<PAGE>

                                                                    EXHIBIT 10.6

                                                                       EXECUTION


                              EMPLOYMENT AGREEMENT



          This Agreement is made and entered into as of May 18, 2000 by and
between Ariel Corporation, a Delaware corporation ("Employer"), and Dennis I.
Schneider, an individual residing at 32 Clearview Drive, Nashua, New Hampshire
03062 ("Employee").

              WHEREAS, Employer previously employed Employee, pursuant to that
certain Employment Agreement dated December 21, 1998 (the "Prior Employment
Agreement"), as Senior Vice President of Marketing; and

              WHEREAS, Employer now desires to employ Employee, and Employee
agrees to serve the Employer as its President and Chief Executive Officer, on
the terms and conditions hereinafter set forth.

              NOW THEREFORE, in consideration of the premises and of the mutual
covenants and conditions contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows.

          1.  Term of Employment.  Employee's employment under this Agreement
              ------------------
(the "Term of Employment") shall commence as of the close of business on May 31,
2000 (the "Effective Date") and shall continue until the close of business on
December 31, 2001, subject to any extension as may mutually be agreed or any
earlier termination of Employee's employment as provided in Section 9 hereof
(the "Initial Term").  Upon the expiration of the Initial Term, and each
subsequent term or extension thereof, this Agreement shall automatically be
extended for an additional term of one (1) year, unless Employer or Employee
shall have notified the other party hereto of its or his election to terminate
this Agreement not later than ninety (90) days prior to the end of such
subsequent term or extension thereof (the Initial Term, together with any
extensions, until termination in accordance herewith, shall be referred to
herein as the "Term of Employment").  If Employee's employment is terminated
pursuant to Section 9 hereof, the Term of Employment shall expire as of the
Termination Date (as defined in Section 9 hereof).

          2.  Board and Committee Membership.  During the Term of Employment,
              ------------------------------
Employer shall use its reasonable best efforts to cause Employee to serve as a
director on the Board of Directors of Employer (the "Board").  If by the first
meeting of the Board subsequent to execution and delivery of this Agreement,
Employee is not a member of the Board, Employer shall use its reasonable best
efforts to cause Employee to be elected as a member of the Board.

          3.  Duties and Activities.  During the Term of Employment, Employee
              ---------------------
will faithfully perform those duties and responsibilities consistent with his
position as President and Chief Executive Officer.  Employee shall have general
supervision and control over, and responsibility for, the general management and
operation of Employer and its subsidiaries.  Employee shall
<PAGE>

have the authority, subject to the advice and consent of the Board as required
by contract or law, to employ and/or terminate the employment of any employee of
Employer or any subsidiary. Employee will devote his full working time and use
his best efforts to advance the business and welfare of Employer in furtherance
of the policies established by the Board. Employee shall report only to the
Board or any committee thereof. During the Term of Employment, Employee shall
not engage in any other employment activities for any direct or indirect
remuneration without the concurrence of the Board except that Employee may
continue to devote reasonable time to (i) the management of investments, (ii)
participation in community and charitable affairs, and (iii) as further set
forth in Exhibit A hereto, so long as such activities do not interfere with his
duties under this Agreement in the discretion of the Board, and so long as such
activities do not exceed four (4) days per calendar quarter. Employee hereby
agrees that, except as disclosed on Exhibit A hereto, during his employment
                                    ---------
hereunder, he will not, directly or indirectly, engage (a) individually, (b) as
an officer, (c) as a director, (d) as an employee, (e) as a consultant, (f) as
an advisor, (g) as an agent (whether a salesperson or otherwise), (h) as a
broker, or (i) as a partner, coventurer, stockholder or other proprietor owning
directly or indirectly more than one percent (1%) interest in any firm,
corporation, partnership, trust, association, or other organization that is
engaged in the development, marketing or sales of wide area network equipment
and products for the Computer Telephony Integration ("CTI") market in direct
geographical competition, with Employer or any other line of business engaged in
by Employer (such firm, corporation, partnership, trust, association, or other
organization being hereinafter referred to as a "Prohibited Enterprise"). Except
as may be shown on Exhibit A hereto. Employee hereby represents that he is not
engaged in any of the foregoing capacities (a) through (i) in any Prohibited
Enterprise.

          4.  Former Employers.  Employee represents and warrants that his
              ----------------
employment by Employer will not conflict with and will not be constrained by any
prior or current employment or consulting agreement or other relationship
whether oral or written.  Employee represents and warrants that he does not
possess confidential information arising out of any such employment or
consulting agreement or other relationship which, in Employee's best judgment
would be utilized in connection with his employment by Employer.

          5.  Proprietary Information and Inventions.  Employee agrees to
              --------------------------------------
execute, deliver and be bound by the provisions of the Proprietary Information
and inventions Agreement attached hereto as Exhibit B.
                                            ---------

          6.  Compensation.
              ------------

              6.1  Base Salary.  During the Term of Employment, Employer shall
                   -----------
pay Employee a Base Salary at the rate of $275,000 per annum ("Base Salary")
payable at least as frequently as monthly and subject to payroll deductions as
may be necessary or customary in respect of Employer's salaried employees in
general. The amount of Employee's Base Salary shall be subject to annual review
by the Board, provided that the level of such Base Salary shall not be subject
to reduction.

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              6.2  Annual Incentive Compensation.
                   -----------------------------

                   (a) In addition to the Base Salary provided for in Section
6.1 hereof, and subject to the provisions of this Section 6.2 and Section 10
hereof; Employee shall be eligible for an annual incentive, as follows: (i) for
the calendar year ending December 31, 2000, $137,500, which amount is guaranteed
(the "First Year Payout"), and (ii) for each subsequent calendar year, an amount
equal to 50% of the Base Salary paid during the year. The target payout for each
year following December 31, 2000 (the "Subsequent Year Payouts", and with the
First Year Payout, the "Annual Incentive Compensation"), shall be tied to the
attainment of goals and objectives to be measurable quarterly (the "Quarterly
Benchmarks") established mutually by the Board and Employee not later than March
1st of each year during the Term of Employment; provided, however, that if the
Board has no! taken reasonable steps to negotiate goals and objectives by March
1 of a given year, then Employee shall be entitled to one hundred percent (100%)
of the Subsequent Year Payout for such year, subject to the provisions of
Section 10.1 hereof. Such Subsequent Year Payouts and the Quarterly Benchmarks
shall be structured in such a manner that partial attainment of Quarterly
Benchmarks shall entitle the Employee to receive a proportionate share of the
Subsequent Year Payout.

