RESTRICTED STOCK AGREEMENT
 
OF
 
MERCURY GENERAL CORPORATION
 
THIS AGREEMENT (the “Agreement”) is entered into as of _______________, 20___
(the “Award Date”) by and between Mercury General Corporation, a California
corporation (the “Company”), and _______________ (“Participant”).
 
WHEREAS, the Company has adopted the Mercury General Corporation 2005 Equity
Incentive Award Plan (as it may be amended from time to time, the “Plan”), the
terms of which are hereby incorporated by reference and made a part of this
Agreement; and
 
WHEREAS, Article 6 of the Plan provides for the issuance of awards of the
Company’s common stock, without par value (“Common Stock”), subject to certain
restrictions (“Restricted Stock”); and
 
WHEREAS, the Committee described in Article 12 of the Plan (the “Committee”) has
determined that it would be to the advantage and best interest of the Company
and its stockholders to award shares of Restricted Stock to Participant pursuant
to the terms and conditions set forth herein;
 
NOW, THEREFORE, in consideration of the mutual covenants herein contained and
other good and valuable consideration, receipt of which is hereby acknowledged,
the parties hereto do hereby agree as follows:
 
ARTICLE I
RESTRICTED STOCK AWARD
 
Section 1.1.      Award of Restricted Stock.  In consideration of Participant’s
agreement to remain in the employ of the Company, and for other good and
valuable consideration which the Committee has determined exceeds the aggregate
par value of the shares of Common Stock subject to the Award (as defined below),
as of the Award Date the Company issues to Participant __________ shares of
Restricted Stock (the “Award”) upon the terms and conditions set forth in this
Agreement.
 
Section 1.2.      Award Subject to Plan.  The Award granted hereunder is subject
to the terms and provisions of the Plan, including without limitation,
Article 11 thereof.
 
ARTICLE II
RESTRICTIONS
 
Section 2.1.      Performance Vesting Requirement.
 
(a)      The “Performance Period” for this Award shall be the 36-month period
commencing on January 1, 20___ and ending on December 31, 20___. The Award shall
be subject to performance vesting requirements based upon the achievement of the
performance goals established under the Plan, subject to certification of the
degree of achievement of such performance goals by the Committee.
 

 
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(b)        The measurement tool for determining level of achievement shall be
Cumulative Underwriting Profit for the Company for the Performance Period.
Calculation of this measurement tool will be performed by the Committee, subject
to all authority granted under the terms of the Plan.  For purposes of this
Agreement, “Cumulative Underwriting Profit” shall mean, with respect to the
Company during the Performance Period, earned premiums less losses and loss
adjustment expenses, policy acquisition costs, and other operating expenses
derived from the Company’s audited consolidated financial statements prepared in
accordance with United States generally accepted accounting principles.
 
(c)        Subject to Sections 2.2 and 2.3, vesting of the shares of Restricted
Stock subject to the Award shall be based upon actual Cumulative Underwriting
Profit achieved by the Company during the Performance Period.  “Threshold
Performance” is the minimum level of performance that must be achieved for any
of the shares of the Restricted Stock subject to the Award to vest, and “Target
Performance” is the level of performance that must be achieved for all of the
shares of Restricted Stock subject to this Award to vest. The actual levels of
achievement of the performance goals, and the corresponding number of shares of
Restricted Stock, if any, to vest as a result of such achievement (the “Vested
Shares”), will be determined by the Committee as soon as reasonably practicable
following calculation of year-end financial reporting for last fiscal year of
the Performance Period (the “Determination Date”) but in any event prior to the
90th day after such year end; provided however that the vesting of any shares
that vest hereunder shall be deemed effective as of the last day of the
Performance Period (the “Vesting Date”).  Subject to adjustment pursuant to
subsections (i) and (ii) below, each percentage of target performance correlates
to a percentage of Restricted Stock that may vest under this Award, as follows:
 
Target Performance Levels for Restricted Stock Plan
Target = $[_____]
 
Threshold
         
Target
 
Three-year cumulative underwriting profit
 
$[_____
]
$[_____
]
$[_____
]
$[_____
]
Percent of Target Performance
 
[___
]%
[___
]%
[___
]%
[___
]%
Percent of Shares Vesting
 
[___
]%
[___
]%
[___
]%
[___
]%

 
(i)         In the event that the Company’s actual performance does not meet the
Threshold Performance, none of the shares of Restricted Stock subject to the
Award shall vest.
 
(ii)        If the Company’s actual performance for the Performance Period falls
between any of the performance benchmarks set forth above, the percentage of
shares of Restricted Stock vested shall be interpolated between such benchmark
amounts.
 

 
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Section 2.2.      Forfeiture.
 
(a)      Forfeiture.  Except as otherwise set forth herein, all shares of
Restricted Stock issued to Participant pursuant to Section 1.1 are initially
subject to forfeiture and any portion of the Award which is not vested upon
Participant’s termination of employment with the Company (as determined in good
faith by the Committee) shall thereupon be forfeited immediately and without any
further action by the Company.  Upon forfeiture, neither Participant nor any
successors, heirs, assigns, or legal representatives of Participant shall
thereafter have any further rights or interest in the unvested portion of the
Award.
 
