IN THE UNITED STATES DISTRICT COURT ALAN R....

IN THE UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF OHIO

ALAN R. SPACHMAN,

Plaintiff,

vs. GREAT AMERICAN INSURANCE CO., et al.

Defendants.

CASE NO. 5:14-CV-509

JUDGE PLAINTIFF’S MOTION FOR TEMPORARY RESTRAINING ORDER AND PRELIMINARY INJUNCTION

Pursuant to Federal Rule of Civil Procedure 65, Plaintiff Alan R. Spachman moves this

Court for a temporary restraining order and preliminary injunction enjoining Defendants Great

American Insurance Company and National Interstate Corporation from consummating Great

American’s tender offer for the outstanding shares of National Interstate. The grounds for this

motion are set forth in the accompanying memorandum, which is incorporated herein by

reference.

Dated: March 5, 2014 Respectfully submitted, /s/ Daniel R. Warren Daniel R. Warren (0054595) Thomas D. Warren (0077541) James A. Slater Jr. (0074524) Karen E. Swanson Haan (0082518) BAKER & HOSTETLER LLP 1900 East Ninth Street, Suite 3200 Cleveland, OH 44114-3485 Telephone: 216.621.0200 Facsimile: 216.696.0740 [email protected] [email protected] [email protected] [email protected]

Case: 5:14-cv-00509-JG Doc #: 2 Filed: 03/05/14 1 of 3. PageID #: 31

Of counsel: Stephen R. DiPrima (PHV Pending) Benjamin D. Klein (PHV Pending) WACHTELL, LIPTON, ROSEN & KATZ 51 West 52nd Street New York, NY 10019 Telephone: 212.403.1000 Facsimile: 212.403.2000 [email protected] Attorneys for Plaintiff Alan R. Spachman


CERTIFICATE OF SERVICE

I certify that the foregoing was electronically filed on March 5, 2014. Notice of this

filing will be sent to all parties by operation of the Court’s electronic filing system. Parties may

access this filing through the Court’s system.

/s/ Daniel R. Warren One of the Attorneys for Plaintiff


IN THE UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF OHIO

ALAN R. SPACHMAN,

Plaintiff,

v.

GREAT AMERICAN INSURANCE CO., et al.,

Defendants.

CASE NO. 5:14-CV-509

JUDGE

MEMORANDUM OF LAW IN SUPPORT OF MOTION FOR TEMPORARY RESTRAINING ORDER

AND PRELIMINARY INJUNCTION

Case: 5:14-cv-00509-JG Doc #: 2-1 Filed: 03/05/14 1 of 38. PageID #: 34

TABLE OF CONTENTS

PRELIMINARY STATEMENT .....................................................................................................1

STATEMENT OF FACTS ..............................................................................................................6

A. Great American controls National Interstate’s board of directors. ..........................6

B. Great American makes an opportunistic tender offer. .............................................6

C. The conflicted directors block independent review of the tender offer. ..................7

D. National Interstate files a misleading Schedule 14D-9. ...........................................8

E. Great American’s tender offer is unfair and intended to coerce minority shareholders into selling ..........................................................................................9

ARGUMENT ................................................................................................................................11

POINT I INJUNCTIVE RELIEF IS NECESSARY TO PREVENT IRREPARABLE HARM TO NATIONAL INTERSTATE’S SHAREHOLDERS ................................................................................................11

A. Plaintiff has shown a substantial likelihood of success on the merits. ..................11

B. A preliminary injunction is necessary to prevent irreparable harm to National Interstate’s shareholders. .........................................................................23

C. The balance of harms weighs in plaintiff’s favor. .................................................27

D. The public interest favors an injunction.................................................................27

POINT II ABSTENTION IS NOT APPROPRIATE HERE .................................................28

CONCLUSION ..............................................................................................................................31


ii

TABLE OF AUTHORITIES

CASES

A. Copeland Enterprises, Inc. v. Guste, 1988 WL 129313 (E.D. La. Nov. 28, 1988) ............................................................................. 16

Becherer v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 193 F.3d 415 (6th Cir. 1999) ...................................................................................................... 3

Brown v. Brewer, 2010 WL 2472182 (C.D. Cal. June 17, 2010) .......................................................................... 13

Burlington Indus., Inc. v. Edelman, 666 F. Supp. 799 (M.D.N.C. 1987) .................................................................................... 12, 16

Cabot Corp. v. King, 790 F. Supp. 153 (N.D. Ohio 1992) .................................................................................... 27 n.5

Camelot Industries v. Vista Res., Inc., 535 F. Supp. 1174 (S.D.N.Y. 1982) ......................................................................................... 25

Certified Restoration Dry Cleaning Network, L.L.C. v. Tenke Corp., 511 F.3d 535 (6th Cir. 2007) .................................................................................................... 28

Colorado River Water Conservation Dist. v. U.S., 424 U.S. 800 (1976) .................................................................................................................. 29

CTS Corp. v. Dynamics Corp. of Am., 481 U.S. 69 (1987) .................................................................................................................... 11

Cullen v. Milligan, 575 N.E.2d 123 (Ohio 1991) .............................................................................................. 21, 26

Eisenberg v. Chicago Milwaukee Corp., 537 A.2d 1051 (Del. Ch. 1987) .......................................................................................... 19, 25

Global Launch, Inc. v. Wisehart, 156 Ohio Misc. 2d 1 (Com. Pl. Mar. 4, 2010) .................................................................... 17 n.3

Gradient OC Master, Ltd. v. NBC Universal, Inc., 930 A.2d 104 (Del. Ch. 2007) .................................................................................................. 17

Hanna Min. Co. v. Norcen Energy Resources Ltd., 574 F. Supp. 1172 (1982) ......................................................................................................... 24

Helwig v. Vencor, Inc., 251 F.3d 540 (6th Cir. 2001) .................................................................................................... 14


iii

In re ADC Telecoms, 2005 U.S. Dist. LEXIS 20224 (D. Minn. Sept. 15, 2005) ........................................................ 30

In re BioClinica, Inc. S’holder Litig., 2013 WL 673736 (Del. Ch. Feb. 25, 2013) .................................................................. 13, 16 n.2

In re Keithley Instruments, Inc., Derivative Litig., 599 F. Supp. 2d 908 (N.D. Ohio 2009)..................................................................................... 19

In re Kroger Co. Shareholders Litig., 70 Ohio App. 3d 52, 63 (1990) ................................................................................................. 29

In re Netsmart Technologies, Inc. S’holders Litig., 924 A.2d 171 (Del. Ch. 2007) .................................................................................................. 12

In re PNB Holding Co., 2006 WL 2403999 (Del. Ch. 2006) .......................................................................................... 13

In re Pure Res. S’Holders Litig., 808 A.2d 421 (Del. Ch. 2002) ............................................................................................ 19, 25

Landskroner v. Landskroner, 797 N.E.2d 1002 (Ohio. Ct. App. 2003) ................................................................................... 17

Lewis v. Celina Financial Corp., 101 Ohio App. 3d 464 (Ct. App. 1995) .................................................................................... 20

Lewis v. Gen. Emp. Enters, 1991 WL 11383 (N.D. Ill. Jan. 21, 1991) ................................................................................. 28

MAI Basic Four, Inc. v. Prime Computer Inc., 871 F.2d 212 (1st Cir. 1989) ............................................................................................... 23, 27

Maric Capital Master Fund, Ltd. v. Plato Learning, Inc., 11 A.3d 1175 (Del. Ch. 2010) .................................................................................................. 13

Mobil Corp. v. Marathon Oil Co., 669 F.2d 366 (1981) ............................................................................................................ 11, 24

Moltan Co. v. Eagle–Picher Indus., Inc., 55 F.3d 1171 (6th Cir. 1995) .............................................................................................. 28 n.6

Moore v. Greatamerica Corp., 274 F. Supp. 490 (N.D. Ohio 1967) .......................................................................................... 24

Office Depot, Inc. v. Impact Office Products, LLC, 2011 WL 4833117 (N.D. Ohio Oct. 12, 2011) ................................................................... 27 n.5


iv

Otis Elevator Co. v. United Techs. Corp., 405 F. Supp. 960 (S.D.N.Y. 1975) ........................................................................................... 27

Pabst Brewing Co. v. Kalmanovitz, 551 F. Supp. 882 (D. Del. 1982) ............................................................................................... 24

Plaine v. McCabe, 797 F.2d 713 (9th Cir. 1986) .................................................................................................... 29

Polaroid Corp. v. Disney, 862 F.2d 987 (3d Cir. 1988) ............................................................................................... 12, 24

RSM Richter, Inc. v. Behr Am., Inc., 729 F.3d 553 (6th Cir. 2013) .................................................................................................... 28

Sealy Matress Co. v. Sealy, 532 A.2d 1324 (Del. Ch. 1987) ................................................................................................ 26

Six Clinics Holding Corp., II v. Cafcomp Sys., Inc., 119 F.3d 393 (6th Cir. 1997) .................................................................................................... 11

Stepak v. Schey, 553 N.E.2d 1072 (Ohio 1990) .................................................................................................. 17

Stroud v. Grace, 606 A.2d 75 (Del. 1992) ........................................................................................................... 18

Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007) ............................................................................................................ 14, 17

Thompson v. Cent. Ohio Cellular, Inc., 639 N.E.2d 462 (Ohio Ct. App. 1994) .......................................................................... 16 n.2, 17

U.S. v. Smith, 155 F.3d 1051 (9th Cir. 1998) .................................................................................................. 12

Veere Inc. v. Firestone Tire & Rubber Co., 685 F. Supp. 1027 (N.D. Ohio 1988) ........................................................................................ 11

Zaluski v. United American Healthcare Corp., 527 F.3d 564 (6th Cir. 2008) .................................................................................................... 14

Zavakos v. Zavakos Enters., Inc., 577 N.E.2d 1170 (Ohio Ct. App. 1989) .................................................................................... 18


v

STATUTES

15 U.S.C. § 78n ....................................................................................................................... 11, 12

15 U.S.C. § 78aa .......................................................................................................................... 28

17 C.F.R. § 229.406 ...................................................................................................................... 16

17 C.F.R. § 229.1011 .................................................................................................................... 12

17 C.F.R. § 240-14D-101 ............................................................................................................. 12

17 C.F.R. § 240.14D-3 .................................................................................................................. 12

17 C.F.R. § 240.14E-3 .................................................................................................................. 15

R.C. § 1701.01 .............................................................................................................................. 22

R.C. § 1701.59 .............................................................................................................................. 17

R.C. § 1701.78 .............................................................................................................................. 23

R.C. § 1701.831 ............................................................................................................................ 21

R.C. § 1701.832 .......................................................................................................... 18, 21, 25, 26


PRELIMINARY STATEMENT

Plaintiff Alan Spachman seeks to enjoin a coercive tender offer orchestrated by

National Interstate’s majority shareholder, Great American, to acquire the company’s

outstanding public shares at an unfair price, on the basis of misleading disclosures, and with the

assistance of a deeply conflicted board. Spachman is the founder of National Interstate, an

independent director who serves on the company’s board, and the owner of 9.2% of the

company’s shares. The tender offer is currently set to close on March 17, 2014, and, without

injunctive relief from this Court, the minority shareholders of National Interstate face imminent,

irreparable injury — the loss of their right to decide whether to tender their shares into an offer

free from coercion and with the benefit of complete and accurate information.

Defendants’ misconduct surrounding the tender offer has received widespread

condemnation from the business and investing communities. T. Rowe Price, a major investment

firm representing clients holding approximately 8% of National Interstate’s stock, called the

defendants’ conduct “appall[ing]” and stated that in its experience it had “rarely come away with

concerns as substantial as those . . . identified here.” Slater Dec., Ex. A. Institutional

Shareholder Services, the leading proxy advisory service, has likewise stated that this transaction

“raised every red flag in the semaphore.” Slater Dec., Ex. B. And The Wall Street Journal has

run a series of stories commenting that the offeror has dispensed with the basic protections that

are “commonly used to manage conflicts that can arise when majority shareholders offer to cash

out minority investors.” Slater Dec., Ex. C.

After Great American launched its tender offer at $28 per share, Spachman and

the three other independent directors on National Interstate’s board voted to form a special

committee of independent directors to evaluate the offer and negotiate with Great American for

the benefit of the public shareholders. But the other six directors on National Interstate’s board


2

— all of whom are employed by or beholden to Great American or its parent corporation,

American Financial Group — used their majority control of the board to block those proposals.

“What happened next,” as the New York Times later reported, “can only be put in

the bizarre realm of corporate shenanigans.” Slater Dec., Ex. D. After the offer was announced,

the conflicted directors refused to recuse themselves and voted to retain, at the company’s

expense, a financial advisor, Duff & Phelps, to render an opinion on the fairness of the offer.

Duff & Phelps received management’s five-year projections for the company. Upon completion

of its work, Duff & Phelps concluded that the $28 price was unfair to National Interstate’s

shareholders and calculated a range of value between $29.51 and $35.72 per share.

As the bidder for the minority shares, AFG and Great American never should

have gotten the Duff & Phelps analysis or management’s five-year projections. But because of

National Interstate’s disloyal directors, they did. Defendant Joseph Consolino, who serves as

both the chairman of National Interstate’s board and as the chief financial officer of AFG,

quickly prepared a rebuttal valuation analysis that he sent to the rest of the National Interstate

board on AFG letterhead. Despite his fiduciary duties to the minority shareholders, Consolino

was actively engaged in a campaign, inside the National Interstate boardroom, to talk down the

value of their shares — not for their benefit, but for the benefit of his employer, AFG.

Defendants now admit that Consolino was always acting on behalf of AFG, even

while he purported to carry out his obligations as a director of National Interstate. Slater Dec.,

Ex. E. And with the benefit of National Interstate’s inside information, Great American, acting

through Consolino, nudged its offer to $30 per share, just 49 cents above the bottom of the Duff

& Phelps value range and well below the mid-point of that range. Slater Dec., Ex. F.


3

The conflicted directors then asked Duff & Phelps to opine on the fairness of the

revised offer. But upon realizing that the conflicted directors were using its work on behalf of

the bidder, Duff & Phelps had seen enough and walked away from the process. As a result, no

independent financial advisor has opined that Great American’s $30 per share offer is fair to the

minority shareholders.

Great American recognized that it had a problem on its hands and did everything

in its power to conceal the Duff & Phelps analysis and the five-year management projections

from National Interstate’s shareholders. In its tender offer materials, Great American disclosed

its own lowball valuation of the minority shares, together with its own pessimistic projections for

National Interstate. Slater Dec., Ex. F, at 17. But incredibly, it failed to disclose either Duff &

Phelps’s valuation range or management’s projections. National Interstate has since disclosed

the Duff & Phelps valuation range, but defendants are still concealing management’s projections.

They are also concealing their use of the Duff & Phelps range of values to calibrate the revised

tender offer at the lowest possible price. Slater Dec., Exs. G, H.

Great American’s tender offer is highly coercive. Just days ago, it waived the

condition that it receive ownership of at least 90% of the company’s shares in order to

consummate the offer. Slater Dec., Ex. I. Prior to that waiver, Great American had committed

that, if it received 90% ownership of National Interstate’s shares, it would perform a short-form

merger at the offer price. Now, with that waiver, Great American has made no such

commitment. As a result, if Great American obtains an additional 15% of the company — less

than one-third of the public float — it will own two-thirds of the company’s shares and have

sufficient voting power to approve a back-end merger at any price, including a price below the

already unfair proposed tender offer price of $30 per share. Moreover, even if Great American


4

does not consummate a back-end merger, it is threatening retributive actions against the non-

tendering shareholders, including threats to eliminate cumulative voting, to change the board of

directors, to change the company’s dividend policy, to delist the company’s shares, and to

deregister the shares under the Securities Exchange Act of 1934. Slater Dec., Ex. J at 13. The

shareholders thus face a prisoner’s dilemma: either tender into the offer or risk suffering

retributive acts by Great American that could destroy the value of their shares.

Spachman brings this suit seeking to enjoin Great American’s unfair and coercive

tender offer on three grounds. First, defendants have violated the disclosure requirements and

anti-fraud provisions of the Williams Act. Although Great American has used material, inside

information to formulate its bid, defendants have refused to disclose that same information to

National Interstate’s shareholders. Indeed, while concealing management’s projections from the

public shareholders, defendants have selectively disclosed the bidder’s more pessimistic

projections for National Interstate. Defendants have also failed to disclose their use of the Duff

& Phelps valuation range to manipulate their bid. These misstatements and omissions in this

regard render their SEC filings materially misleading in violation of the federal securities laws.

Second, Great American is pursuing its structurally coercive tender offer in breach

of its fiduciary obligations. As a majority shareholder, Great American owes fiduciary duties to

National Interstate’s minority shareholders, including a duty to pursue this offer in good faith.

Instead, Great American has designed its tender offer to threaten shareholders in a manner that

takes away any meaningful opportunity for them to freely decide whether to tender their shares

based on the economics of the offer. Shareholders who want to hold their shares will be forced

to tender even if they think the price is unfavorable for fear that they will either be cashed out in


5

a subsequent merger at a lower price or face one or more of the other retributive acts that Great

American is threatening.

Third, Great American’s tender offer violates Ohio’s Control Share Acquisition

Statute, which was enacted to prevent just the kind of abusive takeover tactics being employed

here. The statute bars the acquisition of “a majority or more of the voting power” of an Ohio

corporation absent the express authorization of the company’s minority shareholders. Having

neither sought nor obtained the permission of National Interstate’s non-interested shareholders as

required by the statute, Great American is barred by statute from acquiring additional shares

unless it obtains shareholder approval.

Plaintiff and the other minority shareholders face imminent, irreparable injury if

injunctive relief is denied. They will be deprived of their right to decide whether to tender into

the offer free from coercion and with the benefit of non-misleading disclosures. Injunctive relief

is necessary to level the playing field and prevent defendants from capitalizing on an egregiously

unfair and manipulative process that has been deliberately designed to intimidate and coerce

National Interstate’s minority shareholders into tendering their shares. As shown below, courts

have not hesitated to enjoin tender offers on the claims advanced here.


6

STATEMENT OF FACTS

A. Great American controls National Interstate’s board of directors.

Great American is National Interstate’s majority shareholder, owning

approximately 52% of the company’s stock. (¶ 11.)1 By virtue of this position, Great American

has elected to National Interstate’s board individuals who work for Great American and its

parent, American Financial Group (“AFG”). (¶¶ 2, 30.) Today, a majority of National

Interstate’s ten board members are affiliated with Great American or AFG. Four of the directors

serve as executive officers of Great American or AFG, one director is a retired executive officer

of AFG, and one is National Interstate’s Chief Executive. (¶ 33.) A minority of four board

members, including Spachman, serve as independent directors with no connection to Great

American or AFG. (¶ 34.)

Spachman founded National Interstate in 1989 as a specialty insurance company

providing products for the transportation vehicle industry. (¶ 25.) He served as National

Interstate’s President and Chief Executive Officer from 1989 until 2007, and as the Chairman of

the Board until 2013. (¶ 31.) Spachman is the company’s largest minority shareholder and

serves to this day on its ten-member board of directors. (¶ 1.)

B. Great American makes an opportunistic tender offer.

In early 2014, the National Interstate board approved a press release that

announced unaudited results for 2013 and reserve adjustments recommended by Great American.

(¶ 35; Slater Dec., Ex. K.) Although the timing of this press release was not consistent with prior

years, management assured the board that it needed to issue the release earlier than usual to

discuss the numbers at an upcoming analyst conference. (¶ 35.) When the results were issued,

1 References to “(¶_)” are to plaintiff’s complaint.


7

National Interstate’s stock price fell 5.4% — opening at $22.17 per share on February 5, 2014.

(¶¶ 35-36.)

That same day, Great American commenced a tender offer to purchase all of

National Interstate’s outstanding shares for $28 per share. (¶ 36; Slater Dec., Ex. J.) Even

though National Interstate’s shares had traded above the $28 offer price for much of 2013, and

had traded over $30 per share as recently as October 2013, Great American opined in its public

tender offer documents that National Interstate’s common stock “was not likely to trade at or

above the $28 offer price in the near future.” (¶ 38.) In fact, Great American was wrong.

National Interstate’s stock has traded above $28 per share since the announcement of the offer

and is currently trading above $30 per share. (¶ 39.)

C. The conflicted directors block independent review of the tender offer.

At a board meeting on February 7, 2014, Spachman and the three other

independent directors voted to form a special committee of the board to evaluate the offer and

negotiate with Great American for the benefit of the minority shareholders. (¶ 41.) The

formation of such a committee is customary when a majority of the target’s board is affiliated

with or controlled by the offeror. (¶ 41.) Spachman and the other independent directors

recognized that the interests of the conflicted directors were not aligned with the interests of the

minority shareholders and that the conflicted directors would not be able to review the tender

offer in an objective, fair, and unbiased manner. (¶ 42.) But the six conflicted directors — all of

whom are employed by or beholden to Great American and AFG — used their majority control

to block this proposal, rejecting it by a vote of 6-4. (¶ 43.) The conflicted directors likewise

rejected Spachman’s repeated requests for a separate financial advisor to assist the independent

directors in assessing the fairness of the offer price. (¶¶ 46-51.)


8

Without forming a special committee, the conflicted directors voted to retain Duff

& Phelps, LLC, at the company’s expense, to render an opinion on the fairness of the $28 per

share offer. (¶ 49.) National Interstate provided management’s five-year financial projections to

Duff & Phelps to use for purposes of its valuation. (¶ 49.)

Duff & Phelps concluded that the $28 price was unfair to the minority

shareholders. Using a series of valuation metrics, it calculated a valuation range for the company

between $29.51 and $35.72 per share. (¶ 51.) Duff & Phelps’s discounted cash flow analysis,

which was based on management’s five-year projections, resulted in a value between $29.86 and

$36.84 per share. (¶ 52.)

Because the conflicted directors had refused to form a special committee, AFG

and Great American had direct access to the Duff & Phelps valuation analysis. (¶¶ 52-54.) And

the bidder used the information to nudge its offer up to $30 per share — just 49 cents above the

bottom of the Duff & Phelps range. (¶ 55.) After learning that its work had been improperly

shared with Great American, Duff & Phelps resigned as financial advisor and refused to opine as

to the fairness of the $30 offer. No independent financial advisor has opined that the $30 per

share offer is fair to the minority shareholders. (¶ 56.)

D. National Interstate files a misleading Schedule 14D-9.

On February 19, National Interstate filed with the SEC a Schedule 14D-9, which

requires the company to make a recommendation to the company’s shareholders as to whether

they should tender their shares at the proposed offer price. (¶ 59.) Despite Duff & Phelps’s

opinion that the initial offer was unfair, and its refusal to participate in the conflicted process

arising from defendants’ improper behavior, the conflicted directors voted to remain “neutral” on

the Great American tender offer, leaving the minority shareholders to evaluate the offer for

themselves based on information available to them. (¶ 59; Slater Dec., Ex. G.)


9

To make matters worse, National Interstate’s 14D-9 filing failed to disclose a

myriad of material facts. Among other things, the conflicted directors did not disclose that they

had refused to form a special committee, that Duff & Phelps had determined a valuation range

for National Interstate’s shares, that the Duff & Phelps range reached above $36 per share, that

the conflicted directors had improperly shared the Duff & Phelps analysis with Great American

and AFG to assist them in making a new offer at the bottom of Duff & Phelps’s range, or that

both National Interstate and AFG had run roughshod over their respective codes of ethics and

eschewed the customary safeguards (such as a special committee) that should have been used to

protect the shareholders from such conflicts of interest. (¶¶ 48, 59; Slater Dec., Exs. G, H.)

Moreover, the conflicted directors have failed to disclose in their Schedule 14D-9

the five-year projections prepared by National Interstate management. (¶ 59.) Although the

conflicted directors belatedly submitted a revised Schedule 14D-9 disclosing the Duff & Phelps

valuation range, they have continued to conceal the projections on which the Duff & Phelps

analysis was based. (¶ 61.) At the same time, defendants have selectively disclosed Great

American’s considerably lower financial projections for National Interstate. (¶ 60; Slater Dec.,

Ex. F.) Spachman promptly filed his own Schedule 14D-9 with the SEC, denouncing the bid as

opportunistic, coercive, and unfair. (¶ 59; Slater Dec., Ex. L.)

E. Great American’s tender offer is unfair and intended to coerce minority shareholders into selling

The tender offer is designed to force minority shareholders to tender their shares

without regard to the fairness of the offering price. (¶ 67.) Great American initially conditioned

the tender offer on acquiring at least 90% of the common shares of National Interstate. (¶ 68.)

But just days ago, Great American waived this 90% minimum tender condition. (¶ 68.) Great

American now needs just 15% of National Interstate’s outstanding shares to get to the two-thirds


10

mark, which will give it enough voting power to unilaterally approve a subsequent merger at any

price — including a price well below the current offer of $30. (¶ 69.) Hence, the minority

shareholders, including Spachman, must choose between tendering their shares at the current

price of $30 or risk receiving “merger consideration” of much lesser value for their shares in a

subsequent unilateral merger. (¶¶ 73-76.)

Further exacerbating the coercive nature of the tender offer, Great American has

publicly announced its plans to purchase all of the shares tendered, and explicitly threatened to

change the company’s dividend policy, delist the company’s shares, and/or reduce the number of

shares that are publicly traded, all of which will adversely affect the liquidity and market value

of the shares. (¶¶ 67-75.) And the conflicted directors, in their amended SEC filing, expressly

warned that shareholders who fail to tender “may not receive value for their shares equal to the

Amended Offer Price and may be unable to sell their shares at or above the Amended Offer

Price.” (¶ 73.) Accordingly, any shareholder who rejects Great American’s tender offer does so

at his peril.


11

ARGUMENT

POINT I

INJUNCTIVE RELIEF IS NECESSARY TO PREVENT IRREPARABLE HARM TO NATIONAL INTERSTATE’S SHAREHOLDERS

In evaluating whether to issue a preliminary injunction, the Sixth Circuit has

instructed courts to consider: (1) “Whether the plaintiff has shown a strong or substantial

likelihood or probability of success on the merits;” (2) “Whether the plaintiff has shown

irreparable injury;” (3) “Whether the issuance of a preliminary injunction would cause

substantial harm to others;” and (4) “Whether the public interest would be served by issuing the

preliminary injunction.” Mobil Corp. v. Marathon Oil Co., 669 F.2d 366, 369 (6th Cir. 1981)

(issuing injunction prohibiting the grant of options by target corporation to tender offeror in

violation of Section 14(e)). These are “factors to be balanced, not prerequisites that must be

met,” and no single factor is determinative as to the appropriateness of equitable relief. Six

Clinics Holding Corp., II v. Cafcomp Sys., Inc., 119 F.3d 393, 400 (6th Cir. 1997).

A. Plaintiff has shown a substantial likelihood of success on the merits.

1. Defendants’ failure to disclose material inside information violates the federal securities laws.

As the United States Supreme Court has recognized, “independent shareholders

faced with tender offers often are at a disadvantage.” CTS Corp. v. Dynamics Corp. of Am., 481

U.S. 69, 82 (1987). To address this concern, Congress enacted the Williams Act to place

shareholders who receive tender offers “on an equal footing with [a] takeover bidder.” Id.; Veere

Inc. v. Firestone Tire & Rubber Co., 685 F. Supp. 1027, 1030 (N.D. Ohio 1988). The Act and

its implementing regulations require tender offerors to file with the SEC a Tender Offer

Statement on Schedule TO publicly disclosing all information that would be material to a

shareholder’s decision whether to tender his or her shares. See 15 U.S.C. § 78n(d); 17 C.F.R. §§


12

240.14D-3, 229.1011. The Act likewise requires a target company’s board of directors to file

with the SEC, upon receiving a tender offer, a Schedule 14D-9 stating the company’s position

with respect to the offer and disclosing such additional information as may be necessary to make

the required statements not misleading. 17 C.F.R. §§ 240.14D-101, 229.1011.

The Williams Act contains a broad anti-fraud provision, which prohibits “any

person” from making “any untrue statement of a material fact or omit[ting] to state any material

fact necessary in order to make the statements made . . . not misleading.” 15 U.S.C. § 78n(e).

The Act also prohibits any person from engaging “in any fraudulent, deceptive, or manipulative

acts or practices” in connection with a tender offer. Id. This provision seeks to ensure “that

shareholders confronted with a tender offer have adequate and accurate information on which to

base the decision whether or not to tender their shares.” Burlington Indus., Inc. v. Edelman, 666

F. Supp. 799, 810 (M.D.N.C. 1987) (enjoining tender offer where target offeror was in receipt of

inside information). A misrepresentation is deemed material under Section 14(e) “if there is a

substantial likelihood that a reasonable shareholder would consider it important in deciding

whether to sell his or her stock.” Polaroid Corp. v. Disney, 862 F.2d 987, 1005 (3d Cir. 1988)

(enjoining tender offer that failed to disclose whether tender offer complied with federal margin

regulations in violation of Section 14(e)).

Defendants’ failure to disclose management’s five-year financial projections

violates the Williams Act. (¶¶ 59, 61; Slater Dec., Exs. F, G, H.) As the courts have recognized,

“investors are concerned, perhaps above all else, with the future cash flows of the companies in

which they invest.” U.S. v. Smith, 155 F.3d 1051, 1064 (9th Cir. 1998). As such, management

projections have been described as “among the most highly-prized disclosures,” In re Netsmart

Technologies, Inc. S’holders Litig., 924 A.2d 171, 203 (Del. Ch. 2007), and are of “obvious


13

materiality” to shareholders, In re PNB Holding Co., 2006 WL 2403999, at *15 (Del. Ch. 2006);

see also Maric Capital Master Fund, Ltd. v. Plato Learning, Inc., 11 A.3d 1175, 1178-79 (Del.

Ch. 2010) (“[M]anagement’s best estimate of the future cash flow of a corporation that is

proposed to be sold . . . is clearly material information.”).

Failure to disclose management projections is generally considered “a material

omission that will sustain injunctive relief.” In re BioClinica, Inc. S’holder Litig., 2013 WL

673736 (Del. Ch. Feb. 25, 2013); see also Brown v. Brewer, CV06-3731-GHK SHX, 2010 WL

2472182, at *20-21 (C.D. Cal. June 17, 2010) (noting that the standard for materiality applied in

the federal securities law context is the same as the standard applied by Delaware courts in the

breach of fiduciary duty context and concluding that allegations concerning failure to disclose

internal management projections adequately pled a material omission).

Defendants can hardly claim that the projections here are unreliable or immaterial.

National Interstate provided Duff & Phelps with these very same projections for purposes of

opining on the fairness of the offer. And Duff & Phelps used the projections in calculating a

range of value for the company between $29.51 and $35.72 per share. Insofar as the Williams

Act mandates a level playing field, there is no rational argument as to why Great American and

AFG should have management’s projections, but the minority shareholders should not.

The failure to disclose the projections is especially egregious in this case given

that Great American has disclosed its own, considerably lower three-year projections for the

company. Slater Dec., Ex. F at 17. Quite obviously, Great American has an interest in acquiring

the minority shares as cheaply as possible and thus has an interest in downplaying the company’s

prospects. But the directors should not facilitate the offeror’s efforts to buy the company on the

cheap. If the offeror wants the shareholders to consider its own projections for the company, the


14

conflicted directors should also be required to provide management’s projections for the

company. If anything, management’s views of the company’s prospects would be more reliable

than the bidder’s and a more important data point for the company’s shareholders, especially if

they were created outside the context of the tender offer.

The defendants’ failure to disclose management’s projections is all the more

improper given their efforts to tout the fairness of the tender offer. In the press release

announcing the waiver of the minimum condition, AFG advised National Interstate’s

shareholders that its offer “represents compelling value” and a “strong value proposition.” Slater

Dec., Ex. I. But at the same time, it is withholding from those shareholders the management

projections that Duff & Phelps used to calculate a value range showing that these assurances are

simply untrue.

Defendants’ gamesmanship in releasing their own lowball projections for the

company while selectively withholding management’s more robust projections renders

defendants’ disclosures incomplete and materially misleading in violation of Sections 14(e) and

14(d). Management’s projections should be disclosed to provide a complete picture of the

competing views of the company’s prospects and allow the shareholders to evaluate the extent to

which management’s projections deviate from the bidder’s. As the Sixth Circuit has held, where

“a company chooses to disclose information about the future, its disclosures must be full and

fair, and courts may conclude that the company was obliged to disclose additional material facts

to the extent that the volunteered disclosure was misleading.” Zaluski v. United American

Healthcare Corp., 527 F.3d 564, 572 (6th Cir. 2008); Helwig v. Vencor, Inc., 251 F.3d 540 (6th

Cir. 2001) (holding that defendants’ decision to selectively “volunteer” certain estimates of

future financial well-being rendered their failure to provide a complete picture materially


15

misleading; “this case is about selective disclosure of information known exclusively to

defendants and essential to complete a picture they had only partially revealed” and

“Defendants’ segue from non-disclosure to non-actionability overlooks the fact that they had

already volunteered much ‘soft’ information”), overruled in part on other grounds by Tellabs,

Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007).

Beyond failing to disclose the projections themselves, defendants’ SEC filings

have also failed to disclose that the conflicted directors used the Duff & Phelps valuation range

to calculate the lowest possible revised bid for National Interstate’s shares. (¶¶ 59, 61; Slater

Dec., Exs. F, G, H.) While defendants belatedly disclosed the Duff & Phelps range of values,

they have still not disclosed that the analysis was used by Great American to calibrate its bid.

The bidder’s use of this inside information in formulating its bid makes a mockery of the level

playing field that the Williams Act requires.

Defendants have similarly failed to disclose that their conduct violates the codes

of conduct of National Interstate and AFG, respectively. Although National Interstate’s Code of

Ethics and Conduct requires directors to “avoid apparent conflicts of interest that may occur

where a reasonable observer might assume there is a conflict of interest,” and “refrain from any

related decision making process,” the interested directors have refused to recuse themselves from

review of Great American’s tender offer. (¶ 46; Slater Dec., Ex. M.) AFG has likewise violated

its Code of Ethics, which similarly prohibits taking “unfair advantage of anyone through

manipulation, concealment, abuse of privileged information, misrepresentation of material facts,

or any other unfair dealing practice,” by pursuing this tender offer in an unfair and coercive

manner. (¶ 46; Slater Dec., Ex. N.) These violations must be disclosed pursuant to Section


16

406(b) of the Sarbanes-Oxley Act and are clearly material under Section 14(e). See 17 C.F.R. §

229.406(d).

The defendants are also violating S.E.C. Rule 14e-3, which expressly prohibits

any person who is in possession of material nonpublic information relating to a tender offer from

providing that information to others. 17 C.F.R. § 240.14E-3. By virtue of their dual roles, the

conflicted directors have provided Great American with access to National Interstate’s inside

information, including the five-year management projections. Courts have recognized the

inherent inequity of permitting a tender offeror to purchase shares based on inside information

and have enjoined tender offers like this one, in which an insider has tipped the offeror to

material inside information. Burlington Indus., Inc. v. Edelman, 666 F. Supp. 799, 817

(M.D.N.C. 1987) (“The legality of a tender offer is brought into grave question where the

evidence shows that a former executive of the target corporation, who possesses the target's

confidential information, acts as a catalyst for and a consultant to a takeover attempt.”); A.

Copeland Enterprises, Inc. v. Guste, 1988 WL 129313 (E.D. La. Nov. 28, 1988) (enjoining

tender offer made based on inside information).

Thus, for the foregoing reasons, the defendants are violating the Williams Act and

their tender offer should be enjoined unless and until their violations are corrected.2

2 In addition to the Williams Act, defendants’ disclosure violations contravene their fiduciary duty of candor under Ohio law. Thompson v. Cent. Ohio Cellular, Inc., 639 N.E.2d 462, 468 (Ohio Ct. App. 1994). Although the Ohio caselaw outlining the boundaries of the duty of candor is sparse, we believe that the Ohio courts would look to Delaware law on this issue, and Delaware law requires material information such as management projections to be disclosed. E.g. In re BioClinica, Inc. S’holder Litig., 2013 WL 673736 (Del. Ch. Feb. 25, 2013).


17

2. Defendants are breaching their fiduciary duties by pursuing a structurally coercive tender offer.

“It is axiomatic that corporations and their officers and directors occupy a

fiduciary relationship with corporate shareholders.” Thompson v. Cent. Ohio Cellular, Inc., 639

N.E.2d 462, 468 (Ohio Ct. App. 1994). Specifically, corporate directors, including the conflicted

directors who serve on National Interstate’s board, owe a “‘a duty of good faith, a duty of

loyalty, [and] . . . a duty [of] disclosure,’” to the corporation’s shareholders. Id. at 469. Those

duties obligated the conflicted directors to, among other things, act in the best “interests of the

corporation’s shareholders” in connection with Great American’s tender offer. Id. at 468 (citing

R.C. § 1701.59(B)).3

As a majority shareholder, Great American and AFG also owe fiduciary

obligations to National Interstate’s company’s minority shareholders. Landskroner v.

Landskroner, 797 N.E.2d 1002, 1013 n.3 (Ohio. Ct. App. 2003) (Under Ohio law, “majority

shareholders generally owe a fiduciary duty to minority shareholders.”); cf. Thompson, 639

N.E.2d at 468; Gradient OC Master, Ltd. v. NBC Universal, Inc., 930 A.2d 104, 130 (Del. Ch.

2007) (“[A] shareholder owes a fiduciary duty . . . if it . . . owns a majority interest in or . . .

exercises control over the business affairs of the corporation.”).

Consistent with their fiduciary obligations, defendants may not seek to take

advantage of their majority position to act at the expense of National Interstate’s minority

shareholders. Stepak v. Schey, 553 N.E.2d 1072, 1078 (Ohio 1990) (“Under Ohio law, directors

may not, in breach of their fiduciary duties, act unfairly to the disadvantage of their corporation

3 Because National Interstate is an Ohio corporation, plaintiff’s breach of fiduciary duty claim is a matter of Ohio law. See, e.g., Global Launch, Inc. v. Wisehart, 156 Ohio Misc. 2d 1, 2010-Ohio-1457, 925 N.E.2d 698, 699, 700 (Ohio Com. Pl. March 4, 2010).


18

or its shareholders.”); see also Zavakos v. Zavakos Enters., Inc., 577 N.E.2d 1170, 1173 (Ohio

Ct. App. 1989) (although a large shareholder may “effectively ‘control’ the board, each director .

. . is subject to a fiduciary duty to the shareholders of the corporation” and must act in

accordance with those duties); Stroud v. Grace, 606 A.2d 75, 85 (Del. 1992) (directors have a

“duty to disclose all material facts in connection with contemplated shareholder action”).4

Although there is little Ohio law on the standard of fiduciary conduct that applies

when a controlling shareholder seeks to acquire a company’s outstanding shares, the Ohio

legislature has expressly found that tender offers are often inherently coercive and subject to the

abusive tactics of the controlling shareholder:

Although tender offers in theory offer shareholders the opportunity to consider such issues in deciding whether or not to tender their shares, in practice they do not. Tender offers are coercive in the sense that shareholders are normally concerned that a majority of their fellow shareholders will tender their shares, leaving them in a minority position with one controlling shareholder. Thus, shareholders often feel compelled to tender their shares, regardless of how they feel about the corporate control issues inherent in any tender offer. The opportunity for reasoned decision-making is further hindered by the short time periods in which tender offers can be consummated, the structures of many recent tender offers, which are designed to encourage prompt tenders, and the fact that individual shareholders typically receive or obtain tender offer materials much later than institutional shareholders.

R.C. § 1701.832(C) (emphasis added).

While the Ohio courts have not articulated a standard for finding actionable

coercion in the tender offer context, the Delaware courts have. And in the absence of Ohio

precedent, Ohio courts frequently look to Delaware law for guidance in matters concerning

corporate law. Given the Ohio legislature’s findings concerning potential coercion in tender

4 While defendants’ breaches of fiduciary duty are by no means limited to the coercive na-ture of the Great American tender offer, for purposes of seeking preliminary injunctive relief, plaintiff’s memorandum will focus on that violation.


19

offers, the Ohio courts can and should look for guidance to Delaware law in setting forth the

limitations on controlling shareholders that seek to pursue a tender offer. See, e.g., In re Keithley

Instruments, Inc., 599 F. Supp. 2d 908, 918 (N.D. Ohio 2009) (“Ohio courts routinely look to

Delaware case law for guidance in deciding corporate law issues generally.”).

Delaware law is clear that coercive tender offers pursued by controlling

shareholders should be enjoined in order to protect minority shareholders from being forced to

choose between tendering their shares for an unfair price and risking being cashed out at an even

lower price. In re Pure Resources, 808 A.2d 421, 441-442 (Del. Ch. 2002). A tender offer is

deemed to be structurally coercive unless: “1) it is subject to a non-waivable majority of the

minority tender condition; 2) the controlling stockholder promises to consummate a prompt

[short-form] merger at the same price if it obtains more than 90% of the shares; and 3) the

controlling stockholder has made no retributive threats.” Id. at 445 (enjoining structurally

coercive tender offer); see also Eisenberg v. Chicago Milwaukee Corp., 537 A.2d 1051 (Del. Ch.

1987) (enjoining tender offer that was inequitably coercive as a result of threats made by the

controlling shareholder).

Under Delaware law, the failure to meet any of these three elements would render

the tender offer coercive and require injunctive relief. In this case, Great American’s offer fails

every element of the test for structural coercion. First, Great American’s offer is not, and never

has been, subject to a non-waivable majority of the minority tender condition. Because Great

American has expressly waived the condition that it receive ownership of at least 90% of the

company’s shares in order to consummate the offer, if Great American acquires just 15% of

National Interstate’s outstanding stock, it will own two-thirds of the company’s shares and will

have sufficient voting power to approve unilaterally a subsequent merger at any price, including


20

a price below the already-unfair proposed tender offer price of $30 per share. Accordingly,

because Great American has not imposed a non-waivable majority of the minority condition, it

may be able to cross the two-thirds threshold, and obtain complete control of National Interstate,

even if the vast majority of the minority shareholders oppose the offer.

Second, Great American has not promised to cash out non-tendering shareholders

at the tender offer price if it receives control of the company. If Great American gains control of

the company and then elects not to consummate a subsequent merger, non-tendering

shareholders risk languishing in a thinly traded company subject to further abuse from Great

American. See, e.g., Lewis v. Celina Financial Corp., 101 Ohio App. 3d 464, 474 (1995)

(concluding that a tender offer was not coercive where the offer was conditioned on approval of

minority shareholders, received approval from an independent director, and included a promise

to cash out non-tendering minority shareholders at the same price in a subsequent merger).

Third, Great American has made numerous retributive threats. In connection with

waiving the minimum tender condition, Great American has threatened to eliminate cumulative

voting, threatened to change the board of directors, threatened to change the company’s dividend

policy, threatened to delist the company’s shares, and threatened to deregister the shares under

the Exchange Act of 1934. (¶¶ 67-75; Slater Dec., Ex. J, at 13.) To further highlight the risk to

shareholders who choose not to tender, after Great American waived the minimum tender

condition, the conflicted directors filed an amended Schedule 14D-9 warning that shareholders

who failed to tender “may not receive value for their shares equal to the Amended Offer Price

and may be unable to sell their shares at or above the Amended Offer Price.” (¶ 73; Slater Dec.,

Ex. H.)


21

Great American’s tender offer thus fails each of the three tests for determining

whether a tender offer is structurally coercive. The tender offer is designed to evade giving

National Interstate’s shareholders a free and meaningful choice as to whether they should tender

their shares and must be enjoined.

3. The tender offer violates the Control Share Acquisition Statute.

As noted above, the Ohio legislature has recognized that tender offers have the

potential of coercing shareholders into parting with their shares on disadvantageous terms. To

protect shareholders of Ohio corporations from abusive takeover tactics, in 1982, Ohio adopted a

Control Share Acquisition Statute. R.C. § 1701.831. The statute limits an offeror’s ability to

acquire a controlling stake in a company without approval from the rest of the shareholders. The

statute thereby sought to provide shareholders with “a reasonable opportunity to express their

views” in connection with a tender offer and “to provide evenhanded protection of offerors and

shareholders from fraudulent and manipulative transactions” arising in connection with tender

offers. R.C. § 1701.832(4). And the Ohio courts have not hesitated to enjoin any acquisition

that violates the statute. See, e.g., Cullen v. Milligan, 575 N.E.2d 123, 128 (Ohio 1991).

Under the Control Share Acquisition Statute, unless a company expressly opts out

of the Act through its articles of incorporation or through regulations adopted by the board or

shareholders, “any control share acquisition of an issuing public corporation shall be made only

with the prior authorization of the shareholders of such corporation” in the manner prescribed by

the statute. R.C. § 1701.831(A). A “control share acquisition” is defined as the direct or indirect

acquisition:

by any person of shares of an issuing public corporation that, when added to all other shares of the issuing public corporation in respect of which the person may exercise or direct the exercise of voting power . . . , would entitle the person, immediately after the acquisition, directly or indirectly,


22

alone or with others, to exercise or direct the exercise of the voting power of the issuing public corporation in the election of directors within any of the following ranges of such voting power:

(a) One-fifth or more but less than one-third of such voting power; (b) One-third or more but less than a majority of such voting power; (c) A majority or more of such voting power.

R.C. § 1701.01(Z)(1).

The statute also contains an express provision dealing with the treatment of

potential share acquisitions “within” one of the enumerated “ranges of such voting power.” The

statute provides that a shareholder seeking to increase its shareholdings “within the same range

thereto attained by that person” is excepted from the Control Share Acquisition Statute if that

person obtained the shares that first brought him within the covered range “either in compliance

with the provisions of [the Control Share Acquisition Statute] or as a result solely of the issuing

public corporation’s purchase of shares issued by it.” R.C. § 1701.01(Z)(2)(f).

Great American’s tender offer falls squarely within Ohio’s Control Share

Acquisition Statute. First, by seeking to increase its shareholdings above its present ownership

of 52%, Great American seeks to obtain voting power “within the range” of “a majority or more”

of National Interstate’s voting power. R.C. § 1701.01(Z)(1).

Second, Great American is not entitled to take advantage of the safe harbor for

share acquisitions “within” one of the covered “ranges of such voting power.” Great American

purchased its shares of National Interstate in 1990 before the company was public, and thus

before it became subject to the Control Share Acquisition Statute. As a result, it never received

approval from a majority of National Interstate’s other shareholders to exceed any of the

thresholds set forth in the statute. Even after National Interstate became a publicly traded

corporation, Great American never sought or received approval from a majority of National


23

Interstate’s other shareholders to exceed any of the thresholds set forth in the statute. Because

Great American’s shareholdings were not previously attained “in compliance with the provisions

of” the Control Share Acquisition Statute, it cannot shoehorn itself within the narrow exception

for increased shareholdings “within” covered ranges.

Finally, when National Interstate went public in 2005, the company disclosed that

it had elected not to opt out of the protections afforded by Ohio’s Control Share Acquisition

Statute. Slater Dec., Ex. O, at 87. In the prospectus that National Interstate disseminated to

potential buyers, National Interstate further disclosed that the statute could impede a potential

merger. Id. at 15. The prospectus, however, did not inform National Interstate’s future public

shareholders that Great American believed that it could acquire additional shares without being

subject to the statute. This would have been no small omission. With just 52% of the voting

power of the company, Great American had — and still has — less than the two-thirds majority

required under Ohio law to effectuate a merger. See R.C. § 1701.78(F). Had Great American

believed that it could reach that level of shareholding outside the strictures of the Control Share

Acquisition Statute, that fact surely would have been considered material by National Interstate’s

investors.

B. A preliminary injunction is necessary to prevent irreparable harm to National Interstate’s shareholders.

Unless the tender offer is enjoined, the National Interstate shareholders will suffer

immediate irreparable harm. They will be deprived of their right to consider the offer free from

coercion and with the benefit of full disclosure. Once the tender offer has been consummated, “it

becomes difficult, and sometimes virtually impossible to ‘unscramble the eggs.’” MAI Basic

Four, 871 F.2d 212, 218 (1st Cir. 1989). Accordingly, on each of plaintiff’s claims, courts have

held that injunctive relief is necessary to prevent irreparable harm.


24

Disclosure violations. Materially false or misleading statements made in

violation of the Securities Exchange Act cause shareholders irreparable harm. As the Sixth

Circuit has explained, an injunction protecting “shareholders from making their decisions

whether to sell without full information . . . furthers the purpose of the Williams Act.” Mobil

Corp. v. Marathon Oil Co., 669 F.2d 366, 369 (1981). “While Congress has determined that

accurate disclosure is important to shareholders, it would often be impossible for shareholders to

prove that on the facts of their particular tender offer accurate disclosure would have affected

their decision making in a particular way with concomitant quantifiable monetary loss. The

inadequacy of a remedy at law and the importance that Congress has attached to accurate

disclosure of material information establishes irreparable harm.” Polaroid Corp. v. Disney, 862

F.2d 987, 1006 (3d Cir. 1988); Pabst Brewing Co. v. Kalmanovitz, 551 F. Supp. 882, 895 (D.

Del. 1982) (“[I]f the tender offer is consummated, it will be virtually impossible for this Court to

undo the transaction which would leave the plaintiff and its shareholders without an adequate

remedy at law.”).

If National Interstate shareholders are forced to choose whether to tender their

shares based on the materially incomplete and misleading filings that defendants have made with

the SEC, they will suffer the very harm that the Williams Act was intended to avoid. National

Interstate’s shareholders are entitled to know management’s projections for the company as well

as the active collaboration between the conflicted directors and the bidders. Because defendants’

tender offer cannot be undone once it closes, injunctive relief is necessary to prevent National

Interstate’s shareholders from suffering irreparable harm. Hanna Min. Co., 574 F. Supp. 1172

(enjoining tender offer based on violation of Section 14(e)); Moore v. Greatamerica Corp., 274

F. Supp. 490 (N.D. Ohio 1967) (issuing TRO based on materially misleading statements made in


25

connection with a tender offer); see also Camelot Indus. v. Vista Res., Inc., 535 F. Supp. 1174,

1183-5 (S.D.N.Y. 1982) (enjoining tender offer and postponing special meeting for material non-

disclosures under § 14(a), Rule 14a-9, § 13(d) and § 14(e)).

Coercion. Great American has purposefully structured its tender offer in a

manner designed to pressure minority shareholders to tender at an unfair price or risk a material

decrease in the value and liquidity of the shares. As reported by the New York Times, AFG has

made “troublesome threats, including stating that it might buy shares at a lower price, change its

dividend policy or remove protections for minority shareholders,” all of which “are threats that

appear specifically designed to push National Interstate shareholders into tendering.” (Slater

Dec., Ex. D.) Without injunctive relief, National Interstate’s shareholders will be denied the

opportunity to freely decide whether to tender their shares based on the economics of the offer,

and will instead be forced to choose between tendering and risking retribution from Great

American after the offer closes. Under these circumstances, courts have found injunctive relief

necessary to protect minority shareholders from abuse. See In re Pure Res. S-Holders Litig., 808

A.2d at 452 (“[T]he possibility that structural coercion will taint the tendering process also gives

rise . . . to injury sufficient to support an injunction.”); Eisenberg v. Chicago Milwaukee Corp.,

537 A.2d 1051 (Del. Ch. 1987) (same).

Control Share Acquisition Statute. In enacting the Control Share Acquisition

Statute, the Ohio legislature expressly recognized that shareholders who receive a tender offer

“often feel compelled to tender their shares, regardless of how they feel about the corporate

control issues inherent in any tender offer.” R.C. § 1701.832(C). The remedy for a violation of

the Control Share Acquisition Statute is injunctive relief, and, consistent with the Ohio


26

legislature’s admonition, courts have not hesitated to enjoin any acquisition that violates the

statute. See, e.g., Cullen v. Milligan, 575 N.E.2d 123, 128 (Ohio 1991).

Conflict of Interest. Injunctive relief is also supported by the defendants’

pervasive and profound conflicts of interest. As set forth in the complaint, every aspect of the

conflicted directors’ response to Great American’s tender offer has been compromised by their

conflicts of interest and attendant breaches of fiduciary duty — from their refusal to establish a

special committee, to their refusal to allow Spachman to talk to Duff & Phelps, to their sharing

of confidential valuation information with Great American and AFG, to the board’s disingenuous

“neutrality” in the face of a coercive and underpriced tender offer even as they withhold the

information necessary to evaluate that offer. In short, these directors have lost their way. Rather

than fulfilling their duty to negotiate the best price for the minority shareholders, they have

instead applied themselves to facilitating Great American’s effort to buy the remaining shares at

the lowest possible price. As the New York Times concluded, “the board’s actions in considering

the offer from American Financial appear deeply flawed.” (¶¶ 3, 66; Slater Dec., Ex. D.). In

these circumstances, a court of equity is not constrained “to declare itself powerless to prevent

the very harmful transaction that is the object and purpose of that conduct.” Sealy Mattress Co.

v. Sealy, Inc., 532 A.2d 1324 (Del. Ch. 1987) (“In this case misrepresentation, self-dealing, and

gross and palpable overreaching have been alleged and preliminarily established. Damages, in

these circumstances, would not be an adequate remedy.”).5

5 Given the strength of Spachman’s claims, the need for showing irreparable harm dimin-ishes. See, e.g., Office Depot, Inc. v. Impact Office Products, LLC, 2011 WL 4833117, at *3 (N.D. Ohio Oct. 12, 2011) (“A particularly strong showing of likely success on the merits may allow for an injunction despite a weaker showing of irreparable harm, and vice versa.”); Cabot Corp. v. King, 790 F. Supp. 153, 155-56 (N.D. Ohio 1992) (“[T]he showing of a strong likeli-hood of prevailing on the merits will enable a court to issue an injunction despite a lesser show-ing of irreparable harm.”).


27

C. The balance of harms weighs in plaintiff’s favor.

The balance of harms tilts in favor of injunctive relief. In contrast to the grave

harms plaintiff will suffer absent an injunction, defendants will not be unduly prejudiced if they

are required to pursue a non-coercive tender offer with fair disclosure. The sole harm that

defendants could claim is delay. But as courts have recognized, delay does not counsel in favor

of proceeding with an illegal tender offer. See, e.g., MAI Basic Four, 871 F.2d at 218 (“We are

cognizant of the harm suffered by a takeover aspirant by any unjustifiable delay of

consummation of a tender offer. But we also value the utility of injunctive relief to prevent

violations of disclosure requirements.”). This is all the more true where, as here, the two largest

minority shareholders (Spachman and T. Rowe Price) have both objected to the way the board

has handled the tender offer. (Slater Dec., Exs. A, L.)

D. The public interest favors an injunction.

As the Ohio legislature has expressly recognized, “it is in the public interest for

shareholders to have a reasonable opportunity to express their views” in connection with a tender

offer and “to provide evenhanded protection of offerors and shareholders from fraudulent and

manipulative transactions” arising in connection with tender offers. R.C. § 1701.832(A)(4). The

federal securities laws likewise make the “interests of the investing public . . . paramount.” See

Otis Elevator Co. v. United Tech. Corp., 405 F. Supp. 960, 973 (S.D.N.Y. 1975) (preliminarily

enjoining tender offer based on misrepresentations in Schedule 13D). And “[d]efendants cannot

dispute that the public interest favors absolute and full disclosure to ensure that a shareholder

vote be based upon complete, accurate and comprehensible information.” Lewis v .Gen. Emp.

Enters., 1991 WL 11383, at *4 (N.D. Ill. Jan. 21, 1991). Issuing an injunction mandating

disclosures and a fair process in this case would serve exactly this interest; denying an injunction

— and allowing defendants to profit from their wrongdoing at the expense of the company’s


28

minority shareholders — emphatically would not. Cf. Certified Restoration Dry Cleaning

Network, L.L.C. v. Tenke Corp., 511 F.3d 535, 551 (6th Cir. 2007) (where preliminary injunction

will force the defendant to adhere to its legal obligations, the public interest factor “points toward

the issuance of the preliminary injunction”).6

POINT II

ABSTENTION IS NOT APPROPRIATE HERE

Defendants will likely argue that this Court should abstain from considering this

motion in deference to Bernatchez v. American Financial Group, Inc., now pending in Hamilton

County state court. But “the mere pendency of a state-court case concerning the same subject

matter as a federal case is not reason enough to abstain.” RSM Richter, Inc. v. Behr Am., Inc.,

729 F.3d 553, 557 (6th Cir. 2013). “Federal courts have a strict duty to exercise the jurisdiction

that is conferred upon them by Congress. Abstention is an extraordinary and narrow exception

to that duty. Only the ‘clearest of justifications’ will support abstention.” Id.; Colorado River

Water Conservation Dist. v. U.S., 424 U.S. 800, 817 (1976) (holding that federal courts have a

“virtually unflagging obligation . . . to exercise the jurisdiction given them”).

Such extraordinary circumstances do not exist here. First, this case raises

statutory claims under Section 14(e) of the Securities Exchange Act that are within the exclusive

jurisdiction of the federal courts. The purported class action in Hamilton County did not, and

could not, present any of the statutory claims raised here. See, e.g., Plaine v. McCabe, 797 F.2d

6 The Court should exercise its discretion not to require Spachman to post a bond as a con-dition of awarding injunctive relief. See Moltan Co. v. Eagle–Picher Indus., Inc., 55 F.3d 1171, 1176 (6th Cir. 1995) (district court has discretion as to whether to order bond). No party in this case will be damaged by a delay of the tender offer. Indeed, Great American just recently chose to delay the offer when it decided to announce that it was waiving the 90% condition (thereby heightening the coercive nature of the offer). Moreover, defendants cannot claim to be damaged by an order that requires them to disclose material information and otherwise comply with secu-rities laws and their fiduciary obligations.


29

713, 718 n.9 (9th Cir. 1986); see also 15 U.S.C. § 78aa (“The district courts of the United States

and the United States courts of any Territory or other place subject to the jurisdiction of the

United States shall have exclusive jurisdiction of violations of this chapter.”). Rather, as Judge

Myers found, the action there is based solely on common-law breach of fiduciary duty claims.

Slater Dec., Ex. P., at 11. Indeed, while the Hamilton County court denied Bernatchez’s motion

for a TRO, the court took care to emphasize the limited nature of its holding. “[T]his case does

not involve securities law claims. There’s no claim being made under Ohio Securities Law or

Federal Securities law.” Id.

Second, this action is being prosecuted by an independent director with personal

knowledge of the critical events and the company’s largest minority shareholder. By contrast,

there is strong reason to doubt the viability of the purported class action in Hamilton County

given the likely inadequacy of the named plaintiff. See In re Kroger Co. S’holders Litig., 70

Ohio App. 3d 52, 63 (Ct. App. 1990) (“The requirement that the representative parties fairly and

adequately protect the interests of absent class members is the foundation of all representative

actions.”).

Bernatchez left National Interstate’s employment under charges of misconduct,

and then sued the company for wrongful termination, claiming the company had wrongfully

announced “he was terminated from his position because he committed an unethical act while

employed at [the company].” He subsequently voluntarily dismissed that action. Slater Dec.,

Exs. Q, R. These circumstances compromise his ability to act in a fiduciary capacity or

adequately represent a shareholder class. See In re ADC Telcoms, ERISA Litig., 2005 U.S. Dist.

LEXIS 20224, at *12-13 (D. Minn. Sep. 15, 2005) (holding that named plaintiff was inadequate

because he was dismissed from the company for improper conduct and contemplated a wrongful


30

termination suit, and that these “past actions could subject him to a vigorous cross-examination

which would be disadvantageous to other class members”). In fact, on the same day that the

judge denied plaintiff’s request for a TRO, after these facts came to light, putative class counsel

told the press that he would be looking for a new plaintiff. Slater Dec., Ex. S.

Finally, abstention is also not warranted because the Hamilton County class has

not been certified, and thus nothing that happens in that court is binding on Spachman or the

other absent class members. Becherer v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 193 F.3d

415, 427 (6th Cir. 1999) (“[I]f an action is not properly certified, then any judgment that is

entered will not be a class judgment and it will not bind persons who are not named parties to the

dispute.”). Accordingly, this Court should exercise jurisdiction over this action.


31

CONCLUSION

For all of the foregoing reasons, Spachman respectfully requests that the Court

grant his Motion for Temporary Restraining Order or Preliminary Injunction.

Respectfully submitted,

OF COUNSEL: Stephen R. DiPrima (pro hac pending) Benjamin D. Klein (pro hac pending) WACHTELL, LIPTON, ROSEN & KATZ 51 West 52nd Street New York, New York 10019 Telephone: (212) 403-1000 Facsimile: (212) 403-2000 [email protected] [email protected] Attorneys for Alan R. Spachman

By: /s/ Daniel R. Warren Daniel R. Warren (0054595) Thomas D. Warren (0077541) James A. Slater Jr. (0074524) Karen E. Swanson Haan (0082518) BAKER & HOSTETLER LLP 1900 East Ninth Street, Ste. 3200 Cleveland, OH 44114-3485 Telephone: 216.621.0200 Facsimile: 216.696.0740 [email protected] [email protected] Attorneys for Alan R. Spachman

Dated: March 5, 2014


CERTIFICATE OF SERVICE

I certify that the foregoing was electronically filed on March 5, 2014. Notice of

this filing will be sent to all parties by operation of the Court’s electronic filing system. Parties

may access this filing through the Court’s system.

/s/ Daniel R. Warren One of the Attorneys for Plaintiff


Exhibit A


SC 14D9 1 d683258dsc14d9.htm SC 14D9

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Schedule 14D-9 (Rule 14d-101)

SOLICITATION/RECOMMENDATION STATEMENT UNDER SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934

(Amendment No. )

National Interstate Corporation (Name of Subject Company)

T. Rowe Price Associates, Inc. (Name of Person Filing Statement)

Common Stock, Par Value $.01 Per Share (Title of Class of Securities)

63654U100 (CUSIP Number of Class of Securities)

David Oestreicher Vice President

100 East Pratt Street Baltimore, Maryland 21202

(410) 345-2628 (Name, Address and Telephone Number of Person Authorized to Receive Notice and Communications

on Behalf of the Person Filing Statement)

� Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer.

Page 1 of 4SC 14D9

3/5/2014http://www.sec.gov/Archives/edgar/data/80255/000119312514066995/d683258dsc14d9.htm


Name and Address

The name of the subject company is National Interstate Corporation, an Ohio corporation (the “Company”), the address of the principal executive office of the Company is 3250 Interstate Drive, Richfield, Ohio 44286-9000, and its telephone number at such address is (330) 659-8900.

Class of Securities

The title of the class of equity securities to which this Schedule 14D-9 relates is the common shares, par value $0.01 per share of the Company (the “Shares”, each a “Share”, and the holders of such Shares, “Shareholders”). As of February 17, 2014, 19,729,303 Shares were issued and outstanding.

Name and Address of Person Filing this Statement

This statement is being filed by T. Rowe Price Associates, Inc., a Maryland corporation (the “Adviser”), with its principal business office being located at 100 East Pratt Street, Baltimore, Maryland 21202 and its business telephone number being (410) 345-2000. The Adviser is an investment adviser registered under the Investment Advisers Act of 1940, as amended. The Adviser serves as investment adviser to various clients (“Advisory Clients”, each an “Advisory Client”) that own shares of the Company.

Tender Offer

This Statement relates to the tender offer by Great American Insurance Company, an Ohio corporation (the “Purchaser”), which is a wholly-owned subsidiary of American Financial Group, Inc. (“AFG”) to purchase all of the outstanding Shares that the Purchaser does not already own for $30.00 per share (the “Amended Offer Price”), net to the seller in cash, without interest, subject to applicable withholding taxes. The offer is disclosed in a combined Tender Offer Statement, Letter of Transmittal and Offer to Purchase (collectively, the “Transmittal Documents”) filed by the Purchaser under cover of Schedule TO with the United States Securities and Exchange Commission (the “SEC”) on February 5, 2014, as amended by Amendment No. 1, dated February 18, 2014, Amendment No. 2, dated February 21, 2014, and Amendment No. 3, dated February 24, 2014 (together with all exhibits thereto and subsequent amendments thereto, the “Schedule TO”). The offer is subject to the conditions set forth in the Transmittal Documents. The Purchaser has stated that if it purchases Shares in the offer such that it will own at least 90% of the issued and outstanding Shares, the Purchaser or an affiliate of the Purchaser, intends to merge with the Company (the “merger”). As a result of the merger, each then issued and outstanding Share (other than Shares held by the Purchaser and held by Shareholders who validly perfect their dissenters’ rights under the Ohio Revised Code) will be cancelled and converted into and represent the right to receive the Amended Offer Price.

The Schedule TO states that the principal executive office of the Purchaser is located at 301 East Fourth Street, Cincinnati, Ohio 45202, and its telephone number at such address is (513) 579-2121.

Not applicable.

The Adviser sent a letter (the “Letter) to the non-independent members of the Company’s Board of Directors on February 24, 2014, outlining its concerns about both the process the Company’s Board of Directors undertook to evaluate the transaction as well as the consideration offered by the Purchaser. A copy of the Letter is included as Exhibit 1 to this Schedule 14D-9 and is incorporated herein by reference. The Adviser does not currently intend to tender any of the Shares it beneficially owns pursuant to the Tender Offer.

ITEM 1. SUBJECT COMPANY INFORMATION.

ITEM 2. IDENTITY AND BACKGROUND OF FILING PERSON.

ITEM 3. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS.

ITEM 4. THE SOLICITATION OR RECOMMENDATION

Page 2 of 4SC 14D9



Not applicable.

Not applicable.

Not applicable.

ITEM 5. PERSONS/ASSETS, RETAINED, EMPLOYED, COMPENSATED OR USED.

ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.

(1) 1. Advisory Clients2. February 5, 20143. 397,600 shares4. 28.859 per share5. Sales on NASDAQ

(2) 1. Advisory Clients2. February 6, 20143. 4,600 shares4. $29.000 per share5. Sales on NASDAQ

(3) 1. Advisory Clients2. February 11, 20143. 400 shares4. $28.922 per share5. Sales on NASDAQ

ITEM 7. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS.

ITEM 8. ADDITIONAL INFORMATION.

ITEM 9. EXHIBITS.

ExhibitNo. Description

1 Letter, dated February 24, 2014, from T. Rowe Price Associates, Inc. to the non-independent members of the Board of Directors of National Interstate Corporation.

Page 3 of 4SC 14D9



SIGNATURE

After due inquiry and to the best of its knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct.

Dated: February 25, 2014

T. Rowe Price Associates, Inc.

By: /s/ David OestreicherName: David OestreicherTitle: Vice President

Page 4 of 4SC 14D9



EX-1 2 d683258dex1.htm EX-1 Exhibit 1

Feb. 24, 2014

Mr. Jeff E. Consolino Mr. Gary J. Gruber Mr. Keith A. Jensen Mr. Donald D. Larson Mr. David W. Michelson Mr. Vito C. Peraino

National Interstate Corp. 3250 Interstate Dr. Richfield OH 44286

To the non-independent members of the Board of National Interstate Corporation:

On behalf of the advisory clients of T. Rowe Price Associates, Inc., who are shareholders of National Interstate, we are writing to inform you that we do not currently intend to participate in the tender offer disclosed on Feb. 21 under the terms offered.

As of today, our clients own 1.57 million shares of National Interstate, representing about 8 percent of the common shares outstanding. As experienced investors in the U.S. smaller companies marketplace broadly and the property and casualty insurance industry specifically, we understand the value that can be created as a result of the well-executed combination of complementary businesses. We also understand the dynamics of industry consolidation within the P&C business well.

We do, however, always apply extra scrutiny to any transactions involving a conflict of interest between the negotiating parties, such as Great American Insurance Company’s offer for National Interstate. This approach is based on many years of investment experience, which have made clear that such conflicts are exceedingly difficult for Boards of Directors to manage while also meeting their duties of loyalty to all shareholders.

Having analyzed this transaction carefully, we note that we have rarely come away with concerns as substantial as those we have identified here. In short, we are quite troubled about both the process the National Interstate Board undertook to evaluate the transaction as well as the consideration offered.

T. ROWE PRICE ASSOCIATES, INC. WWW.TROWEPRICE.COM

P.O. Box 89000Baltimore, Maryland21289-4102

4515 Painters Mill RoadOwings Mills, Maryland21117-4903

Phone 410-345-2000Toll Free 800-638-7890

Page 1 of 3EX-1

3/5/2014http://www.sec.gov/Archives/edgar/data/80255/000119312514066995/d683258dex1.htm


In our view, four of you, as directors on the National Interstate Board, face a direct conflict in terms of serving both the interests of Great American, where you are professionally affiliated, and the interests of the National Interstate shareholders you represent. Mr. Michelson and Mr. Jensen are less directly conflicted but, as noted in the company’s most recent proxy, you are not independent. Therefore, we would have expected the Board to have made every effort to mitigate its conflict, to the best of its ability, using well-established techniques such as (a) establishing an independent review committee comprising the independent members of the Board; (b) facilitating the use of separate legal counsel and valuation expertise by the independent review committee; and (c) insisting on some form of a majority-of-the-minority clause for shareholder approval of the offer.

In our experience, when a conflicted Board takes the care to employ some or all of these procedures, it provides at least some measure of comfort to the minority shareholders of the entity being acquired that their interests were considered alongside the (conflicting) interests of the majority owner. Such procedures also ensure that more information is made available for the minority shareholders facing a voting or tender decision.

With the Great American tender offer, none of these procedures was employed, and therefore none of the incremental information they would have produced is available to us. We are particularly appalled that no fairness opinion was obtained for the most recent offer. With a fiduciary duty to the advisory clients we represent, we are hampered in our ability to make this tender-offer decision on their behalf without any assurance that a fair, thorough and independent assessment of National Interstate’s value was ever undertaken.

For this reason, we have elected not to participate in the offer at this time. Our concerns are so strong about the lapses in basic standards of corporate governance evident in this situation that we will file this letter with the U.S. Securities and Exchange Commission in order to make public our position. In an effort to be fair and transparent, we felt it was appropriate to first notify you, the non-independent directors responsible for this improper tender-offer process, about our intentions.

Sincerely,

/s/ Gabriel Solomon

Gabriel Solomon Vice President T. Rowe Price Associates, Inc.

/s/ Preston G. Athey /s/ J. David Wagner

Preston G. Athey J. David WagnerVice President Vice PresidentT. Rowe Price Associates, Inc. T. Rowe Price Associates, Inc.

Page 2 of 3EX-1



Mr. Michael Spachman Mr. Joel Schiavone Mr. Donald W. Schwegman

cc: Mr. Alan Spachman

Page 3 of 3EX-1



Exhibit B


www.issgovernance.com

PAGE 1 © 2014, Institutional Shareholder Services

February 26, 2014

$20

$40

Feb-13 Feb-14

Q2 Below Expectations

Announced

Tender OfferIncreased

National Interstate Corp. (NATL) — What the Premium Doesn’t Tell You (but the Fairness Opinion Does)

CONTACTS

CHART FOCUS

NATL Share Price Performance

Sources: Bloomberg Finance LP; public filings

Chris Cernich Phone: +1 301.556.0625 [email protected] Nelson Seraci Phone: +32 (2) 566-1128 [email protected]

On Feb. 5, 2014, Great American Insurance Corp.—a division of publicly-traded American Financial Group (AFG) and a 51% shareholder in National Interstate Corp. (NATL)—publicly an-nounced it would make a cash tender offer at $28 per share (subsequently increased to $30) for NATL. The tender closes March 6.

Several weeks later, when NATL filed its Sched-ule 14D-9 Solicitation/Recommendation State-ment providing background on the offer to its shareholders, the NATL board—strangely—expressed no opinion on the bid, despite the 35% premium to the unaffected price.

In a separate 14D-9 filing the same day, howev-er, NATL’s founder, former CEO, and chairman until 2013—Alan Spachman, a 9.2% shareholder himself—laid out an array of far more startling assertions to make the case that shareholders should not tender.

How Compelling a Process?

In pulling back the curtain on how the board actually addressed the tender offer, Spachman’s filing raised every red flag in the semaphore:

Six conflicted directors—four of them em-ployees of the bidder or its parent, another recent employee, and the NATL CEO—not

only declined to recuse themselves from deliberations on the offer, but actively controlled the process. Among other things, Spachman alleges the 6 conflicted directors "prevented the Board from form-ing a special committee of the four inde-pendent directors", "denied [their] repeat-ed requests" to retain independent coun-sel and financial advisors, and may have shared confidential valuation materials with the bidder and its parent.

The NATL Chairman, who is also CFO and a director of the bidder’s parent, not only led NATL’s response to the bid but during one NATL board meeting, according to Spachman, offered to increase the bid from $28 to $30 in exchange for the board remaining neutral on the tender offer.

After the investment bank hired to provide a fairness opinion, Duff & Phelps, declared that $28 per share was “not fair from a financial point of view to [public] share-holders,” Spachman reports that it “declined any further participation in the process, noting it had conducted an inter-nal review… in advance of that request.”

The absence of any protective features for minority shareholders—particularly a "majority of the minority" requirement—

Juan Bonifacino, CFA Phone: +301.556.0412 [email protected]

COMPANIES MENTIONED IN THIS NOTE:

NATL National Interstate Corp. AFG American Financial Group (private) Great American Insurance Corp.


© 2014, Institutional Shareholder Services

despite indications, Spachman argues, that the bidder’s influence on the company’s reserve adequacy reviews may have driven down NATL’s share price in the months before the tender, making the offer seem more attractive than it was.

Perhaps most telling among Spachman’s disclosures is an assertion not about the board’s review process, but about its decision to remain “neutral” on the tender offer: that official stance of “neutrality” resulted from a 6-to-4 vote in which only the conflicted directors voted to remain “neutral.”

Reasons to Tender?

In its 14D-9, the board—though officially neutral—did offer NATL sharehold-ers a number of "potentially positive factors" supporting the transaction, including:

1. The premium to the unaffected price, as well as the bidder’s indi-cation that $30 was its best and final offer;

2. The fact that the company is effectively controlled by its majority shareholder, so that strategic alternatives for minority sharehold-ers are severely limited; and

3. The risk, if shareholders do not approve the current offer, that the majority shareholder might instead conduct a creeping takeover, eventually squeezing out remaining shareholders at a lower price.

It is difficult to consider the offer compelling, however, when

1. The financial advisor hired by the board found $28 “not fair from a financial point of view to [public] shareholders,” then refused—having apparently anticipated the request—to participate in any further evaluation when the offer was raised to $30. Strangely, given this ominous portent, no new financial advisor was re-tained, and the board instead voted 6-4 to remain neutral on an offer it would advise shareholders was not only attractive, but also likely their best hope.

2. NATL has had a majority shareholder for more than a decade. Any investor who bought in during that period—or continued to hold

shares under that ownership structure—had already considered the possibility that strategic alternatives might be constrained. Telling shareholders of a majority-owned company that they should sell be-cause it is majority-owned , therefore, is hardly a compelling argument. It is even less compelling when one considers that the majority share-holder at NATL does not actually control the company in one crucial respect: any merger requires support from 2/3 of outstanding NATL shares, approximately 15 percentage points more than the bidder cur-rently owns.

3. Given Ohio law would not require approval by a majority of the minori-ty, the bidder could conceivably, through this tender or via open market purchases, buy up enough shares to reach the 2/3 approval threshold on its own, and simply approve an acquisition without any support from other shareholders. There is risk of a creeping takeover. Except that the whole point of a creeping takeover is to creep, catlike, and thus avoid attention. By definition, a board which can warn minori-ty shareholders about a creeping takeover is a board preternaturally well-positioned to thwart a creeping takeover. Directors who, instead, interpret the credible risk of a creeping takeover as a compelling reason to tender into an unsolicited offer simply raise the question whether they are competent stewards of shareholder value.

Most merger proxies argue in support of the transaction by citing the risks inher-ent in continuing to operate as a standalone company. In the NATL 14D-9, howev-er, any statement about the risk of remaining independent is absent. It is almost as if there is no compelling reason to sell this company at all, particularly if the pro-cess is even less appealing than the economics.

What’s a Public Shareholder to Do?

When a board does not oppose an unsolicited tender, and points to factors it be-lieves may be compelling reasons for shareholders to sell their shares, it is worth asking why that board didn’t simply negotiate a merger agreement it could recom-mend to shareholders, and put the issue directly to a shareholder vote.

At NATL, it may be helpful to recall that, while the bidder owns a simple majority of shares and has affiliates—current or recent employees of the bidder or its par-



ent—sitting in five of the ten seats on the NATL board, NATL is not actually “controlled” in the one aspect that matters most: the percentage of shares required to approve a merger is higher than the percentage of shares current-ly owned by the bidder. This distinction between “majority” and “controlling” shareholder is borne out by the fact that the tender could effect a "change in control" under the company's bonus and equity plans: once the bidder owns 66 2/3% of the company’s outstanding voting power, the board’s 14D-9 notes, NATL’s CEO would receive $1.1 million in single-trigger accelerated equity awards.

That distinction between “majority” and “controlling” shareholder may offer significant leverage for public shareholders who feel the current offer under-values their investment: by not tendering, they either continue to own an as-set they believe is more valuable than the offer, or they force the bidder to make a more compelling offer at some point in the future. That the majority shareholder has declared this a “best and final” offer is hardly an ultimatum, if public shareholders believe that “best and final” offer is underwhelming.

This is precisely the strategy T. Rowe Price, an 8% holder dismayed by both process and output, indicated it would pursue in a letter to the board it filed with the SEC on Feb. 25th :

“In short, we are quite troubled about both the process the National In-terstate Board undertook to evaluate the transaction as well as the con-sideration offered. ...We are particularly appalled that no fairness opin-ion was obtained for the most recent offer. With a fiduciary duty to the advisory clients we represent, we are hampered in our ability to make this tender-offer decision on their behalf without any assurance that a fair, thorough and independent assessment of National Interstate’s value was ever undertaken. For this reason, we have elected not to participate in the offer at this time.”

* * *

We will continue to monitor this situation and market trends, speak with in-terested parties and, where relevant, issue additional M&A Edge notes to pro-vide further information and guidance for clients.

National Interstate Corp Shareholders Shares % O/S

American Financial Group, Inc. 10,200,000 51.7%

Other Insiders (6 individuals) 468,592 2.4%

Spachman (Alan & Michael) 1,970,047 10.0%

Unaffiliated Minority Shareholders

T. Rowe Price Associates 1,568,930 8.0%

Fidelity Management & Research 951,107 4.8%

Kayne Anderson Rudnick Investment Mgmt 790,086 4.0%

Rutabaga Capital Management 577,192 2.9%

Glenmede Investment Management 464,730 2.4%

Dimensional Fund Advisors 333,648 1.7%

BlackRock (in aggregate) 309,900 1.4%

The Vanguard Group 283,195 1.4%

Columbia Management Investment Advisers 158,767 0.8%

Mason Street Advisors 139,000 0.7%

State Street Global Advisors 112,291 0.6%

Northern Trust Investments 93,425 0.5%

RBC Global Asset Mgmt 93,169 0.5%

Thomson Horstmann & Bryant 81,000 0.4%

Northern Trust Company of Connecticut 67,702 0.3%

Geode Capital Management 57,881 0.3%

Norges Bank Investment Mgmt 54,788 0.3%

Confluence Investment Mgmt 50,392 0.3%

TIAA-CREF 41,257 0.2%

Mellon Capital Mgmt 34,355 0.2%

Other Institutional Shareholders (19) 235,736 1.2%

32.8%



This issuer may have purchased self-assessment tools and publications from ISS Corporate Services, Inc. ("ICS"), a wholly-owned subsidiary of Institutional Shareholder Services Inc. ("ISS"), or ICS may have provided advisory or analytical services to the issuer in connection with the proxies described in this report. These tools and services may have utilized prelimi-nary peer groups generated by ISS’ institutional research group. No employee of ICS played a role in the preparation of this report. If you are an ISS institutional client, you may inquire about any issuer's use of products and services from ICS by emailing [email protected].