                   (b) Employee shall be paid one-seventh (1/7th) of the First
Year Payout monthly, commencing as of June 30, 2000. For the calendar year
beginning January 1, 2001 and later, Employee shall be paid one-twelfth (1/12th)
of the Subsequent Year Payouts monthly based on the assumption that Employee
will meet or exceed the Quarterly Benchmarks. If Employee fails to meet a
Quarterly Benchmark, the difference between the amount that Employee was paid
during the immediately preceding quarter and the amount that Employee actually
earned based on his performance (the "Performance Adjustment") shall be deducted
by Employer from subsequent pro rated payments under this Section 6.2(b) until
the Performance Adjustment is paid in full.

              6.3  Other Compensation.  Employee's compensation by payments of
                   ------------------
Base Salary and Annual Incentive Compensation shall not be deemed exclusive and
shall not prevent Employee from participating in any other incentive
compensation, profit sharing or benefit plan made available by Employer to its
executive employees generally. The Base Salary payments and Annual Incentive
Compensation payments hereunder shall not in any way limit or reduce any other
obligation of Employer hereunder, and no other compensation, benefit or payment
hereunder shall in any way limit or reduce the obligation of Employer to pay the
Employee's Base Salary or Annual Incentive Compensation.

              6.4  Stock Option Grant.
                   ------------------

                   (a) At the date of execution of this Agreement, Employee
holds options to purchase 190,000 shares of the $.001 par value Common Stock
(the "Common Stock") of Employer (the "Preexisting Option"). The Preexisting
Option vests immediately upon execution of this Agreement.

                   (b) Upon execution of this Agreement, Employer will grant to
Employee an option to purchase an additional 296,000 shares of Common Stock (the
"Additional Option"). To the extent consistent with applicable tax laws and
regulations, the Additional

                                       3
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Option will be a qualified incentive stock option. The Additional Option will
have a term of ten (10) years, or shorter in the event of the termination
Employee's employment. The exercise price of the Additional Option will be set
at the closing price of the Common Stock on the NASDAQ National Market System on
the execution date of this Agreement. The Option will vest and become
exercisable in part based on the following dates:

          52,000 shares upon execution of this Agreement
          81,000 shares on December 21, 2000 (the "2000 Shares")
          81,000 shares on December 21, 2001 (the "2001 Shares")

Employee' S right to exercise the Additional Option with respect to the
remaining 82,000 shares (the "Remaining Shares") vests on December 21, 2001, or
earlier, in part, if the following average Common Stock prices are achieved as
measured by closing prices (as appropriately adjusted from time to time for
stock splits, reverse splits, stock dividends and reclassification of shares)
during any sixty (60) consecutive trading days on the principal national
securities exchange on which the Common Stock is then traded:

                  20,500 shares at $6 per share
                  20,500 shares at $9 per share
                  20,500 shares at $12 per share
                  20,500 shares at $15 per share

Such portion of the Remaining Shares which meet the sixty (60) day minimum price
requirement referred to above shall vest immediately; otherwise, regardless of
the aforementioned goals, the Remaining Shares shall all vest on December 21,
2001, subject to the terms and provisions of this Agreement.  The shares of
Common Stock underlying the Option and the exercise price therefor shall be
appropriately adjusted from time to time for stock splits, reverse splits, stock
dividends and reclassifications of shares.

Notwithstanding the foregoing, (i) the Additional Option will be fully vested
and immediately exercisable in the event of a "Change in Control" (as defined in
Section 9.2); and (ii) in the event Employee is terminated by Employer without
cause (pursuant to Section 9.1(d) hereof) or Employee resigns for "Good Reason"
(pursuant to Section 9.1(e) hereof), the Additional Option shares shall vest for
that particular year on a monthly pro rata basis.  For example, if Employee is
terminated without cause in March of 2001, Employee shall be vested as to all of
the 2000 Shares plus three-twelfths (3/12) of the 2001 Shares immediately on the
Termination Date.

                   (c) Employee's percentage ownership of Common Stock shall not
be subject to any cap by Employer.

              6.5  Rule 16b-3 Compliance.  Employer agrees that it will use its
                   ---------------------
best efforts such that, with respect to the Additional Option, the Company shall
at all times during the term of the Option comply with the requirements of Rule
16b-3, promulgated under the Securities Exchange Act of 1934, as amended (the
"1934 Act'), as such rule shall be in effect from time, or with any successor
provision ("Rule 16b-3"), such that Employee shall be afforded the benefits of
Rule 16b-3 with respect to the Additional Option including, without limitation,
providing for the grant of the Additional Option pursuant to one or more stock
plans which comply with

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Rule 16b-3 and which permit die terms of the Additional Option. Employee
acknowledges that he will at all times comply with Rule 16b-3 requirements of
officers with respect to the Additional Option.

              6.6  Form S-8 Registration.  Employer agrees that it shall use its
                   ---------------------
best efforts to cause, not later than sixty (60) days alter the Effective Date,
and to maintain thereafter, the effectiveness of a registration statement on
Form S-8 (or a successor form) such that the purchase of shares by Employee upon
the exercise of any options granted to him by Employer shall be registered under
the Securities Act of 1933, as amended, or any successor provisions, and so long
as he is an affiliate of Employer, at any time as he shall request, to provide
for and maintain the effectiveness of a corresponding resale prospectus on Form
S-3, with appropriate supplements, providing for the resale by Employer of the
shares so purchased.

              6.7  Signing Bonus.  On the Effective Date, Employer will pay to
                   -------------
Employee the sum of sixty-two thousand five hundred dollars ($62,500.00) as a
signing bonus, subject to applicable withholding.

