<PAGE>
Filed pursuant to 424(B)(3)
File No. 333-33962
PROSPECTUS
4,486,850 Shares
[GRAPHIC OMITTED]
Common Stock
The selling stockholders identified in this prospectus may offer from time
to time an aggregate of up to 4,486,850 shares of Ariel Corporation's common
stock. We will not receive any of the proceeds from the sale of shares.
The selling stockholders may offer their shares through public or private
transactions, on or off the Nasdaq National Market, at prevailing market prices
or at privately negotiated prices.
Our common stock trades on the Nasdaq National Market under the symbol
"ADSP". On April 24, 2000, the last reported sale price of our common stock on
the Nasdaq National Market was $3.56 per share.
----------------
Investing in our common stock involves risks which are described in the
"Risk Factors" section beginning on page 3 of this prospectus.
----------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
----------------
The date of this prospectus is April 25, 2000
<PAGE>
TABLE OF CONTENTS
Page
-----
Special Note Regarding Forward-looking Statements .......... ii
Where You Can Find More Information ........................ ii
Incorporation of Information We File with the SEC .......... 1
Ariel ...................................................... 2
Risk Factors ............................................... 3
Use of Proceeds ............................................ 11
Selling Stockholders ....................................... 11
Plan of Distribution ....................................... 14
Description of Capital Stock ............................... 15
Legal Matters .............................................. 17
Experts .................................................... 17
---------------------
"Ariel" and "PowerPOP" are our trademarks. All other trademarks or service
marks appearing in this prospectus are trademarks and service marks of the
respective companies that use them.
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not, and the selling stockholders have
not, authorized any other person to provide you with different information. If
anyone provides you with different or inconsistent information, you should not
rely on it. We are not, and the selling stockholders are not, making an offer
to sell our common stock in any jurisdiction except where the offer or sale is
permitted. You should not assume that the information contained or incorporated
by reference in this prospectus is accurate as of any date other than the date
on the front cover of this prospectus or the date of such other documents.
i
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements including, without
limitation, statements concerning the future of the industry, product
development, business strategy, financial estimates, continued acceptance of
our products and dependence on significant distributors and customers. In some
cases, you can identify forward-looking statements by terminology such as
"may", "will", "should", "expects", "plans", "anticipates", "believes",
"estimated", "predicts", "potential", "continue" or the negative of such terms
or other comparable terminology. These statements are only predictions and
involve known and unknown risks, uncertainties, and other factors that may
cause our actual results, levels of activity, performance, or achievements to
be materially different from any future results, levels of activity,
performance, or achievements expressed or implied by such forward-looking
statements. These factors include, among other things, those listed under the
heading "Risk Factors" and in our Form 10-K for the fiscal year ended December
31, 1999, which is incorporated by reference herein.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance, or achievements. We are under no duty to update any of
the forward-looking statements after the date of this prospectus to conform to
actual results.
WHERE YOU CAN FIND MORE INFORMATION
We are a public company and file annual, quarterly and special reports,
proxy statements and other information with the Securities and Exchange
Commission. You may read and copy any document we file at the SEC's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549, and at its
regional offices located at Seven World Trade Center, New York, New York 10007
and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You can
request copies of these documents by writing to the SEC and paying a fee for
the copying cost. Please call the SEC at 1-800-SEC-0330 for more information
about the operation of the public reference room. Our SEC filings are also
available to the public at the SEC's web site at http://www.sec.gov. In
addition, you can read and copy our SEC filings at the office of the National
Association of Securities Dealers, Inc. at 1735 K Street, Washington, D.C.
20006.
We have filed a registration statement on Form S-3 with the SEC covering
the common stock offered by this prospectus. We refer you to this registration
statement and its exhibits for additional information about us and our common
stock. Copies of the registration statement may be obtained at the above
referenced SEC offices or on the SEC's web site at http://www.sec.gov.
ii
<PAGE>
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to incorporate by reference the information we file with
them, which means:
o Incorporated documents are considered part of the prospectus,
o We can disclose important information to you by referring you to those
documents, and
o Information that we file with the SEC will automatically update and
supersede this prospectus.
We incorporate by reference the documents listed below which were filed
with the SEC under the Securities Exchange Act of 1934 (the "Exchange Act"):
o Annual Report on Form 10-K for the fiscal year ended December 31, 1999,
and
o Current Report on Form 8-K filed March 10, 2000.
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus but before all the
common stock offered by this prospectus has been sold:
o Reports filed under Sections 13(a) and (c) of the Exchange Act,
o Definitive proxy or information statements filed under Section 14 of the
Exchange Act in connection with any subsequent stockholders' meeting,
and
o Any reports filed under the Section 15(d) of the Exchange Act.
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address:
Ariel Corporation
Attention: Jay H. Atlas
2540 Route 130
Cranbury, NJ 08512
(609) 860-2900
1
<PAGE>
ARIEL
We are a leading provider of open systems-based digital remote access
equipment to Internet service providers ("ISPs"). Our remote access equipment
is compatible with open systems platforms running a variety of popular
operating systems, including Windows NT and Linux, and enables ISPs to build
reliable, scalable and easy to manage networks at a cost that is significantly
below other available alternatives.
Remote access equipment enables a user dialing in over a standard
telephone line to connect to a computer network. Because of the increasing
number of Internet users, ISPs are faced with the challenge of providing access
to a growing number of subscribers, including those subscribers who are staying
connected to the Internet for longer periods of time. In addition, ISPs must
also find cost effective ways to expand their networks and computer systems to
provide additional services such as Internet telephony, fax and voice over the
Internet and unified messaging. Our products enable ISPs to use standard PC
systems to build remote access server concentrators, which is the equipment
used to connect multiple users simultaneously to the Internet.
