<PAGE>

                                                                   EXHIBIT 10.12

                   Intellectual Property Security Agreement
                   ----------------------------------------

          THIS INTELLECTUAL PROPERTY SECURITY AGREEMENT (this "Agreement"),
dated as of March __, 2001, is made between ARIEL CORPORATION, a Delaware
corporation ("Borrower") and MAYAN NETWORKS CORPORATION, a __________
corporation ("Lender").

          Borrower and Lender hereby agree as follows:

          SECTION 1.   Definitions; Interpretation.
                       ---------------------------
          (a)   All capitalized terms used in this Agreement and not otherwise
defined herein shall have the meanings assigned to them in the Security
Agreement.

          (b)   As used in this Agreement, the following terms shall have the
following meanings:

          "Collateral" has the meaning set forth in Section 2.
           ----------

          "Copyright Office" means the United States Copyright Office.
           ----------------

          "PTO" means the United States Patent and Trademark Office.
           ---

          "Security Agreement" means the Security Agreement dated as of March
           ------------------
__, 2001 between Borrower and Lender.

          (c)   Terms Defined in the UCC.  Where applicable and except as
                ------------------------
otherwise defined herein, terms used in this Agreement shall have the meanings
assigned to them in the UCC.

          (d)   Interpretation.  In this Agreement, (i) the meaning of defined
                --------------
terms shall be equally applicable to both the singular and plural forms of the
terms defined; and (ii) the captions and headings are for convenience of
reference only and shall not affect the construction of this Agreement.

          SECTION 2.   Security Interest.
                       ------------------
          (a)   As security for the payment and performance of the Obligations,
Borrower hereby pledges, assigns, transfers, hypothecates and sets over to
Lender, and hereby grants to Lender a security interest in, all of Borrower's
right, title and interest in, to and under the following property, wherever
located and whether now existing or owned or hereafter acquired or arising
(collectively, the "Collateral"):

          (i)   All of Borrower's present and future United States registered
copyrights and copyright registrations, including Borrower's United States
registered copyrights and copyright registrations, all of Borrower's present and
future United States applications for copyright registrations, including
Borrower's United States applications for copyright

                                       1.
<PAGE>

registrations and all of Borrower's present and future copyrights which are not
registered in the United States Copyright Office (collectively, the
"Copyrights"), and any and all royalties, payments, and other amounts payable to
Borrower in connection with the Copyrights, together with all renewals and
extensions of the Copyrights, the right to recover for all past, present, and
future infringements of the Copyrights, and all computer programs, computer
databases, computer program flow diagrams, source codes, object codes and all
tangible property embodying or incorporating the Copyrights, and all other
rights of every kind whatsoever accruing thereunder or pertaining thereto;

          (ii)    All of Borrower's right, title and interest in and to any and
all present and future license agreements with respect to the Copyrights;

          (iii)   All present and future accounts, accounts receivable and other
rights to payment arising from, in connection with or relating to the
Copyrights;

          (iv)    All patents and patent applications, domestic or foreign, all
licenses relating to any of the foregoing and all income and royalties with
respect to any licenses, all rights to sue for past, present or future
infringement thereof, all rights arising therefrom and pertaining thereto and
all reissues, divisions, continuations, renewals, extensions and continuations-
in-part thereof;

          (v)     All state (including common law), federal and foreign
trademarks, service marks and trade names, and applications for registration of
such trademarks, service marks and trade names, all licenses relating to any of
the foregoing and all income and royalties with respect to any licenses, whether
registered or unregistered and wherever registered, all rights to sue for past,
present or future infringement or unconsented use thereof, all rights arising
therefrom and pertaining thereto and all reissues, extensions and renewals
thereof;

          (vi)    The entire goodwill of or associated with the businesses now
or hereafter conducted by Borrower connected with and symbolized by any of the
aforementioned properties and assets;

          (vii)   All general intangibles and all intangible intellectual or
other similar property of Borrower of any kind or nature, associated with or
arising out of any of the aforementioned properties and assets and not otherwise
described above; and

          (viii)  All cash and noncash proceeds of any and all of the foregoing
Collateral (including license royalties, rights to payment, accounts receivable
and proceeds of infringement suits) and, to the extent not otherwise included,
all payments under insurance or any indemnity, warranty or guaranty payable by
reason of loss or damage to or otherwise with respect to the foregoing
Collateral.

