<PAGE>
 
                                                                     Exhibit 3.2

                                     BYLAWS

                                       OF

                          MERCURY GENERAL CORPORATION
<PAGE>
 
                               TABLE OF CONTENTS
                               -----------------
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<S>               <C>                                                                      <C>
ARTICLE I - OFFICES.......................................................................    1
 
     Section 1.   PRINCIPAL OFFICES.......................................................    1
     Section 2.   OTHER OFFICES...........................................................    1
 
ARTICLE II - MEETINGS OF SHAREHOLDERS.....................................................    1
 
     Section 1.   PLACE OF MEETINGS.......................................................    1
     Section 2.   ANNUAL MEETINGS OF SHAREHOLDERS.........................................    1
     Section 3.   SPECIAL MEETINGS........................................................    1
     Section 4.   NOTICE OF SHAREHOLDERS' MEETINGS........................................    2
     Section 5.   MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE............................    2
     Section 6.   QUORUM..................................................................    3
     Section 7.   ADJOURNED MEETING AND NOTICE THEREOF....................................    3
     Section 8.   VOTING..................................................................    3
     Section 9.   WAIVER OF NOTICE OR CONSENT BY ABSENT SHAREHOLDERS......................    4
     Section 10.  SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.................    4
     Section 11.  RECORD DATE FOR SHAREHOLDER NOTICE, VOTING, AND GIVING CONSENTS.........    5
     Section 12.  PROXIES.................................................................    5
     Section 13.  INSPECTORS OF ELECTION..................................................    6
 
ARTICLE III - DIRECTORS...................................................................    7
 
     Section 1.   POWERS..................................................................    7
     Section 2.   NUMBER AND QUALIFICATION OF DIRECTORS...................................    7
     Section 3.   ELECTION AND TERM OF OFFICE OF DIRECTORS................................    7
     Section 4.   VACANCIES...............................................................    7
     Section 5.   PLACE OF MEETINGS AND TELEPHONIC MEETINGS...............................    8
     Section 6.   ANNUAL MEETINGS.........................................................    8
     Section 7.   OTHER REGULAR MEETINGS..................................................    8
     Section 8.   SPECIAL MEETINGS........................................................    8
     Section 9.   DISPENSING WITH NOTICE..................................................    9
     Section 10.  QUORUM..................................................................    9
     Section 11.  ADJOURNMENT.............................................................    9
     Section 12.  NOTICE OF ADJOURNMENT...................................................    9
     Section 13.  ACTION WITHOUT MEETING..................................................    9
     Section 14.  FEES AND COMPENSATION OF DIRECTORS......................................    9
</TABLE>

                                       i
<PAGE>
 
<TABLE>
<S>               <C>                                                                       <C>
ARTICLE IV - COMMITTEES...................................................................   10
 
     Section 1.   COMMITTEES OF DIRECTORS.................................................   10
     Section 2.   MEETINGS AND ACTION OF COMMITTEES.......................................   10
 
ARTICLE V - OFFICERS......................................................................   11
 
     Section 1.   OFFICERS................................................................   11
     Section 2.   ELECTION OF OFFICERS....................................................   11
     Section 3.   SUBORDINATE OFFICERS, ETC...............................................   11
     Section 4.   REMOVAL AND RESIGNATION OF OFFICERS.....................................   11
     Section 5.   VACANCIES IN OFFICES....................................................   11
     Section 6.   CHAIRMAN OF THE BOARD...................................................   11
     Section 7.   PRESIDENT...............................................................   12
     Section 8.   VICE PRESIDENTS.........................................................   12
     Section 9.   SECRETARY...............................................................   12
     Section 10.  CHIEF FINANCIAL OFFICER.................................................   12
 
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS............  13
 
     Section 1.   SCOPE OF INDEMNIFICATION................................................   13
     Section 2.   NON-EXCLUSITIVITY OF RIGHTS.............................................   14
     Section 3.   TERM AND HEIRS..........................................................   14
     Section 4.   SEVERABILITY............................................................   14
     Section 5.   AMENDMENTS..............................................................   14
 
ARTICLE VII - RECORDS AND REPORTS.........................................................   14
 
     Section 1.   MAINTENANCE AND INSPECTION OF SHARE REGISTER............................   14
     Section 2.   MAINTENANCE AND INSPECTION OF BYLAWS....................................   15
     Section 3.   MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS...................   15
     Section 4.   INSPECTION BY DIRECTORS.................................................   15
     Section 5.   ANNUAL REPORT TO SHAREHOLDERS...........................................   15
     Section 6.   FINANCIAL STATEMENTS....................................................   16
 
ARTICLE VIII - GENERAL CORPORATE MATTERS..................................................   16
 
     Section 1.   RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING...................   16
     Section 2.   CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS...............................   17
     Section 3.   CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED.......................   17
     Section 4.   CERTIFICATES FOR SHARES.................................................   17
     Section 5.   LOST CERTIFICATES.......................................................   17
     Section 6.   REPRESENTATION OF SHARES OF OTHER CORPORATIONS..........................   17
 
</TABLE>

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<CAPTION>
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<S>               <C>                                                                      <C>
ARTICLE IX - AMENDMENTS...................................................................   18
 
     Section 1.   AMENDMENT BY SHAREHOLDERS...............................................   18
     Section 2.   AMENDMENT BY DIRECTORS..................................................   18
 
ARTICLE X - GENERAL.......................................................................   18
 
     Section 1.   GOVERNING LAW...........................................................   18
     Section 2.   CONSTRUCTION AND DEFINITIONS............................................   18
</TABLE>

                                      iii
<PAGE>
 
                                    BYLAWS

                                      OF

                          MERCURY GENERAL CORPORATION

                                   ARTICLE I

                                    OFFICES

     Section 1.  PRINCIPAL OFFICES.  The Board of Directors shall fix the
location of the principal executive office of the corporation at any place
within or outside the State of California.  If the principal executive office is
located outside this state, and the corporation has one or more business offices
in this state, the Board of Directors shall likewise fix and designate a
principal business office in the State of California.

     Section 2.  OTHER OFFICES.  The Board of Directors may at any time
establish branch or subordinate offices at any place or places where the
corporation is qualified to do business.

                                  ARTICLE II

                           MEETINGS OF SHAREHOLDERS

     Section 1.  PLACE OF MEETINGS.  Meetings of shareholders shall be held at
any place within or outside the State of California designated by the Board of
Directors.  In the absence of any such designation, shareholders' meetings shall
be held at the principal executive office of the corporation.

