<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
FORM 10-Q
For the Quarterly Period Ended: September 30, 1998
Commission File Number 0-14983
AMBI INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 11-2653613
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation of organization)
4 Manhattanville Road, Purchase, NY 10577
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(914) 701-4500
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, Par Value $.005 26,549,062 shares as of November 10, 1998.
- ----------------------------- -----------------------------------------
<PAGE>
AMBI INC. & SUBSIDIARY
INDEX
PART I FINANCIAL INFORMATION PAGE
- ------ --------------------- ----
ITEM 1 Financial Statements (unaudited)
Consolidated Balance Sheets at September 30, l998
and June 30, 1998 3
Consolidated Statements of Operations for the three
months ended September 30, 1998 and l997 5
Consolidated Statement of Stockholder's Equity for
the three months ended September 30, l998 6
Consolidated Statements of Cash Flows for the three
months ended September 30, l998 and 1997 7
Notes to Consolidated Financial
Statements 8
ITEM 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
PART II OTHER INFORMATION
- ------- -----------------
ITEM 1 Legal Proceedings 18
ITEM 6 Exhibits and Reports on Form 8-K 18
2
<PAGE>
AMBI INC. & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
September 30, June 30,
1998 1998
------- -------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 322 $ 2,109
Accounts receivable, net 2,953 3,408
Inventories, net 681 695
Prepaid expenses and other current assets 848 413
------- -------
Total current assets 4,804 6,625
Property and equipment, net 878 914
Patent costs and licensed technology, net 12,132 11,715
Goodwill, net 1,000 950
Other assets 792 531
------- -------
TOTAL ASSETS $19,606 $20,735
======= =======
</TABLE>
See accompanying notes
3
<PAGE>
AMBI INC. & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
September 30, June 30,
1998 1998
------------- --------
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt, current portion of long-term debt
and lease obligations $ 3,088 $ 3,052
Accounts payable and accrued expenses 2,430 2,458
Nutrition 21 acquisition payable 275 2,747
Preferred dividends payable 654 637
------------- --------
Total current liabilities 6,447 8,894
Long-term debt and lease obligations, less current portion 1,466 1,543
------------- --------
TOTAL LIABILITIES $ 7,913 $ 10,437
------------- --------
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value, authorized 5,000,000 shares;
Series C convertible preferred, 222 shares issued and
outstanding at September 30, 1998 and June 30, 1998
(aggregate liquidation value Series C $2,743) -- --
Series D convertible preferred, 15,250 shares and 22,500
shares issued and outstanding at September 30, 1998 and
June 30, 1998, respectively (aggregate liquidation value
Series D $1,652) -- --
Common stock, $0.005 par value, authorized 65,000,000
shares; 21,989,884 shares and 20,898,297 shares issued
and outstanding at September 30, 1998 and June 30, 1998,
respectively 110 105
Additional paid-in capital 54,994 54,942
Accumulated deficit (43,411) (44,749)
------------- --------
TOTAL STOCKHOLDERS' EQUITY $ 11,693 $ 10,298
------------- --------
COMMITMENTS AND CONTINGENT LIABILITIES
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 19,606 $ 20,735
============= ========
</TABLE>
See accompanying notes.
4
<PAGE>
AMBI INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(unaudited)
Three Months Ended
September 30,
1998 1997 (1)
------------ ------------
NET SALES $ 5,815 $ 3,118
Cost of sales 678 655
------------ ------------
GROSS PROFIT 5,137 2,463
Selling, general & administrative expenses 2,613 2,658
Research and development expenses 487 495
Depreciation and amortization 559 172
------------ ------------
OPERATING INCOME/(LOSS) 1,478 (862)
Interest income 35 44
Interest expense 89 24
Other income, net 79 125
------------ ------------
INCOME/(LOSS) BEFORE INCOME TAXES 1,503 (717)
INCOME TAXES 91 7
------------ ------------
NET INCOME/(LOSS) $ 1,412 $ (724)
============ ============
BASIC EARNINGS (LOSS) PER SHARE $ 0.06 $ (0.06)
============ ============
Weighted average number of common shares 21,199,345 19,055,081
============ ============
DILUTED EARNINGS (LOSS) PER SHARE $ 0.05 $ (0.06)
============ ============
Weighted average number of common shares and
equivalents 26,383,486 19,055,081
============ ============
(1) Certain reclassifications have been made to the financial statements
for the quarter ended September 30, 1997 to conform to the presentation
for the quarter ended September 30, 1998.
See accompanying notes.
5
<PAGE>
AMBI INC. & SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
Additional
Preferred Stock Preferred Stock Paid-In Accumulated
Series C Series D Common Stock Capital Deficit Total
shares $ shares $ shares $ $ $ $
---------- ------ ---------- ------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, l998 222 -- 22,500 -- 20,898,297 105 54,942 (44,749) 10,298
Conversion of preferred
stock to common stock
including dividends
issued as common stock -- -- (7,250) -- 1,091,587 5 52 -- 57
Preferred stock dividends -- -- -- -- -- -- -- (74) (74)
Net income for the period -- -- -- -- -- -- -- 1,412 1,412
---------- ------ ---------- ------ ---------- ---------- ---------- ---------- ----------
Balance at September 30,
l998 222 $ -- 15,250 $ -- 21,989,884 $ 110 $ 54,994 ($ 43,411) $ 11,693
========== ====== ========== ====== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes.
6
<PAGE>
AMBI INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1998 1997 (1)
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income/(loss) $ 1,412 $ (724)
Adjustments to reconcile net income/(loss) to net cash used
in operating activities:
Depreciation and amortization 559 172
Nutrition 21 consulting expense 48 --
Loss on disposal of equipment 142 --
Changes in assets and liabilities, which includes Nutrition 21
from the date of acquisition:
Decrease/(increase) in accounts receivable 455 (721)
Decrease in inventories 14 234
Increase in other assets (744) (850)
Increase in Nutrition 21 acquisition payable,
net of cash payments 275 61
Decrease in accounts payable and accrued expenses (28) (22)
-------- --------
Net cash provided by/(used in) operating activities 2,133 (1,850)
-------- --------
Cash flows from investing activities:
Payments for Nutrition 21 acquisition -- (10,000)
Contingent payments for Nutrition 21 acquisition (3,269) --
Acquisitions of property and equipment (27) (14)
Proceeds on sale of equipment 68 --
Patent costs and licensed technology (430) (95)
-------- --------
Net cash used in investing activities (3,658) (10,109)
-------- --------
Cash flows from financing activities:
(Repayments) borrowings under term loan (233) 2,455
Capital lease repayments (29) (60)
Proceeds from term loan -- 3,300
-------- --------
Net cash (used in)/provided by financing activities (262) 5,695
-------- --------
Net decrease in cash and cash equivalents (1,787) (6,264)
Cash and cash equivalents at beginning of period 2,109 8,615
-------- --------
Cash and cash equivalents at end of period $ 322 $ 2,351
======== ========
</TABLE>
(1) Certain reclassifications have been made to the financial statements
for the quarter ended September 30, 1997 to conform to the presentation
for the quarter ended September 30, 1998.
See accompanying notes.
7
<PAGE>
AMBI INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
(unaudited)
Note 1 BASIS OF PRESENTATION
---------------------
The accompanying unaudited interim consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial statement reporting and in accordance
with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three
month period ended September 30, l998 are not necessarily indicative of
the results that may be expected for the fiscal year ending June 30,
l999. For further information, refer to the consolidated financial
statements and notes thereto, included in the Company's annual report
on Form 10-K as amended for the year ended June 30, l998.
Certain reclassifications have been made to the prior period's
financial statement amounts to conform to the current period
presentation.
Note 2 ACQUISITION OF NUTRITION 21
---------------------------
The purchase price for the acquisition of Nutrition 21 was $10,000,000
in cash plus 500,000 restricted shares of common stock of the Company.
The Purchase Agreement also provides for annual contingent payments for
each of the next four years of $2.5 million, but subject to adjustment
for the achievement of net sales levels of certain products (contingent
consideration clause), and royalties of 2.5% to 5.0% on net sales of
products recommended for certain patented uses. At September 30, l998,
the Company recorded on its balance sheet a then current liability of
$275 in respect of a contingent payment due in September 1999 to the
former owners of Nutrition 21 as provided for in the acquisition
agreement. On September 30, l998, the Company paid the former owners of
Nutrition 21 approximately $3.3 million representing the full amount of
the contingent payment due for the 12 month period September 1997
through August 1998.
The following represents the pro forma consolidated results of
operations as if the Company and Nutrition 21 had been combined for the
three months ended September 30, 1997. The pro forma results of
operations reflect amounts adjusted to their accounting basis as if the
acquisition had occurred at the beginning of the respective periods.
The pro forma information is not necessarily indicative of the results
of operations as they may be in the future or as they would have been
had the acquisition been effected on the assumed dates. The pro forma
information for the three months ended September 30, 1997 is as
follows:
Net sales $4,566
Net loss (365)
Basic and diluted loss per share $(0.04)
8
<PAGE>
AMBI INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
(unaudited)
Note 3 INVENTORIES
-----------
The components of inventories at September 30, l998 and June 30, 1998
were:
September 30, June 30,
l998 1998
---- ----
Raw materials $289 $289
Work in process -- --
Finished goods 527 541
------ ------
816 830
less: Inventory valuation reserve (135) (135)
------ ------
Inventories, net $ 681 $ 695
====== ======
During the quarter ended September 30, l998, and the fiscal year ended
June 30, 1998, the Company did not deduct any amounts from the
inventory valuation reserve.
Note 4 STOCKHOLDERS' EQUITY
--------------------
Convertible Preferred Stock
The Company is authorized to issue up to 5,000,000 shares of preferred
stock, with a $0.01 par value, in one or more series, and to fix the
powers, designations, preferences and rights of each series.
In May 1997, the Company issued 45,000 shares of non-voting, Series D
Preferred Stock (the "D Preferred"). Each share of D Preferred has a
face value of $100 per share, and accrues a premium at 6% per annum for
conversion purposes. The Company has registered Common Stock issuable
upon conversion. In connection with this private placement, the Company
also issued Warrants to purchase 528,937 shares of Common Stock at
$2.72 per share. At September 30, 1998, there were 15,250 shares of D
Preferred outstanding.
With respect to the D Preferred, on December 5, 1997 the holders of the
D Preferred (the "D Investors") converted fifty percent of their
holdings into common stock of the Company at a twenty-five percent
discount to the average closing bid prices for the Company's Common
Stock for the five (5) consecutive trading days immediately preceding
conversion. The Company reduced both the fixed conversion price of
$2.49557 and the warrant exercise price of $2.72 to $2.25. The maturity
date for mandatory conversion was extended to May 8, 2001. The D
Investors agreed not to convert any of their remaining holdings for a
period of six months ending on June 5, 1998. The twenty-five percent
conversion discount described above has been recorded as additional
preferred dividends and reduced net income available to common
stockholders for the year ended June 30, 1998.
In October 1995, the Company issued 895 shares of non-voting, Series C
Preferred Stock (the "C Preferred") for $10,000 per share. These shares
are convertible into common stock of the Company at the lower of $3.25
per share or 85% of the average closing bid price for the common stock
of the Company for the five trading days immediately preceding the date
of conversion, and bear an 8% dividend payable in common stock of the
Company on the same basis as the preferred stock at the time of
conversion.
The Company has the right to redeem the preferred stock for cash upon
receipt of a notice of conversion. All C Preferred outstanding on
October 13, 1999 will automatically convert into common stock of the
Company. As of September 30, 1998, there were 222 shares of C Preferred
outstanding.
9
<PAGE>
AMBI INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
(unaudited)
Note 4 STOCKHOLDERS' EQUITY, Continued
-------------------------------
With respect to the C Preferred, on December 5, 1997, the Company
reduced the fixed conversion price from $3.25 to $2.75. The maturity
date for mandatory conversion was extended to October 13, 1999. The
holders of the C Preferred agreed not to convert any of their remaining
holdings for a period of six months ending on June 5, 1998.
Dividends payable on the C Preferred and the D Preferred were
approximately $654 and $637 at September 30, 1998 and June 30, l998,
respectively.
The reduction in the fixed conversion price described above for the
Series C and Series D Preferred Stock has not been recorded as
additional preferred dividends for the year ended June 30, 1998 and the
three months ended September 30, l998 because the Company's stock price
is not high enough for the fixed conversion price to be beneficial to
the Series C and Series D investors. As of June 30, 1998 and September
30, l998, the original discounts of fifteen and twenty-five percent
granted to the Series C and Series D investors, respectively, are more
beneficial for conversion purposes. As such, these conversion discounts
have been recorded as additional preferred dividends. Should the fixed
conversion price become more beneficial to the Series C investors (when
the Company's stock price exceeds $3.23) or the D Investors (when the
Company's stock price exceeds $3.00), the Company will record
additional preferred dividends based on the Company's stock price at
that time.
