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:

                              	 
      	 
      
	 
      	 
      	 
      


                      

                    

                  

                

              

            

          

        

      

    

    
      
         

          
            
               


            

            
              6