Document:

EX-10.15

 

Exhibit 10.15

EMPLOYMENT AND NON-COMPETITION AGREEMENT

This Employment and Non-Competition Agreement (this “Agreement”) is made this 12th day of March,
2007 by and between National Interstate Corporation (“NIC”) and Alan R. Spachman (“Spachman”).

Recital: As part of the orderly development of NIC’s management structure, NIC has named Spachman,
who is the founder of NIC and has served as its President since 1989 and as its Chairman since
2004, to the newly created post of Chief Executive Officer (“CEO”), effective January 1, 2007, with
the expectation that, while he is in that post, Spachman will devote a substantial portion of his
efforts to the transition of his duties to his eventual successor as CEO. In connection with such
transition, this Agreement provides for Spachman’s continuing employment by NIC for up to two years
after the appointment of a successor CEO.

In consideration of the mutual covenants set forth in this Agreement, NIC and Spachman agree as
follows:

1. Employment Term. During the period specified in this Section 1, NIC will employ
Spachman, and Spachman will be employed by NIC, on the terms and subject to the conditions set
forth in this Agreement. The term of Spachman’s employment under this Agreement (the “Term”) will
begin as of January 1, 2007 (the “Effective Date”), and, subject to prior termination as provided
in Section 15, will continue through the date that is the first to occur of (a) the second
anniversary of the date (the “Succession Date”) on which an individual other than Spachman is
appointed CEO of NIC by the Board, or (b) December 31, 2009; such period shall be referred to in
this Agreement as the “Scheduled Term.” The Term will be divided into two portions, the first of
which (the “CEO Portion”) will run from January 1, 2007 through the Succession Date and the second
of which (the “Post-CEO Portion”) will run from the Succession Date through the end of the Term.

2. Duties and Responsibilities.

(a) During the CEO Portion of the Term, Spachman will serve as the Chief Executive Officer of
NIC, in which capacity he will perform such duties and have such responsibilities, consistent
with his status as CEO, as may be assigned to him by the Board of Directors of NIC from time to
time, primarily focusing on strategic opportunities, public company responsibilities, and the
implementation of succession planning through development of a successor to himself as CEO.
During the CEO Portion of the Term, Spachman will devote such time to the business of and to the
furtherance of the purposes and objectives of NIC as may be necessary to perform the duties and
fulfill the responsibilities mutually agreed upon from time to time as contemplated above.

(b) During the Post-CEO Portion of the Term, Spachman will serve as senior advisor, in which
capacity he will perform such duties and have such responsibilities as may be mutually agreed
upon between Spachman and the Board of Directors of NIC from time to time. During the Post-CEO
Portion of the Term, Spachman will devote such time to the business of and to the furtherance of
the purposes and objectives of NIC as may be necessary to perform the duties and fulfill the
responsibilities mutually agreed upon from time to time as contemplated above, and will be
entitled to engage in other remunerative activities, including part time employment by another
employer. During the Term and until the earlier to occur of (i) an executive of NIC obtaining
appropriate licenses in states necessary to maintain continuity of the business of NIC and its
subsidiaries or (ii) December 31, 2007, Spachman will serve certain subsidiaries of NIC in such
executive capacities as may be mutually agreed upon from time to time by Spachman and the
respective Boards of Directors of such NIC subsidiaries.

3. Cash Compensation. Throughout the Term, NIC will pay to Spachman base salary at the
rate of $330,000 per year together with a guaranteed bonus equal to 100% of base salary. The
combined total of

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base salary and 100% bonus (aggregating $660,000 per year) will be paid in equal
installments, subject to applicable withholding and in accordance with NIC’s normal payroll
practice (with a partial installment due at the end of the Term if the end of the Term does not
coincide with the end of a payroll period).

4. Pre-2007 Bonuses. In light of the guaranteed bonus to be paid to Spachman during the
Term, he will not be eligible to participate in NIC’s Management Bonus Plan for 2007 or any later
year and he will not be entitled to any cash payment for any paid time off accruing after December
31, 2006. For purposes of determining Spachman’s right to bonuses with respect to 2006 and any
earlier year, Spachman will be deemed to be in the active employ of NIC both throughout the Term
and, unless Spachman’s employment under this Agreement is terminated for Cause pursuant to Section
15(c), indefinitely thereafter. Accordingly, any bonus payments attributable to 2006 or earlier
year results that would otherwise be paid to Spachman in 2007 or any later year (with the original
requirement that he be in the active employ of NIC at the scheduled time of the bonus payment) will
be paid to Spachman or to his estate (subject only to the requirement that his employment under
this Agreement not have been terminated for Cause before the scheduled time of the bonus payment).
Spachman will be entitled to payment, in 2007, for all accrued but unused paid time off that he has
accrued through December 31, 2006, but will not be entitled to any cash payment for any paid time
off accruing after December 31, 2006.

5. Stock Options. Spachman holds options, granted under NIC’s Long Term Incentive Plan, to
buy 80,000 Common Shares of NIC, which options are scheduled to vest at the rate of 16,000 per year
on January 1 of each year from 2006 through 2010. (32,000 shares vested as of January 1, 2007.)
So long as Spachman is employed under this Agreement, these options will continue to vest in
accordance with the previously established schedule. Upon termination of his employment under this
Agreement for any reason other than termination for Cause pursuant to Section 15(c), all then
unvested options will become fully vested and exercisable as of the date of that termination and
Spachman (or his legal representative) will have a period of 90 days following that termination
within which to exercise any and all of those option that then remain unexercised. The
Compensation Committee of NIC’s Board of Directors will confirm the approval of these provisions in
a letter to be delivered to Spachman not later than 15 days after execution of this Agreement by
both parties.

