THE 1995 EQUITY PARTICIPATION PLAN

                                      OF

                          MERCURY GENERAL CORPORATION

 

 

          Mercury General Corporation, a California corporation, has adopted The

1995 Equity Participation Plan of Mercury General Corporation (the "Plan"),

effective April 10, 1995, for the benefit of its eligible employees.

 

          The purposes of this Plan are as follows:

 

          (1) To provide an additional incentive for key Employees to further

the growth, development and financial success of the Company by personally

benefiting through the ownership of Company stock and/or rights which recognize

such growth, development and financial success.

 

          (2) To enable the Company to obtain and retain the services of key

Employees considered essential to the long range success of the Company by

offering them an opportunity to own stock in the Company and/or rights which

will reflect the growth, development and financial success of the Company.

 

                                   ARTICLE I

                                  DEFINITIONS

                                  -----------

 

          1.1    General.  Wherever the following terms are used in this Plan

                 -------                                                     

they shall have the meaning specified below, unless the context clearly

indicates otherwise.

 

          1.2    Board.  "Board" shall mean the Board of Directors of the

                 -----                                                  

Company.

 

          1.3    Code.  "Code" shall mean the Internal Revenue Code of 1986, as

                 ----                                                         

amended.

 

          1.4    Committee.  "Committee" shall mean the Compensation Committee

                 ---------                                                   

of the Board, or a subcommittee of the Board, appointed as provided in Section

9.1.

 

          1.5    Common Stock.  "Common Stock" shall mean the common stock of

                 ------------                                               

the Company, without par value, and any equity security of the Company issued or

authorized to be issued in the future, but excluding any warrants, options or

other rights to purchase Common Stock.  Debt securities of the Company

convertible into Common Stock shall be deemed equity securities of the Company.

 

          1.6    Company.  "Company" shall mean Mercury General Corporation, a

                 -------                                                      

California corporation.

 

          1.7    Deferred Stock.  "Deferred Stock" shall mean Common Stock

                 --------------                                          

awarded under Article VII of this Plan.

 

          1.8    Director.  "Director" shall mean a member of the Board.

                 --------                                              

 

          1.9    Dividend Equivalent.  "Dividend Equivalent" shall mean a right

                 -------------------                                           

to receive the equivalent value (in cash or Common Stock) of dividends paid on

Common Stock, awarded under Article VII of this Plan.

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          1.10  Employee.  "Employee" shall mean any officer or other employee

                --------                                                     

(as defined in accordance with Section 3401(c) of the Code) of the Company, or

of any corporation which is a Subsidiary.

 

          1.11   Exchange Act.  "Exchange Act" shall mean the Securities

                 ------------                                          

Exchange Act of 1934, as amended.

 

          1.12   Fair Market Value.  "Fair Market Value" of a share of Common

                 -----------------                                           

Stock as of a given date shall be (i) the mean between the highest and lowest

selling price of a share of Common Stock on the principal exchange on which

shares of Common Stock are then trading, if any, on such date, or if shares were

not traded on such date, then on the closest preceding date on which a trade

occurred, or (ii) if Common Stock is not traded on an exchange, the mean between

the closing representative bid and asked prices for the Common Stock on such

date as reported by NASDAQ or, if NASDAQ is not then in existence, by its

successor quotation system; or (iii) if Common Stock is not publicly traded, the

Fair Market Value of a share of Common Stock as established by the Committee

acting in good faith.

 

          1.13   Grantee.  "Grantee" shall mean an Employee granted a

                 -------                                            

Performance Award, Dividend Equivalent, Stock Payment or Stock Appreciation

Right, or an award of Deferred Stock, under this Plan.

 

          1.14   Incentive Stock Option.  "Incentive Stock Option" shall mean an

                 ----------------------                                        

option which conforms to the applicable provisions of Section 422 of the Code

and which is designated as an Incentive Stock Option by the Committee.

 

          1.15   Independent Director.  "Independent Director" shall mean a

                 --------------------                                     

member of the Board who is not an Employee of the Company.

 

          1.16   Non-Qualified Stock Option.  "Non-Qualified Stock Option" shall

                 --------------------------                                    

mean an Option which is not designated as an Incentive Stock Option by the

Committee.

 

          1.17   Option.  "Option" shall mean a stock option granted under

                 ------                                                  

Article III of this Plan.  An Option granted under this Plan shall, as

determined by the Committee, be either a Non-Qualified Stock Option or an

Incentive Stock Option.

 

          1.18   Optionee.  "Optionee" shall mean an Employee granted an Option

                 --------                                                      

under this Plan.

 

          1.19   Performance Award.  "Performance Award" shall mean a cash

                 -----------------                                       

bonus, stock bonus or other performance or incentive award that is paid in cash,

Common Stock or a combination of both, awarded under Article VII of this Plan.

 

          1.20   Plan.  "Plan" shall mean The 1995 Equity Participation Plan of

                 ----                                                         

Mercury General Corporation.

 

          1.21   Restricted Stock.  "Restricted Stock" shall mean Common Stock

                 ----------------                                            

awarded under Article VI of this Plan.

 

          1.22   Restricted Stockholder.  "Restricted Stockholder" shall mean an

                 ----------------------                                        

Employee granted an award of Restricted Stock under Article VI of this Plan.

 

 

                                       2

<PAGE>

 

          1.23   Rule 16b-3.  "Rule 16b-3" shall mean that certain Rule 16b-3

                 ----------                                                 

under the Exchange Act, as such Rule may be amended from time to time.

 

          1.24   Stock Appreciation Right.  "Stock Appreciation Right" shall

                 ------------------------                                  

mean a stock appreciation right granted under Article VIII of this Plan.

 

          1.25   Stock Payment.  "Stock Payment" shall mean (i) a payment in the

                 -------------                                                 

form of shares of Common Stock, or (ii) an option or other right to purchase

shares of Common Stock, as part of a deferred compensation arrangement, made in

lieu of all or any portion of the compensation, including without limitation,

salary, bonuses and commissions, that would otherwise become payable to a key

Employee in cash, awarded under Article VII of this Plan.

 

          1.26   Subsidiary.  "Subsidiary" shall mean any corporation in an

                 ----------                                               

unbroken chain of corporations beginning with the Company if each of the

corporations other than the last corporation in the unbroken chain then owns

stock possessing 50 percent or more of the total combined voting power of all

classes of stock in one of the other corporations in such chain.

 

          1.27   Termination of Employment.  "Termination of Employment" shall

                 -------------------------                                   

mean the time when the employee-employer relationship between the Optionee,

Grantee or Restricted Stockholder and the Company or any Subsidiary is

terminated for any reason, including, but not by way of limitation, a

termination by resignation, discharge, death, disability or retirement; but

excluding (i) terminations where there is a simultaneous reemployment or

continuing employment of an Optionee, Grantee or Restricted Stockholder by the

Company or any Subsidiary and (ii) at the discretion of the Committee,

terminations which result in a temporary severance of the employee-employer

relationship.  The Committee, in its absolute discretion, shall determine the

effect of all matters and questions relating to Termination of Employment,

including, but not by way of limitation, the question of whether a Termination

of Employment resulted from a discharge for good cause, and all questions of

whether particular leaves of absence constitute Terminations of Employment;

provided, however, that, with respect to Incentive Stock Options, a leave of

- --------  -------                                                          

absence or other change in the employee-employer relationship shall constitute a

Termination of Employment if, and to the extent that, such leave of absence or

other change interrupts employment for the purposes of Section 422(a)(2) of the

Code and the then applicable regulations and revenue rulings under said Section.

Notwithstanding any other provision of this Plan, the Company or any Subsidiary

has an absolute and unrestricted right to terminate an Employee's employment at

any time for any reason whatsoever, with or without cause, except to the extent

expressly provided otherwise in writing.

 

 

                                   ARTICLE II

                             SHARES SUBJECT TO PLAN

                             ----------------------

 

          2.1    Shares Subject to Plan.  The shares of stock subject to

                 ----------------------                                

Options, awards of Restricted Stock, Performance Awards, Dividend Equivalents,

awards of Deferred Stock, Stock Payments or Stock Appreciation Rights shall be

Common Stock, initially shares of the Company's Common Stock, without par value.

The aggregate number of such shares which may be issued upon exercise of such

options or rights or upon any such awards under the Plan shall not exceed Two

Million Seven Hundred Thousand (2,700,000).  Furthermore, the maximum number of

shares which may be subject to options, rights or other awards granted under the

Plan to any individual in any calendar year shall not exceed One Hundred

Thousand (100,000), and the method of counting such shares shall conform to any

requirements applicable to performance-based compensation under Section 162(m)

of the Code.  The shares of

 

                                       3

<PAGE>

 

Common Stock issuable upon exercise of such options or rights or upon any such

awards may be either previously authorized but unissued shares or treasury

shares.

 

          2.2    Unexercised Options and Other Rights.  If any Option, or other

                 ------------------------------------                          

right to acquire shares of Common Stock under any other award under this Plan,

expires or is cancelled without having been fully exercised, the number of

shares subject to such Option or other right but as to which such Option or

other right was not exercised prior to its expiration or cancellation may again

be optioned, granted or awarded hereunder, subject to the limitations of Section

2.1.

 

                                  ARTICLE III

                              GRANTING OF OPTIONS

                              -------------------

 

          3.1    Eligibility.  Any Employee selected by the Committee pursuant

                 -----------                                                 

to Section 3.4(a)(i) shall be eligible to be granted an Option.

 

          3.2    Disqualification for Stock Ownership.  No person may be granted

                 ------------------------------------                          

an Incentive Stock Option under this Plan if such person, at the time the

Incentive Stock Option is granted, owns stock possessing more than ten percent

(10%) of the total combined voting power of all classes of stock of the Company

or any then existing Subsidiary unless such Incentive Stock Option conforms to

the applicable provisions of Section 422 of the Code.

