8-K

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 8-K

Current Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): August 2, 2001

Mercury General Corporation
(Exact name of registrant as specified in its charter)

California
(State or other
jurisdiction
of incorporation) 0-3681
(Commission
File Number) 95-221-1612
(I.R.S. Employer
Identification No.)

4484 Wilshire Boulevard
Los Angeles, California 90010
(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: (323) 937-1060

TABLE OF CONTENTS

	Item 5. Other Events.
	Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
SIGNATURES
EXHIBIT INDEX
EXHIBIT 1.1
EXHIBIT 4.1
EXHIBIT 5.1

     This Current Report on Form 8-K is filed by Mercury General Corporation, a California corporation (“Mercury General”), in connection with the matters described herein.

Item 5. Other Events.

     On August 2, 2001, Mercury General entered into an Underwriting Agreement with Banc of America Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Representatives of the several underwriters named therein (the “Underwriting Agreement”), relating to an underwritten offering of $125,000,000 aggregate principal amount of Mercury General’s 7.25% Senior Notes Due 2011 (the “Notes”) of Mercury General. The terms and conditions of the Notes have been established as set forth in the Officers’ Certificate of Mercury General dated August 2, 2001 (the “Officers’ Certificate”). The Underwriting Agreement and Officers’ Certificate are attached hereto as Exhibits 1.1 and 4.1, respectively, and are incorporated herein by reference.

Item 7. Financial Statements, Pro Forma Financial Information and Exhibits

(a)	Not applicable.
(b)	Not applicable.
(c)	Exhibits.

1.1	Underwriting Agreement dated as of August 2, 2001 between Mercury General Corporation and Banc of America Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Representatives of the several underwriters named therein.
4.1	Officers’ Certificate establishing Mercury General Corporation’s 7.25% Senior Notes due 2011 as a series of securities under the Indenture dated as of June 1, 2001 between Mercury General Corporation and Bank One Trust Company, N.A.
5.1	Opinion of Latham & Watkins

2

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: August 6, 2001	Mercury General Corporation
	By:	/s/ GABRIEL TIRADOR
		Gabriel Tirador Vice President and Chief Financial Officer

3

EXHIBIT INDEX

Exhibit No.
1.1	Underwriting Agreement dated as of August 2, 2001 between Mercury General Corporation and Banc of America Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Representatives of the several underwriters named therein
4.1	Officers’ Certificate establishing Mercury General Corporation’s 7.25% Senior Notes due 2011 as a series of securities under the Indenture dated as of June 1, 2001 between Mercury General Corporation and Bank One Trust Company, N.A.
5.1	Opinion of Latham & Watkins

