MASTER SEPARATION AND DISTRIBUTION AGREEMENT

BETWEEN

AMBASSADORS INTERNATIONAL, INC.

AND

AMBASSADORS GROUP, INC.

EFFECTIVE AS OF

_________________, 2002

TABLE OF CONTENTS

PAGE

1. SEPARATION.............................................................................................1
Section 1.1 Separation Date........................................................................1
Section 1.2 Closing of Transactions................................................................1
Section 1.3 Exchange of Secretary's Certificates...................................................1

2. DOCUMENTS AND ITEMS TO BE DELIVERED ON OR BEFORE THE SEPARATION DATE...................................2
Section 2.1 Documents to Be Delivered by Ambassadors...............................................2
Section 2.2 Documents to Be Delivered by Education.................................................2
Section 2.3 Capital Contribution...................................................................2

3. THE DISTRIBUTION AND ACTIONS PENDING THE DISTRIBUTION..................................................3
Section 3.1 Transactions Prior to the Distribution.................................................3
Section 3.2 The Distribution.......................................................................4
Section 3.3 Conditions to Distribution.............................................................4
Section 3.4 Sole Discretion of Ambassadors.........................................................5

4. COVENANTS AND OTHER MATTERS............................................................................5
Section 4.1 Other Agreements.......................................................................5
Section 4.2 Agreement For Exchange of Information..................................................5
Section 4.3 Audits and Reviews; Annual and Quarterly Statements and Accounting.....................7
Section 4.4 Consistency with Past Practices........................................................8
Section 4.5 Payment of Expenses....................................................................8
Section 4.6 Dispute Resolution.....................................................................8
Section 4.7 Governmental Approvals.................................................................9
Section 4.8 Representations and Warranties.........................................................9

5. MISCELLANEOUS.........................................................................................10
Section 5.1 Authority.............................................................................10
Section 5.2 Amendment and Execution...............................................................10
Section 5.3 Counterparts..........................................................................10
Section 5.4 Effectiveness.........................................................................10
Section 5.5 Effect If Separation And/or Distribution Does Not Occur...............................10
Section 5.6 Termination...........................................................................10
Section 5.7 Binding Effect; Assignment............................................................10
Section 5.8 Performance...........................................................................10
Section 5.9 Additional Assurances.................................................................10
Section 5.10 Entire Agreement......................................................................11
Section 5.11 Attachments...........................................................................11
Section 5.12 Conflicting Agreements................................................................11
Section 5.13 Descriptive Headings..................................................................11
Section 5.14 Gender and Number.....................................................................11
Section 5.15 Severability..........................................................................11
Section 5.16 Survival of Agreements................................................................11
Section 5.17 Governing Law.........................................................................11
Section 5.18 Notices...............................................................................11
Section 5.19 Waivers; Remedies.....................................................................12
Section 5.20 Limitation of Liability...............................................................12
Section 5.21 Force Majeure.........................................................................12

PAGE

6. DEFINITIONS...........................................................................................12
Section 6.1 Ambassadors Group.....................................................................12
Section 6.2 Ambassadors' Auditors.................................................................12
Section 6.3 Ancillary Agreements..................................................................12
Section 6.4 Business Day..........................................................................13
Section 6.5 Capital Contribution..................................................................13
Section 6.6 Code..................................................................................13
Section 6.7 Commission............................................................................13
Section 6.8 Disputes..............................................................................13
Section 6.9 Distribution..........................................................................13
Section 6.10 Distribution Agent....................................................................13
Section 6.11 Distribution Date.....................................................................13
Section 6.12 Education's Auditors..................................................................13
Section 6.13 Education Business....................................................................13
Section 6.14 Education Group.......................................................................13
Section 6.15 Exchange Act..........................................................................13
Section 6.16 Form 10 Registration Statement........................................................13
Section 6.17 GAAP..................................................................................13
Section 6.18 Governmental Approvals................................................................13
Section 6.19 Governmental Authority................................................................13
Section 6.20 Information...........................................................................13
Section 6.21 Information Statement.................................................................13
Section 6.22 NASDAQ................................................................................13
Section 6.23 Person................................................................................14
Section 6.24 Record Date...........................................................................14
Section 6.25 RMCPD.................................................................................14
Section 6.26 Separation............................................................................14
Section 6.27 Separation Date.......................................................................14
Section 6.28 Stock Split...........................................................................14
Section 6.29 Subsidiary............................................................................14
Section 6.30 Tax Ruling............................................................................14
Section 6.31 Transaction Agreements................................................................14

EXHIBITS

Exhibit A Certificate of Secretary of Ambassadors

Exhibit B Certificate of Secretary of Education

Exhibit C Employee Matters Agreement

Exhibit D Tax Sharing Agreement

Exhibit E Confidential Disclosure Agreement

Exhibit F Indemnification and Insurance Matters Agreement

Exhibit G Transitional Services Agreement

Exhibit H Credit Facility Agreement

iii

MASTER SEPARATION AND DISTRIBUTION AGREEMENT

This Master Separation and Distribution Agreement (this "Agreement") is
entered into as of __________, 2002, between Ambassadors International, Inc., a
Delaware corporation ("Ambassadors"), and Ambassadors Group, Inc., a Delaware
corporation ("Education"). Ambassadors and Education are sometimes referred to
herein individually as a "party" or collectively as the "parties." Capitalized
terms used herein and not otherwise defined shall have the meanings ascribed to
such terms in Article 6 hereof. Ambassadors and Education are sometimes referred
to herein individually as a "party" or collectively as the "parties."

RECITALS

WHEREAS, Ambassadors currently owns all of the issued and outstanding
capital stock of Education;

WHEREAS, the Board of Directors of Ambassadors has determined that it is
appropriate and desirable on the terms and conditions contemplated hereby to
separate the business of Ambassadors and Education (the "Separation") and to
distribute to the holders of its common stock, by means of a pro rata
distribution following the Separation, all of the shares of Education common
stock owned by Ambassadors (the "Distribution");

WHEREAS, Ambassadors and Education intend that the Separation and the
Distribution will qualify as a tax-free reorganization under Sections
368(a)(1)(D) and 355 of the Internal Revenue Code of 1986, as amended (the
"Code"), and that this Agreement is intended to be, and is hereby adopted as, a
plan of reorganization under Section 368 of the Code;

WHEREAS, the parties intend in this Agreement, including the Exhibits and
Schedules hereto, to set forth the principal arrangements between them regarding
the separation of the Education Business.

