<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
ARIEL CORPORATION
- -----------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
-----------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
___________________________________________________________________________
2) Form, Schedule or Registration Statement No.:
___________________________________________________________________________
3) Filing Party:
___________________________________________________________________________
4) Date Filed:
___________________________________________________________________________
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ARIEL CORPORATION
2540 Route 130
Cranbury, New Jersey 08512
May 20, 1999
Dear Stockholder:
On behalf of the Board of Directors and employees of Ariel, I cordially
invite you to attend the 1999 Annual Meeting of Stockholders (the "Meeting") of
Ariel Corporation (the "Company") to be held on June 23, 1999 at 9:15 A.M. at
the Harvard Club, 27 West 44th Street, New York, New York.
This year one director is nominated for election to the Board. At the
Meeting you will be asked to elect one director to serve until the 2002 Annual
Meeting. You will also be asked to ratify the Company's selection of
PricewaterhouseCoopers, LLP as the Company's auditors for the 1999 fiscal year
and to consider a proposal to amend the Company's 1995 Stock Option Plan to
increase the number of shares that can be issued under the Plan from 1,700,000
to 2,200,000.
The accompanying Proxy Statement provides a detailed description of these
proposals. You are urged to read the accompanying materials so that you may be
informed about the business to come before the Meeting.
It is important that your shares be represented at the Meeting.
Accordingly, we urge you, whether or not you plan to attend the Meeting, to
complete, sign and date your proxy and return it to us promptly in the enclosed
envelope. If you attend the Meeting, you may vote in person, even if you have
previously mailed in your proxy.
We look forward to seeing you at the Meeting.
Sincerely,
-------------------------------------
JAY H. ATLAS
Chief Executive Officer
<PAGE>
ARIEL CORPORATION
2540 Route 130
Cranbury, New Jersey 08512
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO THE STOCKHOLDERS OF
ARIEL CORPORATION
The Annual Meeting of Stockholders of Ariel Corporation (the "Company")
will be held at the Harvard Club, 27 West 44th Street, New York, New York on
Wednesday, June 23, 1999 at 9:15 A.M., Eastern Standard Time (the "Annual
Meeting"), for the following purposes:
1. To elect one (1) director of the Company to serve as a Class III
Director for a three-year term until the third succeeding Annual Meeting of
Stockholders and until his successor is duly elected and qualify.
2. To ratify the appointment of PricewaterhouseCoopers, LLP as
independent public accountants of the Company for the fiscal year ending
December 31, 1999.
3. To amend the Company's 1995 Stock Option Plan.
4. To transact such other business as may come before the Annual Meeting
or any adjournment thereof.
Only stockholders of record at the close of business on May 10, 1999 are
entitled to notice of, and to vote at, the Annual Meeting or any adjournment
thereof.
By Order of the Board of Directors
-------------------------------------
HAROLD W. PAUL
Secretary
May 20, 1999
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE DATE AND SIGN
THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE. THE PROXY MAY BE
REVOKED IN WRITING PRIOR TO THE MEETING OR, IF YOU ATTEND THE MEETING, YOU MAY
REVOKE THE PROXY AND VOTE YOUR SHARES IN PERSON.
<PAGE>
ARIEL CORPORATION
2540 Route 130
Cranbury, New Jersey 08512
PROXY STATEMENT
This proxy statement contains information related to the Annual Meeting of
stockholders of Ariel Corporation to be held on Wednesday, June 23, 1999,
beginning at 9:15 A.M. at the Harvard Club, 27 West 44th Street, New York, New
York and at any postponements or adjournments thereof.
ABOUT THE MEETING
What is the purpose of the Annual Meeting?
At the Company's Annual Meeting, stockholders will act upon the matters
outlined in the accompanying notice of meeting, including the election of
directors, ratification of the Company's independent auditors and amending the
Company's 1995 Stock Option Plan. In addition, the Company's management will
report on the performance of the Company during fiscal 1998 and respond to
questions from stockholders.
Who is entitled to vote?
Only stockholders of record at the close of business on the record date,
May 10, 1999 are entitled to receive notice of the Annual Meeting and to vote
the shares of common stock that they held on that date at the Meeting, or any
postponement or adjournment of the Meeting. Each outstanding share entitles its
holder to cast one vote on each matter to be voted upon.
Who can attend the Meeting?
All stockholders as of the record date, or their duly appointed proxies,
may attend the Meeting. Each stockholder may be asked to present valid picture
identification, such as a driver's license or passport. Cameras, recording
devices and other electronic devices will not be permitted at the Meeting.
Please note that if you hold your shares in "street name" (that is,
through a broker or other nominee), you will need to bring a copy of a
brokerage statement reflecting your stock ownership as of the record date and
check in at the registration desk at the Meeting.
What constitutes a quorum?
The presence at the Meeting, in person or by proxy, of the holders of a
majority of the shares of common stock outstanding on the record date will
constitute a quorum, permitting the Meeting to conduct its business. As of the
record date, 9,775,150 shares of common stock of the Company were outstanding.