6. Health, Life, and Disability Coverage.

(a) NIC will continue to provide to Spachman, throughout the Term, coverage under NIC’s health
insurance benefits plans, including the Flexible Spending Account program, subject to normal
deductibles, premiums, and co-payments in effect from time to time; except that if Spachman
becomes eligible for substantially equivalent coverage at substantially equivalent cost from
another employer at any time during the Post-CEO Portion of the Term, Spachman’s right to
participate in NIC’s health insurance benefits plans will terminate not later than 90 days after
Spachman becomes eligible for that substantially equivalent coverage. If, upon termination of
his employment with NIC, Spachman is eligible for continued benefits under COBRA, NIC will
provide him with written notification under separate cover.

(b) NIC will continue to provide to Spachman, throughout the Term, the maximum levels of
coverage available under NIC’s Basic Life Insurance/Accidental Death and Dismemberment Plan.

(c) NIC will continue to provide to Spachman, throughout the Term, group short term and long
term disability coverage on substantially the same basis as was provided to him by NIC during
2006, except that NIC will not continue coverage to Spachman under the Company’s supplemental
LTD program for officers after the next normal expiration date for the policy underlying that
program that occurs after January 1, 2007.

7. Savings and Profit Sharing Plan. Spachman will continue to be eligible throughout the
Term to participate in NIC’s Savings and Profit Sharing Plan with payroll deductions and ultimate
distributions to

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be made in accordance with the provisions of that plan. Spachman will be eligible
for NIC 401(k) profit sharing contributions on the same basis as other senior executive officers
throughout the Term.

8. Auto, Perquisites, and Office. Throughout the Term, Spachman will be entitled to
continued use of an automobile (under NIC’s Company Auto Program for Senior Officers), to all
standard officer perquisites, and to reimbursement for dues and fees at one country club, all at
substantially the same levels as in effect for Spachman during 2006. Throughout the CEO Portion of
the Term, Spachman will be entitled to the continued use of his current office, secretarial
services, and computer, telephone, and related support. Throughout the Post-CEO Portion of the
Term, Spachman will be entitled to the use of an appropriate office together with secretarial
services and computer, telephone, and related support, comparable to his current office and related
support.

9. Reimbursement for Expenses. Subject to such limitations as may be reasonably imposed by
NIC from time to time, NIC will reimburse Spachman for reasonable, ordinary, and necessary business
expenses incurred by him in furtherance of NIC’s business, provided Spachman accounts to NIC
therefore in a manner sufficient to substantiate deductions with respect to those expenses by NIC
for federal income tax purposes.

10. Confidential Information. Notwithstanding any other provision of this Agreement, both
during and after Spachman’s employment with NIC, Spachman will maintain the confidentiality of
Confidential Information and will refrain from using such Confidential Information (except in
connection with Spachman’s job responsibilities) and disclosing it to anyone other than NIC, its
employees, and other entities that have a business relationship with NIC and a need for such
Confidential Information. For purposes of this Agreement, “Confidential Information” is
information of NIC that Spachman would not have acquired but for his employment by NIC and that NIC
endeavors to keep confidential, including without limitation, and regardless of whether such
information is in a tangible medium of expression, accounting information, agency information,
broker-marketing information, claims information, customer service information, employee
information, financial information, information systems information, underwriting information, and
any information provided by a third party to NIC in confidence. At the termination of this
Agreement or otherwise upon NIC’s demand, Spachman will provide to NIC all records containing
Confidential Information as well as any copies of it, including handwritten notes made or derived
from Confidential Information or records, all of which are the property of NIC.

11. Activity Restraints. Subject to the exceptions listed below, Spachman agrees that he
will not, during the Scheduled Term or at any time within 12 months after the Scheduled Term,
whether as an individual for his own account, or as an employee, officer, director, significant
shareholder, partner, member, agent, independent contractor, or consultant of any person, firm,
corporation, or other entity engage in the following activities:

(a) Enter into or engage in any business that competes, directly or indirectly, with the NIC;

(b) Have any contact, including discussions, negotiations, agreements, or understandings, with
any insured, potential insured, agent, broker, or other entity of NIC with which NIC had
discussions, negotiations, agreements or understandings with at any time during Spachman’s
employment relating in any manner to competing insurance products that are identical to,
substantially the same as, or an adequate substitute for any insurance products of NIC and that
are, or could reasonably be anticipated to be, marketed or distributed in such a manner and in
such a geographic area as to actually compete with such insurance products of NIC.

Nothing in this Agreement shall be construed to prohibit Spachman from engaging in property and
casualty insurance business or businesses that do not conflict, directly or indirectly, with NIC’s
operations
or initiatives; provided that, before becoming involved in any type of property and casualty
insurance business, Spachman must give at least 60 days prior notice of his intention to become
involved with that

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business to NIC management and must give NIC a reasonable opportunity to
consider possible relationships between NIC and the new Spachman venture. Any proposed terms will
be negotiated at arms length between members of senior management of NIC and Spachman, and will
then be subject to approval by a special committee of the Board of Directors that has been
appointed for this purpose (currently consisting of Directors Consolino, Jensen, Larson and
Schiavone). Spachman and NIC agree that Spachman engaging in low-value dwelling property insurance
will not conflict, directly or indirectly, with NIC’s operations or initiatives.

Attached as Exhibit A is a term sheet outlining the essential terms of an agreement or agreements
to be entered into between Spachman and NIC with respect to Spachman engaging in low-value dwelling
property insurance in the State of Texas; such terms have been approved by the special committee of
the board, as well as the Audit Committee pursuant to its Charter responsibilities. NIC and
Spachman will enter into a formal agreement or agreements capturing these terms and other customary
terms and conditions, which will be disclosed upon execution as required by applicable law.

12. Hiring or Soliciting NIC Employees. Without the prior written consent of NIC’s Board
of Directors, during the Scheduled Term or at any time within 12 months after the Scheduled
Term, Spachman will not, directly or indirectly, hire or solicit for hire any of NIC’s employees to
work for Spachman or any entity with which Spachman is associated.