 

          3.3    Qualification of Incentive Stock Options.  No Incentive Stock

                 ----------------------------------------                    

Option shall be granted unless such Option, when granted, qualifies as an

"incentive stock option" under Section 422 of the Code.  No Incentive Stock

Option shall be granted to any person who is not an Employee.

 

          3.4    Granting of Options

                 -------------------

 

          (a) The Committee shall from time to time, in its absolute discretion,

and subject to applicable limitations of this Plan:

 

               (i) Determine which Employees are key Employees and select from

     among the key Employees (including Employees who have previously received

     Options or other awards under this Plan) such of them as in its opinion

     should be granted Options;

 

               (ii) Determine the number of shares to be subject to such Options

     granted to the selected key Employees;

 

               (iii)  Determine whether such Options are to be Incentive Stock

     Options or Non-Qualified Stock Options and whether such Options are to

     qualify as performance-based compensation as described in Section

     162(m)(4)(C) of the Code; and

 

               (iv) Determine the terms and conditions of such Options,

     consistent with this Plan.

 

          (b) Upon the selection of a key Employee to be granted an Option, the

Committee shall instruct the Secretary of the Company to issue the Option and

may impose such conditions on the grant of the Option as it deems appropriate.

Without limiting the generality of the preceding sentence, the Committee may, in

its discretion and on such terms as it deems appropriate, require as a condition

on the grant of an Option to an Employee that the Employee surrender for

cancellation some or all of the

 

 

                                       4

<PAGE>

 

unexercised Options, awards of Restricted Stock or Deferred Stock, Performance

Awards, Stock Appreciation Rights, Dividend Equivalents or Stock Payments or

other rights which have been previously granted to him under this Plan or

otherwise.  An Option, the grant of which is conditioned upon such surrender,

may have an option price lower (or higher) than the exercise price of such

surrendered Option or other award, may cover the same (or a lesser or greater)

number of shares as such surrendered Option or other award, may contain such

other terms as the Committee deems appropriate, and shall be exercisable in

accordance with its terms, without regard to the number of shares, price,

exercise period or any other term or condition of such surrendered Option or

other award.

 

          (c) Any Incentive Stock Option granted under this Plan may be modified

by the Committee to disqualify such option from treatment as an "incentive stock

option" under Section 422 of the Code.

 

 

                                   ARTICLE IV

                                TERMS OF OPTIONS

                                ----------------

 

          4.1   Option Agreement.  Each Option shall be evidenced by a written

                ----------------                                             

Stock Option Agreement, which shall be executed by the Optionee and an

authorized officer of the Company and which shall contain such terms and

conditions as the Committee shall determine, consistent with this Plan.  Stock

Option Agreements evidencing Incentive Stock Options shall contain such terms

and conditions as may be necessary to meet the applicable provisions of Section

422 of the Code.

 

          4.2   Option Price.  The price per share of the shares subject to each

                ------------                                                    

Option shall be set by the Committee; provided, however, that such price shall

                                      --------  -------                      

be no less than the par value of a share of Common Stock and in the case of

Incentive Stock Options such price shall not be less than the greater of:  (i)

100% of the Fair Market Value of a share of Common Stock on the date the Option

is granted, or (ii) 110% of the fair market value of a share of Common Stock on

the date such Option is granted in the case of an individual then owning (within

the meaning of Section 424(d) of the Code) more than 10% of the total combined

voting power of all classes of stock of the Company or any Subsidiary.

 

          4.3   Option Term.  The term of an Option shall be set by the

                -----------                                           

Committee in its discretion; provided, however, that, in the case of Incentive

                             --------  -------                               

Stock Options, the term shall not be more than ten (10) years from the date the

Incentive Stock Option is granted, or five (5) years from such date if the

Incentive Stock Option is granted to an individual then owning (within the

meaning of Section 424(d) of the Code) more than 10% of the total combined

voting power of all classes of stock of the Company or any Subsidiary.  Except

as limited by requirements of Section 422 of the Code and regulations and

rulings thereunder applicable to Incentive Stock Options, the Committee may

extend the term of any outstanding Option in connection with any Termination of

Employment of the Optionee, or amend any other term or condition of such Option

relating to such a termination.

 

          4.4   Option Vesting

                --------------

 

          (a) The period during which the right to exercise an Option in whole

or in part vests in the Optionee shall be set by the Committee and the Committee

may determine that an Option may not be exercised in whole or in part for a

specified period after it is granted.  At any time after grant of an Option, the

Committee may, in its sole discretion and subject to whatever terms and

conditions it selects, accelerate the period during which an Option vests.

 

 

                                       5

<PAGE>

 

          (b) No portion of an Option which is unexercisable at Termination of

Employment, shall thereafter become exercisable, except as may be otherwise

provided by the Committee either in the Stock Option Agreement or in a

resolution adopted following the grant of the Option.

 

          (c) To the extent that the aggregate Fair Market Value of stock with

respect to which "incentive stock options" (within the meaning of Section 422 of

the Code, but without regard to Section 422(d) of the Code) are exercisable for

the first time by an Optionee during any calendar year (under the Plan and all

other incentive stock option plans of the Company and any Subsidiary) exceeds

$100,000, such Options shall be treated as Non-Qualified Options to the extent

required by Section 422 of the Code.  The rule set forth in the preceding

sentence shall be applied by taking Options into account in the order in which

they were granted.  For purposes of this Section 4.4(c), the Fair Market Value

of stock shall be determined as of the time the Option with respect to such

stock is granted.

 

          4.5   Consideration.  In consideration of the granting of an Option,

                -------------                                                

the Optionee shall agree, in the written Stock Option Agreement, to remain in

the employ of the Company or any Subsidiary for a period of at least one year

after the Option is granted.  Nothing in this Plan or in any Stock Option

Agreement hereunder shall confer upon any Optionee any right to continue in the

employ of the Company or any Subsidiary, or shall interfere with or restrict in

any way the rights of the Company and any Subsidiary, which are hereby expressly

reserved, to discharge any Optionee at any time for any reason whatsoever, with

or without good cause.

 

                                   ARTICLE V

                              EXERCISE OF OPTIONS

                              -------------------

 

          5.1   Partial Exercise.  An exercisable Option may be exercised in

                ----------------                                           

whole or in part.  However, an Option shall not be exercisable with respect to

fractional shares and the Committee may require that, by the terms of the

Option, a partial exercise be with respect to a minimum number of shares.

 

          5.2   Manner of Exercise.  All or a portion of an exercisable Option

                ------------------                                           

shall be deemed exercised upon delivery of all of the following to the Secretary

of the Company or his office:

 

          (a) A written notice complying with the applicable rules established

by the Committee or the Board stating that the Option, or a portion thereof, is

exercised.  The notice shall be signed by the Optionee or other person then

entitled to exercise the Option or such portion;

 

          (b) Such representations and documents as the Committee or the Board,

in its absolute discretion, deems necessary or advisable to effect compliance

with all applicable provisions of the Securities Act of 1933, as amended, and

any other federal or state securities laws or regulations.  The Committee or

Board may, in its absolute discretion, also take whatever additional actions it

deems appropriate to effect such compliance including, without limitation,

placing legends on share certificates and issuing stop-transfer notices to

agents and registrars;

 

          (c) In the event that the Option shall be exercised pursuant to

Section 10.1 by any person or persons other than the Optionee, appropriate proof

of the right of such person or persons to exercise the Option; and

 

          (d) Full cash payment to the Secretary of the Company for the shares

with respect to which the Option, or portion thereof, is exercised.  However, at

the discretion of the Committee, the

 

 

                                       6

<PAGE>

 

terms of the Option may (i) allow a delay in payment up to thirty (30) days from

the date the Option, or portion thereof, is exercised; (ii) allow payment, in

whole or in part, through the delivery of shares of Common Stock owned by the

Optionee, duly endorsed for transfer to the Company with a Fair Market Value on

the date of delivery equal to the aggregate exercise price of the Option or

exercised portion thereof; (iii) subject to the timing requirements of Section

5.3, allow payment, in whole or in part, through the surrender of shares of

Common Stock then issuable upon exercise of the Option having a Fair Market

Value on the date of Option exercise equal to the aggregate exercise price of

the Option or exercised portion thereof; (iv) allow payment, in whole or in

part, through the delivery of property of any kind which constitutes good and

valuable consideration; (v) allow payment, in whole or in part, through the

delivery of a full recourse promissory note bearing interest (at no less than

such rate as shall then preclude the imputation of interest under the Code) and

payable upon such terms as may be prescribed by the Committee, or (vi) allow

payment through any combination of the consideration provided in the foregoing

subparagraphs (ii), (iii), (iv) and (v).  In the case of a promissory note, the

Committee may also prescribe the form of such note and the security to be given

for such note.  The Option may not be exercised, however, by delivery of a

promissory note or by a loan from the Company when or where such loan or other

extension of credit is prohibited by law.

 

          5.3   Certain Timing Requirements.  At the discretion of the

                ---------------------------                          

Committee, shares of Common Stock issuable to the Optionee upon exercise of the

Option may be used to satisfy the Option exercise price or the tax withholding

consequences of such exercise, in the case of persons subject to Section 16 of

the Exchange Act, only (i) during the period beginning on the third business day

following the date of release of the quarterly or annual summary statement of

sales and earnings of the Company and ending on the twelfth business day

following such date or (ii) pursuant to an irrevocable written election by the

Optionee to use shares of Common Stock issuable to the Optionee upon exercise of

the Option to pay all or part of the Option price or the withholding taxes made

at least six months prior to the payment of such Option price or withholding

taxes.