Proxies received but marked as abstentions and broker non-votes will be
included in the calculation of the number of shares considered to be present at
the Meeting.
How do I vote?
If you complete and properly sign the accompanying proxy card and return
it to the Company, it will be voted as you direct. If you are a registered
stockholder and attend the Meeting, you may deliver your completed proxy card
in person. "Street name" stockholders who wish to vote at the Meeting will need
to obtain a proxy form from the institution that holds their shares.
1
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Can I change my vote after I return my proxy card?
Yes. Even after you have submitted your proxy, you may change your vote at
any time before the proxy is exercised by filing with the Secretary of the
Company either a notice of revocation or a duly executed proxy bearing a later
date. The powers of the proxy holders will be suspended if you attend the
Meeting in person and so request, although attendance at the Meeting will not
by itself revoke a previously granted proxy.
What are the Board's recommendations?
Unless you give other instructions on your proxy card, the persons named
as proxy holders on the proxy card will vote in accordance with the
recommendations of the Board of Directors. The Board's recommendation is set
forth together with the description of each item in this proxy statement. In
summary, the Board recommends a vote:
o for election of the nominated director (see page 4);
o for ratification of the appointment of PricewaterhouseCoopers, LLP as the
Company's independent auditors (see page 12); and
o for amendment of the 1995 Stock Option Plan (see page 12).
With respect to any other matter that properly comes before the Meeting,
the proxy holders will vote as recommended by the Board of Directors or, if no
recommendation is given, in their own discretion.
What vote is required to approve each item?
Election of Directors. The affirmative vote of a majority of the votes
cast at the Meeting is required for the election of directors. A properly
executed proxy marked "WITHHOLD AUTHORITY" with respect to the election of the
director will not be voted, although it will be counted for purposes of
determining whether there is a quorum.
Other Items. For each other item, the affirmative vote of the holders of a
majority of the shares represented in person or by proxy and entitled to vote
on the item will be required for approval. A properly executed proxy marked
"ABSTAIN" with respect to any such matter will not be voted, although it will
be counted for purposes of determining whether there is a quorum. Accordingly,
an abstention will have the effect of a negative vote.
If you hold your shares in "street name" through a broker or other
nominee, your broker or nominee may not be permitted to exercise voting
discretion with respect to some of the matters to be acted upon. Thus, if you
do not give your broker or nominee specific instructions, your shares may not
be voted on those matters and will not be counted in determining the number of
shares necessary for approval. Shares represented by such "broker non-votes"
will, however, be counted in determining whether there is a quorum.
ANNUAL REPORT
A copy of the Ariel Corporation Annual Report, including financial
statements for the year ended December 31, 1998, on which no action will be
asked by the Board of Directors, is enclosed herewith. It is not to be regarded
as proxy solicitation material.
2
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STOCK OWNERSHIP
Who are the largest owners of the Company's stock?
The Company knows of no single person or group that is the beneficial
owner of more than 5% of the Company's common stock, other than Mr. Agnello,
the Company's Chairman and former Chief Executive Officer.
How much stock do the Company's directors and executive officers own?
The following table shows the amount of common stock of the Company
beneficially owned (unless otherwise indicated) by the Company's directors, the
executive officers of the Company named in the Summary Compensation Table and
the directors and executive officers of the Company as a group. Except as
otherwise indicated, all information is as of May 10, 1999.
<TABLE>
<CAPTION>
Number of Shares
Name and Address Beneficially Owned Percentage
- ------------------------------------------------------------ -------------------- -----------
<S> <C> <C>
Jay H. Atlas ............................................... -- *
2540 Route 130,
Cranbury, NJ 08512
Anthony M. Agnello ......................................... 838,500(1) 8.1%
2540 Route 130,
Cranbury, NJ 08512
Brian Hoerl ................................................ 39,500(2) *
2540 Route 130,
Cranbury, NJ 08512
Dennis Schneider ........................................... -- *
2540 Route 130,
Cranbury, NJ 08512
Jack Loprete ............................................... -- *
2540 Route 130,
Cranbury, NJ 08512
Robert J. Ranalli .......................................... 50,000(3) *
2540 Route 130,
Cranbury, NJ 08512
Edward D. Horowitz ......................................... 50,000(3) *
2540 Route 130,
Cranbury, NJ 08512
Etienne A. Perold .......................................... 180,000(4) 1.7%
2540 Route 130,
Cranbury, NJ 08512
Harold W. Paul ............................................. 31,000(5) *
630 Third Ave.,
New York, NY 10017
Theodore J. Coburn ......................................... 60,000(6) *
2540 Route 130,
Cranbury, NJ 08512
All Officers and Directors as a group (ten people) ......... 1,249,000 12.1%
</TABLE>
- ------------
* Less than one percent.
(1) Includes 137,500 shares subject to presently exercisable options.