          7.  Benefits.
              --------

                   (a) During the Term of Employment, Employee shall be entitled
to participate in all fringe benefit programs maintained by Employer that are
available to its executive officers generally but in any case, at least the
benefits included in the Employer's benefit package in effect on the Effective
Date. Any payments or benefits payable to Employee hereunder in respect of any
calendar year during which Employee is employed by Employer for less than the
entire year shall, unless otherwise provided in the applicable plan or
arrangement, be prorated in accordance with the number of days in such calendar
year during which he is so employed. Employee will be furnished with an auto
allowance of $500 per month to cover costs of leasing, maintenance, repair and
insurance. Employee will be entitled to four (4) weeks of paid vacation per
year, which vacation time shall accrue in accordance with Employer's policies.
Employee acknowledges that he shall have no vested rights under or to
participate in any such program except as expressly provided under the terms
hereof or thereof.

                   (b) In die event that the grant of Employee's Legal Expenses
(as defined in Section 13.4 hereof) is determined to constitute taxable income
to Employee, Employer shall reimburse Employee to place Employee into the same
economic position as he would have been in had such benefit not been taxable
income to Employee. In the event that Employee's compensation under this
Agreement becomes taxable to the Employee by the State of New Jersey, then
Employer shall reimburse Employee to place Employee into the same economic
position as he would have been in had such compensation or benefits not been
taxable by the State of New Jersey as income to Employee; including, without
limitation, reimbursement for additional federal and state tax payable on the
reimbursement for New Jersey taxes.

          8.  Expenses.  Employer will pay or reimburse Employee for such
              --------
reasonable travel (including travel from Employee's current principal residence
to Employer's headquarters), entertainment or other business expenses as he may
incur on behalf of Employer's headquarters), entertainment or other business
expenses as he may incur on behalf of Employer during the Term of Employment in
connection with die performance of his duties hereunder but only to the extent

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that such expenses were either specifically authorized by Employer or incurred
in accordance with policies established by the Board for senior executives and
provided that Employee shall furnish Employer with such evidence relating to
such expenses as Employer may reasonably require to substantiate such expenses
for tax purposes.

          9.  Termination of Employment.
              -------------------------

              9.1  Circumstances of Termination.  Notwithstanding the terms set
                   ----------------------------
forth in Section 1 hereof, Employee's employment shall terminate under any of
the following circumstances and the date of such an occurrence, unless otherwise
provided below, shall be Employee's "Termination Date."

                   (a) Death. Immediately, in the event of Employee's death.
                       -----

                   (b) Permanent Disability. At the option of Employer, because
                       --------------------
Employee becomes physically or mentally incapacitated or disabled so that (i) he
is unable to perform for Employer substantially the same services as he
performed prior to incurring such incapacity or disability or to devote his full
working time or use his best efforts to advance the business and welfare of
Employer or otherwise to perform his duties under this Agreement and (ii) such
condition exists for an aggregate of six (6) months in any twelve (12)
consecutive calendar month period, and such incapacity or disability is
incapable of reasonable accommodations under applicable law, including but not
limited to the Americas with Disabilities Act of 1990, as amended (a "Permanent
Disability"). Employer, at its option and expense, is entitled to retain a
physician reasonably acceptable to Employee to confirm the existence of such
incapacity or disability, and the determination of such physician is binding
upon Employer and Employee.

                   (c) Cause.  At the option of Employer, because Employee:
                       -----

                       (i)   has been convicted of, or has pled guilty or nolo
                                                                          ----
contendere to, a felony; or
----------

                       (ii)  has embezzled or misappropriated Employer funds or
property or those of Employer's customers, suppliers or affiliates; or

                       (iii) engaged in any misconduct which adversely and
materially affects Employer's business, including but not limited to its
reputation; or

                       (iv)  has violated any of the terms of the Proprietary
Information and Inventions Agreement; or

                       (v)   has failed to fulfill his fiduciary
responsibilities; or

                       (vi)  has failed or refused to perform those duties
reasonably assigned or delegated to him by the Board, or the services specified
herein (except on account of a Permanent Disability as provided for in Section
9.1(b) hereof or on account of "Good Reason" as provided in Section 9.1(e),
below); or

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<PAGE>

                      (vii)   has demonstrated gross negligence or willful
misconduct in connection with the performance of Employee's duties hereunder; or

                      (viii)  has breached any terms of this Agreement other
than as noted in subsection (i) through (vii) above;

provided, however, that with respect to subsections (vi) and (viii) above,
Employer's right to terminate Employee shall be conditioned on (A) Employer
giving Employee written notice specifically referring to items (vi) or (viii)
above and describing the specific circumstances and/or actions purportedly
giving rise to the occurrence of such item; and (B) failure by Employee, within
thirty (30) days after receipt of any such notice, to cease the actions and/or
reinstate or rectify the circumstances described in such notice to the
reasonable satisfaction of tile Board.  With respect to subsections (v) or (vii)
above, Employer shall have the right to place Employee on administrative leave
pending investigation of the circumstance(s) or action(s) purportedly giving
rise to the occurrence of such items.

                  (d) Without Cause. At the option of Employer at any time for
                      -------------
any reason other than those referred to above or for no reason at all, whereupon
Employer shall be obligated to make those payments set forth in Section 10.1(d)
hereof.

                  (e) Resignation For Good Reason. Employee, at his option, may
                      ---------------------------
resign for "Good Reason":

                      (i)     because Employer has substantially reduced the
title, role or responsibilities of Employee;

                      (ii)    because Employer has reduced Employee's Base
Salary or annual incentive compensation opportunity from the level in effect
immediately prior to such change, with the exception of a company-wide reduction
of compensation due to economic considerations;

                      (iii)   because Employer has breached any material term of
this Agreement other than as noted in subsection (i) and (ii) above; or

                      (iv)    in the event of a "Change of Control" (as defined
in Section 9.2 below).

                  In the event that Employee terminates this Agreement for Good
Reason, Employer shall become obligated to make those payments set forth in
Section 10.1(d) hereof.