Note 5 EARNINGS/(LOSS) PER SHARE
-------------------------
Basic and diluted earnings (loss) per share for the three months ended
September 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
September 30, September 30,
1998 1997
------------ ------------
<S> <C> <C>
Net income/(loss) $ 1,412 $ (724)
Preferred stock dividends (74) (114)
Conversion discount on convertible
preferred stock -- (293)
------------ ------------
Net income/(loss) attributable
to common stockholders $ 1,338 $ (1,131)
============ ============
Basic earnings/(loss) per share $ 0.06 $ (0.06)
============ ============
Weighted average number of common shares 21,199,345 19,055,081
============ ============
Net income/(loss) attributable to
common shareholders $ 1,338
Interest on AZWELL loan, net 8
Preferred stock dividends, net 74
------------
Net income available to common
shareholders after giving effect to dilution $ 1,420
============
Diluted earnings/(loss) per share $ 0.05 $ (0.06)
============ ============
Weighted average number of common shares
and equivalents 26,383,486 19,055,081
============ ============
</TABLE>
10
<PAGE>
AMBI INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
(unaudited)
Note 5 EARNINGS/(LOSS) PER SHARE, Continued
------------------------------------
The weighted average shares of dilutive securities that would
have been used to calculate diluted EPS had their effect not
been anti-dilutive are as follows:
1998 1997
Convertible Preferred Stock -- 1,223,373
The weighted average common shares and equivalents that were
used to calculate diluted EPS was determined as follows:
1998
Weighted average common shares 21,199,345
Convertible Preferred Stock 4,501,873
AZWELL (fka NSK) Loan Payment Option 682,268
-----------
26,383,486
Note 6 COMMITMENTS AND CONTINGENT LIABILITIES
--------------------------------------
In September 1998, the Company entered into an operating lease for
office space in the US for its corporate offices for a term of 90
months expiring in March, 2006. Under the terms of the lease, the
Company is obligated to make rental payments of $321 during fiscal
1999, $589 during fiscal 2000 through fiscal 2005, and $418 during
fiscal 2006.
Note 7 COMPREHENSIVE INCOME
--------------------
Effective July 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 "Reporting Comprehensive Income." This
Statement requires that companies disclose comprehensive income, which
includes net income, foreign currency translation, minimum pension
liability adjustments and unrealized gains and losses on marketable
securities classified as available for sale. For the Company,
comprehensive income is the same as net income (loss).
Note 8 SUPPLEMENTAL CASH FLOW INFORMATION
----------------------------------
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1998 1997
---- ----
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid for interest $ 89 $24
Cash paid for income taxes 50 7
Supplemental schedule of non-cash financing activities:
Obligation for purchase of property & equipment $ 220 --
</TABLE>
On August 11, 1997, the Company acquired the net assets of
Nutrition 21 in exchange for $10 million in cash and 500,000
shares of the Company's common stock. In connection with the
acquisition, liabilities were assumed as follows:
Fair value of assets acquired $11,645
Cash purchase price 10,000
Stock issued 1,188
--------
Liabilities assumed $ 457
========
11
<PAGE>
AMBI INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
(unaudited)
Note 9 SUBSEQUENT EVENT
----------------
On October 8, l998, the Company commenced a strategic alliance with AHP
for retail distribution of the Company's proprietary nutrition
products. As part of the alliance, AHP's Whitehall-Robins Healthcare
Division was granted an exclusive license to sell the Company's
Cardia(Registered) Salt in retail markets in the United States and
received a first negotiation option for exclusive rights and licenses
for additional nutrition products for retail distribution in the United
States. On October 8, l998, the Company received an upfront payment of
$1.0 million from AHP for the rights and options. Also on October 8,
1998, AHP paid $1.15 per share or a total of $4.0 million for 3,478,261
shares of newly issued Company common stock. The Company retained the
exclusive rights to market its products in both direct response and
ingredient channels.
12
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the
Consolidated Financial Statements and related notes thereto of the
Company included elsewhere herein.
General
Historically, the Company's revenues have been attributable primarily
to sales of its own products. Since the acquisition of Nutrition 21 on
August 11, l997, the Company's revenues have been primarily derived
from the sale of nutrition products to manufacturers of vitamin and
mineral supplements and to a lesser extent from the sale of Wipe
Out(TM) Dairy Wipes and Cardia(R) Salt. The Company has also received
royalty income from users of its patented technology and milestone
payments from research partners.
Cost of goods sold includes both direct and indirect manufacturing
costs. Research expenses include internal expenditures as well as
expenses associated with third party collaborators. Selling, general
and administrative expenses include salaries and overheads, third party
fees and expenses, and costs associated with the selling of the
Company's products. The Company capitalizes patent costs and
acquisition-related goodwill and intangible assets, and amortizes them
over periods of one to twenty years.
On August 11, l997, the Company acquired the entire beneficial interest
in Nutrition 21, a limited partnership. Nutrition 21 is engaged in the
business of developing, producing, and marketing proprietary nutrition
products and dietary supplements. The purchase price for the
acquisition was $10,000,000 in cash plus 500,000 restricted shares of
Common Stock of the Company, and additional cash payments which are
contingent upon the achievement of certain sales level in the four
years following acquisition. The Company will also pay royalties to the
sellers on sales of certain patented products. Of the $10 million cash
paid at closing, $3.3 million was provided pursuant to a Loan Agreement
with State Street Bank and Trust Company ("SSBT") and the remainder
came from internal working capital. The loan bears interest at SSBT's
prime rate plus one percent and is due June 30, 2000.
The acquisition of Nutrition 21 was accounted for under the purchase
method. Based upon the allocation of purchase price, the transaction
resulted in $10.7 million of identifiable intangible assets, primarily
patents and trademarks, and $1.0 million of goodwill. These amounts
include approximately $2.5 million of identifiable intangible assets
and $0.2 million of goodwill recorded in connection with amounts due
under a contingency consideration clause in the Nutrition 21 purchase
agreement. As additional contingency consideration is earned, the
Company will allocate these amounts in accordance with the original
purchase price allocation. The Company is amortizing the goodwill over
15 years and amortizing the identifiable intangible assets over their
useful economic lives, which range from three to 15 years.
Results of Operations
The Company has an accumulated deficit due primarily to historical
operating losses, the write-off of purchased goodwill (amortized over
five years from 1986 - 1990) and purchased research and development
costs (written-off in the year ended June 30, l993).
13
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations, Continued
Net Sales
---------
Net sales increased 86% to $5,815 for the quarter ended September 30,
l998 from $3,118 for the quarter ended September 30, l997. The increase
in net sales of $2,697 is attributable to the acquisition of Nutrition
21 which generated $5,504 for the quarter ended September 30, l998 as
compared to net sales of $2.5 million for the quarter ended September
30, l997. N21 was acquired by the Company on August 11, l997 and
therefore the quarter ended September 30, l997 includes Nutrition 21
from the acquisition date until the end of the quarter. Net sales of
other products decreased in the quarter ended September 30, l998 from
the quarter ended September 30, l997 by a net amount of $200 primarily
due to a change in marketing and distribution strategy for Cardia Salt.
Cost of Sales
-------------
Gross profit for the Company as a percentage of net revenues was 88%
for the quarter ended September 30, l998, compared to 80% for the
quarter ended September 30, 1997. This increase in gross profit
reflects a sales mix which includes the higher margin Nutrition 21
products for the quarter ended September 30, l998, compared to a sales
mix which included the Company's lower margin products for the quarter
ended September 30, l997. Nutrition 21 products had a gross profit
percentage of approximately 92% for the quarter ended September 30,
1998 and September 30, 1997 while other products had a gross profit
percentage of approximately 28% for the quarter ended September 30,
1998 and September 30, 1997.
Selling, General and Administrative Expenses (SG&A)
---------------------------------------------------
SG&A expenses decreased $45 or 2% for the quarter ended September 30,
1998 as compared to the quarter ended September 30, 1997. The decrease
is primarily due to lower marketing costs for Cardia(R) Salt, offset by
the addition of Nutrition 21 for the full quarter ended September 30,
1998.
Research and Development Expenses
---------------------------------
Research costs decreased slightly for the quarter ended September 30,
l998, compared to the quarter ended September 30, 1997. This decrease
is due to the Company's decision to reduce research activities related
to the infectious disease drug business.
Operating Income/(Loss)
-----------------------
The Company's reported operating income of $1,478 for the quarter ended
September 30, 1998 compared to a loss of $862 for the quarter ended
September 30, l997. The increase in revenue and profitability of the
company was due to the increase in gross profit attributable to the
acquisition of Nutrition 21 and its product lines.
Interest Expense, Net
---------------------
Interest expense, net of interest income, was $54 in the quarter ended
September 30, l998 compared to interest income of $20 in the
corresponding period in 1997. Interest expense increased for the
quarter ended September 30, 1998 as compared to the same period during
the prior fiscal year because the loan from SSBT was outstanding for
the period August 11, 1997 through September 30, 1997 during the prior
year and the loan was outstanding for the entire three months ended
September 30, 1998.
14
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations, Continued
Other Income, Net
-----------------
In conjunction with the relocation of the Company's headquarters
operations in September 1998 to Purchase, NY, the Company received $404
when it vacated the prior premises. The Company is utilizing $361 of
those funds to pay the costs associated with the relocation. The
decrease in Other Income, Net arises primarily from a reduction in
sponsored pharmaceutical-related research.
Income Tax Expense
------------------
Income tax expense increased from $7 for the quarter ended September
30, l997 to $91 for the quarter ended September 30, l998 primarily due
to estimated federal alternative minimum tax and state taxes.
Net Income/Loss and Earnings Per Share
--------------------------------------
Net income for the quarter ended September 30, l998 was $1,412 as
compared to a net loss for the quarter ended September 30, l997 of
$724. Basic and diluted earnings per share for the quarter ended
September 30, l998 were $0.06 and $0.05, respectively, as compared to a
basic and diluted loss per share of ($0.06) for the quarter ended
September 30, l997. This increase in net income and the resulting
earnings per share increase resulted from the acquisition by Nutrition
21 and its product lines.
Quarterly Variations
--------------------
On a quarter-to-quarter basis, the Company's sales and income may vary
widely, as a result of various factors, including, for example,
customers placing orders in anticipation of a price increase and
customers adjusting finished goods inventory levels. As a result, the
Company may report sales increases or declines and/or income gains or
losses for a particular quarter that may not reflect end-customer usage
of the Company's products.
Liquidity and Capital Resources
As of September 30, l998, the Company had a working capital deficit of
$1.6 million. Cash and cash equivalents were $322. The Company
continues to take steps to improve its working capital position by
increasing sales from existing businesses and reducing operating
expenses. With the closing of the AHP transaction (discussed below),
the Company has restored a working capital surplus. On June 30, l998,
the Company had a working capital deficit of $2.3 million, which
included cash and cash equivalents of $2.1 million.
On September 17, l998, the Company entered into agreements to form a
strategic alliance with American Home Products Corporation ("AHP") for
retail distribution of the Company's proprietary nutrition products. As
part of the alliance, Whitehall-Robins Healthcare Division was granted
an exclusive license to sell the Company's Cardia(R) Salt Alternative
in retail markets in the United States and received a first negotiation
option for exclusive rights and licenses for additional nutrition
products for retail distribution in the United States. In addition, AHP
agreed to make equity investments in newly issued shares of the
Company's common stock. The alliance became effective on October 8,
l998, when AHP paid $1.15 per share, or a total of $4.0 million, for
3,478,261 shares of newly issued common stock. Also on October 8, l998,
the Company received an upfront payment of $1.0 million from AHP for
the rights and options granted under the agreement. The Company
retained the exclusive rights to market its products in both direct
response and ingredient channels. Until used in the Company's
operations, the Company will invest the AHP proceeds in investment
grade commercial paper or equivalent instruments.
15
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations, Continued
As of September 30, l998, the Company had a term loan balance of $2.2
million with SSBT. The Company had originally borrowed $3.3 million
from SSBT to fund the acquisition of Nutrition 21. At December 31,
1997, the Company refinanced the then existing $2.8 million balance of
the loan. Under the revised terms the Company received a $2.8 million
term loan which is being amortized through monthly payments of
principal and interest over a 30 month period at an interest rate equal
to the prime rate plus one percent. SSBT also continues to provide a
revolving credit line, based upon the level of inventory and
receivables, of up to $4.0 million. All amounts owing under the term
loan and the revolving credit line are due by June 30, 2000, the
expiration date of the credit line. The Company had a zero balance
under the revolving credit line at September 30, 1998.
On December 12, 1996, the Company completed the sale of its UK-based
food preservative business, Aplin & Barrett Ltd. ("A&B") to Burns Philp
& Company Ltd. ("Burns Philp"). The Company reinvested the proceeds
from the sale of A&B into the acquisition of Nutrition 21, which has
thus far generated revenues greater than those lost as a result of the
sale of A&B. In connection with the sale of A&B, Burns Philp provided
the Company with a revolving credit line of up to $2.5 million that
could be forgiven under certain circumstances related to the
performance of the food preservative business through June 30, l999.
Borrowings under this credit line will accrue interest at a rate equal
to the prime rate set from time to time by Citibank. To date the
Company has not borrowed any amounts under this credit line, nor is it
determinable at this time whether the future performance of the food
preservative business would result in the forgiveness of any debt.
With respect to the acquisition of Nutrition 21, at September 30, l998,
the Company recorded on its balance sheet a then current liability of
$275 in respect of a contingent payment due in September 1999 to the
former owners of Nutrition 21 as provided for in the acquisition
agreement. On September 30, l998, the Company paid the former owners of
Nutrition 21 approximately $3.3 million representing the full amount of
the contingent payment due for the 12 month period September 1997
through August 1998. The Company utilized cash generated from
operations to satisfy the contingent payment obligation.