     Section 2.  ANNUAL MEETINGS OF SHAREHOLDERS.  The annual meeting of
shareholders shall be held each year on a date and at a time designated by the
Board of Directors.  At each annual meeting directors shall be elected and any
other proper business may be transacted.

     Section 3.  SPECIAL MEETINGS.  A special meeting of the shareholders may be
called at any time by the Board of Directors, or by the Chairman of the Board,
or by the President, or by one or more shareholders holding shares in the
aggregate entitled to cast not less than 10% of the votes at any such meeting.

     If a special meeting is called by any person or persons other than the
Board of Directors, the request shall be in writing, specifying the time of such
meeting and the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the Chairman of the Board, the President, any
Vice President or the Secretary of the corporation.  The officer receiving such
request forthwith shall cause notice to be given to the shareholders entitled to
vote, in accordance with the provisions of Sections 4 and 5 of this Article II,
that a meeting will be held at the time requested by the person or persons
calling the meeting, not less than thirty-five (35) nor more than
sixty (60) days after the
<PAGE>
 
receipt of the request. If the notice is not given within twenty (20) days after
receipt of the request, the person or persons requesting the meeting may give
the notice. Nothing contained in this paragraph of this Section 3 shall be
construed as limiting, fixing or affecting the time when a meeting of
shareholders called by action of the Board of Directors may be held.

     Section 4.  NOTICE OF SHAREHOLDERS' MEETINGS.  All notices of meetings of
shareholders shall be sent or otherwise given in accordance with Section 5 of
this Article II not less than ten (10) nor more than sixty (60) days before the
date of the meeting being noticed.  The notice shall specify the place, date and
hour of the meeting and (i) in the case of a special meeting, the general nature
of the business to be transacted, or (ii) in the case of the annual meeting
those matters which the Board of Directors, at the time of giving the notice,
intends to present for action by the shareholders.  The notice of any meeting at
which directors are to be elected shall include the name of any nominee or
nominees which, at the time of the notice, management intends to present for
election.

     If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 310 of the Corporations Code of California, (ii)
an amendment of the articles of incorporation, pursuant to Section 902 of such
Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of
such Code, (iv) a voluntary dissolution of the corporation, pursuant to Section
1900 of such Code, or (v) a distribution in dissolution other than in accordance
with the rights of outstanding preferred shares pursuant to Section 2007 of such
Code, the notice shall also state the general nature of such proposal.

     Section 5.  MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.  Notice of any
meeting of shareholders shall be given either personally or by first-class mail
or telegraphic or other written communication, charges prepaid, addressed to the
shareholder at the address of such shareholder appearing on the books of the
corporation or given by the shareholder to the corporation for the purpose of
notice.  If no such address appears on the corporation's books or has been so
given, notice shall be deemed to have been given if sent by first-class mail or
telegraphic or other written communication to the corporation's principal
executive office, or if published at least once in a newspaper of general
circulation in the county where such office is located.  Notice shall be deemed
to have been given at the time when delivered personally or deposited in the
mail or sent by telegram or other means of written communication.

     If any notice addressed to a shareholder at the address of such shareholder
appearing on the books of the corporation is returned to the corporation by the
United States Postal Service marked to indicate that the United States Postal
Service is unable to deliver the notice to the shareholder at such address, all
future notices or reports shall be deemed to have been duly given without
further mailing if the same shall be available to the shareholder upon written
demand of the shareholder at the principal executive office of the corporation
for a period of one year from the date of the giving of such notice.

     An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting shall be executed by the Secretary, Assistant Secretary or
any transfer agent of the corporation giving such notice, and shall be filed and
maintained in the minute book of the corporation.

                                       2
<PAGE>
 
     Section 6.  QUORUM.  The presence in person or by proxy of the holders of a
majority of the shares entitled to vote at any meeting of shareholders shall
constitute a quorum for the transaction of business.  The shareholders present
at a duly called or held meeting at which a quorum is present may continue to do
business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.

     Section 7.  ADJOURNED MEETING AND NOTICE THEREOF.  Any shareholders'
meeting, annual or special, whether or not a quorum is present, may be adjourned
from time to time by the vote of the majority of the shares represented at such
meeting, either in person or by proxy, but in the absence of a quorum, no other
business may be transacted at such meeting, except as provided in Section 6 of
this Article II.

     When any meeting of shareholders, either annual or special, is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment is
taken, unless a new record date for the adjourned meeting is fixed, or unless
the adjournment is for more than forty-five (45) days from the date set for the
original meeting, in which case the Board of Directors shall set a new record
date.  Notice of any such adjourned meeting, if required, shall be given to each
shareholder of record entitled to vote at the adjourned meeting in accordance
with the provisions of Sections 4 and 5 of this Article II.  At any adjourned
meeting the corporation may transact any business which might have been
transacted at the original meeting.

     Section 8.  VOTING.  The shareholders entitled to vote at any meeting of
shareholders shall be determined in accordance with the provisions of Section 11
of this Article II, subject to the provisions of Sections 702 to 704, inclusive,
of the Corporations Code of California (relating to voting shares held by a
fiduciary, in the name of a corporation or in joint ownership).  Such vote may
be by voice vote or by ballot; provided, however, that all elections for
directors must be by ballot upon demand by a shareholder at any election and
before the voting begins.  Any shareholder entitled to vote on any matter (other
than the election of directors) may vote part of the shares in favor of the
proposal and refrain from voting the remaining shares or vote them against the
proposal, but, if the shareholder fails to specify the number of shares such
shareholder is voting affirmatively, it will be conclusively presumed that the
shareholder's approving vote is with respect to all shares such shareholder is
entitled to vote.  If a quorum is present, the affirmative vote of the majority
of the shares represented at the meeting and voting on any matter (other than
the election of directors), provided that the shares voting affirmatively must
also constitute at least a majority of the required quorum, shall be the act of
the shareholders, unless the vote of a greater number or voting by classes is
required by the California General Corporation Law or the articles of
incorporation.

     At a shareholders' meeting involving the election of directors, no
shareholder shall be entitled to cumulate votes (i.e., cast for any candidate a
number of votes greater than the number of the shareholder's shares) unless such
candidate or candidates' names have been placed in nomination prior to
commencement of the voting and a shareholder has given notice prior to
commencement of the voting of the shareholder's intention to cumulate votes.  If
any shareholder has given such notice, then every shareholder entitled to vote
may cumulate such shareholder's votes for candidates in nomination and give one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which such shareholder's shares are

                                       3
<PAGE>
 
entitled, or distribute the shareholder's votes on the same principle among any
or all of the candidates, as the shareholder thinks fit.  The candidates
receiving the highest number of votes, up to the number of directors to be
elected, shall be elected.