13. Remedies. Spachman acknowledges that:

(a) The promises in Sections 10, 11 and 12 of this Agreement are reasonably necessary to protect
the goodwill, trade secrets, and other business interests of NIC and will not cause Spachman
undue hardship.

(b) Any breach of these promises will cause NIC immediate irreparable harm for which injunctive
relief, including an ex parte temporary restraining order, may be necessary. Injunctive relief
will not preclude NIC from receiving any other relief to which it might be entitled.

(c) The promises in Sections 10, 11 and 12 of this Agreement are of the essence of this
Agreement. They must be construed as independent of any other provision of this Agreement and
the existence of any claim or cause of action of Spachman against NIC, whether predicated on
this Agreement or otherwise, will not constitute a defense to the enforcement by NIC of these
promises.

14. Construction of Agreement. Spachman’s promises in Sections 10, 11, and 12 of this
Agreement are separate and independent. If any of these promises is declared invalid or
unenforceable by any court, Spachman’s remaining promises and obligations shall remain in full
force and effect. If any of the provisions contained in Sections 10, 11 and 12 of this Agreement
are held to be unenforceable due to the duration or other aspect of the scope of those provisions,
the parties agree that a court has the power to and should reduce the duration or scope of that
provision and enforce the provision in its reduced form.

     Sections 10 through 13 shall survive termination of this Agreement or termination of
employment before the end of the Scheduled Term.

15. Termination of Employment.

(a) At Expiration of Term. If employment is not earlier terminated, Spachman’s
employment under this Agreement will terminate at the close of business on the last day of the
Scheduled Term that is specified in Section 1.

(b) Death or Disability. Spachman’s employment under this Agreement will terminate
immediately upon Spachman’s death. NIC may terminate Spachman’s employment hereunder
immediately upon

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giving notice of termination if Spachman is disabled, by reason of physical or
mental impairment, to such an extent that he has been unable to substantially perform his duties
under this Agreement for an aggregate of 90 days (whether business or non-business days and
whether or not consecutive) during any period of twelve consecutive calendar months.

(c) For Cause. NIC may terminate Spachman’s employment under this Agreement for “Cause”
if, before the end of the Scheduled Term:

(i) Spachman is convicted of a felony (other than felonious operation of a motor vehicle);

(ii) Spachman commits an act or series of acts of dishonesty or willful misconduct that is,
or could be materially injurious to NIC in the course of his employment that are materially
inimical to the best interests of NIC and, if the act or acts are capable of being cured,
Spachman fails to cure or take all reasonable steps to cure within 30 days of notice from
the Board of Directors to Spachman;

(iii) Spachman continues to violate his obligations under either or both of Sections 11 and
12 of this Agreement after the Board of Directors has advised him in writing to cease those
activities; or

(iv) Other than for disability, Spachman abandons or consistently fails to attempt to
perform his duties and responsibilities under this Agreement at any time during the Term, in
either event, for 30 consecutive days after Spachman’s receipt of written notice from the
Board of Directors.

(d) For Good Reason. Spachman may terminate his employment under this Agreement for
“Good Reason” if, before the end of the Scheduled Term:

(i) NIC materially breaches its obligations under this Agreement and, if the breach is
curable, NIC fails to cure or take all reasonable steps to cure within 30 days of notice
from Spachman to the Board of Directors;

(ii) NIC undergoes a Change in Control (as that term is defined in NIC’s Long Term Incentive
Plan as in effect on January 1, 2007); or

(iii) NIC appoints an individual other than Spachman to serve as CEO and the appointment is
not made by supermajority action of the Board of Directors of NIC. For purposes of this
Agreement, a supermajority action of the Board of Directors of NIC is an action that is
affirmatively approved by members of the Board who comprise at least 75% of the full
authorized number of members of the Board at the time the action is taken.

16. Payments Upon Termination.

(a) Upon Termination Without Cause or For Good Reason. If Spachman’s employment under
this Agreement is terminated before the end of the Scheduled Term by NIC without Cause or by
Spachman for Good Reason, NIC will pay and provide to Spachman all compensation and benefits to
which he would be entitled under this Agreement had he lived and continued in the employ of NIC
under this Agreement throughout the end of the Scheduled Term.

(b) Upon Death or Disability. In the event of Spachman’s disability (as described in
Section 15(b) or death, but only if he is not then in breach of Sections 10 and 11, any payments
remaining under Sections 3 and 4 will be made to him in the case of disability or his estate in
the event of his death.
The provisions of Section 5 will remain in effect in the event of disability or death. Payments
will be made on the same schedule called for in those Sections.

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(c) Upon Any Other Termination. Upon any termination of Spachman’s employment before
the end of the Scheduled Term other than a termination (i) by NIC without Cause, (ii) by
Spachman for Good Reason, or (iii) due to Spachman’s death or disability, NIC will pay to
Spachman all unpaid cash compensation accrued through the effective date of termination but will
not be obligated to make any further payment or to provide any further benefit to Spachman under
this Agreement.

17. Arbitration.

(a) Procedures. Except as otherwise provided in Section 17(d) with respect to
injunctive relief, any controversy, claim, or dispute arising out of or relating to this
Agreement, or the breach of any provision of this Agreement or relating to Spachman’s
employment, will be submitted to binding arbitration in Cleveland, Ohio in accordance with the
Employment Arbitration Rules of the American Arbitration Association. The arbitration will be
conducted by a single arbitrator selected from the list of arbitrators maintained by the
American Arbitration Association under its Employment Program or any successor program as
follows: (i) the American Arbitration Association (at the request of either or both parties)
will provide a list of the names of seven disinterested potential arbitrators, (ii) NIC will
delete one name from the list, (iii) Spachman will delete one name from the shortened list, (iv)
the procedure in (ii) and (iii) will be repeated alternately until only the name of one
potential arbitrator remains on the list and that potential arbitrator will be the arbitrator.
If either NIC or Spachman fails to cooperate reasonably in the selection of a single arbitrator,
the other of them may request that the American Arbitration Association name as the arbitrator
any one of the potential arbitrators (as selected by the party making the request) still
remaining on the original list of seven at the time of the failure to cooperate. The decision
by the arbitrator will be final and binding on the parties to this Agreement. Judgment upon the
decision rendered by the arbitrator may be entered in any court having appropriate jurisdiction.

