EXHIBIT 10.1
NATIONAL INTERSTATE CORPORATION
MANAGEMENT BONUS PLAN
     1. Purpose. The purpose of this Management Bonus Plan (this “Plan”) is to
provide financial incentives to designated executives and other key managers of
National Interstate Corporation and its subsidiaries (the “Company”) related to
the achievement of challenging financial and business goals.
     2. Definitions. Terms in this Plan that have initial capital letters and
that are not otherwise defined in this Plan shall have the meanings given to
such terms in Exhibit A.
     3. Plan Administration. The Compensation Committee of the Board (the
“Committee”) shall be responsible for administration of the Plan. The Committee,
by majority action, is authorized to interpret the Plan, to prescribe, amend,
and rescind regulations relating to the Plan, to provide for conditions and
assurances deemed necessary or advisable to protect the interests of the
Company, and to make all other determinations necessary or advisable for the
administration of the Plan, but only to the extent not contrary to the express
provisions of the Plan. Determinations, interpretations, or other actions made
or taken by the Committee pursuant to the provisions of the Plan shall be final,
binding and conclusive for all purposes and upon all Participants. No member of
the Committee shall be liable for any such action or determination made in good
faith. The Committee may delegate to the chief executive officer or other
officers of the Company, subject to such terms as the Committee shall determine,
authority to perform certain functions, including administrative functions,
except that the Committee shall retain exclusive authority to determine matters
relating to the chief executive officer. In the event of such delegation, all
references to the Committee in this Plan shall be deemed references to such
officers as it relates to those aspects of the Plan that have been delegated.
     4. Eligibility. The chief executive officer will select and the Committee
shall approve which Employees will be eligible to participate in the Plan for
any given Performance Period. Eligible Participants shall be notified in writing
of such designation. An Employee who is a Participant for a given Performance
Period is neither guaranteed nor assured of being selected for participation in
any subsequent Performance Period.
     5. Bonus Pool and Target Incentive Award. Following the beginning of each
Performance Period, the Committee shall establish (i) a formula for determining
the potential Bonus Pool for such Performance Period, and (ii) a Target
Incentive Award for such Performance Period for each Participant. When
establishing the Target Incentive Awards for participants other than the chief
executive officer, the Committee shall consider the recommendations of the chief
executive officer. The chief executive officer will be authorized to establish
(subject, in the case of executive officers, to the Committee’s approval) Target
Incentive Awards for newly hired or newly promoted Employees, which awards may
be based on performance during less than the full Performance Period and may be
pro rated in the discretion of the Committee.

 

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     6. Determination of Awards. As soon as administratively practicable
following the end of each Performance Period, the Committee shall determine the
total Bonus Pool available for allocation as Awards for such Performance Period
and shall determine the extent, if any, that the Target Incentive Award for each
Participant has been attained, based on the Committee’s assessment (after
considering the recommendations of the chief executive officer for all
Participants other than the chief executive officer) of the Company’s and the
Participant’s performance to objectives during such Performance Period. The
amount of the Award payable under the Plan to any Participant shall then be
determined by the Committee based on a percentage of the available Bonus Pool;
provided, however, that in no event shall the aggregate of all Awards to be made
hereunder to all Participants for a Performance Period exceed the amount of the
Bonus Pool for such Performance Period. The Committee may, in its sole
discretion, increase or decrease the amount of any Award otherwise payable to
any Participant to reflect such Participant’s individual performance or such
other factors as the Committee deems relevant, or in recognition of changed or
special circumstances.
     7. Payment of Awards. An Award to a Participant for a particular
Performance Period shall be paid by the Company in cash in three installments
(without interest) as follows: (i) Fifty percent (50%) of the Award for such
Performance Period shall be paid within 75 days after the end of such
Performance Period; (ii) Thirty five percent (35%) of the Award for such
Performance Period shall be paid within 75 days after the first anniversary of
the end of such Performance Period; and (iii) fifteen percent (15%) of the Award
for such Performance Period shall be paid within 75 days after the second
anniversary of the end of such Performance Period. For two years subsequent to
such date (i.e. until the fourth anniversary of the end of such Performance
Period), the Committee shall consider any favorable development for such
Performance Period and may, but shall not be obligated to, make a payment of an
additional cash amount to any Participant for that Performance Period. Unless
otherwise determined by the Committee, a Participant must be Actively Employed
by the Company on the date his Award (or any portion thereof) is to be paid in
order to be entitled to payment of any such Award (or any portion thereof).
     8. Change in Control. Notwithstanding anything contained in this Plan to
the contrary, in the event of a Change in Control of National Interstate
Corporation: (a) if prior to the first anniversary of the Change in Control the
Company terminates a Participant’s employment other than for Cause or a
Participant terminates his or her employment for Good Reason, then the Company
shall pay to such Participant a lump sum cash distribution of his or her unpaid
Awards within 10 days following the date of his or her termination of
employment; and (b) if a Change in Control occurs during a Performance Period
(and after the applicable Target Incentive Awards have been established for such
period), and prior to the end of such Performance Period the Company terminates
a Participant’s employment other than for Cause, or a Participant terminates his
or her employment for Good Reason, then the Company shall pay to such
Participant a lump sum cash distribution of his or her Target Incentive Award
for such Performance Period, prorated for the period Actively Employed with the
Company during such Performance Period, within 10 days following the date of his
or her termination of employment.
     9. Source of Payment; Transferability; Rights of Employer. Each Award that
may become payable under the Plan shall be paid solely from the general assets
of the Company.