In March 1996, the Company entered into an agreement with AZWELL, Inc.
(formerly Nippon Shoji Kaisha), under which AZWELL agreed to provide
research funding and equity and debt financing in return for exclusive
rights to certain nisin based drug products in Japan and certain other
Asian countries. In conjunction with that Agreement, AZWELL invested $2
million in the Company's Common Stock and loaned the Company another $2
million which can be repaid, at the Company's option, with the
Company's Common Stock upon meeting certain milestones. The Company has
advised AZWELL that one milestone, FDA acceptance of its
Investigational New Drug application for diseases of the colon, has
been met and as a result, the Company intends to repay $1 million of
the loan with its Common Stock and $1 million in cash from operating
activities. The loan is payable in full in March 1999.
The Company's primary sources of financing are cash generated from
continuing operations and the SSBT revolving line of credit. The
availability under the SSBT revolving line of credit is based on the
Company's accounts receivable and inventory. At September 30, l998, the
Company had a zero balance under this line. The Company believes that
cash generated from operations and cash available under the line of
credit will provide sufficient liquidity to fund operations. The
Company continues to eliminate expenditures that are not critical to
the process of generating sales.
16
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations, Continued
Future acquisition activities and any increases in research and
development expenses over the present level may require additional
funds. Also, the Company is obligated to repay the borrowings to SSBT
in June 2000. The Company intends to seek any necessary additional
funding through arrangements with corporate collaborators, through
public or private sales of its securities, including equity securities,
or through bank financing arrangements. The Company does not currently
have any specific arrangements for additional financing and there can
be no assurance that additional funding will be available at all or on
reasonable terms.
Year 2000
---------
The Company is analyzing the nature and extent of work required to make
its products, systems and infrastructure Year 2000 compliant. The
Company uses a number of computer software programs and operating
systems in its internal operations, including applications in financial
business systems, product development, marketing and various other
administrative functions. To the extent that these software
applications contain source code that is unable to appropriately
interpret the upcoming year "2000", some level of modification or
possibly replacement of such applications may be necessary. The Company
is also asking its suppliers to determine whether there are any Year
2000 problems which could affect the Company, and to provide assurances
that they will not permit a Year 2000 problem to interfere with
performance under agreements with the Company. To the extent that the
Company is uncertain as to its suppliers compliance, it may choose to
increase certain key product inventories during 1999 to assure
continuity of operations. The Company continues to evaluate the
estimated costs associated with its Year 2000 compliance efforts. While
these efforts involve some additional costs, the Company believes,
based on available information, that it will be able to manage it total
Year 2000 transition without material adverse effect on its business,
financial condition, or operating results.
Recently Issued Accounting Standards
------------------------------------
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 131 "Disclosures
about Segments of an Enterprise and Related Information." SFAS No. 131
supersedes SFAS No. 14 "Financial Reporting for Segments of a Business
Enterprise", but retains the requirement to report information about
major customers. This statement is effective for financial statements
for annual periods beginning after December 15, l997.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities," SFAS No. 133 requires companies to
recognize all derivatives as assets or liabilities measured at their
fair value. Gains or losses resulting from changes in the values of
those derivatives would be accounted for depending on the use of the
derivative and whether it qualifies for hedge accounting.
It is not expected that adoption of these statements will have a
material impact on the Company's financial position or operating
results.
17
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
The Company was a defendant in a lawsuit brought in 1997 in the United States
District Court for the Southern District of New York (Civil Action No. 97
Civ.5802 (BDP)) by RCN Products, Inc. ("RCN"). RCN sued under the Lanham Act and
New York General Business Law, alleging that the term "Salt Alternative" used by
AMBI to describe its Cardia(R) product, amounts to unfair competition by leading
consumers to believe that the Cardia product is salt free. Effective November 9,
1998, the Company and RCN settled the lawsuit.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.58 - Stock Purchase Agreement dated as of September 17, 1998 between
American Home Products Corporation and AMBI Inc.
Certain portions of this Exhibit have been filed separately with the Commission
and are subject to a request for confidential treatment.
Exhibit 10.59 - License, Option and Marketing Agreement dated as of September
17, 1998 between American Home Products, acting through its Whitehall-Robins
Healthcare division, and AMBI Inc.
Certain portions of this Exhibit have been filed separately with the Commission
and are subject to a request for confidential treatment.
Exhibit 27 - Financial Data Schedule
(b) There were no reports on Form 8-K filed by the Company during this fiscal
quarter.
18
<PAGE>
AMBI INC. & SUBSIDIARY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMBI INC.
---------
Registrant
Date: November 16, 1998 By: /S/ Fredric D. Price
--------------------
Fredric D. Price
President and Chief Executive Officer
(Principal Executive Officer)
/S/ Gerald A. Shapiro
---------------------
Gerald A. Shapiro
Vice President and Chief Financial Officer
(Principal Financial Officer)
19
<PAGE>
Exhibit 10.58
Certain portions of this Exhibit have been filed separately with the
Commission and are subject to a request for confidential treatment.
STOCK PURCHASE AGREEMENT
AGREEMENT FOR THE PURCHASE AND SALE OF STOCK dated as of September
17, 1998, by and between AMBI INC., a New York corporation ("AMBI"), and
AMERICAN HOME PRODUCTS CORPORATION, a Delaware corporation ("AHP").
PRELIMINARY STATEMENT
The parties are concurrently herewith entering into a License, Option
and Marketing Agreement dated the date hereof (the "Product Agreement"). The
terms "Effective Date," "HSR Act," "Product," "Option Product," and "Additional
Product" shall have the meanings attributed thereto in the Product Agreement.
The parties wish to provide for certain purchases by AHP of common
stock of AMBI ("common stock") and for certain agreements in connection
therewith.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements herein contained, the
parties hereto agree as follows:
1. Purchases and Sales of AMBI Stock
1.1. Base Purchase.
1.1.1. At a closing (the "Base Closing") to occur on September 24,
1998, or, if a filing is required to be made under the HSR
Act or rules, within five business days after any applicable
waiting periods under the HSR Act or rules shall have
terminated or expired, AHP shall purchase from AMBI, and AMBI
shall issue to AHP, 3,478,261 shares of common stock (the
"Base Shares").
1.1.2. The purchase price for the Base Shares shall be $4,000,000,
and shall be paid by AHP at the Base Closing by wire transfer
against the delivery by AMBI to AHP of the certificates which
represent the Base Shares and the opinion of AMBI's counsel
to the effect that the Base Shares are duly authorized,
validly issued, fully paid and nonassessable, and free and
clear from any liens or encumbrances of any kind (except
restrictions from transfer as set forth in applicable
securities laws).
<PAGE>
1.1.3. The Base Closing shall occur at the offices of AMBI. At such
Closing, each of AMBI and AHP shall deliver to the other
party, a certificate by an officer of each company (whose
incumbency is verified by the Corporate Secretary or an
Assistant Secretary) certifying that each of the
representations and warranties (other than with respect to
the number of shares issued and outstanding in the
capitalization) are true and correct as of the date of such
Closing and that all covenants required to be performed in
this Agreement have been performed in all material respects
by each such party.
1.2. Additional Purchases.
1.2.1. At a closing (each, an "Additional Closing," with any of the
"Base Closing" or Additional Closing being referred to herein
as a "Closing") to occur at the offices of AMBI concurrently
with the execution of each of the first three licenses for
any one or more Option Products or Additional Products, as
provided in Section 12.2 of the Product Agreement, AHP shall
purchase from AMBI, and AMBI shall issue to AHP, a number of
additional shares of common stock equal to $(***) divided by
(***)% of the average of the closing prices of a share of
common stock on NASDAQ on each of the 10 trading days up to
and including the date which is 5 trading days immediately
preceding such Additional Closing. In addition, as provided
in Section 7.2 of the Product Agreement, AHP may make certain
purchases of additional shares of AMBI common stock, the
number of additional shares of common stock of each purchase
being equal to $(***) divided by (***)% of the average of the
closing prices of a share of common stock on NASDAQ during
the 10 trading days up to and including the date which is 5
trading days immediately preceding such Additional Closing.
The shares of common stock to be purchased by AHP at each
Additional Closing are referred to herein as the "License
Shares."
1.2.2. The purchase price for the License Shares purchased at each
Additional Closing shall be $(***), and shall be paid by AHP
at such Additional Closing by wire transfer against the
delivery by AMBI to AHP of the certificates which represent
the License Shares purchased at such Additional Closing and
the opinion of AMBI's counsel to the effect that the License
Shares are duly authorized, validly issued, fully paid and
nonassessable, and free and clear from any liens or
encumbrances of any kind (except restrictions from transfer
as set forth in applicable securities laws). At such Closing,
each of AMBI and AHP shall deliver to the other party, a
certificate by an officer of each company (whose incumbency
is verified by the Corporate Secretary or an Assistant
Secretary) certifying that each of the representations and
warranties (other than with respect to the number of shares
issued and outstanding in the capitalization) are true and
correct as of the date of such Closing and that all covenants
required to be
<PAGE>
performed in this Agreement have been performed in all material
respects by each such party.
1.2.3. By way of example, if on any day AHP executes two licenses
for Option Products, AHP shall in connection therewith
purchase common stock for an aggregate purchase price of
$(***).
1.2.4. In the event that the common stock of AMBI is not traded on
NASDAQ during the period or periods set forth in this Article
1, the fair market price on each such day shall be determined
to be the average bid and asked price on each such day that
the common stock is traded on the over-the-counter bulletin
board, or if not so traded, as determined in good faith by
the Board of Directors of AMBI.
1.3. Hart-Scott-Rodino
1.3.1. Prior to the effectuation and as a condition to any Closing
under this Agreement, AHP shall have: (i) valued its holdings
of AMBI stock and assets and any stock to be acquired at less
than $15 million in accordance with Title II of the U.S.
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended and the rules promulgated thereunder (16 C.F.R.
ss.ss.801.1 et seq.); or (ii) determined that no such filing
is required to be made under the HSR Act or rules; provided,
however, that in the event that AHP has determined that a
filing under the HSR Act and rules is required, AMBI and AHP
shall promptly make all required filings under the HSR Act
and rules, and shall not effect any Closing hereunder until
any applicable waiting periods under the HSR Act or rules
shall have terminated or expired.
2. Representations And Warranties of AMBI. AMBI represents and warrants to
AHP that the following statements are true and correct:
2.1. Organization and Qualification. AMBI is a corporation duly
organized, validly existing and in good standing under the laws of
the State of New York and has corporate power to carry on its
business as it is now being conducted. The character of AMBI's
properties owned or held under lease and the nature of its
activities does not make it necessary that AMBI qualify to do
business in any foreign jurisdiction.
2.2. Capitalization. The authorized capital stock of AMBI consists of
65,000,000 shares of Common Stock, par value $.005 per share, and
5,000,000 shares of Preferred Stock $.01 par value per share. AMBI
does not have any outstanding securities convertible into or
exchangeable or exercisable for any shares of the capital stock of
AMBI, nor are there outstanding any rights to subscribe for or to
purchase, or any agreements providing for the issuance (contingent
or otherwise) of, or any options, warrants, calls, commitments,
understandings, arrangements or claims of any character relating
to, the capital stock of AMBI or any securities
<PAGE>
convertible into or exchangeable or exercisable for any shares of
the capital stock of AMBI. As of September 15, 1998, 21,193,726
shares of AMBI Common Stock, 222 shares of Series C Preferred Stock,
and 19,750 shares of Series D Preferred Stock are validly issued and
outstanding, fully paid and nonassessable and free of preemptive
rights. All of the shares of AMBI Stock issuable in accordance
with this Agreement will be, when so issued, duly authorized,
validly issued, fully paid and nonassessable and free of
preemptive rights, and free and clear from any liens or
encumbrances of any kind (except restrictions from transfer as set
forth in applicable securities laws).
2.3. Authority Relative to This Agreement.
2.3.1. AMBI has the corporate power to enter into this Agreement
and to carry out its obligations hereunder. The execution and
delivery of this Agreement, the performance by AMBI of its
obligations hereunder and the consummation of the
transactions contemplated hereby have been duly authorized by
AMBI's Board of Directors in all material respects; the
issuance of the shares of AMBI Stock pursuant to this
Agreement have been duly authorized by AMBI's Board of
Directors; and no other corporate proceedings on the part of
AMBI are necessary to authorize this Agreement and the
transactions contemplated hereby.
2.3.2. This Agreement has been executed and delivered by AMBI and
(assuming the valid authorization, execution and delivery of
this Agreement by AHP) is a valid and binding obligation of
AMBI enforceable against AMBI in accordance with its terms,
except as may be limited by or subject to any bankruptcy,
insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally, and
subject to general principles of equity. No filing or
registration with, or authorization, consent or approval of,
any public body or authority is necessary for the
consummation by AMBI and its subsidiaries of the transactions
contemplated by this Agreement.
2.3.3. No notice to or filing with, and no authorization, consent
or approval of, any domestic or foreign court or any public or
governmental body or authority is necessary for the
consummation by AMBI of the transactions contemplated by this
Agreement (except as may be required by the HSR Act), except
for notices or filings the failure to give or make, and
authorizations, consents and approvals the failure to obtain,
would not materially and adversely affect the ability of AMBI
to consummate the transactions contemplated hereby, or the
future conduct of the AMBI's business.