This document has not been submitted to, nor received approval from, the United States Securities and Exchange Commission or any other regulatory body. While ISS exercised due care in compiling this analysis, it makes no warranty, express or implied, regarding the ac-curacy, completeness or usefulness of this information and assumes no liability with re-spect to the consequences of relying on this information for investment or other purposes. In particular, the research and voting recommendations provided are not intended to con-stitute an offer, solicitation or advice to buy or sell securities nor are they intended to solicit votes or proxies.

Institutional Shareholder Services Inc. ("ISS") is an indirect wholly-owned subsidiary of MSCI Inc. (“MSCI”). MSCI is a publicly traded company on the NYSE (Ticker: MSCI). As such, MSCI is not generally aware of whom its stockholders are at any given point in time. ISS has, however, established policies and procedures to restrict the involvement of any of MSCI’s non-employee stockholders, their affiliates and board members in the content of ISS' anal-yses and vote recommendations. Neither MSCI’s non-employee stockholders, their affili-ates nor MSCI’s non-management board members are informed of the contents of any of ISS analyses or recommendations prior to their publication or dissemination.

The issuer that is the subject of this proxy analysis may be a client of ISS, ICS, or another MSCI subsidiary, or the parent of, or affiliated with, a client of ISS, ICS, or another MSCI subsidiary.

One, or more, of the proponents of a shareholder proposal at an upcoming meeting may be a client of ISS, ICS, or another MSCI subsidiary, or the parent of, or affiliated with, a client of ISS, ICS, or another MSCI subsidiary. None of the sponsors of any shareholder proposal(s) played a role in preparing this report.

ISS may in some circumstances afford issuers, whether or not they are clients of ICS or any other MSCI subsidiary, the right to review draft research analyses so that factual inaccura-cies may be corrected before the report and recommendations are finalized. Control of research analyses and voting recommendations remains, at all times, with ISS.

ISS makes its proxy voting policy formation process and summary proxy voting policies readily available to issuers, investors and others on its public website at www.issgovernance.com/policy

ISS is the leading provider of corporate governance solutions to the global financial community. More than 1,700 clients rely on ISS' expertise to help them make more informed investment decisions on behalf of the owners of companies. ISS' services include objective governance research and analysis, end-to-end proxy voting and distribution solutions, turnkey securities class-action claims management, and reliable governance data and modeling tools. Our team of more than 500 research, technology and client service profes-sionals are located in financial centers worldwide. Investors, regulators and media regularly turn to ISS experts for insight and data on trends in corporate governance, proxy voting operations and mechanics, and securities litigation. ISS is a subsidiary of MSCI Inc., a leading provider of investment decision sup-port tools to investors globally.

For more information, please visit: www.issgovernance.com.

Chris Cernich

Phone: +1 301.556.0625 [email protected]

Nelson Seraci

Phone: +32 2 566.1128 [email protected]


mailto:[email protected]

Exhibit C


MARKETS

WSJ

NY's Journal

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Says There Are Lapses in Basic Standards of Corporate Governance

Updated Feb. 25, 2014 6:48 p.m. ET

A major shareholder of an Ohio-based insurance company is opposing a proposed

buyout of the firm, citing concerns over the deal process and further fueling a takeover

battle that has divided a boardroom in recent weeks.

T. Rowe Price Group Inc. said in a filing it won't sell its shares into a

$30-a-share bid from National Interstate Corp.'s parent company,

American Financial Group Inc., which is seeking to buy the 48% of

National Interstate it doesn't already own.

T. Rowe, which owns 8% of National Interstate, criticized the conduct of six National

Interstate board members with ties to American Financial. Those directors, who make

up a majority of National Interstate's 10-person board, didn't recuse themselves from

discussions about the deal and declined to let four independent directors alone evaluate

the bid, according to earlier regulatory filings.

Special committees, while not legally required, are commonly used to manage conflicts

that can arise when majority shareholders offer to cash out minority investors.

"[W]e have rarely come away with concerns as substantial as those we have identified

here," T. Rowe said in a securities filing, adding that the process shows "lapses in basic

standards of corporate governance."

A spokeswoman for American Financial declined to comment. A spokesman for

National Interstate didn't return calls seeking comment.

T. Rowe's opposition comes after the rift in National Interstate's boardroom became

public last week. The takeover battle pits four independent directors, led by the

company's founder and former chairman, against six directors with ties to the buyer,

including National Interstate's chief executive.

Alan Spachman, who founded National Interstate in 1989, last week called the bid a

"brazen attempt to coerce people to sell stock at a bad price, using a bad process,

overseen by directors who are hopelessly conflicted."

American Financial, which already owns 52% of National Interstate's shares, needs two-

thirds to close the deal. Together, T. Rowe and Mr. Spachman control about 20%,

which means American Financial needs more than half of the remaining shares to sell

into its offer, which values National Interstate at about $590 million.

In its filing, T. Rowe said it was "particularly appalled" that no bankers have determined

the bid is fair. National Interstate's financial adviser, Duff & Phelps LLC, said an initial

$28-a-share bid was too low, then resigned last week after a board meeting in which

National Interstate Chairman Joseph Consolino — who is also American Financial's

finance chief — raised the bid to $30 and asked the bank to reconsider, according to

regulatory filings and interviews with some of the independent directors.

TROW -0.28%

NATL -0.53%

AFG -0.12%

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The board, split six-to-four, said last week it would officially remain neutral on whether

shareholders should accept American Financial's offer, which expires March 6.

This isn't the first time T. Rowe has bared its teeth in a merger fight. It publicly opposed

the buyout of Dell Inc. last year, opposition that helped rally wider shareholder backlash

and led to Dell's buyers raising their price.

Earlier this year, T. Rowe sent a letter confidentially to the board of Time Warner Cable

Inc., urging it to consider a takeover proposal from Charter

Communications Inc. that it had been resisting, according to a person familiar with the

matter. Time Warner Cable later struck a $45 billion deal to merge with Comcast Corp.

Write to Liz Hoffman at [email protected]

TWC +1.39%

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Exhibit D


February 25, 2014, 5:55 pm

A Buyout Offer That Raises Questions of Board Fairness and Duty

By STEVEN M. DAVIDOFF

If you happen to control a public company and want to buy out the remaining

shareholders, avoid the mistakes made by the American Financial Group in its

attempt to squeeze out the minority at the National Interstate Corporation.

The American Financial Group owns 51.7 percent of the National Interstate

Corporation, a specialty property-casualty insurer. On Feb. 5, the American

Financial Group, known in the Midwest by its Great American Insurance brand,

started a tender offer at $28 a share to acquire the remaining shares in National

Interstate that it does not already own.

These types of buyouts are perilous for minority shareholders, because the

majority can use its control to force minority shareholders to receive a lower price.

Because of this, there is now a well-worn procedure for tender offers of this type

dictated by Delaware laws designed to protect minority shareholders from being

coerced.

Deal Professor

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Page 1 of 5A Buyout Offer That Raises Questions of Board Fairness and Duty - NYTimes.com

3/5/2014http://dealbook.nytimes.com/2014/02/25/a-buyout-offer-that-raises-questions-of-board-fairness-and...


Typically, a controlling company will begin the tender offer and condition it

on getting the majority of the minority of shareholders to agree to sell their shares.

The controlling company is also required to make no threats that it will use its

control to harm the minority shareholders, since such threats would otherwise be

seen as pushing minority shareholders into accepting the offer.

In addition, the board of the target company sets up an independent

committee with independent advisers who will make a recommendation as to

whether the tender offer should be accepted. If the controlling firm does this, then

the courts in Delaware – where many publicly traded companies are incorporated

— will not interfere with the tender offer since it will be viewed as being

noncoercive toward minority shareholders.

None of this was done in the case of American Financial’s buyout offer.

Instead, American Financial began its offer without a majority of minority

condition. To boot, the group has arguably made those troublesome threats,

including stating that it might buy shares at a lower price, change its dividend

policy or remove protections for minority shareholders. These are threats that

appear specifically designed to push National Interstate shareholders into

tendering.

As for the National Interstate board, six of the 10 members are affiliated with

American Financial and therefore not independent. These directors control the

National Interstate board, and they have refused to set up an independent

committee.

Instead, the National Interstate board voted to arrange to have management

hire an investment banker: Duff & Phelps (another no-no, this should be done by

the independent directors to ensure there is no conflict).

What happened next can only be put in the bizarre realm of corporate

shenanigans. At a Feb. 17 board meeting, Duff & Phelps told the board that it could

not provide a fairness opinion at the original offer of $28 a share, and that the

price was indeed too low.




According to The Wall Street Journal, a board member, Jeff Consolino, who is

also the chief financial officer of American Financial, then offered $30 a share. He

then asked Duff & Phelps if that higher price was appropriate. When the

investment bank declined to opine on that, the meeting ended.

Duff & Phelps subsequently resigned. Thereafter American Financial raised

its offer to $30 a share calling it its “best and final” offer. On Feb. 18, the board —

without Duff & Phelps’s opinion — voted 6 to 4 to remain neutral with respect to

the offer. I should note that before the tender offer was made public, National

Interstate was trading at $22 to $23 a share. Today, its stock is above $30 a share.

There was no response to a request to National Interstate for comment.

Let’s be clear: if this were litigated in Delaware, the lawyers would be having a

field day. At a minimum, the board’s actions in considering the offer from

American Financial appear deeply flawed. In particular, the failure of the board to

receive proper financial advice would not only cause Delaware judges to halt the

transaction in its tracks, but also subject the directors to liability.

More telling, in Delaware, the board would arguably have a duty to fend off

this “hostile” tender offer since it appears underpriced as Duff & Phelps

determined (albeit at $28 a share).

In a number of cases Delaware courts have implied that boards have an

affirmative duty to adopt a poison pill to ward off an offer by a controlling

shareholder who undervalues the company. The board in iBasis did just such a

thing back in 2009 to fight off a squeeze-out offer by the Dutch telecom company

KPN.

But National Interstate is an Ohio company. The law is different there (full

disclosure, I’m a professor at Ohio State University and love Ohio for all its good

and bad corporate law).

For starters, it’s unclear whether controlling companies have any special

duties in squeeze-out transactions under Ohio law. There are a few lower court

cases from more than a decade ago, which ruled that there are none.




More specifically, the cases state that where the injury is to all shareholders

and is solely over an unfair price, there are always appraisal rights, the right of a

shareholder to have the court determine the value of their shares. It’s also unclear

whether the Ohio Supreme Court would rule in the same manner, but there is law

sustaining this at the lower court level.

In addition, American Financial has stated it may close its offer even if it does

not get to the 90 percent threshold at which it can squeeze out the minority in a

merger automatically without a vote, triggering appraisal rights. If American

Financial only reaches 89 percent for example, then appraisal rights wouldn’t be

available.

As for the board’s obligations, there is not a lot of Ohio law on this either. But

Ohio sets forth the duties of directors in its corporate law. The statute specifically

states that a director has not breached these duties unless “the director has not

acted in good faith, in a manner the director reasonably believes to be in or not

opposed to the best interests of the corporation.”

A breach of these duties should be grounds for an injunction, an order by the

court halting American Financial’s offer. Given the facts here, there appears to be a

possible claim for an injunction.

This type of conduct – acting in the interest of the controlling entity rather

than the public shareholders — is exactly the type of conduct meant to be

addressed. Particularly problematic is the failure of the directors to act to defend

the company, something Ohio law is quite clear on.

Given the uncertainties, you would have thought that the board here would

have done a better job in setting up the buyout procedures, and American

Financial Group would have been more careful to at least appear neutral. No

doubt they are relying on Ohio law to get them through, but there is a sloppiness

and amateurism here.

Building on this, the mutual fund firm T. Rowe Price, which owns about 8

percent of the company, filed an open letter to the six directors on Tuesday,

complaining that the process here was “appalling” and that it would not




participate in the offer. Without that support, it looks as though there is no way

that American Financial will reach that 90 percent threshold.

Despite all of the problems with this deal, the intricacies and lack of certainty

have scared away the plaintiffs’ lawyers. While you normally see oodles of suits

around this, to date there are only two actions in local Ohio courts in two different

counties: Summit and Hamilton counties (Hamilton is Cincinnati. Summit is

Akron).

There was a hearing Tuesday morning in Ohio state court in Summit County.

The judge ordered further briefing on a jurisdictional issue, namely whether this

case should be dismissed in favor of the first-filed Hamilton County case.

If that occurs, then the action will shift to Cincinnati. We’ll then hopefully see

what Ohio law really says about these actions. But before that happens, given T.

Rowe Price’s actions, it may be that shareholders push this to a head first.

Steven M. Davidoff, a professor at the Michael E. Moritz College of Law at

Ohio State University, is the author of “Gods at War: Shotgun Takeovers,

Government by Deal and the Private Equity Implosion.” E-mail:

[email protected] | Twitter: @StevenDavidoff

© 2014 The New York Times Company




Exhibit E


As filed with the Securities and Exchange Commission on March 5, 2014.


Washington, D.C. 20549

SCHEDULE TO Amendment No. 8

Tender Offer Statement under Section 14(d)(1) or 13(e)(1) of the Securities Exchange Act of 1934

NATIONAL INTERSTATE CORPORATION Name of Subject Company (issuer))

GREAT AMERICAN INSURANCE COMPANY (offeror)

a wholly owned subsidiary of AMERICAN FINANCIAL GROUP, INC.

Names of Filing Persons (other person(s))

Common Stock, $0.01 Par Value Per Share (Title of Class of Securities)


Mark A. Weiss Assistant General Counsel

American Financial Group, Inc. 301 East Fourth Street, 27th Floor

Cincinnati, Ohio 45202 Telephone: (513) 579-2520

(Name, address, and telephone numbers of person authorized to receive notices and communications on behalf of filing persons)

With a copy to: F. Mark Reuter

Keating Muething & Klekamp PLL 1 East Fourth Street, Suite 1400

Cincinnati, Ohio 45202 Telephone: (513) 579-6469

CALCULATION OF FILING FEE

Transaction Valuation* Amount Of Filing Fee**$285,637,980.00 $36,790.18

* Estimated for purposes of calculating the amount of the filing fee only. The calculation assumes the purchase of all outstanding shares of common stock, par value $0.01 per share (the “Shares”), of National Interstate Corporation, an Ohio corporation, other than Shares owned by American Financial Group, Inc. (“AFG”) and its subsidiaries, at a purchase price of $30.00 per Share, net to the seller in cash. As of October 30, 2013, there were 19,721,266 Shares outstanding, of which 10,200,000 Shares are owned by subsidiaries of AFG. As a result, this calculation assumes the purchase of 9,521,266 Shares.

** The amount of the filing fee is calculated in accordance with Rule 0-11 of the Securities Exchange Act of 1934, as amended, by multiplying the

transaction value by $0.0001288.

£ Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing.Amount Previously Paid: $36,790.18 Form or Registration No.: Schedule TO


Check the appropriate boxes to designate any transactions to which this statement relates:

Check the following box if the filing is a final amendment reporting the results of the tender offer: £

If applicable check the appropriate box(es) below to designate the appropriate rule provision(s) relied upon:

Filing Party: American Financial Group, Inc. Date filed: February 18, 2014

£ Check box if the filing relates solely to preliminary communications made before the commencement of a tender offer.

R third party tender offer subject to Rule 14d-1. £ issuer tender offer subject to Rule 13e-4. R going-private transaction subject to Rule 13e-3. £ amendment to Schedule 13D under Rule 13d-2.

£ Rule 13e-4(i) (Cross-Border Issuer Tender Offer £ Rule 14d-1(d) (Cross-Border Third Party Tender Offer


INTRODUCTION

This Amendment No. 8 amends and supplements the Tender Offer Statement filed on Schedule TO (this “Schedule TO”) which relates to the tender offer by Great American Insurance Company (“Purchaser”), an Ohio corporation and a wholly-owned subsidiary of American Financial Group, Inc., an Ohio corporation (“AFG”), to purchase all the outstanding shares of common stock, par value $0.01 per share (the “Shares”), of National Interstate Corporation, an Ohio corporation (“National Interstate”), other than Shares owned by Purchaser, at a purchase price of $30.00 per Share, net to the seller in cash, without interest and less any applicable withholding of taxes, upon the terms and subject to the conditions set forth in the Amended and Restated Offer to Purchase, dated February 21, 2014 (as may be amended or supplemented from time to time, the “Offer to Purchase”), a copy of which is attached to this Schedule TO as Exhibit (a)(1)(vii), and the related Amended and Restated Letter of Transmittal (as may be amended or supplemented from time to time, the “Letter of Transmittal”), a copy of which is attached to this Schedule TO as Exhibit (a)(1)(viii) (which, as amended or supplemented from time to time, together constitute the “Offer”). The information in the Offer to Purchase, including all schedules and annexes thereto, is hereby expressly incorporated herein by reference in response to all the items of this Schedule TO, including, without limitation, all of the information required by Schedule 13E-3 that is not included in or covered by the items in Schedule TO, and is supplemented by the information specifically provided herein. For reference, the Offer to Purchase is amended and supplemented as follows:

“On February 19, 2014, National Interstate filed a Schedule 14D-9 regarding the Offer, in which it stated that the National Interstate board of

directors, at a meeting held on February 18, 2014, by majority vote, expressed no opinion and remain neutral with respect to the Offer. All directors participated in the vote and Messrs. Joel Schiavone, Donald Schwegman, Alan Spachman, and Michael Spachman voted against that determination. AFG and Purchaser incorporate by reference herein the description of the Fairness Opinion from National Interstate’s Schedule 14D-9 filed on February 19, 2014. On February 19, 2014, National Interstate filed its Schedule 14D-9 in response to the Offer in which it stated that the National Interstate board of directors by majority vote expressed no opinion and remain neutral with respect to the Offer. All directors participated in the vote and Messrs. Joel Schiavone, Donald Schwegman, Alan Spachman and Michael Spachman voted against that determination. On February 19, 2014 Alan Spachman, in his individual capacity, filed a Schedule 14D-9 in response to the Offer. On February 25, 2014, T. Rowe Price Associates, Inc. filed a Schedule 14D-9 in response to the Offer. Mr. Spachman, a director of National Interstate, recommended in his Schedule 14D-9 that shareholders not tender their Shares in the Offer. Mr. Spachman and T. Rowe Price Associates, Inc. stated in their Schedule 14D-9 filings that they do not currently intend to tender their Shares in the offer. We encourage National Interstate shareholders to read such statements carefully.”

“Yes. The purpose of the Offer is to acquire as many of the Shares of National Interstate common stock not currently owned by Purchaser as

possible as a first step in acquiring all of the Shares of common stock of National Interstate, with the second step being a merger of National Interstate with and into Purchaser (or a subsidiary of Purchaser). As Purchaser is an affiliate of National Interstate and it currently owns approximately 51.7% of the outstanding Shares, if Purchaser is successful and National Interstate and Purchaser or an affiliate subsequently effect a merger transaction, the transactions contemplated in the Offer will constitute a “going private” transaction under Rule 13e-3 under the Exchange Act. As a result, shares of National Interstate common stock will no longer be publicly owned since all of the shares of National Interstate common stock will be owned by Purchaser, such shares will be deregistered under the Exchange Act and delisted on the Nasdaq Stock Market, National Interstate will cease to make filings with the SEC and to comply with the SEC’s rules relating to public companies, and the Company’s current shareholders, other than AFG and Purchaser, will no longer have any interest in the Company’s future

1. The fifth paragraph on the cover page and the fifth paragraph on page 11 under “Special Factors—Section 1. Background” are amended and restated as follows:

2. The two paragraphs under the caption “Is this the first step in a going-private transaction?” under “Summary Term Sheet” are amended and restated as follows:


earnings or growth. See “The Offer—Section 12. Effect of the Offer on the Market for the Shares; Nasdaq Listing; Exchange Act Registration; Margin Regulations.”

Because the transactions contemplated in the Offer constitute a “going private” transaction under Rule 13e-3 under the Exchange Act, the transactions are subject to the requirements of Rule 13e-3. Rule 13e-3 requires, among other things, that certain financial information concerning National Interstate and certain information relating to the fairness of the Offer and the consideration offered to National Interstate’s unaffiliated shareholders be filed with the SEC and disclosed to unaffiliated shareholders. Purchaser has provided such information in this Offer to Purchase and a Tender Offer Statement on Schedule TO and a Transaction Statement on Schedule 13E-3 and the exhibits thereto filed with the SEC pursuant to Rules 14d-3 and 13e-3 under the Exchange Act.”

“In response to the declining industry and deteriorating company results and as described in the immediately preceding paragraphs and

paragraphs below, National Interstate took certain steps in 2013 to improve company results and position National Interstate for future success. These steps included obtaining renewal rate increases and discontinuing or exiting unprofitable product lines. National Interstate also reorganized its management team in order to best manage its executive talent, most notably by naming a Chief Operating Officer. In addition, in 2013, as a result of the underwriting results for the first six months of 2013 and the second quarter of 2013, National Interstate focused on reversing the trends produced by the combination of competitive market conditions and an increase in severity that had eliminated National Interstate's underwriting margins. National Interstate also observed that the intensely competitive commercial auto market then began to accept rate increases. In addition to obtaining more appropriate rates on new and renewed business, National Interstate non-renewed accounts in the first half of the year, representing approximately $35 million of annualized premium. This non-renewed business included underperforming accounts, as well as accounts with acceptable underwriting performance but where National Interstate felt it needed to increase rates to keep up with loss cost trends. National Interstate also realigned executive oversight and several of its product managers to better focus on the areas requiring attention.

AFG and Purchaser perform certain services for National Interstate without charge, including, without limitation, actuarial services and on a

consultative basis, as needed, internal audit, legal, accounting and other support services. The services provided by AFG and Purchaser have been fully disclosed in annual and quarterly reports filed by National Interstate with the SEC. AFG had, in addition, previously disclosed publicly that it would provide all resources necessary to assist National Interstate in its efforts outlined in the immediately preceding paragraph. National Interstate employs no actuaries and, without the services provided by AFG and Purchaser, would have to hire actuaries as employees or engage third party consultants to perform actuarial services.

As of the end of 2012, as part of its normal year-end review which included consideration of actuarial analysis prepared by actuaries of the

Purchaser, National Interstate established reserves for unpaid losses and loss expenses which exceeded (but were within 1% of) point estimates in the actuarial analysis. Subsequently, during 2013, National Interstate noted unfavorable loss results, primarily with respect to claims activity from prior accident years. In the first quarter of 2013, National Interstate recorded unfavorable prior year development of $2.4 million, which was recorded in the consolidated income statement as a component of losses and loss adjustment expense. In the second quarter of 2013, National Interstate continued to note adverse trends in reported claims activity for prior accident years, and these adverse trends continued throughout 2013. Due to these trends and results, beginning during second quarter 2013 and continuing through the rest of the year, National Interstate management performed expanded analysis and review internally and requested additional review by actuaries of Purchaser. The provisions by National Interstate for unpaid losses and loss adjustment expenses for claims occurring during prior years in 2013 to address the results of reviews during 2013 are as disclosed in National Interstate’s quarterly reports and other filings as filed with the SEC. Also as disclosed in National Interstate’s annual and quarterly reports filed with the SEC, the results of Purchaser’s actuarial analysis is just one input considered by management in establishing reserves. The changes regarding reserve analysis and review requested by National Interstate had no influence on AFG and Purchaser in determining to make the Offer, the Offer Price or the timing of the Offer.”

“In connection with the engagement by National Interstate of D&P, D&P was scheduled to deliver on the evening of February 15, 2014, and

did deliver as scheduled, to all directors of National Interstate, a draft opinion. The draft opinion stated that the $28.00 per Share offer price was not fair, from a financial point of view, to the public shareholders, including the unaffiliated shareholders of National Interstate. During the day on February 16, 2014, additional materials were made available by D&P to the National Interstate board. In addition, Joseph E. (Jeff) Consolino, in preparation for the National Interstate Board meeting on February 17, 2014 discussed below, distributed to all members of the National Interstate Board of Directors financial analysis prepared by AFG and Purchaser in considering whether to initiate the offer and what price would be fair to the unaffiliated shareholders of National Interstate. The financial analysis provided by Mr. Consolino to the Board is included below under, “Special Factors—Section 4. Position of AFG and Purchaser Regarding Fairness of the Offer.” On February 17, 2014 representatives of AFG and Purchaser on the Board of Directors of National Interstate discussed the status of the offer amongst themselves and with other senior representatives of AFG.

3. The seventh paragraph on page 9 under “Special Factors—Section 1. Background” is amended and restated as follows:

4. The third full paragraph on page 10 under “Special Factors—Section 1. Background” is amended and restated as follows:


On February 17, 2014, the Board of Directors of National Interstate received a presentation from representatives of D&P concerning its

opinion as to the initial offer price of $28.00 per share and the process followed by D&P in preparing such opinion. The National Interstate Board of Directors then reviewed and discussed, with D&P, the analysis of D&P and its conclusion that the $28.00 per Share offer price was not fair, from a financial point of view, to the public shareholders, including the unaffiliated shareholders of National Interstate. D&P stated that its opinion was confined to whether the consideration offered in the offer, including the initial offer price of $28.00 per share, was within a range suggested by certain financial analyses, specifically a range of $29.51 - $35.72. Shareholders of National Interstate are urged to review the discussion of D&P’s opinion and analyses as contained in the Schedule 14D-9 amendment filed by National Interstate on March 3, 2014.

The Boards of Directors of AFG and Purchaser, in connection with the initial approval of the Offer on February 3, 2013, authorized a maximum offer price of $30.00 per share, and the approvals provided Mr. Consolino with authority to increase the offer price within the parameters of the Board approvals by AFG and Purchaser. During the course of the February 17, 2014 meeting, in consideration of several factors, including, among other factors, the opinion of D&P with respect to the initial $28.00 offer price, the financial analysis provided by Mr. Consolino and the resulting benefit to National Intestate shareholders who elect to participate in the Offer, Mr. Consolino informed the Board of Directors of National Interstate that AFG and Purchaser were increasing the per Share offer price to $30.00.

D&P prepared its opinion as of February 17, 2013, and D&P disclaimed any undertaking or obligation to advise any person of any change in any fact or matter affecting the opinion which may come or be brought to the attention of D&P after February 17, 2013, including the increase of the initial offer price of $28.00 per share to the amended offer price of $30.00 per share. D&P also advised management of National Interstate that it would decline to deliver an opinion as to the fairness, from a financial point of the view, of the $30.00 offer price as to do so would require completion of internal due diligence and procedures and, in any case, would be outside the scope of its engagement with National Interstate.”

“On February 21, 2014, plaintiffs in the Cambridge Action filed a verified amended derivative and class action complaint for injunctive and

other relief and a memorandum of law in support of motion for temporary restraining order (the “Cambridge TRO”) petitioning the court for a temporary restraining order prohibiting the defendants named in the Cambridge action from taking any steps toward consummation of the Offer. The court had scheduled a hearing on the Cambridge TRO for February 25, 2014. Defendants filed a motion to dismiss due to the previously-

5. The fourth paragraph on page 11 under “Special Factors—Section 1. Background” and the first full paragraph on page 43 under “The Offer—Section 13. Certain Legal Matters; Regulatory Approvals” is amended and restated as follows:


filed and pending Bernatchez Action. The court heard argument on the motion to dismiss (but not on the Cambridge TRO) on February 25, 2014 and March 3, 2014. At the conclusion of the March 3, 2014 hearing, the Summit County court stated that it had decided to dismiss the Cambridge Action and that it would be preparing an order to that effect.”

“On February 19, 2014, National Interstate filed its Schedule 14D-9 in response to the Offer in which it stated that the National Interstate board

of directors expressed no opinion and remain neutral with respect to the Offer. On February 19, 2014 Alan Spachman filed a Schedule 14D-9 in response to the Offer. On February 25, 2014, T. Rowe Price Associates, Inc. filed a Schedule 14D-9 in response to the Offer. We encourage National Interstate shareholders to read such statements carefully.”

“In assessing the fairness of the initial $28 offer price, AFG and Purchaser prepared the analyses set forth below. The analyses were prepared

to analyze whether the initial $28.00 offer price would be fair to unaffiliated shareholders. These analyses and the resulting per share reference ranges indicated by these analyses are described below. The order of analyses described below does not represent the relative importance or weight given to those analyses by AFG or Purchaser. AFG and Purchaser considered the results of all of such analyses as a whole, did not attribute any particular weight to any analysis or factor considered by them and did not draw, in isolation, conclusions from or with regard to any one factor or method of analysis. Accordingly, AFG and Purchaser believe that the summary set forth below and its analyses must be considered as a whole and that selecting portions thereof, without considering all of its analyses, could create an incomplete view of the processes underlying the analyses.”

“In order to assess an appropriate premium to be paid in the Offer, AFG and Purchaser reviewed premiums paid by acquirers in all minority

buy-in transactions since 1998 where the acquirer owned at least 50% of the target before the transaction and the buyer and/or target were United States insurance companies. While acquiring companies in the transactions identified below may have owned sufficient shares under state law or the acquired company’s organizational documents sufficient to approve extraordinary transactions, including mergers, without regard to the shares held by the minority shareholders, this was not a factor considered by AFG and Purchaser in performing the minority buy-out transaction analysis.”

“Using a discounted cash flow methodology, based on (A) financial performance as noted above, (B) discount rates ranging from 9.0% to

13.0% and (C) 2016 estimated net income terminal multiples ranging from 13.0x to 15.0x, the calculated range of implied values for per share National Interstate equity value was $22.64 to $28.63. AFG and Purchaser based the discount rates on their assessment of National Interstate’s cost of equity, and the 2016

6. The following sentence is added to the end of the first paragraph on page 12 under “Special Factors—Section 2. Purpose of and Reasons for the Offer; Plans for National Interstate After the Offer”: “The adjustment to National Interstate’s loss reserves was not a consideration in AFG’s and Purchaser’s decision to pursue a transaction with National Interstate at this time.”

7. The following sentence is added as a new penultimate sentence in the first full paragraph on page 12 under “Special Factors—Section 2. Purpose of and Reasons for the Offer; Plans for National Interstate After the Offer”: “For a discussion of the corrective action plan see “Special Factors—Section 1. Background.” AFG and Purchaser base this belief solely on the elimination of time and resources diverted from operations to management of a public company.”

8. “Special Factors—Section 3. Position of National Interstate Regarding the Offer” is amended and restated as follows:

9. The following is added as a new second paragraph under “Special Factors—Section 4. Position of AFG and Purchaser Regarding Fairness of the Offer”:

10. The first paragraph under “Special Factors—Section 4. Position of AFG and Purchaser Regarding Fairness of the Offer—Premiums Paid in Insurance Minority Buy-out Transactions” is amended and restated as follows:

11. The second paragraph under “Special Factors—Section 4. Position of AFG and Purchaser Regarding Fairness of the Offer—Dividend Discount Analysis—AFG and Purchaser Assumptions” is amended and restated as follows:


net income terminal multiples were derived with reference to the market trading prices and price to earnings multiples of the companies identified in the first sentence under “Special Factors—Section 4. Position of AFG and Purchaser Regarding Fairness of the Offer—Public Market Trading Analysis.” The dividend projections are discounted at a discount rate to determine the present value of the dividend stream. The present value of the terminal value is added to arrive at a total equity value.”

“Using a discounted cash flow methodology, based on (A) management’s 2014 budget and 2015 and 2016 financial performance as noted

above, (B) discount rates ranging from 9.0% to 13.0% and (C) 2016 estimated net income terminal multiples ranging from 13.0x to 15.0x, the calculated range of implied values for per share National Interstate equity value was $25.74 to $32.52. AFG and Purchaser based the discount rates on their assessment of National Interstate’s cost of equity, and the 2016 net income terminal multiples were derived with reference to the market trading prices and price to earnings multiples of the companies identified in the first sentence under “Special Factors—Section 4. Position of AFG and Purchaser Regarding Fairness of the Offer—Public Market Trading Analysis.” The dividend projections are discounted at a discount rate to determine the present value of the dividend stream. The present value of the terminal value is added to arrive at a total equity value.”

“Using a discounted cash flow methodology, based on (A) management’s 2014 budget and 2015 and 2016 financial performance as noted

above, (B) discount rates ranging from 9.0% to 13.0% and (C) 2016 estimated net income terminal multiples ranging from 13.0x to 15.0x, the calculated range of implied values for per share National Interstate equity value was $25.74 to $32.52. AFG and Purchaser based the discount rates on their assessment of National Interstate’s cost of equity, and the 2016 net income terminal multiples were derived with reference to the market trading prices and price to earnings multiples of the companies identified in the first sentence under “Special Factors—Section 4. Position of AFG and Purchaser Regarding Fairness of the Offer—Public Market Trading Analysis.” The dividend projections are discounted at a discount rate to determine the present value of the dividend stream. The present value of the terminal value is added to arrive at a total equity value.”

“The information prepared and reviewed by AFG and Purchaser as discussed above, with AFG’s and Purchaser’s analysis of going-concern value of National Interstate considered in the public market trading analysis and several dividend discount analyses set forth above;”

“the Offer Price represents a premium of over 35% over the closing Share price of National Interstate common stock on February 4, 2014, the last day prior to the public announcement of the Original Offer to Purchase, and a premium of almost 29% over the average closing Share price of National Interstate common stock for the 30 trading days ending on that date. Despite six-month and twelve-month high trading prices of $30.76 and $36.76, respectively, AFG and Purchaser believe, based on its analysis set forth in detail above, that the $30.00 per Share Offer Price is more indicative of the fair value of the Shares than certain historical market prices;”

12. The second paragraph under “Special Factors—Section 4. Position of AFG and Purchaser Regarding Fairness of the Offer—Dividend Discount Analysis—Based on National Interstate 2014 Budget” is amended and restated as follows:

13. The second paragraph under “Special Factors—Section 4. Position of AFG and Purchaser Regarding Fairness of the Offer—Dividend Discount Analysis—Based on National Interstate 2014 Budget and Accelerated Return of Capital” is amended and restated as follows:

14. The first bullet point under “Special Factors—Section 4. Position of AFG and Purchaser Regarding Fairness of the Offer—Fairness Determination” is amended and restated as follows:

15. The second bullet point under “Special Factors—Section 4. Position of AFG and Purchaser Regarding Fairness of the Offer—Fairness Determination” is amended and restated as follows:

16. The fifth bullet point under “Special Factors—Section 4. Position of AFG and Purchaser Regarding Fairness of the Offer—Fairness Determination” is amended and restated as follows:


“the consideration to be paid in the Offer and the Merger is all cash, which provides shareholders with the ability to invest the Offer proceeds as they choose;”

“While AFG and Purchaser intend to effect the Merger in the event that the Minimum Tender Condition is satisfied and will, if so effected, pay

the same type and amount of consideration in the Merger as shareholders would have received in the Offer, AFG and Purchaser emphasize that they are not required or committed to complete the Merger as part of this Offer, and that in the event AFG and Purchaser do not effect the Merger, non-tendering shareholders have no assurance that they will receive the same type and amount of consideration in any later transaction.

Because neither AFG nor Purchaser has made any purchases of Shares during the last two years, AFG and Purchaser did not consider any

purchase prices paid by AFG or Purchaser for Shares. In addition, neither AFG nor Purchaser is aware of any firm offers made by any unaffiliated person, other than AFG and Purchaser, during the past two years for the merger or consolidation of National Interstate with or into another company, or vice versa, the sale or other transfer of all or any substantial part of the assets of National Interstate or a purchase of National Interstate’s securities that would enable the holder to exercise control of National Interstate.”

“The Offer provides shareholders of National Interstate with the opportunity to elect to tender in the Offer or to decline the Offer and remain a

shareholder of National Interstate. AFG and Purchaser considered the significant public information available regarding the Offer and Merger to unaffiliated shareholders, and the time provided for consideration by unaffiliated shareholders, to permit those shareholders to make an informed decision. AFG and Purchaser noted that National Interstate had not formed a special committee of directors to consider the fairness of the Offer and further considered this fact negatively in considering whether the Offer and the Merger are procedurally fair to unaffiliated shareholders. In addition, as a result of the potential conflicts of interest of certain directors of National Interstate who are current or former executive officers of AFG or Purchaser, neither the Offer nor the Merger will be approved by a majority of the directors of National Interstate who are not affiliated with AFG or Purchaser. In concluding that the Offer and the Merger, including the going private transaction relative to the Offer and Merger are procedurally fair to National Interstate’s unaffiliated shareholders (whether those shareholders tender their Shares in the Offer or decline to tender and elect instead to remain as shareholders of National Interstate until the Merger is effected), AFG and Purchaser considered that the Offer provides National Interstate’s unaffiliated shareholders with the opportunity to decide voluntarily to accept or reject the Offer, after receiving significant information and time to consider the information, along with the availability of dissenters’ rights in the event that the Minimum Tender Condition is satisfied and the Merger is effected. Finally, AFG and Purchaser considered that, in order for the Minimum Tender Condition to be satisfied, almost 75% of the Shares held by unaffiliated shareholders (a supermajority of the minority) would be required to be tendered in the Offer in order to effect the Merger.

“See “Special Factors—Section 9 Dissenters’ Rights; Schedule 13E-3.” AFG and Purchaser also believe that the Offer affords National

Interstate’s unaffiliated shareholders the opportunity to elect to sell Shares that are currently traded thinly on the Nasdaq at a premium to the current market price. AFG and Purchaser further considered that if they are successful in acquiring at least 90% of the outstanding Shares following the Offer, over 75% of the Shares held by National Interstate’s unaffiliated shareholders shall have been tendered in response to the Offer. AFG and Purchaser concluded that the Offer represents the most expeditious manner to provide the per Share consideration offered hereby to the National Interstate shareholders with the concurrent opportunity for such National Interstate shareholders with the opportunity to elect individually whether to accept or reject the Offer.”

17. The following two paragraphs are added immediately after the bullet points under “Special Factors—Section 4. Position of AFG and Purchaser Regarding Fairness of the Offer—Fairness Determination” are amended and restated as follows:”

18. The existing second paragraph after the bullet points under “Special Factors—Section 4. Position of AFG and Purchaser Regarding Fairness of the Offer—Fairness Determination” is amended and restated as follows:”

19. The following sentence is added to the end of the first paragraph under “Special Factors—Section 7. Effects of the Offer—Effects of the Offer if Purchaser Successfully Acquires at Least 90% of the Outstanding Shares (on a Fully Diluted Basis):”


“While AFG and Purchaser intend to effect the Merger in the event that the Minimum Tender Condition is satisfied and will, if so effected, pay the same type and amount of consideration in the Merger as shareholders would have received in the Offer, AFG and Purchaser emphasize that they are not required or committed to complete the Merger as part of this Offer, and that in the event AFG and Purchaser do not effect the Merger, non-tendering shareholders have no assurance that they will receive the same type and amount of consideration in any later transaction.”

“On February 19, 2014 Alan Spachman, in his individual capacity, filed a Schedule 14D-9 in response to the Offer. Mr. Spachman, a director of

National Interstate, recommended in his Schedule 14D-9 that shareholders not tender their Shares in the Offer. Mr. Spachman stated in his Schedule 14D-9 filing that he does not currently intend to tender his Shares in the offer. We encourage National Interstate shareholders to read such statement carefully.”

“Two of the ten current members of National Interstate’s Board, Joseph E. (Jeff) Consolino and Vito C. Peraino, are executive officers of AFG,

and two additional members, Gary J. Gruber and Donald D. Larson, are executive officers of the Purchaser. In addition, until February 2013, a fifth member of National Interstate’s Board, Keith A. Jensen, served as an executive officer of AFG. Each of the foregoing members of National Interstate’s Board who is a current or former executive officer of AFG or Purchaser may be deemed to have a conflict of interest with respect to the Offer. As disclosed in this Offer to Purchase, the current executive officers of AFG and Purchaser participated in deliberations by AFG and Purchaser to make the Offer. As disclosed in the Schedule 14D-9 filed by National Interstate, each of these persons voted in favor of the resolution to express no opinion and remain neutral with respect to the Offer, and shareholders are urged to consider the potential conflicts of interest of these persons in determining whether to tender their Shares in the Offer.”

Item 12. Exhibits.

20. The second paragraph under “Special Factors—Section 10. Transactions and Arrangements Concerning the Shares” is amended and restated as follows:

21. The second paragraph under “Special Factors—Section 12. Interests of Directors and Executive Officers in the Offer” is amended and restated as follows:

(a)(1)(i) Offer to Purchase, dated February 5, 2014 (incorporated by reference to the Schedule TO, filed on February 5, 2014).(a)(1)(ii) Letter of Transmittal (incorporated by reference to the Schedule TO, filed on February 5, 2014).(a)(1)(iii) Notice of Guaranteed Delivery (incorporated by reference to the Schedule TO, filed on February 5, 2014).(a)(1)(iv) Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees (incorporated by reference to

the Schedule TO, filed on February 5, 2014).(a)(1)(v) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees (incorporated by reference to the Schedule TO,

filed on February 5, 2014).(a)(1)(vi) Summary Advertisement published in The New York Times on February 5, 2014 (incorporated by reference to the Schedule TO, filed

on February 5, 2014).(a)(1)(vii) Amended and Restated Offer to Purchase, dated February 21, 2014 (incorporated by reference to the Schedule TO/A, filed on

February 21, 2014).(a)(1)(viii) Amended and Restated Letter of Transmittal (incorporated by reference to the Schedule TO/A, filed on February 21, 2014).(a)(1)(ix) Amended and Restated Notice of Guaranteed Delivery (incorporated by reference to the Schedule TO/A, filed on February 21, 2014).(a)(1)(x) Amended and Restated Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees

(incorporated by reference to the Schedule TO/A, filed on February 21, 2014).(a)(1)(xi) Amended and Restated Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees (incorporated by

reference to the Schedule TO/A, filed on February 21, 2014).(a)(1)(xii) Solicitation/Recommendation Statement on Schedule 14D-9, dated February 19, 2014 (incorporated by reference to the Schedule 14D-

9 filed by National Interstate Corporation on February 19, 2014).


(a)(1)(xiii) Fairness Opinion of Duff & Phelps, LLC, dated February 17, 2014 (incorporated by reference to Exhibit 99.(a)(12) to the Schedule 14D-9 filed by National Interstate Corporation on February 19, 2014).

(a)(1)(xiv) Solicitation/Recommendation Statement (Amendment No. 1) on Schedule 140-9, dated March 3, 2014 (incorporated by reference to the Schedule 14D-9/A filed by National Interstate Corporation on March 3, 2014).

(a)(5)(i) Press Release, issued by AFG, dated February 5, 2014 (incorporated by reference to the Schedule TO, filed on February 5, 2014).(a)(5)(ii) Press Release, issued by AFG, dated February 18, 2014 (incorporated by reference to Amendment No. 1 to the Schedule TO, filed on

February 18, 2014).(a)(5)(iii) Press Release, issued by AFG, dated March 3, 2014 (incorporated by reference to Amendment No. 7 to the Schedule TO, filed on

March 3, 2014).(b) None.(d) None.(g) None.(h) None.


SIGNATURES

After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.

Dated: March 5, 2014 AMERICAN FINANCIAL GROUP, INC. By: /s/ Karl J. Grafe Name: Karl J. GrafeTitle: Vice President GREAT AMERICAN INSURANCE COMPANY By: /s/ Stephen C. Beraha Name: Stephen C. Beraha Title: Assistant Vice President, Assistant General Counsel

and Assistant Secretary


Exhibit F


EX-99.(A)(1)(VII) 3 c76371_ex99-a1vii.htm

Exhibit (a)(1)(vii)

Amended and Restated Offer to Purchase for CashAll Outstanding Shares of Common Stock

of

NATIONAL INTERSTATE CORPORATIONat

$30.00 Net Per Shareby

GREAT AMERICAN INSURANCE COMPANYa Wholly-Owned Subsidiary of

AMERICAN FINANCIAL GROUP, INC.

THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, EASTERN TIME, ON MARCH 6, 2014, UNLESS THE OFFER IS EXTENDED

Great American Insurance Company, an Ohio corporation (“Purchaser”), is offering to purchase all of the outstanding shares of common stock, par value $0.01 per share (a “Share”), of National Interstate Corporation, an Ohio corporation (“National Interstate”), that are not currently owned by Purchaser at a price of $30.00 per Share in cash without interest and less any applicable withholding taxes, on the terms and subject to the conditions set forth in this Amended and Restated Offer to Purchase and the Letter of Transmittal enclosed with this Offer to Purchase (which, together with any supplements or amendments, collectively constitute the “Offer”). On February 5, 2014 Purchaser issued an Offer to Purchase the Shares at a price of $28.00 per Share in cash without interest and less any applicable withholding taxes (the “Original Offer to Purchase”), subject to the condition that National Interstate shareholders validly tender (which tenders are not withdrawn) a number of Shares that, when combined with the Shares currently owned by Purchaser, would constitute at least 90% of the outstanding Shares (on a fully diluted basis) as of the date the Shares are accepted for payment pursuant to the Offer (the “Minimum Tender Condition”) and the Offer is consummated. On February 18, 2014 Purchaser increased the price to be paid in the Offer to $30.00 per Share in cash without interest and less any applicable withholding taxes.

THE DATE OF THE ORIGINAL OFFER TO PURCHASE IS FEBRUARY 5, 2014.THE OFFER TO PURCHASE IS BEING AMENDED AND RESTATED AS OF

FEBRUARY 21, 2014 (AS AMENDED, THE “OFFER TO PURCHASE”).

All references to the Offer to Purchase, Letter of Transmittal and related materials, unless the context otherwise requires, are references to the Offer to Purchase, Letter of Transmittal and related materials as so amended and restated.

If National Interstate shareholders validly tender (which tenders are not withdrawn) a number of Shares that, when combined with the Shares currently owned by Purchaser, would constitute at least 90% of the outstanding Shares (on a fully diluted basis) as of the date the Shares are accepted for payment pursuant to the Offer and the Offer is consummated, Purchaser intends to effect a second step merger (the “Merger”) as promptly as practicable in accordance with the terms of a merger agreement at the same per Share price paid in the Offer. The merger agreement would be an Agreement and Plan of Merger by and among American Financial Group, Inc., an Ohio corporation and parent of Purchaser (“AFG”), Purchaser (or an affiliate of Purchaser) and National Interstate pursuant to which National Interstate and Purchaser (or Purchaser affiliate) would merge and all remaining shareholders of National Interstate would, without the need for further action by any such shareholder, receive the same per Share price paid in the Offer.

On February 19, 2014, National Interstate filed its Schedule 14D-9 in response to the Offer in which it stated that the National Interstate board of directors by majority vote expressed no opinion and remain neutral with respect

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to the Offer. All directors participated in the vote and Messrs. Joel Schiavone, Donald Schwegman, Alan Spachman and Michael Spachman voted against that determination. We encourage National Interstate shareholders to read such statement carefully.




While the Offer is not subject to any financing condition, it is subject to certain other conditions set forth in this Offer to Purchase. See “The Offer—Section 11. Conditions to the Offer” in this Offer to Purchase.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of this transaction, passed upon the merits or fairness of such transaction or passed upon the adequacy or accuracy of the information contained in this document. Any representation to the contrary is a criminal offense.

The Information Agent for the Offer is:

501 Madison Avenue, 20th floorNew York, New York 10022

Shareholders may call toll free: (888) 750-5834Banks and Brokers may call collect: (212) 750-5833

February 21, 2014




IMPORTANT

If you wish to tender all or any portion of your Shares in the Offer, you should either (a) complete and sign the Letter of Transmittal, which is enclosed with this Offer to Purchase, in accordance with the instructions contained in the Letter of Transmittal, and mail or deliver the Letter of Transmittal and any other required documents to American Stock Transfer & Trust Company, LLC (the “Depositary”), the Depositary for the Offer, and either deliver the certificates for your Shares to the Depositary along with the Letter of Transmittal or tender your Shares by book-entry transfer by following the procedures described in “The Offer—Section 3. Procedures for Accepting the Offer and Tendering Shares”, in each case prior to the expiration date, or (b) request that your broker, dealer, commercial bank, trust company or other nominee effect this transaction for you. If you hold Shares registered in the name of a broker, dealer, commercial bank, trust company or other nominee, you should contact that institution in order to tender your Shares in the Offer.

If you desire to tender your Shares pursuant to the Offer and the certificates representing your Shares are not immediately available, or you cannot comply in a timely manner with the procedures for tendering your Shares by book-entry transfer, or you cannot deliver all required documents to the Depositary prior to the expiration date, you may tender your Shares in the Offer by following the guaranteed delivery procedures described in “The Offer—Section 3. Procedures for Accepting the Offer and Tendering Shares”.

The Letter of Transmittal, certificates for Shares and any other documents must be received by the Depositary before the expiration of the Offer, unless the procedures for guaranteed delivery described in “The Offer—Section 3. Procedures for Accepting the Offer and Tendering Shares” are followed. The method of delivery of Shares, the Letter of Transmittal and all other required documents is at the election and risk of the tendering shareholder.

Questions and requests for assistance may be directed to the Information Agent at its address and telephone number set forth on the back cover of this Offer to Purchase. Requests for additional copies of this Offer to Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery and other tender offer materials may be directed to the Information Agent. A shareholder may also contact such shareholder’s broker, dealer, commercial bank, trust company or other nominee for assistance.

This Offer to Purchase and the Letter of Transmittal contain important information, and you should read both carefully and in their entirety before making a decision with respect to the Offer.




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TABLE OF CONTENTS

i

SUMMARY TERM SHEET 1INTRODUCTION 6SPECIAL FACTORS 9

1. Background 92. Purpose of and Reasons for the Offer; Plans for National Interstate After the Offer 113. Position of National Interstate Regarding the Offer 144. Position of AFG and Purchaser Regarding Fairness of the Offer 145. Presentations of Financial Advisors 206. Financial Forecast 207. Effects of the Offer 208. Conduct of National Interstate’s Business if the Offer Is Not Completed 229. Dissenters’ Rights; Rule 13e-3 2210. Transactions and Arrangements Concerning the Shares 2311. Certain Relationships Between AFG, Purchaser and National Interstate 2412. Interests of Directors and Executive Officers in the Offer 2513. National Interstate’s Board of Directors 26

THE OFFER 271. Terms of the Offer 272. Acceptance for Payment and Payment for Shares 293. Procedures for Accepting the Offer and Tendering Shares 294. Withdrawal Rights 325. Certain United States Federal Income Tax Consequences 336. Price Range of the Shares; Dividends 347. Certain Information Concerning National Interstate 358. Certain Information Concerning AFG and Purchaser 369. Source and Amount of Funds 3710. Dividends and Distributions 3711. Conditions to the Offer 3812. Effect of the Offer on the Market for the Shares; Nasdaq Listing; Exchange Act Registration;

Margin Regulations 4013. Certain Legal Matters; Regulatory Approvals 4114. Fees and Expenses 4315. Miscellaneous 44

SCHEDULE A—INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS OF AFG AND PURCHASER A-1

SCHEDULE B—SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS B-1SCHEDULE C—SECTION 1701.85 OF THE OHIO REVISED CODE C-1




SUMMARY TERM SHEET

Great American Insurance Company, or Purchaser, is offering to purchase all outstanding shares of common stock, par value $0.01 per share, of National Interstate Corporation, or Shares, not owned by Purchaser, for $30.00 per share, net to the seller in cash, without interest and less any applicable withholding taxes, upon the terms and subject to the conditions set forth in this Offer to Purchase and the related Letter of Transmittal. This summary term sheet is not meant to be a substitute for the information contained in the remainder of this Offer to Purchase, and you should carefully read this Offer to Purchase and the accompanying Letter of Transmittal in their entirety because the information in this summary term sheet is not complete and additional important information is contained in the remainder of this Offer to Purchase and the Letter of Transmittal. We have included in this summary term sheet cross-references to the sections of the Offer to Purchase containing a more complete description of the topics covered in this summary term sheet. All dollar amounts set forth in this Offer to Purchase are expressed in United States dollars and references to “$,” and “dollars” are to United States dollars.

Who is offering to buy my securities?

Great American Insurance Company is an Ohio corporation and wholly-owned subsidiary of American Financial Group, Inc., an Ohio corporation (“AFG”). As of the date of this Offer to Purchase, Purchaser beneficially owns 10,200,000, or approximately 51.7%, of the outstanding Shares of National Interstate common stock. See “The Offer—Section 8. Certain Information Concerning AFG and Purchaser.”

What securities are you offering to purchase?

We are offering to purchase all of the outstanding Shares of National Interstate common stock not owned by Purchaser. See “Introduction.”

How much are you offering to pay and what is the form of payment?

We are offering to pay $30.00 per Share, net to the seller in cash, without interest, and less any applicable withholding taxes. We increased the price per share that we will pay from $28.00 to $30.00 per share on February 18, 2014. The $30.00 per share price is our best and final price.

Why are you making the Offer?

Purchaser is making this Offer because Purchaser believes that National Interstate’s operations and business represent an important strategic component of Purchaser’s overall operations. As a result, Purchaser does not wish to sell any of its interests in National Interstate. Rather, Purchaser is making this Offer to acquire for cash a number of Shares that, when combined with the Shares currently held by Purchaser, constitutes at least 90% of the outstanding Shares (on a fully diluted basis) as of the date the Shares are accepted for payment pursuant to the Offer so that Purchaser can effect a merger with National Interstate without the requirement for approval by other shareholders of National Interstate. In the event that Purchaser waives the condition that Purchaser own at least 90% of the outstanding Shares (on a fully diluted basis) following the Offer but purchases all Shares validly tendered and not withdrawn in the Offer, Purchaser may seek to exercise its voting rights to pursue actions discussed under, “Special Factors—Section 2. Purpose of and Reasons for the Offer; Plans for National Interstate After the Offer” and “Special Factors—Section 7. Effects of the Offer.”

Will I have to pay any fees or commissions? Is the payment subject to withholding taxes?

If you are the record owner of your Shares of National Interstate common stock and you tender your Shares to us in the Offer, you will not have to pay brokerage fees or similar expenses. If you beneficially own your Shares of National Interstate common stock through a broker or other nominee, and your broker tenders your Shares on your behalf, your broker or nominee may charge




you a fee for doing so. You should consult your broker or nominee to determine whether any charges will apply. See “Introduction.” Payments in connection with the Offer may also be subject to backup United States federal income tax withholding at a rate of 28%, if certain requirements are not met. See “The Offer—Section 3. Procedures for Accepting the Offer and Tendering Shares” and “The Offer—Section 5. Certain United States Federal Income Tax Consequences.”

Do you have the financial resources to make payment?

Yes. We estimate the total amount of funds necessary to purchase all of the outstanding Shares of National Interstate common stock that are not currently owned by Purchaser and related transaction fees and expenses, to be approximately $286.1 million. See “The Offer—Section 14. Fees and Expenses.” Purchaser’s internally available cash will be used by Purchaser to purchase all Shares of National Interstate common stock validly tendered in the Offer. The Offer is not subject to any financing condition. See “The Offer—Section 9. Source and Amount of Funds.”

What are the most significant conditions to the Offer?

The Offer is conditioned upon, among other things, there being validly tendered and not withdrawn prior to the expiration of the Offer a number of Shares of National Interstate common stock representing at least 90% of the outstanding Shares (on a fully diluted basis). This condition is waivable by Purchaser in its sole discretion. The Offer is also subject to a number of other conditions described below in this Offer to Purchase. The Offer is not subject to a financing condition. See “The Offer—Section 11. Conditions to the Offer” and “The Offer—Section 13. Certain Legal Matters; Regulatory Approvals.”

Do you have interests in the Offer that are different from my interests as a shareholder of National Interstate?

Yes. Our interests in the Offer are different from those of shareholders being asked to tender their Shares. If you sell Shares in the Offer or your Shares are converted in a second step merger, you will cease to have any ownership interest in National Interstate and will not have the opportunity to participate in the future earnings or growth, if any, of National Interstate. We will benefit from any future increase in the value of National Interstate, but also realize any future decrease in that value. See “Special Factors—Section 2. Purpose of and Reasons for the Offer; Plans for National Interstate After the Offer.”

Did the National Interstate board of directors make a recommendation concerning the Offer?

On February 19, 2014 National Interstate filed with the SEC a Schedule 14D-9 and is also required to send to you a copy of its Schedule 14D-9, which you should review carefully upon receipt. The Schedule 14D-9 stated that the National Interstate board of directors by majority vote expressed no opinion and remain neutral with respect to the Offer. All directors participated in the vote and Messrs. Joel Schiavone, Donald Schwegman, Alan Spachman and Michael Spachman voted against that determination. For additional information on interests that National Interstate’s board members and executive officers may have in the Offer and subsequent merger, see “Special Factors—Section 12—Interest of Directors and Executive Officers in the Offer.”

Is this the first step in a going-private transaction?

Yes. The purpose of the Offer is to acquire as many of the Shares of National Interstate common stock not currently owned by Purchaser as possible as a first step in acquiring all of the Shares of common stock of National Interstate. If Purchaser is successful and National Interstate and Purchaser or an affiliate subsequently effect a merger transaction, Shares of National Interstate common stock will no longer be publicly owned and will cease to be listed on the Nasdaq Stock Market, National Interstate will cease to make filings with the SEC and to comply with the SEC’s rules relating to public companies. See “The Offer—Section 12. Effect of the Offer on the Market for the Shares; Nasdaq Listing; Exchange Act Registration; Margin Regulations.”

2




As Purchaser is an affiliate of National Interstate and it currently owns approximately 51.7% of the outstanding Shares, the transactions contemplated in the Offer constitute a “going private” transaction under Rule 13e-3 under the Exchange Act. Rule 13e-3 requires, among other things, that certain financial information concerning National Interstate and certain information relating to the fairness of the Offer and the consideration offered to National Interstate’s unaffiliated shareholders be filed with the SEC and disclosed to unaffiliated shareholders. Purchaser has provided such information in this Offer to Purchase and a Tender Offer Statement on Schedule TO and a Transaction Statement on Schedule 13E-3 and the exhibits thereto filed with the SEC pursuant to Rules 14d-3 and 13e-3 under the Exchange Act.

Will the Offer be followed by a merger if all the Shares are not tendered in the Offer?

If the Offer is completed and Purchaser is successful in owning at least 90% of the outstanding Shares (on a fully diluted basis) following the Offer, we intend to effect a short-form merger as promptly as practicable without a vote of, or prior notice to, National Interstate’s shareholders. If the merger takes place, all remaining shareholders (other than Purchaser and other than shareholders properly exercising their dissenters’ rights in the merger) will receive the same price per Share as was paid in the Offer, without interest, and less any applicable withholding taxes. If Purchaser waives the condition requiring ownership of more than 90% of the Shares (on a fully diluted basis) following the Offer, Purchaser may still seek a merger transaction with National Interstate which would be subject to National Interstate shareholder approval. See “Special Factors—Section 7. Effects of the Offer.”

Has Purchaser negotiated, or sought the approval of, the terms of this Offer or the merger with National Interstate?

No. We have not negotiated the terms of this Offer or the contemplated subsequent merger with National Interstate or its board of directors and we do not intend to do so. Moreover, we have not requested that National Interstate or its board of directors approve this Offer. The Offer is not conditioned upon the receipt of any approval or recommendation by the National Interstate board of directors.

Has the National Interstate board of directors formed a special committee of independent directors to evaluate Purchaser’s Offer?

No. National Interstate’s board of directors has not formed a special committee as of the date of this Offer to Purchase.

What is the market value of my shares as of a recent date?

On February 4, 2014, the last trading day before the date we commenced this Offer, the per Share closing price of National Interstate common stock reported on the Nasdaq Stock Market was $22.17. On February 14, 2014, the last trading day before the date we increased the price per Share we will pay in the Offer to $30.00 per Share, the per Share closing price was $28.93. We encourage you to obtain a recent price for Shares of National Interstate common stock in deciding whether to tender your Shares. See “The Offer—Section 6. Price Range of the Shares; Dividends.”

If I decide not to tender, but Purchaser successfully acquires at least 90% of the outstanding Shares (on a fully diluted basis), how will the Offer affect my shares?

If Purchaser is successful in owning at least 90% of the outstanding Shares (on a fully diluted basis) following the Offer, we intend to effect a second step merger as soon as practicable thereafter in which shareholders not tendering in the Offer (other than Purchaser and other than those shareholders properly exercising their dissenters’rights) will receive as merger consideration the same price per Share as was paid in the Offer, without interest, and less any applicable withholding taxes. Therefore, if Purchaser is successful in owning at least 90% of the outstanding Shares (on a fully diluted basis) following the Offer and Purchaser is able to consummate the short-form merger,

3




the only difference to you between tendering your Shares and not tendering your Shares in the Offer will be that you will be paid earlier if you tender your Shares in the Offer. See “Introduction,” “Special Factors—Section 7. Effects of the Offer,” “Special Factors—Section 9. Dissenters’ Rights; Rule 13e-3” and “The Offer—Section 12. Effect of the Offer on the Market for the Shares; Nasdaq Listing; Exchange Act Registration; Margin Regulations.”

If I decide not to tender, but Purchaser waives the requirement that it owns at least 90% of the outstanding Shares (on a fully diluted basis) and purchases all of the Shares tendered, how will the Offer affect my shares?

If Purchaser waives the condition requiring ownership of 90% or more of the Shares (on a fully diluted basis) following the Offer, the number of Shares of National Interstate common stock that trade publicly could be reduced, which could affect the liquidity or market value of the Shares, and could result in the Shares being delisted from the Nasdaq Stock Market. In addition, if, after the Offer, Purchaser owns two-thirds of the Shares (on a fully diluted basis), Purchaser would have sufficient voting power to approve a merger, amendments to the Articles of Incorporation (including eliminating cumulative voting), and certain amendments to National Interstate’s Amended and Restated Code of Regulations (including changing the size, composition and classification of the National Interstate board), without the approval of any other National Interstate shareholder. See “Introduction,” “Special Factors—Section 7. Effects of the Offer,” “Special Factors—Section 9. Dissenters’ Rights; Rule 13e-3” and “The Offer—Section 12. Effect of the Offer on the Market for the Shares; Nasdaq Listing; Exchange Act Registration; Margin Regulations.”

Are dissenters’ rights available in either the Offer or any subsequent merger?

Dissenters’ rights are not available in connection with the Offer. However, if Purchaser owns at least 90% of the outstanding Shares (on a fully diluted basis) following the Offer, subject to the terms and conditions of the merger agreement, we intend to consummate a second step merger and dissenters’ rights will be available to holders of Shares at the time of the merger who have not tendered their Shares in the Offer or voted in favor of or consented in writing to the adoption of a merger agreement, who properly demand appraisal of their Shares and who otherwise comply with the applicable statutory procedures under Ohio law. If and when we consummate the merger, if you perfect your rights to dissent under the Ohio Revised Code, you may receive an amount that is different from the consideration being paid in the merger. See “Special Factors—Section 9. Dissenters’ Rights; Rule 13e-3.”

How long do I have to decide whether to tender in the Offer? Can the Offer be extended?

You will have until 12:00 Midnight, Eastern Time, on March 6, 2014, to tender your Shares of National Interstate common stock. Further, if you cannot deliver everything that is required in order to make a valid tender by that time, you may be able to use a guaranteed delivery procedure, which is described in this offer to purchase. We also may elect to extend the Offer. If we extend the Offer, we will inform American Stock Transfer & Trust Company, LLC, which is the Depositary for the Offer, of that fact and will make a public announcement of the extension, not later than 9:00 a.m., Eastern time, on the next business day after the day on which the Offer was scheduled to expire. We may also decide to establish a subsequent offering period in certain circumstances. See “The Offer—Section 1. Terms of the Offer” and “The Offer—Section 3. Procedures for Accepting the Offer and Tendering Shares.” If a broker, dealer, commercial bank, trust company or other nominee holds your Shares, it may have an earlier deadline for accepting the Offer. We urge you to contact the broker, dealer, commercial bank, trust company or other nominee that holds your Shares to learn of its deadline.

How do I tender my shares?

If you wish to tender all or any portion of your Shares in the Offer, you should either (a) complete and sign the Letter of Transmittal for the Offer, which is enclosed with this Offer to

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Purchase, in accordance with the instructions contained in the Letter of Transmittal, and mail or deliver the Letter of Transmittal and any other required documents to American Stock Transfer & Trust Company, LLC, the Depositary for the Offer, and either deliver the certificates for your Shares to the Depositary along with the Letter of Transmittal or tender your Shares by book-entry transfer by following the procedures described in “The Offer—Section 3. Procedures for Accepting the Offer and Tendering Shares,” in each case prior to the expiration date, or (b) request that your broker, dealer, commercial bank, trust company or other nominee effect this transaction for you. If you hold Shares registered in the name of a broker, dealer, commercial bank, trust company or other nominee, you should contact that institution in order to tender your Shares in the Offer. See “The Offer—Section 3. Procedures for Accepting the Offer and Tendering Shares.”

Until what time may I withdraw previously tendered shares?

You may withdraw Shares at any time prior to the expiration of the Offer and, if we have not accepted your Shares for payment by March 7, 2014, you may withdraw them at any time after that date until we accept Shares for payment. This right to withdraw, however, will not apply to any subsequent offering period, if we elect to establish one. To withdraw Shares, you must deliver an executed written notice of withdrawal with the required information to the Depositary while you still have the right to withdraw the Shares. See “The Offer—Section 4. Withdrawal Rights.”

Generally, what are the United States federal income tax consequences of tendering shares or having Shares exchanged for cash in the second step merger?

If you are a U.S. Holder (as defined in “The Offer—Section 5. Certain United States Federal Income Tax Consequences”), the sale or exchange of your Shares pursuant to the Offer or the second step merger will be a taxable transaction for United States federal income tax purposes. See “The Offer—Section 5. Certain United States Federal Income Tax Consequences.”

If you are a Non-U.S. Holder (as defined in “The Offer—Section 5. Certain United States Federal Income Tax Consequences”), any gain realized upon the sale of your Shares pursuant to the Offer or the second step merger generally will not be subject to United States federal income tax. See “The Offer—Section 5. Certain United States Federal Income Tax Consequences.”

Holders of Shares of National Interstate’s common stock should consult their tax advisors about the United States federal, state, local and foreign tax consequences of participating in the Offer in light of their particular circumstances.

To whom may I speak if I have questions about the tender offer?

You may call Innisfree M&A Incorporated, the information agent for the Offer, at (888) 750-5834 for assistance. Banks and brokers may call collect at (212) 750-5833. See the back cover of this Offer to Purchase for additional contact information.

If I tendered my shares before the tender offer price was increased to $30.00 per Share, do I have to do anything now?

No. Shares previously validly tendered and not withdrawn constitute valid tenders for purposes of the Offer. Shareholders who have already tendered their shares (or who in the future tender their shares) using any Letter of Transmittal or Notice of Guaranteed Delivery will be deemed to have tendered (or be tendering) pursuant to the Offer and will receive the increased tender offer price per Share described in this Offer to Purchase if Shares are accepted for payment and paid for pursuant to the tender offer. See “Introduction” and “The Offer—Section 3—Procedures for Accepting the Offer and Tendering Shares.”

Why did you amend and restate the Offer to Purchase and related documents?

We amended and restated the Offer to Purchase and related documents primarily to reflect the increase in the Offer Price to $30.00 per share as well as to respond to developments since February 5, 2014, the date of the Original Offer to Purchase.

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To the Holders of Common Stock of National Interstate Corporation:

INTRODUCTION

Great American Insurance Company, an Ohio corporation (“Purchaser”) and a wholly-owned subsidiary of American Financial Group, Inc. (“AFG”), hereby offers to purchase all the outstanding shares of common stock, par value $0.01 per share (the “Shares”), of National Interstate Corporation, an Ohio corporation (“National Interstate”), other than Shares owned by Purchaser, at a price of $30.00 per Share (such price, or any higher price offered and paid by Purchaser, the “Offer Price”), net to the seller in cash, without interest but subject to any applicable withholding taxes, upon the terms and subject to the conditions set forth in this Offer to Purchase (this “Offer to Purchase”) and in the related Letter of Transmittal (the “Letter of Transmittal”) (which, as amended or supplemented from time to time, together constitute the “Offer”). On February 5, 2014 Purchaser issued an Offer to Purchase the Shares at a price of $28.00 per Share in cash without interest and less any applicable withholding taxes (the “Original Offer to Purchase”), subject to the condition that National Interstate shareholders validly tender (which tenders are not withdrawn) a number of Shares that, when combined with the Shares currently owned by Purchaser, would constitute at least 90% of the outstanding Shares (on a fully diluted basis) as of the date the Shares are accepted for payment pursuant to the Offer (the “Minimum Tender Condition”) and the Offer is consummated. On February 18, 2014 Purchaser announced that it had increased the price to be paid in the Offer to $30.00 per Share in cash without interest and less any applicable withholding taxes.

Tendering shareholders who are the record owners of Shares will not be obligated to pay brokerage fees or commissions or, except as set forth in Instruction 6 of the Letter of Transmittal, stock transfer taxes on the purchase of Shares by Purchaser pursuant to the Offer. Shareholders who hold their Shares through a bank or broker should check with such institution as to whether the institution will charge any service fees. However, if you fail to provide an Internal Revenue Service (“IRS”) Form W-9 or the appropriate IRS Form W-8, as applicable, you may be subject to any required backup United States federal income tax withholding at a rate of 28% of the gross proceeds payable in the Offer. See “The Offer—Section 3. Procedures for Accepting the Offer and Tendering Shares” and “The Offer—Section 5. Certain United States Federal Income Tax Consequences.” AFG or Purchaser will pay all charges and expenses of American Stock Transfer & Trust Company, LLC (the “Depositary”) and Innisfree M&A Incorporated (the “Information Agent”) incurred in connection with the Offer and in accordance with the terms of the agreements entered into by and between Purchaser and/or AFG and each such person. See “The Offer—Section 14. Fees and Expenses.”

THE DATE OF THE ORIGINAL OFFER TO PURCHASE IS FEBRUARY 5, 2014.THE OFFER TO PURCHASE IS BEING AMENDED AND RESTATED AS OF

FEBRUARY 21, 2014 (AS AMENDED, THE “OFFER TO PURCHASE”).

All references to the Offer to Purchase, Letter of Transmittal and related materials, unless the context otherwise requires, are references to the Offer to Purchase, Letter of Transmittal and related materials as so amended and restated.

The Offer is conditioned upon, among other things, there being validly tendered and not withdrawn a number of Shares that, when combined with the Shares currently owned by Purchaser, will constitute at least 90% of the outstanding Shares (on a fully diluted basis) as of the date the Shares are accepted for payment pursuant to the Offer (the “Minimum Tender Condition”). This condition is waivable by Purchaser, in its sole discretion. The Offer is also subject to certain other conditions described in “The Offer—Section 11. Conditions to the Offer.”

Because Purchaser currently owns approximately 51.7% of the outstanding Shares, the completion of the transactions contemplated in this Offer to Purchase constitute a “going private” transaction under Rule 13e-3 under the Exchange Act. Under the rules governing “going private” transactions, AFG and Purchaser are deemed to be engaged in a “going private” transaction and are therefore required to, among other things, express their reasons for the transactions described in this Offer to Purchase and their views as to the fairness of the transactions to National Interstate’s

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unaffiliated shareholders. As used in this Offer to Purchase, “unaffiliated shareholders” means those shareholders of National Interstate who are not affiliated with National Interstate, whether through service as an executive officer or director of National Interstate, or under common control with National Interstate. For the avoidance of doubt, neither Purchaser nor AFG are “unaffiliated shareholders.”

According to National Interstate, as of the close of business on October 30, 2013 there were 19,721,266 Shares outstanding. As of the date of this Offer to Purchase, Purchaser owns 10,200,000 Shares. To the best of our knowledge after reasonable inquiry, directors and executive officers of AFG and Purchaser beneficially own 12,494 outstanding Shares as of the date of this Offer to Purchase and all of these directors and executive officers intend to tender all of their Shares in the Offer. Based on information from National Interstate, AFG and Purchaser believe that, as of the date of this Offer to Purchase, 2,314,330 outstanding Shares were beneficially owned by directors and executive officers of National Interstate.

Based on the foregoing, AFG and Purchaser believe that based on the number of Shares outstanding as of October 30, 2013, as of December 31, 2013, there were 7,194,442 Shares outstanding, excluding Shares owned by Purchaser and the directors and executive officers of AFG, Purchaser, and National Interstate.

The purpose of the Offer is to acquire for cash as many outstanding Shares not owned by Purchaser as possible as a first step in acquiring all of the Shares of common stock of National Interstate.

If the Offer is completed and the Minimum Tender Condition is satisfied, Purchaser intends to effect a second step merger of Purchaser (or an affiliate) with National Interstate (the “Merger”). In the Merger, each then issued and outstanding Share (other than Shares held by Purchaser and Shares held by shareholders who validly perfect their dissenters’ rights under Ohio Revised Code (the “ORC”)) will be cancelled and converted into and represent the right to receive the Offer Price. Non-tendering shareholders will have dissenters’ rights, whereby such shareholders may receive the “fair value” of their Shares, as determined by a court of competent jurisdiction, by following the procedures required by the ORC. See “Special Factors—Section 9. Dissenters’ Rights; Rule 13e-3.”

If the Offer is completed and the Minimum Tender Condition is satisfied, Purchaser intends to consummate the Merger as a short-form merger of Purchaser (or an affiliate) and National Interstate in accordance with the applicable provisions of the ORC. Under the ORC, such a Merger may be consummated without a vote of, or prior notice to, National Interstate’s shareholders or board of directors. If following consummation of the Offer and providing that Purchaser has waived the Minimum Tender Condition, Purchaser owns a number of Shares representing at least 80% of the outstanding Shares but less than 90% of the outstanding Shares, Purchaser may proceed with treating National Interstate as a consolidated subsidiary for purposes of the U.S. Internal Revenue Code. If following consummation of the Offer, including any subsequent offering period, Purchaser owns a number of Shares representing at least 66-2/3% of the outstanding Shares but less than 80% of the outstanding Shares, Purchaser would have sufficient voting power to approve a merger and amendments to the Articles of Incorporation (including eliminating cumulative voting), as well as having the voting power to approve amendments to National Interstate’s Amended and Restated Code of Regulations (the “Regulations”) requiring a two-thirds shareholder vote (including changing the size, composition and classification of the board), without the need for approval of any other shareholder of National Interstate. See “Special Factors—Section 2. Purpose of and Reasons for the Offer; Plans for National Interstate After the Offer” and “Special Factors—Section 7. Effects of the Offer.”

If the Offer is not completed for any reason or if Purchaser waives the Minimum Tender Condition and purchases all Shares validly tendered (and not withdrawn) in the Offer, Purchaser will review its options. These options include a continuation of the status quo prior to the Offer, purchasing Shares in the open market or in privately negotiated transactions, making a new tender offer or seeking to negotiate a merger or other business combination with National Interstate. No assurance can be given as to the price per Share that may be paid in any such future acquisition of

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Shares, which may be higher or lower than or the same as the Offer Price. See “Special Factors—Section 7. Effects of the Offer.” For a discussion of other actions that Purchaser may take if the Offer is not completed, see “Special Factors—Section 8. Conduct of National Interstate’s Business if the Offer Is Not Completed.”

This Offer to Purchase includes certain forward-looking statements. These statements appear throughout this Offer to Purchase and include statements regarding the intent, belief or current expectations of AFG and Purchaser, including statements concerning AFG’s and Purchaser’s plans with respect to the Shares or actions if the Offer is not completed. Such forward-looking statements are not guarantees of future performance or events and involve risks and uncertainties. Actual results may differ materially from those described in such forward-looking statements as a result of various factors. Factors that might affect such forward-looking statements include:

For a detailed description of risks and uncertainties affecting AFG, please refer to AFG’s filings with the Securities and Exchange Commission (the “SEC”), available at www.sec.gov.

This Offer to Purchase and the related Letter of Transmittal contain important information and should be read both carefully and in their entirety before any decision is made with respect to the Offer.

This Offer to Purchase does not constitute a solicitation of a proxy, consent or authorization for or with respect to any meeting of, or action by written consent by, National Interstate’s shareholders.

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• whether the conditions to the Offer will be satisfied;

• general economic, capital markets and business conditions;

• competitive factors in the industries and markets in which each of National Interstate and Purchaser operates, and general industry trends;

• the effects of war, terrorism or catastrophic events;

• changes in government regulation;

• changes in tax law requirements, including tax rate changes, new tax laws and revised tax law interpretations; and

• the ability of Purchaser to execute fully on its business strategy after taking National Interstate private.




SPECIAL FACTORS

1. Background

National Interstate is a niche property and casualty insurance operation whose products primarily relate to the passenger transportation, trucking and moving and storage industries, general commercial insurance to small businesses in Hawaii and Alaska and personal insurance to owners of recreational vehicles and commercial vehicles.

National Interstate has been a subsidiary of Purchaser since AFG initially invested in it in 1989. National Interstate completed its initial public offering of common stock in 2005. Purchaser did not purchase or sell any Shares in, and has not purchased or sold any Shares since, the initial public offering.

National Interstate continues to materially contribute to AFG’s results. AFG does not intend to sell any of its interests in National Interstate because AFG believes that National Interstate’s operations and business represent an important strategic component of its overall operations.

As a subsidiary of Purchaser, National Interstate has historically relied on Purchaser to provide certain services to National Interstate without charge, including actuarial and limited consultative services for legal, accounting and internal audit issues and other support services. As further responses to industry and company challenges, in 2013, Purchaser expanded the scope of these services to include providing actuarial resources to analyze claim trends and conducting a claims review to assist National Interstate in its evolution of adverse severity trends.

The commercial auto subsector of the property and casualty business has experienced significant challenges in recent years. Premiums declined in each of 2007-2011, and the specialty niche experienced underwriting losses in each of 2011 and 2012.

Meanwhile, National Interstate’s 2012 results included a 97.5% calendar year combined ratio, $1.75 in earnings per share, and a 9.8% return on shareholders’ equity. Each of these performance metrics fell short of AFG’s expectations. These results continued deteriorating trends as National Interstate’s combined ratio increased from 94.2% in 2010 to 95.4% in 2011, earnings per share were $2.39, $2.03 and $1.82, respectively, for 2009-2011, and return on equity was 19.1%, 11.0% and 9.9%, respectively, from 2009 to 2011. Notably, National Interstate, for the first time since its 2005 initial public offering, experienced unfavorable reserve development, in the amount of $3 million, in 2012.

In response to the declining industry and deteriorating company results, National Interstate took certain steps in 2013 to improve company results and position National Interstate for future success. These steps included obtaining renewal rate increases and discontinuing or exiting unprofitable product lines. National Interstate also reorganized its management team in order to best manage its executive talent, most notably by naming a Chief Operating Officer.