            9.2   For purposes of this Agreement, a "Change in Control" shall
mean any of the following events:

                  (a) An acquisition (other than directly by Employer) of any
voting securities of Employer (the "Voting Securities") by any "Person" (as the
term person is used for purposes of Sections 13(d) or 14(d) of the 1934 Act)
immediately after such Person has "Beneficial Ownership" (within the meaning of
Rule 13d-3 promulgated under the 1934 Act) of fifteen percent (15%) or more of
the combined voting power of Employer's then outstanding

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<PAGE>

Voting Securities; provided, however, in determining whether a Change in Control
has occurred, Voting Securities that are acquired in a "Non-Control Acquisition"
(as hereinafter defined) shall not constitute an acquisition that would cause a
Change in Control. A "Non-Control Acquisition" shall mean an acquisition by (i)
an employee benefit plan (or a trust forming a part thereof) maintained by (A)
Employer or (B) any corporation or other Person of which a majority of its
voting power or its voting equity securities or equity interest is owned,
directly or indirectly, by Employer (for purposes of this definition, a
"Subsidiary"), (ii) Employer or its Subsidiaries, or (iii) any Person in
connection with a "Non-Control Transaction," as hereinafter defined;

                   (b) The individuals who, as of the Effective Date are members
of the Board (tile "Incumbent Board',), cease for any reason to Constitute at
least two-thirds of the members of the Board; provided, however, that if the
election, or nomination for election by Employer's common stockholders, of any
new director was approved by a vote of at least two-thirds of the Incumbent
Board, such flew director shall, for purposes of this Agreement, be considered a
member of the Incumbent Board; provided further, however, that no individual
shall be considered a member of the Incumbent Board if such individual initially
assumed office as a result of either an actual or threatened "Election Contest"
(as described in Rule 14a-11 promulgated under the 1934 Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person other
than the Board (a "Proxy Contest") including by reason of any agreement intended
to avoid or settle any Election Contest or Proxy Contest; or

                   (c) Approval by Employer's stockholders of:

                       (i) A merger, consolidation or reorganization involving
Employer, unless such merger, consolidation or reorganization is a "Non-Control
Transaction." A "Non-Control Transaction" shall mean a merger, consolidation or
reorganization of Employer where:

                           (A) the stockholders of Employer, immediately before
                   such merger, Consolidation or reorganization, own directly or
                   indirectly immediately following such merger, consolidation
                   or reorganization, at least eighty-five percent (85%) of the
                   combined voting power of the outstanding voting Securities of
                   the corporation resulting from such merger or consolidation
                   or reorganization (the "Surviving Corporation') in
                   substantially the same proportion as their ownership of the
                   Voting Securities immediately before such merger,
                   consolidation or reorganization,

                           (B) the individuals who were members of the Incumbent
                   Board immediately prior to the execution of the agreement
                   providing for such merger, consolidation or reorganization
                   constitute at least two-thirds of the members of the board of
                   directors of the Surviving Corporation, or a corporation
                   beneficially directly or indirectly owning a minority of the
                   Voting Securities of the Surviving Corporation, and

                                       8
<PAGE>

                             (C) no Person other than (i) Employer, (ii) any
                   Subsidiary, (iii) any employee benefit plan (or any trust
                   forming a pmt thereof) maintained by the Employer, the
                   Surviving Corporation, or any Subsidiary, or (iv) any Person
                   who, immediately prior to such merger, consolidation or
                   reorganization had Beneficial Ownership of fifteen percent
                   (15%) or more of the then outstanding Voting Securities), has
                   beneficial Ownership of fifteen percent (15%) or more of the
                   combined voting power of the Surviving Corporation's then
                   outstanding voting securities.

                       (ii)  A complete liquidation or dissolution of Employer;
or

                       (iii) An agreement for the sale or other disposition of
all or substantially all of the assets of Employer to any Person (other than a
transfer to a Subsidiary).

                   (d) Notwithstanding the foregoing, a Change in Control shall
not be deemed to occur solely because any Person (the "Subject Person") acquired
Beneficial Ownership of more than the permitted amount of the then outstanding
Voting Securities as a result of the acquisition of Voting Securities by
Employer which, by reducing the number of Voting Securities then outstanding,
increases the proportional number of shares Beneficially Owned by the Subject
Person, provided that if a Change in Control would occur (but for the operation
of this sentence) as a result of the acquisition of Voting Securities by
Employer, and after such share acquisition by Employer, the Subject Person
becomes the Beneficial Owner of any additional Voting Securities that increases
the percentage of the then outstanding Voting Securities that increases the
percentage of the then outstanding Voting Security Beneficially Owned by the
Subject Person, then a Change in Control shall occur.

              9.3  Notice of Termination.  Any intent to terminate employment by
                   ---------------------
the Employee pursuant to Section 9.1(e) shall be communicated by written notice
to Employer setting forth in detail the specific actions deemed to constitute
Good Reason. If Employer does not respond within thirty (30) days from such
notice, the resignation shall be deemed effective. Employer may, within the
thirty (30) day period, correct such condition giving rise to Employee's notice
to the reasonable satisfaction of Employee or dispute Employee's claims by
giving written notice of such dispute.

          10.  Payments Upon Termination of Employment.
               ---------------------------------------

              10.1 Payments.  In the event that Employee's employment is
                   --------
terminated prior to the expiration of the Initial Term (including any extension
thereof), the Term of Employment shall expire as of the Termination Date.

                   (a) If Employer terminates Employee's employment for Cause or
if Employee voluntarily terminates his employment other than for Good Reason,
Employer's obligation to compensate Employee shall in all respects cease as of
the Termination Date, except that Employer shall pay Employee the Base Salary
accrued under Section 6.1, the value of accrued vacation time pursuant to
Section 7(a) hereof; and the reimbursement expenses incurred under Section 8 of
this Agreement up to such Termination Date (thc "Accrued Obligations");

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<PAGE>

                   (b) If Employee's employment is terminated due to the death
of Employee, Employer's obligation 10 compensate Employee shall in all respects
cease as of the Termination Date, except that within thirty (30) days alter the
Termination Date, Employer shall pay Employee's estates or legal representative
the Accrued Obligations;

                   (c) If Employee's employment is terminated upon the Permanent
Disability of Employee, Employer's obligation to compensate Employee with
respect to Base Salary, only shall continue for twelve (12) months following
such termination and) in addition, Employer shall pay Employee any Accrued
Obligations; and