4 EX-1.1 3 a74689ex1-1.txt EXHIBIT 1.1 1 Exhibit 1.1 MERCURY GENERAL CORPORATION Debt Securities Underwriting Agreement August 2, 2001 To the Representatives named in Schedule I hereto of the Underwriters named in Schedule II hereto Ladies and Gentlemen: MERCURY GENERAL CORPORATION, a California corporation (the "Company"), proposes to issue and sell to the underwriters named in Schedule II hereto (the "Underwriters"), for whom you are acting as representatives (the "Representatives"), the principal amount of its debt securities identified in Schedule I hereto (the "Securities"), to be issued under an Indenture, dated as of June 1, 2001 (as amended or supplemented from time to time, the "Indenture"), between the Company and Bank One Trust Company, National Association, as trustee thereunder (the "Trustee"). If the firm or firms listed in Schedule II hereto include only the firm or firms listed in Schedule I hereto, then the terms "Underwriters" and "Representatives", as used herein, shall each be deemed to refer to such firm or firms. The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-3 (No. 333-62228) under the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder (collectively, the "Securities Act"), relating to certain debt securities (the "Shelf Securities") and the offering thereof from time to time in accordance with Rule 415 of Regulation C under the Securities Act by the Company. Such registration statement and each post-effective amendment thereto, if applicable, has been declared effective by the Commission. Such registration statement, as so amended, if applicable, to the date of this Agreement (including the exhibits and schedules thereto), is hereinafter referred to as the "Registration Statement"; provided, that in the event any post-effective amendment to such registration statement or any Rule 462(b) registration statement becomes effective prior to the Closing Date, the term "Registration Statement" shall also mean such registration statement as so amended or such Rule 462(b) registration statement, as the case may be. The prospectus covering the Shelf Securities (the "Base Prospectus"), as supplemented by the prospectus supplement specifically relating to the Securities, in the forms first used to confirm sales of the Securities, are collectively hereinafter referred to as the "Prospectus". Any reference in this Agreement to the Registration Statement, the Base Prospectus, any preliminary form of prospectus (a "Preliminary Prospectus") previously filed with the Commission pursuant to Rule 424 of Regulation C under the Securities Act or the Prospectus shall be deemed to refer to and include the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the Securities Act, which were filed under the Securities Exchange Act of 1934, as 2 amended, and the rules and regulations of the Commission thereunder (collectively, the "Exchange Act"), on or before the date of this Agreement or the date of the Base Prospectus, any Preliminary Prospectus or the Prospectus, as the case may be; and any reference to "amend", "amendment" or "supplement" with respect to the Registration Statement, the Base Prospectus, any Preliminary Prospectus or the Prospectus shall be deemed to refer to and include any documents filed under the Exchange Act after the date of this Agreement or the date of the Base Prospectus, any Preliminary Prospectus or the Prospectus, as the case may be, which are deemed to be incorporated by reference therein. The Company hereby agrees with the Underwriters as follows: 1. The Company agrees to issue and sell the Securities to the several Underwriters as hereinafter provided, and each Underwriter, on the basis of the representations, warranties and agreements of the Company herein contained, but subject to the conditions hereinafter stated, agrees to purchase, severally and not jointly, from the Company the respective principal amount of Securities set forth opposite such Underwriter's name in Schedule II hereto at the purchase price set forth in Schedule I hereto plus accrued interest, if any, from the date specified in Schedule I hereto to the date of payment and delivery. 2. The Company understands that the several Underwriters intend (i) to make a public offering of their respective portions of the Securities in conformity with the Securities Act, any applicable blue sky laws and all other rules and regulations applicable to them in connection therewith and (ii) initially to offer the Securities upon the terms set forth in the Prospectus. 3. Payment for the Securities shall be made to the Company or to its order by wire transfer of same-day funds to an account designated by the Company or, if specifically requested by the Company, by certified or official bank check or checks payable to the Company in federal or other same-day funds on the date and at the time and place set forth in Schedule I hereto (or at such other time and place on the same or such other date, not later than the tenth Business Day (as hereinafter defined) thereafter, as you and the Company may agree in writing). Such payment will be made upon delivery to, or to you for the respective accounts of, such Underwriters of the Securities through the facilities of The Depository Trust Company or, if specifically requested by the Representatives, in certificated form registered in such names and in such denominations as you shall request not less than one full Business Day prior to the date of delivery with any transfer taxes payable in connection with transfer to the Underwriters duly paid by the Company. As used herein, the term "Business Day" means any day other than a day on which banks are authorized or required to be closed in the City of New York, New York. The time and date of such payment and delivery with respect to the Securities are collectively hereinafter referred to as the "Closing Date". The certificates for the Securities will be made available for inspection and packaging by you by 1:00 P.M. local time on the Business Day prior to the Closing Date at such place in the City of New York, New York as you and the Company shall agree. 2 3 4. The Company represents and warrants to each Underwriter as of the date hereof and as of the Closing Date (each, a "Representation Date") that: (a) The Company meets the requirements for use of Form S-3 under the Securities Act. The Registration Statement has been declared effective by the Commission under the Securities Act; no stop order suspending the effectiveness of the Registration Statement has been issued and no proceeding for that purpose has been instituted or, to the knowledge of the Company, threatened by the Commission; the Registration Statement and Prospectus (as amended or supplemented if the Company shall have filed with the Commission any amendments or supplements thereto) comply, or will comply, as the case may be, when they become effective or are filed with the Commission, as the case may be, in all material respects with the Securities Act and the Trust Indenture Act of 1939, as amended, and the rules and regulations of the Commission thereunder (collectively, the "Trust Indenture Act"); as of the applicable effective date and each Representation Date, the Registration Statement and any amendment thereto did not and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and as of the applicable filing date and each Representation Date, the Prospectus and any amendment or supplement thereto did not and will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the foregoing representations and warranties shall not apply to (i) that part of the Registration Statement which constitutes the Statement of Eligibility (Form T-1) under the Trust Indenture Act of the Trustee and (ii) statements or omissions in the Registration Statement or the Prospectus made in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for inclusion therein. (b) The documents incorporated by reference in the Prospectus, when they were filed with the Commission, conformed in all material respects to the requirements of the Exchange Act, and none of such documents, when they were so filed, included an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; and any further documents so filed and incorporated by reference in the Prospectus, when such documents are filed with the Commission, will conform in all material respects to the requirements of the Exchange Act, as applicable, and will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (c) This Agreement has been duly authorized, executed and delivered by the Company. (d) The Indenture has been duly qualified under the Trust Indenture Act, has been duly authorized, executed and delivered by the Company and, assuming due authorization, execution 3 4 and delivery by the Trustee, constitutes a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms (subject to applicable bankruptcy, insolvency and other laws affecting the enforceability of creditors' rights generally and to general principles of equity regardless of whether enforcement is considered in a proceeding in equity or at law); the Securities have been duly authorized by the Company and, when executed and authenticated in accordance with the terms of the Indenture and delivered to and paid for by the Underwriters in accordance with the terms of this Agreement, will have been duly executed and delivered by the Company and will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms and the terms of the Indenture (subject to applicable bankruptcy, insolvency and other laws affecting the enforceability of creditors' rights generally and to general principles of equity regardless of whether enforcement is considered in a proceeding in equity or at law), and holders of the Securities will be entitled to the benefits provided for in the Indenture; and the Securities and the Indenture conform in all material respects to the descriptions thereof in the Prospectus. (e) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of California, with corporate power and authority to own its properties and conduct its business as described in the Prospectus, and has been duly qualified as a foreign corporation for the transaction of business and is in good standing (or the local equivalent) under the laws of each other jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification, or is subject to no material liability or disability by reason of the failure to be so qualified in any such jurisdiction. (f) Other than Mercury Casualty Company and Mercury Insurance Company (each a "Subsidiary" and collectively, the "Subsidiaries"), the Company has no subsidiaries that would, individually or in the aggregate, constitute a "significant subsidiary" (as such term is defined in Rule 1-02 of Regulation S-X) as of the last day of the Company's most recent fiscal quarter; each of the Subsidiaries has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, with corporate power and authority to own its properties and conduct its business as described in the Prospectus, and has been duly qualified as a foreign corporation for the transaction of business and is in good standing (or the local equivalent) under the laws of each other jurisdiction in which it owns or leases properties, or conducts any business, so as to require such qualification, or is subject to no material liability or disability by reason of the failure to be so qualified in any such jurisdiction. (g) The authorized, issued and outstanding shares of capital stock of the Company are as set forth in the column entitled "Actual" under the "Capitalization" section of the Prospectus, such shares of capital stock have been duly authorized and validly issued by the Company and are fully paid and non-assessable, and none of such shares of capital stock were issued in violations of preemptive or other similar rights of any security holder of the Company; all of the outstanding shares of capital stock of each Subsidiary have been duly authorized and validly issued and are fully paid and non-assessable, except as otherwise set forth in the Prospectus, all outstanding shares of capital stock of the Subsidiaries are owned by the Company, either directly or through 4 5 wholly owned subsidiaries, free and clear of any perfected security interest or any other security interests, liens or encumbrances. (h) The financial statements and schedules of the Company and its consolidated subsidiaries included or incorporated by reference in the Prospectus and the Registration Statement fairly present in all material respects the consolidated financial condition, results of operations and cash flows of the Company and its consolidated subsidiaries as of the dates and for the periods indicated, and have been prepared in conformity with generally accepted accounting principles applied on a consistent basis throughout the periods involved (except as otherwise noted therein). (i) KPMG LLP, who have certified certain financial statements included or incorporated by reference in the Prospectus, are independent public accountants as required by the Securities Act. (j) Since the respective dates as of which information is given in the Registration Statement and the Prospectus, except as otherwise stated therein, there (A) has been no material adverse change, or any development involving a prospective material adverse exchange, in or affecting the business, financial position or results of operations of the Company and its subsidiaries taken as a whole, whether or not arising in the ordinary course of business (a "Material Adverse Change") and (B) have been no transactions entered into by the Company or any of its subsidiaries, other than those arising in the ordinary course of business, which are material with respect to the Company and its subsidiaries considered as one enterprise. (k) The execution, delivery and performance of this Agreement, the Indenture and any other agreement or instrument entered into or issued by the Company in connection with the transactions contemplated hereby or thereby or in the Registration Statement and the Prospectus, the consummation of the transactions contemplated herein and in the Registration Statement and the Prospectus and compliance by the Company with its obligations hereunder and thereunder do not and will not conflict with or result in a breach of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon any assets, properties or operations of the Company or any of its subsidiaries pursuant to, any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which it or any of them may be bound or to which any of the assets, properties or operations of the Company or any of its subsidiaries is subject (collectively, the "Agreements and Instruments"), the result of which would cause a Material Adverse Change, nor will any of the above actions result in any violation of the provisions of the charter or bylaws of the Company or any of its subsidiaries or any applicable law or statute or any order, rule, regulation or judgment of any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or any of their assets, properties or operations. 5 6 (l) There is no action, suit, proceeding, inquiry or investigation before, or brought by, any court or governmental agency or body now pending or, to the knowledge of the Company, threatened against or affecting the Company or any of its subsidiaries which is required to be disclosed in the Registration Statement and the Prospectus (other than as stated therein), or which might reasonably be expected to result in a Material Adverse Change, or have a material adverse effect on the consummation of the transactions contemplated by the Prospectus, this Agreement or the Indenture or the performance by the Company of its obligations hereunder and thereunder; and the aggregate of all pending legal or governmental proceedings to which the Company or any of its subsidiaries is a party or of which any of their respective assets, properties or operations is the subject which are not described in the Registration Statement and the Prospectus, including ordinary routine litigation incidental to the business, is not reasonably expected to result in a Material Adverse Change. (m) No consent, approval, authorization, order, registration or qualification of or with any court or governmental agency or body is required for the due authorization, execution and delivery by the Company of this Agreement or for the performance by the Company of the transactions contemplated by the Prospectus, this Agreement or the Indenture, except such as have already been made, obtained or rendered, as applicable. (n) Each insurance company subsidiary of the Company (collectively, the "Insurance Subsidiaries") is duly licensed as an insurance company in its jurisdiction of organization and is duly licensed or authorized as an insurer in each jurisdiction outside its jurisdiction of organization where it is required to be so licensed or authorized to conduct its business as described in the Registration Statement and the Prospectuses, except where the failure to be so licensed or authorized would not result in a Material Adverse Change. (o) Each of the Company and each Insurance Subsidiary is in compliance with the requirements of the insurance laws of the jurisdiction of its incorporation or domicile and any applicable regulations thereunder and has filed all reports, registrations, documents or other information required to be filed thereunder, except where the failure to comply or file would not result in a Material Adverse Change; and each of the Insurance Subsidiaries is in compliance with the insurance laws and regulations of each other jurisdiction that is applicable to such Insurance Subsidiary, except where the failure to comply would not result in a Material Adverse Change. (p) The statutory annual and quarterly statements of the Insurance Subsidiaries required to be filed, including the statutory balance sheets and income statements included in such statutory annual and quarterly statements, most recently filed in each jurisdiction, have been prepared in all material respects in conformity with required or permitted statutory accounting principles or practices consistently followed, except as may otherwise be indicated in the notes thereto, and fairly present in all material respects the financial position of the Insurance Subsidiaries (on a statutory basis) for the periods covered thereby. (q) All ceded reinsurance treaties, contracts, agreements and arrangements to which 6 7 the Company or any of its Insurance Subsidiaries is a party are in full force and effect and neither the Company nor any of its Insurance Subsidiaries is in violation of, or in default in the performance, observance or fulfillment of, any obligation, agreement, covenant or condition contained therein, except for such violations or defaults which could not reasonably be expected, singly or in the aggregate, to have a Material Adverse Effect; neither the Company nor any of its Insurance Subsidiaries has received any notice from any of the other parties to such treaties, contracts, agreements or arrangements indicating that such other party intends not to perform in any material respect its obligations thereunder and none of the Company nor any of its Insurance Subsidiaries has any reason to believe that any of the other parties to such treaties, contracts, agreements or arrangements will be unable to perform its obligations thereunder, except to the extent that (i) the Company or such Insurance Subsidiary has established appropriate reserves on its financial statements therefor or (ii) such nonperformance could not reasonably be expected, singly or in the aggregate, to result in a Material Adverse Change. (r) The Company is not and, after giving effect to the offering and sale of the Securities and the application of the proceeds thereof as described in the Prospectus, will not be an "investment company" as defined in the Investment Company Act of 1940, as amended (the "Investment Company Act"). Any certificate signed by any officer of the Company and delivered to the Representatives or counsel for the Underwriters in connection with the offering of the Securities shall be deemed a representation and warranty by the Company as to matters covered thereby to each Underwriter. 5. The Company covenants and agrees with each Underwriter as follows: (a) To file the Prospectus in a form approved by you (such approval not to be unreasonably withheld or delayed) pursuant to Rule 424 of Regulation C under the Securities Act not later than the Commission's close of business on the second Business Day following the date of determination of the offering price of the Securities . (b) To deliver to each Representative and counsel for the Underwriters, at the expense of the Company, a conformed copy of the Registration Statement (as originally filed) and each amendment thereto prior to the Closing Date, in each case including exhibits and documents incorporated by reference therein and, during the period mentioned in paragraph (e) below, to each of the Underwriters as many copies of the Prospectus (including all amendments and supplements thereto) and documents incorporated by reference therein as you may reasonably request. (c) For so long as the delivery of a Prospectus is required in connection with the offering or sale of the Securities, to furnish to you a copy of any proposed amendment or supplement to the Registration Statement or the Prospectus, for your review, and not to file any such proposed amendment or supplement to which you reasonably and timely object in writing; provided, however, that the provisions of this paragraph (c) shall not apply to any of the 7 8 Company's periodic filings under the Exchange Act described in paragraph (d), copies of which filings the Company has delivered to you in advance of their transmission to the Commission for filing. (d) To file promptly all reports and any definitive proxy or information statements required to be filed by the Company with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act for so long as the delivery of a Prospectus is required in connection with the offering or sale of the Securities, and during such same period, to advise you promptly, and to confirm such advice in writing, (i) when the Prospectus, and any supplement thereto, shall have been filed (if required) with the Commission pursuant to Rule 424 of Regulation C under the Securities Act or when any Rule 462(b) Registration Statement related to the Securities shall have been filed with the Commission, (ii) when any amendment to the Registration Statement shall have become effective during any time period when the Prospectus is required to be delivered under the Securities Agreement, (iii) of any request, during any time period when the Prospectus is required to be delivered under the Securities Act, by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for any additional information, insofar as such amendment or supplement relates to or covers the Company generally or the Securities specifically, (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation or threatening of any proceeding for that purpose at any time prior to the Closing Date and (v) of the receipt by the Company of any notification with respect to any suspension of the qualification of the Securities for offer and sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and to use its best efforts to prevent the issuance of any such stop order or notification and, if issued, to obtain as soon as possible the withdrawal thereof. (e) If, at any time when the Prospectus is required to be delivered under the Securities Act, any event shall occur or condition shall exist as a result of which it is necessary to amend or supplement the Prospectus in order to make the statements therein, in the light of the circumstances when the Prospectus is delivered to a purchaser, not misleading or, if it is necessary to amend or supplement the Prospectus to comply with law, to promptly prepare and furnish, subject to subsection (c) above, at the expense of the Company (unless such event shall occur more than nine months after the date of the Prospectus, in which case the cost of preparing and furnishing such amendments or supplements shall be borne by the Underwriter or Underwriters requesting the same), to the Underwriters and to the dealers (whose names and addresses you will furnish to the Company) to which Securities may have been sold by you on behalf of the Underwriters and to any other dealers upon request, such amendments or supplements to the Prospectus as may be necessary so that the statements in the Prospectus as so amended or supplemented will not, in the light of the circumstances when the Prospectus is delivered to a purchaser, be misleading or so that the Prospectus will comply with law. (f) To make generally available to its security holders and to you as soon as practicable, but in any event not later than eighteen months after the effective date of the Registration Statement (as defined in Section 158(c) under the Securities Act), an earnings 8 9 statement of the Company and its subsidiaries, which shall satisfy the provisions of Section 11(a) of the Securities Act. (g) From and including the date hereof to and including the Business Day following the Closing Date, not to offer, sell, contract to sell or otherwise dispose of any debt securities of or guaranteed by, the Company, which are substantially similar to the Securities, without your prior written consent. (h) The Company will use its reasonable efforts to arrange, if necessary, for the qualification of the Securities for sale under the laws of such jurisdictions as the Representatives may designate and to maintain such qualifications in effect so long as required for the distribution of the Securities and will pay any fee of the National Association of Securities Dealers, Inc. in connection with its review of the offering; provided, that in no event shall the Company be obligated to qualify to do business in any jurisdiction in which it is not now so qualified or to take any action that would subject it to service of process in suits, other than those arising out of the offering or sale of the Securities, in any jurisdiction in which it is not now so subject. (i) To pay, except as otherwise provided in paragraph (e) above, all costs and expenses incident to the performance of its obligations hereunder, including, without limiting the generality of the foregoing, all costs and expenses (i) incident to the preparation, issuance, execution, authentication and delivery of the Securities, including any expenses of the Trustee, (ii) incident to the preparation and filing under the Securities Act of the Registration Statement, the Prospectus and any Preliminary Prospectus (including, in each case, all exhibits, amendments and supplements thereto), (iii) incident to the printing and delivery of reasonable quantities of the Registration Statement, the Prospectus and any Preliminary Prospectus (including, in each case, all exhibits, amendments and supplements thereto), (iv) incurred in connection with the registration or qualification and determination of eligibility for investment of the Securities under the laws of such jurisdictions as the Underwriters may designate (including the fees and disbursements of counsel for the Underwriters in an amount not to exceed $7,500), (v) in connection with any listing of the Securities on any stock exchange or quotation system, (vi) related to any required filing with the National Association of Securities Dealers, Inc., (vii) in connection with the printing (including word processing and duplication costs) and delivery of this Agreement, the Indenture, the Preliminary and Final Blue Sky Memoranda and any Legal Investment Survey and (viii) payable to rating agencies in connection with the rating of the Securities; provided, however, that, except as provided in this Section 5(i) and in Sections 7 and 10 hereof, the Underwriters shall pay their own costs and expenses, including the fees and expenses of their counsel, any transfer taxes on the Securities which they may sell and the expenses of advertising any offering of the Securities made by the Underwriters. (j) The Company will not take, directly or indirectly, any action designed to or which has constituted or which might reasonably be expected to cause or result, under the Exchange Act or otherwise, in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities. 9 10 6. The several obligations of the Underwriters hereunder shall be subject to the following conditions: (a) The representations and warranties of the Company contained herein are true and correct on and as of the Closing Date, as if made on and as of the Closing Date, and the Company shall have complied with all agreements and all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date. (b) The Prospectus shall have been filed with the Commission pursuant to Rule 424 of Regulation C under the Securities Act within the applicable time period prescribed for such filing by the rules and regulations under the Securities Act; no stop order suspending the effectiveness of the Registration Statement shall be in effect and no proceedings for such purpose shall be pending before or, to the knowledge of the Company, threatened by the Commission; and all reasonable requests for additional information on the part of the Commission shall have been complied with to your satisfaction. (c) From and including the date of this Agreement to and including the Closing Date, there shall not have occurred any downgrading, nor shall any notice have been given of (i) any intended or potential downgrading or (ii) any probable change that does not indicate an improvement in the rating accorded any securities of, or guaranteed by, the Company by Moody's Investors Service, Inc. or Standard & Poor's Ratings Services. (d) Since the respective dates as of which information is given in the Prospectus, there shall not have been any Material Adverse Change, otherwise than as set forth or contemplated in the Prospectus, the effect of which, in the judgment of the Representatives, makes it impracticable or inadvisable to proceed with the public offering or the delivery of the Securities on the terms and in the manner contemplated in the Prospectus. (e) The Representatives shall have received, on and as of the Closing Date, a certificate of the Chief Financial Officer of the Company to the effect set forth in subsections (a) through (c) of this Section and to the further effect that there has not occurred any Material Adverse Change, otherwise than as set forth or contemplated in the Prospectus. (f) Latham & Watkins, counsel for the Company, shall have furnished to you their written opinion, dated as of the Closing Date, in form and substance satisfactory to you, to the effect that: (i) The Company is a corporation and is validly existing and in good standing under the laws of the State of California, with corporate power and authority to own its properties and to conduct is business as described in the Prospectus. 