Subscription Agreement, Dated As of March 12, 2003

Exhibit 10.2


SUBSCRIPTION AGREEMENT


Argonaut Group, Inc.
Series A Mandatory Convertible Preferred Stock
(Par value $0.10 per share)


Argonaut Group, Inc. 10101 Reunion Place, Suite 500 San Antonio, TX 78216


Ladies and Gentlemen:


HCC Insurance Holdings, Inc., the undersigned investor or its designated subsidiary (the "Investor") is executing this Subscription Agreement (the "Agreement") in connection with its subscription for Shares (as defined below) of Argonaut Group, Inc. (the "Corporation"), a Delaware corporation. This Agreement is entered into in connection with the Corporation's private placement of an aggregate of $58,000,000 of shares of Series A Mandatory Convertible Preferred Stock, par value $.10 per share, of the Corporation (the "Series A Preferred"). The Investor understands that the Corporation is relying upon the accuracy and completeness of the information contained herein in complying with its obligations under federal and state securities and other applicable laws.


The Investor hereby irrevocably agrees with, and represents and warrants to and for the benefit of, the Corporation and the stockholders of the Corporation, as follows:


1. Subscription.


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 2,564,164 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 $13.50 per share for an aggregate purchase price of Thirty-Four Million Six Hundred Sixteen Thousand, Two Hundred Fourteen Dollars ($34,616,214) 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 any 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 2,564,164 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.


b. Subsidiaries. The Investor may assign its subscription rights hereunder to one or more of its direct or indirect subsidiaries; provided, however, that the Investor shall remain fully liable for all of its obligations hereunder, including, without limitation, the payment of the purchase price for all of the Shares. As a condition to such subscription, each direct or


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indirect subsidiary of the Investor purchasing Shares shall execute and deliver to the Corporation a counterpart of this Agreement, and shall be bound by the terms and conditions of this Agreement (but with its obligations limited to the Shares being purchased by it) as if such person was the original signatory hereto.


c. Closing. The consummation of the transactions contemplated hereby (the "Closing") shall occur at 10 a.m. Houston time within five (5) business days following satisfaction or waiver by the applicable party of all conditions to Closing, or at such other time or place as the parties shall mutually agree in writing (the "Closing Date"), at the offices of Haynes and Boone, LLP, located at 1000 Louisiana, Suite 4300, Houston, Texas 77002. Closing may be by exchange of facsimile signatures with original signatures to follow by overnight mail. This Agreement may be terminated by either party if the Closing shall not have occurred by May 31, 2003.


2. Representations and Warranties of the Investor. The Investor hereby represents and warrants to the Corporation as follows:


a. Organization. The Investor is duly organized or formed, validly existing and in good standing under the laws of the state of its organization or formation.


b. Authority. The Investor has the requisite power and authority to enter into this Agreement, a Registration Rights Agreement, to be dated as of the Closing Date, in the form substantially as set forth in Exhibit B hereto (the "Registration Rights Agreement"), and an Escrow Agreement, to be dated as of the Closing Date, in form and substance as shall be reasonably agreed upon by the parties hereto (the "Escrow Agreement" and together with the Registration Rights Agreement, the "Transaction Documents"), to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance of this Agreement and the Transaction Documents and the consummation by the Investor of the transactions contemplated hereby and thereby have been duly and validly approved by all necessary action, and no other proceedings on the part of the Investor are necessary to authorize the execution, delivery and performance of this Agreement or the Transaction Documents by the Investor and the consummation by the Investor of the transactions contemplated hereby and thereby. This Agreement and the Transaction Documents have each been duly and validly executed and delivered by the Investor and, assuming the due authorization, execution and delivery of this Agreement and the Transaction Documents by the Corporation, each constitutes a legal, valid and binding obligation of the Investor enforceable against the Investor in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law).


c. Approvals and Consents; Non-Contravention. Except for consents, approvals and/or authorizations that have been obtained and filings that have been made, the execution, delivery and performance of this Agreement and the Transaction Documents by the Investor and the consummation by the Investor of the transactions contemplated hereby and thereby do not require any consent, approval or authorization of, or filing, registration or qualification with, any governmental authority on the part of the Investor, or the vote, consent or