We recently introduced a new family of dial-up Internet access solutions
we call PowerPOP(TM) architecture, which leverages industry standard hardware,
software and applications. Using a standard PC system to build a remote access
server concentrator, our remote access solutions enable ISPs to enhance their
network performance while significantly reducing their capital costs. A typical
ISP network architecture is based on a central network operations center, where
servers run the services that the ISP provides, connected to a number of "dumb"
points of presence ("POPs"). Our PowerPOP architecture, by taking advantage of
the increasing performance and low prices of PC-based systems, allows ISPs to
provide key network services at the POP. By installing intelligence and
processing capability at the POP, ISPs can significantly reduce network traffic
which results in a faster response time and improved customer satisfaction. We
sell our products to ISPs primarily through one distributor.
We recently launched our fourth generation of remote access products that
add SS7 signaling, including voice and fax over the Internet protocol features,
to our PowerPOP architecture. We are currently developing a next generation
product that will extend the PowerPOP architecture into the customer premises
of business enterprises.
We have historically provided and will continue to provide remote access
and digital signal processing ("DSP") products to original equipment
manufacturers ("OEMs") who integrate our components into their products.
Because integration of our complex components involves a significant amount of
technical development and testing by the OEM, our products are generally used
for the duration of the OEM's product-life. We sell our products to OEMs
through our direct sales force. We intend to continue to offer all our
component products to OEMs, including those OEMs who sell products in the ISP
market.
Corporate Information
Our principal executive offices are located at 2540 Route 130, Cranbury,
New Jersey 08512 and our telephone number is (609) 860-2900. Our e-mail address
is [email protected] and our website can be accessed at www.ariel.com. The
reference to our website address does not constitute incorporation by reference
of the information contained at the website.
2
<PAGE>
RISK FACTORS
Before you invest in our common stock, you should be aware that there are
risks, including those described below which may affect our business, financial
condition or results of operations. You should consider carefully these risk
factors together with all of the other information included in or incorporated
by reference in this prospectus before you decide to purchase shares of our
common stock.
Risks Relating to Our Business
We have incurred substantial operating losses and an accumulated deficit. We
expect to continue to have operating losses and a growing accumulated deficit
in the future.
Our business operations have generated operating losses since 1993. For
the year ended December 31, 1999, our business operations generated operating
losses of $12,474,160. We had an accumulated deficit of $26,137,692 at December
31, 1999. We expect to continue to generate net operating losses while we
continue to launch new products and penetrate the ISP market. We can not assure
you that we will obtain a customer base sufficient to support the costs of our
operations.
We cannot assure you that we will become profitable or that our cash flow
will become positive at any time in the foreseeable future, or at all, or that
we will generate sufficient cash flow from product sales to liquidate
liabilities as they become due. In the event that we are unable to liquidate
our liabilities, we may delay or eliminate some expenditures and we may scale
back our planned operations. We may need additional funds to meet our planned
obligations, and we will seek to raise such amounts through a variety of
options, including future cash from operations, borrowings and proceeds from
equity financings. Additional funding may not be available when needed or on
terms acceptable to us, which could have a material adverse effect on our
business, financial condition and results of operations. In addition, if we
raise additional funds through the issuance of equity, equity-linked or debt
securities, those securities may have rights, preferences or privileges senior
to those of the rights of our common stock and our stockholders may experience
additional dilution.
We have substantial debt and debt service requirements and this may adversely
affect our financial and operating flexibility.
We have a significant amount of indebtedness. At December 31, 1999, we had
$3.7 million of outstanding indebtedness under our credit agreement, of which
$1.2 million is due on June 12, 2000. The amount of indebtedness we have could
have important consequences to our stockholders. For example, it could:
o make it more difficult for us to meet our obligations;
o increase our vulnerability and limit our ability to react to general
adverse economic and industry conditions;
o limit our ability to use operating cash flow to fund operating expenses,
working capital, research and development and other general corporate
purposes because we must dedicate a substantial portion of our cash flow
to make payments on our debt;
o place us at a competitive disadvantage compared to some of our
competitors that have less debt; and
o limit our ability to borrow additional funds.
Our ability to pay interest under our credit facility or to refinance our
indebtedness and to satisfy our other debt obligations will depend upon our
future operating performance, which in turn depends upon the successful
implementation of our new business strategy and upon financial, competitive,
regulatory, technical and other factors, many of which are beyond our control.
If we are not able to generate sufficient cash from operations to make
payments under our credit agreement or to meet any other debt service
obligations, we will need to refinance our indebtedness. If such refinancing is
not possible, we could be forced to dispose of assets at unfavorable prices or
default on our debt obligations. Even if we obtain such financing, we cannot
assure you that it would be on terms that are favorable to us.
3
<PAGE>
We have recently changed our business strategy to focus on a new class of
products for the ISP market. This represents a new market for us and we have
had limited experience selling our products in this market.
Our ability to successfully execute our new business strategy is critical
to the future performance of our business. During the second quarter of 1999,
we changed our business strategy to focus on the ISP market following the
decline of the enterprise remote access market. Historically, we have derived,
and expect to continue to derive in the near term, substantially all of our
revenues from product sales to OEMs and PC manufacturers. As we focus our
efforts on the ISP market, we expect sales to OEMs to represent a declining
percentage of our total revenue in the future if our new business strategy is
successful. Because the ISP market is a new market for us and the equipment we
have developed for that market has only recently been introduced, we have had
limited experience in selling our products. Currently, only a limited number of
ISPs have purchased our products.
Successful execution of our new business strategy will depend on our
ability to:
o penetrate the ISP market;
o achieve market acceptance of our products;
o successfully develop and introduce new products;
o identify, recruit and retain qualified engineers and sales personnel;
o provide adequate customer care and technical support;
o manage our growth; and
o secure adequate financing.