10 11 (ii) Each of Mercury Casualty Company and Mercury Insurance Company is a corporation and is validly existing and good standing under the laws of the State of California, with corporate power and authority to own its properties and to conduct its business as described in the Prospectus. (iii) The Underwriting Agreement has been duly authorized, executed, and delivered by the Company. (iv) The Indenture has been duly authorized, executed and delivered by the Company, and is a legally valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, subject to customary exceptions. (v) The execution and delivery of the Securities have been duly authorized by the Company, and the Securities have been duly executed, and when the Securities are authenticated in accordance with the terms of the Indenture and delivered to and paid for by the Underwriters in accordance with the terms of this Agreement, the Securities will be issued and legally valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, subject to customary exceptions. (vi) The issue and sale of the Securities pursuant to the Indenture and this Agreement on the date hereof and compliance by the Company with the provisions of the Indenture and this Agreement will not: (a) result in a breach of or a default under, any agreements or instruments to which the Company or any of its subsidiaries is a party or by which the Company or any such subsidiary is bound or to which any of the assets, properties or operations of the Company or any such subsidiary is subject and which are identified to such counsel in an officers certificate as material; (b) violate any federal, New York or California statute, rule or regulation; or (c) require any consents, approvals, authorizations, registrations, declarations or filings by the Company under any federal, New York or California statute, rule or regulation applicable to the Company, except such as have been obtained under the Act and the Trust Indenture Act and such as may be required under state securities laws in connection with the purchase and distribution of the Securities by the Underwriters. (vii) The Indenture has been qualified under the Trust Indenture Act. (viii) The Registration Statement has become effective under the Act, and to the best of such counsel's knowledge, no stop order suspending the effectiveness of the Registration Statement has been issued under the Act and no Proceedings therefor have 11 12 been initiated. Any required filing of the Prospectus and the Prospectus Supplement pursuant to Rule 424 under the Act has been made in accordance with Rule 424 under the Act. (ix) The Registration Statement and the Prospectus, as of their respective effective or issue dates, complied as to form in all material respects with the requirements for registration statements on Form S-3 under the Act and the rules and regulations of the Commission thereunder, it being understood that such counsel need express no opinion with respect to the financial statements, schedules, other financial data, exhibits included in, incorporated by reference in, or omitted from the Registration Statement or the Prospectus or the Trustee's Statement of Eligibility on Form T-1. In passing upon the compliance as to form of the Registration Statement and Prospectus, such counsel may assume that the statements made therein are correct and complete. (x) The documents incorporated by reference in the Registration Statement (the "Incorporated Documents"), as of their respective filing dates, complied as to form in all material respects with the applicable respective requirements for reports on Forms 10-K, 10-Q, 8-K and proxy statements under the Exchange Act and the rules and regulations of the Commission thereunder, it being understood that such counsel need express no opinion with respect to the financial statements, schedules, other financial data, or exhibits included in, incorporated by reference in, or omitted from such Incorporated Documents. In passing upon the compliance as to form of the Incorporated Documents, such counsel may assume that the statements therein are correct and complete. (xi) The Securities and the Indenture conform in all material respects to the description thereof under the captions "Description of Debt Securities" and "Description of Securities" in the Prospectus. (xii) The statements incorporated by reference from Item 3 of Part 1 of the Company's most recent Form 10-K and in the Registration Statement in Item 15, insofar as such statements constitute a summary of legal matters, documents, statutes and regulations are accurate summaries in all material respects. (xiii) The Company is not, and after giving effect to the sale of the Securities and the application of the proceeds thereof as described in the Prospectus, will not be, an "investment company" as defined in the Investment Company Act of 1940, as amended. (xiv) Such counsel shall state that on the basis of their participation in the preparation of the Registration Statement, the Prospectus, and the Incorporated Documents, but not passing upon the accuracy, completeness, or fairness of the statements contained therein (other than as provided in paragraphs (xi) and (xii) above), nothing came to their attention which caused them to believe that the Registration Statement, at the time it became effective or as of the date of such opinion, or the 12 13 Incorporated Documents, as of the dates of their respective filing, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or that the Prospectus, as to its date, the date hereof, or the date of such opinion contained or contains an untrue statement of a material fact or omitted or omits to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (it being understood that such counsel need express no belief with respect to financial statements, schedules, other financial data or exhibits included, incorporated by reference in, or omitted from, the Registration Statement, Prospectus, or Incorporated Documents). In rendering such opinions, such counsel may: rely as to matters of fact, to the extent such counsel deems proper, on certificates of responsible officers of the Company and certificates or other written statements of officials of jurisdictions having custody of documents respecting the corporate existence or good standing of the Company. With respect to the matters to be covered in subparagraphs (ix) and (x) above, counsel may state his opinion and belief is based upon his participation in the preparation of the Registration Statement and the Prospectus and any amendment or supplement thereto but is without independent check or verification except as specified. (g) Douglas Hallett, General Counsel for the Company, shall have furnished to you his written opinion, dated as of the Closing Date, in form and substance satisfactory to you, to the effect that: (i) The Company has been duly qualified as a foreign corporation for the transaction of business and is in good standing (or the local equivalent) under the laws of each other jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification, or is subject to no material liability or disability by reason of the failure to be so qualified in any such jurisdiction. (ii) Each of Mercury Casualty Company and Mercury Insurance Company is in good standing (or the local equivalent) under the laws of each jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification, or is subject to no material liability or disability by reason of the failure to be so qualified in any such jurisdiction. (iii) All of the outstanding shares of capital stock of each of Mercury Casualty Company and Mercury Insurance Company have been duly authorized and validly issued and are fully paid and non-assessable and, except as otherwise set forth in the Prospectus, all outstanding shares of capital stock of such subsidiaries are owned by the Company, either directly or through wholly owned subsidiaries, free and clear of any perfected security interest and, to the knowledge of such counsel, after due inquiry, any other security interest, lien or encumbrance. 13 14 (iv) To the knowledge of such counsel, there is no pending or threatened action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its subsidiaries or its or their property, required to be disclosed in the Registration Statement or Prospectus which is not, and there is no document required to be described in the Registration Statement or Prospectus, or to be filed as an exhibit thereto, which is not. (v) The issue and sale of the Securities pursuant to the Indenture and this Agreement on the date hereof and compliance by the Company with the provisions of the Indenture and this Agreement will not result in a breach of or a default under the Company's articles of incorporation, as amended, or the Company's Bylaws, as amended. In rendering such opinion, such counsel may: rely as to matters of fact, to the extent such counsel deems proper, on certificates of responsible officers of the Company and certificates or other written statements of officials of jurisdictions having custody of documents respecting the corporate existence or good standing of the Company. (h) On the date hereof and on the Closing Date, KPMG LLP shall have furnished to you a letter, dated as of each such date, in form and substance satisfactory to you, containing statements and information of the type customarily included in accountants "comfort letters" to underwriters with respect to the financial statements and certain financial information contained in the Registration Statement and the Prospectus. (i) You shall have received on and as of the Closing Date an opinion of Mayer, Brown & Platt, counsel to the Underwriters, with respect to the validity of the Indenture and the Securities, the effectiveness of the Registration Statement, the disclosure in the Registration Statement and the Prospectus and such other matters as the Representatives may reasonably request, and such counsel shall have received such papers and information as they may reasonably request to enable them to pass upon such matters. (j) On or prior to the Closing Date, the Company shall have furnished to the Representatives such further certificates and documents as the Representatives shall reasonably request. 7. (a) The Company agrees to indemnify and hold harmless each Underwriter, the directors, officers, employees and agents of each Underwriter and each person, if any, who controls any Underwriter within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act from and against any and all losses, claims, damages and liabilities (including, without limitation, the reasonable legal fees and other expenses reasonably incurred in connection with any suit, action or proceeding or any claim asserted in respect thereof) as incurred to which such Underwriter or controlling person may be subject, insofar as such losses, claims, damages or liabilities arise out of or are based upon: 14 15 (i) any untrue statement or alleged untrue statement of a material fact contained or included in the Registration Statement or any amendment thereof, the Prospectus the Prospectus as amended or supplemented or any amendment or supplement thereto, or any Preliminary Prospectus; or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or, in the case of the Registration Statement or any amendment thereof, the Prospectus or the Prospectus as amended or supplemented or any amendment or supplement thereto, necessary to make the statements therein not misleading or, in the case of any Preliminary Prospectus, necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, the Company shall not be liable insofar as such losses, claims, damages or liabilities arise out of or are based upon an untrue statement or omission or alleged untrue statement or omission made in any Preliminary Prospectus or in the Registration Statement or any amendment thereof, the Prospectus, the Prospectus as amended or supplemented or any such amendment or supplement thereto in reliance upon and in conformity with information furnished to the Company in writing by such Underwriter through the Representatives expressly for inclusion therein; and provided, further, that the Company shall not be liable to any Underwriter or any person controlling such Underwriter under the indemnity agreement provided for in this paragraph (a) with respect to a Preliminary Prospectus to the extent that any such loss, claim, damage or liability of such Underwriter or controlling person results solely from the fact that such Underwriter sold Securities to a person to whom there was not sent or given, at or prior to the written confirmation of such sale, a copy of the Prospectus (excluding documents incorporated by reference) or of the Prospectus as then amended or supplemented (excluding documents incorporated by reference), whichever is most recent, if (A) the Company has previously furnished copies thereof to such Underwriter and (B) the applicable untrue or alleged untrue statement or omission was corrected therein. (b) Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors, its officers, employees and agents and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act from and against any and all losses, claims, damages and liabilities (including, without limitation, the reasonable legal fees and other expenses reasonably incurred in connection with any suit, action or proceeding or any claim asserted in respect thereof) as incurred to which the Company may become subject, insofar as such losses, claims, damages or liabilities arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact contained or included in the Registration Statement or any amendment thereof, the Prospectus, 15 16 the Prospectus as amended or supplemented or any amendment or supplement thereto, or any Preliminary Prospectus; or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or, in the case of the Registration Statement or any amendment thereof, the Prospectus or the Prospectus as amended or supplemented or any amendment or supplement thereto, necessary to make the statements therein not misleading or, in the case of any Preliminary Prospectus, necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; in each case to the extent, but only to the extent, that such untrue statement or omission or alleged untrue statement or alleged omission was made in any Preliminary Prospectus or in the Registration Statement or any amendment thereof, the Prospectus or the Prospectus as amended or supplemented or any amendment or supplement thereto in reliance upon and in conformity with information furnished to the Company in writing by or on behalf of such Underwriter expressly for use therein. (c) If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any person in respect of which indemnity may be sought (the "Indemnified Person") pursuant to either of subsections (a) or (b) above, such Indemnified Person shall promptly notify the person against whom such indemnity may be sought (the "Indemnifying Person") in writing (in such detail as may be available to such Indemnified Person). In no case shall an Indemnifying Person be liable under this Section 7 with respect to any claim made against an Indemnified Person unless such Indemnifying Person shall be notified in writing of the nature of the claim within a reasonable time after the Indemnified Party is aware of such claim, but failure to so notify such Indemnifying Person shall relieve the Indemnifying Party only to the extent the Indemnifying Party is actually prejudiced by such failure and failure shall not relieve the Indemnifying Party from any liability which it may have otherwise than on account of this Section 7. Upon such notice, the Indemnifying Person shall be entitled to participate in and, to the extent that it shall wish, jointly with any other Indemnifying Person similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such Indemnified Person, and after notice from the Indemnifying Person to such Indemnified Person of its election to so assume the defense thereof, the Indemnifying Person shall not be liable to such Indemnified Person for any legal or other expenses subsequently incurred by such Indemnified Person in connection with the defense thereof other than reasonable costs of investigation or as provided in subsection (d) below. Each Indemnified Person shall assist the Indemnifying Person in any defense undertaken pursuant to this Section 7 by providing such assistance and cooperation (including, without limitation, witness and documentary or other information) as may be reasonably requested by the Indemnifying Person in connection with such defense, provided that all reasonable costs and expenses of such assistance and cooperation shall be borne by the Indemnifying Person. 16 17 (d) Notwithstanding anything contained herein, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Indemnifying Person and the Indemnified Person shall have mutually agreed to the contrary, (ii) the Indemnifying Person has failed within a reasonable time to retain counsel reasonably satisfactory to the Indemnifying Person or (iii) the named parties in the applicable suit, action, proceeding, claim or demand (including any impleaded parties) include both the Indemnified Person and the Indemnified Person and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them or defenses available to them. It is understood that the Indemnifying Person shall not in connection with any proceeding or related proceeding in the same jurisdiction be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Persons and that all such fees and expenses, to the extent they are reasonable, shall be reimbursed as they are incurred. Any such separate firm for the Underwriters and such control persons of the Underwriters shall be designated in writing by the first of the named Representatives on Schedule I hereto and any such separate firm for the Company, its directors, its officers who sign the Registration Statement and such control persons of the Company or authorized representatives shall be designated in writing by the Company. The Indemnifying Person shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the Indemnifying Person agrees to indemnify any Indemnified Person from and against any loss or liability by reason of such settlement or judgment. No Indemnifying Person shall, without the prior written consent of the Indemnified Person, effect any settlement of any pending or threatened claim, action, suit or proceeding in respect of which any Indemnified Person is or could have been a party and indemnity could have been sought hereunder by such Indemnified Person, unless such settlement (i) includes an unconditional release of the Indemnified Person from all liability arising out of such claim, action, suit or proceeding; and (ii) does not include any statement as to, or any admission of, fault, culpability or failure to act by or on behalf of an indemnified party. (e) If the indemnification provided for in subsections (a) or (b) above is legally unavailable to an Indemnified Person in respect of any losses, claims, damages or liabilities referred to therein, then each Indemnifying Person under such subsection, in lieu of indemnifying such Indemnified Person thereunder, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other hand from the offering of the Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and the Underwriters on the other hand in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. 17 18 (f) The relative benefits received by the Company on the one hand and the Underwriters on the other hand shall be deemed to be in the same proportions as the net proceeds from the offering of the Securities received by the Company (net of underwriting discounts and commissions but before deducting expenses) bear to the total underwriting discounts and the commissions received by the Underwriters. The relative fault of the Company on the one hand and the Underwriters on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or by the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. With respect to any Underwriter, such relative fault shall also be determined by reference to the extent (if any) to which such losses, claims, damages or liabilities (or actions in respect thereof) with respect to any Preliminary Prospectus result from the fact that such Underwriter sold Securities to a person to whom there was not sent or given, at or prior to the written confirmation of such sale, a copy of the Prospectus (excluding documents incorporated by reference) or of the Prospectus as then amended or supplemented (excluding documents incorporated by reference) if the Company has previously furnished copies thereof to such Underwriter. (g) The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in subsection (f) above. The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages and liabilities referred to in subsection (f) above shall be deemed to include, subject to the limitations set forth above, any reasonable legal or other expenses incurred by such Indemnified Person in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7, in no event shall an Underwriter be required to contribute any amount in excess of the amount by which the total price at which the Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages that such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations to contribute pursuant to this Section 7 are several in proportion to the respective principal amounts of the Securities set forth opposite their names in Schedule I hereto, and not joint. (h) The indemnity and contribution agreements contained in this Section 7 are in addition to any liability which the Indemnifying Persons may otherwise have to the Indemnified Persons referred to above. (i) The indemnity and contribution agreements contained in this Section 7 and the representations and warranties of the Company set forth in this Agreement shall remain operative 18 19 and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of any Underwriter or any person controlling any Underwriter or by or on behalf of the Company, its officers or directors or any other person controlling the Company and (iii) acceptance of and payment for any of the Securities. 8. Notwithstanding anything contained herein, this Agreement may be terminated in the absolute discretion of the Representatives, by notice given to the Company if, from and including the date of this Agreement to and including the Closing Date, (i) trading generally shall have been suspended or materially limited on or by, as the case may be, any of the New York Stock Exchange, the American Stock Exchange or the National Association of Securities Dealers, Inc., (ii) trading of any securities of, or guaranteed by, the Company shall have been suspended on any stock exchange or in any over-the-counter market, (iii) a general moratorium on commercial banking activities in New York shall have been declared by either Federal or New York State authorities or (iv) there shall have occurred any outbreak or escalation of hostilities or any change in financial markets or any calamity or crisis that, in the sole judgment of the Representatives, is material and adverse and which, in the sole judgment of the Representatives, makes it impracticable to market the Securities on the terms and in the manner contemplated in the Prospectus. 9. If, on the Closing Date, any one or more of the Underwriters shall fail or refuse to purchase Securities which it or they have agreed to purchase under this Agreement and the aggregate principal amount of Securities which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase is not more than one-tenth of the aggregate principal amount of the Securities, the other Underwriters shall be obligated, severally in the proportions that the principal amount of Securities set forth opposite their respective names in Schedule I hereto bears to the aggregate principal amount of Securities set forth opposite the names of all such non-defaulting Underwriters or in such other proportions as the Representatives may specify, to purchase the Securities which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase on such date; provided that in no event shall the principal amount of Securities that any Underwriter has agreed to purchase pursuant to Section 1 be increased pursuant to this Section 9 by an amount in excess of one-ninth of such principal amount of Securities without the written consent of such Underwriter. If, on the Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase Securities and the aggregate principal amount of Securities with respect to which such default occurs is more than one-tenth of the aggregate principal amount of Securities to be purchased and arrangements satisfactory to you and the Company for the purchase of such Securities are not made within 36 hours after such default, this Agreement shall terminate without liability on the part of any non-defaulting Underwriter or Underwriters or the Company. In any such case, either you or the Company shall have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Registration Statement and in the Prospectus or in any other documents or arrangements may be effected. 19 20 Any action taken under this paragraph shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement. 10. If this Agreement shall be terminated by the Underwriters, or any of them, because of any failure or refusal on the part of the Company to comply with the terms or to fulfill any of the conditions of this Agreement, the Company agrees to reimburse the Underwriters or such Underwriters as have so terminated this Agreement with respect to themselves, severally, for all out-of-pocket expenses (including the reasonable fees and expenses of their counsel) reasonably incurred by such Underwriters in connection with this Agreement and the offering of Securities. 11. This Agreement shall inure to the benefit of and be binding upon the Company, the Underwriters, any controlling persons referred to herein and their respective successors and assigns. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any other person, firm or corporation any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. No purchaser of Securities from any Underwriter shall be deemed to be a successor by reason merely of such purchase. 12. Any action by the Underwriters hereunder may be taken by you jointly or by the first of the named Representatives set forth in Schedule I hereto alone on behalf of the Underwriters, and any such action taken by you jointly or by the first of the named Representatives set forth in Schedule I hereto alone shall be binding upon the Underwriters. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Underwriters shall be given at the address set forth in Schedule I hereto. Notices to the Company shall be given to it at 4484 Wilshire Boulevard, Los Angeles, California 90010 Attention: Gabriel Tirador, Vice President and Chief Financial Officer. 13. This Agreement may be signed in counterparts, each of which shall be an original and all of which together shall constitute one and the same instrument. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to the conflicts of laws provisions thereof. 20 21 Very truly yours, MERCURY GENERAL CORPORATION By: /s/ GABRIEL TIRADOR ------------------------------ Name: Gabriel Tirador Title: Vice President and Chief Financial Officer Accepted: BANC OF AMERICA SECURITIES LLC MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By: BANC OF AMERICA SECURITIES LLC By: /s/ LILY CHANG ------------------------------ Name: Lily Chang Title: Principal Acting severally on behalf of themselves 21 22 SCHEDULE I The Securities Representatives: Banc of America Securities LLC Merrill Lynch, Pierce, Fenner & Smith Incorporated Title of Securities: 7.25% Notes due 2011 Aggregate principal amount: $125,000,000 Maturity: August 15, 2001 Interest Rate: 7.25% per annum Interest Payment Dates: February 15 and August 15?commencing February 15, 2002 Optional Redemption/ Repayment Provisions: Market make-whole at T+0.25%, as described in the Prospectus Sinking Fund Provisions: None Price to Public: 99.723% Price to Underwriters: 99.073% ($123,841,250) Form: Book-entry only form through the facilities of The Depository Trust Company Other Provisions: Not applicable Closing Date and Location: August 7, 2001 10:00 a.m., pacific time Latham & Watkins 633 West Fifth Street, Suite 4000 Los Angeles, California 90071 23 Address for Notices to Underwriters: c/o Banc of America Securities LLC Bank of America Corporate Center NC1-007-07-01 100 North Tryon Street North Carolina, NC 28255 24 SCHEDULE II