 

          5.4   Conditions to Issuance of Stock Certificates.  The Company shall

                --------------------------------------------                   

not be required to issue or deliver any certificate or certificates for shares

of stock purchased upon the exercise of any Option or portion thereof prior to

fulfillment of all of the following conditions:

 

          (a) The admission of such shares to listing on all stock exchanges on

which such class of stock is then listed;

 

          (b) The completion of any registration or other qualification of such

shares under any state or federal law, or under the rulings or regulations of

the Securities and Exchange Commission or any other governmental regulatory body

which the Committee or Board shall, in its absolute discretion, deem necessary

or advisable;

 

          (c) The obtaining of any approval or other clearance from any state or

federal governmental agency which the Committee or Board shall, in its absolute

discretion, determine to be necessary or advisable;

 

          (d) The lapse of such reasonable period of time following the exercise

of the Option as the Committee or Board may establish from time to time for

reasons of administrative convenience; and

 

          (e) The receipt by the Company of full payment for such shares,

including payment of any applicable withholding tax.

 

 

                                       7

<PAGE>

 

          5.5  Rights as Stockholders.  The holders of Options shall not be, nor

               ----------------------                                          

have any of the rights or privileges of, stockholders of the Company in respect

of any shares purchasable upon the exercise of any part of an Option unless and

until certificates representing such shares have been issued by the Company to

such holders.

 

          5.6   Ownership and Transfer Restrictions.  The Committee, in its

                -----------------------------------                       

absolute discretion, may impose such restrictions on the ownership and

transferability of the shares purchasable upon the exercise of an Option as it

deems appropriate.  Any such restriction shall be set forth in the respective

Stock Option Agreement and may be referred to on the certificates evidencing

such shares.  The Committee may require the Employee to give the Company prompt

notice of any disposition of shares of Common Stock acquired by exercise of an

Incentive Stock Option within (i) two years from the date of granting such

Option to such Employee or (ii) one year after the transfer of such shares to

such Employee.  The Committee may direct that the certificates evidencing shares

acquired by exercise of an Option refer to such requirement to give prompt

notice of disposition.

 

 

                                   ARTICLE VI

                           AWARD OF RESTRICTED STOCK

                           -------------------------

 

          6.1   Award of Restricted Stock

                -------------------------

 

          (a) The Committee shall from time to time, in its absolute discretion:

 

               (i) Select from among the key Employees (including Employees who

     have previously received other awards under this Plan) such of them as in

     its opinion should be awarded Restricted Stock; and

 

               (ii) Determine the purchase price, if any, and other terms and

     conditions applicable to such Restricted Stock, consistent with this Plan.

 

          (b) The Committee shall establish the purchase price, if any, and form

of payment for Restricted Stock.  In all cases, however, legal consideration

shall be required for each issuance of Restricted Stock.

 

          (c) Upon the selection of a key Employee to be awarded Restricted

Stock, the Committee shall instruct the Secretary of the Company to issue such

Restricted Stock and may impose such conditions on the issuance of such

Restricted Stock as it deems appropriate.

 

          6.2   Restricted Stock Agreement.  Restricted Stock shall be issued

                --------------------------                                  

only pursuant to a written Restricted Stock Agreement, which shall be executed

by the selected key Employee and an authorized officer of the Company and which

shall contain such terms and conditions as the Committee shall determine,

consistent with this Plan.

 

          6.3   Consideration.  As consideration for the issuance of Restricted

                -------------                                                 

Stock, in addition to payment of any purchase price, the Restricted Stockholder

shall agree, in the written Restricted Stock Agreement, to remain in the employ

of the Company or any Subsidiary for a period of at least one year after the

Restricted Stock is issued.  Nothing in this Plan or in any Restricted Stock

Agreement hereunder shall confer on any Restricted Stockholder any right to

continue in the employ of the Company or any Subsidiary or shall interfere with

or restrict in any way the rights of the Company and any Subsidiary,

 

 

                                       8

<PAGE>

 

which are hereby expressly reserved, to discharge any Restricted Stockholder at

any time for any reason whatsoever, with or without good cause.

 

          6.4   Rights as Stockholders.  Upon delivery of the shares of

                ----------------------                                

Restricted Stock to the escrow holder pursuant to Section 6.7, the Restricted

Stockholder shall have, unless otherwise provided by the Committee, all the

rights of a stockholder with respect to said shares, subject to the restrictions

in his Restricted Stock Agreement, including the right to receive all dividends

and other distributions paid or made with respect to the shares; provided,

                                                                 --------

however, that in the discretion of the Committee, any extraordinary

- -------                                                           

distributions with respect to the Common Stock shall be subject to the

restrictions set forth in Section 6.5.

 

          6.5   Restriction.  All shares of Restricted Stock issued under this

                -----------                                                  

Plan (including any shares received by holders thereof with respect to shares of

Restricted Stock as a result of stock dividends, stock splits or any other form

of recapitalization) shall, in the terms of each individual Restricted Stock

Agreement, be subject to such restrictions as the Committee shall provide, which

restrictions may include, without limitation, restrictions concerning voting

rights and transferability and restrictions based on duration of employment with

the Company, Company performance and individual performance; provided, however,

                                                             --------  -------

that by a resolution adopted after the Restricted Stock is issued, the Committee

may, on such terms and conditions as it may determine to be appropriate, remove

any or all of the restrictions imposed by the terms of the Restricted Stock

Agreement.  Restricted Stock may not be sold or encumbered until all

restrictions are terminated or expire.  Unless provided otherwise by the

Committee, if no consideration was paid by the Restricted Stockholder upon

issuance, a Restricted Stockholder's rights in unvested Restricted Stock shall

lapse upon Termination of Employment.

 

          6.6   Repurchase of Restricted Stock.  The Committee shall provide in

                ------------------------------                                 

the terms of each individual Restricted Stock Agreement that the Company shall

have the right to repurchase from the Restricted Stockholder the Restricted

Stock then subject to restrictions under the Restricted Stock Agreement

immediately upon a Termination of Employment, at a cash price per share equal to

the price paid by the Restricted Stockholder for such Restricted Stock;

provided, however, that provision may be made that no such right of repurchase

- --------  -------                                                             

shall exist in the event of a Termination of Employment without cause, or

following a change in control of the Company or because of the Restricted

Stockholder's retirement, death or disability, or otherwise.

 

          6.7   Escrow.  The Secretary of the Company or such other escrow

                ------                                                   

holder as the Committee may appoint shall retain physical custody of each

certificate representing Restricted Stock until all of the restrictions imposed

under the Restricted Stock Agreement with respect to the shares evidenced by

such certificate expire or shall have been removed.

 

          6.8   Legend.  In order to enforce the restrictions imposed upon

                ------                                                   

shares of Restricted Stock hereunder, the Committee shall cause a legend or

legends to be placed on certificates representing all shares of Restricted Stock

that are still subject to restrictions under Restricted Stock Agreements, which

legend or legends shall make appropriate reference to the conditions imposed

thereby.

 

                                  ARTICLE VII

                   PERFORMANCE AWARDS, DIVIDEND EQUIVALENTS,

                         DEFERRED STOCK, STOCK PAYMENTS

                         ------------------------------

 

          7.1   Performance Awards.  Any key Employee selected by the Committee

                ------------------                                             

may be granted one or more Performance Awards.  The value of such Performance

Awards may be linked to the

 

 

                                       9

<PAGE>

 

market value, book value, net profits or other measure of the value of Common

Stock or other specific performance criteria determined appropriate by the

Committee, in each case on a specified date or dates or over any period or

periods determined by the Committee, or may be based upon the appreciation in

the market value, book value, net profits or other measure of the value of a

specified number of shares of Common Stock over a fixed period or periods

determined by the Committee.  In making such determinations, the Committee shall

consider (among such other factors as it deems relevant in light of the specific

type of award) the contributions, responsibilities and other compensation of the

particular key Employee.

 

          7.2   Dividend Equivalents.  Any key Employee selected by the

                --------------------                                  

Committee may be granted Dividend Equivalents based on the dividends declared on

Common Stock, to be credited as of dividend payment dates, during the period

between the date an Option, Stock Appreciation Right, Deferred Stock or

Performance Award is granted, and the date such Option, Stock Appreciation

Right, Deferred Stock or Performance Award is exercised, vests or expires, as

determined by the Committee.  Such Dividend Equivalents shall be converted to

cash or additional shares of Common Stock by such formula and at such time and

subject to such limitations as may be determined by the Committee.

 

          7.3   Stock Payments.  Any key Employee selected by the Committee may

                --------------                                                

receive Stock Payments in the manner determined from time to time by the

Committee.  The number of shares shall be determined by the Committee and may be

based upon the Fair Market Value, book value, net profits or other measure of

the value of Common Stock or other specific performance criteria determined

appropriate by the Committee, determined on the date such Stock Payment is made

or on any date thereafter.

 

          7.4   Deferred Stock.  Any key Employee selected by the Committee may

                --------------                                                

be granted an award of Deferred Stock in the manner determined from time to time

by the Committee.  The number of shares of Deferred Stock shall be determined by

the Committee and may be linked to the market value, book value, net profits or

other measure of the value of Common Stock or other specific performance

criteria, in each case on a specified date or dates or over any period or

periods determined by the Committee.  Common Stock underlying a Deferred Stock

award will not be issued until the Deferred Stock award has vested, pursuant to

a vesting schedule or performance criteria set by the Committee.  Unless

otherwise provided by the Committee, a Grantee of Deferred Stock shall have no

rights as a Company stockholder with respect to such Deferred Stock until such

time as the award has vested and the Common Stock underlying the award has been

issued.