(2) Includes 32,500 shares subject to presently exercisable options.
(3) All shares beneficially owned by Messrs. Ranalli and Horowitz reflect
options issued in exchange for their services as directors.
(4) Includes 172,000 shares subject to presently exercisable options and 6,000
shares owned by Mr. Perold's wife and children.
(5) Includes 27,500 shares subject to presently exercisable options. (6)
Includes 60,000 shares subject to presently exercisable options.
3
<PAGE>
PROPOSAL NO. 1: ELECTION OF DIRECTORS
Directors
One director will be elected at the Meeting. The Company's Board of
Directors is currently composed of seven directors. The Board of Directors are
divided into three classes and the members of each class are elected at the
Annual Meeting of the stockholders held in the year in which the terms for that
class expire, as follows: Messrs. Agnello, Coburn and Paul are Class I
Directors, with terms expiring at the date of the Meeting in 2001; Messrs.
Ranalli and Horowitz are Class II Directors, with terms expiring at the
Stockholders Meeting in 2000; and Messrs. Atlas and Perold are Class III
Directors, with terms expiring at the next Stockholders Meeting. The incumbent
Board serves as a nominating committee for new directors. Mr. Perold is not
standing for re-election.
Proxies received in response to this solicitation will be voted for the
election of Jay H. Atlas unless otherwise specified in the proxy. The nominee
has consented to serve as director if elected at the Meeting. The Board of
Directors has no reason to believe that the nominee will decline or be unable
to serve as a Director of the Company. However, if the nominee should not be
available for election as contemplated, the management proxy holders will vote
for a substitute designated by the current Board of Directors. In no event will
proxies be voted for more than one nominee or other than a classified basis.
The following table sets forth certain information, as of the Record Date,
concerning the nominee for election as a director of the Company. For
information as to the shares of the Common Stock held by the nominee, see the
section "Stock Ownership" elsewhere in this Proxy Statement.
Nominee Age Present Position
- ------- --- ----------------
Jay H. Atlas .......... 54 Chief Executive Officer, President, and
Director
Jay H. Atlas joined the Company as its Chief Executive Officer and
President in December 1998. He was appointed a director of the Company in
January 1999. From 1995 to 1998 he served as the President and CEO of CTF
Group, a management consulting firm. Since 1998 he has served as a trustee of
the Kobrick Investment Trust, a group of mutual funds. He has more than 30
years experience in the industry including 20 years at Digital Equipment Corp.
including senior management positions in sales, service and marketing.
Information About Directors Continuing in Office
The following Class I Directors were elected at the Company's 1998 Annual
Meeting for terms ending in 2001:
Name Age Position
- ---- --- --------
Anthony M. Agnello .......... 49 Chairman of the Board of Directors
Theodore J. Coburn .......... 44 Director
Harold W. Paul .............. 51 Director, Secretary
Anthony M. Agnello, 49, co-founded the Company in 1982 and has served as
Chairman, Director of the Board and Chief Executive Officer since 1982. He also
held the title of President from 1988 until September 17, 1996. In December
1998, Mr. Agnello resigned as Chief Executive Officer simultaneously with the
appointment of Mr. Atlas to that position.
Theodore J. Coburn, 44, was appointed a Director of the Company in and a
member of the Compensation and Audit Committees of the Board of Directors in
March 1998. Mr. Coburn is a co-founder and principal in Brown, Coburn & Co., an
investment banking service company founded in 1994. Mr. Coburn was a managing
director of Merrill Lynch's Capital Markets Group from 1982 to 1986 and head of
the Global Equity Transactions Group for Prudential Securities from 1986 to
1990. Mr. Coburn is a member of the Board of Directors of Nicholas - Applegate
Fund, Inc.; the Emerging German Fund; Moovies Inc. and Measurement Specialties,
Inc.
4
<PAGE>
Harold W. Paul, 51, has been a Director of the Company since June 1995 and
was appointed Secretary in March 1998. For more than five years, Mr. Paul has
been a partner at Berger & Paul, LLP, a New York law firm specializing in
securities matters.
The following Class II Directors were elected at the 1997 Annual Meeting
for terms ending in 2000:
Name Age Position
- ---- --- --------
Edward D. Horowitz .......... 51 Director
Robert J. Ranalli ........... 61 Director
Edward D. Horowitz, 51, has been a Director of the Company and a member of
the Audit Committee since August 1995. From 1989 to 1996, Mr. Horowitz was
employed by Viacom International Inc., most recently as Senior Vice President -
Technology. He was also the Chairman and Chief Executive Officer of Viacom
Interactive Media, and is a Director of Star Sight Telecast. Effective January
1997, Mr. Horowitz became Executive Vice President of Advanced Development of
Citigroup.
Robert J. Ranalli, 61, has been a Director of the Company and a member of
the Audit Committee since August 1995. He has been a member of the Compensation
Committee since March 1998. Mr. Ranalli served as President of AT&T Consumer
Services from 1984 until his retirement in 1994, and three year terms each as
Chairman of the Board for AT&T Universal Card Services and AT&T Transtech
Services. Since April 1998, he has been a director of CMGI, Inc. based in
Andover, MA.