     Section 9.  WAIVER OF NOTICE OR CONSENT BY ABSENT SHAREHOLDERS.  The
transactions of any meeting of shareholders, either annual or special, however
called and noticed, and wherever held, shall be as valid as though had at a
meeting duly held after regular call and notice, if a quorum be present either
in person or by proxy, and if, either before or after the meeting, each person
entitled to vote, not present in person or by proxy, signs a written waiver of
notice or a consent to the holding of the meeting, or an approval of the minutes
thereof.  The waiver of notice or consent need not specify either the business
to be transacted or the purpose of any annual or special meeting of
shareholders, except that if action is taken or proposed to be taken for
approval of any of those matters specified in the second paragraph of Section 4
of this Article II, the waiver of notice or consent shall state the general
nature of such proposal.  All such waivers, consents or approvals shall be filed
with the corporate records or made a part of the minutes of the meeting.

     Attendance of a person at a meeting shall also constitute a waiver of
notice of such meeting, except when the person objects, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened, and except that attendance at a meeting is not a waiver of
any right to object to the consideration of matters not included in the notice
of the meeting if such objection is expressly made at the meeting.

     Section 10.  SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.  Any
action which may be taken at any annual or special meeting of shareholders may
be taken without a meeting and without prior notice, if a consent in writing,
setting forth the action so taken, is signed by the holders of outstanding
shares having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted.  In the case of election of directors, such
consent shall be effective only if signed by the holders of all outstanding
shares entitled to vote for the election of directors; provided, however, that a
director may be elected at any time to fill a vacancy not created by removal and
not filled by the directors by the written consent of the holders of a majority
of the outstanding shares entitled to vote for the election of directors.  All
such consents shall be filed with the Secretary of the corporation and shall be
maintained in the corporate records.  Any shareholder giving a written consent,
or the shareholder's proxy holders, or a transferee of the shares or a personal
representative of the shareholder or their respective proxy holder, may revoke
the consent by a writing received by the Secretary of the corporation prior to
the time that written consents of the number of shares required to authorize the
proposed action have been filed with the Secretary.

     Unless the consents of all shareholders entitled to vote have been
solicited in writing, the Secretary shall give prompt notice of any corporate
action approved by the shareholders without a meeting by less than unanimous
consent, to those shareholders entitled to vote who have not consented in
writing.  Such notice shall be given in the manner specified in Section 5 of
this Article II.  In the case of approval of (i) contracts or transactions in
which a director has a direct or indirect financial interest, pursuant to
Section 310 of the Corporations Code of California, (ii) indemnification of
agents of the corporation, pursuant to Section 317 of such Code, (iii) a
reorganization of the corporation, pursuant to Section 1201 of such Code, or
(iv) a distribution in dissolution other than

                                       4
<PAGE>
 
in accordance with the rights of outstanding preferred shares pursuant to
Section 2007 of such Code, such notice shall be given at least ten (10) days
before the consummation of any such action authorized by any such approval.

     Section 11.  RECORD DATE FOR SHAREHOLDER NOTICE, VOTING, AND GIVING
CONSENTS.  For purposes of determining the shareholders entitled to notice of
any meeting or to vote or entitled to give consent to corporate action without a
meeting, the Board of Directors may fix, in advance, a record date, which shall
not be more than sixty (60) days nor less than ten (10) days prior to the date
of any such meeting nor more than sixty (60) days prior to such action without a
meeting, and in such case only shareholders of record at the close of business
on the date so fixed are entitled to notice and to vote or to give consents, as
the case may be, notwithstanding any transfer of any shares on the books of the
corporation after the record date fixed as aforesaid, except as otherwise
provided in the California General Corporation Law.

     If the Board of Directors does not so fix a record date:

               (a) The record date for determining shareholders entitled to
     notice of or to vote at a meeting of shareholders shall be at the close of
     business on the business day next preceding the day on which notice if
     given or, if notice is waived, at the close of business on the business day
     next preceding the day on which the meeting is held.

               (b) The record date for determining shareholders entitled to give
     consent to corporate action in writing without a meeting, (i) when no prior
     action by the Board has been taken, shall be the day on which the first
     written consent is given, or (ii) when prior action of the Board has been
     taken, shall be at the close of business on the day on which the Board
     adopts the resolution relating thereto, or the sixtieth (60th) day prior to
     the date of such other action, whichever is later.

     Section 12.  PROXIES.  Every person entitled to vote for directors or
on any other matter shall have the right to do so either in person or by one or
more agents authorized by a written proxy signed by the person and filed with
the Secretary of the corporation.  A proxy shall be deemed signed if the
shareholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the shareholder or the
shareholder's attorney in fact.  A validly executed proxy which does not state
that it is irrevocable shall continue in full force and effect unless (i)
revoked by the person executing it, prior to the vote pursuant thereto, by a
writing delivered to the corporation stating that the proxy is revoked or by a
subsequent proxy presented to the meeting and executed by, or attendance at the
meeting and voting in person by, the person executing the proxy; or (ii) written
notice of the death or incapacity of the maker of such proxy is received by the
corporation before the vote pursuant thereto is counted; provided, however, that
no such proxy shall be valid after the expiration of eleven (11) months from the
date of such proxy, unless otherwise provided in the proxy.  The revocability of
a proxy that states on its face that it is irrevocable shall be governed by the
provisions of Section 705(e) and (f) of the Corporations Code of California.

                                       5
<PAGE>
 
          Section 13.  INSPECTORS OF ELECTION.  Before any meeting of
shareholders, the Board of Directors may appoint any persons other than nominees
for office to act as inspectors of election at the meeting or its adjournment.
If no inspectors of election are so appointed, the chairman of the meeting may,
and on the request of any shareholder or a shareholder's proxy shall, appoint
inspectors of election at the meeting.  The number of inspectors shall be either
one (l) or three (3).  If inspectors are appointed at a meeting on the request
of one or more shareholders or proxies, the holders of a majority of shares or
their proxies present at the meeting shall determine whether one (l) or three
(3) inspectors are to be appointed.  If any person appointed as inspector fails
to appear or fails or refuses to act, the chairman of the meeting may, and upon
the request of any shareholder or a shareholder's proxy shall, appoint a person
to fill such vacancy.

