Employment Agreement

Amendment to Employment Agreement

Retention Agreement with National Interstate Insurance Agency, Inc.

 

 

 

               

EX-10.16 3 l24275aexv10w16.htm 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:

(iBase 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.

(iiPrior 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.

(iiiPro 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.

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(vFull 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 TerminationUpon 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

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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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                Exhibit 10.3

FIRST AMENDMENT TO EMPLOYMENT AND NON-COMPETITION AGREEMENT

This First Amendment to Employment and Non-Competition Agreement (this “Amendment”) is made this 28th day of December, 2007 by and between National Interstate Corporation (“NIC”) and David W. Michelson (“Michelson”). NIC and Michelson are parties to an Employment and Non-Competition Agreement executed on March 12, 2007 and effective as of January 1, 2007 (the “Agreement”). This Amendment amends the Agreement, effective as of January 1, 2008.

In connection with the promotion of Michelson to the post of Chief Executive Officer of NIC, effective as of January 1, 2008, NIC and Michelson agree as follows:

1. Compensation. Sections 3(a) and 3(b) of the Agreement are hereby amended to read in their entirety as follows:

“(a) Base Salary. NIC will pay base salary to Michelson during the Term, in accordance with NIC’s normal payroll practices at the rate of $350,000 per year. The rate of Michelson’s base salary will be subject to review and potential increase, but not decrease, (i) in connection with annual salary reviews to be conducted in accordance with NIC’s customary practice or (ii) 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. Assuming Michelson remains in the employ of NIC through the end of 2008, the gross amount of his bonus for 2008, to be paid in accordance with and subject to the rules of NIC’s Management Bonus Plan, will be not less than $350,000.”

2. Compliance with Section 409A of the Code. A new Section 22, reading in its entirety as follows, is hereby inserted as the last numbered section in the Agreement:

“22. Compliance with Section 409A of the Code.

“(a) It is intended that the payments and benefits provided under this Agreement shall either be exempt from the application of, or comply with, the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”). This Agreement shall be construed, administered, and governed in a manner that effects such intent, and NIC shall not take any action that would be inconsistent with such intent. Without limiting the foregoing, the payments and benefits provided under this Agreement may not be deferred, accelerated, extended, paid out, or modified in a manner that would result in the imposition of an additional tax under Section 409A of the Code upon Michelson. Notwithstanding anything contained in this Agreement to the contrary, and except as provided in Section 22(b):

“(i) The severance benefits described under paragraphs (a)(i) and (a)(iv) of Section 16 shall be payable only upon a “separation from service” within the meaning of Section 409A of the Code.

“(ii) The continued base salary described in Section 16(a)(i) shall be paid in accordance with NIC’s normal payroll practices in effect on January 1, 2008. The additional profit sharing contributions required under Section 16(a)(iv) shall be paid in a single lump sum within 30 days following separation from service.


“(iii) The continued benefits described in Section 16(a)(iv) (other than the profit sharing contributions) that are taxable benefits (and that are not disability pay or death benefit plans within the meaning of Section 409A of the Code) are intended to comply, to the maximum extent possible, with the exception to Section 409A of the Code set forth in Section 1.409A-1(b)(9)(v) of the Treasury Regulations. To the extent that any of those benefits either do not qualify for that exception, or are provided beyond the applicable time periods set forth in Section 1.409A-1(b)(9)(v) of the Treasury Regulations, then they shall be subject to the following additional rules: (x) any reimbursement of eligible expenses shall be paid within 30 days following Michelson’s written request for reimbursement; provided that Michelson provides written notice no later than 60 days prior to the last day of the calendar year following the calendar year in which the expense was incurred; (y) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during any calendar year shall not affect the amount of expenses eligible for reimbursement, or in-kind benefits to be provided, during any other calendar year; and (z) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit. The reimbursement of legal fees and expenses described in Section 17(b) are subject to the rules of the immediately preceding sentence, provided that the legal fees and expenses must be incurred during the period commencing on the Effective Date and ending on the tenth anniversary of the end of the Term. Any interest described in Section 17(c) shall be paid at the same time as the payment or benefit is made or provided.

“(iv) In no event shall the exercise period of any stock option described in Section 16(a)(v) extend beyond its original term.

“(v) The severance benefits described in Section 16(b) of this Agreement shall be paid at the same time and in the same form as the benefits described in Section 16(a).