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth below, the parties hereto, intending to be legally
bound, agree as follows:

1. SEPARATION.

1.1. SEPARATION DATE. Unless otherwise provided in this Agreement, or in
any agreement to be executed in connection with this Agreement, the
effective time and date of the Separation shall be 12:01 a.m., Pacific
Time, ______________, 2002 or such other date as may be fixed by the Board
of Directors of Ambassadors (the "Separation Date").

1.2. CLOSING OF TRANSACTIONS. Unless otherwise provided herein, the
closing of the transactions contemplated in Article 2 shall occur by the
lodging of each of the executed undertakings, agreements, instruments or
other documents executed or to be executed pursuant to this Agreement with
Richman, Mann, Chizever, Xxxxxxxx & Xxxxxx ("RMCPD") 0000 Xxxxxxxx Xxxx.,
Xxxxxxxxx Xxxxx, Xxxxxxx Xxxxx, XX to be held in escrow for delivery as
provided in Section 1.3 of this Agreement.

1.3. EXCHANGE OF SECRETARY'S CERTIFICATES. Upon receipt of a certificate
of the Secretary or an Assistant Secretary of Ambassadors in the form
attached to this Agreement as Exhibit A, RMCPD shall deliver to Education
on behalf of Ambassadors all of the items required to be delivered by
Ambassadors hereunder pursuant to Section 2.1 of this Agreement and each
such item shall be deemed to be delivered to Education as of the
Separation Date upon delivery of such certificate. Upon receipt of a
certificate of the Secretary or an Assistant Secretary of Education in the
form attached to this Agreement as Exhibit B, RMCPD shall deliver to
Ambassadors on behalf of Education all of the items required to be
delivered by Education pursuant to Section 2.2 hereunder and each such
item shall be deemed to be delivered to Ambassadors as of the Separation
Date upon receipt of such certificate.

2. DOCUMENTS AND ITEMS TO BE DELIVERED ON OR BEFORE THE SEPARATION DATE.

2.1. DOCUMENTS TO BE DELIVERED BY AMBASSADORS. On or before the Separation
Date, Ambassadors will deliver to Education all of the following items and
agreements (collectively, together with all agreements and documents
contemplated by such agreements, the "Ancillary Agreements"):

2.1.1. A duly executed Employee Matters Agreement substantially in
the form attached hereto as Exhibit C;

2.1.2. A duly executed Tax Sharing Agreement substantially in the
form attached hereto as Exhibit D;

2.1.3. A duly executed Confidential Disclosure Agreement
substantially in the form attached hereto as Exhibit E;

2.1.4. A duly executed Indemnification and Insurance Matters
Agreement substantially in the form attached hereto as Exhibit F;

2.1.5. A duly executed Transitional Services Agreement substantially
in the form attached hereto as Exhibit G;

2.1.6. A duly executed Credit Facility Agreement substantially in
the form attached hereto as Exhibit H;

2.1.7. Resignations of each person who is an officer of Education or
its Subsidiaries immediately prior to the Separation Date, but who
will be an employee of only Ambassadors or its Subsidiaries from and
after the Separation Date; and,

2.1.8. Such other agreements, documents or instruments as the
parties may agree are necessary or desirable in order to achieve the
purposes hereof, including, without limitation, those documents
referred to in Sections 4.1 and 4.2.

2.2. DOCUMENTS TO BE DELIVERED BY EDUCATION. On or before the Separation
Date, Education will deliver to Ambassadors all of the following:

2.2.1. In each instance in which Education is a party to any
agreement or instrument referred to in Section 2.1, a duly executed
counterpart of such agreement or instrument duly executed by
Education; and

2.2.2. Resignations of each person who is an officer of Ambassadors
or its Subsidiaries immediately prior to the Separation Date, but
who will be an employee of only Education or its Subsidiaries from
and after the Separation Date.

2.3. CAPITAL CONTRIBUTION. On or before the Separation Date, Ambassadors
shall allocate to Education from the cash held by Education Group, as
paid-in capital (the "Capital Contribution"), an amount equal to the sum
of: (i) the cash Education requires to operate travel programs for which
it has received participant deposits or paid vendor deposits ("CC"), and
(ii) an amount Education requires for ongoing operations after the
Separation Date ("FC"). CC shall be an amount equal to (with respect to
Education): (1) the sum of participants funds and other current
liabilities which consist of accounts payable, accrued expenses, foreign
currency exchange contracts and deferred income taxes, less (2) current
assets including accounts receivable, program costs and expenses and
deferred income taxes. CC will be measured at the end of the month in
which the board of directors of Ambassadors gives its final approval to
the Distribution. FC shall be an amount equal to the sum of forecasted
operating losses until Education achieves operating profitability and an
average of one quarter of Education's annual forecasted 2002 operating
expenses. In addition to the foregoing, to the extent that Education is
required

to have a stockholder's equity of $15 million at December 31, 2001 in
order to meet the listing requirements of the Nasdaq National Market and
the stockholder's equity of Education is less than $15 million at such
date as determined in good faith by Education's Chief Financial Officer,
then Ambassadors agrees to allocate cash, in addition to the amount
required above, sufficient for Education to have a stockholder's equity of
$15 million at December 31, 2001. Any remaining cash balances not
allocated pursuant to this Section will remain with Ambassadors. The
measurements for the forecasted operating losses and operating expenses
shall be made in good faith by Education's management, including the Chief
Financial Officer, at the end of the month in which the board of directors
of Ambassadors gives its final approval to the Distribution.

3. THE DISTRIBUTION AND ACTIONS PENDING THE DISTRIBUTION.

3.1. TRANSACTIONS PRIOR TO THE DISTRIBUTION. Subject to the conditions
specified in Section 3.4, Ambassadors and Education shall use their
reasonable commercial efforts to consummate the Distribution. Such efforts
shall include, but not necessarily be limited to, those specified in this
Section 3.1.