We cannot assure you that we will be successful in executing our new
business strategy and, if we are not, our business, financial condition and
results of operations could be adversely affected and the price of our common
stock will likely decline.
Our PowerPOP architecture is new and may not be accepted by our target market.
The market success of our ISP products depends significantly upon the
acceptance of our PowerPOP architecture by the small to mid-sized ISPs we are
targeting. The PowerPOP architecture represents a different approach to
addressing ISP remote access equipment needs. Our approach uses a standard PC
system running Windows NT or Linux to build remote access server concentrators,
in contrast to traditional products that are custom-built for this purpose.
ISPs may not be willing to use our approach which would significantly hinder
our growth potential and would negatively affect our business.
Our OEM sales are concentrated among a small number of customers and in 1998,
our most significant OEM customer discontinued products that used our
components.
Substantially all of our revenue is derived from sales to OEMs. Our sales
are concentrated among a small number of OEM customers. For the year ended
December 31, 1999, approximately 45% of our revenue was generated by three of
our customers. The loss of any of these customers would negatively impact our
revenues. For example, following the decline of the enterprise remote access
market in late 1998, our most significant OEM customer, Compaq, representing
25% of our total revenue for the year ended December 31, 1998, and a number of
other customers discontinued their networking groups. As a result, revenues
from Compaq declined from $4.4 million for the year ended December 31, 1998 to
zero for the year ended December 31, 1999. Until we are able to penetrate the
ISP market, we expect that a small number of OEM customers will continue to
account for a substantial portion of our revenue.
We are highly dependent on KeyLink Systems to distribute our products to ISPs
and the ISP market is a new market for KeyLink.
We are highly dependent on KeyLink Systems to distribute our products to
ISPs. Our direct sales efforts have focused principally on OEM customers and we
do not have a direct sales force that focuses on sales to
4
<PAGE>
ISPs. Our arrangement with KeyLink is not set out in a written agreement and
does not include specific commitments undertaken by KeyLink. As a result,
KeyLink is not required to meet any performance criteria or to commit any
specific level of resources to the marketing of our products and is not
prohibited from selling products that compete with ours. In addition, KeyLink
has no previous experience as a distributor in our target market. Any failure
by KeyLink to support sales of our products or failure by KeyLink to establish
itself as a distributor in the ISP market would have a material adverse affect
on our ability to penetrate the ISP market and on the future performance of our
business.
If we fail to establish and maintain strategic distribution, marketing or other
collaborative relationships with industry-leading companies, we may not be able
to build our ISP customer base.
Our success depends on our ability to continue to establish and maintain
strategic distribution, marketing and other collaborative relationships with
industry-leading hardware manufacturers, distributors, software vendors and
enterprise solutions providers. These relationships allow us to offer our
products and services to a much larger customer base than we would otherwise be
able to through our direct sales and marketing efforts. Most of our existing
relationships can be terminated on short notice by any party. We cannot assure
you that we will be able to maintain these relationships or replace them on
attractive terms.
In addition, our existing strategic relationships do not, and any future
strategic relationships may not, afford us any exclusive marketing or
distribution rights. As a result, the companies with which we have strategic
relationships are free to pursue alternative technologies and to develop
alternative products and services in addition to or in lieu of our products and
services, either on their own or in collaboration with others, including our
competitors. Moreover, we cannot guarantee that the companies with which we
have strategic relationships will distribute our products effectively or
continue to devote the resources necessary to provide us with effective sales,
marketing and distribution.
We must accurately forecast our customer demand for our plug-in cards. If there
is unexpected fluctuation in demand for our products, we may incur inventory
write-downs, excessive operating costs or lose product revenues.
We must forecast and place purchase orders for components of our products
several months before we receive purchase orders from our own customers. This
forecasting and order lead time requirements limit our ability to react to
unexpected fluctuations in demand for our products. These fluctuations can be
unexpected and may cause us to have excess inventory, or a shortage, of a
particular product. In the event that our forecasts are inaccurate, we may need
to write down excess inventory. For example, we were required to write down
inventory in the fourth quarter of 1998 in connection with the termination of
our sales to Compaq and a reduction in sales to other OEM customers.
Significant write-downs of excess inventory or declines in inventory value in
the future could adversely affect our financial results. Similarly, if we fail
to purchase sufficient supplies on a timely basis, we may incur additional rush
charges or we may lose product revenues if we are not able to meet a purchase
order. These failures could also adversely affect our customer relations.
Undetected errors or defects found in our products may result in loss of
customers or delay in market acceptance of our products.
Despite testing by us and by our customers, errors may be found in new
products after commencement of commercial shipments, resulting in loss of
customers, delay in market acceptance of our products and damage to our
reputation. In addition, if errors are discovered, we may have to spend a
significant amount of money to eliminate them and yet may not be able to
successfully correct them in a timely manner, or at all.
Failures in our products may also cause system failures for our customers
who could then assert warranty and other claims for damages against us.
Although our customer agreements typically contain provisions designed to limit
our exposure to potential product liability claims, it is possible that these
provisions may not be effective or enforceable under the laws of some
jurisdictions. Our insurance policies may not adequately limit our exposure to
this type of claim. These claims, even if unsuccessful, could be costly and
time consuming to defend and could divert management's attention from our
business. We cannot assure you that the occurrence of any of these events would
not have a material adverse effect on our business, financial condition and
results of operations.
5
<PAGE>
Average selling prices of our products may decrease which could hurt our
operating results.
