ARGONAUT GROUP INC
AMENDMENT NO. 1, DATED AS OF MARCH 31, 2003 TO SUBSCRIPTION AGREEMENT
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<TYPE>EX-10.3
<SEQUENCE>7
<FILENAME>dex103.txt
<DESCRIPTION>AMENDMENT NO. 1, DATED AS OF MARCH 31, 2003 TO SUBSCRIPTION AGREEMENT
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                                                                    Exhibit 10.3

                               AMENDMENT NO. 1 TO

                             SUBSCRIPTION AGREEMENT

     THIS AMENDMENT NO. 1 TO THE SUBSCRIPTION AGREEMENT (this "Amendment") is
dated as of March 31, 2003, and amends that certain Subscription Agreement
("Subscription Agreement") by and among Argonaut Group, Inc. (the "Corporation")
and HCC Insurance Holdings, Inc. ("Investor") dated as of March 12, 2003.

                                    RECITALS

     WHEREAS, Seller and Purchaser wish to amend the Subscription Agreement.

     NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt, adequacy and sufficiency of which are
hereby acknowledged, and intending to be legally bound, the parties to this
Amendment hereby agree as follows:

                                   Article I.
                                   Amendments

     1.1. The Subscription Agreement is hereby amended by revising Section 1(a)
to read as follows:

          "a. Subscription. On the terms and subject to the conditions of this
          Agreement, the Investor hereby irrevocably subscribes for and the
          Corporation hereby irrevocably agrees to sell to Investor 2,453,310
          shares of Series A Mandatory Convertible Preferred Stock (the
          "Shares") of the Corporation (the terms of which are described in the
          form of Certificate of Designations, Preferences and Rights of the
          Series A Mandatory Convertible Preferred Stock of the Corporation,
          attached hereto as Exhibit A (the "Certificate of Designations") for a
          purchase price of $12.00 per share for an aggregate purchase price of
          Twenty Nine Million Four Hundred Thirty-Nine Thousand Seven Hundred
          Twenty Dollars ($29,439,720) payable in cash at the Closing. At any
          time prior to Closing, the Corporation shall have the right to require
          Investor, subject to Investor's receiving all necessary regulatory
          approvals, to increase its investment to $49.9 million and to acquire
          additional Shares at the per share purchase price provided herein. If
          Investor is unable to obtain all necessary regulatory approvals,
          Investor will not be required to purchase more than 2,453,310 Shares.
          Nothing contained in this Section 1(a) shall be deemed to modify,
          amend, waive or alter the Investor's conditions to Closing set forth
          in Section 4."

     1.2. The Subscription Agreement is hereby amended by revising Section 3(l)
to read as follows:

          "l. Right of Participation. If the Corporation authorizes or creates a
          new class or series of capital stock and proposes to issue such
          capital stock (which for the avoidance of doubt, shall not include
          additional shares of its current outstanding class of common stock in
          a capital-raising transaction) (a "New Stock Offering"), then the
          Corporation shall provide as much advance notice as reasonably
          practicable

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          (without jeopardizing the Corporation's ability to reasonably conduct
          the offering on advantageous terms, but in no event less than ten
          business days) to Investor of such issuance, which notice shall
          include the proposed amount of shares to be offered, the material
          terms of such shares and the price at which shares shall be offered
          (the "Stock Offering Notice"), so as to enable Investor the
          opportunity to purchase all or any portion of such securities in
          connection with such issuance. If the Corporation proposes to issue
          debt securities (other than bank debt) in a capital raising
          transaction (a "New Debt Offering"), the Corporation shall provide as
          much advance notice as reasonably practicable (without jeopardizing
          the Corporation's ability to reasonably conduct the offering on
          advantageous terms, but in no event less than three (3) business days)
          to Investor of such issuance, which notice shall include the proposed
          amount of debt securities to be offered and the proposed material
          terms of such debt securities (the "Debt Offering Notice"), so as to
          enable Investor the opportunity to purchase all or any portion of such
          debt securities in connection with such issuance. Investor may
          exercise the foregoing rights by delivering a notice of such exercise
          (the "Notice of Exercise") to the Corporation within two business days
          after the time notice of the New Stock Offering or the New Debt
          Offering is given to Investor by the Corporation. Such Notice of
          Exercise shall state the number of shares of capital stock or amount
          of debt securities, as the case may be, that Investor desires to
          purchase in such offering. Subject to the following provisions, the
          Corporation shall issue to Investor in such offering such number of
          shares of capital stock or amount of debt securities, as the case may
          be, to the Investor as specified in such Notice of Exercise. It is
          hereby understood that, pursuant to the Subscription Agreement, dated
          March 31, 2003, between the Corporation and Century Capital Partners
          III, L.P. ( "Century"), the Corporation has granted rights to Century
          to participate in New Stock Offerings and New Debt Offerings, and the
          Corporation is obligated to offer such securities to Century on the
          same basis as offered to Investor. In the event that Century and
          Investor deliver Notices of Exercise that would collectively obligate
          the Corporation to issue more capital stock or debt securities, as the
          case may be, than set forth in the Stock Offering Notice or Debt
          Offering Notice, as the case may be (the "Maximum Offering Size"),
          then (i) the Corporation shall not be obligated to issue more capital
          stock or debt securities than the Maximum Offering Size and (ii) the
          shares of capital stock or the amount of debt securities, as the case
          may be, shall be allocated pro rata among Century on the one hand and
          Investor on the other hand on the basis of the number of Shares owned
          by each of them (ownership of Common Stock into which Shares were
          converted shall not be considered for purposes of determining such
          number of Shares) until such time as (A) a party is allocated the
          amount of capital stock or debt securities specified in its Notice of
          Exercise, in which case, the remaining unallocated capital stock or
          debt securities that comprise the Maximum Offering Size will be
          allocated to the other party or (B) if clause (A) does not apply, the
          entire Maximum Offering Size is allocated among the parties. The
          Corporation's obligations in this section shall remain in effect as
          long as Investor holds, directly or indirectly, 30% or more of the
          originally issued Shares (and ownership of Common Stock into which
          such Shares were converted shall not be considered for purposes of
          such calculation). The rights set forth in this section shall only
          apply to a successor of Investor, or a purchaser or

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          other owner of a portion of Investor's Shares, if at the time of such
          successor's, owner's, or purchaser's acquisition, Investor, directly
          or indirectly, disposed of, and the successor, owner or purchaser,
          acquired, all of the then remaining Shares held by Investor directly
          or indirectly."