Family Relationship
There are no family relationships among any director or executive officer
of the Company.
The Board of Directors recommends a FOR vote for the nominee.
5
<PAGE>
Executive Compensation
The following table summarizes the compensation earned by the Chief
Executive Officer and the four most highly compensated executive officers whose
compensation exceeded $100,000 for each of the last three years:
SUMMARY COMPENSATION SCHEDULE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------------------------------- ------------------------------------------------
Other Annual Number All Other
Year Salary Bonus Compensation of Options Compensation
---- ------ ----- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Jay H. Atlas ............... 1998 $ 5,288(1) -- -- 486,000 --
1997 -- -- -- -- --
1996 -- -- -- -- --
Anthony M. Agnello ......... 1998 193,077 950,000(2) 17,792 175,000 605,000(3)
1997 193,462 -- 18,780 -- 5,338
1996 202,408 65,000 19,669 -- 4,476
Brian Hoerl ................ 1998 189,269 255,417(4) 19,609 20,000 5,000
1997 181,231 47,104 20,393 -- 3,228
1996 159,470 36,888 13,214 50,000 --
Jeffrey Sasmor ............. 1998 -- -- -- -- 227,750(5)
1997 140,539 -- 14,507 40,000 84,019
1996 154,166 30,000 137,747 -- 3,578
Gerard E. Dorsey ........... 1998 61,268 -- 14,092 -- 125,139(6)
1997 146,538 -- 24,461 -- 4,396
1996 150,000 -- 20,020 -- 4,500
John Lynch ................. 1998 155,769 28,077 15,096 25,000 84,363(7)
1997 150,000 -- 31,569 -- 8,536
1996 148,847 -- 12,092 -- 4,465
</TABLE>
- ------------
(1) Reflects employment commencement date of December 21, 1998.
(2) Reflects CSG sale bonus of $950,000.
(3) Includes accrued severance of $600,000 paid in 1999 and 401K match -
$5,000.
(4) Includes CSG sale bonus of $200,000 and executive quarterly bonus.
(5) Includes severance pay of $205,000 and option exercise of $22,750.
(6) Includes 401K match of $1,809 and option exercise of $123,330.
(7) Includes option exercise of $77,140, accrued vacation payout 1998 of $2,458
and 401K match of $4,765.
How are directors compensated?
Base Compensation. In 1998 the Board of Directors adopted a standardized
method for compensating outside directors. Each non-employee director receives
a retainer based on an annualized rate of $6,000. All of the non-employee
directors are currently participating in this plan. Directors who are also
employees of the Company receive no additional compensation for service as
directors.
Options. Each non-employee director receives an automatic grant, upon his
election, of options to purchase 10,000 shares of common stock for each year of
service, vesting in equal installments over three years and having a ten-year
term, permitting the holder to purchase shares at their fair market value on
the date of grant.
How often did the Board meet during fiscal 1998?
The Board of Directors met seven times during fiscal 1998. Each director
attended more than 75% of the total number of meetings of the Board and
Committees on which he served.
What committees has the Board established?
The Board of Directors has standing Compensation and Audit Committees.
6
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BOARD COMMITTEE MEMBERSHIP
Name Compensation Committee Audit Committee
- ---- ---------------------- ---------------
Anthony M. Agnello ..........
Jay H. Atlas ................ * *
Theodore J. Coburn .......... * *
Edward D. Horowitz ..........
Harold W. Paul ..............
Robert J. Ranalli ........... * *
Compensation Committee. The Compensation Committee is charged with
reviewing the Company's general compensation strategy; establishing salaries
and reviewing benefit programs (including pensions) for the Chief Executive
Officer and those persons who report directly to him; reviewing, approving,
recommending and administering the Company's stock option plans and certain
other compensation plans; and approving certain employment contracts. In fiscal
1998, the Compensation Committee met three times.
Audit Committee. The Audit Committee met twice during fiscal 1998. Its
functions are to recommend the appointment of independent accountants; review
the arrangements for and scope of the audit by independent accountants; review
the independence of the independent accountants; consider the adequacy of the
system of internal accounting controls and review any proposed corrective
actions; review and monitor the Company's policies relating to ethics and
conflicts of interests; discuss with management and the independent accountants
the Company's draft annual financial statements and key accounting and/or
reporting matters, including "Year 2000" matters; and review the activities and
recommendations of the Company's management audit department.
Certain relationships and related transactions.
In June 1998, the Company entered into an agreement to sell its
Communication Systems Group (CSG) to Cabletron Systems for approximately
$33,500,000 net of amount paid to engineers and other members of the group paid
directly to them by Cabletron. As part of the transaction, the Company paid
bonuses to three outside directors who played an integral role in the
transaction. These bonuses included $1,541,673 to Mr. Perold, $950,000 to Mr.