 

          7.5   Performance Award Agreement, Dividend Equivalent Agreement,

                -----------------------------------------------------------

Deferred Stock Agreement, Stock Payment Agreement.  Each Performance Award,

- -------------------------------------------------                          

Dividend Equivalent, award of Deferred Stock and/or Stock Payment shall be

evidenced by a written agreement, which shall be executed by the Grantee and an

authorized Officer of the Company and which shall contain such terms and

conditions as the Committee shall determine, consistent with this Plan.

 

          7.6   Term.  The term of a Performance Award, Dividend Equivalent,

                ----                                                       

award of Deferred Stock and/or Stock Payment shall be set by the Committee in

its discretion.

 

          7.7   Exercise Upon Termination of Employment.  A Performance Award,

                ---------------------------------------                      

Dividend Equivalent, award of Deferred Stock and/or Stock Payment is exercisable

only while the Grantee is an Employee; provided that the Committee may determine

that the Performance Award, Dividend Equivalent, award of Deferred Stock and/or

Stock Payment may be exercised subsequent to Termination

 

 

                                      10

<PAGE>

 

of Employment without cause, or following a change in control of the Company, or

because of the Grantee's retirement, death or disability, or otherwise.

 

          7.8   Payment on Exercise.  Payment of the amount determined under

                -------------------                                        

Section 7.1 or 7.2 above shall be in cash, in Common Stock or a combination of

both, as determined by the Committee.  To the extent any payment under this

Article VII is effected in Common Stock, it shall be made subject to

satisfaction of all provisions of Section 5.4.

 

          7.9   Consideration.  In consideration of the granting of a

                -------------                                       

Performance Award, Dividend Equivalent, award of Deferred Stock and/or Stock

Payment, the Grantee shall agree, in a written agreement, to remain in the

employ of, the Company or any Subsidiary for a period of at least one year after

such Performance Award, Dividend Equivalent, award of Deferred Stock and/or

Stock Payment is granted.  Nothing in this Plan or in any agreement hereunder

shall confer on any Grantee any right to continue in the employ of, the Company

or any Subsidiary or shall interfere with or restrict in any way the rights of

the Company and any Subsidiary, which are hereby expressly reserved, to

discharge any Grantee at any time for any reason whatsoever, with or without

good cause.

 

                                  ARTICLE VIII

                           STOCK APPRECIATION RIGHTS

                           -------------------------

 

          8.1   Grant of Stock Appreciation Rights.  A Stock Appreciation Right

                ----------------------------------                            

may be granted to any key Employee selected by the Committee.  A Stock

Appreciation Right may be granted (i) in connection and simultaneously with the

grant of an Option, (ii) with respect to a previously granted Option, or (iii)

independent of an Option.  A Stock Appreciation Right shall be subject to such

terms and conditions not inconsistent with this Plan as the Committee shall

impose and shall be evidenced by a written Stock Appreciation Right Agreement,

which shall be executed by the Grantee and an authorized officer of the Company.

The Committee, in its discretion, may determine whether a Stock Appreciation

Right is to qualify as performance-based compensation as described in Section

162(m)(4)(C) of the Code.  Without limiting the generality of the foregoing, the

Committee may, in its discretion and on such terms as it deems appropriate,

require as a condition of the grant of a Stock Appreciation Right to an Employee

that the Employee surrender for cancellation some or all of the unexercised

Options, awards of Restricted Stock or Deferred Stock, Performance Awards, Stock

Appreciation Rights, Dividend Equivalents or Stock Payments, or other rights

which have been previously granted to him under this Plan or otherwise.  A Stock

Appreciation Right, the grant of which is conditioned upon such surrender, may

have an exercise price lower (or higher) than the exercise price of the

surrendered Option or other award, may cover the same (or a lesser or greater)

number of shares as such surrendered Option or other award, may contain such

other terms as the Committee deems appropriate, and shall be exercisable in

accordance with its terms, without regard to the number of shares, price,

exercise period or any other term or condition of such surrendered Option or

other award.

 

          8.2   Coupled Stock Appreciation Rights

                ---------------------------------

 

          (a) A Coupled Stock Appreciation Right ("CSAR") shall be related to a

particular Option and shall be exercisable only when and to the extent the

related Option is exercisable.

 

          (b) A CSAR may be granted to the Grantee for no more than the number

of shares subject to the simultaneously or previously granted Option to which it

is coupled.

 

                                      11

<PAGE>

 

          (c) A CSAR shall entitle the Grantee (or other person entitled to

exercise the Option pursuant to this Plan) to surrender to the Company

unexercised a portion of the Option to which the CSAR relates (to the extent

then exercisable pursuant to its terms) and to receive from the Company in

exchange therefor an amount determined by multiplying the difference obtained by

subtracting the Option exercise price from the Fair Market Value of a share of

Common Stock on the date of exercise of the CSAR by the number of shares of

Common Stock with respect to which the CSAR shall have been exercised, subject

to any limitations the Committee may impose.

 

          8.3   Independent Stock Appreciation Rights

                -------------------------------------

 

          (a) An Independent Stock Appreciation Right ("ISAR") shall be

unrelated to any Option and shall have a term set by the Committee.  An ISAR

shall be exercisable in such installments as the Committee may determine.  An

ISAR shall cover such number of shares of Common Stock as the Committee may

determine.  The exercise price per share of Common Stock subject to each ISAR

shall be set by the Committee.  An ISAR is exercisable only while the Grantee is

an Employee; provided that the Committee may determine that the ISAR may be

exercised subsequent to Termination of Employment without cause, or following a

change in control of the Company, or because of the Grantee's retirement, death

or disability, or otherwise.

 

          (b) An ISAR shall entitle the Grantee (or other person entitled to

exercise the ISAR pursuant to this Plan) to exercise all or a specified portion

of the ISAR (to the extent then exercisable pursuant to its terms) and to

receive from the Company an amount determined by multiplying the difference

obtained by subtracting the exercise price per share of the ISAR from the Fair

Market Value of a share of Common Stock on the date of exercise of the ISAR by

the number of shares of Common Stock with respect to which the ISAR shall have

been exercised, subject to any limitations the Committee may impose.

 

          8.4   Payment and Limitations on Exercise

                -----------------------------------

 

          (a) Payment of the amount determined under Section 8.2(c) and 8.3(b)

above shall be in cash, in Common Stock (based on its Fair Market Value as of

the date the Stock Appreciation Right is exercised) or a combination of both, as

determined by the Committee.  To the extent such payment is effected in Common

Stock it shall be made subject to satisfaction of all provisions of Section 5.4

hereinabove pertaining to Options.

 

          (b) Grantees of Stock Appreciation Rights who are subject to Section

16 of the Exchange Act may, in the discretion of the Board or Committee, be

required to comply with any timing or other restrictions under Rule 16b-3

applicable to the settlement or exercise of a Stock Appreciation Right.

 

          8.5   Consideration.  In consideration of the granting of a Stock

                -------------                                             

Appreciation Right, the Grantee shall agree, in the written Stock Appreciation

Right Agreement, to remain in the employ of the Company or any Subsidiary for a

period of at least one year after the Stock Appreciation Right is granted.

Nothing in this Plan or in any Stock Appreciation Right Agreement hereunder

shall confer on any Grantee any right to continue in the employ of, the Company

or any Subsidiary or shall interfere with or restrict in any way the rights of

the Company and any Subsidiary, which are hereby expressly reserved, to

discharge any Grantee at any time for any reason whatsoever, with or without

good cause.

 

 

                                      12

<PAGE>

 

                                  ARTICLE IX

                                ADMINISTRATION

                                --------------

 

          9.1   Compensation Committee.  The Compensation Committee (or a

                ----------------------                                  

subcommittee of the Board assuming the functions of the Committee under this

Plan) shall consist of two or more Independent Directors appointed by and

holding office at the pleasure of the Board, each of whom is both a

"disinterested person" as defined by Rule 16b-3 and an "outside director" for

purposes of Section 162(m) of the Code.  Appointment of Committee members shall

be effective upon acceptance of appointment.  Committee members may resign at

any time by delivering written notice to the Board.  Vacancies in the Committee

may be filled by the Board.

 

          9.2   Duties and Powers of Committee.  It shall be the duty of the

                ------------------------------                             

Committee to conduct the general administration of this Plan in accordance with

its provisions.  The Committee shall have the power to interpret this Plan and

the agreements pursuant to which Options, awards of Restricted Stock or Deferred

Stock, Performance Awards, Stock Appreciation Rights, Dividend Equivalents or

Stock Payments are granted or awarded, and to adopt such rules for the

administration, interpretation, and application of this Plan as are consistent

therewith and to interpret, amend or revoke any such rules.  Any such grant or

award under this Plan need not be the same with respect to each Optionee,

Grantee or Restricted Stockholder.  Any such interpretations and rules with

respect to Incentive Stock Options shall be consistent with the provisions of

Section 422 of the Code.  In its absolute discretion, the Board may at any time

and from time to time exercise any and all rights and duties of the Committee

under this Plan except with respect to matters which under Rule 16b-3 or Section

162(m) of the Code, or any regulations or rules issued thereunder, are required

to be determined in the sole discretion of the Committee.

 

          9.3   Majority Rule.  The Committee shall act by a majority of its

                -------------                                              

members in attendance at a meeting at which a quorum is present or by a

memorandum or other written instrument signed by all members of the Committee.

 

          9.4   Compensation; Professional Assistance; Good Faith Actions.

                --------------------------------------------------------- 

Members of the Committee shall receive such compensation for their services as

members as may be determined by the Board.  All expenses and liabilities which

members of the Committee incur in connection with the administration of this

Plan shall be borne by the Company.  The Committee may, with the approval of the

Board, employ attorneys, consultants, accountants, appraisers, brokers, or other

persons.  The Committee, the Company and the Company's officers and Directors

shall be entitled to rely upon the advice, opinions or valuations of any such

persons.  All actions taken and all interpretations and determinations made by

the Committee in good faith shall be final and binding upon all Optionees,

Grantees, Restricted Stockholders, the Company and all other interested persons.