          The duties of these inspectors shall be as follows:

               (a) Determine the number of shares outstanding and the voting
     power of each, the shares represented at the meeting, the existence of a
     quorum, and the authenticity, validity and effect of proxies;

               (b) Receive votes, ballots or consents;

               (c) Hear and determine all challenges and questions in any way
     arising in connection with the right to vote;

               (d) Count and tabulate all votes or consents;

               (e) Determine when the polls shall close;

               (f)  Determine the result; and

               (g) Do any other acts that may be proper to conduct the election
     or vote with fairness to all shareholders.

                                  ARTICLE III

                                   DIRECTORS

          Section 1.  POWERS.  Subject to the provisions of the California
General Corporation Law and any limitations in the articles of incorporation and
these bylaws relating to action required to be approved by the shareholders or
by the outstanding shares, the business and affairs of the corporation shall be
managed and all corporate powers shall be exercised by or under the direction of
the Board of Directors.

          Without prejudice to such general powers, but subject to the same
limitations, it is hereby expressly declared that the directors shall have the
power and authority to:

               (a) Select and remove all officers, agents, and employees of the
     corporation, prescribe such powers and duties for them as may not be
     inconsistent with law, the articles of incorporation or these bylaws, fix
     their compensation, and require from them security for faithful service.

                                       6
<PAGE>
 
               (b) Change the principal executive office or the principal
     business office in the State of California from one location to another;
     cause the corporation to be qualified to do business in any other state,
     territory, dependency, or foreign country and conduct business within or
     outside the State of California; designate any place within or without the
     State for the holding of any shareholders' meeting or meetings, including
     annual meetings; adopt, make and use a corporate seal, and prescribe the
     forms of certificates of stock, and alter the form of such seal and of such
     certificates from time to time as in their judgment they may deem best,
     provided that such forms shall at all times comply with the provisions of
     law.

               (c) Authorize the issuance of shares of stock of the corporation
     from time to time, upon such terms as may be lawful, in consideration of
     money paid, labor done or services actually rendered, debts or securities
     cancelled or tangible or intangible property actually received.

               (d) Borrow money and incur indebtedness for the purposes of the
     corporation, and cause to be executed and delivered therefor, in the
     corporate name, promissory notes, bonds, debentures, deeds of trust,
     mortgages, pledges, hypothecations, or other evidences of debt and
     securities therefor.

          Section 2.  NUMBER AND QUALIFICATION OF DIRECTORS.  The number of
directors of the corporation shall be not less than five (5) nor more than nine
(9).  The exact number of directors shall be nine (9) until changed, within the
limits specified above, by a bylaw amending this Section 2, duly adopted by the
Board of Directors or by the shareholders.  Such indefinite number of directors
may be changed, or a definite number fixed without provision for an indefinite
number, by a duly adopted amendment to the Articles of Incorporation or by an
amendment to this bylaw duly adopted by the vote or written consent of holders
of a majority of the outstanding shares entitled to vote; provided, however,
that an amendment reducing the number or the minimum number of directors to a
number less than five cannot be adopted if the votes cast against its adoption
at a meeting of the shareholders, or the shares not consenting in the case of
action by written consent, are equal to more than 16-2/3% of the outstanding
shares entitled to vote.  No amendment may change the stated maximum number of
authorized directors to a number greater than two times the stated minimum
number of directors minus one.

          Section 3.  ELECTION AND TERM OF OFFICE OF DIRECTORS.  Directors shall
be elected at each annual meeting of the shareholders to hold office until the
next annual meeting.  Each director, including a director elected to fill a
vacancy, shall hold office until the expiration of the term for which elected
and until a successor has been elected and qualified.

          Section 4.  VACANCIES.  Vacancies in the Board of Directors may be
filled by a majority of the remaining directors, though less than a quorum, or
by a sole remaining director, except that a vacancy created by the removal of a
director by the vote or written consent of the shareholders or by court order
may be filled only by the vote of a majority of the shares represented and
voting at a duly held meeting at which a quorum is present, or by the written
consent of holders of all outstanding shares entitled to vote.  Each director so
elected shall hold office until the next annual meeting of the shareholders and
until a successor has been elected and qualified.

                                       7
<PAGE>
 
          A vacancy or vacancies in the Board of Directors shall be deemed to
exist in the case of the death, resignation or removal of any director, or if
the Board of Directors by resolution declares vacant the office of a director
who has been declared of unsound mind by an order of court or convicted of a
felony, or if the authorized number of directors be increased, or if the
shareholders fail, at any meeting of shareholders at which any director or
directors are elected, to elect the full authorized number of directors to be
voted for at that meeting.

          The shareholders may elect a director or directors at any time to fill
any vacancy or vacancies not filled by the directors, but any such election by
written consent, other than to fill a vacancy created by removal, shall require
the consent of a majority of the outstanding shares entitled to vote.

          Any director may resign upon giving written notice to the Chairman of
the Board, the President, the Secretary or the Board of Directors.  A
resignation shall be effective upon the giving of the notice, unless the notice
specifies a later time for its effectiveness.  If the resignation of a director
is effective at a future time, the Board of Directors may elect a successor to
take office when the resignation becomes effective.

          No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of his term of office.

          Section 5.  PLACE OF MEETINGS AND TELEPHONIC MEETINGS.  Regular
meetings of the Board of Directors may be held at any place within or without
the State that has been designated from time to time by resolution of the board.
In the absence of such designation, regular meetings shall be held at the
principal executive office of the corporation.  Special meetings of the board
shall be held at any place within or without the State that has been designated
in the notice of the meeting or, if not stated in the notice or there is no
notice, at the principal executive office of the corporation.  Any meeting,
regular or special, may be held by conference telephone or similar communication
equipment, so long as all directors participating in such meeting can hear one
another, and all such directors shall be deemed to be present in person at such
meeting.

          Section 6.  ANNUAL MEETINGS.  Immediately following each annual
meeting of shareholders, the Board of Directors shall hold a regular meeting for
the purpose of organization, any desired election of officers and the
transaction of other business.  Notice of this meeting shall not be required.

          Section 7.  OTHER REGULAR MEETINGS.  Other regular meetings of the
Board of Directors shall be held without call at such time as shall from time to
time be fixed by the Board of Directors.  Such regular meetings may be held
without notice.

          Section 8.  SPECIAL MEETINGS.  Special meetings of the Board of
Directors for any purpose or purposes may be called at any time by the Chairman
of the Board or the President or any Vice President or the Secretary or any two
directors.

          Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at his or her address as
it is shown upon the records of the corporation.  In case such notice is mailed,
it shall be deposited in the United States mail at least four (4) days prior to
the time of the

                                       8
<PAGE>
 
holding of the meeting. In case such notice is delivered personally, or by
telephone or telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours prior to the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated to either the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose of the meeting nor
the place if the meeting is to be held at the principal executive office of the
corporation.

          Section 9.  DISPENSING WITH NOTICE.  The transactions of any meeting
of the Board of Directors, however called and noticed or wherever held, shall be
as valid as though had at a meeting duly held after regular call and notice if a
quorum be present and if, either before or after the meeting, each of the
directors not present signs a written waiver of notice, a consent to holding the
meeting or an approval of the minutes thereof.  The waiver of notice or consent
need not specify the purpose of the meeting.  All such waivers, consents and
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.  Notice of a meeting need not be given to any director
who attends the meeting without protesting, prior thereto or at its
commencement, the lack of notice to such director.

          Section 10.  QUORUM.  A majority of the authorized number of directors
shall constitute a quorum for the transaction of business, except to adjourn as
hereinafter provided.  Every act or decision done or made by a majority of the
directors present at a meeting duly held at which a quorum is present shall be
regarded as the act of the Board of Directors, subject to the provisions of
Section 310 of the Corporations Code of California (approval of contracts or
transactions in which a director has a direct or indirect material financial
interest), Section 311 (appointment of committees), and Section 317 (e)
(indemnification of directors).  A meeting at which a quorum is initially
present may continue to transact business notwithstanding the withdrawal of
directors, if any action taken is approved by at least a majority of the
required quorum for such meeting.

          Section 11.  ADJOURNMENT.  A majority of the directors present,
whether or not constituting a quorum, may adjourn any meeting to another time
and place.

          Section 12.  NOTICE OF ADJOURNMENT.  Notice of the time and place of
holding an adjourned meeting need not be given, unless the meeting is adjourned
for more than twenty-four (24) hours, in which case notice of such time and
place shall be given prior to the time of the adjourned meeting, in the manner
specified in Section 8 of this Article III, to the directors who were not
present at the time of the adjournment.

          Section 13.  ACTION WITHOUT MEETING.  Any action required or permitted
to be taken by the Board of Directors may be taken without a meeting, if all
members of the board shall individually or collectively consent in writing to
such action.  Such action by written consent shall have the same force and
effect as a unanimous vote of the Board of Directors.  Such written consent or
consents shall be filed with the minutes of the proceedings of the board.

          Section 14.  FEES AND COMPENSATION OF DIRECTORS.  Directors and
members of committees may receive such compensation, if any, for their services,
and such reimbursement of expenses, as may be fixed or determined by resolution
of the Board of Directors.  Nothing herein contained shall be construed to
preclude any director from serving the corporation

                                       9
<PAGE>
 
in any other capacity as an officer, agent, employee, or otherwise, and
receiving compensation for such services.

                                   ARTICLE IV

                                   COMMITTEES

          Section 1.  COMMITTEES OF DIRECTORS.  The Board of Directors may, by
resolution adopted by a majority of the authorized number of directors,
designate one or more committees, each consisting of two or more directors, to
serve at the pleasure of the board.  The board may designate one or more
directors as alternate members of any committee, who may replace any absent
member at any meeting of the committee.  Any such committee, to the extent
provided in the resolution of the board, shall have all the authority of the
board, except with respect to:

               (a) the approval of any action which, under the General
     Corporation Law of California, also requires shareholders' approval or
     approval of the outstanding shares;

               (b) the filling of vacancies on the Board of Directors or in any
     committee;

               (c) the fixing of compensation of the directors for serving on
     the board or on any committee;

               (d) the amendment or repeal of bylaws or the adoption of new
     bylaws;

               (e) the amendment or repeal of any resolution of the Board of
     Directors which by its express terms is not so amendable or repealable;

               (f) a distribution to the shareholders of the corporation, except
     at a rate or in a periodic amount or within a price range determined by the
     Board of Directors; or

               (g) the appointment of any other committees of the Board of
     Directors or the members thereof.

          Section 2.  MEETINGS AND ACTION OF COMMITTEES.  Meetings and action of
committees shall be governed by, and held and taken in accordance with, the
provisions of Article III of these bylaws, Sections 5 (place of meetings), 7
(regular meetings), 8 (special meetings and notice), 9 (dispensing with notice),
10 (quorum), 11 (adjournment), 12 (notice of adjournment) and 13 (action without
meeting), with such changes in the context of those bylaws as are necessary to
substitute the committee and its members for the Board of Directors and its
members, except that the time of regular meetings of committees may be
determined by resolution of the Board of Directors as well as the committee,
special meetings of committees may also be called by resolution of the Board of
Directors and notice of special meetings of committees shall also be given to
all alternate members, who shall have the right to attend all meetings of the
committee.  The Board of

                                       10
<PAGE>
 
Directors may adopt rules for the government of any committee not inconsistent
with the provisions of these bylaws.

                                   ARTICLE V

                                    OFFICERS


          Section 1.  OFFICERS.  The officers of the corporation shall be a
Chief Executive Officer, a President, a Secretary and a Chief Financial Officer.
The corporation may also have, at the discretion of the Board of Directors, a
Chairman of the Board, one or more Vice Presidents, one or more Assistant
Secretaries, one or more Assistant Treasurers, and such other officers as may be
appointed in accordance with the provisions of Section 3 of this Article V.  Any
number of offices may be held by the same person.

          Section 2.  ELECTION OF OFFICERS.  The officers of the corporation,
except such officers as may be appointed in accordance with the provisions of
Section 3 of this Article V, shall be chosen by the Board of Directors, and each
shall serve at the pleasure of the Board, subject to the rights, if any, of an
officer under any contract of employment.

          Section 3.  SUBORDINATE OFFICERS, ETC.  The Board of Directors may
empower the Chief Executive Officer to appoint all officers, other than the
President, as the business of the corporation may require, each of whom shall
hold office for such period, have such authority and perform such duties as are
provided in the Bylaws or as the Board of Directors or the Chief Executive
Officer, as the case may be, may from time to time determine.

          Section 4.  REMOVAL AND RESIGNATION OF OFFICERS.  Subject to the
rights, of any, of an officer under any contract of employment, any officer may
be removed, either with or without cause, by the Board of Directors, at any
regular or special meeting thereof, or, except in case of an officer chosen by
the Board of Directors, by any officer upon whom such power of removal may be
conferred by the Board of Directors.