Principal Amount Underwriter of Securities ----------- ----------------- Banc of America Securities LLC $106,250,000 Merrill Lynch, Pierce, Fenner & Smith Incorporated $18,750,000 Total $125,000,000

EX-4.1 4 a74689ex4-1.txt EXHIBIT 4.1 1 EXHIBIT 4.1 MERCURY GENERAL CORPORATION OFFICERS' CERTIFICATE DATED AS OF AUGUST 2, 2001 ---------------------- SETTING FORTH TERMS OF A SERIES OF DEBT SECURITIES 7.25% SENIOR NOTES DUE 2011 ---------------------- PURSUANT TO THE INDENTURE DATED AS OF JUNE 1, 2001 2 OFFICERS' CERTIFICATE The undersigned, the Chairman of the Board, President and Chief Executive Officer and the Vice President and Chief Financial Officer of Mercury General Corporation, a California corporation (the "Company"), hereby certify as provided below pursuant to Section 301 of the Indenture, dated as of June 1, 2001 (the "Indenture"), between the Company and Bank One Trust Company, National Association (the "Trustee"). This Officers' Certificate is delivered, pursuant to authority granted to the undersigned by the resolutions adopted on April 27, 2001 by the Board of Directors of the Company, for the purpose of creating and setting forth the terms of a series of Securities to be issued pursuant to the Indenture. Capitalized terms not otherwise defined herein are used as defined in the Indenture. 1. The Board of Directors of the Company has authorized the creation by the Company of one or more series of Securities under the Indenture through one or more Officers' Certificates and, pursuant to such authorization and in accordance with the Indenture, this Officers' Certificate is being delivered to the Trustee to establish the terms of a series of Securities as set forth therein. 2. The title of the Securities shall be "7.25% Senior Notes due 2011" (herein called the "Notes"). 3. The aggregate principal amount of Notes which may be authenticated and delivered under the Indenture is limited to U.S. $125,000,000, except for Notes authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Notes as provided in Sections 304, 305, 306, 906, or 1106 of the Indenture, upon surrender in part of any registered Security for conversion into other securities of the Company or exchange for securities of another issuer pursuant to its terms, or pursuant to or as contemplated by the terms of such Notes. Notwithstanding the foregoing limitation on aggregate principal amount of the Notes, the Company may, without the consent of the Holders, issue additional Notes and thereby increase the principal amount of the Notes in the future, on the same terms and conditions and with the same CUSIP number as the Notes offered pursuant to this Officers' Certificate. 4. The Notes shall be issuable as registered Securities and shall not be exchangeable for bearer Securities. 5. Subject to earlier redemption at the option of the Company, the principal of the Notes shall be payable in U.S. dollars on August 15, 2011. 6. The Notes shall bear interest at the rate of 7.25% per annum; such interest shall accrue from August 7, 2001 (or from the most recent Interest Payment Date to which interest on the Notes has been paid or provided for); the Interest Payment Dates on which such interest shall be payable shall be February 15 and August 15 in each year, commencing February 15, 2002; the Regular Record Dates for the determination of Holders to whom -2- 3 interest is payable shall be the February 1 and August 1 next preceding each Interest Payment Date. Interest on the Notes shall be payable in U.S. dollars. 7. Pursuant to the Indenture, the Trustee has been appointed as the Security Registrar for the Notes. The Trustee is hereby further appointed as the initial Paying Agent and transfer agent of the Notes. The principal of and interest on the Notes shall be payable at the office of the Paying Agent, which shall initially be located in Chicago, Illinois. 8. The Notes shall be redeemable at any time in whole, or from time to time in part, at a Redemption Price equal to the greater of (i) 100% of the principal amount of the Notes being redeemed on the Redemption Date, and (ii) the sum of the present values of the remaining scheduled payments of principal and interest on the Notes being redeemed on the Redemption Date (not including any portion of any interest payments accrued to the Redemption Date) discounted to the Redemption Date on a semi-annual basis at the Treasury Rate, as determined by the Reference Treasury Dealer, plus 25 basis points plus, in each case, accrued and unpaid interest on the Notes to the Redemption Date; provided, however, that installments of interest on the Notes due on an Interest Payment Date which occurs on or before any Redemption Date shall be payable to the Holders of such Notes who were registered Holders as of the close of business on the Record Date immediately preceding such Interest Payment Date. The Redemption Price will be calculated on the basis of a 360-day year consisting of twelve 30-day months. The Company will give notice of any redemption at least 30 but not more than 90 days before the Redemption Date to each registered Holder. 9. The Company will not, and will not permit any Subsidiary of the Company to, at any time, directly or indirectly, create, assume, incur or permit to exist any Indebtedness secured by a pledge, lien or other encumbrance (any pledge, lien or other encumbrance being hereinafter referred to as a "lien") on the Common Stock of any Designated Subsidiary without making effective provision whereby the Notes then Outstanding (and, if the Company so elects, any other Indebtedness of the Company that is not subordinate to the Notes and with respect to which the governing instruments require, or pursuant to which the Company is otherwise obligated or required, to provide such security) shall be equally and ratably secured with such secured Indebtedness so long as such other Indebtedness shall be secured. If the Company shall be required to secure the Notes equally and ratably with any other Indebtedness pursuant to this Officers' Certificate, (i) the Company will promptly deliver to the Trustee an Officers' Certificate stating that the foregoing covenant has been complied with, and an Opinion of Counsel stating that, in the opinion of such counsel, the foregoing covenant has been complied with and that any instruments executed by the Company or any Subsidiary of the Company in the performance of the foregoing covenant comply with the requirements of the foregoing covenant and (ii) the Trustee is hereby authorized to enter into an indenture or agreement supplemental hereto and to take such action, if any, as it may deem advisable to enable it to enforce the rights of the Holder of the Notes so secured. -3- 4 10. So long as any Notes are Outstanding and except in any transaction otherwise permitted by the Indenture, the Company will not issue, sell, transfer or otherwise dispose of (except to the Company, a Subsidiary, which agrees in writing to hold such transferred shares subject to the terms of this Officers' Certificate, or director's qualifying shares), and it will not permit any Designated Subsidiary to issue, sell, transfer or otherwise dispose of (except to the Company, a Subsidiary, which agrees in writing to hold such transferred shares subject to the terms of this Officers' Certificate, or director's qualifying shares), any shares of Common Stock of a Designated Subsidiary (other than preferred stock having no voting rights of any kind, except as required by law or in the event of non-payment of dividends) in each case, if, after giving effect to any such transaction, the Company or such Designated Subsidiary, as applicable, would own, directly or indirectly, less than 80% of the shares of the Designated Subsidiary, unless, in each case, the Common Stock of such Designated Subsidiary shall be issued, sold, transferred or otherwise disposed of for a consideration consisting of cash or other property, which, in the opinion of the Board of Directors of the Company pursuant to a board resolution adopted in good faith, is at least equal to the fair value thereof. Notwithstanding the foregoing, there is no prohibition on the issuance or disposition of securities if required by any law or any regulation or order of any court or governmental or insurance regulatory authority. 11. The terms defined below shall, for all purposes of the Notes under the Indenture and this Officers' Certificate, have the meanings specified below, unless the context clearly otherwise requires or unless otherwise indicated: "Common Stock" means, with respect to any Designated Subsidiary, capital stock of any class or classes, however designated, except capital stock that is non-participating beyond fixed dividend and liquidation preferences and the holders of which have either no voting rights or limited voting rights, only in the case of certain contingencies, to elect less than a majority of the directors of such Designated Subsidiary, and shall include capital stock of any class or classes, however designated, which are convertible into such common stock. "Comparable Treasury Issue" means the United States Treasury security selected by the Reference Treasury Dealer as having a maturity comparable to the remaining term of the Notes to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the Notes. "Comparable Treasury Price" means, with respect to any Redemption Date, (a) the average of the Reference Treasury Dealer Quotations for such Redemption Date, after excluding the highest and lowest of the Reference Treasury Dealer Quotations, or (B) if the Trustee obtains fewer than three such Reference Treasury Dealer Quotations, the average of all such Reference Treasury Dealer Quotations, or (C) if only one Reference Treasury Dealer Quotation is received, such Reference Treasury Dealer Quotation. -4- 5 "Designated Subsidiary" means any present or future consolidated Subsidiary of the Company, the consolidated shareholders' equity of which constitutes at least 10% of the consolidated shareholders' equity of the Company. "Indebtedness" means, with respect to any Person, for purposes of paragraph number 9 hereof: - the principal of, and any premium and interest on, whether outstanding on the date hereof or hereafter created, incurred or assumed, which is (a) indebtedness of the Person for money borrowed and (b) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which that Person is responsible or liable; - all capitalized lease obligations of that Person; - all obligations of that Person issued or assumed as the deferred purchase price of property, assets or businesses (except that the deferred purchase price shall not be considered indebtedness if the purchase price thereof is payable in full within 90 days from the date on which such indebtedness was created); - all obligations of that Person for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction, other than obligations with respect to some letters of credit securing obligations entered into in the ordinary course of business; - all guarantees of that Person of obligations of the type referred to above or dividends of other persons; - all obligations of the type referred to above of third parties secured by any lien on the Common Stock of our Designated Subsidiaries, the amount of this obligation being deemed to be the lesser of the value of the Common Stock of our Designated Subsidiaries or the amount of the obligation so secured; and - any amendments, modifications, refundings, renewals or extensions or any indebtedness or obligation described above. "Reference Treasury Dealer" means (a) Banc of America Securities LLC (or its affiliates which are Primary Treasury Dealers) and its successors; provided, however, that if any of the foregoing shall cease to be a primary U.S. Government securities dealer in New York City (a "Primary Treasure Dealer"), another Primary Treasury Dealer may be substituted therefor by the Company; and (B) any other Primary Treasury Dealer(s) selected by the Company. "Reference Treasury Dealer Quotation" means, with respect to each Reference Treasury Dealer and any Redemption Date, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by such Reference -5- 6 Treasury Dealer at 5:00 p.m. (New York City time) on the third business day preceding such Redemption Date. "Subsidiary" means any entity of which more than 50% of the interests entitled to vote in the election of directors, trustees or managers is owned or controlled, directly or indirectly, by any combination of the Company and its Subsidiaries. "Treasury Rate" means, with respect to any Redemption Date, the rate per year equal to the semi-annual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such Redemption Date. 12. The Notes shall not be subject to any sinking fund and shall not be repurchasable at the option of any Holder. 13. The Notes shall not be convertible into other securities of the Company or exchangeable for securities of another issuer. 14. Defeasance and covenant defeasance under Section 1302 and Section 1303 of the Indenture shall be applicable to the Notes. 15. The Notes shall not be issuable upon the exercise of warrants. 16. The Notes shall initially be issued in whole in the form of one or more permanent Global Securities. The Depository Trust Company, a clearing agency registered under the Securities Exchange Act of 1934, as amended ("DTC"), shall initially serve as the depositary for such Global Security or Securities. For so long as DTC shall be the depositary, all Notes shall be registered in its name or in the name of a nominee thereof. While the Notes are evidenced by one or more Global Securities, the depositary or its nominee, as the case may be, shall be the sole Holder thereof for all purposes under the Indenture. Neither the Company nor the Trustee shall have any responsibility or obligation to the depositary's participants or the beneficial owners for whom they act with respect to their receipt from the depositary of payments on the Notes or notices given under the Indenture. The Global Security or Securities provided for hereunder shall bear such legend or legends as may be required from time to time by the depositary. 17. Except as hereinafter described, Notes in definitive form will not be issued. Notwithstanding the foregoing, in the event the Company decides to discontinue the use of Global Securities, any Event of Default has occurred and is continuing or if DTC is at any time unwilling, unable or ineligible to continue as depositary and a successor depositary is not appointed by the Company within 90 days, the Company will issue individual Notes in certificated form to owners of "book-entry" ownership interests in exchange for the Notes held by DTC or its nominee, as the case may be. In such instance, an owner of a "book-entry" ownership interest will be entitled to physical delivery of certificates equal in principal amount to such "book-entry" ownership interest and to have such certificates registered in its name. -6- 7 Individual certificates so issued will be issued in denominations of $1,000 or any multiple thereof. 18. Additional terms regarding the Notes are as set forth in the form of the Notes set forth below. 19. The form of the Notes shall be substantially as follows: -7- 8 THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. Form of 7.25% Senior Notes due 2011 No. $_______________ MERCURY GENERAL CORPORATION 7.25% Senior Notes due 2011 CUSIP No.: 589400 AA 8 MERCURY GENERAL CORPORATION promises to pay to CEDE & CO. (or registered assigns) the principal sum of_________________________________________________ on August 15, 2011 Interest Payment Dates: February 15 and August 15 Regular Record Dates: February 1 and August 1 -8- 9 MERCURY GENERAL CORPORATION 7.25% SENIOR NOTE DUE 2011 INTEREST. Mercury General Corporation, a California corporation (the "Company"), promises to pay interest on the principal amount of this Security (as defined herein) at the rate per annum shown above. The Company shall pay interest semi-annually on February 15 and August 15 of each year, commencing February 15, 2002. Interest on the Securities shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from August 7, 2001. Interest shall be computed on the basis of a 360-day year of twelve 30-day months. METHOD OF PAYMENT. The Company shall pay interest on the Securities to the persons who are registered holders of Securities at the close of business on the Regular Record Date for the next Interest Payment Date, except as otherwise provided in the Indenture. Holder must surrender Securities to a Paying Agent to collect principal payments. The Company shall pay principal and interest in money of the United States that at the time of payment is legal tender for payments of public and private debts. The Company may pay principal and interest by check payable in such money. The Company may mail an interest check to a Holder's registered address. SECURITIES AGENTS. Initially, Bank One Trust Company, National Association, shall act as Paying Agent, transfer agent and Security Registrar. The Company may change any Paying Agent, transfer agent or Security Registrar without notice. The Company or any Affiliate of the Company may act in any such capacity. Subject to certain conditions, the Company may change the Trustee. INDENTURE. The Company issued the securities of this series (individually a "Security" and collectively, the "Securities") under an Indenture, dated as of June 1, 2001 (the "Indenture"), between the Company and Bank One Trust Company, National Association (the "Trustee"), as supplemented by the Officers' Certificate, dated as of August 2, 2001 (the "Officers' Certificate"), the terms of the Securities and those made part of the Indenture by the Trust Indenture Act of 1939 (15 U.S. Code Sections 77aaa-77bbbb). Holders are referred to the Indenture, the above-referenced Officer's Certificate and such act for a statement of such terms. All capitalized terms used but not defined herein have the respective meanings ascribed thereto in the Indenture or the Officers' Certificate. MATURITY. The principal on the Securities shall be payable on August 15, 2011. REDEMPTION PRIOR TO MATURITY. The Securities shall be redeemable at any time in whole or from time to time in part at a Redemption Price equal to the greater of (i) 100% of the principal amount of the Securities being redeemed on Redemption Date, and or (ii) the sum of the present values of the remaining scheduled payments of principal and interest on the Securities being redeemed on the Redemption Date (not including any potion of any interest payments accrued to the Redemption Date) discounted to the Redemption Date on a semi-annual basis at the Treasury Rate, as determined by the Reference Treasury Dealer, plus 25 basis points plus, in each case, accrued and unpaid interest on the Securities to the Redemption Date; provided, however, that installments of interest on Securities due on an Interest Payment Date which occurs on or before any Redemption Date shall be payable to the Holders of such Securities who were registered Holders as of the close of business on the Record Date immediately preceding such Interest Payment Date. The Redemption Price will be calculated on the basis of a 360-day year consisting of twelve 30-day months. The Company shall give notice of any redemption of any Securities to Holders of the Securities to be redeemed at the addresses of such -9- 10 Holders, as shown in the Security Register, not more than 90 nor less than 30 days prior to the Redemption Date. The notice of redemption will specify, among other items, the Redemption Price and the aggregate principal amount of the Securities to be redeemed. If less than all of the Outstanding Securities are to be redeemed, then the Trustee shall select the Securities to be redeemed in principal amounts of $1,000 or integral multiples of $1,000 by lot, pro rata or by another method the Trustee considers fair and appropriate. In the event of redemption of this Security in part only, a new Security or Securities of this series and of like tenor for the unredeemed portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof. The Indenture contains additional provisions with respect to any redemption of the Securities. DENOMINATIONS, TRANSFER, EXCHANGE. The Securities are in registered form without coupons in denominations of $1,000 and whole multiples of $1,000. The transfer of Securities may be registered and Securities may be exchanged as provided in the Indenture. The transfer agent may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or the Indenture. PERSONS DEEMED OWNERS. The registered holder of a Security may be treated as its owner for all purposes. AMENDMENTS AND WAIVERS. Subject to certain exceptions, the Indenture or the Securities may be amended with the consent of the Holders of not less than a majority in aggregate principal amount of the Securities of all series affected by the amendment. Subject to certain exceptions, a default on a series may be waived with the consent of the Holders of not less than a majority in principal amount of the series. Without the consent of any Holder, the Indenture or the Securities may be amended to, among other things, cure any ambiguity or correct any omission, defect or inconsistency; to provide for assumption of Company obligations to Holders; or to make any change that does not materially adversely affect the interests of any Holders of Securities then Outstanding. LIMITATIONS ON DEBT. The Securities are unsecured general obligations of the Company limited to $125,000,000 principal amount; provided, however, that the Securities may be reopened for issuances of additional Securities in accordance with the Indenture. The Indenture does not limit other unsecured debt. SUCCESSORS. When a successor assumes all of the obligations of the Company under the Securities and the Indenture, the Company shall be released from those obligations. DEFEASANCE PRIOR TO MATURITY. Subject to certain conditions, the Company at any time may terminate some or all of its obligations under the Securities and the Indenture if the Company deposits with the Trustee U.S. dollars or U.S. Government Obligations for the payment of principal of and interest on the Securities to maturity. DEFAULTS AND REMEDIES. An Event of Default includes: default for 30 days in payment of interest on the Securities; default in payment of principal on the Securities; default by the Company in the performance of any of its other agreements applicable to the Securities that continues for 90 days after the Company has been given notice of such default; and certain events of bankruptcy or insolvency. If an Event of Default occurs and is continuing, the Trustee or the Holders of not less -10- 11 than 25% in principal amount of the Outstanding Securities may declare the principal of all the Securities to be due and payable immediately. Holders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may require indemnity satisfactory to it before it enforces the Indenture or the Securities. Subject to certain limitations, Holders of a majority in principal amount of the Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders notice of any continuing default (except a default in payment of principal or interest) if it in good faith determines that withholding such notice is in their best interests. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from and perform services for the Company or its Affiliates, and may otherwise deal with those persons, as if it were not Trustee. NO RECOURSE AGAINST OTHERS. Any incorporator, director or officer, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Holder by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. AUTHENTICATION. This Security shall not be valid until authenticated by a manual signature of the Trustee. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (=tenants in common), TEN ENT (=tenants by the entirety), JT (=joint tenants with rights of survivorship and not as tenants in common), CUST (=custodian), U/G/M/A (=Uniform Gift to Minors Act) and U/T/M/A (=Uniform Transfers to Minors Act). The Company shall furnish to any Holder upon written request and without charge a copy of the Indenture and the Officer's Certificate, dated August 2, 2001, which contain the text of this Security. Requests may be made to: Corporate Secretary, Mercury General Corporation, 4484 Wilshire Boulevard, Los Angeles, California 90010. All terms used in this Security, which are defined in the Indenture or the Officers' Certificate, shall have the meanings assigned to them in the Indenture or the Officers' Certificate. Unless the certificate of authentication hereon has been executed by the Trustee by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. The Indenture and the Securities issued thereunder shall be governed by and construed in accordance with the laws of the State of New York. -11- 12 IN WITNESS WHEREOF, the Corporation has caused this instrument to be duly executed. Dated as of the date of Authentication: MERCURY GENERAL CORPORATION By ------------------------------- By ------------------------------- Bank One Trust Company, N.A., As Trustee By: --------------------------- Authorized Signatory -12- 13 [FORM OF ASSIGNMENT FORM] ASSIGNMENT FORM To assign this Security, fill in the form below: I or we assign and transfer this Security to____________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type assignee's name, address and zip code) (Insert assignee's social security or tax I.D. no.) and irrevocably appoint____________________________________________as agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. Date:_______________, 20___ Your signature:______________________ ______________________ (Sign exactly as your name appears on the face of this Security) Signature Guaranteed: ______________________ * * * -13- 14 IN WITNESS WHEREOF, we have set our hands as of the day and year first above written. Dated: MERCURY GENERAL CORPORATION By: /s/ George Joseph --------------------------------- Chairman of the Board, President and Chief Executive Officer By: /s/ Gabriel Tirador --------------------------------- Vice President and Chief Financial Officer EX-5.1 5 a74689ex5-1.txt EXHIBIT 5.1 1 Exhibit 5.1 [LATHAM & WATKINS LETTERHEAD] August 6, 2001 Mercury General Corporation 4484 Wilshire Boulevard Los Angeles, California 90010 Re: $125,000,000 of 7.25% Senior Notes Due 2011 of Mercury General Corporation Ladies and Gentlemen: This opinion is furnished in connection with the offering of $125,000,000 aggregate principal amount of 7.25% Senior Notes due 2011 (the "Debt Securities") of Mercury General Corporation, a California corporation (the "Company"), being issued pursuant to (i) an indenture dated as of June 1, 2001 (the "Indenture"), as supplemented by an Officers' Certificate dated August 2, 2001, between the Company and Bank One Trust Company, N.A., as trustee, (ii) a registration statement on Form S-3 under the Securities Act of 1933, as amended (the "Act"), filed with the Securities and Exchange Commission (the "Commission") on June 4, 2001 (File No. 333-62228), as amended by Amendment No. 1 filed with the Commission on July 12, 2001 and by Amendment No. 2 filed with the Commission on July 18, 2001, and declared effective by the Commission on July 20, 2001 (the "Registration Statement"), (iii) a prospectus dated July 20, 2001 and the prospectus supplement dated August 2, 2001 filed with the Commission pursuant to Rule 424(b) under the Act, and (iv) an underwriting agreement dated August 2, 2001 between the Company and Banc of America Securities LLC, as Representative of the several underwriters named in the underwriting agreement (the "Underwriting Agreement"). We are familiar with the proceedings taken by the Company in connection with the authorization and issuance of the Debt Securities. In addition, we have made such legal and factual examinations and inquiries, including an examination of originals or copies certified or otherwise identified to our satisfaction of such documents, corporate records and instruments, as we have deemed necessary or appropriate for purposes of this opinion. In our examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, and the conformity to authentic original documents of all documents submitted to us as copies. We are opining herein as to the effect on the subject transaction only of the internal laws of the State of New York, and we express no opinion with respect to the applicability thereto, or the effect 2 August 6, 2001 Page 2 thereon, of the laws of any other jurisdiction or, in the case of California any other laws, or as to any matters of municipal law or the laws of any local agencies within any state. Subject to the foregoing and the other matters set forth herein, it is our opinion that as of the date hereof the Debt Securities have been duly authorized by all necessary corporate action of the Company, and when executed, authenticated and delivered by or on behalf of the Company against payment therefor in accordance with the terms of the Indenture and the Underwriting Agreement, will constitute legally valid and binding obligations of the Company, enforceable against the Company in accordance with their terms. The opinion rendered above relating to the enforceability of the Debt Securities are subject to the following exceptions, limitations and qualifications: (i) the effect of bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting the rights and remedies of creditors and (ii) the effect of general principles of equity, whether enforcement is considered in a proceeding in equity or law, and the discretion of the court before which any proceeding therefor may be brought. In addition, we express no opinion with respect to whether acceleration of the Debt Securities may affect the collectibility of that portion of the stated principal amount thereof that might be determined to constitute unearned interest thereon. We have not been requested to express, and with your knowledge and consent, do not render any opinion as to the applicability to the obligations of the Company under the Indenture and the Debt Securities under the Indenture of Section 548 of the United States Bankruptcy Code or applicable state law (including, without limitation, Article 10 of the New York Debtor and Creditor Law) relating to fraudulent transfers and obligations. To the extent that the obligations of the Company under the Indenture may be dependent upon such matters, we assume for purposes of this opinion that the Trustee is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization and has complied with any obligations to file returns and pay taxes under the Franchise Tax Law of the State of California; that the Trustee is duly qualified to engage in the activities contemplated by the Indenture; that the Indenture has been duly authorized, executed and delivered by the Trustee and constitutes the legally valid, binding and enforceable obligation of the Trustee enforceable against the Trustee in accordance with its terms; that the Trustee is in compliance, generally and with respect to acting as a trustee under the Indenture, with all applicable laws and regulations; and that the Trustee has the requisite organizational and legal power and authority to perform its obligations under the Indenture. Very truly yours, LATHAM & WATKINS -----END PRIVACY-ENHANCED MESSAGE-----

EX-1.1

   1
                                                                     Exhibit 1.1

                          MERCURY GENERAL CORPORATION

                                 Debt Securities

                             Underwriting Agreement

                                                                  August 2, 2001
To the Representatives named
in Schedule I hereto of the
Underwriters named in
Schedule II hereto

Ladies and Gentlemen:

        MERCURY GENERAL CORPORATION, a California corporation (the "Company"),
proposes to issue and sell to the underwriters named in Schedule II hereto (the
"Underwriters"), for whom you are acting as representatives (the
"Representatives"), the principal amount of its debt securities identified in
Schedule I hereto (the "Securities"), to be issued under an Indenture, dated as
of June 1, 2001 (as amended or supplemented from time to time, the "Indenture"),
between the Company and Bank One Trust Company, National Association, as trustee
thereunder (the "Trustee"). If the firm or firms listed in Schedule II hereto
include only the firm or firms listed in Schedule I hereto, then the terms
"Underwriters" and "Representatives", as used herein, shall each be deemed to
refer to such firm or firms.

        The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (No. 333-62228) under the
Securities Act of 1933, as amended, and the rules and regulations of the
Commission thereunder (collectively, the "Securities Act"), relating to certain
debt securities (the "Shelf Securities") and the offering thereof from time to
time in accordance with Rule 415 of Regulation C under the Securities Act by the
Company. Such registration statement and each post-effective amendment thereto,
if applicable, has been declared effective by the Commission. Such registration
statement, as so amended, if applicable, to the date of this Agreement
(including the exhibits and schedules thereto), is hereinafter referred to as
the "Registration Statement"; provided, that in the event any post-effective
amendment to such registration statement or any Rule 462(b) registration
statement becomes effective prior to the Closing Date, the term "Registration
Statement" shall also mean such registration statement as so amended or such
Rule 462(b) registration statement, as the case may be. The prospectus covering
the Shelf Securities (the "Base Prospectus"), as supplemented by the prospectus
supplement specifically relating to the Securities, in the forms first used to
confirm sales of the Securities, are collectively hereinafter referred to as the
"Prospectus". Any reference in this Agreement to the Registration Statement, the
Base Prospectus, any preliminary form of prospectus (a "Preliminary Prospectus")
previously filed with the Commission pursuant to Rule 424 of Regulation C under
the Securities Act or the Prospectus shall be deemed to refer to and include the
documents incorporated by reference therein pursuant to Item 12 of Form S-3
under the Securities Act, which were filed under the Securities Exchange Act of
1934, as


   2

amended, and the rules and regulations of the Commission thereunder
(collectively, the "Exchange Act"), on or before the date of this Agreement or
the date of the Base Prospectus, any Preliminary Prospectus or the Prospectus,
as the case may be; and any reference to "amend", "amendment" or "supplement"
with respect to the Registration Statement, the Base Prospectus, any Preliminary
Prospectus or the Prospectus shall be deemed to refer to and include any
documents filed under the Exchange Act after the date of this Agreement or the
date of the Base Prospectus, any Preliminary Prospectus or the Prospectus, as
the case may be, which are deemed to be incorporated by reference therein.