                   (d) If Employee's employment is terminated by Employer
pursuant to Section 9.1(d), or by the Employee pursuant to Section 9.1(e),
Employer's obligation to compensate Employee shall in all respects cease, except
that within thirty (30) days after the Termination Date Employer shall pay
Employee the Accrued Obligations and during the period ending on the first
anniversary of the Termination Date (the "Severance Period"), Employer shall pay
to Employee on a monthly basis the sum of one-twelfth (1/12th) of the annual
Base Salary of Employee in effect at the Termination Date plus one-twelfth
(1/12th) the reasonable value of Employee's benefits on the Termination Dale,
together with such pro rata portion of Employee's target payout pursuant to
Section 6.2 (based on the number of completed and partial months employment
prior to the Termination Data), which shall in no event be less than 25% of the
total Annual Incentive Compensation pursuant to Section 6.2 received in the
previous fiscal year (the "Continuation Payments"). Employer shall be excused
from its obligations to make payments under this Section 10.1(d) if Employee
breaches his obligations hereunder including his obligations under the terms of
the Proprietary Information and Inventions Agreement. Employee shall provide, in
writing, a monthly certification attesting to Employee's compliance with the
terms of the Proprietary Information and Inventions Agreement.

Notwithstanding the foregoing, if any such termination under Sections 9.1(d) or
9.1(e) occurs prior to the first anniversary of the Effective Date, the
Severance Period will be extended by twelve (12) months less the number of full
months of employment from the Effective Date until the Termination Date.  In the
event such termination occurs within two (2) years of a Change in Control of
Employer, the full amount of the Continuation Payments will be paid in a lump
sum within ten (10) days of such Change in Control.

                   (e) If Employee's employment terminates for any reason other
than for Cause, all equipment and supplies purchased by Employer for Employee's
New Hampshire office shall become Employee's property.

              10.2 Effect on this Agreement.  Any termination of Employee's
                   ------------------------
employment and any expiration of the Term of Employment under this Agreement
shall not affect the continuing operation and effect of this Section and Section
11 hereof, nor obligations of Employee under the Proprietary Information and
Inventions Agreement, which shall continue in full force and effect with respect
to Employer and Employee, and its and his heirs, successors and assigns.
Nothing in Section 10.1 hereof shall be deemed to operate or shall operate as a
release, settlement or discharge of any liability of Employee to Employer or
others from any action or omission by Employee enumerated in Section 9.1(c)
hereof as a possible basis for termination of Employee's employment for Cause.

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<PAGE>

              10.3  No Duty to Mitigate.  Subject to the provisions of Section
                    -------------------
11 and the Proprietary Information and Inventions Agreement attached as Exhibit
B hereto, Employee shall be free to accept such employment and engage in such
business as Employee may desire following the termination of his employment
hereunder, and no compensation received by Employee therefrom shall reduce or
affect any payments required to be made by Employer hereunder except to the
extent expressly provided in the benefit plans of Employer.

          11. Post-Employment Activities.
              --------------------------

              11.1  Non-Competition.  For a period of two (2) years after the
                    ---------------
termination or expiration of Employee's employment with Employer (the "Non-
Compete Period") hereunder absent Employer's prior written approval, Employee
shall not directly or indirectly render services similar or reasonably related
to those which Employee shall have rendered hereunder during the two (2) years
prior to the Termination Date to a Competitor. A "Competitor" is defined as any
person or entity whether now existing or hereafter established which is in any
line of business currently engaged in or being developed by Employer, its
Subsidiaries or its affiliates. As used in this Section 11.1, the term "any line
of business currently engaged in by Employer" shall be applied as at the
Termination Date, or, if later, as at the date of termination of any post-
employment consultation.

              11.2  Non-Solicitation of Employer's Employees.  During the Non-
                    ----------------------------------------
Compete Period, Employee shall not entice, induce or encourage any of Employer's
other employees to engage in any activity which, were it done by Employee, would
violate any provision of the Proprietary Information and Inventions Agreement or
this Section 11.

              11.3  Non-Solicitation of Customers.  During the Non-Compete
                    -----------------------------
Period, Employee shall not entice, induce, encourage or solicit any of
Employer's, its subsidiaries' or affiliates' customers on behalf of any
Competitor.

              11.4  No provision of this Agreement shall be construed to
preclude Employee from performing the same services which Employer hereby
retains Employee to perform for any person or entity which is not a direct
Competitor of Employer upon the expiration or termination of Employee's
employment (or any post-employment consultation) so long as Employee does not
thereby violate any term of the Proprietary Information and Inventions
Agreement.

          12.  Remedies.  Employee's obligations under the Proprietary
               --------
Information and Inventions Agreement and the provisions of Sections 3, 4, 5 and
11 of this Agreement (as modified by Section 13.15, if applicable) shall survive
the expiration or termination of Employee's employment (whether through
Employee's resignation or otherwise) with Employer. Employee acknowledges that a
remedy at law for any breach or threatened breach by Employee of the provisions
of the Proprietary Information and Inventions Agreement or Section 11 would be
inadequate and Employee therefore agrees that Employer shall be entitled to
injunctive relief in any court of competent jurisdiction in case of any such
breach or threatened breach.  Employee acknowledges that this Section 12 does
not limit Employer's right to seek monetary damages in arbitration under Section
13.11 of this Agreement.

                                       11
<PAGE>

          13. Miscellaneous.
              -------------

              13.1  Release of Prior Employment Agreement.  Employer and
                    -------------------------------------
Employee acknowledge and agree that Employee's employment under the Prior
Employment Agreement is being subsumed with this Agreement. From and after the
Effective Date, Employer and Employee shall have no continuing rights, duties,
obligations or remedies under the Prior Employment Agreement.

              13.2  Key Man Life Insurance.  Employee recognizes and
                    ----------------------
acknowledges that Employer or its affiliates may seek and purchase one or more
policies providing key man life insurance with respect to Employee, the proceeds
of which would be payable to Employer or such affiliate. Employee hereby
consents to Employer or its affiliates seeking and purchasing such insurance and
will provide such information, undergo such medical examinations (at Employer's
expense), execute such documents, and otherwise take any and all actions
necessary or desirable in order for Employer or its affiliates to seek, purchase
and maintain in full force and effect such policy or policies.