          Any officer may resign at any time by giving written notice to the
corporation.  Any such resignation shall take effect at the date of the receipt
of such notice or at any later time specified therein; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.  Any such resignation is without prejudice to the rights, if
any, of the corporation under any contract to which the officer is a party.

          Section 5.  VACANCIES IN OFFICE.  A vacancy in any office because of
death, resignation, removal, disqualification or any other cause shall be filled
in the manner prescribed in these Bylaws for regular appointments to such
office.

          Section 6.  CHAIRMAN OF THE BOARD.  The Chairman of the Board, if such
officer be elected, shall, if present, preside at all meetings of the Board of
Directors and exercise and perform such other powers and duties as may be from
time to time assigned to him by the Board of Directors or prescribed by the
Bylaws.  If there is no Chief Executive Officer, the Chairman of the Board shall
in addition be the Chief Executive Officer of the corporation and shall have the
powers and duties prescribed in Section 7 of this Article V.

                                       11
<PAGE>
 
          Section 7.  CHIEF EXECUTIVE OFFICER.  The Board of Directors shall
appoint a Chief Executive Officer.  In the absence of such appointment, the
Chairman of the Board shall be the Chief Executive Officer of the Corporation.
The Chief Executive Officer shall have the general responsibility for
implementation of the policies of the Corporation, as determined by the Board of
Directors, and for the management of the business and affairs of the
Corporation.  He shall preside at all meetings of the shareholders and, in the
absence of the Chairman of the Board, or if there be none, at all meetings of
the Board of Directors.

          Section 8.  PRESIDENT.  Subject to such supervisory powers, if any, as
may be given by the Board of Directors to the Chairman of the Board or the Chief
Executive Officer, the President shall be the chief operating officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the operations and the officers of
the corporation.  He shall have the general powers and duties of management
usually vested in the office of President of a corporation, and shall have such
other powers and duties as may be prescribed by the Board of Directors or the
Bylaws.

          Section 9.  VICE PRESIDENTS.  In the absence or disability of the
President, the Vice Presidents, if any, in order of their rank as fixed by the
Board of Directors or, if not ranked, a Vice President designated by the Board
of Directors, shall perform all the duties of the President, and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
President.  The Vice President shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
Board of Directors or the Bylaws, the President or the Chairman of the Board if
there is no President.

          Section 10.  SECRETARY.  The Secretary shall keep or cause to be kept,
at the principal executive officer or such other place as the Board of Directors
may order, a book of minutes of all meetings and actions of directors,
committees of directors and shareholders, with the time and place of holding,
whether regular or special, and, if special, how authorized, the notice thereof
given, the names of those present at directors' and committee meetings, the
number of shares present or represented at shareholders' meetings, and the
proceedings thereof.

          The Secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the corporation's transfer agent or
registrar, as determined by resolution of the Board of Directors, a share
register, or a duplicate share register, showing the names of all shareholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates issued for the same, and the number and date of
cancellation of every certificate surrendered for cancellation.

          The Secretary shall give, or cause to be given, notice of all meetings
of the shareholders and of the Board of Directors required by the Bylaws or by
law to be given, and he shall keep the seal of the corporation, if one be
adopted, in safe custody, and shall have such other powers and perform such
other duties as may be prescribed by the Board of Directors or by the Bylaws.

          Section 10. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall
keep and maintain, or cause to be kept and maintained, adequate and correct
books and records of accounts of the properties and business transactions of the
corporation, including accounts of its

                                       12
<PAGE>
 
assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings and shares.  The books of account shall be open at all
reasonable times to inspection by any director.

          The Chief Financial Officer shall deposit all moneys and other values
in the name and to the credit of the corporation with such depositaries as may
be designated by the Board of Directors.  He shall disburse the funds of the
corporation as may be ordered by the Board of Directors, shall render to the
President and directors, whenever they request it, an account of all of his
transactions as Chief Financial Officer and of the financial condition of the
corporation, and shall have other powers and perform such other duties as may be
prescribed by the Board of Directors or the Bylaws.


                                   ARTICLE VI

               INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES

                                AND OTHER AGENTS


          Section 1.  SCOPE OF INDEMNIFICATION.

          a.  The corporation shall, to the broadest and maximum extent
permitted by law, indemnify each person who was or is a party or is threatened
to be made a party to any proceeding by reason of the fact that such person is
or was a director of the corporation, or is or was serving at the request of the
corporation as a director of another corporation or other enterprise, against
expenses (including attorneys' fees), judgments, fines, settlements and other
amounts actually and reasonably incurred in connection with such proceeding.  In
addition, the corporation shall, to the broadest and maximum extent permitted by
law, promptly upon demand pay to such person any and all expenses (including
attorneys' fees) incurred in defending or settling any such proceeding in
advance of the final disposition of such proceeding upon receipt of an
undertaking by or on behalf of the director to repay such amount if it shall
ultimately be determined by a final judgment or other final adjudication that
such person is not entitled to be indemnified by the corporation as authorized
as this Section 1.

          b.  If a claim under paragraph a. of this Section 1 is not paid in
full by the corporation within 45 days after a written claim has been received
by the corporation, the claimant may at any time thereafter bring suit against
the corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall also be entitled to be paid the expenses of
prosecuting such claim, including attorneys' fees.  It shall be a defense to any
such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking has been tendered to the corporation) that the claimant
has not met the standards of conduct which make it permissible under the
California Corporations Code for the corporation to indemnify the claimant for
the amount claimed, but the burden or proving such defense by clear and
convincing evidence shall be on the corporation.

          c. The Board of Directors may in its discretion provide by resolution
for such indemnification of, or advance of expenses to, officers, employees or
agents of the corporation, and

                                       13
<PAGE>
 
likewise may refuse to provide for such indemnification or advance of
expenses except to the extent such indemnification is mandatory under the
California General Corporation Law.

     Section 2.  NON-EXCLUSIVITY OF RIGHTS.  The rights to indemnification and
to the advancement of expenses conferred in this Article VI shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, the corporation's articles of incorporation or any bylaw,
agreement, vote of shareholders or disinterested directors or otherwise.

     Section 3.  TERM AND HEIRS.  The rights to indemnification and advancement
of expenses conferred in this Article VI shall continue as to any person who has
ceased to be a director with respect to any acts or omissions that occurred
during the time such person was a director and shall inure to the benefit of the
heirs, executors and administrators of each such person.

     Section 4.  SEVERABILITY.  If any provision of this Article VI shall be
found, in any proceeding or appeal therefrom or in any other circumstances or as
to any person entitled to indemnification hereunder to be unenforceable,
ineffective or invalid for any reason, the enforceability, effect and validity
of the remaining parts or of such parts in other circumstances shall not be
affected, except as otherwise required by applicable law.