(b)      Termination of Employment Due to Death or Disability. In the event of
termination of Participant’s employment with the Company by reason of death or
disability (as determined by the Committee and within the meaning of Section
409A of the Internal Revenue Code of 1986, as amended (the “Code”)) after the
end of the Performance Period but before the Determination Date, Participant (or
in the case of Participant’s death, Participant’s beneficiary) shall be entitled
to retain the Vested Shares Participant would have been entitled to under
Section 2.1 without forfeiture.
 
(c)      Involuntary Termination of Employment without Cause by the
Company.  Upon an involuntary termination of employment from the Company without
Cause, Participant shall be entitled to retain the Vested Shares that
Participant would have been entitled to under Section 2.1 without forfeiture if
he or she had remained employed until the last day of the Performance Period,
multiplied by the fraction which has as its numerator the total number of days
that Participant was employed by the Company during the Performance Period and
has as its denominator 1,095 (being the number of calendar days in the
Performance Period).  For purposes of this Agreement, the term “Cause” means any
of the following: (i) willful or deliberate and continual refusal to materially
perform Participant’s employment duties reasonably requested by the Company
after receipt of written notice to Participant of such failure to perform,
specifying such failure (other than as a result of Participant’s sickness,
illness, injury, death or disability) and Participant fails to cure such
nonperformance within ten (10) days of receipt of said written notice; (ii)
breach of any statutory or common law duty of loyalty to the Company; (iii)
Participant has been convicted of, or pleaded nolo contendre to, any felony;
(iv) Participant willfully or intentionally caused material injury to the
Company, its property, or its assets; (v) Participant disclosed to unauthorized
person(s) proprietary or confidential information of the Company that causes a
material injury to the Company; (vi) any material violation or a repeated and
willful violation of the Company’s policies or procedures.
 
Section 2.3.      Legend.  Certificates representing shares of Restricted Stock
issued pursuant to this Agreement shall, until all the restrictions on sale or
other transfer set forth in Section 3.2 and the exposure to forfeiture set forth
in Section 2.1 (the “Restrictions”) lapse or shall have been removed and new
certificates are issued pursuant to Section 2.4, bear the following legend:
 

 
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“THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN VESTING
REQUIREMENTS AND MAY BE SUBJECT TO FORFEITURE UNDER THE TERMS OF THAT CERTAIN
RESTRICTED STOCK AGREEMENT, DATED __________, 20___, BY AND BETWEEN MERCURY
GENERAL CORPORATION AND THE REGISTERED OWNER OF SUCH SHARES, AND SUCH SHARES MAY
NOT BE, DIRECTLY OR INDIRECTLY, OFFERED, TRANSFERRED, SOLD, ASSIGNED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF UNDER ANY CIRCUMSTANCES, EXCEPT PURSUANT
TO THE PROVISIONS OF SUCH AGREEMENT.”
 
Section 2.4.      Issuance of Certificates; Tax Withholding.
 
(a)      Subject to Section 2.4(b), effective as of the Vesting Date, the
Company shall cause new certificates to be issued with respect to the Vested
Shares and delivered to Participant or his or her legal representative, free
from the legend provided for in Section 2.3 and any of the other
Restrictions.  The Vested Shares shall cease to be considered Restricted Stock
subject to the terms and conditions of this Agreement.
 
(b)      Notwithstanding Section 2.4(a), no such new certificate shall be
delivered to Participant or his or her legal representative unless and until
Participant or his or her legal representative shall have paid to the Company,
or arranged for payment in accordance with the Plan, the full amount of all
federal and state withholding or other taxes applicable to the taxable income of
Participant resulting from the grant of Restricted Stock or the lapse or removal
of the Restrictions.
 
Section 2.5.      Certain Changes in Capitalization.  If the shares of the
Company’s Common Stock as a whole are increased, decreased, changed into or
exchanged for a different number or kind of shares or securities of the Company,
whether through merger, consolidation, reorganization, recapitalization,
reclassification, stock dividend, stock split, combination of shares, exchange
of shares, change in corporate structure or the like, the Committee, in its sole
discretion, shall have the discretion and power to determine and to make
effective provision for acceleration of the time or times at which any
Restrictions shall lapse or be removed. In addition, in the case of the
occurrence of any event described in this Section 2.5, the Committee, subject to
the provisions of the Plan and this Agreement, shall make an appropriate and
proportionate adjustment in the number and kind of shares of Restricted Stock,
to the end that after such event Participant’s proportionate interest shall be
maintained as before the occurrence of such event.  Any such adjustment made by
the Committee shall be final and binding upon Participant, the Company and all
other interested persons.  In the event that Participant receives any new or
additional or different shares or securities by reason of any transaction or
event described in this Section 2.5, such new or additional or different shares
or securities which are attributable to Participant in his or her capacity as
the registered owner of the Restricted Stock then subject to Restrictions, shall
be considered to be Restricted Stock and shall be subject to all of the
Restrictions.
 

