Document:

EX-10.26

 

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Exhibit 10.26

EMPLOYMENT AGREEMENT

     This
Employment Agreement (this “Agreement”), dated as of
November 18, 2005 and effective as
of the Effective Date (as herein defined), is between American Railcar Industries, Inc. (“ARI”), a
Missouri corporation and Mr. James J. Unger (the “Employee”), having an address at c/o American
Railcar Industries, Inc., 100 Clark Street, St. Charles, Missouri 63301. This Agreement replaces
the employment agreement (the “1994 Employment Agreement”) between James J. Unger and Carl C.
Icahn, on behalf of ARI, dated October 25, 1994. Reference is made to that certain letter
agreement (the “Letter Agreement”), dated as of the date hereof, between the Employee and ARI.

1. Employment

     Upon the terms and conditions hereinafter set forth, ARI hereby agrees to employ the Employee and
the Employee hereby agrees to become so employed. During the Term of Employment (as hereinafter
defined), the Employee shall be employed in the position of President and Chief Executive Officer
of ARI and in such other positions at certain subsidiaries of ARI as specified and directed by the
Board of Directors of ARI (the “Board”) from time to time, and shall perform such duties as are
specified from time to time by, and shall serve in such capacities at the pleasure of, ARI and the
Board, as the case may be.

     During the Term of Employment, the Employee shall devote substantially all of his professional
attention, on a full time basis, to the business and affairs of ARI and its subsidiaries, shall use
his best efforts to advance the best interest of ARI and its subsidiaries and shall comply with all
of the policies of ARI, including, without limitation, such policies with respect to legal
compliance, conflicts of interest, insider trading, confidentiality and business ethics as are from
time to time in effect and shall have his primary office at ARI’s principal offices located in St.
Charles, Missouri.

     Except (i) for Employee’s serving as President of Ohio Castings LLC, President of Unco, Inc.,
General Partner of each of St. Charles Properties, Greenup Partnership, and Unger Family Limited
Partnership and (ii) as directed or approved by the Board, during the Term of Employment, the
Employee shall not directly or indirectly render services to, or otherwise act in a business or
professional capacity on behalf of or for the benefit of, any other Person as an employee, advisor,
director, independent contractor, agent, consultant, representative or otherwise, whether or not
compensated. “Person” or “person”, as used in this Agreement, means any individual, partnership,
limited partnership, corporation, limited liability company, trust, estate, cooperative,
association, organization, proprietorship, firm, joint venture, joint stock company, syndicate,
company, committee, government or governmental subdivision or agency, or other entity.

2. Term

     The employment period shall commence as of the Effective Date and shall continue through the later
of (i) one year following the Effective Date and (ii) the last day of the Extension Period (as
hereinafter defined), if any, unless earlier terminated as set forth in this Agreement. The Board
may, at its sole option, extend the period of employment for an additional one-year

 

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term beyond the first anniversary of the Effective Date by giving the Employee written notice of
such extension no later than the first anniversary of the Effective Date. The Board may also, at
its sole option, extend the period of employment for another additional one-year term beyond the
second anniversary of the Effective Date by giving the Employee written notice of such extension no
later than the second anniversary of the Effective Date. If the Board elects to extend the period
of Employment, the Term of Employment shall continue through the second or third anniversary of the
Effective Date, depending upon the anniversary date to which the Board extends the period of
employment, unless earlier terminated as otherwise provided in this Agreement. The period of any
such extension is referred to herein as the “Extension Period,” and the aggregate period of
employment of the Employee hereunder, inclusive of the Extension Period(s), if any, is referred to
herein as the “Term of Employment.” The last date of the final Extension Period, or the last day
of the first anniversary of the Effective Date if the employment period is not extended, is the
“Expiration Date.”

3. Compensation

For all services to be performed by the Employee under this Agreement, during the Term of
Employment, the Employee shall be compensated in the following manner:

ARI will pay the Employee a salary (the “Base Salary”) at a rate of not less than $350,000 per
twelve-month period commencing as of the Effective Date. The Base Salary shall be payable in
accordance with the normal payroll practice of ARI.

(b) Bonus Compensation

In the sole and absolute discretion of the Board and/or any compensation committee thereof, ARI may
award the Employee an annual bonus (“Bonus Compensation”). The Employee acknowledges that neither
ARI nor the Board is under any obligation to award or otherwise pay the Employee any Bonus
Compensation.

(c) Expenses

ARI will reimburse the Employee for all reasonable and necessary business related out-of-pocket
expenses actually incurred during the Term of Employment. ARI will reimburse the Employee, on a
basis grossed up for income taxes, for the reasonable use of an automobile on terms consistent with
past treatment of any automobile allowance.

4. Termination

This Agreement shall terminate (subject to Section 11(f) below) and the Term of Employment and the
employment of Employee hereunder shall end, on the first to occur of any of the following (each a
“Termination Event”):

	 	(a)	 	the Expiration Date;

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	 	(b)	 	the Employee’s death;
	 
	 	(c)	 	the Employee’s Disability (as defined below);
	 
	 	(d)	 	the discharge of the Employee by ARI for Cause (as defined below);
	 
	 	(e)	 	the resignation of the Employee, for a reason other than Good Reason (as defined below)
(without limiting the effect of such resignation, the Employee agrees to provide ARI with
not less than 30 days prior written notice of his resignation);
	 
	 	(f)	 	the discharge of the Employee by ARI without Cause; or
	 
	 	(g)	 	the resignation of the Employee for Good Reason (without limiting the effect of such
resignation, the Employee agrees to provide ARI with not less than 30 days prior written
notice of his resignation).

ARI may discharge the Employee at any time, for any reason or no reason, with or without Cause, in
which event the Employee shall be entitled only to such payments as are set forth in Section 5
below.

“Cause” means the occurrence of any one of the following: (i) the Employee’s failure to perform
his material duties under this Agreement, the Letter Agreement or any other material agreement
between the Employee and ARI, (ii) the Employees’ commission of an act of dishonesty, fraud, theft
or embezzlement in connection with his employment, (iii) the Employee’s indictment or conviction of
a misdemeanor involving fraud or of any felony or (iv) the Employee’s material violation of any
federal or state securities law or regulation; provided, that no Cause shall exist involving
subsection (i) of this sentence until the Employee first has failed to cure such failure which is
curable within thirty consecutive days of having been given written notice by ARI of the specifics
of such failure.

“Good Reason” means the occurrence of any one or more of the following events without the
Employee’s express consent: (i) a material breach by ARI of its obligations under this Agreement,
the Letter Agreement or any other material agreement between the Employee and ARI, (ii) a material
diminution in the Employee’s position or duties as the President and Chief Executive Officer of ARI
(provided that for purposes of this clause (ii), the hiring by ARI of a Chief Operating Officer
shall not be a material diminution in the Employee’s position or duties) or (iii) any reduction of
the Employee’s Base Salary; provided, that a Good Reason shall not exist until ARI has first failed
to cure such failure or breach within thirty days of having been given written notice of such
failure or breach by the Employee.

“Disability means the Employee’s inability to perform the functions of President and Chief
Executive Officer of ARI as determined by a physician selected by the Board who is reasonably
acceptable to the Employee.

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5. Effect of Termination

In the event of termination of the Employee’s employment hereunder, all rights of the Employee
under this Agreement, including all rights to compensation, shall end and the Employee shall only
be entitled to be paid the amounts set forth in this Section 5 below; provided,
that, the obligations of ARI to make any such payment is conditioned upon execution and
delivery by the Employee to ARI of a settlement and release agreement in favor of ARI, its
affiliates and their respective officers, directors, employees, agents and equity holders,
substantially in the form of Exhibit A attached hereto.

	 	(a)	 	In the event that the Employee’s employment is terminated for any reason or no reason
(other than termination for a reason set forth in, Section 4(f) (discharge without Cause)
or Section 4(g) (resignation for Good Reason)), then, in lieu of any other payments of any
kind (including without limitation, any severance payments), the Employee shall be paid by
ARI, in a single lump sum payment, within thirty (30) days following the date on which the
Termination Event in question occurred (the “Termination Date”), (x) amounts of Base Salary
due and unpaid to the Employee from ARI as of the Termination Date in question and (y)
amounts of Bonus Compensation, if any, earned, due and unpaid to the Employee from ARI as
of the Termination Date in question.
	 
	 	(b)	 	In the event that the Employee’s employment is terminated for a reason set forth in,
Section 4(f) (discharge without Cause) or Section 4(g) (resignation for Good Reason), then,
in lieu of any other payments of any kind (including without limitation, any severance
payments), the Employee shall be paid by ARI, in a single lump sum payment, within thirty
(30) days following the date on which the Termination Event in question occurred (the
“Termination Date”), (x) amounts of Base Salary due and unpaid to the Employee from ARI as
of the Termination Date in question, (y) amounts of Bonus Compensation, if any, earned, due
and unpaid to the Employee from ARI as of the Termination Date in question and (z) amounts
of Base Salary the Employee would have earned through the then applicable Expiration Date,
which would occur as of the end of the last day of the anniversary year of the Effective
Date in which the Termination Date occurs, had the Employee stayed employed until such
Expiration Date.

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6. Effectiveness; Termination of 1994 Agreement

(a) This Agreement shall become effective on the closing date (the “Effective Date”) of a public
offering of ARI common stock that is registered with the Securities and Exchange Commission on Form
S-1.

(b) Effective as of the Effective Date, the Employee agrees that the 1994 Employment Agreement
is terminated in its entirety and is of no further force or effect. On the Effective
Date, the Employee shall execute and deliver to ARI and Carl C. Icahn, a release agreement
substantially in the form of Exhibit B attached hereto. For the
avoidance of doubt, the 1994 Employment Agreement, to the extent it
exists immediately prior to the execution of this Agreement, shall
remain in effect until the Effective Date.

7. Non-Disclosure

During the Term of Employment and at all times thereafter, the Employee shall hold in a fiduciary
capacity for the benefit of ARI and each of its affiliates, all secret or confidential information,
knowledge or data, including, without limitation, trade secrets, identity of investments, identity
of contemplated investments, business opportunities, valuation models and methodologies, relating
to the business of ARI or its affiliates, and their respective businesses as, (i) obtained by the
Employee during the Employee’s employment by ARI and any of its subsidiaries and (ii) not otherwise
in the public domain (“Confidential Information”). The Employee also agrees to keep confidential
and not disclose to any unauthorized Person any personal information regarding any controlling
Person of ARI or any of its affiliates and any member of the immediate family of any such Person
(and all such personal information shall be deemed “Confidential Information” for the purposes of
this Agreement). The Employee shall not, without the prior written consent of ARI (acting at the
direction of the Board): (i) except to the extent compelled pursuant to the order of a court or
other body having jurisdiction over such matter or based upon the advice of counsel that such
disclosure is legally required, communicate or divulge any Confidential Information to anyone other
than ARI and those designated by ARI; or (ii) use any Confidential Information for any purpose
other than the performance of his duties pursuant to this Agreement. The Employee will assist ARI
or its designee, at ARI’s expense, in obtaining a protective order, other appropriate remedy or
other reliable assurance that confidential treatment will be accorded any Confidential Information
disclosed pursuant to the terms of this Agreement.

In no event shall the Employee during or after his employment hereunder, disparage ARI, any
controlling Person of ARI, their respective affiliates and family members or any of their
respective officers, directors or employees.