The average selling prices for our products may be lower than expected as
a result of competitive pricing pressures, technological advances, promotional
programs and customers who negotiate price reductions. The pricing of products
depends on the specific features and functions of the product, the extent to
which the product can be integrated within ISPs' and OEMs' existing hardware
and software operating systems, purchase volumes and the level of sales and
service support. Historically, the trend in our industry has been for prices to
decrease as technological innovations become widespread. We expect this trend
and price competition to continue and possibly increase in the future, both in
the OEM and the ISP remote access equipment markets, and anticipate that the
average selling prices of our current products will decrease. We cannot assure
you that we will be successful in developing and introducing on a timely basis
new products with enhanced features that can be sold at our projected selling
prices.
We depend on a limited number of third-party suppliers some of which are the
sole suppliers of the product we purchase from them.
We purchase digital signal processing chips and certain other components
from Texas Instruments, Conexant Systems, Lucent Technologies and Analog
Devices, each of which manufactures and is the sole supplier of the digital
signal processing chips upon which our products have been developed. We do not
have long-term agreements with any of these suppliers. Any reduction or
interruption in supply or manufacturing from these third party contractors
would adversely affect our ability to continue to deliver our products. We also
depend upon development, supply, marketing, licensing and other relationships
with third parties for complementary technologies incorporated in our products.
These cooperative relationships, many of which have been in place for a number
of years, are with hardware and software developers pursuant to which we each
make our technology available to the other for the purpose of achieving
compatible products. Some of these relationships are based upon annually
renewable license agreements under which we obtain technology necessary to
produce our products. These relationships are generally non-exclusive and
terminable, in some cases on short notice or at any time, and there can be no
assurance that we will be able to maintain these relationships or to initiate
similar additional relationships. The loss of certain cooperative
relationships, particularly with any of the digital signal processing chip
suppliers, may have a material adverse effect on our business.
The market for remote access equipment is highly competitive and we compete
with large, well-established companies. If we are unable to compete
effectively, the demand for, or prices of, our products may be reduced.
The remote access equipment market is intensely competitive. We may not be
able to compete successfully against current or potential competitors and our
failure to do so could seriously harm our business, operating results and
financial condition.
In the ISP market, we compete directly with other small companies that
sell remote access equipment as well as large well-established companies such
as Ascend/Lucent, Cisco, and 3Com. These and many of our current and potential
competitors have significantly greater financial, selling and marketing,
technical, manufacturing and other resources than we have. As a result, these
competitors may be able to devote greater resources toward the development,
promotion, sale and support of their products than we can. These companies may
introduce additional products that compete with ours or enter into strategic
relationships to offer complete solutions which we do not currently offer.
In addition, we recently introduced our PowerPOP architecture to the
market and we have not had enough experience selling the product to fully
assess its competitiveness. If we find that our new products are not
competitive, our business could be materially harmed.
Our financial results may fluctuate from period to period as a result of
several factors which could adversely affect our stock price.
Because of the change in our business strategy, the loss of a major OEM
customer, the sale of our communications systems group and other factors, we
believe that period to period comparisons of our operating results may not be a
good indication of our future performance. It is possible that in some future
periods our operating results may be below the expectations of public market
analysts and investors. In this event, the price of our
6
<PAGE>
common stock may fall. In the past, we have experienced fluctuations in our
revenue and operating results and our revenue and operating results may
continue to vary significantly from period to period due to a number of
factors, many of which are beyond our control. These factors include:
o fluctuations in demand for our products and services;
o variations in the timing of orders and shipments of our products;
o the timing of new product and service introductions by us or our
competitors;
o the mix of products sold and the mix of distribution channels through
which they are sold;
o our ability to obtain sufficient supplies of sole or limited sourced
components for our products;
o unfavorable changes in the prices of the components we purchase;
o our ability to achieve cost reductions;
o our ability to maintain quality levels for our products;
o our ability to integrate new technologies we develop or acquire into our
products; and
o timing of acquisitions and dispositions of businesses and assets.
The amount and timing of our operating results generally will vary from
quarter to quarter depending on the level of actual and anticipated business
activities and as we develop and launch new products. We have experienced
sharply increased revenue in periods that involved new product introductions
and significant sales to OEMs, with equally sharp decreases in revenue in
subsequent periods as distributors and OEMs complete their inventory build-up
process. Furthermore, we have a limited backlog of orders and revenue for any
future quarter is difficult to predict. Supply, manufacturing or testing
constraints could result in delays in the delivery of our products. Any delay
in the product deployment schedule of one or more of our new products would
likely adversely affect our operating results for a particular period.
Our technology is not patented and we will not be protected by patent laws.
We believe that our success is dependent upon our proprietary technology.
However, since we have not in the past actively pursued patent protection on
our products and do not hold patents on any of our current products, we will
not be protected by patent laws in the event competitors are able to create
substantially similar or duplicate products. We principally rely upon
copyright, trade secret and contract law to protect our proprietary technology.
We cannot assure you that we will be able to prevent misappropriation of our
technology or that our competitors will not independently develop technologies
that are substantially equivalent or superior to our technology.
Intellectual property claims against us could be costly and result in the loss
of significant rights.
The telecommunications industry is characterized by the existence of a
large number of patents and frequent litigation based on allegations of patent
infringement or other violations of intellectual property rights. Patent,
trademark and other intellectual property rights are important to us and other
technology companies. Many companies devote significant resources to developing
patents that could affect many aspects of our business. Other parties may
assert infringement or unfair competition claims against us that could relate
to any aspect of our technologies or other intellectual property. We may also
be subject to claims relating to components we purchase from our suppliers and
integrate into our products. We cannot predict whether third parties will
assert claims of infringement against us, the subject matter of any of these
claims or whether these assertions or prosecutions will harm our business. If
we are forced to defend ourselves against any of these claims whether they are
with or without merit or are determined in our favor, then we may face costly
litigation, diversion of technical and management personnel, inability to use
our current technology or product shipment delays. As a result of a dispute, we
may have to develop non-infringing technology or enter into royalty or
licensing agreements. These
7
<PAGE>
royalty or licensing agreements, if required, may be unavailable on terms
acceptable to us, or at all. If there is a successful claim of patent
infringement against us and we are unable to develop non-infringing technology
or license the infringed or similar technology on a timely basis, our business
and competitive position may be adversely affected.