No members of the Committee or Board shall be personally liable for any action,

determination or interpretation made in good faith with respect to this Plan,

Options, awards of Restricted Stock or Deferred Stock, Performance Awards, Stock

Appreciation Rights, Dividend Equivalents or Stock Payments, and all members of

the Committee shall be fully protected by the Company in respect of any such

action, determination or interpretation.

 

 

                                   ARTICLE X

                           MISCELLANEOUS PROVISIONS

                           ------------------------

 

          10.1  Not Transferable.  Options, Restricted Stock awards, Deferred

                ----------------                                            

Stock awards, Performance Awards, Stock Appreciation Rights, Dividend

Equivalents or Stock Payments under this Plan may not be sold, pledged,

assigned, or transferred in any manner other than by will or the laws of descent

and distribution, unless and until such rights or awards have been exercised, or

the shares

 

 

                                      13

<PAGE>

 

underlying such rights or awards have been issued, and all restrictions

applicable to such shares have lapsed.  No Option, Restricted Stock award,

Deferred Stock award, Performance Award, Stock Appreciation Right, Dividend

Equivalent or Stock Payment or interest or right therein shall be liable for the

debts, contracts or engagements of the Optionee, Grantee or Restricted

Stockholder or his 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.

 

          During the lifetime of the Optionee or Grantee, only he may exercise

an Option or other right or award (or any portion thereof) granted to him under

the Plan.  After the death of the Optionee or Grantee, any exercisable portion

of an Option or other right or award may, prior to the time when such portion

becomes unexercisable under the Plan or the applicable Stock Option Agreement or

other agreement, be exercised by his personal representative or by any person

empowered to do so under the deceased Optionee's or Grantee's will or under the

then applicable laws of descent and distribution.

 

          10.2  Amendment, Suspension or Termination of this Plan.  This Plan

                -------------------------------------------------            

may be wholly or partially amended or otherwise modified, suspended or

terminated at any time or from time to time by the Committee.  However, without

approval of the Company's stockholders given within twelve months before or

after the action by the Committee, no action of the Committee may, except as

provided in Section 10.3, increase the limits imposed in Section 2.1 on the

maximum number of shares which may be issued under this Plan, and no action of

the Committee may be taken that would otherwise require stockholder approval as

a matter of applicable law, regulation or rule.  No amendment, suspension or

termination of this Plan shall, without the consent of the holder of Options,

Restricted Stock awards, Deferred Stock awards, Performance Awards, Stock

Appreciation Rights, Dividend Equivalents or Stock Payments, alter or impair any

rights or obligations under any Options, Restricted Stock awards, Deferred Stock

awards, Performance Awards, Stock Appreciation Rights, Dividend Equivalents or

Stock Payments theretofore granted or awarded, unless the award itself otherwise

expressly so provides.  No Options, Restricted Stock, Deferred Stock,

Performance Awards, Stock Appreciation Rights, Dividend Equivalents or Stock

Payments may be granted or awarded during any period of suspension or after

termination of this Plan, and in no event may any Incentive Stock Option be

granted under this Plan after the first to occur of the following events:

 

          (a) The expiration of ten years from the date the Plan is adopted by

the Board; or

 

          (b) The expiration of ten years from the date the Plan is approved by

the Company's stockholders under Section 10.5.

 

          10.3  Changes in Common Stock or Assets of the Company.  In the event

                ------------------------------------------------              

that the outstanding shares of Common Stock are hereafter changed into or

exchanged for cash or a different number or kind of shares or other securities

of the Company, or of another corporation, by reason of reorganization, merger,

consolidation, recapitalization, reclassification, stock splitup, stock

dividend, or combination of shares, appropriate adjustments shall be made by the

Committee in the number and kind of shares for which Options, Restricted Stock

awards, Performance Awards, Stock Appreciation Rights, Dividend Equivalents,

Deferred Stock awards or Stock Payments may be granted, including adjustments of

the limitation in Section 2.1 on the maximum number and kind of shares which may

be issued.

 

          In the event of such a change or exchange, other than for shares or

securities of another corporation or by reason of reorganization, the Committee

shall also make an appropriate and equitable

 

 

                                      14

<PAGE>

 

adjustment in the number and kind of shares as to which all outstanding Options,

Performance Awards, Stock Appreciation Rights, Dividend Equivalents or Stock

Payments, or portions thereof then unexercised, shall be exercisable and in the

number and kind of shares of outstanding Restricted Stock or Deferred Stock.

Such adjustment shall be made with the intent that after the change or exchange

of shares, each Optionee's and each Grantee's and each Restricted Stockholder's

proportionate interest shall be maintained as before the occurrence of such

event.  Such adjustment in an outstanding Option, Performance Award, Stock

Appreciation Right, Dividend Equivalent or Stock Payment may include a necessary

or appropriate corresponding adjustment in Option, Performance Award, Stock

Appreciation Right, Dividend Equivalent or Stock Payment exercise price, but

shall be made without change in the total price applicable to the Option,

Performance Award, Stock Appreciation Right, Dividend Equivalent or Stock

Payment, or the unexercised portion thereof (except for any change in the

aggregate price resulting from rounding-off of share quantities or prices).

 

          Where an adjustment of the type described above is made to an

Incentive Stock Option under this Section, the adjustment will be made in a

manner which will not be considered a "modification" under the provisions of

subsection 424(h)(3) of the Code.

 

          Notwithstanding the foregoing, in the event of such a reorganization,

merger, consolidation, recapitalization, reclassification, stock splitup, stock

dividend or combination, or other adjustment or event which results in shares of

Common Stock being exchanged for or converted into cash, securities or other

property, the Company will have the right to terminate this Plan as of the date

of the exchange or conversion, in which case all options, rights and other

awards under this Plan shall become the right to receive such cash, securities

or other property, net of any applicable exercise price.

 

          In the event of a "spin-off" or other substantial distribution of

assets of the Company which has a material diminutive effect upon the Fair

Market Value of the Company's Common Stock, the Committee may in its discretion

make an appropriate and equitable adjustment to the Option, Performance Award,

Stock Appreciation Right, Dividend Equivalent or Stock Payment exercise price to

reflect such diminution.

 

          10.4  Merger of the Company.  In the event of the merger or

                ---------------------                               

consolidation of the Company with or into another corporation, the exchange of

all or substantially all of the assets of the Company for the securities of

another corporation, the acquisition by another corporation or person of all or

substantially all of the Company's assets or 80% or more of the Company's then

outstanding voting stock, or the liquidation or dissolution of the Company:

 

          (a) At the discretion of the Committee, the terms of an Option,

Performance Award, Stock Appreciation Right, Dividend Equivalent or Stock

Payment may provide that it cannot be exercised after such event.

 

          (b) In its discretion, and on such terms and conditions as it deems

appropriate, the Committee may provide either by the terms of such Option,

Performance Award, Stock Appreciation Right, Dividend Equivalent or Stock

Payment or by a resolution adopted prior to the occurrence of such event that,

for a specified period of time prior to such event, such Option, Performance

Award, Stock Appreciation Right, Dividend Equivalent or Stock Payment shall be

exercisable as to all shares covered thereby, notwithstanding anything to the

contrary in this Plan or in the provisions of such Option, Performance Award,

Stock Appreciation Right, Dividend Equivalent or Stock Payment.

 

 

                                      15

<PAGE>

 

          (c) In its discretion, and on such terms and conditions as it deems

appropriate, the Committee may provide either by the terms of such Option,

Performance Award, Stock Appreciation Right, Dividend Equivalent or Stock

Payment or by a resolution adopted prior to the occurrence of such event that

upon such event, such Option, Performance Award, Stock Appreciation Right,

Dividend Equivalent or Stock Payment shall be assumed by the successor

corporation, or a parent or subsidiary thereof, or shall be substituted for by

similar options, rights or awards covering the stock of the successor

corporation, or a parent or subsidiary thereof, with appropriate adjustments as

to the number and kind of shares and prices.

 

          (d) In its discretion, and on such terms and conditions as it deems

appropriate, the Committee may provide either by the terms of a Restricted Stock

award or Deferred Stock award or by a resolution adopted prior to the occurrence

of such event that, for a specified period of time prior to such event, the

restrictions imposed under a Restricted Stock Agreement or a Deferred Stock

Agreement upon some or all shares of Restricted Stock or Deferred Stock may be

terminated, and, in the case of Restricted Stock, some or all shares of such

Restricted Stock may cease to be subject to repurchase under Section 6.6 after

such event.

 

          10.5  Approval of Plan by Stockholders.  This Plan will be submitted

                --------------------------------                             

for the approval of the Company's stockholders within twelve months after the

date of the Board's initial adoption of this Plan.  Options, Performance Awards,

Stock Appreciation Rights, Dividend Equivalents or Stock Payments may be granted

and Restricted Stock or Deferred Stock may be awarded prior to such stockholder

approval, provided that such Options, Performance Awards, Stock Appreciation

Rights, Dividend Equivalents or Stock Payments shall not be exercisable and such

Restricted Stock or Deferred Stock shall not vest prior to the time when this

Plan is approved by the stockholders, and provided further that if such approval

has not been obtained at the end of said twelve-month period, all Options,

Performance Awards, Stock Appreciation Rights, Dividend Equivalents or Stock

Payments previously granted and all Restricted Stock or Deferred Stock

previously awarded under this Plan shall thereupon be cancelled and become null

and void.