 

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Nothing in this Plan shall be construed to create a trust or to establish or
evidence any Participant’s claim of any right to payment of an Award other than
as an unsecured general creditor with respect to any payment to which he or she
may be entitled. No right or benefit under this Plan will be subject to
anticipation, alienation, sale, assignment, pledge, encumbrance, or charge, and
any attempt to anticipate, alienate, sell, assign, pledge, encumber, or charge
such right or benefit will be void. No such right or benefit will in any manner
be liable for or subject to the debts, liabilities, or torts of a Participant.
Nothing in the Plan shall interfere with or limit in any way the right of the
Company to terminate any Participant’s employment at any time, with or without
cause.
     10. Compliance with Section 409A of the Code. To the extent applicable, it
is intended that the Plan comply with the provisions of Section 409A of the
Internal Revenue Code of 1986, as amended (the “Code”), so as to prevent the
inclusion in gross income of any amounts payable hereunder in a taxable year
that is prior to the taxable year or years in which such amounts would otherwise
actually be distributed or made available to Participants. This Plan shall be
construed, administered, and governed in a manner that effects such intent, and
the Committee shall not take any action that would be inconsistent with such
intent. Any provisions that would cause any amount payable under the Plan to be
includible in the gross income of any Participant under Section 409A(a)(1) of
the Code shall have no force and effect unless and until amended to cause such
amount to not be so includible (which amendment may be retroactive to the extent
permitted by Section 409A of the Code without the consent of the Participants).
     11. Amendment or Termination. The Board may from time to time amend the
Plan in any respect or terminate the Plan in whole or in part. Upon termination
of the Plan, all earned but unpaid Awards shall continue to be payable on the
dates on which the Participants would otherwise receive payments hereunder
without regard to the termination of the Plan; provided, however, that to the
extent permitted by Section 409A of the Code, the Board may direct that the
Participants who are employed by the Company as of the effective date of such
termination receive an immediate lump sum payment equal to the amount of their
earned but unpaid Awards.
     12. Miscellaneous. All obligations of the Company under the Plan shall be
binding on any successor to the Company, whether the existence of such successor
is the result of a direct or indirect purchase, merger, consolidation, or
otherwise, of all or substantially all of the business or assets of the Company,
and such successor, along with its subsidiaries, shall thereafter be deemed the
“Company” for all purposes of this Plan. The Plan and all Awards shall be
construed in accordance with and governed by the laws of the State of Ohio, but
without regard to its conflict of law provisions. The Company shall have the
right to deduct from all payments made to any person under the Plan any federal,
state, local, foreign or other taxes which, in the opinion of the Company are
required to be withheld with respect to such payments.

 

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EXHIBIT A
DEFINITIONS
“Actively Employed” has the meaning given such term in the Company’s Employee
Handbook.
“Award” means a cash award granted under the Plan to a Participant by the
Committee pursuant to such terms, conditions, restrictions and/or limitations,
if any, as the Committee may establish.
“Board” means the Board of Directors of National Interstate Corporation.
“Bonus Pool” means, for each Performance Period, a bonus pool established by the
Committee upon recommendation of the chief executive officer with respect to the
Company’s accident underwriting year or years, consisting of that portion of the
underwriting profit for such year or years, as designated by the Committee.
“Cause” shall mean (i) the material failure by the Participant to properly
perform his duties for the Company (except due to physical or mental
impairment); (ii) a conviction, guilty plea or plea of nolo contendere of the
Participant for any crime involving moral turpitude or for any felony; or
(iii) a breach by the Participant of his fiduciary duties of loyalty or care to
the Company or a material violation of any of the corporate governance and
ethics guidelines, conflict of interests policies or code of conduct of the
Company.
“Change in Control” has the meaning given such term in the Company’s Long Term
Incentive Plan.
“Employee” means any person employed by the Company, whether such Employee is
employed at the time the Plan is adopted or becomes employed subsequent to the
adoption of the Plan.
“Good Reason” shall mean (i) a material reduction in the Participant’s annual
base salary as in effect on the Change in Control; (ii) a material reduction,
without the Participant’s written consent, of the Participant’s authority,
duties, or responsibilities from those in effect immediately prior to the Change
in Control; or (iii) a material change, without the Participant’s written
consent, in the geographic location of Participant’s principal place of
employment as in effect immediately prior to the Change in Control.
“Participant” means, as to any Performance Period, any Employee confirmed by the
Committee to be eligible to participate in the Plan for that Performance Period,
as provided herein.
“Performance Period” means the Company’s fiscal year.
“Target Incentive Award” means, as to any Performance Period, the target level
of Award opportunity, stated as a percentage of base salary, available to a
Participant. The Target Incentive Awards may differ from Performance Period to
Performance Period and Participant to Participant, as determined by the
Committee. It is anticipated that an Award made under this Plan will be stated
in terms of a percentage of the available Bonus Pool and will range from 0% to
200% of the Target Incentive Award.