All processes, technologies, intellectual property and inventions (collectively, “Inventions”)
conceived, developed, invented, made or found by the Employee, alone or with others, during the
Term of Employment, whether or not patentable and whether or not on ARI’s or any of its
subsidiaries’ time or with the use of ARI’s or any of its subsidiaries’ facilities or materials,
shall be the property of ARI or its respective subsidiary, as the case may be, and shall be
promptly and fully disclosed by the Employee to ARI. The Employee shall perform all necessary acts
(including, without limitations, executing and delivering any confirmatory assignments, documents,
or instruments requested by ARI or any of its subsidiaries) to vest

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title to any such Invention in ARI or the applicable subsidiary and to enable ARI or the applicable
subsidiary, at their expense, to secure and maintain domestic and/or foreign patents or any other
rights for such Inventions.

8. Non-Compete

(a) In addition to, and not in limitation of, all of the other terms and provisions of this
Agreement, the Employee agrees that during the Term of Employment, the Employee will comply with
the provisions of Section 1 above.

(b) For a period of one (1) year following the last day of the Term of Employment, unless the
Employee’s employment is terminated by ARI without Cause or Employee resigns for Good Reason, the
Employee will not, either directly or indirectly, as principal, agent, owner, employee, partner,
investor, shareholder (other than solely as a holder of not more than 1% of the issued and
outstanding shares of any public corporation), consultant, advisor or otherwise howsoever own,
operate, carry on or engage in the operation of or have any financial interest in or provide,
directly or indirectly, financial assistance to or lend money to or guarantee the debts or
obligations of any Person carrying on or engaged in any business that is competitive with or
similar to the business conducted by ARI or any of its subsidiaries in the United States.

(c) The Employee covenants and agrees with ARI and its subsidiaries that, during the Term of
Employment and for one (1) year thereafter, the Employee shall not directly, or indirectly, for
himself or for any other Person:

	 	(i)	 	solicit, interfere with or endeavor to entice away from ARI or any of its subsidiaries
or affiliates, any customer, client or any Person in the habit of dealing with any of the
foregoing;
	 
	 	(ii)	 	attempt to direct or solicit any customer or client away from ARI or any of its
subsidiaries or affiliates;
	 
	 	(iii)	 	interfere with, entice away or otherwise attempt to obtain the withdrawal of any
employee of ARI or any of its subsidiaries or affiliates; or
	 
	 	(iv)	 	advise any Person not to do business with ARI or any of its subsidiaries or affiliates.

The Employee represents to and agrees with ARI that the enforcement of the restrictions contained
in Section 7 and Section 8 (the Non-Disclosure and Non-Compete sections, respectively) would not be
unduly burdensome to the Employee and that such restrictions are reasonably necessary to protect
the legitimate interests of ARI. The Employee agrees that the remedy of damages for any breach by
the Employee of the provisions of either of these sections may be inadequate and that ARI shall be
entitled to injunctive relief, without posting any bond. This section constitutes an independent
and separable covenant that shall be enforceable notwithstanding any right or remedy that ARI may
have under any other provision of this Agreement or otherwise.

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9. Taxes 

All amounts paid to the Employee under or pursuant to this Agreement, including, without
limitation, Base Salary, Bonus Compensation, if any, or any other compensation or benefits, whether
in cash or in kind, shall be subject to normal withholding and deductions imposed by any one or
more local, state or federal governments, or pursuant to any foreign or domestic applicable law,
rule or regulation.

10. Benefits

During the Term of Employment, the Employee shall be entitled to receive healthcare, vacation, 401K
participation, transportation and other similar employee benefits comparable to those received by
other senior employees of ARI as such may be provided by ARI, in its sole and absolute discretion
from time to time.

11. Miscellaneous

	 	(a)	 	This Agreement constitutes the entire agreement between the parties with respect to the
subject matter hereof.
	 
	 	(b)	 	This Agreement and all of the provisions hereof shall inure to the benefit of and be
binding upon the legal representative, heirs, distributees, successors (whether by merger,
operation of law or otherwise) and assigns of the parties hereto; provided, however, that
the Employee may not delegate any of the Employee’s duties hereunder, and may not assign
any of the Employee’s rights hereunder, and any such purported or attempted assignment or
delegation shall be null and void and of no legal effect.
	 
	 	(c)	 	This Agreement will be interpreted and the rights of the parties determined in
accordance with the laws of the State of New York.
	 
	 	(d)	 	The Employee covenants and represents that (i) he is not a party to any contract,
commitment or agreement, nor is he subject to, or bound by, any order, judgment, decree,
law, statute, ordinance, rule, regulation or other restriction of any kind or character,
which would prevent or restrict him from entering into and performing his obligations under
this Agreement, (ii) he is free to enter into the arrangements contemplated herein, and
(iii) he is not subject to any agreement or obligation that would limit his ability to act
on behalf of ARI or any of its subsidiaries.
	 
	 	(e)	 	The Employee acknowledges that he has had the assistance of legal counsel in reviewing
and negotiating this Agreement.
	 
	 	(f)	 	This Agreement and all of its provisions, other than the provisions of Section 5,
Section 7, Section 8 and Section 11 hereof (which shall survive termination), shall
terminate upon the Employee ceasing to be an employee of ARI for any reason.

[Signature Page Follows]

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	AMERICAN RAILCAR INDUSTRIES, INC.	 	 
	 
	 	 	 	 
	By:

	 	/s/ William P. Benac	 	 
	 

	 	 	 	 
	 

	 	Name: William P. Benac

Title: Chief Financial Officer	 	 
	 
	 	 	 	 
	EMPLOYEE:	 	 
	 
	 	 	 	 
	By:

	 	/s/ James J. Unger	 	 
	 

	 	 	 	 
	 

	 	James J. Unger	 	 

[Signature page to J. J. Unger Employment Agreement]

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Exhibit A

SETTLEMENT AND RELEASE AGREEMENT

     This
settlement and release agreement is dated as of November 18, 2005, (this “Release”)
between James J. Unger (the “Employee”) and American Railcar Industries, Inc., a Missouri
corporation (“ARI”). Terms not otherwise defined herein shall have the meaning assigned to such
terms in the employment agreement (the “Employment
Agreement”), dated as of November 18, 2005,
between the Employee and ARI.

     1. The Employee hereby settles, releases and discharges Mr. Carl C. Icahn, ARI, its
successors, directors, owners, officers, and affiliates, from any and all claims in law or in
equity, demands, actions, causes of action, obligations, contracts, damages, liabilities, losses,
costs or expenses of every nature and kind whatsoever, whether known or unknown, suspected or
unsuspected, relating to or arising out of the Employee’s employment with ARI through the Effective
Date, other than claims relating to benefits under pension plans, as
defined within Section 3(2) of Title I of the Employee
Retirement Income Security Act of 1974 (“ERISA”).

     2. The Employee’s general release under this Release includes, but is not limited to, claims
for declaratory relief, injunctive relief, violation of public policy, breach of any express or
implied contract, breach of any implied covenant, fraud, intentional or negligent
misrepresentation, or any other claims known or unknown in any way relating to or arising out of
the Employee’s employment with ARI at any time, other than
claims relating to benefits under pension plans, as defined within
Section 3(2) of Title I of ERISA.

     3. The Employee hereby acknowledges that effective as of the date hereof, the Employment
Agreement shall be terminated in its entirety and shall be of no further force or effect.

     4. This Release may be executed in one or more counterparts, all of which taken together shall
constitute one agreement.

     5. The provisions of this Release are severable, and if any part of it is found to be
unenforceable, the other paragraphs shall remain fully valid and enforceable. This Release shall
survive the termination of any arrangements contained herein.

     6. This Release is entered into in and shall be governed by and construed and interpreted in
accordance with the laws of the State of New York, without respect to any choice of law provisions
or statutes.

[Signature Page Follows]

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	JAMES J. UNGER	 	 
	 
	 	 	 	 
	By:

	 	 	 	 
	 

	 	 	 	 
	 

	 	James J. Unger	 	 
	 
	 	 	 	 
	Acknowledged
by:
	 	 
	 
	 	 	 	 
	AMERICAN RAILCAR INDUSTRIES, INC.	 	 
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 	 	 
	 

	 	Name: William P. Benac

Title: Chief Financial Officer	 	 

[Signature page to J. J. Unger Settlement and Release]

 

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Exhibit B

RELEASE AGREEMENT

     This
release agreement is dated as of November 18, 2005, (this “Release”) between James J.
Unger (the “Employee”) and American Railcar Industries, Inc., a Missouri corporation (“ARI”).
Terms not otherwise defined herein shall have the meaning assigned to such terms in the Employment
Agreement, dated as of November 18, 2005, between the Employee and ARI.

     Reference is made to that certain agreement between Carl C. Icahn and the Employee, dated as
of October 25, 1994 (the “1994 Agreement”) relating to major points regarding the Employee’s
employment and compensation at ARI.

     1. The Employee hereby releases and discharges Mr. Icahn, ARI, its successors, directors,
owners, officers, and affiliates, from any and all claims in law or in equity, demands, actions,
causes of action, obligations, contracts, damages, liabilities, losses, costs or expenses of every
nature and kind whatsoever, whether known or unknown, suspected or unsuspected, relating to or
arising out of the 1994 Agreement.

     2. The Employee’s general release under this Agreement includes, but is not limited to, claims
for declaratory relief, injunctive relief, violation of public policy, breach of any express or
implied contract, breach of any implied covenant, fraud, intentional or negligent
misrepresentation, or any other claims known or unknown in any way relating to or arising out of
the 1994 Agreement.

     3. The Employee hereby acknowledges that effective as of the date hereof, the 1994 Agreement
shall be terminated in its entirety and shall be of no further force or effect.

     4. This Release may be executed in one or more counterparts, all of which taken together shall
constitute one agreement.

     5. The provisions of this Release are severable, and if any part of it is found to be
unenforceable, the other paragraphs shall remain fully valid and enforceable. This Release shall
survive the termination of any arrangements contained herein.

     6. This Release is entered into in and shall be governed by and construed and interpreted in
accordance with the laws of the State of New York, without respect to any choice of law provisions
or statutes.

[Signature Page Follows]

 

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	JAMES J. UNGER	 	 
	 
	 	 	 	 
	By:

	 	 	 	 
	 

	 	 	 	 
	 

	 	James J. Unger	 	 
	 
	 	 	 	 
	Acknowledged
by:
	 	 
	 
	 	 	 	 
	AMERICAN RAILCAR INDUSTRIES, INC.	 	 
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 	 	 
	 

	 	Name: William P. Benac

Title: Chief Financial Officer	 	 

[Signature page to J. J. Unger 1994 Agreement Release]

 

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Exhibit 10.30

EMPLOYMENT AGREEMENT

     EMPLOYMENT AGREEMENT dated as of December 1, 2005 (this “Agreement”), between American Railcar
Industries, Inc., a Missouri corporation (the “Company”) and Mr. James A. Cowan (the “Employee”).

1. Employment

(a) Upon the terms and conditions hereinafter set forth, the Company hereby agrees to employ the
Employee and the Employee hereby agrees to become so employed. During the Term of Employment (as
hereinafter defined), the Employee shall be employed in the position of the Chief Operating Officer
of the Company, reporting to James J. Unger, Chief Executive Officer of the Company and the Board
of Directors of the Company (the “Board”), and as an officer of subsidiaries of the Company as
specified and directed by the Board from time to time, and shall perform such duties, consistent
with such status and position, as are specified from time to time by, and shall serve in such
capacities at the pleasure of, the Company and the Board, subject to the terms hereof.