3.1.1. TAX RULING. Ambassadors shall apply to the Internal Revenue
Services for a private letter ruling (the "Tax Ruling") that the
Distribution will qualify as a tax-free spinoff to the shareholders
of Ambassadors for federal income tax purposes under Section
368(a)(1)(D) or Section 355(c) of the Code.

3.1.2. STOCK SPLIT. In order to facilitate the Distribution of the
Education common stock to Ambassadors shareholders on a 1:1 basis,
Education shall implement a split of its common stock and adjust the
number of shares of its common stock held by Ambassadors such that
immediately prior to the Separation Date such holding shall be
exactly equal to the number of shares of Ambassadors common stock
then outstanding (the "Stock Split").

3.1.3. REGISTRATION STATEMENT. Education, with the cooperation and
assistance of Ambassadors, shall register its common stock under
Section 12 of the Securities Exchange Act of 1934 (the "Exchange
Act") by filing a Form 10 registration statement (the "Form 10
Registration Statement"), and such amendments or supplements
thereto, as may be necessary in order to cause the same to become
and remain effective as required by law, including, but not limited
to, filing such amendments to the Form 10 Registration Statement as
may be required by the Securities and Exchange Commission (the
"Commission") or federal, state or foreign securities laws.
Ambassadors and Education shall also cooperate in preparing and
filing with the Commission any registration statements or amendments
thereof which are required to reflect the establishment of, or
amendments to, any employee benefit and other plans necessary or
appropriate in connection with the Separation, the Distribution or
the other transactions contemplated by this Agreement.

3.1.4. INFORMATION STATEMENT. Ambassadors and Education shall
prepare and mail, prior to the Distribution Date, to the holders of
common stock of Ambassadors, such information concerning Education
and the Distribution and such other matters as Ambassadors and
Education shall reasonably determine are necessary and as may be
required by law (the "Information Statement"). Ambassadors and
Education will prepare, and Education will, to the extent required
under applicable law, file with the Commission any such
documentation which Ambassadors and Education reasonably determine
is necessary or desirable to effectuate the Distribution, and
Ambassadors and Education shall each use its reasonable commercial
efforts to obtain all necessary approvals from the Commission with
respect thereto as soon as practicable.

3.1.5. OTHER MATTERS. Ambassadors and Education shall consult with
each other and their financial advisors regarding all material
matters with respect to the Distribution.

3.1.6. BLUE SKY. Ambassadors and Education shall take all such
actions as may be necessary or appropriate under the securities or
blue sky laws of the United States (and any comparable laws under
any foreign jurisdiction) in connection with the Distribution.

3.1.7. NASDAQ LISTING. Education shall prepare, file and use
reasonable commercial efforts to make effective, an application for
listing of the common stock of Education distributed in the
Distribution on the NASDAQ National Market ("NASDAQ"), subject to
official notice of distribution. Education has reserved the NASADQ
trading symbol "EPAX." Ambassadors shall retain its present NASDAQ
trading symbol, "XXXX" if it is reasonably feasible to do so.

3.2. THE DISTRIBUTION.

3.2.1. DELIVERY OF SHARES FOR DISTRIBUTION. Subject to Sections 3.3
and 3.4 hereof, on or prior to the date the Distribution is
effective (the "Distribution Date"), Ambassadors will deliver to the
distribution agent (the "Distribution Agent") to be appointed by
Ambassadors to distribute to the stockholders of Ambassadors the
shares of common stock of Education held by Ambassadors pursuant to
the Distribution for the benefit of holders of record of common
stock of Ambassadors on the Record Date, a single stock certificate,
endorsed by Ambassadors in blank, representing all of the
outstanding shares of common stock of Education then owned by
Ambassadors, and shall cause the transfer agent for the shares of
common stock of Ambassadors to instruct the Distribution Agent to
distribute on the Distribution Date the appropriate number of such
shares of common stock of Education to each such holder or
designated transferee or transferees of such holder.

3.2.2. SHARES RECEIVED. Subject to Sections 3.3 and 3.4 hereof, each
holder of common stock of Ambassadors on the Record Date (or such
holder's designated transferee or transferees) will be entitled to
receive in the Distribution a number of shares of common stock of
Education equal to the number of shares of common stock of
Ambassadors held by such holder on the Record Date.

3.2.3. OBLIGATION TO PROVIDE INFORMATION. Education and Ambassadors,
as the case may be, will provide to the Distribution Agent all share
certificates and any information required in order to complete the
Distribution on the basis specified above.

3.2.4. CONDITIONS. Ambassadors and Education shall take all
reasonable steps necessary and appropriate to cause the conditions
set forth in Section 3.3 to be satisfied and to effect the
Distribution on the Distribution Date.

3.3. CONDITIONS TO DISTRIBUTION. The parties hereto shall use their
reasonable commercial efforts to effect the Distribution prior to
___________, 2002, or as soon thereafter as practicable. The obligations
of the parties to consummate the Distribution shall be conditioned on the
satisfaction, or written waiver by Ambassadors, of the following
conditions:

3.3.1. TAX RULING. Ambassadors shall have received the Tax Ruling,
and the Tax Ruling shall be in full force and effect and shall not
have been modified or amended in any respect adversely affecting the
tax consequences set forth therein.

3.3.2. STOCK SPLIT. The Stock Split shall have been completed.

3.3.3. SEPARATION. The Separation shall have become effective as
described in Articles 1 and 2 hereof.

3.3.4. GOVERNMENT APPROVALS. Any material governmental approvals and
consents necessary to consummate the Distribution shall have been
obtained and be in full force and effect.

3.3.5. CONSENTS. All material consents which are required to effect
the Distribution shall have been obtained and be in full force and
effect.

3.3.6. REGISTRATION STATEMENT. The Form 10 Registration Statement
shall have been filed and become effective, and there shall be no
stop-order in effect with respect thereto.

3.3.7. INFORMATION STATEMENT. The Information Statement shall have
been distributed as provided in Section 3.1.4

3.3.8. NASDAQ LISTING. The common stock of Education to be issued in
the Distribution shall have been accepted for listing on the NASDAQ
National Market, subject to official notice of distribution.

3.3.9. ANCILLARY AGREEMENTS. Each and every Ancillary Agreement is
in full force and effect, and each party thereto shall be in full
compliance therewith.

3.3.10. NO LEGAL RESTRAINTS. No order, injunction or decree issued
by any court or agency of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the
Distribution or any of the other transactions contemplated by this
Agreement shall be in effect.