(b) Fees and Expenses. The expenses of the arbitration and any related proceedings of
the type referred to in Section 17(d) (other than the legal fees and expenses incurred by
Spachman in connection with the arbitration and related proceedings) will be paid by NIC. The
reasonable legal fees and expenses incurred by Spachman in connection with the arbitration and
related proceedings will also be paid by NIC unless the arbitrator rules that Spachman had no
reasonable grounds for the position propounded by him in the arbitration (which determination
need not be made simply because Spachman fails to succeed in the arbitration and related
proceedings).

(c) Interest. If the arbitrator determines that NIC has failed to timely pay any amount
or provide any benefit to Spachman, Spachman will be entitled to receive, in addition to the
payment or benefit itself, interest on the unpaid amount or on the value of the benefit not
provided at a rate to be determined by the arbitrator from the date on which the payment or
benefit should have been made or provided to the date on which the payment or benefit is made or
provided.

(d) Injunctive Relief. Any party to a dispute, claim, or controversy described in
Section 17(a) will be entitled to apply to any court of competent jurisdiction for injunctive
relief at any time before the arbitrator has been appointed and has affirmatively accepted the
obligation to determine the extent to which injunctive relief should be continued or granted.
Any injunctive relief granted by a court of competent jurisdiction will be subject to
modification or termination by the arbitrator once the arbitrator has affirmatively accepted
that obligation.

18. Notices. Any notice, request or instruction to be given hereunder by either party to
the other will be in writing and will be deemed to have been given (a) when it is delivered in
person to Spachman or to the individual to whose attention notices to NIC are to be given, as the
case may be, or (b) the first business
day after it is sent by nationally recognized overnight courier, addressed as provided below, or to
such other addresses as may be designated by written notice to the other party:

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	 	If to NIC:
	 	National Interstate Corporation
	 

	 	 	 	3250 Interstate Drive
	 

	 	 	 	Richfield, OH 44286
	 

	 	 	 	Attention: General Counsel
	 
	 	 	 	 
	 

	 	If to Spachman:
	 	Alan R. Spachman
	 

	 	 	 	c/o Glenmede Trust Company
	 

	 	 	 	25823 Science Park Drive, Suite 110
	 

	 	 	 	Beachwood, OH 44122
	 

	 	 	 	Attention: Frank Harding, Managing Director

19. Assignment and Binding Effect. The obligations of the parties hereunder may not be
assigned or transferred, except upon the written consent of the other party hereto; except that NIC
may assign the benefit of this Agreement to any of its affiliates. This Agreement will be binding
upon and inure to the benefit of Spachman and NIC and their permitted assigns.

20. Entire Agreement. This Agreement supersedes all prior agreements between the parties
relating to the subject matter discussed herein, specifically including the Confidentiality and
Non-Competition Agreement between Spachman and NIC dated January 4, 1995, and constitutes the
entire Agreement between the parties as respects the rights and duties of the parties to this
Agreement with respect to that subject matter. There are no other promises or obligations relating
to those rights and duties except as contained in this Agreement.

21. Governing Law, Venue. The provisions of this Agreement will be governed by and
construed in accordance with the laws of the State of Ohio applicable to contracts made in and to
be performed exclusively within that State, notwithstanding any conflict of law provision to the
contrary. Subject to the mandatory arbitration provisions of Section 17, the parties consent to
venue and personal jurisdiction over them in the courts of the State of Ohio and federal courts
sitting in the State of Ohio, for purposes of construing and enforcing this Agreement.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

	 	 	 	 	 
	 	NATIONAL INTERSTATE CORPORATION

 	 
	 	By:  	/s/ Donald D. Larson
 	 
	 	pursuant to authorization of the Board of Directors 	 
	 	 	 	 
	 

	 	 	 	 	 
	 	 	 
	 	/s/ Alan R. Spachman
 	 
	 	ALAN R. SPACHMAN 	 
	 	 	 
	 

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EXHIBIT A

TO

SPACHMAN EMPLOYMENT AGREEMENT

PROPOSED TERMS OF TRANSITION ARRANGEMENT

Administrative Support for Alan Spachman

Term. Fronting and support services to be approximately coterminous with employment agreement
(i.e. 3 years to commence no later than May 1, 2007).

Fronting Company. National Interstate Insurance Company or another NIC insurance subsidiary.

Fronting. Services shall be limited to homeowners coverage in Texas. It is intended that 100% of
the risk written shall be assumed by a Spachman-controlled company. This would include any
indirect costs such as guarantee fund assessments and forced writings (specifically including any
Florida homeowners required to be written as a result of recent legislation).

Services. Support services shall be limited to IT support in customizing NIC’s POINT system and
internet agent interface to accommodate homeowners coverage in Texas. It is anticipated that this
will take approximately 90 days. In addition, audit services shall be provided along with a
product manager, if needed. It is not intended that underwriting, claims or other customer
services be provided by NIC. The Spachman-controlled company will arrange and pay for any needed
licensing for the IT systems.

Fees. Fronting fees shall be adequate to fully reimburse NIC for the cost of capital, premium
taxes and other costs of providing paper with an appropriate profit margin. Service fees shall be
at market and are intended to fully reimburse National Interstate for related costs plus an
appropriate profit margin.