To date, National Interstate has continued to experience adverse prior year reserve development of $2.4 million, $8.4 million and $5.3 million, respectively, in each of the first three quarters of 2013 and also reported unfavorable development for the fourth quarter of 2013 in its preliminary fourth quarter and full year results. On January 30, 2014, National Interstate reported preliminary fourth quarter and full year 2013 results. Net earnings per share were expected to be between $0.86 and $0.92, which, even at the top end of the expected range, represented a decrease of almost 50% from 2012. National Interstate reported expected fourth quarter 2013 combined ratio of between 98% and 99%, on top of combined ratios of 97.8%, 113.9% and 99.3%, respectively, for the first three quarters of the year.

Also in 2013, National Interstate replaced its then Chairman. At its 2013 annual meeting of shareholders, Michael Spachman, son of director Alan Spachman, was nominated and elected to serve on National Interstate’s board of directors. See “Special Factors—Section 13. National Interstate’s Board of Directors” for further information regarding National Interstate’s 2013 annual meeting of shareholders.

In connection with its ongoing review of investment of excess capital, on or about January 10, 2014, senior management of AFG and Purchaser began preliminary internal discussions regarding possible actions relating to Purchaser’s ownership of Shares and the potential merits of pursuing a going

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private transaction with respect to National Interstate. These internal discussions followed the announcement of the agreement to acquire Summit Holdings Southeast, Inc. and its related companies (“Summit”) as discussed below. These discussions continued among such senior management and culminated in the recommendations of senior management of each of AFG and Purchaser to their respective boards of directors to pursue the Offer. On February 3, 2014, AFG’s Board of Directors approved the Offer and on February 4, 2014, Purchaser’s Board of Directors approved the Offer. In approving the Offer, each of the boards of AFG and Purchaser delegated to senior management authority to determine the specific timing of the initiation of the Offer. See “Special Factors—Section 2. Purpose of and Reasons for the Offer; Plans for National Interstate After the Offer.”

On February 11, 2014, a putative shareholder derivative and class action lawsuit captioned Robert Bernatchez vs. American Financial Group, Inc., et al., No. A-1400806 was filed by a purported stockholder of National Interstate in the Court of Common Pleas of Hamilton County, Ohio (the “Bernatchez Action”). The complaint filed in the Bernatchez Action names AFG and Purchaser as defendants and National Interstate as nominal defendant. The complaint alleges that the Offer is coercive because AFG and Purchaser could cash out the National Interstate shareholders who do not tender their shares in the Offer at a lower price than the Offer Price and because there is a limited amount of time for National Interstate’s shareholders to make a decision with respect to the Offer. The complaint also alleges that the process undertaken by National Interstate’s board of directors involved conflicts of interest and that the Offer Price is unfair to National Interstate’s shareholders. The complaint seeks compensatory and rescissory damages and unspecified injunctive relief. AFG and Purchaser have reviewed the allegations contained in the complaint filed in the Bernatchez Action and believe they are without merit. AFG and Purchaser intend to defend the Bernatchez Action vigorously.

On February 14, 2014 Alan Spachman filed with the SEC a Schedule 13D reporting the following: “Mr. Spachman is a director of [National Interstate] and participates in the ordinary course in the board of directors’activities. On February 7, 2014, Mr. Spachman requested that the board of directors form an independent special committee to review the [Offer] and make a recommendation to shareholders. The request was denied by a majority vote of the board, consisting of directors who are or were recently executive officers of [AFG] or Purchaser and the [National Interstate’s] Chief Executive Officer. Mr. Spachman then requested that the independent directors be authorized to retain their own independent legal and financial advisors at [National Interstate’s] expense, which request was also denied. Mr. Spachman reserves the right to formulate plans and/or make proposals, and to take actions with respect to his investment in [National Interstate], including any or all of the actions set forth in clauses (a) through (j) of Item 4 of Schedule 13D.”

On February 17, 2014, the board of directors of National Interstate received a Presentation and Fairness Opinion (the “Fairness Opinion”) from D&P, LLC (“D&P”). On February 10, 2014, the National Interstate board of directors, at a duly called meeting at which all directors were present and participating either in person or by telephone conference call received a presentation from management of National Interstate concerning the results of management’s review of potential financial advisors. Following discussion, the board of directors determined to direct management of National Interstate to retain D&P to provide an opinion, from a financial point of view, of the fairness of the initial $28.00 offer price (with all directors voting in the affirmative except for Messrs. Joel Schiavone, Alan Spachman and Michael Spachman, who abstained). At its February 17, 2014 meeting, the National Interstate board of directors reviewed and discussed the analysis of D&P and its conclusion that the $28.00 per Share offer price was not fair, from a financial point of view, to the public shareholders, including the unaffiliated shareholders of National Interstate. During the course of the meeting, AFG and Purchaser increased the per Share offer price to $30.00. D&P advised management of National Interstate that it would decline to deliver an opinion as to the fairness, from a financial point of the view, of the $30.00 offer price as to do so would require completion of internal due diligence and procedures and, in any case, would be outside the scope of its engagement with National Interstate.

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On February 18, 2014, AFG and Purchaser issued a press release announcing the increase of the Offer Price from $28.00 per Share to $30.00 and noted that AFG and Purchaser would not increase the Offer Price further.

On February 18, 2014, the board of directors of National Interstate met and voted to express no opinion and remain neutral with respect to the Offer. All directors participated and Messrs. Joel Schiavone, Donald Schwegman, Alan Spachman and Michael Spachman voted against that determination.

On February 18, 2014, a putative shareholder derivative and class action lawsuit captioned Cambridge Retirement System vs. American Financial Group, Inc., et al., No. CV-2014-02-0819 was filed by a purported stockholder of National Interstate in the Court of Common Pleas of Summit County, Ohio (the “Cambridge Action”). The complaint filed in the Cambridge Action names AFG and Purchaser as defendants and National Interstate as nominal defendant. The complaint also names as defendants directors of the National Interstate board of directors who are executives or former executives of AFG and/or Purchaser (the “Defendant Directors”). The complaint asserts class action and derivative claims against AFG and the Purchaser for breach of fiduciary duty and aiding and abetting a breach of fiduciary duty by the Defendant Directors. It also asserts class and derivative claims against the Defendant Directors for breach of the fiduciary duties of due care, good faith, candor and loyalty. In general, the complaint in the Cambridge Action alleges that the tender offer is unfair and coercive, is unfairly priced even at the revised price of $30 per share and that, due to alleged conflicts of interest, Defendants have refused requests to form an independent special committee to review the offer and make a recommendation to the National Interstate shareholders. The complaint seeks compensatory and rescissory damages and unspecified injunctive relief. AFG and Purchaser intend to defend the Cambridge Action vigorously.

On February 19, 2014, National Interstate filed a Schedule 14D-9 regarding the Offer in which it stated that the National Interstate board of directors, at a meeting held on February 18, 2014, by majority vote, expressed no opinion and remain neutral with respect to the Offer. All directors participated in the vote and Messrs. Joel Schiavone, Donald Schwegman, Alan Spachman and Michael Spachman voted against that determination. Also on February 19, 2014, Alan R. Spachman, in his individual capacity, filed a Schedule 14D-9 regarding the Offer. AFG and Purchaser incorporate by reference herein the description of the Fairness Opinion from the National Interstate’s Schedule 14D-9 filed on February 19, 2014.

As stated above, AFG has no intention to reduce or sell its interest in National Interstate. AFG decided to pursue the acquisition of the Shares not already owned by Purchaser as it allows Purchaser to further expand its specialty property and casualty insurance franchise by making an investment in a business that it already knows.

2. Purpose of and Reasons for the Offer; Plans for National Interstate After the Offer

Purpose and Reasons for the Offer. The purpose of the Offer, and the second step merger, if completed, is for Purchaser to increase its direct and indirect ownership of the outstanding Shares from its current level of approximately 51.7% to 100%, and accordingly participate in 100% of the results of operations of National Interstate.

AFG continuously reviews the best uses of its excess capital. As of year-end 2013, AFG had excess capital of approximately $1.0 billion. As AFG has previously disclosed, in addition to returning capital to shareholders through share repurchases and dividends, AFG will invest excess capital when it sees potential for healthy, profitableorganic growth, and for opportunities to expand its specialty niche businesses through acquisitions and start-ups that meet a target return threshold. For example, on January 9, 2014 AFG, entered into a Stock Purchase Agreement to acquire Summit from Liberty Mutual Insurance Company for an estimated $250 million. AFG further disclosed that its total capital investment in Summit would be approximately $400 million, inclusive of a capital contribution by AFG at closing.

Following the announcement of the agreement to acquire Summit, on or about January 10, 2014 senior management of AFG and Purchaser began preliminary internal discussions regarding possible actions relating to Purchaser’s ownership of Shares and the potential merits of pursuing a going private transaction with respect to National Interstate. AFG considered alternative uses of its excess capital but did not identify any available or more attractive investment than through a purchase of the Shares. AFG determined that a purchase of the shares of National Interstate that AFG did not previously own at a price of $28.00 per share would offer National Interstate’s shareholders with the

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ability to realize a significant premium over both National Interstate’s book value per share and trading price while offering National Interstate’s unaffiliated shareholders the opportunity for liquidity. A price of $28.00 per share would also represent a strategic use of AFG’s excess capital while providing AFG with an opportunity to achieve its internal target return threshold. AFG and Purchaser decided that increasing the per Share Offer Price from $28.0 to $30.00 also would make it possible to achieve the internal target threshold.

AFG also regularly undertakes a review of its insurance business, operations and strategy with the goal of enhancing AFG shareholder value. AFG decided to pursue the acquisition of the Shares not already owned by Purchaser as it allows Purchaser to further expand its specialty property and casualty insurance franchise by making an investment in a business that it already knows well while at the same time simplifying National Interstate’s ownership structure. AFG and Purchaser believe that National Interstate’s competitive position will be improved as a result of delisting its Shares from the Nasdaq Stock Market (“Nasdaq”) and operating privately within Purchaser’s larger group of insurance companies. Specifically, AFG and the Purchaser believe that National Interstate may most fully and effectively complete the corrective action plan National Interstate adopted in light of recent unsatisfactory business results as a private company wholly-owned by Purchaser. As a wholly owned subsidiary of Purchaser, National Interstate’s ability to benefit from the strong financial position, capital strength and risk diversification of Purchaser will be enhanced.

AFG initiated the Offer with a view to the following benefits:

Improvement of AFG’s Performance. AFG and Purchaser believe that the combination of AFG’s insurance operations, which include multiple lines and generate significantly greater gross written premiums than those of National Interstate, with those generated by National Interstate will have the potential to achieve efficiencies in the operation of the insurance companies. The successful completion of the Offer and subsequent Merger would increase AFG’s investment in core specialty insurance businesses where AFG already has significant expertise while at the same time further simplifying the organizational structure of those businesses. Specifically, National Interstate’s structure would be simplified if the Offer and Merger are consummated in that it would no longer be owned by public shareholders but instead would be owned 100% by AFG and Purchaser. AFG believes that the transactions contemplated in this Offer to Purchase will be accretive to AFG’s earnings and enhance AFG’s return on equity. As discussed above, on January 30, 2014, National Interstate pre-announced a range of earnings and earnings per share for the fourth quarter and full year 2013. Based on the midpoint of the guidance provided by National Interstate, National Interstate’s 2013 after-tax return on average equity was approximately 5.0%. This compares to an average pre-tax investment yield for Purchaser’s investment portfolio of 3.8%. Liquidating Purchaser’s investments or expending its cash to invest in National Interstate would therefore be expected to increase AFG’s earnings and earnings per share. With return on equity, the exchange of $286.1 million in cash or investments for the Shares not owned by AFG results in a net decrease in AFG’s shareholders’ equity of only $168 million because the excess of the consideration paid ($286 million) over the non-controlling interest redeemed ($170 million, excluding unrealized gains) is recorded as a debit to shareholders’ equity. This reduction in the denominator of the calculation of return on equity, taken together with the increase in earnings cited above in the numerator of the calculation, would have the effect of increasing AFG’s return on equity. In addition, if Purchaser waives the Minimum Tender Condition, purchases all Shares validly tendered and not withdrawn in the Offer and, following the Offer, owns 80% or more of the Shares, National Interstate will become consolidated with AFG for federal income tax purposes. National Interstate is consolidated under US GAAP in the financial statements of AFG as a result of AFG’s 51.7% interest in National Interstate. AFG in its GAAP financial statements provides for a deferred tax liability on the excess of its GAAP basis in National Interstate over its tax basis in National Interstate. If AFG’s ownership in National Interstate equals or exceeds 80%, AFG will no longer be required to record or maintain deferred taxes on its interest in National Interstate. See “Special Factors—Section 7. Effects of the Offer.”

Additionally, the successful completion of the Offer and subsequent Merger would allow for easier movement of capital throughout all of AFG’s operations, which may facilitate the raising of capital by AFG in the future. AFG also believes that, after evaluating other opportunities,

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combining with National Interstate is the best use of certain excess capital and supports AFG’s strategic objectives.

Elimination of National Interstate as an Independent Reporting Company. The successful completion of the Offer and subsequent Merger would terminate National Interstate’s obligations to file reports and other information as a public company required under the Securities Exchange Act of 1934. The elimination of the burdens associated with public reporting and other tasks resulting from National Interstate’s public company status, including, for example, the dedication of time and resources of management and of the Board to meet the various requirements of being a public company will allow for increased management focus on the operations of the business. The elimination of National Interstate’s status as a public company would also result in National Interstate no longer being required to comply separately with the requirements of the Sarbanes-Oxley Act of 2002 and Dodd-Frank Act of 2010. AFG and Purchaser believe that as a privately held corporation, National Interstate will have greater operating flexibility to manage its business and benefit from the reduction of expenses associated with being a public company. AFG and Purchaser anticipate that the decrease in costs associated with being a public company (for example, as a privately held entity, National Interstate would no longer be required to file quarterly, annual or other periodic reports with the SEC, publish and distribute to its stockholders annual reports and proxy statements, comply with certain provisions of the Sarbanes-Oxley Act of 2002 or pay Nasdaq listing fees or transfer agent fees) should result in savings of approximately $350,000 per year. In addition, the burdens on management associated with public reporting and other tasks resulting from National Interstate’s public company status, including for example, the dedication of time by and resources of National Interstate’s management and board of directors to stockholder inquiries and investor and public relations, will be eliminated.

Plans for National Interstate After the Offer. If the Offer is completed, Purchaser intends to cause the Merger to be effected, without the necessity of prior approval or notice of the shareholders of National Interstate, pursuant to which each then outstanding Share (other than Shares owned by Purchaser and Shares, if any, that are held by shareholders who validly perfect their dissenters’ rights under the ORC), would be converted into and represent the right to receive the Offer Price. The cash consideration to be paid in the Merger would be the same as paid in the Offer. Upon the completion of the Merger, Purchaser would directly own, and AFG would indirectly own, 100% of the common stock of National Interstate.

AFG and Purchaser intend that AFG’s investment adviser subsidiary would manage the a greater portion of the investment portfolio of National Interstate and its insurance company subsidiaries as opposed to the portion it currently manages. AFG and Purchaser believe that the consolidation of investment management may enable an enhanced return on such portfolios compared to what they currently earn.

Purchaser does not wish to sell any of its interests in National Interstate because Purchaser believes that National Interstate’s operations and business represent an important strategic component of Purchaser’s overall operations. For that reason, Purchaser does not view such a sale as a viable alternative to its proposed acquisition of the remaining Shares.

Having come to a determination to pursue the acquisition of the Shares, AFG and Purchaser considered transactional alternatives and determined to pursue a cash tender offer followed by a second step merger. AFG briefly considered using a transaction structure that would involve the issuance of shares of its AFG common stock in connection with an acquisition of its Shares but dismissed this potential alternative as AFG determined that a stock transaction would be dilutive to AFG shareholders. AFG and Purchaser believe that the only transactional alternative was a single-step merger not involving a tender offer for Shares. In determining not to pursue such a single-step merger, AFG and Purchaser concluded that the Offer represents the most expeditious manner to provide the per Share consideration offered hereby to the National Interstate shareholders with the concurrent opportunity for such National Interstate shareholders to have the opportunity to elect individually whether to accept or reject the Offer. In choosing a transaction involving a tender offer followed by a second step merger, AFG and Purchaser considered the following material factors:

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• a tender offer followed by a second step merger is a common means of effecting a going-private transaction by a controlling shareholder;

• the unaffiliated shareholders of National Interstate would likely receive the consideration in payment for their




AFG and Purchaser currently intend that following completion of the Offer, National Interstate’s business will continue to be run in a manner that is generally consistent with its current operations and does not currently contemplate making any significant changes in National Interstate’s strategic or operating philosophy or its business of underwriting and selling traditional and alternative property and casualty insurance products primarily to the passenger transportation, trucking and moving and storage industries, general commercial insurance to small businesses in Hawaii and Alaska and personal insurance to owners of recreational vehicles and commercial vehicles throughout the United States. National Interstate would proceed to operate as a separate company, 100% owned by Purchaser or an affiliate, much like AFG’s other wholly-owned subsidiaries. From time to time following the Offer, AFG and Purchaser will review National Interstate’s assets, corporate structure, capitalization, operations, properties, policies, management and personnel to determine whether any changes may be necessary or desirable to best organize and integrate the activities of Purchaser and National Interstate. Each of AFG and Purchaser expressly reserves the right to make any changes to its future plans that it deems necessary or appropriate in light of its review or future developments.

3. Position of National Interstate Regarding the Offer

On February 19, 2014, National Interstate filed its Schedule 14D-9 in response to the Offer in which it stated that the National Interstate board of directors expressed no opinion and remain neutral with respect to the Offer. We encourage National Interstate shareholders to read such statement carefully.

4. Position of AFG and Purchaser Regarding Fairness of the Offer

The rules of the SEC require AFG and Purchaser to express their belief as to the fairness of the Offer and the contemplated second-step Merger, including the going private transaction relative to the Offer and Merger, to National Interstate’s unaffiliated shareholders. As used in this Offer to Purchase, “unaffiliated shareholders” means those shareholders of National Interstate who are not affiliated with National Interstate whether through service as an executive officer or director of National Interstate, or under common control with National Interstate.

The following information was prepared by AFG and Purchaser in connection with their consideration of the fairness, from a financial point of view, to the unaffiliated shareholders of National Interstate.

National Interstate 2013 Financial Results and 2014 Forecast

On January 30, 2014, National Interstate issued a press release reporting on preliminary 2013 results. Among other information, National Interstate indicated that 2013 net income from operations per share, diluted, would be in the range of $0.65 to $0.69, with a mid-point of $0.67.

Implied Transaction Multiples

AFG and Purchaser reviewed the information contained in the following table, which presents earnings and book value multiples of relevant financial statistics for National Interstate’s stock price (as of February 4, 2014, the date before the Offer was announced) and the initial $28.00 offer price.

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Shares sooner in a tender offer than if AFG and Purchaser pursued a single-step merger transaction;

• shareholders who do not tender their Shares in the Offer or vote in favor a second step merger and who otherwise comply with applicable requirements may exercise dissenters’ rights in connection with the Merger pursuant to Section 1701.85 of the ORC; and

• for a controlling shareholder such as Purchaser that is seeking to acquire Shares from a large number of public shareholders, open-market or privately-negotiated purchases would be less efficient, more complex and more time consuming than a tender offer.




The table below reflects the mid-point of the net income from operations per share, diluted, as reported by National Interstate on January 30, 2014.

Market Review

AFG and Purchaser considered the investment ratings and, where available, share price targets for the five equity research analysts providing research coverage on National Interstate. The initial $28.00 offer price equals or exceeds the target price for each analyst supplying a target price.

Public Market Trading Analysis

In order to assess how the public market values shares of similar publicly traded companies, AFG and Purchaser reviewed and compared specific financial and market data relating to National Interstate with selected companies identified in National Interstate’s Annual Report on Form 10-K for the year ended December 31, 2012 as competitors or peers, to the extent such companies were publicly traded in the United States and property and casualty companies with equity market capitalization as of February 14, 2014 of between $100 million and $1.0 billion.

No adjustment was made to the trading multiples to reflect a “control premium” because Purchaser owned a majority of the outstanding Shares prior to the Offer and National Interstate is a “controlled company” as defined in the rules of the Nasdaq Stock Market.

AFG and Purchaser noted that the multiples of each of 2013 actual operating earnings per share, 2014 plan operating earnings per share, September 30, 2013 GAAP book value per share and September 30, 2013 GAAP book value per share excluding realized gains for the initial $28.00 offer price exceeds the median multiples for both the selected companies identified in National Interstate’s filings with the SEC as competitors or peers, to the extent such companies were publicly traded in the United States and property and casualty companies with equity market capitalization as of February 14, 2014 of between $100 million and $1.0 billion.

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UnaffectedTrading

Price 1 DayPrior to

OfferOfferPrice

National Interstate share price $ 22.17 $ 28.00Price as a multiple of

2013 net income from operations per share, diluted $ 0.67 33.1x 41.8x

2013 Consensus operating earnings per share 0.67 33.3x 42.1x2014 plan operating earnings per share 2.30 9.6x 12.2x

2014 Consensus operating earnings per share 1.64 13.5x 17.1x

GAAP book value per share at 9/30/13, reported 17.63 1.26x 1.59xGAAP book value per share at 9/30/13, excluding unrealized gains on fixed

maturities 16.84 1.32x 1.66x

Firm Report Date Opinion Target Price

Keefe, Bruyette & Woods February 5, 2014 Market Perform $28.00Sidoti & Co., LLC January 31, 2014 Neutral 28.00

Bank of America Merrill Lynch January 29, 2014 Underperform 26.00

William Blair October 31, 2013 Market Perform N/A

Raymond James October 30, 2013 Underperform N/A

Price as a multiple of




Premiums Paid in Insurance Minority Buy-out Transactions

In order to assess an appropriate premium to be paid to National Interstate’s unaffiliated shareholders, AFG and Purchaser reviewed premiums paid by acquirers in selected minority buy-in transactions since 1998 where the acquirer owned at least 50% of the target before the transaction and the buyer and/or target were United States insurance companies.

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Company Name

2013YFactSet

Median earningsper shareEstimate

2014YFactSet

Median earningsper shareEstimate

2013q3Book Valueper Share

2013q3Book Valueper Share

excl.Unrealized

Gains

American International Group, Inc. 11.2 11.5 0.73 0.78

Travelers Companies Inc. 9.4 10.1 1.23 1.27

Progressive Corp. 15.1 14.6 2.12 2.43Old Republic International Corp. 14.0 14.0 1.07 1.20

RLI Corp. 17.5 18.9 2.12 2.49Median of public companies from 10-K

competitors 14.0 14.0 1.23 1.27

Navigators Group Inc. 15.0 17.5 0.96 1.01Safety Insurance Group Inc. 14.0 15.3 1.24 1.27

Infinity P&C Corp. 28.9 20.5 1.30 1.34

State Auto Financial Corp. 16.9 13.3 1.09 1.16Employers Holdings Inc. 23.5 18.4 0.91 1.60

AMERISAFE Inc. 20.0 15.5 1.86 1.84

United Fire Group Inc. 11.5 12.0 0.93 1.03

HCI Group, Inc. 7.6 9.1 2.99 3.04Donegal Group Inc. 18.1 12.9 1.00 1.00

Universal Insurance Holdings NA NA NA 2.46

EMC Insurance Group Inc. 8.7 11.0 0.87 0.94Baldwin & Lyons Inc. 16.0 13.7 0.97 1.09

Meadowbrook Insurance Group 73.4 11.3 0.73 0.76

United Insurance Holdings 11.8 10.2 2.07 2.08

Hallmark Financial Services 40.9 23.5 0.72 0.76Federated National Holding Co. 12.3 13.0 1.39 1.47

First Acceptance Corp. NA NA NA 1.58

Atlas Financial Holdings Inc. 18.2 13.0 1.96 1.92Median of public P&C companies with $100mm

– $1bn market cap 16.4 13.2 1.04 1.30National Interstate Corp. at 28.00 initial offer

price 42.1 17.1 1.59 1.66

Acquired Company Acquiring CompanyAnnouncement

DateFinal

Premium

InsideOwnershipPre-Offer

C.N.A. Surety C.N.A. Financial Corporation 4/19/2011 37.9 % 61.0 %Odyssey Re Fairfax Financial 9/4/2009 29.8 % 72.6 %




The median premium of 24.6% compares to the 26.3% premium for the initial offer price of $28.00 and is far exceeded by the 35% premium of the Offer Price.

Dividend Discount Analysis—AFG and Purchaser Assumptions

AFG prepares three year projections as part of its financial and capital planning process. These projections reflect AFG management’s best judgment as to the future performance of all its business units, including National Interstate. AFG’s projection for National Interstate over the three year period commencing in 2014 is set forth below. The AFG projections were not reviewed or approved by National Interstate’s management.

Using a discounted cash flow methodology, based on (A) financial performance as noted above, (B) discount rates ranging from 9.0% to 13.0% and (C) 2016 estimated net income terminal multiples ranging from 13.0x to 15.0x, the calculated range of implied values for per share National Interstate equity value was $22.64 to $28.63.

Dividend Discount Analysis—Based on National Interstate 2014 Budget

As discussed above, the 2014 National Interstate plan approved by its Board of Directors calls for operating earnings per share of $2.30. The 2014 budget assumes gross written premiums of $692 million, net earned premiums of $556 million and a combined ratio of 93.9%. For purposes of developing a dividend discount model, AFG extrapolated 2015 and 2016 results from the 2014 budget assuming 10% growth in gross premiums written and a combined ratio of 93%. The assumption as to growth in gross written premium was developed in reference to 11% growth in gross written premiums in 2013 and 9% growth in 2012. The combined ratio assumption was selected after considering the Board’s approval of a 2014 business plan founded upon a 93.9% combined ratio. National Interstate’s 2013 $0.11 per share quarterly dividend was increased in

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Nationwide Financial Services Nationwide Mutual 3/10/2008 37.8 % 66.0 %Alfa Corp. Alfa Mutual 7/17/2007 44.7 % 54.7 %Great American Finc’l Resources

American Financial Group Inc. 2/22/2007 13.2 % 75.7 %21st Century Insurance Co. AIG 1/24/2007 32.6 % 61.9 %Erie Family Life Ins. Co. Erie Indemnity Co. 3/21/2006 6.7 % 75.1 %Liberty Financial Cos. Inc. Liberty Mutual Ins. Co. 6/6/2001 2.3 % 65.6 %AXA Financial Inc. AXA S.A. 8/30/2000 4.6 % 60.0 %Hartford Life Hartford Financial Services

Group Inc. 3/27/2000 18.6 % 81.5 %Travelers Property Casualty Corp.

Citigroup 3/21/2000 24.6 % 85.0 %Conning Corp. MetLife 1/18/2000 30.7 % 60.4 %Citizens Corp. Allmerica Financial Corp. 10/27/1998 20.6 % 82.0 %

Median 24.6 %

($ in thousands except per share) 2014 2015 2016

Gross premiums written $ 692,000 $ 761,200 $ 837,320

Net premiums earned 556,417 599,325 659,257

Combined ratio 98.0 % 96.0 % 95.0 %Net operating income $ 29,095 $ 38,859 $ 45,933

Shares outstanding—diluted 19,753 19,753 19,753

Operating earnings per share $ 1.47 $ 1.97 $ 2.33

Dividend per share 0.44 0.44 0.44




February, 2013 by 10% over the quarterly dividend payments made in 2012. National Interstate has increased its dividend each year since its initial public offering in 2005. Common share dividends are assumed to increase by 10% in each of 2014, 2015 and 2016, although the Board of Directors of National Interstate has taken no such action with respect to 2014’s quarterly dividend. The 2015 and 2016 extrapolations have not been reviewed or approved by National Interstate’s management.

Using a discounted cash flow methodology, based on (A) management’s 2014 budget and 2015 and 2016 financial performance as noted above, (B) discount rates ranging from 9.0% to 13.0% and (C) 2016 estimated net income terminal multiples ranging from 13.0x to 15.0x, the calculated range of implied values for per share National Interstate equity value was $25.74 to $32.52.

Dividend Discount Analysis—Based on National Interstate 2014 Budget and Accelerated Return of Capital

The 2014 National Interstate plan as approved by its Board of Directors estimates that National Interstate will have $8.1 million of capital in excess of business and rating agency requirements at year end 2013. This amount is estimated to rise to $21 million in 2014. In addition, National Interstate had only $12 million of debt outstanding at year-end 2013, representing an adjusted debt to capital ratio of 3% with capital calculated excluding unrealized gains on fixed maturities. In order to accelerate the return of capital to shareholders, National Interstate could, subject to Board and other approvals, borrow an additional $71 million under its bank credit facilities and pay an extraordinary dividend of $4.00 per National Interstate share in 2014 although no such special dividend is being considered by the Board at this time. The National Interstate budget would permit an additional $0.65 per share special dividend in 2015 based on incremental excess capital generation in 2014. Subject to business performance and other considerations, a $1.00 special dividend is assumed to be paid in 2016 based on 2015 financial performance even though National Interstate management has made no recommendation concerning excess capital in 2015 or 2016.

Using a discounted cash flow methodology, based on (A) management’s 2014 budget, (B) assumptions regarding 2015 and 2016 financial performance as noted above and as adjusted for additional borrowings under the National Interstate credit facility and foregone investment income on excess capital distributed to shareholders, (C) discount rates ranging from 9.0% to 13.0%, (D) 2016 estimated net income terminal multiples ranging from 13.0x to 15.0x and (E) the extraordinary dividends assumed to be paid as delineated above, the calculated range of implied values for per share National Interstate equity value was $26.06 to $31.62.

Fairness Determination

AFG and Purchaser have concluded that the Offer and the Merger, including the going private transaction relative to the Offer and Merger, are both substantively and procedurally fair to National Interstate’s unaffiliated shareholders (whether those shareholders tender their Shares in the Offer or decline to tender and elect instead to remain as shareholders of National Interstate until the Merger is effected). AFG and Purchaser based this conclusion on the following material factors:

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($ in thousands) 2014 2015 2016

Gross premiums written $ 691,955 $ 761,200 $ 837,320

Net premiums earned 556,396 599,325 659,257Combined ratio 93.9 % 93.0 % 93.0 %

Net operating income $ 45,545 $ 48,550 $ 52,745

Shares outstanding—diluted 19,821 19,921 20,021Operating earnings per share $ 2.30 $ 2.44 $ 2.63

Dividend per share 0.48 0.53 0.59

• The information prepared and reviewed by AFG and Purchaser as discussed above;

• the Offer Price represents a premium of over 35% over the closing Share price of National Interstate common stock on February 4, 2014, the last day prior to the public announcement of the Original Offer to Purchase, and a premium of almost 29% over the average closing Share price of National Interstate common stock for the 30 trading days ending on that date.




Neither AFG nor Purchaser found it practicable to assign, nor did any of them assign, relative weights to the individual factors considered in reaching their conclusion as to fairness. AFG’s and Purchaser’s consideration of the factors described above reflects their assessment of the fairness of the Offer to National Interstate’s unaffiliated shareholders in relation to the dividend discount analysis of National Interstate on a stand-alone basis as discussed in the dividend discount analyses above. In reaching the conclusion as to fairness, neither AFG nor Purchaser considered the liquidation value of National Interstate because National Interstate is a viable going concern and Purchaser has no plans to liquidate National Interstate. Therefore, AFG and Purchaser believe that the liquidation value of National Interstate is irrelevant to a determination as to whether the Offer are fair to National Interstate’s unaffiliated shareholders.

In concluding that the Offer and the Merger, including the going private transaction relative to the Offer and Merger are procedurally fair to National Interstate’s unaffiliated shareholders (whether those shareholders tender their Shares in the Offer or decline to tender and elect instead to remain as shareholders of National Interstate until the Merger is effected), AFG and Purchaser considered that the Offer provides National Interstate’s unaffiliated shareholders with the opportunity to accept or reject the Offer along with the availability of dissenters’ rights. See “Special Factors—Section 9 Dissenters’ Rights; Schedule 13E-3.” AFG and Purchaser also believe that the Offer affords National Interstate’s unaffiliated shareholders the opportunity to elect to sell Shares that are currently traded thinly on the Nasdaq at a premium to the current market price. AFG and Purchaser further considered that if they are successful in acquiring at least 90% of the outstanding Shares following the Offer, over 75% of the Shares held by National Interstate’s unaffiliated shareholders shall have been tendered in response to the Offer. AFG and Purchaser concluded that the Offer represents the most expeditious manner to provide the per Share consideration offered

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Despite six-month and twelve-month high trading prices of $30.76 and $36.76, respectively, AFG and Purchaser believe that the $30.00 per Share Offer Price is more indicative of the fair value of the Shares than certain historical market prices.

• AFG’s and Purchaser’s belief in consideration of commencing the Offer that National Interstate’s common stock was not likely, absent the Offer, to trade at or above the initial $28.00 offer price in the near future. In particular, although neither AFG nor Purchaser adopt reports of independent research analysts covering National Interstate common stock, AFG and Purchaser noted that none of the five analysts following National Interstate common stock had a “Buy” rating on the stock, and the highest 12-month target price identified by any analyst was $28.00 per Share;

• the Offer Price represents a 70% premium over the book value per share of $17.63 at September 30, 2013;

• the consideration to be paid in the Offer and the Merger is all cash, which provides certainty of value to National Interstate’s shareholders and provides them with the ability to invest the Offer proceeds as they choose;

• all of National Interstate’s shareholders, including those who elect not to tender their Shares in the Offer but whose Shares instead are acquired in the Merger, have an opportunity to be paid the Offer Price for their Shares;

• the Offer and the Merger, including the going private transaction related to the Offer and the Merger, will provide additional liquidity for National Interstate’s unaffiliated shareholders because they provide an alternative means whereby Shares may be sold;

• shareholders who do not tender their Shares in the Offer will, in the event of a Second-Step Merger, be entitled, in connection with the Merger, to demand the appraisal of their Shares by following the procedures required by the ORC; and

• each of National Interstate’s shareholders will be able to decide voluntarily whether or not to tender Shares in the Offer and, if the Offer and the Merger are completed and any such shareholder has elected not to tender, the shareholder will be entitled to receive the same type and amount of consideration in the Merger that the shareholder would have received in the Offer.




hereby to the National Interstate shareholders with the concurrent opportunity for such National Interstate shareholders to elect individually whether to accept or reject the Offer.

The senior executive officers of each of AFG and Purchaser were responsible for making the fairness determinations described above. In making these determinations, these senior executive officers considered the factors described above along with the input of senior executive officers who serve on National Interstate’s Board of Directors, including Joseph E. (Jeff) Consolino and Vito C. Peraino, each an executive officer of AFG, and Gary J. Gruber and Donald D. Larson, each an executive officers of Purchaser.

5. Presentations of Financial Advisors

Neither AFG nor Purchaser has received any report, opinion or appraisal from any outside party that is materially related to the Offer. For a discussion of the Presentation and Fairness Opinion delivered by D&P to the National Interstate Board of Directors at a meeting held on February 17, 2014, see “Special Factors—Section 1. Background.”

6. Financial Forecast

Neither AFG nor Purchaser engaged an advisor to prepare or review any financial forecast for National Interstate.

7. Effects of the Offer

Effects of the Offer if Purchaser Successfully Acquires at Least 90% of the Outstanding Shares (on a Fully Diluted Basis)

If following consummation of the Offer, Purchaser is successful in owning 90% of the Shares (on a fully diluted basis), Purchaser intends, as promptly as practicable, to cause the second step Merger of Purchaser and National Interstate in which all remaining shareholders (other than Purchaser and shareholders that validly exercise dissenters’ rights under the ORC) would, without the need for further action by such shareholder, receive the same price per Share as was paid in the Offer, without interest, and less any applicable withholding taxes. In connection with a Merger, non-tendering shareholders will have the right to demand appraisal of their Shares, whereby such shareholders may receive the “fair value” of their Shares, less any applicable withholding taxes, as determined by a court of competent jurisdiction, by following the procedures required by the ORC. See “Special Factors—Section 9. Dissenters’ Rights; Rule 13e-3.”

If Purchaser is successful in owning at least 90% of the Shares (on a fully diluted basis) following the Offer, Purchaser will have the ability to consummate a short-form merger of Purchaser (or an affiliate) with National Interstate in accordance with the applicable provisions of the ORC without the requirement of holding a meeting of shareholders. Purchaser may also choose to make open market purchases of Shares following the Offer in order to be able to complete the Merger as a short-form merger.

Effects of the Offer if Purchaser Purchases all Shares Tendered in the Offer

If Purchaser waives the Minimum Tender Condition and purchases all Shares validly tendered and not withdrawn in the Offer, Purchaser may thereafter:

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• acquire additional Shares, either in purchases in the market or in privately negotiated transactions, which would decrease the amount of National Interstate’s public float, potentially making it more difficult for National Interstate’s unaffiliated shareholders to sell their shares outside of the Offer. To the extent that AFG and Purchaser acquire such additional Shares, it would increase AFG’s and Purchaser’s ownership interest in National Interstate, and, depending on the number of Shares acquired by AFG and Purchaser, could result in AFG and Purchaser having greater control over National Interstate’s direction and affairs;

• seek an extraordinary corporate transaction, such as a reorganization or recapitalization, involving National Interstate;




If Purchaser waives the Minimum Tender Condition, purchases all Shares validly tendered and not withdrawn in the Offer and, following the Offer, owns two-thirds of the Shares (on a fully diluted basis), Purchaser would have sufficient voting power to approve a merger and amendments to the Articles of Incorporation (including eliminating cumulative voting), as well as having the voting power to approve amendments to the Regulations requiring a two-thirds shareholder vote (including changing the size, composition and classification of the board), without the need for approval of any other shareholder of National Interstate.

In addition, if Purchaser waives the Minimum Tender Condition, purchases all Shares validly tendered and not withdrawn in the Offer and, following the Offer, owns at least 80% of the Shares, National Interstate will become consolidated with AFG for federal income tax purposes. National Interstate is consolidated under US GAAP in the financial statements of AFG as a result of AFG’s 51.7% interest in National Interstate. AFG in its GAAP financial statements provides for a deferred tax liability on the excess of its GAAP basis in National Interstate over its tax basis in National Interstate. If AFG’s ownership in National Interstate equals or exceeds 80%, AFG will no longer be required to record or maintain deferred taxes on its interest in National Interstate. It may be possible for AFG to no longer record or maintain deferred taxes on its interest in National Interstate at an ownership amount of less than 80% if in AFG’s judgement it believes it could acquire at least 80% in the future. See “Special Factors—Section 7. Effects of the Offer.”

If the Offer is not completed for any reason, Purchaser will review its options. These include continuing the status quo prior to the Offer, purchasing Shares in the open market or in privately negotiated transactions, making a new tender offer or seeking to negotiate a merger or other business combination with National Interstate. No assurance can be given as to the price per Share that may be paid in any such future acquisition of Shares, and such price may be higher or lower than or the same as the Offer Price.

Purchaser’s interest in National Interstate’s net book value and net earnings will increase to the extent of the number of Shares acquired under the Offer. If the Offer is completed, and the second step merger is completed, Purchaser’s indirect interest in such items will increase to 100%, National Interstate will be an indirect wholly-owned subsidiary of AFG, and AFG and Purchaser will be entitled to all benefits resulting from that interest, including all income generated by National Interstate’s operations and any future increase in National Interstate’s value. Based on National Interstate’s preliminary results for the fiscal year ended December 31, 2013 released on January 20, 2014 and assuming completion of the Merger as of December 31, 2013, this increase would result in Purchaser’s beneficial interest in National Interstate’s net book value and net income increasing by approximately $170 million and $9.3 million, respectively.

Similarly, Purchaser will also bear the risk of losses generated by National Interstate’s operations and any decrease in the value of National Interstate after the Merger. Detriments of the Merger to AFG and Purchaser are the risk that AFG and/or Purchaser will decrease in value following the Merger and the fact that Purchaser will incur certain transaction costs, fees and expenses relating to the Offer and the Merger

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• seek a change in the present board of directors of National Interstate, including any plans or proposals to change the number or term of directors, which could result in the resignation of directors not appointed by AFG or Purchaser;

• seek to change the dividend policy of National Interstate, which could eliminate future payment of National Interstate dividends;

• seek to amend the Articles of Incorporation or Code of Regulations of National Interstate, which could include the elimination of cumulative voting and board classification at National Interstate;

• seek to cause the Shares to be delisted from Nasdaq, which would result in the shares no longer trading on an established trading market;

• seek to terminate the registration of the Shares under the Securities Exchange Act of 1934, in which case National Interstate would no longer be required to file reports with the SEC; or

• pursue any action similar to any of those enumerated above.




The benefit of the Merger to National Interstate’s former shareholders (other than former shareholders who perfect their dissenters’ rights under Ohio law) is the right to receive the Offer or Merger consideration for each Share of National Interstate common stock held by such shareholders. Such shareholders will additionally be able to dispose of their Shares without paying the usual transaction costs associated with open market sales and will no longer have to bear the risk of any future losses or decrease in National Interstate’s enterprise value.

The detriments of the Merger to former shareholders are that such former shareholders will not have the opportunity to participate in the earnings and growth of National Interstate after the Merger and will not have any right to vote on corporate matters, but such former shareholders will not face the risk of losses generated by National Interstate’s operations or a decline in the value of National Interstate after the Merger. Further, the receipt of the payment for their Shares will be a taxable transaction for federal income tax purposes.

The Shares are currently registered under the Exchange Act and listed on the Nasdaq under the symbol “NATL.” If the Offer is completed, as a result of the consummation of the Merger following the Offer, there will be no public market for the Shares. After the Merger, the Shares will cease to be listed on the Nasdaq, and prices with respect to sales of Shares in the public market will no longer be available. In addition, after the Merger, registration of the Shares under the Exchange Act will be terminated and National Interstate will no longer be required to file periodic reports with the SEC. See “The Offer—Section 12. Effect of the Offer on the Market for the Shares; Nasdaq Listing; Exchange Act Registration; Margin Regulations.”

8. Conduct of National Interstate’s Business if the Offer Is Not Completed

If the Offer is not completed for any reason, AFG and Purchaser will reevaluate the role of National Interstate within AFG’s overall corporate group. In particular, AFG and Purchaser may consider, among other things:

If AFG and Purchaser were to pursue any of these alternatives, it might take considerably longer for the unaffiliated shareholders of National Interstate to receive any consideration for their Shares (other than through sales in the open market or otherwise) than if they had tendered their Shares in the Offer. Any such transaction could result in proceeds per Share to the public shareholders of National Interstate that are more or less than, or the same as, the Offer Price or could result in the trading price of the Shares to increase, decrease or be unchanged. Purchaser may also choose to keep outstanding the public minority interest in National Interstate, in which case the public shareholders of National Interstate would, absent a sale by them, retain their Shares and would have the opportunity to participate in the earnings and growth of National Interstate, but shareholders would also bear the risk of losses generated by National Interstate’s operations or a decline in the value of National Interstate.

9. Dissenters’ Rights; Rule 13e-3

Dissenters’ Rights

Shareholders do not have dissenters’ rights as a result of the Offer.

Shareholders do not have dissenters’ rights as a result of the Offer. However, if Purchaser purchases Shares in the Offer, and, the Merger is consummated, each shareholder who has neither voted in favor of adoption of the merger agreement nor consented thereto in writing will be entitled to demand and, upon satisfaction of the specified statutory requirements, obtain an appraisal by a court of competent jurisdiction of the State of Ohio (the “Court”) of the fair value of the

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• not taking any action at that time, including not purchasing any additional Shares;

• purchasing Shares in the open market or in privately negotiated transactions;

• making a new tender offer; and

• proposing a merger or other business combination with National Interstate, subject to compliance with applicable law.




shareholder’s Shares, exclusive of any element of value arising from the accomplishment or expectation of the Merger, together with a fair rate of interest, if any, to be paid. Any judicial determination of the fair value could be based upon considerations other than or in addition to the market value of the Shares, including, among other things, asset values, earning capacity and such other factors as the Court may deem appropriate. However, Ohio law states that when a corporation’s stock is actively traded on a national securities exchange, the fair cash value is its market value on the relevant date. Therefore, the value so determined could be more or less than the consideration to be paid in the Offer and the Merger. Unless the Court determines otherwise in its discretion for good cause shown, interest from the effective date of the Merger through the date of payment of the judgment shall be compounded quarterly and shall accrue at 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during such period.

If any shareholder who exercises dissenters’ rights under Section 1701.85 of the ORC fails to perfect, or effectively withdraws or loses, his or her dissenters’ rights as provided in the ORC, the Shares of such shareholder will be converted into the right to receive the consideration paid in the Merger. A shareholder may withdraw his or her exercise of dissenters’ rights by delivery of a written withdrawal of his or her exercise of dissenters’ rights.

Failure to follow the steps required by Section 1701.85 of the ORC for perfecting dissenters’ rights may result in the loss of such rights.

The foregoing discussion is not a complete statement of law pertaining to dissenters’ rights under the ORC and is qualified in its entirety by the full text of Section 1701.85 of the ORC, which is set forth in Schedule C attached to this Offer to Purchase.

Dissenters’ rights cannot be exercised at this time. The information set forth above is for informational purposes only with respect to alternatives available to shareholders if the Merger is consummated. Shareholders who will be entitled to dissenters’ rights in connection with the Merger will receive additional information concerning dissenters’ rights and the procedures to be followed in connection therewith before such shareholders have to take any action relating thereto.

Shareholders who tender shares in the Offer will not be entitled to exercise dissenters’ rights with respect thereto but, rather, will receive the price paid in the Offer therefor if the Offer is completed.

Rule 13e-3

As Purchaser is an affiliate of National Interstate, the transactions contemplated in the Offer constitute a “going private” transaction under Rule 13e-3 under the Exchange Act. Rule 13e-3 requires, among other things, that certain financial information concerning National Interstate and certain information relating to the fairness of the Offer and the consideration offered to unaffiliated shareholders be filed with the SEC and disclosed to unaffiliated shareholders. Purchaser has provided such information in this Offer to Purchase and a Tender Offer Statement on Schedule TO and a Transaction Statement on Schedule 13E-3 and the exhibits thereto filed with the SEC pursuant to Rules 14d-3 and 13e-3 under the Exchange Act.

10. Transactions and Arrangements Concerning the Shares

Except as otherwise described in this Offer to Purchase, neither AFG nor Purchaser nor, to the best of their knowledge, any person listed in Schedule A hereto or any associate or majority-owned subsidiary of any of the foregoing, beneficially owns or has a right to acquire any Shares, has engaged in any transaction in Shares during the past 60 days or is a party to any agreement, arrangement or understanding with respect to the Shares or any other securities of National Interstate (including, without limitation, any contract, arrangement, understanding or relationship concerning the transfer or the voting of such securities, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies, consents or authorizations). In addition, neither AFG nor Purchaser has purchased any Shares within the past two years.

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To Purchaser’s knowledge, no executive officers, directors or affiliates of National Interstate have made any public recommendation with respect to the Offer or the Merger.

11. Certain Relationships Between AFG, Purchaser and National Interstate

As of the date of this Offer to Purchase, AFG owns indirectly, and Purchaser owns directly, approximately 51.7% of the outstanding Shares of National Interstate common stock. As a result, Purchaser is able to control the vote on certain matters submitted to a vote of National Interstate’s shareholders. AFG and Purchaser are also parties to the following agreements with National Interstate and have the following other relationships with National Interstate.

Purchaser and National Interstate are parties to several agreements relating to reinsurance and underwriting. The terms of these agreements, as described below, were negotiated by Purchaser and National Interstate. Purchaser believes that the terms of these agreements are comparable to those that National Interstate could obtain from independent third parties. Additionally, Purchaser previously entered into an agreement with National Interstate and one of its directors, Alan Spachman, relating to registration rights and rights of first refusal to buy back Purchaser’s and Mr. Spachman’s Shares in certain circumstances.

Reinsurance, Underwriting and Other Arrangements. Purchaser and National Interstate are parties to an Underwriting Management Agreement pursuant to which National Interstate agreed to underwrite and service policies of insurance related to public commercial transportation and recreation vehicles for a fee. Under the terms of the agreement, National Interstate pays Purchaser a fee based on a percentage ranging from 1.5% to 3.0% of written premiums. The written premiums totaled approximately $2.4 million in 2012. During 2012, the fees National Interstate paid to Purchaser under this agreement were approximately $37,000. During 2013, the fees National Interstate paid to Purchaser under this agreement were approximately $28,000.

Purchaser participates in National Interstate’s excess of loss treaties for public transportation, truck and Hawaii general commercial business. In 2012, premiums and losses ceded to Purchaser under these treaties totaled $0.1 million and $1.1 million, respectively. In 2013, premiums and losses ceded to Purchaser under these treaties totaled $48,000 and $1.9 million, respectively.

Purchaser, its affiliated insurance companies and National Interstate are also parties to a Reinsurance Agreement pursuant to which National Interstate assumes all of the risk and exposure on the polices National Interstate administers under the terms of the Underwriting Management Agreement. Pursuant to its terms, the Underwriting Management Agreement may be terminated without cause by either party from time to time and is terminable immediately (but not automatically) upon termination of the related reinsurance treaty or if National Interstate no longer employed Mr. Alan Spachman. To date, Purchaser has not exercised its right to terminate the Underwriting Management Agreement on the basis of Mr. Alan Spachman no longer being employed by National Interstate. Additionally, AFG or Purchaser perform certain services for National Interstate without charge including, without limitation, actuarial services and on a consultative basis internal audit, legal, accounting and other support services.

Effective October 1, 2012, American Money Management Corporation (“AMMC”), a wholly-owned subsidiary of AFG, entered into an agreement with National Interstate whereby AMMC manages a portion of National Interstate’s investment portfolio at an annual cost of 15 basis points of the portfolio’s fair value. AMMC’s management of this portion of National Interstate’s portfolio commenced during the fourth quarter of 2012, with fees accrued for such services approximating $0.2 million and $0.9 million at December 31, 2012 and December 31, 2013, respectively.

Registration Rights Agreement and Right of First Refusal. Upon the completion of National Interstate’s initial public offering, Purchaser entered into an agreement with National Interstate and Mr. Alan Spachman, pursuant to which Purchaser and Mr. Alan Spachman each received registration rights in exchange for National Interstate’s right of first refusal to buy back their Shares in connection with certain proposed sales of their Shares. National Interstate’s right of first refusal will be triggered by any gift, bequest, sale, exchange, transfer, assignment or other disposition of all or any portion of the Shares owned, whether beneficially or of record, by either Purchaser or Mr.

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Alan Spachman, other than the transfer of Shares (i) in a charitable gift or a bequest, without consideration, so long as the number of Shares transferred to one person or group of related persons as a result of such gift or bequest or series of related gifts or bequests is less than 10.0% of the Issuer’s total issued and outstanding common Shares immediately prior to such gift, (ii) pursuant to an underwriting agreement, a purchase agreement or similar arrangement to which Purchaser, National Interstate and/or Mr. Alan Spachman are party relating to an underwritten public offering of National Interstate’s Shares, (iii) in a public or privately negotiated sale, so long as, to the knowledge of the selling shareholder, each purchaser in such negotiated sale or series of negotiated sales, either alone or as a member of a group of related or affiliated purchasers, will not be the beneficial owner of 10.0% or more of National Interstate’s total issued and outstanding Shares immediately following such sale, (iv) pursuant to a tender offer or exchange offer which seeks to acquire at least two-thirds of National Interstate’s outstanding Shares or (v) to any trust or other entity, for financial planning or estate planning purposes, without consideration, the primary beneficiary of which is Mr. Alan Spachman or his lineal descendants.

12. Interests of Directors and Executive Officers in the Offer

In considering the fairness of the consideration to be received in the Offer, National Interstate’s shareholders should be aware that certain directors and executive officers of National Interstate have interests in the Offer which may present them with certain actual or potential conflicts of interest.

Two of the ten current members of National Interstate’s Board, Joseph E. (Jeff) Consolino and Vito C. Peraino, are executive officers of AFG, and two additional members, Gary J. Gruber and Donald D. Larson, are executive officers of the Purchaser. In addition, until February 2013, a fifth member of National Interstate’s Board, Keith A. Jensen, served as an executive officer of AFG.

Prior to National Interstate’s 2013 Annual Meeting of Shareholders (the “Annual Meeting”), certain members of the Board contacted Purchaser requesting information regarding the procedures under the Regulations for nominating a candidate for election as a director at the Annual Meeting and requesting a copy of the Regulations. After responding to National Interstate’s request, Purchaser received a letter stating Mr. Alan Spachman’s intent to nominate one candidate for election as a director at the Annual Meeting. Thereafter, Purchaser contacted National Interstate to inform the company in writing that the purported nomination was not in compliance with the Regulations. National Interstate subsequently submitted a revised nomination notice. During the time Purchaser submitted the preliminary proxy statement, a revised preliminary proxy statement and a definitive proxy statement relating to Purchaser’s solicitation of proxies in connection with the Annual Meeting, Purchaser did not receive any notice from Mr. Alan Spachman of his intent to solicit proxies in connection with the Annual Meeting. At the 2013 Annual Meeting, the Board recommended that its six nominees be elected. Mr. Alan Spachman along with certain other shareholders cumulated their votes and elected Mr. Michael Spachman as a director.

Except as described in National Interstate’s Schedule 14D-9, none of the directors or executive officers of National Interstate is entitled to any change of control payments upon the consummation of the Offer or the Merger. The description of such change of control payments in National Interstate’s Schedule 14D-9 is incorporated herein by reference.

Each of Joseph E. (Jeff) Consolino, Gary J. Gruber, Donald D. Larson, Vito C. Peraino, and Keith A. Jensen intend to tender any and all Shares they own in response to the Offer.

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13. National Interstate’s Board of Directors

The current members of National Interstate’s Board and the board committees (the Board Committees”) upon which they serve are as follows:

Messrs. Consolino, Gruber, Larson and Peraino are senior executive officers of AFG and/or Purchaser. Mr. Jensen served as an executive officer of AFG until February 2013. Mr. Michelson is National Interstate’s President and Chief Executive Officer. Mr. Alan R. Spachman is National Interstate’s founder and was President and Chief Executive Officer through 2007. Messrs. Schiavone, Schwegman and Michael A. Spachman are independent under Nasdaq listing rules. For a description of the backgrounds and qualifications of directors (other than Michael A. Spachman) and a description of the functions of the Board Committees, please see National Interstate’s Annual Meeting of Shareholders Proxy Statement dated April 16, 2013.

The normal practice of National Interstate’s Board and the Board Committees include conversations and contacts relating to, among other things, the make-up of the Board, its Board Committees and the leadership of the Board and its Board Committees. Such conversations typically take place over the several days before, the day of and several days after the Board and Board Committee meetings.

At a board meeting held on February 15, 2013, Mr. Schwegman was elected to the Board by the Board as an independent director and also named Chairman of the Audit Committee. Mr. Consolino became Chairman of the Board on February 15, 2013, replacing Alan R. Spachman, who served as Chairman of the Board from 2004 until February 15, 2013.

At National Interstate’s 2013 Annual Meeting of Shareholders held May 2, 2013, Alan R. Spachman nominated his son, Michael A. Spachman, for election as a director. Accordingly, there were seven nominees for election as Class I members of the Board, but only six nominees were to be elected. No other nominations of persons for election as directors were submitted to National Interstate pursuant to the advance notice provisions of the Regulations. The background of Mr. Spachman’s nomination follows:

On March 21, 2013, counsel to Mr. Alan Spachman contacted National Interstate requesting information regarding the procedures under the Regulations for nominating a candidate for election as a director at the Annual Meeting and a copy of the Regulations. On the same day, counsel to the company responded to this request.

On March 28, 2013, National Interstate received a letter from Mr. Alan Spachman stating his intention to nominate one candidate for election as a director at the Annual Meeting. In

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Name Committee(s)

Joseph E. (Jeff) Consolino, Chairman of the BoardCompensation

Gary J. Gruber Nominating and Corporate Governance (Chairman)

Keith A. Jensen Compensation

Donald D. Larson Compensation (Chairman), Nominating and Corporate Governance

David W. Michelson —

Vito C. Peraino Compensation, Nominating and Corporate Governance

Joel Schiavone Audit, Compensation, Nominating and Corporate Governance

Donald W. Schwegman Audit (Chairman)Alan R. Spachman Compensation

Michael A. Spachman Audit




consultation with counsel, National Interstate determined that such purported nomination was not in compliance with the Regulations.

On the afternoon of March 29, 2013, at a previously scheduled meeting of the Compensation Committee, Mr. Consolino, Chairman of the Board, advised the members in attendance of Mr. Alan Spachman’s intention to nominate a candidate for election as a director at the Annual Meeting.

On the same day, Arthur J. Gonzales, Vice President, General Counsel and Secretary of National Interstate, at Mr. Consolino’s direction, provided to Mr. Alan Spachman in writing and telephonically a list of items that had to be remedied for Mr. Spachman’s nomination to be in compliance with the Regulations.

On March 30, 2013, Mr. Alan Spachman submitted a revised nomination notice, including the consent of Mr. Alan Spachman’s nominee (Michael A. Spachman) to serve if elected.

On April 2, 2013, National Interstate filed a preliminary proxy statement with the SEC, followed by the filing of a revised preliminary proxy statement on April 15, 2013 and a definitive proxy statement on April 16, 2013, relating to National Interstate’s solicitation of proxies in connection with the Annual Meeting. National Interstate did not receive any notice from Mr. Alan Spachman of his intent to solicit proxies in connection with the Annual Meeting.

National Interstate’s Board recommended that its six nominees (Messrs. Consolino, Elliott, Gruber, Larson, Michelson and Schwegman) be elected. Michael A. Spachman was elected a National Interstate director at the May 2, 2013 Annual Meeting; Theodore H. Elliott, Jr., nominated by National Interstate’s Board and Nominating and Corporate Governance Committee, did not receive sufficient votes to remain a director (he had served as a director since 1989). Michael A. Spachman was appointed to the Audit Committee at a Board meeting on May 2, 2013, following the Annual Meeting of Shareholders.

THE OFFER

1. Terms of the Offer

Upon the terms and subject to the conditions of the Offer, we will accept for payment and pay for all Shares validly tendered prior to the Expiration Date and not previously withdrawn in accordance with Section 4. “Expiration Date” means 12:00 midnight, Eastern Time, on March 6, 2014, unless extended, in which event Expiration Date means the latest time and date at which the Offer, as so extended, shall expire.

The Offer is subject to the conditions set forth in Section 14, which include, among other things, satisfaction of the Minimum Tender Condition. If any such condition is not satisfied, we may (i) terminate the Offer and return all tendered Shares to tendering shareholders, (ii) extend the Offer and, subject to withdrawal rights as set forth in Section 4, retain all such Shares until the expiration of the Offer as so extended, (iii) waive such condition and, subject to any requirement to extend the period of time during which the Offer is open, purchase all Shares validly tendered prior to the Expiration Date and not withdrawn or (iv) delay acceptance for payment or payment for Shares, subject to applicable law, until satisfaction or waiver of the conditions to the Offer.

Subject to any applicable rules and regulations of the SEC, we expressly reserve the right, but not the obligation, in our reasonable discretion, at any time and from time to time, to extend the period during which the Offer is open for any reason by giving oral or written notice of the extension to the Depositary and by making a public announcement of the extension. During any extension, all Shares previously tendered and not withdrawn will remain subject to the Offer and subject to the right of a tendering shareholder to withdraw Shares.

If we waive the Minimum Tender Condition or increase or decrease the consideration to be paid for Shares pursuant to the Offer and the Offer is scheduled to expire at any time before the expiration of a period of ten business days from, and including, the date that notice of such increase or decrease is first published, sent or given in the manner specified below, the Offer shall be extended until the expiration of such period of ten business days. If we make any other material change in the terms of or information concerning the Offer or waive a material condition of the

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Offer, we will extend the Offer, if required by applicable law, for a period sufficient to allow you to consider the amended terms of the Offer. In a published release, the SEC has stated that in its view an offer must remain open for a minimum period of time following a material change in the terms of such offer and that the waiver of a condition such as the Minimum Tender Condition is a material change in the terms of an offer. The release states that an offer should remain open for a minimum of five business days from the date the material change is first published, sent or given to shareholders, and that if material changes are made with respect to information that approaches the significance of price and share levels, a minimum of ten business days may be required to allow adequate dissemination and investor response.

“Business day” means any day other than Saturday, Sunday or a U.S. federal holiday and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time.

If we increase the consideration to be paid for Shares pursuant to the Offer, we will pay such increased consideration for all Shares that are purchased pursuant to the Offer.

If we extend the Offer, are delayed in accepting for payment of or paying for Shares or are unable to accept for payment or pay for Shares pursuant to the Offer for any reason, then, without prejudice to our rights under the Offer, the Depositary may retain all Shares tendered on our behalf, and such Shares may not be withdrawn except to the extent tendering shareholders are entitled to withdrawal rights as provided in Section 4. Our reservation of the right to delay acceptance for payment of or payment for Shares is subject to applicable law, which requires that we pay the consideration offered or return the Shares deposited by or on behalf of shareholders promptly after the termination or withdrawal of the Offer.

Any extension, delay, termination, waiver or amendment of the Offer will be followed as promptly as practicable by a public announcement thereof. Without limiting the manner in which we may choose to make any public announcement, we will have no obligation (except as otherwise required by applicable law) to publish, advertise or otherwise communicate any such public announcement other than by making a release to the Dow Jones News Service. In the case of an extension of the Offer, we will make a public announcement of such extension no later than 9:00 a.m., Eastern time, on the next business day after the previously scheduled Expiration Date.

After the expiration of the Offer, we may, in our sole discretion, but are not obligated to, include a subsequent offering period of at least three business days to permit additional tenders of Shares (a “Subsequent Offering Period”). A Subsequent Offering Period would be an additional period of time, following the expiration of the Offer and the purchase of Shares in the Offer, during which shareholders may tender Shares not tendered in the Offer. A Subsequent Offering Period, if one is provided, is not an extension of the Offer, which already will have been completed.

Pursuant to Rule 14d-11 under the Exchange Act, we may include a Subsequent Offering Period so long as, among other things, (i) the initial offering period of at least 20 business days has expired, (ii) the Offer is for all outstanding securities of the class that is the subject of the Offer, (iii) we immediately accept and promptly pay for all securities validly tendered during the Offer, (iv) we announce the results of the Offer, including the approximate number and percentage of Shares deposited in the Offer, no later than 9:00 a.m., Eastern time, on the next business day after the Expiration Date and immediately begin the Subsequent Offering Period and (v) we immediately accept and promptly pay for Shares as they are tendered during the Subsequent Offering Period. In addition, we may extend any initial Subsequent Offering Period by any period or periods.

We do not currently intend to include a Subsequent Offering Period, although we reserve the right to do so. If we elect to include or extend a Subsequent Offering Period, we will make a public announcement of such inclusion or extension no later than 9:00 a.m., Eastern time, on the next business day after the Expiration Date or date of termination of any prior Subsequent Offering Period.

No withdrawal rights apply to Shares tendered in a Subsequent Offering Period, and no withdrawal rights apply during a Subsequent Offering Period with respect to Shares previously tendered in the Offer and accepted for payment. The same price paid in the Offer will be paid to shareholders tendering Shares in a Subsequent Offering Period, if one is included.

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We are making a request to National Interstate for its shareholder list and security position listings for the purpose of disseminating the Offer to holders of Shares. Upon compliance by National Interstate with this request, we will send this Offer to Purchase, the accompanying Letter of Transmittal and other related documents to record holders of Shares and to brokers, dealers, commercial banks, trust companies and other nominees whose names appear on the shareholder list or, if applicable, who are listed as participants in a clearing agency’s security position listing for subsequent transmittal to beneficial owners of Shares.

2. Acceptance for Payment and Payment for Shares

Upon the terms and subject to the conditions of the Offer (including, if we extend or amend the Offer, the terms and conditions of any such extension or amendment), we will accept for payment and pay for all Shares validly tendered before the Expiration Date and not withdrawn promptly after the Expiration Date. We expressly reserve the right, in our reasonable discretion, but subject to applicable laws, to delay acceptance for and thereby delay payment for Shares in order to comply with applicable laws or if any of the conditions referred to in Section 14 have not been satisfied or if any event specified in such section has occurred. Subject to any applicable rules and regulations of the SEC, including Rule 14e-1(c) under the Exchange Act, we reserve the right, in our reasonable discretion and subject to applicable law, to delay the acceptance for payment or payment for Shares until satisfaction of all conditions to the Offer. For a description of our right to terminate the Offer and not accept for payment or pay for Shares or to delay acceptance for payment or payment for Shares, see Section 14. If we increase the consideration to be paid for Shares pursuant to the Offer, we will pay such increased consideration for all Shares purchased pursuant to the Offer.

We will pay for your validly tendered and not properly withdrawn Shares accepted for payment pursuant to the Offer by depositing the purchase price with the Depositary. In all cases, payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) certificates for such Shares (or a confirmation of a book-entry transfer of such Shares into the Depositary’s account at the Book-Entry Transfer Facility (as defined in Section 3)), (ii) a properly completed and duly executed Letter of Transmittal (or a facsimile thereof) and (iii) any other required documents for such Shares. For a description of the procedure for tendering Shares pursuant to the Offer, see Section 3. Accordingly, payment may be made to tendering shareholders at different times if delivery of the Shares and other required documents occurs at different times. If there is a Subsequent Offering Period, Shares tendered during a Subsequent Offering Period will be immediately accepted for payment and paid for as they are tendered. Under no circumstances will we pay interest on the consideration paid for tendered Shares, regardless of any extension of or amendment to the Offer or any delay in making such payment.

For purposes of the Offer, we shall be deemed to have accepted for payment tendered Shares when, as and if we give oral or written notice of our acceptance to the Depositary.

If any tendered Shares are not accepted for payment pursuant to the Offer for any reason, or if certificates are submitted for more Shares than are tendered, certificates for such unpurchased or untendered Shares will be returned (or, in the case of Shares tendered by book-entry transfer, such Shares will be credited to an account maintained at the Book-Entry Transfer Facility), without expense to you, as promptly as practicable following the expiration or termination of the Offer.

3. Procedures for Accepting the Offer and Tendering Shares

Valid Tender of Shares. Except as set forth below, to tender Shares in the Offer, either (i) the Depositary must receive on or prior to the Expiration Date at one of its addresses set forth on the back cover of this Offer to Purchase (a) a Letter of Transmittal (or a facsimile thereof), properly completed and signed, together with any required signature guarantees, or an Agent’s Message (as defined below) in connection with a book-entry delivery of Shares, and any other documents that the Letter of Transmittal requires, and (b) certificates for the Shares to be tendered or confirmation of the book-entry transfer of such Shares into the Depositary’s account at the Book-Entry Transfer Facility or (ii) you must comply with the guaranteed delivery procedures set forth below.

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The method of delivery of Shares, the Letter of Transmittal and all other required documents, including delivery through the Book-Entry Transfer Facility, is at your sole option and risk, and delivery of your Shares will be deemed made only when actually received by the Depositary (including, in the case of a book-entry transfer, by book-entry confirmation). If certificates for Shares are sent by mail, we recommend registered mail with return receipt requested, properly insured, in time to be received on or prior to the Expiration Date. In all cases, sufficient time should be allowed to ensure delivery on or prior to the Expiration Date.

The valid tender of Shares pursuant to any one of the procedures described above will constitute your acceptance of the Offer, as well as your representation and warranty that (i) you own the Shares being tendered within the meaning of Rule 14e-4 under the Exchange Act, (ii) the tender of such Shares complies with Rule 14e-4 under the Exchange Act, (iii) you have the full power and authority to tender, sell, assign and transfer the Shares tendered as specified in the Letter of Transmittal and (iv) when the same are accepted for payment by Purchaser, Purchaser will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claims.

Our acceptance for payment of Shares tendered by you pursuant to the Offer will constitute a binding agreement between us with respect to such Shares, upon the terms and subject to the conditions of the Offer.

Book-Entry Transfer. The Depositary will establish an account with respect to the Shares for purposes of the Offer at The Depository Trust Company (the “Book-Entry Transfer Facility”) after the date of this Offer to Purchase. Any financial institution that is a participant in the Book-Entry Transfer Facility’s system may make book-entry transfer of Shares by causing the Book-Entry Transfer Facility to transfer such Shares into the Depositary’s account in accordance with the Book-Entry Transfer Facility’s procedures for such transfer. However, although delivery of Shares may be effected through book-entry transfer, the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, together with any required signature guarantees or an Agent’s Message and any other required documents must, in any case, be transmitted to, and received by, the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase by the Expiration Date, or the guaranteed delivery procedure described below must be complied with. Delivery of the Letter of Transmittal and any other required documents to the Book-Entry Transfer Facility does not constitute delivery to the Depositary.

The term “Agent’s Message” means a message, transmitted by the Book-Entry Transfer Facility to, and received by, the Depositary and forming a part of a book-entry confirmation stating that the Book-Entry Transfer Facility has received an express acknowledgment from the participant in the Book-Entry Transfer Facility tendering the Shares that such participant has received, and agrees to be bound by, the terms of the Letter of Transmittal and that we may enforce such agreement against such participant.

Signature Guarantees. No signature guarantee is required on the Letter of Transmittal (i) if the Letter of Transmittal is signed by the registered holder of the Shares tendered therewith and such registered holder has not completed the box entitled “Special Payment Instructions” on the Letter of Transmittal or (ii) if such Shares are tendered for the account of a financial institution (including most banks, savings and loan associations and brokerage houses) that is a participant in the Security Transfer Agents Medallion Program (STAMP) or any other “eligible guarantor institution” (as such term is defined in Rule 17Ad-15 under the Exchange Act) (each, an “Eligible Institution”). In all other cases, all signatures on Letters of Transmittal must be guaranteed by an Eligible Institution. See Instructions 1 and 5 to the Letter of Transmittal. If the certificates for Shares are registered in the name of a person other than the signer of the Letter of Transmittal, or if payment is to be made or certificates for Shares not tendered or not accepted for payment are to be returned to a person other than the registered holder of the certificates surrendered, then the tendered certificates must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name or names of the registered holders or owners appear on the certificates, with the signatures on the certificates or stock powers guaranteed as aforesaid. See Instructions 1 and 5 to the Letter of Transmittal.

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Guaranteed Delivery. If you wish to tender Shares pursuant to the Offer and cannot deliver such Shares and all other required documents to the Depositary by the Expiration Date or cannot complete the procedure for delivery by book-entry transfer on a timely basis, you may nevertheless tender such Shares if all of the following conditions are met:

The Notice of Guaranteed Delivery may be delivered by hand or transmitted by telegram, telex, facsimile transmission or mail to the Depositary and must include a guarantee by an Eligible Institution in the form set forth in such Notice of Guaranteed Delivery.

Backup Withholding. Under U.S. federal income tax laws, payments made pursuant to the Offer may be subject to backup withholding unless a tendering U.S. Holder (as defined in Section 5) (i) provides a correct taxpayer identification number (which, for an individual, is the holder’s social security number) and any other required information, or (ii) is a corporation or comes within certain other exempt categories and, when required, demonstrates this fact, and otherwise complies with applicable requirements of the backup withholding rules. A holder that does not provide a correct taxpayer identification number may be subject to penalties imposed by the Internal Revenue Service. To avoid backup withholding of U.S. federal income tax on payments made pursuant to the Offer, each eligible tendering U.S. Holder (as defined in Section 5) should complete and return the Substitute Form W- 9 included in the Letter of Transmittal. Eligible tendering Non-U.S. Holders (as defined in Section 5) should complete and submit IRS Form W-8BEN (or other applicable IRS Form W-8), which can be obtained from the Depositary or at http://www.irs.gov. For a more detailed discussion of backup withholding. See Section 5.

Appointment of Proxy. By properly completing and duly executing a Letter of Transmittal (or a facsimile thereof) or, in the case of a book-entry transfer, by delivery of an Agent’s Message in lieu of a Letter of Transmittal, you irrevocably appoint our designees as your attorneys-in-fact and proxies in the manner set forth in the Letter of Transmittal, each with full power of substitution, to the full extent of your rights with respect to the Shares tendered and accepted for payment by us (and any and all other Shares or other securities issued or issuable in respect of such Shares on or after the date of this Offer to Purchase). This proxy will be governed by and construed in accordance with the laws of the State of Ohio and applicable federal securities laws. All such proxies are irrevocable and coupled with an interest in the tendered Shares. Such appointment is effective only upon our acceptance for payment of such Shares. Upon such acceptance for payment, all prior powers of attorney, proxies and consents granted by you with respect to such Shares will, without further action, be revoked, and no subsequent powers of attorney, proxies or consents may be given (and, if previously given, will cease to be effective). Our designees will be empowered to exercise all your voting and other rights with respect to such Shares as they, in their sole discretion, may deem proper at any annual, special or adjourned meeting of National Interstate’s shareholders, or with respect to any actions by written consent in lieu of any such meeting or otherwise. We reserve the right to require that, in order for Shares to be deemed validly tendered, immediately upon our acceptance for payment of such Shares, we or our designee must be able to exercise full voting, consent and other rights with respect to such Shares (including voting at any meeting of National Interstate’s shareholders).

The foregoing proxies are effective only upon acceptance for payment of Shares pursuant to the Offer. The Offer does not constitute a solicitation of proxies or consents, absent a purchase of Shares, for any meeting of National Interstate’s shareholders.

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(i) such tender is made by or through an Eligible Institution;

(ii) a properly completed and duly executed notice of guaranteed delivery (“Notice of Guaranteed Delivery”) in the form provided by us is received by the Depositary, as provided below, by the Expiration Date; and

(iii) the certificates for such Shares (or a confirmation of a book-entry transfer of such Shares into the Depositary’s account at the Book-Entry Transfer Facility), together with a properly completed and duly executed Letter of Transmittal (or a facsimile thereof) together with any required signature guarantee or an Agent’s Message and any other required documents, are received by the Depositary within three Nasdaq trading days after the date of execution of the Notice of Guaranteed Delivery.




Determination of Validity. Our interpretation of the terms and conditions of the Offer (including the Letter of Transmittal and the instructions thereto) will be final and binding to the fullest extent permitted by law. All questions as to the form of documents and the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of Shares will be determined by us, in our reasonable discretion, which determination shall be final and binding. We reserve the absolute right to reject any and all tenders determined by us not to be in proper form or the acceptance of or payment for which may, in the opinion of our counsel, be unlawful. We also reserve the absolute right to waive any condition of the Offer to the extent permitted by applicable law or any defect or irregularity in the tender of any Shares of any particular shareholder, whether or not similar defects or irregularities are waived in the case of other shareholders. No tender of Shares will be deemed to have been validly made until all defects and irregularities have been cured or waived. None of Purchaser, AFG or any of their respective affiliates or assigns, the Depositary, the Information Agent or any other person will be under any duty to give any notification of any defects or irregularities in tenders or incur any liability for failure to give any such notification.

4. Withdrawal Rights

Except as otherwise provided in this Section 4, tenders of Shares are irrevocable. You may withdraw Shares that you have previously tendered pursuant to the Offer pursuant to the procedures set forth below at any time before the Expiration Date. Thereafter, such tenders are irrevocable, except that they may be withdrawn after March 7, 2013, unless such Shares have been accepted for payment as provided in this Offer to Purchase. If we extend the Offer, delay acceptance for payment or payment for Shares or are unable to accept for payment or pay for Shares pursuant to the Offer for any reason, then, without prejudice to our rights under the Offer, the Depositary may, on our behalf, retain all Shares tendered, and such Shares may not be withdrawn except as otherwise provided in this Section 4.

For your withdrawal to be effective, a written, telegraphic or facsimile transmission notice of withdrawal with respect to the Shares must be timely received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase, and the notice of withdrawal must specify (i) the name of the person who tendered the Shares to be withdrawn, and (ii) the number of Shares to be withdrawn and the name of the registered holder of Shares, if different from that of the person who tendered such Shares. If the certificates evidencing Shares to be withdrawn have been delivered to the Depositary, a signed notice of withdrawal with (except in the case of Shares tendered by an Eligible Institution) signatures guaranteed by an Eligible Institution must be submitted before the release of such Shares. In addition, such notice must specify, in the case of Shares tendered by delivery of certificates, the name of the registered holder (if different from that of the tendering shareholder) and the serial numbers shown on the particular certificates evidencing the Shares to be withdrawn or, in the case of Shares tendered by book-entry transfer, the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares.

Withdrawals may not be rescinded, and Shares withdrawn will thereafter be deemed not validly tendered. However, withdrawn Shares may be retendered by again following one of the procedures described in Section 3 at any time before the Expiration Date.

If we include a Subsequent Offering Period (as described in more detail in the Offer - Section 1) following the Offer, no withdrawal rights will apply to Shares tendered in such Subsequent Offering Period and no withdrawal rights apply during such Subsequent Offering Period with respect to Shares previously tendered in the Offer and accepted for payment.

We will determine, in our sole discretion, all questions as to the form and validity (including time of receipt) of any notice of withdrawal, and our determination shall be final and binding. We also reserve the absolute right to waive any defect or irregularity in the withdrawal of Shares by any shareholder, whether or not similar defects or irregularities are waived in the case of any shareholder. None of Purchaser, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defect or irregularity in any notice of withdrawal or

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waiver of any such defect or irregularity or incur any liability for failure to give any such notification.

5. United States Federal Income Tax Consequences

The following is a summary of U.S. federal income tax consequences to National Interstate’s shareholders whose Shares are tendered and accepted for payment pursuant to the Offer and is based on provisions of the Internal Revenue Code of 1986, as amended (the “Code”), and the regulations as promulgated by the Internal Revenue Service (the “IRS”) in effect as of the date of this Offer.

This discussion is limited to National Interstate’s shareholders who hold Shares as capital assets within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all U.S. federal income tax considerations that may be relevant to a shareholder’s particular circumstances. This discussion also does not address all U.S. federal income tax considerations that may be relevant to National Interstate’s shareholders that are subject to special tax rules, including, without limitation, expatriates and certain former citizens of the United States, U.S. Holders whose functional currency is not the U.S. dollar, partnerships and other pass-through entities, “controlled foreign corporations,” “passive foreign investment companies,” financial institutions, insurance companies, brokers, dealers or traders in securities, commodities or currencies, tax-exempt organizations, tax qualified retirement plans, persons liable for the alternative minimum tax and persons holding Shares as part of a hedge, straddle or other risk reduction strategy or as part of a hedging or conversion transaction or other integrated investment. Finally, this discussion does not address the U.S. federal income tax consequences to National Interstate shareholders who acquired their Shares through stock option or stock purchase plan programs or in other compensatory arrangements.

For purposes of this summary, a “U.S. Holder” means a beneficial owner of Shares that is, for U.S. federal income tax purposes (i) an individual who is a citizen or resident of the United States, (ii) a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States, any state thereof or the District of Columbia, (iii) an estate, the income of which is subject to U.S. federal income taxation regardless of its source or (iv) a trust if (a) a court within the United States is able to exerciseprimary supervision over its administration and one or more U.S. persons has the authority to control all of the substantial decisions of the trust or (b) it has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. For purposes of this summary, a “Non-U.S. Holder” is generally a beneficial owner of Shares (other than an entity or arrangement treated as a partnership for U.S. federal income tax purposes) that is not a U.S. Holder.