              13.3  Other Insurance and Indemnification.  Employer shall
                    -----------------------------------
maintain in effect Directors and Officers Liability insurance affording at least
the scope of coverage afforded by the policy attached as Exhibit C hereto and in
                                                         ---------
such amount as is commercially reasonable and appropriate to Employer's business
needs. Subject to the terms of this Agreement, Employee shall, at all times
during the Term of Employment, have the same amount of coverage and be entitled
to the same level and no lesser level of indemnification as any other officer or
director of Employer pursuant to any Directors and Officers Liability insurance
policy or other agreement.

              13.4  Employer shall pay Employee's reasonable fees for legal (the
"Legal Expenses") and other professional advice and other related expenses
associated with the negotiation and completion of this Employment Agreement,
provided that Employer will be provided all necessary back-up in support of
these expenses.

              13.5  Any notice required or permitted to be given hereunder shall
be deemed sufficiently given if sent by registered or certified mail, postage
prepaid, addressed to the addressee at his or its address last provided the
sender in writing by the addressee for purposes of receiving notices hereunder
or, unless or until such address shall be so furnished, to the address set forth
below:

If to Employer:          Ariel Corporation

                         2540 Route 130
                         Cranbury, New Jersey 08512
                         Attention:  Mr. Anthony M. Agnello, Chairman

with a copy to:          Steptoe & Johnson, LLP

                         1330 Connecticut Avenue, NW
                         Washington, DC 20036
                         Attention:  Howard Stahl, Esq.

                                       12
<PAGE>

If to Employee:          Mr. Dennis Schneider

                         32 Clearview Drive
                         Nashua, New Hampshire 03062

with a copy to:          Sam II. Roberson, Esq.

                         Sherman, Meehan, Curtin & Ain
                         1900 M Street, N.W.
                         Suite 600
                         Washington D.C. 20036-3565

For purposes of this Agreement, notice sent in conformity with this Section 13.5
shall be deemed to have been received on the third business day following the
date on which such notices are so sent.

          13.6  Modification and No Waiver of Breach.  No waiver or modification
                ------------------------------------
of this Agreement shall be binding unless it is in writing signed by the parties
hereto.  No waiver by a party of a breach hereof by the other party shall be
deemed to constitute a waiver of a future breach, whether of a similar or
dissimilar nature, except to the extent specifically provided in any written
waiver under this Section 13.6

          13.7  Governing Law.  THIS AGREEMENT SHALL BE GOVERNED BY AND
                -------------
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW JERSEY
EXCLUDING ITS CONFLICT OF LAW PRINCIPALS. ALL QUESTIONS RELATING TO THE VALIDITY
AND PERFORMANCE HEREOF AND REMEDIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE
WITH SUCH LAW.

          13.8  Counterparts.  This Agreement may be executed in one or more
                ------------
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same agreement.

          13.9  Captions.  The captions used herein are for ease of reference
                --------
only and shall not define or limit the provisions hereof.

          13.10 Entire Agreement.  This Agreement and its exhibits, including
                ----------------
the Proprietary Information and Inventions Agreement constitutes the entire
agreement between the parties hereto relating to the matters encompassed hereby
and supersedes any prior or contemporaneous oral or written agreements.

          13.11 Assignment.  The rights of Employer under this Agreement may
                ----------
not, without the consent of Employee, be assigned by Employer to any person,
firm, corporation, or other business entity.

          13.12 Non-Transferability of Interest.  None of the rights of
                -------------------------------
Employee to receive any form of compensation payable pursuant to this Agreement
shall be assignable or transferable except through a testamentary disposition or
by the laws of descent and distribution upon the

                                       13
<PAGE>

death of Employee. Any attempted assignment, transfer, conveyance, or other
disposition (other than as aforesaid) of any interest in the rights of Employee
to receive any form of compensation to be made by Employer pursuant to this
Agreement shall be void.

          13.13 Arbitration.  Any dispute, controversy, or claim arising out of,
                -----------
in connection with, or in relation to this Agreement and its exhibits, except as
provided in Section 12 hereof, shall be settled by arbitration in Newark, New
Jersey, pursuant to the Commercial Rules then in effect of the American
Arbitration Association and in no other place. Any award or determination shall
be final, binding, and conclusive upon the parties, and a judgment rendered may
be entered in any court having jurisdiction thereof. Employee and Employer
knowingly waive any and all rights to a jury trial in any form. The parties
hereby expressly waive punitive damages, and under no circumstances shall an
award contain any amount that in any way reflects punitive damages. Each party
shall bear its own expenses relating to the arbitration, unless otherwise
determined in arbitration. Notwithstanding the foregoing, Employer agrees, that
in the event of a termination of Employee for Cause (as provided in Section
9.1(c) hereof), Employer agrees to pay for Employee's arbitration expenses up to
Seventy-Five Thousand Dollars ($75,000.00) in the aggregate.

     It is intended that controversies or claims submitted to arbitration under
this Section 13.13 shall remain confidential, and to that end it is agreed by
the parties that neither the facts disclosed in the arbitration, the issues
arbitrated, nor the views or opinions of any persons concerning them, shall be
disclosed to third persons at any time, except to the extent necessary to
enforce an award or judgment or as required by law or in response to legal
process or in connection with such arbitration.  Nothing in this Section 13.13
shall limit Employer's right to seek equitable remedies in any court of
competent jurisdiction under Sections 3, 4, 5 and 11 of this Agreement and the
Proprietary Information and Inventions Agreement.

          13.14 Independent Advice.  Employee hereby acknowledges that he has
                ------------------
been advised of the opportunity available to him to seek and obtain advice of
legal counsel and financial advisors of his own choosing prior to and in
connection with Employee's execution of this Agreement.  In addition Employee
hereby affirms that he has either obtained such advice or knowingly and
willingly decided to forego the opportunity to avail himself of such advice.

          13.15 Interpretation.  IT IS THE INTENT OF THE PARTIES THAT in ease
                --------------
any one or more of the provisions contained in this Agreement shall, for any
reason, be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect the other provisions
of this Agreement, and this Agreement shall be construed as if such invalid,
illegal or unenforceable provision had never been contained herein. MOREOVER, IT
IS THE INTENT OF THE PARTIES THAT in case any one or more of the provisions
contained in this Agreement shall for any reason be held to be excessively broad
as to duration, geographical scope, activity or subject, such provision shall be
construed by limiting and reducing it in accordance with a judgment of a court
of competent jurisdiction, so as to be enforceable to the extent compatible with
applicable law.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       14
<PAGE>

     IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and
year first written above.