 

          10.6  Tax Withholding.  The Company shall be entitled to require

                ---------------                                           

payment in cash or deduction from other compensation payable to each Optionee,

Grantee or Restricted Stockholder of any sums required by federal, state or

local tax law to be withheld with respect to the issuance, vesting or exercise

of any Option, Restricted Stock, Deferred Stock, Performance Award, Stock

Appreciation Right, Dividend Equivalent or Stock Payment.  Subject to the timing

requirements of Section 5.3, the Committee may in its discretion and in

satisfaction of the foregoing requirement allow such Optionee, Grantee or

Restricted Stockholder to elect to have the Company withhold shares of Common

Stock (or allow the return of shares of Common Stock) having a Fair Market Value

equal to the sums required to be withheld.

 

          10.7  Loans.  The Committee may, in its discretion, extend one or more

                -----                                                          

loans to key Employees in connection with the exercise or receipt of an Option,

Performance Award, Stock Appreciation Right, Dividend Equivalent or Stock

Payment granted under this Plan, or the issuance of Restricted Stock or Deferred

Stock awarded under this Plan.  The terms and conditions of any such loan shall

be set by the Committee.

 

          10.8  Limitations Applicable to Section 16 Persons and Performance-

                ------------------------------------------------------------

Based Compensation.  Notwithstanding any other provision of this Plan, any

- ------------------                                                        

Option, Performance Award, Stock Appreciation Right, Dividend Equivalent or

Stock Payment granted, or Restricted Stock or Deferred Stock awarded, to a key

Employee or Director who is then subject to Section 16 of the Exchange Act,

 

 

                                      16

<PAGE>

 

shall be subject to any additional limitations set forth in any applicable

exemptive rule under Section 16 of the Exchange Act (including any amendment to

Rule 16b-3 of the Exchange Act) that are requirements for the application of

such exemptive rule, and this Plan shall be deemed amended to the extent

necessary to conform to such limitations.  Furthermore, notwithstanding any

other provision of this Plan, any Option or Stock Appreciation Right intended to

qualify as performance-based compensation as described in Section 162(m)(4)(C)

of the Code shall be subject to any additional limitations set forth in Section

162(m) of the Code (including any amendment to Section 162(m) of the Code) or

any regulations or rulings issued thereunder that are requirements for

qualification as performance-based compensation as described in Section

162(m)(4)(C) of the Code, and this Plan shall be deemed amended to the extent

necessary to conform to such requirements.

 

          10.9  Effect of Plan Upon Options and Compensation Plans.  The

                --------------------------------------------------     

adoption of this Plan shall not affect any other compensation or incentive plans

in effect for the Company or any Subsidiary.  Nothing in this Plan shall be

construed to limit the right of the Company (i) to establish any other forms of

incentives or compensation for Employees of the Company or any Subsidiary or

(ii) to grant or assume options or other rights otherwise than under this Plan

in connection with any proper corporate purpose including but not by way of

limitation, the grant or assumption of options in connection with the

acquisition by purchase, lease, merger, consolidation or otherwise, of the

business, stock or assets of any corporation, partnership, firm or association.

 

          10.10 Compliance with Laws.  This Plan, the granting and vesting of

                --------------------                                         

Options, Restricted Stock awards, Deferred Stock awards, Performance Awards,

Stock Appreciation Rights, Dividend Equivalents or Stock Payments under this

Plan and the issuance and delivery of shares of Common Stock and the payment of

money under this Plan or under Options, Performance Awards, Stock Appreciation

Rights, Dividend Equivalents or Stock Payments granted or Restricted Stock or

Deferred Stock awarded hereunder are subject to compliance with all applicable

federal and state laws, rules and regulations (including but not limited to

state and federal securities law and federal margin requirements) and to such

approvals by any listing, regulatory or governmental authority as may, in the

opinion of counsel for the Company, be necessary or advisable in connection

therewith.  Any securities delivered under this Plan shall be subject to such

restrictions, and the person acquiring such securities shall, if requested by

the Company, provide such assurances and representations to the Company as the

Company may deem necessary or desirable to assure compliance with all applicable

legal requirements.  To the extent permitted by applicable law, the Plan,

Options, Restricted Stock awards, Deferred Stock awards, Performance Awards,

Stock Appreciation Rights, Dividend Equivalents or Stock Payments granted or

awarded hereunder shall be deemed amended to the extent necessary to conform to

such laws, rules and regulations.

 

          10.11 Titles.  Titles are provided herein for convenience only and are

                ------                                                         

not to serve as a basis for interpretation or construction of this Plan.

 

          10.12 Governing Law.  This Plan and any agreements hereunder shall be

                -------------                                                 

administered, interpreted and enforced under the internal laws of the State of

California without regard to conflicts of laws thereof.

 

 

                                      17

</TEXT>

</DOCUMENT>

<DOCUMENT>

<TYPE>EX-4.2

<SEQUENCE>3

<DESCRIPTION>FORM OF INCENTIVE STOCK OPTION PLAN

<TEXT>

 

<PAGE>

 

                                                                     EXHIBIT 4.2

 

                       INCENTIVE STOCK OPTION AGREEMENT

                       --------------------------------

 

 

          THIS AGREEMENT, dated ____________, 19__, is made by and between

Mercury General Corporation, a California corporation hereinafter referred to as

"Company," and ____________________, an employee of the Company or a Subsidiary

of the Company, hereinafter referred to as "Employee":

 

          WHEREAS, the Company wishes to afford the Employee the opportunity to

purchase shares of its no par value Common Stock; and

 

          WHEREAS, the Company wishes to carry out the 1995 Equity Participation

Plan of Mercury General Corporation (the "Plan"), (the terms of which are hereby

incorporated by reference and made a part of this Agreement); and

 

          WHEREAS, the Committee, appointed to administer the Plan, has

determined that it would be to the advantage and best interest of the Company

and its stockholders to grant the Incentive Stock Option provided for herein to

the Employee as an inducement to enter into or remain in the service of the

Company or its Subsidiaries and as an incentive for increased efforts during

such service, and has advised the Company thereof and instructed the undersigned

officers to issue said Option;

 

          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

 

                                  DEFINITIONS

                                  -----------

 

          Whenever the following terms are used in this Agreement, they shall

have the meaning specified below unless the context clearly indicates otherwise.

 

Section 1.1 - Board  "Board" shall mean the Board of Directors of the Company.

- -----------   -----                                                          

 

Section 1.2 - Code  "Code" shall mean the Internal Revenue Code of 1986, as

- -----------   ----                                                         

amended.

 

Section 1.3 - Committee  "Committee" shall mean the Compensation Committee of

- -----------   ---------                                                     

the Board or a subcommittee of the Board, appointed as provided in the Plan.

 

Section 1.4 - Company  "Company" shall mean Mercury General Corporation, a

- -----------   -------                                                    

California corporation.

 

Section 1.5 - Director  "Director" shall mean a member of the Board.

- -----------   --------                                             

 

Section 1.6 - Exchange Act  "Exchange Act" shall mean the Securities Exchange

- -----------   ------------                                                  

Act of 1934, as amended.

 

Section 1.7 - Officer  "Officer" shall mean an officer of the Company, as

- -----------   -------                                                   

defined in Rule 16a-1(f) under the Exchange Act, as such Rule may be amended in

the future.

 

                                       1

<PAGE>

 

Section 1.8 - Option  "Option" shall mean the incentive stock option to purchase

- -----------   ------                                                           

Common Stock of the Company granted under this Agreement.

 

Section 1.9 - Plan  "Plan" shall mean the 1995 Equity Participation Plan of

- -----------   ----                                                        

Mercury General Corporation.

 

Section 1.10 - Rule 16b-3  "Rule 16b-3" shall mean that certain Rule 16b-3 under

- ------------   ----------                                                      

the Exchange Act, as such Rule may be amended in the future.

 

Section 1.11 - Secretary  "Secretary" shall mean the Secretary of the Company.

- ------------   ---------                                                     

 

Section 1.12 - Securities Act  "Securities Act" shall mean the Securities Act of

- ------------   --------------                                                  

1933, as amended.

 

Section 1.13 - Subsidiary  "Subsidiary" shall mean any corporation in an

- ------------   ----------                                              

unbroken chain of corporations beginning with the Company if each of the

corporations other than the last corporation in the unbroken chain then owns

stock possessing fifty percent (50%) or more of the total combined voting power

of all classes of stock in one (1) of the other corporations in such chain.

 

Section 1.14 - Termination of Employment  "Termination of Employment" shall mean

- ------------   -------------------------                                       

the time when the employee-employer relationship between the Optionee and the

Company or a Subsidiary is terminated for any reason, with or without cause,

including, but not by way of limitation, a termination by resignation,

discharge, death, disability or retirement, but excluding (i) terminations where

there is a simultaneous reemployment or continuing employment of an Optionee by

the Company or a Subsidiary and (ii) at the discretion of the Committee,

terminations which result in a temporary severance of the employee-employer

relationship.  The Committee, in its absolute discretion, shall determine the

effect of all other matters and questions relating to Termination of Employment,

including, but not by way of limitation, the question of whether a Termination

of Employment resulted from a discharge for good cause, and all questions of

whether particular leaves of absence constitute Terminations of Employment;

provided, however, that a leave of absence shall constitute a Termination of

Employment if, and to the extent that, such leave of absence interrupts

employment for purposes of Section 422(a)(2) of the Code and the then applicable

regulations and revenue rulings under said Section.

 

 

                                   ARTICLE II

 

                                GRANT OF OPTION

                                ---------------

 

Section 2.1 - Grant of Option

- -----------   ---------------

 

          In consideration of the Employee's agreement to remain in the employ

of the Company or its Subsidiaries and for other good and valuable

consideration, on the date hereof the Company irrevocably grants to the Employee

the option to purchase any part or all of an aggregate of ________ shares of its

no par value Common Stock, upon the terms and conditions set forth in this

Agreement.

