Exhibit 10.5 – Summary of Executive Bonus
 
Management Incentive Bonus Plan
Revised F2010
 
Management Incentive Bonus Plan (“MIBP”)

 
The Management Incentive Bonus Plan (“MIBP”) is the same for all of the
executives. The MIBP has three components; MBOs, operating income bonus and a
revenue versus plan bonus. These components will be paid quarterly.  The
components are weighted as shown below.
 
Specifics

 
MIBP Allocation of Total Bonus:
A third of the total bonus amount is allocated to MBOs, Operating Income and
Revenue versus Plan.  The bonus amount for each category is spread and paid over
four quarters.  See the example below:
 
Example:
 
Annual1
Bonus Amount equals $30,000
   
% of Total Bonus
   
Q1
 
25%
   
Q2
 
25%
   
Q3
 
25%
   
Q4
 
25%
 
 MBOs
    $10,000       33.0 %      $2,500       $2,500       $2,500       $2,500  
 Operating Income Bonus
    $10,000       33.0 %     $2,500       $2,500       $2,500       $2,500  
 Revenue vs Plan
    $10,000       33.0 %     $2,500       $2,500       $2,500       $2,500  

 
MBOs

 
MBOs will be assigned and agreed upon by the President & CEO and the
executive.  Performance against these objectives will be determined by the
CEO.  MBOs will be paid quarterly.
 
Operating Income and Revenue versus Plan

 

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1 Example:  amount of bonus differs for each executive.
 
F2010 – Revised  Compensation Plan – Executives
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Operating Income Bonus2
The operating income bonus pays at the first break point of 90% based on the
formula in the table below.  If revenue versus plan is not met, the operating
income bonus is capped at 100%.
 

     
% of Bonus up to 1st Break
   
1st Break Point
   
% of Bonus up to 2nd Break
   
2nd Break Point
    % of Bonus up to 100% of Plan  
 
% of Bonus at and after 100%
                                     
 Operating Income
   
0%
   
90% of Plan
   
15% + 5.0% for each
1% over 90%
   
95% of Plan
   
60% + 5.0% for
each 1% over 95%
   
100% + 1.0% for each
1% over 100%; if
revenue under 100%
this bonus is capped
at 100%
                                     

 
Revenue versus Plan3
The revenue bonus pays at the first break point of 80% and increases as the
revenue versus Plan increases based on the formula below.
 

     
% of Bonus up to 1st Break
    1st Break Point    
% of Bonus up to 2nd Break
    2nd Break  Point    
% of Bonus up to 100% of Plan
   
% of Bonus @ 100%-104%
   
% of Bonus @ 105%-109%
   
% of Bonus if revenue over 110%
                                                 
 Revenue
   
0%
   
80% of Plan
   
15% + 2.5% for each
1% over 80%
   
90% of Plan
   
60% + 2.5% for
each 1% over
90%
   
100% + 2.5%
each 1% over
100%
    100% + 5% each 1% over 100%     200% of all
bonuses for
that quarter
                                                 

 
Examples

 
Assuming $40,000 annual bonus paid at $10,000 per quarter in equal portions for
MBOs, Operating Income and Revenue.
 
Bonus Allocation Example
    Annual Bonus Amount equals $30,000    
% of Total Bonus
   
Q1
 
25%
   
Q2
 
25%
   
Q3
 
25%
   
Q4
 
25%
 
 MBOs
    $10,000       33.00 %     $2,500       $2,500       $2,500       $2,500  
 Operating Income Bonus
    $10,000       33.00 %     $2,500       $2,500       $2,500       $2,500  
 Revenue vs Plan
    $10,000       33.00
%
    $2,500       $2,500       $2,500       $2,500  

 

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2 Operating income bonus is based on year to date targets.
 
3 The revenue versus plan bonus is based on year to date targets.
 
F2010 – Revised  Compensation Plan – Executives
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In Example 1, the Q2 year to date actuals for operating income were 186% of
plan. The revenue versus plan is 96% of plan. The operating income bonus is
limited to 100% because the revenue is less than 100% of plan. The revenue bonus
is paid out per the plan formula. This example assumes MBO attainment at 100%.
The resulting bonus paid would be 92% of total eligible bonus.
 