3.3.11. OTHER ACTIONS. Such other actions as the parties hereto may,
based upon the advice of counsel, reasonably request to be taken
prior to the Distribution in order to assure the successful
completion of the Distribution shall have been taken.

3.3.12. NO MATERIAL ADVERSE EFFECT. No other events or developments
shall have occurred subsequent to the Separation Date that, in the
judgment of the Board of Directors of Ambassadors, would result in
the Distribution having a material adverse effect on Ambassadors or
on the stockholders of Ambassadors.

3.3.13. FINAL BOARD APPROVAL. The Ambassadors Board shall have given
final approval of the Distribution.

3.3.14. NO TERMINATION. This Agreement shall not have been
terminated.

3.4. SOLE DISCRETION OF AMBASSADORS. Ambassadors currently intends to
complete the Distribution by _________________, 2002. Ambassadors shall,
in its sole and absolute discretion, determine the date of the
consummation of the Distribution and all terms of the Distribution,
including, without limitation, the form, structure and terms of any
transaction(s) to effect the Distribution and the timing of and conditions
to the consummation of the Distribution. In addition, Ambassadors may at
any time and from time to time until the completion of the Distribution
modify or change the terms of the Distribution, including, without
limitation, by accelerating or delaying the timing of the consummation of
all or part of the Distribution. Education shall cooperate with
Ambassadors in all respects to accomplish the Distribution and, at
Ambassadors' direction, shall promptly take any and all actions necessary
or desirable to effect the Distribution. Ambassadors shall select any
investment banker(s) and manager(s) in connection with the Distribution,
as well as any financial printer, solicitation and/or exchange agent and
outside counsel for Ambassadors; provided, however, that nothing herein
shall prohibit Education from engaging (at its own expense) its own
financial, legal, accounting and other advisors in connection with the
Distribution.

4. COVENANTS AND OTHER MATTERS.

4.1. OTHER AGREEMENTS. In addition to the specific agreements, documents
and instruments that are Exhibits to this Agreement, Ambassadors and
Education agree to execute or cause to be executed by the appropriate
parties and deliver, as appropriate, such other agreements, instruments
and other documents as may be necessary or desirable in order to effect
the purposes of this Agreement and the Ancillary Agreements.

4.2. AGREEMENT FOR EXCHANGE OF INFORMATION. Each of Ambassadors and
Education agrees to provide, or cause to be provided, to each other, at
any time before or after the Distribution Date, as soon as reasonably
practicable

after written request therefor, any Information in the possession or under
the control of such party that the requesting party reasonably needs (i)
to comply with reporting, disclosure, filing or other requirements imposed
on the requesting party (including under applicable securities laws) by a
Governmental Authority having jurisdiction over the requesting party, (ii)
for use in any other judicial, regulatory, administrative or other
proceeding or in order to satisfy audit, accounting, claims, regulatory,
litigation or other similar requirements, (iii) to comply with its
obligations under this Agreement or any Ancillary Agreement or (iv) in
connection with the ongoing businesses of Ambassadors or Education, as the
case may be; provided, however, that in the event that any party
determines that any such provision of Information could be commercially
detrimental, violate any law or agreement, or waive any attorney-client
privilege, the parties shall take all reasonable measures to permit the
compliance with such obligations in a manner that avoids any such harm or
consequence.

4.2.1. INTERNAL ACCOUNTING CONTROLS; FINANCIAL INFORMATION. Until
the seventh anniversary of the Separation Date, (i) each party shall
maintain in effect at its own cost and expense adequate systems and
controls for its business to the extent necessary to enable the
other party to satisfy its reporting, accounting, audit and other
obligations, and (ii) each party shall provide, or cause to be
provided, to the other party and its Subsidiaries in such form as
such requesting party shall request, at no charge to the requesting
party, all financial and other data and information as the
requesting party determines necessary or advisable in order to
prepare its financial statements and reports or filings with any
Governmental Authority.

4.2.2. OWNERSHIP OF INFORMATION. Any Information owned by a party
that is provided to a requesting party pursuant to this Section 4.2
shall be deemed to remain the property of the providing party.
Unless specifically set forth herein, nothing contained in this
Agreement shall be construed as granting or conferring rights of
license or otherwise in any such Information.

4.2.3. RECORD RETENTION. To facilitate the possible exchange of
Information pursuant to this Section 4.2 and other provisions of
this Agreement after the Distribution Date, each party agrees to use
its reasonable commercial efforts to retain all tax, employee and
financial Information in their respective possession or control on
the Distribution Date for seven years after the Distribution Date.
No party will destroy, or permit any of its Subsidiaries to destroy,
any Information that exists on the Separation Date (other than
Information that is permitted to be destroyed under the current
record retention policy of such party) without first using its
reasonable commercial efforts to notify the other party of the
proposed destruction and giving the other party the opportunity to
take possession of such Information prior to such destruction.

4.2.4. LIMITATION OF LIABILITY. No party shall have any liability to
any other party in the event that any Information exchanged or
provided pursuant to this Section 4.2 is found to be inaccurate, in
the absence of willful misconduct by the party providing such
Information. No party shall have any liability to any other party if
any Information is destroyed or lost after reasonable commercial
efforts by such party to comply with the provisions of Section
4.2.3.

4.2.5. OTHER AGREEMENTS PROVIDING FOR EXCHANGE OF INFORMATION. The
rights and obligations granted under this Section 4.2 are subject to
any specific limitations, qualifications or additional provisions on
the sharing, exchange or confidential treatment of Information set
forth in this Agreement and any Ancillary Agreement.

4.2.6. PRODUCTION OF WITNESSES; RECORDS; COOPERATION. After the
Distribution Date, except in the case of a legal or other proceeding
by one party against another party (which shall be governed by such
discovery rules as may be applicable under Section 4.6 or
otherwise), each party hereto shall use its reasonable commercial
efforts to make available to each other party, upon written request,
the former, current and future directors, officers, employees, other
personnel and agents of such party as witnesses and any books,
records or other documents within its control or which it otherwise
has the ability to make available, to the extent that any such
person (giving consideration to business demands of such directors,
officers, employees, other personnel and agents) or books, records
or other documents may reasonably be required in connection with

any legal, administrative or other proceeding in which the
requesting party may from time to time be involved, regardless of
whether such legal, administrative or other proceeding is a matter
with respect to which indemnification may be sought hereunder. The
requesting party shall bear all costs and expenses in connection
therewith.