 

Section 2.2 - Purchase Price

- -----------   --------------

 

          The purchase price of the shares of stock covered by the Option shall

be $_____ per share without commission or other charge.

 

 

                                       2

<PAGE>

 

Section 2.3 - Consideration to Company

- -----------   ------------------------

 

          In consideration of the granting of this Option by the Company, the

Employee agrees to render faithful and efficient services to the Company or a

Subsidiary, with such duties and responsibilities as the Company shall from time

to time prescribe, for a period of at least one (1) year from the date this

Option is granted. Nothing in this Agreement or in the Plan shall confer upon

the Employee any right to continue in the employ of the Company or any

Subsidiary or shall interfere with or restrict in any way the rights of the

Company and its Subsidiaries, which are hereby expressly reserved, to discharge

the Employee at any time for any reason whatsoever, with or without cause.

 

Section 2.4 - Adjustments in Option

- -----------   ---------------------

 

          In the event that the outstanding shares of the stock subject to the

Option are changed into or exchanged for a different number or kind of shares of

the Company or other securities of the Company by reason of merger,

consolidation, recapitalization, reclassification, stock split up, stock

dividend or combination of shares, the Committee shall make an appropriate and

equitable adjustment in the number and kind of shares as to which the Option, or

portions thereof then unexercised, shall be exercisable, to the end that after

such event the Employee's proportionate interest shall be maintained as before

the occurrence of such event.  Such adjustment in the Option shall be made

without change in the total price applicable to the unexercised portion of the

Option (except for any change in the aggregate price resulting from rounding-off

of share quantities or prices) and with any necessary corresponding adjustment

in the Option price per share; provided, however, that each such adjustment

shall be made in such manner as not to constitute a "modification" within the

meaning of Section 424(h)(3) of the Code.  Any such adjustment made by the

Committee shall be final and binding upon the Employee, the Company and all

other interested persons.

 

 

                                  ARTICLE III

 

                            PERIOD OF EXERCISABILITY

                            ------------------------

 

Section 3.1 - Commencement of Exercisability

- -----------   ------------------------------

 

          (a)  Subject to Sections 3.5 and 5.6, the Option shall become

exercisable in five (5) cumulative installments as follows:

 

               (i)  The first installment shall consist of one-fifth (1/5th) of

     the shares covered by the Option and shall become exercisable on the first

     anniversary of the date the Option is granted.

 

               (ii) The second installment shall consist of one-fifth (1/5th) of

     the shares covered by the Option and shall become exercisable on the second

     anniversary of the date the Option is granted.

 

               (iii) The third installment shall consist of one-fifth (1/5th) of

     the shares covered by the Option and shall become exercisable on the third

     anniversary of the date the Option is granted.

 

 

                                       3

<PAGE>

 

               (iv) The fourth installment shall consist of one-fifth (1/5th) of

     the shares covered by the Option and shall become exercisable on the fourth

     anniversary of the date the Option is granted.

 

               (v) The fifth installment shall consist of one-fifth (1/5th) of

     the shares covered by the Option and shall become exercisable on the fifth

     anniversary of the date the Option is granted.

 

          (b)  No portion of the Option which is unexercisable at Termination of

Employment shall thereafter become exercisable.

 

Section 3.2 - Duration of Exercisability

- -----------   --------------------------

 

          The installments provided for in Section 3.1 are cumulative.  Each

such installment which becomes exercisable pursuant to Section 3.1 shall remain

exercisable until it becomes unexercisable under Section 3.3.

 

Section 3.3 - Expiration of Option

- -----------   --------------------

 

          The Option may not be exercised to any extent by anyone after the

first to occur of the following events:

 

          (a)  The expiration of ten (10) years from the date the Option was

granted; or

 

          (b)  If the Employee owned (within the meaning of Section 424(d) of

the Code), at the time the Option was granted, more than ten percent (10%) of

the total combined voting power of all classes of stock of the Company or any

Subsidiary, the expiration of five (5) years from the date the Option was

granted; or

 

          (c)  The time of the Employee's Termination of Employment unless such

Termination of Employment results from his death, his retirement, his disability

(within the meaning of Section 22(e)(3) of the Code) or his being discharged not

for good cause; or

 

          (d)  The expiration of three (3) months from the date of the

Employee's Termination of Employment by reason of his retirement or his being

discharged not for good cause, unless the Employee dies within said three-month

period; or

 

          (e)  The expiration of one (1) year from the date of the Employee's

Termination of Employment by reason of his disability (within the meaning of

Section 22(e)(3) of the Code); or

 

          (f)  The expiration of one (1) year from the date of the Employee's

death; or

 

          (g)  The effective date of either the merger or consolidation of the

Company with or into another corporation, the exchange of all or substantially

all of the assets of the Company for the securities of another corporation, the

acquisition by another corporation or person of all or substantially all of the

Company's assets or eighty percent (80%) or more of the Company's then

outstanding voting stock, or the liquidation or dissolution of the Company,

unless the Committee waives this provision in connection with such transaction.

At least ten (10) days prior to the effective date of such merger,

consolidation,

 

 

                                       4

<PAGE>

 

acquisition, liquidation or dissolution, the Committee shall give the Employee

notice of such event if the Option has then neither been fully exercised nor

become unexercisable under this Section 3.3.

 

Section 3.4 - Acceleration of Exercisability

- -----------   ------------------------------

 

          In the event of the merger or consolidation of the Company with or

into another corporation, the exchange of all or substantially all of the assets

of the Company for the securities of another corporation, the acquisition by

another corporation or person of all or substantially all of the Company's

assets or eighty percent (80%) or more of the Company's then outstanding voting

stock, or the liquidation or dissolution of the Company, the Committee may, in

its absolute discretion and upon such terms and conditions as it deems

appropriate, provide by resolution, adopted prior to such event and incorporated

in the notice referred to in Section 3.3(g), that at some time prior to the

effective date of such event this Option shall be exercisable as to all the

shares covered hereby, notwithstanding that this Option may not yet have become

fully exercisable under Section 3.1(a); provided, however, that this

acceleration of exercisability shall not take place if:

 

          (a)  This Option becomes unexercisable under Section 3.3 prior to said

effective date; or

 

          (b)  In connection with such an event, provision is made for an

assumption of this Option or a substitution therefor of a new option by an

employer corporation, or a parent or subsidiary of such corporation, so that

such assumption or substitution complies with the provisions of Section 424(a)

of the Code; and

 

provided, further, that nothing in this Section 3.4 shall make this Option

exercisable if it is otherwise unexercisable by reason of Section 3.5 or Section

5.6.

 

          The Committee may make such determinations and adopt such rules and

conditions as it, in its absolute discretion, deems appropriate in connection

with such acceleration of exercisability, including, but not by way of

limitation, provisions to ensure that any such acceleration and resulting

exercise shall be conditioned upon the consummation of the contemplated

corporate transaction, and determinations regarding whether provisions for

assumption or substitution have been made as defined in subsection (b) above.

 

Section 3.5 - Special Tax Consequences

- -----------   ------------------------

 

          The Employee acknowledges that, to the extent that the aggregate fair

market value of stock with respect to which "incentive stock options" (within

the meaning of Section 422 of the Code, but without regard to Section 422(d) of

the Code), including the Option, are exercisable for the first time by the

Employee during any calendar year (under the Plan and all other incentive stock

option plans of the Company and any Subsidiary) exceeds $100,000, such options

shall be treated as not qualifying under Section 422 of the Code but rather

shall be taxed as non-qualified options.  The Employee further acknowledges that

the rule set forth in the preceding sentence shall be applied by taking options

into account in the order in which they were granted.  For purposes of these

rules, the fair market value of stock shall be determined as of the time the

option with respect to such stock is granted.

 

 

                                       5

<PAGE>

 

                                  ARTICLE IV

 

                              EXERCISE OF OPTION

                              ------------------

 

Section 4.1 - Person Eligible to Exercise

- -----------   ---------------------------

 

          During the lifetime of the Employee, only he may exercise the Option

or any portion thereof.  After the death of the Employee, any exercisable

portion of the Option may, prior to the time when the Option becomes

unexercisable under Section 3.3, be exercised by his personal representative or

by any person empowered to do so under the Employee's will or under the then

applicable laws of descent and distribution.

 

Section 4.2 - Partial Exercise

- -----------   ----------------

 

          Any exercisable portion of the Option or the entire Option, if then

wholly exercisable, may be exercised in whole or in part at any time prior to

the time when the Option or portion thereof becomes unexercisable under Section

3.3; provided, however, that each partial exercise shall be for not less than

one hundred (100) shares (or the minimum installment set forth in Section 3.1,

if a smaller number of shares) and shall be for whole shares only.