If a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) holds Shares, the tax treatment of its partners or members will generally depend upon the status of the partner and upon the activities of the partnership. Accordingly, partnerships or other entities treated as partnerships for U.S. federal income tax purposes that hold Shares, and partners or members of those entities, should consult their tax advisors.

You are urged to consult your own tax advisor to determine the tax consequences to you of participating in the Offer or the Merger in light of your particular circumstances (including the application and effect of any state, local or foreign income and other tax laws).

U.S. Holders

Consequences of the Offer. The receipt of cash for Shares pursuant to the Offer or the Merger will be a taxable transaction for U.S. federal income tax purposes. In general, if you hold your Shares as capital assets you will recognize a capital gain or loss in an amount equal to the difference, if any, between the amount of cash received and your adjusted tax basis in the Shares. Gain or loss will be determined separately for each block of Shares (that is, Shares acquired at the same price in a single transaction) tendered in the Offer or the Merger. If you are a non-corporate U.S. Holder who has held the Shares for more than one year, any such capital gain will generally be subject to U.S. federal income tax at a maximum tax rate of 20%. In addition, certain non-corporate shareholders may be subject to an additional 3.8% tax on all or a portion of their “net investment

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income”, which may include all or a portion of the gain recognized in connection with the Offer or the Merger. In the case of Shares that have been held for one year or less, such gains will generally be subject to tax at ordinary income tax rates. The deductibility of capital losses is subject to limitations.

Information Reporting and Backup Withholding. Payments made to U.S. Holders pursuant to the Offer or the Merger will be subject to information reporting and may be subject to backup withholding (currently at a rate of 28%). To avoid backup withholding, U.S. Holders that do not otherwise establish an exemption should complete and return the Substitute Form W-9 included in the Letter of Transmittal, certifying that such U.S. Holder is a U.S. person, the taxpayer identification number provided is correct and such U.S. Holder is not subject to backup withholding. Certain holders (including corporations) generally are not subject to backup withholding. Backup withholding is not an additional tax. U.S. Holders may use amounts withheld as a credit against their U.S. federal income tax liability or may claim a refund of any excess amounts withheld by timely filing a claim for refund with the IRS.

Non-U.S. Holders

Consequences of the Offer. A Non-U.S. Holder generally will not be subject to U.S. federal income tax on gain realized upon the receipt of cash for Shares pursuant to the Offer or the Merger unless (i) the gain is effectively connected with the conduct of a trade or business by the Non-U.S. Holder in the United States or (ii) in the case of a Non-U.S. Holder that is an individual, such Non-U.S. Holder is present in the United States for 183 days or more in the taxable year of the disposition and certain other conditions exist.

Unless an applicable tax treaty provides otherwise, gains described in (i) above generally will be subject to U.S. federal income tax in the same manner as if the Non-U.S. Holder were a resident of the United States (and corporate Non-U.S. Holders may also be subject to a branch profits tax at a rate of 30% or such lower rate as may be specified by an applicable income tax treaty). Gains described in (ii) above will generally be subject to U.S. federal income tax at a flat rate of 30%, but may be offset by U.S. source capital losses.

Information Reporting and Backup Withholding. Payments made to Non-U.S. Holders pursuant to the Offer or the Merger may be subject to information reporting and backup withholding (currently at a rate of 28%). To avoid backup withholding, Non-U.S. Holders should provide the Depositary with a properly executed IRS Form W-8BEN (or other applicable IRS Form W-8) certifying such Non-U.S. Holder’s non-U.S. status or by otherwise establishing an exemption. Backup withholding is not an additional tax. Non-U.S. Holders may use amounts withheld as a credit against their U.S. federal income tax liability or may claim a refund of any excess amounts withheld by timely filing a claim for refund with the IRS.

6. Price Range of the Shares; Dividends

The Shares are listed on the Nasdaq under the symbol “NATL.” The following table sets forth, for each of the fiscal quarters indicated, the high and low sales prices per Share on the Nasdaq Stock Market.

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Common StockHigh Low

Year ended December 31, 2012

First Quarter $ 28.15 $ 21.86

Second Quarter $ 26.66 $ 23.06Third Quarter $ 27.63 $ 23.15

Fourth Quarter $ 29.08 $ 24.82Year ended December 31, 2013

First Quarter $ 35.23 $ 28.80Second Quarter $ 32.05 $ 26.45

Third Quarter $ 36.36 $ 24.99




On February 4, 2014, the last full trading day prior to the date of the commencement of the Offer, the closing sales price of National Interstate common stock on the Nasdaq Stock Market was $22.17 per Share. On February 14, 2014, the last trading day before the date we increased the price per Share we will pay in the Offer to $30.00 per Share, the closing sales price of National Interstate common stock on the Nasdaq Stock Market was $28.93. Shareholders are urged to obtain a current market price for National Interstate common stock.

The Board of National Interstate has declared and paid quarterly dividends of $0.11 and $0.10 per common Share in 2013 and 2012, respectively, as well as a one-time special dividend of $2.00 per common Share in the fourth quarter of 2012. If Purchaser acquires control of National Interstate, Purchaser currently intends that no dividends will be declared on the Shares prior to the acquisition of the entire equity interest in National Interstate.

7. Certain Information Concerning National Interstate

Except as specifically set forth herein, the information concerning National Interstate contained in this Offer to Purchase has been taken from or is based upon information furnished by National Interstate or its representatives or upon publicly available documents and records on file with the SEC and other public sources. The summary information set forth below is qualified in its entirety by reference to National Interstate’s public filings with the SEC (which may be obtained and inspected as described below) and should be considered in conjunction with the more comprehensive financial and other information in such reports and other publicly available information. We have no knowledge that would indicate that any statements contained herein based on such documents and records are untrue.

National Interstate Corporation’s principal offices are located at 3250 Interstate Drive, Richfield, Ohio 44286-9000, and its telephone number at such address is (330) 659-8900. National Interstate operates as an insurance holding company group that underwrites and sells traditional and alternative property and casualty insurance products primarily to the passenger transportation, trucking and moving and storage industries, general commercial insurance to small businesses in Hawaii and Alaska and personal insurance to owners of recreational vehicles and commercial vehicles throughout the United States. National Interstate is an Ohio Corporation. At December 31, 2012 National Interstate employed 546 people.

The financial statements included in National Interstate’s Annual Report on Form 10-K for the years ended December 31, 2012 and 2011 and National Interstate’s Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2013, June 30, 2013 and September 30, 2013, are incorporated by reference into this Offer to Purchase. National Interstate’s book value per Share for the quarterly period ended September 30, 2013 is identified in Exhibit 99.1 to Current Report on Form 8-K filed on October 31, 2013 and is incorporated by reference into this Offer to Purchase.

National Interstate does not include a ratio of earnings to fixed charges in regularly prepared financial statements. The reports have been filed with the SEC and may be inspected at, and copies

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Fourth Quarter $ 30.76 $ 22.91From January 1, 2014

First Quarter

(through February 19, 2014) $ 30.20 $ 21.18




thereof may be obtained from, the same places and in the same manner set forth under “Available Information”below.

Available Information

National Interstate’s common stock is registered under the Exchange Act. Accordingly, National Interstate is subject to the informational reporting requirements of the Exchange Act and, in accordance therewith, is required to file periodic reports, proxy statements and other information with the SEC relating to its business, financial condition and other matters. Information as of particular dates concerning National Interstate’s directors and officers, their remuneration, stock options granted to them, the principal holders of National Interstate’s securities and any material interest of such persons in transactions with National Interstate is required to be disclosed in proxy statements distributed to National Interstate’s Shareholders and filed with the SEC. Such reports, proxy statements and other information can be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. Information regarding the public reference facilities may be obtained from the SEC by telephoning 1-800-SEC-0330. National Interstate’s filings are also available to the public on the SEC’s website (http://www.sec.gov). Copies of such materials may also be obtained by mail from the Public Reference Section of the SEC at 100 F Street, N.E., Washington, D.C. 20549 at prescribed rates.

8. Certain Information Concerning AFG and Purchaser

American Financial Group, Inc. AFG is a holding company that, through subsidiaries, is engaged primarily in property and casualty insurance, focusing on specialized commercial products for businesses, and in the sale of fixed and fixed-index annuities in the individual, bank and education markets. AFG is an Ohio corporation. The principal offices of AFG are located at 301 East Fourth Street, Cincinnati, Ohio 45202, and its telephone number at such address is (513) 579-2121.

Great American Insurance Company. Purchaser is a direct wholly-owned subsidiary of AFG. Purchaser is an Ohio corporation. Purchaser’s specialty property and casualty insurance operations consist of approximately 30 niche insurance businesses offering a wide range of commercial coverages. These businesses report through Purchaser executives up to the President and chief operating officer and operate under a business model that allows local decision-making for underwriting, claims and policy servicing in each of the niche operations. These businesses are managed by experienced professionals in particular lines of business or customer groups and operate autonomously but with certain central controls and accountability. The principal offices of Purchaser are located at 301 East Fourth Street, Cincinnati, Ohio 45202, and its telephone number at such address is (513) 579-2121.

The name, citizenship, business address, business telephone number, current principal occupation (including the name, principal business and address of the organization in which such occupation is conducted) and material positions held during the past five years of each of the directors and executive officers of each of Purchaser and AFG is set forth in Schedule A to this Offer to Purchase.

Purchaser and AFG have made no arrangements in connection with the Offer to provide holders of Shares access to their corporate files or to obtain counsel or appraisal services at their expense. For a discussion of dissenters’ rights, see “Special Factors—Section 9. Dissenters’ Rights; Rule 13e-3.”

None of AFG, Purchaser or, to the knowledge of AFG or Purchaser after reasonable inquiry, any of the persons listed in Schedule A to this Offer to Purchase, has, during the past five years, (i) been convicted in a criminal proceeding or (ii) been a party to any judicial or administrative proceeding that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, U.S. federal or state securities laws, or a finding of any violation of U.S. federal or state securities laws.

As of the date of this Offer to Purchase, Purchaser beneficially owns 10,200,00 Shares, representing approximately 51.7% of the outstanding Shares.

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Except as set forth elsewhere in this Offer to Purchase or Schedule I to this Offer to Purchase: (i) none of AFG, Purchaser and, to AFG’s and Purchaser’s knowledge, the persons listed in Schedule A to this Offer to Purchase or any associate or majority owned subsidiary of AFG, Purchaser or of any of the persons so listed, beneficially owns or has a right to acquire any Shares or any other equity securities of National Interstate, (ii) none of AFG, Purchaser and, to AFG’s and Purchaser’s knowledge, the persons or entities referred to in clause (i) above has effected any transaction in the Shares during the past 60 days, (iii) none of AFG, Purchaser and, to AFG’s and Purchaser’s knowledge, the persons listed in Schedule A to this Offer to Purchase, has any contract, arrangement, understanding or relationship with any other person with respect to any securities of National Interstate (including, but not limited to, any contract, arrangement, understanding or relationship concerning the transfer or the voting of any such securities, joint ventures, loan or option arrangements, puts or calls, guaranties of loans, guaranties against loss or the giving or withholding of proxies, consents or authorizations), (iv) during the two years before the date of this Offer to Purchase, there have been no transactions between AFG, Purchaser, their subsidiaries or, to AFG’s and Purchaser’s knowledge, any of the persons listed in Schedule A to this Offer to Purchase, on the one hand, and National Interstate or any of its executive officers, directors or affiliates, on the other hand, that would require reporting under SEC rules and regulations, and (v) during the two years before the date of this Offer to Purchase, there have been no contacts, negotiations or transactions between AFG, Purchaser, their subsidiaries or, to AFG’s and Purchaser’s knowledge, any of the persons listed in Schedule A to this Offer to Purchase, on the one hand, and National Interstate or any of its subsidiaries or affiliates, on the other hand, concerning a merger, consolidation or acquisition, a tender offer or other acquisition of securities, an election of directors or a sale or other transfer of a material amount of assets.

We do not believe our financial condition or the financial condition of AFG is relevant to your decision whether to tender your Shares and accept the Offer because (i) the Offer is being made for all outstanding Shares solely for cash, (ii) consummation of the Offer is not conditioned upon any financing arrangements, (iii) if we consummate the Offer, we expect to acquire all remaining Shares for the same cash price in a merger or other business combination with National Interstate and (iv) AFG, together with its controlled affiliates, has, and will arrange for us to have, sufficient funds to purchase all outstanding Shares pursuant to the Offer and such merger or other business combination with National Interstate and to pay related fees and expenses.

9. Source and Amount of Funds

We will need approximately $267.0 million to consummate the Offer and to pay related fees and expenses. All of the funds necessary to consummate the Offer and to pay the related fees and expenses will consist of internally available cash of Purchaser.

10. Dividends and Distributions

If, on or after the date of this Offer to Purchase, National Interstate (i) splits, combines or otherwise changes the Shares or its capitalization, (ii) acquires Shares or otherwise causes a reduction in the number of Shares, (iii) issues or sells additional Shares, or any shares of any other class of capital stock, other voting securities or any securities convertible into or exchangeable for, or rights, warrants or options, conditional or otherwise, to acquire, any of the foregoing or (iv) discloses that it has taken such action, then, without prejudice to our rights under Section 11, we may make such adjustments in the Offer Price (and other terms of the Offer) as we deem appropriate to reflect such split, combination or other change, including the number or type of securities offered to be purchased.

If, on or after the date of this Offer to Purchase, National Interstate declares or pays any cash dividend on the Shares or other distribution on the Shares, or issues with respect to the Shares any additional Shares or Rights, shares of any other class of capital stock, other than voting securities or any securities convertible into, or rights, warrants or options, conditional or otherwise, to acquire, any of the foregoing, payable or distributable to National Interstate shareholders of record on a date prior to the transfer of the Shares purchased pursuant to the Offer to us or our nominee or

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transferee on National Interstate stock transfer records, then, subject to the provisions of Section 11, (i) the Offer Price may be reduced by the amount of any such cash dividends or cash distributions and (ii) the whole of any such non-cash dividend, distribution or issuance to be received by the tendering shareholders will (a) be received and held by the tendering shareholders for our account and will be required to be promptly remitted and transferred by each tendering shareholder to the Depositary for our account, accompanied by appropriate documentation of transfer or (b) at our direction, be exercised for our benefit, in which case the proceeds of such exercise will promptly be remitted to us. Pending such remittance and subject to applicable law, we will be entitled to all rights and privileges as owner of any such non-cash dividend, distribution, issuance or proceeds and may withhold the entire Offer Price or deduct from the Offer Price the amount or value thereof, as determined by us in our sole discretion.

11. Conditions to the Offer

Notwithstanding any other provision of this Offer to Purchase, we are not required to accept for payment or, subject to any applicable rules and regulations of the SEC (including Rule 14e-1(c) under the Exchange Act (relating to our obligation to pay for or return tendered Shares promptly after termination or expiration of the Offer)), pay for any Shares, and may terminate or amend the Offer, if before the Expiration Date the Minimum Tender Condition (if not waived by Purchaser in its sole and absolute discretion), or if, at any time on or after the date of this Offer to Purchase, and on or prior to the expiration of the Offer (or thereafter in relation to any condition dependent upon the receipt of government approvals), any of the following conditions exist:

(a) there shall have been threatened, instituted or be pending any litigation, suit, claim, action, proceeding or investigation before any supranational, national, state, provincial, municipal or local government, governmental, regulatory or administrative authority, agency, instrumentality or commission or any court, tribunal, or judicial or arbitral body (a “Governmental Authority”) (i) challenging or seeking to, or which, in the judgment of AFG or Purchaser, is reasonably likely to, make illegal, delay, or otherwise, directly or indirectly, restrain or prohibit or make more costly, or in which there are allegations of any violation of law, rule or regulation relating to, the making of or terms of the Offer or the provisions of this Offer to Purchase or the acceptance for payment of any or all of the Shares by AFG, Purchaser or any other affiliate of AFG, or seeking to obtain damages in connection with the Offer or the Merger, (ii) seeking to, or which in the judgment of Purchaser is reasonably likely to, prohibit or limit the full rights of ownership or operation by National Interstate, AFG or any of their affiliates of all or any of the business or assets of National Interstate, AFG or any of their affiliates or to compel National Interstate, AFG or any of their respective subsidiaries to dispose of or to hold separate all or any portion of the business or assets of National Interstate, AFG or any of their respective affiliates, (iii) seeking to, or which in the judgment of Purchaser is reasonably likely to, impose or confirm any voting, procedural, price or other requirements in addition to those required by federal securities laws and the ORC (as in effect on the date of this Offer to Purchase) in connection with the making of the Offer, the acceptance for payment of, or payment for, some or all of the Shares by Purchaser, AFG or any other affiliate of AFG or the consummation by Purchaser, AFG or any other affiliate of AFG of the Merger, including, without limitation, the right to vote any Shares acquired by Purchaser pursuant to the Offer or otherwise on all matters properly presented to National Interstate’s shareholders, (iv) seeking to require divestiture by AFG, Purchaser or any other affiliate of AFG of any Shares, (v) seeking, or which in the reasonable judgment of Purchaser is likely to result in, any material diminution in the benefits expected to be derived by Purchaser, AFG or any other affiliate of AFG as a result of the transactions contemplated by the Offer, the Merger or any other business combination with National Interstate, (vi) relating to the Offer which, in the reasonable judgment of Purchaser, might materially adversely affect National Interstate or any of its affiliates or Purchaser, AFG or any other affiliate of AFG or the value of the Shares or (vii) which in reasonable the judgment of Purchaser could otherwise prevent, adversely affect or materially delay consummation of the Offer, or the Merger;

(b) there shall have been action taken or any statute, rule, regulation, judgment, injunction, order, decree, legislation or interpretation enacted, promulgated, amended, issued, enforced or

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deemed, or which becomes, applicable to (i) AFG, National Interstate or any subsidiary or affiliate of AFG or National Interstate or (ii) the Offer, the acceptance for payment of or for the Shares, the Merger or any other business combination with National Interstate, by any U.S. or non-U.S. legislative body or Governmental Authority with appropriate jurisdiction, that in the reasonable judgment of Purchaser might result, directly or indirectly, in any of the consequences referred to in clauses (i) through (vii) of paragraph (a) above;

(c) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or in the over-the-counter market in the United States, (ii) in the reasonable judgment of Purchaser, a declaration of a banking moratorium or any suspension of payments in respect of banks by federal or state authorities in the United States, the European Union or elsewhere, (iii) any limitation (whether or not mandatory) by any governmental authority or agency on, or other event which, in the reasonable judgment of Purchaser, might materially adversely affect the extension of credit by banks or other lending institutions, (iv) commencement of a war, armed hostilities or the occurrence of any other national or international calamity directly or indirectly involving the United States or any attack on, or outbreak or act of terrorism involving, the United States, (v) in the reasonable judgment of Purchaser, a material adverse change (or development or threatened development involving a prospective material adverse change) in the United States dollar or any other currency exchange rates or a suspension of, or limitation on, the markets therefor, (vi) any change in the general political, market, economic or financial conditions in the United States, the European Union or elsewhere that could, in the reasonable judgment of Purchaser, have a material adverse effect on the business, properties, assets, liabilities, capitalization, shareholders’ equity, condition (financial or otherwise), operations, licenses, franchises, results of operations or prospects of AFG and its subsidiaries, taken as a whole, or National Interstate and any of its subsidiaries, taken as a whole, (vii) any decline in any of the Dow Jones Industrial Average, the Standard & Poor’s Index of 500 Industrial Companies or the Nasdaq-100 Index by an amount in excess of 15% measured from the business day immediately preceding the time of commencement of the Offer or any material adverse change in the market price in the Shares, (viii) in the reasonable judgment of Purchaser, the nationalization, insolvency or placement into receivership of, or provision of extraordinary assistance to, any major bank in the United States or European Union, or the taking of possession of any such bank by a governmental or regulatory authority, (ix) in the reasonable judgment of Purchaser, the default by any member of the European Union in payment of, or the inability of any such member to pay, any of its debts as they become due or the withdrawal (or announcement of an intent to withdraw) by any member of the European Monetary Union therefrom or any such member otherwise ceasing (or announcing its intent to cease) to maintain the Euro as its official currency, (x) in the reasonable judgment of Purchaser, any material adverse change in the market price of the Shares or in the United States or European securities or financial markets or (xi) in the case of any of the foregoing existing at the time of commencement of the Offer, a material acceleration or worsening thereof;

(d) any approval, permit, authorization, favorable review, clearance or consent of any Governmental Authority shall not have been obtained, on terms satisfactory to Purchaser in its reasonable judgment; or

(e) the Minimum Tender Condition shall not have been satisfied.

The foregoing conditions are for the benefit of AFG and Purchaser and may be waived by AFG and Purchaser in whole or in part at any time and from time to time in the sole discretion of AFG or Purchaser, in each case, subject to the applicable rules and regulations of the SEC. The determination as to whether any condition has been satisfied will be made in the exclusive judgment of AFG and Purchaser and will be final and binding. If Purchaser waives the Minimum Tender Condition, Purchaser will purchase all Shares tendered and not withdrawn in the Offer prior to the Expiration Date.

For purposes of determining whether the Minimum Tender Condition has been satisfied, AFG and Purchaser have the right to include for purposes of its determination thereof Shares tendered in the Offer pursuant to guaranteed delivery procedures. The failure by AFG or Purchaser at any time to exercise its rights under any of the foregoing conditions will not be deemed a waiver of any such

39




rights and each such right will be deemed an ongoing right which may be asserted at any time or from time to time.

12. Effect of the Offer on the Market for the Shares; Nasdaq Listing; Exchange Act Registration; Margin Regulations

Market for the Shares. The purchase of Shares by Purchaser pursuant to the Offer will reduce the number of holders of Shares and the number of Shares that might otherwise trade publicly and, depending upon the number of Shares so purchased, could adversely affect the liquidity and market value of the remaining Shares held by the public. Purchaser cannot predict whether the reduction in the number of Shares that might otherwise trade publicly would have an adverse or beneficial effect on the market price for, or the marketability of, the Shares or whether it would cause future market prices to be greater or less than or the same as the Offer Price. Because if Purchaser is successful in owning at least 90% of the Shares (on a fully diluted basis) following the Offer Purchaser intends to complete the Merger promptly after it consummates the Offer, any such effect on the market for Shares will be temporary. In the event Purchaser waives the Minimum Tender Condition and acquires Shares constituting less than 90% of the outstanding Shares, some or all of the effects described in the sentences above could exist and continue indefinitely.

Stock Listing. The Shares are listed on the Nasdaq Stock Market on the Nasdaq’s Global Select Market. After completion of the Offer and depending upon the aggregate market value and the per Share price of any Shares not purchased pursuant to the Offer, the Shares may no longer meet the requirements for continued listing on Nasdaq. According to Nasdaq’s published guidelines, Nasdaq may delist the Shares if, among other things: (i) the number of total shareholders falls below 300; (ii) the number of the number of publicly held Shares (exclusive of holdings of directors and officers of National Interstate and their immediate families and other concentrated holdings of 10% or more) should fall below 500,000; (iii) the market value of such publicly held Shares falls below $1,000,000; or (iv) the bid price for a Share falls below $1.00. If as a result of the purchase of Shares pursuant to the Offer, the Shares no longer meet the requirements of Nasdaq for continued listing and the listing of the Shares is discontinued, the market for the Shares could be adversely affected.

If Nasdaq were to delist the Shares, it is possible that the Shares would continue to trade on other securities exchanges or in the over-the-counter market and that price quotations would be reported by such exchanges or other sources. The extent of the public market for the Shares and the availability of such quotations would depend, however, upon such factors as the number of shareholders and/or the aggregate market value of the publicly traded Shares remaining at such time, the interest in maintaining a market in the Shares on the part of securities firms, the possible termination of registration under the Exchange Act as described below, and other factors. Purchaser cannot predict whether the reduction in the number of Shares that might otherwise trade publicly would have an adverse or beneficial effect on the market price for, or the marketability of, the Shares or whether it would cause future market prices to be greater or lesser than the Offer Price.

If Purchaser is successful in owning at least 90% of the Shares (on a fully diluted basis) following the Offer, AFG and Purchaser intend to cause the Merger to be completed as soon as reasonably practicable. After the Merger is completed, there will be no public market for the Shares and no holders of the Shares other than a subsidiary of AFG, and the Shares will be delisted from Nasdaq.

Exchange Act Registration. National Interstate’s common stock is currently registered under the Exchange Act. Registration of the common stock under the Exchange Act may be terminated upon application of National Interstate to the SEC, if the Shares are neither listed on a national securities exchange nor held by 300 or more holders of record. Termination of registration of the common stock under the Exchange Act would substantially reduce the information required to be furnished by National Interstate to its shareholders and to the SEC in respect of National Interstate’s common stock and would make certain provisions of the Exchange Act no longer applicable to National Interstate, such as the short-swing profit recovery provisions of Section 16(b) and the requirement of furnishing a proxy statement pursuant to Section 14(a) in connection with shareholders’ meetings and the related requirement of furnishing an annual report to shareholders. Furthermore, the ability

40




of “affiliates” of National Interstate and persons holding “restricted securities” of National Interstate to dispose of such securities pursuant to Rule 144 or Rule 144A promulgated under the Securities Act may be impaired or eliminated. Purchaser currently intends to seek the delisting of National Interstate’s common stock from Nasdaq and to cause National Interstate to terminate the registration of the common stock under the Exchange Act as soon as practicable after consummation of a Merger if the requirements for such delisting and termination of registration are met.

Margin Regulations. The Shares are presently “margin securities” under the regulations of the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”), which status has the effect, among other things, of allowing brokers to extend credit on the collateral of the Shares. Depending upon factors similar to those described above regarding stock exchange listing and market quotations, it is possible that, following the Offer, the Shares would no longer constitute “margin securities” for the purposes of the margin regulations of the Federal Reserve Board and, therefore, could no longer be used as collateral for loans made by brokers. In addition, if registration of National Interstate’s common stock under the Exchange Act were terminated, the Shares would no longer constitute “margin securities.”

13. Certain Legal Matters; Regulatory Approvals

General. Neither AFG nor Purchaser is aware of (i) any license or regulatory permit that appears to be material to the business of National Interstate that might be adversely affected by the acquisition of Shares by AFG or Purchaser pursuant to the Offer, the Merger or otherwise, or (ii) except as discussed herein, any approval or other action by any Governmental Entity that would be required prior to the acquisition of Shares by Purchaser pursuant to the Offer, the Merger or otherwise. Should any such approval or other action be required, Purchaser and AFG presently contemplate that such approval or other action will be sought. There can be no assurance that any such approval or other action, if needed, would be obtained, or would be obtained without substantial conditions, or that failure to obtain any such approval or other action might not result in consequences materially adverse to National Interstate’s business in the event that such approvals were not obtained or such other actions were not taken. If certain types of adverse action are taken with respect to the matters discussed below, Purchaser could decline to accept for payment, or pay for, any Shares tendered. See “The Offer—Section 11. Conditions to the Offer” for certain conditions to the Offer, including conditions with respect to governmental actions.

State Anti-takeover Statutes. A number of states have adopted laws and regulations applicable to offers to acquire shares of corporations that are incorporated or have substantial assets, shareholders and/or a principal place of business in such states. National Interstate is incorporated under the laws of the State of Ohio. Section 1701.831 of the ORC (also known as the “control share acquisition law”) generally prohibits transactions in which a person obtains one-fifth or more but less than one-third of all the voting power of a corporation, one-third or more but less than a majority of all the voting power of a corporation, or a majority or more of all the voting power of a corporation, unless the shareholders approve the transaction at a special meeting, at which a quorum is present, by both the affirmative vote of a majority of the voting power of the corporation represented at the meeting and by the affirmative vote of a majority of the voting power of the corporation represented at the meeting excluding the voting power of “interested shares.” “Interested shares” are shares held by the acquiring person, an officer of the corporation elected or appointed by the directors of the corporation or an employee of the corporation who is also a director of such corporation. A corporation may provide in its Articles of Incorporation or Code of Regulations that Section 1701.831 does not apply to control share acquisitions of its shares. National Interstate has not opted out of this statute.

Section 1704.02 of the ORC (also known as the “merger moratorium law”) prohibits any “Chapter 1704 transaction” for a period of three years from the date on which a shareholder first becomes an “interested shareholder” unless the directors of the corporation, before the shareholder became an interested shareholder, approved the Chapter 1704 transaction or the transaction pursuant to which the shareholder became an interested shareholder. A “Chapter 1704 transaction” is defined to include a variety of transactions such as mergers, consolidations, combinations or majority share acquisitions between an Ohio corporation and an interested shareholder or an affiliate of an

41




interested shareholder. An “interested shareholder” is defined generally as any person who, directly or indirectly, beneficially owns 10% or more of the outstanding voting stock of the corporation. After the three-year period, a Chapter 1704 transaction is prohibited unless certain fair price provisions are complied with, the directors of the corporation approved the purchase of shares which made the shareholder an interested shareholder, or the shareholders of the corporation approve the transaction by the affirmative vote of two-thirds of the voting power of the corporation or such other percentage set forth in the articles of incorporation of the corporation, if any, provided that a majority of the disinterested shareholders approve the transaction. National Interstate has not opted out of this statute.

Because AFG (indirectly) and Purchaser (directly) already own a majority of all the voting power of National Interstate, AFG and Purchaser do not believe that Section 1701.831 of the ORC would prevent Purchaser from consummating the Offer or the Merger. Further, because AFG and Purchaser became interested shareholders in 1989, AFG and Purchaser do not believe that Section 1704.02 of the ORC would prevent Purchaser from consummating the Offer or the Merger.

National Interstate conducts business in a number of states throughout the United States, some of which have enacted takeover laws. AFG and Purchaser do not believe that the anti-takeover laws and regulations of any state will by their terms apply to the Offer or the Merger, and neither AFG nor Purchaser has attempted to comply with any state anti-takeover statute or regulation. AFG and Purchaser reserve the right to challenge the applicability or validity of any state law or regulation purporting to apply to the Offer or the Merger, and neither anything in this Offer to Purchase nor any action taken in connection herewith is intended as a waiver of such right. In the event it is asserted that one or more state takeover statutes is applicable to the Offer or the Merger and an appropriate court does not determine that such statute is inapplicable or invalid as applied to the Offer or the Merger, AFG or Purchaser might be required to file certain information with, or to receive approval from, the relevant state authorities, and Purchaser might be unable to accept for payment or pay for Shares tendered pursuant to the Offer, or be delayed in completing the Offer. In addition, if enjoined, Purchaser might be unable to accept for payment any Shares tendered pursuant to the Offer, or be delayed in continuing or completing the Offer and consummating the Merger. In such case, Purchaser may not be obligated to accept for payment any Shares tendered in the Offer. See “The Offer—Section 11. Conditions to the Offer.”

Litigation Related to the Offer. On February 11, 2014, a putative shareholder derivative and class action lawsuit captioned Robert Bernatchez vs. American Financial Group, Inc., et al., No. A-1400806 was filed by a purported stockholder of National Interstate in the Court of Common Pleas of Hamilton County, Ohio (the “Bernatchez Action”). The complaint filed in the Bernatchez Action names AFG and Purchaser as defendants and National Interstate as nominal defendant. The complaint alleges that the Offer is coercive because AFG and Purchaser could cash out the National Interstate shareholders who do not tender their shares in the Offer at a lower price than the Offer Price and because there is a limited amount of time for National Interstate’s shareholders to make a decision with respect to the Offer. The complaint also alleges that the process undertaken by National Interstate’s board of directors involved conflicts of interest, that the Offer Price is unfair to National Interstate’s shareholders and that the Schedule TO lacks financial information necessary for National Interstate’s shareholders to make a sound decision with respect to the Offer. The complaint seeks compensatory and rescissory damages and unspecified injunctive relief. AFG and Purchaser have reviewed the allegations contained in the complaint filed in the Bernatchez Action and believe they are without merit. AFG and Purchaser intend to defend the Bernatchez Action vigorously.

On February 18, 2014, a putative shareholder derivative and class action lawsuit captioned Cambridge Retirement System vs. American Financial Group, Inc., et al., No. CV-2014-02-0819 was filed by a purported stockholder of National Interstate in the Court of Common Pleas of Summit County, Ohio (the “Cambridge Action”). The complaint filed in the Cambridge Action names AFG and Purchaser as defendants and National Interstate as nominal defendant. The complaint also names as defendants directors of the National Interstate board of directors who are executives or former executives of AFG and/or Purchaser (the “Defendant Directors”). The complaint asserts class action and derivative claims against AFG and the Purchaser for breach of fiduciary duty and aiding and abetting a breach of fiduciary duty by the Defendant Directors. It also asserts class and

42




derivative claims against the Defendant Directors for breach of the fiduciary duties of due care, good faith, candor and loyalty. In general, the complaint in the Cambridge Action alleges that the tender offer is unfair and coercive, is unfairly priced even at the revised price of $30 per share and that, due to alleged conflicts of interest, Defendants have refused requests to form an independent special committee to review the offer and make a recommendation to the National Interstate shareholders. The complaint seeks compensatory and rescissory damages and unspecified injunctive relief. AFG and Purchaser intend to defend the Cambridge Action vigorously.

Antitrust. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), and the rules that have been promulgated thereunder by the Federal Trade Commission (the “FTC”), certain acquisition transactions may not be consummated unless certain information has been furnished to the Antitrust Division of the Department of Justice (the “DOJ”) and the FTC and certain waiting period requirements have been satisfied. As explained more fully below, however, the Offer is not a reportable transaction under the HSR Act.

AFG currently beneficially owns more than 50% of the outstanding voting securities of National Interstate. Under the HSR Act, this level of ownership means that AFG is in “control” of National Interstate for the purposes of such regulations. Based on the foregoing, AFG and Purchaser believe no HSR Act filing is required in connection with the Offer and the Merger.

Federal Reserve Board Regulations. Regulations T, U and X (the “Margin Regulations”) of the Federal Reserve Board restrict the extension or maintenance of credit for the purpose of buying or carrying margin stock, including the Shares, if the credit is secured directly or indirectly by margin stock. AFG is funding the acquisition of the Shares from its internally available funds. The Margin Regulations are thus inapplicable to the Offer.

State Insurance Regulatory Approvals. Subsidiaries of AFG and National Interstate are regulated by state insurance regulators. Completion of the Offer and the Merger may be subject to certain requirements for prior notice to and/or approval by state insurance regulators applicable to transactions between a domestic insurance company and its affiliates (referred to as “Form A Notice”). Under the various state insurance laws a domestic insurer may not enter into certain specified transactions in excess of specified size thresholds with an affiliate unless the insurer has provided state insurance regulators thirty days’ prior notice and the transaction has not been disapproved during that time.

14. Fees and Expenses

AFG has retained Innisfree M&A Incorporated to serve as the Information Agent, and American Stock Transfer & Trust Company, LLC, to serve as the Depositary in connection with the Offer. The Information Agent may contact holders of Shares by personal interview, mail, telephone and other methods of electronic communication and may request brokers, dealers, commercial banks, trust companies and other nominees to forward the Offer materials to beneficial holders. Each of the Information Agent and the Depositary will receive reasonable and customary compensation for their services, be reimbursed for certain reasonable out-of-pocket expenses and be indemnified against certain liabilities in connection with their services, including certain liabilities and expenses under the federal securities laws.

Except as discussed above, neither AFG nor Purchaser will pay any fees or commissions to any broker or dealer or other person or entity in connection with the solicitation of tenders of Shares pursuant to the Offer. Brokers, dealers, banks and trust companies will be reimbursed by Purchaser for customary mailing and handling expenses incurred by them in forwarding the Offer materials to their customers.

The following is an estimate of fees and expenses to be incurred by AFG and Purchaser in connection with the Offer:

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Filing Fees $ 36,790

Paying Agent and Depositary Fees $ 50,000Information Agent $ 60,000

Legal, Printing and Mailing and other Miscellaneous Fees and Expenses $ 400,000

Total $ 546,790




In addition, National Interstate will incur its own fees and expenses in connection with the Offer.

15. Miscellaneous

The Offer is being made solely by this Offer to Purchase and the related Letter of Transmittal and is being made to the holders of Shares other than AFG and its subsidiaries, including Purchaser. Purchaser is not aware of any state where the making of the Offer is prohibited by administrative or judicial action pursuant to any valid state statute. If Purchaser becomes aware of any valid state statute prohibiting the making of the Offer or the acceptance of the Shares pursuant thereto, Purchaser will make a good faith effort to comply with such statute or seek to have such statute declared inapplicable to the Offer. If, after such good faith effort, Purchaser cannot comply with such state statute, the Offer will not be made to (nor will tenders be accepted from or on behalf of) holders of Shares in such state.

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION ON BEHALF OF AFG OR PURCHASER NOT CONTAINED HEREIN OR IN THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. NO BROKER, DEALER, BANK, TRUST COMPANY, FIDUCIARY OR OTHER PERSON SHALL BE DEEMED TO BE THE AGENT OF AFG, PURCHASER, THE DEPOSITARY OR THE INFORMATION AGENT FOR THE PURPOSE OF THE OFFER.

Purchaser and AFG have filed with the SEC a Tender Offer Statement on Schedule TO and Transaction Statement on Schedule 13E-3 pursuant to Rules 14d-3 and 13e-3 under the Exchange Act, together with all exhibits thereto, furnishing certain additional information with respect to the Offer. Such Schedule TO and Schedule 13E-3 and any amendments thereto, including exhibits, should be available for inspection and copies should be obtainable in the same manner described in “The Offer—Section 7. Certain Information Concerning National Interstate—Available Information.”

GREAT AMERICAN INSURANCE COMPANY

February 21, 2014

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SCHEDULE A

INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS OF AFG

1. Directors and Executive Officers of AFG. The following table sets forth the name and present principal occupation or employment, and material occupations, positions, offices or employments for the past five years, of each director and executive officer of AFG. Unless otherwise indicated, each such person is a U.S. citizen, the business address of each such person is c/o American Financial Group, Inc., Great American Insurance Group Tower, 18th Floor, 301 East Fourth Street, Cincinnati, Ohio 45202, and the telephone number of each such person is (513) 412-4802 and each such person has been engaged in AFG’s or its subsidiaries’ business actively and continuously for the past five years. Neither AFG nor any of the listed persons, during the past five years, has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction as a result of which such person was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting activities subject to, federal or state securities laws or finding any violation of such laws.

A-1

NamePosition with Reporting Person

Principal Occupation or Employment; Material Positions Held During the Past Five Years

Carl H. Lindner III Co-Chief Executive Officer, Co-President and Director

Co-Chief Executive Officer since January 2005, and since 1996, Co-President. Until 2010, for over ten years, served as President, and since 2010, has served as Chairman of Great American Insurance Company, a subsidiary of the Company, and has been principally responsible for the Company’s property and casualty insurance operations.

S. Craig Lindner Co-Chief Executive Officer, Co-President and Director

Co-Chief Executive Officer since January 2005, and since 1996, Co-President. For more than ten years, President of Great American Financial Resources, Inc., a subsidiary of AFG, and has been principally responsible for the Company’s annuity operations. Until 2011, for over ten years, served as President of American Money Management Corporation (“AMMC”), a subsidiary of AFG that provides investment services for AFG and certain of its affiliated companies.

Kenneth C. Ambrecht Director Since December, 2005, Mr. Ambrecht has been a Principal of KCA Associates, LLC, an investment banking firm

John B. Berding President of American Money Management Corporation and Director

President of AMMC since January 2011. Prior to election as President, held a number of investment-related executive positions with AMMC and other AFG subsidiaries, most recently serving as Executive Vice President of AMMC since 2009.



Joseph E. (Jeff) Consolino Executive Vice President, Chief Financial Officer, and Director

Executive Vice President and Chief Financial Officer of the Company since February 2013. Also serves, since February 2013, as Chairman of the Board of National Interstate. Prior to joining the Company, served as president and chief financial officer of Validus Holdings, Ltd., a Bermuda-based property and casualty reinsurance company. Prior to joining Validus




A-2

in March 2006, served as a managing director in Merrill Lynch’s investment banking division.

Virginia “Gina” C. Drosos Director President of Assurex Health, a personalized medicine company specializing in pharmacogenomics for neuropsychiatric and other disorders

James E. Evans Executive Consultant and Director

Executive consultant to the Company. From 1994 through 2013, served as Senior Vice President of the Company and also served as General Counsel until March 2012 when elected Executive Counsel.

Terry S. Jacobs Director Chairman and Chief Executive Officer, JFP Group, LLC, a real estate development company, and Chairman Emeritus, Jamos Capital, LLC, a private equity firm specializing in alternative investment strategies

Gregory G. Joseph Director Executive Vice President and Principal, Joseph Automotive Group, an automobile dealership and real estate management company

William W. Verity Director President, Verity & Verity, LLC, an investment management company

John I. Von Lehman Director Retired Executive Vice President, Chief Financial Officer and Secretary, The Midland Company, an Ohio-based provider of specialty insurance products

Michelle A. Gillis Senior Vice President and Chief Administrative Officer

Senior Vice President since March 2013 and serves in such role in addition to serving as Chief Administrative Officer. Since March 2012, has served as Vice President and Chief Administrative Officer. Since joining the Company in 2004, has held various senior human resource management positions with Great American Insurance Company and AFG.

Vito C. Peraino Senior Vice President and General Counsel

Senior Vice President and General Counsel since March 2012. Previously served as Senior Vice President of Great American Insurance Company since 2002 and Assistant General Counsel of Great American Insurance Company since 2004. Also serves on the Board of National Interstate Corporation.




2. Directors and Executive Officers of Purchaser. The following table sets forth the name and present principal occupation or employment, and material occupations, positions, offices or employments for the past five years, of each director and executive officer of Purchaser. Purchaser considers that the persons having the following titles are executive officers: chief executive officer, president, chief operating officer, and executive vice president. Unless otherwise indicated, each such person is a U.S. citizen, the business address of each such person is c/o American Financial Group, Inc., Great American Insurance Group Tower, 18th Floor, 301 East Fourth Street, Cincinnati, Ohio 45202, and the telephone number of each such person is (513) 369-5000 and each such person has been engaged in Purchaser’s or its subsidiaries’ business actively and continuously for the past five years. Neither Purchaser nor any of the listed persons, during the past five years, has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction as a result of which such person was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting activities subject to, federal or state securities laws or finding any violation of such laws.

A-3

Name PositionPrincipal Occupation or Employment; Material Positions Held During the Past Five Years

Carl H. Lindner III Chairman of the Board and Chief Executive Officer

Co-Chief Executive Officer of AFG since January 2005, and since 1996, Co-President of AFG. Until 2010, for over ten years, served as President, and since 2010, has served as Chairman of Purchaser.

Donald D. Larson Director, President, and Chief Operating Officer

Since 1973, has held various positions with Purchaser and its affiliates, currently serving as President and Chief Operating Officer of Purchaser.

Ronald J. Brichler Director and Executive Vice President

Since 1977, has held various positions with Purchaser and its affiliates, currently serving as Executive Vice President of Purchaser.

Gary J. Gruber Director and Executive Vice President


Vincent McLenaghan Executive Vice President

Executive Vice President since July 2012. From 1995-2011 held various positions with QBE Insurance Group, most recently as CEO, Australia Asia Pacific Division.

Aaron B. Latto Director, Senior Vice President, and Assistant General Counsel

Senior Vice President since March 2012. Previously Senior Divisional Vice President from 2010 to 2012. From 2000 to 2010, served in various capacities for Travelers Insurance (formerly St. Paul Insurance), including most recently as Vice President.

Michael D. Pierce Director and Senior Vice President

Since 1986, has held various positions with Purchaser and its affiliates, currently serving as Senior Vice President of Purchaser.

Eve Cutler Rosen Director, Senior Vice President, General Counsel, and Secretary

Since 1987, has held various positions with Purchaser and its affiliates, currently serving as Senior Vice President, General Counsel and Secretary of Purchaser.

Piyush K. Singh Director, Senior Vice President, and Chief Information Officer

Since 2006, has held various positions with Purchaser and its affiliates, currently serving as Senior Vice President and Chief Information Officer of Purchaser.


Michael E. Sullivan, Jr. Director and Senior Since 2006, has held various positions with Purchaser




A-4

Vice President and its affiliates, currently serving as Senior Vice President of Purchaser.

David J. Witzgall Director, Senior Vice President, and Chief Financial Officer

Since 2001, has held various positions with Purchaser and its affiliates, currently serving as Senior Vice President and Chief Financial Officer of Purchaser.




SCHEDULE B

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The following table sets forth, to the best knowledge of AFG and Purchaser, the current ownership of Shares by AFG and Purchaser and their respective directors and executive officers and by the directors and executive officers of National Interstate as of December 31, 2013. Such ownership information is based on data furnished by the persons named. Unless otherwise indicated, beneficial ownership of the equity securities held by each individual consists of sole voting power and sole investment power or of voting power and investment power that is shared with the individual’s spouse or family member.

B-1

Name Number of Shares(1) Percent

Great American Insurance Company 10,200,000 51.7 %

David W. Michelson (2) 233,580 1.3 %Julie A. McGraw (2) 41,238 *

Terry E. Phillips (2) 66,079 *

Gary N. Monda (2) 65,238 *Arthur J. Gonzales 24,000 *

Anthony J. Mercurio (2) 46,880 *

Joseph E. (Jeff) Consolino 9,479 *

Gary J. Gruber 1,000 *Keith A. Jensen 1,679 *

Donald D. Larson 1,000 *

Vito C. Peraino 1,000 *Joel Schiavone 59,475 *

Donald W. Schwegman — *

Alan R. Spachman 1,694,125 8.6 %

Michael A. Spachman 83,715 *

* Less than 1%

(1) Beneficial ownership is determined in accordance with Rule 13d-3 of the Securities Exchange Act and generally includes voting and investment power with respect to securities, subject to community property laws, where applicable. The table also includes the number of common shares that may be acquired pursuant to options that are currently exercisable or will be exercisable within 60 days of December 31, 2013.

(2) Includes shares of service—based restricted stock, in which the owners have sole voting power.




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SCHEDULE C

SECTION 1701.85 OF THE OHIO REVISED CODE

Qualifications of and procedures for dissenting shareholders

(A)(1) A shareholder of a domestic corporation is entitled to relief as a dissenting shareholder in respect of the proposals described in sections 1701.74, 1701.76, and 1701.84 of the Revised Code, only in compliance with this section.

(2) If the proposal must be submitted to the shareholders of the corporation involved, the dissenting shareholder shall be a record holder of the shares of the corporation as to which the dissenting shareholder seeks relief as of the date fixed for the determination of shareholders entitled to notice of a meeting of the shareholders at which the proposal is to be submitted, and such shares shall not have been voted in favor of the proposal. Not later than ten days after the date on which the vote on the proposal was taken at the meeting of the shareholders, the dissenting shareholder shall deliver to the corporation a written demand for payment to the dissenting shareholder of the fair cash value of the shares as to which the dissenting shareholder seeks relief, which demand shall state the dissenting shareholder’s address, the number and class of such shares, and the amount claimed by the dissenting shareholder as the fair cash value of the shares.

(3) The dissenting shareholder entitled to relief under division (C) of section 1701.84 of the Revised Code in the case of a merger pursuant to section 1701.80 of the Revised Code and a dissenting shareholder entitled to relief under division (E) of section 1701.84 of the Revised Code in the case of a merger pursuant to section 1701.801 of the Revised Code shall be a record holder of the shares of the corporation as to which the dissenting shareholder seeks relief as of the date on which the agreement of merger was adopted by the directors of that corporation. Within twenty days after the dissenting shareholder has been sent the notice provided in section 1701.80 or 1701.801 of the Revised Code, the dissenting shareholder shall deliver to the corporation a written demand for payment with the same information as that provided for in division (A)(2) of this section.

(4) In the case of a merger or consolidation, a demand served on the constituent corporation involved constitutes service on the surviving or the new entity, whether the demand is served before, on, or after the effective date of the merger or consolidation. In the case of a conversion, a demand served on the converting corporation constitutes service on the converted entity, whether the demand is served before, on, or after the effective date of the conversion.

(5) If the corporation sends to the dissenting shareholder, at the address specified in the dissenting shareholder’s demand, a request for the certificates representing the shares as to which the dissenting shareholder seeks relief, the dissenting shareholder, within fifteen days from the date of the sending of such request, shall deliver to the corporation the certificates requested so that the corporation may endorse on them a legend to the effect that demand for the fair cash value of such shares has been made. The corporation promptly shall return the endorsed certificates to the dissenting shareholder. A dissenting shareholder’s failure to deliver the certificates terminates the dissenting shareholder’s rights as a dissenting shareholder, at the option of the corporation, exercised by written notice sent to the dissenting shareholder within twenty days after the lapse of the fifteen-day period, unless a court for good cause shown otherwise directs. If shares represented by a certificate on which such a legend has been endorsed are transferred, each new certificate issued for them shall bear a similar legend, together with the name of the original dissenting holder of the shares. Upon receiving a demand for payment from a dissenting shareholder who is the record holder of uncertificated securities, the corporation shall make an appropriate notation of the demand for payment in its shareholder records. If uncertificated shares for which payment has been demanded are to be transferred, any new certificate issued for the shares shall bear the legend required for certificated securities as provided in this paragraph. A transferee of the shares so endorsed, or of uncertificated securities where such notation has been made, acquires only the rights in the corporation as the original dissenting holder of such shares had immediately after the service of a demand for payment of the fair cash value of the shares. A request under this paragraph by the

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corporation is not an admission by the corporation that the shareholder is entitled to relief under this section.

(B) Unless the corporation and the dissenting shareholder have come to an agreement on the fair cash value per share of the shares as to which the dissenting shareholder seeks relief, the dissenting shareholder or the corporation, which in case of a merger or consolidation may be the surviving or new entity, or in the case of a conversion may be the converted entity, within three months after the service of the demand by the dissenting shareholder, may file a complaint in the court of common pleas of the county in which the principal office of the corporation that issued the shares is located or was located when the proposal was adopted by the shareholders of the corporation, or, if the proposal was not required to be submitted to the shareholders, was approved by the directors. Other dissenting shareholders, within that three month period, may join as plaintiffs or may be joined as defendants in any such proceeding, and any two or more such proceedings may be consolidated. The complaint shall contain a brief statement of the facts, including the vote and the facts entitling the dissenting shareholder to the relief demanded. No answer to a complaint is required. Upon the filing of a complaint, the court, on motion of the petitioner, shall enter an order fixing a date for a hearing on the complaint and requiring that a copy of the complaint and a notice of the filing and of the date for hearing be given to the respondent or defendant in the manner in which summons is required to be served or substituted service is required to be made in other cases. On the day fixed for the hearing on the complaint or any adjournment of it, the court shall determine from the complaint and from evidence submitted by either party whether the dissenting shareholder is entitled to be paid the fair cash value of any shares and, if so, the number and class of such shares. If the court finds that the dissenting shareholder is so entitled, the court may appoint one or more persons as appraisers to receive evidence and to recommend a decision on the amount of the fair cash value. The appraisers have power and authority specified in the order of their appointment. The court thereupon shall make a finding as to the fair cash value of a share and shall render judgment against the corporation for the payment of it, with interest at a rate and from a date as the court considers equitable. The costs of the proceeding, including reasonable compensation to the appraisers to be fixed by the court, shall be assessed or apportioned as the court considers equitable. The proceeding is a special proceeding and final orders in it may be vacated, modified, or reversed on appeal pursuant to the Rules of Appellate Procedure and, to the extent not in conflict with those rules, Chapter 2505. of the Revised Code. If, during the pendency of any proceeding instituted under this section, a suit or proceeding is or has been instituted to enjoin or otherwise to prevent the carrying out of the action as to which the shareholder has dissented, the proceeding instituted under this section shall be stayed until the final determination of the other suit or proceeding. Unless any provision in division (D) of this section is applicable, the fair cash value of the shares that is agreed upon by the parties or fixed under this section shall be paid within thirty days after the date of final determination of such value under this division, the effective date of the amendment to the articles, or the consummation of the other action involved, whichever occurs last. Upon the occurrence of the last such event, payment shall be made immediately to a holder of uncertificated securities entitled to payment. In the case of holders of shares represented by certificates, payment shall be made only upon and simultaneously with the surrender to the corporation of the certificates representing the shares for which the payment is made.

(C) If the proposal was required to be submitted to the shareholders of the corporation, fair cash value as to those shareholders shall be determined as of the day prior to the day on which the vote by the shareholders was taken and, in the case of a merger pursuant to section 1701.80 or 1701.801 of the Revised Code, fair cash value as to shareholders of a constituent subsidiary corporation shall be determined as of the day before the adoption of the agreement of merger by the directors of the particular subsidiary corporation. The fair cash value of a share for the purposes of this section is the amount that a willing seller who is under no compulsion to sell would be willing to accept and that a willing buyer who is under no compulsion to purchase would be willing to pay, but in no event shall the fair cash value of a share exceed the amount specified in the demand of the particular shareholder. In computing fair cash value, any appreciation or depreciation

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in market value resulting from the proposal submitted to the directors or to the shareholders shall be excluded.

(D)(1) The right and obligation of a dissenting shareholder to receive fair cash value and to sell such shares as to which the dissenting shareholder seeks relief, and the right and obligation of the corporation to purchase such shares and to pay the fair cash value of them terminates if any of the following applies:

(a) The dissenting shareholder has not complied with this section, unless the corporation by its directors waives such failure;

(b) The corporation abandons the action involved or is finally enjoined or prevented from carrying it out, or the shareholders rescind their adoption of the action involved;

(c) The dissenting shareholder withdraws the dissenting shareholder’s demand, with the consent of the corporation by its directors;

(d) The corporation and the dissenting shareholder have not come to an agreement as to the fair cash value per share, and neither the shareholder nor the corporation has filed or joined in a complaint under division (B) of this section within the period provided in that division.

(2) For purposes of division (D)(1) of this section, if the merger, consolidation, or conversion has become effective and the surviving, new, or converted entity is not a corporation, action required to be taken by the directors of the corporation shall be taken by the partners of a surviving, new, or converted partnership or the comparable representatives of any other surviving, new, or converted entity.

(E) From the time of the dissenting shareholder’s giving of the demand until either the termination of the rights and obligations arising from it or the purchase of the shares by the corporation, all other rights accruing from such shares, including voting and dividend or distribution rights, are suspended. If during the suspension, any dividend or distribution is paid in money upon shares of such class or any dividend, distribution, or interest is paid in money upon any securities issued in extinguishment of or in substitution for such shares, an amount equal to the dividend, distribution, or interest which, except for the suspension, would have been payable upon such shares or securities, shall be paid to the holder of record as a credit upon the fair cash value of the shares. If the right to receive fair cash value is terminated other than by the purchase of the shares by the corporation, all rights of the holder shall be restored and all distributions which, except for the suspension, would have been made shall be made to the holder of record of the shares at the time of termination.

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The Letter of Transmittal, Share Certificates and any other required documents should be sent or delivered by each shareholder of National Interstate or such shareholder’s broker, dealer, commercial bank, trust company or other nominee to the Depositary, at the applicable address set forth below:

The Depositary for the Offer is:American Stock Transfer & Trust Company, LLC

By Mail:American Stock Transfer & Trust Company, LLC

Operations CenterAttn: Reorganization Department

P.O. Box 2042New York, New York 10272-2042

By Hand or Overnight Courier:American Stock Transfer & Trust Company, LLC


6201 15thAvenueBrooklyn, New York 11219

Questions and requests for assistance may be directed to the Information Agent at its address and telephone number set forth below. Requests for additional copies of this Offer to Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery and other tender offer materials may be directed to the Information Agent. A shareholder may also contact such shareholder’s broker, dealer, commercial bank, trust company or other nominee for assistance.







Exhibit G


SC 14D9 1 d679743dsc14d9.htm SC 14D9

SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

Schedule 14D-9


NATIONAL INTERSTATE CORPORATION (Name of Subject Company)

NATIONAL INTERSTATE CORPORATION (Name of Person(s) Filing Statement)

Common Shares, par value $0.01 per share (Title of Class of Securities)


Arthur J. Gonzales Vice President, General Counsel and Secretary

3250 Interstate Drive Richfield, Ohio 44286-9000

(303) 659-8900 (Name, address and telephone number of person authorized to receive notice and communications

on behalf of the person(s) filing statement)

With a copy to:

Anthony E. Kuhel, Jr. Thomas A. Aldrich

Thompson Hine LLP 3900 Key Center

127 Public Square Cleveland, Ohio 44114-1291

(216) 566-5500


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3/5/2014http://www.sec.gov/Archives/edgar/data/1301106/000119312514058933/d679743dsc14d9....


(a) The name of the subject company is National Interstate Corporation, an Ohio corporation (the “Company”), the address of the principal executive office of the Company is 3250 Interstate Drive, Richfield, Ohio 44286-9000, and its telephone number at such address is (330) 659-8900.

(b) The title of the class of equity securities to which this Solicitation/Recommendation Statement on Schedule 14D-9 (together with any exhibits hereto and any information incorporated herein by reference, this “Statement”) relates is the common shares, par value $0.01 per share (the “Common Stock”) of the Company. As of February 17, 2014, 19,729,303 shares of Common Stock were issued and outstanding.

(a) Name and Address

This Statement is being filed by the Company. The name, business address, and business telephone number of the Company are set forth in Item 1(a) above, which information is incorporated herein by reference.

(b) Tender Offer

This Statement relates to the tender offer by Great American Insurance Company, an Ohio corporation (the “Purchaser”), which is a wholly-owned subsidiary of American Financial Group, Inc. (“AFG”). As of February 5, 2014, the date of the tender offer by the Purchaser for all outstanding shares of Common Stock not owned by the Purchaser, the Purchaser beneficially owned 10,200,000, or approximately 51.7%, of the outstanding shares of Common Stock. The Purchaser is offering to purchase all outstanding shares of Common Stock that the Purchaser does not already own for $30.00 per share (the “Amended Offer Price”), net to the seller in cash, without interest, subject to applicable withholding taxes. The offer is disclosed in a combined Tender Offer Statement, Letter of Transmittal and Offer to Purchase (collectively, the “Transmittal Documents”) filed by the Purchaser under cover of Schedule TO with the United States Securities and Exchange Commission (the “SEC”) on February 5, 2014, as amended under cover of Schedule TO-T/A dated February 18, 2014 (together with all exhibits thereto and subsequent amendments thereto, the “Schedule TO”). The offer is subject to the conditions set forth in the Transmittal Documents (the “Offer to Purchase”). The Purchaser has stated that if it purchases shares of Common Stock in the offer such that it will own at least 90% of the issued and outstanding Common Stock, the Purchaser or an affiliate of the Purchaser, intends to merge with the Company (the “merger”). As a result of the merger, each then issued and outstanding share of Common Stock (other than Common Stock held by the Purchaser and held by shareholders who validly perfect their dissenters’ rights under the Ohio Revised Code) will be cancelled and converted into and represent the right to receive the Amended Offer Price.


The Company does not take any responsibility for the accuracy or completeness of any information described herein contained in the Schedule TO containing, among other things, the Transmittal Documents and Offer to Purchase, including information concerning the Purchaser or its respective affiliates, officers, or directors, or actions or events with respect to any of them. The Company takes no responsibility for the accuracy or completeness of such information or for any failure by the Purchaser to disclose events or circumstances that may have occurred and may affect the significance, completeness, or accuracy of any such information.

Except as discussed in this Statement, to the best of the Company’s knowledge, as of the date of this Statement, there are no material agreements, arrangements, or understandings, or actual or potential conflicts of interest, between the Company or its affiliates and (i) the Company’s executive officers, directors, or affiliates or (ii) the Purchaser or AFG or either of their respective executive officers, directors, or affiliates.

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Item 1. Subject Company Information

Item 2. Identity and Background of Filing Person

Item 3. Past Contacts, Transactions, Negotiations, and Agreements

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Certain contracts, agreements, arrangements and understandings between the Company or its affiliates and (i) the Company’s executive officers, directors, and affiliates or (ii) the Purchaser or AFG and either of their respective executive officers, directors, and affiliates are described in the Company’s Proxy Statement filed on Schedule 14A with the SEC on April 16, 2013 (the “2013 Proxy Statement”) under the sections entitled “General Information,” “Principal Shareholders,”“Compensation Discussion and Analysis,” Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Award Table,” “Potential Payments Upon Termination or Change in Control,” “2012 Director Compensation” and “Certain Relationships and Related Party Transactions,” each of which is incorporated herein by reference to exhibit (e)(13) to this Statement. All information incorporated is considered a part of this Statement, except for any information that is superseded by information included directly in this Statement.

In addition, certain contracts, arrangements or understandings between the Company or its affiliates and (i) the Company’s executive officers, directors, and affiliates or (ii) the Purchaser or AFG and either of their respective executive officers, directors, and affiliates are described in the sections entitled “Special Factors—Interests of Directors and Executive Officers in the Offer” and “Special Factors—Certain Relationships Between AFG, the Purchaser and National Interstate” in the Offer to Purchase, which is attached as exhibit (a)(2) to this Statement and is incorporated by reference herein.

Certain Relationships between the Company and Purchaser or AFG, and each of their respective Executive Officers, Directors, and Affiliates

Shareholders should be aware that certain directors and/or executive officers of the Company have interests in the offer which are described in this Statement and/or the Offer to Purchase, and which may present them with certain actual or potential conflicts of interest with respect to the offer. Certain directors or executive officers of the Purchaser and/or AFG, or their respective affiliates, also serve as directors of the Company. Messrs. Joseph E. (Jeff) Consolino (Mr. Consolino) and Vito Peraino are executive officers of AFG, and Messrs. Gary Gruber and Donald Larson are executive officers of the Purchaser. In addition, until February 2013, Keith Jensen served as an executive officer of AFG.

According to the Offer to Purchase, the Purchaser beneficially owns 10,200,000 shares of Common Stock, which represents approximately 51.7% of the outstanding shares of Common Stock as of February 4, 2014. If the Purchaser were to purchase all shares of Common Stock (other than shares already owned by the Purchaser) in the offer it is seeking to purchase, then, after completion of the offer, the Purchaser would beneficially own 100.0% of the outstanding shares.

Solicitation or Recommendation

After careful consideration, including a thorough review of the offer with its legal advisor and consideration of the Initial Offer Price with Duff & Phelps, LLC (“Duff & Phelps”), its independent financial advisor, the board of directors of the Company has determined to express no opinion on the offer and to remain neutral with respect to the offer.

Accordingly, the board of directors, on behalf of the Company, expresses no opinion on the offer and is remaining neutral.

The board of directors is not recommending to the shareholders that they tender, or refrain from tendering, their shares of Common Stock in the offer, and urges each shareholder to make his, her or its own investment decision regarding the offer based on all available information, in light of the shareholder’s own investment objectives, various factors considered by the board of directors as outlined in this Statement, the shareholder’s views on the Company’s financial prospects and any other factors the shareholder considers relevant to his, her or its investment decision.

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Item 4. The Solicitation or Recommendation

Page 3 of 21SC 14D9



Background of the Offer

At a meeting of the board of directors held on February 12, 2013, Mr. Donald Schwegman was appointed to the Company’s board of directors as an independent director and also named Chairman of the Audit Committee (Mr. Donald Schwegman accepted his appointment on February 15, 2013). Mr. Consolino became Chairman of the board of directors on February 15, 2013, replacing Mr. Alan R. Spachman, who served as Chairman of the board of directors from 2004 until February 15, 2013.

At the Company’s 2013 Annual Meeting of Shareholders held May 2, 2013, Mr. Alan R. Spachman nominated his son, Mr. Michael A. Spachman, for election as a director. Accordingly, there were seven nominees for election as Class I members of the board of directors, but only six nominees were to be elected. No other nominations of persons for election as directors were submitted to the Company. The background of Mr. Michael A. Spachman’s nomination follows:

On March 21, 2013, counsel to Mr. Alan Spachman contacted the Company requesting information regarding the procedures under the Company’s Regulations for nominating a candidate for election as a director at the Annual Meeting and a copy of the Company’s Regulations. On the same day, counsel to the Company responded to this request.

On March 28, 2013, the Company received a letter from Mr. Alan Spachman stating his intention to nominate one candidate for election as a director at the Annual Meeting. In consultation with counsel, the Company determined that such purported nomination was not in compliance with the Company’s Regulations.


On the same day, Mr. Arthur J. Gonzales, Vice President, General Counsel and Secretary of the Company, at Mr. Consolino’s direction, provided to Mr. Alan Spachman in writing and telephonically a list of items that had to be remedied for Mr. Michael A. Spachman’s nomination to be in compliance with the Company’s Regulations.

On March 30, 2013, Mr. Alan Spachman submitted a revised nomination notice, including the consent of Mr. Alan Spachman’s nominee (Mr. Michael A. Spachman) to serve if elected.

On April 2, 2013, the Company filed a preliminary proxy statement with the SEC, followed by the filing of a revised preliminary proxy statement on April 15, 2013 and a definitive proxy statement on April 16, 2013, relating to the Company’s solicitation of proxies in connection with the Annual Meeting. The Company did not receive any notice from Mr. Alan Spachman of his intent to solicit proxies in connection with the Annual Meeting.

The Company’s board of directors recommended that its six nominees (Messrs. Consolino, Elliott, Gruber, Larson, Michelson and Schwegman) be elected. Mr. Michael A. Spachman was elected a Company director at the May 2, 2013 Annual Meeting; Theodore H. Elliott, Jr., nominated by the Company’s board of directors and Nominating and Corporate Governance Committee, did not receive sufficient votes to remain a director (he had served as a director since 1989). Mr. Michael A. Spachman was appointed to the Audit Committee at a Board meeting on May 2, 2013, following the Annual Meeting of Shareholders.

On February 5, 2014, the Purchaser commenced the offer at a price of $28.00 per share (the “Initial Offer Price”).

Following the public announcement of the offer, Mr. Consolino discussed the terms of the offer, including the Initial Offer Price, with management of the Company.

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Page 4 of 21SC 14D9



On February 5, 2014, the Company discussed with its legal advisor the offer, including the board of director’s obligation to determine how to respond to the offer and the Company’s obligation to file a Solicitation/Recommendation Statement on Schedule 14D-9 (the “Schedule 14D-9”) announcing its position with respect to the offer within 10 business days of the date that the Purchaser commenced the offer.

On February 5, 2014, the Company received the Purchaser’s Rule 14d-5 request for shareholder records (the “Request”).

On February 7, 2014, at a duly called meeting, the board of directors considered the terms of the offer, including the Initial Offer Price, and process for evaluating such offer. All of the members of the board of directors were present and participating at the meeting either in person or by telephone conference call. Mr. Consolino summarized the terms of the Offer to Purchase. The Company’s legal advisor reviewed with the board of directors the fiduciary duties of directors under Ohio law and other legal matters relevant to the board’s consideration of the Offer to Purchase and responded to questions from the board of directors concerning these matters. Among other matters, the board of directors considered forming a special committee of independent directors for the purposes of considering and making the recommendation as to the Offer to Purchase in the Schedule 14D-9 and engagement of a financial advisor to assist the board of directors in formulating its position with respect to the offer. Following discussion, the board of directors determined by a 6-4 vote that it would not form a special committee (with all directors participating in the vote and Messrs. Joel Schiavone, Donald Schwegman, Alan Spachman, and Michael Spachman voting against that determination). After further discussion, the board of directors determined by a 6-3 vote to instruct management of the Company to interview and review the qualifications of potential independent financial advisors to the board and to provide the board of directors with a list of up to five proposed financial advisors for further consideration by the board by February 10, 2014 (with all directors other than Mr. Joel Schiavone, who abstained, participating in the vote and Messrs. Donald Schwegman, Alan Spachman and Michael Spachman voting against that determination).

On February 7, 2014, the Company issued a press release informing its shareholders of the offer and the board of directors’ intent to advise shareholders of its position regarding the offer within 10 business days of commencement of the offer by filing the Schedule 14D-9.

On February 7, 2014, the Company responded to the Request, providing the records requested on February 5, 2014.

On February 10, 2014, the Company issued an e-mail correspondence to all Company employees informing them of the offer and the board of directors’ intent to respond within 10 business days of commencement of the offer by filing the Schedule 14D-9.

On February 10, 2014, the board of directors, at a duly called meeting at which all directors were present and participating either in person or by telephone conference call received a presentation from management of the Company concerning the results of management’s review of potential financial advisors. Following discussion, the board of directors determined to direct management of the Company to retain Duff & Phelps to provide an opinion, from a financial point of view, of the fairness of the Initial Offer Price (the “Opinion”) (with all directors voting in the affirmative except for Messrs. Joel Schiavone, Alan Spachman and Michael Spachman, who abstained).

On February 11, 2014, Mr. Alan Spachman sent a letter to the Company informing it of his disagreement with the process undertaken by the board of directors with respect to the offer. Specifically, Mr. Alan Spachman took issue with the board’s determination not to appoint a special committee of independent directors for purposes of considering and making the recommendations to the Offer to Purchase. Mr. Alan Spachman’s letter also indicated his interest in meeting individually with Duff & Phelps and requested written advice of the Company’s legal advisor concerning the process undertaken by the board of directors with respect to the offer.

Following the announcement of the offer, a shareholder derivative and class action complaint (the “Complaint”) was filed in Hamilton County, Ohio, Court of Common Pleas, against the Company, as well as

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Page 5 of 21SC 14D9



against AFG and the Purchaser. The action is styled Robert Bernatchez v. American Financial Group, Inc., et al. The plaintiff, Robert Bernatchez, a former officer of the Company and an alleged owner of the Common Stock, alleges, among other things, that the defendants breached their fiduciary duties (including the duty of loyalty and the duty of candor) to the Company’s public shareholders in connection with the offer. The Complaint seeks, among other things, injunctive relief against the offer and any subsequent merger; rescission; damages; and plaintiff’s costs and disbursements of the action, including a reasonable allowance for fees and expenses of plaintiff’s attorneys and experts. On February 18, 2014, plaintiff filed a motion for expedited discovery, requesting documents from defendants and requesting depositions of defendants’representatives with sufficient time to brief and hold a hearing on plaintiff’s “anticipated motion for preliminary injunction”in advance of the March 6, 2014 close of the offer.

The outcome of this lawsuit, and any other litigation that may be filed, is unclear and cannot be predicted with any certainty. An adverse judgment for monetary damages could have a material adverse effect on the operations of the Company and/or any participants in the offer. A preliminary injunction could delay or jeopardize consummation of the offer and/or any potential subsequent merger, and an adverse judgment granting permanent injunctive relief could indefinitely enjoin completion of both. The Company intends to vigorously defend itself against this and any other lawsuit.

On February 13, 2014, at the request of management of the Company, the Company’s legal advisor participated in a question and answer session by conference call with all of the members of the Company’s board of directors to discuss the offer, the related process and the fiduciary duties of directors under Ohio law and to review with the directors the Complaint.

On February 14, 2014, Mr. Alan Spachman, a director of the Company who beneficially owns approximately 9.2% of the outstanding Common Stock of the Company, filed a Schedule 13D with the SEC reserving the right to formulate plans and/or make proposals, and to take actions with respect to his investment in the Company. As indicated in Mr. Spachman’s Schedule 13D, on February 7, 2014, Mr. Spachman requested that the board of directors form a special committee to review the offer and make a recommendation to shareholders, and, as described above, the board of directors determined, by a majority vote, not to form such a special committee. Mr. Spachman’s Schedule 13D further states that Mr. Spachman then requested that the independent directors be authorized to retain their own independent legal and financial advisors, at the Company’s expense. Counsel for the Company noted that the request for legal counsel could be premature at the time of the request, and no further action was taken. At that time, the Company had already retained Duff & Phelps.

On February 17, 2014, the Purchaser provided additional financial information and analysis to the board of directors concerning the Initial Offer Price.

On February 17, 2014, at a duly called meeting, the board of directors further considered and discussed the terms of the offer, including the Initial Offer Price, received a presentation from representatives of Duff & Phelps concerning the Opinion as to the Initial Offer Price and the process followed by Duff & Phelps in preparing the Opinion as to the Initial Offer Price, and had the opportunity to question the representatives concerning the Opinion, a draft of which had been previously provided to the board of directors, and Duff & Phelps’ process in connection therewith. All of the members of the board of directors were present and participating at the meeting either in person or by telephone conference call. In the course of the meeting, Mr. Alan Spachman reiterated his previous objections to the process followed by the board of directors in reviewing the offer. At the conclusion of the board of directors’ questions, the representatives of Duff & Phelps were excused from the meeting. Mr. Consolino proposed that he review with the board of directors the financial analysis of the offer prepared by the Purchaser that had been distributed to members of the board of the directors earlier in the day. Mr. Alan Spachman expressed the view that Mr. Consolino’s review of the Purchaser’s analysis at this time would be inappropriate in light of the presentation the board of directors had just received from Duff & Phelps. At Mr. Alan Spachman’s request, he, Mr. Michael Spachman, Mr. Donald Schwegman and Mr. Joel Schiavone were excused from the meeting to discuss the matter. After those directors rejoined the meeting, Mr. Alan Spachman

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reiterated his objection, and, after further discussion among the board of directors, Mr. Consolino did not proceed with the review of the Purchaser’s financial analysis. Mr. Consolino advised the board of directors that the Purchaser would be announcing, before the market opened on February 18, 2014, that it had increased the Initial Offer Price to the Amended Offer Price.

A representative of Duff & Phelps was asked to rejoin the meeting so that the members of the board of directors could ask additional questions in light of this new information. After discussion with the board of directors, the representative of Duff & Phelps said that they would not at this time deliver an opinion as to the fairness, from a financial point of view, of the Amended Offer Price as to do so would require completion of internal due diligence and procedures and, in any case, would be outside the scope of its engagement with the Company. The representative of Duff & Phelps was then excused from the meeting. Mr. Consolino proposed that the board of directors vote to express no opinion on the offer and to remain neutral with respect to the offer, including the Amended Offer Price. At Mr. Alan Spachman’s request, he, Mr. Michael Spachman, Mr. Donald Schwegman and Mr. Joel Schiavone were excused from the meeting to discuss the motion. After those directors rejoined the meeting, Mr. Alan Spachman reiterated his objections to the board of directors’ process and to the proposed vote. The meeting was recessed without any action taken. Following the meeting, management of the Company contacted the representative of Duff & Phelps to ask whether Duff & Phelps would be in a position to opine as to the fairness, from a financial point of view, of the Amended Offer Price. The representative of Duff & Phelps advised management of the Company that Duff & Phelps would decline to deliver an opinion as to the fairness, from a financial point of the view, of the Amended Offer Price as to do so would require completion of internal due diligence and procedures and, in any case, would be outside the scope of its engagement with the Company.

On February 17, 2014, Duff & Phelps issued the Opinion as to the Initial Offer Price, the details of which are provided below.

On February 18, 2014, AFG received a letter (the “Letter”) from the legal advisor to Mr. Alan Spachman (“Spachman Counsel”) demanding certain additional disclosures concerning the board process and Duff & Phelps’ analysis. The Letter was subsequently forwarded to the Company’s legal advisor via e-mail, and such e-mail indicated that Spachman Counsel believed that if AFG or the Purchaser failed to provide the additional disclosures as outlined in the Letter, it would be incumbent upon the Company to do so.

On February 18, 2014, AFG issued a press release announcing the increase of the Initial Offer Price to the Amended Offer Price and AFG’s and the Purchaser’s intention to amend the Schedule TO and Offer to Purchase. The press release stated that the Amended Offer Price was the “best and final” price and that no further increase to the price would be made.

On February 18, 2014, the Company issued a press release acknowledging the increase of the Initial Offer Price to the Amended Offer Price and the board of directors, intent to advise shareholders of its position regarding the offer within 10 business days of commencement of the offer by filing the Schedule 14D-9.

On February 18, 2014, the previously recessed meeting of the board of directors of the Company reconvened. All of the members of the board of directors were present and participating at the meeting either in person or by telephone conference call. Mr. Consolino called for a vote on the proposal that the board of directors express no opinion on the offer and remain neutral with respect to the offer. The board of directors determined by a 6-4 vote (with all directors participating in the vote and Messrs. Joel Schiavone, Donald Schwegman, Alan Spachman, and Michael Spachman voting against that determination) to express no opinion on the offer and to remain neutral with respect to the offer.

On February 19, 2014, the Company learned that a second shareholder derivative and class action complaint (the “Cambridge Retirement Complaint”) has been filed against the Company, as well as against AFG and the Purchaser and six of the Company’s directors (Messrs. Consolino, Gary Gruber, Keith Jensen, Donald Larson,

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David Michelson and Vito Peraino). The case is styled Cambridge Retirement System v. Joseph Consolino, et al., Case No. CV-2014-02-0819, and it was filed in the Summit County, Ohio, Court of Common Pleas. While the Company is still reviewing the Cambridge Retirement Complaint, plaintiff Cambridge Retirement System alleges that it is an owner of Common Stock, and that defendants breached their fiduciary duties (including the duty of due care, good faith, candor and loyalty) to the Company’s public stockholders. The Cambridge Retirement Complaint seeks, among other things, injunctive relief; the creation of an independent special committee in connection with the offer; to extend the tender offer period; damages; and plaintiff’s costs and disbursements, including attorneys’ fees, accounts’ fees and experts’ fees.

The Transmittal Documents state that each of Messrs. Consolino, Gary J. Gruber, Donald D. Larson and Vito C. Peraino intends to tender any and all shares of Common Stock they own in response to the offer.

Mr. Keith Jensen, one of the directors of the Company, has indicated his intent to tender his shares of Common Stock pursuant to the offer. In addition, Mr. Dave Michelson, the Company’s Chief Executive Officer, has indicated his intent to tender his shares of Common Stock pursuant to the offer, and Mr. Arthur Gonzales, the Company’s Vice President, General Counsel and Secretary, has indicated his intent to tender his shares of Common Stock pursuant to the offer.

There can be no assurances that any of the aforementioned holders of Common Stock will tender any of their respective shares pursuant to the offer.

Reasons for the Recommendation

The Board of Directors Expresses No Opinion on the Offer and is Remaining Neutral

The board of directors has determined to express no opinion on the offer and to remain neutral with respect to the offer. The board of directors is not recommending to shareholders that they tender, or refrain from tendering, their shares in the offer. Although the board of directors has received the Opinion that the Initial Offer Price is not fair from a financial point of view, the Purchaser has subsequently increased the Initial Offer Price to $30 per share of the Common Stock (also referred to as the “Amended Offer Price”). For these reasons and the factors set forth below, the board of directors is remaining neutral and cannot recommend in favor of, or against, the offer.

Accordingly, the board of directors urges each shareholder to make his, her or its own investment decision regarding the offer based on all available information, in light of the shareholder’s own investment objectives, the shareholder’s views on the Company’s financial prospects, the factors considered by the board of directors (described below), and any other factors the shareholder considers relevant to his, her or its investment decision.