Agnello, $140,000 to Mr. Coburn and $75,000 to Mr. Ranalli.
Berger & Paul, LLP, a law firm of which Mr. Paul, a director of the
Company, is a partner, received fees of approximately $125,000, $75,000, and
$70,000, for the year ended December 31, 1998, 1997 and 1996 respectively, for
legal services which it performs on behalf of the Company.
Brown, Coburn & Co., of which Mr. Coburn is a co-founder and principal,
received fees of $156,200, $88,000 and $23,000 for the years ended December 31,
1998, 1997 and 1996 in connection with investment banking advisory services.
Mr. Atlas provided management advisory services to the Company in 1998
prior to joining as President, CEO and his appointment as a director. Fees
incurred for the year ended December 31, 1998 were approximately $25,000.
The Company believes that the transactions described above were on terms
no less favorable than could have been obtained from unaffiliated third
parties. The Company has undertaken that all future transactions with its
executive officers, directors and 5% stockholders will be on terms no less
favorable than could be obtained from unaffiliated third parties and will be
approved by a majority of the directors of the Company disinterested in the
transaction.
7
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding stock options
granted to the six individuals named in the Summary Compensation Table. In
addition, in accordance with the Commission's rules, the table also shows a
hypothetical potential realizable value of such options based upon assumed
rates of annual compounded stock price appreciation of 5% and 10% from the date
such options were granted over the full term. The assumed rates of growth were
selected by the Commission for illustrative purposes only, and are not intended
to predict future stock prices which will depend upon market conditions and the
Company's future performance and prospects. Based upon the closing stock price
and the number of common shares outstanding at the end of 1998, an assumed
annual stock price appreciation of 10% would produce a corresponding aggregate
pretax gain over the full option term of approximately $50 million for the
Company's common stockholders.
<TABLE>
<CAPTION>
Number of
Securities % of Total Options Per Potential Realized Value at
Underlying Granted to Share Assumed Annual Rates of Stock
Options Employees Exercise Expiration Price Appreciation for Term
Name Granted In Fiscal Year Price Date 5% 10%
---- ------- -------------- ----- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Jay H. Atlas ............... 486,000 18.0% $ 2.375 12/21/08 $ 1,880,152 $2,993,827
Anthony M. Agnello ......... 75,000 2.8% 4.00 11/15/08 488,688 778,123
100,000 3.7% 2.375 12/18/08 388,682 616,014
Brian Hoerl ................ 20,000 0.7% 4.00 11/15/08 130,312 207,500
John Lynch ................. 10,000 0.4% 4.00 11/15/08 65,156 103,750
25,000 0.9% 3.125 10/01/08 127,257 202,636
</TABLE>
8
<PAGE>
AGGREGATE FISCAL YEAR-END OPTION VALUE
The following table sets forth certain information concerning stock option
exercises by the four individuals named in the Summary Compensation Table
during 1998 including the aggregate value of gains on the date of exercise. In
addition, this table includes the number of shares covered by both exercisable
and non-exercisable stock options as of December 31, 1998. Also reported are
the values for "in-the-money" options which represent the excess of the closing
market price of the Common Stock at December 31, 1998 over the exercise price
of the option.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Shares Underlying Unexercised Options At In-The-Money-Options At
Acquired Value December 31, 1998 (#) December 31, 1998($)
Name On Exercise Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
---- ----------- ------------ ------------------------- -------------------------
<S> <C> <C> <C> <C>
Jay H. Atlas ............. -0- -0- -0-/486,000 -0-/516,375
Anthony M. Agnello ....... -0- -0- 37,500/137,500 -0-/106,250
Jeffrey Sasmor ........... 5,000 22,750 110,750/-0- 69,866/-0-
Brian Hoerl .............. -0- -0- 145,000/2,500 24,688/-0-
Gerard E. Dorsey ......... 28,400 99,708 -0-/-0- -0-/-0-
John Lynch ............... 20,000 98,440 105,000/10,000 7,688/-0-
</TABLE>
Employment Agreements
Jay H. Atlas is employed under a three year employment agreement effective
December 21, 1998 pursuant to which he is paid a base salary of $275,000. He is
eligible for a bonus of 50% of his annual base salary based upon the attainment
of certain goals set by the Board of Directors. Upon execution of the
employment agreement, Mr. Atlas was granted an aggregate of 486,000 common
stock purchase options exercisable at $2.38 per share, vesting over a four year
period from December 21, 1999 through December 21, 2002. Mr. Atlas has executed
non-competition and non-solicitation agreements with the Company pursuant to
which for a specified period following the termination of his employment, he
has agreed not to solicit the Company's customers or employees or to become
associated with the Company's competitors. Mr. Agnello resigned as Chief
Executive Officer of the Company effective upon Mr. Atlas' employment in
December 1998. Mr. Agnello entered into an agreement with the Company in
December 1998 providing for a one time severance payment of $600,000 in March
1999 and the issuance of 100,000 common stock purchase options at $2.38 per
share. Additionally, Mr. Agnello entered into a two year consulting agreement
with the Company pursuant to which is paid $50,000 per year. His
non-competition and non-solicitation agreements have been extended through
December 2001.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The following Report of the Compensation Committee and the performance
graphs included elsewhere in this proxy statement do not constitute soliciting
material and should not be deemed filed or incorporated by reference into any
other Company filing under the Securities Act of 1933 or the Securities
Exchange Act of 1934, except to the extent the Company specifically
incorporates this Report or the performance graphs by reference therein.
