Ariel negotiates forbearance agreement with YA Global in regards to convertible preferreds

By Devika Patel

Knoxville, Tenn., May 23 - Ariel Way Inc. negotiated a forbearance agreement with YA Global Investments, LP, a holder of its series A convertible preferred stock, which was issued in a February 2006 private placement on April 21, according to an 8-K filed Friday with the Securities and Exchange Commission.

According to the filing, the agreement stipulated that the company provide YA Global with a formal notice of its actions and inactions which may trigger an event of default in relation to the preferreds.

The notice read, "The company has failed to reserve and keep available out of its authorized but unissued shares of common stock, a number of shares sufficient to effect conversion of the preferred stock. Furthermore, the company has failed to call and hold a special meeting of its stockholders within 30 days of the time that it no longer had a number of shares sufficient to effect conversion of the preferred stock, for the purpose of increasing the number of authorized shares of common stock."

YA Global, also on April 21, issued notice to the company that it was in breach of the terms and conditions of the preferreds by not obtaining YA Global's consent for its acquisition of Syrei Holdings UK Ltd.

The forbearance agreement, which was entered under YA Global's threat of legal action, also stipulates that the company must issue YA Global a warrant for 500 million common shares, exercisable at $0.001 for five years.

Ariel also must amend its articles of incorporation so that the preferred holders will be entitled to receive 18% dividends, payable quarterly on the first day of March, June, September and December of each year, beginning to accrue and cumulative as of April 21. It also stipulates that, at the holder's option, unpaid dividends may be paid in common shares at the conversion price of the preferreds,

The agreement also requires the articles of incorporation be amended so that the preferreds' conversion price be equal to the lesser of $0.10 or a 25% discount to the lowest volume weighted average price of the company's common stock during the 20 trading days immediately preceding the date of conversion.

Ariel also must reduce the exercise price of a warrant for 1 million common shares, which is held by YA Global, to $.001 per share from $0.01 per share.

Also, within 30 days of the agreement's execution, the company must obtain approval for the amendment from a majority of its stockholders by written consent, in lieu of a special meeting.

Ariel must then either file an information statement or a preliminary proxy statement indicating its intention to hold a special meeting of stockholders to vote on the amendment and, within 30 days of the filing, hold the meeting.

In exchange, YA Global has agreed to forbear from exercising its right under the defaults until Sept. 6 as long as the company strictly complies with the new agreement and there are no more defaults.

Ariel also has agreed not to dispose of or acquire any assets during this forbearance period without YA Global's consent, and it also will provide YA Global with any documents, instruments and agreements necessary for the company to document the defaults and secure its interest in the collateral

Based in Vienna, Va., Ariel is a web site designing and hosting company serving small businesses.

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