In reaching its determination and its decision as described above, the board of directors considered and discussed a number of factors concerning the offer that shareholders could consider to be positive or negative, including, among others, the following:

Potentially Positive Factors

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• Increased Offer Price. The Initial Offer Price has been increased to $30 per share. The Purchaser has indicated that the Amended Offer Price will not be further increased.

• Historical Stock Prices. The Amended Offer Price represents a premium of approximately 35.3% over the closing stock price of the Common Stock on February 4, 2014, the last day prior to the public announcement of the offer, and a premium of approximately 28.9% over the average closing stock price of the Common Stock for the 30 trading days ending on that date.

• Controlled Company Status and Lack of Strategic Alternatives. The Purchaser is a controlling shareholder of the Company, beneficially owning approximately 51.7% of the outstanding shares of the Common Stock at the commencement of the offer. As a result, the trading market for the Common

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Potentially Negative Factors

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Stock is less liquid due to a relatively smaller size of the Company’s public float. These factors could effectively limit the Company’s ability to pursue strategic transactions with third-parties (including an acquisition by a third party) without the approval of the Purchaser as a controlling shareholder.

• Timing of Completion; No Financing Condition. The board of directors considered the anticipated timing of consummation of the offer, which should allow shareholders to receive the Amended Offer Price promptly. In addition, the Purchaser has expressed its intention to effect the merger with the Company if it purchases shares of the Common Stock in the offer such that it will own at least 90% of the issued and outstanding Common Stock, which provides a measure of some assurance to the shareholders who choose not to tender their shares of the Common Stock in the offer that they also can receive equal value for their shares of the Common Stock. The board of directors also considered the fact that the offer is not conditioned on the Purchaser or AFG obtaining financing.

• Purchaser Alternatives. If the Purchaser is not successful in completing the offer, the Purchaser has indicated it would review its options, including continuing the status quo prior to the offer, purchasing shares of the Common Stock in the open market or in privately negotiated transactions, making a new tender offer or seeking to negotiate a merger or other business combination with the Company. In any such transactions, the consideration may be more or less than the Amended Offer Price.

• Company Common Stock Has Traded Higher. The Common Stock has in the past traded at higher levels than the Amended Offer Price. Since January 1, 2011, the high trading price of the Common Stock was $36.36 per share on July 18, 2013 and the low trading price was $18.66 per share on March 11, 2011. This trading history suggests that certain shareholders of the Company may have acquired their shares of the Common Stock at prices higher than the Amended Offer Price.

• Fairness Opinion Regarding Initial Offer Price. The Opinion indicates that $28 per share, or the Initial Offer Price, is not fair to shareholders from a financial point of view.

• No Negotiations. The offer is not conditioned upon a favorable recommendation by the board of directors, and, to date of this filing, there have been no negotiations regarding the Amended Offer Price between the Purchaser and the board of directors.

• Purchaser’s Financial Interest. With respect to the Amended Offer Price, the Purchaser’s financial interest in acquiring the shares for the lowest market clearing price that is satisfactory to meet the minimum tender condition may potentially be adverse to the financial interest of the Company’s other shareholders who choose not to tender.

• Minimum Condition. The offer is subject to a waivable minimum tender condition of at least 90% of the outstanding shares (on a fully diluted basis) of the Common Stock as of the date the shares are accepted for payment pursuant to the offer being rendered in the offer.

• Going Private Transaction. If the offer is consummated by the Purchaser, the Company will become a private company. Any shareholder of the Company who tenders all his, her or its shares of the Common Stock in the offer or has his, her or its shares of the Common Stock converted into cash in the merger will cease to participate in the future earnings and growth, if any, of the Company and will not benefit from increases, if any, in the Company’s value, including any increases due to improving economic conditions.

• Certain Members of Board of Directors May Believe Common Stock Is Worth More. As described herein, Mr. Alan Spachman and certain other members of the board of directors oppose the offer and may believe that the Amended Offer Price is inadequate.

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Opinion of Duff & Phelps

The board of directors retained Duff & Phelps to render the Opinion to the Company and its board of directors as to the fairness, from a financial point of view, to the holders of shares of the Common Stock of the consideration, including the Initial Offer Price, to be paid to such holders in the offer. On February 17, 2014, Duff & Phelps rendered the Opinion to the board of directors that as of such date, based upon the assumptions, procedures, factors, qualifications and limitations set forth therein, the Initial Offer Price to be paid to the holders of the Common Stock in the offer is not fair from a financial point of view to such holders (without giving effect to any impact of the offer on any particular holder other than in his, her or its capacity as a holder of Common Stock).

The full text of the Opinion, dated February 17, 2014, which sets forth the assumptions made, procedures followed, factors considered, and qualifications and limitations on the review undertaken by Duff & Phelps in connection with the Opinion is filed herewith as exhibit (a)(12) and is incorporated into this Statement by reference. The Opinion and the related analysis addresses the terms of the offer which include the Initial Offer Price and not the Amended Offer Price. The description of the Opinion set forth in this Statement is qualified in its entirety by reference to the full text of the Opinion filed herewith as exhibit (a)(12).

The following is a summary of the Opinion. We encourage you to read Duff & Phelps’ written opinion carefully in its entirety.

In connection with the Opinion, Duff & Phelps made such reviews, analyses and inquiries as it deemed necessary and appropriate under the circumstances. Duff & Phelps also took into account its assessment of general economic, market and financial conditions, as well as its experience in securities and business valuation, in general, and with respect to similar transactions, in particular. Duff & Phelps’ procedures, investigations, and financial analysis with respect to the preparation of the Opinion included, but were not limited to:

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• Recommendation Made by Board of Directors Rather Than Special Committee. This recommendation is made by the board of directors, including directors affiliated with the Purchaser and AFG, rather than a committee solely consisting of disinterested directors.

• Form of Consideration. The cash consideration of the offer may not be tax efficient for some holders of the common stock.

• reviewing the following documents:

• the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 (including the audited financial statements included therein), filed by the Company with the SEC on March 7, 2013, and the Company’s unaudited interim financial statements for the nine months ended September 30, 2013 included in the Company’s Quarterly Report on Form 10-Q filed by the Company with the SEC on November 1, 2013;

• the Company’s draft financial statements for the year ended December 31, 2013;

• other internal documents relating to the history, current operations, and probable future outlook of the Company, including a 2014 financial budget, provided to Duff & Phelps by management of the Company, upon which Duff & Phelps relied in performing its analysis;

• five year financial projections provided to Duff & Phelps by senior management of the Company, upon which Duff & Phelps relied in performing its analysis;

• the A.M. Best credit report dated July 12, 2013; and

• documents related to the offer, including the Tender Offer Statement filed on Schedule TO by AFG with the SEC on February 5, 2014;

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In performing its analyses and rendering the Opinion with respect to the offer, Duff & Phelps, with the Company’s consent:

Furthermore, in Duff & Phelps’ analysis and in connection with the preparation of the Opinion, Duff & Phelps made numerous assumptions with respect to industry performance, general business, market and economic conditions and other matters, many of which are beyond the control of any party involved in the offer.

Duff & Phelps prepared the Opinion as of February 17, 2013, and Duff & Phelps disclaimed any undertaking or obligation to advise any person of any change in any fact or matter affecting the Opinion which may come or be brought to the attention of Duff & Phelps after February 17, 2013, including the increase of the Initial Offer Price to the Amended Offer Price.

Duff & Phelps did not evaluate the Company’s solvency or conduct an independent appraisal or physical inspection of any specific assets or liabilities (contingent or otherwise). Duff & Phelps was not requested to, and did not, (i) initiate any discussions with, or solicit any indications of interest from, third parties with respect to the offer, the assets, businesses or operations of the Company, or any alternatives to the offer, (ii) negotiate the terms of the offer, or (iii) advise the Company, the board of directors or any other party with respect to alternatives to the offer.

The Opinion did not opine as to the market price or value of the Common Stock (or any related matter) after the announcement or the consummation of the offer.

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• discussing the information referred to above, and the background and other elements of the offer, with senior management of the Company;

• reviewing the historical trading price and trading volume of the Common Stock and the publicly traded securities of certain other companies that Duff & Phelps deemed relevant;

• performing certain valuation and comparative analyses using generally accepted valuation and analytical techniques including a discounted cash flow analysis, an analysis of selected public companies that Duff & Phelps deemed relevant, and an analysis of selected transactions that Duff & Phelps deemed relevant; and

• conducting such other analyses and considered such other factors as Duff & Phelps deemed appropriate.

• relied upon the accuracy, completeness, and fair presentation of all information, data, advice, opinions and representations obtained from public sources or provided to it from private sources, including the Company’s management, and did not independently verify such information;

• relied upon the fact that the board of directors of the Company and the Company have been advised by their legal advisor as to all legal matters with respect to the offer, including whether all procedures required by law to be taken in connection with the offer have been duly, validly and timely taken;

• assumed that any estimates, evaluations, forecasts and projections furnished to Duff & Phelps were reasonably prepared and based upon the best currently available information and good faith judgment of the person furnishing the same;

• assumed that information supplied and representations made by the Company’s management regarding the Company and the offer are accurate in all material respects;

• relied on the assurances of the Company’s management that the Company’s management is not aware of any information or facts that would make the information supplied to Duff & Phelps incomplete or misleading; and

• assumed that there has been no material change in the assets, financial condition, business, or prospects of the Company since the date of the most recent financial statements and other information made available to Duff & Phelps.




In rendering the Opinion, Duff & Phelps did not express any opinion with respect to the amount or nature of any compensation to any of the Company’s officers, directors, or employees, or any class of such persons, relative to the consideration to be received by the public shareholders of the Company in the offer, or with respect to the fairness of any such compensation.

The Opinion (i) does not address any transaction related to the offer; (ii) is not a recommendation as to how the board of directors or any shareholder should vote or act with respect to any matters relating to the offer, and (iii) does not indicate that the consideration offered, including the Initial Offer Price, is the best possibly attainable under any circumstances; instead, it merely states whether the consideration offered in the offer, including the Initial Offer Price, is within a range suggested by certain financial analyses. A decision as to whether to recommend, not to recommend, or take no position with respect to the offer or any related transaction may depend on an assessment of factors unrelated to the financial analysis on which the Opinion is based.

Pursuant to the terms of the letter agreement between Duff & Phelps and the Company, dated as of February 10, 2014 (the “Engagement Letter”), Duff & Phelps has consented to the use of the Opinion in connection with this Statement, including the filing of the Opinion as exhibit (a)(12) to this Statement. In giving such consent, Duff & Phelps does not thereby admit that they are in the category of persons whose consent is required under Section 7 or Section 11 of the Securities Act of 1933, as amended.

The board of directors retained Duff & Phelps to render the Opinion as to the Initial Offer Price in connection with the offer. Under the terms of the Engagement Letter Duff & Phelps agreed to provide the board of directors with the Opinion as to the fairness, from a financial point of view, of the consideration, including the Initial Offer Price, to be received by the holders of Common Stock (other than the Purchaser, AFG and/or any of their respective affiliates) pursuant to the offer (without giving effect to any impact of the offer on any particular holder other than in his, her or its capacity as a holder of Common Stock) . Under the terms of the Engagement Letter, the Company agreed to pay Duff & Phelps a fee of $500,000, with a nonrefundable retainer of $250,000 payable upon execution of the Engagement Letter and the remaining $250,000 payable upon Duff & Phelps informing the Company of its preparedness to deliver the Opinion. Pursuant to the Engagement Letter, the Company is required to pay Duff & Phelps’ standard hourly rates for any time incurred should Duff & Phelps be called upon to support its findings subsequent to delivery of the Opinion.

The Company has also agreed to reimburse Duff & Phelps for reasonable out-of-pocket expenses, as well as reasonable fees and expenses of counsel, consultants, and advisors retained by Duff & Phelps, in an amount not to exceed $40,000 (any amounts in excess of $40,000 shall require the Company’s written approval). In addition, the Company has agreed to indemnify Duff & Phelps against liabilities reasonably relating to or arising out of the matters contemplated by the Engagement Letter.

Except as set forth herein, neither the Company nor any person acting on its behalf has employed, retained, or compensated any person to make solicitations or recommendations to holders of Common Stock on its behalf concerning the offer. The Company has not authorized anyone to give information or make any representation about the offer that is different from, or in addition to, that contained in this Statement or in any of the materials that are incorporated by reference to this Statement. Therefore, the Company’s shareholders should not rely on any other information.

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Item 5. Persons/Assets Retained, Employed, Compensated or Used




Except in the ordinary course of business in connection with the Company’s employee benefit plans, no transactions with respect to the Common Stock have been effected during the past 60 days by the Company or, to the Company’s knowledge, by any of its executive officers, directors, affiliates, or subsidiaries except:

Except as set forth in this Statement, the Company is not undertaking or engaged in any negotiations in response to the offer that relate to or would result in (a) a tender offer for or other acquisition of the Company’s securities by the Company, any subsidiary of the Company, or any other person; (b) any extraordinary transaction, such as a merger, reorganization, or liquidation, involving the Company or any subsidiary of the Company; (c) any purchase, sale, or transfer of a material amount of assets of the Company or any subsidiary of the Company; or (d) any material change in the present dividend rate or policy, indebtedness, or capitalization of the Company.

Except as set forth in this Statement or in the exhibits to this Statement or the Offer to Purchase, to the knowledge of the board of directors and the Company, there are no transactions, resolutions of the Company’s board of directors, agreements in principle, or signed contracts in response to the offer that relate to one or more of the events referred to in the preceding paragraph.

Short Form Merger

The Purchaser has stated that if the offer is consummated such that it will own at least 90% of the issued and outstanding Common Stock of the Company, subject to applicable law, the Purchaser intends to consummate the merger between the Company and the Purchaser, or an affiliate of the Purchaser, in which the outstanding Common Stock (other than Common Stock held by the Purchaser and held by shareholders who validly perfect their dissenters’ rights under Ohio Revised Code) will be cancelled and converted into and represent the right to receive the Amended Offer Price.

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Item 6. Interest in Securities of the Subject Company

Reporting Person Transaction Date Shares Price per Share

Joel Schiavone1 12/20/13 6,000 (6) $ 24.499 (2) Joel Schiavone1 12/23/13 4,000 (6) $ 24.709 (2) Joel Schiavone1 12/30/13 2,000 (6) $ 23.76 (2) Joel Schiavone1 12/31/13 2,000 (6) $ 23.44 (2) Keith Jensen 1/1/14 217 (7) $ 23.00David Michelson3 1/1/14 4,180 (3) $ 23.00Alan Spachman4 1/22/14 129,560 (4) $ 0.00Michael Spachman5 1/22/14 62,647 (4) $ 0.00

(1) Transaction was conducted through DMB Family Limited Partnership. Mr. Joel Schiavone is the General Partner of DMB Family Limited Partnership.

(2) The price reported is a weighted average price. (3) Surrender of shares to the Company in satisfaction of tax withholding obligations on vested shares of previously granted

stock. (4) The Alan R. Spachman GRAT No. 3 distributed 129,560 shares to the Alan R. Spachman Revocable Trust. (5) The Alan R. Spachman GRAT No. 3 gifted 62,647 shares to Mr. Michael Spachman. (6) The shares were sold in an open market sale. (7) The transaction was a grant, award or other acquisition pursuant to Rule 16b-3(d).

Item 7. Purposes of the Transaction and Plans or Proposals

Item 8. Additional Information





No dissenters’ rights are available to holders of Common Stock in connection with the offer. According to the Offer to Purchase, however, if the offer is successfully completed, holders of the Common Stock (a) who do not tender their shares into the offer and hold Common Stock at the effective time of the subsequent merger, (b) who do not wish to accept the consideration provided for in merger and (c) who comply with the procedures provided for in under the Ohio Revised Code, will be entitled to receive the “fair value” of their Common Stock, as determined by a court of competent jurisdiction, by following the procedures required by the Ohio Revised Code. Dissenters’ rights are described in the Offer to Purchase under the section entitled “Special Factors—Section 9. Dissenters’ Rights; Rule 13e-3.”

The foregoing discussion of the rights of shareholders seeking dissenters’ rights under the Ohio Revised Code does not purport to be a complete statement of the procedures to be followed by shareholders desiring to exercise any dissenters’rights available thereunder and is qualified in its entirety by reference to the Ohio Revised Code.

Regulatory Approvals

Except as set forth in this Statement and the exhibits to this Statement, the Company is not aware of any material filing, approval or other action by or with any governmental authority or administrative or regulatory agency that would be required for the Purchaser to acquire or own shares of the Common Stock pursuant to the offer.

State Takeover Laws

A number of states have adopted laws and regulations applicable to offers to acquire shares of corporations that are incorporated or have substantial assets, shareholders and/or a principal place of business in such states. The Company is incorporated under the laws of the State of Ohio. Section 1701.831 of the Ohio Revised Code (also known as the “control share acquisition law”) generally prohibits transactions in which a person obtains one-fifth or more but less than one-third of all the voting power of a corporation, one-third or more but less than a majority of all the voting power of a corporation, or a majority or more of all the voting power of a corporation, unless the shareholders approve the transaction at a special meeting, at which a quorum is present, by both the affirmative vote of a majority of the voting power of the corporation represented at the meeting and by the affirmative vote of a majority of the voting power of the corporation represented at the meeting excluding the voting power of “interested shares.” “Interested shares” are shares held by the acquiring person, an officer of the corporation elected or appointed by the directors of the corporation or an employee of the corporation who is also a director of such corporation. A corporation may provide in its Articles of Incorporation or Code of Regulations that Section 1701.831 does not apply to control share acquisitions of its shares. The Company has not opted out of this statute.

Section 1704.02 of the Ohio Revised Code (also known as the “merger moratorium law”) prohibits any “Chapter 1704 transaction” for a period of three years from the date on which a shareholder first becomes an “interested shareholder” unless the directors of the corporation, before the shareholder became an interested shareholder, approved the Chapter 1704 transaction or the transaction pursuant to which the shareholder became an interested shareholder. A “Chapter 1704 transaction” is defined to include a variety of transactions such as mergers, consolidations, combinations or majority share acquisitions between an Ohio corporation and an interested shareholder or an affiliate of an interested shareholder. An “interested shareholder” is defined generally as any person who, directly or indirectly, beneficially owns 10% or more of the outstanding voting stock of the corporation. After the three-year period, a Chapter 1704 transaction is prohibited unless certain fair price provisions are complied with, the directors of the corporation approved the purchase of shares which made the shareholder an interested shareholder, or the shareholders of the corporation approve the transaction by the affirmative vote of two-thirds of the voting power of the corporation or such other percentage set forth in the articles of incorporation of the corporation, if any, provided that a majority of the disinterested shareholders approve the transaction. The Company has not opted out of this statute.

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According to the Schedule TO, because AFG (indirectly) and the Purchaser (directly) already own a majority of all the voting power of the Company, AFG and the Purchaser do not believe that Section 1701.831 of the Ohio Revised Code would prevent the Purchaser from consummating the offer or the merger. According to the Schedule TO, because AFG and the Purchaser became interested shareholders in 1989, AFG and the Purchaser do not believe that Section 1704.02 of the ORC would prevent the Purchaser from consummating the offer or the merger.

Antitrust Laws

Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), and the rules that have been promulgated thereunder by the Federal Trade Commission (the “FTC”), certain acquisition transactions may not be consummated unless certain information has been furnished to the Antitrust Division of the Department of Justice (the “DOJ”) and the FTC and certain waiting period requirements have been satisfied. AFG currently beneficially owns more than 50% of the outstanding voting securities of the Company. Under the HSR Act, this level of ownership means that AFG is in “control” of the Company for the purposes of such regulations. Based on the foregoing and according to the Schedule TO, AFG and the Purchaser believe no HSR Act filing is required in connection with the offer and the merger.

Federal Reserve Board Regulations

Regulations T, U and X (the “Margin Regulations”) of the Federal Reserve Board restrict the extension or maintenance of credit for the purpose of buying or carrying margin stock, including the shares of Common Stock, if the credit is secured directly or indirectly by margin stock. The Transmittal Documents state AFG is funding the acquisition of the Common Stock from its internally available funds. Based on the foregoing and according to the Schedule TO, AFG and the Purchaser believe the Margin Regulations are inapplicable to the offer.

State Insurance Regulatory Approvals

Subsidiaries of AFG, including the Purchaser, as well as the Company are regulated by state insurance regulators. Completion of the offer and the merger may be subject to certain requirements for prior notice to and/or approval by state insurance regulators applicable to transactions between a domestic insurance company and its affiliates (referred to as “Form A Notice”). Under the various state insurance laws a domestic insurer may not enter into certain specified transactions in excess of specified size thresholds with an affiliate unless the insurer has provided state insurance regulators thirty days’ prior notice and the transaction has not been disapproved during that time.

Potential Payments to Named Executive Officers in Connection with the Tender Offer

The Company maintains a number of plans, agreements and arrangements that could provide payments or benefits to its executives in connection with termination of employment or a change in control. The following narrative summarizes the various agreements or arrangements under which the Company could be required to provide payments or benefits to the Company’s named executive officers in connection with the offer. For this purpose, the Company’s named executive officers are David W. Michelson, Julie A. McGraw, Terry E. Phillips, Arthur J. Gonzales, Gary N. Monda and Anthony J. Mercurio.

Employment Agreement with Mr. Michelson

The Company has entered into an Employment and Non-Competition Agreement with Mr. David W. Michelson. Under his Employment and Non-Competition Agreement, if Mr. Michelson’s employment is terminated by the Company without cause, upon Mr. Michelson’s death or disability, by Mr. Michelson for good reason or upon the Company’s failure to renew the term of the agreement, the Company will pay and provide to Mr. Michelson (i) his base salary at the rate in effect immediately before the termination through the first anniversary of his termination date, (ii) unpaid prior year bonuses as if he were actively employed through the

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scheduled date of payment, (iii) a pro rata portion of any bonus he would have received under the Company’s management bonus plan (the “Management Bonus Plan”) had his employment continued through the year of termination, and (iv) full vesting of any unvested stock options (although all of Mr. Michelson’s currently outstanding stock options are already vested without regard to his Employment and Non-Competition Agreement).

For purposes of the Employment and Non-Competition Agreement, “cause” generally means (i) a conviction of a felony, (ii) dishonesty or willful misconduct that is materially detrimental or adverse to the Company’s best interests, (iii) violation of non-competition or non-solicitation covenants, or (iv) abandonment or continuing neglect of duties. “Good reason” generally means (a) a reduction in base salary, (b) a decrease of a target bonus opportunity below 100% of Mr. Michelson’s base salary, (c) a significant reduction of his duties, responsibilities or position, or (d) a material change in his principal place of employment.

The agreement also subjects Mr. Michelson to indefinite confidentiality restrictions, non-competition restrictions for 12 months after termination of employment and non-solicitation restrictions for 24 months after termination of employment.

Management Bonus Plan

Each of the Company’s named executive officers participates in the Management Bonus Plan. The Management Bonus Plan is an annual cash incentive bonus arrangement whereby a portion of an annual bonus pool may be allocated to participants for each fiscal year. Payment of any bonus earned under the Management Bonus Plan generally is made in three installments (provided that the participant remains employed on the applicable payment date), subject to adjustments for accident year results: (i) 50% within 75 days after the end of the fiscal year performance period, (ii) 35% within 75 days after the first anniversary of the end of the performance period, and (iii) 15% within 75 days after the second anniversary of the end of the performance period. However, if, within one year after a change in control, the Company terminates a named executive officer’s employment other than for cause or a named executive officer terminates his or her employment for good reason, then the Company will pay to such executive a lump sum cash distribution of his or her unpaid bonus awards under the Management Bonus Plan within 10 days following the date of termination of employment. This amount is prorated, at the “target” level, to the extent that the change in control and termination occur during a performance period (and after the applicable awards have been established for such period). Mr. Michelson receives these payments under his Employment Agreement, as described above.

The terms “cause” and “good reason” are defined in the Management Bonus Plan. Cause generally means (i) a material failure to perform duties, (ii) commission of a felony or any crime involving dishonest acts, or (iii) a breach of fiduciary duties or a material violation of any corporate governance and ethics policies. Good reason generally means (a) a material reduction in base salary, (b) a material reduction of authority, duties or responsibilities, or (c) a material change in the participant’s principal place of employment.

For purposes of the Management Bonus Plan, a change in control generally means: (i) any person or group becomes the beneficial owner of 30% or more—or in the case of an acquisition by the Purchaser, 66 2⁄3% or more—of the combined voting power of the Company’s outstanding securities, (ii) there is a change in the majority of the Company’s board of directors, (iii) a reorganization, merger, consolidation, or sale of substantially all of the Company’s assets where its existing shareholders do not retain more than 51% of the combined voting power of the outstanding securities, or (iv) the Company’s shareholders approve a complete liquidation or dissolution. As a result, a change in control would occur if, in connection with the offer, the Purchaser’s beneficial ownership equals or exceeds 66 2/3% of the combined voting power of the Company’s outstanding securities.

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Long Term Incentive Plan and Equity Award Agreements

The Company has granted equity awards to its named executive officers under its long term incentive plan. In particular, the Company has granted restricted shares and stock options to its named executive officers. All stock options currently held by the Company’s named executive officers are fully vested. However, certain of the Company’s named executive officers hold certain restricted shares that are not currently vested, but which would become vested upon the occurrence of a change in control. For purposes of these equity awards, the term “change in control” has the meaning described above in connection with the Management Bonus Plan. As a result, if, in connection with the offer, the Purchaser’s beneficial ownership equals or exceeds 66 2⁄3% of the combined voting power of the Company’s outstanding securities, vesting of the restricted shares held by the Company’s named executive officers would be accelerated.

Golden Parachute Compensation

The following table sets forth the estimated amount of payments and benefits that each named executive officer of the Company would receive if, in connection with the offer, the Purchaser’s beneficial ownership equals or exceeds 66 2/3% of the combined voting power of the Company’s outstanding securities. For purposes of the table below, the Company assumes the following:

The amounts reported below are estimates based on the assumptions described above and in the footnotes to the table. The actual amount of payments and benefits provided to any of the Company’s named executive officers in connection with a change in control or termination of employment could only be determined at the time the actual triggering event occurs.

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• Consummation of the offer on February 18, 2014, in a transaction treated as a change in control for purposes of the Company’s executive compensation arrangements;

• Each named executive officer’s employment is terminated without “cause” immediately following the consummation of the offer; and

• The price per share paid in the offer is the Amended Offer Price ($30 per share).

Named Executive Officer (a)Cash ($)

(b)1 Equity ($)

(c)2

Pension/NQDC($) (d)3

Perquisites/Benefits ($)

(e)4

TaxReimbursement

(f)5Other ($)

(g)6 Total ($) (h)7

David W. Michelson $644,850 $1,080,000 — — — — $1,724,850Julie A. McGraw $103,926 $ 37,140 — — — — $ 141,066Terry E. Phillips $ 82,042 $ 27,840 — — — — $ 109,882Arthur J. Gonzales $ 89,304 — — — — — $ 89,304Gary N. Monda $ 86,145 $ 37,140 — — — — $ 123,285Anthony J. Mercurio $139,027 $ 55,680 — — — — $ 194,707

(1) Cash payments reported above for Mr. Michelson consist of (a) base salary continuation for 12 months of $400,000, and (b) payments under the Management Bonus Plan of $244,850. For the other named executive officers, the cash payments reported above consist of payments under the Management Bonus Plan. Payments under the Management Bonus Plan include (i) unpaid amounts attributable to 2012 accident year results, (ii) an assumed achievement level of 20% of target for the 2013 accident year, although actual payouts will not be certified until the end of February 2014, and (iii) a pro-rated “target” bonus for 2014, assuming that target levels remain unchanged from 2013 (actual target levels for 2014 will be established at the end of February 2014). All of these amounts are attributable to “double-trigger”arrangements, meaning that payment is made upon termination without cause or for good reason within 12 months after a change in control, except that Mr. Michelson’s base salary continuation would be paid on termination without cause or for good reason regardless of whether a change in control has occurred.

(2) Equity amounts reported above consist of the value of unvested restricted shares that would become vested upon the occurrence of a change in control. No amounts are reported for outstanding stock options, because




Annual Report on Form 10-K

For additional information regarding the business and financial results of the Company, please see the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, filed by the Company with the SEC on March 7, 2013.

Certain Forward-Looking Statements

This Statement may contain or incorporate by reference certain “forward-looking statements.” All statements other than statements of historical fact included or incorporated by reference in this Statement are forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. A number of risks and uncertainties could cause actual events or results to differ materially from these statements, including without limitation, the risk factors described from time to time in the Company’s documents and reports filed with the SEC. Accordingly, actual future events may differ materially from those expressed or implied in any such forward-looking statements.

The information contained in all of the exhibits referred to in Item 9 below is incorporated by reference herein.

17

all stock options held by the Company’s named executive officers are already vested without regard to the offer. The dollar values reported above are based on a stock price of $30 per share. All of these amounts are attributable to “single-trigger” arrangements, meaning that vesting is accelerated upon the occurrence of a change in control, without regard to termination of employment.

(3) The Company does not maintain any pension or nonqualified deferred compensation plans for its named executive officers, and therefore no pension or nonqualified deferred compensation enhancements would be provided in connection with a change in control or termination of employment.

(4) The Company does not have any agreement or understanding to provide perquisites, personal benefits or health care or welfare benefits to a named executive officer in connection with a change in control or termination of employment.

(5) The Company does not have any agreement or understanding to provide tax reimbursements to a named executive officer in connection with a change in control or termination of employment.

(6) The Company does not have any agreement or understanding to provide any other compensation to a named executive officer that is based on or otherwise relates to a change in control or termination of employment.

(7) For each named executive officer, this amount includes the aggregate dollar value of the sum of all amounts reported in columns (b) through (g). The table below quantifies the portion of the aggregate amount reported for each named executive officer which is attributable to “double-trigger” and “single-trigger” arrangements, respectively. For this purpose, post-termination base salary continuation payable to Mr. Michelson under his Employment Agreement is reported as attributable to a double-trigger arrangement.

Named Executive Officer

Amounts Attributable toDouble-Trigger Arrangements

(Cash Payments)

Amounts Attributable toSingle-Trigger Arrangements

(Accelerated Vesting of Equity)David W. Michelson $ 644,850 $ 1,080,000Julie A. McGraw $ 103,926 $ 37,140Terry E. Phillips $ 82,042 $ 27,840Arthur J. Gonzales $ 89,304 $ 0Gary N. Monda $ 86,145 $ 37,140Anthony J. Mercurio $ 139,027 $ 55,680




The following exhibits are filed or incorporated by reference as part of this Statement:

Item 9. Exhibits


(a)(1) Schedule TO, dated February 5, 2014 (incorporated by reference to Schedule TO filed by Great American Insurance Company, a wholly-owned subsidiary of American Financial Group, Inc., on February 5, 2014)

(a)(2) Schedule 13E-3, dated February 5, 2014 (incorporated by reference to Schedule 13E-3 filed by Great American Insurance Company, a wholly-owned subsidiary of American Financial Group, Inc., on February 5, 2014)

(a)(3) Offer to Purchase, dated February 5, 2014 (incorporated by reference to Exhibit (a)(1)(i) to Tender Offer Statement on Schedule TO filed by Great American Insurance Company, a wholly-owned subsidiary of American Financial Group, Inc., on February 5, 2014)

(a)(4) Letter of Transmittal, dated February 5, 2014, of National Interstate Corporation (incorporated by reference to Exhibit (a)(1)(ii) to Tender Offer Statement on Schedule TO filed by Great American Insurance Company, a wholly-owned subsidiary of American Financial Group, Inc., on February 5, 2014)

(a)(5) Notice of Guaranteed Delivery (incorporated by reference to Exhibit (a)(1)(iii) to Tender Offer Statement on to Schedule TO filed by Great American Insurance Company, a wholly-owned subsidiary of American Financial Group, Inc., on February 5, 2014)

(a)(6) Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees (incorporated by reference to Exhibit (a)(1)(iv) to Tender Offer Statement on Schedule TO filed by Great American Insurance Company, a wholly-owned subsidiary of American Financial Group, Inc., on February 5, 2014)

(a)(7) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees (incorporated by reference to Exhibit (a)(1)(v) to Tender Offer Statement on Schedule TO filed by Great American Insurance Company, a wholly-owned subsidiary of American Financial Group, Inc., on February 5, 2014)

(a)(8) Summary Advertisement published in The New York Times (incorporated by reference to Exhibit (a)(1)(vi) to Tender Offer Statement on Schedule TO filed by Great American Insurance Company, a wholly-owned subsidiary of American Financial Group, Inc., on February 5, 2014)

(a)(9) Press release, issued by American Financial Group, Inc., dated February 5, 2014 (incorporated by reference to Exhibit (a)(5)(i) to Tender Offer Statement on Schedule TO filed by Great American Insurance Company, a wholly-owned subsidiary of American Financial Group, Inc., on February 5, 2014)

(a)(10) Press release, issued by National Interstate Corporation, dated February 7, 2014 (incorporated by reference to Exhibit 99.1 of the Form 8-K filed by National Interstate Corporation on February 7, 2014)

(a)(11) Correspondence to Employees, issued by National Interstate Corporation, dated February 10, 2014 (incorporated by reference to Exhibit 99.1 of the Form 8-K filed by National Interstate Corporation on February 10, 2014)

(a)(12) Fairness Opinion of Duff & Phelps, LLC as to the Initial Offer Price to the board of directors of National Interstate Corporation, dated February 17, 2014

(a)(13) Schedule TO-T/A, dated February 18, 2014 (incorporated by reference to Schedule TO-T/A filed by Great American Insurance Company, a wholly-owned subsidiary of American Financial Group, Inc., on February 18, 2014)

(a)(14) Press release, issued by American Financial Group, Inc., dated February 18, 2014 (incorporated by reference to Exhibit (a)(5)(ii) of the Schedule TO-T/A filed by Great American Insurance Company, a wholly-owned subsidiary of American Financial Group, Inc., on February 18, 2014)






(a)(16) Press release, by National Interstate Corporation, dated February 19, 2014

(e)(1) Underwriting Management Agreement dated November 1, 1989, as amended, among National Interstate Insurance Agency, Inc., Great American Insurance Company, Agricultural Insurance Company, American Alliance Insurance Company and American National Fire Insurance Company (incorporated by reference to Exhibit 10.3 of the Registration Statement on Form S-1 (file no. 333-119270) filed on September 24, 2004)

(e)(2) Agreement of Reinsurance No. 0012 dated November 1, 1989 between National Interstate Insurance Company and Great American Insurance Company (incorporated by reference to Exhibit 10.8 of the Registration Statement on Form S-1 (file no. 333-119270) filed on September 24, 2004)

(e)(3) Investment Management Agreement effective October 1, 2012 between American Money Management Corporation, National Interstate Insurance Company, National Interstate Insurance Company of Hawaii, Inc., Vanliner Insurance Company and Triumphe Casualty Company (incorporated by reference to Exhibit 10.14 of the 2012 Annual Report on Form 10-K of National Interstate Corporation filed on March 8, 2013)

(e)(4) Registration Rights Agreement effective February 2, 2005 among National Interstate Corporation, Alan Spachman and Great American Insurance Company (incorporated by reference to Exhibit 10.4 of the Registration Statement on Form S-1/A (file no. 333-119270) filed on September 24, 2004)

(e)(5) Long Term Incentive Plan, as amended through March 1, 2013 (incorporated by reference to the Exhibit 10.1 to Form 8-K filed on May 8, 2013)

(e)(6) Deferred Compensation Plan (incorporated by reference to Exhibit 10.2 of the Registration Statement on Form S-1 (file no. 333-119270) filed on September 24, 2004)

(e)(7) Amended and Restated Employee Retention Agreement between National Interstate Insurance Agency, Inc. and David W. Michelson, dated December 28, 2007 (incorporated by reference to Exhibit 10.1 to Form 8-K filed on January 4, 2008)

(e)(8) Employment and Non-Competition Agreement dated March 12, 2007 between National Interstate Corporation and David W. Michelson, as amended as of January 1, 2008 (incorporated by reference to Exhibit 10.1 to Form 8-K filed on January 4, 2008 and Exhibit 10.16 to Form 10-K filed on March 14, 2007)

(e)(9) Restricted Shares Agreement dated March 12, 2007 between National Interstate Corporation and David W. Michelson (incorporated by reference to Exhibit 10.17 to Form 10-K filed on March 14, 2007)

(e)(10) Stock Bonus Agreement dated March 12, 2007 between National Interstate Corporation and David W. Michelson (incorporated by reference to Exhibit 10.18 to Form 10-K filed on March 14, 2007)

(e)(11) National Interstate Corporation Amended and Restated Management Bonus Plan, as amended as of November 6, 2009 (incorporated by reference to Exhibit 10.1 to Form 8-K filed on September 27, 2007 and Exhibit 10.1 to Form 8-K filed on November 12, 2009)

(e)(12) Form of Award Agreement for Restricted Shares and Performance Shares (incorporated by reference to Exhibit 10.1 to Form 8-K filed on February 25, 2013)

(e)(13) Sections entitled “General Information,” “Principal Shareholders,” “Compensation Discussion and Analysis,”Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Award Table,” “Potential Payments Upon Termination or Change in Control,” “2012 Director Compensation” and “Certain Relationships and Related Party Transactions” in the Definitive Proxy Statement on Schedule 14A of National Interstate Corporation (incorporated by reference to the Definitive Proxy Statement on Schedule 14A for the Annual Meeting of Shareholders of National Interstate Corporation, filed on April 16, 2013)




SIGNATURE

After reasonable inquiry and to the best of its knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct.

Dated: February 19, 2014

NATIONAL INTERSTATE CORPORATION

By: /S/ ARTHUR J. GONZALESName: Arthur J. Gonzales

Title: Vice President, General Counsel and Secretary




EX-99.A.12 2 d679743dex99a12.htm EXHIBIT (A)(12) Exhibit (a) (12)

National Interstate Corporation 3250 Interstate Drive Richfield, Ohio 44286

Ladies and Gentlemen:

National Interstate Corporation (the “Company”) has engaged Duff & Phelps, LLC (“Duff & Phelps”) to provide an opinion (the “Opinion”) as of the date hereof as to the fairness, from a financial point of view, of the consideration to be received by the public shareholders of the Company in the contemplated transaction described below (the “Proposed Transaction”) (without giving effect to any impact of the Proposed Transaction on any particular shareholder other than in its capacity as a shareholder).

Description of the Proposed Transaction

It is Duff & Phelps’ understanding that the Proposed Transaction involves a tender offer by Great American Insurance Company (“GAIC”), a wholly-owned subsidiary of American Financial Group, Inc. (“AFG”), to acquire all of the outstanding shares of the Company’s common stock not currently owned by GAIC, AFG or any of their respective affiliates for $28.00 per share in cash.

Scope of Analysis

Duff & Phelps has been engaged in the financial advisory and investment banking business since 1932. Duff & Phelps advises boards of directors, special committees, trustees and other fiduciaries on fairness issues in a wide variety of business transactions.

February 17, 2014

Duff & Phelps, LLC T +1 312 697 4600 www.duffandphelps.com311 South Wacker Drive F +1 312 697 0112Suite 4200Chicago, IL 60606

Page 1 of 5Exhibit (a)(12)

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National Interstate CorporationPage 2 of 5

February 17, 2014

In connection with this Opinion, Duff & Phelps has made such reviews, analyses and inquiries as it has deemed necessary and appropriate under the circumstances. Duff & Phelps also took into account its assessment of general economic, market and financial conditions, as well as its experience in securities and business valuation, in general, and with respect to similar transactions, in particular. Duff & Phelps’ procedures, investigations, and financial analysis with respect to the preparation of its Opinion included, but were not limited to, the items summarized below:

1. Reviewed the following documents:

a. The Company’s annual reports and audited financial statements on Form 10-K filed with the Securities and Exchange Commission (“SEC”) for the year ended December 31, 2012 and the Company’s unaudited interim financial statements for the nine months ended September 30, 2013 included in the Company’s Form 10-Q filed with the SEC;

b. The Company’s draft audited financial statements for the year ended December 31, 2013;

c. Other internal documents relating to the history, current operations, and probable future outlook of the Company, including a 2014 financial budget, provided to Duff & Phelps by management of the Company, upon which Duff & Phelps has relied in performing its analysis;

d. Five year financial projections provided to Duff & Phelps by senior management of the Company, upon which Duff & Phelps has relied in performing its analysis (the “Management Projections”);

e. The A.M. Best credit report dated July 12, 2013; and

f. Documents related to the Proposed Transaction, including the Tender Offer Statement filed on Schedule TO by GAIC and AFG with the SEC on February 5, 2014;

2. Discussed the information referred to above and the background and other elements of the Proposed Transaction with senior management of the Company;

3. Reviewed the historical trading price and trading volume of the Company’s common stock and the publicly traded securities of certain other companies that Duff & Phelps deemed relevant;

4. Performed certain valuation and comparative analyses using generally accepted valuation and analytical techniques including a discounted cash flow analysis, an analysis of selected public companies that Duff & Phelps deemed relevant, and an analysis of selected transactions that Duff & Phelps deemed relevant; and

5. Conducted such other analyses and considered such other factors as Duff & Phelps deemed appropriate.





February 17, 2014

Assumptions, Qualifications and Limiting Conditions

In performing its analyses and rendering this Opinion with respect to the Proposed Transaction, Duff & Phelps, with the Company’s consent:

To the extent that any of the foregoing assumptions or any of the facts on which this Opinion is based prove to be untrue in any material respect, this Opinion cannot and should not be relied upon. Furthermore, in Duff & Phelps’ analysis and in connection with the preparation of this Opinion, Duff & Phelps has made numerous assumptions with respect to industry performance, general business, market and economic conditions and other matters, many of which are beyond the control of any party involved in the Proposed Transaction.

Duff & Phelps has prepared this Opinion effective as of the date hereof. This Opinion is necessarily based upon market, economic, financial and other conditions as they exist and can be evaluated as of the date hereof, and Duff & Phelps disclaims any undertaking or obligation to advise any person of any change in any fact or matter affecting this Opinion which may come or be brought to the attention of Duff & Phelps after the date hereof.

Duff & Phelps did not evaluate the Company’s solvency or conduct an independent appraisal or physical inspection of any specific assets or liabilities (contingent or otherwise). Duff & Phelps has not been requested to, and did not, (i) initiate any discussions with, or solicit any indications of interest from, third parties with respect to the Proposed Transaction, the assets, businesses or operations of the Company, or any alternatives to the Proposed Transaction, (ii) negotiate the terms of the Proposed Transaction, or (iii) advise the Company, the Board of Directors or any other party with respect to alternatives to the Proposed Transaction.

1. Relied upon the accuracy, completeness, and fair presentation of all information, data, advice, opinions and representations obtained from public sources or provided to it from private sources, including Company management, and did not independently verify such information;

2. Relied upon the fact that the board of directors of the Company (the “Board of Directors”) and the Company have been advised by counsel as to all legal matters with respect to the Proposed Transaction, including whether all procedures required by law to be taken in connection with the Proposed Transaction have been duly, validly and timely taken;

3. Assumed that any estimates, evaluations, forecasts and projections furnished to Duff & Phelps were reasonably prepared and based upon the best currently available information and good faith judgment of the person furnishing the same;

4. Assumed that information supplied and representations made by Company management regarding the Company and the Proposed Transaction are accurate in all material respects;

5. Relied on the assurances of Company management that Company management is not aware of any information or facts that would make the information supplied to Duff & Phelps incomplete or misleading; and

6. Assumed that there has been no material change in the assets, financial condition, business, or prospects of the Company since the date of the most recent financial statements and other information made available to Duff & Phelps.





February 17, 2014

Duff & Phelps is not expressing any opinion as to the market price or value of the Company’s common stock (or any related matter) after the announcement or the consummation of the Proposed Transaction. This Opinion should not be construed as a valuation opinion, credit rating, solvency opinion, an analysis of the Company’s credit worthiness, as tax advice, or as accounting advice. Duff & Phelps has not made, and assumes no responsibility to make, any representation, or render any opinion, as to any legal matter.

In rendering this Opinion, Duff & Phelps is not expressing any opinion with respect to the amount or nature of any compensation to any of the Company’s officers, directors, or employees, or any class of such persons, relative to the consideration to be received by the public shareholders of the Company in the Proposed Transaction, or with respect to the fairness of any such compensation.

This Opinion is furnished solely for the use and benefit of the Company and the Board of Directors in connection with their consideration of the Proposed Transaction and is not intended to, and does not, confer any rights or remedies upon any other person, and is not intended to be used, and may not be used, by any other person or for any other purpose, without Duff & Phelps’ express consent. This Opinion (i) does not address any transaction related to the Proposed Transaction; (ii) is not a recommendation as to how the Board of Directors or any shareholder should vote or act with respect to any matters relating to the Proposed Transaction, and (iii) does not indicate that the consideration offered is the best possibly attainable under any circumstances; instead, it merely states whether the consideration offered in the Proposed Transaction is within a range suggested by certain financial analyses. A decision as to whether to recommend, not to recommend, or take no position with respect to the Proposed Transaction or any related transaction may depend on an assessment of factors unrelated to the financial analysis on which this Opinion is based. This letter should not be construed as creating any fiduciary duty on the part of Duff & Phelps to any party.

This Opinion is solely that of Duff & Phelps, and Duff & Phelps’ liability in connection with this letter shall be limited in accordance with the terms set forth in the engagement letter between Duff & Phelps and the Company dated February 12, 2014 (the “Engagement Letter”). This letter is confidential, and its use and disclosure is strictly limited in accordance with the terms set forth in the Engagement Letter.

Disclosure of Prior Relationships

Duff & Phelps will receive a fee for its services. No portion of Duff & Phelps’ fee is contingent upon either the conclusion expressed in this Opinion or whether or not the Proposed Transaction is successfully consummated. Pursuant to the terms of the Engagement Letter, a portion of Duff & Phelps’ fee is payable upon Duff & Phelps’ informing the Company that it is prepared to deliver its Opinion. Other than this engagement, during the two years preceding the date of this Opinion,





February 17, 2014

Duff & Phelps has not had any material relationship with any party to the Proposed Transaction for which compensation has been received or is intended to be received, nor is any such material relationship or related compensation mutually understood to be contemplated.

Conclusion

Based upon and subject to the foregoing, Duff & Phelps is of the opinion that, as of the date hereof, the consideration to be received by the public shareholders of the Company in the Proposed Transaction is not fair from a financial point of view to such shareholders (without giving effect to any impact of the Proposed Transaction on any particular shareholder other than in his, her or its capacity as a shareholder).

This Opinion has been approved by the Opinion Review Committee of Duff & Phelps.

Respectfully submitted,

/s/ Duff & Phelps, LLC

Duff & Phelps, LLC




Exhibit H


SC 14D9/A 1 d687623dsc14d9a.htm SC 14D9/A

SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

Schedule 14D-9


(Amendment No. 1)


NATIONAL INTERSTATE CORPORATION (Name of Person(s) Filing Statement)



Arthur J. Gonzales Vice President, General Counsel and Secretary

3250 Interstate Drive Richfield, Ohio 44286-9000

(303) 659-8900 (Name, address and telephone number of person authorized to receive notice and communications

on behalf of the person(s) filing statement)

With a copy to:

Anthony E. Kuhel, Jr. Thomas A. Aldrich

Thompson Hine LLP 3900 Key Center

127 Public Square Cleveland, Ohio 44114-1291

(216) 566-5500


Page 1 of 27SC 14D9/A

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This Amendment No. 1 (this “Amendment No. 1”) amends, in its entirety, and supersedes the Solicitation/Recommendation Statement on Schedule 14D-9 initially filed with the Securities and Exchange Commission (the “SEC”) on February 19, 2014 by National Interstate Corporation, an Ohio corporation (as amended or supplemented from time to time, including as amended and superseded by this Amendment No. 1, the “Statement”).

(a) The name of the subject company is National Interstate Corporation, an Ohio corporation (the “Company”), the address of the principal executive office of the Company is 3250 Interstate Drive, Richfield, Ohio 44286-9000, and its telephone number at such address is (330) 659-8900.

(b) The title of the class of equity securities to which this Solicitation/Recommendation Statement on Schedule 14D-9 (together with any exhibits hereto and any information incorporated herein by reference, this “Statement”) relates is the common shares, par value $0.01 per share (the “Common Stock”) of the Company. As of February 17, 2014, 19,729,303 shares of Common Stock were issued and outstanding.

(a) Name and Address

This Statement is being filed by the Company. The name, business address, and business telephone number of the Company are set forth in Item 1(a) above, which information is incorporated herein by reference.

(b) Tender Offer

This Statement relates to the tender offer by Great American Insurance Company, an Ohio corporation (the “Purchaser”), which is a wholly-owned subsidiary of American Financial Group, Inc. (“AFG”). As of February 5, 2014, the date of the tender offer by the Purchaser for all outstanding shares of Common Stock not owned by the Purchaser, the Purchaser beneficially owned 10,200,000, or approximately 51.7%, of the outstanding shares of Common Stock. The Purchaser is offering to purchase all outstanding shares of Common Stock that the Purchaser does not already own for $30.00 per share (the “Amended Offer Price”), net to the seller in cash, without interest, subject to applicable withholding taxes. The offer is disclosed in a combined Tender Offer Statement, Letter of Transmittal and Offer to Purchase (in each case, as amended or any subsequent amendments thereto, collectively, the “Transmittal Documents”) filed by the Purchaser under cover of Schedule TO with the United States Securities and Exchange Commission (the “SEC”) on February 5, 2014, as amended under cover of (i) Schedule TO-T/A dated February 18, 2014, (ii) Schedule TO-T/A dated February 21, 2014, (iii) Schedule TO-T/A dated February 24, 2014, (iv) Schedule TO-T/A dated February 26, 2014, (v) Schedule TO-T/A dated February 27, 2014 and (vi) Schedule TO-T/A dated March 3, 2014 (together with all exhibits thereto and subsequent amendments thereto, the “Schedule TO”). The offer is subject to the conditions set forth in the Transmittal Documents (the “Offer to Purchase”). The Purchaser has stated that if it purchases shares of Common Stock in the offer such that it will own at least 90% of the issued and outstanding Common Stock, the Purchaser or an affiliate of the Purchaser, intends to merge with the Company (the “merger”). As a result of the merger, each then issued and outstanding share of Common Stock (other than Common Stock held by the Purchaser and held by shareholders who validly perfect their dissenters’ rights under the Ohio Revised Code) will be cancelled and converted into and represent the right to receive the Amended Offer Price.


1

Item 1. Subject Company Information

Item 2. Identity and Background of Filing Person




Except as discussed in this Statement, to the best of the Company’s knowledge, as of the date of this Statement, there are no material agreements, arrangements, or understandings, or actual or potential conflicts of interest, between the Company or its affiliates and (i) the Company’s executive officers, directors, or affiliates or (ii) the Purchaser or AFG or either of their respective executive officers, directors, or affiliates.

Certain contracts, agreements, arrangements and understandings between the Company or its affiliates and (i) the Company’s executive officers, directors, and affiliates or (ii) the Purchaser or AFG and either of their respective executive officers, directors, and affiliates are described in the Company’s Proxy Statement filed on Schedule 14A with the SEC on April 16, 2013 (the “2013 Proxy Statement”) under the sections entitled “General Information,” “Principal Shareholders,”“Compensation Discussion and Analysis,” Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Award Table,” “Potential Payments Upon Termination or Change in Control,” “2012 Director Compensation” and “Certain Relationships and Related Party Transactions,” each of which is incorporated herein by reference to exhibit (e)(13) to this Statement. All information incorporated is considered a part of this Statement, except for any information that is superseded by information included directly in this Statement.

In addition, certain contracts, arrangements or understandings between the Company or its affiliates and (i) the Company’s executive officers, directors, and affiliates or (ii) the Purchaser or AFG and either of their respective executive officers, directors, and affiliates are described in the sections entitled “Special Factors—Interests of Directors and Executive Officers in the Offer” and “Special Factors—Certain Relationships Between AFG, the Purchaser and National Interstate” in the Offer to Purchase, which is attached as exhibit (a)(3) and (a)(19) to this Statement and is incorporated by reference herein.

Certain Relationships between the Company and Purchaser or AFG, and each of their respective Executive Officers, Directors, and Affiliates

Shareholders should be aware that certain directors and/or executive officers of the Company have interests in the offer which are described in this Statement and/or the Offer to Purchase, and which may present them with certain actual or potential conflicts of interest with respect to the offer. Certain directors or executive officers of the Purchaser and/or AFG, or their respective affiliates, also serve as directors of the Company. Messrs. Joseph E. (Jeff) Consolino (Mr. Consolino) and Vito Peraino are executive officers of AFG, and Messrs. Gary Gruber and Donald Larson are executive officers of the Purchaser. In addition, until February 2013, Keith Jensen served as an executive officer of AFG.

According to the Offer to Purchase, the Purchaser beneficially owns 10,200,000 shares of Common Stock, which represents approximately 51.7% of the outstanding shares of Common Stock as of February 4, 2014. If the Purchaser were to purchase all shares of Common Stock (other than shares already owned by the Purchaser) in the offer it is seeking to purchase, then, after completion of the offer, the Purchaser would beneficially own 100.0% of the outstanding shares.

Solicitation or Recommendation

After careful consideration, including a thorough review of the offer with its legal advisor and consideration of the Initial Offer Price with Duff & Phelps, LLC (“Duff & Phelps”), its independent financial advisor, the board of directors of the Company has determined to express no opinion on the offer and to remain neutral with respect to the offer. Duff & Phelps was determined to be independent on the basis that it had no preexisting relationship with the Company, and to the Company’s knowledge, the Purchaser.

2

Item 3. Past Contacts, Transactions, Negotiations, and Agreements

Item 4. The Solicitation or Recommendation




Accordingly, the board of directors, on behalf of the Company, expresses no opinion on the offer and is remaining neutral. It should be noted that the board of director’s determination to express no opinion on the offer and to remain neutral with respect to the offer was made by the affirmative vote of six of the ten directors of the Company, with five of such six directors being affiliated with the Purchaser and/or AFG.

The board of directors is not recommending to the shareholders that they tender, or refrain from tendering, their shares of Common Stock in the offer, and urges each shareholder to make his, her or its own investment decision regarding the offer based on all available information, in light of the shareholder’s own investment objectives, various factors considered by the board of directors as outlined in this Statement, the shareholder’s views on the Company’s financial prospects and any other factors the shareholder considers relevant to his, her or its investment decision.

Background of the Offer

At a meeting of the board of directors held on February 12, 2013, Mr. Donald Schwegman was appointed to the Company’s board of directors as an independent director and also named Chairman of the Audit Committee (Mr. Donald Schwegman accepted his appointment on February 15, 2013). Mr. Consolino became Chairman of the board of directors on February 15, 2013, replacing Mr. Alan R. Spachman, who served as Chairman of the board of directors from 2004 until February 15, 2013.

At the Company’s 2013 Annual Meeting of Shareholders held May 2, 2013, Mr. Alan R. Spachman nominated his son, Mr. Michael A. Spachman, for election as a director. Accordingly, there were seven nominees for election as Class I members of the board of directors, but only six nominees were to be elected. No other nominations of persons for election as directors were submitted to the Company. The background of Mr. Michael A. Spachman’s nomination follows:

On March 21, 2013, counsel to Mr. Alan Spachman contacted the Company requesting information regarding the procedures under the Company’s Regulations for nominating a candidate for election as a director at the Annual Meeting and a copy of the Company’s Regulations. On the same day, counsel to the Company responded to this request.

On March 28, 2013, the Company received a letter from Mr. Alan Spachman stating his intention to nominate one candidate for election as a director at the Annual Meeting. In consultation with counsel, the Company determined that such purported nomination was not in compliance with the Company’s Regulations.


On the same day, Mr. Arthur J. Gonzales, Vice President, General Counsel and Secretary of the Company, at Mr. Consolino’s direction, provided to Mr. Alan Spachman in writing and telephonically a list of items that had to be remedied for Mr. Michael A. Spachman’s nomination to be in compliance with the Company’s Regulations.

On March 30, 2013, Mr. Alan Spachman submitted a revised nomination notice, including the consent of Mr. Alan Spachman’s nominee (Mr. Michael A. Spachman) to serve if elected.

On April 2, 2013, the Company filed a preliminary proxy statement with the SEC, followed by the filing of a revised preliminary proxy statement on April 15, 2013 and a definitive proxy statement on April 16, 2013, relating to the Company’s solicitation of proxies in connection with the Annual Meeting. The Company did not receive any notice from Mr. Alan Spachman of his intent to solicit proxies in connection with the Annual Meeting.

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The Company’s board of directors recommended that its six nominees (Messrs. Consolino, Elliott, Gruber, Larson, Michelson and Schwegman) be elected. Mr. Michael A. Spachman was elected a Company director at the May 2, 2013 Annual Meeting; Theodore H. Elliott, Jr., nominated by the Company’s board of directors and Nominating and Corporate Governance Committee, did not receive sufficient votes to remain a director (he had served as a director since 1989). Mr. Michael A. Spachman was appointed to the Audit Committee at a Board meeting on May 2, 2013, following the Annual Meeting of Shareholders.

On February 5, 2014, the Purchaser commenced the offer at a price of $28.00 per share (the “Initial Offer Price”).

Following the public announcement of the offer, Mr. Consolino discussed the terms of the offer, including the Initial Offer Price, with management of the Company.

On February 5, 2014, the Company discussed with its legal advisor the offer, including the board of director’s obligation to determine how to respond to the offer and the Company’s obligation to file a Solicitation/Recommendation Statement on Schedule 14D-9 (the “Schedule 14D-9”) announcing its position with respect to the offer within 10 business days of the date that the Purchaser commenced the offer.

On February 5, 2014, the Company received the Purchaser’s Rule 14d-5 request for shareholder records (the “Request”).

On February 7, 2014, at a duly called meeting, the board of directors considered the terms of the offer, including the Initial Offer Price, and process for evaluating such offer. All of the members of the board of directors were present and participating at the meeting either in person or by telephone conference call. Mr. Consolino summarized the terms of the Offer to Purchase. The Company’s legal advisor reviewed with the board of directors the fiduciary duties of directors under Ohio law and other legal matters relevant to the board’s consideration of the Offer to Purchase and responded to questions from the board of directors concerning these matters. Among other matters, the board of directors discussed forming a special committee of independent directors for the purposes of considering and making the recommendation as to the Offer to Purchase in the Schedule 14D-9 and engagement of a financial advisor to assist the board of directors in formulating its position with respect to the offer and discussed with counsel for the Company related issues under Ohio law. Following discussion, the board of directors determined by a 6-4 vote that it would not adopt a proposal by Mr. Alan Spachman that the board appoint a special committee whose members would be Messrs. Joel Schiavone, Donald Schwegman, Alan Spachman, and Michael Spachman (with all directors participating in the vote and Messrs. Joel Schiavone, Donald Schwegman, Alan Spachman, and Michael Spachman voting for the proposal). After further discussion, the board of directors determined by a 6-3 vote to instruct management of the Company to interview and review the qualifications of potential independent financial advisors to the board and to provide the board of directors with a list of up to five proposed financial advisors for further consideration by the board by February 10, 2014 (with all directors other than Mr. Joel Schiavone, who abstained, participating in the vote and Messrs. Donald Schwegman, Alan Spachman and Michael Spachman voting against that determination).

On February 7, 2014, the Company issued a press release informing its shareholders of the offer and the board of directors’ intent to advise shareholders of its position regarding the offer within 10 business days of commencement of the offer by filing the Schedule 14D-9.

On February 7, 2014, the Company responded to the Request, providing the records requested on February 5, 2014.

On February 10, 2014, the Company issued an e-mail correspondence to all Company employees informing them of the offer and the board of directors’ intent to respond within 10 business days of commencement of the offer by filing the Schedule 14D-9.

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On February 10, 2014, the board of directors, at a duly called meeting at which all directors were present and participating either in person or by telephone conference call received a presentation from management of the Company concerning the results of management’s review of potential financial advisors. Following discussion, the board of directors determined to direct management of the Company to retain Duff & Phelps to provide an opinion, from a financial point of view, of the fairness of the Initial Offer Price (the “Opinion”) (with all directors voting in the affirmative except for Messrs. Joel Schiavone, Alan Spachman and Michael Spachman, who abstained).

On February 11, 2014, Mr. Alan Spachman sent a letter to the Company informing it of his disagreement with the process undertaken by the board of directors with respect to the offer. Specifically, Mr. Alan Spachman took issue with the board’s determination not to appoint a special committee of independent directors for purposes of considering and making the recommendations to the Offer to Purchase. Mr. Alan Spachman’s letter also indicated his interest in meeting individually with Duff & Phelps and requested written advice of the Company’s legal advisor concerning the process undertaken by the board of directors with respect to the offer.

Following the announcement of the offer, a shareholder derivative and class action complaint (the “Complaint”) was filed in Hamilton County, Ohio, Court of Common Pleas, against the Company, as well as against AFG and the Purchaser. The action is styled Robert Bernatchez v. American Financial Group, Inc., et al. (the “Bernatchez Action”). The plaintiff, Robert Bernatchez, a former officer of the Company and an alleged owner of the Common Stock, alleges, among other things, that the defendants breached their fiduciary duties (including the duty of loyalty and the duty of candor) to the Company’s public shareholders in connection with the offer. The Complaint seeks, among other things, injunctive relief against the offer and any subsequent merger; rescission; damages; and plaintiff’s costs and disbursements of the action, including a reasonable allowance for fees and expenses of plaintiff’s attorneys and experts. On February 18, 2014, plaintiff filed a motion for expedited discovery, requesting documents from defendants and requesting depositions of defendants’representatives with sufficient time to brief and hold a hearing on plaintiff’s “anticipated motion for preliminary injunction”in advance of March 6, 2014, the former close date of the offer.

On February 23, 2014, the plaintiff in the Bernatchez Action filed an amended complaint in place of the Complaint, naming the following directors of the Company as individual defendants and asserting breach of fiduciary duty claims against them: Joseph E. (“Jeff”) Consolino; Gary J. Gruber; Keith A Jensen; Donald D. Larson; David W. Michelson; and Vito C. Peraino (“Bernatchez Amended Complaint”). The Bernatchez Amended Complaint also alleges that the Schedule 14D-9 filed by the Company on February 19, 2014 failed to disclose certain material information regarding the offer. On February 25, 2014, the plaintiff in the Bernatchez Action filed a memorandum of law in support of motion for temporary restraining order and preliminary injunction (the “Bernatchez TRO”), petitioning the court for a temporary restraining order and preliminary injunction prohibiting the defendants in the Bernatchez Action from taking any steps toward consummation of the offer. The court held a hearing on the Bernatchez TRO on Thursday, February 27, 2014, and on February 28, 2014, the court denied the Bernatchez TRO. AFG and the Purchaser intend to defend the Bernatchez Action vigorously.

The outcome of this lawsuit, and any other litigation that may be filed, is unclear and cannot be predicted with any certainty. An adverse judgment for monetary damages could have a material adverse effect on the operations of the Company and/or any participants in the offer. A preliminary injunction could delay or jeopardize consummation of the offer and/or any potential subsequent merger, and an adverse judgment granting permanent injunctive relief could indefinitely enjoin completion of both. The Company intends to vigorously defend itself against the Bernatchez Action and any other lawsuit.

On February 13, 2014, at the request of management of the Company, the Company’s legal advisor participated in a question and answer session by conference call with all of the members of the Company’s board of directors to discuss the offer, the related process and the fiduciary duties of directors under Ohio law and, to review with the directors the Complaint.

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On February 14, 2014, Mr. Alan Spachman, a director of the Company who beneficially owns approximately 9.2% of the outstanding Common Stock of the Company, filed a Schedule 13D with the SEC reserving the right to formulate plans and/or make proposals, and to take actions with respect to his investment in the Company. As indicated in Mr. Spachman’s Schedule 13D, on February 7, 2014, Mr. Spachman requested that the board of directors form a special committee to review the offer and make a recommendation to shareholders, and, as described above, the board of directors determined, by a majority vote, not to form such a special committee. Mr. Spachman’s Schedule 13D further states that Mr. Spachman then requested that the independent directors be authorized to retain their own independent legal and financial advisors, at the Company’s expense. Counsel for the Company noted that, inasmuch as the board of directors had previously voted against Mr. Alan Spachman’s proposal that the board appoint a special committee whose members would be Messrs. Joel Schiavone, Donald Schwegman, Alan Spachman, and Michael Spachman and no directors were at that time the subject of any third-party claims relating to the offer, the allegedly independent directors were not at that time entitled under the Company’s code of regulations or Ohio law to indemnification by the Company or to advancement of their expenses, including expenses of counsel. Counsel for the Company also noted that a decision by the Company at that time to provide counsel for the allegedly independent directors at the Company’s expense could be inconsistent with the requirements of the Company’s directors and officers insurance coverage, and it would be advisable to review the relevant insurance policies prior to making any decision on Mr. Spachman’s request. At that time, the Company had already retained Duff & Phelps.

On February 17, 2014, the Purchaser provided additional financial information and analysis to the board of directors concerning the Initial Offer Price. The section entitled “Position of AFG and Purchaser Regarding Fairness of the Offer” in the Amended and Restated Offer to Purchase filed as an exhibit to the Purchaser’s Schedule TO-A filed with the Commission on February 21, 2014 includes such additional financial information, and the Amended and Restated Offer to Purchase is filed herewith as exhibit a(19) and incorporated herein by reference.

On February 17, 2014, at a duly called meeting, the board of directors further considered and discussed the terms of the offer, including the Initial Offer Price, received a presentation from representatives of Duff & Phelps concerning the Opinion as to the Initial Offer Price and the process followed by Duff & Phelps in preparing the Opinion as to the Initial Offer Price, and had the opportunity to question the representatives concerning the Opinion, a draft of which had been previously provided to the board of directors, and Duff & Phelps’ process in connection therewith. The presentation by Duff & Phelps included the valuation analysis performed by Duff & Phelps; specifically, a comparable transaction analysis that applied certain multiples to the Company’s net income, book value and tangible book value, as well as a discounted cash flow analysis. All of the members of the board of directors were present and participating at the meeting either in person or by telephone conference call. In the course of the meeting, Mr. Alan Spachman reiterated his previous objections to the process followed by the board of directors in reviewing the offer. At the conclusion of the board of directors’ questions, the representatives of Duff & Phelps were excused from the meeting. Mr. Consolino proposed that he review with the board of directors the financial analysis of the offer prepared by the Purchaser that had been distributed to members of the board of the directors earlier in the day. Mr. Alan Spachman expressed the view that Mr. Consolino’s review of the Purchaser’s analysis at this time would be inappropriate in light of the presentation the board of directors had just received from Duff & Phelps. At Mr. Alan Spachman’s request, he, Mr. Michael Spachman, Mr. Donald Schwegman and Mr. Joel Schiavone were excused from the meeting to discuss the matter. After those directors rejoined the meeting, Mr. Alan Spachman reiterated his objection, and, after further discussion among the board of directors, Mr. Consolino did not proceed with the review of the Purchaser’s financial analysis. Mr. Consolino advised the board of directors that the Purchaser would be announcing, before the market opened on February 18, 2014, that it had increased the Initial Offer Price to the Amended Offer Price.

A representative of Duff & Phelps was asked to rejoin the meeting so that the members of the board of directors could ask additional questions in light of this new information. After discussion with the board of directors, the representative of Duff & Phelps said that they would not at this time deliver an opinion as to the fairness, from a financial point of view, of the Amended Offer Price as to do so would require completion of

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internal due diligence and procedures and, in any case, would be outside the scope of its engagement with the Company. The representative of Duff & Phelps was then excused from the meeting. Mr. Consolino proposed that the board of directors vote to express no opinion on the offer and to remain neutral with respect to the offer, including the Amended Offer Price. At Mr. Alan Spachman’s request, he, Mr. Michael Spachman, Mr. Donald Schwegman and Mr. Joel Schiavone were excused from the meeting to discuss the motion. After those directors rejoined the meeting, Mr. Alan Spachman reiterated his objections to the board of directors’ process and to the proposed vote. The meeting was recessed without any action taken. Following the meeting, management of the Company contacted the representative of Duff & Phelps to ask whether Duff & Phelps would be in a position to opine as to the fairness, from a financial point of view, of the Amended Offer Price. The representative of Duff & Phelps advised management of the Company that Duff & Phelps would decline to deliver an opinion as to the fairness, from a financial point of the view, of the Amended Offer Price as to do so would require completion of internal due diligence and procedures and, in any case, would be outside the scope of its engagement with the Company.

On February 17, 2014, Duff & Phelps issued the Opinion as to the Initial Offer Price, the details of which are provided below.

On February 18, 2014, AFG received a letter (the “Letter”) from the legal advisor to Mr. Alan Spachman (“Spachman Counsel”) demanding certain additional disclosures concerning the board process and Duff & Phelps’ analysis. The Letter was subsequently forwarded to the Company’s legal advisor via e-mail, and such e-mail indicated that Spachman Counsel believed that if AFG or the Purchaser failed to provide the additional disclosures as outlined in the Letter, it would be incumbent upon the Company to do so.

On February 18, 2014, AFG issued a press release announcing the increase of the Initial Offer Price to the Amended Offer Price and AFG’s and the Purchaser’s intention to amend the Schedule TO and Offer to Purchase. The press release stated that the Amended Offer Price was the “best and final” price and that no further increase to the price would be made.

On February 18, 2014, the Company issued a press release acknowledging the increase of the Initial Offer Price to the Amended Offer Price and the board of directors, intent to advise shareholders of its position regarding the offer within 10 business days of commencement of the offer by filing the Schedule 14D-9.

On February 18, 2014, the previously recessed meeting of the board of directors of the Company reconvened. All of the members of the board of directors were present and participating at the meeting either in person or by telephone conference call. Mr. Consolino called for a vote on the proposal that the board of directors express no opinion on the offer and remain neutral with respect to the offer. The board of directors determined by a 6-4 vote (with all directors participating in the vote and Messrs. Joel Schiavone, Donald Schwegman, Alan Spachman, and Michael Spachman voting against that determination) to express no opinion on the offer and to remain neutral with respect to the offer. When the board of directors reached its decision to remain neutral as to the Amended Offer Price, members were aware (i) of the information presented to them by the representatives of Duff & Phelps on February 17, 2014, (ii) that Duff & Phelps had delivered its opinion that the Initial Offer Price was not fair, (iii) that Duff & Phelps had not provided any opinion as to the Amended Offer Price, and (iv) of the positions of the Initial Offer Price and the Amended Offer Price in relation to the range suggested by certain financial analyses performed by Duff & Phelps for purposes of the Opinion as to the Initial Offering Price.

On February 18, 2014, a putative shareholder derivative and class action lawsuit styled Cambridge Retirement Systems v. Joseph Consolino, et al., Case No. CV-2014-02-0819 was filed by a purported stockholder of the Company in the Court of Common Pleas of Summit County, Ohio (the “Cambridge Action”). The complaint filed in the Cambridge Action (the “Cambridge Complaint”) names AFG and the Purchaser as defendants, and the Company as a nominal defendant. The Cambridge Complaint also names as defendants members of the Company’s board of directors who are executives or former executives of AFG and/or the Purchaser (the “Defendant Directors”). The Cambridge Complaint asserts class action and derivative claims against AFG and the Purchaser for breach of fiduciary duty and aiding and abetting a breach of fiduciary duty by

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the Defendant Directors. It also asserts class and derivative claims against the Defendant Directors for breach of the fiduciary duties of due care, good faith, candor and loyalty. In general, the Cambridge Complaint alleges that the offer is unfair and coercive, is unfairly priced, and that, due to alleged conflicts of interest, the Defendant Directors refused requests to form an independent special committee to review the offer and make a recommendation to the Company’s shareholders. The Cambridge Complaint seeks compensatory and rescissory damages and unspecified injunctive relief.

On February 21, 2014, the plaintiff in the Cambridge Action filed a verified amended derivative and class action complaint for injunctive and other relief (“Cambridge Amended Complaint”), naming the Vice President, General Counsel and Secretary of the Company, Arthur J. Gonzales, as an additional defendant. Additionally, the plaintiff in the Cambridge Action also filed a memorandum of law in support of motion for temporary restraining order (the “Cambridge TRO”) petitioning the court for a temporary restraining order prohibiting the defendants named in the Cambridge Action from taking any steps toward consummation of the offer. The parties attended a court hearing regarding the Cambridge TRO on February 25, 2014, at which no action was taken. A further hearing took place on March 3, 2014, at the conclusion of which, the court granted the defendants’ motion to dismiss the Cambridge Action for lack of subject-matter jurisdiction.”

On February 19, 2014, Mr. Alan Spachman, a director of the Company who beneficially owns approximately 9.2% of the outstanding Common Stock of the Company, filed a Solicitation/Recommendation Statement on Schedule 14D-9 (the “Spachman Schedule 14D-9”), in his individual capacity, and not on behalf of the board of directors, with the SEC setting forth his recommendation that the Company’s shareholders not tender their Common Shares into the offer for the reasons set forth therein. On the same day, Mr. Alan Spachman amended his Schedule 13D to incorporate certain information set forth in the Spachman Schedule 14D-9.

On February 21, 2014 and February 24, 2014, the Purchaser again amended the Transmittal Documents in response to the developments included in the Company’s Schedule 14D-9 and litigation regarding the offer.

On February 24, 2014, T. Rowe Price Associates, Inc., a Maryland corporation and an investment adviser to clients owning approximately 1.57 million shares of Common Stock (“T. Rowe Price”), sent a letter to the Company’s board of directors expressing its concerns about the Company’s process to evaluate the offer and the consideration offered by the Purchaser. In the letter, T. Rowe Price stated it does not currently intend to tender any of the shares of Common Stock it beneficially owns pursuant to the offer. On February 25, 2014, T. Rowe Price filed a Solicitation/Recommendation Statement on Schedule 14D-9 to make its letter publicly available.

On February 26, 2014, the Purchaser again amended the Schedule TO in response to developments with respect to the litigation regarding the offer and the letter filed by T. Rowe Price.

On February 27, 2014 and February 28, 2014, the Purchaser again amended the Schedule TO and Schedule 13E-3 in response to developments with respect to the litigation regarding the offer.

On February 27, 2014, at a meeting of the Company’s board of directors, at which all ten (10) members of the board were present, along with the Company’s legal advisor, the board of directors discussed whether under the terms of its charter the audit committee had any role with respect to governance issues related to the offer. The board of directors made no determination that any activity related to the offer was within the scope of the audit committee’s duties. Later that same day, an audit committee meeting was held (at which Messrs. Donald Schwegman, Joel Schiavone and Michael Spachman were in attendance, and Mr. Alan Spachman was invited to join). At the audit committee meeting, the audit committee unilaterally determined to engage its own legal counsel.

On March 3, 2014, the Purchaser again amended the Schedule TO and Schedule 13E-3 waiving a minimum tender condition and extending the expiration date of the offer to March 17, 2014. On the same day, AFG issued a press release announcing the waiver of the minimum tender condition and extension of the expiration date.

The Transmittal Documents state that each of Messrs. Consolino, Gary J. Gruber, Donald D. Larson, Vito C. Peraino and Keith A. Jensen intends to tender any and all shares of Common Stock they own in response to the offer.

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In addition, Mr. Dave Michelson, the Company’s Chief Executive Officer, has indicated his intent to tender his shares of Common Stock pursuant to the offer, and Mr. Arthur Gonzales, the Company’s Vice President, General Counsel and Secretary, has indicated his intent to tender his shares of Common Stock pursuant to the offer.

There can be no assurances that any of the aforementioned holders of Common Stock will tender any of their respective shares pursuant to the offer.

Reasons for the Recommendation

The Board of Directors Expresses No Opinion on the Offer and is Remaining Neutral

The board of directors has determined to express no opinion on the offer and to remain neutral with respect to the offer. The board of directors is not recommending to shareholders that they tender, or refrain from tendering, their shares in the offer. Although the board of directors has received the Opinion that the Initial Offer Price is not fair from a financial point of view, the Purchaser has subsequently increased the Initial Offer Price to $30 per share of the Common Stock (also referred to as the “Amended Offer Price”). For these reasons and the factors set forth below, the board of directors is remaining neutral and cannot recommend in favor of, or against, the offer.

Accordingly, the board of directors urges each shareholder to make his, her or its own investment decision regarding the offer based on all available information, in light of the shareholder’s own investment objectives, the shareholder’s views on the Company’s financial prospects, the factors considered by the board of directors (described below), and any other factors the shareholder considers relevant to his, her or its investment decision.

In reaching its determination and its decision as described above, the board of directors considered and discussed the following factors concerning the offer that shareholders could consider to be positive or negative:

Potentially Positive Factors

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• Increased Offer Price. The Initial Offer Price has been increased to $30 per share. The Purchaser has indicated that the Amended Offer Price will not be further increased.

• Historical Stock Prices. The Amended Offer Price represents a premium of approximately 35.3% over the closing stock price of the Common Stock on February 4, 2014, the last day prior to the public announcement of the offer, and a premium of approximately 28.9% over the average closing stock price of the Common Stock for the 30 trading days ending on that date.

• Controlled Company Status and Lack of Strategic Alternatives. The Purchaser is a controlling shareholder of the Company, beneficially owning approximately 51.7% of the outstanding shares of the Common Stock at the commencement of the offer. As a result, the trading market for the Common Stock is less liquid due to a relatively smaller size of the Company’s public float. These factors could effectively limit the Company’s ability to pursue strategic transactions with third-parties (including an acquisition by a third party) without the approval of the Purchaser as a controlling shareholder.

• Timing of Completion; No Financing Condition. The board of directors considered the anticipated timing of consummation of the offer, which should allow shareholders to receive the Amended Offer Price promptly. In addition, the Purchaser has expressed its intention to effect the merger with the Company if it purchases shares of the Common Stock in the offer such that it will own at least 90% of the issued and outstanding Common Stock, which provides a measure of some assurance to the shareholders who choose not to tender their shares of the Common Stock in the offer that they also can receive equal value for their shares of the Common Stock. The board of directors also considered the fact that the offer is not conditioned on the Purchaser or AFG obtaining financing.




Potentially Negative Factors

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• Purchaser Alternatives. If the Purchaser is not successful in completing the offer, the Purchaser has indicated it would review its options, including continuing the status quo prior to the offer, purchasing shares of the Common Stock in the open market or in privately negotiated transactions, making a new tender offer or seeking to negotiate a merger or other business combination with the Company. In any such transactions, the consideration may be more or less than the Amended Offer Price.

• Company Common Stock Has Traded Higher. The Common Stock has in the past traded at higher levels than the Amended Offer Price. Since January 1, 2011, the high trading price of the Common Stock was $36.36 per share on July 18, 2013 and the low trading price was $18.66 per share on March 11, 2011. This trading history suggests that certain shareholders of the Company may have acquired their shares of the Common Stock at prices higher than the Amended Offer Price.

• Fairness Opinion Regarding Initial Offer Price. The Opinion indicates that $28 per share, or the Initial Offer Price, is not fair to shareholders from a financial point of view.

• No Negotiations. The offer is not conditioned upon a favorable recommendation by the board of directors, and, to date of this filing, there have been no negotiations regarding the Amended Offer Price between the Purchaser and the board of directors.

