<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 3, 1998
REGISTRATION NO. 333-
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AMBASSADORS INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 4725 91-1688605
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE) IDENTIFICATION NO.)
</TABLE>
DWIGHT D. EISENHOWER BUILDING
110 S. FERRALL STREET
SPOKANE, WA 99202
(509) 534-6200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JOHN A. UEBERROTH
CHIEF EXECUTIVE OFFICER AND PRESIDENT
DWIGHT D. EISENHOWER BUILDING
110 S. FERRALL STREET
SPOKANE, WA 99202
(509) 534-6200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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<S> <C>
GERALD M. CHIZEVER, ESQ. STANTON D. WONG, ESQ.
LANCE JON KIMMEL, ESQ. DAVID R. LAMARRE, ESQ.
RICHMAN, LAWRENCE, MANN, CHIZEVER & PHILLIPS PILLSBURY MADISON & SUTRO LLP
9601 WILSHIRE BOULEVARD P.O. BOX 7880
BEVERLY HILLS, CALIFORNIA 90210 SAN FRANCISCO, CALIFORNIA 94120
(310) 274-8300 (415) 983-1000
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
------------------------
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
================================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED PER SHARE(2) OFFERING PRICE REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share...... 2,550,700 shs.(1) $26.125 $66,637,037.50 $19,658
================================================================================================================================
</TABLE>
(1) Includes 332,700 shares subject to an option granted to the Underwriters to
cover over-allotments.
(2) Estimated pursuant to Rule 457(c) solely for purposes of calculating the
amount of registration fee, based upon the average of the high and low sale
prices of the Common Stock on April 1, 1998, as reported on The Nasdaq Stock
Market.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED APRIL 3, 1998
2,218,000 SHARES
[AMBASSADORS INTERNATIONAL, INC. LOGO]
COMMON STOCK
Of the 2,218,000 shares of Common Stock offered hereby, 2,000,000 shares
are being sold by the Company and 218,000 shares are being sold by Selling
Stockholders. See "Principal and Selling Stockholders." The Company will not
receive any of the proceeds from the sale of shares by the Selling Stockholders.
The Common Stock is traded on the Nasdaq National Market under the symbol
"AMIE." On April 2, 1998, the last sale price of the Common Stock as reported by
the Nasdaq National Market was $25.50 per share. See "Price Range of Common
Stock."
SEE "RISK FACTORS" COMMENCING ON PAGE 7 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
================================================================================
<TABLE>
<CAPTION>
Proceeds to
Price Underwriting Proceeds to Selling
to Public Discount(1) Company(2) Stockholders
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share................................. $ $ $ $
- ------------------------------------------------------------------------------------------------------------------------------
Total(3).................................. $ $ $ $
</TABLE>
================================================================================
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company estimated at $335,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 332,700 additional shares of Common Stock solely to cover
over-allotments, if any. If the Underwriters exercise this option in full,
the Price to Public will total $ , the Underwriting Discount will
total $ and the Proceeds to Company will total $ . See
"Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein when, as and if delivered to and accepted by the Underwriters and subject
to their right to reject any order in whole or in part. It is expected that
delivery of the certificates representing the shares will be made against
payment therefor at the office of NationsBanc Montgomery Securities LLC on or
about , 1998.
------------------------
NationsBanc Montgomery Securities LLC
Allen & Company Incorporated
Donaldson, Lufkin & Jenrette
Securities Corporation
D.A. Davidson & Co.
, 1998
<PAGE> 3
[Artwork]
------------------------
This Prospectus includes trade names and trademarks of the Company and of
other companies.
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
OFFERED HEREBY. SUCH TRANSACTIONS MAY INCLUDE STABILIZING, SYNDICATE SHORT
POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK OF THE COMPANY ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103
OF REGULATION M. SEE "UNDERWRITING."
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<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements, including the notes thereto, appearing elsewhere or incorporated by
reference in this Prospectus. In this Prospectus, the words "expects,"
"anticipates," "believes," "intends," "will" and similar expressions identify
forward-looking statements, which speak only as of the date hereof, and are
subject to certain risks and uncertainties. The Company's actual results may
differ materially from the results discussed in such forward-looking statements.
Factors that may cause such a difference include, but are not limited to, those
discussed in "Risk Factors." Except as otherwise noted, all information in this
Prospectus assumes no exercise of the Underwriters' over-allotment option.
Unless the context otherwise indicates, the "Company" means Ambassadors
International, Inc. and its consolidated subsidiaries.
THE COMPANY
The Company is a leading educational travel, travel services and
performance improvement company. The Company is engaged primarily in (i)
organizing, marketing and operating international educational travel programs on
a worldwide basis for students and adults (the "Education Group"); and (ii)
developing, marketing and managing performance improvement programs that utilize
merchandise awards and incentive travel, providing business meeting management
services, and providing comprehensive housing reservation, registration and
travel services for meetings, conventions, expositions and trade shows (the
"Performance Group").