Reinsurance. Appropriate security, as determined by the Board of Directors, will be provided to
NIC through collateral, reinsurance from an A or higher rated reinsurance company, funds withheld
or other appropriate means to ensure direct access to such security by NIC. The amount of such
security shall be determined including consideration of catastrophe exposure and forced writings
(direct or indirect) . Directors with substantial reinsurance experience, Messrs. Gruber and
Consolino, shall be responsible for approval of any proposed security arrangement, after their
review and consultation with the entire Board of Directors.

Disclosure. These terms and the Employment Agreement shall be promptly disclosed, as required.
There shall be disclosure of the management transition plan, any plans of share disposal, and
ownership of the new Texas insurance company to be founded by Spachman.

Governance and Oversight. The execution and performance of these terms shall be monitored and
approved by a subcommittee of the Board of Directors as established by the Board of Directors. The
initial composition of such subcommittee shall be Directors Consolino, Jensen, Larson, and
Schiavone. In addition, the Audit Committee, pursuant to its Charter, shall continue to review all
potential conflicts of interest and approve all related party transactions.EX-10.16

 

Exhibit 10.16

EMPLOYMENT AND NON-COMPETITION AGREEMENT

This Employment and Non-Competition Agreement (this “Agreement”) is made this 12th day of March,
2007 but effective as of January 1, 2007 by and between National Interstate Corporation (“NIC”) and
David W. Michelson (“Michelson”).

In consideration of the mutual covenants set forth in this Agreement, NIC and Michelson agree as
follows:

1. Employment; Term. During the period specified in this Section 1, NIC will employ
Michelson, and Michelson will be employed by NIC, on the terms and subject to the conditions set
forth in this Agreement. The term of Michelson’s employment under this Agreement (the “Term”) will
begin as of January 1, 2007 (the “Effective Date”), and, subject to prior termination as provided
in Section 15, will continue through the close of business on January 2, 2009 (that date being the
end of the “Scheduled Term”).

2. Duties and Responsibilities.

(a) During the Term, Michelson will serve as President and Chief Operating Officer of NIC (or in
such more senior position as the Board of Directors of NIC may determine), and he will perform
such duties and have such responsibilities as may be assigned to him from time to time by NIC’s
Chief Executive Officer and Board of Directors that are consistent with his position as
President and Chief Operating Officer (or such more senior position, if any, as the Board of
Directors of NIC may determine). In addition, during the Term, Michelson will also serve
certain subsidiaries of NIC in such executive capacities as may be mutually agreed upon from
time to time by Michelson and the respective Boards of Directors of those NIC subsidiaries,
consistent with NIC’s past practice with respect to the President serving in such capacities.

(b) At all times during the Term, Michelson will devote his entire business time, energy, and
talent to the business of and to the furtherance of the purposes and objectives of NIC.

3. Compensation. All compensation payable to Michelson under this Agreement will be
subject to such withholding as may be required by applicable law.

(a) Base Salary. NIC will pay base salary to Michelson during the Term, in accordance
with NIC’s normal payroll practices, (i) at the rate of $300,000 per year from the Effective
Date through the day immediately preceding the first to occur of (x) the date, if any, on which
Michelson is promoted to the position of Chief Executive Officer of NIC and (y) January 1, 2008
(that first to occur date being the “Raise Implementation Date”), and (ii) from and after the
Raise Implementation Date, at the rate of $375,000 per year. The rate of Michelson’s base
salary will be subject to review and potential increase, but not decrease, (a) in connection
with annual salary reviews to be conducted in accordance with NIC’s customary practice or (b) at
such other time or times as the Board of Directors of NIC may deem it appropriate to increase
Michelson’s base salary.

(b) Annual Bonus. Michelson will be eligible for a bonus each year, subject to and in
accordance with the rules of NIC’s Management Bonus Plan, with a target bonus for each year
equal to 100% of his base salary for the year.

(c) Stock Grants. Contemporaneously with the execution of this Agreement, NIC is
granting to Michelson (i) pursuant and subject to a separate Stock Bonus Agreement, an award of
a specified
number of Common Shares of NIC without any restrictions plus cash in an amount intended to be

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sufficient to satisfy the withholding obligation with respect to the entire award, and (ii)
pursuant to a separate Restricted Shares Agreement, an award of a specified number of Common
Shares of NIC as Restricted Shares with provision for surrendering a portion of such shares to
satisfy the future tax withholding obligations with respect to Restricted Shares as to which all
restrictions lapse from time to time. Michelson’s rights and obligations with respect to the
Common Shares so granted shall be as set forth in the Stock Bonus Agreement and in the
Restricted Shares Agreement, respectively.

4. Health, Life, and Disability Coverage.

(a) NIC will continue to provide to Michelson, throughout the Term, coverage under NIC’s health
insurance benefits plans, including the Flexible Spending Account program, subject to normal
deductibles, premiums, and co-payments in effect from time to time.

(b) NIC will continue to provide to Michelson, throughout the Term, the maximum levels of
coverage available under NIC’s Basic Life Insurance/Accidental Death and Dismemberment Plan.

(c) NIC will continue to provide to Michelson, throughout the Term, short term and long term
(group and supplemental) disability coverage on substantially the same basis as was provided to
him by NIC during 2006.

5. Savings and Profit Sharing Plan. Michelson will continue to be eligible throughout the
Term to participate in NIC’s Savings and Profit Sharing Plan with payroll deductions and ultimate
distributions to be made in accordance with the provisions of that plan. Michelson will be
eligible for NIC 401(k) profit sharing contributions on the same basis as other senior executive
officers throughout the Term.

6. Office, Auto, and Perquisites. Throughout the Term, Michelson will be entitled to the
continued use of an office and secretarial services appropriate to his position, to the continued
use of an automobile (under NIC’s Company Auto Program for Senior Officers), and to all standard
officer perquisites that are provided to other senior officers of NIC.

7. PTO. Michelson will be entitled to paid time off during each calendar year in
accordance with NIC’s Paid Time Off Policy as applicable to senior executives of NIC and as in
effect from time to time.

