicable federal and state securities laws and
regulations and any other applicable laws or regulations.  The Committee may
require, as a condition of any payment or share issuance, that certain
agreements, undertakings, representations, certificates, and/or information, as
the Committee may deem necessary or advisable, be executed or provided to the
Company to assure compliance with all such applicable laws or regulations.
Certificates for shares of the Common Stock delivered under the Plan may be
subject to such stock-transfer orders and such other restrictions as the
Committee may deem advisable under the rules, regulations, or other
requirements of the Securities and Exchange Commission, any stock exchange upon
which the Common Stock is then listed, and any applicable federal or state
securities law.  The Committee may cause a legend or legends to be put on any
such share certificates to make appropriate reference to such restrictions.  In
addition, if, at any time specified herein (or in any Stock Option Agreement)
for (a) the making of any determination or (b) the issuance or other
distribution of Common Stock to or through a Participant with respect to any
Stock Option, any law, rule, regulation or other requirement of any
governmental authority or agency shall require either the Company, any
affiliate or any Participant (or any estate, designated beneficiary or other
legal representative thereof) to take any action in connection with any such
determination, any such shares to be issued or distributed, or the making of
any such determination, as the case may be, shall be deferred until such
required action is taken.

                 14.4.    GOVERNING LAW.  The Plan and all actions taken
thereunder shall be governed by and construed in accordance with the laws of
the State of Delaware, without regard to principles of conflict of laws
thereunder.  Any titles and headings herein are for reference purposes only,
and shall in no way limit, define or otherwise affect the meaning, construction
or interpretation of any provisions of the Plan.

                 14.5.    TERMINATION AND AMENDMENT OF PLAN.  Stock Options may
no longer be granted under this Plan after February 15, 2004, and this Plan
shall terminate when all options granted or to be granted hereunder are no
longer outstanding.  The Board may at any time terminate this Plan or make such
modification or amendment thereof as it deems advisable, provided, however,
that the Board may not, without approval by the affirmative vote of the holders
of a majority of the shares of Common Stock (determined on a fully converted
basis) present, in person or by proxy and entitled to vote at the meeting, (a)
increase the maximum number of shares for which options may be granted under
this Plan or the formula by which options are granted to participating members
of the Board hereunder; (b) change the provisions





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of this Plan regarding the termination of the options or the times when they
may be exercised; (c) change the period during which any options may be granted
or remain outstanding or the date on which this Plan shall terminate; (d)
change the designation of the class of persons eligible to receive options, or
otherwise change paragraph 5; or (e) materially increase benefits accruing to
option holders under this Plan.  Termination or any modification or amendment
of this Plan shall not, without consent of a participant, affect his rights
under an option previously granted to him.  The provisions of this Plan shall
not be amended more than once during any six month period, except any
amendments which may be required by the Internal Revenue Code of 1986, the
Employee Retirement Income Security Act, if applicable, or the rules
thereunder.

                 14.6.    EFFECTIVE DATE.  The Plan shall be effective as of
February 15, 1994 (the "Effective Date"), subject to (a) the occurrence of the
closing of the Offering and (b) the approval by a majority of the Company's
shareholders in accordance with Rule 16b-3 of the Exchange Act.





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