4.3. AUDITS AND REVIEWS; ANNUAL AND QUARTERLY STATEMENTS AND ACCOUNTING.
Each party agrees that, for so long as Ambassadors is required in
accordance with GAAP to consolidate Education's results of operations and
financial position in Ambassadors' financial statements:

4.3.1. DATE OF AUDITORS' OPINION AND QUARTERLY REVIEWS. Education
shall use its reasonable commercial efforts to enable the Education
Auditors to complete their audit such that they will date their
opinion on Education's audited annual financial statements on the
same date that Ambassadors' independent certified public accountants
("Ambassadors' Auditors") date their opinion on Ambassadors' audited
annual financial statements, and to enable Ambassadors to meet its
timetable for the printing, filing and public dissemination of
Ambassadors' annual financial statements. Education shall use its
reasonable commercial efforts to enable the Education Auditors to
complete their quarterly review procedures such that they will
provide clearance on Education's quarterly financial statements on
the same date that Ambassadors' Auditors provide clearance on
Ambassadors' quarterly financial statements.

4.3.2. ANNUAL AND QUARTERLY FINANCIAL STATEMENTS. Education shall
provide to Ambassadors on a timely basis all Information that
Ambassadors reasonably requires to meet its schedule for the
preparation, printing, filing, and public dissemination of
Ambassadors' annual and quarterly financial statements. Without
limiting the generality of the foregoing, Education will provide all
required financial Information with respect to Education and its
Subsidiaries to Education's Auditors in a sufficient and reasonable
time and in sufficient detail to permit Education's Auditors to take
all steps and perform all reviews necessary to provide sufficient
assistance to Ambassadors' Auditors with respect to Information to
be included or contained in Ambassadors' annual and quarterly
financial statements. Similarly, Ambassadors shall provide to
Education on a timely basis all Information that Education
reasonably requires to meet its schedule for the preparation,
printing, filing, and public dissemination of Education's annual and
quarterly financial statements. Without limiting the generality of
the foregoing, Ambassadors will provide all required financial
Information with respect to Ambassadors and its Subsidiaries to
Ambassadors' Auditors in a sufficient and reasonable time and in
sufficient detail to permit Ambassadors' Auditors to take all steps
and perform all reviews necessary to provide sufficient assistance
to Education's Auditors with respect to Information to be included
or contained in Education's annual and quarterly financial
statements.

4.3.3. IDENTITY OF PERSONNEL PERFORMING THE ANNUAL AUDIT AND
QUARTERLY REVIEWS. Education shall authorize Education's Auditors to
make available to Ambassadors' Auditors both the personnel who
performed or are performing the annual audits and quarterly reviews
of Education and work papers related to the annual audits and
quarterly reviews of Education, in all cases within a reasonable
time prior to Education's Auditors' opinion date, so that
Ambassadors' Auditors are able to perform the procedures they
consider necessary to take responsibility for the work of
Education's Auditors as it relates to Ambassadors' Auditors' report
on Ambassadors' financial statements, all within sufficient time to
enable Ambassadors to meet its timetable for the printing, filing
and public dissemination of Ambassadors' annual and quarterly
statements. Similarly, Ambassadors shall authorize Ambassadors'
Auditors to make available to Education's Auditors both the
personnel who performed or are performing the annual audits and
quarterly reviews of Ambassadors and work papers related to the
annual audits and quarterly reviews of Ambassadors, in all cases
within a reasonable time prior to Ambassadors' Auditors' opinion
date, so that Education's Auditors are able to perform the
procedures they consider necessary to take responsibility for the
work of Ambassadors' Auditors as it relates to Education's Auditors'
report on Education's statements, all within sufficient time to
enable Education to meet its timetable for the printing, filing and
public dissemination of Education's annual and quarterly financial
statements.

4.3.4. ACCESS TO BOOKS AND RECORDS. Education shall provide
Ambassadors' internal auditors and their designees access to
Education's and its Subsidiaries' books and records so that
Ambassadors may conduct reasonable audits relating to the financial
statements provided by Education pursuant hereto as well as to the
internal accounting controls and operations of Education and its
Subsidiaries. Similarly, Ambassadors shall provide Education's
internal auditors and their designees access to Ambassadors' and its
Subsidiaries' books and records so that Education may conduct
reasonable audits relating to the financial statements provided by
Ambassadors pursuant hereto as well as to the internal accounting
controls and operations of Ambassadors and its Subsidiaries.

4.3.5. NOTICE OF CHANGE IN ACCOUNTING PRINCIPLES. Education shall
give Ambassadors as much prior notice as reasonably practical of any
proposed determination of, or any significant changes in, its
accounting estimates or accounting principles from those in effect
on the Separation Date. Education will consult with Ambassadors and,
if requested by Ambassadors, Education will consult with
Ambassadors' independent public accountants with respect thereto.
Ambassadors shall give Education as much prior notice as reasonably
practical of any proposed determination of, or any significant
changes in, its accounting estimates or accounting principles from
those in effect on the Separation Date.

4.3.6. CONFLICT WITH THIRD-PARTY AGREEMENTS. Nothing in Sections 4.2
and 4.3 shall require Education to violate any agreement with any
third parties regarding the confidentiality of confidential and
proprietary Information relating to that third party or its
business; provided, however, that in the event that Education is
required under Sections 4.2 AND 4.3 to disclose any such
Information, Education shall use all commercially reasonable efforts
to seek to obtain such customer's consent to the disclosure of such
Information.

4.4. CONSISTENCY WITH PAST PRACTICES. At all times prior to the Separation
Date, Ambassadors will cause the Education Business to continue to ship
products, invoice customers, make payments, maintain properties, manage
distribution channels and otherwise conduct business in the ordinary
course, consistent with past practices.

4.5. PAYMENT OF EXPENSES. Except as otherwise provided in this Agreement,
the Ancillary Agreements or any other agreement between the parties
relating to the Separation or the Distribution, all costs and expenses of
the parties hereto in connection with the Separation and Distribution
(excluding internal costs and expenses of Education) shall be paid by
Ambassadors.