We do not have our own manufacturing facilities and we depend on a limited
number of outside companies to manufacture substantially all the equipment we
sell.
We do not have our own manufacturing facilities and we rely on
K-Byte/Hibbing Manufacturing and JRE Inc. in the United States, and to a lesser
extent on FEDD in France, to manufacture substantially all of our equipment.
These agreements can be terminated on short notice by any party. We cannot
assure you that we will be able to maintain these relationships or replace them
on attractive terms. There are risks associated with our relationship with
these third parties, including reduced control over:
o delivery schedules;
o quality assurance;
o manufacturing costs;
o capacity during periods of excess demand; and
o availability of access to process technologies.
We depend on our key personnel and we may be unable to replace key executives
if they leave. Our failure to attract, assimilate and retain other highly
qualified personnel in the future could seriously harm our business.
Our success is largely dependent upon the personal efforts of our
executive officers as well as other key personnel and our future success is
also dependent on our ability to recruit and retain additional experienced
engineering and sales personnel. We intend to appoint additional senior
management personnel as well as to hire additional engineering, sales and
support personnel in the future. Competition for personnel, especially
engineers and sales personnel in New Jersey, is intense. There can be no
assurance that we will be able to retain or hire other necessary personnel.
Loss of the services of, or failure to recruit, key personnel could materially
harm our business.
Our management team may not be able to successfully implement our business
strategy because it has only recently begun to work together.
Our business is highly dependent on the ability of our management to work
together effectively to execute our business strategy. Several members of our
senior management have been employed by us for a relatively short period of
time and we are in the process of recruiting additional senior management.
These individuals have not previously worked together as a management team. In
addition, the members of our management team who have been with us for a longer
period have had only limited experience within our new target markets. The
failure of our management team to work together effectively could prevent
efficient decision making by our executive team, affecting product development
and sales and marketing efforts, which would negatively impact our results of
operations.
Risks Relating to Our Industry
We must keep pace with rapid technological change to remain competitive.
The telecommunications industry is subject to rapid technological change
and frequent new product introductions and enhancements, particularly in the
area of equipment for remote access and related network services. We believe
that our success will depend upon our ability to continuously develop new
products and product enhancements as well as provide quality technical support
services and be in a position to promptly introduce our products and services
to the market. We may experience difficulties that could delay or prevent the
successful development, introduction or marketing of new products and
enhancements, or our new products and enhancements may not adequately meet the
requirements of the marketplace and achieve market acceptance.
8
<PAGE>
Announcements of currently planned or other new product offerings by us or our
competitors may cause customers to defer or cancel the purchase of our existing
products. Our inability to develop on a timely basis new products or
enhancements to existing products, or the failure of our new products or
enhancements to achieve market acceptance, could have a material adverse effect
on our business, financial condition and results of operations.
The development of new, technologically advanced products is a complex and
uncertain process requiring the accurate anticipation of technological and
market trends. The introduction of new or enhanced products also requires us to
manage the transition from older products in order to minimize disruption in
customer ordering patterns, avoid excessive levels of older product inventories
and ensure that adequate supplies of new products can be delivered to meet
anticipated customer demand. We cannot assure you that we will be able to
successfully develop, introduce or manage the transition to new products.
There can also be no assurance that our competitors will not develop
future generations of competitive products that will offer superior price,
features or performance advantages which would render our products
uncompetitive. There are currently competing technologies that offer
alternative solutions which allow for faster Internet access compared to
dial-up access. These competing technologies include digital subscriber line,
wireless and cable. We cannot assure you that, in order to remain competitive,
we will be successful in developing and introducing on a timely basis new
products and technologies.
Our success in the ISP market depends on the continued growth and use of
Internet and dial-up access technologies.
Demand for our ISP remote access solutions is being driven by the increase
in the use of the Internet. Our future performance depends substantially upon
the continued widespread acceptance and use of the Internet and other online
services. Rapid growth in the use of the Internet and other online services is
a relatively recent phenomenon, and we cannot assure you that acceptance and
use will continue to develop or that a sufficiently broad base of consumers
will adopt, and continue to use, the Internet and other online services as a
medium of communication and commerce. The emergence of alternative technologies
may substantially reduce our potential markets. If dial-up access technologies
become obsolete, we would have to develop and market new products in order to
continue our operations. We cannot be certain that we will succeed in adapting
our product strategies to compete effectively with these alternative
technologies.
Risks Relating to our Common Stock
Exercise of our outstanding warrants and options may affect the price of our
common stock.
As of March 31, 2000, there were outstanding options to purchase 1,811,313
shares of common stock and outstanding warrants to purchase 2,435,850 shares of
common stock, including 2,335,850 warrants, the underlying shares of which are
being registered in this offering. The exercise of the outstanding stock
options and warrants will dilute the percentage ownership of our stockholders.
Any sales in the public market of shares of our common stock underlying the
stock options and warrants may adversely affect prevailing market prices for
our common stock.
Our restated certificate of incorporation and bylaws, our rights plan and
Delaware law contain provisions that could discourage a third party from
acquiring us or limit the price third parties would be willing to pay for our
common stock.