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approval in any manner of the holders of any capital stock or other security of the Investor as a condition to the execution and delivery of this Agreement and the Transaction Documents or the consummation by the Investor of the transactions contemplated hereby and thereby. The execution and delivery by the Investor of this Agreement and the Transaction Documents and the performance by the Investor of its obligations hereunder and thereunder will not violate (i) the terms and conditions of the certificate of incorporation, or other applicable formation document, or the bylaws of the Investor, or any material agreement to which the Investor is a party or by which it is bound or (ii) any federal or state law.


d. Residence. The principal place of business address set forth on the signature page hereof is the Investor's true and correct principal place of business and is the only jurisdiction in which an offer to sell the Shares was made to the Investor, and the Investor has no present intention of moving its principal place of business to any other state or jurisdiction.


e. No Registration. The Investor understands that neither the Shares nor the shares of the Company's common stock, par value $0.10 per share (the "Common Stock") issuable on conversion of the Shares have been registered under the Securities Act of 1933, as amended (the "Securities Act"), or under the laws of any other jurisdiction, and that the Corporation does not contemplate and is under no obligation to so register the Shares, except as set forth in the Registration Rights Agreement. The Investor understands and agrees that the Shares must be held indefinitely unless they are subsequently transferred (i) pursuant to an effective registration statement under the Securities Act and, where required, under the laws of other jurisdictions or (ii) pursuant to an exemption from applicable registration requirements. The Investor will not offer, sell, transfer or assign its Shares or any interest therein in contravention of this Agreement, the Securities Act or any state or federal law.


f. Purchase for Investment. The Shares for which the Investor hereby subscribes are being acquired solely for the Investor's own account for investment and are not being purchased with a view to or for resale, distribution or other disposition, and the Investor has no present plans to enter into any contract, undertaking, agreement or arrangement for any such resale, distribution or other disposition. Investor agrees that the Shares may bear an appropriate legend to that effect.


g. Information. The Investor has been granted the opportunity to ask questions of, and receive answers from, the Corporation and the officers of the Corporation concerning the terms and conditions of the sale of the Shares and to obtain any additional information that the Investor deems necessary to make an informed investment decision. The Investor has received or has had access to other documents requested from the Corporation relating to the Shares and the purchase thereof, and the Corporation has afforded the Investor the opportunity to discuss the Investor's investment in the Corporation and to ask and receive answers to any questions relating to the investment in the Shares. The Investor understands and has evaluated the risks of a purchase of the Shares.


h. Accredited Investor. The Investor has read the text of Rule 501(a)(1)-(8) of Regulation D under the Securities Act and confirms that it is an "accredited investor" as described thereby.


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i. Assignment. The Investor will only assign its subscription rights hereunder to one or more of its subsidiaries who are capable of making the representations and warranties contained in this Section 2 and of performing the obligations they undertake hereunder.


j. Legend. The Investor acknowledges and understands that the certificates evidencing the Series A Preferred will bear the following legend:


THIS SECURITY AND THE COMMON STOCK ISSUED ON CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR ANY APPLICABLE EXEMPTION THEREFROM. THE HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF, REPRESENTS, ACKNOWLEDGES, AND AGREES FOR THE BENEFIT OF ARGONAUT GROUP, INC. (THE "COMPANY") THAT: (I) IT HAS ACQUIRED A "RESTRICTED SECURITY" THAT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT; AND (II) IT WILL NOT OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY EXCEPT PURSUANT TO (A) A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT OR (B) AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY APPLICABLE JURISDICTION. ANY OFFER, SALE OR OTHER DISPOSITION PURSUANT TO THE FOREGOING CLAUSE (B) IS SUBJECT TO THE RIGHT OF THE ISSUER OF THIS SECURITY (I) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION OR OTHER INFORMATION REASONABLY SATISFACTORY TO IT IN FORM AND SUBSTANCE, AND (II) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRANSFER AGENT.


k. Broker's Fees. Neither the Investor nor anyone acting on its behalf or at the request thereof has any liability to any broker, finder, investment banker or agent, or has agreed to pay any brokerage fees, finder's fees or commissions, or to reimburse any expenses of any broker, finder, investment banker or agent in connection with this Agreement.


l. Regulatory Approvals. Investor shall make all filings within thirty (30) days of the date hereof required to be made by it in connection with obtaining the approvals describe ...