2.3.4. Neither the execution and delivery of, nor the consummation
of the transactions contemplated by, this Agreement will
result in any of the following:
<PAGE>
2.3.4.1. a default or an event that, with notice or lapse of
time, or both, would constitute a default, breach or
violation of the charter, bylaws or other governing
instruments of AMBI, or any material contract,
agreement, license or instrument to which AMBI is a
party or by which AMBI or its property is bound;
2.3.4.2. an event that would permit any Person to terminate
any material contract, agreement, license or
instrument to which AMBI is a party or by which AMBI
or its property is bound, or to accelerate the
maturity of any indebtedness or other material
obligation of AMBI;
2.3.4.3. the creation or imposition of any lien, mortgage,
pledge, charge or encumbrance of any kind upon any
material asset of AMBI;
2.3.4.4. a violation or breach of any statute, ordinance, rule
or regulation in any material respect applicable to
AMBI, or any writ, injunction or decree of any court
or governmental instrumentality to which AMBI is a
party or by which it or any of its properties are
bound; or
2.3.4.5. a loss or adverse modification under the terms
thereof, of any material license, franchise or other
authorization granted to or otherwise held by AMBI.
2.4. Reports and Financial Statements. AMBI has filed all required
reports and other filings with the Securities and Exchange
Commission (the "Commission") and all such filings complied in all
material respects with all applicable requirements of the
Securities Act of 1933, as amended, and the rules and regulations
thereunder (the "Securities Act") and/or the Securities Exchange
Act of 1934, as amended, and the rules and regulations thereunder
(the "Exchange Act"). As of their respective dates, such reports,
statements and other written materials did not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made,
not misleading. The audited statements and any unaudited interim
financial statements of AMBI included in such reports have been
prepared in accordance with generally accepted accounting
principles applied on a consistent basis and fairly present the
financial position of AMBI and its subsidiaries as at the dates
thereof and the results of their operations and changes in
financial position for the periods then ended, except as indicated
therein or in the notes thereto.
2.5. No Material Adverse Change. Since March 31, 1998, as of which date
the AMBI filed its most recent report on Form 10-Q, there has not
been any material adverse change in the financial condition,
results of operations, businesses, properties, assets or
liabilities of AMBI taken as a whole.
<PAGE>
2.6. Fees, Commissions and Expenses. AMBI has not paid or agreed to
pay, nor has it received any claims with respect to, any brokerage
commissions, finders' fees or similar compensation in connection
with the transactions contemplated by this Agreement.
2.7. Investment Company Act. AMBI is not, and after giving effect to
the transactions described herein will not be, an "investment
company" as such term is defined in the Investment Company Act of
1940, as amended.
3. Representations And Warranties Of AHP. AHP represents and warrants to
AMBI that the following statements are true and correct in all material
respects:
3.1. Organization and Qualification. AHP is a duly organized, validly
existing and in good standing Delaware corporation, and has
corporate power to carry on its business as it is now being
conducted.
3.2. Authority Relative to this Agreement.
3.2.1. AHP has the corporate power to enter into this Agreement and
to carry out its obligations hereunder. The execution and
delivery of this Agreement, the performance by AHP of its
obligations hereunder and the consummation of the
transactions contemplated hereby have been duly authorized
and no other corporate proceedings on the part of AHP are
necessary to authorize this Agreement and the transactions
contemplated hereby. This Agreement has been executed and
delivered by the AHP and (assuming the valid authorization,
execution and delivery of this Agreement by AMBI) is a valid
and binding obligation of AHP enforceable against AHP in
accordance with its terms, except as may be limited by or
subject to any bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of
creditors' rights generally, and subject to general
principles of equity. Except as referred to herein, no filing
or registration with, or authorization, consent or approval
of, any public body or authority is necessary for the
consummation by AHP of the transactions contemplated herein.
3.2.2. Neither the execution and delivery of, nor the consummation
of the transactions contemplated by, this Agreement will
result in any of the following:
3.2.2.1. a default or an event that, with notice or lapse of
time, or both, would constitute a default, breach or
violation of the charter, bylaws or other governing
instruments of AHP, or any material contract,
agreement, license or instrument to which AHP is a
party or by which AHP, or the property of AHP is
bound;
3.2.2.2. an event that would permit any Person to terminate
any material contract, agreement, license or
instrument to which AHP is a
<PAGE>
party or by which AHP is bound, or to accelerate the
maturity of any indebtedness or other obligation of AHP;
3.2.2.3. the creation or imposition of any lien, mortgage,
pledge, charge or encumbrance of any kind upon any
material asset of AHP;
3.2.2.4. a violation or breach of any statute, ordinance, rule
or regulation in any material respect applicable to
AHP , or any writ, injunction or decree of any court
or governmental instrumentality to which AHP is a
party or by which AHP, or the property of AHP is
bound; or
3.2.2.5. a loss or adverse modification under the terms
thereof, of any material license, franchise or other
authorization granted to or otherwise held by AHP.
3.3. Fees, Commissions and Expenses. Neither AHP nor any of its
affiliates has paid or agreed to pay, nor has it received any
claims with respect to, any brokerage commissions, finders' fees
or similar compensation in connection with the transactions
contemplated by this Agreement.
3.4. Investment Representations.
3.4.1. The AMBI Stock may be sold or otherwise transferred only if
registered under the Securities Act, pursuant to an exemption
therefrom as indicated in an opinion of counsel supplied by
AHP reasonably acceptable to AMBI and its counsel, or with
the favorable opinion of counsel to AMBI to the effect that
such sale or other transfer may be made in the absence of
registration under the Securities Act. The certificates
representing the AMBI Stock will be legended to reflect this
restriction, and stop transfer instructions will apply.
3.4.2. AHP represents and warrants that it is purchasing the common
stock solely for investment solely for its own account and
not with a view to or for the resale or distribution thereof
except as permitted under a Registration Statement or as
otherwise permitted under the Securities Act.
4. Rule 144 Current Information. AMBI shall timely file periodic reports
under the Exchange Act to the end that AMBI shall satisfy the
requirements of Rule 144 in relation to the availability of current
public information with respect to AMBI.
5. Participation Registration Rights.
5.1. If AMBI shall at any time propose the registration under the
Securities Act of any shares of common stock, AMBI shall give
notice as promptly as possible (but no less than 10 days before
filing a registration statement with respect to such registration)
of such proposed registration to AHP, and AMBI at its sole expense
<PAGE>
(except with respect to any underwriting discount) shall use its
best efforts to cause such number of Common Shares as AHP shall
request within 10 days after the receipt of such notice to be
included in any such offering; provided, however, that
5.1.1. AMBI shall not be required to give notice or include such
shares in any such registration which is (A) a registration
of a stock option or compensation plan or of securities
issued or issuable pursuant to any such plan, or (B) a
registration of securities proposed to be issued in exchange
for securities or assets of, or in connection with a merger
or consolidation with, another corporation;
5.1.2. AMBI shall not be required to include such shares in any
such registration if AMBI is advised in writing by its investment
banking firm that the inclusion of such shares would in its
opinion have a materially adverse effect on such proposed
offering of its common stock, provided, however, that such
exclusion shall be made in proportion to the number of shares
proposed to be included in such offering other than by AMBI,
and in no case shall such exclusion be more than 10% of the
total number of shares proposed to be sold in any such
offering; and
5.2. AMBI may, without the consent of AHP, withdraw such registration
statement and abandon the proposed offering in which AHP had
requested to participate.
5.3. AMBI shall supply to AHP a reasonable number of copies of all
registration materials and prospectuses. AMBI and AHP shall
execute and deliver to each other indemnity agreements which are
conventional in registered offerings of this type, indemnifying
AHP for any and all liabilities relating to any registration
statement, other than based upon information supplied by AHP
specifically for use therein, and in no case shall AHP's liability
exceed the proceeds of the sale to AHP under any such offering or
registration. AHP shall reasonably cooperate with AMBI in the
preparation and filing of the Registration Statement and
appropriate amendments thereto, and shall provide to AMBI such
information with respect to the AHP as AMBI may reasonably require
in connection therewith.
5.4. AHP's rights under this Section 5 shall terminate on the later of
(i) 5 years from the date of this Agreement, or (ii) after AHP
owns less than 5% of the outstanding common stock of AMBI and is
free to sell all shares it owns under Rule 144 (k) of the
Securities Act or any successor provision thereof.
6. General Provisions
6.1. Survival of Representations and Warranties. All representations
and warranties made hereunder shall survive the Closing until
September 30, 1999, or 12 months from the last Closing in which a
certificate with respect to the representations and warranties is
made hereunder, as the case may be.
<PAGE>
6.2. Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if three days after being
mailed by registered or certified mail (return receipt requested,
postage prepaid) or if delivered personally to the parties at the
following addresses (or at such other address for a party as shall
be specified by like notice):
If to AMBI, to:
AMBI Inc.
771 Old Saw Mill Road
Tarrytown, NY 10591
Attention: Senior Vice President & General Counsel
with a copy to:
Oscar D. Folger, Esq.
Law Offices of Oscar D. Folger
521 Fifth Avenue
New York, NY 10175
if to AHP, to:
American Home Products Corporation
Five Giralda Farms
Madison, NJ 07940
Attention: Treasurer
with a copy to:
American Home Products Corporation
Five Giralda Farms
Madison, NJ 07940
Attention: Senior Vice President and General Counsel
7 Miscellaneous. This Agreement (including the documents and instruments
referred to herein) (a) constitutes the entire agreement and supersedes
all other prior agreements and understandings, both written and oral,
among the parties, or any of them, with respect to the subject matter
hereof; (b) inures to the benefit of the parties hereto and their
respective permitted representatives and assigns; (c) shall not be
assigned by operation of law or otherwise; and (d) shall be governed in
all respects, including validity, interpretation and effect, by the laws
of the State of New York (without giving effect to the provisions thereof
relating to conflicts of law). This Agreement may be executed in two or
more counterparts which together constitute a single agreement.
<PAGE>
8 Publicity. Neither party shall issue any press releases which make
references to the other without the consent of the other party, which
consent shall not unreasonably withheld. Each party shall therefore
provide the other with draft press releases for review and comment. Each
party agrees to review and comment promptly on draft press releases
received from the other party.
IN WITNESS WHEREOF, AMBI and AHP have caused this Agreement to be
signed by their respective officers thereunto duly authorized all as of the
date first written above.
AMBI INC.
By: /s/ Fredric D. Price
---------------------------------
Name: Fredric D. Price
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Title: President & CEO
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AMERICAN HOME PRODUCTS CORPORATION
By: /s/ Gerald A. Jibilian
---------------------------------
Name: Gerald A. Jibilian
-------------------------------
Title: Vice President
------------------------------
<PAGE>
Exhibit 10.59
Certain portions of this Exhibit have been filed separately with the
Commission and are subject to a request for confidential treatment.
LICENSE, OPTION AND MARKETING AGREEMENT
This License, Option and Marketing Agreement (the "Agreement") is
entered into as of the 17 day of September , 1998 (the "Effective Date")
between AMBI Inc., a New York corporation having a principal place of
business at 771 Old Saw Mill Road, Tarrytown, NY 10591 ("AMBI") and American
Home Products, a Delaware corporation ("AHP"), acting through its
Whitehall-Robins Healthcare division ("W-R"), having a principal place of
business at Five Giralda Farms, Madison, NJ 07940.
WHEREAS, AMBI is a publicly owned company which owns certain
patent, trademark and trade secret rights to make, have made, use and sell
certain nutritional and dietary supplement products, also known as
nutraceuticals, including exclusive licenses under patents, trademarks and
trade secret information for a salt alternative product AMBI is currently
marketing under the CARDIA trademark;
WHEREAS, W-R is a division of AHP, a publicly owned company that
possesses resources and expertise in the areas of nutraceutical
distribution, marketing and sales, and capabilities and expertise in
regulatory matters;
WHEREAS, W-R desires to obtain from AMBI exclusive licenses for the
United States, its territories and possessions in respect of AMBI's salt
alternative product currently sold by AMBI under the CARDIA trademark, and
possibly other nutraceutical products; and
WHEREAS, AMBI desires to grant to W-R exclusive licenses for the
United States, its territories and possessions in respect of AMBI's salt
alternative product currently sold by AMBI under the CARDIA trademark, and
possibly other nutraceutical products;
NOW, THEREFORE, in consideration of the foregoing premises and the
following mutual covenants, and other good and valuable consideration, the
receipt of which is hereby acknowledged, and intending to be legally bound
hereby, the parties agree as follows:
1 Certain Definitions.
For purposes of this Agreement, the following terms shall have the
following meanings:
<PAGE>
1.1 "Additional Products" shall mean nutritional or dietary
supplement products, excluding the Product, which AMBI has the right to
license to W-R for sale in the Territory subsequent to expiration of any
Option Periods.
1.2 "Affiliate" shall mean an entity directly or indirectly
controlling, controlled by or under common control with a party where
control means the ownership or control, directly or indirectly, of more than
fifty percent (50%) of all of the voting power of the shares (or other
securities or rights) entitled to vote for the election of directors or
other governing authority, as of the Effective Date or hereafter during the
term of this Agreement; provided that such entity shall be considered an
Affiliate only for the time during which such control exists.