        The Company hereby agrees with the Underwriters as follows:

        1. The Company agrees to issue and sell the Securities to the several
Underwriters as hereinafter provided, and each Underwriter, on the basis of the
representations, warranties and agreements of the Company herein contained, but
subject to the conditions hereinafter stated, agrees to purchase, severally and
not jointly, from the Company the respective principal amount of Securities set
forth opposite such Underwriter's name in Schedule II hereto at the purchase
price set forth in Schedule I hereto plus accrued interest, if any, from the
date specified in Schedule I hereto to the date of payment and delivery.

        2. The Company understands that the several Underwriters intend (i) to
make a public offering of their respective portions of the Securities in
conformity with the Securities Act, any applicable blue sky laws and all other
rules and regulations applicable to them in connection therewith and (ii)
initially to offer the Securities upon the terms set forth in the Prospectus.

        3. Payment for the Securities shall be made to the Company or to its
order by wire transfer of same-day funds to an account designated by the Company
or, if specifically requested by the Company, by certified or official bank
check or checks payable to the Company in federal or other same-day funds on the
date and at the time and place set forth in Schedule I hereto (or at such other
time and place on the same or such other date, not later than the tenth Business
Day (as hereinafter defined) thereafter, as you and the Company may agree in
writing). Such payment will be made upon delivery to, or to you for the
respective accounts of, such Underwriters of the Securities through the
facilities of The Depository Trust Company or, if specifically requested by the
Representatives, in certificated form registered in such names and in such
denominations as you shall request not less than one full Business Day prior to
the date of delivery with any transfer taxes payable in connection with transfer
to the Underwriters duly paid by the Company. As used herein, the term "Business
Day" means any day other than a day on which banks are authorized or required to
be closed in the City of New York, New York. The time and date of such payment
and delivery with respect to the Securities are collectively hereinafter
referred to as the "Closing Date". The certificates for the Securities will be
made available for inspection and packaging by you by 1:00 P.M. local time on
the Business Day prior to the Closing Date at such place in the City of New
York, New York as you and the Company shall agree.


                                       2
   3

        4. The Company represents and warrants to each Underwriter as of the
date hereof and as of the Closing Date (each, a "Representation Date") that:

        (a) The Company meets the requirements for use of Form S-3 under the
Securities Act. The Registration Statement has been declared effective by the
Commission under the Securities Act; no stop order suspending the effectiveness
of the Registration Statement has been issued and no proceeding for that purpose
has been instituted or, to the knowledge of the Company, threatened by the
Commission; the Registration Statement and Prospectus (as amended or
supplemented if the Company shall have filed with the Commission any amendments
or supplements thereto) comply, or will comply, as the case may be, when they
become effective or are filed with the Commission, as the case may be, in all
material respects with the Securities Act and the Trust Indenture Act of 1939,
as amended, and the rules and regulations of the Commission thereunder
(collectively, the "Trust Indenture Act"); as of the applicable effective date
and each Representation Date, the Registration Statement and any amendment
thereto did not and will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein not misleading; and as of the applicable filing date and
each Representation Date, the Prospectus and any amendment or supplement thereto
did not and will not include an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading; provided,
however, that the foregoing representations and warranties shall not apply to
(i) that part of the Registration Statement which constitutes the Statement of
Eligibility (Form T-1) under the Trust Indenture Act of the Trustee and (ii)
statements or omissions in the Registration Statement or the Prospectus made in
reliance upon and in conformity with information relating to any Underwriter
furnished to the Company in writing by such Underwriter through the
Representatives expressly for inclusion therein.

        (b) The documents incorporated by reference in the Prospectus, when they
were filed with the Commission, conformed in all material respects to the
requirements of the Exchange Act, and none of such documents, when they were so
filed, included an untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading; and any further
documents so filed and incorporated by reference in the Prospectus, when such
documents are filed with the Commission, will conform in all material respects
to the requirements of the Exchange Act, as applicable, and will not include an
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.

        (c) This Agreement has been duly authorized, executed and delivered by
the Company.

        (d) The Indenture has been duly qualified under the Trust Indenture Act,
has been duly authorized, executed and delivered by the Company and, assuming
due authorization, execution


                                       3
   4

and delivery by the Trustee, constitutes a valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms (subject
to applicable bankruptcy, insolvency and other laws affecting the enforceability
of creditors' rights generally and to general principles of equity regardless of
whether enforcement is considered in a proceeding in equity or at law); the
Securities have been duly authorized by the Company and, when executed and
authenticated in accordance with the terms of the Indenture and delivered to and
paid for by the Underwriters in accordance with the terms of this Agreement,
will have been duly executed and delivered by the Company and will constitute
valid and binding obligations of the Company, enforceable against the Company in
accordance with their terms and the terms of the Indenture (subject to
applicable bankruptcy, insolvency and other laws affecting the enforceability of
creditors' rights generally and to general principles of equity regardless of
whether enforcement is considered in a proceeding in equity or at law), and
holders of the Securities will be entitled to the benefits provided for in the
Indenture; and the Securities and the Indenture conform in all material respects
to the descriptions thereof in the Prospectus.

        (e) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of California, with
corporate power and authority to own its properties and conduct its business as
described in the Prospectus, and has been duly qualified as a foreign
corporation for the transaction of business and is in good standing (or the
local equivalent) under the laws of each other jurisdiction in which it owns or
leases properties or conducts any business so as to require such qualification,
or is subject to no material liability or disability by reason of the failure to
be so qualified in any such jurisdiction.

        (f) Other than Mercury Casualty Company and Mercury Insurance Company
(each a "Subsidiary" and collectively, the "Subsidiaries"), the Company has no
subsidiaries that would, individually or in the aggregate, constitute a
"significant subsidiary" (as such term is defined in Rule 1-02 of Regulation
S-X) as of the last day of the Company's most recent fiscal quarter; each of the
Subsidiaries has been duly incorporated and is validly existing as a corporation
in good standing under the laws of the jurisdiction of its incorporation, with
corporate power and authority to own its properties and conduct its business as
described in the Prospectus, and has been duly qualified as a foreign
corporation for the transaction of business and is in good standing (or the
local equivalent) under the laws of each other jurisdiction in which it owns or
leases properties, or conducts any business, so as to require such
qualification, or is subject to no material liability or disability by reason of
the failure to be so qualified in any such jurisdiction.

        (g) The authorized, issued and outstanding shares of capital stock of
the Company are as set forth in the column entitled "Actual" under the
"Capitalization" section of the Prospectus, such shares of capital stock have
been duly authorized and validly issued by the Company and are fully paid and
non-assessable, and none of such shares of capital stock were issued in
violations of preemptive or other similar rights of any security holder of the
Company; all of the outstanding shares of capital stock of each Subsidiary have
been duly authorized and validly issued and are fully paid and non-assessable,
except as otherwise set forth in the Prospectus, all outstanding shares of
capital stock of the Subsidiaries are owned by the Company, either directly or
through


                                       4
   5

wholly owned subsidiaries, free and clear of any perfected security interest or
any other security interests, liens or encumbrances.

        (h) The financial statements and schedules of the Company and its
consolidated subsidiaries included or incorporated by reference in the
Prospectus and the Registration Statement fairly present in all material
respects the consolidated financial condition, results of operations and cash
flows of the Company and its consolidated subsidiaries as of the dates and for
the periods indicated, and have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis throughout the
periods involved (except as otherwise noted therein).

        (i) KPMG LLP, who have certified certain financial statements included
or incorporated by reference in the Prospectus, are independent public
accountants as required by the Securities Act.

        (j) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, except as otherwise stated therein,
there (A) has been no material adverse change, or any development involving a
prospective material adverse exchange, in or affecting the business, financial
position or results of operations of the Company and its subsidiaries taken as a
whole, whether or not arising in the ordinary course of business (a "Material
Adverse Change") and (B) have been no transactions entered into by the Company
or any of its subsidiaries, other than those arising in the ordinary course of
business, which are material with respect to the Company and its subsidiaries
considered as one enterprise.

        (k) The execution, delivery and performance of this Agreement, the
Indenture and any other agreement or instrument entered into or issued by the
Company in connection with the transactions contemplated hereby or thereby or in
the Registration Statement and the Prospectus, the consummation of the
transactions contemplated herein and in the Registration Statement and the
Prospectus and compliance by the Company with its obligations hereunder and
thereunder do not and will not conflict with or result in a breach of, or
constitute a default under, or result in the creation or imposition of any lien,
charge or encumbrance upon any assets, properties or operations of the Company
or any of its subsidiaries pursuant to, any contract, indenture, mortgage, deed
of trust, loan or credit agreement, note, lease or other agreement or instrument
to which the Company or any of its subsidiaries is a party or by which it or any
of them may be bound or to which any of the assets, properties or operations of
the Company or any of its subsidiaries is subject (collectively, the "Agreements
and Instruments"), the result of which would cause a Material Adverse Change,
nor will any of the above actions result in any violation of the provisions of
the charter or bylaws of the Company or any of its subsidiaries or any
applicable law or statute or any order, rule, regulation or judgment of any
court or governmental agency or body having jurisdiction over the Company or any
of its subsidiaries or any of their assets, properties or operations.


                                       5
   6

        (l) There is no action, suit, proceeding, inquiry or investigation
before, or brought by, any court or governmental agency or body now pending or,
to the knowledge of the Company, threatened against or affecting the Company or
any of its subsidiaries which is required to be disclosed in the Registration
Statement and the Prospectus (other than as stated therein), or which might
reasonably be expected to result in a Material Adverse Change, or have a
material adverse effect on the consummation of the transactions contemplated by
the Prospectus, this Agreement or the Indenture or the performance by the
Company of its obligations hereunder and thereunder; and the aggregate of all
pending legal or governmental proceedings to which the Company or any of its
subsidiaries is a party or of which any of their respective assets, properties
or operations is the subject which are not described in the Registration
Statement and the Prospectus, including ordinary routine litigation incidental
to the business, is not reasonably expected to result in a Material Adverse
Change.

        (m) No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body is required
for the due authorization, execution and delivery by the Company of this
Agreement or for the performance by the Company of the transactions contemplated
by the Prospectus, this Agreement or the Indenture, except such as have already
been made, obtained or rendered, as applicable.

        (n) Each insurance company subsidiary of the Company (collectively, the
"Insurance Subsidiaries") is duly licensed as an insurance company in its
jurisdiction of organization and is duly licensed or authorized as an insurer in
each jurisdiction outside its jurisdiction of organization where it is required
to be so licensed or authorized to conduct its business as described in the
Registration Statement and the Prospectuses, except where the failure to be so
licensed or authorized would not result in a Material Adverse Change.

        (o) Each of the Company and each Insurance Subsidiary is in compliance
with the requirements of the insurance laws of the jurisdiction of its
incorporation or domicile and any applicable regulations thereunder and has
filed all reports, registrations, documents or other information required to be
filed thereunder, except where the failure to comply or file would not result in
a Material Adverse Change; and each of the Insurance Subsidiaries is in
compliance with the insurance laws and regulations of each other jurisdiction
that is applicable to such Insurance Subsidiary, except where the failure to
comply would not result in a Material Adverse Change.

        (p) The statutory annual and quarterly statements of the Insurance
Subsidiaries required to be filed, including the statutory balance sheets and
income statements included in such statutory annual and quarterly statements,
most recently filed in each jurisdiction, have been prepared in all material
respects in conformity with required or permitted statutory accounting
principles or practices consistently followed, except as may otherwise be
indicated in the notes thereto, and fairly present in all material respects the
financial position of the Insurance Subsidiaries (on a statutory basis) for the
periods covered thereby.

        (q) All ceded reinsurance treaties, contracts, agreements and
arrangements to which


                                       6
   7

the Company or any of its Insurance Subsidiaries is a party are in full force
and effect and neither the Company nor any of its Insurance Subsidiaries is in
violation of, or in default in the performance, observance or fulfillment of,
any obligation, agreement, covenant or condition contained therein, except for
such violations or defaults which could not reasonably be expected, singly or in
the aggregate, to have a Material Adverse Effect; neither the Company nor any of
its Insurance Subsidiaries has received any notice from any of the other parties
to such treaties, contracts, agreements or arrangements indicating that such
other party intends not to perform in any material respect its obligations
thereunder and none of the Company nor any of its Insurance Subsidiaries has any
reason to believe that any of the other parties to such treaties, contracts,
agreements or arrangements will be unable to perform its obligations thereunder,
except to the extent that (i) the Company or such Insurance Subsidiary has
established appropriate reserves on its financial statements therefor or (ii)
such nonperformance could not reasonably be expected, singly or in the
aggregate, to result in a Material Adverse Change.

        (r) The Company is not and, after giving effect to the offering and sale
of the Securities and the application of the proceeds thereof as described in
the Prospectus, will not be an "investment company" as defined in the Investment
Company Act of 1940, as amended (the "Investment Company Act").

        Any certificate signed by any officer of the Company and delivered to
the Representatives or counsel for the Underwriters in connection with the
offering of the Securities shall be deemed a representation and warranty by the
Company as to matters covered thereby to each Underwriter.

        5. The Company covenants and agrees with each Underwriter as follows:

        (a) To file the Prospectus in a form approved by you (such approval not
to be unreasonably withheld or delayed) pursuant to Rule 424 of Regulation C
under the Securities Act not later than the Commission's close of business on
the second Business Day following the date of determination of the offering
price of the Securities .

        (b) To deliver to each Representative and counsel for the Underwriters,
at the expense of the Company, a conformed copy of the Registration Statement
(as originally filed) and each amendment thereto prior to the Closing Date, in
each case including exhibits and documents incorporated by reference therein
and, during the period mentioned in paragraph (e) below, to each of the
Underwriters as many copies of the Prospectus (including all amendments and
supplements thereto) and documents incorporated by reference therein as you may
reasonably request.

        (c) For so long as the delivery of a Prospectus is required in
connection with the offering or sale of the Securities, to furnish to you a copy
of any proposed amendment or supplement to the Registration Statement or the
Prospectus, for your review, and not to file any such proposed amendment or
supplement to which you reasonably and timely object in writing; provided,
however, that the provisions of this paragraph (c) shall not apply to any of the


                                       7
   8

Company's periodic filings under the Exchange Act described in paragraph (d),
copies of which filings the Company has delivered to you in advance of their
transmission to the Commission for filing.

        (d) To file promptly all reports and any definitive proxy or information
statements required to be filed by the Company with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act for so long as the
delivery of a Prospectus is required in connection with the offering or sale of
the Securities, and during such same period, to advise you promptly, and to
confirm such advice in writing, (i) when the Prospectus, and any supplement
thereto, shall have been filed (if required) with the Commission pursuant to
Rule 424 of Regulation C under the Securities Act or when any Rule 462(b)
Registration Statement related to the Securities shall have been filed with the
Commission, (ii) when any amendment to the Registration Statement shall have
become effective during any time period when the Prospectus is required to be
delivered under the Securities Agreement, (iii) of any request, during any time
period when the Prospectus is required to be delivered under the Securities Act,
by the Commission for any amendment to the Registration Statement or any
amendment or supplement to the Prospectus or for any additional information,
insofar as such amendment or supplement relates to or covers the Company
generally or the Securities specifically, (iv) of the issuance by the Commission
of any stop order suspending the effectiveness of the Registration Statement or
the initiation or threatening of any proceeding for that purpose at any time
prior to the Closing Date and (v) of the receipt by the Company of any
notification with respect to any suspension of the qualification of the
Securities for offer and sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; and to use its best efforts to
prevent the issuance of any such stop order or notification and, if issued, to
obtain as soon as possible the withdrawal thereof.

        (e) If, at any time when the Prospectus is required to be delivered
under the Securities Act, any event shall occur or condition shall exist as a
result of which it is necessary to amend or supplement the Prospectus in order
to make the statements therein, in the light of the circumstances when the
Prospectus is delivered to a purchaser, not misleading or, if it is necessary to
amend or supplement the Prospectus to comply with law, to promptly prepare and
furnish, subject to subsection (c) above, at the expense of the Company (unless
such event shall occur more than nine months after the date of the Prospectus,
in which case the cost of preparing and furnishing such amendments or
supplements shall be borne by the Underwriter or Underwriters requesting the
same), to the Underwriters and to the dealers (whose names and addresses you
will furnish to the Company) to which Securities may have been sold by you on
behalf of the Underwriters and to any other dealers upon request, such
amendments or supplements to the Prospectus as may be necessary so that the
statements in the Prospectus as so amended or supplemented will not, in the
light of the circumstances when the Prospectus is delivered to a purchaser, be
misleading or so that the Prospectus will comply with law.

        (f) To make generally available to its security holders and to you as
soon as practicable, but in any event not later than eighteen months after the
effective date of the Registration Statement (as defined in Section 158(c) under
the Securities Act), an earnings


                                       8
   9

statement of the Company and its subsidiaries, which shall satisfy the
provisions of Section 11(a) of the Securities Act.

        (g) From and including the date hereof to and including the Business Day
following the Closing Date, not to offer, sell, contract to sell or otherwise
dispose of any debt securities of or guaranteed by, the Company, which are
substantially similar to the Securities, without your prior written consent.

        (h) The Company will use its reasonable efforts to arrange, if
necessary, for the qualification of the Securities for sale under the laws of
such jurisdictions as the Representatives may designate and to maintain such
qualifications in effect so long as required for the distribution of the
Securities and will pay any fee of the National Association of Securities
Dealers, Inc. in connection with its review of the offering; provided, that in
no event shall the Company be obligated to qualify to do business in any
jurisdiction in which it is not now so qualified or to take any action that
would subject it to service of process in suits, other than those arising out of
the offering or sale of the Securities, in any jurisdiction in which it is not
now so subject.