8. Reimbursement for Expenses. Subject to such limitations as may be reasonably imposed by
NIC from time to time, NIC will reimburse Michelson for reasonable, ordinary, and necessary
business expenses incurred by him in furtherance of NIC’s business, provided Michelson accounts to
NIC therefore in a manner sufficient to substantiate deductions with respect to those expenses by
NIC for federal income tax purposes.

9. Confidential Information. Notwithstanding any other provision of this Agreement, both
during and after Michelson’s employment with NIC, Michelson will maintain the confidentiality of
Confidential Information and will refrain from using such Confidential Information (except in
connection with Michelson’s job responsibilities) and disclosing it to anyone other than NIC, its
employees, and other entities that have a business relationship with NIC and a need for such
Confidential Information. For purposes of this Agreement, “Confidential Information” is
information of NIC that Michelson would not have acquired but for his employment by NIC and that
NIC endeavors to keep confidential, including without limitation, and regardless of whether such
information is in a tangible medium of expression, accounting information, agency information,
broker-marketing information, claims information, customer service information, employee
information, financial information, information systems information, underwriting information, and
any information provided by a third party to NIC in confidence. At the termination of this
Agreement or otherwise upon NIC’s demand, Michelson will provide to NIC all

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records containing Confidential Information as well as any copies of it, including handwritten
notes made or derived from Confidential Information or records, all of which are the property of
NIC.

10. Activity Restraints. Michelson agrees that he will not, while employed by NIC or at
any time within 12 months after termination of his employment with NIC, whether as an individual
for his own account, or as an employee, officer, director, significant shareholder, partner,
member, agent, independent contractor, or consultant of any person, firm, corporation, or other
entity engage in the following activities:

(a) Enter into or engage in any business that competes, directly or indirectly, with the NIC;

(b) Have any contact, including discussions, negotiations, agreements, or understandings, with
any insured, potential insured, agent, broker, or other entity of NIC with which NIC had
discussions, negotiations, agreements or understandings with at any time during Michelson’s
employment relating in any manner to competing insurance products that are identical to,
substantially the same as, or an adequate substitute for any insurance products of NIC and that
are, or could reasonably be anticipated to be, marketed or distributed in such a manner and in
such a geographic area as to actually compete with such insurance products of NIC.

Nothing in this Section 10 is intended to preclude Michelson from seeking employment in any
capacity (including with any insurance company) that is not in conflict or competition (directly or
indirectly) with the then-current or contemplated business activities of NIC at the time of his
termination. For example, provided he does not violate the provisions of Sections 10 and 11 of
this Agreement, Michelson may be employed by a national insurance company that does not compete
with NIC at the time of his termination.

11. Soliciting NIC Employees. Michelson will not, either while employed by NIC or at any
time within 24 months after termination of his employment with NIC, directly or indirectly, hire or
solicit for hire any of NIC’s employees to work for Michelson or any person or entity with which
Michelson is associated other than NIC and its affiliates.

12. Remedies. Michelson acknowledges that:

(a) The promises in Sections 10 and 11 of this Agreement are reasonably necessary to protect the
goodwill, trade secrets, and other business interests of NIC and will not cause Michelson undue
hardship.

(b) Any breach of these promises will cause NIC immediate irreparable harm for which injunctive
relief, including an ex parte temporary restraining order, may be necessary. Injunctive relief
will not preclude NIC from receiving any other relief to which it might be entitled.

(c) The promises in Sections 10 and 11 of this Agreement are of the essence of this Agreement.
They must be construed as independent of any other provision of this Agreement and the existence
of any claim or cause of action of Michelson against NIC, whether predicated on this Agreement
or otherwise, will not constitute a defense to the enforcement by NIC of these promises.

13. Tolling. If any provisions of this Agreement are violated, then the time limitations
set forth in this Agreement shall be extended for a period of time equal to the period of time
during which such breach occurs, and, in the event the Company is required to seek relief from such
breach before any court, board, or other tribunal, then the time limitation shall be extended for a
period of time equal to the pendency of such proceedings, including all appeals.

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14. Construction of Agreement. Michelson’s promises in Sections 10 through 13 of this
Agreement are separate and independent. If any of these promises is declared invalid or
unenforceable by any court, Michelson’s remaining promises and obligations shall remain in full
force and effect. If any of the provisions contained in Sections 10 through 13 of this Agreement
are held to be unenforceable due to the duration or other aspect of the scope of those provisions,
the parties agree that a court has the power to and should reduce the duration or scope of that
provision and enforce the provision in its reduced form. Sections 10 through 13 shall survive
termination of this Agreement.

15. Termination.

(a) At Expiration of Term. If not earlier terminated, the parties anticipate that
Michelson’s employment with NIC will continue beyond the Scheduled Term pursuant to the terms of
this Agreement. After January 2, 2009, the terms of this Agreement shall remain in effect
unless either party gives 90 days written notice to the other party of a contrary intention.

(b) Death or Disability. Michelson’s employment under this Agreement will terminate
immediately upon Michelson’s death. NIC may terminate Michelson’s employment hereunder
immediately upon giving notice of termination if Michelson is disabled, by reason of physical or
mental impairment, to such an extent that he has been unable to substantially perform his duties
under this Agreement for an aggregate of 90 days (whether business or non-business days and
whether or not consecutive) during any period of twelve consecutive calendar months.

(c) For Cause. NIC may terminate Michelson’s employment under this Agreement for
“Cause” if:

(i) Michelson is convicted of a felony (other than felonious operation of a motor vehicle);

(ii) Michelson commits an act or series of acts of dishonesty or wrongful misconduct in the
course of his employment that are materially injurious to NIC or materially inimical to the
best interests of NIC and, if the act or acts are capable of being cured, Michelson fails to
cure or take all reasonable steps to cure within 30 days of notice from the Board of
Directors to Michelson;

(iii) Michelson continues to violate his obligations under either or both of Sections 10 and
11 of this Agreement after the Board of Directors has advised him in writing to cease those
activities;

(iv) Other than for disability, Michelson abandons or consistently fails to attempt to
perform his duties and responsibilities under this Agreement at any time during the Term, in
either event for 10 consecutive business days after written notice from the Board of
Directors.