“(b) Notwithstanding anything contained in this Agreement to the contrary, if Michelson is a “specified employee,” as determined under NIC’s policy for determining specified employees on his termination date, all payments, benefits, or reimbursements provided under this Agreement that constitute a “deferral of compensation” within the meaning of Section 409A of the Code, that are provided upon a “separation from service” within the meaning of Section 409A of the Code (other than as a result of his death) and that would otherwise be paid or provided during the first six months following separation from service, shall instead be accumulated through and paid or provided, together with interest at the applicable federal rate under Section 7872(f)(2)(A) of the Code in effect on his separation from service, within 30 days after the first business day that is more than six months after the date of his separation from service (or, if Michelson dies during such six-month period, within 30 days after Michelson’s death).”

3. Confirmation of Agreement. Except as specifically provided in Sections 1 and 2 above, NIC and Michelson confirm that the Agreement is in effect on the date hereof and will remain in effect until terminated according to its terms, whether before or after January 1, 2008, and that all of the general provisions of the Agreement, including, without limitation, those relating to choice of law and notices, apply with equal force to this Amendment.


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

 

NATIONAL INTERSTATE CORPORATION

By:

 

/s/ Julie A. McGraw

 

Julie A. McGraw

Vice President and Chief Financial Officer

/s/ David W. Michelson

DAVID W. MICHELSON

 

 

 

 

 

Exhibit 10.1

AMENDED AND RESTATED

EMPLOYEE RETENTION AGREEMENT

This Agreement is between National Interstate Insurance Agency, Inc. (“Corporation”) and David W. Michelson, a key employee and executive of the Corporation, (“Executive”).

The Corporation and Executive are parties to a Salary Continuation Agreement effective January 1, 1997 (the “Original Agreement”), which was subsequently amended on February 8, 2006 to modify the vesting schedule and change the title to an Employee Retention Agreement. The Corporation and the Executive desire to amend and restate the Original Agreement, so that this Agreement will replace the Original Agreement in its entirety.

In consideration of Executive’s services to be performed in the future and based on the mutual promises and covenants contained in this Agreement, the Corporation and the Executive agree:

ARTICLE ONE

DEFINITIONS

1.1. Effective Date. The effective date of this Agreement is January 1, 1997.

1.2. Corporation. “Corporation” means National Interstate Insurance Agency, Inc. and all other entities under the control of National Interstate Corporation.

1.3. Disability. “Disability” means that Executive meets one of the following requirements: (a) Executive is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months; or (b) Executive is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under an accident and health plan covering employees of Corporation. Such term shall be interpreted in a manner consistent with the definition of “disability” contained under Section 409A of the Internal Revenue Code.

1.4. Normal Retirement Date. “Normal Retirement Date” means the first day of the calendar month following the month in which the Executive reaches his 55th birthday. Nothing in this Agreement requires or is intended to encourage the Executive’s retirement from service with the Corporation at the Normal Retirement Date.

1.5. Severance Benefits. “Severance Benefits” means those benefits to which the Executive is entitled in the event he is discharged by the Corporation without due cause. Any dispute as to determination of “due cause” shall be subject to the terms of Paragraph 6.2., “Claims Procedure and Arbitration.”


1.6. Termination of Service. “Termination of Service” means the voluntary resignation of service by the Executive (exclusive of disability) or the Corporation’s discharge of the Executive for due cause prior to the Normal Retirement Date. Termination for “due cause” means the Corporation’s discharge of Executive for failure of the Executive to perform or malfeasance in the performance of his duties as assigned from time to time or the Executive’s breach of the Corporation’s published policies.

ARTICLE TWO

EMPLOYMENT

2.1. Employment. Corporation agrees to employ Executive on an at-will basis in such capacity as the Corporation may from time to time determine, with such duties, responsibilities and compensation as are determined by the Board of Directors.

Executive agrees to remain in the Corporation’s employment on an at-will basis, to devote his full time and attention exclusively to the business of the Corporation and to use his best efforts to provide faithful and satisfactory service to Corporation.

Employment services shall include temporary disability not to exceed six (6) months “leave of absences” specifically granted Executive in writing by the Board of Directors and periods of military reserve duty.

2.2. No Employment Agreement Created. No provision of this Agreement shall be deemed to restrict or limit any existing employment Agreement between the Corporation and the Executive. No conditions in this Agreement shall create specific employment rights to the Executive or limit the right of the Employer to discharge the Executive with or without due cause. No provision shall limit the Executive’s right to voluntarily sever his employment at any time.

ARTICLE THREE

BENEFITS

The following benefits provided by the Corporation to the Executive are in the nature of a fringe benefit and shall not be construed to effect or limit the Executive’s current or prospective salary, cash bonuses or profit-sharing distributions or credits.