1.3 "Cardia Patent Rights" shall mean: (i) United States Patent No.
4,931,305; (ii) any and all extensions, renewals, continuations,
continuations-in-part, divisions, patents-of-addition, reissues,
reexaminations, supplementary protection certificates relating to (i); (iii)
any and all patents issuing on (i) and (ii); and (iv) any and all patents
and patent applications relating directly to the subject matter of (i) which
AMBI has the right to license to W-R in the Territory.
1.4 "Cardia Trademark" shall mean U.S. Trademark Registration
Number 2,124,150, and U.S. Trademark application for "Cardia and Design"
filed on March 11, 1997, Serial No. 75/255,571, and any U.S. Trademark
Registrations issuing thereon.
1.5 "Direct Response Distribution Channels" shall mean direct mail,
catalog, marketing through "800" numbers, internet sales (excluding sales
through the internet sites of W-R, W-R's customers, and AHP), television
shopping networks, "infomercials," multi-level marketing and other kinds of
direct response distribution channels.
1.6 "Disclosing Party" shall mean a party hereto that discloses its
Proprietary Information to the other party.
1.7 "Effective Date" shall mean the earlier of (i) the date as of
which the waiting period provided by the HSR Act (as defined in Section
25.4) shall have terminated or shall have expired without any action by the
government agency or challenge to the transaction, or (ii) the date on which
W-R informs AMBI that no filing under the HSR Act is required pursuant to
Section 25.4, or (iii) the government approval is obtained. W-R shall make
any determination as to (ii) above by September 30, 1998.
1.8 "Excluded Manufacturers" shall mean AMBI's customers who
purchase the Product or Other Products in bulk and incorporate the Product
or Other Products into their products as minority components thereof.
1.9 "Know-How" shall mean any and all trade secrets, know-how and
other non-publicly known inventions, discoveries, formulae, processes and
data related to Products or Other Products, as the case may be, which AMBI
has the right to license to W-R in the Territory. Know-How of AMBI shall
include Proprietary Information of AMBI.
<PAGE>
1.10 "Net Sales" of a Product shall mean revenues from the sale,
use or other disposition of the Product in each case: less any trade
allowances and returns; trade discounts actually allowed in amounts and for
customary purposes; shipping; insurance; sales, use, value-added and similar
taxes and duties and similar governmental assessments, separately stated and
billed, provided such amounts would otherwise have been included in "Net
Sales."
1.11 "Option Periods" shall have the meaning set forth in Section
6.
1.12 "Option Products" shall mean nutritional or dietary supplement
products, excluding the Product, which AMBI has the right to license to W-R
for sale in the Territory.
1.13 "Other Licensed Products" shall mean Option Products and
Additional Products which are licensed by AMBI to W-R.
1.14 "Patent Rights" shall mean: (i) patent applications and issued
patents of AMBI which cover Other Licensed Products; (ii) any and all
extensions, renewals, continuations, continuations-in-part, divisions,
patents-of-addition, reissues, reexaminations, supplementary protection
certificates; (iii) any and all patents issuing on (i) and (ii); and (iv)
any and all patent and patent applications which AMBI has the right to
license to W-R which cover Other Licensed Products.
1.15 "Product" shall mean an alternative salt product within the
scope of the Cardia Patent Rights and/or Know-How.
1.16 "Proprietary Information" shall mean the following, to the
extent previously, currently or subsequently disclosed to the other party
hereunder or otherwise: information of a party relating to Option Products,
Additional Products, Product, Other Licensed Products, the properties,
composition or structure thereof or the manufacture or processing thereof or
machines therefor or the Disclosing Party's business (including, without
limitation, reagents, computer programs, algorithms, names and expertise of
employees and consultants, know-how, formulas, processes, ideas, inventions
(whether patentable or not), schematics and other technical, business,
financial, customer and product development plans, forecasts, strategies and
information).
1.17 "Proprietary Rights" shall mean Cardia Patent Rights, Patent
Rights, copyrights, trade secret rights and similar rights.
1.18 "Receiving Party" shall mean a party hereto that receives
Proprietary Information of the other party.
1.19 "Retail Channels" shall mean mass market and other retail
distribution channels, including managed care/PBM organizations, and sales
made through the internet sites of W-R to retail customers, through the
internet sites of W-R's customers by those customers, and through the
internet sites of AHP, but excluding sales to Excluded Manufacturers and
sales made through Direct Response Distribution Channels.
<PAGE>
1.20 "Term" shall mean the duration of this Agreement as defined in
Section 18 hereof.
1.21 "Territory" shall mean the United States, its territories and
possessions
2 Cardia Patent Rights and Know-How License Grant.
2.1 Subject to the terms and conditions of this Agreement, and
except as otherwise specifically provided below, AMBI hereby grants W-R an
exclusive, royalty-bearing sub-license, with the right to further sublicense
only Affiliates, under the Cardia Patent Rights, and an exclusive,
royalty-bearing sub-license, with the right to sublicense only Affiliates,
under AMBI's Know-How, to make, have made, use, sell, offer for sale and
import the Product only for sales in the Retail Channels and only for sales
in the Territory. Neither (i) W-R, (ii) any of W-R's Affiliates, or (iii)
any participant in W-R's distribution channel for a Product (for example, a
distributor or dealer) shall sell or market Product or combination products
incorporating the Product directly or indirectly outside of the Territory.
W-R shall make reasonable commercial efforts to require any participant in
distribution in a Retail Channel, to prohibit sales of the Product outside
the Territory or outside a Retail Channel.
2.2 AMBI reserves exclusive rights under the Cardia Patent Rights
and Know-How to make, have made, use, sell, offer for sale and import the
Product only through Direct Response Distribution Channels and to the
Excluded Manufacturers. AMBI hereby agrees to avoid selling such Products in
the Direct Response Distribution Channels for a price lower than the W-R
Average Price for the Products.
2.3 Manufacture of Products by W-R or its contractors, under the
license set forth herein, is authorized both within and outside the
Territory, but only for sales by W-R or its Affiliates in the Territory for
end-use in the Territory.
2.4 AMBI shall use commercially reasonable efforts to assist W-R in
obtaining rights to make, have made, use, sell, offer for sale and import
the Product and to use the CARDIA Trademark in Canada from AMBI's licensor.
3 Cardia Trademark License Grant.
3.1 Subject to all the terms and conditions of this Agreement, AMBI
hereby grants to W-R, and W-R accepts, a non-exclusive, non-transferable
(except as expressly provided herein) sub-license, with the right to further
sublicense only its Affiliates, to use the CARDIA Trademark in the Territory
solely on or in connection with the Product.
3.2 W-R agrees that all packaging containing Product sold by W-R
and its Affiliates will be marked with the Cardia Trademark and with the
number of the applicable patent(s) licensed hereunder.
<PAGE>
3.3 W-R acknowledges that the CARDIA Trademark is exclusively
licensed to AMBI in the Territory. W-R hereby acknowledges and agrees that,
except as set forth herein, W-R has no rights, title or interest in or to
the CARDIA Trademark and that all use of the CARDIA Trademark by W-R shall
inure to the benefit of AMBI and its licensor. W-R shall not have the right
to use the Cardia Trademark as a trade name, company name, trade style or
business name.
4 Quality Standards
4.1 The Committee described in Section 13 shall establish quality
control, quality assurance, and manufacturing standards to which the parties
shall adhere. Upon AMBI's request, W-R shall furnish to AMBI, at no expense
to AMBI, pre-production and production samples of Product that W-R intends
to manufacture and sell under the CARDIA Trademark to allow AMBI to review
the quality of the Product. AMBI shall reasonably control the quality of the
Product sold under the CARDIA Trademark.
4.2 AMBI shall have the right to request W-R to make any reasonable
changes and/or corrections to the Products manufactured and sold by W-R
under the CARDIA Trademark as may be required to maintain the quality
standards, and W-R agrees to make and incorporate said reasonable changes or
corrections at W-R's sole cost and expense.
4.3 AMBI shall have the right to inspect W-R's operations and
facilities during normal business hours, upon reasonable prior notice, to
the extent necessary to ensure that AMBI's quality standards have been and
are being met by W-R. Such inspection shall generally not take place more
than once per calendar quarter.
4.4 W-R agrees to use the CARDIA Trademark in accordance with, and
only on or in connection with Products that comply with, all applicable
local, state and federal laws and, at all times, to conduct its activities
under this Agreement in a lawful manner.
5 Use and Display of the CARDIA Trademark.
5.1 W-R acknowledges and agrees that the presentation and image of
the CARDIA Trademark should be uniform and consistent with respect to
Product bearing the CARDIA Trademark. W-R agrees to submit all packaging,
labels and other printed materials bearing the CARDIA Trademark to AMBI in
writing for approval by AMBI (not to be unreasonably withheld) before
commercial use of the CARDIA Trademark on Product by W-R commences. If a
material change in the use of the CARDIA Trademark on Product from that
initially approved is proposed by W-R, packaging, labels and other printed
materials bearing such changed usage of the CARDIA Trademark shall be
resubmitted in writing for AMBI's approval (not to be unreasonably
withheld). It shall be presumed that AMBI approves of any usage unless AMBI
provides written notice of disapproval of such use to W-R within ten (10)
business days of delivery of such materials to AMBI.
5.2 All labels, packaging, tags, advertising and promotional
materials and all other printed and written materials in connection with the
Products manufactured,
<PAGE>
distributed or sold by W-R under the CARDIA Trademark shall state that the
CARDIA Trademark is licensed by AMBI Inc. W-R agrees to use one of the following
forms of such notice, which AMBI may change from time to time, in AMBI's sole
reasonable discretion:
CARDIA is a Trademark of AMBI Inc.
or
CARDIA is a trademark of AMBI Inc. and is licensed to the Whitehall-Robins
Healthcare division of American Home Products Corporation.
5.3 W-R agrees to use the proper trademark notice in connection
with the CARDIA Trademark, which AMBI shall specify from time to time, in
AMBI's sole reasonable discretion. As of the Effective Date of this
Agreement, W-R shall use the symbol "(R)" in connection with the CARDIA
Trademark so that it appears as follows: CARDIA(R). Such notice, where
practicable, shall appear on all labels, packaging, tags, advertising and
promotional materials and all other printed and written materials in
connection with the Products manufactured, distributed or sold by W-R under
the CARDIA Trademark.
5.4 Cooperation and Protection. W-R agrees to reasonably cooperate
with and assist AMBI (at AMBI's sole expense and for AMBI's sole benefit) in
protecting and defending the CARDIA Trademark and shall promptly notify AMBI
in writing of any infringements, claims or actions by others (which come to
the attention of W-R) in derogation of the CARDIA Trademark.
5.5 AMBI shall diligently act to terminate any infringement of the
CARDIA Trademark within the Territory, including without limitation
prosecuting a lawsuit or other legal proceeding, at AMBI's sole expense, and
AMBI may retain any recovery it may receive as a result of its actions to
terminate such infringement. W-R shall fully cooperate with AMBI in any
action AMBI takes to terminate infringement and shall be reimbursed by AMBI
for all reasonable out of pocket expenses incurred in connection therewith.
If AMBI fails to take any action within sixty (60) days after receiving a
request from W-R to terminate such infringement, AHP shall have the right,
in its sole discretion, to (i) to act as it sees fit to terminate the
infringement, including without limitation prosecuting a lawsuit or other
legal proceeding, at W-R's own expense; and W-R may retain any recovery it
may receive as a result of its actions to terminate such infringement. AMBI
shall fully cooperate with W-R in any such action taken by W-R, including
without limitation agreeing to be joined as party plaintiff and approving
any reasonable settlement agreement achieved by W-R, and shall be reimbursed
by W-R for all reasonable out of pocket expenses incurred in connection
therewith.
6 W-R Options
<PAGE>
6.1 First Option. AMBI hereby grants to W-R an option for a period
of three (3) years from the Effective Date (the "Option Period") to acquire
exclusive license rights described in this Section 6 for up to three Option
Products for the Territory and Canada, on terms to be negotiated in good
faith by the parties hereto.
6.2 Second Option. In the event that W-R is licensed by AMBI for a
third Option Product during the Option Period or the Extended Option Period
(hereinafter defined), AMBI shall grant to W-R a second option which shall
last for a period of three (3) years from the effective date of the license
for the third Option Product, which shall provide for a right for W-R to
acquire exclusive license rights described in this Section 6 for up to three
additional Option Products for the Territory and for Canada, on terms to be
negotiated in good faith by the parties hereto.
6.3 Extended Option Period. The Option Period defined under Section
6.1 of this Agreement shall be extended in the event that Net Sales of the
Product and Other Licensed Products exceed (***). In such an event, the
Option Period for all purposes of this Agreement shall expire on the third
anniversary of the first day of the month following the end of the twelve
month period in which such sales were attained and shall be known as the
"Extended Option Period."
6.4 Option Exercise.
6.4.1 On a quarterly basis, AMBI shall provide to W-R
through the Committee, summary information describing any new Option Product
available for license by W-R (the "Disclosure").
6.4.2 From the date of receiving the Disclosure provided
to W-R pursuant to Section 6.4.1 hereof, W-R shall have the right at any
time prior to (i) the longer of sixty (60) days following W-R's receipt of
the Disclosure, or (ii) the expiration of the Option Period (the "Exercise
Period") to review the Disclosure and notify AMBI of its desire to obtain a
license under its Option to the Option Product disclosed ("Exercise
Notice").