(b) During the Term of Employment (as hereinafter defined), the Employee shall devote all of his
professional attention, on a full time basis, to the business and affairs of the Company and shall
use his best efforts to advance the best interest of the Company and shall comply with all of the
policies of the Company, including, without limitation, such policies with respect to legal
compliance, conflicts of interest, confidentiality and business ethics as are from time to time in
effect.

(c) During the Term of Employment, the Employee shall not directly or indirectly render services
to, or otherwise act in a business or professional capacity on behalf of or for the benefit of, any
other “Person” (as defined below) as an employee, advisor, member of a board or similar governing
body, independent contractor, agent, consultant, representative or otherwise, whether or not
compensated. “Person” or “person”, as used in this Agreement, means any individual, partnership,
limited partnership, corporation, limited liability company, trust, estate, cooperative,
association, organization, proprietorship, firm, joint venture, joint stock company, syndicate,
company, committee, government or governmental subdivision or agency, or other entity.

2. Term

The employment period of the Employee hereunder shall commence on or before December 5, 2005, and
shall continue through December 31, 2008 (December 31, 2008 being the “Expiration Date”), unless
earlier terminated as set forth in this Agreement.

3. Compensation

For all services to be performed by the Employee under this Agreement, during the Term of
Employment, the Employee shall be compensated in the following manner:

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     (a) Base Compensation

The Company will pay the Employee a salary (the “Base Salary”) at an annual rate of $300,000 per
full 365-day year. The Base Salary shall be payable in accordance with the normal payroll practice
of the Company. The Base Salary will be reviewed periodically by the Board of Directors as is
customary with other officers. Following such review, the Board of Directors may, at its absolute
and sole discretion, increase (but shall not be required to increase) the Base Salary or other
benefits.

     (b) Bonus Compensation

The Company will pay the Employee an annual bonus for each calendar year of employment ending on or
after December 31, 2006, calculated based on the achievement of objective performance targets for
the Company to be set by the Board (or a committee thereof) not later than March 31 for each such
calendar year, of up to 50% of Base Salary, if such performance targets are met. The compensation
payable as contemplated in the preceding sentence of this section 3(b) is referred to herein as
“Bonus Compensation”. The Bonus Compensation in respect of any calendar year shall be paid no
later than March 15 of the following calendar year or such later day as permissible under Section
409A of the Internal Revenue Code of 1986, as amended from time to time, (the “Code”) and the
guidance issued thereunder from time to time, but in any event no later than promptly following
completion of the audited financial statements of the Company for the calendar year in question
(such date, the “Bonus Payment Date”).

     (c) Stock Options 

Pursuant to the Company’s 2005 Equity Incentive Plan (the “Plan”), the Company hereby agrees to
grant to the Employee, on the first closing date of the Company’s initial public offering
registered with the Securities and Exchange Commission on Form S-1 (the “IPO”), stock options (the
“Stock Options”) in respect of a notional amount equal to 1.25% of the outstanding shares of common
stock of the Company (the “Shares”) immediately following the IPO (without giving effect to any
exercise of the over-allotment option) at an exercise price equal to the fair market value of the
Common Stock at the time of grant (the “Exercise Price”). The Stock Options shall be subject to
the terms and conditions of the Plan and the Notice of Stock Option Award, each substantially in
the form attached hereto as Exhibits A-1 and A-2, respectively; provided, however,
Section 7(f)(E) of the Plan shall not apply to the Employee’s Stock Options.

     (d) Taxes

All amounts paid to the Employee under or pursuant to this Agreement, including, without
limitation, the Base Salary and any Bonus Compensation and Stock Options, or any other compensation
or benefits, whether in cash or in kind, shall be subject to normal federal, state and, if
applicable, local or foreign tax withholding and deductions imposed by any one or more federal,
state, local and or foreign governments, or pursuant to any foreign or domestic applicable law,
rule or regulation.

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4. Benefits.

During the Term of Employment, and in addition to any benefits and perquisites to which the
Employee is otherwise entitled pursuant to this Agreement, the Employee shall be entitled to
receive healthcare, group term life insurance, group long-term disability insurance, 401(k)
participation, twenty business days paid vacation per year, and other similar employee benefits at
least equal to those currently or subsequently received by other senior employees of the Company as
such may be provided by the Company in its sole and absolute discretion from time to time. In
addition, during the Term of Employment, the Employee shall be entitled to reimbursement for the
reasonable use of an automobile and for the payment of reasonable country club dues (but, not
including initiation fees) on terms consistent to those received by other senior employees of the
Company.

5. Termination

This Agreement shall terminate (subject to Section 9(f) below) and the Term of Employment and the
employment of Employee hereunder shall end, on the first to occur of any of the following (each a
“Termination Event”):

	 	(a)	 	The Expiration Date;
	 
	 	(b)	 	The: (i) death of the Employee or (ii) reasonable determination of the Board,
which determination shall be reached in consultation with appropriate medical
professionals, that the Employee has become physically or mentally incapacitated so as
to be unable to perform the essential functions of Employee’s duties to the Company for
60 consecutive days, even with reasonable accommodation, (the “Disability);
	 
	 	(c)	 	The discharge of the Employee by the Company with or without Cause; or
	 
	 	(d)	 	The resignation of the Employee (and without limiting the effect of such
resignation, the Employee agrees to provide the Company with not less than 30 days
prior written notice of his resignation, in which event the Company may, at its option,
declare such resignation to be effective at any day following receipt of such notice).

The Company may discharge the Employee at any time, for any reason or no reason, with or without
Cause. As used herein, “Cause” is defined as the Employee’s: (i) failure to perform substantially
the duties of the Chief Operating Officer of the Company (other than any such failure resulting
from incapacity due to Disability), (ii) charged with any crime other than traffic violations,
(iii) engagement in an act of fraud or of willful dishonesty towards the Company, (iv) material
breach of this Agreement, (v) willful misconduct or gross negligence in the performance of
Employee’s duties hereunder, or (vi) violation of a federal or state securities law or regulation.
To the extent the Employee is discharged or resigns, or is otherwise terminated or is deemed
terminated, in each case as provided herein, from his position with the Company, he shall be and be
deemed to have ceased his employment in the same manner with all of the subsidiaries of the
Company.

Page 3

 

6. Effect of Termination

In the event of termination of the Employee’s employment hereunder, all rights of the Employee
under this Agreement, including all rights to compensation, shall end and the Employee shall only
be entitled to be paid the amounts set forth in this Section 6 below; provided,
that, the obligations of the Company to make any payment required pursuant to this Section
6 (other than (x) any amounts of the Employee’s Base Salary previously earned and accrued and (y)
in accordance with the Company’s policy, unreimbursed business expenses of the Employee, ((x) and
(y) collectively, the “Accrued Obligations”), but with the exception of the Accrued Obligations
being payable under clause (c) below), is conditioned upon (i) execution and delivery by the
Employee to the Company of a settlement and release agreement in favor of the Company, its
affiliates and their respective officers, directors, employees, agents and equity holders in
respect of the Employee’s employment with the Company and the termination thereof in form
substantially as set forth in Exhibit B, attached hereto, and (ii) such agreement, once executed by
the Employee and delivered to the Company, becomes irrevocable, enforceable and final under the
applicable law.

	 	(a)	 	In the event that the Employee’s employment is terminated for the reason set
forth in Section 5(a) above (i.e., Expiration Date), then, in lieu of any other
payments of any kind (including without limitation, any severance payments), the
Employee shall be entitled to receive, within thirty (30) days following the date on
which the Termination Event in question occurred (the “Clause (a) Termination Date”)
(or, in the case of any Bonus Compensation, as soon as practicable following the
calculation thereof):

	 	(i)	 	the Employee’s Accrued Obligations, due and unpaid to the
Employee from the Company as of the Clause (a) Termination Date; and
	 
	 	(ii)	 	any amounts of Bonus Compensation earned and due in respect of
a completed calendar year, which remains unpaid to the Employee as of the
Clause (a) Termination Date.

	 	(b)	 	In the event that the Employee’s employment is terminated for the reason set
forth in Section 5(b) above (i.e., death or Disability), then, in lieu of any other
payments of any kind (including without limitation, any severance payments), the
Employee shall be entitled to receive, within thirty (30) days following the date on
which the Termination Event in question occurred (the “Clause (b) Termination Date”)
(or, in the case of any Bonus Compensation, as soon as practicable following the
calculation thereof):

	 	(i)	 	the Employee’s Accrued Obligations, due and unpaid to the
Employee from the Company as of the Clause (b) Termination Date;
	 
	 	(ii)	 	any amounts of Bonus Compensation earned and due with respect
to a completed calendar year, which remains unpaid to the Employee as of the
Clause (b) Termination Date; and
	 
	 	(iii)	 	a pro-rated portion of the Bonus Compensation computed as set
forth below.

Page 4

 

	 	(c)	 	In the event that the Employee’s employment is terminated (A) for the reason
set forth in Section 5(d) above (i.e., resignation) or (B) due to the discharge of the
Employee by the Company for Cause, then, in lieu of any other payments of any kind
(including without limitation, any severance payments), the Employee shall be entitled
to receive, within thirty (30) days following the date on which the Termination Event
in question occurred (the “Clause (c) Termination Date”) the Employee’s Accrued
Obligations, due and unpaid to the Employee from the Company as of the Clause (c)
Termination Date.
	 
	 	(d)	 	In the event that the Employee’s employment is terminated due to the discharge
of the Employee by the Company without Cause (which the Company is free to do at any
time in its sole and absolute discretion), then, in lieu of any other payments of any
kind (including, without limitation, any severance payments), the Employee shall be
entitled to receive, within thirty (30) days following the date on which the
Termination Event in question occurred (the “Clause (d) Termination Date”) (other than
in the case of (iv), which shall be paid in accordance with normal payroll practice of
the Company or, in the case of any Bonus Compensation, as soon as practicable following
the calculation thereof):

	 	(i)	 	the Employee’s Accrued Obligations, due and unpaid to the
Employee from the Company as of the Clause (d) Termination Date;
	 
	 	(ii)	 	any amounts of Bonus Compensation earned and due with respect
to a completed calendar year, which remains unpaid to the Employee as of the
Clause (d) Termination Date;
	 
	 	(iii)	 	a pro-rated portion of the Bonus Compensation computed as set
forth below; and
	 
	 	(iv)	 	a continuation of the payment, in accordance with the normal
payroll practice of the Company, of amounts of Base Salary that the Employee
would have earned through the Expiration Date had he continued to be employed
by the Company through the Expiration Date.

	 	(e)	 	In the event of any termination of the Employee’s employment, the Employee
shall be under no obligation to seek other employment, but in the event the Employee
becomes employed following any such termination, the Company shall be entitled to an
offset of the payments paid or to be paid under clause (iv) of Section 6(d) above, on
account of any remuneration or other benefit attributable to any subsequent employment
that the Employee may obtain. The Employee shall correctly disclose to the Company all
such remuneration or other benefit, and if there is a written employment agreement in
connection therewith, provide the Company with a copy thereof.
	 