     Section 5.  AMENDMENTS.  The provisions of this Article VI shall be deemed
to constitute an agreement between the corporation and each of the persons
entitled to indemnification hereunder, for as long as such provisions remain in
effect.  Any amendment to the provisions of this Article VI which limits or
otherwise adversely affects the scope of indemnification or rights of any such
persons hereunder shall, as to such persons, apply only to claims or causes of
action based on actions or events occurring after such amendment and delivery of
notice of such amendment is given to the person or persons so affected.  Until
notice of such amendment is given to the person or persons whose rights
hereunder are affected, such amendment shall have no effect on such rights of
such persons hereunder.  Any person entitled to indemnification under the
provisions of this Article VI shall as to any act or omission occurring prior to
the date of receipt of such notice, be entitled to indemnification to the same
extent as had such provisions continued as Bylaws of the corporation without
such amendment."

                                  ARTICLE VII

                              RECORDS AND REPORTS

          Section 1.  MAINTENANCE AND INSPECTION OF SHARE REGISTER.  The
corporation shall keep at its principal executive office, or at the office of
its transfer agent or registrar, if either be appointed and as determined by
resolution of the Board of Directors, a record of its shareholders, giving the
names and addresses of all shareholders and the number and class of shares held
by each shareholder.

          A shareholder or shareholders of the corporation holding at least five
percent (5%) in the aggregate of the outstanding voting shares of the
corporation may (i) inspect and copy the records of shareholders' names and
addresses and shareholdings during usual business hours upon five (5) business
days prior written demand upon the corporation, and/or (ii) obtain from the
transfer agent of the corporation, upon written demand and upon the tender of
such transfer agent's usual charges for such list, a list of the shareholders'
names and addresses, who are entitled to vote for

                                       14
<PAGE>
 
the election of directors, and their shareholdings, as of the most recent record
date for which such list has been compiled or as of a date specified by the
shareholder subsequent to the date of demand. Such list shall be made available
to such shareholder or shareholders by the transfer agent on or before the later
of five (5) business days after the demand is received or the date specified
therein as the date as of which the list is to be compiled. The record of
shareholders shall also be open to inspection upon the written demand of any
shareholder or holder of a voting trust certificate, at any time during usual
business hours, for a purpose reasonably related to such holder's interests as a
shareholder or as the holder of a voting trust certificate. Any inspection and
copying under this Section l may be made in person or by an agent or attorney of
the shareholder or holder of a voting trust certificate making such demand.

          Section 2.  MAINTENANCE AND INSPECTION OF BYLAWS.  The corporation
shall keep at its principal executive office, or if its principal executive
office is not in the State of California at its principal business office in
this state, the original or a copy of the bylaws as amended to date, which shall
be open to inspection by the shareholders at all reasonable times during office
hours.  If the principal executive office of the corporation is outside this
state and the corporation has no principal business office in this state, the
Secretary shall, upon the written request of any shareholder, furnish to such
shareholder a copy of the bylaws as amended to date.

          Section 3.  MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS.
The accounting books and records and minutes of proceedings of the shareholders
and the Board of Directors and any committee or committees of the Board of
Directors shall be kept at such place or places designated by the Board of
Directors, or, in the absence of such designation, at the principal executive
office of the corporation.  The minutes shall be kept in written form and the
accounting books and records shall be kept either in written form or in any
other form capable of being converted into written form.  Such minutes and
accounting books and records shall be open to inspection upon the written demand
of any shareholder or holder of a voting trust certificate, at any reasonable
time during usual business hours, for a purpose reasonably related to such
holder's interests as a shareholder or as the holder of a voting trust
certificate.  Such inspection may be made in person or by an agent or attorney,
and shall include the right to copy and make extracts.  The foregoing rights of
inspection shall extend to the records of each subsidiary corporation of the
corporation.

          Section 4.  INSPECTION BY DIRECTORS.  Every director shall have the
absolute right at any reasonable time to inspect all books, records and
documents of every kind and the physical properties of the corporation and each
of its subsidiary corporations.  Such inspection by a director may be made in
person or by agent or attorney and the right of inspection includes the right to
copy and make extracts.

          Section 5.  ANNUAL REPORT TO SHAREHOLDERS.  The Board of Directors
shall cause an annual report to be sent to the shareholders not later than one
hundred twenty days (120) after the close of the fiscal year adopted by the
corporation.  The annual report shall contain a balance sheet as of the end of
such fiscal year and an income statement and statement of changes in financial
position for such fiscal year, accompanied by any report thereon of independent
accountants or, if there is no such report, the certificate of an authorized
officer of the corporation that such statements were prepared without audit from
the books and records of the corporation. Such report shall be sent at least
fifteen (15) days prior to the annual meeting of shareholders to be

                                       15
<PAGE>
 
held during the next fiscal year and in the manner specified in Section 5 of
Article II of these bylaws for giving notice to shareholders of the corporation.

          Section 6.  FINANCIAL STATEMENTS.  A copy of any annual financial
statement and any income statement of the corporation for each quarterly period
of each fiscal year, and any accompanying balance sheet of the corporation as of
the end of each such period, that has been prepared by the corporation shall be
kept on file in the principal executive office of the corporation for twelve
(12) months and each such statement shall be exhibited at all reasonable times
to any shareholder demanding an examination of any such statement or a copy
shall be mailed to any such shareholder.

          If the corporation has not sent to the shareholders an annual report
for the last fiscal year, a balance sheet as of the end of such fiscal year and
an income statement and statement of changes in financial position for such
fiscal year shall, upon the written request of any shareholder made more than
one hundred twenty (120) days after the close of such fiscal year, be delivered
or mailed to such shareholder within thirty (30) days after such request.

          If a shareholder or shareholders holding at least five percent (5%) of
the outstanding shares of any class of stock of the corporation make a written
request to the corporation for an income statement of the corporation for the
three-month, six-month or nine-month period of the current fiscal year ended
more than thirty (30) days prior to the date of the request, and a balance sheet
of the corporation as of the end of such period, the Chief Financial Officer
shall cause such statement to be prepared, if not already prepared, and shall
deliver personally or mail such statement or statements to the person making the
request within thirty (30) days after the receipt of such request.

          The corporation also shall, upon the written request of any
shareholder, mail to the shareholder a copy of the last annual, semi-annual or
quarterly income statement which it has prepared and a balance sheet as of the
end of such period.