3.1. Retirement Benefits. If Executive remains in the employment of the Corporation until the Normal Retirement Date, then he shall be entitled to receive from the Corporation a one time lump sum payment of one million dollars ($1,000,000) within thirty (30) days after such Normal Retirement Date.

3.2. Voluntary Resignation or Termination of Service.

3.2.1. Should Executive voluntarily resign from his employment or should he be discharged for due cause (exclusive of total disability) prior to the Normal Retirement Date, all Executive’s benefits under this Agreement shall be forfeited and this Agreement shall be of no effect. If a dispute arises as to discharge “for cause,” such dispute shall be resolved by arbitration as set forth in Paragraph 6.2.


3.2.2. Should Executive resign from his employment due to Disability prior to the Normal Retirement Date, Executive (or, should Executive die before January 1, 2023, his beneficiary) shall be entitled to receive the amounts specified in Paragraph 3.1., commencing on January 1, 2023.

3.2.3. Should Executive be discharged for reasons other than due cause before five (5) completed years of service, commencing with the Effective Date (excluding any periods of temporary disability), all Executive’s benefits under this Agreement shall be forfeited and this Agreement shall be of no effect. However, if Executive is so discharged after such period of time, but before the Normal Retirement Date, then within thirty (30) days after such Normal Retirement Date, Executive shall be entitled to receive the percentage specified below of the lump sum amount specified in Paragraph 3.1. corresponding to the number of completed years of service, commencing with the Effective Date (excluding any periods of temporary disability), in which such discharge without due cause occurs:

 

January 1, 2000

  

$

15,000

 

January 1, 2001

  

$

31,000

 

January 1, 2002

  

$

48,000

 

January 1, 2003

  

$

66,000

 

January 1, 2004

  

$

85,000

 

January 1, 2005

  

$

105,000

 

January 1, 2006

  

 

20

%

January 1, 2007

  

 

30

%

January 1, 2008

  

 

40

%

January 1, 2009

  

 

50

%

January 1, 2010

  

 

60

%

January 1, 2011

  

 

70

%

January 1, 2012

  

 

80

%

January 1, 2013

  

 

100

%

Should Executive die prior to receiving benefits under this Paragraph 3.2.3, all Executive’s benefits under this Paragraph (and Corporation’s obligations under Paragraph 3.3.) shall cease immediately and this Agreement shall thereafter be of no effect.

3.3. Death Benefit Prior to Retirement. Should the Executive die prior to the Normal Retirement Date, Corporation agrees to pay to the Executive’s designated beneficiary, commencing on the first day of the month following the Executive’s death and on each annual anniversary thereafter for a total of ten (10) years, the annual sum of $150,000.

Executive shall declare his designated beneficiary in writing on a form provided by the Corporation.


In the event the Executive’s death shall be the result of suicide before January 2, 1999, then no death benefits shall be payable.

ARTICLE FOUR

RESTRICTIONS UPON FUNDING

4.1. Corporation shall have no obligation to set aside, earmark or entrust any fund or money with which to pay its obligations under this Agreement. The Executive, his beneficiaries or any successor in interest to him shall be and remains a general creditor of the Corporation in the same manner as any other creditor having a general claim for matured and unpaid compensation.

4.2. Corporation reserves the absolute right at its sole discretion to either fund or refrain from funding the obligations undertaken by this Agreement and to determine the extent, nature and method of such funding. Should Corporation elect to fund this Agreement, in whole or in part, through the purchase of life insurance, mutual funds, disability policies or annuities, the Corporation reserves the absolute right, in its sole discretion, to terminate such funding at any time, in whole or in part. At no time shall Executive be deemed to have any lien, right, title or interest in or to any specific funding investment or to any assets of the Corporation.

4.3. If Corporation elects to invest in a life insurance, disability or annuity policy upon the life of Executive, then Executive shall assist the Corporation by freely submitting to a physical examination and supplying such additional information necessary to obtain such insurance or annuities.

ARTICLE FIVE

MISCELLANEOUS

5.1. Alienability and Assignment Prohibition. Neither Executive, his widow nor any other beneficiary under this Agreement shall have any power or right to transfer, assign, anticipate, hypothecate, mortgage, commute, modify or otherwise encumber in advance any of the benefits payable hereunder nor shall any of such benefits be subject to seizure for the payment of any debts, judgments, alimony or separate maintenance owed by the Executive or his beneficiary, nor be transferable by operation of law in the event of bankruptcy, insolvency or otherwise. In the event Executive or any beneficiary attempt assignment, commutation, hypothecation, transfer or disposal of the benefits hereunder, the Corporation’s liabilities shall forthwith cease and terminate.