We have an authorized class of 2,000,000 shares of preferred stock which
may be issued by the board of directors with such terms and such rights,
preferences and designations as the board may determine and without any vote of
the stockholders. Our bylaws contain provisions which provide that the board of
directors is divided into three classes, which may have the effect of delaying
or preventing changes in control or changes in our management because less than
a majority of the board of directors can be elected at each annual meeting.
These provisions impose various procedural and other requirements which could
delay or prevent stockholders from effecting corporate actions such as a
merger, asset sale or other change of control and could limit the price
9
<PAGE>
that some investors would be willing to pay in the future for shares of our
common stock. We also have a stockholder rights plan in place. The rights which
have been granted under the plan are exercisable on the occurrence of specified
events, including if a person acquires 15% or more of our outstanding stock,
and allow a holder of rights to acquire shares of our common stock and dilute
the percentage holding of any purchaser of our common stock.
We are subject to the provisions of section 203 of the Delaware General
Corporation Law. In general, the statute prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner.
10
<PAGE>
USE OF PROCEEDS
All of the net proceeds from the sale of the common stock of Ariel covered
by this prospectus will go to the stockholders who offer and sell their shares.
Accordingly, we will not receive any of the proceeds from the sales of the
common stock. Ariel receives net proceeds only upon sales from warrant
conversions and not from the sale of the shares offered by the selling
stockholders. The warrants held by the selling stockholders are exercisable at
$6.875 per share, subject to adjustment on the one year anniversary of the date
of issuance of the warrant. If all warrants are exercised, Ariel will receive
proceeds of $16,058,969 which would be used for general corporate purposes.
SELLING STOCKHOLDERS
Under a Common Stock Purchase Agreement dated February 24, 2000, we agreed
to register the shares of our common stock issued to the selling stockholders
and the shares issuable upon exercise of warrants held by these stockholders.
We have agreed to keep the registration statement effective for two years, or
until all of the registered shares are sold, whichever comes first. Our
registration of the common stock held by the selling stockholders and the
shares issuable upon exercise of warrants held by the selling stockholders does
not necessarily mean that the selling stockholders will sell all or any of
their shares.
The prospectus covers the offer and sale by each selling stockholder of
common stock owned by the selling stockholder. Set forth below are (i) the
names of each selling stockholder, (ii) the nature of any position, office or
other material relationship that the selling stockholder has had within the
past three years with us, (iii) the number of shares of common stock and (if
one percent or more) the percentage of common stock beneficially owned as of
February 24, 2000 by each selling stockholder, (iv) the number of shares that
may be offered and sold by or on behalf of each selling stockholder hereunder,
and (v) the amount and (if one percent or more) the percentage of common stock
to be owned by each selling stockholder upon the completion of the offering if
all shares offered by such selling stockholder are sold. Any or all of the
shares listed below under the heading "Shares to be Sold" may be offered for
sale by or on behalf of the selling stockholder.
11
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior to the Owned After the
Offering (1) Offering (2)
---------------------- ---------------------
Shares Which
Selling Stockholders Number Percent May be Offered Number Percent
- ------------------------------------------------ ---------- --------- ---------------- ---------- --------
<S> <C> <C> <C> <C> <C>
Ben Joseph Partners ............................ 50,000 * 50,000 50,000 *
Robert A. Berlacher ............................ 50,000 * 50,000 50,000 *
Eric Blachno ................................... 12,500 * 12,500 12,500 *
Thomas O. Lloyd-Butler ......................... 2,500 * 2,500 2,500 *
CavDevil Investments LLC ....................... 20,000 * 20,000 20,000 *
Dawn Dobras .................................... 1,250 * 1,250 1,250 *
Amir L. Ecker .................................. 75,000 * 75,000 75,000 *
The Ecker Family Partnership ................... 25,000 * 25,000 25,000 *
EDJ Limited .................................... 50,000 * 50,000 50,000 *
David Gencarella ............................... 12,500 * 12,500 12,500 *
Richard Gibbs .................................. 25,000 * 25,000 25,000 *
Gruber & McBaine International ................. 60,000 * 60,000 60,000 *
John D. Gruber TTEE FBO Lindsay D.
Gruber Dtd 12/27/96 ........................... 4,000 * 4,000 4,000 *
Jon D. Gruber TTEE FBO Jonathan Wyatt
Gruber ........................................ 4,000 * 4,000 4,000 *
Jon D. Gruber .................................. 32,000 * 32,000 32,000 *
Richard W. Hubbert ............................. 20,000 * 20,000 20,000 *
Clifford J. Kalista, Jr. and Phyllis D.
Kalista JTTEN ................................. 12,500 * 12,500 12,500 *
Anthony J. Kirincic ............................ 62,500 * 62,500 62,500 *
Peconic Fund Ltd. .............................. 225,000 1.7% 225,000 225,000 1.7%
Pennsylvania Merchant Group 401(k) Plan
FBO Phyllis Kalista ........................... 12,500 * 12,500 12,500 *
Lagunitas Partners LP .......................... 200,000 1.5% 200,000 200,000 1.5%
Lancaster Investment Partners, LP .............. 125,000 * 125,000 125,000 *
Phillip R. Leicht and Pamela A Leicht
JTTEN ......................................... 12,500 * 12,500 12,500 *
David O. Lindner ............................... 50,000 * 50,000 50,000 *
J. Patterson McBaine ........................... 20,000 * 20,000 20,000 *
Harry Mittelman, TTEE The Harry
Mittelman Revocable Living Trust Dtd
10/22/96 ...................................... 75,000 * 75,000 75,000 *
Needham & Company, Inc.(3) ..................... -- * -- 87,010 *
Parec Realty Partners .......................... 12,500 * 12,500 12,500 *
Parec Portfolio Partners, LP ................... 12,500 * 12,500 12,500 *
Pennsylvania Merchant Group, Inc.(3) ........... -- * -- 97,840 *
Eric Petersen and Ellen Petersen JTTEN ......... 25,000 * 25,000 25,000 *
Porter Partners, LP ............................ 50,000 * 50,000 50,000 *
Peter S. Rawlings .............................. 25,000 * 25,000 25,000 *
Charles M. Robins .............................. 6,250 * 6,250 6,250 *
Leonid M. Roytman .............................. 12,500 * 12,500 12,500 *
Eric B. Swergold ............................... 1,250 * 1,250 1,250 *
Special Situations, LLC ........................ 450,000 3.4% 450,000 450,000 3.4%
VFT Special Ventures, Ltd. ..................... 48,500 * 48,500 48,500 *
Elizabeth R. Watkinson Cust FBO Kurt J.