        (i) To pay, except as otherwise provided in paragraph (e) above, all
costs and expenses incident to the performance of its obligations hereunder,
including, without limiting the generality of the foregoing, all costs and
expenses (i) incident to the preparation, issuance, execution, authentication
and delivery of the Securities, including any expenses of the Trustee, (ii)
incident to the preparation and filing under the Securities Act of the
Registration Statement, the Prospectus and any Preliminary Prospectus
(including, in each case, all exhibits, amendments and supplements thereto),
(iii) incident to the printing and delivery of reasonable quantities of the
Registration Statement, the Prospectus and any Preliminary Prospectus
(including, in each case, all exhibits, amendments and supplements thereto),
(iv) incurred in connection with the registration or qualification and
determination of eligibility for investment of the Securities under the laws of
such jurisdictions as the Underwriters may designate (including the fees and
disbursements of counsel for the Underwriters in an amount not to exceed
$7,500), (v) in connection with any listing of the Securities on any stock
exchange or quotation system, (vi) related to any required filing with the
National Association of Securities Dealers, Inc., (vii) in connection with the
printing (including word processing and duplication costs) and delivery of this
Agreement, the Indenture, the Preliminary and Final Blue Sky Memoranda and any
Legal Investment Survey and (viii) payable to rating agencies in connection with
the rating of the Securities; provided, however, that, except as provided in
this Section 5(i) and in Sections 7 and 10 hereof, the Underwriters shall pay
their own costs and expenses, including the fees and expenses of their counsel,
any transfer taxes on the Securities which they may sell and the expenses of
advertising any offering of the Securities made by the Underwriters.

        (j) The Company will not take, directly or indirectly, any action
designed to or which has constituted or which might reasonably be expected to
cause or result, under the Exchange Act or otherwise, in stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Securities.


                                       9
   10

        6. The several obligations of the Underwriters hereunder shall be
subject to the following conditions:

        (a) The representations and warranties of the Company contained herein
are true and correct on and as of the Closing Date, as if made on and as of the
Closing Date, and the Company shall have complied with all agreements and all
conditions on its part to be performed or satisfied hereunder at or prior to the
Closing Date.

        (b) The Prospectus shall have been filed with the Commission pursuant to
Rule 424 of Regulation C under the Securities Act within the applicable time
period prescribed for such filing by the rules and regulations under the
Securities Act; no stop order suspending the effectiveness of the Registration
Statement shall be in effect and no proceedings for such purpose shall be
pending before or, to the knowledge of the Company, threatened by the
Commission; and all reasonable requests for additional information on the part
of the Commission shall have been complied with to your satisfaction.

        (c) From and including the date of this Agreement to and including the
Closing Date, there shall not have occurred any downgrading, nor shall any
notice have been given of (i) any intended or potential downgrading or (ii) any
probable change that does not indicate an improvement in the rating accorded any
securities of, or guaranteed by, the Company by Moody's Investors Service, Inc.
or Standard & Poor's Ratings Services.

        (d) Since the respective dates as of which information is given in the
Prospectus, there shall not have been any Material Adverse Change, otherwise
than as set forth or contemplated in the Prospectus, the effect of which, in the
judgment of the Representatives, makes it impracticable or inadvisable to
proceed with the public offering or the delivery of the Securities on the terms
and in the manner contemplated in the Prospectus.

        (e) The Representatives shall have received, on and as of the Closing
Date, a certificate of the Chief Financial Officer of the Company to the effect
set forth in subsections (a) through (c) of this Section and to the further
effect that there has not occurred any Material Adverse Change, otherwise than
as set forth or contemplated in the Prospectus.

        (f) Latham & Watkins, counsel for the Company, shall have furnished to
you their written opinion, dated as of the Closing Date, in form and substance
satisfactory to you, to the effect that:

               (i) The Company is a corporation and is validly existing and in
        good standing under the laws of the State of California, with corporate
        power and authority to own its properties and to conduct is business as
        described in the Prospectus.


                                       10
   11

               (ii) Each of Mercury Casualty Company and Mercury Insurance
        Company is a corporation and is validly existing and good standing under
        the laws of the State of California, with corporate power and authority
        to own its properties and to conduct its business as described in the
        Prospectus.

               (iii) The Underwriting Agreement has been duly authorized,
        executed, and delivered by the Company.

               (iv) The Indenture has been duly authorized, executed and
        delivered by the Company, and is a legally valid and binding agreement
        of the Company, enforceable against the Company in accordance with its
        terms, subject to customary exceptions.

               (v) The execution and delivery of the Securities have been duly
        authorized by the Company, and the Securities have been duly executed,
        and when the Securities are authenticated in accordance with the terms
        of the Indenture and delivered to and paid for by the Underwriters in
        accordance with the terms of this Agreement, the Securities will be
        issued and legally valid and binding obligations of the Company,
        enforceable against the Company in accordance with their terms, subject
        to customary exceptions.

               (vi) The issue and sale of the Securities pursuant to the
        Indenture and this Agreement on the date hereof and compliance by the
        Company with the provisions of the Indenture and this Agreement will
        not:

                (a) result in a breach of or a default under, any agreements or
                instruments to which the Company or any of its subsidiaries is a
                party or by which the Company or any such subsidiary is bound or
                to which any of the assets, properties or operations of the
                Company or any such subsidiary is subject and which are
                identified to such counsel in an officers certificate as
                material;

                (b) violate any federal, New York or California statute, rule or
                regulation; or

                (c) require any consents, approvals, authorizations,
                registrations, declarations or filings by the Company under any
                federal, New York or California statute, rule or regulation
                applicable to the Company, except such as have been obtained
                under the Act and the Trust Indenture Act and such as may be
                required under state securities laws in connection with the
                purchase and distribution of the Securities by the Underwriters.

               (vii) The Indenture has been qualified under the Trust Indenture
        Act.

               (viii) The Registration Statement has become effective under the
        Act, and to the best of such counsel's knowledge, no stop order
        suspending the effectiveness of the Registration Statement has been
        issued under the Act and no Proceedings therefor have


                                       11
   12

        been initiated. Any required filing of the Prospectus and the Prospectus
        Supplement pursuant to Rule 424 under the Act has been made in
        accordance with Rule 424 under the Act.

               (ix) The Registration Statement and the Prospectus, as of their
        respective effective or issue dates, complied as to form in all material
        respects with the requirements for registration statements on Form S-3
        under the Act and the rules and regulations of the Commission
        thereunder, it being understood that such counsel need express no
        opinion with respect to the financial statements, schedules, other
        financial data, exhibits included in, incorporated by reference in, or
        omitted from the Registration Statement or the Prospectus or the
        Trustee's Statement of Eligibility on Form T-1. In passing upon the
        compliance as to form of the Registration Statement and Prospectus, such
        counsel may assume that the statements made therein are correct and
        complete.

               (x) The documents incorporated by reference in the Registration
        Statement (the "Incorporated Documents"), as of their respective filing
        dates, complied as to form in all material respects with the applicable
        respective requirements for reports on Forms 10-K, 10-Q, 8-K and proxy
        statements under the Exchange Act and the rules and regulations of the
        Commission thereunder, it being understood that such counsel need
        express no opinion with respect to the financial statements, schedules,
        other financial data, or exhibits included in, incorporated by reference
        in, or omitted from such Incorporated Documents. In passing upon the
        compliance as to form of the Incorporated Documents, such counsel may
        assume that the statements therein are correct and complete.

               (xi) The Securities and the Indenture conform in all material
        respects to the description thereof under the captions "Description of
        Debt Securities" and "Description of Securities" in the Prospectus.

               (xii) The statements incorporated by reference from Item 3 of
        Part 1 of the Company's most recent Form 10-K and in the Registration
        Statement in Item 15, insofar as such statements constitute a summary of
        legal matters, documents, statutes and regulations are accurate
        summaries in all material respects.

               (xiii) The Company is not, and after giving effect to the sale of
        the Securities and the application of the proceeds thereof as described
        in the Prospectus, will not be, an "investment company" as defined in
        the Investment Company Act of 1940, as amended.

               (xiv) Such counsel shall state that on the basis of their
        participation in the preparation of the Registration Statement, the
        Prospectus, and the Incorporated Documents, but not passing upon the
        accuracy, completeness, or fairness of the statements contained therein
        (other than as provided in paragraphs (xi) and (xii) above), nothing
        came to their attention which caused them to believe that the
        Registration Statement, at the time it became effective or as of the
        date of such opinion, or the


                                       12
   13

        Incorporated Documents, as of the dates of their respective filing,
        contained an untrue statement of a material fact or omitted to state a
        material fact required to be stated therein or necessary to make the
        statements therein not misleading, or that the Prospectus, as to its
        date, the date hereof, or the date of such opinion contained or contains
        an untrue statement of a material fact or omitted or omits to state a
        material fact necessary to make the statements therein, in light of the
        circumstances under which they were made, not misleading (it being
        understood that such counsel need express no belief with respect to
        financial statements, schedules, other financial data or exhibits
        included, incorporated by reference in, or omitted from, the
        Registration Statement, Prospectus, or Incorporated Documents).

        In rendering such opinions, such counsel may: rely as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company and certificates or other written statements of
officials of jurisdictions having custody of documents respecting the corporate
existence or good standing of the Company. With respect to the matters to be
covered in subparagraphs (ix) and (x) above, counsel may state his opinion and
belief is based upon his participation in the preparation of the Registration
Statement and the Prospectus and any amendment or supplement thereto but is
without independent check or verification except as specified.

        (g) Douglas Hallett, General Counsel for the Company, shall have
furnished to you his written opinion, dated as of the Closing Date, in form and
substance satisfactory to you, to the effect that:

               (i) The Company has been duly qualified as a foreign corporation
        for the transaction of business and is in good standing (or the local
        equivalent) under the laws of each other jurisdiction in which it owns
        or leases properties or conducts any business so as to require such
        qualification, or is subject to no material liability or disability by
        reason of the failure to be so qualified in any such jurisdiction.

               (ii) Each of Mercury Casualty Company and Mercury Insurance
        Company is in good standing (or the local equivalent) under the laws of
        each jurisdiction in which it owns or leases properties or conducts any
        business so as to require such qualification, or is subject to no
        material liability or disability by reason of the failure to be so
        qualified in any such jurisdiction.

               (iii) All of the outstanding shares of capital stock of each of
        Mercury Casualty Company and Mercury Insurance Company have been duly
        authorized and validly issued and are fully paid and non-assessable and,
        except as otherwise set forth in the Prospectus, all outstanding shares
        of capital stock of such subsidiaries are owned by the Company, either
        directly or through wholly owned subsidiaries, free and clear of any
        perfected security interest and, to the knowledge of such counsel, after
        due inquiry, any other security interest, lien or encumbrance.


                                       13
   14

               (iv) To the knowledge of such counsel, there is no pending or
        threatened action, suit or proceeding by or before any court or
        governmental agency, authority or body or any arbitrator involving the
        Company or any of its subsidiaries or its or their property, required to
        be disclosed in the Registration Statement or Prospectus which is not,
        and there is no document required to be described in the Registration
        Statement or Prospectus, or to be filed as an exhibit thereto, which is
        not.

               (v) The issue and sale of the Securities pursuant to the
        Indenture and this Agreement on the date hereof and compliance by the
        Company with the provisions of the Indenture and this Agreement will not
        result in a breach of or a default under the Company's articles of
        incorporation, as amended, or the Company's Bylaws, as amended.

        In rendering such opinion, such counsel may: rely as to matters of fact,
to the extent such counsel deems proper, on certificates of responsible officers
of the Company and certificates or other written statements of officials of
jurisdictions having custody of documents respecting the corporate existence or
good standing of the Company.

        (h) On the date hereof and on the Closing Date, KPMG LLP shall have
furnished to you a letter, dated as of each such date, in form and substance
satisfactory to you, containing statements and information of the type
customarily included in accountants "comfort letters" to underwriters with
respect to the financial statements and certain financial information contained
in the Registration Statement and the Prospectus.

        (i) You shall have received on and as of the Closing Date an opinion of
Mayer, Brown & Platt, counsel to the Underwriters, with respect to the validity
of the Indenture and the Securities, the effectiveness of the Registration
Statement, the disclosure in the Registration Statement and the Prospectus and
such other matters as the Representatives may reasonably request, and such
counsel shall have received such papers and information as they may reasonably
request to enable them to pass upon such matters.

        (j) On or prior to the Closing Date, the Company shall have furnished to
the Representatives such further certificates and documents as the
Representatives shall reasonably request.

        7. (a) The Company agrees to indemnify and hold harmless each
Underwriter, the directors, officers, employees and agents of each Underwriter
and each person, if any, who controls any Underwriter within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange Act from
and against any and all losses, claims, damages and liabilities (including,
without limitation, the reasonable legal fees and other expenses reasonably
incurred in connection with any suit, action or proceeding or any claim asserted
in respect thereof) as incurred to which such Underwriter or controlling person
may be subject, insofar as such losses, claims, damages or liabilities arise out
of or are based upon:


                                       14
   15

        (i)     any untrue statement or alleged untrue statement of a material
                fact contained or included in the Registration Statement or any
                amendment thereof, the Prospectus the Prospectus as amended or
                supplemented or any amendment or supplement thereto, or any
                Preliminary Prospectus; or

        (ii)    the omission or alleged omission to state therein a material
                fact required to be stated therein or, in the case of the
                Registration Statement or any amendment thereof, the Prospectus
                or the Prospectus as amended or supplemented or any amendment or
                supplement thereto, necessary to make the statements therein not
                misleading or, in the case of any Preliminary Prospectus,
                necessary to make the statements therein, in the light of the
                circumstances under which they were made, not misleading;

provided, however, the Company shall not be liable insofar as such losses,
claims, damages or liabilities arise out of or are based upon an untrue
statement or omission or alleged untrue statement or omission made in any
Preliminary Prospectus or in the Registration Statement or any amendment
thereof, the Prospectus, the Prospectus as amended or supplemented or any such
amendment or supplement thereto in reliance upon and in conformity with
information furnished to the Company in writing by such Underwriter through the
Representatives expressly for inclusion therein; and provided, further, that the
Company shall not be liable to any Underwriter or any person controlling such
Underwriter under the indemnity agreement provided for in this paragraph (a)
with respect to a Preliminary Prospectus to the extent that any such loss,
claim, damage or liability of such Underwriter or controlling person results
solely from the fact that such Underwriter sold Securities to a person to whom
there was not sent or given, at or prior to the written confirmation of such
sale, a copy of the Prospectus (excluding documents incorporated by reference)
or of the Prospectus as then amended or supplemented (excluding documents
incorporated by reference), whichever is most recent, if (A) the Company has
previously furnished copies thereof to such Underwriter and (B) the applicable
untrue or alleged untrue statement or omission was corrected therein.

        (b) Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, its directors, its officers, employees and agents and
each person, if any, who controls the Company within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act from and against any and
all losses, claims, damages and liabilities (including, without limitation, the
reasonable legal fees and other expenses reasonably incurred in connection with
any suit, action or proceeding or any claim asserted in respect thereof) as
incurred to which the Company may become subject, insofar as such losses,
claims, damages or liabilities arise out of or are based upon:

        (i)     any untrue statement or alleged untrue statement of a material
                fact contained or included in the Registration Statement or any
                amendment thereof, the Prospectus,


                                       15
   16

                the Prospectus as amended or supplemented or any amendment or
                supplement thereto, or any Preliminary Prospectus; or

        (ii)    the omission or alleged omission to state therein a material
                fact required to be stated therein or, in the case of the
                Registration Statement or any amendment thereof, the Prospectus
                or the Prospectus as amended or supplemented or any amendment or
                supplement thereto, necessary to make the statements therein not
                misleading or, in the case of any Preliminary Prospectus,
                necessary to make the statements therein, in the light of the
                circumstances under which they were made, not misleading;

in each case to the extent, but only to the extent, that such untrue statement
or omission or alleged untrue statement or alleged omission was made in any
Preliminary Prospectus or in the Registration Statement or any amendment
thereof, the Prospectus or the Prospectus as amended or supplemented or any
amendment or supplement thereto in reliance upon and in conformity with
information furnished to the Company in writing by or on behalf of such
Underwriter expressly for use therein.

        (c) If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any person in respect of which indemnity may be sought (the "Indemnified
Person") pursuant to either of subsections (a) or (b) above, such Indemnified
Person shall promptly notify the person against whom such indemnity may be
sought (the "Indemnifying Person") in writing (in such detail as may be
available to such Indemnified Person). In no case shall an Indemnifying Person
be liable under this Section 7 with respect to any claim made against an
Indemnified Person unless such Indemnifying Person shall be notified in writing
of the nature of the claim within a reasonable time after the Indemnified Party
is aware of such claim, but failure to so notify such Indemnifying Person shall
relieve the Indemnifying Party only to the extent the Indemnifying Party is
actually prejudiced by such failure and failure shall not relieve the
Indemnifying Party from any liability which it may have otherwise than on
account of this Section 7. Upon such notice, the Indemnifying Person shall be
entitled to participate in and, to the extent that it shall wish, jointly with
any other Indemnifying Person similarly notified, to assume the defense thereof,
with counsel reasonably satisfactory to such Indemnified Person, and after
notice from the Indemnifying Person to such Indemnified Person of its election
to so assume the defense thereof, the Indemnifying Person shall not be liable to
such Indemnified Person for any legal or other expenses subsequently incurred by
such Indemnified Person in connection with the defense thereof other than
reasonable costs of investigation or as provided in subsection (d) below. Each
Indemnified Person shall assist the Indemnifying Person in any defense
undertaken pursuant to this Section 7 by providing such assistance and
cooperation (including, without limitation, witness and documentary or other
information) as may be reasonably requested by the Indemnifying Person in
connection with such defense, provided that all reasonable costs and expenses of
such assistance and cooperation shall be borne by the Indemnifying Person.


                                       16
   17

        (d) Notwithstanding anything contained herein, any Indemnified Person
shall have the right to retain its own counsel, but the fees and expenses of
such counsel shall be at the expense of such Indemnified Person unless (i) the
Indemnifying Person and the Indemnified Person shall have mutually agreed to the
contrary, (ii) the Indemnifying Person has failed within a reasonable time to
retain counsel reasonably satisfactory to the Indemnifying Person or (iii) the
named parties in the applicable suit, action, proceeding, claim or demand
(including any impleaded parties) include both the Indemnified Person and the
Indemnified Person and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them or
defenses available to them. It is understood that the Indemnifying Person shall
not in connection with any proceeding or related proceeding in the same
jurisdiction be liable for the fees and expenses of more than one separate firm
(in addition to any local counsel) for all Indemnified Persons and that all such
fees and expenses, to the extent they are reasonable, shall be reimbursed as
they are incurred. Any such separate firm for the Underwriters and such control
persons of the Underwriters shall be designated in writing by the first of the
named Representatives on Schedule I hereto and any such separate firm for the
Company, its directors, its officers who sign the Registration Statement and
such control persons of the Company or authorized representatives shall be
designated in writing by the Company. The Indemnifying Person shall not be
liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the Indemnifying Person agrees to indemnify any Indemnified
Person from and against any loss or liability by reason of such settlement or
judgment. No Indemnifying Person shall, without the prior written consent of the
Indemnified Person, effect any settlement of any pending or threatened claim,
action, suit or proceeding in respect of which any Indemnified Person is or
could have been a party and indemnity could have been sought hereunder by such
Indemnified Person, unless such settlement (i) includes an unconditional release
of the Indemnified Person from all liability arising out of such claim, action,
suit or proceeding; and (ii) does not include any statement as to, or any
admission of, fault, culpability or failure to act by or on behalf of an
indemnified party.