	 	(f)	 	For the purpose of this Section 6, any Bonus Compensation shall be deemed to be
earned and to become due and payable with respect to any calendar year only if the Term
of Employment has continued through December 31, of such year and, with respect to the
amounts, if any, of such Bonus Compensation for

Page 5

 

	 	 	 	any year, shall be determined based upon the level of attainment of the applicable
performance targets for such year. In the event that, pursuant to the terms of this
Section 6, the Employee is entitled to receive any pro rated Bonus Compensation,
such pro ration shall be determined following December 31 of the calendar year in
which the Employee ceases to be employed hereunder, but shall be paid no later than
the following Bonus Payment Date, and shall be calculated by multiplying the Bonus
Compensation that would have been deemed earned and to become due and payable in
accordance with the terms of this Agreement with respect to the calendar year in
which the Employee ceases to be employed hereunder if the Term of Employment had
continued through December 31 of such year as determined based upon the applicable
performance targets for such year, by a fraction, the numerator of which is the
number of days from (and including) January 1 of such year through (and including)
the last day of employment hereunder, and the denominator of which is 365.

7. Non-Disclosure

During the Term of Employment and at all times thereafter, the Employee shall hold in a fiduciary
capacity for the benefit of the Company and each of its affiliates, all secret or confidential
information, knowledge or data, including, without limitation, trade secrets, sources of supplies
and materials, customer lists and their identity, designs, production and design techniques and
methods, identity of investments, identity of contemplated investments, business opportunities,
valuation models and methodologies, processes, technologies, and any other intellectual property
relating to the business of the Company or its affiliates, and their respective businesses, (i)
obtained by the Employee during the Employee’s employment by the Company and any of the
subsidiaries of the Company and (ii) not otherwise in the public domain, (“Confidential
Information”). The Employee also agrees to keep confidential and not disclose any personal
information regarding any controlling Person of the Company, including Carl C. Icahn, or any of its
or his affiliates and their employees, and any member of the immediate family of any such Person
(and all such personal information shall be deemed “Confidential Information” for the purposes of
this Agreement). The Employee shall not, without the prior written consent of the Company (acting
at the direction of the Board): (i) except to the extent compelled pursuant to the order of a court
or other body having jurisdiction over such matter or based upon the advice of counsel that such
disclosure is legally required, communicate or divulge any Confidential Information to anyone other
than the Company and those designated by the Company; or (ii) use any Confidential Information for
any purpose other than the performance of his duties pursuant to this Agreement. The Employee will
assist the Company or its designee, at the Company’s expense, in obtaining a protective order,
other appropriate remedy or other reliable assurance that confidential treatment will be accorded
any Confidential Information disclosed pursuant to the terms of this Agreement.

All processes, know-how, technologies, trade-secrets information, intellectual property and
inventions (collectively, “Inventions”) conceived, developed, invented, made or found by the
Employee, alone or with others, during the Term of Employment and out of the performance of his
duties and responsibilities hereunder, whether or not patentable and whether or not on the
Company’s or any of its subsidiaries’ time or with the use of the Company’s or any of its
subsidiaries’ facilities or materials, shall be the property of the Company or its respective

Page 6

 

subsidiary, as the case may be, and shall be promptly and fully disclosed by the Employee to the
Company. The Employee shall perform all necessary acts (including, without limitations, executing
and delivering any confirmatory assignments, power of attorney, documents, or instruments requested
by the Company or any of its subsidiaries) to vest title to any such Invention in the Company or
the applicable subsidiary and to enable the Company or the applicable subsidiary, at their expense,
to secure and maintain domestic and/or foreign patents or any other rights for such Inventions.

All right, title and interest in all copyrightable material that the Employee shall conceive or
originate individually or jointly or commonly with others, and that arise during the term of his
employment with the Company and out of the performance of his duties and responsibilities under
this Agreement, shall be the property of the Company and are hereby assigned by the Employee to the
Company, along with ownership of any and all copyrights in the copyrightable material. Upon
request and without further compensation therefor, but at no expense to the Employee, the Employee
shall execute any and all papers and perform all other acts necessary to assist the Company to
obtain and register copyrights on such materials in any and all countries. Where applicable, works
of authorship created by the Employee for the Company in performing his duties and responsibilities
hereunder shall be considered “works made for hire,” as defined in the U.S. Copyright Act.

8. Non-Compete and Non-Solicitation

	 	(a)	 	In addition to, and not in limitation of, all of the other terms and provisions
of this Agreement, the Employee agrees that during the Term of Employment, the Employee
will comply with the provisions of Section 1 above.
	 
	 	(b)	 	Unless the Employee’s employment is terminated by the Company without Cause,
for the later of (i) a period of one (1) year following the last day of the Term of
Employment or (ii) the period during which the Company continues to pay Base Salary to
the Employee after termination of employment under Section 6(d)(iv), the Employee will
not, either directly or indirectly, as principal, agent, owner, employee, director,
partner, investor, shareholder (other than solely as a holder of not more than 1% of
the issued and outstanding shares of any public corporation), consultant, advisor or
otherwise howsoever own, operate, carry on or engage in the operation of or have any
financial interest in or provide, directly or indirectly, financial assistance to or
lend money to or guarantee the debts or obligations of any Person carrying on or
engaged in any business that is similar to or competitive with the business conducted
by the Company or any of its subsidiaries during or on the date of termination of
Employee’s employment. The business of manufacturing, selling and/or distributing
railcars and railcar parts and other related products shall be and be deemed to be
“competitive” with the business conducted by the Company for the purposes hereof.
	 
	 	(c)	 	The Employee covenants and agrees with the Company and its subsidiaries that,
during the Term of Employment and for the later of (i) one (1) year following the last
day of the Term of Employment or (ii) the period during which the Company continues to
pay Base Salary to the Employee under

Page 7

 

	 	 	 	Section 6(d)(iv) thereafter, the Employee shall not directly, or indirectly, for
herself or for any other Person:

	 	(i)	 	solicit, interfere with or endeavor to entice away from the
Company or any of its subsidiaries or affiliates, any customer, client or any
Person in the habit of dealing with any of the foregoing;
	 
	 	(ii)	 	attempt to direct or solicit any customer or client away from
the Company or any of its subsidiaries or affiliates;
	 
	 	(iii)	 	interfere with, entice away or otherwise attempt to obtain the
withdrawal of any employee of the Company or any of its subsidiaries or
affiliates; or
	 
	 	(iv)	 	advise any Person not to do business with the Company or any of
its subsidiaries or affiliates.

The Employee represents to and agrees with the Company that the enforcement of the restrictions
contained in Section 7 and Section 8 (the Non-Disclosure and Non-Compete and Non-Solicitation
sections respectively) would not be unduly burdensome to the Employee and that such restrictions
are reasonably necessary to protect the legitimate interests of the Company. The Employee agrees
that the remedy of damages for any breach by the Employee of the provisions of either of these
sections may be inadequate and that the Company shall be entitled to injunctive relief, without
posting any bond. This section constitutes an independent and separable covenant that shall be
enforceable notwithstanding any right or remedy that the Company may have under any other provision
of this Agreement or otherwise.

9. Miscellaneous

	 	(a)	 	This Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes all previous written, and all
previous or contemporaneous oral negotiations, understandings, arrangements, and
agreements, and may be amended, modified or changed only by a written instrument
executed by the Employee and the Company.
	 
	 	(b)	 	This Agreement and all of the provisions hereof shall inure to the benefit of
and be binding upon the legal representative, heirs, distributees, successors (whether
by merger, operation of law or otherwise) and assigns of the parties hereto; provided,
however, that the Employee may not delegate any of the Employee’s duties hereunder, and
may not assign any of the Employee’s rights hereunder, and any such purported or
attempted assignment or delegation shall be null and void and of no legal effect. In
the event the Company assigns this Agreement and its successor assumes the Company’s
obligations hereunder in writing or by operation of law, (i) the Company shall be
released from all of its obligations hereunder, and (ii) all of the references to the
Company, and to the Board, shall be deemed to be references to the Company’s successor
and to the governing body of such successor, respectively. The Company and all of its
future or current subsidiaries shall be and be deemed to be third-party beneficiaries
of this Agreement.

Page 8

 

	 	(c)	 	This Agreement will be interpreted and the rights of the parties determined in
accordance with the laws of the United States applicable thereto and the internal laws
of the State of New York.
	 
	 	(d)	 	The Employee covenants and represents that (i) he is not a party to any
contract, commitment, restrictive covenant or agreement, nor is he subject to, or bound
by, any order, judgment, decree, law, statute, ordinance, rule, regulation or other
restriction of any kind or character, which would prevent or restrict his from entering
into and performing his obligations under this Agreement, (ii) he is free to enter into
the arrangements contemplated herein, (iii) he is not subject to any agreement or
obligation that would limit his ability to act on behalf of the Company or any of its
subsidiaries, and (iv) his termination of his existing employment, his entry into the
employment contemplated herein and his performance of his duties in respect thereof,
will not violate or conflict with any agreement or obligation to which he is subject.
Employee has delivered to the Company true and complete copies of any currently
effective employment agreement, non-competitive agreement or similar agreement to which
Employee is subject.
	 
	 	(e)	 	The Employee acknowledges that he has had the assistance of legal counsel in
reviewing and negotiating this Agreement.
	 
	 	(f)	 	This Agreement and all of its provisions (other than the provisions of Section
3(c)A(i), Section 5, Section 6, Section 7, Section 8, and Section 9 hereof, which shall
survive termination) shall terminate upon the Employee ceasing to be an employee of the
Company for any reason.
	 
	 	(g)	 	All notices and other communications hereunder shall be in writing; shall be
delivered by hand delivery to the other party or mailed by registered or certified
mail, return receipt requested, postage prepaid or by a nationally recognized courier
service such as Federal Express; shall be deemed delivered upon actual receipt; and
shall be addressed as follows:
	 
	 	 	 	If to the Company:
	 
	 	 	 	American Railcar Industries, Inc.

100 Clark Street

St. Charles, Missouri 63301

Facsimile: (636) 940-6044

Attention: James J. Unger, President and Chief Executive Officer
	 
	 	 	 	If to the Employee:
	 
	 	 	 	At the last known principal residence address reflected in the payroll records of
the Company, or to such other address as either party shall have furnished to the
other in writing in accordance herewith.

Page 9

 

[Signature Page Follows]

Page 10

 

	 	 	 	 	 
	AMERICAN RAILCAR INDUSTRIES, INC.	 	 
	 
	 	 	 	 
	By:

	 	/s/ James J. Unger	 	 
	 

	 	 	 	 
	 

	 	Name: James J. Unger

Title: President and Chief Executive Officer	 	 
	 
	 	 	 	 
	Date:
	 	12/1/05	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	EMPLOYEE:	 	 
	 
	 	 	 	 
	By:

	 	/s/ James A. Cowan	 	 
	 

	 	 	 	 
	 

	 	James A. Cowan	 	 
	 
	 	 	 	 
	Date:
	 	12/1/05	 	 
	 

	 	 	 	 

[Signature page to Employment Agreement]

Page 11

 

[2005 EQUITY INCENTIVE PLAN]

EXHIBIT A-1

FORM OF

AMERICAN RAILCAR, INC.

2005 EQUITY INCENTIVE PLAN

1. Purpose and Eligibility. The purpose of this 2005 Equity Incentive Plan (the “Plan”) of
American Railcar, Inc., a Delaware corporation (the “Company”) is to provide stock options, stock
issuances, stock units and other equity interests in the Company (each, an “Award”) to (a)
employees, officers, directors, consultants and advisors of the Company and its Parents and
Subsidiaries, and (b) any other Person who is determined by the Board to have made (or is expected
to make) contributions to the Company. Any person to whom an Award has been granted under the Plan
is called a “Participant.” Additional definitions are contained in Section 10.