Watkinson UGMA PA ............................. 6,250 * 6,250 6,250 *
A. Morris Williams, Jr. and Ruth W.
Williams JTTEN ................................ 25,000 * 25,000 25,000 *
Carolyn Wittenbraker ........................... 12,500 * 12,500 12,500 *
Zeke, L.P. ..................................... 225,000 1.7% 225,000 225,000 1.7%
</TABLE>
- ------------
(1) In connection with a private placement of our common stock in February
2000, each purchaser was issued a warrant to purchase a number of shares of
common stock equal to the number of shares the selling stockholder
purchased in the private placement. These warrants may not be exercised
until September 1, 2000 and will expire on March 1, 2005. The exercise
12
<PAGE>
price of the warrants is $6.875. The exercise price will be reset to the
average market price for the five trading days preceding the one year
anniversary date of the issuance of the warrant provided the average price
is less than $6.875. The number of shares beneficially owned prior to the
offering does not include the 2,335,850 shares of our common stock issuable
upon exercise of the warrants.
(2) Includes shares issuable upon exercise of the warrants. Warrants are not
exercisable until September 1, 2000.
(3) The warrants were issued as partial compensation for acting as placement
agent for the private placement and are exercisable at $6.875 per common
share.
13
<PAGE>
PLAN OF DISTRIBUTION
We are registering shares of our common stock on behalf of the selling
stockholders. As used in this prospectus, "selling stockholders" includes
donees and pledgees selling shares received from a named selling stockholder
after the date of this prospectus. We will pay for all costs, expenses and fees
in connection with the registration of the shares. The selling stockholders
will pay for all selling discounts and commissions, if any. The selling
stockholders may offer and sell their shares from time to time in one or more
of the following types of transactions (including block transactions):
o on the Nasdaq National Market,
o in the over-the-counter market,
o in privately negotiated transactions,
o through put or call options transactions relating to the shares,
o through short sales of shares, or
o a combination of such methods of sale.
The selling stockholders may sell their shares at prevailing market
prices, or at privately negotiated prices. Such transactions may or may not
involve brokers or dealers. The selling stockholders have advised us that they
have not entered into any agreements, understanding or arrangements with any
underwriters or broker-dealers regarding the sale of their shares, nor is there
an underwriter or coordinating broker acting in connection with the proposed
sale of shares by the selling stockholders.
The selling stockholders may offer and sell their shares directly to
purchasers or to or through broker-dealers, which may act as agents or
principals. Such broker-dealers may receive compensation in the form of
discounts, concessions, or commissions from the selling stockholders and/or the
purchasers of shares.
We have agreed to indemnify each selling stockholder against certain
liabilities, including liabilities arising under the Securities Act.
Selling stockholders also may resell all or a portion of the shares in
open market transactions in reliance upon Rule 144 under the Securities Act of
1933, provided they meet the criteria and conform to the requirements of such
rule.
Certain of the underwriters, brokers, dealers or agents and their
associates may engage in transactions with and perform other services for Ariel
in the ordinary course of their business for which they receive customary
compensation.
14
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock is 22,000,000 shares, consisting of
20,000,000 shares of common stock, $.001 par value per share, and 2,000,000
shares of preferred stock, $.001 par value per share. As of March 31, 2000,
13,088,920 shares of common stock were outstanding, and there were 127 holders
of record. In addition, as of March 31, 2000, there were outstanding stock
options for the purchase of 1,811,313 shares of common stock and outstanding
warrants for the purchase of 2,435,850 shares of common stock. No shares of
preferred stock are currently outstanding.
Common Stock
The holders of shares of common stock are entitled to one vote for each
share held of record on any matters to be voted on by stockholders. The
election of directors requires a plurality vote of those shares of common stock
represented at any stockholders meeting. Upon the notice of one or more
stockholders that the stockholder intends to cumulate his votes, and in
accordance with the conditions contained in our bylaws, every stockholder
entitled to vote at an election for directors shall have the right to cumulate
his votes. If cumulative voting is effected, each stockholder will be entitled
to give one candidate a number of votes equal to the number of votes to which
the stockholder's shares are normally entitled, or to distribute the
stockholder's votes among as many candidates as the stockholder sees fit. The
holders of common stock are entitled to receive dividends when, as and if
declared by the board of directors out of legally available funds. We have
never paid cash dividends on our common stock and do not plan to do so in the
foreseeable future. In the event of liquidation, dissolution or winding up, the
holders of common stock are entitled to share ratably in all assets remaining
available for distribution to them after payment of liabilities and after
provision has been made for each class of stock, if any, having preference over
the common stock. Holders of shares of common stock, as such, have no
redemption, preemptive or other subscription rights, and there are no
conversion provisions applicable to the common stock. All of the outstanding
shares of our common stock are fully paid and nonassessable.