                                        ARIEL CORPORATION


                                        By:  /s/ Anthony M. Agnello
                                             ----------------------------------
                                             Name:  Anthony M. Agnello
                                             Title: Chairman

                                        _______________________________________
                                        DENNIS I. SCHNEIDER

                                      S-1
<PAGE>

     IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and
year first written above.

                                        ARIEL CORPORATION


                                        By:
                                             ----------------------------------
                                             Name:  Anthony M. Agnello
                                             Title: Chairman


                                        /s/ Dennis I. Schneider
                                        ---------------------------------------
                                        DENNIS I. SCHNEIDER

                                       S-1
<PAGE>

                                                                       EXHIBIT A
                                                                       ---------

                     OUTSIDE EMPLOYMENTS AND DIRECTORSHIPS

                                       OF

                              DENNIS I. SCHNEIDER



     The following activities are listed subject to the provisions of Section 2
of this Agreement:

1.   Officer, Director, and major shareholder in GIOS(TM) Inc., a private
     software development process improvement consulting services firm. Employee
     may receive compensation from GIOS(TM) Inc. during the term of this
     Agreement.

                                      A-1
<PAGE>

                                                                       EXHIBIT B
                                                                       ---------

                PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT

                                                               As of May 18,2000



To:  Arid Corporation
     2540 Route 130
     Cranbury, New Jersey 08512

     The undersigned, in consideration of and as a condition of my services to
you and/or to companies which you own, control, or arc affiliated with or their
successors in business (collectively, the "Company"), hereby agrees as follows
(capitalized terms used herein but not otherwise defined shall have the meanings
ascribed to them in the Employment Agreement between myself and the Company,
dated as of May 18, 2000):

     1.   Confidentiality.  I agree to keep confidential, except as the Company
          ---------------
may otherwise consent in writing, and, except for the Company's benefit, not to
disclose or make any use of at any time either during or subsequent to my
employment, any Inventions (as hereinafter defined)1 trade secrets, confidential
information, knowledge, data or other information of the Company relating to
products, processes, know-how, designs, formulas, test data, customer lists,
business plans, marketing plans and strategies, pricing strategies, or other
subject matter pertaining to any business of the Company or any of its
affiliates, which I may produce, obtain, or otherwise acquire during the course
of my employment, except as herein provided.  I further agree not to deliver,
reproduce or in any way allow any such trade secrets, confidential information,
knowledge, data or other information, or any documentation relating thereto, to
be delivered to or used by any third parties without specific direction or
consent of a duly authorized representative of the Company.  For purposes of
this Agreement, confidential information does not include any information which
(i) at the time of disclosure or thereafter is generally available to or known
by the general public (other than as a result of my acts in breach of this
Agreement), (ii) was or becomes available to me on a non-confidential basis from
a source other than the Company, its agents or its advisors, provided that such
source is not and was not, to my best knowledge, bound by a confidentiality
agreement with the Company, and further provided that I should not have
reasonably known that such source is not or was not bound by a confidentiality
agreement, (iii) has been independently acquired or developed by me without
violating any of any obligations under this Agreement or the Employment
Agreement, or (iv) I am required to disclose under applicable law, provided that
in connection with any such disclosure, I agree to give the Company notice
thereof.

     2.   Conflicting Employment; Return of Confidential Material.  I agree that
          -------------------------------------------------------
during my employment with the Company, except to the extent specifically
contemplated by the Employment Agreement, I will not engage in any other
employment, occupation, consulting or other activity relating to the business in
which the Company is now or may hereafter become engaged, or which would
otherwise conflict with my obligations to the Company.  In the event my
employment with the Company terminates for any reason whatsoever, I agree to
promptly

                                      B-1
<PAGE>

surrender and deliver to the Company all records, materials, equipment,
drawings, documents and data which I may obtain or produce during the course of
my employment arid I will not take with me any description continuing or
pertaining to any confidential information, knowledge or data of the Company
which I may produce or obtain during the course of my employment.

     3.   Assignment of inventions.
          ------------------------

          3.1  I hereby acknowledge and agree that the Company is the owner of
all Inventions, in order to protect the Company's rights to such inventions, by
executing this Agreement I hereby irrevocably assign to the Company all my
right, title and interest in and to all Inventions to the Company.

          3.2  For purposes of this Agreement, "Inventions" shall mean all
discoveries, processes, designs, technologies, devices, or improvements in any
of the foregoing or other ideas, whether or not patentable and whether or not
reduced to practice, made or conceived by me (whether solely or jointly with
others) during the period of my employment with the Company which relate in any
manner to the actual or demonstrably anticipated business, work, or research and
development of the Company, or result from or are suggested by any task assigned
to me or any work performed by me for or on behalf of the Company.

          3.3  Any discovery, process, design, technology, device, or
improvement in any of the foregoing or other ideas, whether or not patentable
and whether or not reduced to practice, made or conceived by me (whether solely
or jointly with others) which I develop entirely on my own time not using any of
the Company's equipment, supplies, facilities, or trade secret information
("Personal Invention") is excluded from this Agreement provided such Personal
Invention (a) does not relate to the actual or demonstrably anticipated
business, work or research and development of the Company, and (b) does not
result, directly or indirectly, from any work performed by me for the Company.

     4.   Disclosure of Inventions.  I agree that in connection with any
          ------------------------
Invention, I will promptly disclose such Invention to the Board of Directors of
the Company in order to permit the Company to enforce its property rights to
such Invention in accordance with this Agreement.  My disclosure shall be
received in confidence by the Company.

     5.   Patents and Copyrights; Execution of Documents.
          ----------------------------------------------

          5.1  Upon request, I agree to assist the Company or its nominee (at
its expense) during and at any time subsequent to my employment in every
reasonable way to obtain for its own benefit patents and copyrights for
Inventions in any and all countries.  Such patents and copyrights shall be and
remain the sole and exclusive property of the Company or its nominee.  I agree
to perform such lawful acts as the Company deems to be necessary to allow it to
exercise all right, title and interest in and to such patents and copyrights.