 
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Section 2.6.      Section 83(b) Election.  Participant understands that Section
83(a) of the Code taxes as ordinary income the difference between the amount, if
any, paid for the shares of Common Stock and the Fair Market Value of such
shares at the time the Restrictions on such shares lapse.  Participant
understands that, notwithstanding the preceding sentence, Participant may elect
to be taxed at the time of the Award Date, rather that at the time the
Restrictions lapse, by filing an election under Section 83(b) of the Code (an
“83(b) Election”) with the Internal Revenue Service within 30 days of the Award
Date.  In the event Participant files an 83(b) Election, Participant will
recognize ordinary income in an amount equal to the difference between the
amount, if any, paid for the shares of Common Stock and the Fair Market Value of
such shares as of the Award Date. Participant further understands that an
additional copy of such 83(b) Election form should be filed with his or her
federal income tax return for the calendar year in which the date of this
Agreement falls. Participant acknowledges that the foregoing is only a summary
of the effect of United States federal income taxation with respect to the award
of Restricted Stock hereunder, and does not purport to be complete.  PARTICIPANT
FURTHER ACKNOWLEDGES THAT THE COMPANY IS NOT RESPONSIBLE FOR FILING
PARTICIPANT’S 83(b) ELECTION, AND THE COMPANY HAS DIRECTED PARTICIPANT TO SEEK
INDEPENDENT ADVICE REGARDING THE APPLICABLE PROVISIONS OF THE CODE, THE INCOME
TAX LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH PARTICIPANT MAY
RESIDE, AND THE TAX CONSEQUENCES OF PARTICIPANT’S DEATH.
 
ARTICLE III
OTHER PROVISIONS
 
Section 3.1.      Escrow.  The Secretary of the Company or such other escrow
holder as the Committee may appoint shall retain physical custody of the
certificates representing Restricted Stock until all of the Restrictions lapse
or shall have been removed; provided, however, that in no event shall
Participant retain physical custody of any certificates representing unvested
Restricted Stock issued to him or her.
 
Section 3.2.      Restricted Stock Not Transferable.  No Restricted Stock or any
interest or right therein or part thereof shall be liable for the debts,
contracts or engagements of Participant or his or her successors in interest or
shall be subject to disposition by transfer, alienation, anticipation, pledge,
encumbrance, assignment or any other means whether such disposition be voluntary
or involuntary or by operation of law by judgment, levy, attachment, garnishment
or any other legal or equitable proceedings (including bankruptcy), and any
attempted disposition thereof shall be null and void and of no effect; provided,
however, that this Section 3.2 shall not prevent transfers by will or by
applicable laws of descent and distribution.
 
Section 3.3.      Rights as Stockholder.  Until such time as the Restrictions on
the underlying shares of Restricted Stock lapse or are removed pursuant to this
Agreement, Participant shall not have any rights of a stockholder with respect
to said shares, including without limitation, the right to vote the shares or to
receive any dividends or other distributions paid or made with respect to such
shares.
 
Section 3.4.      Not a Contract of Employment.  Nothing in this Agreement or in
the Plan shall confer upon Participant any right to continue in the employ of
the Company or any of its Subsidiaries or shall interfere with or restrict in
any way the rights of the Company or its Subsidiaries, which are hereby
expressly reserved, to discharge Participant at any time for any reason
whatsoever, with or without cause, except as may otherwise be provided by any
written agreement entered into by and between the Company and Participant.
 

 
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Section 3.5.      Governing Law.  The laws of the State of California shall
govern the interpretation, validity, administration, enforcement and performance
of the terms of this Agreement regardless of the law that might be applied under
principles of conflicts of laws.
 
Section 3.6.      Conformity to Securities Laws.  Participant acknowledges that
the Plan and this Agreement are intended to conform to the extent necessary with
all provisions of the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), and any and all
regulations and rules promulgated thereunder by the Securities and Exchange
Commission, including without limitation Rule 16b-3 under the Exchange
Act.  Notwithstanding anything herein to the contrary, the Plan shall be
administered, and the Award is granted, only in such a manner as to conform to
such laws, rules and regulations.  To the extent permitted by applicable law,
the Plan and this Agreement shall be deemed amended to the extent necessary to
conform to such laws, rules and regulations.
 
Section 3.7.      Amendment, Suspension and Termination.  The Award may be
wholly or partially amended or otherwise modified, suspended or terminated at
any time or from time to time by the Committee or the Board of Directors of the
Company, provided that, except as may otherwise be provided by the Plan, neither
the amendment, suspension nor termination of this Agreement shall, without the
consent of Participant, alter or impair any rights or obligations under the
Award.
 
Section 3.8.      Notices.  Notices required or permitted hereunder shall be
given in writing and shall be deemed effectively given upon personal delivery or
upon deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to Participant to his or her address shown in the Company
records, and to the Company at its principal executive office.
 
Section 3.9.      Definitions.  Capitalized terms not defined herein shall have
the meanings assigned to such terms in the Plan.
 
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto.
 

   
MERCURY GENERAL CORPORATION
         
By:
     
Name:
     
Title:
       
[Participant’s Name]
         
Residence Address:
                     
Participant’s Social Security Number:
         

 

 
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