6.4.3 If W-R provides AMBI with an Exercise Notice during
the Exercise Period, then the parties shall negotiate in good faith the
terms of a definitive license agreement relating to the Option Product.
However if the parties are unable within sixty (60) days from the date of
the Exercise Notice, to negotiate and execute a definitive license agreement
relating to the subject of the Exercise Notice, then AMBI shall have no
further obligation to W-R with respect to such Option Product, and shall be
free to grant licenses to such Option Product to third parties; provided,
however, that such licenses are granted on terms no more favorable to the
third party than those last offered to W-R.
6.4.4 If AMBI receives a notice from W-R indicating that
W-R does not desire to obtain a license to the Option Product described in a
Disclosure, or if AMBI does not receive an Exercise Notice from W-R during
the Exercise period, the Option
<PAGE>
shall no longer apply to, and AMBI shall have no further obligation to, W-R with
respect to such Option Product.
6.4.5 AMBI shall have the right during the Option Period
to request that W-R enter into negotiations for licensing an Option Product
(up to a maximum of six (6) Option Products during the Option Periods). If
AMBI requests W-R to enter into negotiations for licensing an Option
Product, W-R shall inform AMBI within 30 days of the request whether W-R
desires to enter into such negotiations. In the event that W-R does not
desire to enter into negotiations for licensing the Option Product or does
not respond to AMBI within 30 days, then AMBI shall have no further
obligation to W-R with respect to such Option Product, and shall be free to
grant licenses to such Option Product to third parties. In the event that
W-R desires to enter into such negotiations, the parties shall negotiate in
good faith for the licensing of the Option Product. However if the parties
are unable within sixty (60) days from the date that W-R advises AMBI that
it desires to negotiate a license, to negotiate and execute a definitive
license agreement relating to the Option Product, then AMBI shall have no
further obligation to W-R with respect to such Option Product, and shall be
free to grant licenses to such Option Product to third parties; provided,
however, that such licenses are granted on terms no more favorable to the
third party than those last offered to W-R. In the event that AMBI elects to
license the subject of the Option Notice to a third party, it shall, if
requested by W-R, provide W-R with a summary of the terms of the proposed
third party license.
6.4.6 If AMBI requests W-R to enter into negotiations for
licensing an Option Product and (i) AMBI has received a Notice of Allowance
or a grant of patent rights from the United States Patent and Trademark
Office relating to the Option Product or its use, or (ii) AMBI has obtained
results from a clinical trial of the Option Product in humans demonstrating
safety and a reasonable indication of efficacy as measured by an end-point
which the parties agree is appropriate, or (iii) AMBI has obtained results
from a pre-clinical trial of the Option Product in a relevant animal model
demonstrating safety and efficacy, W-R shall enter into good faith
negotiations for licensing such Option Product. The parties shall negotiate
in good faith the terms of a definitive license agreement relating to the
Option Product. However if the parties are unable within sixty (60) days
from the date of the Exercise Notice, to negotiate and execute a definitive
license agreement relating to the subject of the Exercise Notice, then AMBI
shall have no further obligation to W-R with respect to such Option Product,
and shall be free to grant licenses to such Option Product to third parties;
provided, however, that such licenses are granted on terms no more favorable
to the third party than those last offered to W-R. Such Option Product may
or may not be one that was the subject of an earlier request for W-R to
enter into negotiation for a license, prior to the conditions set forth in
the preceding sentence being in effect.
6.4.7 Option License Terms. Each license granted by AMBI
to W-R pursuant to an Option granted in Section 6 of this Agreement, if any,
shall include, without limitation, the grant of an exclusive license, for
agreed-upon consideration, with the right to sublicense only Affiliates,
under the applicable Patent Rights and Know-How to make, have made, use,
sell, offer for sale and import the applicable Option Products
<PAGE>
only in the Retail Channels in the Territory and Canada, but excluding the
rights to make, have made, use, sell, offer for sale and import the applicable
Option Products through Direct Response Distribution Channels and to the
Excluded Manufacturers in the Territory and Canada.
7 CardiaNutrition Trademark
7.1 AMBI hereby grants to W-R the exclusive option for the Option
Period to acquire exclusive license rights to the CardiaNutrition trademark
only for use in connection with Other Licensed Products on terms
substantially equivalent to those set forth in Section 3 hereof. W-R shall
have the right to exercise the option granted in this Section 7.1 only upon
the execution of a license agreement between the parties covering an Option
Product and such license shall be for a term ending on the termination of
the license for the Option Product.
7.2 W-R shall have the right to convert the term of its exclusive
license obtained through the operation of Section 7.1 hereof to a perpetual
term upon the occurrence of either: (i) (***); or (ii) W-R securing the
license rights to (***) Option Products within three (3) years following the
Effective Date of this Agreement, and such perpetual license shall end on
the termination of all licenses for Option Products. At the option of W-R,
the above annual payments can be made for the purchase of newly-issued AMBI
Common Stock at a price of (***) of the average closing NASDAQ prices of
AMBI Common Stock for the ten (10) day period preceding the date of the
closing of the purchase. To the extent such annual payments have not already
been used to purchase shares of AMBI stock, such annual payments shall be
fully creditable toward upfront payments for additional purchases of
newly-issued AMBI Common Stock required to be purchased in connection with
execution of licenses for Option Products. All equity purchases shall be
made in accordance with the terms and conditions of the Stock Purchase
Agreement set forth in Exhibit A.
7.3 During the period of W-R's exclusive license for the
CardiaNutrition trademark, AMBI may not enter into agreements with other
parties to sell under the CardiaNutrition trademark.
7.4 In the event that W-R acquires a license under the
CardiaNutrition Trademark hereunder, the use, display and enforcement
thereof shall be handled by the parties in a manner identical to that of the
CARDIA Trademark as expressed in Article 5 hereof.
8 Drug Products
Products which AMBI has or will develop as drugs under New Drug Applications
(hereinafter referred to as "Drug Products") are excluded from the Option
Products and Additional Products which are available for license to W-R.
AMBI agrees, however, that if AMBI solicits partners or seeks to participate
in strategic alliances with respect to any such Drug Product, AMBI will
include W-R and/or its ethical drug Affiliate(s) in such
<PAGE>
solicitation(s) on an equal footing with other third parties. In the event that
W-R has representation on AMBI's Board of Directors, then W-R will have access
to certain AMBI information and may request that AMBI enter into negotiations
with W-R or an Affiliate of W-R for a license to a Drug Product, based upon that
information.
9 Regulatory Matters
9.1 W-R will prepare, file and own all regulatory submissions (and
regulatory approvals issuing therefrom) as required. The percentage of
sharing of expenses incurred in regulatory matters will be determined by the
Committee based upon a Plan as set forth in Section 12. In general, the
percentage sharing of expenses will relate to the estimated market size and
the estimated profitability by distribution channel and will be determined
by the Committee.
9.2 W-R will seek AMBI's counsel and will coordinate all regulatory
submissions which relate to the Product or Other Licensed Products with
AMBI. W-R shall grant AMBI an exclusive license (except for W-R's retained
rights therein) to use the W-R regulatory approvals for AMBI activities
permitted hereunder. Upon termination of a W-R license to the Product or
Other Licensed Product hereunder, all regulatory filings and approvals
directed to the Product or such other Licensed Product will be assigned
exclusively to AMBI.
10 Product Manufacturing and Supply
10.1 During the term of each license hereunder, each party shall
have the right to manufacture or have manufactured the Product, and shall
offer the other party the right to purchase the fully manufactured Product
at a price which reflects only the direct manufacturing costs, excluding
unallowable overheads. Manufacturing costs shall mean (i) the price charged
by a subcontractor to manufacture the product, or (ii) if produced by W-R or
AMBI, the direct costs consisting of labor, material, and facilities for the
actual facilities used for manufacture (i.e. plant and equipment). For the
avoidance of any doubt, direct cost shall also include any incremental cost
increases or decreases attributable to increased capacity utilization
resulting from incremental volume or a rush order by the party placing such
order. Unallowable overheads shall mean allocations of general and
administrative expenses.
10.2 All Product shall be delivered F.O.B. the manufacturer's plant
or other place of shipment. The party manufacturing the Products or having
the Product manufactured for it (the "Manufacturing Party") shall deliver
the Product by the applicable order date to the carrier of the Ordering
Party (hereinafter defined) , unless otherwise specified in writing and
agreed to by the parties, to any destinations specified in writing from time
to time by the ordering party. All customs, duties, costs, taxes, insurance
premiums, and other expenses relating to such delivery, shall be at the
expense of the party that placed the order with the Manufacturing Party (the
"Ordering Party").
<PAGE>
10.3 The Manufacturing Party will package the Products in
accordance with the specifications provided by the Ordering Party, and will
include with each shipment copies of all applicable quality and testing
records, which shall be in a form acceptable for FDA submission (if
applicable).
10.4 The Ordering Party may reject any portion of any shipment of
Product which (i) does not conform with any applicable specifications
provided to the Manufacturing Party, or (ii) is adulterated or misbranded
within the meaning of the Federal Food, Drug and Cosmetic Act (the "Act"),
or (iii) does not contain quality and testing records in accordance with
Section 10.3 above, or (iv) is not produced in conformance with cGMP for
food, to the extent applicable.
10.5 In order to reject a shipment, the Ordering Party must (i)
give notice to the Manufacturing Party of the Ordering Party's intent to
reject the shipment within ninety (90) days of receipt together with a
written indication of the reasons for such possible rejection, and (ii) as
promptly as reasonably possible thereafter but in any event within an
additional 30 days, provide the Manufacturing Party with notice of final
rejection and the full basis therefor. After notice of intention to reject
is given, the Ordering Party shall cooperate with the Manufacturing Party in
determining whether rejection is necessary or justified. If no such notice
of intent to reject is timely received, the Ordering Party shall be deemed
to have accepted such delivery of Product. The Manufacturing Party will have
the opportunity to test any rejected Product. The Manufacturing Party, at
its sole discretion, will rework or replace Product, or refund purchase
price. If the parties cannot agree on whether rejection is appropriate,
Product will be tested by an independent third party, and the party deemed
to be incorrect in its evaluation of the rejection will pay the cost of the
independent party's fees.
10.6 The Manufacturing Party shall pay the return transportation
and delivery costs in addition to any refund of the purchase price of
properly rejected Product.
10.7 Unless the Manufacturing Party requests the return to it of a
rejected batch of Product within sixty (60) days of receipt of the Ordering
Party's final notice of rejection, the Ordering Party shall destroy such
batch promptly in an environmentally acceptable manner and provide the
Manufacturing Party with certification of such destruction. The Ordering
Party shall, upon receipt of the Manufacturing Party's request for return,
promptly dispatch said batch to the Manufacturing Party, at Manufacturing
Party's cost.
10.8 Each party hereby agrees to ascertain and comply with all
applicable laws and regulations and standards of industry or professional
conduct in connection with the use, distribution or promotion of Product,
including without limitation, those applicable to product claims, labeling,
approvals, registrations and notifications.
10.9 Each party further agrees to keep for three years after
termination of this Agreement records of all Product sales and customers
sufficient to adequately administer a recall of any Product and to
reasonably cooperate in any decision by the other party to recall, retrieve
and/or replace any Product.
<PAGE>
10.10 In the event of a recall of any of the Product required by a
governmental agency or authority of competent jurisdiction or if recall of
any of the Product is deemed advisable by the parties, such recall shall be
promptly implemented and administered by the parties in a manner which is
appropriate. The costs of any such recall shall be borne by the party or
parties whose actions caused the recall to be necessary. The provisions and
obligations of this Sections shall survive any termination of this
Agreement.
11 Payments.
11.1 Initial Payments.
11.1.1 In consideration for the rights, options and
licenses granted to W-R, upon the Effective Date, W-R agrees to pay AMBI One
Million U.S. Dollars ($1,000,000), which shall be non-refundable and
non-creditable toward any other payments under this Agreement.
11.1.2 In further consideration for the rights, options
and licenses granted to W-R, W-R (or an Affiliate) shall purchase Four
Million U.S. Dollars ($4,000,000) worth of newly-issued AMBI Common Stock
from AMBI during a period commencing upon the Effective Date of this
Agreement and ending upon the earlier of (i) three (3) months thereafter,
and (ii) W-R's or an Affiliate's first commercial shipment of Product to the
trade. The price for such Common Stock shall be equal to one hundred and
twenty percent (120%) of the average closing prices of AMBI Common Stock as
reported by NASDAQ for the ten (10) trading days immediately preceding the
date of purchase. All equity purchases shall be made in accordance with the
terms and conditions of the Stock Purchase Agreement set forth in Exhibit A.
11.2 W-R shall further purchase an additional (***) worth of
newly-issued AMBI Common stock from AMBI upon execution of each license for
an Option Product or an Additional Product, up to a maximum of three (3)
such Option Products and Additional Products. The price for such Common
Stock shall be equal to (***)% of the average closing prices of AMBI Common
Stock as reported by NASDAQ for the ten (10) trading days immediately
preceding the date of purchase. All equity purchases shall be made in
accordance with the terms and conditions of the Stock Purchase Agreement set
forth in Exhibit A.