Report of Compensation Committee
The Compensation Committee of the Board of Directors has furnished the
following report on executive compensation for fiscal 1998.
What is the Company's philosophy of executive officer compensation?
o a base salary,
o a performance-based annual bonus, and
o periodic grants of stock options.
9
<PAGE>
The Compensation Committee believes that this three-part approach best
serves the interests of the Company and its stockholders. It enables the
Company to meet the requirements of the highly competitive environment in which
the Company operates while ensuring that executive officers are compensated in
a way that advances both the short and long-term interests of stockholders.
Under this approach, compensation for these officers involves a high proportion
of pay that is "at risk"- namely, the annual bonus and stock options. The
annual bonus permits individual performance to be recognized on an annual
basis, and is based, in significant part, on an evaluation of the contribution
made by the officer to Company performance. Stock options relate a significant
portion of long-term remuneration directly to stock price appreciation realized
by all of the Company's stockholders.
Base Salary. Base salaries for the Company's executive officers, as well
as changes in such salaries, are based upon recommendations by the Chief
Executive Officer, taking into account such factors as competitive industry
salaries; a subjective assessment of the nature of the position; the
contribution and experience of the officer, and the length of the officer's
service.
Annual Bonus. In December 1998, the Company entered into employment
agreements with two new executive officers, Mr. Atlas and Mr. Schneider. Each
of these officers have bonus provisions in their agreements which are
performance based.
Stock Option. Under the stock option guidelines adopted by the
Compensation Committee, stock option grants may be made to executive officers
upon initial employment, upon promotion to a new, higher level position that
entails increased responsibility and accountability and in connection with the
execution of a new employment agreement. Options typically vest over a minimum
four year period.
How is the Company's Chief Executive Officer compensated?
As Chief Executive Officer, Mr. Atlas is compensated pursuant to an
employment agreement entered into in December 1998. The agreement, which
extends through December 2001, subject to earlier termination under certain
circumstances, provides for an annual base salary of $275,000. Mr Atlas'
bonuses for each fiscal year may be up to 50% of his base annual salary based
upon performance related goals set by the Board of Directors. Additionally, he
was granted 486,000 options exercisable at $2.38 per share vesting over a four
year period commencing December 21, 1999.
Report on Repricing of Stock Options
Stock options were granted under the Company's 1994 and 1995 Stock Option
Plans to many employees of the Company from August, 1995 through July, 1998
with an exercise prices ranging from $5.25 to $11.63 per share. Subsequent to
these grants the market price of the Common Stock suffered a significant
decline. In order to ensure that the options previously granted would provide a
meaningful incentive to motivate and retain employees, Company employees were
given the opportunity to cancel such options and receive in exchange a like
number of options granted as of November 15, 1998 with an exercise price of
$4.00 providing for a newly commenced vesting period as of the repricing date.
It is the opinion of the Committee that the aforementioned compensation
structures provide features which properly align the Company's executive
compensation with corporate performance and the interests of its stockholders
and which offer competitive compensation relevant to comparable opportunities
in the marketplace.
Respectfully submitted,
The Compensation Committee:
Jay H. Atlas
Robert J. Ranalli
Theodore J. Coburn
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Compliance with Section 16(a) of the Exchange Act
Section 16 (a) of the Securities and Exchange Act of 1934 requires Ariel's
directors and executive officers to file with the SEC initial reports of
ownership and reports of changes in ownership of Ariel's common stock. Ariel
believes that during the fiscal year ended December 31, 1998, its officers and
directors complied with all these filing requirements except for one option
exercise transaction by Etienne Perold and the initial report of ownership by
Theodore Coburn both of which were inadvertently omitted and later reported in
an amended filing. In making this statement, Ariel has relied upon the
representations of its directors and executive officers. The Company does not
believe any other stockholders are subject to Section 16 (a) filing
requirements.
COMPARATIVE PERFORMANCE CHART
The graph set forth below compares the cumulative total return on the
Company's Common Stock for the period commencing January 25, 1995 and ending
December 31, 1998 against the cumulative total return on the NASDAQ Market
Index and a peer group comprised of certain public companies whose business
activities fall within the same standard industrial classification code as the
Company. This graph assumes an investment of $100 made on January 25, 1995 in
the Company's Common Stock and in each index assuming the reinvestment of any
dividends paid by the companies. The Common Stock price performance shown below
should not be viewed as indicative of future performance.