• Purchaser’s Financial Interest. With respect to the Amended Offer Price, the Purchaser’s financial interest in acquiring the shares for the lowest market clearing price may potentially be adverse to the financial interest of the Company’s other shareholders who choose not to tender. If the Company’s shareholders choose not to tender in the offer, such shareholders may not receive value for their shares equal to the Amended Offer Price and may be unable to sell their shares at or above the Amended Offer Price.

• Going Private Transaction. If the offer is consummated by the Purchaser, the Company will become a private company. Any shareholder of the Company who tenders all his, her or its shares of the Common Stock in the offer or has his, her or its shares of the Common Stock converted into cash in the merger will cease to participate in the future earnings and growth, if any, of the Company and will not benefit from increases, if any, in the Company’s value, including any increases due to improving economic conditions.

• Certain Members of Board of Directors May Believe Common Stock Is Worth More. As described herein, Mr. Alan Spachman and certain other members of the board of directors oppose the offer and may believe that the Amended Offer Price is inadequate.

• Recommendation Made by Board of Directors Rather Than Special Committee. This recommendation is made by the board of directors, including directors affiliated with the Purchaser and AFG, rather than a committee solely consisting of disinterested directors. Because the recommendation was made by the board of directors, including directors affiliated with the Purchaser and AFG, rather than a committee consisting solely of disinterested directors, shareholders might feel that the directors affiliated with the Purchaser and AFG faced potential conflicts between their roles as directors of the Company and their respective roles with the Purchaser or AFG that may have influenced their decisions in relation to the board’s recommendation.




Opinion of Duff & Phelps

The board of directors retained Duff & Phelps to render the Opinion to the Company and its board of directors as to the fairness, from a financial point of view, to the holders of shares of the Common Stock of the consideration, including the Initial Offer Price, to be paid to such holders in the offer. On February 17, 2014, Duff & Phelps rendered the Opinion to the board of directors that as of such date, based upon the assumptions, procedures, factors, qualifications and limitations set forth therein, the Initial Offer Price to be paid to the holders of the Common Stock in the offer is not fair from a financial point of view to such holders (without giving effect to any impact of the offer on any particular holder other than in his, her or its capacity as a holder of Common Stock).

The full text of the Opinion, dated February 17, 2014, which sets forth the assumptions made, procedures followed, factors considered, and qualifications and limitations on the review undertaken by Duff & Phelps in connection with the Opinion is filed herewith as exhibit (a)(12) and is incorporated into this Statement by reference. The Opinion and the related analysis addresses the terms of the offer which include the Initial Offer Price and not the Amended Offer Price. The description of the Opinion set forth in this Statement is qualified in its entirety by reference to the full text of the Opinion filed herewith as exhibit (a)(12).

The following is a summary of the Opinion. We encourage you to read Duff & Phelps’ written opinion carefully in its entirety.

In connection with the Opinion, Duff & Phelps made such reviews, analyses and inquiries as it deemed necessary and appropriate under the circumstances. Duff & Phelps also took into account its assessment of general economic, market and financial conditions, as well as its experience in securities and business valuation, in general, and with respect to similar transactions, in particular. Duff & Phelps’ procedures, investigations, and financial analysis with respect to the preparation of the Opinion included, but were not limited to:

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• Form of Consideration. The cash consideration of the offer may not be tax efficient for some holders of the common stock. The receipt of cash by shareholders in respect of tendered shares of Common Stock will be a realization event for U.S. federal income tax purposes, and any gain realized may be recognized for U.S. federal income tax purposes.

• reviewing the following documents:

• the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 (including the audited financial statements included therein), filed by the Company with the SEC on March 7, 2013, and the Company’s unaudited interim financial statements for the nine months ended September 30, 2013 included in the Company’s Quarterly Report on Form 10-Q filed by the Company with the SEC on November 1, 2013;

• the Company’s draft financial statements for the year ended December 31, 2013;

• other internal documents relating to the history, current operations, and probable future outlook of the Company, including a 2014 financial budget, provided to Duff & Phelps by management of the Company, upon which Duff & Phelps relied in performing its analysis;

• five year financial projections provided to Duff & Phelps by senior management of the Company, upon which Duff & Phelps relied in performing its analysis;

• the A.M. Best credit report dated July 12, 2013; and

• documents related to the offer, including the Tender Offer Statement filed on Schedule TO by AFG with the SEC on February 5, 2014;




In performing the valuation analysis to support the Opinion, Duff & Phelps performed a comparable transaction analysis that applied certain multiples to the Company’s net income, book value and tangible book value. Additionally, Duff & Phelps performed a discounted cash flow analysis to support the Opinion.

The comparable transaction analysis yielded the following ranges (per share of Common Stock):

2014 Net Income Multiple Analysis — $29.68 - $34.56

2015 Net Income Multiple Analysis — $30.00 - $35.91

Book Value Multiple Analysis — $28.45 - $33.70 Tangible Book Value Multiple Analysis — $28.66 - $33.80

The Discounted Cash Flow Analysis yielded a range of $29.86 - $36. 84 (per share of Common Stock).

In arriving at a value for the Company, Duff & Phelps prepared low and high end ranges for each of the discounted cash flow analysis ($592,000,000 - $732,500,000) and the comparable transaction analysis ($580,000,000 - $685,000,000). Based on the ranges, Duff & Phelps concluded the low end of the Company’s value to be $585,000,000 and the high end to be $710,000,000, or $29.51 per share and $35.72 per share taking into account the outstanding shares of Common Stock as well as the dilutive effect of “in-the-money” options.” The implied multiples used by Duff & Phelps were (i) 1.66x (low) – 2.02x (high) based on a comparison of the equity value to book value and (ii) 1.70x (low) – 2.06x (high) based on a comparison of the equity value to the tangible book value. The Initial Offer Price yields a 1.57x multiple based on a comparison of the equity value to book value and 1.60x multiple based on a comparison of the equity value to the tangible book value.

In performing its analyses and rendering the Opinion with respect to the offer, Duff & Phelps, with the Company’s consent:

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• discussing the information referred to above, and the background and other elements of the offer, with senior management of the Company;

• reviewing the historical trading price and trading volume of the Common Stock and the publicly traded securities of certain other companies that Duff & Phelps deemed relevant;

• performing certain valuation and comparative analyses using generally accepted valuation and analytical techniques including a discounted cash flow analysis, an analysis of selected public companies that Duff & Phelps deemed relevant, and an analysis of selected transactions that Duff & Phelps deemed relevant; and

• conducting such other analyses and considered such other factors as Duff & Phelps deemed appropriate.

• relied upon the accuracy, completeness, and fair presentation of all information, data, advice, opinions and representations obtained from public sources or provided to it from private sources, including the Company’s management, and did not independently verify such information;

• relied upon the fact that the board of directors of the Company and the Company have been advised by their legal advisor as to all legal matters with respect to the offer, including whether all procedures required by law to be taken in connection with the offer have been duly, validly and timely taken;

• assumed that any estimates, evaluations, forecasts and projections furnished to Duff & Phelps were reasonably prepared and based upon the best currently available information and good faith judgment of the person furnishing the same;

• assumed that information supplied and representations made by the Company’s management regarding the Company and the offer are accurate in all material respects;




Furthermore, in Duff & Phelps’ analysis and in connection with the preparation of the Opinion, Duff & Phelps made numerous assumptions with respect to industry performance, general business, market and economic conditions and other matters, many of which are beyond the control of any party involved in the offer.

Duff & Phelps prepared the Opinion as of February 17, 2013, and Duff & Phelps disclaimed any undertaking or obligation to advise any person of any change in any fact or matter affecting the Opinion which may come or be brought to the attention of Duff & Phelps after February 17, 2013, including the increase of the Initial Offer Price to the Amended Offer Price.

Duff & Phelps did not evaluate the Company’s solvency or conduct an independent appraisal or physical inspection of any specific assets or liabilities (contingent or otherwise). Duff & Phelps was not requested to, and did not, (i) initiate any discussions with, or solicit any indications of interest from, third parties with respect to the offer, the assets, businesses or operations of the Company, or any alternatives to the offer, (ii) negotiate the terms of the offer, or (iii) advise the Company, the board of directors or any other party with respect to alternatives to the offer.

The Opinion did not opine as to the market price or value of the Common Stock (or any related matter) after the announcement or the consummation of the offer.

In rendering the Opinion, Duff & Phelps did not express any opinion with respect to the amount or nature of any compensation to any of the Company’s officers, directors, or employees, or any class of such persons, relative to the consideration to be received by the public shareholders of the Company in the offer, or with respect to the fairness of any such compensation.

The Opinion (i) does not address any transaction related to the offer; (ii) is not a recommendation as to how the board of directors or any shareholder should vote or act with respect to any matters relating to the offer, and (iii) does not indicate that the consideration offered, including the Initial Offer Price, is the best possibly attainable under any circumstances; instead, it merely states whether the consideration offered in the offer, including the Initial Offer Price, is within a range suggested by certain financial analyses; specifically a range of $29.51 - $35.72. Shareholders should note, however, that the range prepared by Duff & Phelps relates to the Initial Offer Price only, that the range does not relate to the Amended Offer Price, that Duff & Phelps has not opined as to the Amended Offer Price, and that Duff & Phelps has not constructed any range in relation to the Amended Offer Price. For these reasons, shareholders are cautioned that they should not give undue weight to the position of the Amended Offer Price in relation to the range in making their individual decision as to whether or not to tender their respective shares of Common Stock.

A decision as to whether to recommend, not to recommend, or take no position with respect to the offer or any related transaction may depend on an assessment of factors unrelated to the financial analysis on which the Opinion is based.

Pursuant to the terms of the letter agreement between Duff & Phelps and the Company, dated as of February 10, 2014 (the “Engagement Letter”), Duff & Phelps has consented to the use of the Opinion in connection with this Statement, including the filing of the Opinion as exhibit (a)(12) to this Statement. In giving such consent, Duff & Phelps does not thereby admit that they are in the category of persons whose consent is required under Section 7 or Section 11 of the Securities Act of 1933, as amended.

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• relied on the assurances of the Company’s management that the Company’s management is not aware of any information or facts that would make the information supplied to Duff & Phelps incomplete or misleading; and

• assumed that there has been no material change in the assets, financial condition, business, or prospects of the Company since the date of the most recent financial statements and other information made available to Duff & Phelps.




The board of directors retained Duff & Phelps to render the Opinion as to the Initial Offer Price in connection with the offer. Under the terms of the Engagement Letter Duff & Phelps agreed to provide the board of directors with the Opinion as to the fairness, from a financial point of view, of the consideration, including the Initial Offer Price, to be received by the holders of Common Stock (other than the Purchaser, AFG and/or any of their respective affiliates) pursuant to the offer (without giving effect to any impact of the offer on any particular holder other than in his, her or its capacity as a holder of Common Stock) . Under the terms of the Engagement Letter, the Company agreed to pay Duff & Phelps a fee of $500,000, with a nonrefundable retainer of $250,000 payable upon execution of the Engagement Letter and the remaining $250,000 payable upon Duff & Phelps informing the Company of its preparedness to deliver the Opinion. Pursuant to the Engagement Letter, the Company is required to pay Duff & Phelps’ standard hourly rates for any time incurred should Duff & Phelps be called upon to support its findings subsequent to delivery of the Opinion.

The Company has also agreed to reimburse Duff & Phelps for reasonable out-of-pocket expenses, as well as reasonable fees and expenses of counsel, consultants, and advisors retained by Duff & Phelps, in an amount not to exceed $40,000 (any amounts in excess of $40,000 shall require the Company’s written approval). In addition, the Company has agreed to indemnify Duff & Phelps against liabilities reasonably relating to or arising out of the matters contemplated by the Engagement Letter.

Except as set forth herein, neither the Company nor any person acting on its behalf has employed, retained, or compensated any person to make solicitations or recommendations to holders of Common Stock on its behalf concerning the offer. The Company has not authorized anyone to give information or make any representation about the offer that is different from, or in addition to, that contained in this Statement or in any of the materials that are incorporated by reference to this Statement. Therefore, the Company’s shareholders should not rely on any other information.

Except in the ordinary course of business in connection with the Company’s employee benefit plans, no transactions with respect to the Common Stock have been effected during the past 60 days by the Company or, to the Company’s knowledge, by any of its executive officers, directors, affiliates, or subsidiaries except:

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Item 5. Persons/Assets Retained, Employed, Compensated or Used

Item 6. Interest in Securities of the Subject Company

Reporting Person Transaction Date Shares Price per Share

Joel Schiavone1 12/20/13 6,000 (6) $ 24.499 (2) Joel Schiavone1 12/23/13 4,000 (6) $ 24.709 (2) Joel Schiavone1 12/30/13 2,000 (6) $ 23.76 (2) Joel Schiavone1 12/31/13 2,000 (6) $ 23.44 (2) Keith Jensen 1/1/14 217 (7) $ 23.00David Michelson3 1/1/14 4,180 (3) $ 23.00Alan Spachman4 1/22/14 129,560 (4) $ 0.00Michael Spachman5 1/22/14 62,647 (4) $ 0.00

(1) Transaction was conducted through DMB Family Limited Partnership. Mr. Joel Schiavone is the General Partner of DMB Family Limited Partnership.

(2) The price reported is a weighted average price. (3) Surrender of shares to the Company in satisfaction of tax withholding obligations on vested shares of previously granted

stock. (4) The Alan R. Spachman GRAT No. 3 distributed 129,560 shares to the Alan R. Spachman Revocable Trust. (5) The Alan R. Spachman GRAT No. 3 gifted 62,647 shares to Mr. Michael Spachman. (6) The shares were sold in an open market sale. (7) The transaction was a grant, award or other acquisition pursuant to Rule 16b-3(d).




Except as set forth in this Statement, the Company is not undertaking or engaged in any negotiations in response to the offer that relate to or would result in (a) a tender offer for or other acquisition of the Company’s securities by the Company, any subsidiary of the Company, or any other person; (b) any extraordinary transaction, such as a merger, reorganization, or liquidation, involving the Company or any subsidiary of the Company; (c) any purchase, sale, or transfer of a material amount of assets of the Company or any subsidiary of the Company; or (d) any material change in the present dividend rate or policy, indebtedness, or capitalization of the Company.

Except as set forth in this Statement or in the exhibits to this Statement or the Offer to Purchase, to the knowledge of the board of directors and the Company, there are no transactions, resolutions of the Company’s board of directors, agreements in principle, or signed contracts in response to the offer that relate to one or more of the events referred to in the preceding paragraph.

Short Form Merger

The Purchaser has stated that if the offer is consummated such that it will own at least 90% of the issued and outstanding Common Stock of the Company, subject to applicable law, the Purchaser intends to consummate the merger between the Company and the Purchaser, or an affiliate of the Purchaser, in which the outstanding Common Stock (other than Common Stock held by the Purchaser and held by shareholders who validly perfect their dissenters’ rights under Ohio Revised Code) will be cancelled and converted into and represent the right to receive the Amended Offer Price.


No dissenters’ rights are available to holders of Common Stock in connection with the offer. According to the Offer to Purchase, however, if the offer is successfully completed, holders of the Common Stock (a) who do not tender their shares into the offer and hold Common Stock at the effective time of the subsequent merger, (b) who do not wish to accept the consideration provided for in merger and (c) who comply with the procedures provided for in under the Ohio Revised Code, will be entitled to receive the “fair value” of their Common Stock, as determined by a court of competent jurisdiction, by following the procedures required by the Ohio Revised Code. Dissenters’ rights are described in the Offer to Purchase under the section entitled “Special Factors—Section 9. Dissenters’ Rights; Rule 13e-3.”

The foregoing discussion of the rights of shareholders seeking dissenters’ rights under the Ohio Revised Code does not purport to be a complete statement of the procedures to be followed by shareholders desiring to exercise any dissenters’rights available thereunder and is qualified in its entirety by reference to the Ohio Revised Code.

Regulatory Approvals

Except as set forth in this Statement and the exhibits to this Statement, the Company is not aware of any material filing, approval or other action by or with any governmental authority or administrative or regulatory agency that would be required for the Purchaser to acquire or own shares of the Common Stock pursuant to the offer.

State Takeover Laws

A number of states have adopted laws and regulations applicable to offers to acquire shares of corporations that are incorporated or have substantial assets, shareholders and/or a principal place of business in such states. The Company is incorporated under the laws of the State of Ohio. Section 1701.831 of the Ohio Revised Code

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Item 7. Purposes of the Transaction and Plans or Proposals

Item 8. Additional Information




(also known as the “control share acquisition law”) generally prohibits transactions in which a person obtains one-fifth or more but less than one-third of all the voting power of a corporation, one-third or more but less than a majority of all the voting power of a corporation, or a majority or more of all the voting power of a corporation, unless the shareholders approve the transaction at a special meeting, at which a quorum is present, by both the affirmative vote of a majority of the voting power of the corporation represented at the meeting and by the affirmative vote of a majority of the voting power of the corporation represented at the meeting excluding the voting power of “interested shares.” “Interested shares” are shares held by the acquiring person, an officer of the corporation elected or appointed by the directors of the corporation or an employee of the corporation who is also a director of such corporation. A corporation may provide in its Articles of Incorporation or Code of Regulations that Section 1701.831 does not apply to control share acquisitions of its shares. The Company has not opted out of this statute.

Section 1704.02 of the Ohio Revised Code (also known as the “merger moratorium law”) prohibits any “Chapter 1704 transaction” for a period of three years from the date on which a shareholder first becomes an “interested shareholder” unless the directors of the corporation, before the shareholder became an interested shareholder, approved the Chapter 1704 transaction or the transaction pursuant to which the shareholder became an interested shareholder. A “Chapter 1704 transaction” is defined to include a variety of transactions such as mergers, consolidations, combinations or majority share acquisitions between an Ohio corporation and an interested shareholder or an affiliate of an interested shareholder. An “interested shareholder” is defined generally as any person who, directly or indirectly, beneficially owns 10% or more of the outstanding voting stock of the corporation. After the three-year period, a Chapter 1704 transaction is prohibited unless certain fair price provisions are complied with, the directors of the corporation approved the purchase of shares which made the shareholder an interested shareholder, or the shareholders of the corporation approve the transaction by the affirmative vote of two-thirds of the voting power of the corporation or such other percentage set forth in the articles of incorporation of the corporation, if any, provided that a majority of the disinterested shareholders approve the transaction. The Company has not opted out of this statute.

According to the Schedule TO, because AFG (indirectly) and the Purchaser (directly) already own a majority of all the voting power of the Company, AFG and the Purchaser do not believe that Section 1701.831 of the Ohio Revised Code would prevent the Purchaser from consummating the offer or the merger. According to the Schedule TO, because AFG and the Purchaser became interested shareholders in 1989, AFG and the Purchaser do not believe that Section 1704.02 of the ORC would prevent the Purchaser from consummating the offer or the merger.

Antitrust Laws

Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), and the rules that have been promulgated thereunder by the Federal Trade Commission (the “FTC”), certain acquisition transactions may not be consummated unless certain information has been furnished to the Antitrust Division of the Department of Justice (the “DOJ”) and the FTC and certain waiting period requirements have been satisfied. AFG currently beneficially owns more than 50% of the outstanding voting securities of the Company. Under the HSR Act, this level of ownership means that AFG is in “control” of the Company for the purposes of such regulations. Based on the foregoing and according to the Schedule TO, AFG and the Purchaser believe no HSR Act filing is required in connection with the offer and the merger.

Federal Reserve Board Regulations

Regulations T, U and X (the “Margin Regulations”) of the Federal Reserve Board restrict the extension or maintenance of credit for the purpose of buying or carrying margin stock, including the shares of Common Stock, if the credit is secured directly or indirectly by margin stock. The Transmittal Documents state AFG is funding the acquisition of the Common Stock from its internally available funds. Based on the foregoing and according to the Schedule TO, AFG and the Purchaser believe the Margin Regulations are inapplicable to the offer.

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State Insurance Regulatory Approvals

Subsidiaries of AFG, including the Purchaser, as well as the Company are regulated by state insurance regulators. Completion of the offer and the merger may be subject to certain requirements for prior notice to and/or approval by state insurance regulators applicable to transactions between a domestic insurance company and its affiliates (referred to as “Form A Notice”). Under the various state insurance laws a domestic insurer may not enter into certain specified transactions in excess of specified size thresholds with an affiliate unless the insurer has provided state insurance regulators thirty days’ prior notice and the transaction has not been disapproved during that time.

Potential Payments to Named Executive Officers in Connection with the Tender Offer

The Company maintains a number of plans, agreements and arrangements that could provide payments or benefits to its executives in connection with termination of employment or a change in control. The following narrative summarizes the various agreements or arrangements under which the Company could be required to provide payments or benefits to the Company’s named executive officers in connection with the offer. For this purpose, the Company’s named executive officers are David W. Michelson, Julie A. McGraw, Terry E. Phillips, Arthur J. Gonzales, Gary N. Monda and Anthony J. Mercurio.

Employment Agreement with Mr. Michelson

The Company has entered into an Employment and Non-Competition Agreement with Mr. David W. Michelson. Under his Employment and Non-Competition Agreement, if Mr. Michelson’s employment is terminated by the Company without cause, upon Mr. Michelson’s death or disability, by Mr. Michelson for good reason or upon the Company’s failure to renew the term of the agreement, the Company will pay and provide to Mr. Michelson (i) his base salary at the rate in effect immediately before the termination through the first anniversary of his termination date, (ii) unpaid prior year bonuses as if he were actively employed through the scheduled date of payment, (iii) a pro rata portion of any bonus he would have received under the Company’s management bonus plan (the “Management Bonus Plan”) had his employment continued through the year of termination, and (iv) full vesting of any unvested stock options (although all of Mr. Michelson’s currently outstanding stock options are already vested without regard to his Employment and Non-Competition Agreement).

For purposes of the Employment and Non-Competition Agreement, “cause” generally means (i) a conviction of a felony, (ii) dishonesty or willful misconduct that is materially detrimental or adverse to the Company’s best interests, (iii) violation of non-competition or non-solicitation covenants, or (iv) abandonment or continuing neglect of duties. “Good reason” generally means (a) a reduction in base salary, (b) a decrease of a target bonus opportunity below 100% of Mr. Michelson’s base salary, (c) a significant reduction of his duties, responsibilities or position, or (d) a material change in his principal place of employment.

The agreement also subjects Mr. Michelson to indefinite confidentiality restrictions, non-competition restrictions for 12 months after termination of employment and non-solicitation restrictions for 24 months after termination of employment.

Management Bonus Plan

Each of the Company’s named executive officers participates in the Management Bonus Plan. The Management Bonus Plan is an annual cash incentive bonus arrangement whereby a portion of an annual bonus pool may be allocated to participants for each fiscal year. Payment of any bonus earned under the Management Bonus Plan generally is made in three installments (provided that the participant remains employed on the applicable payment date), subject to adjustments for accident year results: (i) 50% within 75 days after the end of the fiscal year performance period, (ii) 35% within 75 days after the first anniversary of the end of the

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performance period, and (iii) 15% within 75 days after the second anniversary of the end of the performance period. However, if, within one year after a change in control, the Company terminates a named executive officer’s employment other than for cause or a named executive officer terminates his or her employment for good reason, then the Company will pay to such executive a lump sum cash distribution of his or her unpaid bonus awards under the Management Bonus Plan within 10 days following the date of termination of employment. This amount is prorated, at the “target” level, to the extent that the change in control and termination occur during a performance period (and after the applicable awards have been established for such period). Mr. Michelson receives these payments under his Employment Agreement, as described above.

The terms “cause” and “good reason” are defined in the Management Bonus Plan. Cause generally means (i) a material failure to perform duties, (ii) commission of a felony or any crime involving dishonest acts, or (iii) a breach of fiduciary duties or a material violation of any corporate governance and ethics policies. Good reason generally means (a) a material reduction in base salary, (b) a material reduction of authority, duties or responsibilities, or (c) a material change in the participant’s principal place of employment.

For purposes of the Management Bonus Plan, a change in control generally means: (i) any person or group becomes the beneficial owner of 30% or more—or in the case of an acquisition by the Purchaser, 66 2⁄3% or more—of the combined voting power of the Company’s outstanding securities, (ii) there is a change in the majority of the Company’s board of directors, (iii) a reorganization, merger, consolidation, or sale of substantially all of the Company’s assets where its existing shareholders do not retain more than 51% of the combined voting power of the outstanding securities, or (iv) the Company’s shareholders approve a complete liquidation or dissolution. As a result, a change in control would occur if, in connection with the offer, the Purchaser’s beneficial ownership equals or exceeds 66 2/3% of the combined voting power of the Company’s outstanding securities.

Long Term Incentive Plan and Equity Award Agreements

The Company has granted equity awards to its named executive officers under its long term incentive plan. In particular, the Company has granted restricted shares and stock options to its named executive officers. All stock options currently held by the Company’s named executive officers are fully vested. However, the Company’s named executive officers hold certain restricted shares that are not currently vested, but which would become vested upon the occurrence of a change in control. For purposes of these equity awards, the term “change in control” has the meaning described above in connection with the Management Bonus Plan. As a result, if, in connection with the offer, the Purchaser’s beneficial ownership equals or exceeds 66 2⁄3% of the combined voting power of the Company’s outstanding securities, vesting of the restricted shares held by the Company’s named executive officers would be accelerated.

Golden Parachute Compensation

The following table sets forth the estimated amount of payments and benefits that each named executive officer of the Company would receive if, in connection with the offer, the Purchaser’s beneficial ownership equals or exceeds 66 2/3% of the combined voting power of the Company’s outstanding securities. For purposes of the table below, the Company assumes the following:

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• Consummation of the offer on February 28, 2014, in a transaction treated as a change in control for purposes of the Company’s executive compensation arrangements;

• Each named executive officer’s employment is terminated without “cause” immediately following the consummation of the offer; and

• The price per share paid in the offer is the Amended Offer Price ($30 per share).




The amounts reported below are estimates based on the assumptions described above and in the footnotes to the table. The actual amount of payments and benefits provided to any of the Company’s named executive officers in connection with a change in control or termination of employment could only be determined at the time the actual triggering event occurs.

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Named Executive Officer (a)Cash ($)

(b)1 Equity ($)

(c)2

Pension/NQDC($) (d)3

Perquisites/Benefits ($)

(e)4

TaxReimbursement

(f)5Other ($)

(g)6 Total ($) (h)7

David W. Michelson $629,577 $1,080,000 — — — — $1,709,577Julie A. McGraw $110,443 $ 89,340 — — — — $ 199,783Terry E. Phillips $ 87,342 $ 80,040 — — — — $ 167,382Arthur J. Gonzales $100,541 $ 52,200 — — — — $ 152,741Gary N. Monda $ 91,816 $ 89,340 — — — — $ 181,156Anthony J. Mercurio $150,247 $ 133,950 — — — — $ 284,197

(1) Cash payments reported above for Mr. Michelson consist of (a) base salary continuation for 12 months of $400,000, and (b) payments under the Management Bonus Plan of $229,577. For the other named executive officers, the cash payments reported above consist of payments under the Management Bonus Plan. Payments under the Management Bonus Plan include (i) unpaid amounts attributable to 2012 accident year results, (ii) amounts earned for the 2013 accident year, and (iii) a pro-rated “target” bonus for 2014. All of these amounts are attributable to “double-trigger”arrangements, meaning that payment is made upon termination without cause or for good reason within 12 months after a change in control, except that Mr. Michelson’s base salary continuation would be paid on termination without cause or for good reason regardless of whether a change in control has occurred.

(2) Equity amounts reported above consist of the value of unvested restricted shares that would become vested upon the occurrence of a change in control. No amounts are reported for outstanding stock options, because all stock options held by the Company’s named executive officers are already vested without regard to the offer. The dollar values reported above are based on a stock price of $30 per share. All of these amounts are attributable to “single-trigger” arrangements, meaning that vesting is accelerated upon the occurrence of a change in control, without regard to termination of employment.

(3) The Company does not maintain any pension or nonqualified deferred compensation plans for its named executive officers, and therefore no pension or nonqualified deferred compensation enhancements would be provided in connection with a change in control or termination of employment.

(4) The Company does not have any agreement or understanding to provide perquisites, personal benefits or health care or welfare benefits to a named executive officer in connection with a change in control or termination of employment.

(5) The Company does not have any agreement or understanding to provide tax reimbursements to a named executive officer in connection with a change in control or termination of employment.

(6) The Company does not have any agreement or understanding to provide any other compensation to a named executive officer that is based on or otherwise relates to a change in control or termination of employment.




Each of our directors and executive officers would receive the following amounts if such director or executive officer tendered his or her respective shares of Common Stock pursuant to the offer:

Annual Report on Form 10-K

For additional information regarding the business and financial results of the Company, please see the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, filed by the Company with the SEC on March 7, 2013.

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(7) For each named executive officer, this amount includes the aggregate dollar value of the sum of all amounts reported in columns (b) through (g). The table below quantifies the portion of the aggregate amount reported for each named executive officer which is attributable to “double-trigger” and “single-trigger” arrangements, respectively. For this purpose, post-termination base salary continuation payable to Mr. Michelson under his Employment Agreement is reported as attributable to a double-trigger arrangement.

Named Executive Officer

Amounts Attributable toDouble-Trigger Arrangements

(Cash Payments)

Amounts Attributable toSingle-Trigger Arrangements

(Accelerated Vesting of Equity)David W. Michelson $ 629,577 $ 1,080,000Julie A. McGraw $ 110,443 $ 89,340Terry E. Phillips $ 87,342 $ 80,040Arthur J. Gonzales $ 100,541 $ 52,200Gary N. Monda $ 91,816 $ 89,340Anthony J. Mercurio $ 150,247 $ 133,950

Director/ Executive OfficerAmount Received

Upon Tender(1)

Joseph E. Consolino $ 284,370Gary J. Gruber $ 30,000Keith A. Jensen $ 56,880Donald D. Larson $ 30,000Vito C. Peraino $ 30,000Joel Schiavone $ 1,784,250Donald W. Schwegman $ 0Alan R. Spachman $ 54,710,550Michael A. Spachman $ 4,390,860David W. Michelson $ 5,678,250Julie A. McGraw $ 1,200,000Terry E. Phillips $ 1,321,890Arthur J. Gonzales $ 1,200,000Gary N. Monda $ 1,920,000Anthony J. Mercurio $ 1,350,720

(1) Amount to be received by each executive officer or director is based on shares of Common Stock over which such executive officer or director has sole or joint voting and investment power, shares of Common Stock such executive officer or director has the right to acquire within 60 days of January 31, 2014, and shares of Common Stock underlying vested stock options or vested restricted stock, in each case, as of January 31, 2014.




Certain Forward-Looking Statements

This Statement may contain or incorporate by reference certain “forward-looking statements.” All statements other than statements of historical fact included or incorporated by reference in this Statement are forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. A number of risks and uncertainties could cause actual events or results to differ materially from these statements, including without limitation, the risk factors described from time to time in the Company’s documents and reports filed with the SEC. Accordingly, actual future events may differ materially from those expressed or implied in any such forward-looking statements.

The information contained in all of the exhibits referred to in Item 9 below is incorporated by reference herein.

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The following exhibits are filed or incorporated by reference as part of this Statement:

Item 9. Exhibits


(a)(1) Schedule TO, dated February 5, 2014 (incorporated by reference to Schedule TO filed by Great American Insurance Company, a wholly-owned subsidiary of American Financial Group, Inc., on February 5, 2014)

(a)(2) Schedule 13E-3, dated February 5, 2014 (incorporated by reference to Schedule 13E-3 filed by Great American Insurance Company, a wholly-owned subsidiary of American Financial Group, Inc., on February 5, 2014)

(a)(3) Offer to Purchase, dated February 5, 2014 (incorporated by reference to Exhibit (a)(1)(i) to Tender Offer Statement on Schedule TO filed by Great American Insurance Company, a wholly-owned subsidiary of American Financial Group, Inc., on February 5, 2014)

(a)(4) Letter of Transmittal, dated February 5, 2014, of National Interstate Corporation (incorporated by reference to Exhibit (a)(1)(ii) to Tender Offer Statement on Schedule TO filed by Great American Insurance Company, a wholly-owned subsidiary of American Financial Group, Inc., on February 5, 2014)

(a)(5) Notice of Guaranteed Delivery (incorporated by reference to Exhibit (a)(1)(iii) to Tender Offer Statement on to Schedule TO filed by Great American Insurance Company, a wholly-owned subsidiary of American Financial Group, Inc., on February 5, 2014)

(a)(6) Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees (incorporated by reference to Exhibit (a)(1)(iv) to Tender Offer Statement on Schedule TO filed by Great American Insurance Company, a wholly-owned subsidiary of American Financial Group, Inc., on February 5, 2014)

(a)(7) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees (incorporated by reference to Exhibit (a)(1)(v) to Tender Offer Statement on Schedule TO filed by Great American Insurance Company, a wholly-owned subsidiary of American Financial Group, Inc., on February 5, 2014)

(a)(8) Summary Advertisement published in The New York Times (incorporated by reference to Exhibit (a)(1)(vi) to Tender Offer Statement on Schedule TO filed by Great American Insurance Company, a wholly-owned subsidiary of American Financial Group, Inc., on February 5, 2014)

(a)(9) Press release, issued by American Financial Group, Inc., dated February 5, 2014 (incorporated by reference to Exhibit (a)(5)(i) to Tender Offer Statement on Schedule TO filed by Great American Insurance Company, a wholly-owned subsidiary of American Financial Group, Inc., on February 5, 2014)


(a)(11) Correspondence to Employees, issued by National Interstate Corporation, dated February 10, 2014 (incorporated by reference to Exhibit 99.1 of the Form 8-K filed by National Interstate Corporation on February 10, 2014)

(a)(12) Fairness Opinion of Duff & Phelps, LLC as to the Initial Offer Price to the board of directors of National Interstate Corporation, dated February 17, 2014 (incorporated by reference to Exhibit (a)(12) of the Schedule 14D-9 filed by National Interstate Corporation on February 19, 2014)


(a)(14) Press release, issued by American Financial Group, Inc., dated February 18, 2014 (incorporated by reference to Exhibit (a)(5)(ii) of the Schedule TO-T/A filed by Great American Insurance Company, a wholly-owned subsidiary of American Financial Group, Inc., on February 18, 2014)






(a)(16) Press release, by National Interstate Corporation, dated February 19, 2014 (incorporated by reference to Exhibit (a)(16) of the Schedule 14D-9 filed by National Interstate Corporation on February 19, 2014)

(a)(17) Schedule 14D-9, dated February 19, 2014 (incorporated by reference to Schedule 14D-9 filed by Mr. Alan R. Spachman, a director of National Interstate Corporation, on February 19, 2014)


(a)(19) Amended and Restated Offer to Purchase, dated February 21, 2014 (incorporated by reference to Exhibit (a)(i)(vii) to Schedule TO-T/A filed by Great American Insurance Company, a wholly-owned subsidiary of American Financial Group, Inc., on February 21, 2014)

(a)(20) Amended and Restated Letter of Transmittal, dated February 21, 2014 (incorporated by reference to Exhibit (a)(i)(viii) to Schedule TO-T/A filed by Great American Insurance Company, a wholly-owned subsidiary of American Financial Group, Inc., on February 21, 2014)

(a)(21) Amended and Restated Notice of Guaranteed Delivery, dated February 21, 2014 (incorporated by reference to Exhibit (a)(i)(ix) to Schedule TO-T/A filed by Great American Insurance Company, a wholly-owned subsidiary of American Financial Group, Inc., on February 21, 2014)

(a)(22) Amended and Restated Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees, dated February 21, 2014 (incorporated by reference to Exhibit (a)(i)(x) to Schedule TO-T/A filed by Great American Insurance Company, a wholly-owned subsidiary of American Financial Group, Inc., on February 21, 2014)

(a)(23) Amended and Restated Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees (incorporated by reference to Exhibit (a)(i)(xi) to Schedule TO-T/A filed by Great American Insurance Company, a wholly-owned subsidiary of American Financial Group, Inc., on February 21, 2014)

(a)(24) Schedule 13E-3/A, dated February 21, 2014 (incorporated by reference to Schedule 13E-3/A filed by Great American Insurance Company, a wholly-owned subsidiary of American Financial Group, Inc., on February 21, 2014)


(a)(26) Letter, dated February 24, 2014, from T. Rowe Price Associates, Inc. to the members of the Board of Directors of National Interstate Corporation (incorporated by reference to Exhibit 1 to Schedule 14D-9 filed by T. Rowe Price Associates, Inc. on February 25, 2014)

(a)(27) Schedule 14D-9, dated February 25, 2014 (incorporated by reference to Schedule 14D-9 filed by T. Rowe Price Associates, Inc. on February 25, 2014)










(a)(33) Schedule TO-T/A, dated March 3, 2014 (incorporated by reference to Schedule TO-T/A filed by Great American Insurance Company, a wholly-owned subsidiary of American Financial Group, Inc., on March 3, 2014)

(a)(34) Press release, issued by American Financial Group, Inc., dated March 3, 2014 (incorporated by reference to Exhibit (a)(5)(iii) of the Schedule TO-T/A filed by Great American Insurance Company, a wholly-owned subsidiary of American Financial Group, Inc., on March 3, 2014)

(a)(35) Schedule 13E-3/A, dated March 3, 2014 (incorporated by reference to Schedule 13E-3/A filed by Great American Insurance Company, a wholly-owned subsidiary of American Financial Group, Inc., on March 3, 2014)

(e)(1) Underwriting Management Agreement dated November 1, 1989, as amended, among National Interstate Insurance Agency, Inc., Great American Insurance Company, Agricultural Insurance Company, American Alliance Insurance Company and American National Fire Insurance Company (incorporated by reference to Exhibit 10.3 of the Registration Statement on Form S-1 (file no. 333-119270) filed on September 24, 2004)

(e)(2) Agreement of Reinsurance No. 0012 dated November 1, 1989 between National Interstate Insurance Company and Great American Insurance Company (incorporated by reference to Exhibit 10.8 of the Registration Statement on Form S-1 (file no. 333-119270) filed on September 24, 2004)

(e)(3) Investment Management Agreement effective October 1, 2012 between American Money Management Corporation, National Interstate Insurance Company, National Interstate Insurance Company of Hawaii, Inc., Vanliner Insurance Company and Triumphe Casualty Company (incorporated by reference to Exhibit 10.14 of the 2012 Annual Report on Form 10-K of National Interstate Corporation filed on March 8, 2013)

(e)(4) Registration Rights Agreement effective February 2, 2005 among National Interstate Corporation, Alan Spachman and Great American Insurance Company (incorporated by reference to Exhibit 10.4 of the Registration Statement on Form S-1/A (file no. 333-119270) filed on November 12, 2004)

(e)(5) Long Term Incentive Plan, as amended through March 1, 2013 (incorporated by reference to the Exhibit 10.1 to Form 8-K filed on May 8, 2013)

(e)(6) Deferred Compensation Plan (incorporated by reference to Exhibit 10.2 of the Registration Statement on Form S-1/A (file no. 333-119270) filed on November 12, 2004)

(e)(7) Amended and Restated Employee Retention Agreement between National Interstate Insurance Agency, Inc. and David W. Michelson, dated December 28, 2007 (incorporated by reference to Exhibit 10.1 to Form 8-K filed on January 4, 2008)

(e)(8) Employment and Non-Competition Agreement dated March 12, 2007 between National Interstate Corporation and David W. Michelson, as amended as of January 1, 2008 (incorporated by reference to Exhibit 10.3 to Form 8-K filed on January 4, 2008 and Exhibit 10.16 to Form 10-K filed on March 14, 2007)

(e)(9) Restricted Shares Agreement dated March 12, 2007 between National Interstate Corporation and David W. Michelson (incorporated by reference to Exhibit 10.17 to Form 10-K filed on March 14, 2007)





(e)(10) Stock Bonus Agreement dated March 12, 2007 between National Interstate Corporation and David W. Michelson (incorporated by reference to Exhibit 10.18 to Form 10-K filed on March 14, 2007)

(e)(11) National Interstate Corporation Amended and Restated Management Bonus Plan, as amended as of November 6, 2009 (incorporated by reference to Exhibit 10.1 to Form 8-K filed on September 27, 2007 and Exhibit 10.1 to Form 8-K filed on November 12, 2009)

(e)(12) Form of Award Agreement for Restricted Shares and Performance Shares (incorporated by reference to Exhibit 10.1 to Form 8-K filed on February 25, 2013)

(e)(13) Sections entitled “General Information,” “Principal Shareholders,” “Compensation Discussion and Analysis,”Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Award Table,” “Potential Payments Upon Termination or Change in Control,” “2012 Director Compensation” and “Certain Relationships and Related Party Transactions” in the Definitive Proxy Statement on Schedule 14A of National Interstate Corporation (incorporated by reference to the Definitive Proxy Statement on Schedule 14A for the Annual Meeting of Shareholders of National Interstate Corporation, filed on April 16, 2013)




SIGNATURE

After reasonable inquiry and to the best of its knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct.

Dated: March 3, 2014


By: /S/ ARTHUR J. GONZALESName: Arthur J. Gonzales

Title: Vice President, General Counsel and Secretary




Exhibit I


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Press Release

<< Back

American Financial Group, Inc. Waives Minimum Tender Condition for National Interstate

Corporation

Extends Tender Offer to March 17, 2014

Compelling Offer Provides Attractive Premium and Certainty of Completion for National Interstate’s Shareholders

CINCINNATI--(BUSINESS WIRE)--Mar. 3, 2014-- American Financial Group, Inc. (NYSE/NASDAQ: AFG) announced

today that, in connection with the offer by its wholly-owned subsidiary Great American Insurance Company (GAIC) to

purchase the outstanding shares of common stock of National Interstate Corporation (NASDAQ: NATL) not currently

owned by GAIC for $30.00 per share in cash without interest, that it has waived the “minimum tender” condition. The

“minimum tender” condition had required that, following the tender offer, GAIC must own shares of National Interstate

common stock that, when added to the shares it currently owns, represents at least 90% of the outstanding shares of

National Interstate on a fully diluted basis. Under the amended Offer, GAIC will purchase any and all shares tendered by

National Interstate shareholders into the offer.

GAIC has also extended the expiration date and withdrawal rights to 12:00 midnight, Eastern time, on March 17, 2014. The

tender offer was previously scheduled to expire at 12:00 midnight, Eastern time, on March 6, 2014. Except for the

extension of the expiration date and the waiver of the “minimum tender” condition, all other terms and conditions of the

tender offer remain unchanged.

Offer Delivers Significant Value to National Interstate’s Shareholder

AFG believes the all-cash offer of $30.00 per share represents compelling value for National Interstate at an attractive

premium and encourages National Interstate shareholders to focus on the strong value proposition of the offer in order to

make an informed decision, without distraction, to tender their shares. AFG’s all-cash offer provides National Interstate’s

shareholders with a significant premium to the unaffected National Interstate stock price. The offer provides certainty in

that it is not subject to any financing condition, with AFG using available cash on hand to purchase all of the shares of

National Interstate common stock validly tendered in the offer.

In delivering a $30.00 offer price, AFG considered the following factors (further details can be found in the Tender Offer

Statement on Schedule TO and the Transaction Statement on Schedule 13E-3 (each as amended) and the Amended and

Restated Offer to Purchase, all of which are on file with the SEC):

Page 1 of 3American Financial Group, Inc. (AFG) -Press Release

3/5/2014http://www.afginc.com/phoenix.zhtml?c=89330&p=irol-newsArticle_pf&ID=1905290&hig...


The offer price represents a premium of over 35% over the closing Share price of National Interstate common stock on

February 4, 2014, the last day prior to the public announcement of the initial Offer to Purchase, and a premium of almost

29% over the average closing share price of National Interstate common stock for the 30 trading days ending on that date.

The offer provides a 70% premium over the book value per National Interstate share of $17.63 at September 30, 2013.

The $30.00 offer price exceeds the target price at the date of the original offer for every equity research analyst providing a

target price as part of their research coverage on National Interstate.

As a result of these factors, AFG believes its offer delivers a compelling premium to National Interstate’s unaffiliated

shareholders. AFG urges shareholders to consider its disclosures with respect to this offer which contain a full description

of the transaction including more detail regarding its analysis of the value provided by this offer. The offer is not

conditioned upon the receipt of any approvals or any recommendation by the National Interstate board of directors.

The Information Agent for the tender offer has advised AFG and GAIC that, as of close of business on February 28, 2014,

approximately 713 shares of National Interstate Corporation common stock have been tendered into and not withdrawn

from the tender offer.

Innisfree M&A Incorporated is the Information Agent for the tender offer.

Additional Information

This press release is for informational purposes only and does not constitute an offer to purchase or a solicitation of an

offer to sell National Interstate common stock. AFG and GAIC will amend their Tender Offer Statement on Schedule TO

and the Transaction Statement on Schedule 13E-3, filed with the Securities and Exchange Commission (the “SEC”), to

reflect the waiver of the “minimum tender” condition and the extension of the offer. National Interstate stockholders and

other interested parties are advised to read these filings and other documents relating to the tender offer that have been or

will be filed with the SEC when they become available because they will contain important information regarding the tender

offer. Anyone may obtain copies of these documents when available for free at the SEC’s website at www.sec.gov, or by

calling Innisfree M&A Incorporated, the Information Agent for the tender offer, toll free at 1-888-750-5834.

About American Financial Group, Inc.

AFG is an insurance holding company, based in Cincinnati, Ohio with assets in excess of $40 billion. Through the

operations of Great American Insurance Group, AFG is engaged primarily in property and casualty insurance, focusing on

specialized commercial products for businesses, and in the sale of fixed and fixed-indexed annuities in the retail, financial

institutions and education markets. Great American Insurance Group’s roots go back to 1872 with the founding of its

flagship company, Great American Insurance Company.

Forward Looking Statements

This press release contains certain statements that may be deemed to be “forward-looking statements”. All statements in

this press release not dealing with historical results are forward-looking and are based on estimates, assumptions and

projections. Examples of such forward-looking statements include statements relating to: the Company’s expectations

concerning market and other conditions and their effect on future premiums, revenues, earnings and investment activities;

recoverability of asset values; expected losses and the adequacy of reserves for long-term care, asbestos, environmental

pollution and mass tort claims; rate changes; and improved loss experience.




Actual results and/or financial condition could differ materially from those contained in or implied by such forward-looking

statements for a variety of reasons including but not limited to: changes in financial, political and economic conditions,

including changes in interest and inflation rates, currency fluctuations and extended economic recessions or expansions in

the U.S. and/or abroad; performance of securities markets; AFG’s ability to estimate accurately the likelihood, magnitude

and timing of any losses in connection with investments in the non-agency residential mortgage market; new legislation or

declines in credit quality or credit ratings that could have a material impact on the valuation of securities in AFG’s

investment portfolio; the availability of capital; regulatory actions (including changes in statutory accounting rules); changes

in the legal environment affecting AFG or its customers; tax law and accounting changes; levels of natural catastrophes

and severe weather, terrorist activities (including any nuclear, biological, chemical or radiological events), incidents of war

or losses resulting from civil unrest and other major losses; development of insurance loss reserves and establishment of

other reserves, particularly with respect to amounts associated with asbestos and environmental claims and AFG’s run-off

long-term care business; availability of reinsurance and ability of reinsurers to pay their obligations; the unpredictability of

possible future litigation if certain settlements of current litigation do not become effective; trends in persistency, mortality

and morbidity; competitive pressures, including those in the annuity distribution channels, the ability to obtain adequate

rates and policy terms; changes in AFG’s credit ratings or the financial strength ratings assigned by major ratings agencies

to our operating subsidiaries; and other factors identified in our filings with the Securities and Exchange Commission.

The forward-looking statements herein are made only as of the date of this press release. The Company assumes no

obligation to publicly update any forward-looking statements, except as required by law.

Source: American Financial Group, Inc.

American Financial Group, Inc.

Diane P. Weidner, Asst. Vice President - Investor Relations, 513-369-5713

or

Brunswick

Stan Neve / Gemma Hart, 212-333-3810

or

Websites:

www.AFGinc.com

www.GreatAmericanInsuranceGroup.com




Exhibit J


EX-99.(A)(1)(I) 2 c76371_ex99-a1i.htm

Exhibit (a)(1)(i)

Offer to Purchase for CashAll Outstanding Shares of Common Stock

of

NATIONAL INTERSTATE CORPORATIONat

$28.00 Net Per Shareby


a Wholly-Owned Subsidiary of


THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,EASTERN TIME, ON MARCH 6, 2014, UNLESS THE OFFER IS EXTENDED

Great American Insurance Company, an Ohio corporation (“Purchaser”), is offering to purchase all of the outstanding shares of common stock, par value $0.01 per share (a “Share”), of National Interstate Corporation, an Ohio corporation (“National Interstate”), that are not currently owned by Purchaser at a price of $28.00 per Share in cash without interest and less any applicable withholding taxes, on the terms and subject to the conditions set forth in this Offer to Purchase and the Letter of Transmittal enclosed with this Offer to Purchase (which, together with any supplements or amendments, collectively constitute the “Offer”). If, pursuant to the Offer, shareholders validly tender (which tenders are not withdrawn) a number of Shares that, when combined with the Shares currently owned by Purchaser, will constitute at least 90% of the outstanding Shares (on a fully diluted basis) as of the date the Shares are accepted for payment pursuant to the Offer (the “Minimum Tender Condition”) and the Offer is consummated, Purchaser intends to effect a second step merger (the “Merger”) as promptly as practicable in accordance with the terms of a merger agreement at the same per Share price paid in the Offer.

The board of directors of National Interstate has not made a public statement as to whether it recommends that National Interstate shareholders tender their Shares in the Offer. National Interstate is required to make a recommendation or express no opinion and remain neutral with respect to the Offer, and to publish such recommendation or statement or send it to holders of the Shares within ten business days from the date of this Offer to Purchase. We encourage National Interstate shareholders to read such statement carefully when it becomes available.

The Offer is subject to, among other things, the Minimum Tender Condition, which may be waived by Purchaser in its sole discretion. The Offer is not subject to any financing condition. The Offer is also subject to certain other conditions set forth in this Offer to Purchase. See “The Offer—Section 11. Conditions to the Offer” in this Offer to Purchase.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of this transaction, passed upon the merits or fairness of such transaction or passed upon the adequacy or accuracy of the information contained in this document. Any representation to the contrary is a criminal offense.


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February 5, 2014




IMPORTANT

If you wish to tender all or any portion of your Shares in the Offer, you should either (a) complete and sign the Letter of Transmittal, which is enclosed with this Offer to Purchase, in accordance with the instructions contained in the Letter of Transmittal, and mail or deliver the Letter of Transmittal and any other required documents to American Stock Transfer & Trust Company, LLC (the “Depositary”), the Depositary for the Offer, and either deliver the certificates for your Shares to the Depositary along with the Letter of Transmittal or tender your Shares by book-entry transfer by following the procedures described in “The Offer—Section 3. Procedures for Accepting the Offer and Tendering Shares”, in each case prior to the expiration date, or (b) request that your broker, dealer, commercial bank, trust company or other nominee effect this transaction for you. If you hold Shares registered in the name of a broker, dealer, commercial bank, trust company or other nominee, you should contact that institution in order to tender your Shares in the Offer.

If you desire to tender your Shares pursuant to the Offer and the certificates representing your Shares are not immediately available, or you cannot comply in a timely manner with the procedures for tendering your Shares by book-entry transfer, or you cannot deliver all required documents to the Depositary prior to the expiration date, you may tender your Shares in the Offer by following the guaranteed delivery procedures described in “The Offer—Section 3. Procedures for Accepting the Offer and Tendering Shares”.

The Letter of Transmittal, certificates for Shares and any other documents must be received by the Depositary before the expiration of the Offer, unless the procedures for guaranteed delivery described in “The Offer—Section 3. Procedures for Accepting the Offer and Tendering Shares” are followed. The method of delivery of Shares, the Letter of Transmittal and all other required documents is at the election and risk of the tendering shareholder.

Questions and requests for assistance may be directed to the Information Agent at its address and telephone number set forth on the back cover of this Offer to Purchase. Requests for additional copies of this Offer to Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery and other tender offer materials may be directed to the Information Agent. A shareholder may also contact such shareholder’s broker, dealer, commercial bank, trust company or other nominee for assistance.

This Offer to Purchase and the Letter of Transmittal contain important information, and you should read both carefully and in their entirety before making a decision with respect to the Offer.




TABLE OF CONTENTS

i

SUMMARY TERM SHEET 1INTRODUCTION 6SPECIAL FACTORS 9

1. Background 92. Purpose of and Reasons for the Offer; Plans for National Interstate After the Offer 103. Position of National Interstate Regarding the Offer 114. Position of AFG and Purchaser Regarding Fairness of the Offer 125. Presentations of Financial Advisors 126. Financial Forecasts 137. Effects of the Offer 138. Conduct of National Interstate’s Business if the Offer Is Not Completed 159. Dissenters’ Rights; Rule 13e-3 1510. Transactions and Arrangements Concerning the Shares 1511. Certain Relationships Between AFG, Purchaser and National Interstate 1612. Interests of Directors and Executive Officers in the Offer 1713. National Interstate’s Board of Directors 17

THE OFFER 191. Terms of the Offer 192. Acceptance for Payment and Payment for Shares 213. Procedures for Accepting the Offer and Tendering Shares 214. Withdrawal Rights 245. Certain United States Federal Income Tax Consequences 256. Price Range of the Shares; Dividends 267. Certain Information Concerning National Interstate 278. Certain Information Concerning AFG and Purchaser 289. Source and Amount of Funds 2910. Dividends and Distributions 2911. Conditions to the Offer 3012. Effect of the Offer on the Market for the Shares; Nasdaq Listing; Exchange Act Registration;

Margin Regulations 3213. Certain Legal Matters; Regulatory Approvals 3314. Fees and Expenses 3515. Miscellaneous 35

SCHEDULE A—INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS OF AFG AND PURCHASER A-1

SCHEDULE B—SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS B-1




SUMMARY TERM SHEET

Great American Insurance Company, or Purchaser, is offering to purchase all outstanding shares of common stock, par value $0.01 per share, of National Interstate Corporation, or Shares, not owned by Purchaser, for $28.00 per share, net to the seller in cash, without interest and less any applicable withholding taxes, upon the terms and subject to the conditions set forth in this Offer to Purchase and the related Letter of Transmittal. This summary term sheet is not meant to be a substitute for the information contained in the remainder of this Offer to Purchase, and you should carefully read this Offer to Purchase and the accompanying Letter of Transmittal in their entirety because the information in this summary term sheet is not complete and additional important information is contained in the remainder of this Offer to Purchase and the Letter of Transmittal. We have included in this summary term sheet cross-references to the sections of the Offer to Purchase containing a more complete description of the topics covered in this summary term sheet. All dollar amounts set forth in this Offer to Purchase are expressed in United States dollars and references to “$,” and “dollars” are to United States dollars.

Who is offering to buy my securities?

Great American Insurance Company is an Ohio corporation and wholly-owned subsidiary of American Financial Group, Inc., an Ohio corporation (“AFG”). As of the date of this Offer to Purchase, Purchaser beneficially owns 10,200,000, or approximately 51.7%, of the outstanding Shares of National Interstate common stock. See “The Offer—Section 8. Certain Information Concerning AFG and Purchaser.”

What securities are you offering to purchase?

We are offering to purchase all of the outstanding Shares of National Interstate common stock not owned by Purchaser. See “Introduction.”

How much are you offering to pay and what is the form of payment?

We are offering to pay $28.00 per Share, net to the seller in cash, without interest, and less any applicable withholding taxes.

Why are you making the Offer?

Purchaser is making this Offer because Purchaser believes that National Interstate’s operations and business represent an important strategic component of Purchaser’s overall operations. As a result, Purchaser does not wish to sell any of its interests in National Interstate. Rather, Purchaser is making this Offer to acquire for cash a number of Shares that, when combined with the Shares currently held by Purchaser, constitutes at least 90% of the outstanding Shares (on a fully diluted basis) as of the date the Shares are accepted for payment pursuant to the Offer so that Purchaser can effect a merger with National Interstate without the requirement for approval by other shareholders of National Interstate. In the event that Purchaser waives the condition that Purchaser own at least 90% of the outstanding Shares (on a fully diluted basis) following the Offer but purchases all Shares validly tendered and not withdrawn in the Offer, Purchaser may seek to exercise its voting rights to pursue actions discussed under, “Special Factors—Section 2. Purpose of and Reasons for the Offer; Plans for National Interstate After the Offer” and “Special Factors—Section 7. Effects of the Offer.”

Will I have to pay any fees or commissions? Is the payment subject to withholding taxes?

If you are the record owner of your Shares of National Interstate common stock and you tender your Shares to us in the Offer, you will not have to pay brokerage fees or similar expenses. If you beneficially own your Shares of National Interstate common stock through a broker or other nominee, and your broker tenders your Shares on your behalf, your broker or nominee may charge you a fee for doing so. You should consult your broker or nominee to determine whether any




charges will apply. See “Introduction.” Payments in connection with the Offer may also be subject to backup United States federal income tax withholding at a rate of 28%, if certain requirements are not met. See “The Offer—Section 3. Procedures for Accepting the Offer and Tendering Shares” and “The Offer—Section 5. Certain United States Federal Income Tax Consequences.”

Do you have the financial resources to make payment?

Yes. We estimate the total amount of funds necessary to purchase all of the outstanding Shares of National Interstate common stock that are not currently owned by Purchaser and related transaction fees and expenses, to be approximately $267.0 million. See “The Offer—Section 14. Fees and Expenses.” Purchaser’s internally available cash, and available cash and borrowings of AFG contributed to Purchaser will be used by Purchaser to purchase all Shares of National Interstate common stock validly tendered in the Offer. The Offer is not subject to any financing condition. See “The Offer—Section 9. Source and Amount of Funds.”

What are the most significant conditions to the Offer?

The Offer is conditioned upon, among other things, there being validly tendered and not withdrawn prior to the expiration of the Offer a number of Shares of National Interstate common stock representing at least 90% of the outstanding Shares (on a fully diluted basis). This condition is waivable by Purchaser in its sole discretion. The Offer is also subject to a number of other conditions described below in this Offer to Purchase. The Offer is not subject to a financing condition. See “The Offer—Section 11. Conditions to the Offer” and “The Offer—Section 13. Certain Legal Matters; Regulatory Approvals.”

Do you have interests in the Offer that are different from my interests as a shareholder of National Interstate?

Yes. Our interests in the Offer are different from those of shareholders being asked to tender their Shares. If you sell Shares in the Offer or your Shares are converted in a second step merger, you will cease to have any ownership interest in National Interstate and will not have the opportunity to participate in the future earnings or growth, if any, of National Interstate. We will benefit from any future increase in the value of National Interstate, but also realize any future decrease in that value. See “Special Factors—Section 2. Purpose of and Reasons for the Offer; Plans for National Interstate After the Offer.”

Will the National Interstate board of directors make a recommendation concerning the Offer?

We do not know whether the board of directors of National Interstate will make a recommendation. Under SEC rules, National Interstate will be required to make a recommendation or state that it is neutral or is unable to take a position with respect to the Offer, and file with the SEC a recommendation or statement on Schedule 14D-9 describing its position, if any, and related matters, no later than ten business days from the date of the distribution of this Offer to Purchase. National Interstate is also required to send to you a copy of its Schedule 14D-9, which you should review carefully upon receipt. For additional information on interests that National Interstate’s board members and executive officers may have in the Offer and subsequent merger, see “Special Factors—Section 13—Interest of Directors and Executive Officers in the Offer.”

Is this the first step in a going-private transaction?

Yes. The purpose of the Offer is to acquire as many of the Shares of National Interstate common stock not currently owned by Purchaser as possible as a first step in acquiring all of the Shares of common stock of National Interstate. If Purchaser is successful and National Interstate and Purchaser or an affiliate subsequently effect a merger transaction, Shares of National Interstate common stock will no longer be publicly owned and will cease to be listed on the Nasdaq Stock Market, National Interstate will cease to make filings with the SEC and to comply with the SEC’s

2




rules relating to public companies. See “The Offer—Section 12. Effect of the Offer on the Market for the Shares; Nasdaq Listing; Exchange Act Registration; Margin Regulations.”

Will the Offer be followed by a merger if all the Shares are not tendered in the Offer?

If the Offer is completed and Purchaser is successful in owning at least 90% of the outstanding Shares (on a fully diluted basis) following the Offer, we intend to effect a short-form merger as promptly as practicable without a vote of, or prior notice to, National Interstate’s shareholders. If the merger takes place, all remaining shareholders (other than Purchaser and other than shareholders properly exercising their dissenters’ rights in the merger) will receive the same price per Share as was paid in the Offer, without interest, and less any applicable withholding taxes. If Purchaser waives the condition requiring ownership of 90% or more of the Shares (on a fully diluted basis) following the Offer, Purchaser may still seek a merger transaction with National Interstate which would be subject to National Interstate shareholder approval. See “Special Factors—Section 7. Effects of the Offer.”

Has Purchaser negotiated, or sought the approval of, the terms of this Offer or the merger with National Interstate?

No. We have not negotiated the terms of this Offer or the contemplated subsequent merger with National Interstate or its board of directors and we do not intend to do so. Moreover, we have not requested that National Interstate or its board of directors approve this Offer. The Offer is not conditioned upon the receipt of any approval or recommendation by the National Interstate board of directors.

Has the National Interstate board of directors formed a special committee of independent directors to evaluate Purchaser’s Offer?

No. National Interstate’s board of directors has not formed a special committee as of the date of this Offer to Purchase.

What is the market value of my shares as of a recent date?

On February 4, 2014, the last trading day before the date we commenced this Offer, the per Share closing price of National Interstate common stock reported on the Nasdaq Stock Market was $22.17. We encourage you to obtain a recent price for Shares of National Interstate common stock in deciding whether to tender your Shares. See “The Offer—Section 6. Price Range of the Shares; Dividends.”

If I decide not to tender, but Purchaser successfully acquires at least 90% of the outstanding Shares (on a fully diluted basis), how will the Offer affect my shares?

If Purchaser is successful in owning at least 90% of the outstanding Shares (on a fully diluted basis) following the Offer, we intend to effect a second step merger as soon as practicable thereafter in which shareholders not tendering in the Offer (other than Purchaser and other than those shareholders properly exercising their dissenters’rights) will receive as merger consideration the same price per Share as was paid in the Offer, without interest, and less any applicable withholding taxes. Therefore, if Purchaser is successful in owning at least 90% of the outstanding Shares (on a fully diluted basis) following the Offer and Purchaser is able to consummate the short-form merger, the only difference to you between tendering your Shares and not tendering your Shares in the Offer will be that you will be paid earlier if you tender your Shares in the Offer. See “Introduction,” “Special Factors—Section 7. Effects of the Offer,” “Special Factors—Section 9. Dissenters’ Rights; Rule 13e-3” and “The Offer—Section 12. Effect of the Offer on the Market for the Shares; Nasdaq Listing; Exchange Act Registration; Margin Regulations.”

3




If I decide not to tender, but Purchaser waives the requirement that it owns at least 90% of the outstanding Shares (on a fully diluted basis) and purchases all of the Shares tendered, how will the Offer affect my shares?

If Purchaser waives the condition requiring ownership of 90% or more of the Shares (on a fully diluted basis) following the Offer, the number of Shares of National Interstate common stock that trade publicly could be reduced, which could affect the liquidity or market value of the Shares, and could result in the Shares being delisted from the Nasdaq Stock Market. In addition, if, after the Offer, Purchaser owns two-thirds of the Shares (on a fully diluted basis), Purchaser would have sufficient voting power to approve a merger, amendments to the Articles of Incorporation (including eliminating cumulative voting), and certain amendments to National Interstate’s Amended and Restated Code of Regulations (including changing the size, composition and classification of the National Interstate board), without the approval of any other National Interstate shareholder. See “Introduction,” “Special Factors—Section 7. Effects of the Offer,” “Special Factors—Section 9. Dissenters’ Rights; Rule 13e-3” and “The Offer—Section 12. Effect of the Offer on the Market for the Shares; Nasdaq Listing; Exchange Act Registration; Margin Regulations.”

Are dissenters’ rights available in either the Offer or any subsequent merger?

Dissenters’ rights are not available in connection with the Offer. However, if Purchaser owns at least 90% of the outstanding Shares (on a fully diluted basis) following the Offer, subject to the terms and conditions of the merger agreement, we intend to consummate a second step merger and dissenters’ rights will be available to holders of Shares at the time of the merger who have not tendered their Shares in the Offer or voted in favor of or consented in writing to the adoption of a merger agreement, who properly demand appraisal of their Shares and who otherwise comply with the applicable statutory procedures under Ohio law. If and when we consummate the merger, if you perfect your rights to dissent under the Ohio Revised Code, you may receive an amount that is different from the consideration being paid in the merger. See “Special Factors—Section 9. Dissenters’ Rights; Rule 13e-3.”

How long do I have to decide whether to tender in the Offer? Can the Offer be extended?

You will have until 12:00 Midnight, Eastern Time, on March 6, 2014, to tender your Shares of National Interstate common stock. Further, if you cannot deliver everything that is required in order to make a valid tender by that time, you may be able to use a guaranteed delivery procedure, which is described in this offer to purchase. We also may elect to extend the Offer. If we extend the Offer, we will inform American Stock Transfer & Trust Company, LLC, which is the Depositary for the Offer, of that fact and will make a public announcement of the extension, not later than 9:00 a.m., Eastern time, on the next business day after the day on which the Offer was scheduled to expire. We may also decide to establish a subsequent offering period in certain circumstances. See “The Offer—Section 1. Terms of the Offer” and “The Offer—Section 3. Procedures for Accepting the Offer and Tendering Shares.” If a broker, dealer, commercial bank, trust company or other nominee holds your Shares, it may have an earlier deadline for accepting the Offer. We urge you to contact the broker, dealer, commercial bank, trust company or other nominee that holds your Shares to learn of its deadline.

How do I tender my shares?

If you wish to tender all or any portion of your Shares in the Offer, you should either (a) complete and sign the Letter of Transmittal for the Offer, which is enclosed with this Offer to Purchase, in accordance with the instructions contained in the Letter of Transmittal, and mail or deliver the Letter of Transmittal and any other required documents to American Stock Transfer & Trust Company, LLC, the Depositary for the Offer, and either deliver the certificates for your Shares to the Depositary along with the Letter of Transmittal or tender your Shares by book-entry transfer by following the procedures described in “The Offer—Section 3. Procedures for Accepting the Offer and Tendering Shares,” in each case prior to the expiration date, or (b) request that your broker, dealer, commercial bank, trust company or other nominee effect this transaction for you. If

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you hold Shares registered in the name of a broker, dealer, commercial bank, trust company or other nominee, you should contact that institution in order to tender your Shares in the Offer. See “The Offer—Section 3. Procedures for Accepting the Offer and Tendering Shares.”

Until what time may I withdraw previously tendered shares?

You may withdraw Shares at any time prior to the expiration of the Offer and, if we have not accepted your Shares for payment by March 7, 2014, you may withdraw them at any time after that date until we accept Shares for payment. This right to withdraw, however, will not apply to any subsequent offering period, if we elect to establish one. To withdraw Shares, you must deliver an executed written notice of withdrawal with the required information to the Depositary while you still have the right to withdraw the Shares. See “The Offer—Section 4. Withdrawal Rights.”

Generally, what are the United States federal income tax consequences of tendering shares or having Shares exchanged for cash in the second step merger?

If you are a U.S. Holder (as defined in “The Offer—Section 5. Certain United States Federal Income Tax Consequences”), the sale or exchange of your Shares pursuant to the Offer or the second step merger will be a taxable transaction for United States federal income tax purposes. See “The Offer—Section 5. Certain United States Federal Income Tax Consequences.”

If you are a Non-U.S. Holder (as defined in “The Offer—Section 5. Certain United States Federal Income Tax Consequences”), any gain realized upon the sale of your Shares pursuant to the Offer or the second step merger generally will not be subject to United States federal income tax. See “The Offer—Section 5. Certain United States Federal Income Tax Consequences.”

Holders of Shares of National Interstate’s common stock should consult their tax advisors about the United States federal, state, local and foreign tax consequences of participating in the Offer in light of their particular circumstances.

To whom may I speak if I have questions about the tender offer?

You may call Innisfree M&A Incorporated, the information agent for the Offer, at (888) 750-5834 for assistance. Banks and brokers may call collect at (212) 750-5833. See the back cover of this Offer to Purchase for additional contact information.

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To the Holders of Common Stock of National Interstate Corporation:

INTRODUCTION

Great American Insurance Company, an Ohio corporation (“Purchaser”) and a wholly-owned subsidiary of American Financial Group, Inc. (“AFG”), hereby offers to purchase all the outstanding shares of common stock, par value $0.01 per share (the “Shares”), of National Interstate Corporation, an Ohio corporation (“National Interstate”), other than Shares owned by Purchaser, at a price of $28.00 per Share (such price, or any higher price offered and paid by Purchaser, the “Offer Price”), net to the seller in cash, without interest but subject to any applicable withholding taxes, upon the terms and subject to the conditions set forth in this Offer to Purchase (this “Offer to Purchase”) and in the related Letter of Transmittal (the “Letter of Transmittal”) (which, as amended or supplemented from time to time, together constitute the “Offer”).

Tendering shareholders who are the record owners of Shares will not be obligated to pay brokerage fees or commissions or, except as set forth in Instruction 6 of the Letter of Transmittal, stock transfer taxes on the purchase of Shares by Purchaser pursuant to the Offer. Shareholders who hold their Shares through a bank or broker should check with such institution as to whether the institution will charge any service fees. However, if you fail to provide an Internal Revenue Service (“IRS”) Form W-9 or the appropriate IRS Form W-8, as applicable, you may be subject to any required backup United States federal income tax withholding at a rate of 28% of the gross proceeds payable in the Offer. See “The Offer—Section 3. Procedures for Accepting the Offer and Tendering Shares” and “The Offer—Section 5. Certain United States Federal Income Tax Consequences.” AFG or Purchaser will pay all charges and expenses of American Stock Transfer & Trust Company, LLC (the “Depositary”) and Innisfree M&A Incorporated (the “Information Agent”) incurred in connection with the Offer and in accordance with the terms of the agreements entered into by and between Purchaser and/or AFG and each such person. See “The Offer—Section 14. Fees and Expenses.”

The Offer is conditioned upon, among other things, there being validly tendered and not withdrawn a number of Shares that, when combined with the Shares currently owned by Purchaser, will constitute at least 90% of the outstanding Shares (on a fully diluted basis) as of the date the Shares are accepted for payment pursuant to the Offer (the “Minimum Tender Condition”). This condition is waivable by Purchaser, in its sole discretion. The Offer is also subject to certain other conditions described in “The Offer—Section 11. Conditions to the Offer.”

Because Purchaser currently owns approximately 51.7% of the outstanding Shares, the completion of the transactions contemplated in this Offer to Purchase constitute a “going private” transaction under Rule 13e-3 under the Exchange Act. Under the rules governing “going private” transactions, AFG and Purchaser are deemed to be engaged in a “going private” transaction and are therefore required to, among other things, express their reasons for the transactions described in this Offer to Purchase and their views as to the fairness of the transactions to National Interstate’s unaffiliated shareholders.

According to National Interstate, as of the close of business on October 30, 2013 there were 19,721,266 Shares outstanding. As of the date of this Offer to Purchase, Purchaser owns 10,200,000 Shares. To the best of our knowledge after reasonable inquiry, directors and executive officers of AFG and Purchaser beneficially own 12,494 outstanding Shares as of the date of this Offer to Purchase and all of these directors and executive officers intend to tender all of their Shares in the Offer. Based on information from National Interstate, AFG and Purchaser believe that, as of the date of this Offer to Purchase, 2,314,330 outstanding Shares were beneficially owned by directors and executive officers of National Interstate.

Based on the foregoing, AFG and Purchaser believe that based on the number of Shares outstanding as of October 30, 2013, as of December 31, 2013, there were 7,194,442 Shares outstanding, excluding Shares owned by Purchaser and the directors and executive officers of AFG, Purchaser, and National Interstate.

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The purpose of the Offer is to acquire for cash as many outstanding Shares not owned by Purchaser as possible as a first step in acquiring all of the Shares of common stock of National Interstate.

If the Offer is completed and the Minimum Tender Condition is satisfied, Purchaser intends to effect a second step merger of Purchaser (or an affiliate) with National Interstate (the “Merger”). In the Merger, each then issued and outstanding Share (other than Shares held by Purchaser and Shares held by shareholders who validly perfect their dissenters’ rights under Ohio Revised Code (the “ORC”)) will be cancelled and converted into and represent the right to receive the Offer Price. Non-tendering shareholders will have dissenters’ rights, whereby such shareholders may receive the “fair value” of their Shares, as determined by a court of competent jurisdiction, by following the procedures required by the ORC. See “Special Factors—Section 9. Dissenters’ Rights; Rule 13e-3.”

If the Offer is completed and the Minimum Tender Condition is satisfied, Purchaser intends to consummate the Merger as a short-form merger of Purchaser (or an affiliate) and National Interstate in accordance with the applicable provisions of the ORC. Under the ORC, such a Merger may be consummated without a vote of, or prior notice to, National Interstate’s shareholders or board of directors. If following consummation of the Offer and providing that Purchaser has waived the Minimum Tender Condition, Purchaser owns a number of Shares representing at least 80% of the outstanding Shares but less than 90% of the outstanding Shares, Purchaser may proceed with treating National Interstate as a consolidated subsidiary for purposes of the U.S. Internal Revenue Code. If following consummation of the Offer, including any subsequent offering period, Purchaser owns a number of Shares representing at least 66-2/3% of the outstanding Shares but less than 80% of the outstanding Shares, Purchaser would have sufficient voting power to approve a merger and amendments to the Articles of Incorporation (including eliminating cumulative voting), as well as having the voting power to approve amendments to National Interstate’s Amended and Restated Code of Regulations (the “Regulations”) requiring a two-thirds shareholder vote (including changing the size, composition and classification of the board), without the need for approval of any other shareholder of National Interstate. See “Special Factors—Section 2. Purpose of and Reasons for the Offer; Plans for National Interstate After the Offer” and “Special Factors—Section 7. Effects of the Offer.”

If the Offer is not completed for any reason or if Purchaser waives the Minimum Tender Condition and purchases all Shares validly tendered (and not withdrawn) in the Offer, Purchaser will review its options. These options include a continuation of the status quo prior to the Offer, purchasing Shares in the open market or in privately negotiated transactions, making a new tender offer or seeking to negotiate a merger or other business combination with National Interstate. No assurance can be given as to the price per Share that may be paid in any such future acquisition of Shares, which may be higher or lower than or the same as the Offer Price. See “Special Factors—Section 7. Effects of the Offer.” For a discussion of other actions that Purchaser may take if the Offer is not completed, see “Special Factors—Section 8. Conduct of National Interstate’s Business if the Offer Is Not Completed.”

This Offer to Purchase includes certain forward-looking statements. These statements appear throughout this Offer to Purchase and include statements regarding the intent, belief or current expectations of AFG and Purchaser, including statements concerning AFG’s and Purchaser’s plans with respect to the Shares or actions if the Offer is not completed. Such forward-looking statements are not guarantees of future performance or events and involve risks and uncertainties. Actual results may differ materially from those described in such forward-looking statements as a result of various factors. Factors that might affect such forward-looking statements include:

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• whether the conditions to the Offer will be satisfied;

• general economic, capital markets and business conditions;

• competitive factors in the industries and markets in which each of National Interstate and Purchaser operates, and general industry trends;

• the effects of war, terrorism or catastrophic events;

• changes in government regulation;




For a detailed description of risks and uncertainties affecting AFG, please refer to AFG’s filings with the Securities and Exchange Commission (the “SEC”), available at www.sec.gov.

This Offer to Purchase and the related Letter of Transmittal contain important information and should be read both carefully and in their entirety before any decision is made with respect to the Offer.

This Offer to Purchase does not constitute a solicitation of a proxy, consent or authorization for or with respect to any meeting of, or action by written consent by, National Interstate’s shareholders.

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• changes in tax law requirements, including tax rate changes, new tax laws and revised tax law interpretations; and

• the ability of Purchaser to execute fully on its business strategy after taking National Interstate private.




SPECIAL FACTORS

1. Background

National Interstate is a niche property and casualty insurance operation whose products primarily relate to the passenger transportation, trucking and moving and storage industries, general commercial insurance to small businesses in Hawaii and Alaska and personal insurance to owners of recreational vehicles and commercial vehicles.

National Interstate has been a subsidiary of Purchaser since AFG initially invested in it in 1989. National Interstate completed its initial public offering of common stock in 2005. Purchaser did not purchase or sell any Shares in, and has not purchased or sold any Shares since, the initial public offering.

National Interstate continues to materially contribute to AFG’s results. AFG does not intend to sell any of its interests in National Interstate because AFG believes that National Interstate’s operations and business represent an important strategic component of its overall operations.

As a subsidiary of Purchaser, National Interstate has historically relied on Purchaser to provide certain services to National Interstate without charge, including actuarial and limited consultative services for legal, accounting and internal audit issues and other support services. As further responses to industry and company challenges, in 2013, Purchaser expanded the scope of these services to include providing actuarial resources to analyze claim trends and conducting a claims review to assist National Interstate in its evolution of adverse severity trends.

The commercial auto subsector of the property and casualty business has experienced significant challenges in recent years. Premiums declined in each of 2007-2011, and the specialty niche experienced underwriting losses in each of 2011 and 2012.

Meanwhile, National Interstate’s 2012 results included a 97.5% calendar year combined ratio, $1.75 in earnings per share, and a 9.8% return on shareholders’ equity. Each of these performance metrics fell short of AFG’s expectations. These results continued deteriorating trends as National Interstate’s combined ratio increased from 94.2% in 2010 to 95.4% in 2011, earnings per share were $2.39, $2.03 and $1.82, respectively, for 2009-2011, and return on equity was 19.1%, 11.0% and 9.9%, respectively, from 2009 to 2011. Notably, National Interstate, for the first time since its 2005 initial public offering, experienced unfavorable reserve development, in the amount of $3 million, in 2012.

In response to the declining industry and deteriorating company results, National Interstate took certain steps in 2013 to improve company results and position National Interstate for future success. These steps included obtaining renewal rate increases and discontinuing or exiting unprofitable product lines. National Interstate also reorganized its management team in order to best manage its executive talent, most notably by naming a Chief Operating Officer.

To date, National Interstate has continued to experience adverse prior year reserve development of $2.4 million, $8.4 million and $5.3 million, respectively, in each of the first three quarters of 2013 and also reported unfavorable development for the fourth quarter of 2013 in its preliminary fourth quarter and full year results. On January 30, 2014, National Interstate reported preliminary fourth quarter and full year 2013 results. Net earnings per share were expected to be between $0.86 and $0.92, which, even at the top end of the expected range, represented a decrease of almost 50% from 2012. National Interstate reported expected fourth quarter 2013 combined ratio of between 98% and 99%, on top of combined ratios of 97.8%, 113.9% and 99.3%, respectively, for the first three quarters of the year.

Also in 2013, National Interstate replaced its then Chairman. At its 2013 annual meeting of shareholders, Michael Spachman, son of director Alan Spachman, was nominated and elected to serve on National Interstate’s board of directors. See “Special Factors—Section 13. National Interstate’s Board of Directors” for further information regarding National Interstate’s 2013 annual meeting of shareholders.