(d) Good Reason. Michelson may terminate his employment under this Agreement for “Good
Reason” if:

(i) NIC reduces his base salary below the rate specified in Section 3(a) or below any higher
rate at which base salary is paid to him from time to time under this Agreement;

(ii) NIC fails to continue in effect a management bonus plan that provides Michelson with a
target bonus opportunity equal to at least 100% of his base salary for each year;

(iii) NIC reduces, in any significant manner, Michelson’s duties, responsibilities, or
position with respect to NIC from his duties, responsibilities, or position as President and
Chief Operating Officer of NIC (or from his duties, responsibilities, or position in
connection with such more senior position as the Board of Directors of NIC may determine)
and fails to reverse that reduction within 30 days of notice by Michelson to NIC of his
objection to the reduction; or

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(iv) NIC shifts Michelson’s principal place of employment with NIC to a location that is
more than 25 miles (by straight line measurement) from the site of NIC’s headquarters in
Richfield, Ohio.

For the avoidance of doubt, the failure of the Board of Directors of NIC to promote
Michelson to the position of Chief Executive Officer and/or the hiring by the Board of
Directors of NIC of another individual as Chief Executive Officer will not constitute Good
Reason under this Agreement.

16. Payments Upon Termination.

(a) Upon Termination Without Cause or for Good Reason. If Michelson’s employment under
this Agreement is terminated by NIC without Cause or by Michelson for Good Reason, NIC will pay
and provide to Michelson compensation and benefits as follows:

(i) Base Salary. NIC will continue to pay base salary to Michelson, at the rate in
effect immediately before the date on which his employment is terminated (the “Termination
Date”), through the last to occur of (A) the end of the Scheduled Term (i.e., January 2,
2009), and (b) the first anniversary of the Termination Date.

(ii) Prior Year Bonuses. For purposes of determining Michelson’s right to bonuses
with respect to any year that ends on or before the Termination Date (a “Prior Year”),
Michelson will be deemed to be in the active employ of NIC indefinitely after the
Termination Date. Accordingly, any bonus payments attributable to a Prior Year that would
otherwise be paid to Michelson after the Termination Date (with the original requirement
that he be in the active employ of NIC at the scheduled time of the bonus payment) will be
paid to Michelson or to his estate as if he remained in the employ of NIC through the date
of each scheduled bonus payment.

(iii) Pro Rata Partial Year Bonus. If the Termination Date is not the last day of a
calendar year and NIC determines, in accordance with the terms of the Management Bonus Plan,
to pay bonuses to senior management members with respect to the calendar year in which the
termination occurs, then NIC will pay to Michelson, as a pro rata bonus for the year in
which the termination occurs, an amount equal to (x) the percentage payout of the bonus pool
for such year as confirmed by NIC’s Compensation Committee multiplied by (y) his target
bonus for the entire calendar year multiplied by a fraction, the numerator of which is the
number of months during which he was employed by NIC during the year (rounded up to the next
highest number of months) and the denominator of which is 12. By way of example, if
Michelson is terminated without cause on any date in November, 2008, and NIC meets
applicable underwriting profit and growth targets under the Management Bonus Plan for the
Compensation Committee to approve a 50% payout of the bonus pool for 2008, then Michelson
would be entitled to a pro rata bonus equal to 50% of his 100% target bonus multiplied by
11/12ths. If NIC does not pay bonuses under the Management Bonus Plan to senior management
members for the calendar year in which the termination occurs, NIC will not pay any pro rata
bonus to Michelson for that calendar year. Any pro rata bonus that is payable to Michelson
under this section will be paid at the same time or times and in the same relative
proportions as bonuses for that year are paid to continuing senior management members and
Michelson will be deemed, for these purposes, to be in the active employ of NIC indefinitely
after the Termination Date.

(iv) Benefits. NIC will continue to provide to Michelson through the end of the
Scheduled Term (i.e., through January 2, 2009) all benefits under this Agreement to which he
would be entitled if he had remained in the employ of NIC through the end of the Scheduled
Term.

5

 

(v) Full Vesting of Outstanding Stock Options. All unvested options for the
purchase of Common Shares of NIC that Michelson holds as of the Termination Date will become
fully vested and exercisable as of the Termination Date and Michelson will have a period of
90 days following the Termination Date within which to exercise any and all of those options
that then remain unexercised. NIC will take such steps with respect to Michelson’s
outstanding stock options as are necessary to cause the acceleration of vesting contemplated
by this Section 16(a)(v).

For the avoidance of doubt, if NIC gives 90 days written notice to Michelson of its intention
that the Agreement no longer remain in effect (as contemplated by the last sentence of Section
15(a)), the date on which the Agreement expires pursuant to that notice will be the Termination
Date for purposes of this Section 16(a) and NIC will be deemed to have terminated Michelson’s
employment without Cause as of the Termination Date.

(b) Upon Death or Disability. If (i) Michelson’s employment is terminated upon his
death or disability as provided in Section 15(b) and (ii), at the time of termination, Michelson
is not in breach of his obligations under either of Sections 9 or 10 above, then NIC will pay
and provide to Michelson (or to his successor in interest) the same compensation and benefits to
which he would have been entitled if the termination had been by NIC without Cause, all as
provided in Section 16(a) above.

(c) Upon Any Other Termination. Upon any termination of Michelson’s employment other
than a termination (i) by NIC without Cause, (ii) by Michelson for Good Reason, or (iii) upon
Michelson’s death or disability, NIC will pay to Michelson all unpaid cash compensation accrued
through the effective date of termination but will not be obligated to make any further payment
or to provide any further benefit to Michelson under this Agreement.