          5.2  In connection with this Agreement, I agree to execute,
acknowledge and deliver to the Company or its nominee upon request and at its
expense all documents, including assignments of title, patent or copyright
applications, assignments of such applications, and assignments of patents or
copyrights upon issuance, as the Company may determine necessary or desirable to
protect the Company's or its nominee's interest in Inventions, and/or to use in

                                       B-2
<PAGE>

obtaining patents or copyrights in any and all Countries and to vest title
thereto in the Company or its nominee to any of the foregoing.

     6.   Maintenance of Records.  I agree to keep and maintain adequate and
          ----------------------
current written records of all Inventions made by me (in the form of notes,
sketches, drawings, flowcharts and other records as may be specified by the
Company), which records shall be available to and remain the sole property of
the Company at all times.

     7.   Prior Inventions.  It is understood that all Personal Inventions, if
          ----------------
any, whether patented or unpatented, which I made prior to my association with
the Company, are excluded from this Agreement.  To preclude any possible
uncertainty, I have set forth on Schedule A attached hereto a complete list of
all of my prior Personal Inventions, including numbers of all patents and patent
applications and a brief description of all unpatented Personal Inventions which
are not the property of a previous employer.  I represent and covenant that the
list is complete and that, if no items are on 'he list, I have no such prior
Personal Inventions.  I agree to notify the Company in writing before I make any
disclosure or perform any work on behalf of the Company which appears to
threaten or conflict with proprietary rights I claim in any Personal Invention.
In the event of my failure to give such notice, I agree that I will make no
claim against the Company with respect to any such Personal Invention.

     8.   Other Obligations.  I acknowledge that the Company from time to time
          -----------------
may have agreements with other persons or with the U.S. Government or agencies
thereof, which impose obligations or restrictions on the Company regarding
Inventions made during the course of work thereunder or regarding the
confidential nature of such work.  I agree to be bound by all such obligations
and restrictions and to take all action necessary to discharge the Company's
obligations.

     9.   Trade Secrets of Others.  I represent that my performance of all the
          -----------------------
terms of this Agreement and as an employee of the Company does not and will not
breach any agreement to keep confidential proprietary information, knowledge or
data acquired by me in confidence or in trust prior to my services to the
Company, and 1 will not disclose to the Company, or induce the Company to use,
any confidential or proprietary information or material belonging to any
previous client, employer or others.  I agree not to enter into any agreement
either written or oral in conflict herewith.

     10.  Remedies.  I acknowledge that my obligations under this Agreement (as
          --------
modified by Section 13, if applicable) shall survive the expiration or
termination of my employment (whether through my resignation or otherwise) with
the Company.  I acknowledge that a remedy at law for any breach or threatened
breach by me of the provisions hereof would be inadequate and I therefore agree
that the Company shall be entitled to injunctive relief in any court of
competent jurisdiction in case of any such breach or threatened breach.  I
acknowledge that this Section 10 does not in any way limit the Company's right
to seek monetary damages in arbitration under Section 13.12 of the Employment
Agreement between myself and the Company of even dale herewith.

                                       B-3
<PAGE>

     11.  Modification.  I agree that any subsequent change or changes in my
          ------------
duties, salary or compensation or, if applicable, in any employment agreement
between the Company and me, shall not affect the validity or scope of this
Agreement.

     12.  Successors and Assigns.  This Agreement shall be binding upon my
          ----------------------
heirs, executors, administrators or other legal representatives and is for the
benefit of the Company, its successors and assigns.

     13.  Interpretation.  IT IS THE INTENT OF THE PARTIES THAT in case any one
          --------------
or more of the provisions contained in this Agreement shall, for any reason, be
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein.  MOREOVER, IT IS THE
INTENT OF THE PARTIES THAT in case any one or more of the provisions contained
in this Agreement shall for any reason be held to be excessively broad as to
duration, geographical scope, activity or subject, such provision shall be
construed by limiting and reducing it in accordance with a judgment of a court
of competent jurisdiction, so as to be enforceable to the extent compatible with
applicable law.

     14.  Waivers. If either party should waive any breach of any provision of
          -------
this Agreement, lie or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.

     15.  Complete Agreement, Amendments.  I acknowledge receipt of this
          ------------------------------
Agreement, and agree that, with respect to its subject matter, it is my entire
agreement with the Company, superseding any previous oral or written
communications, representations, understandings, or agreements relating to such
subject matter with the Company or any officer or representative thereof.  Any
amendment to this Agreement or waiver by either party of any right hereunder
shall be effective only if evidenced by a written instrument executed by the
parties hereto, and, in the case of the Company, upon written authorization of
the Company's Board of Directors.

     16.  Headings.  The headings of the sections hereof are inserted for
          --------
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning hereof.

     17.  Counterparts.  This Agreement may be signed in two counterparts, each
          ------------
of which shall be deemed an original and both of which shall together constitute
one agreement.

     18.  Governing Law.  This Agreement shall be governed by and construed
          -------------
under the internal laws of the State of New Jersey, excluding its conflict of
law principles.

                                       B-4
<PAGE>

          If you are in agreement with the foregoing, please sign both of the
enclosed copies of the Agreement on behalf of the Company below, whereupon this
Agreement shall become binding in accordance with its terms. Please then return
one signed copy of this Agreement to me.

                                        EMPLOYEE




                                        /s/ Dennis I. Schneider
                                        ----------------------------------------
                                        Dennis I. Schneider


                                        Accepted and Agreed:

                                        ARIEL CORPORATION


                                        By:  ___________________________________
                                             Name:  Anthony M. Agnello
                                             Title: Chairman

                                       B-5
<PAGE>

     If you are in agreement with the foregoing, please sign both of the
enclosed copies of the Agreement on behalf of the Company below, whereupon this
Agreement shall become binding in accordance with its terms.  Please then return
one signed copy of this Agreement to me.

                                        EMPLOYEE





                                        ----------------------------------------
                                        Dennis I. Schneider


                                        Accepted and Agreed:

                                        ARIEL CORPORATION


                                        By:  /s/ Anthony M. Agnello
                                             -----------------------------------
                                             Name:  Anthony M. Agnello
                                             Title: Chairman

                                       B-6
<PAGE>

                                                         SCHEDULE A to EXHIBIT B



None.

                                       B-7