As stated above, AFG has no intention to reduce or sell its interest in National Interstate. AFG decided to pursue the acquisition of the Shares not already owned by Purchaser as it allows

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Purchaser to further expand its specialty property and casualty insurance franchise by making an investment in a business that it already knows.

2. Purpose of and Reasons for the Offer; Plans for National Interstate After the Offer

Purpose and Reasons for the Offer. The purpose of the Offer, and the second step merger, if completed, is for Purchaser to increase its direct and indirect ownership of the outstanding Shares from its current level of approximately 51.7% to 100%, and accordingly participate in 100% of the results of operations of National Interstate.

AFG regularly undertakes a review of its insurance business, operations and strategy with the goal of enhancing AFG shareholder value. AFG decided to pursue the acquisition of the Shares not already owned by Purchaser as it allows Purchaser to further expand its specialty property and casualty insurance franchise by making an investment in a business that it already knows well while at the same time simplifying National Interstate’s ownership structure. AFG and Purchaser believe that National Interstate’s competitive position will be improved as a result of delisting its Shares from the Nasdaq Stock Market (“Nasdaq”) and operating privately within Purchaser’s larger group of insurance companies. Furthermore, by simplifying National Interstate’s ownership structure such that Purchaser will own 100% of the common stock of National Interstate, National Interstate’s ability to benefit from the strong financial position, capital strength and risk diversification of Purchaser will be enhanced.

AFG initiated the Offer with a view to the following benefits:

Improvement of AFG’s Performance. AFG and Purchaser believe that the combination of AFG’s insurance operations, which include multiple lines and generate significantly greater gross written premiums than those of National Interstate, with those generated by National Interstate will have the potential to achieve efficiencies in the operation of the insurance companies. The successful completion of the Offer and subsequent Merger would increase AFG’s investment in core specialty insurance businesses where AFG already has significant expertise while at the same time further simplifying the organizational structure of those businesses. AFG’s management also believes that the successful completion of the Offer and subsequent Merger would be accretive to AFG’s earnings and enhance AFG’s return on equity. Additionally, the successful completion of the Offer and subsequent Merger would allow for easier movement of capital throughout all of AFG’s operations, which may facilitate the raising of capital by AFG in the future. AFG also believes that, after evaluating other opportunities, combining with National Interstate is the best use of certain excess capital and supports AFG’s strategic objectives.

Elimination of National Interstate as an Independent Reporting Company. The successful completion of the Offer and subsequent Merger would terminate National Interstate’s obligations to file reports and other information as a public company required under the Securities Exchange Act of 1934. The elimination of the burdens associated with public reporting and other tasks resulting from National Interstate’s public company status, including, for example, the dedication of time and resources of management and of the Board to meet the various requirements of being a public company will allow for increased management focus on the operations of the business. In addition, National Interstate’s expenses will decrease as a result of the elimination of costs associated with the filing of quarterly, annual or other periodic reports with the SEC, the listing of its Shares on Nasdaq and the publishing and distribution of financial information and proxy statements to its shareholders. The elimination of National Interstate’s status as a public company would also result in National Interstate no longer being required to comply separately with the requirements of the Sarbanes-Oxley Act of 2002 and Dodd-Frank Act of 2010.

Plans for National Interstate After the Offer. If the Offer is completed (without a waiver by Purchaser of the Minimum Tender Condition), Purchaser intends to cause the Merger to be effected, without the necessity of prior approval or notice of the shareholders of National Interstate, pursuant to which each then outstanding Share (other than Shares owned by Purchaser and Shares, if any, that are held by shareholders who validly perfect their dissenters’ rights under the ORC), would be

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converted into and represent the right to receive the Offer Price. The cash consideration to be paid in the Merger would be the same as paid in the Offer. Upon the completion of the Merger, Purchaser would directly own, and AFG would indirectly own, 100% of the common stock of National Interstate.

AFG and Purchaser intend that AFG’s investment adviser subsidiary would manage the a greater portion of the investment portfolio of National Interstate and its insurance company subsidiaries as opposed to the portion it currently manages. AFG and Purchaser believe that the consolidation of investment management may enable an enhanced return on such portfolios compared to what they currently earn.

Purchaser does not wish to sell any of its interests in National Interstate because Purchaser believes that National Interstate’s operations and business represent an important strategic component of Purchaser’s overall operations. For that reason, Purchaser does not view such a sale as a viable alternative to its proposed acquisition of the remaining Shares.

Having come to a determination to pursue the acquisition of the Shares, AFG and Purchaser considered transactional alternatives and determined to pursue a cash tender offer followed by a second step merger. In choosing a transaction involving a tender offer followed by a second step merger, AFG and Purchaser considered the following material factors:

AFG and Purchaser currently intend that following completion of the Offer, National Interstate’s business will continue to be run in a manner that is generally consistent with its current operations and does not currently contemplate making any significant changes in National Interstate’s strategic or operating philosophy or its business of underwriting and selling traditional and alternative property and casualty insurance products primarily to the passenger transportation, trucking and moving and storage industries, general commercial insurance to small businesses in Hawaii and Alaska and personal insurance to owners of recreational vehicles and commercial vehicles throughout the United States. National Interstate would proceed to operate as a separate company, 100% owned by Purchaser or an affiliate, much like AFG’s other wholly-owned subsidiaries. From time to time following the Offer, AFG and Purchaser will review National Interstate’s assets, corporate structure, capitalization, operations, properties, policies, management and personnel to determine whether any changes may be necessary or desirable to best organize and integrate the activities of Purchaser and National Interstate. Each of AFG and Purchaser expressly reserves the right to make any changes to its future plans that it deems necessary or appropriate in light of its review or future developments.

3. Position of National Interstate Regarding the Offer

As of the date of this Offer, National Interstate has not made any public recommendation with respect to the Offer or the Merger and neither AFG nor Purchaser knows whether a majority of National Interstate’s non-employee directors has retained an unaffiliated representative to act solely on behalf of the unaffiliated shareholders of National Interstate.

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• a tender offer followed by a second step merger is a common means of effecting a going-private transaction by a controlling shareholder;

• the unaffiliated shareholders of National Interstate would likely receive the consideration in payment for their Shares sooner in a tender offer than if AFG and Purchaser pursued a single-step merger transaction;

• shareholders who do not tender their Shares in the Offer or vote in favor a second step merger and who otherwise comply with applicable requirements may exercise dissenters’ rights in connection with the Merger pursuant to Section 1701.85 of the ORC; and

• for a controlling shareholder such as Purchaser that is seeking to acquire Shares from a large number of public shareholders, open-market or privately-negotiated purchases would be less efficient, more complex and more time consuming than a tender offer.




4. Position of AFG and Purchaser Regarding Fairness of the Offer

The rules of the SEC require AFG and Purchaser to express their belief as to the fairness of the Offer and the contemplated second-step Merger to National Interstate’s shareholders who are not affiliated with AFG. AFG and Purchaser have concluded that the Offer and the Merger are both financially and procedurally fair to National Interstate’s shareholders who are not affiliated with AFG and Purchaser (whether those shareholders tender their Shares in the Offer or decline to tender and elect instead to remain as shareholders of National Interstate until the Merger is effected). AFG and Purchaser based this conclusion on the following material factors:

Neither AFG nor Purchaser found it practicable to assign, nor did any of them assign, relative weights to the individual factors considered in reaching their conclusion as to fairness. AFG’s and Purchaser’s consideration of the factors described above reflects their assessment of the fairness of the Offer to National Interstate’s unaffiliated shareholders in relation to the going-concern value of National Interstate on a stand-alone basis. In reaching the conclusion as to fairness, neither AFG nor Purchaser considered the liquidation value of National Interstate because National Interstate is a viable going concern and Purchaser has no plans to liquidate National Interstate. Therefore, AFG and Purchaser believe that the liquidation value of National Interstate is irrelevant to a determination as to whether the Offer are fair to unaffiliated shareholders.

5. Presentations of Financial Advisors

Neither AFG nor Purchaser has received any report, opinion or appraisal from any outside party that is materially related to the Offer.

6. Financial Forecast

Neither AFG nor Purchaser engaged an advisor to prepare or review any financial forecast for National Interstate.

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• the Offer Price represents a premium of approximately 26.3% over the closing Share price of National Interstate common stock on February 4, 2014, the last day prior to the public announcement of the Offer, and a premium of approximately 20.3% over the average closing Share price of National Interstate common stock for the 30 trading days ending on that date;

• the Offer Price represents a 62% premium over the book value per share of $17.63 at September 30, 2013;

• the consideration to be paid in the Offer and the Merger is all cash, which provides certainty of value to National Interstate’s shareholders and provides them with the ability to invest the Offer proceeds as they choose;

• the belief that National Interstate’s common stock was not likely to trade at or above the $28.00 Offer Price in the near future. AFG’s and Purchaser’s boards of directors based this belief on a number of factors, including their directors’ knowledge and understanding of National Interstate and its industry and research analyst target prices;

• all of National Interstate’s shareholders, including those who elect not to tender their Shares in the Offer but whose Shares instead are acquired in the Merger, have an opportunity to be paid the Offer Price for their Shares;

• the Offer and the Merger will provide additional liquidity for National Interstate’s unaffiliated shareholders because they provide an alternative means whereby Shares may be sold that did not exist prior to the commencement of the Offer;

• shareholders who do not tender their Shares in the Offer will, in the event of a Second-Step Merger, be entitled, in connection with the Merger, to demand the appraisal of their Shares by following the procedures required by the ORC; and

• each of National Interstate’s shareholders will be able to decide voluntarily whether or not to tender Shares in the Offer and, if the Offer and the Merger are completed and any such shareholder has elected not to tender, the shareholder will be entitled to receive the same type and amount of consideration in the Merger that the shareholder would have received in the Offer.




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7. Effects of the Offer

Effects of the Offer if Purchaser Successfully Acquires at Least 90% of the Outstanding Shares (on a Fully Diluted Basis)

If following consummation of the Offer, Purchaser is successful in owning 90% of the Shares (on a fully diluted basis), Purchaser intends, as promptly as practicable, to cause the second step Merger of Purchaser and National Interstate in which all remaining shareholders (other than Purchaser and shareholders that validly exercise dissenters’ rights under the ORC) would, without the need for further action by such shareholder, receive the same price per Share as was paid in the Offer, without interest, and less any applicable withholding taxes. In connection with a Merger, non-tendering shareholders will have the right to demand appraisal of their Shares, whereby such shareholders may receive the “fair value” of their Shares, less any applicable withholding taxes, as determined by a court of competent jurisdiction, by following the procedures required by the ORC. See “Special Factors—Section 9. Dissenters’ Rights; Rule 13e-3.”

If Purchaser is successful in owning at least 90% of the Shares (on a fully diluted basis) following the Offer, Purchaser will have the ability to consummate a short-form merger of Purchaser (or an affiliate) with National Interstate in accordance with the applicable provisions of the ORC without the requirement of holding a meeting of shareholders. Purchaser may also choose to make open market purchases of Shares following the Offer in order to be able to complete the Merger as a short-form merger.

Effects of the Offer if Purchaser Waives the Minimum Tender Requirement and Purchases all Shares Tendered in the Offer

If Purchaser waives the Minimum Tender Condition and purchases all Shares validly tendered and not withdrawn in the Offer, Purchaser may thereafter:

If Purchaser waives the Minimum Tender Condition, purchases all Shares validly tendered and not withdrawn in the Offer and, following the Offer, owns two-thirds of the Shares (on a fully diluted basis), Purchaser would have sufficient voting power to approve a merger and amendments to the Articles of Incorporation (including eliminating cumulative voting), as well as having the voting power to approve amendments to the Regulations requiring a two-thirds shareholder vote (including changing the size, composition and classification of the board), without the need for approval of any other shareholder of National Interstate.

In addition, if Purchaser waives the Minimum Tender Condition, purchases all Shares validly tendered and not withdrawn in the Offer and, following the Offer, owns at least 80% of the Shares, National Interstate will become consolidated with AFG for federal income tax purposes. National Interstate is consolidated under US GAAP in the financial statements of AFG as a result of AFG’s 51.7% interest in National Interstate. AFG in its GAAP financial statements provides for a deferred tax liability on the excess of its GAAP basis in National Interstate over its tax basis in National Interstate. If AFG’s ownership in National Interstate equals or exceeds 80%, AFG will no longer be required to record or maintain deferred taxes on its interest in National Interstate. It may be

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• acquire additional Shares, either in purchases in the market or in privately negotiated transactions;

• seek an extraordinary corporate transaction, such as a reorganization or recapitalization, involving National Interstate;

• seek a change in the present board of directors or management of National Interstate, including any plans or proposals to change the number or term of directors;

• seek to change the dividend policy of National Interstate;

• Seek to amend the Articles of Incorporation or Code of Regulations of National Interstate;

• seek to cause the Shares to be delisted from Nasdaq;

• seek to terminate the registration of the Shares under the Securities Exchange Act of 1934, in which case National Interstate would no longer be required to file reports with the SEC; or

• pursue any action similar to any of those enumerated above.




possible for AFG to no longer record or maintain deferred taxes on its interest in National Interstate at an ownership amount of less than 80% if in AFG’s judgement it believes it could acquire at least 80% in the future.

If the Offer is not completed for any reason, Purchaser will review its options. These include continuing the status quo prior to the Offer, purchasing Shares in the open market or in privately negotiated transactions, making a new tender offer or seeking to negotiate a merger or other business combination with National Interstate. No assurance can be given as to the price per Share that may be paid in any such future acquisition of Shares, and such price may be higher or lower than or the same as the Offer Price.

Purchaser’s interest in National Interstate’s net book value and net earnings will increase to the extent of the number of Shares acquired under the Offer. If the Offer is completed, and the second step merger is completed, Purchaser’s indirect interest in such items will increase to 100%, National Interstate will be an indirect wholly-owned subsidiary of AFG, and AFG and Purchaser will be entitled to all benefits resulting from that interest, including all income generated by National Interstate’s operations and any future increase in National Interstate’s value. Based on National Interstate’s preliminary results for the fiscal year ended December 31, 2013 released on January 20, 2014 and assuming completion of the Merger as of December 31, 2013, this increase would result in Purchaser’s beneficial interest in National Interstate’s net book value and net income increasing by approximately $170 million and $9.3 million, respectively.

Similarly, Purchaser will also bear the risk of losses generated by National Interstate’s operations and any decrease in the value of National Interstate after the Merger. Detriments of the Merger to AFG and Purchaser are the risk that AFG and/or Purchaser will decrease in value following the Merger and the fact that Purchaser will incur certain transaction costs, fees and expenses relating to the Offer and the Merger

The benefit of the Merger to National Interstate’s former shareholders (other than former shareholders who perfect their dissenters’ rights under Ohio law) is the right to receive the Offer or Merger consideration for each Share of National Interstate common stock held by such shareholders. Such shareholders will additionally be able to dispose of their Shares without paying the usual transaction costs associated with open market sales and will no longer have to bear the risk of any future losses or decrease in National Interstate’s enterprise value.

The detriments of the Merger to former shareholders are that such former shareholders will not have the opportunity to participate in the earnings and growth of National Interstate after the Merger and will not have any right to vote on corporate matters, but such former shareholders will not face the risk of losses generated by National Interstate’s operations or a decline in the value of National Interstate after the Merger. Further, the receipt of the payment for their Shares will be a taxable transaction for federal income tax purposes.

The Shares are currently registered under the Exchange Act and listed on the Nasdaq under the symbol “NATL.” If the Offer is completed, as a result of the consummation of the Merger following the Offer, there will be no public market for the Shares. After the Merger, the Shares will cease to be listed on the Nasdaq, and prices with respect to sales of Shares in the public market will no longer be available. In addition, after the Merger, registration of the Shares under the Exchange Act will be terminated and National Interstate will no longer be required to file periodic reports with the SEC. See “The Offer—Section 12. Effect of the Offer on the Market for the Shares; Nasdaq Listing; Exchange Act Registration; Margin Regulations.”

8. Conduct of National Interstate’s Business if the Offer Is Not Completed

If the Offer is not completed for any reason, AFG and Purchaser will reevaluate the role of National Interstate within AFG’s overall corporate group. In particular, AFG and Purchaser may consider, among other things:

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• not taking any action at that time, including not purchasing any additional Shares;

• purchasing Shares in the open market or in privately negotiated transactions;

• making a new tender offer; and




If AFG and Purchaser were to pursue any of these alternatives, it might take considerably longer for the unaffiliated shareholders of National Interstate to receive any consideration for their Shares (other than through sales in the open market or otherwise) than if they had tendered their Shares in the Offer. Any such transaction could result in proceeds per Share to the public shareholders of National Interstate that are more or less than, or the same as, the Offer Price or could result in the trading price of the Shares to increase, decrease or be unchanged. Purchaser may also choose to keep outstanding the public minority interest in National Interstate, in which case the public shareholders of National Interstate would, absent a sale by them, retain their Shares and would have the opportunity to participate in the earnings and growth of National Interstate, but shareholders would also bear the risk of losses generated by National Interstate’s operations or a decline in the value of National Interstate.

9. Dissenters’ Rights; Rule 13e-3


Shareholders do not have dissenters’ rights as a result of the Offer.

Shareholders who will be entitled to dissenters’ rights in connection with the contemplated second-step Merger will receive additional information concerning dissenters’ rights and the procedures to be followed in order to exercise their dissenters’ rights before such shareholders have to take any action relating thereto.

Rule 13e-3

As Purchaser is an affiliate of National Interstate, the transactions contemplated in the Offer constitute a “going private” transaction under Rule 13e-3 under the Exchange Act. Rule 13e-3 requires, among other things, that certain financial information concerning National Interstate and certain information relating to the fairness of the Offer and the consideration offered to unaffiliated shareholders be filed with the SEC and disclosed to unaffiliated shareholders. Purchaser has provided such information in this Offer to Purchase and a Tender Offer Statement on Schedule TO and a Transaction Statement on Schedule 13E-3 and the exhibits thereto filed with the SEC pursuant to Rules 14d-3 and 13e-3 under the Exchange Act.

10. Transactions and Arrangements Concerning the Shares

Except as otherwise described in this Offer to Purchase, neither AFG nor Purchaser nor, to the best of their knowledge, any person listed in Schedule A hereto or any associate or majority-owned subsidiary of any of the foregoing, beneficially owns or has a right to acquire any Shares, has engaged in any transaction in Shares during the past 60 days or is a party to any agreement, arrangement or understanding with respect to the Shares or any other securities of National Interstate (including, without limitation, any contract, arrangement, understanding or relationship concerning the transfer or the voting of such securities, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies, consents or authorizations). In addition, neither AFG nor Purchaser has purchased any Shares within the past two years.

To Purchaser’s knowledge, no executive officers, directors or affiliates of National Interstate have made any public recommendation with respect to the Offer or the Merger.

11. Certain Relationships Between AFG, Purchaser and National Interstate

As of the date of this Offer to Purchase, AFG owns indirectly, and Purchaser owns directly, approximately 51.7% of the outstanding Shares of National Interstate common stock. As a result, Purchaser is able to control the vote on certain matters submitted to a vote of National Interstate’s

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• proposing a merger or other business combination with National Interstate, subject to compliance with applicable law.




shareholders. AFG and Purchaser are also parties to the following agreements with National Interstate and have the following other relationships with National Interstate.

Purchaser and National Interstate are parties to several agreements relating to reinsurance and underwriting. The terms of these agreements, as described below, were negotiated by Purchaser and National Interstate. Purchaser believes that the terms of these agreements are comparable to those that National Interstate could obtain from independent third parties. Additionally, Purchaser previously entered into an agreement with National Interstate and one of its directors, Alan Spachman, relating to registration rights and rights of first refusal to buy back Purchaser’s and Mr. Spachman’s Shares in certain circumstances.

Reinsurance, Underwriting and Other Arrangements. Purchaser and National Interstate are parties to an Underwriting Management Agreement pursuant to which National Interstate agreed to underwrite and service policies of insurance related to public commercial transportation and recreation vehicles for a fee. Under the terms of the agreement, National Interstate pays Purchaser a fee based on a percentage ranging from 1.5% to 3.0% of written premiums. The written premiums totaled approximately $2.4 million in 2012. During 2012, the fees National Interstate paid to Purchaser under this agreement were approximately $37,000. During 2013, the fees National Interstate paid to Purchaser under this agreement were approximately $28,000.

Purchaser participates in National Interstate’s excess of loss treaties for public transportation, truck and Hawaii general commercial business. In 2012, premiums and losses ceded to Purchaser under these treaties totaled $0.1 million and $1.1 million, respectively. In 2013, premiums and losses ceded to Purchaser under these treaties totaled $48,000 million and $1.9 million, respectively.

Purchaser, its affiliated insurance companies and National Interstate are also parties to a Reinsurance Agreement pursuant to which National Interstate assumes all of the risk and exposure on the polices National Interstate administers under the terms of the Underwriting Management Agreement. Pursuant to its terms, the Underwriting Management Agreement may be terminated without cause by either party from time to time and is terminable immediately (but not automatically) upon termination of the related reinsurance treaty or if National Interstate no longer employed Mr. Alan Spachman. To date, Purchaser has not exercised its right to terminate the Underwriting Management Agreement on the basis of Mr. Alan Spachman no longer being employed by National Interstate. Additionally, AFG or Purchaser perform certain services for National Interstate without charge including, without limitation, actuarial services and on a consultative basis internal audit, legal, accounting and other support services.

Effective October 1, 2012, American Money Management Corporation (“AMMC”), a wholly-owned subsidiary of AFG, entered into an agreement with National Interstate whereby AMMC manages a portion of National Interstate’s investment portfolio at an annual cost of 15 basis points of the portfolio’s fair value. AMMC’s management of this portion of National Interstate’s portfolio commenced during the fourth quarter of 2012, with fees accrued for such services approximating $0.2 million and $0.9 million at December 31, 2012 and December 31, 2013, respectively.

Registration Rights Agreement and Right of First Refusal. Upon the completion of National Interstate’s initial public offering, Purchaser entered into an agreement with National Interstate and Mr. Alan Spachman, pursuant to which Purchaser and Mr. Alan Spachman each received registration rights in exchange for National Interstate’s right of first refusal to buy back their Shares in connection with certain proposed sales of their Shares. National Interstate’s right of first refusal will be triggered by any gift, bequest, sale, exchange, transfer, assignment or other disposition of all or any portion of the Shares owned, whether beneficially or of record, by either Purchaser or Mr. Alan Spachman, other than the transfer of Shares (i) in a charitable gift or a bequest, without consideration, so long as the number of Shares transferred to one person or group of related persons as a result of such gift or bequest or series of related gifts or bequests is less than 10.0% of the Issuer’s total issued and outstanding common Shares immediately prior to such gift, (ii) pursuant to an underwriting agreement, a purchase agreement or similar arrangement to which Purchaser, National Interstate and/or Mr. Alan Spachman are party relating to an underwritten public offering of National Interstate’s Shares, (iii) in a public or privately negotiated sale, so long as, to the knowledge of the selling shareholder, each purchaser in such negotiated sale or series of negotiated

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sales, either alone or as a member of a group of related or affiliated purchasers, will not be the beneficial owner of 10.0% or more of National Interstate’s total issued and outstanding Shares immediately following such sale, (iv) pursuant to a tender offer or exchange offer which seeks to acquire at least two-thirds of National Interstate’s outstanding Shares or (v) to any trust or other entity, for financial planning or estate planning purposes, without consideration, the primary beneficiary of which is Mr. Alan Spachman or his lineal descendants.

12. Interests of Directors and Executive Officers in the Offer

In considering the fairness of the consideration to be received in the Offer, National Interstate’s shareholders should be aware that certain directors and executive officers of National Interstate have interests in the Offer which may present them with certain actual or potential conflicts of interest.

Two of the ten current members of National Interstate’s Board, Joseph E. (Jeff) Consolino and Vito C. Peraino, are executive officers of AFG, and two additional members, Gary J. Gruber and Donald D. Larson, are executive officers of the Purchaser. In addition, until February 2013, a fifth member of National Interstate’s Board, Keith A. Jensen, served as an executive officer of AFG.

Prior to National Interstate’s 2013 Annual Meeting of Shareholders (the “Annual Meeting”), certain members of the Board contacted Purchaser requesting information regarding the procedures under the Regulations for nominating a candidate for election as a director at the Annual Meeting and requesting a copy of the Regulations. After responding to National Interstate’s request, Purchaser received a letter stating Mr. Alan Spachman’s intent to nominate one candidate for election as a director at the Annual Meeting. Thereafter, Purchaser contacted National Interstate to inform the company in writing that the purported nomination was not in compliance with the Regulations. National Interstate subsequently submitted a revised nomination notice. During the time Purchaser submitted the preliminary proxy statement, a revised preliminary proxy statement and a definitive proxy statement relating to Purchaser’s solicitation of proxies in connection with the Annual Meeting, Purchaser did not receive any notice from Mr. Alan Spachman of his intent to solicit proxies in connection with the Annual Meeting. At the 2013 Annual Meeting, the Board recommended that its six nominees be elected. Mr. Alan Spachman along with certain other shareholders cumulated their votes and elected Mr. Michael Spachman as a director.

Each of Joseph E. (Jeff) Consolino, Gary J. Gruber, Donald D. Larson and Vito C. Peraino intend to tender any and all Shares they own in response to the Offer.

13. National Interstate’s Board of Directors

The current members of National Interstate’s Board and the board committees (the Board Committees”) upon which they serve are as follows:

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Messrs. Consolino, Gruber, Larson and Peraino are senior executive officers of AFG and/or Purchaser. Mr. Jensen served as an executive officer of AFG until February 2013. Mr. Michelson is National Interstate’s President and Chief Executive Officer. Mr. Alan R. Spachman is National Interstate’s founder and was President and Chief Executive Officer through 2007. Messrs. Schiavone, Schwegman and Michael A. Spachman are independent under Nasdaq listing rules. For a description of the backgrounds and qualifications of directors (other than Michael A. Spachman) and a description of the functions of the Board Committees, please see National Interstate’s Annual Meeting of Shareholders Proxy Statement dated April 16, 2013.

The normal practice of National Interstate’s Board and the Board Committees include conversations and contacts relating to, among other things, the make-up of the Board, its Board Committees and the leadership of the Board and its Board Committees. Such conversations typically take place over the several days before, the day of and several days after the Board and Board Committee meetings.

At a board meeting held on February 15, 2013, Mr. Schwegman was elected to the Board by the Board as an independent director and also named Chairman of the Audit Committee. Mr. Consolino became Chairman of the Board on February 15, 2013, replacing Alan R. Spachman, who served as Chairman of the Board from 2004 until February 15, 2013.

At National Interstate’s 2013 Annual Meeting of Shareholders held May 2, 2013, Alan R. Spachman nominated his son, Michael A. Spachman, for election as a director. Accordingly, there were seven nominees for election as Class I members of the Board, but only six nominees were to be elected. No other nominations of persons for election as directors were submitted to National Interstate pursuant to the advance notice provisions of the Regulations. The background of Mr. Spachman’s nomination follows:

On March 21, 2013, counsel to Mr. Alan Spachman contacted National Interstate requesting information regarding the procedures under the Regulations for nominating a candidate for election as a director at the Annual Meeting and a copy of the Regulations. On the same day, counsel to the company responded to this request.

On March 28, 2013, National Interstate received a letter from Mr. Alan Spachman stating his intention to nominate one candidate for election as a director at the Annual Meeting. In consultation with counsel, National Interstate determined that such purported nomination was not in compliance with the Regulations.

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Name Committee(s)

Joseph E. (Jeff) Consolino, Chairman of the Board Compensation

Gary J. Gruber Nominating and Corporate Governance (Chairman)Keith A. Jensen Compensation

Donald D. Larson Compensation (Chairman), Nominating and Corporate Governance

David W. Michelson —

Vito C. Peraino Compensation, Nominating and Corporate Governance

Joel Schiavone Audit, Compensation, Nominating and Corporate Governance

Donald W. Schwegman Audit (Chairman)

Alan R. Spachman CompensationMichael A. Spachman Audit





On the same day, Arthur J. Gonzales, Vice President, General Counsel and Secretary of National Interstate, at Mr. Consolino’s direction, provided to Mr. Alan Spachman in writing and telephonically a list of items that had to be remedied for Mr. Spachman’s nomination to be in compliance with the Regulations.

On March 30, 2013, Mr. Alan Spachman submitted a revised nomination notice, including the consent of Mr. Alan Spachman’s nominee (Michael A. Spachman) to serve if elected.

On April 2, 2013, National Interstate filed a preliminary proxy statement with the SEC, followed by the filing of a revised preliminary proxy statement on April 15, 2013 and a definitive proxy statement on April 16, 2013, relating to National Interstate’s solicitation of proxies in connection with the Annual Meeting. National Interstate did not receive any notice from Mr. Alan Spachman of his intent to solicit proxies in connection with the Annual Meeting.

National Interstate’s Board recommended that its six nominees (Messrs. Consolino, Elliott, Gruber, Larson, Michelson and Schwegman) be elected. Michael A. Spachman was elected a National Interstate director at the May 2, 2013 Annual Meeting; Theodore H. Elliott, Jr., nominated by National Interstate’s Board and Nominating and Corporate Governance Committee, did not receive sufficient votes to remain a director (he had served as a director since 1989). Michael A. Spachman was appointed to the Audit Committee at a Board meeting on May 2, 2013, following the Annual Meeting of Shareholders.

THE OFFER

1. Terms of the Offer

Upon the terms and subject to the conditions of the Offer, we will accept for payment and pay for all Shares validly tendered prior to the Expiration Date and not previously withdrawn in accordance with Section 4. “Expiration Date” means 12:00 midnight, Eastern Time, on March 6, 2014, unless extended, in which event Expiration Date means the latest time and date at which the Offer, as so extended, shall expire.

The Offer is subject to the conditions set forth in Section 14, which include, among other things, satisfaction of the Minimum Tender Condition. If any such condition is not satisfied, we may (i) terminate the Offer and return all tendered Shares to tendering shareholders, (ii) extend the Offer and, subject to withdrawal rights as set forth in Section 4, retain all such Shares until the expiration of the Offer as so extended, (iii) waive such condition and, subject to any requirement to extend the period of time during which the Offer is open, purchase all Shares validly tendered prior to the Expiration Date and not withdrawn or (iv) delay acceptance for payment or payment for Shares, subject to applicable law, until satisfaction or waiver of the conditions to the Offer.

Subject to any applicable rules and regulations of the SEC, we expressly reserve the right, but not the obligation, in our reasonable discretion, at any time and from time to time, to extend the period during which the Offer is open for any reason by giving oral or written notice of the extension to the Depositary and by making a public announcement of the extension. During any extension, all Shares previously tendered and not withdrawn will remain subject to the Offer and subject to the right of a tendering shareholder to withdraw Shares.

If we waive the Minimum Tender Condition or increase or decrease the consideration to be paid for Shares pursuant to the Offer and the Offer is scheduled to expire at any time before the expiration of a period of ten business days from, and including, the date that notice of such increase or decrease is first published, sent or given in the manner specified below, the Offer shall be extended until the expiration of such period of ten business days. If we make any other material change in the terms of or information concerning the Offer or waive a material condition of the Offer, we will extend the Offer, if required by applicable law, for a period sufficient to allow you to consider the amended terms of the Offer. In a published release, the SEC has stated that in its view

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an offer must remain open for a minimum period of time following a material change in the terms of such offer and that the waiver of a condition such as the Minimum Tender Condition is a material change in the terms of an offer. The release states that an offer should remain open for a minimum of five business days from the date the material change is first published, sent or given to shareholders, and that if material changes are made with respect to information that approaches the significance of price and share levels, a minimum of ten business days may be required to allow adequate dissemination and investor response.

“Business day” means any day other than Saturday, Sunday or a U.S. federal holiday and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time.

If we increase the consideration to be paid for Shares pursuant to the Offer, we will pay such increased consideration for all Shares that are purchased pursuant to the Offer.

If we extend the Offer, are delayed in accepting for payment of or paying for Shares or are unable to accept for payment or pay for Shares pursuant to the Offer for any reason, then, without prejudice to our rights under the Offer, the Depositary may retain all Shares tendered on our behalf, and such Shares may not be withdrawn except to the extent tendering shareholders are entitled to withdrawal rights as provided in Section 4. Our reservation of the right to delay acceptance for payment of or payment for Shares is subject to applicable law, which requires that we pay the consideration offered or return the Shares deposited by or on behalf of shareholders promptly after the termination or withdrawal of the Offer.

Any extension, delay, termination, waiver or amendment of the Offer will be followed as promptly as practicable by a public announcement thereof. Without limiting the manner in which we may choose to make any public announcement, we will have no obligation (except as otherwise required by applicable law) to publish, advertise or otherwise communicate any such public announcement other than by making a release to the Dow Jones News Service. In the case of an extension of the Offer, we will make a public announcement of such extension no later than 9:00 a.m., Eastern time, on the next business day after the previously scheduled Expiration Date.

After the expiration of the Offer, we may, in our sole discretion, but are not obligated to, include a subsequent offering period of at least three business days to permit additional tenders of Shares (a “Subsequent Offering Period”). A Subsequent Offering Period would be an additional period of time, following the expiration of the Offer and the purchase of Shares in the Offer, during which shareholders may tender Shares not tendered in the Offer. A Subsequent Offering Period, if one is provided, is not an extension of the Offer, which already will have been completed.

Pursuant to Rule 14d-11 under the Exchange Act, we may include a Subsequent Offering Period so long as, among other things, (i) the initial offering period of at least 20 business days has expired, (ii) the Offer is for all outstanding securities of the class that is the subject of the Offer, (iii) we immediately accept and promptly pay for all securities validly tendered during the Offer, (iv) we announce the results of the Offer, including the approximate number and percentage of Shares deposited in the Offer, no later than 9:00 a.m., Eastern time, on the next business day after the Expiration Date and immediately begin the Subsequent Offering Period and (v) we immediately accept and promptly pay for Shares as they are tendered during the Subsequent Offering Period. In addition, we may extend any initial Subsequent Offering Period by any period or periods.

We do not currently intend to include a Subsequent Offering Period, although we reserve the right to do so. If we elect to include or extend a Subsequent Offering Period, we will make a public announcement of such inclusion or extension no later than 9:00 a.m., Eastern time, on the next business day after the Expiration Date or date of termination of any prior Subsequent Offering Period.

No withdrawal rights apply to Shares tendered in a Subsequent Offering Period, and no withdrawal rights apply during a Subsequent Offering Period with respect to Shares previously tendered in the Offer and accepted for payment. The same price paid in the Offer will be paid to shareholders tendering Shares in a Subsequent Offering Period, if one is included.

We are making a request to National Interstate for its shareholder list and security position listings for the purpose of disseminating the Offer to holders of Shares. Upon compliance by

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National Interstate with this request, we will send this Offer to Purchase, the accompanying Letter of Transmittal and other related documents to record holders of Shares and to brokers, dealers, commercial banks, trust companies and other nominees whose names appear on the shareholder list or, if applicable, who are listed as participants in a clearing agency’s security position listing for subsequent transmittal to beneficial owners of Shares.

2. Acceptance for Payment and Payment for Shares

Upon the terms and subject to the conditions of the Offer (including, if we extend or amend the Offer, the terms and conditions of any such extension or amendment), we will accept for payment and pay for all Shares validly tendered before the Expiration Date and not withdrawn promptly after the Expiration Date. We expressly reserve the right, in our reasonable discretion, but subject to applicable laws, to delay acceptance for and thereby delay payment for Shares in order to comply with applicable laws or if any of the conditions referred to in Section 14 have not been satisfied or if any event specified in such section has occurred. Subject to any applicable rules and regulations of the SEC, including Rule 14e-1(c) under the Exchange Act, we reserve the right, in our reasonable discretion and subject to applicable law, to delay the acceptance for payment or payment for Shares until satisfaction of all conditions to the Offer. For a description of our right to terminate the Offer and not accept for payment or pay for Shares or to delay acceptance for payment or payment for Shares, see Section 14. If we increase the consideration to be paid for Shares pursuant to the Offer, we will pay such increased consideration for all Shares purchased pursuant to the Offer.

We will pay for your validly tendered and not properly withdrawn Shares accepted for payment pursuant to the Offer by depositing the purchase price with the Depositary. In all cases, payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) certificates for such Shares (or a confirmation of a book-entry transfer of such Shares into the Depositary’s account at the Book-Entry Transfer Facility (as defined in Section 3)), (ii) a properly completed and duly executed Letter of Transmittal (or a facsimile thereof) and (iii) any other required documents for such Shares. For a description of the procedure for tendering Shares pursuant to the Offer, see Section 3. Accordingly, payment may be made to tendering shareholders at different times if delivery of the Shares and other required documents occurs at different times. If there is a Subsequent Offering Period, Shares tendered during a Subsequent Offering Period will be immediately accepted for payment and paid for as they are tendered. Under no circumstances will we pay interest on the consideration paid for tendered Shares, regardless of any extension of or amendment to the Offer or any delay in making such payment.

For purposes of the Offer, we shall be deemed to have accepted for payment tendered Shares when, as and if we give oral or written notice of our acceptance to the Depositary.

If any tendered Shares are not accepted for payment pursuant to the Offer for any reason, or if certificates are submitted for more Shares than are tendered, certificates for such unpurchased or untendered Shares will be returned (or, in the case of Shares tendered by book-entry transfer, such Shares will be credited to an account maintained at the Book-Entry Transfer Facility), without expense to you, as promptly as practicable following the expiration or termination of the Offer.

3. Procedures for Accepting the Offer and Tendering Shares

Valid Tender of Shares. Except as set forth below, to tender Shares in the Offer, either (i) the Depositary must receive on or prior to the Expiration Date at one of its addresses set forth on the back cover of this Offer to Purchase (a) a Letter of Transmittal (or a facsimile thereof), properly completed and signed, together with any required signature guarantees, or an Agent’s Message (as defined below) in connection with a book-entry delivery of Shares, and any other documents that the Letter of Transmittal requires, and (b) certificates for the Shares to be tendered or confirmation of the book-entry transfer of such Shares into the Depositary’s account at the Book-Entry Transfer Facility or (ii) you must comply with the guaranteed delivery procedures set forth below.

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The method of delivery of Shares, the Letter of Transmittal and all other required documents, including delivery through the Book-Entry Transfer Facility, is at your sole option and risk, and delivery of your Shares will be deemed made only when actually received by the Depositary (including, in the case of a book-entry transfer, by book-entry confirmation). If certificates for Shares are sent by mail, we recommend registered mail with return receipt requested, properly insured, in time to be received on or prior to the Expiration Date. In all cases, sufficient time should be allowed to ensure delivery on or prior to the Expiration Date.

The valid tender of Shares pursuant to any one of the procedures described above will constitute your acceptance of the Offer, as well as your representation and warranty that (i) you own the Shares being tendered within the meaning of Rule 14e-4 under the Exchange Act, (ii) the tender of such Shares complies with Rule 14e-4 under the Exchange Act, (iii) you have the full power and authority to tender, sell, assign and transfer the Shares tendered as specified in the Letter of Transmittal and (iv) when the same are accepted for payment by Purchaser, Purchaser will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claims.

Our acceptance for payment of Shares tendered by you pursuant to the Offer will constitute a binding agreement between us with respect to such Shares, upon the terms and subject to the conditions of the Offer.

Book-Entry Transfer. The Depositary will establish an account with respect to the Shares for purposes of the Offer at The Depository Trust Company (the “Book-Entry Transfer Facility”) after the date of this Offer to Purchase. Any financial institution that is a participant in the Book-Entry Transfer Facility’s system may make book-entry transfer of Shares by causing the Book-Entry Transfer Facility to transfer such Shares into the Depositary’s account in accordance with the Book-Entry Transfer Facility’s procedures for such transfer. However, although delivery of Shares may be effected through book-entry transfer, the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, together with any required signature guarantees or an Agent’s Message and any other required documents must, in any case, be transmitted to, and received by, the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase by the Expiration Date, or the guaranteed delivery procedure described below must be complied with. Delivery of the Letter of Transmittal and any other required documents to the Book-Entry Transfer Facility does not constitute delivery to the Depositary.

The term “Agent’s Message” means a message, transmitted by the Book-Entry Transfer Facility to, and received by, the Depositary and forming a part of a book-entry confirmation stating that the Book-Entry Transfer Facility has received an express acknowledgment from the participant in the Book-Entry Transfer Facility tendering the Shares that such participant has received, and agrees to be bound by, the terms of the Letter of Transmittal and that we may enforce such agreement against such participant.

Signature Guarantees. No signature guarantee is required on the Letter of Transmittal (i) if the Letter of Transmittal is signed by the registered holder of the Shares tendered therewith and such registered holder has not completed the box entitled “Special Payment Instructions” on the Letter of Transmittal or (ii) if such Shares are tendered for the account of a financial institution (including most banks, savings and loan associations and brokerage houses) that is a participant in the Security Transfer Agents Medallion Program (STAMP) or any other “eligible guarantor institution” (as such term is defined in Rule 17Ad-15 under the Exchange Act) (each, an “Eligible Institution”). In all other cases, all signatures on Letters of Transmittal must be guaranteed by an Eligible Institution. See Instructions 1 and 5 to the Letter of Transmittal. If the certificates for Shares are registered in the name of a person other than the signer of the Letter of Transmittal, or if payment is to be made or certificates for Shares not tendered or not accepted for payment are to be returned to a person other than the registered holder of the certificates surrendered, then the tendered certificates must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name or names of the registered holders or owners appear on the certificates, with the signatures on the certificates or stock powers guaranteed as aforesaid. See Instructions 1 and 5 to the Letter of Transmittal.

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Guaranteed Delivery. If you wish to tender Shares pursuant to the Offer and cannot deliver such Shares and all other required documents to the Depositary by the Expiration Date or cannot complete the procedure for delivery by book-entry transfer on a timely basis, you may nevertheless tender such Shares if all of the following conditions are met:

The Notice of Guaranteed Delivery may be delivered by hand or transmitted by telegram, telex, facsimile transmission or mail to the Depositary and must include a guarantee by an Eligible Institution in the form set forth in such Notice of Guaranteed Delivery.

Backup Withholding. Under U.S. federal income tax laws, payments made pursuant to the Offer may be subject to backup withholding unless a tendering U.S. Holder (as defined in Section 5) (i) provides a correct taxpayer identification number (which, for an individual, is the holder’s social security number) and any other required information, or (ii) is a corporation or comes within certain other exempt categories and, when required, demonstrates this fact, and otherwise complies with applicable requirements of the backup withholding rules. A holder that does not provide a correct taxpayer identification number may be subject to penalties imposed by the Internal Revenue Service. To avoid backup withholding of U.S. federal income tax on payments made pursuant to the Offer, each eligible tendering U.S. Holder (as defined in Section 5) should complete and return the Substitute Form W- 9 included in the Letter of Transmittal. Eligible tendering Non-U.S. Holders (as defined in Section 5) should complete and submit IRS Form W-8BEN (or other applicable IRS Form W-8), which can be obtained from the Depositary or at http://www.irs.gov. For a more detailed discussion of backup withholding. See Section 5.

Appointment of Proxy. By properly completing and duly executing a Letter of Transmittal (or a facsimile thereof) or, in the case of a book-entry transfer, by delivery of an Agent’s Message in lieu of a Letter of Transmittal, you irrevocably appoint our designees as your attorneys-in-fact and proxies in the manner set forth in the Letter of Transmittal, each with full power of substitution, to the full extent of your rights with respect to the Shares tendered and accepted for payment by us (and any and all other Shares or other securities issued or issuable in respect of such Shares on or after the date of this Offer to Purchase). This proxy will be governed by and construed in accordance with the laws of the State of Ohio and applicable federal securities laws. All such proxies are irrevocable and coupled with an interest in the tendered Shares. Such appointment is effective only upon our acceptance for payment of such Shares. Upon such acceptance for payment, all prior powers of attorney, proxies and consents granted by you with respect to such Shares will, without further action, be revoked, and no subsequent powers of attorney, proxies or consents may be given (and, if previously given, will cease to be effective). Our designees will be empowered to exercise all your voting and other rights with respect to such Shares as they, in their sole discretion, may deem proper at any annual, special or adjourned meeting of National Interstate’s shareholders, or with respect to any actions by written consent in lieu of any such meeting or otherwise. We reserve the right to require that, in order for Shares to be deemed validly tendered, immediately upon our acceptance for payment of such Shares, we or our designee must be able to exercise full voting, consent and other rights with respect to such Shares (including voting at any meeting of National Interstate’s shareholders).

The foregoing proxies are effective only upon acceptance for payment of Shares pursuant to the Offer. The Offer does not constitute a solicitation of proxies or consents, absent a purchase of Shares, for any meeting of National Interstate’s shareholders.

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(i) such tender is made by or through an Eligible Institution;

(ii) a properly completed and duly executed notice of guaranteed delivery (“Notice of Guaranteed Delivery”) in the form provided by us is received by the Depositary, as provided below, by the Expiration Date; and

(iii) the certificates for such Shares (or a confirmation of a book-entry transfer of such Shares into the Depositary’s account at the Book-Entry Transfer Facility), together with a properly completed and duly executed Letter of Transmittal (or a facsimile thereof) together with any required signature guarantee or an Agent’s Message and any other required documents, are received by the Depositary within three Nasdaq trading days after the date of execution of the Notice of Guaranteed Delivery.




Determination of Validity. Our interpretation of the terms and conditions of the Offer (including the Letter of Transmittal and the instructions thereto) will be final and binding to the fullest extent permitted by law. All questions as to the form of documents and the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of Shares will be determined by us, in our reasonable discretion, which determination shall be final and binding. We reserve the absolute right to reject any and all tenders determined by us not to be in proper form or the acceptance of or payment for which may, in the opinion of our counsel, be unlawful. We also reserve the absolute right to waive any condition of the Offer to the extent permitted by applicable law or any defect or irregularity in the tender of any Shares of any particular shareholder, whether or not similar defects or irregularities are waived in the case of other shareholders. No tender of Shares will be deemed to have been validly made until all defects and irregularities have been cured or waived. None of Purchaser, AFG or any of their respective affiliates or assigns, the Depositary, the Information Agent or any other person will be under any duty to give any notification of any defects or irregularities in tenders or incur any liability for failure to give any such notification.

4. Withdrawal Rights

Except as otherwise provided in this Section 4, tenders of Shares are irrevocable. You may withdraw Shares that you have previously tendered pursuant to the Offer pursuant to the procedures set forth below at any time before the Expiration Date. Thereafter, such tenders are irrevocable, except that they may be withdrawn after March 7, 2013, unless such Shares have been accepted for payment as provided in this Offer to Purchase. If we extend the Offer, delay acceptance for payment or payment for Shares or are unable to accept for payment or pay for Shares pursuant to the Offer for any reason, then, without prejudice to our rights under the Offer, the Depositary may, on our behalf, retain all Shares tendered, and such Shares may not be withdrawn except as otherwise provided in this Section 4.

For your withdrawal to be effective, a written, telegraphic or facsimile transmission notice of withdrawal with respect to the Shares must be timely received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase, and the notice of withdrawal must specify (i) the name of the person who tendered the Shares to be withdrawn, and (ii) the number of Shares to be withdrawn and the name of the registered holder of Shares, if different from that of the person who tendered such Shares. If the certificates evidencing Shares to be withdrawn have been delivered to the Depositary, a signed notice of withdrawal with (except in the case of Shares tendered by an Eligible Institution) signatures guaranteed by an Eligible Institution must be submitted before the release of such Shares. In addition, such notice must specify, in the case of Shares tendered by delivery of certificates, the name of the registered holder (if different from that of the tendering shareholder) and the serial numbers shown on the particular certificates evidencing the Shares to be withdrawn or, in the case of Shares tendered by book-entry transfer, the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares.

Withdrawals may not be rescinded, and Shares withdrawn will thereafter be deemed not validly tendered. However, withdrawn Shares may be retendered by again following one of the procedures described in Section 3 at any time before the Expiration Date.

If we include a Subsequent Offering Period (as described in more detail in the Offer - Section 1) following the Offer, no withdrawal rights will apply to Shares tendered in such Subsequent Offering Period and no withdrawal rights apply during such Subsequent Offering Period with respect to Shares previously tendered in the Offer and accepted for payment.

We will determine, in our sole discretion, all questions as to the form and validity (including time of receipt) of any notice of withdrawal, and our determination shall be final and binding. We also reserve the absolute right to waive any defect or irregularity in the withdrawal of Shares by any shareholder, whether or not similar defects or irregularities are waived in the case of any shareholder. None of Purchaser, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defect or irregularity in any notice of withdrawal or

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waiver of any such defect or irregularity or incur any liability for failure to give any such notification.

5. Certain United States Federal Income Tax Consequences

The following is a general summary of certain U.S. federal income tax consequences to National Interstate’s shareholders whose Shares are tendered and accepted for payment pursuant to the Offer or the Merger. This summary does not purport to address all U.S. federal income tax matters that may be relevant to a particular shareholder, nor is it a complete analysis of all potential U.S. federal income tax consequences. This summary does not address any tax consequences arising under any state, local or foreign tax laws or U.S. federal estate or gift tax laws. This summary is based on current provisions of the Internal Revenue Code of 1986, as amended (the “Code”), existing, proposed and temporary regulations thereunder and administrative and judicial interpretations thereof in effect as of the date of this Offer, all of which are subject to change, possibly with retroactive effect, and any such change could affect the accuracy of the statements and conclusions set forth in this summary. No ruling has been or will be sought from the Internal Revenue Service (the “IRS”) with respect to the matters discussed below, and there can be no assurance that the IRS will agree with the views expressed herein or that a court will not sustain any challenge by the IRS in the event of litigation.

This discussion is limited to National Interstate’s shareholders who hold Shares as capital assets within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all U.S. federal income tax considerations that may be relevant to a shareholder’s particular circumstances. This discussion also does not address all U.S. federal income tax considerations that may be relevant to National Interstate’s shareholders that are subject to special tax rules, including, without limitation, expatriates and certain former citizens of the United States, U.S. Holders whose functional currency is not the U.S. dollar, partnerships and other pass-through entities, “controlled foreign corporations,” “passive foreign investment companies,” financial institutions, insurance companies, brokers, dealers or traders in securities, commodities or currencies, tax-exempt organizations, tax qualified retirement plans, persons liable for the alternative minimum tax and persons holding Shares as part of a hedge, straddle or other risk reduction strategy or as part of a hedging or conversion transaction or other integrated investment. Finally, this discussion does not address the U.S. federal income tax consequences to National Interstate shareholders who acquired their Shares through stock option or stock purchase plan programs or in other compensatory arrangements.

For purposes of this summary, a “U.S. Holder” means a beneficial owner of Shares that is, for U.S. federal income tax purposes (i) an individual who is a citizen or resident of the United States, (ii) a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States, any state thereof or the District of Columbia, (iii) an estate, the income of which is subject to U.S. federal income taxation regardless of its source or (iv) a trust if (a) a court within the United States is able to exerciseprimary supervision over its administration and one or more U.S. persons has the authority to control all of the substantial decisions of the trust or (b) it has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. For purposes of this summary, a “Non-U.S. Holder” is generally a beneficial owner of Shares (other than an entity or arrangement treated as a partnership for U.S. federal income tax purposes) that is not a U.S. Holder.

If a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) holds Shares, the tax treatment of its partners or members will generally depend upon the status of the partner and upon the activities of the partnership. Accordingly, partnerships or other entities treated as partnerships for U.S. federal income tax purposes that hold Shares, and partners or members of those entities, should consult their tax advisors.

You are urged to consult your own tax advisor to determine the tax consequences to you of participating in the Offer or the Merger in light of your particular circumstances (including the application and effect of any state, local or foreign income and other tax laws).

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U.S. Holders

Consequences of the Offer. The receipt of cash for Shares pursuant to the Offer or the Merger will be a taxable transaction for U.S. federal income tax purposes. In general, if you hold your Shares as capital assets you will recognize a capital gain or loss in an amount equal to the difference, if any, between the amount of cash received and your adjusted tax basis in the Shares. Gain or loss will be determined separately for each block of Shares (that is, Shares acquired at the same price in a single transaction) tendered in the Offer or the Merger. If you are a non-corporate U.S. Holder who has held the Shares for more than one year, any such capital gain will generally be subject to U.S. federal income tax at a maximum tax rate of 20%. In addition, certain non-corporate shareholders may be subject to an additional 3.8% tax on all or a portion of their “net investment income”, which may include all or a portion of the gain recognized in connection with the Offer or the Merger. In the case of Shares that have been held for one year or less, such gains will generally be subject to tax at ordinary income tax rates. The deductibility of capital losses is subject to limitations.

Information Reporting and Backup Withholding. Payments made to U.S. Holders pursuant to the Offer or the Merger will be subject to information reporting and may be subject to backup withholding (currently at a rate of 28%). To avoid backup withholding, U.S. Holders that do not otherwise establish an exemption should complete and return the Substitute Form W-9 included in the Letter of Transmittal, certifying that such U.S. Holder is a U.S. person, the taxpayer identification number provided is correct and such U.S. Holder is not subject to backup withholding. Certain holders (including corporations) generally are not subject to backup withholding. Backup withholding is not an additional tax. U.S. Holders may use amounts withheld as a credit against their U.S. federal income tax liability or may claim a refund of any excess amounts withheld by timely filing a claim for refund with the IRS.

Non-U.S. Holders

Consequences of the Offer. A Non-U.S. Holder generally will not be subject to U.S. federal income tax on gain realized upon the receipt of cash for Shares pursuant to the Offer or the Merger unless (i) the gain is effectively connected with the conduct of a trade or business by the Non-U.S. Holder in the United States or (ii) in the case of a Non-U.S. Holder that is an individual, such Non-U.S. Holder is present in the United States for 183 days or more in the taxable year of the disposition and certain other conditions exist.

Unless an applicable tax treaty provides otherwise, gains described in (i) above generally will be subject to U.S. federal income tax in the same manner as if the Non-U.S. Holder were a resident of the United States (and corporate Non-U.S. Holders may also be subject to a branch profits tax at a rate of 30% or such lower rate as may be specified by an applicable income tax treaty). Gains described in (ii) above will generally be subject to U.S. federal income tax at a flat rate of 30%, but may be offset by U.S. source capital losses.

Information Reporting and Backup Withholding. Payments made to Non-U.S. Holders pursuant to the Offer or the Merger may be subject to information reporting and backup withholding (currently at a rate of 28%). To avoid backup withholding, Non-U.S. Holders should provide the Depositary with a properly executed IRS Form W-8BEN (or other applicable IRS Form W-8) certifying such Non-U.S. Holder’s non-U.S. status or by otherwise establishing an exemption. Backup withholding is not an additional tax. Non-U.S. Holders may use amounts withheld as a credit against their U.S. federal income tax liability or may claim a refund of any excess amounts withheld by timely filing a claim for refund with the IRS.

6. Price Range of the Shares; Dividends

The Shares are listed on the Nasdaq under the symbol “NATL.” The following table sets forth, for each of the fiscal quarters indicated, the high and low sales prices per Share on the Nasdaq Stock Market.

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Common StockHigh Low

Year ended December 31, 2012

First Quarter $ 28.15 $ 21.86




On February 4, 2014, the last full trading day prior to the date of the commencement of the Offer, the closing sales price of National Interstate common stock on the Nasdaq Stock Market was $22.17 per Share. Shareholders are urged to obtain a current market price for National Interstate common stock.

The Board of National Interstate has declared and paid quarterly dividends of $0.11 and $0.10 per common Share in 2013 and 2012, respectively, as well as a one-time special dividend of $2.00 per common Share in the fourth quarter of 2012. If Purchaser acquires control of National Interstate, Purchaser currently intends that no dividends will be declared on the Shares prior to the acquisition of the entire equity interest in National Interstate.

7. Certain Information Concerning National Interstate

Except as specifically set forth herein, the information concerning National Interstate contained in this Offer to Purchase has been taken from or is based upon information furnished by National Interstate or its representatives or upon publicly available documents and records on file with the SEC and other public sources. The summary information set forth below is qualified in its entirety by reference to National Interstate’s public filings with the SEC (which may be obtained and inspected as described below) and should be considered in conjunction with the more comprehensive financial and other information in such reports and other publicly available information. We have no knowledge that would indicate that any statements contained herein based on such documents and records are untrue. However, we do not assume any responsibility for the accuracy or completeness of the information concerning National Interstate, whether furnished by National Interstate or contained in such documents and records, or for any failure by National Interstate to disclose events which may have occurred or which may affect the significance or accuracy of any such information but which are unknown to us.

National Interstate Corporation’s principal offices are located at 3250 Interstate Drive, Richfield, Ohio 44286-9000, and its telephone number at such address is (330) 659-8900. National Interstate operates as an insurance holding company group that underwrites and sells traditional and alternative property and casualty insurance products primarily to the passenger transportation, trucking and moving and storage industries, general commercial insurance to small businesses in Hawaii and Alaska and personal insurance to owners of recreational vehicles and commercial vehicles throughout the United States. National Interstate is an Ohio Corporation. At December 31, 2012 National Interstate employed 546 people.

The financial statements included in National Interstate’s Annual Report on Form 10-K for the years ended December 31, 2012 and 2011 and National Interstate’s Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2013, June 30, 2013 and September 30, 2013, are incorporated by reference into this Offer to Purchase. National Interstate’s book value per Share for the quarterly period ended September 30, 2013 is identified in Exhibit 99.1 to Current Report on Form 8-K filed on October 31, 2013 and is incorporated by reference into this Offer to Purchase.

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Second Quarter $ 26.66 $ 23.06Third Quarter $ 27.63 $ 23.15

Fourth Quarter $ 29.08 $ 24.82Year ended December 31, 2013

First Quarter $ 35.23 $ 28.80Second Quarter $ 32.05 $ 26.45

Third Quarter $ 36.36 $ 24.99

Fourth Quarter $ 30.76 $ 22.91From January 1, 2014

First Quarter

(through February 4, 2014) $ 24.42 $ 21.33




National Interstate does not include a ratio of earnings to fixed charges in regularly prepared financial statements. The reports have been filed with the SEC and may be inspected at, and copies thereof may be obtained from, the same places and in the same manner set forth under “Available Information” below.

Available Information

National Interstate’s common stock is registered under the Exchange Act. Accordingly, National Interstate is subject to the informational reporting requirements of the Exchange Act and, in accordance therewith, is required to file periodic reports, proxy statements and other information with the SEC relating to its business, financial condition and other matters. Information as of particular dates concerning National Interstate’s directors and officers, their remuneration, stock options granted to them, the principal holders of National Interstate’s securities and any material interest of such persons in transactions with National Interstate is required to be disclosed in proxy statements distributed to National Interstate’s Shareholders and filed with the SEC. Such reports, proxy statements and other information can be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. Information regarding the public reference facilities may be obtained from the SEC by telephoning 1-800-SEC-0330. National Interstate’s filings are also available to the public on the SEC’s website (http://www.sec.gov). Copies of such materials may also be obtained by mail from the Public Reference Section of the SEC at 100 F Street, N.E., Washington, D.C. 20549 at prescribed rates.

8. Certain Information Concerning AFG and Purchaser

American Financial Group, Inc. AFG is a holding company that, through subsidiaries, is engaged primarily in property and casualty insurance, focusing on specialized commercial products for businesses, and in the sale of fixed and fixed-index annuities in the individual, bank and education markets. AFG is an Ohio corporation. The principal offices of AFG are located at 301 East Fourth Street, Cincinnati, Ohio 45202, and its telephone number at such address is (513) 579-2121.

Great American Insurance Company. Purchaser is a direct wholly-owned subsidiary of AFG. Purchaser is an Ohio corporation. Purchaser’s specialty property and casualty insurance operations consist of approximately 30 niche insurance businesses offering a wide range of commercial coverages. These businesses report through Purchaser executives up to the President and chief operating officer and operate under a business model that allows local decision-making for underwriting, claims and policy servicing in each of the niche operations. These businesses are managed by experienced professionals in particular lines of business or customer groups and operate autonomously but with certain central controls and accountability. The principal offices of Purchaser are located at 301 East Fourth Street, Cincinnati, Ohio 45202, and its telephone number at such address is (513) 579-2121.

The name, citizenship, business address, business telephone number, current principal occupation (including the name, principal business and address of the organization in which such occupation is conducted) and material positions held during the past five years of each of the directors and executive officers of each of Purchaser and AFG is set forth in Schedule A to this Offer to Purchase.

Purchaser and AFG have made no arrangements in connection with the Offer to provide holders of Shares access to their corporate files or to obtain counsel or appraisal services at their expense. For a discussion of dissenters’ rights, see “Special Factors—Section 9. Dissenters’ Rights; Rule 13e-3.”

None of AFG, Purchaser or, to the knowledge of AFG or Purchaser after reasonable inquiry, any of the persons listed in Schedule A to this Offer to Purchase, has, during the past five years, (i) been convicted in a criminal proceeding or (ii) been a party to any judicial or administrative proceeding that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, U.S. federal or state securities laws, or a finding of any violation of U.S. federal or state securities laws.

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As of the date of this Offer to Purchase, Purchaser beneficially owns 10,200,00 Shares, representing approximately 51.7% of the outstanding Shares.

Except as set forth elsewhere in this Offer to Purchase or Schedule I to this Offer to Purchase: (i) none of AFG, Purchaser and, to AFG’s and Purchaser’s knowledge, the persons listed in Schedule A to this Offer to Purchase or any associate or majority owned subsidiary of AFG, Purchaser or of any of the persons so listed, beneficially owns or has a right to acquire any Shares or any other equity securities of National Interstate, (ii) none of AFG, Purchaser and, to AFG’s and Purchaser’s knowledge, the persons or entities referred to in clause (i) above has effected any transaction in the Shares during the past 60 days, (iii) none of AFG, Purchaser and, to AFG’s and Purchaser’s knowledge, the persons listed in Schedule A to this Offer to Purchase, has any contract, arrangement, understanding or relationship with any other person with respect to any securities of National Interstate (including, but not limited to, any contract, arrangement, understanding or relationship concerning the transfer or the voting of any such securities, joint ventures, loan or option arrangements, puts or calls, guaranties of loans, guaranties against loss or the giving or withholding of proxies, consents or authorizations), (iv) during the two years before the date of this Offer to Purchase, there have been no transactions between AFG, Purchaser, their subsidiaries or, to AFG’s and Purchaser’s knowledge, any of the persons listed in Schedule A to this Offer to Purchase, on the one hand, and National Interstate or any of its executive officers, directors or affiliates, on the other hand, that would require reporting under SEC rules and regulations, and (v) during the two years before the date of this Offer to Purchase, there have been no contacts, negotiations or transactions between AFG, Purchaser, their subsidiaries or, to AFG’s and Purchaser’s knowledge, any of the persons listed in Schedule A to this Offer to Purchase, on the one hand, and National Interstate or any of its subsidiaries or affiliates, on the other hand, concerning a merger, consolidation or acquisition, a tender offer or other acquisition of securities, an election of directors or a sale or other transfer of a material amount of assets.

We do not believe our financial condition or the financial condition of AFG is relevant to your decision whether to tender your Shares and accept the Offer because (i) the Offer is being made for all outstanding Shares solely for cash, (ii) consummation of the Offer is not conditioned upon any financing arrangements, (iii) if we consummate the Offer, we expect to acquire all remaining Shares for the same cash price in a merger or other business combination with National Interstate and (iv) AFG, together with its controlled affiliates, has, and will arrange for us to have, sufficient funds to purchase all outstanding Shares pursuant to the Offer and such merger or other business combination with National Interstate and to pay related fees and expenses.

9. Source and Amount of Funds

We will need approximately $267.0 million to consummate the Offer and to pay related fees and expenses. We anticipate that all of the funds necessary to consummate the Offer and to pay the related fees and expenses will consist of internally available cash of Purchaser, the contribution of available cash by AFG to Purchaser and the contribution to Purchaser of available borrowings under AFG’s existing credit facility.

AFG can borrow up to $500 million under its revolving credit facility which expires in December 2016. Currently, AFG has no borrowings under the credit facility. Amounts borrowed under the credit facility bear interest at rates ranging from 1.00% to 1.875% over LIBOR based on AFG’s credit rating.

A copy of AFG’s credit facility, as amended, is filed with the SEC as exhibits to AFG’s Current Report on Form 8-K filed on December 7, 2012.

10. Dividends and Distributions

If, on or after the date of this Offer to Purchase, National Interstate (i) splits, combines or otherwise changes the Shares or its capitalization, (ii) acquires Shares or otherwise causes a reduction in the number of Shares, (iii) issues or sells additional Shares, or any shares of any other class of capital stock, other voting securities or any securities convertible into or exchangeable for,

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or rights, warrants or options, conditional or otherwise, to acquire, any of the foregoing or (iv) discloses that it has taken such action, then, without prejudice to our rights under Section 11, we may make such adjustments in the Offer Price (and other terms of the Offer) as we deem appropriate to reflect such split, combination or other change, including the number or type of securities offered to be purchased.

If, on or after the date of this Offer to Purchase, National Interstate declares or pays any cash dividend on the Shares or other distribution on the Shares, or issues with respect to the Shares any additional Shares or Rights, shares of any other class of capital stock, other than voting securities or any securities convertible into, or rights, warrants or options, conditional or otherwise, to acquire, any of the foregoing, payable or distributable to National Interstate shareholders of record on a date prior to the transfer of the Shares purchased pursuant to the Offer to us or our nominee or transferee on National Interstate stock transfer records, then, subject to the provisions of Section 11, (i) the Offer Price may be reduced by the amount of any such cash dividends or cash distributions and (ii) the whole of any such non-cash dividend, distribution or issuance to be received by the tendering shareholders will (a) be received and held by the tendering shareholders for our account and will be required to be promptly remitted and transferred by each tendering shareholder to the Depositary for our account, accompanied by appropriate documentation of transfer or (b) at our direction, be exercised for our benefit, in which case the proceeds of such exercise will promptly be remitted to us. Pending such remittance and subject to applicable law, we will be entitled to all rights and privileges as owner of any such non-cash dividend, distribution, issuance or proceeds and may withhold the entire Offer Price or deduct from the Offer Price the amount or value thereof, as determined by us in our sole discretion.

11. Conditions to the Offer

Notwithstanding any other provision of this Offer to Purchase, we are not required to accept for payment or, subject to any applicable rules and regulations of the SEC (including Rule 14e-1(c) under the Exchange Act (relating to our obligation to pay for or return tendered Shares promptly after termination or expiration of the Offer)), pay for any Shares, and may terminate or amend the Offer, if before the Expiration Date the Minimum Tender Condition (if not waived by Purchaser in its sole and absolute discretion), or if, at any time on or after the date of this Offer to Purchase, and on or prior to the expiration of the Offer (or thereafter in relation to any condition dependent upon the receipt of government approvals), any of the following conditions exist:

(a) there shall have been threatened, instituted or be pending any litigation, suit, claim, action, proceeding or investigation before any supranational, national, state, provincial, municipal or local government, governmental, regulatory or administrative authority, agency, instrumentality or commission or any court, tribunal, or judicial or arbitral body (a “Governmental Authority”) (i) challenging or seeking to, or which, in the judgment of AFG or Purchaser, is reasonably likely to, make illegal, delay, or otherwise, directly or indirectly, restrain or prohibit or make more costly, or in which there are allegations of any violation of law, rule or regulation relating to, the making of or terms of the Offer or the provisions of this Offer to Purchase or the acceptance for payment of any or all of the Shares by AFG, Purchaser or any other affiliate of AFG, or seeking to obtain damages in connection with the Offer or the Merger, (ii) seeking to, or which in the judgment of Purchaser is reasonably likely to, prohibit or limit the full rights of ownership or operation by National Interstate, AFG or any of their affiliates of all or any of the business or assets of National Interstate, AFG or any of their affiliates or to compel National Interstate, AFG or any of their respective subsidiaries to dispose of or to hold separate all or any portion of the business or assets of National Interstate, AFG or any of their respective affiliates, (iii) seeking to, or which in the judgment of Purchaser is reasonably likely to, impose or confirm any voting, procedural, price or other requirements in addition to those required by federal securities laws and the ORC (as in effect on the date of this Offer to Purchase) in connection with the making of the Offer, the acceptance for payment of, or payment for, some or all of the Shares by Purchaser, AFG or any other affiliate of AFG or the consummation by Purchaser, AFG or any other affiliate of AFG of the Merger, including, without limitation, the right to vote any Shares acquired by Purchaser pursuant to the Offer or otherwise on all matters properly presented to National Interstate’s shareholders, (iv)

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seeking to require divestiture by AFG, Purchaser or any other affiliate of AFG of any Shares, (v) seeking, or which in the reasonable judgment of Purchaser is likely to result in, any material diminution in the benefits expected to be derived by Purchaser, AFG or any other affiliate of AFG as a result of the transactions contemplated by the Offer, the Merger or any other business combination with National Interstate, (vi) relating to the Offer which, in the reasonable judgment of Purchaser, might materially adversely affect National Interstate or any of its affiliates or Purchaser, AFG or any other affiliate of AFG or the value of the Shares or (vii) which in reasonable the judgment of Purchaser could otherwise prevent, adversely affect or materially delay consummation of the Offer, or the Merger;

(b) there shall have been action taken or any statute, rule, regulation, judgment, injunction, order, decree, legislation or interpretation enacted, promulgated, amended, issued, enforced or deemed, or which becomes, applicable to (i) AFG, National Interstate or any subsidiary or affiliate of AFG or National Interstate or (ii) the Offer, the acceptance for payment of or for the Shares, the Merger or any other business combination with National Interstate, by any U.S. or non-U.S. legislative body or Governmental Authority with appropriate jurisdiction, that in the reasonable judgment of Purchaser might result, directly or indirectly, in any of the consequences referred to in clauses (i) through (vii) of paragraph (a) above;

(c) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or in the over-the-counter market in the United States, (ii) in the reasonable judgment of Purchaser, a declaration of a banking moratorium or any suspension of payments in respect of banks by federal or state authorities in the United States, the European Union or elsewhere, (iii) any limitation (whether or not mandatory) by any governmental authority or agency on, or other event which, in the reasonable judgment of Purchaser, might materially adversely affect the extension of credit by banks or other lending institutions, (iv) commencement of a war, armed hostilities or the occurrence of any other national or international calamity directly or indirectly involving the United States or any attack on, or outbreak or act of terrorism involving, the United States, (v) in the reasonable judgment of Purchaser, a material adverse change (or development or threatened development involving a prospective material adverse change) in the United States dollar or any other currency exchange rates or a suspension of, or limitation on, the markets therefor, (vi) any change in the general political, market, economic or financial conditions in the United States, the European Union or elsewhere that could, in the reasonable judgment of Purchaser, have a material adverse effect on the business, properties, assets, liabilities, capitalization, shareholders’ equity, condition (financial or otherwise), operations, licenses, franchises, results of operations or prospects of AFG and its subsidiaries, taken as a whole, or National Interstate and any of its subsidiaries, taken as a whole, (vii) any decline in any of the Dow Jones Industrial Average, the Standard & Poor’s Index of 500 Industrial Companies or the Nasdaq-100 Index by an amount in excess of 15% measured from the business day immediately preceding the time of commencement of the Offer or any material adverse change in the market price in the Shares, (viii) in the reasonable judgment of Purchaser, the nationalization, insolvency or placement into receivership of, or provision of extraordinary assistance to, any major bank in the United States or European Union, or the taking of possession of any such bank by a governmental or regulatory authority, (ix) in the reasonable judgment of Purchaser, the default by any member of the European Union in payment of, or the inability of any such member to pay, any of its debts as they become due or the withdrawal (or announcement of an intent to withdraw) by any member of the European Monetary Union therefrom or any such member otherwise ceasing (or announcing its intent to cease) to maintain the Euro as its official currency, (x) in the reasonable judgment of Purchaser, any material adverse change in the market price of the Shares or in the United States or European securities or financial markets or (xi) in the case of any of the foregoing existing at the time of commencement of the Offer, a material acceleration or worsening thereof;

(d) any approval, permit, authorization, favorable review, clearance or consent of any Governmental Authority shall not have been obtained, on terms satisfactory to Purchaser in its reasonable judgment; or

(e) the Minimum Tender Condition shall not have been satisfied.

31




The foregoing conditions are for the benefit of AFG and Purchaser and may be waived by AFG and Purchaser in whole or in part at any time and from time to time in the sole discretion of AFG or Purchaser, in each case, subject to the applicable rules and regulations of the SEC. The determination as to whether any condition has been satisfied will be made in the exclusive judgment of AFG and Purchaser and will be final and binding. If Purchaser waives the Minimum Tender Condition, Purchaser will purchase all Shares tendered and not withdrawn in the Offer prior to the Expiration Date.

For purposes of determining whether the Minimum Tender Condition has been satisfied, AFG and Purchaser have the right to include or exclude for purposes of its determination thereof Shares tendered in the Offer pursuant to guaranteed delivery procedures. The failure by AFG or Purchaser at any time to exercise its rights under any of the foregoing conditions will not be deemed a waiver of any such rights and each such right will be deemed an ongoing right which may be asserted at any time or from time to time.

12. Effect of the Offer on the Market for the Shares; Nasdaq Listing; Exchange Act Registration; Margin Regulations

Market for the Shares. The purchase of Shares by Purchaser pursuant to the Offer will reduce the number of holders of Shares and the number of Shares that might otherwise trade publicly and, depending upon the number of Shares so purchased, could adversely affect the liquidity and market value of the remaining Shares held by the public. Purchaser cannot predict whether the reduction in the number of Shares that might otherwise trade publicly would have an adverse or beneficial effect on the market price for, or the marketability of, the Shares or whether it would cause future market prices to be greater or less than or the same as the Offer Price. Because if Purchaser is successful in owning at least 90% of the Shares (on a fully diluted basis) following the Offer Purchaser intends to complete the Merger promptly after it consummates the Offer, any such effect on the market for Shares will be temporary.

Stock Listing. The Shares are listed on the Nasdaq Stock Market on the Nasdaq’s Global Select Market. After completion of the Offer and depending upon the aggregate market value and the per Share price of any Shares not purchased pursuant to the Offer, the Shares may no longer meet the requirements for continued listing on Nasdaq. According to Nasdaq’s published guidelines, Nasdaq may delist the Shares if, among other things: (i) the number of total shareholders falls below 300; (ii) the number of the number of publicly held Shares (exclusive of holdings of directors and officers of National Interstate and their immediate families and other concentrated holdings of 10% or more) should fall below 500,000; (iii) the market value of such publicly held Shares falls below $1,000,000; or (iv) the bid price for a Share falls below $1.00. If as a result of the purchase of Shares pursuant to the Offer, the Shares no longer meet the requirements of Nasdaq for continued listing and the listing of the Shares is discontinued, the market for the Shares could be adversely affected.

If Nasdaq were to delist the Shares, it is possible that the Shares would continue to trade on other securities exchanges or in the over-the-counter market and that price quotations would be reported by such exchanges or other sources. The extent of the public market for the Shares and the availability of such quotations would depend, however, upon such factors as the number of shareholders and/or the aggregate market value of the publicly traded Shares remaining at such time, the interest in maintaining a market in the Shares on the part of securities firms, the possible termination of registration under the Exchange Act as described below, and other factors. Purchaser cannot predict whether the reduction in the number of Shares that might otherwise trade publicly would have an adverse or beneficial effect on the market price for, or the marketability of, the Shares or whether it would cause future market prices to be greater or lesser than the Offer Price.

If Purchaser is successful in owning at least 90% of the Shares (on a fully diluted basis) following the Offer, AFG and Purchaser intend to cause the Merger to be completed as soon as reasonably practicable. After the Merger is completed, there will be no public market for the Shares and no holders of the Shares other than a subsidiary of AFG, and the Shares will be delisted from Nasdaq.

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Exchange Act Registration. National Interstate’s common stock is currently registered under the Exchange Act. Registration of the common stock under the Exchange Act may be terminated upon application of National Interstate to the SEC, if the Shares are neither listed on a national securities exchange nor held by 300 or more holders of record. Termination of registration of the common stock under the Exchange Act would substantially reduce the information required to be furnished by National Interstate to its shareholders and to the SEC in respect of National Interstate’s common stock and would make certain provisions of the Exchange Act no longer applicable to National Interstate, such as the short-swing profit recovery provisions of Section 16(b) and the requirement of furnishing a proxy statement pursuant to Section 14(a) in connection with shareholders’ meetings and the related requirement of furnishing an annual report to shareholders. Furthermore, the ability of “affiliates” of National Interstate and persons holding “restricted securities” of National Interstate to dispose of such securities pursuant to Rule 144 or Rule 144A promulgated under the Securities Act may be impaired or eliminated. Purchaser currently intends to seek the delisting of National Interstate’s common stock from Nasdaq and to cause National Interstate to terminate the registration of the common stock under the Exchange Act as soon as practicable after consummation of a Merger if the requirements for such delisting and termination of registration are met.

Margin Regulations. The Shares are presently “margin securities” under the regulations of the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”), which status has the effect, among other things, of allowing brokers to extend credit on the collateral of the Shares. Depending upon factors similar to those described above regarding stock exchange listing and market quotations, it is possible that, following the Offer, the Shares would no longer constitute “margin securities” for the purposes of the margin regulations of the Federal Reserve Board and, therefore, could no longer be used as collateral for loans made by brokers. In addition, if registration of National Interstate’s common stock under the Exchange Act were terminated, the Shares would no longer constitute “margin securities.”

13. Certain Legal Matters; Regulatory Approvals

General. Neither AFG nor Purchaser is aware of (i) any license or regulatory permit that appears to be material to the business of National Interstate that might be adversely affected by the acquisition of Shares by AFG or Purchaser pursuant to the Offer, the Merger or otherwise, or (ii) except as discussed herein, any approval or other action by any Governmental Entity that would be required prior to the acquisition of Shares by Purchaser pursuant to the Offer, the Merger or otherwise. Should any such approval or other action be required, Purchaser and AFG presently contemplate that such approval or other action will be sought. There can be no assurance that any such approval or other action, if needed, would be obtained, or would be obtained without substantial conditions, or that failure to obtain any such approval or other action might not result in consequences materially adverse to National Interstate’s business in the event that such approvals were not obtained or such other actions were not taken. If certain types of adverse action are taken with respect to the matters discussed below, Purchaser could decline to accept for payment, or pay for, any Shares tendered. See “The Offer—Section 11. Conditions to the Offer” for certain conditions to the Offer, including conditions with respect to governmental actions.

State Anti-takeover Statutes. A number of states have adopted laws and regulations applicable to offers to acquire shares of corporations that are incorporated or have substantial assets, shareholders and/or a principal place of business in such states. National Interstate is incorporated under the laws of the State of Ohio. Section 1701.831 of the ORC (also known as the “control share acquisition law”) generally prohibits transactions in which a person obtains one-fifth or more but less than one-third of all the voting power of a corporation, one-third or more but less than a majority of all the voting power of a corporation, or a majority or more of all the voting power of a corporation, unless the shareholders approve the transaction at a special meeting, at which a quorum is present, by both the affirmative vote of a majority of the voting power of the corporation represented at the meeting and by the affirmative vote of a majority of the voting power of the corporation represented at the meeting excluding the voting power of “interested shares.” “Interested shares” are shares held by the acquiring person, an officer of the corporation elected or appointed by the directors of the corporation or an employee of the corporation who is also a director of such

33




corporation. A corporation may provide in its Articles of Incorporation or Code of Regulations that Section 1701.831 does not apply to control share acquisitions of its shares. National Interstate has not opted out of this statute.