2. Administration.

     a. Administration by Board of Directors. The Plan will be administered by the Board of
Directors of the Company (the “Board”). The Board, in its sole discretion, shall have the authority
to grant and amend Awards, to adopt, amend and repeal rules relating to the Plan and to interpret
and correct the provisions of the Plan and any Award. The Board shall have authority, subject to
the express limitations of the Plan, (i) to construe and determine the respective Stock Option
Agreement, Awards and the Plan, (ii) to prescribe, amend and rescind rules and regulations relating
to the Plan and any Awards, (iii) to determine the terms and provisions of the respective Stock
Option Agreements and Awards, which need not be identical, (iv) to initiate an Option Exchange
Program, and (v) to make all other determinations in the judgment of the Board of Directors
necessary or desirable for the administration and interpretation of the Plan. The Board may correct
any defect or supply any omission or reconcile any inconsistency in the Plan or in any Stock Option
Agreement or Award in the manner and to the extent it shall deem expedient to carry the Plan, any
Stock Option Agreement or Award into effect and it shall be the sole and final judge of such
expediency. All decisions by the Board shall be final and binding on all interested persons.
Neither the Company nor any member of the Board shall be liable for any action or determination
relating to the Plan.

     b. Appointment of Committee. To the extent permitted by applicable law, the Board
may delegate any or all of its powers under the Plan to one or more committees or subcommittees of
the Board (a “Committee”). All references in the Plan to the “Board” shall mean such Committee or
the Board.

     c. Delegation to Executive Officers. To the extent permitted by applicable law, the
Board may delegate to one or more executive officers of the Company the power to grant Awards and
exercise such other powers under the Plan as the Board may determine, provided that the Board shall
fix the maximum number of Awards to be granted and the maximum number of shares issuable to any one
Participant pursuant to Awards granted by such executive officers.

 

 

     d. Applicability of Section Rule 16b-3. Notwithstanding anything to the contrary in
the foregoing if, or at such time as, the Common Stock is or becomes registered under Section 12 of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or any successor statute, the
Plan shall be administered in a manner consistent with Rule 16b-3 promulgated thereunder, as it may
be amended from time to time, or any successor rules (“Rule 16b-3”), such that all subsequent
grants of Awards hereunder to Reporting Persons, as hereinafter defined, shall be exempt under such
rule. Those provisions of the Plan which make express reference to Rule 16b-3 or which are
required in order for certain option transactions to qualify for exemption under Rule 16b-3 shall
apply only to such persons as are required to file reports under Section 16 (a) of the Exchange Act
(a “Reporting Person”).

     e. Applicability of Section 162 (m). Those provisions of the Plan which are required
by or make express reference to Section 162 (m) of the Code or any regulations thereunder, or any
successor section of the Code or regulations thereunder (“Section 162 (m)”) shall apply only upon
the Company’s becoming a company that is subject to Section 162 (m). Notwithstanding any provisions
in this Plan to the contrary, whenever the Board is authorized to exercise its discretion in the
administration or amendment of this Plan or any Award hereunder or otherwise, the Board may not
exercise such discretion in a manner that would cause any outstanding Award that would otherwise
qualify as performance-based compensation under Section 162 (m) to fail to so qualify under Section
162 (m).

3 Stock Available for Awards.

     a. Number of Shares. Subject to adjustment under Section 3(c), the aggregate number
of shares of common stock of the Company (the “Common Stock”) that may be issued pursuant to the
Plan is [INSERT NUMBER OF SHARES AUTHORIZED]. If any Award expires, or is terminated, surrendered
or forfeited, in whole or in part, the unissued Common Stock covered by such Award shall again be
available for the grant of Awards under the Plan. If an Award granted under the Plan shall expire
or terminate for any reason without having been exercised in full, the unpurchased shares subject
to such Award shall again be available for subsequent Awards under the Plan, and if shares of
Common Stock issued pursuant to the Plan are repurchased by, or are surrendered or forfeited to,
the Company at no more than the price paid for such shares, such shares of Common Stock shall again
be available for the grant of Awards under the Plan. Shares issued under the Plan may consist in
whole or in part of authorized but unissued shares or treasury shares.

     b. Per-Participant Limit. Subject to adjustment under Section 3(c), no Participant
may be granted Awards during any one fiscal year to purchase more than [MAXIMUM NUMBER PER
PARTICIPANT] shares of Common Stock.

     c. Adjustment to Common Stock. Subject to Section 7, in the event of any stock split,
reverse stock split stock dividend, extraordinary cash dividend, recapitalization, reorganization,
merger, consolidation, combination, exchange of shares, liquidation, spin-off, split-up, or other
similar change in capitalization or similar event, (i) the number and class of securities available
for Awards under the Plan and the per-Participant share limit, (ii) the number and class of
securities,

 

 

vesting schedule and exercise price per share subject to each outstanding Option, (iii) the
repurchase price per security subject to repurchase, and (iv) the terms of each other outstanding
Award shall be adjusted by the Company (or substituted Awards may be made if applicable) to the
extent the Board shall determine, in good faith, that such an adjustment (or substitution) is
appropriate.

4. Stock Options.

     a. General. The Board may grant options to purchase Common Stock (each, an “Option”)
and determine the number of shares of Common Stock to be covered by each Option, the exercise price
of each Option and the conditions and limitations applicable to the exercise of each Option and the
shares of Common Stock issued upon the exercise of each Option, including, but not limited to,
vesting provisions, repurchase provisions and restrictions relating to applicable federal or state
securities laws. Each Option will be evidenced by a Stock Option Agreement, consisting of a Notice
of Stock Option Award and a Stock Option Award Agreement (collectively, a “Stock Option
Agreement”).

     b. Incentive Stock Options. An Option that the Board intends to be an incentive stock
option (an “Incentive Stock Option”) as defined in Section 422 of the Code, as amended, or any
successor statute (“Section 422”), shall be granted only to an employee of the Company and shall be
subject to and shall be construed consistently with the requirements of Section 422 and regulations
thereunder. The Board and the Company shall have no liability if an Option or any part thereof
that is intended to be an Incentive Stock Option does not qualify as such. An Option or any part
thereof that does not qualify as an Incentive Stock Option is referred to herein as a “Nonstatutory
Stock Option” or “Nonqualified Stock Option.”

     c. Dollar Limitation. For so long as the Code shall so provide, Options granted to any
employee under the Plan (and any other incentive stock option plans of the Company) which are
intended to qualify as Incentive Stock Options shall not qualify as Incentive Stock Options to the
extent that such Options, in the aggregate, become exercisable for the first time in any one
calendar year for shares of Common Stock with an aggregate fair market value (determined as of the
respective date or dates of grant) of more than $100,000. The amount of Incentive Stock Options
which exceed such $100,000 limitation shall be deemed to be Nonqualified Stock Options. For the
purpose of this limitation, unless otherwise required by the Code or regulations of the Internal
Revenue Service or determined by the Board, Options shall be taken into account in the order
granted, and the Board may designate that portion of any Incentive Stock Option that shall be
treated as Nonqualified Option in the event that the provisions of this paragraph apply to a
portion of any Option. The designation described in the preceding sentence may be made at such
time as the Committee considers appropriate, including after the issuance of the Option or at the
time of its exercise.

     d. Exercise Price. The Board shall establish the exercise price (or determine the
method by which the exercise price shall be determined) at the time each Option is granted and
specify the exercise price in the applicable Stock Option Agreement, provided, however, in no event
may the per share exercise price be less than the fair market value of the Common Stock at the time
of the

 

 

grant. In the case of an Incentive Stock Option granted to a Participant who, at the time of grant
of such Option, owns stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any parent or subsidiary, then the exercise price shall be no
less than 110% of the fair market value of the Common Stock on the date of grant. In the case of a
grant of an Incentive Stock Option to any other Participant, the exercise price shall be no less
than 100% of the fair market value of the Common Stock on the date of grant.

     e. Duration of Options. Each Option shall be exercisable at such times and subject to
such terms and conditions as the Board may specify in the applicable Stock Option Agreement;
provided, that the term of any Incentive Stock Option may not be more than ten (10) years from the
date of grant. In the case of an Incentive Stock Option granted to a Participant who, at the time
of grant of such Option, owns stock representing more than ten percent (10%) of the voting power of
all classes of stock of the Company or any parent or subsidiary, the term of the Option shall be
no longer than five (5) years from the date of grant.

     f. Exercise of Option. Options may be exercised only by delivery to the Company of a
written notice of exercise signed by the proper person together with payment in full as specified
in Section 4(g) and the Stock Option Agreement for the number of shares for which the Option is
exercised.

     g. Payment Upon Exercise. Common Stock purchased upon the exercise of an Option
shall be paid for by one or any combination of the following forms of payment as permitted by the
Board in its sole and absolute discretion:

          i. by check payable to the order of the Company;

          ii. only if the Common Stock is then publicly traded, by delivery of an irrevocable and
unconditional undertaking by a creditworthy broker to deliver promptly to the Company sufficient
funds to pay the exercise price, or delivery by the Participant to the Company of a copy of
irrevocable and unconditional instructions to a creditworthy broker to deliver promptly to the
Company cash or a check sufficient to pay the exercise price;

          iii. to the extent explicitly provided in the applicable Stock Option Agreement, by delivery
of shares of Common Stock owned by the Participant valued at fair market value (as determined by
the Board or as determined pursuant to the applicable Stock Option Agreement); and

          iv. payment of such other lawful consideration as the Board may determine.

Except as otherwise expressly set forth in a Stock Option Agreement, the Board shall have no
obligation to accept consideration other than cash and in particular, unless the Board so expressly
provides, in no event will the Company accept the delivery of shares of Common Stock that have not
been owned by the Participant at least six months prior to the exercise. The fair market value of
any shares of the Company’s Common Stock or other non-cash consideration which may be delivered
upon exercise of an Option shall be determined in such manner as may be prescribed by the Board.

 

 

     h. Acceleration, Extension, Etc. The Board may, in its sole discretion, and in all
instances subject to any relevant tax and accounting considerations which may adversely impact or
impair the Company, (i) accelerate the date or dates on which all or any particular Options or
Awards granted under the Plan may be exercised, or (ii) extend the dates during which all or any
particular Options or Awards granted under the Plan may be exercised or vest.

     i. Determination of Fair Market Value. If, at the time an Option is granted under the
Plan, the Company’s Common Stock is publicly traded under the Exchange Act, “fair market value”
shall mean (i) if the Common Stock is listed on any established stock exchange or a national market
system, including without limitation the Nasdaq National Market or The Nasdaq Small Cap Market of
The Nasdaq Stock Market, its fair market value shall be the last reported sales price for such
stock (on that date) or the closing bid, if no sales were reported as quoted on such exchange or
system as reported in The Wall Street Journal or such other source as the Board deems reliable; or
(ii) the average of the closing bid and asked prices last quoted (on that date) by an established
quotation service for over-the-counter securities, if the Common Stock is not reported on a
national market system. In the absence of an established market for the Common Stock, the fair
market value thereof shall be determined in good faith by the Board after taking into consideration
all factors which it deems appropriate.