Preferred Stock
Our authorized shares of preferred stock may be issued in one or more
series and the board of directors is authorized, without further action by the
stockholders, to designate the rights, preferences, limitations of, and
restrictions upon, shares of each series, including dividend, voting,
redemption and conversion rights. We believe that the availability of preferred
stock issuable in series provides increased flexibility for structuring
possible future financings and acquisitions, if any, and in meeting other
corporate needs. We cannot describe the actual effects the issuance of any
series of preferred stock would have on the rights of holders of common stock
until the board of directors determines the specific terms, rights and
preferences of a series of preferred stock. However, such effects might
include, among other things, restricting dividend payments on the common stock,
diluting the voting power of the common stock or impairing the liquidation
rights of the common stock. In addition, the issuance of preferred stock may
have the effect of facilitating, as well as impeding or discouraging, a merger,
tender offer, proxy contest, the assumption of control by a holder of a large
block of our securities or the removal of incumbent management. The market
price of the common stock could also be adversely affected by the issuance of
preferred stock.
Pursuant to our rights plan the board of directors declared a dividend of
one preferred share purchase right for each outstanding share of common stock.
Until the occurrence of certain triggering events, the rights will be evidenced
by the outstanding common stock certificates on our books and records
maintained by our transfer agent and will not be separately issued.
Warrants
At March 31, 2000, Transamerica Business Credit Corporation owned 100,000
warrants exercisable at $3.763 per share that were issued as consideration for
certain waivers and amendments to our credit agreement.
On February 24, 2000 we entered into an agreement with a number of
investors to sell 2,151,000 shares of our common stock at a purchase price of
$4.00 per share in a private placement. We also issued 2,151,000 warrants to
purchase common stock with an exercise price of $6.875. The warrants are not
exercisable until September 1, 2000. The exercise price of the warrants will be
reset to the average market price for the five trading days preceding the one
year anniversary date of the issuance of the warrant provided the average
market price is less than $6.875.
15
<PAGE>
In connection with this private placement, we issued to the placement
agents an aggregate of 184,850 warrants to purchase common stock with an
exercise price of $6.875 as partial compensation for their services.
Delaware Law and Certain Charter and By-Law Provisions and Antitakeover Effects
Delaware Law. We are subject to Section 203 of the Delaware General
Corporation Law, which prevents an "interested stockholder" (defined in Section
203, generally, as a person owning 15% or more of a corporation's outstanding
voting stock) from engaging in a "business combination" with a publicly held
Delaware corporation for three years following the date such person became an
interested stockholder, unless: (i) before such person became an interested
stockholder, the board of directors of the corporation approved the transaction
in which the interested stockholder became an interested stockholder or
approved the business combination; (ii) upon consummation of the transaction
that resulted in the interested stockholder becoming an interested stockholder,
the interested stockholder owns at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced (subject to
certain exceptions); or (iii) following the transaction in which that person
became an interested stockholder, the business combination is approved by the
board of directors of the corporation and authorized at a meeting of
stockholders by affirmative vote of the holders of 66% of the outstanding
voting stock of the corporation not owned by the interested stockholder. A
"business combination" includes mergers, stock or asset sales and other
transactions resulting in a financial benefit to the interested stockholder.
The provisions of Section 203 could have the effect of delaying, deferring or
preventing a change of control.
Certificate of Incorporation and Bylaws. Our restated certificate of
incorporation provides for the division of the board of directors into three
classes with staggered three-year terms. These provisions result in an increase
in the time required for stockholders to change the composition of the board,
and consequently may impede a change of control.
Stockholders Rights Plan. On October 9, 1998, our board of directors
approved and adopted a stockholders rights plan for the newly created series A
of preferred stock, par value $.001 per share. Under the rights plan, each
stockholder of record at October 22, 1998 received a dividend of one preferred
share purchase right per share of common stock owned. Each right entitles the
holder to purchase one one-hundredth of a share of series A preferred stock,
par value $.001 per share, for a price of $25, subject to adjustment. The
rights are not redeemable or exercisable until a person or group acquires 15%
or more of our common stock or announces a tender offer for 15% or more of the
common stock. If either of these events occurs, each right entitles a holder to
purchase, at the right's exercise price, a number of shares of common stock
having a market value at the time of exercise of twice the right's exercise
price. The rights expire on October 9, 2008, and we may redeem them at any time
at $.01 per right. The right automatically attaches to the common shares being
offered in this prospectus.
Shares of preferred stock purchasable upon exercise of the rights will not
be redeemable at the election of holders. Each holder of a share of preferred
stock will be entitled, when and if declared by our board of directors, to a
minimum preferential quarterly dividend payment of $1.00 per share or an
aggregate dividend of 100 times the divided declared per share of common stock,
if any. In the event of our liquidation, dissolution or winding up, the holders
of the preferred stock will be entitled to a minimum preferential payment of
$1.00 per share, plus any accrued but unpaid dividends, or an aggregate payment
of 100 times the payment made per share of common stock. Each share of
preferred stock will have 100 votes, voting together with the common stock and
not as a class. Finally, in the event of any consolidation, merger or other
transaction in which outstanding shares of common stock are converted or
exchanged, each share of preferred stock will be entitled to an aggregate
dividend of 100 times the dividend declared per share of common stock. These
rights are protected by customary anti-dilution provisions.
Transfer Agent, Warrant Agent and Registrar
The transfer agent and registrar for our common stock is Continental Stock
Transfer & Trust Company, New York, New York.
16
<PAGE>
LEGAL MATTERS
The validity of the common stock offered with this prospectus has been
passed upon for Ariel by Paul & Rosen LLP, New York, New York.
EXPERTS
The financial statements incorporated in this Prospectus by reference to
the Annual Report on Form 10-K for the year ended December 31, 1999 have been
so incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.
17
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Common Stock
---------------------
P R O S P E C T U S
---------------------
April 25, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