11.3 Royalty on Products.
11.3.1 Because the parties agree that the Cardia Patent
Rights, the CARDIA Trademark, and the Know-How relating to the Product each
deserve royalty payments of differing amounts, and each would last for a
different term, and because the parties have determined, solely for reasons
of convenience, that a blended royalty rate for the Cardia Patent Rights,
the CARDIA Trademark, and the Know-How relating to the Product will be
advantageous for both AMBI and W-R, the parties hereby agree that W-R shall
pay to AMBI in respect of Net Sales of Product made by W-R and its
Affiliates running royalties of (***)% for so long as W-R shall sell the
Product. However, if the
<PAGE>
total amount of royalties paid by W-R to AMBI in any year from the Effective
Date of this Agreement for the Product is less than (***), then within thirty
(30) days of the end of such year, W-R shall pay to AMBI the difference between
(***) and the total amount of royalties paid in such year for the Product.
11.4 AMBI shall have the right and option to assign its right to
receive any or all payments under this Agreement to one or more of its
Affiliates. AMBI shall notify W-R in writing if it exercises such option,
and W-R shall provide reasonable cooperation in connection with such revised
payment arrangements.
11.5 Royalties shall be paid within forty-five (45) days of the end
of each calendar quarter with respect to royalty-bearing sales and use
occurring in that quarter. Late payments will bear interest at the Prime
interest rate as reported by the Wall Street Journal on the date immediately
preceding the date on which such payment is made.
11.6 W-R and its Affiliates shall keep and maintain detailed and
accurate books and records with regard to Net Sales, royalties and the
calculation thereof. A Certified Public Accountant selected by AMBI
(reasonably acceptable to W-R) shall be entitled to review and audit such
books and records related to the payment of royalties hereunder from time to
time during normal business hours upon reasonable notice to W-R and at
AMBI's expense; provided that W-R will bear any such expense if the review
or audit shows an underpayment of more than 5% for the applicable period and
furthermore W-R shall remit promptly to AMBI the amount of any underpayment
and interest thereon. Such Certified Public Accountant's report to AMBI
shall be limited to the accuracy of W-R's royalty report(s) and payments and
shall contain no other information relating to the sales of the Products.
12 Committee.
12.1 The parties shall create and structure a committee
(hereinafter referred to as the "Committee") which will have equal
membership of up to three (3) members from each party, and that will have
the responsibility to coordinate activities between AMBI and W-R. The
Committee shall be responsible for, without limitation, sharing relevant
information on the Product, Other Licensed Products, Option Products and
Additional Products between the parties. Such information shall include
information relevant to marketing and other promotion and sales activities,
manufacturing and quality control, clinical and pre-clinical trial design,
implementation, publications, regulatory and other governmental issues. The
Committee will prepare and approve a plan (hereinafter referred to as a
"Plan") for the Product and for each of the Other Licensed Products, which
shall include, without limitation, development and commercialization
budgets, and development and commercialization responsibilities for the
Retail Channels in the Territory, and Canada where appropriate.
12.2 All decisions of the Committee must receive the consent of (i)
a majority of Committee members present in person or by telecommunications,
and (ii) such majority must include representatives of both parties.
<PAGE>
12.3 W-R shall keep the Committee informed on a timely basis as to
developments within W-R which could reasonably have a material impact on the
Product and Other Licensed Products. All information provided to AMBI
pursuant to the operation of this provision shall be Proprietary Information
and treated pursuant to the terms of confidentiality recited in the
Agreement. AMBI shall keep the Committee informed on a timely basis as to
developments within AMBI that could reasonably have a material impact on the
Product and Other Licensed Products. All information provided to W-R
pursuant to the operation of this provision shall be deemed Proprietary
Information and treated pursuant to the terms of confidentiality recited in
the Agreement.
12.4 The Committee shall decide how best to distribute Product and
Other Licensed Products in those areas in which neither party has expertise.
12.5 In the event that one party does not wish to proceed to
develop a Plan for an Other Licensed Product, the other party shall have the
right to develop and/or commercialize that product on its own, at its own
expense with no obligation to share its plan with the other party.
13 Clinical Studies
13.1 AMBI shall grant W-R access to clinical studies of the Product
relating to efficacy and safety conducted prior to the Effective Date of the
Agreement.
13.2 Expenses related to future clinical studies needed to
demonstrate efficacy and/or safety of the Product and Other Licensed
Products shall be shared by AMBI and W-R.
13.3 The sharing of clinical trial expenses pursuant to Section
13.2 will be determined by the Committee based upon the applicable Plan and
will be set forth in the agreement. In general, the percentage sharing of
expenses will relate to the estimated market size and the estimated
profitability by distribution channel.
14 Representations, Warranties and Indemnities.
14.1 (a) AMBI represents and warrants to W-R that AMBI has full
power and authority to enter into this Agreement and to grant the licenses
granted to W-R hereunder.
(b) AMBI agrees to hold W-R and its Affiliates harmless
from any and all costs, expenses and damages (including attorneys' fees)
incurred or sustained by W-R or its Affiliates as the result of any
challenge by any third party to AMBI's right to convey the rights herein
granted to W-R.
(c) AMBI represents and warrants that the use of the
Proprietary Rights in the manufacture, use and/or sale of the Product does
not infringe the patents of any third party in the Territory.
<PAGE>
(d) AMBI represents and warrants that it has not granted any
license, right, or interest in or to the Products or any method of their
manufacture or use to any third party, which are inconsistent with the licenses,
rights and interests granted to W-R, e.g., AMBI has granted the right to Wixon
to manufacture CARDIA Salt Alternative for sales to AMBI.
(e) Promptly following the Effective Date, AMBI shall initiate,
with W-R's assistance, discussions with Oriola oy of Finland ("Oriola"), the
registered owner of the Cardia Trademark towards negotiating a royalty for the
license of the Cardia Trademark to AMBI subsequent to June 4, 2007. AMBI
represents and warrants that it will negotiate the royalty with Oriola for use
of the Cardia Trademark after termination of the Cardia Patent Rights, and will
pay the agreed-upon royalty to Oriola.
14.2 W-R represents and warrants to AMBI that W-R has full power
and authority to enter into this Agreement and will carry on its
development, marketing and sales and other obligations hereunder promptly,
in good faith and with commercially reasonable efforts.
14.3 AMBI shall indemnify, defend and hold harmless W-R, its
Affiliates and their respective officers, directors, agents and employees
(the "W-R Indemnitees"), against any liability, damage, loss or expense
(including but not limited to fees and disbursements of counsel incurred by
the W-R Indemnitee in any action or proceeding between AMBI and the W-R
Indemnitee or between the W-R Indemnitee and any third party or otherwise)
resulting from a breach of its warranties, from infringement by the Product
of any patent within the Territory, or defective Product manufactured by
AMBI or its Affiliates (or their designees) .
14.4 W-R shall indemnify, defend and hold harmless AMBI, its
Affiliates and their respective officers, directors, agents and employees
(the "AMBI Indemnitees"), against any liability, damage, loss or expense
(including but not limited to fees and disbursements of counsel incurred by
the AMBI Indemnitees in any action or proceeding between the W-R and the
AMBI Indemnitee or between the AMBI Indemnitee and any third party or
otherwise) arising from any product liability or other lawsuit, claim,
demand or other action brought with respect to (i) development work and
clinical trials conducted by W-R or its Affiliates in relation to the
Product, (ii) Product manufactured by W-R or its Affiliates, or (iii)
Product imported, distributed or sold by W-R or its Affiliates, except in
this case of (iii) defective Product manufactured by AMBI or its Affiliates
(or their designees).
14.5 The party claiming indemnification (the "Indemnified Party")
from the other (the "Indemnifying Party") shall promptly notify the
Indemnifying Party in writing of any lawsuit, claim, demand or other action
or threat thereof in respect of which indemnification may be sought under
this Section 14, shall give the Indemnifying Party complete control of the
defense and/or settlement of the suit and to the extent allowed by law, the
Indemnified Party shall cooperate with the Indemnifying Party in defending
or settling any such lawsuit, claim, demand or other action. No settlement
of any claim, suit
<PAGE>
or threat thereof for which indemnification is sought, shall be made without the
prior written approval of the Indemnifying Party.
15 Confidentiality.
15.1 Each party recognizes the importance to the other of the other's
Proprietary Information. In particular W-R recognizes that AMBI's Proprietary
Information (and the confidential nature thereof) are critical to the business
of AMBI and that AMBI would not enter into this Agreement without assurance that
such Proprietary Information and the value thereof will be protected as provided
in this Section 15 and elsewhere in this Agreement. Accordingly, each party
agrees as follows:
15.2 The Receiving Party agrees (i) to hold the Disclosing Party's
Proprietary Information in confidence as a fiduciary and to take all
reasonable precautions to protect such Proprietary Information (including,
without limitation, all precautions the Receiving Party employs with respect
to its own confidential materials), (ii) not to divulge any such Proprietary
Information or any information derived therefrom to any third person, and
(iii) not to make any use whatsoever at any time of such Proprietary
Information except as expressly authorized in this Agreement. Any employee
given access to any such Proprietary Information must have a legitimate
"need to know" and shall be similarly bound in writing. Without granting any
right or license, the Disclosing Party agrees that the foregoing clauses
(i), (ii) and (iii) shall not apply with respect to information the
Receiving Party can document (w) is in or (through no improper action or
inaction by the Receiving Party or any Affiliate, agent or employee) enters
the public domain or (x) was rightfully in its possession or known by it
prior to receipt from the Disclosing Party, or (y) was rightfully disclosed
to it by another person without restriction, or (z) was independently
developed by it by persons without access to such information and without
use of any Proprietary Information of the Disclosing Party. The Receiving
Party must promptly notify the Disclosing Party of any information it
believes comes within any circumstance listed in the immediately preceding
sentence and will bear the burden of proving the existence of any such
circumstance by clear and convincing evidence. Each party's obligations
under this Section 16 shall terminate 5 years after the termination of this
Agreement.
15.3 Except as provided herein, immediately upon termination of
this Agreement, the Receiving Party will turn over to the Disclosing Party
or destroy all Proprietary Information of the Disclosing Party and all
documents or media containing any such Proprietary Information and any and
all copies or extracts thereof. Each party may retain in its legal
department one (1) copy of the Proprietary Information of the other party as
evidence of its obligations hereunder.
15.4 The Receiving Party acknowledges and agrees that due to the
unique nature of the Disclosing Party's Proprietary Information, there can
be no adequate remedy at law for any breach of its obligations hereunder,
that any such breach may allow the Receiving Party or third parties to
unfairly compete with the Disclosing Party resulting in
<PAGE>
irreparable harm to the Disclosing Party, and therefore, that upon any such
breach or any threat thereof, the Disclosing Party shall be entitled to seek
appropriate equitable relief in addition to whatever remedies it might have at
law and to be indemnified by the Receiving Party from any loss or harm,
including, without limitation, lost profits and attorney's fees, in connection
with any breach or enforcement of the Receiving Party's obligations hereunder or
the unauthorized use or release of any such Proprietary Information. The
Receiving Party will notify the Disclosing Party in writing immediately upon the
occurrence of any such unauthorized release or other breach. Any breach of this
Section 15 will constitute a material breach of this Agreement.
16 Ownership and Patent Matters.
16.1 Except as explicitly set forth elsewhere in this Agreement, as
between the parties, AMBI is the sole owner of all right, title and interest to
the Product, Other Licensed Products, Option Products, Additional Products,
Know-How, and other Proprietary Rights in relation thereto.
16.2 AMBI shall file and prosecute patent applications and maintain
patents relating to the Product, Other Licensed Products, Option Products,
and Additional Products, .
16.3 If W-R becomes aware of any product or activity of any third
party that involves infringement or violation of any of AMBI's Cardia Patent
Rights, Patent Rights or other Proprietary Rights, then W-R shall promptly
notify AMBI in writing of such infringement or violation. AMBI may in its
discretion take or not take whatever action it believes is appropriate; if AMBI
elects to take action, W-R will fully cooperate therewith at AMBI's expense. If
AMBI does not, within ninety (90) days after receipt of such a notice of a
patent infringement within the scope of a W-R's license hereunder, commence
action directed towards restraining or enjoining such patent infringement, W-R,
so long as it is an exclusive licensee hereunder, may take such legally
permissible action as it deems necessary or appropriate to enforce AMBI's Cardia
Patent Rights, Patent Rights and restrain such infringement. AMBI agrees to
cooperate reasonably in any such action initiated by W-R including supplying
essential documentary evidence and making essential witnesses then in AMBI's
employment available. As part of such cooperation, W-R may join AMBI as a party,
if the need arises, although such joinder shall be entirely at W-R's expense.
W-R will indemnify AMBI for any damages, expenses, costs and fees in connection
with W-R's actions under this Section 16.3. Nothing in this Section 17.3 allows
W-R or requires AMBI to disclose Proprietary Information of AMBI. If AMBI
initiates and prosecutes any such an action under this Section 16.3, all legal
expense (including court costs and attorneys' fees) shall be for AMBI's account
and it shall be entitled to all amounts awarded by way of judgment, settlement
or compromise. Similarly, if W-R initiates and prosecutes such an action, all
legal expenses (including court costs and attorneys' fees) shall be for W-R's
account and it shall be entitled to all amounts awarded by way of judgment,
settlement, or compromise.