          The quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report thereon, if any, of any independent
accountants engaged by the corporation or the certificate of an authorized
officer of the corporation that such financial statements were prepared without
audit from the books and records of the corporation.


                                  ARTICLE VIII

                           GENERAL CORPORATE MATTERS

          Section 1.  RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING.
For purposes of determining the shareholders entitled to receive payment of any
dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any other lawful action, (other than action by
shareholders by written consent without a meeting) the Board of Directors may
fix, in advance, a record date, which shall not be more than sixty (60) days
prior to any such action, and in such case only shareholders of record on the
date so fixed are entitled to receive the dividend, distribution or allotment of
rights or to exercise the rights, as the case may be, notwithstanding any
transfer of any shares on the books of the corporation after the

                                       16
<PAGE>
 
record date fixed as aforesaid, except as otherwise provided in the California
General Corporation Law.

          If the Board of Directors does not so fix a record date, the record
date for determining shareholders for any such purpose shall be at the close of
business on the day on which the board adopts the resolution relating thereto,
or the sixtieth (60th) day prior to the date of such action, whichever is later.

          Section 2.  CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS.  All checks,
drafts or other orders for payment of money, notes or other evidences of
indebtedness, issued in the name of or payable to the corporation, shall be
signed or endorsed by such person or persons and in such manner as, from time to
time, shall be determined by resolution of the Board of Directors.

          Section 3.  CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED.  The
Board of Directors, except as otherwise provided in these bylaws, may authorize
any officer or officers, agent or agents, to enter into any contract or execute
any instrument in the name of and on behalf of the corporation, and such
authority may be general or confined to specific instances; and, unless so
authorized or ratified by the Board of Directors or within the agency power of
an officer, no officer, agent or employee shall have any power or authority to
bind the corporation by any contract or engagement or to pledge its credit or to
render it liable for any purpose or to any amount.

          Section 4.  CERTIFICATES FOR SHARES.  A certificate or certificates
for shares of the capital stock of the corporation shall be issued to each
shareholder when any such shares are fully paid, and the Board of Directors may
authorize the issuance of certificates or shares as partly paid provided that
such certificates shall state the amount of the consideration to be paid
therefor and the amount paid thereon.  All certificates shall be signed in the
name of the corporation by the Chairman of the Board or Vice Chairman of the
Board or the President or Vice President and by the Chief Financial Officer or
an Assistant Treasurer or the Secretary or any Assistant Secretary, certifying
the number of shares and the class or series of shares owned by the shareholder.
Any or all of the signatures on the certificate may be facsimile.  In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the corporation with the same effect as if such person were an officer,
transfer agent or registrar at the date of issue.

          Section 5.  LOST CERTIFICATES.  Except as hereinafter in this Section
5 provided, no new certificates for shares shall be issued in lieu of an old
certificate unless the latter is surrendered to the corporation and cancelled at
the same time.  The Board of Directors may in case any share certificate or
certificate for any other security is lost, stolen or destroyed, authorize the
issuance of a new certificate in lieu thereof, upon such terms and conditions as
the board may require, including provision for indemnification of the
corporation secured by a bond or other adequate security sufficient to protect
the corporation against any claim that may be made against it, including any
expense or liability, on account of the alleged loss, theft or destruction of
such certificate or the issuance of such new certificate.

          Section 6.  REPRESENTATION OF SHARES OF OTHER CORPORATIONS.  The
Chairman of the Board, the President, or any Vice President, or any other person
authorized

                                       17
<PAGE>
 
by resolution of the Board of Directors by any of the foregoing designated
officers, is authorized to vote on behalf of the corporation any and all shares
of any other corporation or corporations, foreign or domestic, standing in the
name of the corporation. The authority herein granted to said officers to vote
or represent on behalf of the corporation any and all shares held by the
corporation in any other corporation or corporations may be exercised by any
such officer in person or by any person authorized to do so by proxy duly
executed by said officer.

                                   ARTICLE IX

                                   AMENDMENTS

          Section 1.  AMENDMENT BY SHAREHOLDERS.  New bylaws may be adopted or
these bylaws may be amended or repealed by the vote or written consent of
holders of two-thirds of the outstanding shares entitled to vote.

          Section 2.  AMENDMENT BY DIRECTORS.  Subject to the rights of the
shareholders as provided in Section 1 of this Article IX, to adopt, amend or
repeal bylaws, bylaws may be adopted, amended or repealed by the Board of
Directors; provided, however, that the Board of Directors may adopt a bylaw or
amendment thereof changing the authorized number of directors only for the
purpose of fixing the exact number of directors within the limits specified in
the Articles of Incorporation or Section 2 of Article III of these bylaws.

                                   ARTICLE X

                                    GENERAL

          Section 1.  GOVERNING LAW.  This corporation is organized under the
provisions of the California General Corporation Law (Corporations Code Sections
100-2319) as in effect on the date of filing of its original articles of
incorporation, namely January 20, 1961.  Upon such filing the California
Secretary of State assigned the following corporation number to this
corporation:  408367.  The corporate affairs of this corporation shall be
governed by and conducted in accordance with the provisions of the California
General Corporation Law, as the same presently exist and are from time to time
hereafter amended or superseded, except in those instances where the articles of
incorporation or bylaws of this corporation, now or through amendment hereafter,
may adopt alternative rules which are permissible under the California General
Corporation Law.  Any provision (or portion thereof) in these bylaws which is
not permissible under the California General Corporation Law or is inconsistent
with the articles of incorporation of this corporation (as they may from time to
time be amended and supplemented) is void, but the balance of these bylaws shall
nevertheless be valid and effective.

          Section 2.  CONSTRUCTION AND DEFINITIONS.  Unless the context requires
otherwise, the general provisions, rules of construction, and definitions in the
California General Corporation Law shall govern the construction of these
bylaws.  Without limiting the generality of the foregoing, the singular number
includes the plural, the plural number includes the singular, and the term
"person" includes both a corporation and a natural person.

                                       18
<PAGE>
 
                            CERTIFICATE OF SECRETARY

          I, the undersigned, do hereby certify:

          (1) That I am duly elected and acting Secretary of Mercury General

Corporation, a California corporation; and

          (2) That the foregoing bylaws constitute the bylaws of said

corporation as duly adopted and restated by the board of directors of said

corporation as of November 3, 1995.

          IN WITNESS WHEREOF, I have hereunto subscribed my name this    day of
                                                                     ----
February, 1996.

                              ---------------------------------
                              Judy Walters, Secretary

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