5. Restricted Stock.

     a. Grants. The Board may grant Awards entitling recipients to acquire shares of
Common Stock, subject to (i) delivery to the Company by the Participant of a check in an amount at
least equal to the par value of the shares purchased, and (ii) the right of the Company to
repurchase all or part of such shares at their issue price or other stated or formula price from
the Participant in the event that conditions specified by the Board in the applicable Award are not
satisfied prior to the end of the applicable restriction period or periods established by the Board
for such Award (each, a “Restricted Stock Award”).

     b. Terms and Conditions. The Board shall determine the terms and conditions of any
such Restricted Stock Award. Any stock certificates issued in respect of a Restricted Stock Award
shall be registered in the name of the Participant and, unless otherwise determined by the Board,
deposited by the Participant, together with a stock power endorsed in blank, with the Company (or
its designee). After the expiration of the applicable restriction periods, the Company (or such
designee) shall deliver the certificates no longer subject to such restrictions to the Participant
or, if the Participant has died, to the beneficiary designated by a Participant, in a manner
determined by the Board, to receive amounts due or exercise rights of the Participant in the event
of the Participant’s death (the “Designated Beneficiary”). In the absence of an effective
designation by a Participant, Designated Beneficiary shall mean the Participant’s estate.

6. Other Stock-Based Awards. The Board shall have the right to grant other Awards based
upon the Common Stock having such terms and conditions as the Board may determine, including,
without limitation, the grant of shares based upon certain conditions, the grant of securities

 

 

convertible into Common Stock and the grant of stock appreciation rights, phantom stock awards or
stock units.

7. General Provisions Applicable to Awards.

     a. Transferability of Awards. Except as the Board may otherwise determine or provide
in an Award, Awards shall not be sold, assigned, transferred, pledged or otherwise encumbered by
the person to whom they are granted, either voluntarily or by operation of law, except by will or
the laws of descent and distribution, and, during the life of the Participant, shall be exercisable
only by the Participant; provided, however, except as the Board may otherwise determine or provide
in an Award, that Nonstatutory Options and Restricted Stock Awards may be transferred pursuant to a
qualified domestic relations order (as defined in the Employee Retirement Income Security Act of
1974, as amended) or to a grantor-retained annuity trust or a similar estate-planning vehicle in
which the trust is bound by all provisions of the Stock Option Agreement and Restricted Stock
Award, which are applicable to the Participant. References to a Participant, to the extent relevant
in the context, shall include references to authorized transferees.

     b. Documentation. Each Award under the Plan shall be evidenced by a written
instrument in such form as the Board shall determine or as executed by an officer of the Company
pursuant to authority delegated by the Board. Each Award may contain terms and conditions in
addition to those set forth in the Plan, provided that such terms and conditions do not contravene
the provisions of the Plan or applicable law.

     c. Board Discretion. The terms of each type of Award need not be identical, and the
Board need not treat Participants uniformly.

     d. Additional Award Provisions. The Board may, in its sole discretion, include
additional provisions in any Stock Option Agreement, Restricted Stock Award or other Award granted
under the Plan, including without limitation restrictions on transfer, repurchase rights,
commitments to pay cash bonuses, to make, arrange for or guaranty loans or to transfer other
property to Participants upon exercise of Awards, or transfer other property to Participants upon
exercise of Awards, or such other provisions as shall be determined by the Board; provided that
such additional provisions shall not be inconsistent with any other term or condition of the Plan
or applicable law.

     e. Termination of Status. The Board shall determine the effect on an Award of the
disability (as defined in Section 22(e)(3) of the Code), death, retirement, authorized leave of
absence or other change in the employment or other status of a Participant and the extent to which,
and the period during which, the Participant, or the Participant’s legal representative,
conservator, guardian or Designated Beneficiary, may exercise rights under the Award, subject to
applicable law and the provisions of the Code related to Incentive Stock Options.

     f. Change in Control. Unless otherwise expressly provided in the applicable Stock
Option Agreement or Restricted Stock Award or other Award, in connection with the occurrence of

 

 

a Change in Control (as defined below), the Board shall, in its sole discretion as to any
outstanding Awards including any portions thereof (on the same basis or on different bases, as the
Board shall specify), take one or any combination of the following actions:

          A. make appropriate provision for the continuation of such Awards by the Company or the
assumption of such Awards by the surviving or acquiring entity and by substituting on an equitable
basis for the shares then subject to such Awards either (x) the consideration payable with respect
to the outstanding shares of Common Stock in connection with the Change in Control, (y) shares of
stock of the surviving or acquiring corporation or (z) such other securities as the Board deems
appropriate, the fair market value of which (as determined by the Board in its sole discretion)
shall not materially differ from the fair market value of the shares of Common Stock subject to
such Awards immediately preceding the Change in Control;

          B. accelerate the date of exercise or vesting of such Awards;

          C. permit the exchange of such Award for the right to participate in any stock option or other
employee benefit plan of any successor corporation;

          D. provide for the repurchase of the Award for an amount equal to the difference of (i) the
consideration received per share for the securities underlying the Award in the Change in Control
minus (ii) the per share exercise price, if any, of such securities. Such amount shall be payable
in cash for the property payable with respect to such securities in connection with the Change in
Control. The value of any such property shall be determined by the Board in its sole discretion;
or

          E.
provide for the termination of any such Awards immediately prior a
Change in Control; provided that no such termination will be effective if the Change in Control is not
consummated.

     g. Change in Control Defined. For purposes of this Agreement, “Change in Control”
means the consummation of any transaction (including, without limitation, any sale of stock,
merger, consolidation or spin-off), the result of which is that any Person, other than Carl Icahn
or the Related Parties, becomes the Beneficial Owner, directly or indirectly, of more than 50% of
the Voting Stock of the Company. For purposes of the definition of Change in Control, the
capitalized terms shall have the following meaning: “Beneficial Owner” has the meaning assigned to
such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the
beneficial ownership of any particular “person” (as that term is used in Section 13(d)(3) of the
Exchange Act), such “person” shall be deemed to have beneficial ownership of all securities that
such “person” has the right to acquire by conversion or exercise of other securities, whether such
right is currently exercisable or is exercisable only after the passage of time. The terms
“Beneficially Owns” and “Beneficially Owned” have a corresponding meaning. “Exchange Act” means
the Securities Exchange Act of 1934, as amended, and any successor thereto. “Related Parties”
means: (1) Carl Icahn, any spouse and any child, stepchild, sibling or descendant of Carl Icahn;
(2) any estate of Carl Icahn or of any person under clause (1); (3) any person who receives a
beneficial interest in any estate under clause

 

 

(2) to the extent of such interest; (4) any executor, personal administrator or trustee who holds
such beneficial interest in the Company for the benefit of, or as fiduciary for, any person under
clauses (1), (2) or (3) to the extent of such interest; and (5) any Person, directly or indirectly
owned or controlled by Carl Icahn or any other person or persons identified in clauses (1), (2),
(3) or (4), and (6) any not-for-profit entity not subject to taxation pursuant to Section 501(c)(3)
of the Code or any successor provision to which Carl Icahn or any person identified in clauses (1),
(2), or (3) above is a member of the Board of Directors or an equivalent governing body of, and is
a senior officer or trustee, as the case may be, of any such entity. “Voting Stock” means any
class or series of capital stock, or of an equity interest in an entity other than a corporation,
that is (A) ordinarily entitled to vote in the election of directors thereof at a meeting of
stockholders called for such purpose, without the occurrence of any additional event or contingency
or (B) in the case of an entity other than a corporation, ordinarily entitled to elect or appoint
the governing body of such entity, without the occurrence of any additional event or contingency.

     h. Dissolution or Liquidation. In the event of the proposed dissolution or
liquidation of the Company, the Board shall notify each Participant as soon as practicable prior to
the effective date of such proposed transaction. The Board in its sole discretion may provide for
a Participant to have the right to exercise his or her Award until fifteen (15) days prior to such
transaction as to all of the shares of Common Stock covered by the Option or Award, including
shares as to which the Option or Award would not otherwise be exercisable, which exercise may in
the sole discretion of the Board, be made subject to and conditioned upon the consummation of such
proposed transaction. In addition, the Board may provide that any Company repurchase option
applicable to any shares of Common Stock purchased upon exercise of an Option or Award shall lapse
as to all such shares of Common Stock, provided the proposed dissolution and liquidation takes
place at the time and in the manner contemplated.

     i. Assumption of Options Upon Certain Events. In connection with a merger or
consolidation of an entity with the Company or the acquisition by the Company of property or stock
of an entity, the Board may grant Awards under the Plan in substitution for stock and stock-based
awards issued by such entity or an affiliate thereof. The substitute Awards shall be granted on
such terms and conditions as the Board considers appropriate in the circumstances.

     j. Parachute Payments and Parachute Awards. Notwithstanding the provisions of Section
7(f) and in the sole discretion of the Company, if, in connection with a Change in Control
described therein, if a tax under Section 4999 of the Code would be imposed on the Participant
(after taking into account the exceptions set forth in Sections 280G(b)(4) and 280G(b)(5) of the
Code, if applicable), then the number of Awards which shall become exercisable, realizable or
vested as provided in such Section shall be reduced (or delayed), to the minimum extent necessary,
so that no such tax would be imposed on the Participant (the Awards not becoming so accelerated,
realizable or vested, the “Parachute Awards”). All determinations required to be made under this
Section 7(j) shall be made by the Company.

     k. Amendment of Awards. The Board may amend, modify or terminate any outstanding
Award including, but not limited to, substituting therefor another Award of the same or a different

 

 

type, changing the date of exercise or realization, and converting an Incentive Stock Option to a
Nonstatutory Stock Option, provided that the Participant’s consent to such action shall be required
unless the Board determines that the action, taking into account any related action, would not
materially and adversely affect the Participant and such action is expressly permitted herein,
including, without limitation, Section 7(m).

     l. Conditions on Delivery of Stock. The Company will not be obligated to deliver any
shares of Common Stock pursuant to the Plan or to remove restrictions from shares previously
delivered under the Plan until (i) all conditions of the Award have been met or removed to the
satisfaction of the Company, (ii) in the opinion of the Company’s counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied, including any
applicable securities laws and any applicable stock exchange or stock market rules and regulations,
and (iii) the Participant has executed and delivered to the Company such representations or
agreements as the Company may consider appropriate to satisfy the requirements of any applicable
laws, rules or regulations.

     m. Acceleration. The Board may, without the Participant’s consent, at any time provide
that any Options shall become immediately exercisable in full or in part, that any Restricted Stock
Awards shall be free of some or all restrictions, or that any other stock-based Awards may become
exercisable in full or in part or free of some or all restrictions or conditions, or otherwise
realizable in full or in part, as the case may be, despite the fact that the foregoing actions may
(i) cause the application of Sections 280G and 4999 of the Code if a change in control of the
Company occurs, or (ii) disqualify all or part of the Option as an Incentive Stock Option.

8. Withholding. The Company shall have the right to deduct from payments of any kind
otherwise due to the optionee or recipient of an Award any federal, state or local taxes of any
kind required by law to be withheld with respect to any shares issued upon exercise of Options
under the Plan or the purchase of shares subject to the Award. Subject to the prior approval of the
Company, which may be withheld by the Company in its sole discretion, the optionee or recipient of
an Award may elect to satisfy such obligation, in whole or in part, (a) by causing the Company to
withhold shares of Common Stock otherwise issuable pursuant to the exercise of an Option or the
purchase of shares subject to an Award or (b) by delivering to the Company shares of Common Stock
already owned by the optionee or Award recipient of an Award. The shares so delivered or withheld
shall have a fair market value of the shares used to satisfy such withholding obligation as shall
be determined by the Company as of the date that the amount of tax to be withheld is to be
determined. An optionee or recipient of an Award who has made an election pursuant to this Section
may only satisfy his or her withholding obligation with shares of Common Stock which are not
subject to any repurchase, forfeiture, unfulfilled vesting or other similar requirements.