17. Arbitration.

(a) Procedures. Except as otherwise provided in Section 17(d) with respect to
injunctive relief, any controversy, claim, or dispute arising out of or relating to this
Agreement, or the breach of any provision of this Agreement, or relating to Michelson’s
employment, will be submitted to binding arbitration in Cleveland, Ohio in accordance with the
Arbitration Rules of the American Arbitration Association. The arbitration will be conducted by
a single arbitrator selected from the list of arbitrators maintained by the American Arbitration
Association under its Employment Program or any successor program as follows: (i) the American
Arbitration Association (at the request of either or both parties) will provide a list of the
names of seven disinterested potential arbitrators, (ii) NIC will delete one name from the list,
(iii) Michelson will delete one name from the shortened list, (iv) the procedure in (ii) and
(iii) will be repeated alternately until only the name of one potential arbitrator remains on
the list and that potential arbitrator will be the arbitrator. If either NIC or Michelson fails
to cooperate reasonably in the selection of a single arbitrator, the other of them may request
that the American Arbitration Association name as the arbitrator any one of the potential
arbitrators (as selected by the party making the request) still remaining on the original list
of seven at the time of the failure to cooperate. The decision by the arbitrator will be final
and binding on the parties to this Agreement. Judgment upon the decision rendered by the
arbitrator may be entered in any court having appropriate jurisdiction.

(b) Fees and Expenses. The expenses of the arbitration and any related proceedings of
the type referred to in Section 17(d) (other than the legal fees and expenses incurred by
Michelson in connection with the arbitration and related proceedings) will be paid by NIC. The
reasonable legal fees and expenses incurred by Michelson in connection with the arbitration and
related proceedings will also be paid by NIC unless the arbitrator rules that Michelson had no
reasonable grounds for the

6

 

position propounded by him in the arbitration (which determination need not be made simply
because Michelson fails to succeed in the arbitration and related proceedings).

(c) Interest. If the arbitrator determines that NIC has failed to timely pay any amount
or provide any benefit to Michelson, Michelson will be entitled to receive, in addition to the
payment or benefit itself, interest on the unpaid amount or on the value of the benefit not
provided, at a rate to be determined by the arbitrator, from the date on which the payment or
benefit should have been made or provided to the date on which the payment or benefit is made or
provided.

(d) Injunctive Relief. Any party to a dispute, claim, or controversy described in
Section 17(a) will be entitled to apply to any court of competent jurisdiction for injunctive
relief at any time before the arbitrator has been appointed and has affirmatively accepted the
obligation to determine the extent to which injunctive relief should be continued or granted.
Any injunctive relief granted by a court of competent jurisdiction will be subject to
modification or termination by the arbitrator once the arbitrator has affirmatively accepted
that obligation.

18. Notices. Any notice, request or instruction to be given hereunder by either party to
the other will be in writing and will be deemed to have been given (a) when it is delivered in
person to Michelson or to the individual to whose attention notices to NIC are to be given, as the
case may be, or (b) the first business day after it is sent by nationally recognized overnight
courier, addressed as provided below, or to such other addresses as may be designated by written
notice to the other party:

	 	 	 	 	 
	 

	 	If to NIC:
	 	National Interstate Corporation
	 

	 	 	 	3250 Interstate Drive
	 

	 	 	 	Richfield, OH 44286
	 

	 	 	 	Attention: General Counsel
	 
	 	 	 	 
	 

	 	If to Michelson:
	 	David W. Michelson
	 

	 	 	 	78 Cohasset Drive
	 

	 	 	 	Hudson, Ohio 44236
	 
	 	 	 	 
	 

	 	With a copy to:
	 	Gregory M. Nolfi
	 

	 	 	 	Hahn Loeser & Parks LLP
	 

	 	 	 	3300 BP Tower
	 

	 	 	 	Cleveland, Ohio 44114

19. Assignment and Binding Effect. The obligations of the parties hereunder may not be
assigned or transferred, except upon the written consent of the other party hereto; except that NIC
may assign the benefit of this Agreement to any of its affiliates. This Agreement will be binding
upon and inure to the benefit of Michelson and NIC and their permitted assigns.

20. Entire Agreement. This Agreement supersedes all prior agreements between the parties
relating to the subject matter discussed herein, specifically including the Confidentiality and
Non-Competition Agreement dated January 5, 1995, and constitutes the entire Agreement between the
parties as respects the rights and duties of the parties to this Agreement with respect to that
subject matter. There are no other promises or obligations relating to those rights and duties
except as contained in this Agreement. Nothing in this Agreement is intended to or will limit
Michelson’s rights under either the Stock Bonus Agreement or the Restricted Share Agreement
referred to in Section 3(c) above or under the Employee Retention Agreement entered into between
Michelson, NIC and National Interstate Insurance Agency, Inc. originally effective January 1, 1997
as amended effective February 8, 2006.

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21. Governing Law, Venue. The provisions of this Agreement will be governed by and
construed in accordance with the laws of the State of Ohio applicable to contracts made in and to
be performed exclusively within that State, notwithstanding any conflict of law provision to the
contrary. Subject to the mandatory arbitration provisions of Section 17, the parties consent to
venue and personal jurisdiction over them in the courts of the State of Ohio and federal courts
sitting in the State of Ohio, for purposes of construing and enforcing this Agreement.

In witness whereof, the parties have executed this Agreement as of the date first written above.

	 	 	 	 	 
	 	NATIONAL INTERSTATE CORPORATION

 	 
	 	By:  	/s/ Alan R. Spachman
 	 
	 	 	Alan R. Spachman, Chief Executive Officer 	 
	 	 	 	 
	 
	 	 	 
	 	/s/ David W. Michelson
 	 
	 	DAVID W. MICHELSON 	 
	 	 	 
	 

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