          (b)    Continuing Security Interest.  This Agreement shall create a
                 ----------------------------
continuing security interest in the Collateral which shall remain in effect
until terminated in accordance with Section 9 hereof.

                                       2.
<PAGE>

          (c)   Notwithstanding the foregoing provisions of this Section 2, the
grant of a security interest as provided herein shall not extend to, and the
term "Collateral" shall not include, any general intangibles of Borrower
(whether owned or held as licensee or lessee, or otherwise), to the extent that
(i) such general intangibles are not assignable or capable of being encumbered
as a matter of law or under the terms of the license, lease or other agreement
applicable thereto (but solely to the extent that any such restriction shall be
enforceable under applicable law), without the consent of the licensor or lessor
thereof or other applicable party thereto and (ii) such consent has not been
obtained; provided, however, that the foregoing grant of security interest shall
extend to, and the term "Collateral" shall include, (A) any general intangible
which is an account receivable or a proceed of, or otherwise related to the
enforcement or collection of, any account receivable, or goods which are the
subject of any account receivable, (B) any and all proceeds of any general
intangibles which are otherwise excluded to the extent that the assignment or
encumbrance of such proceeds is not so restricted, and (C) upon obtaining the
consent of any such licensor, lessor or other applicable party with respect to
any such otherwise excluded general intangibles, such general intangibles as
well as any and all proceeds thereof that might have theretofore have been
excluded from such grant of a security interest and the term "Collateral".

          (d)   The security interest granted by Borrower to Lender hereby shall
be junior and subordinate in all respects to the security interest granted by
Borrower to Senior Lender in respect of the Senior Debt for however long such
security interest granted by Borrower to Senior Lender in respect of the Senior
Debt shall remain in effect. Borrower agrees not to contest the validity,
perfection or enforceability of the Senior Debt or Senior Lender's security
interest in any of the Collateral.

          SECTION 3.   Supplement to Security Agreement.  This Agreement has
                       --------------------------------
been granted in conjunction with the security interests granted to Lender under
the Security Agreement. The rights and remedies of Lender with respect to the
security interests granted herein are without prejudice to, and are in addition
to those set forth in the Security Agreement, all terms and provisions of which
are incorporated herein by reference.

          SECTION 4.   Representations and Warranties.  Borrower represents and
                       ------------------------------
warrants to Lender that:

          (a)   A true and correct list of all of Borrower's United States
registered copyrights and copyright registrations is set forth in Schedule A.
                                                                  ----------

          (b)   A true and correct list of all of Borrower's United States
applications for copyright registrations is set forth in Schedule B.
                                                         -----------

          (c)   A true and correct list of all of the existing Collateral
consisting of U.S. patents and patent applications and/or registrations owned by
Borrower, in whole or in part, is set forth in Schedule C.
                                               ----------

                                       3.
<PAGE>

          (d)   A true and correct list of all of the existing Collateral
consisting of U.S. trademarks, trademark registrations and/or applications owned
by Borrower, in whole or in part, is set forth in Schedule D.
                                                  -----------

          SECTION 5.   Binding Effect.  This Agreement shall be binding upon,
                       --------------
inure to the benefit of and be enforceable by Borrower, Lender and their
respective successors and assigns.

          SECTION 6.   Governing Law.  This Agreement shall be governed by, and
                       -------------
construed in accordance with, the law of the State of California, except as
required by mandatory provisions of law and to the extent the validity or
perfection of the security interests hereunder, or the remedies hereunder, in
respect of any Collateral are governed by the law of a jurisdiction other than
California.

          SECTION 7.   Amendment.  This Agreement is subject to modification
                       ---------
only by a writing signed by the parties, except as provided herein. To the
extent that any provision of this Agreement conflicts with any provision of the
Security Agreement, the provision giving Lender greater rights or remedies shall
govern, it being understood that the purpose of this Agreement is to add to, and
not detract from, the rights granted to Lender under the Security Agreement.

          SECTION 8.   Counterparts.  This Agreement may be executed in any
                       ------------
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute but one and the same agreement.

          SECTION 9.   Termination.  Upon payment and performance in full of all
                       -----------
Obligations, the security interests created by this Agreement shall terminate
and Lender shall promptly execute and deliver to Borrower such documents and
instruments reasonably requested by Borrower as shall be necessary to evidence
termination of all such security interests given by Borrower to Lender
hereunder.