        (e) If the indemnification provided for in subsections (a) or (b) above
is legally unavailable to an Indemnified Person in respect of any losses,
claims, damages or liabilities referred to therein, then each Indemnifying
Person under such subsection, in lieu of indemnifying such Indemnified Person
thereunder, shall contribute to the amount paid or payable by such Indemnified
Person as a result of such losses, claims, damages or liabilities (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other hand from the offering
of the Securities or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company on the one hand and the Underwriters on the other hand in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations.


                                       17
   18

        (f) The relative benefits received by the Company on the one hand and
the Underwriters on the other hand shall be deemed to be in the same proportions
as the net proceeds from the offering of the Securities received by the Company
(net of underwriting discounts and commissions but before deducting expenses)
bear to the total underwriting discounts and the commissions received by the
Underwriters. The relative fault of the Company on the one hand and the
Underwriters on the other hand shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. With respect to any Underwriter, such relative fault
shall also be determined by reference to the extent (if any) to which such
losses, claims, damages or liabilities (or actions in respect thereof) with
respect to any Preliminary Prospectus result from the fact that such Underwriter
sold Securities to a person to whom there was not sent or given, at or prior to
the written confirmation of such sale, a copy of the Prospectus (excluding
documents incorporated by reference) or of the Prospectus as then amended or
supplemented (excluding documents incorporated by reference) if the Company has
previously furnished copies thereof to such Underwriter.

        (g) The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in subsection (f) above. The amount paid or
payable by an Indemnified Person as a result of the losses, claims, damages and
liabilities referred to in subsection (f) above shall be deemed to include,
subject to the limitations set forth above, any reasonable legal or other
expenses incurred by such Indemnified Person in connection with investigating or
defending any such action or claim. Notwithstanding the provisions of this
Section 7, in no event shall an Underwriter be required to contribute any amount
in excess of the amount by which the total price at which the Securities
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages that such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to this
Section 7 are several in proportion to the respective principal amounts of the
Securities set forth opposite their names in Schedule I hereto, and not joint.

        (h) The indemnity and contribution agreements contained in this Section
7 are in addition to any liability which the Indemnifying Persons may otherwise
have to the Indemnified Persons referred to above.

        (i) The indemnity and contribution agreements contained in this Section
7 and the representations and warranties of the Company set forth in this
Agreement shall remain operative


                                       18
   19

and in full force and effect regardless of (i) any termination of this
Agreement, (ii) any investigation made by or on behalf of any Underwriter or any
person controlling any Underwriter or by or on behalf of the Company, its
officers or directors or any other person controlling the Company and (iii)
acceptance of and payment for any of the Securities.

        8. Notwithstanding anything contained herein, this Agreement may be
terminated in the absolute discretion of the Representatives, by notice given to
the Company if, from and including the date of this Agreement to and including
the Closing Date, (i) trading generally shall have been suspended or materially
limited on or by, as the case may be, any of the New York Stock Exchange, the
American Stock Exchange or the National Association of Securities Dealers, Inc.,
(ii) trading of any securities of, or guaranteed by, the Company shall have been
suspended on any stock exchange or in any over-the-counter market, (iii) a
general moratorium on commercial banking activities in New York shall have been
declared by either Federal or New York State authorities or (iv) there shall
have occurred any outbreak or escalation of hostilities or any change in
financial markets or any calamity or crisis that, in the sole judgment of the
Representatives, is material and adverse and which, in the sole judgment of the
Representatives, makes it impracticable to market the Securities on the terms
and in the manner contemplated in the Prospectus.

        9. If, on the Closing Date, any one or more of the Underwriters shall
fail or refuse to purchase Securities which it or they have agreed to purchase
under this Agreement and the aggregate principal amount of Securities which such
defaulting Underwriter or Underwriters agreed but failed or refused to purchase
is not more than one-tenth of the aggregate principal amount of the Securities,
the other Underwriters shall be obligated, severally in the proportions that the
principal amount of Securities set forth opposite their respective names in
Schedule I hereto bears to the aggregate principal amount of Securities set
forth opposite the names of all such non-defaulting Underwriters or in such
other proportions as the Representatives may specify, to purchase the Securities
which such defaulting Underwriter or Underwriters agreed but failed or refused
to purchase on such date; provided that in no event shall the principal amount
of Securities that any Underwriter has agreed to purchase pursuant to Section 1
be increased pursuant to this Section 9 by an amount in excess of one-ninth of
such principal amount of Securities without the written consent of such
Underwriter.

        If, on the Closing Date, any Underwriter or Underwriters shall fail or
refuse to purchase Securities and the aggregate principal amount of Securities
with respect to which such default occurs is more than one-tenth of the
aggregate principal amount of Securities to be purchased and arrangements
satisfactory to you and the Company for the purchase of such Securities are not
made within 36 hours after such default, this Agreement shall terminate without
liability on the part of any non-defaulting Underwriter or Underwriters or the
Company. In any such case, either you or the Company shall have the right to
postpone the Closing Date, but in no event for longer than seven days, in order
that the required changes, if any, in the Registration Statement and in the
Prospectus or in any other documents or arrangements may be effected.


                                       19
   20

        Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.

        10. If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of the Company to comply
with the terms or to fulfill any of the conditions of this Agreement, the
Company agrees to reimburse the Underwriters or such Underwriters as have so
terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the reasonable fees and expenses of their
counsel) reasonably incurred by such Underwriters in connection with this
Agreement and the offering of Securities.

        11. This Agreement shall inure to the benefit of and be binding upon the
Company, the Underwriters, any controlling persons referred to herein and their
respective successors and assigns. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any other person, firm or
corporation any legal or equitable right, remedy or claim under or in respect of
this Agreement or any provision herein contained. No purchaser of Securities
from any Underwriter shall be deemed to be a successor by reason merely of such
purchase.

        12. Any action by the Underwriters hereunder may be taken by you jointly
or by the first of the named Representatives set forth in Schedule I hereto
alone on behalf of the Underwriters, and any such action taken by you jointly or
by the first of the named Representatives set forth in Schedule I hereto alone
shall be binding upon the Underwriters. All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
mailed or transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be given at the address set forth in Schedule I hereto.
Notices to the Company shall be given to it at 4484 Wilshire Boulevard, Los
Angeles, California 90010 Attention: Gabriel Tirador, Vice President and Chief
Financial Officer.

        13. This Agreement may be signed in counterparts, each of which shall be
an original and all of which together shall constitute one and the same
instrument. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, without giving effect to the conflicts of
laws provisions thereof.



                                       20
   21
                                           Very truly yours,

                                           MERCURY GENERAL CORPORATION



                                           By:    /s/ GABRIEL TIRADOR
                                                  ------------------------------
                                                  Name:  Gabriel Tirador
                                                  Title: Vice President and
                                                         Chief Financial Officer



Accepted:

BANC OF AMERICA SECURITIES LLC
MERRILL LYNCH, PIERCE, FENNER &
        SMITH INCORPORATED

By:     BANC OF AMERICA SECURITIES LLC



By:    /s/ LILY CHANG
       ------------------------------
       Name:  Lily Chang
       Title: Principal

Acting severally on behalf of themselves



                                       21
   22

                                   SCHEDULE I

The Securities

Representatives:                   Banc of America Securities LLC
                                   Merrill Lynch, Pierce, Fenner & Smith
                                   Incorporated

Title of Securities:               7.25% Notes due 2011

Aggregate principal amount:        $125,000,000

Maturity:                          August 15, 2001

Interest Rate:                     7.25% per annum

Interest Payment Dates:            February 15 and August 15?commencing
                                   February 15, 2002

Optional Redemption/ Repayment
Provisions:                        Market make-whole at T+0.25%, as described
                                   in the Prospectus

Sinking Fund Provisions:           None

Price to Public:                   99.723%

Price to Underwriters:             99.073% ($123,841,250)

Form:                              Book-entry only form through the facilities
                                   of The Depository Trust Company

Other Provisions:                  Not applicable

Closing Date and Location:         August 7, 2001
                                   10:00 a.m., pacific time
                                   Latham & Watkins
                                   633 West Fifth Street, Suite 4000
                                   Los Angeles, California 90071



   23

Address for Notices to
Underwriters:                      c/o Banc of America Securities LLC
                                   Bank of America Corporate Center
                                   NC1-007-07-01
                                   100 North Tryon Street
                                   North Carolina, NC 28255




   24

                                   SCHEDULE II



                                                             Principal Amount
            Underwriter                                        of Securities
            -----------                                      -----------------
                                                          
    Banc of America Securities LLC                             $106,250,000

    Merrill Lynch, Pierce, Fenner & Smith
                         Incorporated                           $18,750,000


    Total                                                      $125,000,000

EX-4.1

   1
                                                                     EXHIBIT 4.1


                           MERCURY GENERAL CORPORATION


                              OFFICERS' CERTIFICATE


                           DATED AS OF AUGUST 2, 2001


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


               SETTING FORTH TERMS OF A SERIES OF DEBT SECURITIES


                           7.25% SENIOR NOTES DUE 2011

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


                            PURSUANT TO THE INDENTURE
                            DATED AS OF JUNE 1, 2001


   2
                              OFFICERS' CERTIFICATE

               The undersigned, the Chairman of the Board, President and Chief
Executive Officer and the Vice President and Chief Financial Officer of Mercury
General Corporation, a California corporation (the "Company"), hereby certify as
provided below pursuant to Section 301 of the Indenture, dated as of June 1,
2001 (the "Indenture"), between the Company and Bank One Trust Company, National
Association (the "Trustee"). This Officers' Certificate is delivered, pursuant
to authority granted to the undersigned by the resolutions adopted on April 27,
2001 by the Board of Directors of the Company, for the purpose of creating and
setting forth the terms of a series of Securities to be issued pursuant to the
Indenture. Capitalized terms not otherwise defined herein are used as defined in
the Indenture.

               1. The Board of Directors of the Company has authorized the
creation by the Company of one or more series of Securities under the Indenture
through one or more Officers' Certificates and, pursuant to such authorization
and in accordance with the Indenture, this Officers' Certificate is being
delivered to the Trustee to establish the terms of a series of Securities as set
forth therein.

               2. The title of the  Securities  shall be  "7.25%  Senior
Notes due 2011" (herein called the "Notes").

               3. The aggregate principal amount of Notes which may be
authenticated and delivered under the Indenture is limited to U.S. $125,000,000,
except for Notes authenticated and delivered upon registration of transfer of,
or in exchange for, or in lieu of, other Notes as provided in Sections 304, 305,
306, 906, or 1106 of the Indenture, upon surrender in part of any registered
Security for conversion into other securities of the Company or exchange for
securities of another issuer pursuant to its terms, or pursuant to or as
contemplated by the terms of such Notes. Notwithstanding the foregoing
limitation on aggregate principal amount of the Notes, the Company may, without
the consent of the Holders, issue additional Notes and thereby increase the
principal amount of the Notes in the future, on the same terms and conditions
and with the same CUSIP number as the Notes offered pursuant to this Officers'
Certificate.

               4. The Notes shall be issuable as  registered  Securities
and shall not be exchangeable for bearer Securities.

               5. Subject  to  earlier  redemption  at the option of the
Company,  the principal of the Notes shall be payable in U.S. dollars on
August 15, 2011.

               6. The Notes shall bear interest at the rate of 7.25% per annum;
such interest shall accrue from August 7, 2001 (or from the most recent Interest
Payment Date to which interest on the Notes has been paid or provided for); the
Interest Payment Dates on which such interest shall be payable shall be February
15 and August 15 in each year, commencing February 15, 2002; the Regular Record
Dates for the determination of Holders to whom



                                      -2-
   3
interest is payable shall be the February 1 and August 1 next preceding each
Interest Payment Date. Interest on the Notes shall be payable in U.S. dollars.

               7. Pursuant to the Indenture, the Trustee has been appointed as
the Security Registrar for the Notes. The Trustee is hereby further appointed as
the initial Paying Agent and transfer agent of the Notes. The principal of and
interest on the Notes shall be payable at the office of the Paying Agent, which
shall initially be located in Chicago, Illinois.

               8. The Notes shall be redeemable at any time in whole, or from
time to time in part, at a Redemption Price equal to the greater of (i) 100% of
the principal amount of the Notes being redeemed on the Redemption Date, and
(ii) the sum of the present values of the remaining scheduled payments of
principal and interest on the Notes being redeemed on the Redemption Date (not
including any portion of any interest payments accrued to the Redemption Date)
discounted to the Redemption Date on a semi-annual basis at the Treasury Rate,
as determined by the Reference Treasury Dealer, plus 25 basis points plus, in
each case, accrued and unpaid interest on the Notes to the Redemption Date;
provided, however, that installments of interest on the Notes due on an Interest
Payment Date which occurs on or before any Redemption Date shall be payable to
the Holders of such Notes who were registered Holders as of the close of
business on the Record Date immediately preceding such Interest Payment Date.
The Redemption Price will be calculated on the basis of a 360-day year
consisting of twelve 30-day months. The Company will give notice of any
redemption at least 30 but not more than 90 days before the Redemption Date to
each registered Holder.

               9. The Company will not, and will not permit any Subsidiary of
the Company to, at any time, directly or indirectly, create, assume, incur or
permit to exist any Indebtedness secured by a pledge, lien or other encumbrance
(any pledge, lien or other encumbrance being hereinafter referred to as a
"lien") on the Common Stock of any Designated Subsidiary without making
effective provision whereby the Notes then Outstanding (and, if the Company so
elects, any other Indebtedness of the Company that is not subordinate to the
Notes and with respect to which the governing instruments require, or pursuant
to which the Company is otherwise obligated or required, to provide such
security) shall be equally and ratably secured with such secured Indebtedness so
long as such other Indebtedness shall be secured.

               If the Company shall be required to secure the Notes equally and
ratably with any other Indebtedness pursuant to this Officers' Certificate, (i)
the Company will promptly deliver to the Trustee an Officers' Certificate
stating that the foregoing covenant has been complied with, and an Opinion of
Counsel stating that, in the opinion of such counsel, the foregoing covenant has
been complied with and that any instruments executed by the Company or any
Subsidiary of the Company in the performance of the foregoing covenant comply
with the requirements of the foregoing covenant and (ii) the Trustee is hereby
authorized to enter into an indenture or agreement supplemental hereto and to
take such action, if any, as it may deem advisable to enable it to enforce the
rights of the Holder of the Notes so secured.



                                      -3-
   4
               10. So long as any Notes are Outstanding and except in any
transaction otherwise permitted by the Indenture, the Company will not issue,
sell, transfer or otherwise dispose of (except to the Company, a Subsidiary,
which agrees in writing to hold such transferred shares subject to the terms of
this Officers' Certificate, or director's qualifying shares), and it will not
permit any Designated Subsidiary to issue, sell, transfer or otherwise dispose
of (except to the Company, a Subsidiary, which agrees in writing to hold such
transferred shares subject to the terms of this Officers' Certificate, or
director's qualifying shares), any shares of Common Stock of a Designated
Subsidiary (other than preferred stock having no voting rights of any kind,
except as required by law or in the event of non-payment of dividends) in each
case, if, after giving effect to any such transaction, the Company or such
Designated Subsidiary, as applicable, would own, directly or indirectly, less
than 80% of the shares of the Designated Subsidiary, unless, in each case, the
Common Stock of such Designated Subsidiary shall be issued, sold, transferred or
otherwise disposed of for a consideration consisting of cash or other property,
which, in the opinion of the Board of Directors of the Company pursuant to a
board resolution adopted in good faith, is at least equal to the fair value
thereof. Notwithstanding the foregoing, there is no prohibition on the issuance
or disposition of securities if required by any law or any regulation or order
of any court or governmental or insurance regulatory authority.

               11. The terms defined below shall, for all purposes of the Notes
under the Indenture and this Officers' Certificate, have the meanings specified
below, unless the context clearly otherwise requires or unless otherwise
indicated:

               "Common Stock" means, with respect to any Designated Subsidiary,
capital stock of any class or classes, however designated, except capital stock
that is non-participating beyond fixed dividend and liquidation preferences and
the holders of which have either no voting rights or limited voting rights, only
in the case of certain contingencies, to elect less than a majority of the
directors of such Designated Subsidiary, and shall include capital stock of any
class or classes, however designated, which are convertible into such common
stock.

               "Comparable Treasury Issue" means the United States Treasury
security selected by the Reference Treasury Dealer as having a maturity
comparable to the remaining term of the Notes to be redeemed that would be
utilized, at the time of selection and in accordance with customary financial
practice, in pricing new issues of corporate debt securities of comparable
maturity to the remaining term of the Notes.

               "Comparable Treasury Price" means, with respect to any Redemption
Date, (a) the average of the Reference Treasury Dealer Quotations for such
Redemption Date, after excluding the highest and lowest of the Reference
Treasury Dealer Quotations, or (B) if the Trustee obtains fewer than three such
Reference Treasury Dealer Quotations, the average of all such Reference Treasury
Dealer Quotations, or (C) if only one Reference Treasury Dealer Quotation is
received, such Reference Treasury Dealer Quotation.



                                      -4-
   5

               "Designated Subsidiary" means any present or future consolidated
Subsidiary of the Company, the consolidated shareholders' equity of which
constitutes at least 10% of the consolidated shareholders' equity of the
Company.