TOTAL SHAREHOLDER RETURN
25Jan95 Dec95 Dec96 Dec97 Dec98
- -------------------------------------------------------------------------------
ARIEL CORP 100 235.14 224.32 121.62 74.34
NASDAQ INDEX 100 140.64 172.98 212.26 297.87
PEER GROUP 100 180.42 164.64 226.89 312.68
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PROPOSAL NO. 2: APPOINTMENT OF INDEPENDENT AUDITORS
On March 23, 1999, the Board of Directors selected PricewaterhouseCoopers,
LLP to continue as the Company's independent public accountants for the fiscal
year ending December 31, 1999.
Although neither federal nor state law requires the approval of the
auditors by stockholders, the Board believes that, in view of the importance of
financial statements to the stockholders, the selection of independent public
accountants should be passed on by stockholders. Accordingly, approval of the
following resolution will be requested at the Meeting:
"RESOLVED, that the Board of Directors appointment of
PricewaterhouseCoopers, LLP to serve as the Company's independent public
accountants for fiscal year ending December 31, 1999 be, and the same
hereby is ratified and approved."
The Board of Directors recommends a vote FOR the foregoing resolution. In
the event that stockholders disapprove of the selection, the Board of Directors
will consider the selection of other auditors.
A representative of PricewaterhouseCoopers, LLP will be present at the
Meeting. The Company has been informed that the representative does not intend
to make any statement to the stockholders at the Meeting, but will be available
to respond to appropriate questions from stockholders.
PROPOSAL NO. 3:
AMENDMENT OF THE COMPANY'S 1995 STOCK OPTION PLAN
In order to provide the Company the ability to issue options, the Board
adopted the 1995 Stock Option Plan (the "1995 Plan") effective January 1, 1996,
which was approved by the Company's stockholders at the Annual Meeting held on
May 14, 1996, and amended as approved by the stockholders at the Annual
Meetings held on June 12, 1997 and June 24, 1998. The 1995 Plan is intended to
encourage stock ownership by officers, employees, independent contractors and
advisors of the Company and thereby enhance their proprietary interest in the
Company.
On March 23, 1999, the Board of Directors adopted a resolution, subject to
shareholder approval, to amend the 1995 Stock Option Plan to increase the
number of shares issuable thereunder from 1,700,000 to 2,200,000. The Board of
Directors believes that stock options are valuable tools for the recruitment,
retention and motivation of qualified employees, including officers and other
persons who can contribute materially to the Company's success. As of March 31,
1999, options to purchase 1,394,650 shares were outstanding under the 1995
Stock Option Plan and predecessor plans. The Board of Directors believes that
equity ownership by management and other employees has contributed to the
Company's growth over the past five years. The Board believes that it is
important to have additional shares available under the 1995 Stock Option Plan
to provide adequate incentives to the Company's growing workforce and to
continue aligning the interests of management with those of the company's
stockholders. A summary of the significant provisions of the 1995 Stock Option
Plan, as amended from 1,700,000 shares to 2,200,000 shares is set forth below.
Administration of the 1995 Plan
The 1995 Plan is administered by a committee (the "Committee") consisting
of two or more persons who are appointed by, and serve at the pleasure of, the
Board and each of whom is a "disinterested person" as that term is defined in
Rule 16b of the General Rules and Regulations under the Securities Exchange Act
of 1934. Subject to the express provisions of the 1995 Plan, the Committee has
the sole discretion to determine to whom among those eligible, and the time or
times at which, options will be granted, the number of shares to be subject to
each option and the manner in and price at which options may be exercised. In
making such determinations, the Committee may take into account the nature and
period of service of eligible employees, their level of compensation, their
past, present and potential contributions to the Company and such other factors
as the Committee in its discretion deems relevant. Options are designated at
the time of grant as either "Incentive Stock Options" intended to qualify under
Section 422 of the Internal Revenue Code (the "Code") or "non-qualified
options" which do not so qualify.
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<PAGE>
The Committee may amend, suspend or terminate the 1995 Plan at any time,
except that no amendment may be adopted without the approval of shareholders
which would (i) increase the maximum number of shares which may be issued
pursuant to the exercise of options granted under the Plan; (ii) change the
eligibility requirements for participation in the 1995 Plan; (iii) permit the
grant of any incentive stock option under the 1995 Plan with an option price of
less than 10% of the fair market value of the shares at the time such incentive
stock option is granted; or (iv) extend the term of any incentive stock options
or the period during which any incentive stock options may be granted under the
1995 Plan.
Unless the 1995 Plan is terminated earlier by the Board, the 1995 Plan
will terminate on December 31, 2005.
Shares Subject to the Plan
No more than 2,200,000 shares of Common Stock may be issued pursuant to
the exercise of options granted under the 1995 Plan. If any option expires or
terminates for any reason, without having been exercised in full, the
unpurchased shares subject to such option will be available again for purposes
of the 1995 Plan.