5.2. Binding Obligation of Corporation and any Successor in Interest. Corporation expressly agrees that it shall not merge or consolidate into or with another Corporation or sell substantially all of its assets to another Corporation, firm or person until such Corporation, firm or person expressly agrees, in writing, to assume and discharge the duties and obligations of the Corporation under this Agreement. This Agreement shall be binding on its parties, their successors, beneficiaries, heirs and personal representatives.


5.3. Revocation. During the lifetime of the Executive, this Agreement may be amended or revoked at any time, in whole or in part, by the mutual written consent of the Executive and the Corporation.

5.4. Effect on other Corporation Benefit Plans. This Agreement does not and shall not impose on Corporation an obligation to grant the Executive, nor shall it affect Executive’s right to participate in, the same or similar rights to any qualified or non-qualified pension, profit sharing, group, bonus or other supplemental compensation or fringe benefit plan granted to other executives or employees of the Corporation.

5.5. Headings. Headings and Subheadings in this Agreement are inserted for reference and convenience only and shall not be deemed a part of this Agreement.

5.6. Applicable Law. The validity and interpretation of this Agreement shall be governed by the laws of the State of Ohio.

ARTICLE SIX

ERISA PROVISIONS

6.1. Named Fiduciary and Plan Administrator. The “Named Fiduciary and Plan Administrator” of this plan shall be Alan R. Spachman until his resignation or removal by the Board of Directors. As Named Fiduciary and Administrator, Alan R. Spachman shall be responsible for the management, control and administration of the Employee Retention Agreement as established herein. He may delegate to others certain aspects of the management and operation responsibilities of the plan including the employment of advisors and the delegation of ministerial duties to qualified individuals.

6.2. Claims Procedure and Arbitration. In the event that benefits under this Plan Agreement are not paid to the Executive (or to his beneficiary in the case of the Executive’s death) and such claimants feel they are entitled to receive such benefits, then a written claim must be made to the Named Fiduciary and Administrator named above within sixty (60) days from the date payments are refused. The Plan Fiduciary and Administrator and the Corporation shall review the written claim and if the claim is denied, in whole or in part, they shall provide in writing within ninety (90) days of receipt of such claim their specific reasons for such denial, reference to the provision of this Agreement upon which the denial is based and any additional material or information necessary to perfect the claim. Such written notice shall further indicate the additional steps to be taken by claimants if a further review of the claim denial is desired. A claim shall be deemed denied if the Plan Fiduciary and Administrator fails to take any action within such ninety (90)-day period.

If claimants desire a second review, they shall notify the Plan Fiduciary and Administrator in writing within sixty (60) days of the first claim denial. Claimants may review the Plan Agreement or any documents relating thereto and submit any written issues and comments they deem appropriate. In its sole discretion, the Plan Fiduciary and Administrator shall then review the second claim and provide a written decision within sixty (60) days of receipt of such claim. This decision shall likewise state the specific reasons for the decision and shall include reference to specific provisions of the Plan Agreement upon which the decision is based.


If claimants continue to dispute the benefit denial based upon completed performance of the Agreement or the meaning and effect of the terms and conditions thereof, then claimants may submit the dispute to a Board of Arbitration for final arbitration. Such Board shall consist of one member selected by the claimant, one member selected by the Corporation and the third member (the “Umpire”) selected by the first two members. The Board shall operate under arbitration rules of the American Arbitration Association. Each party shall bear its own expenses of arbitration, including all charges and expenses of the member of the Board of Arbitration selected by it. The charges and expenses of the Umpire shall be shared equally by the parties. The parties agree that they and their heirs, personal representatives, successors and assigns shall be bound by the decision of such Board with respect to any controversy properly submitted to it for determination.

Where a dispute arises as to the Corporation’s discharge of Executive “for cause”, such dispute shall likewise be submitted to arbitration as above described and the parties agree to be bound by the decision thereunder.

The parties acknowledge that each has carefully read this Agreement and execute the original thereof on the 28th day of December, 2007 and that, upon execution, each has received a conforming copy.

 

/s/ Susie Weber

 

 

/s/ David W. Michelson

Witness

 

 

David W. Michelson

/s/ Ruth Harper

 

 

Witness

 

 

National Interstate Insurance Agency, Inc.

 

 

By:

 

/s/ Alan R. Spachman

 

 

Title:

 

Chief Executive Officer