Section 1704.02 of the ORC (also known as the “merger moratorium law”) prohibits any “Chapter 1704 transaction” for a period of three years from the date on which a shareholder first becomes an “interested shareholder” unless the directors of the corporation, before the shareholder became an interested shareholder, approved the Chapter 1704 transaction or the transaction pursuant to which the shareholder became an interested shareholder. A “Chapter 1704 transaction” is defined to include a variety of transactions such as mergers, consolidations, combinations or majority share acquisitions between an Ohio corporation and an interested shareholder or an affiliate of an interested shareholder. An “interested shareholder” is defined generally as any person who, directly or indirectly, beneficially owns 10% or more of the outstanding voting stock of the corporation. After the three-year period, a Chapter 1704 transaction is prohibited unless certain fair price provisions are complied with, the directors of the corporation approved the purchase of shares which made the shareholder an interested shareholder, or the shareholders of the corporation approve the transaction by the affirmative vote of two-thirds of the voting power of the corporation or such other percentage set forth in the articles of incorporation of the corporation, if any, provided that a majority of the disinterested shareholders approve the transaction. National Interstate has not opted out of this statute.

Because AFG (indirectly) and Purchaser (directly) already own a majority of all the voting power of National Interstate, AFG and Purchaser do not believe that Section 1701.831 of the ORC would prevent Purchaser from consummating the Offer or the Merger. Further, because AFG and Purchaser became interested shareholders in 1989, AFG and Purchaser do not believe that Section 1704.02 of the ORC would prevent Purchaser from consummating the Offer or the Merger.

National Interstate conducts business in a number of states throughout the United States, some of which have enacted takeover laws. AFG and Purchaser do not believe that the anti-takeover laws and regulations of any state will by their terms apply to the Offer or the Merger, and neither AFG nor Purchaser has attempted to comply with any state anti-takeover statute or regulation. AFG and Purchaser reserve the right to challenge the applicability or validity of any state law or regulation purporting to apply to the Offer or the Merger, and neither anything in this Offer to Purchase nor any action taken in connection herewith is intended as a waiver of such right. In the event it is asserted that one or more state takeover statutes is applicable to the Offer or the Merger and an appropriate court does not determine that such statute is inapplicable or invalid as applied to the Offer or the Merger, AFG or Purchaser might be required to file certain information with, or to receive approval from, the relevant state authorities, and Purchaser might be unable to accept for payment or pay for Shares tendered pursuant to the Offer, or be delayed in completing the Offer. In addition, if enjoined, Purchaser might be unable to accept for payment any Shares tendered pursuant to the Offer, or be delayed in continuing or completing the Offer and consummating the Merger. In such case, Purchaser may not be obligated to accept for payment any Shares tendered in the Offer. See “The Offer—Section 11. Conditions to the Offer.”

Antitrust. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), and the rules that have been promulgated thereunder by the Federal Trade Commission (the “FTC”), certain acquisition transactions may not be consummated unless certain information has been furnished to the Antitrust Division of the Department of Justice (the “DOJ”) and the FTC and certain waiting period requirements have been satisfied. As explained more fully below, however, the Offer is not a reportable transaction under the HSR Act.

AFG currently beneficially owns more than 50% of the outstanding voting securities of National Interstate. Under the HSR Act, this level of ownership means that AFG is in “control” of National Interstate for the purposes of such regulations. Based on the foregoing, AFG and Purchaser believe no HSR Act filing is required in connection with the Offer and the Merger.

Federal Reserve Board Regulations. Regulations T, U and X (the “Margin Regulations”) of the Federal Reserve Board restrict the extension or maintenance of credit for the purpose of buying or carrying margin stock, including the Shares, if the credit is secured directly or indirectly by margin

34




stock. AFG is funding the acquisition of the Shares from its internally available funds. The Margin Regulations are thus inapplicable to the Offer.

State Insurance Regulatory Approvals. Subsidiaries of AFG and National Interstate are regulated by state insurance regulators. Completion of the Offer and the Merger may be subject to certain requirements for prior notice to and/or approval by state insurance regulators applicable to transactions between a domestic insurance company and its affiliates (referred to as “Form A Notice”). Under the various state insurance laws a domestic insurer may not enter into certain specified transactions in excess of specified size thresholds with an affiliate unless the insurer has provided state insurance regulators thirty days’ prior notice and the transaction has not been disapproved during that time.

14. Fees and Expenses

AFG has retained Innisfree M&A Incorporated to serve as the Information Agent, and American Stock Transfer & Trust Company, LLC, to serve as the Depositary in connection with the Offer. The Information Agent may contact holders of Shares by personal interview, mail, telephone and other methods of electronic communication and may request brokers, dealers, commercial banks, trust companies and other nominees to forward the Offer materials to beneficial holders. Each of the Information Agent and the Depositary will receive reasonable and customary compensation for their services, be reimbursed for certain reasonable out-of-pocket expenses and be indemnified against certain liabilities in connection with their services, including certain liabilities and expenses under the federal securities laws.

Except as discussed above, neither AFG nor Purchaser will pay any fees or commissions to any broker or dealer or other person or entity in connection with the solicitation of tenders of Shares pursuant to the Offer. Brokers, dealers, banks and trust companies will be reimbursed by Purchaser for customary mailing and handling expenses incurred by them in forwarding the Offer materials to their customers.

The following is an estimate of fees and expenses to be incurred by AFG and Purchaser in connection with the Offer:

In addition, National Interstate will incur its own fees and expenses in connection with the Offer.

15. Miscellaneous

The Offer is being made solely by this Offer to Purchase and the related Letter of Transmittal and is being made to the holders of Shares other than AFG and its subsidiaries, including Purchaser. Purchaser is not aware of any state where the making of the Offer is prohibited by administrative or judicial action pursuant to any valid state statute. If Purchaser becomes aware of any valid state statute prohibiting the making of the Offer or the acceptance of the Shares pursuant thereto, Purchaser will make a good faith effort to comply with such statute or seek to have such statute declared inapplicable to the Offer. If, after such good faith effort, Purchaser cannot comply with such state statute, the Offer will not be made to (nor will tenders be accepted from or on behalf of) holders of Shares in such state.

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION ON BEHALF OF AFG OR PURCHASER NOT CONTAINED HEREIN OR IN THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. NO BROKER, DEALER, BANK, TRUST COMPANY, FIDUCIARY OR OTHER PERSON SHALL BE DEEMED TO BE THE AGENT OF AFG,

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Filing Fees $ 34,338

Paying Agent and Depositary Fees $ 50,000

Information Agent $ 60,000Legal, Printing and Mailing and other Miscellaneous Fees and Expenses $ 300,000

Total $ 444,338




PURCHASER, THE DEPOSITARY OR THE INFORMATION AGENT FOR THE PURPOSE OF THE OFFER.

Purchaser and AFG have filed with the SEC a Tender Offer Statement on Schedule TO and Transaction Statement on Schedule 13E-3 pursuant to Rules 14d-3 and 13e-3 under the Exchange Act, together with all exhibits thereto, furnishing certain additional information with respect to the Offer. Such Schedule TO and Schedule 13E-3 and any amendments thereto, including exhibits, should be available for inspection and copies should be obtainable in the same manner described in “The Offer—Section 7. Certain Information Concerning National Interstate—Available Information.”


February 5, 2014

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SCHEDULE A

INFORMATION CONCERNING DIRECTORS ANDEXECUTIVE OFFICERS OF AFG

1. Directors and Executive Officers of AFG. The following table sets forth the name and present principal occupation or employment, and material occupations, positions, offices or employments for the past five years, of each director and executive officer of AFG. Unless otherwise indicated, each such person is a U.S. citizen, the business address of each such person is c/o American Financial Group, Inc., Great American Insurance Group Tower, 18th Floor, 301 East Fourth Street, Cincinnati, Ohio 45202, and the telephone number of each such person is (513) 412-4802 and each such person has been engaged in AFG’s or its subsidiaries’ business actively and continuously for the past five years. Neither AFG nor any of the listed persons, during the past five years, has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction as a result of which such person was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting activities subject to, federal or state securities laws or finding any violation of such laws.

A-1



Carl H. Lindner III Co-Chief Executive Officer, Co-President and Director

Co-Chief Executive Officer since January 2005, and since 1996, Co-President. Until 2010, for over ten years, served as President, and since 2010, has served as Chairman of Great American Insurance Company, a subsidiary of the Company, and has been principally responsible for the Company’s property and casualty insurance operations.

S. Craig Lindner Co-Chief Executive Officer, Co-President and Director

Co-Chief Executive Officer since January 2005, and since 1996, Co-President. For more than ten years, President of Great American Financial Resources, Inc., a subsidiary of AFG, and has been principally responsible for the Company’s annuity operations. Until 2011, for over ten years, served as President of American Money Management Corporation (“AMMC”), a subsidiary of AFG that provides investment services for AFG and certain of its affiliated companies.

Kenneth C. Ambrecht Director Since December, 2005, Mr. Ambrecht has been a Principal of KCA Associates, LLC, an investment banking firm

John B. Berding President of American Money Management Corporation and Director

President of AMMC since January 2011. Prior to election as President, held a number of investment-related executive positions with AMMC and other AFG subsidiaries, most recently serving as Executive Vice President of AMMC since 2009.



Joseph E. (Jeff) Consolino Executive Vice President, Chief Financial Officer, and Director

Executive Vice President and Chief Financial Officer of the Company since February 2013. Also serves, since February 2013, as Chairman of the Board of National Interstate. Prior to joining the Company, served as president and chief financial officer of Validus Holdings, Ltd., a Bermuda-based property and




A-2

casualty reinsurance company. Prior to joining Validus in March 2006, served as a managing director in Merrill Lynch’s investment banking division.

Virginia “Gina” C. Drosos Director President of Assurex Health, a personalized medicine company specializing in pharmacogenomics for neuropsychiatric and other disorders

James E. Evans Executive Consultant and Director

Executive consultant to the Company. From 1994 through 2013, served as Senior Vice President of the Company and also served as General Counsel until March 2012 when elected Executive Counsel.

Terry S. Jacobs Director Chairman and Chief Executive Officer, JFP Group, LLC, a real estate development company, and Chairman Emeritus, Jamos Capital, LLC, a private equity firm specializing in alternative investment strategies

Gregory G. Joseph Director Executive Vice President and Principal, Joseph Automotive Group, an automobile dealership and real estate management company

William W. Verity Director President, Verity & Verity, LLC, an investment management company

John I. Von Lehman Director Retired Executive Vice President, Chief Financial Officer and Secretary, The Midland Company, an Ohio-based provider of specialty insurance products

Michelle A. Gillis Senior Vice President and Chief Administrative Officer

Senior Vice President since March 2013 and serves in such role in addition to serving as Chief Administrative Officer. Since March 2012, has served as Vice President and Chief Administrative Officer. Since joining the Company in 2004, has held various senior human resource management positions with Great American Insurance Company and AFG.

Vito C. Peraino Senior Vice President and General Counsel

Senior Vice President and General Counsel since March 2012. Previously served as Senior Vice President of Great American Insurance Company since 2002 and Assistant General Counsel of Great American Insurance Company since 2004. Also serves on the Board of National Interstate Corporation.




2. Directors and Executive Officers of Purchaser. The following table sets forth the name and present principal occupation or employment, and material occupations, positions, offices or employments for the past five years, of each director and executive officer of Purchaser. Purchaser considers that the persons having the following titles are executive officers: chief executive officer, president, chief operating officer, and executive vice president. Unless otherwise indicated, each such person is a U.S. citizen, the business address of each such person is c/o American Financial Group, Inc., Great American Insurance Group Tower, 18th Floor, 301 East Fourth Street, Cincinnati, Ohio 45202, and the telephone number of each such person is (513) 369-5000 and each such person has been engaged in Purchaser’s or its subsidiaries’ business actively and continuously for the past five years. Neither Purchaser nor any of the listed persons, during the past five years, has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction as a result of which such person was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting activities subject to, federal or state securities laws or finding any violation of such laws.

A-3


Carl H. Lindner III Chairman of the Board and Chief Executive Officer

Co-Chief Executive Officer of AFG since January 2005, and since 1996, Co-President of AFG. Until 2010, for over ten years, served as President, and since 2010, has served as Chairman of Purchaser.

Donald D. Larson Director, President, and Chief Operating Officer

Since 1973, has held various positions with Purchaser and its affiliates, currently serving as President and Chief Operating Officer of Purchaser.

Ronald J. Brichler Director and Executive Vice President


Gary J. Gruber Director and Executive Vice President


Vincent McLenaghan Executive Vice President

Executive Vice President since July 2012. From 1995-2011 held various positions with QBE Insurance Group, most recently as CEO, Australia Asia Pacific Division.

Aaron B. Latto Director, Senior Vice President, and Assistant General Counsel

Senior Vice President since March 2012. Previously Senior Divisional Vice President from 2010 to 2012. From 2000 to 2010, served in various capacities for Travelers Insurance (formerly St. Paul Insurance), including most recently as Vice President.

Michael D. Pierce Director and Senior Vice President

Since 1977, has held various positions with Purchaser and its affiliates, currently serving as Senior Vice President of Purchaser.

Eve Cutler Rosen Director, Senior Vice President, General Counsel, and Secretary

Since 1987, has held various positions with Purchaser and its affiliates, currently serving as Senior Vice President, General Counsel and Secretary of Purchaser.

Piyush K. Singh Director, Senior Vice President, and Chief Information Officer

Since 2006, has held various positions with Purchaser and its affiliates, currently serving as Senior Vice President and Chief Information Officer of Purchaser.


Michael E. Sullivan, Jr. Director and Senior Since 2006, has held various positions with Purchaser




A-4

Vice President and its affiliates, currently serving as Senior Vice President of Purchaser.

David J. Witzgall Director, Senior Vice President, and Chief Financial Officer

Since 2001, has held various positions with Purchaser and its affiliates, currently serving as Senior Vice President and Chief Financial Officer of Purchaser.




SCHEDULE B

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The following table sets forth, to the best knowledge of AFG and Purchaser, the current ownership of Shares by AFG and Purchaser and their respective directors and executive officers and by the directors and executive officers of National Interstate as of December 31, 2013. Such ownership information is based on data furnished by the persons named. Unless otherwise indicated, beneficial ownership of the equity securities held by each individual consists of sole voting power and sole investment power or of voting power and investment power that is shared with the individual’s spouse or family member.

B-1

Name Number of Shares(1) Percent

Great American Insurance Company 10,200,000 51.7 %

David W. Michelson (2) 233,580 1.3 %Julie A. McGraw (2) 41,238 *

Terry E. Phillips (2) 66,079 *

Gary N. Monda (2) 65,238 *Arthur J. Gonzales 24,000 *

Anthony J. Mercurio (2) 46,880 *

Joseph E. (Jeff) Consolino 9,479 *Gary J. Gruber 1,000 *

Keith A. Jensen 1,679 *

Donald D. Larson 1,000 *

Vito C. Peraino 1,000 *Joel Schiavone 59,475 *

Donald W. Schwegman — *

Alan R. Spachman 1,694,125 8.6 %Michael A. Spachman 83,715 *

* Less than 1%.

(1) Beneficial ownership is determined in accordance with Rule 13d-3 of the Securities Exchange Act and generally includes voting and investment power with respect to securities, subject to community property laws, where applicable. The table also includes the number of common shares that may be acquired pursuant to options that are currently exercisable or will be exercisable within 60 days of December 31, 2013.

(2) Includes shares of service—based restricted stock, in which the owners have sole voting power.




The Letter of Transmittal, Share Certificates and any other required documents should be sent or delivered by each shareholder of National Interstate or such shareholder’s broker, dealer, commercial bank, trust company or other nominee to the Depositary, at the applicable address set forth below:

The Depositary for the Offer is:American Stock Transfer & Trust Company, LLC

By Mail:American Stock Transfer & Trust Company, LLC


P.O. Box 2042New York, New York 10272-2042

By Hand or Overnight Courier:American Stock Transfer & Trust Company, LLC


6201 15th AvenueBrooklyn, New York 11219

Questions and requests for assistance may be directed to the Information Agent at its address and telephone number set forth below. Requests for additional copies of this Offer to Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery and other tender offer materials may be directed to the Information Agent. A shareholder may also contact such shareholder’s broker, dealer, commercial bank, trust company or other nominee for assistance.







Exhibit K


January 30, 2014

National Interstate Corporation Reports Preliminary 2013 Results

● Gross premiums written increased 14% for fourth quarter and 10% for the full year ● Fourth quarter estimated net income flat; operating income ahead of prior year fourth quarter● Fourth quarter combined ratio expected to range between 98% and 99%● Earnings conference call to be held on February 26, 2014

RICHFIELD, Ohio, Jan. 30, 2014 (GLOBE NEWSWIRE) -- National Interstate Corporation (Nasdaq:NATL) today reported gross premiums written and anticipated net income per share for the 2013 fourth quarter and full year. Gross premiums written increased 14% for the 2013 fourth quarter and 10% for the 2013 full year compared to the same 2012 periods reflecting growth in the alternative risk transfer (ART) and transportation components. The Company expects net income for the 2013 fourth quarter to improve compared to the 2013 third quarter and remain relatively flat compared to the fourth quarter of last year.

Gross Premiums Written

The table below summarizes gross premiums written by business component:

The Company has experienced top line growth throughout 2013 resulting in full year gross premiums written of $632 million which is an increase of 10% compared to last year. The ART, Transportation and Hawaii and Alaska components had growth for the 2013 full year while specialty personal lines was down as planned compared to 2012. During the third quarter of this year, the Company made the decision to discontinue its commercial vehicle product, which is included in the Specialty Personal Lines component, due to unacceptable historical underwriting results. Commercial vehicle gross premiums written were approximately $1 million and $10 million for the 2013 fourth quarter and full year, respectively.

Gross premiums written for the ART component grew 10% for the 2013 fourth quarter, bringing the 2013 annual growth to 3%. The ART component has experienced growth throughout the year from continued high customer retention in the group programs, increased exposures, improved rate levels, and the addition of new customers, particularly national accounts.

Three Months Ended December 31,

2013 2012

Amount Percent Amount Percent

(Dollars in thousands)

Alternative Risk Transfer $101,562 56.7% $91,925 58.6%

Transportation 62,630 34.9% 48,136 30.7%

Specialty Personal Lines 8,218 4.6% 11,353 7.2%

Hawaii and Alaska 4,176 2.3% 3,419 2.2%

Other 2,692 1.5% 2,008 1.3%

Gross premiums written $179,278 100.0% $156,841 100.0%

Year Ended December 31,

2013 2012

Amount Percent Amount Percent

(Dollars in thousands)

Alternative Risk Transfer $326,305 51.7% $316,114 55.2%

Transportation 228,139 36.1% 180,786 31.5%

Specialty Personal Lines 47,715 7.5% 51,026 8.9%

Hawaii and Alaska 20,096 3.2% 18,383 3.2%

Other 9,738 1.5% 7,161 1.2%

Gross premiums written $631,993 100.0% $573,470 100.0%


However, this growth has been partially offset by business that was not renewed in 2013 primarily for underwriting reasons including approximately $12 million that was written in the 2012 fourth quarter.

The Transportation component experienced significant growth both for the fourth quarter and full year. The Company has improved the rate adequacy for this component which has contributed to the growth. The majority of the 2013 fourth quarter and full year growth was attributable to new products or product extensions that were introduced throughout the year. Those products include waste operations, energy distributers, tow truck operators and excess liability coverages which are all trucking products, as well as home delivery which is an extension of our moving and storage insurance offerings.

Estimated Earnings per Share

The Company's net income per share, determined in accordance with U.S. generally accepted accounting principles (GAAP), includes after-tax net realized gains from investments that may not be indicative of our ongoing operations. The following table reconciles net income per share to net income per share from operations, a non-GAAP financial measure that we believe is a useful tool for investors and analysts in analyzing ongoing operating trends.

The Company anticipates net income for the fourth quarter of 2013 to be relatively consistent as compared to the same period in 2012 attributable to loss and loss adjustment expenses ("LAE") that remained elevated, offset by favorable underwriting expenses and improved net investment income. The Company expects to report a combined ratio between 98% and 99% for the 2013 fourth quarter which is comparable to the fourth quarter of last year and will have a modest favorable impact to the 2013 full year combined ratio.

Claims: The Company experienced unfavorable development from prior year claims during the 2013 fourth quarter which contributed to an elevated loss and LAE ratio for the quarter. The 2013 full year loss and LAE ratio was adversely impacted by unfavorable development from prior year claims as well as uncharacteristically high claims severity. Three large claims, which occurred during the 2013 second quarter, represent a part of the severe claim activity in accident year 2013, and were related to long-term insureds with historically favorable loss histories. The unfavorable development, from several accident years, added approximately 5 percentage points to the 2013 fourth quarter and approximately 4 percentage points to 2013 full year combined ratios, and was predominately in the commercial auto liability line of business with a portion related to business that is no longer in force. The Company continues to pay particular attention to the commercial auto liability line of business and is taking the necessary steps to restore our historically profitable underwriting results. Throughout 2013 the Company has improved pricing on renewed business which is evidenced by the high single and in some cases double digit rate increases that are occurring in most of the Company's commercial products. Additionally the Company has non-renewed or priced away over $60 million in unprofitable business, and priced new business at levels required to achieve improved combined ratios. These actions, which have driven lower claim frequencies, are expected to counter the increased loss severity and weak pricing environment that have eroded margins in recent years.

Underwriting Expenses: The expected underwriting expense ratios for both the 2013 fourth quarter and full year were improved compared to historical run rates primarily due to expenses growing at a slower rate than earned premium. In addition, a portion of the Company's compensation expense is variable and was lower than previous years as a result of the elevated 2013 full year loss and LAE ratio.

Investments: Investment income continued to improve throughout the year as a result of increasing invested assets, an uptick in fixed income yields, and strong equity markets. The Company expects to report investment income of approximately $9 million for the 2013 fourth quarter and $33 million for the 2013 full year. In addition, the Company achieved realized gains from investments in excess of $6 million for the second year in a row.

Three Months Ended December 31,

2013 Expected Range 2012

Net income from operations per share, diluted $0.38 $0.42 $0.31

After-tax net realized gains from investments per share, diluted 0.02 0.04 0.11

Net income per share, diluted $0.40 $0.46 $0.42

Year Ended December 31,

2013 Expected Range 2012

Net income from operations per share, diluted $0.65 $0.69 $1.54

After-tax net realized gains from investments per share, diluted 0.21 0.23 0.21

Net income per share, diluted $0.86 $0.92 $1.75


Investor Conference

The Company's management will make a presentation at the upcoming Bank of America Merrill Lynch 2014 Insurance Conference in New York City on February 13, 2014. The presentation may include forward-looking and other material information and will be available on the Company's website at http://invest.natl.com.

Earnings Conference Call

The Company will hold a conference call to discuss the 2013 fourth quarter and full year results on Wednesday, February 26, 2014 at 10:00 a.m. Eastern Time. There are two communication modes available to listen to the call. Telephone access to the conference call and Q and A session will be available by dialing (877) 837-3911. Please dial in 5 to 10 minutes prior to the scheduled starting time. The conference call will be broadcast live over the Internet. To listen to the call via the Internet, access our website at http://invest.natl.com and follow the instructions at the web cast link. The archived web cast will be available shortly after the call on our website.

Forward-Looking Statements

This document, including any information incorporated by reference, contains "forward-looking statements" (within the meaning of the Private Securities Litigation Reform Act of 1995). All statements, trend analyses and other information contained in this press release relative to markets for our products and trends in our operations or financial results, as well as other statements including words such as "may," "target," "anticipate," "believe," "plan," "estimate," "expect," "intend," "project," and other similar expressions, constitute forward-looking statements. We made these statements based on our plans and current analyses of our business and the insurance industry as a whole. We caution that these statements may and often do vary from actual results and the differences between these statements and actual results can be material. Factors that could contribute to these differences include, among other things: general economic conditions, any weaknesses in the financial markets and other factors, including prevailing interest rate levels and stock and credit market performance which may affect or continue to affect (among other things) our ability to sell our products and to collect amounts due to us, our ability to access capital resources and the costs associated with such access to capital and the market value of our investments; our ability to manage our growth strategy, customer response to new products and marketing initiatives; tax law and accounting changes; increasing competition in the sale of our insurance products and services and the retention of existing customers; changes in legal environment; regulatory changes or actions, including those relating to regulation of the sale, underwriting and pricing of insurance products and services and capital requirements; levels of natural catastrophes, terrorist events, incidents of war and other major losses; adequacy of insurance reserves; and availability of reinsurance and ability of reinsurers to pay their obligations. The forward-looking statements herein are made only as of the date of this document. The Company assumes no obligation to publicly update any forward-looking statements.

About National Interstate Corporation

Celebrating 25 Years

National Interstate Corporation (Nasdaq:NATL), founded in 1989, is the holding company for a specialty property-casualty insurance group which differentiates itself by offering products and services designed to meet the unique needs of niche markets. Products include insurance for passenger, truck, and moving and storage transportation companies, alternative risk transfer, or captive programs for commercial risks, specialty personal lines products focused primarily on recreational vehicle owners, and transportation and general commercial insurance in Hawaii and Alaska. The Company's insurance subsidiaries, including the three primary insurers, National Interstate Insurance Company, Vanliner Insurance Company and Triumphe Casualty Company, are rated "A" (Excellent) by A.M. Best Company. Headquartered in Richfield, Ohio, National Interstate is an independently operated subsidiary of Great American Insurance Company, a property-casualty subsidiary of American Financial Group, Inc. (NYSE:AFG) (Nasdaq:AFG).

CONTACT: Gary Monda

National Interstate Corporation

877-837-0339

[email protected]

www.natl.com


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Exhibit L


SC 14D9 1 d678359dsc14d9.htm SC 14D9

Table of Contents


WASHINGTON, DC 20549

SCHEDULE 14D-9 (RULE 14d-101)



Alan R. Spachman (Name of Persons Filing Statement)



Alan R. Spachman 1 Westbury Park Way, Suite 101 Bluffton, South Carolina 29910

(843) 757-3838 (Name, address and telephone number of person authorized to receive notices

and communications on behalf of the person filing statement)

With copies to:

Daniel A. NeffDavid M. Silk

Wachtell, Lipton, Rosen & Katz51 West 52nd Street

New York, NY 10019(212) 403-1000

Robert A. WeibleBaker & Hostetler LLP

1900 East 9th Street, Suite 3200Cleveland, Ohio 44114

(216) 621-0200


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TABLE OF CONTENTS

Page

Item 1. Subject Company Information 1Item 2. Identity and Background of Filing Person 1Item 3. Past Contacts, Transactions, Negotiations and Agreements 2Item 4. The Solicitation or Recommendation 2Item 5. Person/Assets, Retained, Employed, Compensated Or Used 8Item 6. Interest in Securities of the Subject Company 8Item 7. Purposes of the Transaction and Plans or Proposals 8Item 8. Additional Information 8Item 9. Exhibits 8

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Name and Address

The name of the subject company to which this Solicitation/Recommendation Statement on Schedule 14D-9 (this “Statement”) relates is National Interstate Corporation, an Ohio corporation (the “Company”). The address of the Company’s principal executive office is 3250 Interstate Drive, Richfield, Ohio 44286-9000. The Company’s telephone number at this address is (330) 659-8900.

Securities

This Statement relates to the common shares, $0.01 par value per share (the “Shares”), of the Company. Based solely on information set forth in the Company’s most recently filed Quarterly Report on Form 10-Q, there were 19,721,266 Shares issued and outstanding as of the close of business on October 30, 2013.

Name and Address

Alan R. Spachman is the person filing this Statement. Mr. Spachman’s business address is 1 Westbury Park Way, Suite 101, Bluffton, South Carolina 29910 and his telephone number at this address is (843) 757-3838.

Mr. Spachman has served as a director of the Company since 1989. Mr. Spachman is also the founder of the Company, served as the Company’s Chief Executive Officer from 1989 through 2007, and served as the Company’s Chairman from 2004 until February 15, 2013.

Mr. Spachman is also a shareholder of the Company. He has sole voting power and sole dispositive power with respect to 1,823,685 Shares (approximately 9.2% of the outstanding Shares based on available information). In addition, Mr. Spachman is the beneficiary, but not the trustee, of the Alan R. Spachman GRAT No. 4, which currently holds 147,229 Shares. Mr. Spachman does not have voting or dispositive power with respect to these 147,229 Shares.

Mr. Spachman is filing this Statement in his individual capacity. He is not filing this Statement on behalf of the Company.

Tender Offer

This Statement relates to the tender offer (the “Tender Offer”) by Great American Insurance Company ( “Purchaser”), an Ohio corporation and wholly-owned subsidiary of American Financial Group, Inc., an Ohio corporation (“Parent”), to purchase all the outstanding Shares of the Company, other than Shares owned by Purchaser, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated February 5, 2014 (as amended on February 18, 2014 and as it may be further amended or supplemented from time to time, the “Offer to Purchase”), and the related Letter of Transmittal. The Tender Offer is further described in a Tender Offer Statement on Schedule TO, which was originally filed by Purchaser and Parent with the U.S. Securities and Exchange Commission on February 5, 2014 (as amended on February 18, 2014 and as may be further amended or supplemented from time to time, the “Schedule TO”). Parent and Purchaser issued a press release on February 18, 2014 to increase the purchase price offered in the Tender Offer from the original price of $28 per Share (the “Original Offer Price”), to $30 per Share (the “Increased Offer Price”), in each case net to the seller in cash, without interest and less any applicable withholding of taxes.

1

Item 1. Subject Company Information.

Item 2. Identity and Background of Filing Person.

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According to the Schedule TO, the address of the principal executive office of Parent and Purchaser is 301 East Fourth Street, Cincinnati, Ohio 45202. Their telephone number at this address is (513) 579-2121.

Reference is made to the information provided in Item 2 of this Statement regarding the nature of Mr. Spachman’s relationship with the Company. As indicated in Item 2, Mr. Spachman is a director of the Company. As a director, Mr. Spachman receives the compensation and benefits disclosed in the Company’s prior proxy statements and participates in the ordinary course in the Board’s activities, including with respect to its response to the Tender Offer as described in more detail in Item 4 below.

As previously disclosed by the Company, upon the completion of its initial public offering, the Company entered into an agreement with Purchaser and Mr. Spachman, pursuant to which the Company granted each of them registration rights in exchange for a right of first refusal to buy back their Shares in connection with certain proposed sales of their Shares. The Company’s right of first refusal will be triggered by any gift, bequest, sale, exchange, transfer, assignment or other disposition of all or any portion of the Shares owned, whether beneficially or of record, by either of Mr. Spachman or Purchaser, other than the transfer of Shares (1) in a charitable gift or a bequest, without consideration, so long as the number of Shares transferred to one person or group of related persons as a result of such gift or bequest or series of related gifts or bequests is less than 10.0% of the Company’s total issued and outstanding Shares immediately prior to such gift, (2) pursuant to an underwriting agreement, a purchase agreement or similar arrangement to which the Company, Purchaser and/or Mr. Spachman are party relating to an underwritten public offering of the Shares, (3) in a public or privately negotiated sale, so long as, to the knowledge of the selling shareholder, each purchaser in such negotiated sale or series of negotiated sales, either alone or as a member of a group of related or affiliated purchasers, will not be the beneficial owner of 10.0% or more of the Company’s total issued and outstanding Shares immediately following such sale, (4) pursuant to a tender offer or exchange offer which seeks to acquire at least two-thirds of the Company’s outstanding Shares, or pursuant to a merger or consolidation of the Company into or with another corporation or other entity or a reclassification of the Company’s securities or (5) to any trust or other entity, for financial planning or estate planning purposes, without consideration, the primary beneficiary of which is Mr. Spachman or his lineal descendants.

Introduction

As described in more detail below, Mr. Spachman believes that the Tender Offer is a brazen attempt by a majority shareholder to force minority shareholders of the Company to sell their Shares at a price that is unfairly low, pursuant to a flawed process orchestrated by the majority shareholder, on terms which are designed to be extremely coercive and with inadequate disclosure to the public holders of Shares.

The Tender Offer is being made by Purchaser, which is a wholly owned subsidiary of Parent. Purchaser currently owns approximately 51.7% of the outstanding Shares of the Company, and Purchaser and Parent have averred that the Tender Offer is being made as a first step in acquiring all of the Shares of the Company. Pursuant to Ohio corporation law, the vote of two-thirds of the outstanding Shares is required for major corporate matters such as shareholder approval of a merger or a sale of substantially all assets, amendment of the articles of incorporation and amendment of regulations relating to the calling and conduct of shareholder meetings and the size, composition and classification of the board of directors of the Company (the “Board”). Therefore, the Purchaser seeks by the Tender Offer to acquire Shares which would ultimately result in its obtaining control of the Company, a position which, in Mr. Spachman’s view, it has not heretofore achieved.

2

Item 3. Past Contacts, Transactions, Negotiations and Agreements.

Item 4. The Solicitation or Recommendation.

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Purchaser currently owns a sufficient number of Shares to ensure that a majority of the members of the Board are directors chosen by Purchaser. Although Purchaser’s shareholdings are sufficient to elect a majority of the Board, Ohio corporation law provides for mandatory cumulative voting unless the contrary is specifically provided for in the articles of incorporation. Therefore, absent an amendment of the articles of incorporation (which amendment would require a two-thirds vote of the outstanding Shares), Purchaser cannot be assured of controlling the election of all the directors on the Board, notwithstanding Purchaser’s current majority ownership of the Company. However, Purchaser has used its majority voting power to ensure that a majority of the ten-person Board consists of persons who are or were recently executive officers of Parent or Purchaser and the Company’s Chief Executive Officer (these six directors, the “Conflicted Directors”). The six Conflicted Directors have refused to recuse themselves from the Board’s deliberations concerning the Tender Offer, have prevented the Board from forming a special committee of the four independent directors for purposes of evaluating and negotiating the Tender Offer on behalf of the Company’s public shareholders and of making a recommendation to such public shareholders, and have denied the repeated requests of the independent directors to authorize the independent directors to retain, at the Company’s expense, their own independent counsel and financial advisors. In addition, Mr. Spachman believes that the Conflicted Directors have provided to Purchaser confidential information prepared by the Board’s financial advisor, thus using that information directly against the interests of the public shareholders.

The Conflicted Directors selected a nationally-recognized financial advisor (the “Financial Advisor”) to provide an opinion with respect to the fairness of the Original Offer Price of $28 per Share in connection with the Tender Offer. On the evening of February 15, 2014, the Financial Advisor expressed its intention to opine that the Original Offer Price was not fair, from a financial point of view, to the public shareholders of the Company. The Financial Advisor’s executive summary, as provided to the Board, included a conclusion regarding a per-Share value range, and the Original Offer Price was below the bottom end of this range. In the course of a Board meeting on February 17, 2014 purportedly called to determine the recommendation the Board should make to the Company’s shareholders concerning the Tender Offer, Joseph Consolino, the Chairman of the Company’s Board and the Chief Financial Officer of Parent, after reviewing that executive summary, indicated to the independent directors, on behalf of Parent and Purchaser, that Purchaser would increase its offer from $28 to $30, contingent upon a vote of neutrality by the Board with respect to the Tender Offer (as opposed to a vote to recommend that shareholders not tender into the Tender Offer). Shortly thereafter the contingency was removed. The independent directors did not agree to support or remain neutral on an increased offer price of $30 per share.

Following adjournment of the Board meeting on February 17th, David Michelson, the Company’s Chief Executive Officer, and Arthur Gonzales, the Company’s Vice President, General Counsel and Secretary, asked whether the Financial Advisor could provide an opinion with respect to the fairness of the Tender Offer at the Increased Offer Price of $30 per Share. The Financial Advisor declined any further participation in the process, noting that it had conducted an internal review of the possibility of further participation in advance of that request. Notwithstanding these circumstances, at a meeting on February 18th, the Conflicted Directors caused the Board to vote six to four (with the independent directors voting against) to remain neutral on the Tender Offer. Mr. Consolino adjourned the meeting abruptly based on the votes of the Conflicted Directors approximately four minutes after the meeting had begun, before the independent directors could make any proposal or even vote on the adjournment, and denied a request for further discussion.

The Tender Offer has been designed to be extremely coercive. Specifically, the announcement of the Increased Offer Price by Purchaser stated that the Increased Offer Price is its “best and final price” and that “no further increase to the offer price will be made,” and Purchaser specifically noted in such brief announcement the fact that Purchaser’s “minimum tender”condition of 90% of the outstanding Shares is waivable by Purchaser. Purchaser has made clear that if it waives the minimum tender condition and acquires two-thirds of the Shares, it will have complete control of the Company, including the power to approve a squeeze-out merger without any further approvals from any other shareholder. Further, the Tender Offer is scheduled to expire on March 6, 2014, a mere eleven business days from now.

3

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Recommendation

Mr. Spachman recommends that shareholders of the Company not tender their Shares. In his capacity as a director of the Company, Mr. Spachman has, along with all of the other independent directors of the Company, voted against the Board’s decision to remain neutral toward the Tender Offer.

Reasons

The reasons why Mr. Spachman is recommending that shareholders not tender their Shares and has dissented from the Board’s decision to remain neutral are as set forth above and as follows:

Unfair Offer Price

4

• Based on his experience with the Company and its business since he founded the Company in 1989 and his knowledge of the Company’s operations, financial performance and variations in the Company’s Share price, Mr. Spachman does not believe the Increased Offer Price reflects the fair value of the Shares. In this regard, Mr. Spachman notes that the Shares traded above the Increased Offer Price for a significant portion of 2013.

• Mr. Spachman also notes that the Financial Advisor, who was selected by the Conflicted Directors, provided a draft opinion to the Company on the evening of February 15, 2014, to the effect that the Original Offer Price was not fair, from a financial point of view, to the public shareholders of the Company. The Financial Advisor’s executive summary, as provided to the Company’s Board, included a conclusion regarding a per-Share value range, and the Original Offer Price was below the bottom end of this range. As discussed above, the Financial Advisor was asked to provide an opinion with respect to the fairness of the Tender Offer at the Increased Offer Price of $30 per Share, but declined any further participation in the process.

• Mr. Spachman also believes that the Tender Offer was opportunistically timed to take advantage of the Shares trading near their 52-week low price. The closing Share price on the day prior to the commencement of the Tender Offer was $22.17, only slightly higher than the 52-week low closing price of $21.82 on January 8, 2014. The 52-week high closing price was $35.68 on July 17, 2013. Furthermore, Mr. Spachman believes the Share price prior to the commencement of the Tender Offer was influenced by the actions of Parent and Purchaser.

• In particular, Mr. Spachman notes that the Share price was negatively affected by reserve increases made by the Company during 2013. For many years, Purchaser has provided actuarial services for the Company. As part of these services, Purchaser has reviewed the adequacy of the Company’s loss reserves. Until 2013, Purchaser opined on the adequacy of the Company’s loss reserves only after the Company had closed its books for each financial quarter. In 2013, however, Purchaser’s actuaries began to recommend significant changes to the Company’s loss reserves for the prior quarter before the Company announced its financial results for that quarter. This new process was

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Flawed Process Controlled by Parent and Purchaser

5

implemented by management without advance review by, or knowledge of, the Company’s full Board or Audit Committee. As a result of this new process, loss reserve deficiencies were reported, and reserves increased, in the second, third and fourth quarters of 2013. Following release of the Company’s 2013 second quarter earnings on July 29, 2013, which was the first time the Company’s results were impacted by reserve increases resulting from this new process, the Share price declined by approximately 18%.

• The Share price immediately prior to the commencement of the Tender Offer was also negatively affected by the early release by the Company of preliminary fourth quarter and full-year 2013 earnings (which included additional reserve increases) on January 30, 2014. The acceleration of the release of the Company’s preliminary year-end results was a departure from the Company’s historical practice. The Tender Offer was commenced three trading days following this accelerated release. During those three trading days, the Company’s stock price declined by approximately 5%.

• Mr. Spachman believes that Parent and Purchaser, together with the Conflicted Directors, have orchestrated a flawed process designed to deny shareholders a fair price for their Shares.

• At the Board meeting held on February 7, 2014, and on a number of occasions thereafter, the independent directors, including Mr. Spachman, requested that the Board form an independent special committee to evaluate and negotiate the Tender Offer on behalf of the Company’s public shareholders and to make a recommendation to such public shareholders. Despite the ubiquitous use of such committees to protect the interests of minority shareholders in similar situations, the request was denied by the Conflicted Directors. The independent directors then requested that they be authorized to retain, at the Company’s expense, their own independent legal and financial advisors, which request was also ultimately denied. Mr. Spachman has also repeated these requests a number of times without success, and has been rebuffed in his attempts to meet individually with representatives of the Board’s Financial Advisor and legal counsel to share his views and seek advice in his capacity as a member of the Board.

• Mr. Spachman has also objected on multiple occasions to the efforts of Mr. Consolino, the Company’s Chairman of the Board but also the Chief Financial Officer of Parent, and the other Conflicted Directors to control the process of advising the Company’s public shareholders concerning the Tender Offer and actively undermine the possibility of meaningful independent review of the Tender Offer. The view that the Conflicted Directors, four of whom are current executive officers of Parent or Purchaser and one of whom is the Company’s Chief Executive Officer (who serves at the pleasure of the Purchaser-controlled Board), could fairly represent the interests of the Company’s unaffiliated shareholders is simply not tenable.

• Mr. Spachman requested that the Board’s legal counsel address in writing the manner in which the Board’s approach in responding to the Tender Offer complied with the requirements of the Company’s Code of Ethics and Conduct (the “Code”) and any relevant disclosure requirements. In making that request, Mr. Spachman noted that the Code specifically states that: “Directors, officers and employees must act with honesty and integrity and must also avoid apparent conflicts of interest that may occur where a reasonable observer might assume there is a conflict of interest and, therefore, a loss of objectivity in their dealings on the Company’s behalf” and that “[w]here potential conflicts of interest arise, Directors, officers and employees must provide full disclosure of the circumstances and refrain from any related decision making process.” The requested written response was never received.

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Inherently Coercive Structure

6

• The response of the Conflicted Directors to the opinion of the Financial Advisor to the effect that the Original Offer Price was not fair, from a financial point of view, to the public shareholders of the Company is a stark demonstration of this conflicted process. The Financial Advisor was retained on the authorization of the Conflicted Directors to review the Tender Offer and provide an opinion as to fairness for the use of the Board. The Financial Advisor informed the Board of its understanding that the information that it prepared was for the sole use and benefit of the Company and the Board in connection with an evaluation of the Tender Offer at the Original Offer Price. Mr. Spachman believes that the Conflicted Directors shared with Parent and Purchaser the materials that had been provided to the Board by the Financial Advisor. Prior to the Board meeting on Monday, February 17th, Mr. Consolino, Chairman of the Board but also the Chief Financial Officer of Parent, had provided, on Parent’s letterhead, his own valuation analyses supporting the fairness of the Original Offer Price. At the Board meeting, Mr. Consolino quickly abandoned any pretense of acting on behalf of unaffiliated shareholders for the purpose of developing an objective recommendation concerning the Tender Offer. Instead, Mr. Consolino, after reviewing the information provided by the Financial Advisor, indicated to the independent directors, on behalf of Parent and Purchaser, that Purchaser would increase its offer from $28 to $30 contingent upon a vote of neutrality by the Board with respect to the Tender Offer (as opposed to a vote to recommend that shareholders not tender into the Tender Offer). Shortly thereafter the contingency was removed. The independent directors reiterated their objections to the Board process and to the possibility of remaining neutral to, as opposed to recommending that shareholders not tender into, the Tender Offer at the proposed Increased Offer Price. Following a post-meeting inquiry from Mr. Michelson, the Company’s Chief Executive Officer, and Mr. Gonzales, the Company’s Vice President, General Counsel and Secretary, concerning whether it could opine on the proposed Increased Offer Price of $30 per Share, the Financial Advisor declined any further involvement in the process, noting that it had conducted an internal review of the possibility of further participation in advance of that request. Notwithstanding these circumstances, Parent and Purchaser announced the Increased Offer Price on the morning of February 18, 2014.

• Mr. Spachman believes that the Tender Offer is being conducted in a coercive manner that denies the Company’s shareholders the benefits of a fair process designed to achieve a fair price for their Shares.

• By taking the highly unusual step of commencing the Tender Offer without informing or consulting with the Company’s independent directors in advance, Parent and Purchaser have not provided the Company’s Board with reasonable time to consider and respond to the Tender Offer on behalf of unaffiliated shareholders in an appropriate manner. Compounding the pressure caused by this unusual step is the fact that the Tender Offer is scheduled to expire on March 6, 2014, a mere eleven business days from now.

• The Tender Offer has been designed to be extremely coercive, given the absence of a binding commitment to effect a second-step merger at the same price paid in the Tender Offer and the express statements in the Offer to Purchase and in prior press releases that Parent and Purchaser may choose to waive the minimum tender condition and evaluate all of their options in such an event. Furthermore, Purchaser has publicly announced that the Increased Offer Price is its “best and final price” and that “no further increase to the offer price will be made.”

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Inadequate Disclosure

For all of the foregoing reasons, Mr. Spachman has requested (i) Parent and Purchaser to suspend the Tender Offer immediately, and (ii) that the Board appoint an independent committee to consider an offer by Parent and Purchaser and to negotiate on behalf of the Company and the unaffiliated shareholders, if it determines it is appropriate to do so, with full authority to hire independent advisors and to otherwise conduct its business free from any oversight and influence of Parent and Purchaser. Mr. Spachman believes that it is necessary for the Board to take these actions so that the Company’s shareholders are adequately and fairly represented, and are not forced to make a tender decision in a short period of time under highly coercive terms.

7

• The coercive effect of this structure is magnified by the fact that, under Ohio law and the Company’s organizational documents, Purchaser can unilaterally effect certain significant corporate actions once it obtains ownership of two-thirds of the outstanding Shares, which would require the purchase of only an additional 15% of the outstanding Shares in the Tender Offer. The Offer to Purchase reminds shareholders of these facts, and cautions of numerous potentially negative consequences. As noted above, Mr. Spachman does not believe that Purchaser currently owns sufficient Shares to control the Company, as Purchaser does not currently own the two thirds of the outstanding Shares that would be necessary to approve such significant corporate actions.

• Given Parent and Purchaser’s continued pursuit of the Tender Offer despite the clearly expressed opposition of the four independent directors, including Mr. Spachman, it is reasonable to conclude that the waiver of the minimum tender condition is a likely possibility, and that Parent and Purchaser are now seeking sufficient tenders to enable them to acquire two-thirds of the outstanding Shares but not effect a second-step merger at a price at least equal to the already deficient Increased Offer Price.

• The Schedule TO and the Offer to Purchase filed by Parent and Purchaser fail to provide information adequate to enable shareholders to make an informed decision. For example, Mr. Spachman believes the materials are lacking, among other things, (i) important information with respect to the background of the Tender Offer, (ii) an explanation of why it is being conducted during a period of depressed market prices for the Shares, (iii) any meaningful financial information, projections or analysis (despite Mr. Consolino’s February 17th communication to the Board demonstrating Parent’s possession of that information and analysis), (iv) any discussion of the fact that the Financial Advisor to the Company’s Board opined that the Original Offer Price was not fair from a financial point of view to the public shareholders of the Company, provided a conclusion regarding a per-Share value range the bottom end of which was above the Original Offer Price and, after it was asked to opine with respect to the fairness of the Increased Offer Price, declined any further participation in the process, (v) any meaningful assessment of benefits and detriments of the Tender Offer to unaffiliated shareholders, and (vi) any meaningful analysis as to why Parent and Purchaser believe the Original Offer was, or the Increased Offer Price is, fair to unaffiliated shareholders.

• Parent and Purchaser announced the Increased Offer Price on the morning of February 18, 2014 with none of the material background information discussed above. Later in the day on February 18, 2014, Parent and Purchaser amended the Schedule TO, also without including any of this material background information. In response to Parent and Purchaser’s announcement, the Company, without any advance notice to the independent directors, issued a press release acknowledging the Increased Offer Price and stating that it would advise shareholders in its Solicitation/Recommendation Statement on Schedule 14D-9 to be filed on February 19, 2014, but also including no material background information.

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Intent to Not Tender

Neither Mr. Spachman, nor to his knowledge any of his affiliates, currently intends to tender any Shares that are held of record or beneficially owned by him or them pursuant to the Tender Offer.

Mr. Spachman has not directly or indirectly employed, retained or compensated any person to make solicitations or recommendations on his behalf in connection with the Tender Offer.

Except as disclosed below, no transactions with respect to the Shares have been effected by Mr. Spachman or, to the knowledge of Mr. Spachman, by any of his affiliates, during the 60 days prior to the date of this Statement.

On January 22, 2014, the Alan R. Spachman GRAT No. 3 distributed 129,560 shares to the Alan R. Spachman Revocable Trust.

Not applicable.

Not applicable.

Not applicable.

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Item 5. Person/Assets, Retained, Employed, Compensated or Used.

Item 6. Interest in Securities of the Subject Company.

Item 7. Purposes of the Transaction and Plans or Proposals.

Item 8. Additional Information.

Item 9. Exhibits.




Table of Contents

SIGNATURE

After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.

9

Dated: February 19, 2014 /s/ Alan R. SpachmanAlan R. Spachman




Exhibit M



Code of Ethics and Conduct


N A T I O N A L I N T E R S T A T E C O R P O R A T I O N


National Interstate Corporation 3250 Interstate Drive

Richfield, Ohio 44286-9000 (330) 659-8900


N A T I O N A L I N T E R S T A T E C O R P O R A T I O N C O D E O F E T H I C S A N D C O N D U C T

1


National Interstate Corporation (NIC) and its subsidiaries and their respective Directors, officers and employees have committed to conduct their business in accordance with the highest ethical standards. This Code of Ethics and Conduct (Code) sets out the principles to which all Directors, officers and employees of NIC are expected to adhere and advocate in meeting these standards.

References in this Code to “the Company” include NIC and its subsidiaries. When this Code states that employees, officers and/or Directors must contact “the Company,” “his or her Company,” “the Company’s General Counsel” or some other department or committee affiliated with the Company, such contact refers to NIC, and employees, officers and/or Directors of NIC subsidiaries must contact the appropriate person or group at NIC.

Conflict of Interest

Directors, officers and employees have an obligation to promote the Company’s best interests at all times. Directors, officers and employees should never use their position with the Company, or information acquired during their employment, in a manner that may create a conflict – or the appearance of a conflict – between such person’s personal interests and the interests of the Company. Directors, officers and employees should not have any undisclosed, unapproved financial or other business relationships with customers or competitors of a magnitude or nature that could impair the independence of any judgment they may need to make on the Company’s behalf. Conflicts of interest would also arise if a Director, officer or employee, or a family member of any of the above, receives improper payments or other personal benefits as a result of his or her position at the Company. Family members include spouses, brothers, sisters, parents, children, grandchildren, uncles, aunts, nieces, nephews, cousins and in-laws – including step or half relations.

Directors, officers and employees must act with honesty and integrity and must also avoid apparent conflicts of interest that may occur where a reasonable observer might assume there is a conflict of interest and, therefore, a loss of objectivity in their dealings on the Company’s behalf.

Where potential conflicts of interest arise, Directors, officers and employees must provide full disclosure of the circumstances and refrain from any related decision making process. Directors and officers shall provide full disclosure to the General Counsel and the Audit Committee.

Gifts and Gratuities

No Director, officer, or employee shall seek or accept any gift, payment, fee, service, rebate, valuable privilege, discount, trip, vacation, loan (other than a conventional loan from lending institutions) or other favor from any person or business organization that does, or seeks



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to do business with, or is a competitor of, the Company if the receipt of such item is, or appears to be, improper or unethical compensation or inducement.

Participating in business-related functions, including the acceptance of lunches or other meals with a customer or competitor, on occasion, is a normal and permissible business practice. However, each Director, officer and employee should exercise care to ensure that such functions are necessary and that their value and frequency are reasonable under all the applicable circumstances. Directors, officers and employees may accept common courtesies or gifts of a nominal value usually associated with accepted business practices for themselves and members of their families. Care should be taken to avoid accepting frequent common courtesies or gifts from the same person or business organization that does or seeks to do business with the Company. Acceptance of gifts of more than a nominal value should be disclosed to the Company’s General Counsel.

No Director, officer or employee shall in connection with the Company’s businesses give, or promise to give, any gift, favor or anything of value to another person or entity if the giving of such item is, or appears to be, improper or unethical compensation or inducement or might in any way to impair independent judgment concerning the Company’s business operations. No payments to public officials (domestic or foreign) shall be made directly or indirectly for the purposes of influencing their official acts or decisions.

It is in the best interests of the Company to avoid even the appearance of impropriety. The Company’s concern is not only whether the receipt or giving of a gift, donation or service is technically legal or customary, but also whether or not the public might reasonably view such an act as improper or unethical if all the circumstances were fairly disclosed.

Outside Employment and Directorships

Officers and employees are expected to devote their full working time to the duties of their positions or to fully disclose their other employment and business relationships. Directors are expected to notify the Company of their employment, changes in their employment and all other boards on which they serve.

No officer or employee shall be concurrently employed by or otherwise seek or accept concurrent employment or compensation as a director, partner, consultant or employee of a non-affiliated business organization which does business with or competes with NIC without full disclosure of this situation to the Company’s General Counsel.

If a family member of a Director, officer or employee of the Company works for a company that is in direct competition with or does business with the Company, and occupies a position that can influence decisions affecting lines of business that compete with the Company, such Director, officer or employee must disclose that position to the Company’s General Counsel.



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Your Investments

Unless the matter is fully disclosed to the Company’s General Counsel, Directors, officers and employees may not invest in stocks or securities of a company that does business or is seeking to do business with the Company if the interest such Director, officer or employee has in such company is significant. This applies to members of the Director’s, officer’s and employee’s immediate family or household. No officer or employee shall be an owner or investor in any such business organization where the cumulative ownership exceeds one-tenth of one percent of the outstanding ownership without obtaining prior written approval from the Company’s General Counsel.

Employment of and Negotiations with Family Members

No hiring decision regarding a family member is to be made directly by another family member. To the extent possible, a family member should not work in either a direct or indirect reporting relationship with another family member. The proposed hiring of a member of an employee’s family must receive prior written approval by the Company.

Where direct or indirect reporting relationships exist, any decision regarding compensation, benefit levels, performance evaluations and advancement proposals for family members must be reviewed and approved by the senior officer of the particular business unit. If the family member is a relative of the senior officer, the executive to whom he or she reports should be consulted.

No negotiation of any purchase, sale, claim or other business matter on behalf of the Company may occur in which a family member of a person representing the Company has a direct or indirect substantial interest.

Loans and Other Benefits

Conflicts of interest arise when a Director, officer or employee or member of his or her family receives improper personal benefits (including loans) as a result of his or her position in the Company. Any such arrangement is prohibited without obtaining prior written approval from the Company’s General Counsel.

Corporate Opportunities

Officers and employees shall not take for themselves any business opportunities that are discovered through the use of Company property, information or position, use Company property, information or position for personal gain, or compete with the Company. All officers and employees owe a duty to advance the Company’s legitimate business interests when the opportunity to do so arises.



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The Company’s Code of Regulations separately governs corporate opportunities presented to Directors.

ConfidentialityDirectors, officers and employees shall maintain the confidentiality of all information

entrusted to them by the Company, except when disclosure is authorized or legally mandated. They should recognize that such information is the property of the Company and only it may authorize its publication or use by others. Confidential information includes, but is not limited to, all non-public information that might be used by the Company’s competitors or may be harmful to the Company or its customers, if disclosed. Officers shall inform subordinates, as appropriate, regarding the confidentiality of information acquired in the course of their work and monitor, as needed, to ensure that subordinates maintain that confidentiality.

It is the responsibility of each employee to maintain the confidentiality of sensitive employee information, such as salary, bonus and performance appraisal data.

Fair Dealing

The Company bases its relationships with customers, competitors and employees on fair practices. Accordingly, all Directors, officers and employees should endeavor to deal fairly with all customers, competitors and employees. No Director, officer or employee shall take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts or any other unfair dealing practice.

Treatment of Employees

Treating employees with respect and dignity is a NIC promise. Every officer must remember that he or she is a role model for the employees who report to him or her. The Company expects officers to seek out the ideas of subordinates and involve them in decisions whenever appropriate. Once a decision is made, everyone involved is expected to pull together and support it.

Compliance with Laws

Employees are required to comply with all applicable laws, rules, regulations, including health, safety and environmental laws applicable to the Company’s business and all related Company policies.



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Insider Trading

A Director, officer or employee may become aware of material nonpublic information about the Company in the performance of his or her job. Material nonpublic information is information about the Company that is not known to the general public and that would influence a typical investor’s decision to buy, sell or hold the Company’s securities. A Director, officer or employee must take all reasonable measures to protect the confidentiality of material nonpublic information and refrain from buying or selling (or influencing others to buy or sell) any stock or other securities of the Company until the information is public. Buying or selling securities before the information is publicly disclosed could be deemed “insider trading.”

If you reveal material nonpublic information to anyone (even a family member), and that person then buys or sells securities -- or passes that information on to someone else who buys and sells securities -- you may be liable. Such action could result in both civil and criminal liability, both to the person trading and to the subject company. See the Company’s Insider Trading Policy for more information.

Foreign Corrupt Practices Act The U.S. Foreign Corrupt Practices Act strictly prohibits giving, offering or promising anything of value to any public official in the United States or foreign countries, with the intent of influencing an official act, or causing an official to commit an unlawful act or omit any ordinarily required in carrying out his or her lawful duty. This law also applies to other people, if there is a reason to know that the person will transfer the gift to a public official. While certain payments may be lawful, no payment shall be made without the prior written consent of the Company’s General Counsel.

Community and Political Activities

NIC encourages all employees to participate in community and political activities, so long as the participation does not interfere with their work performance. However, if such participation involves a substantial commitment of time, the Company’s General Counsel should be consulted.

Employees are also encouraged to make individual political contributions to the party or candidate of their choice or to a lawfully established political action committee. It is illegal for the Company to reimburse an employee for individual political contributions. However, no employee shall make, authorize or permit any unlawful contribution, expenditure or use of Company funds or property for political purposes. All corporate political contributions must be cleared through the Company’s General Counsel for legal review and proper reporting to appropriate government agencies. Significant civil and criminal penalties may be imposed against the Company, and in some cases, the individual employee, in situations of illegal political contributions.



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Company Property

All Directors, officers and employees should protect the Company’s assets, resources and information and ensure their efficient and appropriate use. Acts of dishonesty against the Company or its customers involving theft, destruction or misappropriation of property, including money, office equipment or any other items of value are prohibited.

All materials developed by an employee of the Company within the course of employment, such as software, hardware devices, advertising materials, manuals, etc., are the exclusive property of the Company. Such materials may not be used for any purpose other than company business without obtaining prior written approval from the Company’s General Counsel.

Computers, terminals and other equipment and supplies furnished by the Company are for company business. This equipment is not to be used for any purpose that is not sanctioned by Company management.

Disclosure

NIC has an obligation to comply with all reporting requirements under the Securities Exchange Act of 1934, as amended, and Nasdaq National Market listing requirements. Our Directors, officers and employees should ensure that external and internal financial data, and other information contained in the Company’s reports, is complete, accurate, timely, relevant, understandable and presents the facts fairly. In accordance with these disclosure obligations, financial communications and reports will be delivered in a manner that facilitates the highest degree of clarity of content and meaning so that readers and users will be able to determine their significance and consequence quickly and accurately.

All financial officers shall communicate to executive management of NIC and to the accountants engaged to conduct an audit of the Company’s financial statements all relevant information and professional judgments or opinions. The financial officers shall encourage open communication and full disclosure of financial information by all relevant employees.

Furthermore, any Director, officer or employee in possession of material nonpublic information about the Company must not disclose such information before its public disclosure and must take steps to ensure that the Company complies with its timely disclosure obligations.

Compliance with the Code of Ethics and Conduct

Our Directors, officers and employees are expected to promote honest and ethical behavior among the Company’s employees. This Code reflects general principles designed to guide Directors, officers and employees in being aware of situations that give rise to ethical questions and to voice acceptable ways in handling those situations when they occur. This Code is not intended to address



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every specific situation. Nothing in this Code prohibits or restricts the Company from taking disciplinary action on matters pertaining to employee conduct, whether or not they are expressly discussed in this document. This Code is not intended to create any expressed or implied contract between the Company and any of its employees.

The Company expects its employees to bring to the attention of the General Counsel, or anyone he or she designates, information about suspected violations mentioned in this Code or of any law by any Director, officer or employee. The Company will treat the information received in a confidential manner and with appropriate investigation and evaluation of the information, will seek to make sure that no acts of retribution or retaliation will be taken against anyone making a report.

The Board of Directors of NIC has the final authority for the interpretation of the Code. The Board of Directors, on its own or upon recommendation of the Audit Committee, has the authority to approve any amendment to, or waiver of, the Code. If the Board of Directors waives or amends any provision of this Code required under Item 406 of Regulation S-K promulgated by the Securities and Exchange Commission, and such waiver or amendment relates to the Company’s principal executive officer, principal financial officer, principal accounting officer or controller, the Company will disclose to its shareholders any waiver and the grounds for such waiver or any amendment to the Code within five business days of such waiver or amendment. Such disclosure shall be made by filing a Form 8-K with the Securities and Exchange Commission or by posting the relevant information on the Company’s website.

Reporting Violations

If you believe you have violated the Code or applicable law, you must report the violation to the General Counsel so the Company can take appropriate action. Prompt reporting can substantially reduce the adverse impact on all involved. As a Director, officer or employee of the Company, you are under a duty to report violations by other Directors, officers or employees, regardless of their level of seniority. All Directors, officers and employees have a responsibility to understand and follow this Code. All Directors, officers and employees are to report any information that they may believe may need to be disclosed by the Company in its public filings. A violation of the Code may result in appropriate disciplinary action including termination in addition to other consequences.

Complaint Procedure

Notification - Information about known or suspected violations by any Director, officer or employee of the Company should be reported immediately to the Company’s General Counsel. Whenever practical, the report should be in writing.

Investigation - Reports of violations will be investigated under the General Counsel’s direction. All are expected to cooperate in the investigation of the reported violation.

Confidentiality - The General Counsel will not, to the extent practical and appropriate and to protect the privacy of the persons involved, disclose the identity of anyone who reports a suspected violation or participates in the investigation. Directors, officers and employees should be aware that the General



8

Counsel, and those assisting him or her are obligated to act in the best interests of the Company, and not as personal representatives or attorneys for employees.

Retaliation - Retaliation in any form against any individual who reports a violation of this Code or a law, or who assists in the investigation of a reported violation, is in and of itself a serious violation of this policy. Employee Complaints – Financial Matters

The Company has put into place policies and procedures that will enable the Audit Committee of the Board of Directors to receive and investigate any employee complaints relating to the Company’s accounting, internal accounting controls and auditing matters pursuant to Rule 10A-3 of the Securities Exchange Act of 1934, as amended. Employees are instructed to submit complaints confidentially and anonymously to the Audit Committee of the Board of Directors. Such information should be transmitted in one of the communication formats provided for in the investor relations section of the Company’s web site at www.nationalinterstate.com.


Exhibit N



CODE OF ETHICS �

Page 1

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This Code of Ethics and the policies described in it are not an employee contract. The employer does not create any contractual rights by issuing this Code of Ethics or the policies. This Code of Ethics does not limit the obligations of any employee under any existing non-compete, non-disclosure or other employment related agreements to which the employee is bound or other policies which cover the employee.

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Exhibit O


Exhibit P


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COURT OF COMMON PLEAS HAMILTON COUNTY, OHIO

- - -

ROBERT BERNATCHEZ, ) Individually and on behalf ) other similarly situated, )

Plaintiff, ) ) vs. )CASE NO. A-1400806 ) AMERICAN FINANCIAL GROUP, ) INC., et al., )

Defendants. )

EDITED FOR EXPEDITED PURPOSES TRANSCRIPT OF PROCEEDINGS - - -

BE IT REMEMBERED that upon the

Decision of this cause, on February 28th, 2014,

before the Honorable Beth A. Myers, a said

judge of the said court, the following

proceedings were had.

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MORNING SESSION, MORNING SESSION, MORNING SESSION, MORNING SESSION, February 28February 28February 28February 28, , , , 2014201420142014

THE COURT: We are now on the

record in Bernatchez -- I know I'm saying

that incorrectly -- vs. American

Financial. Case number A1400806.

This case is set this morning for a

decision on a motion that was argued

yesterday.

Counsel, before we begin, I

received, by hand delivery, a letter.

And, Counsel, that's really not an

appropriate way to make a filing with the

Court.

I assume, Mr. Slater, that you have

filed this so it's a part of the record?

MR. SLATER: Not yet, Your Honor.

We will following this hearing.

THE COURT: Well, no, not following

the hearing. Will you go do it right

now, please?

MR. SLATER: Sure.

THE COURT: It needs to be part of

the official record.

Counsel, has everybody seen the

letter?

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(Nodded heads.)

THE COURT: I did receive a letter

from somebody who is not a party to this

case, who hasn't sought to be joined as a

party, who is, I suppose, a member of a

class that's not yet been certified.

And it's somebody who hasn't sought

to intervene, counsel hasn't made an

appearance. This party hasn't sought any

independent injunctive relief.

So, Counsel, I am just going to

make it a part of the record, for what

that's worth. I assume you haven't filed

anything else, a motion to intervene or

notice of appearance or anything else?

MR. SLATER: We have not yet at

this time.

THE COURT: All right. Counsel,

anybody want to comment on the letter

before we begin this morning?

MR. WAYNE: Your Honor, on behalf

of the plaintiffs, we received the letter

this morning, a little after nine.

You know, I see someone that is not

a party, as you indicated, hasn't filed

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their own case. It clearly looks like

they are a member of the purported class,

take some shots at Mr. Stine.

This is not how we do things, that

I'm aware of, in this jurisdiction. I

take offense at these kinds of letters

taking shots at us, when they -- at the

Court's insistence we've had

conversations with the defendants, in an

attempt to resolve this case.

We haven't resolved the case. And

nobody is coming in with preliminary

approval asking for a class certified.

We are trying to resolve it. If it ever

gets resolved before discovery is

complete, it's going to be based on

representations, it's going to be based

on confirmatory discovery that confirms

the representations, and makes sure it's

a fair adequate reasonable settlement to

the class.

At this point I do take great

offense at these kinds of letters when

nobody has any involvement in our

discussions that we've had with the

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defendant.

MR. BURKE: I concur.

THE COURT: All right.

MR. BURKE: There is no settlement.

Nobody was even remotely considering

presenting anything to the Court today.

THE COURT: And that was -- for the

record, that was my understanding as

well. I wasn't planning to make any kind

of ruling on anything.

And, Counsel, that is the reason

that I ask that it be filed as a part of

the record, because once I receive it,

and it's part of my consideration, I

think it needs to be a part of the public

record.

Counsel?

MR. SLATER: I mean, just to

address that, first of all, we are

pleased to hear that there isn't a

settlement. That was, obviously, our

biggest concern as was expressed in the

letter.

I think, though, the concerns we do

express in that letter are legitimate and

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still exist. And you know, to a certain

degree we think that even the TRO

decision should be held in abeyance, to

let this case --

THE COURT: Well, unless and until

you are officially in this case, I'm not

going to reargue what was argued

yesterday.

And I suspect that your client had

knowledge of the Court proceedings and

had an opportunity to join in, if he

wanted to, at that time. Fair statement?

MR. BURKE: In fact, Your Honor,

two of his counsel sat in the courtroom

yesterday, the two gentlemen.

THE COURT: Okay. Okay.

MR. WEINBERGER: Your Honor --

THE COURT: Just so the record is

clear, people were jumping up, so that's

why I said okay, okay, okay.

MR. BURKE: Well, the two counsel

who were in the case in Akron with me on

Tuesday, may be representing not Mr.

Spachman, but the plaintiffs in that case

are here.

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THE COURT: And you can speak if

you want to. I don't think you need to.

MR. WEINBERGER: Just simply to

correct the record, Your Honor. I

represent Cambridge Retirement System.

THE COURT: That's what was

represented yesterday.

MR. WEINBERGER: Right. I do not

represent Mr. Spachman. He is not my

client.

I represent Cambridge Retirement

System, which is the plaintiff in a still

pending action in Summit County, Ohio,

right now. So I have no representation

of Mr. Spachman.

THE COURT: All right. And for the

court reporter, will you state your name,

so she knows who is talking?

MR. WEINBERGER: Yes. Ned

Weinberger from Labatan Sucharow in

Wilmington, Delaware, on behalf of

Cambridge Retirement System.

THE COURT: And that's what was

represented yesterday in open court.

Your client. Okay.

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MR. WEINBERGER: Mr. Burke had

represented that I represent

Mr. Spachman.

MR. BURKE: Your Honor, just for

the record --

THE COURT: Today he did, but

yesterday the record I think is clear.

Anyway, Counsel, I think the issues

that you raise in your letter, from

hearing counsel, will not be addressed

today. And if you and your client intend

to actually participate in this

litigation, I know you'll take the steps

to do that.

MR. SLATER: Okay. Thank you.

MR. BURKE: Okay. Your Honor, I do

stand corrected as to Mr. Weinberger.

THE COURT: Okay.

MR. BURKE: I misspoke this

morning. I apologize.

THE COURT: All right. Mr. Wayne,

Mr. Stine, any other issues before I give

you my decision on the pending motion?

MR. WAYNE: Nothing from us, Your

Honor.

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MR. STINE: No.

THE COURT: Mr. Burke, anything

from you?

MR. BURKE: Nothing from us, Your

Honor.

THE COURT: And I see the other

counsel? Mr. Lamb?

MR. LAMB: Nothing further, Your

Honor. Thank you.

THE COURT: All right. The only

issue before the Court today, and the

only issue I'm ruling on is whether to

grant a temporary restraining order,

and/or a preliminary injunction.

As I said yesterday, I do

appreciate the briefing and the hard work

that was put on the parties to bring

these issues to the attention of the

Court, the argument yesterday, and the

briefs. I've considered all of that, and

the law that's been cited.

And just for the record, because

there was some discussion about the

letter that was hand-delivered this

morning, I do want to make it clear, I am

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not -- I haven't been requested to make

any ruling on anything beyond the

temporary restraining order and the

preliminary injunction.

There's been no motion for class

certification filed. I don't intend to

make any ruling on any class issues, or

anything else, other than the request for

a TRO and preliminary injunction.

That being said, the counsel have

all adequately stated what the standard

is for the granting of TRO or a

preliminary injunction.

The law in Ohio is clear on the

factors that the Court is to consider.

It is an extraordinary remedy. Under the

rules and Ohio case law, there must be

clear and convincing evidence before a

court grants a TRO or preliminary

injunction. And the four factors that

are to be considered are the likelihood

of success on the merits; whether or not

there will be irreparable harm, in the

absence of an granting of the request;

whether the harm that will be suffered by

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the plaintiff outweighs any harm that

might be suffered by others; and whether

the public interest is served by granting

such extraordinary injunctive relief.

Here -- I think we went through

this yesterday, so I'm not going to

summarize all of the arguments, but this

case does not involve securities law

claims. There's no claim being made

under Ohio Securities Law or Federal

Securities law. Tender Offers are

governed and regulated by federal law.

There is not a claim under the

Federal Securities law. It's correctly

before this Court. Rather, the amended

complaint alleges two causes of action;

breach of duty of loyalty -- and really,

that's a fiduciary duty claim -- and

breach of duty of candor, also a

fiduciary duty claim.

Both are being brought under Ohio

law. And, again, as I said, there's no

security law violation alleged.

The first element that the Court is

required to consider is whether or not

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there is a likelihood of success on the

merits by the plaintiff. I am not going

to repeat all of the arguments that are

in the brief, or that were made

yesterday, but, generally, I'm going to

summarize the party's position, just for

the record.

Generally, the plaintiffs argue

that the defendants breached their

fiduciary duties. They allege, among

other things, that there was a conflict

of interest among some of the directors,

that the process for bringing this Tender

Offer, for bringing these issues was

flawed, that there were inadequate

disclosures and information provided to

the shareholders, and that there was

coercion involved. And that process is

coercive.

Generally, the defendants argue

that under Ohio law there is no

likelihood of success on the merits, the

defendants rely on statutory and case law

in Ohio regarding the liability of

directors.

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They point the Court to the

Business Judgment Rule that is

statutorily mandated, and they argue that

the disclosures that the plaintiffs are

complaining about are not required under

Ohio law.

And again, that's only a brief

general summary of the arguments of the

parties. I know they are much more

detailed. They are set forth in detail

in the briefs and were argued yesterday.

I'm going to start by saying that I

need not decide this element, that is the

likelihood of success on the merits,

because I find that the plaintiffs cannot

meet the test of irreparable harm in this

case.

The second factor is irreparable

harm. The Court must find that to issue

this extraordinary remedy, the harm that

will be suffered is so irreparable that

the Court has to enjoin something to

avoid that irreparable harm.

In this case -- and I think you all

argued this at length yesterday, and I

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had an opportunity to question both sides

about this issue extensively -- if the

plaintiff succeeds on the merits of the

breach of fiduciary duty claims, any

remedy will be compensable in monetary

damages. I find that the plaintiff does

have an adequate remedy at law.

In other words, if the plaintiff

succeeds on those claims, a remedy can be

fashioned in terms of money damages.

Those damages are quantifiable and

calculable, and it is a monetary remedy,

ultimately, that will be sought by the

plaintiff.

The plaintiff does argue there's

irreparable harm because the shareholders

are being coerced and are unable to make

informed decisions, and that the

shareholder rights are being violated.

But again, I find, at the end of

the day, if plaintiff establishes all of

that, the remedy will be a monetary award

in favor of plaintiff and the class

members, if it's, ultimately, certified

as a class.

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Because I don't find any

irreparable harm, I'm not going to

address the harm that might result to

others if injunction was granted, or

whether or not Public Policy favors one

side or the other, because that key issue

of irreparable harm, I find, is lacking.

So I am going to deny the motion

for a TRO, and the motion for preliminary

injunction. I think both parties agreed

that really it -- the injunction issue

could be decided as well as the TRO.

And I think both parties encouraged

the Court to consider not only the

temporary restraining order, but the

preliminary injunction issue, so I've

done that.

Counsel, then, if you will prepare

an entry and present it to the Court

denying the temporary restraining order

and the preliminary injunction.

MR. BURKE: Your Honor, in light of

Your Honor's schedule, I have an order.

I had the order prepared both ways, and I

would like to share it with Mr. Wayne and

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perhaps give it to the Court.

THE COURT: Certainly. Let all the

parties see it. And I'll certainly

review it while everybody is here today.

Let's go off the record and discuss

scheduling. And when I say "off the

record," it just won't be transcribed,

but will be in open court.

(An off-the-record discussion was

had.)

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CERTIFICATE

I, Sharlene D. Hall, RMR, the

undersigned, Official Court Reporter for the

Hamilton County Court of Common Pleas, do

hereby certify that at the same time and place

stated herein, I recorded in stenotype and

thereafter transcribed the within 16 pages, and

that the foregoing Transcript of Proceedings is

a true, complete, and accurate transcript of my

said stenotype notes.

IN WITNESS WHEREOF, I hereunto set my

hand this 28th day of February, 2014.

Sharlene D. Hall, RMR Official Court Reporter Court of Common Pleas Hamilton County, Ohio

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Exhibit Q


Exhibit R


Exhibit S


http://news.cincinnati.com/article/20140228/BIZ/302280079/Judge-refuses-delay-sale-insurer

Page 1 of 2 Mar 05, 2014 02:27:28PM MST

Judge refuses to delay sale of insurerWritten by Bowdeya TwehFeb. 28, 2014 | cincinnati.com

A Hamilton County judge on Friday allowed plans to proceed for the proposed sale of specialty insurerNational Interstate Corp. to its largest shareholder, a subsidiary of Downtown-based American FinancialGroup Inc.

But one of the bigger surprises happened before Common Pleas Court Judge Beth Myers denied arequest from a National Interstate shareholder seeking a temporary restraining order and preliminaryinjunction to slow down the deal.

National Interstate’s founder and independent board member Alan Spachman sent a letter to Myers onFriday morning criticizing a New York lawyer representing Robert Bernatchez, the North Carolinashareholder and former National Interstate employee who filed the lawsuit.

Through his attorney, Spachman said Carl Stine and attorneys for the companies were working on asettlement agreement without “any meaningful discovery” or depositions from company directors beingtaken.

An attorney for American Financial Group declined to comment after Friday’s hearing.

Richard Wayne, a Cincinnati lawyer who also represents Bernatchez, called the letter’s distribution incourt Friday unprofessional. No settlement agreement was presented during Friday’s hearing.

Wayne said his team is working to find other shareholders to join Bernatchez as they seek class-actionstatus for the lawsuit.

The lawsuit accuses National Interstate’s board of directors of failing to protect shareholders’ financialinterests.

Myers said that, if Bernatchez is successful in making his case during a jury trial, monetary damagescould be sought as compensation. A two-week trial is scheduled to begin April 6, 2015.

In his lawsuit, Bernatchez accuses American Financial Group, its Great American Insurance Co.subsidiary and National Interstate of colluding to speed through the sale.

Through its subsidiary, American Financial owns nearly 52 percent of National Interstate’s shares. Withonly two-thirds of shareholders needing to vote to approve the deal, Bernatchez argues that minorityshareholders don’t have an effective chance to have their voices heard.

A separate shareholder derivative lawsuit has been filed in Ohio’s Summit County on behalf of theCambridge Retirement System, a public employees’ pension plan from Cambridge, Mass. A judge therecould rule on a request to delay the sale.

The pension plan wants a decision to happen before March 6, which is when the tender offer period endsand the deal moves closer to being finalized.




Page 2 of 2 Mar 05, 2014 02:27:28PM MST

It isn’t immediately clear what other barriers may exist as the companies work toward finalizing anagreement.

On Feb. 5, American Financial Group announced Great American would buy the remaining outstandingshares of National Interstate for $28 a share. That offer has since risen to $30 a share. Based on thenumber of shares outstanding, buying the remaining shares would cost about $306 million as of Friday.

National Interstate’s board adopted a “neutral” recommendation Feb. 19 on Great American’s tender offer.

National Interstate is a property casualty insurance group specializing in products for the transportationsector. Great American has been majority shareholder of National Interstate since its initial investment inthe company nearly 25 years ago.

American Financial Group is a Fortune 500 insurance holding company that has more than $40 billionassets.

Through Great American, it offers property and casualty insurance specializing in commercial products forbusinesses, and selling annuities in the retail, financial institutions and education market.

What did you think about this article? Send us your feedback.Activate your account today and get the most from your subscription. Not a subscriber? .Get started now



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