AMBI                                             AMBI Inc.
                                                 4 Manhattanville Road
                                                 Purchase, New York 10577-2197
                                                 Telephone 914 701-4500
                                                 Facsimile   914 696-0860

                                                 ------------------------------
January 10, 2001
                                                 Benjamin T. Sporn
                                                 Senior Vice President,
                                                 General Counsel and Secretary
                                                 Direct Dial 914 701-4503

Ms. Gail Montgomery
94 Seminary Road
Bedford, NY 10506

Dear Gail:

This Letter Agreement  ("Agreement") dated as of October 16, 2000 is between you
and AMBI Inc.  ("AMBI" or the  "Company")  regarding  your  current  position as
President  and  Chief  Executive  Officer  of AMBI  reporting  to the  Board  of
Directors,  and is for the period  commencing  October 1, 2000 through September
30,  2002  (the  "Contract  Period").  You will also be  required  to serve as a
Director on the AMBI Board during this same period of time.

This offer is contingent upon the following terms and conditions:


GENERAL

You agree  that your  employment  by AMBI  shall be full time and that you shall
engage in no other business nor employment,  other than supervising your passive
investments.  You represent that you are under no  restrictions  or obligations,
which would prevent you from serving as President and Chief  Executive  Officer.
You may serve as a non-executive director on Boards of other companies only with
the written permission of the AMBI Board.


PROMOTIONAL AWARD

You will receive a promotional award of $25,000, effective October 16, 2000.


COMPENSATION

Your direct annualized base compensation will be $275,000  (effective October 1,
2000) paid bi-weekly,  as a non-union,  full-time employee,  and is fixed during
the  Contract  Period.  All  compensation  shall be subject to  withholding  and
similar deductions.

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ANNUAL PERFORMANCE BONUS

You will be granted an annual performance bonus for each of AMBI's 2001 and 2002
year-end fiscal  accounting  years based upon the attainment of targets (each, a
"Target") which will be established by agreement  between the Board of Directors
and you,  and will be set forth in a Fiscal  Year Budget Plan for that year (the
"BP"). The Target will be based primarily on after-tax earnings from operations,
but the parties may agree that gross  revenues  from  operations  will also be a
factor in the Target.

If you achieve less than 85% of the Target for the 2001 fiscal  year,  any bonus
for that year is in the sole discretion of the Board.

If you  achieve at least 85% of the Target for the 2001  fiscal  year,  you will
receive $233,750 (85% of base compensation with the remaining 15% of base at the
discretion of the Board) as a performance  cash bonus.  In that event,  you will
also receive a number of stock  options in  accordance  with AMBI's Stock Option
Plan in effect  at time of grant  ("Options"),  equal to the sum of (1)  400,000
plus (2) that percentage of 100,000 which is equal to the percentage (if any) by
which your Excess is of 15.  "Excess"  means the number of percentage  points of
the Target that you achieve in excess of 85%. For example, if you achieve 90% of
the  Target,  you will be  granted  400,000,  plus 5/15 of 100,000  Options,  or
433,333  Options.  No more than  500,000  Options  will be  granted  under  this
paragraph.

If you achieve less than 90% of the Target for the 2002 fiscal  year,  any bonus
for that year is in the sole discretion of the Board.

If you  achieve at least 90% of the Target for the 2002  fiscal  year,  you will
receive  $275,000 (100% of base  compensation)  as a performance  cash bonus and
500,000 Options.

For each of the 2001 and 2002  fiscal  years in which  you  achieve  100% of the
Target,  you will receive an additional  performance cash bonus for that year or
years of not less than $27,500 (10% of base compensation) and 100,000 additional
Options.

For each of the  2001 and 2002  fiscal  years in which  you  exceed  100% of the
Target,  the Board of Directors  shall have the discretion to determine the cash
and stock option  performance awards on the basis of the amount by which 100% of
the Target has been exceeded.

All Options  referred to in the preceding  paragraphs  will have a 10-year term,
will be Incentive  Stock Options to the maximum extent  permitted under law, and
will vest one-half in one year,  and an  additional  1/4 on each of the next two
anniversaries,  so long as you are  employed by the Company on each vesting date
unless there is a change of control  event (as defined  under  AMBI's  Change of
Control Policy) while you are employed by the Company.

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<PAGE>

OTHER BENEFITS

AMBI  shall  furnish  and/or  reimburse  you for all  reasonable  and  customary
business  requirements  including a car allowance or  equivalent.  Coverage from
group insurance, i.e. medical, dental, life insurance, AD&D, Short and Long Term
Disability.  Business  Travel  Insurance,  etc.  as well as the  AMBI  sponsored
pension plan and savings plan will be provided in accordance  with the terms and
conditions of each plan.


STOCK OPTIONS

You were granted  150,000  Options as of October 16, 2000 @ $1.3125 share.  Such
Options shall vest 50% on October 16, 2001 and 50% on October 16, 2002, but only
if you are employed by the Company on these anniversary unless there is a change
of control event (as defined  under AMBI's  Change of Control  Policy) while you
are employed by the Company.  These options will expire in 2005, and are subject
to the terms of a Stock Option Award Agreement to be signed by AMBI and you.


VACATION

Annual paid vacation and holidays will accrue in accordance with AMBI's vacation
policy and shall be paid upon any change in your employment  status as President
and CEO.


PERIOD OF EMPLOYMENT

Your  employment  with AMBI shall be for a two-year term, but AMBI may terminate
your  employment  earlier for cause or without  cause as  determined  by written
notice from the Board of  Directors.  If AMBI fails to perform  and/or  mitigate
within  a  reasonable  period  of time  any term or  condition  herein,  you can
terminate your employment upon written notice to the Board of Directors.