Under certain circumstances involving a change in the number of shares of
Common Stock without the receipt by the Company of any consideration therefor,
such as a stock split, stock consolidation or payment of a stock dividend, the
class and aggregate number of shares of Common Stock in respect of which
options may be granted under the 1995 Plan, the class and number of shares
subject to each outstanding option and the option price per share will be
proportionately adjusted. In addition, if the Company is involved in a merger,
consolidation, dissolution or liquidation, the options granted under the 1995
Plan will be adjusted or, under certain conditions, will terminate, subject to
the right of the option holder to exercise his option or a comparable option
substituted at the discretion of the Company prior to such event. An option may
not be transferred other than by, will or by the laws of descent and
distribution, and during the lifetime of the option holder may be exercised
only by such holder.
Participation
The Committee is authorized to grant incentive stock options from time to
time to such employees of the Company as the Committee, in its sole discretion,
may determine. Employees of the Company, advisors and independent contractors
providing services to the Company are eligible to receive non-qualified options
under the 1995 Plan.
Option Price
The exercise price of each option is determined by the Committee, but may
not, in the case of incentive stock options, be less than 100% of the fair
market value of the shares of Common Stock covered by the option on the date
the option is granted. In the case of non-qualified options, the option price
per share may be less than, equal to or greater than the fair market value of
the shares of Common Stock covered by the option on the date the option is
granted. If an incentive stock option is to be granted to an employee who owns
over 10% of the total combined voting power of all classes of the Company's
stock, then the exercise price may not be less than 110% of the fair market
value of the Common Stock covered by the incentive stock option on the date the
option is granted.
Terms of Options
The Committee has the discretion to fix the term of each option granted
under the 1995 Plan, except past the maximum length of term of each option is
10 years, subject to earlier termination as provided in the Plan.
Required Vote
The affirmative vote of holders of a majority of the shares of Common
Stock present, in person or by proxy, at the Annual Meeting is required to
approve the 1995 Plan pursuant to the following resolution:
13
<PAGE>
"RESOLVED, that the Company's 1995 Stock Option Plan be amended to provide
for the issuance of up to 2,200,000 shares in the aggregate."
The Board of Directors recommends that you vote FOR the amendment of the
1995 Plan.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors does not
know of any matters to be pre- sented to the Meeting other than the first four
proposals set forth in the attached Notice of Annual Meeting. If any other
matters properly come before the Meeting, it is intended that the holders of
the management proxies will vote thereon in their discretion.
The solicitation of proxies on the enclosed form of proxy is made by and
on behalf of the Board of Directors of the Company and the cost of this
solicitation is being paid by the Company. In addition to the use of the mails,
proxies may be solicited personally, or by telephone or telegraph, by the
officers or directors of the Company.
Stockholder proposals for inclusion in the Company's proxy statement for
the 2000 Annual Meeting of Stockholders must be received no later than January
20, 2000 pursuant to Rule 14a-8 of the Securities Exchange Act of 1934.
By Order of the Board of Directors
------------------------------------
HAROLD W. PAUL
Secretary
May 20, 1999
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<PAGE>
ARIEL CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD JUNE 23, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Jay H. Atlas and Harold W. Paul and each
of them, Proxies, with full power of substitution in each of them, in the name,
place and stead of the undersigned, to vote the Annual Meeting of Stockholders
of Ariel Corporation (the "Company") on June 23, 1999 at 9:15 A.M. at the
Harvard Club, 27 West 44th Street, New York, New York or at any adjournment or
adjournments thereof, according to the number of votes that the undersigned
would be entitled to vote is personally present, upon the following matters:
1. ELECTION OF DIRECTORS
/ / FOR the nominee listed below / / WITHHOLD AUTHORITY
(except as marked to the contrary to vote for the nominee
below) listed below
Jay H. Atlas
2. Proposal to ratify the appointment of PricewaterhouseCoopers LLP as
Independent Public Accountants for the Company for the Fiscal Year ending
December 31, 1999.
FOR / / AGAINST / / ABSTAIN / /
3. Proposal to ratify amending the Company's 1995 Stock Option Plan.
FOR / / AGAINST / / ABSTAIN / /
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
(Continued and to be signed on reverse side)
<PAGE>
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS GIVEN ABOVE. IF NO
INSTRUCTIONS ARE GIVEN, THIS PROXY WILL BE VOTED FOR THE NOMINEES AND PROPOSALS
LISTED ABOVE.
Date: ,1999
------------------------------
----------------------------------------
Signature
----------------------------------------
Signature if held jointly
Please sign exactly as name appears
hereon. When shares are held by joint
trusts, both should sign. When signing
as attorney, executor, administrator,
trustee or guardian, please give full
title as such. If a corporation, please
sign the full corporate name by
President or other authorized officer.
If a partnership, please sign in
partnership name by authorized person.
Please mark, sign, date and return this proxy card promptly using the enclosed
envelope.