9. No Exercise of Option if Engagement or Employment Terminated for Cause. If the
employment or engagement of any Participant is terminated “for Cause,” the Award may terminate,
upon a determination of the Board, on the date of such termination and the Option shall thereupon
not be exercisable to any extent whatsoever and the Company shall have the right to repurchase any
shares of Common Stock, subject to a Restricted Stock Award whether or not such shares have

 

 

vested, at the Participant’s initial purchase price. For purposes of this Section 9, “for Cause”
shall be defined as follows: (i) if the Participant has executed an employment agreement, then the
definition of “cause” contained therein, if any, shall govern, or (ii) conduct, as determined by
the Board of Directors, involving any one of the following: (a) misconduct or inadequate
performance by the Participant which is injurious to the Company; (b) the commission of an act of
embezzlement, fraud or theft, which results in economic loss, damage or injury to the Company; (c)
the unauthorized disclosure of any trade secret or confidential information of the Company (or any
client, customer, supplier or other third party who has a business relationship with the Company)
or the violation of any noncompetition or nonsolicitation covenant or assignment of inventions
obligation with the Company; (d) the commission of an act which constitutes unfair competition
with the Company or which induces any customer or prospective customer of the Company to breach a
contract with the Company or to decline to do business with the Company; (e) the indictment of the
Participant for a felony or serious misdemeanor offense, either in connection with the performance
of his or her obligations to the Company or which shall adversely affect the Participant’s ability
to perform such obligations; (f) the commission of an act of fraud or breach of fiduciary duty
which results in loss, damage or injury to the Company; or (g) the failure of the Participant to
perform in a material respect his or her employment, consulting or advisory obligations without
proper cause. The Board may in its discretion waive or modify the provisions of this Section at a
meeting of the Board with respect to any individual Participant with regard to the facts and
circumstances of any particular situation involving a determination under this Section.

10. Miscellaneous.

     a. Definitions.

          i. “Company,” for purposes of eligibility under the Plan, shall include any present or future
subsidiary corporations of American Railcar, Inc., as defined in Section 424(f) of the Code (a
“Subsidiary”), and any present or future parent corporation of American Railcar, Inc., as defined
in Section 424(e) of the Code. For purposes of Awards other than Incentive Stock Options, the term
“Company” shall include any other business venture in which the Company has a direct or indirect
significant interest, as determined by the Board in its sole discretion.

          ii. “Code” means the Internal Revenue Code of 1986, as amended, and any regulations
promulgated thereunder.

          iii. “Employee” for purposes of eligibility under the Plan shall include a person to whom an
offer of employment has been extended by the Company.

          iv “Option Exchange Program” means a program whereby outstanding options are exchanged for
options with a lower exercise price.

     b. No Right To Employment or Other Status. No person shall have any claim or right to
be granted an Award, and the grant of an Award shall not be construed as giving a Participant the
right to continued employment or any other relationship with the Company. The Company expressly

 

 

reserves the right at any time to dismiss or otherwise terminate its relationship with a
Participant free from any liability or claim under the Plan.

     c. No Rights As Stockholder. Subject to the provisions of the applicable Award, no
Participant or Designated Beneficiary shall have any rights as a stockholder with respect to any
shares of Common Stock to be distributed with respect to an Award until becoming the record holder
thereof.

     d. Effective Date and Term of Plan. The Plan shall become effective on the date on
which it is adopted by the Board. No Awards shall be granted under the Plan after the completion of
ten years from the date on which the Plan was adopted by the Board, but Awards previously granted
may extend beyond that date.

     e. Amendment of Plan. The Board may amend, suspend or terminate the Plan or any
portion thereof at any time.

     f. Governing Law. The provisions of the Plan and all Awards made hereunder shall be
governed by and interpreted in accordance with the laws of the state of Delaware, without regard to
any applicable conflicts of law.

Approvals

Original Plan:

Adopted by the Board of Directors on:

Approved by the stockholders on:

 

 

[NOTICE OF STOCK OPTION AWARD]

EXHIBIT A-2

FORM OF

AMERICAN RAILCAR INDUSTRIES, INC.

2005 EQUITY INCENTIVE PLAN

NOTICE OF STOCK OPTION AWARD

     Unless otherwise defined herein, the terms defined in the 2005 Equity Incentive Plan shall
have the same defined meanings in this Notice of Stock Option Award and the attached Stock Option
Award Terms, which is incorporated herein by reference (together, the “Award Agreement”).

Participant (the “Participant”)

«Name»

«Address»

Grant

The undersigned Participant has been granted an Option to purchase Common Stock of American Railcar
Industries, Inc. (the “Company”), subject to the terms and conditions of the Plan and this Award
Agreement, as follows:

	 	 	 	 	 	 	 
	Date of Grant

	 	«Grant_Date»
	 	Total Exercise Price
	 	$«Total_Exercise_Price»
	 
	 	 	 	 	 	 
	Type of Option

	 	o Incentive

Stock Option
	 	Total Number of
Shares Granted
	 	«Shares_Granted»
	 
	 	 	 	 	 	 
	 

	 	o Nonstatutory

Stock Option	 	 	 	 
	 
	 	 	 	 	 	 
	Exercise Price per Share

	 	$«Exercise_Price»
	 	Term/Expiration Date
	 	«Five years from Grant

Date»

Vesting Schedule:

This Option shall be exercisable, in whole or in part, according to the following vesting schedule:

	 	 	 
	Number of Months (or years) of Service	 	% of Grant (or # of Shares) Vested
	One year anniversary of Grant Date

	 	33% of Grant

 

 

	 	 	 
	Number of Months (or years) of Service	 	% of Grant (or # of Shares) Vested
	Two year anniversary of Grant Date

	 	66% of Grant
	Three year anniversary of Grant Date

	 	100% of Grant

Vesting of this Option shall cease upon termination of Employment (the “Relationship”) of the
Participant with the Company.

	 	 	 
	Participant

	 	American Railcar Industries, Inc.
	 
	 	 
	 
	 	 
	 

	 	 
	Signature

	 	By
	 
	 	 
	 

	 	 
	Print Name

	 	Title
	 
	 	 
	 	 
	 
	 
	 	 
	 	 
	 
	Residence Address
	 	 

 

 

AMERICAN RAILCAR INDUSTRIES, INC.

STOCK OPTION

AWARD TERMS

	1.	 	Grant of Option. The Committee hereby grants to the Participant named
in the Notice of Stock Option Grant an option (the “Option”) to purchase the number of
Shares set forth in the Notice of Stock Option Award, at the exercise price per Share
set forth in the Notice of Stock Option Grant (the “Exercise Price”), and subject to
the terms and conditions of the 2005 Equity Incentive Plan (the “Plan”), which is
incorporated herein by reference. In the event of a conflict between the terms and
conditions of the Plan and this Stock Option Award Agreement, the terms and conditions
of the Plan shall prevail.
	 
	 	 	If designated in the Notice of Stock Option Grant as an Incentive Stock Option
(“ISO”), this Option is intended to qualify as an Incentive Stock Option as defined
in Section 422 of the Code. Nevertheless, to the extent that it exceeds the $100,000
limitation rule of Code Section 422(d), this Option shall be treated as a
Nonstatutory Stock Option (“NSO”).
	 
	2.	 	Exercise of Option.

	 	i.	 	Right to Exercise. This Option may be exercised during
its term in accordance with the Vesting Schedule set out in the Notice of Stock
Option Award and with the applicable provisions of the Plan and this Award
Agreement, including, without limitation, if the Participant is terminated for
Cause as described more fully in Section 9 of the Plan, the Option shall
immediately terminate.
	 
	 	ii.	 	Method of Exercise. This Option shall be exercisable by
delivery of an exercise notice in the form attached as Exhibit A (the “Exercise
Notice”) which shall state the election to exercise the Option, the number of
Shares with respect to which the Option is being exercised (the “Exercised
Shares”), and such other representations and agreements as may be required by
the Company. The Exercise Notice shall be accompanied by payment of the
aggregate Exercise Price as to all Exercised Shares. This Option shall be
deemed to be exercised upon receipt by the Company of such fully executed
Exercise Notice accompanied by payment of the aggregate Exercise Price.

No Shares shall be issued pursuant to the exercise of an Option unless such issuance and
such exercise complies with applicable laws. Assuming such compliance, for income tax
purposes the Shares shall be considered transferred to the Participant on the date on which
the Option is exercised with respect to such Shares.

 

 

	3.	 	Termination. This Option shall be exercisable for three months after
Participant ceases to be an employee; provided, however, if the
Relationship is terminated by the Company for cause, the Option shall terminate
immediately. Upon Participant’s death or Disability, this Option may be exercised for
twelve months after the Relationship ceases. In no event may Participant exercise this
Option after the Term/Expiration Date as provided above. Section 7(f)(E) of the Plan
shall not apply to this Option.
	 
	4.	 	Participant’s Representations. In the event the Shares have not been
registered under the Securities Act of 1933, as amended, (the “Securities Act”) at the
time this Option is exercised and as a condition of such exercise, the Participant
shall, if required by the Company, concurrently with the exercise of all or any portion
of this Option, deliver to the Company his or her investment representations as
requested by the Company.
	 
	5.	 	Lock-Up Period. Participant hereby agrees that, if so requested by the
Company or any representative of the underwriters (the “Managing Underwriter”) in
connection with any registration of the offering of any securities of the Company under
the Securities Act, Participant shall not sell or otherwise transfer any Shares or
other securities of the Company during the 180-day period (or such other period as may
be requested in writing by the Managing Underwriter and agreed to in writing by the
Company) (the “Market Standoff Period”) following the effective date of a registration
statement of the Company filed under the Securities Act. The Company may impose
stop-transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such Market Standoff Period.
	 
	6.	 	Restrictions on Exercise. This Option may not be exercised until such
time as the Plan has been approved by the stockholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of consideration
for such shares would constitute a violation of any applicable law.
	 
	7.	 	Non-Transferability of Option. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and may be
exercised during the lifetime of Participant only by Participant. The terms of the
Plan and this Award Agreement shall be binding upon the executors, Committees, heirs,
successors and assigns of the Participant.
	 
	8.	 	Term of Option. This Option may be exercised only within the Term set
out in the Notice of Stock Option Award which Term may not exceed five (5) years from
the Date of Grant, and may be exercised during such Term only in accordance with the
Plan and the terms of this Award Agreement.
	 
	9.	 	Notice of Disqualifying Disposition of Incentive Stock Option Shares.
If this Option is an Incentive Stock Option, and if the Participant sells or otherwise
disposes of any of the Shares acquired pursuant to the Incentive Stock Option on or
before the later of

 

 

		 	(1) the date two years after the Date of Grant, or (2) the date one year after the
date of exercise, the Participant shall immediately notify the Company in writing of
such disposition. The Participant agrees that the Participant may be subject to
income tax withholding by the Company on the compensation income recognized by the
Participant.
	 
	10.	 	Withholding. Pursuant to applicable federal, state, local or foreign
laws, the Company may be required to collect income or other taxes on the grant of this
Option, the exercise of this Option, the lapse of a restriction placed on this Option
or the Shares issued upon exercise of this Option, or at other times. The Company may
require, at such time as it considers appropriate, that the Participant pay the Company
the amount of any taxes which the Company may determine is required to be withheld or
collected, and the Participant shall comply with the requirement or demand of the
Company. In its discretion, the Company may withhold Shares to be received upon
exercise of this Option or offset against any amount owed by the Company to the
Participant, including compensation amounts, if in its sole discretion it deems this to
be an appropriate method for withholding or collecting taxes.
	 