For purposes of this  Agreement,  "cause" shall be defined as follows:  (1) your
conviction  (including a plea of guilty to nolo  contendere)  of a felony or any
crime of theft,  dishonesty  or moral  turpitude  or (2) your gross  omission or
gross dereliction of any statutory or common law duty to the Company or (3) your
gross violation of the Company's written policies and guidelines.


TERMINATION

Upon written notice of termination  of your  employment,  you hereby resign your
Board membership on the Boards of AMBI and its subsidiaries.

In the event that AMBI's Board of Directors  terminates your employment  without
cause,  or if you resign because the Company has  diminished  your authority and
responsibility as President and CEO (other than any such diminution which is for
cause or which is in connection  with a

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<PAGE>

change in ownership),  you will receive:  1) a continuation  of your salary,  in
ordinary  payroll  installments,  for one year,  2)  immediate  vesting  of your
Options and 3) a  continuation  of your other  benefits as defined herein for 12
months (but only to the maximum extent  permitted under law or by agreement with
third parties),  or, if earlier,  until you obtain other employment.  Should the
parties  seek mutual  general  releases  after any such  termination,  the terms
thereof, and any additional  consideration to be afforded to either party, shall
be as they may determine by mutual written agreement.

In the event you resign for any other reason or if your employment is terminated
with cause, you shall be entitled to no salary or benefit continuation, and your
Options will be vested only to the extent vested prior to termination.


OTHER MATTERS

Notwithstanding  anything to the  contrary  herein,  the total number of Options
granted to you under this Agreement,  including  Options  previously  granted to
you, shall not exceed 1,100,000 Options.

All  vested  Options  shall be  exercisable  for one year after  termination  of
employment if the Company  terminated your employment  without cause, and for 90
days after  termination  of employment for all other  terminations.  The Options
shall thereafter expire.

This Agreement incorporates by reference the AMBI Change of Control Policy dated
6/29/99 and is attached hereto. The Policy provides, among other things, that on
a change of  control  (as  defined in the  Policy) in any fiscal  year you would
receive among other things a bonus equal to your bonus in the prior fiscal year.
Should there be a change of control  during the 2001 fiscal year,  the bonus for
the prior  fiscal year for the purpose of this  calculation  shall be deemed the
greater of (1) $100,000,  or (2) Annual  Performance  Bonus granted for the 2001
fiscal  year  based  upon  the  attainment  of  Targets  (defined  under  Annual
Performance  Bonus  paragraph  herein) up to the  closing  date of the change of
control transaction. In the event the closing of a change of control transaction
occurs  any time prior to the  twelve-month  period for 2001  fiscal  year,  the
Annual  Performance  Bonus for 2001, but only for the purpose of calculating the
bonus for the 2000 fiscal year under the preceding sentence, shall be based upon
the percentage of the Target achieved for that specific period of time and shall
be calculated as follows:  For example, if a change of control occurs at the end
of the third  quarter of 2001 fiscal year and the Target has been  achieved  for
the first nine months of the 2001 fiscal year BP, then the  percentage of Target
achieved for 2001 fiscal year (only for the purpose of calculating the bonus for
the 2000  fiscal  year) will be 100% of Target for 2001  fiscal year BP, not 75%
(9/12) of the 2001 fiscal year BP.

You agree that during and after termination of your employment and for a one (1)
year period following  termination,  you will not directly or indirectly compete
with AMBI or engage in or  participate  in any business  (in whatever  capacity,
whether as owner, consultant,  adviser,  employee or otherwise),  which competes
with the business of AMBI. This paragraph may be enforced by injunction (without
posting bond or other  security),  as well as by other  remedies.  The preceding
sentence  does not  prohibit  you from  passively  owning up to 2% of the voting
securities of any entity that files public reports under the Securities Exchange
Act of 1934.  Both  during  and after your  employment,  you will  maintain  the
confidentiality  of the  Company's  confidential

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information,  and you will not disclose or use such  information  other than for
the benefit of the Company  during your  employment.  Any  controversy  or claim
arising  out of or relating to this  Agreement,  or any breach or default  under
this  Agreement,  shall,  with respect to all actions at law  pertaining to such
controversy,  claim,  breach,  or  default  (excepting  herefrom  any action for
equitable  relief with respect  thereto),  be settled by arbitration in the city
and state where AMBI's  principal  place of business is then  located,  before a
single  arbitrator in accordance  with the  then-prevailing  Rules of Commercial
Arbitration of the American  Arbitration  Association.  The arbitrator shall not
contravene  or  vary in any  respect  any of the  terms  or  provisions  of this
Agreement.  The  award of the  arbitrator  shall be final and  binding  upon the
parties hereto,  and judgment upon such award may be entered in any court having
jurisdiction thereof.

You  certify  that  you  have  not  been  debarred  by the  U.S.  Food  and Drug
Administration under 231. U.S.C. 335a (Federal Food, Drug and Cosmetic Act 306).

This  employment  Agreement is the only  employment  Agreement in effect between
AMBI and you.

If you accept this offer of continued  employment  and the  conditions  outlined
above.  Would you please sign the original of this letter and initial each page.
Please retain the duplicate for your records.

Yours sincerely,

/s/ BENJAMIN T. SPORN
-------------------------------
Benjamin T. Sporn
Senior Vice President

I accept this offer of continued employment and the conditions outlined above.

Signed: /s/ GAIL MONTGOMERY
        --------------------------
        Gail Montgomery


Date:   January 10, 2001

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