 

Section 4.3 - Manner of Exercise

- -----------   ------------------

 

          The Option, or any exercisable portion thereof, may be exercised

solely by delivery to the Secretary or his office of all of the following prior

to the time when the Option or such portion becomes unexercisable under Section

3.3:

 

          (a)  Notice in writing signed by the Employee or the other person then

entitled to exercise the Option or portion, stating that the Option or portion

is thereby exercised, such notice complying with all applicable rules

established by the Committee; and

 

          (b) (i)  Full payment (in cash or by check) for the shares with

     respect to which such Option or portion is exercised; or

 

              (ii) With the consent of the Committee, (A) shares of the

     Company's Common Stock owned by the Employee duly endorsed for transfer to

     the Company or (B) subject to the timing requirements of Section 4.4,

     shares of the Company's Common Stock issuable to the Employee upon exercise

     of the Option, with a fair market value (as determined under the Plan) on

     the date of Option exercise equal to the aggregate purchase price of the

     shares with respect to which such Option or portion is exercised; or

 

              (iii) With the consent of the Committee, a full recourse

     promissory note bearing interest (at no less than such rate as shall then

     preclude the imputation of interest under the Code or successor provision)

     and payable upon such terms as may be prescribed by the Committee. The

     Committee may also prescribe the form of such note and the security to be

     given for such note. The Option may not be exercised, however, by delivery

     of a promissory note or by a loan from the Company when or where such loan

     or other extension of credit is prohibited by law; or

 

 

                                       6

<PAGE>

 

              (iv)  With the consent of the Committee, delivery of property of

     any kind which constitutes good and valuable consideration with a fair

     market value on the date of Option exercise equal to the aggregate purchase

     price of the shares with respect to which such Option or portion is

     exercised; or

 

              (v)  With the consent of the Committee, any combination of the

     consideration provided in the foregoing subparagraphs (i), (ii), (iii) and

     (iv); and

 

          (c)  A bona fide written representation and agreement, in a form

satisfactory to the Committee, signed by the Employee or other person then

entitled to exercise such Option or portion, stating that the shares of stock

are being acquired for his own account, for investment and without any present

intention of distributing or reselling said shares or any of them except as may

be permitted under the Securities Act and then applicable rules and regulations

thereunder, and that the Employee or other person then entitled to exercise such

Option or portion will indemnify the Company against and hold it free and

harmless from any loss, damage, expense or liability resulting to the Company if

any sale or distribution of the shares by such person is contrary to the

representation and agreement referred to above.  The Committee may, in its

absolute discretion, take whatever additional actions it deems appropriate to

insure the observance and performance of such representation and agreement and

to effect compliance with the Securities Act and any other federal or state

securities laws or regulations.  Without limiting the generality of the

foregoing, the Committee may require an opinion of counsel acceptable to it to

the effect that any subsequent transfer of shares acquired on an Option exercise

does not violate the Securities Act, and may issue stop-transfer orders covering

such shares.  Share certificates evidencing stock issued on exercise of this

Option shall bear an appropriate legend referring to the provisions of this

subsection (c) and the agreements herein.  The written representation and

agreement referred to in the first sentence of this subsection (c) shall,

however, not be required if the shares to be issued pursuant to such exercise

have been registered under the Securities Act, and such registration is then

effective in respect of such shares;

 

          (d)  Full payment to the Company (or other employer corporation) of

all amounts which, under federal, state or local tax law, it is required to

withhold upon exercise of the Option; with the consent of the Committee, (i)

shares of the Company's Common Stock owned by the Employee duly endorsed for

transfer or (ii) subject to the timing requirements of Section 4.4, shares of

the Company's Common Stock issuable to the Employee upon exercise of the Option,

valued in accordance with the Plan at the date of Option exercise, may be used

to make all or part of such payment; and

 

          (e)  In the event the Option or portion shall be exercised pursuant to

Section 4.1 by any person or persons other than the Employee, appropriate proof

of the right of such person or persons to exercise the Option.

 

Section 4.4 - Certain Timing Requirements

- -----------   ---------------------------

 

          Shares of the Company's Common Stock issuable to the Employee upon

exercise of the Option may be used to satisfy the Option price or the tax

withholding consequences of such exercise only (i) during the period beginning

on the third (3rd) business day following the date of release of the quarterly

or annual summary statement of sales and earnings of the Company and ending on

the twelfth (12th) business day following such date or (ii) pursuant to an

irrevocable written election by the Employee to use shares of the Company's

Common Stock issuable to the Employee upon exercise of the Option to

 

 

                                       7

<PAGE>

 

pay all or part of the Option price or the withholding taxes (subject to the

approval of the Committee) made at least six (6) months prior to the payment of

such Option price or withholding taxes.

 

Section 4.5 - Conditions to Issuance of Stock Certificates

- -----------   --------------------------------------------

 

          The shares of stock deliverable upon the exercise of the Option, or

any portion thereof, may be either previously authorized but unissued shares or

issued shares which have then been reacquired by the Company.  Such shares shall

be fully paid and nonassessable.  The Company shall not be required to issue or

deliver any certificate or certificates for shares of stock purchased upon the

exercise of the Option or portion thereof prior to fulfillment of all of the

following conditions:

 

          (a)  The admission of such shares to listing on all stock exchanges on

which such class of stock is then listed; and

 

          (b)  The completion of any registration or other qualification of such

shares under any state or federal law or under rulings or regulations of the

Securities and Exchange Commission or of any other governmental regulatory body,

which the Committee or Board shall, in its absolute discretion, deem necessary

or advisable; and

 

          (c)  The obtaining of any approval or other clearance from any state

or federal governmental agency which the Committee or Board shall, in its

absolute discretion, determine to be necessary or advisable; and

 

          (d)  The lapse of such reasonable period of time following the

exercise of the Option as the Committee or Board may from time to time establish

for reasons of administrative convenience; and

 

          (e)  The payment to the Company (or other employer corporation) of all

amounts which, under federal, state or local tax law, it is required to withhold

upon exercise of the Option.

 

Section 4.6 - Rights as Shareholder

- -----------   ---------------------

 

          The holder of the Option shall not be, nor have any of the rights or

privileges of, a stockholder of the Company in respect of any shares purchasable

upon the exercise of any part of the Option unless and until certificates

representing such shares shall have been issued by the Company to such holder.

 

 

                                   ARTICLE V

 

                                OTHER PROVISIONS

                                ----------------

 

Section 5.1 - Administration

- -----------   --------------

 

          The Committee shall have the power to interpret the Plan and this

Agreement and to adopt such rules for the administration, interpretation and

application of the Plan as are consistent therewith and to interpret or revoke

any such rules.  All actions taken and all interpretations and determinations

made by the Committee in good faith shall be final and binding upon the

Employee, the Company and all other interested persons.  No member of the

Committee shall be personally liable for any action, determination or

interpretation made in good faith with respect to the Plan or the Option.  In

its absolute discretion, the

 

 

                                       8

<PAGE>

 

Board may at any time and from time to time exercise any and all rights or

duties of the Committee under the Plan and this Agreement except with respect to

matters which under Rule 16b-3 or Section 162(m) of the Code, or any regulations

or rules issued thereunder, are required to be determined in the sole discretion

of the Committee.

 

Section 5.2 - Option Not Transferable

- -----------   -----------------------

 

          Neither the Option nor any interest or right therein or part thereof

shall be liable for the debts, contracts or engagements of the Employee or his

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 5.2

shall not prevent transfers by will or by the applicable laws of descent and

distribution.

 

Section 5.3 - Shares to Be Reserved

- -----------   ---------------------

 

          The Company shall at all times during the term of the Option reserve

and keep available such number of shares of stock as will be sufficient to

satisfy the requirements of this Agreement.

 

Section 5.4 - Notices

- -----------   -------

 

          Any notice to be given under the terms of this Agreement to the

Company shall be addressed to the Company in care of its Secretary, and any

notice to be given to the Employee shall be addressed to him at the address

given beneath his signature hereto.  By a notice given pursuant to this Section

5.4, either party may hereafter designate a different address for notices to be

given to him.  Any notice which is required to be given to the Employee shall,

if the Employee is then deceased, be given to the Employee's personal

representative if such representative has previously informed the Company of his

status and address by written notice under this Section 5.4.  Any notice shall

be deemed duly given when enclosed in a properly sealed envelope or wrapper

addressed as aforesaid, deposited (with postage prepaid) in a post office or

branch post office regularly maintained by the United States Postal Service.

 

Section 5.5 - Titles

- -----------   ------

 

          Titles are provided herein for convenience only and are not to serve

as a basis for interpretation or construction of this Agreement.

 

Section 5.6 - Shareholder Approval

- -----------   --------------------

 

          The Plan will be submitted for approval by the Company's stockholders

within twelve (12) months after the date the Plan was initially adopted by the

Board.  This Option may not be exercised to any extent by anyone prior to the

time when the Plan is approved by the stockholders, and if such approval has not

been obtained by the end of said twelve-month period, this Option shall

thereupon be cancelled and become null and void.

 

 

                                       9

<PAGE>

 

Section 5.7 - Notification of Disposition

- -----------   ---------------------------

 

          The Employee shall give prompt notice to the Company of any

disposition or other transfer of any shares of stock acquired under this

Agreement if such disposition or transfer is made (a) within two (2) years from

the date of granting the Option with respect to such shares or (b) within one

(1) year after the transfer of such shares to him.  Such notice shall specify

the date of such disposition or other transfer and the amount realized, in cash,

other property, assumption of indebtedness or other consideration, by the

Employee in such disposition or other transfer.

 

Section 5.8 - Construction

- -----------   ------------

 

          This Agreement shall be administered, interpreted and enforced under

the laws of the State of California.

 

Section 5.9 - Conformity to Securities Laws

- -----------   -----------------------------

 

          The Employee acknowledges that the Plan is intended to conform to the

extent necessary with all provisions of the Securities Act and the Exchange Act

and any and all regulations and rules promulgated by the Securities and Exchange

Commission thereunder, including without limitation Rule 16b-3.  Notwithstanding

anything herein to the contrary, the Plan shall be administered, and the Option

is granted and may be exercised, 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.

 

 

                                      10

<PAGE>

 

          IN WITNESS WHEREOF, this Agreement has been executed and delivered by

the parties hereto.

 

 

                                   MERCURY GENERAL CORPORATION

 

 

                                   By________________________________________

                                                    President

 

 

                                   By________________________________________

                                                    Secretary

 

 

________________________________

           Employee

 

 

 

________________________________

           Address

 

Employee's Taxpayer

Identification Number:

 

 

________________________________

 

 

                                      11