4.6. DISPUTE RESOLUTION. Resolution of any and all disputes, claims and
causes of action of any nature whatsoever (collectively, "Disputes"),
arising from or in connection with this Agreement, shall be exclusively
governed by and settled in accordance with the provisions of this Section
4.6.

4.6.1. NEGOTIATION. The parties shall make a good faith attempt to
resolve any Dispute arising out of or relating to this Agreement
through informal negotiation between appropriate representatives
from each of Ambassadors and Education. If at any time either party
feels that such negotiations are not leading to a resolution of the
Dispute, such party may send a notice to the other party describing
the Dispute and requesting a meeting of the senior executives from
each party. Within ten business days after such notice is given,
each party shall select appropriate senior executives (e.g.,
director or V.P. level) of each party who shall have the authority
to resolve the matter and shall meet to attempt in good faith to
negotiate a resolution of the Dispute prior to pursuing other
available remedies. During the course of negotiations under this
Section 4.6.1, all reasonable requests made by one party to the
other for information, including requests for copies of relevant
documents, will be honored. The specific format for such
negotiations will be left to the discretion of the designated
negotiating senior executives but may include the preparation of
agreed upon statements of fact or written statements of position
furnished to the other party. In the event that any Dispute arising
out of or related to this Agreement is not settled by the parties
within thirty days after the first

meeting of the negotiating senior executives, either party may
commence litigation with respect to the Dispute. However, neither
party shall commence litigation against the other party to resolve
the Dispute (i) until the parties try in good faith to settle the
Dispute by negotiation for at least thirty days after the first
meeting of the negotiating senior executives or (ii) until forty
days after notice of a Dispute is given by either party to the other
party, whichever occurs first.

4.6.2. PROCEEDINGS. Any Dispute regarding the following is not
required to be negotiated prior to seeking relief from a court of
competent jurisdiction: breach of any obligation of confidentiality;
infringement, misappropriation, or misuse of any intellectual
property right; or any other claim where interim relief from the
court is sought to prevent serious and irreparable injury to a
party. However, the parties shall make a good faith effort to
negotiate such Dispute, according to Section 4.6.1, while such court
action is pending.

4.6.3. CONTINUITY OF SERVICE AND PERFORMANCE. Unless otherwise
agreed in writing, the parties will continue to provide service and
honor all other commitments under this Agreement and each Ancillary
Agreement during the course of dispute resolution pursuant to the
provisions of this Section 4.6 with respect to all matters not
subject to such dispute, controversy or claim.

4.7. GOVERNMENTAL APPROVALS. To the extent that the Separation requires
any Governmental Approvals, the parties will use their reasonable
commercial efforts to obtain any such Governmental Approvals.

4.8. REPRESENTATIONS AND WARRANTIES. Ambassadors hereby represents and
warrants as follows:

4.8.1. ORGANIZATION, GOOD STANDING AND QUALIFICATION. Ambassadors is
duly organized, validly existing and in good standing under the laws
of Delaware and has all requisite corporate power and authority to
carry on its business as currently conducted.

4.8.2. CORPORATE POWER. Ambassadors has all requisite legal and
corporate power to (i) execute and deliver this Agreement, the
Ancillary Agreements and all applicable exhibits and schedules
attached hereto and thereto at such times as are contemplated by
this Agreement and the Ancillary Agreements; and (ii) perform its
obligations hereunder and thereunder.

4.8.3. NO OTHER REPRESENTATIONS OR WARRANTIES. Ambassadors does not,
in this Agreement or any other agreement, instrument or document
contemplated by this Agreement, make any representation as to,
warranty of or covenant with respect to:

4.8.3.1. the value of any asset or thing of value transferred
or to be transferred to Education;

4.8.3.2. the freedom from encumbrance of any asset or thing of
value transferred or to be transferred to Education;

4.8.3.3. the absence of defenses or freedom from counterclaims
with respect to any claim transferred or to be transferred to
Education; or

4.8.3.4. the legal sufficiency of any assignment, document or
instrument delivered hereunder to convey title to any asset or
thing of value upon its execution, delivery and filing.

4.8.4. RISK ASSOCIATED WITH TRANSFERRED ASSETS. Except as may
expressly be set forth herein or in any Ancillary Agreement, all
assets transferred or to be transferred to Education shall be
transferred "as is, where is" and Education shall bear the economic
and legal risk that any conveyance shall prove to be insufficient to
vest in Education good and marketable title, free and clear of any
lien, claim, equity or other encumbrance.

5. MISCELLANEOUS.

5.1. AUTHORITY. Each of the parties hereto represents to the other that
(i) it has the corporate or other requisite power and authority to
execute, deliver and perform this Agreement, (ii) the execution, delivery
and performance of this Agreement by it have been duly authorized by all
necessary corporate or other actions, (iii) it has duly and validly
executed and delivered this Agreement, and (iv) this Agreement is a legal,
valid and binding obligation, enforceable against it in accordance with
its terms subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally and
general equity principles.

5.2. AMENDMENT AND EXECUTION. The Boards of Directors of Education and
Ambassadors may mutually agree to amend the provisions of this Agreement
at any time or times, for any reason, either prospectively or
retroactively, to such extent and in such manner as the Boards mutually
deem advisable. Each Board may delegate its amendment power, in whole or
in part, to one or more Persons or committees as it deems advisable. No
change or amendment will be made to this Agreement, except by an
instrument in writing signed by authorized individuals. This Agreement and
amendments hereto shall be in writing and executed on behalf of
Ambassadors and Education by their respective duly authorized officers and
representatives.

5.3. COUNTERPARTS. This Agreement, including any attachments hereto and
the other documents referred to herein, may be executed via facsimile or
otherwise in counterparts, each of which shall be deemed to be an original
but all of which shall constitute one and the same agreement.

5.4. EFFECTIVENESS. All covenants and agreements of the parties contained
in this Agreement shall be subject to and conditioned upon the
Distribution becoming effective.

5.5. EFFECT IF SEPARATION AND/OR DISTRIBUTION DOES NOT OCCUR. If the
Separation and/or Distribution does not occur, then all actions and events
that are, under this Agreement, to be taken or occur effective as of the
Separation Date and/or Distribution Date, or otherwise in connection with
the Separation and/or Distribution, shall not be taken or occur except to
the extent specifically agreed by Education and Ambassadors.