               "Indebtedness" means, with respect to any Person, for purposes of
paragraph number 9 hereof:

               - the principal of, and any premium and interest on, whether
outstanding on the date hereof or hereafter created, incurred or assumed, which
is (a) indebtedness of the Person for money borrowed and (b) indebtedness
evidenced by notes, debentures, bonds or other similar instruments for the
payment of which that Person is responsible or liable;

               - all capitalized lease obligations of that Person;

               - all obligations of that Person issued or assumed as the
deferred purchase price of property, assets or businesses (except that the
deferred purchase price shall not be considered indebtedness if the purchase
price thereof is payable in full within 90 days from the date on which such
indebtedness was created);

               - all obligations of that Person for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction, other than obligations with respect to some letters of credit
securing obligations entered into in the ordinary course of business;

               - all  guarantees of that Person of  obligations  of
the type referred to above or dividends of other persons;

               - all obligations of the type referred to above of third parties
secured by any lien on the Common Stock of our Designated Subsidiaries, the
amount of this obligation being deemed to be the lesser of the value of the
Common Stock of our Designated Subsidiaries or the amount of the obligation so
secured; and

               - any amendments, modifications, refundings, renewals or
extensions or any indebtedness or obligation described above.

               "Reference Treasury Dealer" means (a) Banc of America Securities
LLC (or its affiliates which are Primary Treasury Dealers) and its successors;
provided, however, that if any of the foregoing shall cease to be a primary U.S.
Government securities dealer in New York City (a "Primary Treasure Dealer"),
another Primary Treasury Dealer may be substituted therefor by the Company; and
(B) any other Primary Treasury Dealer(s) selected by the Company.

               "Reference Treasury Dealer Quotation" means, with respect to each
Reference Treasury Dealer and any Redemption Date, the average, as determined by
the Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference



                                      -5-
   6

Treasury Dealer at 5:00 p.m. (New York City time) on the third business day
preceding such Redemption Date.

               "Subsidiary" means any entity of which more than 50% of the
interests entitled to vote in the election of directors, trustees or managers is
owned or controlled, directly or indirectly, by any combination of the Company
and its Subsidiaries.

               "Treasury Rate" means, with respect to any Redemption Date, the
rate per year equal to the semi-annual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such Redemption Date.

               12. The Notes shall not be subject to any sinking fund and shall
not be repurchasable at the option of any Holder.

               13. The Notes shall not be convertible into other securities of
the Company or exchangeable for securities of another issuer.

               14. Defeasance and covenant defeasance under Section 1302 and
Section 1303 of the Indenture shall be applicable to the Notes.

               15. The Notes shall not be issuable upon the exercise of
warrants.

               16. The Notes shall initially be issued in whole in the form of
one or more permanent Global Securities. The Depository Trust Company, a
clearing agency registered under the Securities Exchange Act of 1934, as amended
("DTC"), shall initially serve as the depositary for such Global Security or
Securities. For so long as DTC shall be the depositary, all Notes shall be
registered in its name or in the name of a nominee thereof. While the Notes are
evidenced by one or more Global Securities, the depositary or its nominee, as
the case may be, shall be the sole Holder thereof for all purposes under the
Indenture. Neither the Company nor the Trustee shall have any responsibility or
obligation to the depositary's participants or the beneficial owners for whom
they act with respect to their receipt from the depositary of payments on the
Notes or notices given under the Indenture. The Global Security or Securities
provided for hereunder shall bear such legend or legends as may be required from
time to time by the depositary.

               17. Except as hereinafter described, Notes in definitive form
will not be issued. Notwithstanding the foregoing, in the event the Company
decides to discontinue the use of Global Securities, any Event of Default has
occurred and is continuing or if DTC is at any time unwilling, unable or
ineligible to continue as depositary and a successor depositary is not appointed
by the Company within 90 days, the Company will issue individual Notes in
certificated form to owners of "book-entry" ownership interests in exchange for
the Notes held by DTC or its nominee, as the case may be. In such instance, an
owner of a "book-entry" ownership interest will be entitled to physical delivery
of certificates equal in principal amount to such "book-entry" ownership
interest and to have such certificates registered in its name.



                                      -6-
   7
Individual certificates so issued will be issued in denominations of $1,000 or
any multiple thereof.

               18. Additional terms regarding the Notes are as set forth in the
form of the Notes set forth below.

               19. The form of the Notes shall be substantially as follows:



                                      -7-
   8
               THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE
               INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME
               OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY MAY NOT BE
               EXCHANGED IN WHOLE OR IN PART FOR A SECURITY REGISTERED, AND NO
               TRANSFER OF THIS SECURITY IN WHOLE OR IN PART MAY BE REGISTERED,
               IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE
               THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
               INDENTURE.


                      Form of 7.25% Senior Notes due 2011

No.                                                            $_______________

                           MERCURY GENERAL CORPORATION
                           7.25% Senior Notes due 2011

                             CUSIP No.: 589400 AA 8


MERCURY GENERAL CORPORATION
promises to pay to CEDE & CO. (or registered assigns)

the principal  sum of_________________________________________________
on August 15, 2011

Interest Payment Dates: February 15 and August 15
Regular Record Dates:   February 1 and August 1



                                      -8-
   9

                           MERCURY GENERAL CORPORATION
                           7.25% SENIOR NOTE DUE 2011


        INTEREST. Mercury General Corporation, a California corporation (the
"Company"), promises to pay interest on the principal amount of this Security
(as defined herein) at the rate per annum shown above. The Company shall pay
interest semi-annually on February 15 and August 15 of each year, commencing
February 15, 2002. Interest on the Securities shall accrue from the most recent
date to which interest has been paid or, if no interest has been paid, from
August 7, 2001. Interest shall be computed on the basis of a 360-day year of
twelve 30-day months.

        METHOD OF PAYMENT. The Company shall pay interest on the Securities to
the persons who are registered holders of Securities at the close of business on
the Regular Record Date for the next Interest Payment Date, except as otherwise
provided in the Indenture. Holder must surrender Securities to a Paying Agent to
collect principal payments. The Company shall pay principal and interest in
money of the United States that at the time of payment is legal tender for
payments of public and private debts. The Company may pay principal and interest
by check payable in such money. The Company may mail an interest check to a
Holder's registered address.

        SECURITIES AGENTS. Initially, Bank One Trust Company, National
Association, shall act as Paying Agent, transfer agent and Security Registrar.
The Company may change any Paying Agent, transfer agent or Security Registrar
without notice. The Company or any Affiliate of the Company may act in any such
capacity. Subject to certain conditions, the Company may change the Trustee.

        INDENTURE. The Company issued the securities of this series
(individually a "Security" and collectively, the "Securities") under an
Indenture, dated as of June 1, 2001 (the "Indenture"), between the Company and
Bank One Trust Company, National Association (the "Trustee"), as supplemented by
the Officers' Certificate, dated as of August 2, 2001 (the "Officers'
Certificate"), the terms of the Securities and those made part of the Indenture
by the Trust Indenture Act of 1939 (15 U.S. Code Sections 77aaa-77bbbb). Holders
are referred to the Indenture, the above-referenced Officer's Certificate and
such act for a statement of such terms. All capitalized terms used but not
defined herein have the respective meanings ascribed thereto in the Indenture or
the Officers' Certificate.

        MATURITY. The principal on the Securities shall be payable on August 15,
2011.

        REDEMPTION PRIOR TO MATURITY. The Securities shall be redeemable at any
time in whole or from time to time in part at a Redemption Price equal to the
greater of (i) 100% of the principal amount of the Securities being redeemed on
Redemption Date, and or (ii) the sum of the present values of the remaining
scheduled payments of principal and interest on the Securities being redeemed on
the Redemption Date (not including any potion of any interest payments accrued
to the Redemption Date) discounted to the Redemption Date on a semi-annual basis
at the Treasury Rate, as determined by the Reference Treasury Dealer, plus 25
basis points plus, in each case, accrued and unpaid interest on the Securities
to the Redemption Date; provided, however, that installments of interest on
Securities due on an Interest Payment Date which occurs on or before any
Redemption Date shall be payable to the Holders of such Securities who were
registered Holders as of the close of business on the Record Date immediately
preceding such Interest Payment Date. The Redemption Price will be calculated on
the basis of a 360-day year consisting of twelve 30-day months. The Company
shall give notice of any redemption of any Securities to Holders of the
Securities to be redeemed at the addresses of such



                                      -9-
   10
Holders, as shown in the Security Register, not more than 90 nor less than 30
days prior to the Redemption Date. The notice of redemption will specify, among
other items, the Redemption Price and the aggregate principal amount of the
Securities to be redeemed. If less than all of the Outstanding Securities are to
be redeemed, then the Trustee shall select the Securities to be redeemed in
principal amounts of $1,000 or integral multiples of $1,000 by lot, pro rata or
by another method the Trustee considers fair and appropriate. In the event of
redemption of this Security in part only, a new Security or Securities of this
series and of like tenor for the unredeemed portion hereof will be issued in the
name of the Holder hereof upon the cancellation hereof. The Indenture contains
additional provisions with respect to any redemption of the Securities.

        DENOMINATIONS, TRANSFER, EXCHANGE. The Securities are in registered form
without coupons in denominations of $1,000 and whole multiples of $1,000. The
transfer of Securities may be registered and Securities may be exchanged as
provided in the Indenture. The transfer agent may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and to pay
any taxes and fees required by law or the Indenture.

        PERSONS DEEMED OWNERS. The registered holder of a Security may be
treated as its owner for all purposes.

        AMENDMENTS AND WAIVERS. Subject to certain exceptions, the Indenture or
the Securities may be amended with the consent of the Holders of not less than a
majority in aggregate principal amount of the Securities of all series affected
by the amendment. Subject to certain exceptions, a default on a series may be
waived with the consent of the Holders of not less than a majority in principal
amount of the series.

        Without the consent of any Holder, the Indenture or the Securities may
be amended to, among other things, cure any ambiguity or correct any omission,
defect or inconsistency; to provide for assumption of Company obligations to
Holders; or to make any change that does not materially adversely affect the
interests of any Holders of Securities then Outstanding.

        LIMITATIONS ON DEBT. The Securities are unsecured general obligations of
the Company limited to $125,000,000 principal amount; provided, however, that
the Securities may be reopened for issuances of additional Securities in
accordance with the Indenture. The Indenture does not limit other unsecured
debt.

        SUCCESSORS. When a successor assumes all of the obligations of the
Company under the Securities and the Indenture, the Company shall be released
from those obligations.

        DEFEASANCE PRIOR TO MATURITY. Subject to certain conditions, the Company
at any time may terminate some or all of its obligations under the Securities
and the Indenture if the Company deposits with the Trustee U.S. dollars or U.S.
Government Obligations for the payment of principal of and interest on the
Securities to maturity.

        DEFAULTS AND REMEDIES. An Event of Default includes: default for 30 days
in payment of interest on the Securities; default in payment of principal on the
Securities; default by the Company in the performance of any of its other
agreements applicable to the Securities that continues for 90 days after the
Company has been given notice of such default; and certain events of bankruptcy
or insolvency. If an Event of Default occurs and is continuing, the Trustee or
the Holders of not less



                                      -10-
   11

than 25% in principal amount of the Outstanding Securities may declare the
principal of all the Securities to be due and payable immediately.

        Holders may not enforce the Indenture or the Securities except as
provided in the Indenture. The Trustee may require indemnity satisfactory to it
before it enforces the Indenture or the Securities. Subject to certain
limitations, Holders of a majority in principal amount of the Securities may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders notice of any continuing default (except a default in
payment of principal or interest) if it in good faith determines that
withholding such notice is in their best interests.

        TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from and perform services for
the Company or its Affiliates, and may otherwise deal with those persons, as if
it were not Trustee.

        NO RECOURSE AGAINST OTHERS. Any incorporator, director or officer, as
such, of the Company shall not have any liability for any obligations of the
Company under the Securities or the Indenture or for any claim based on, in
respect of or by reason of such obligations or their creation. Each Holder by
accepting a Security waives and releases all such liability. The waiver and
release are part of the consideration for the issue of the Securities.

        AUTHENTICATION. This Security shall not be valid until authenticated by
a manual signature of the Trustee.

        ABBREVIATIONS. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (=tenants in common), TEN ENT (=tenants
by the entirety), JT (=joint tenants with rights of survivorship and not as
tenants in common), CUST (=custodian), U/G/M/A (=Uniform Gift to Minors Act) and
U/T/M/A (=Uniform Transfers to Minors Act).

        The Company shall furnish to any Holder upon written request and without
charge a copy of the Indenture and the Officer's Certificate, dated August 2,
2001, which contain the text of this Security. Requests may be made to:
Corporate Secretary, Mercury General Corporation, 4484 Wilshire Boulevard, Los
Angeles, California 90010.

        All terms used in this Security, which are defined in the Indenture or
the Officers' Certificate, shall have the meanings assigned to them in the
Indenture or the Officers' Certificate.

        Unless the certificate of authentication hereon has been executed by the
Trustee by manual signature, this Security shall not be entitled to any benefit
under the Indenture or be valid or obligatory for any purpose.

        The Indenture and the Securities issued thereunder shall be governed by
and construed in accordance with the laws of the State of New York.



                                      -11-
   12
               IN WITNESS WHEREOF, the Corporation has caused this instrument to
be duly executed.

Dated as of the date of Authentication:        MERCURY GENERAL CORPORATION


                                               By
                                                 -------------------------------


                                               By
                                                 -------------------------------



Bank One Trust Company, N.A.,
As Trustee



By:
   ---------------------------
      Authorized Signatory



                                      -12-
   13
                            [FORM OF ASSIGNMENT FORM]

                                 ASSIGNMENT FORM

        To assign this Security, fill in the form below:

        I or we assign and transfer this Security to____________________________

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________
(Print or type assignee's name, address and zip code)

(Insert assignee's social security or tax I.D. no.)

and irrevocably appoint____________________________________________as agent to
transfer this  Security  on the books of the  Company.  The agent may
substitute another to act for him.


Date:_______________, 20___                Your signature:______________________

                                                          ______________________


        (Sign exactly as your name appears on the face of this Security)


Signature Guaranteed:


______________________




                                      * * *


                                      -13-
   14
               IN WITNESS WHEREOF, we have set our hands as of the day and year
first above written.



Dated:                                      MERCURY GENERAL CORPORATION




                                            By:   /s/ George Joseph
                                               ---------------------------------
                                                  Chairman of the Board,
                                                  President and Chief Executive
                                                  Officer


                                            By:  /s/ Gabriel Tirador
                                               ---------------------------------
                                                 Vice President and Chief
                                                 Financial Officer

EX-5.1

   1
                                                                     Exhibit 5.1

                         [LATHAM & WATKINS LETTERHEAD]

                                 August 6, 2001




Mercury General Corporation
4484 Wilshire Boulevard
Los Angeles, California  90010

                Re:     $125,000,000 of 7.25% Senior Notes Due 2011 of Mercury
                        General Corporation

Ladies and Gentlemen:

               This opinion is furnished in connection with the offering of
$125,000,000 aggregate principal amount of 7.25% Senior Notes due 2011 (the
"Debt Securities") of Mercury General Corporation, a California corporation (the
"Company"), being issued pursuant to (i) an indenture dated as of June 1, 2001
(the "Indenture"), as supplemented by an Officers' Certificate dated August 2,
2001, between the Company and Bank One Trust Company, N.A., as trustee, (ii) a
registration statement on Form S-3 under the Securities Act of 1933, as amended
(the "Act"), filed with the Securities and Exchange Commission (the
"Commission") on June 4, 2001 (File No. 333-62228), as amended by Amendment No.
1 filed with the Commission on July 12, 2001 and by Amendment No. 2 filed with
the Commission on July 18, 2001, and declared effective by the Commission on
July 20, 2001 (the "Registration Statement"), (iii) a prospectus dated July 20,
2001 and the prospectus supplement dated August 2, 2001 filed with the
Commission pursuant to Rule 424(b) under the Act, and (iv) an underwriting
agreement dated August 2, 2001 between the Company and Banc of America
Securities LLC, as Representative of the several underwriters named in the
underwriting agreement (the "Underwriting Agreement").

               We are familiar with the proceedings taken by the Company in
connection with the authorization and issuance of the Debt Securities. In
addition, we have made such legal and factual examinations and inquiries,
including an examination of originals or copies certified or otherwise
identified to our satisfaction of such documents, corporate records and
instruments, as we have deemed necessary or appropriate for purposes of this
opinion.

               In our examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, and
the conformity to authentic original documents of all documents submitted to us
as copies.

               We are opining herein as to the effect on the subject transaction
only of the internal laws of the State of New York, and we express no opinion
with respect to the applicability thereto, or the effect


   2

August 6, 2001
Page 2


thereon, of the laws of any other jurisdiction or, in the case of California any
other laws, or as to any matters of municipal law or the laws of any local
agencies within any state.

               Subject to the foregoing and the other matters set forth herein,
it is our opinion that as of the date hereof the Debt Securities have been duly
authorized by all necessary corporate action of the Company, and when executed,
authenticated and delivered by or on behalf of the Company against payment
therefor in accordance with the terms of the Indenture and the Underwriting
Agreement, will constitute legally valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms.

               The opinion rendered above relating to the enforceability of the
Debt Securities are subject to the following exceptions, limitations and
qualifications: (i) the effect of bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to or
affecting the rights and remedies of creditors and (ii) the effect of general
principles of equity, whether enforcement is considered in a proceeding in
equity or law, and the discretion of the court before which any proceeding
therefor may be brought.

               In addition, we express no opinion with respect to whether
acceleration of the Debt Securities may affect the collectibility of that
portion of the stated principal amount thereof that might be determined to
constitute unearned interest thereon.

               We have not been requested to express, and with your knowledge
and consent, do not render any opinion as to the applicability to the
obligations of the Company under the Indenture and the Debt Securities under the
Indenture of Section 548 of the United States Bankruptcy Code or applicable
state law (including, without limitation, Article 10 of the New York Debtor and
Creditor Law) relating to fraudulent transfers and obligations.

               To the extent that the obligations of the Company under the
Indenture may be dependent upon such matters, we assume for purposes of this
opinion that the Trustee is duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization and has complied
with any obligations to file returns and pay taxes under the Franchise Tax Law
of the State of California; that the Trustee is duly qualified to engage in the
activities contemplated by the Indenture; that the Indenture has been duly
authorized, executed and delivered by the Trustee and constitutes the legally
valid, binding and enforceable obligation of the Trustee enforceable against the
Trustee in accordance with its terms; that the Trustee is in compliance,
generally and with respect to acting as a trustee under the Indenture, with all
applicable laws and regulations; and that the Trustee has the requisite
organizational and legal power and authority to perform its obligations under
the Indenture.

                                            Very truly yours,


                                            LATHAM & WATKINS