	11.	 	Entire Agreement; Governing Law. The Plan is incorporated herein by
reference. The Plan and this Award Agreement constitute the entire agreement of the
parties with respect to the subject matter hereof and supersede in their entirety all
prior undertakings and agreements of the Company and Participant with respect to the
subject matter hereof, and may not be modified (except as provided herein and in the
Plan) adversely to the Participant’s interest except by means of a writing signed by
the Company and Participant. This agreement is governed by the internal substantive
laws but not the choice of law rules of the State of Delaware.
	 
	12.	 	No Guarantee of Continued Service. PARTICIPANT ACKNOWLEDGES AND AGREES
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY
CONTINUING IN THE RELATIONSHIP AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING
ENGAGED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). PARTICIPANT FURTHER
ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER
AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED
PROMISE OF CONTINUED EMPLOYMENT FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND
SHALL NOT INTERFERE IN ANY WAY WITH PARTICIPANT’S RIGHT OR THE COMPANY’S RIGHT TO
TERMINATE THE RELATIONSHIP AT ANY TIME, WITH OR WITHOUT CAUSE.

Participant acknowledges receipt of a copy of the Plan and represents that he or she is
familiar with the terms and provisions thereof, and hereby accepts this Option subject to
all

 

 

of the terms and provisions thereof. Participant has reviewed the Plan and this Option in
their entirety, has had an opportunity to obtain the advice of counsel prior to executing
this Option and fully understands all provisions of the Option. Participant hereby agrees
to accept as binding, conclusive and final all decisions or interpretations of the Committee
upon any questions arising under the Plan or this Option. Participant further agrees to
notify the Company upon any change in the residence address indicated below.

 

 

EXHIBIT A

2005 EQUITY INCENTIVE PLAN

EXERCISE NOTICE

American Railcar Industries, Inc.

100 Clark St.

St. Charles, MO 63301

Attention: President

	 	1.	 	Exercise of Option. Effective as of today, ___, 200___, the
undersigned (“Participant”) hereby elects to exercise Participant’s option to purchase
___ shares of the Common Stock (the “Shares”) of American Railcar Industries,
Inc. (the “Company”) under and pursuant to the 2005 Equity Incentive Plan (the “Plan”)
and the Stock Option Award Agreement dated ___, 200
___ (the “Award
Agreement”).
	 
	 	2.	 	Delivery of Payment. Purchaser herewith delivers to the Company the
full purchase price of the Shares, as set forth in the Award Agreement.
	 
	 	3.	 	Representations of Participant. Participant acknowledges that
Participant has received, read and understood the Plan and the Award Agreement and
agrees to abide by and be bound by their terms and conditions.
	 
	 	4.	 	Rights as Stockholder. Until the issuance of the Shares (as evidenced
by the appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company), no right to vote or receive dividends or any other rights as a
stockholder shall exist with respect to the Optioned Stock, notwithstanding the
exercise of the Option. The Shares shall be issued to the Participant as soon as
practicable after the Option is exercised. No adjustment shall be made for a dividend
or other right for which the record date is prior to the date of issuance except as
provided in Section 3(c) of the Plan.
	 
	 	5.	 	Tax Consultation. Participant understands that Participant may suffer
adverse tax consequences as a result of Participant’s purchase or disposition of the
Shares. Participant represents that Participant has consulted with any tax consultants
Participant deems advisable in connection with the purchase or disposition of the
Shares and that Participant is not relying on the Company for any tax advice.

[Signatures appear on next page.]

 

 

	 	 	 
	Submitted by:

	 	Accepted by:
	 
	 	 
	PARTICIPANT

	 	AMERICAN RAILCAR INDUSTRIES, INC.
	 
	 	 
	 

	 	 
	Signature

	 	By
	 
	 	 
	 

	 	 
	Print Name

	 	Title
	 
	 	 
	Address:

	 	Address:
	 
	 	 
	 

	 	100 Clark St.
	 

	 	St. Charles, MO 63301
	 

	 	Attention: President
	 
	 
	 

	 	 
	 

	 	Date Received

 

 

[FORM OF RELEASE]

Exhibit B

GENERAL RELEASE OF ALL CLAIMS

     This General Release of All Claims is made in consideration of severance payments and other
benefits provided to the undersigned employee under the Employment Agreement with American Railcar
Industries, Inc., a Missouri corporation (the “Company”), dated as of December 30, 2005
(“Employment Agreement”). Unless otherwise defined herein, the terms defined in the Employment
Agreement shall have the same defined meaning in this General Release.

     1. For valuable consideration to be paid to Employee, upon expiration of the seven day
revocation period provided in Section 10 herein, in lump sum or as salary continuation as provided
for in Section 6 of the Employment Agreement and to which he is not contractually entitled to
absent the execution of this General Release, the adequacy of which is hereby acknowledged, the
undersigned (“Employee”), for himself, his spouse, heirs, administrators, children,
representatives, executors, successors, assigns, and all other persons claiming through Employee,
if any (collectively, “Releasers”), does hereby release, waive, and forever discharge the Company
and the Company’s subsidiaries, parents, affiliates, related organizations, employees, officers,
directors, shareholders, attorneys, successors, and assigns as well as all Related Parties
(collectively, the “Releasees”) from, and does fully waive any obligations of Releasees to
Releasers for, any and all liability, actions, charges, causes of action, demands, damages, or
claims for relief, remuneration, sums of money, accounts or expenses (including, without
limitation, attorneys’ fees and costs) of any kind whatsoever (collectively, the “Released
Claims”), whether known or unknown or contingent or absolute, which heretofore has been or which
hereafter may be suffered or sustained, directly or indirectly, by Releasers in consequence of,
arising out of, or in any way relating to Employee’s employment with the Company or any of its
affiliates and the termination of Employee’s employment including the payment of Employee’s Accrued
Obligations under Section 6 of the Employment Agreement. The foregoing release and discharge,
waiver and covenant not to sue includes, but is not limited to, all claims, and any obligations or
causes of action arising from such claims, under common law including any state or federal
discrimination, fair employment practices or any other employment-related statute or regulation (as
they may have been amended through the date of this agreement) prohibiting discrimination or
harassment based upon any protected status including, without limitation, race, color, religion,
national origin, age, gender, marital status, disability, handicap, veteran status or sexual
orientation. Without limitation, specifically included in this paragraph are any claims arising
under the Federal Rehabilitation Act of 1973, Age Discrimination in Employment Act of 1967, as
amended (“ADEA”), the Older Workers Benefit Protection Act, Title VII of the Civil Rights Act of
1964, as amended by the Civil Rights Act of 1991, the Equal Pay Act, the Americans With
Disabilities Act, the National Labor Relations Act, the Fair Labor Standards Act, the Employee
Retirement Income Security Act of 1974, the Family Medical Leave Act of 1993, the Consolidated
Omnibus Budget Reconciliation Act of 1985, and any similar state statutes. The foregoing release
and discharge also expressly includes any Released Claims under any state or federal common law
theory, including, without limitation wrongful or retaliatory discharge, breach of express or
implied contract, promissory estoppel, unjust enrichment, breach of covenant of good faith and fair
dealing, violation of

 

 

public policy, defamation, interference with contractual relations, intentional or negligent
infliction of emotional distress, invasion of privacy, misrepresentation, deceit, fraud or
negligence. This also includes a release by Employee of any Released Claims for alleged physical
or personal injury, emotional distress relating to or arising out of Employee’s employment with the
Company or the termination of that employment; and any Released Claims under the WARN Act or any
similar law, which requires, among other things, that advance notice be given of certain work force
reductions. This release and waiver applies to any Released Claims or rights that may arise after
the date Employee signs this General Release.

     2. Excluded from this General Release are any claims which cannot be waived by law, including
but not limited to the right to participate in an investigation conducted by certain government
agencies. Employee does, however, waive Employee’s right to any monetary recovery should any
agency (such as the Equal Employment Opportunity Commission) pursue any claims on Employee’s
behalf. Employee represents and warrants that Employee has not filed any complaint, charge, or
lawsuit against the Releasees with any government agency or any court. Also excluded from this
General Release are any amounts due and payable under Section 6 other than Employee’s Accrued
Obligations.

     3. Employee agrees never to sue Releasees in any forum for any Released Claims covered by the
above waiver and release language, except that Employee may bring a claim under the ADEA to
challenge this General Release. If Employee violates this General Release by suing Releasees,
other than under the ADEA or as otherwise set forth in Section 1 hereof, Employee shall be liable
to the Company for its attorneys’ fees and other litigation costs incurred in defending against
such a suit. Nothing in this General Release is intended to reflect any party’s belief that
Employee’s waiver of claims under ADEA is invalid or unenforceable, it being the interest of the
parties that such claims are waived.

     4. Employee acknowledges and recites that:

     (a) Employee has executed this General Release knowingly and voluntarily;

     (b) Employee has read and understands this General Release in its entirety;

     (c) Employee has been advised and directed orally and in writing (and this subparagraph (c)
constitutes such written direction) to seek legal counsel and any other advice he wishes with
respect to the terms of this General Release before executing it;

     (d) Employee’s execution of this General Release has not been forced by any employee or agent
of the Company, and Employee has had an opportunity to negotiate the terms of this General Release
and that the agreements and obligations herein are made voluntarily, knowingly and without duress,
and that neither the Company nor its agents have made any representation inconsistent with the
General Release; and

     (e) Employee has been offered 21 calendar days after receipt of this General Release to
consider its terms before executing it.

     6. This General Release shall be governed by the internal laws (and not the choice of laws) of
the State of New York, except for the application of pre-emptive Federal law.

 

 

     7. Employee represents that he has returned all property belonging to the Company including,
without limitation, keys, access cards, computer software and any other equipment or property.
Employee further represents that he has delivered to the Company all documents or materials of any
nature belonging to it, whether an original or copies of any kind, including any trade secrets or
proprietary information.

     8. Employee agrees to keep confidential the existence of this General Release, as well as all
of its terms and conditions and not to disclose to any person or entity the existence, terms and
conditions of this General Release except to his attorney, financial advisors and/or members of his
immediate family provided they agree to keep confidential the existence, terms and conditions of
this General Release. In the event that Employee believes that he is compelled by law to divulge
the existence, terms or conditions of this General Release in a manner prohibited by the preceding
sentence, he agrees to notify Company (by notifying counsel to the Company) of the basis for the
belief before actually divulging such information. Employee hereby confirms that as of the date of
signing this General Release, he has not disclosed the existence, terms or conditions of this
General Release, except as provided for herein.

     9. Employee represents that he has been provided notice of his right to elect continuation of
medical benefits under COBRA and that he is not entitled to any other benefits under the Company’s
employee benefit plans except as provided for therein or under Section 6 of the Employment
Agreement.

     10. Employee shall have 7 days from the date hereof to revoke this General Release by
providing written notice of the revocation to the Company, as provided in Section 9 of the
Employment Agreement, in which event this General Release shall be unenforceable and null and void.

[Signature Page Follows]

 

 

     PLEASE READ THIS GENERAL RELEASE CAREFULLY. IT CONTAINS A RELEASE OF ALL KNOWN AND UNKNOWN
CLAIMS.

	 	 	 
	 

	 	EMPLOYEE:
	 
	 	 
	 

	 	
	 

	 	 
	 

	 	James A. Cowan

Date: ___, 20___

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