     1.3. The Subscription Agreement is hereby amended by adding a new Section
3(m) to read as follows:

          "m. Confidentiality Agreement. The Corporation acknowledges and
          agrees that effective as of the Closing the standstill provisions in
          the 4th full paragraph of page 2 beginning "You agree..." and ending
          "this paragraph." set forth in that certain Confidentiality Agreement
          dated February 14, 2003 between Investor and the Corporation are
          invalid and are of no further force or effect."

     1.4 The Subscription Agreement is hereby amended by revising Section 3(g)
to read as follows:

          "g. Repurchase. If by April 22, 2003 Century Capital Partners III,
          L.P. ("CCP") has not closed its subscription for shares of the Series
          A Preferred and become the owner of 500,000 shares of the Series A
          Preferred at an aggregate purchase price of $6,000,000 as agreed in
          the Subscription Agreement dated March 31, 2003, between CCP and the
          Corporation at Investor's election, shall repurchase shares of the
          Series A Preferred from Investor in an amount such that Investor's
          total ownership of the Corporation is equal to 9.99% (and no greater)
          of the issued and outstanding stock of the Corporation at the purchase
          price of $12.00 per share. "

                                   Article II.
                                  Miscellaneous

     2.1. Interpretation. This Amendment has been negotiated at arm's length and
between Persons sophisticated and knowledgeable in the matters dealt with in
this Amendment. Each party has been represented by experienced and knowledgeable
legal counsel. Accordingly, any rule of law or legal decision that would require
interpretation of any ambiguities in this Amendment against the party that has
drafted it is not applicable and is waived. The provisions in this Amendment
shall be interpreted in a reasonable manner to effect the purposes of the
parties, this Amendment and the Subscription Agreement.

     2.2. Counterparts. This Amendment may be executed simultaneously in
multiple counterparts, each of which shall be an original, but all of which
taken together shall constitute one and the same instrument. Execution and
delivery of this Amendment by exchange of facsimile copies bearing a facsimile
signature of a party hereto shall constitute a valid and binding execution and
delivery of this Amendment by such party. Such facsimile copies shall constitute
enforceable original documents.

     2.3. Governing Law; Jurisdiction. This Amendment shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might

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otherwise govern under applicable principles of conflicts of laws thereof.
Regardless of any present or future domicile or principal place of business of
the parties hereto, each party hereby irrevocably consents and agrees that any
claims or disputes between or among the parties hereto pertaining to this
Amendment or to any matter arising out of or related to this Amendment may be
brought in any federal court of competent jurisdiction in the State of Delaware.
By execution and delivery of this Amendment, each party submits and consents in
advance to such non-exclusive jurisdiction in any action or suit commenced in
any such court. Each party hereby waives any objection which it may have based
upon lack of personal jurisdiction, improper venue or forum non conveniens and
hereby consents to the granting of such legal or equitable relief as deemed
appropriate by such court and service of process in accordance with Delaware
law.

     2.4. Severability. In the event that any provision of this Amendment shall
be determined to be invalid or unenforceable under applicable law, all other
provisions of this Amendment shall continue in full force and effect unless such
invalidity or unenforceability causes substantial deviation from the underlying
intent of the parties expressed in this Amendment or unless the invalid or
unenforceable provisions comprise an integral part of, or are inseparable from,
the remainder of this Amendment. If this Amendment continues in full force and
effect as provided, the parties shall replace the invalid provision with a valid
provision which corresponds as far as possible to the spirit and purpose of the
invalid provision.

     2.5. No Other Amendments or Modification. Except as expressly modified and
amended by this Amendment, the Subscription Agreement shall remain in full force
and effect.

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     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date first above written.

                                         ARGONAUT GROUP, INC.


                                         By: /s/ Mark E. Watson III
                                             -----------------------------------
                                                 Name: Mark E. Watson III
                                                 Title: President & CEO


                                         HCC INSURANCE HOLDINGS, INC.


                                         By: /s/ Stephen L. Way
                                             -----------------------------------
                                                 Name: Stephen L. Way
                                                 Title: Chief Executive Officer


                                         HOUSTON CASUALTY COMPANY


                                         By: /s/ Edward H. Ellis, Jr.
                                             -----------------------------------
                                                 Name: Edward H. Ellis, Jr.
                                                 Title: Executive Vice President


                                         US SPECIALTY INSURANCE COMPANY


                                         By: /s/ Edward H. Ellis, Jr.
                                             -----------------------------------
                                                 Name: Edward H. Ellis, Jr.
                                                 Title: Executive Vice President

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                                         HCC LIFE INSURANCE COMPANY


                                         By: /s/ Edward H. Ellis, Jr.
                                             -----------------------------------
                                                 Name: Edward H. Ellis, Jr.
                                                 Title: Executive Vice President


                                         AVEMCO INSURANCE COMPANY


                                         By: /s/ Edward H. Ellis, Jr.
                                             -----------------------------------
                                                 Name: Edward H. Ellis, Jr.
                                                 Title: Executive Vice President

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