          SECTION 10.   Further Acts.  On a continuing basis, Borrower shall
                        ------------
make, execute, acknowledge and deliver, and file and record in the proper filing
and recording places, all such instruments and documents, and take all such
action as may be necessary or advisable or may be requested by Lender to carry
out the intent and purposes of this Agreement, or for assuring, confirming or
protecting the grant or perfection of the security interest granted or purported
to be granted hereby, to ensure Borrower's compliance with this Agreement or to
enable Lender to exercise and enforce its rights and remedies hereunder with
respect to the Collateral, including any documents for filing with the Copyright
Office, the PTO and/or any applicable state office. Lender may record this
Agreement, an abstract thereof, or any other document describing Lender's
interest in the Copyrights with the Copyright Office, at the expense of
Borrower. Lender may record this Agreement, an abstract thereof, or any other
document describing Lender's interest in the Collateral with the PTO, at the
expense of Borrower.

          SECTION 11.   Authorization to Supplement.
                        ---------------------------

                                       4.
<PAGE>

          (a)   Borrower shall give Lender prompt notice of any additional
United States copyright registrations or applications therefor after the date
hereof. Borrower authorizes Lender to modify this Agreement by amending Schedule
A or B to include any future United States registered copyrights or applications
therefor of Borrower. Notwithstanding the foregoing, no failure to so modify
this Agreement or amend Schedules A or B shall in any way affect, invalidate or
detract from Lender's continuing security interest in all Collateral, whether or
not listed on Schedule A or B.

          (b)   If Borrower shall obtain rights to any new trademarks, any new
patentable inventions or become entitled to the benefit of any patent
application or patent for any reissue, division, or continuation, of any patent,
the provisions of this Agreement shall automatically apply thereto. Borrower
shall give prompt notice in writing to Lender with respect to any such new
trademarks or patents, or renewal or extension of any trademark registration.
Without limiting Borrower's obligations under this Section 11, Borrower
authorizes Lender to modify this Agreement by amending Schedules C or D to
include any such new patent or trademark rights. Notwithstanding the foregoing,
no failure to so modify this Agreement or amend Schedules C or D shall in any
way affect, invalidate or detract from Lender's continuing security interest in
all Collateral, whether or not listed on Schedule C or D.

                  [remainder of page intentionally left blank]

                                       5.
<PAGE>

          IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, as of the date first above written.

                              ARIEL CORPORATION


                              By:
                                 --------------------------------------
                                   Title:


                              2540 Route 130
                              Cranbury, NJ 08512
                              Attn:  Dennis Schneider, President
                              Fax:  (     ) _________________

                              MAYAN NETWORKS CORPORATION


                              By:
                                 --------------------------------------
                                   Title:


                              2115 O'Nel Drive
                              San Jose
                              Attn:  John Tingleff, Chief Financial Officer


                              Fax:  (     ) _________________

                                       6.
<PAGE>

                                   SCHEDULE A
                to the Intellectual Property Security Agreement

                               Ariel Corporation

                             Registered Copyrights


        TITLE OF WORK         REGISTRATION NUMBER         DATE OF ISSUANCE
        -------------         -------------------         ----------------



                                     A-1.
<PAGE>

                                   SCHEDULE B
                to the Intellectual Property Security Agreement

                               Ariel Corporation

                  Applications for Registration of Copyrights


            TITLE OF WORK                             DATE OF APPLICATION
            -------------                             -------------------



                                      2.
<PAGE>

                                   SCHEDULE C
                 to the Patent and Trademark Security Agreement

                               Ariel Corporation

                        Issued U.S. Patents of Borrower
                        -------------------------------

    Patent No.          Issue Date             Inventor              Title
    ----------          ----------             --------              -----


                  Pending U.S. Patent Applications of Borrower
                  --------------------------------------------

    Serial No.          Filing Date            Inventor              Title
    ----------          -----------            --------              -----



                                     A-1.
<PAGE>

                                   SCHEDULE D
                 to the Patent and Trademark Security Agreement

                               Ariel Corporation

                          U.S. Trademarks of Borrower
                          ---------------------------

  Registration       Registration                         Registered
      No.                Date          Filing Date          Owner         Mark
  ------------       ------------      -----------        ----------      ----


                Pending U.S. Trademark Applications of Borrower
                -----------------------------------------------

   Application No.           Filing Date             Applicant            Mark
   ---------------           -----------             ---------            ----




                                     S-1.