5.6. TERMINATION. This Agreement may be terminated and the Distribution
abandoned at any time prior to the Time of Distribution by and in the sole
discretion of the Ambassadors Board of Directors without the approval of
Education or of Ambassadors's shareholders. In the event of such
termination, no party will have any liability of any kind to any other
party on account of such termination.

5.7. BINDING EFFECT; ASSIGNMENT. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective legal
representatives and successors, and nothing in this Agreement, express or
implied, is intended to confer upon any other Person any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
Except as herein specifically provided to the contrary, neither party may
assign this Agreement or any rights or obligations hereunder, without the
prior written consent of the other party, and any such assignment shall be
void; provided, however, either party (or its permitted successive
assignees or transferees hereunder) may assign or transfer this Agreement
as a whole without consent to an entity that succeeds to all or
substantially all of the business or assets of such party to which this
Agreement relates.

5.8. PERFORMANCE. Each party hereto will cause to be performed, and hereby
guarantees the performance of all actions, agreements and obligations set
forth herein to be performed by any subsidiary or any member of such
party's Group.

5.9. ADDITIONAL ASSURANCES. Except as may be specifically provided herein
to the contrary, the provisions of this Agreement shall be self-operative
and shall not require further agreement by the parties; provided, however,
at the request of either party, the other party shall execute such
additional instruments and take such additional acts as are reasonable,
and as the requesting party may reasonably deem necessary, to effectuate
this Agreement.

5.10. ENTIRE AGREEMENT. This Agreement together with all other Transaction
Agreements, including any annexes, schedules and exhibits hereto or
thereto, and other agreements and documents referred to herein and
therein, will together constitute the entire agreement between the parties
with respect to the subject matter hereof and thereof and shall supersede
all prior negotiations, agreements and understandings of the parties of
any nature, whether oral or written, with respect to such subject matter.

5.11. ATTACHMENTS. All attachments hereto are hereby incorporated in and
made a part of this Agreement as if set forth in full herein. Capitalized
terms used in the attachments hereto but not otherwise defined therein
will have the respective meanings assigned to such terms in this
Agreement.

5.12. CONFLICTING AGREEMENTS. In the event of conflict between this
Agreement and any Ancillary Agreement or other agreement executed in
connection herewith, the provisions of such other agreement shall prevail.

5.13. DESCRIPTIVE HEADINGS. The headings contained in this Agreement, in
any Exhibit or Schedule hereto and in the table of contents to this
Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. When a reference is made
in this Agreement to an Article or a Section, Exhibit or Schedule, such
reference shall be to an Article or Section of, or an Exhibit or Schedule
to, this Agreement unless otherwise indicated.

5.14. GENDER AND NUMBER. Whenever the context of this Agreement requires,
the gender of all words herein shall include the masculine, feminine and
neuter, and the number of all words herein shall include the singular and
plural.

5.15. SEVERABILITY. The parties hereto have negotiated and prepared the
terms of this Agreement in good faith with the intent that each and every
one of the terms, covenants and conditions herein be binding upon and
inure to the benefit of the respective parties. Accordingly, if any one or
more of the terms, provisions, promises, covenants or conditions of this
Agreement or the application thereof to any person or circumstance shall
be adjudged to any extent invalid, unenforceable, void or voidable for any
reason whatsoever by a court of competent jurisdiction, such provision
shall be as narrowly construed as possible, and each and all of the
remaining terms, provisions, promises, covenants and conditions of this
Agreement or their application to other persons or circumstances shall not
be affected thereby and shall be valid and enforceable to the fullest
extent permitted by law. To the extent this Agreement is in violation of
applicable law, then the parties agree to negotiate in good faith to amend
the Agreement, to the extent possible consistent with its purposes, to
conform to law and effect the original intent of the parties.

5.16. SURVIVAL OF AGREEMENTS. Except as otherwise contemplated by this
Agreement, all covenants and agreements of the parties contained in this
Agreement shall remain in full force and effect and shall survive the time
of Distribution.

5.17. GOVERNING LAW. This Agreement shall be construed in accordance with
and all Disputes hereunder shall be governed by the laws of the State of
California, excluding its conflict of law rules and the United Nations
Convention on Contracts for the International Sale of Goods. The Superior
Court of Los Angeles County and/or the United States District Court for
the Southern District of California shall have jurisdiction and venue over
all Disputes between the parties that are permitted to be brought in a
court of law pursuant to Section 4.6 above.

5.18. NOTICES. Any notice, demand, offer, request or other communication
required or permitted to be given by either party pursuant to the terms of
this Agreement shall be in writing and shall be deemed effectively given
the earlier of (i) when received, (ii) when delivered personally, (iii)
one Business Day after being delivered by facsimile (with receipt of
appropriate confirmation), (iv) one Business Day after being deposited
with a nationally recognized overnight courier service or (v) four days
after being deposited in the U.S. mail, First Class with postage prepaid,
and addressed to:

If to Ambassadors: With a copy to:

Ambassadors International Inc. Xxxxxx X. Xxxxxxxx, Esq.
0000 Xxxxxxxxx Xxxxxx Richman, Mann, Chizever, Philips &
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000 Xxxxxx
Facsimile: 0000 Xxxxxxxx Xxxx., Xxxxxxxxx Xxxxx
Xxxxxxx Xxxxx, XX 00000
Facsimile: 000 000-0000

If to Education: With a copy to:

Ambassadors Group, Inc. Xxxxxx X. Xxxxxxxx, Esq.
Xxxxxx X. Xxxxxxxxxx Building Richman, Mann, Chizever, Philips &
000 Xxxxx Xxxxxxx Xxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxxxx 00000 0000 Xxxxxxxx Xxxx., Xxxxxxxxx Xxxxx
Xxxxxxxxx: Xxxxxxx Xxxxx, XX 00000
Facsimile: 000 000-0000

Ambassadors and Education may substitute a different address or facsimile
number, from time to time, if such substitute is provided to the intended
notice recipient in writing by notice given in the manner provided in this
section.