<PAGE>
16.4 AMBI and W-R agree to work cooperatively regarding issues
concerning patents and Proprietary Rights and similar matters and to exercise
reasonable business judgment in carrying out the objects of this Agreement to
avoid exposing either party to liability under patent laws of the United States
and Canada, if applicable. Each party represents and warrants that it is not
aware of infringement or potential infringement issues relating to the Product
that have not been communicated to the other in writing before Effective Date.
17 Dispute Resolution.
17.1 In the event that any dispute arises between the parties in
connection with this Agreement, the representatives of each party responsible
for the subject matter of such dispute shall use good faith efforts to resolve
such dispute promptly. In the event that such dispute cannot be resolved by the
parties' representatives, the matter shall be submitted to the parties'
respective Chief Executive Officers ("CEOs") or their designees who have full
decision making authority for resolution.
17.2 In the event that the CEOs or their designees who have full
decision making authority cannot reach resolution of the issue, each party shall
be free to pursue other remedies.
18 Term and Termination.
18.1 Unless this Agreement is terminated earlier pursuant to this
Section 18, this Agreement will remain in effect in perpetuity (the "Term").
18.2 If a party breaches a material provision of this Agreement
(e.g. failure to make payments when due), the other party may terminate this
Agreement upon sixty (60) days prior written notice, unless the breach is
cured within such sixty (60) day period (the "Cure Period"). In the event of
a material breach by W-R under this Agreement which is not cured within the
Cure Period, AMBI shall, in its sole discretion, have the option of
terminating the exclusivity of W-R's license hereunder in respect of the
Product and Other Licensed Products, or in respect of the Product or a
particular Other Licensed Products, instead of terminating this Agreement.
If AMBI wishes to exercise the foregoing option, it shall so notify W-R in
writing prior to the expiration of the Cure Period.
18.3 In the event of any termination of this Agreement, any accrued
rights to payment, and causes of action or remedies for breach, shall
survive such termination. In the year of termination of this Agreement, the
minimum $(***) royalty for Product set forth in Section 11.3.1, shall be
prorated to the date of termination. In addition, Sections 15, 21, 24, and
other provisions which by their nature should survive termination of this
Agreement, shall survive termination of this Agreement.
18.4 W-R may terminate the licenses for Product and the Cardia
Trademark upon one year's prior written notice. During the one year period
between notice and
<PAGE>
termination, W-R agrees to spend no less for marketing and sales expense for
Product than the average of the total expenditures for marketing and sales for
Product in each of the three years prior to notice.
18.5 In the event of any termination of this Agreement all of W-R's
rights in relation to the Product, Other Licensed Products, Know-How and all
Proprietary Rights in relation thereto, shall revert to AMBI, and W-R shall
promptly assign to AMBI any and all regulatory filings and approvals held by
W-R in relation to the Product or Other Licensed Products.
18.6 Neither party shall incur any liability whatsoever for any
damage, loss or expenses of any kind suffered or incurred by the other
arising from or incident to any termination of this Agreement (or any part
thereof) by such party which complies with the terms of the Agreement
whether or not such party is aware of any such damage, loss or expenses.
18.7 Termination is not the sole remedy under this Agreement and,
whether or not termination is effected, all other remedies will remain
available.
<PAGE>
19 Limitation of Liability
19.1 INCIDENTAL AND CONSEQUENTIAL DAMAGES. NEITHER PARTY WILL BE
LIABLE UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER THEORY FOR ANY
INCIDENTAL OR CONSEQUENTIAL DAMAGES WITH RESPECT TO ANY SUBJECT MATTER OF THIS
AGREEMENT.
19.2 LIMITATION OF OBLIGATIONS AND LIABILITY. AMBI WILL NOT BE LIABLE
WITH RESPECT TO ANY SUBJECT MATTER OF THIS AGREEMENT UNDER ANY CONTRACT,
NEGLIGENCE, STRICT LIABILITY OR OTHER THEORY FOR COST OF PROCUREMENT OF
SUBSTITUTE GOODS, SERVICES, TECHNOLOGY OR RIGHTS OR FOR ANY AMOUNTS AGGREGATING
IN EXCESS OF AMOUNTS PAID TO IT UNDER THIS AGREEMENT, EXCLUDING AMOUNTS PAID FOR
EQUITY PURCHASES.
20 Independent Contractors. The parties are independent contractors and
not partners, joint venturers or otherwise Affiliated and neither has any right
or authority to bind the other in any way.
21 Assignment. The rights and obligations of the parties under this
Agreement may not be assigned or transferred except (i) rights to payment of
money may be assigned, and (ii) this Agreement and the rights and obligations
hereunder may be assigned to an Affiliate or an acquiror of all or substantially
all the assets, business or stock of a party to which this Agreement relates.
22 Publicity. Neither party shall issue any press releases which make
references to the other without the consent of the other party, which consent
shall not unreasonably withheld. Each party shall therefore provide the other
with draft press releases for review and comment. Each party agrees to review
and comment promptly on draft press releases received from the other party.
23 Competition
Nothing in this Agreement will be deemed to preclude W-R from
developing, selling, promoting or otherwise marketing at any time compound(s) or
composition(s) which compete, directly or indirectly, against the Product,
Option Products, Other Licensed Products or Additional Products. Nothing in this
Letter or in the Agreement will be deemed to preclude AMBI from developing,
selling, promoting or otherwise marketing at any time compound(s) or
composition(s) which compete, directly or indirectly, against products sold by
W-R or its Affiliates.
24 Subrogation
<PAGE>
The Cardia Patent Rights and the Cardia Trademark are exclusively
licensed, with the right to sublicense, by Oriola to AMBI. AMBI will notify
W-R if AMBI is unable to make any payment due to Oriola, and agrees to
permit W-R to make such payments on behalf of AMBI directly to Oriola. Any
payment made by W-R hereunder shall be creditable against other sums due
AMBI.
25 Miscellaneous.
25.1 Prior to the closing of the announced merger between AHP and
Monsanto Chemical Company, W-R may enter into discussions with the
appropriate personnel at Monsanto to ascertain Monsanto's interest in
providing assistance to W-R as it relates to W-R's obligations under this
Agreement. W-R will notify AMBI prior to such proposed discussions and will
keep AMBI informed as to the nature of such discussions. Should W-R propose
to enter into an agreement with Monsanto relating to this Agreement or any
license granted by AMBI prior to the closing of the AHP/Monsanto merger, W-R
must secure AMBI's written consent.
25.2 If the Committee believes that it is in W-R's best interest to
offer samples of Product to physicians, dietitians, nutritionists,
pharmacist, etc. that W-R details or otherwise communicates with, then AMBI
will provide samples of Product to W-R for such distribution at AMBI's
actual cost of manufacturing (without overheads) for so long as AMBI
manufactures Product. No royalty under Section 11.3.1 shall be due AMBI on
such Products.
25.3 W-R shall have the right to offer certain of its products for
AMBI's consideration for distribution by AMBI through the Direct Response
Distribution Channels (such as Heart's Content). If the parties agree to
such distribution, AMBI will purchase such product(s) from W-R under the
terms of a supply agreement containing terms and conditions that would
enable AMBI to earn margins equal to the average margin earned by W-R's
distributors of similar product(s).
25.4 Hart-Scott-Rodino Act and Effective Date. W-R will determine
whether the size of transaction test is met under Title II of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, 15 U.S.C. ss. 18a,
("HSR Act"). If required by law, W-R, at its expense, will prepare and make
all appropriate filings under the HSR Act as soon as practicable. The
parties shall cooperate in the antitrust clearance process and agree to
furnish promptly to the FTC and the Antitrust Division of the Department of
Justice all additional information reasonably requested by them in
connection with such filings. This provision shall be binding upon both
parties upon the signing of this Agreement. In the event that the government
requires any changes to the Agreement, the parties will in good faith modify
the Agreement so that it is acceptable to the government.
25.5 W-R may, at its option, distribute AMBIis Heartis Content
catalog (following W-R medical and legal approval thereof which approval
shall not be unreasonably withheld) to physician and other health
professionalsi offices by W-R sales
<PAGE>
representatives. If W-R so elects, AMBI shall provide advertising for W-R
products in Heartis Content at no charge to W-R.
25.6 Amendment and Waiver. Except as otherwise expressly provided
herein, any provision of this Agreement may be amended and the observance of
any provision of this Agreement may be waived (either generally or any
particular instance and either retroactively or prospectively) only with the
written consent of the party affected.
25.7 Governing Law and Interpretation. This Agreement shall be
governed by and construed under the laws of the State of New York and the
United States without regard to conflicts of laws provisions thereof.
Headings and captions are for convenience only and are not to be used in the
interpretation of this Agreement.
25.8 Notices. Notices under this Agreement shall be sufficient only
if personally delivered, delivered by a major commercial rapid delivery
courier service or mailed by certified or registered mail, return receipt
requested, to a party at its address set forth below:
If to AMBI:
AMBI Inc.
771 Old Saw Mill Road
Tarrytown, NY 10591
Attention: Senior Vice President & General Counsel
With a copy to:
Brobeck, Phleger & Harrison LLP
1633 Broadway, 47th Floor
New York, New York 10019, U.S.A.
Attention: Nigel L. Howard, Esq.
If to W-R:
Whitehall-Robins Healthcare
American Home Products Corporation
Five Giralda Farms
Madison, NJ 07940
Attention: President
With a copy to:
American Home Products Corporation
Five Giralda Farms
<PAGE>
Madison, NJ 07940
Attention: General Counsel
Notices are effective upon the earlier of receipt or proof of delivery.
25.8 Entire Agreement. This Agreement and the Exhibits attached
hereto supersede all proposals, oral or written, all negotiations,
conversations, or discussions between or among the parties relating to the
subject matter of this Agreement and all past dealing or industry custom.
<PAGE>
25.9 WARRANTY DISCLAIMER. EXCEPT AS EXPRESSLY PROVIDED IN THIS
AGREEMENT, AMBI MAKES NO WARRANTY WITH RESPECT TO ANY PRODUCT, OTHER PRODUCT,
KNOW-HOW, IMPROVEMENT, PROPRIETARY RIGHT, GOODS, SERVICES, RIGHTS OR OTHER
SUBJECT MATTER OF THIS AGREEMENT AND HEREBY DISCLAIMS WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NONINFRINGEMENT WITH
RESPECT TO ANY AND ALL OF THE FOREGOING.
25.10 Force Majeure. Neither party hereto shall be responsible for
any failure to perform its obligations under this Agreement (other than
obligations to pay money) if such failure is caused by acts of God, war,
strikes, revolutions, lack or failure of transportation facilities, laws or
governmental regulations or other causes which are beyond the reasonable
control of such party. Obligations hereunder, however, shall in no event be
excused but shall be suspended only until the cessation of any cause of such
failure. In the event that such force majeure should obstruct performance of
this Agreement for more than six (6) months, the parties hereto shall
consult with each other to determine whether this Agreement should be
modified. The party facing an event of force majeure shall use commercially
reasonable efforts in order to remedy that situation as well as to minimize
its effects. A case of force majeure shall be notified to the other party by
telefax within five (5) days after its occurrence and shall be confirmed by
a letter.
25.11 Export Control. Each party hereby agrees to comply with the
U.S. Foreign Corrupt Practices Act (regarding among other things, payments
to government officials) and all export laws, restrictions, national
security controls and regulations of the United States and all other
applicable foreign agencies and authorities, and not to export or re-export,
or allow the export or re-export of, any Product or any copy or direct
product thereof (a) in violation of any such restrictions, laws or
regulations or (b) without all required licenses and proper authorizations,
to Cuba, Libya, North Korea, Iran, Iraq or Rwanda or to any Group D:1 or E:2
country (or any national of such country) specified in the then current
Supplement No. 1 to part 740 of the U.S. Export Administration Regulations
(or any successor supplement or regulations). Licensee shall promptly
execute any documents required by Licensor to comply with U.S. export
requirements or demonstrate to Licensor its compliance with such
requirements. Licensee shall obtain and bear all expenses relating to any
necessary licenses and/or exemptions with respect to the export from the
U.S. of all Products, material or items deliverable by Licensor hereunder to
any location and shall demonstrate to Licensor compliance with all
applicable laws and regulations prior to delivery thereof by Licensor.
25.12 Severability. If any provision of this Agreement is held
illegal, invalid or unenforceable by a court of competent jurisdiction, that
provision will be limited or eliminated to the minimum extent necessary so
that this Agreement shall otherwise remain in full force and effect and
enforceable.
<PAGE>
25.13 Basis of Bargain. Each party recognizes and agrees that the
warranty disclaimers and liability and remedy limitations in this Agreement
are material bargained for bases of this Agreement and that they have been
taken into account and reflected in determining the consideration to be
given by each party under this Agreement and in the decision by each party
to enter into this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Development, License and Marketing Agreement to be duly executed by their
authorized representatives and delivered in duplicate originals as of the
Effective Date.
WHITEHALL-ROBINS HEALTHCARE
A DIVISION OF AMERICAN HOME PRODUCTS CORPORATION
/s/ Dennis M. O'Donnell
By: ------------------------------
Dennis M. O'Donnell
Name: ------------------------------
Sr. Vice Pres. - Bus. Development
Title: ---------------------------------
AMBI INC.
/s/ Fredric D. Price
By: ----------------------------------
Fredric D. Price
Name: ----------------------------------
President & CEO
Title: ----------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
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0
0
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