 Example 1
 
Qtrly Bonus Amount
   
Performance % Actual vs Plan
   
Payment
       
 MBOs
  $ 2,500       100 %     $2,500    
 
 
 Operating Income Bonus
  $ 2,500       186 %     $2,500    
bonus is capped at 100% if revenue less that 100%
 
 Revenue vs Plan
  $ 2,500       96 %     $1,875    
60% + 2.5% for each 1% over 90%
 
 Total
  $ 7,500       92 %     $6,875        

 
In Example 2, the year to date actuals for operating income were 105% of plan.
The revenue versus plan is 100% of plan. The operating income bonus is paid at
105% based on the plan formula due. The revenue bonus is paid at 100% per the
plan formula.
 
 Example 2
 
Qtrly Bonus Amount
   
Performance % Actual vs Plan
   
Payment
       
 MBOs
  $ 2,500       100 %    
$2,500
   
 
 
 Operating Income Bonus
  $ 2,500       105 %    
$2,625
   
100% + 1% for each over 1% over 100%; if revenue at 100%
 
 Revenue vs Plan
  $ 2,500       100 %    
$2,500
   
100% + 5% for each over 1% over 100%
 
 Total
  $ 7,500       102 %    
$7,625
       

 
In Example 3, the year to date actuals for operating income were 130% of plan.
The revenue versus plan is 110% of plan. All bonus amounts double.
 
 Example 3
 
Qtrly Bonus Amount
   
Performance % Actual vs Plan
   
Payment
       
 MBOs
  $ 2,500       100 %    
$2,500
   
bonus doubles 110% revenue
 
 Operating Income Bonus
  $ 2,500       130 %    
$3,250
   
bonus doubles 110%
revenue
 
 Revenue vs Plan
  $ 2,500       110 %    
$2,500
   
bonus doubles 110%
revenue
 
 Total
    $7,500       110 %    
$8,250
                     
Pays 200%
     
$16,500
       

 
Using Q2 as an example, 100% of revenue budget would generate approximately
$573,000 in incremental sales or $458,000 incremental gross margin dollars.
 
F2010 – Revised  Compensation Plan – Executives
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Budget Targets for FY10

                           
 Operating income:
    Q1     Q2      Q3     Q4  
 Per Quarter
      $123,257       $234,192       $308,324       $565,930  
 YTD
      $123,257       $357,449       $665,773       $1,231,703  
Total Operating Income $1,231,703
                                                             
 Revenue:
    Q1     Q2     Q3       Q4  
 Per Quarter
      $5,533,944       $5,727,492       $5,823,609       $5,950,970  
 YTD
      $5,533,944       $11,261,436       $17,085,045       $23,036,015  
Total Revenue $23,036,015
                                 

 
Addendum to Plan for Brian E. Dearing:
 
1.  M&A/Alliance Transaction – 25% paid in the quarter the event occurs.
 
           $29,750
 
2.  Re-Financing the CBT Loan – 25% paid in the quarter the event occurs.  My
objective here is to find a way to re-pay the portion of the CBT loan that would
trigger the interest going from 10% to 14%.  The savings to ARI if we can
finance the loan at 10% is over $800K so paying $30K for doing that is a bargain
imo.
 
$29,750
 
3.  F&I Business Unit Performance – 10% paid quarterly for achieving its revenue
objectives (half of the dollars) and for achieving its operating income
target.  The targets are the FY10 approved plan.
 
1. revenue = $5,950 / 4 quarters
 
2. operating income = $5,950 / 4 quarters
 
4.  CBT Performance – 15% paid quarterly for achieving its revenue objectives
(half of the dollars) and for achieving its operating income target.  The
targets are the FY10 approved plan.  (Darin is working to define how we will
measure operating income for this unit, for Q1 I recommend that payment be based
on revenue,).
 
1. revenue = $8,925 / 4 quarters
 
2. operating income = $8,925 / 4 quarters
 
F2010 – Revised  Compensation Plan – Executives
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5.  ARI Performance – 15% paid consistent with all ARI executives.  This payment
will be based on revenue, revenue growth and operating income (5% on each).
 
1. revenue growth = $8,925 / 4 quarters
 
2. operating income = $8,925 / 4 quarters
 
6.  MBO’s
 
 
●
Public Reporting – 5% - Continue as the acting CFO for public reporting for Q2,
Q3 and Q4 FY10 while training Darin Janecek to take over all responsibilities in
this area starting Q1 FY11.
$5,950/4

 
 
●
Cash Management/Forecasting – 5% - Continue to be the point person on managing
cash and the cash forecast.  Transition this process to Darin Janecek so that he
is accountable for this function starting Q4 FY10.
$5,950/4

 
F2010 – Revised  Compensation Plan – Executives
 
 
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