5.19. WAIVERS; REMEDIES. No failure or delay by any party hereto in
exercising any right, power or privilege hereunder will operate as a
waiver thereof, nor will any waiver on the part of any party hereto of any
right, power or privilege hereunder operate as a waiver of any other
right, power or privilege hereunder, nor will any single or partial
exercise of any right, power or privilege hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege hereunder. The rights and remedies herein provided are
cumulative and are not exclusive of any rights or remedies which the
parties may otherwise have at law or equity.

5.20. LIMITATION OF LIABILITY. In no event shall any member of the
Ambassadors Group or Education Group be liable to any other member of the
Ambassadors Group or Education Group for any special, consequential,
indirect, incidental or punitive damages or lost profits, however caused
and on any theory of liability (including negligence) arising in any way
out of this agreement, whether or not such party has been advised of the
possibility of such damages; provided, however, that the foregoing
limitations shall not limit each party's indemnification obligations for
liabilities to third parties as set forth in the Indemnification and
Insurance Matters Agreement.

5.21. FORCE MAJEURE. Neither party shall be liable or deemed to be in
default for any delay or failure in performance under this Agreement or
other interruption of service deemed to result, directly or indirectly,
from acts of God, civil or military authority, acts of public enemy, war,
accidents, explosions, earthquakes, floods, failure of transportation,
strikes or other work interruptions by either party's employees, or any
other similar cause beyond the reasonable control of either party unless
such delay or failure in performance is expressly addressed elsewhere in
this Agreement.

6. DEFINITIONS. For the purposes of this Agreement, the following terms shall
have the following meanings.

6.1. "AMBASSADORS GROUP" means Ambassadors and each Subsidiary of
Ambassadors (other than any member of the Education Group) immediately
after the Separation Date, and each Person that becomes a Subsidiary of
Ambassadors after the Separation Date.

6.2. "AMBASSADORS' AUDITORS" has the meaning set forth in Section 4.3.2
hereof.

6.3. "ANCILLARY AGREEMENTS" has the meaning set forth in Section 2.1
hereof.

6.4. "BUSINESS DAY" means a day other than a Saturday, a Sunday or a day
on which banking institutions located in the State of California are
authorized or obligated by law or executive order to close.

6.5. "CAPITAL CONTRIBUTION"has the meaning set forth in Section 2.3
hereof.

6.6. "CODE" has the meaning set forth in the Recitals hereof.

6.7. "COMMISSION" has the meaning set forth in Section 3.1.3 hereof.

6.8. "DISPUTES" has the meaning set forth in Section 4.6 hereof.

6.9. "DISTRIBUTION" has the meaning set forth in the Recitals hereof.

6.10. "DISTRIBUTION AGENT" has the meaning set forth in Section 3.2
hereof.

6.11. "DISTRIBUTION DATE" has the meaning set forth in Section 3.2 hereof.

6.12. "EDUCATION'S AUDITORS" shall mean PriceWaterhouseCoopers, LLP.

6.13. "EDUCATION BUSINESS" means the business and operations of Education
as they currently exist as described in the Form 10 Registration
Statement.

6.14. "EDUCATION GROUP" means Education and each Subsidiary of Education
immediately after the Separation Date and each Person that becomes a
Subsidiary of Education after the Separation Date.

6.15. "EXCHANGE ACT" has the meaning set forth in Section 3.1.3 hereof.

6.16. "FORM 10 REGISTRATION STATEMENT" shall mean the Form 10 Registration
Statement described in Section 3.1.3 including any amendments or
supplements thereto.

6.17. "GAAP" means generally accepted accounting principals promulgated by
the Financial Accounting Standards Board, in effect on the Separation
Date, consistently applied.

6.18. "GOVERNMENTAL APPROVALS" means any notices, reports or other filings
to be made, or any consents, registrations, approvals, permits or
authorizations to be obtained from, any Governmental Authority.

6.19. "GOVERNMENTAL AUTHORITY" shall mean any federal, state, local,
foreign or international court, government, department, commission, board,
bureau, agency, official or other regulatory, administrative or
governmental authority.

6.20. "INFORMATION" means information, whether or not patentable or
copyrightable, in written, oral, electronic or other tangible or
intangible forms, stored in any medium, including studies, reports,
records, books, contracts, instruments, surveys, discoveries, ideas,
concepts, know-how, techniques, designs, specifications, drawings,
blueprints, diagrams, models, prototypes, samples, flow charts, data,
computer data, disks, diskettes, tapes, computer programs or other
software, marketing plans, customer names, communications by or to
attorneys (including attorney-client privileged communications), memos and
other materials prepared by attorneys or under their direction (including
attorney work product), and other technical, financial, employee or
business information or data.

6.21. "INFORMATION STATEMENT" has the meaning set for in Section 3.1.4
hereof.

6.22. "NASDAQ" has the meaning set for in Section 3.1.5 hereof.

6.23. "PERSON" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust,
a joint venture, an unincorporated organization and a governmental entity
or any department, agency or political subdivision thereof.

6.24. "RECORD DATE" means the close of business on the date to be
determined by the Board of Directors of Ambassadors as the record date for
determining the stockholders of Ambassadors entitled to receive shares of
common stock of Education in the Distribution.

6.25. "RMCPD" has the meaning set forth in Section 1.2 hereof.

6.26. "SEPARATION" has the meaning set forth in the Recitals hereof.

6.27. "SEPARATION DATE" has the meaning set forth in Section 1.1 hereof.

6.28. "STOCK SPLIT" has the meaning set forth in Section 3.1.2 hereof.

6.29. "SUBSIDIARY" means with respect to any specified Person, any
corporation, any limited liability company, any partnership or other legal
entity of which such Person or its Subsidiaries owns, directly or
indirectly, more than 50% of the stock or other equity interest entitled
to vote on the election of the members of the board of directors or
similar governing body.

6.30. "TAX RULING" has the meaning set forth in Section 3.1.1 hereof.

6.31. "TRANSACTION AGREEMENTS" means this Agreement together with the
Ancillary Agreements.

IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties as of the date first written above.

Ambassadors International, Inc., Ambassadors Group, Inc.,
a Delaware corporation a Delaware corporation

By: By:
-------------------------------- --------------------------------

Title: Title:
----------------------------- -----------------------------

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MASTER SEPARATION AND DISTRIBUTION AGREEMENT

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