Since its founding in 1967, the Company has offered educational travel
programs to both students and adults through its People to People Student
Ambassador Programs ("Student Ambassador Programs") and People to People
Ambassador Programs ("Adult Ambassador Programs.") In 1995, John Ueberroth and
Peter Ueberroth became principal stockholders of the Company and members of the
Company's Board of Directors. John Ueberroth was appointed Chief Executive
Officer and President of the Company and Peter Ueberroth was appointed Chairman
of the Board. Under new management, the Company expanded its educational travel
programs, improved operating margins and, through a series of acquisitions,
commenced operations of the Performance Group. As a result of new management's
initiatives and acquisitions, the Company's revenues increased 41% from $18.8
million in 1996 to $26.5 million in 1997, and the Company's net income increased
43% from $3.9 million in 1996 to $5.6 million in 1997.
The Education Group. The Education Group organizes, markets and operates
international educational travel programs for students and adults. The Student
Ambassador Programs provide an opportunity for students in the sixth through
twelfth grades to visit one or more foreign countries to learn about the
politics, economy and culture of such countries. The Adult Ambassador Programs
provide adults with common interests the opportunity to travel abroad to meet
and exchange ideas with foreign citizens that have similar backgrounds,
interests or professions. The Company believes that its programs provide
participants with more enriching experiences and deeper understandings of
foreign cultures and peoples than visits arranged independently or through
travel agencies. Since 1983, the Company has organized programs for more than
70,000 students and 45,000 adults in more than 35 countries on 5 continents. In
1997, the Company's educational travel programs featured visits to such
countries as Australia, China, France, Germany, Great Britain, India, Italy and
New Zealand. In 1996 and 1997, respectively, approximately 12,200 and 14,000
participants traveled on the Company's educational programs.
A majority of the Education Group's programs are organized in connection
with People to People International ("People to People"), a private, non-profit
organization dedicated to the promotion of world peace through cultural
exchange. People to People was founded by President Dwight D. Eisenhower in 1956
and was originally administered by the U.S. State Department. Seven Presidents
since President Eisenhower have served as Honorary Chairman of People to People,
including President Bill Clinton, who currently holds that position. Subject to
certain exceptions, the Company's agreements with People to People give the
Company the exclusive right to develop and conduct programs for kindergarten
through college age students using the People to People name and the
non-exclusive right to develop and conduct programs for adults using the People
to People name. The Company believes that its long association with People to
People has been a major factor in its ability to provide quality educational
student and adult travel programs, and that this
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relationship provides the Company with greater access to foreign governmental
agencies, officials and institutions. The Company also believes that its
association with the People to People programs and the recent efforts of
management have provided the foundation for the Company to develop strategic
alliances with Eddie Bauer, Inc., Yosemite National Institutes, and the American
Youth Soccer Organization. In addition to providing specialized programs, the
Company believes that these alliances provide additional opportunities for the
Company to expand its product lines and increase its marketing channels.
The Performance Group. The Performance Group develops, markets and manages
performance improvement programs for a nationwide roster of clients. The
programs offer services in three principal areas: (i) performance improvement
programs, (ii) business meeting management services and (iii) comprehensive
housing reservation, registration and travel services. The Company's performance
improvement programs utilize merchandise awards and travel incentives designed
to help clients achieve sales goals, improve productivity and attract and retain
qualified employees. The Company's business meeting management services assist
clients in planning, coordinating and producing business meetings and
conferences. The Company also provides comprehensive housing reservation,
registration and travel services for meetings, conventions, expositions and
trade shows. These services include hotel booking, guest registration,
confirmation, and on-site services.
The Performance Group's clients include both small and large businesses and
organizations, including several Fortune 500 companies and nationally recognized
trade and professional associations.
The Company believes that high quality programs and exceptional customer
service are and will remain key elements of the Company's success. The Company's
strategy is to maintain its quality standards while increasing its volume of
business. To increase its business, the Company intends to (i) expand the
marketing and tour volume of its existing student travel programs, (ii)
introduce new student travel programs and strategic alliances, (iii) broaden its
adult travel programs, (iv) expand the scope of services and increase the market
penetration of the Performance Group, and (v) pursue selective acquisitions of
travel and performance improvement businesses.
The Company was originally incorporated in the State of Washington in 1967
under the name International Ambassador Programs, Inc. to provide international
educational travel programs for students and adults. The Company was
reincorporated in the State of Delaware in 1995. The Company's principal
executive offices are located at Dwight D. Eisenhower Building, 110 S. Ferrall
Street, Spokane, Washington 99202, and its telephone number is (509) 534-6200.
DEVELOPMENTS SINCE INITIAL PUBLIC OFFERING
Since the Company's initial public offering in August 1995, the Company has
continued to implement its growth strategy through the following initiatives:
Commenced Operations of its Performance Group. The Company commenced
operations of its Performance Group through a series of acquisitions which began
in 1996. Through these acquisitions, the Company has expanded its business to
include performance improvement programs, business meeting management services
and comprehensive housing reservation, registration and travel services. In
1997, Ronald Merriman joined the Company as an Executive Vice President and
President of the Performance Group. See "Management." The Company intends to
continue to grow its Performance Group both internally and through selective
acquisitions of similar or complementary businesses.
Expanded its Educational Travel Programs. The Company has expanded its
student and adult educational and travel programs by adding new programs and
increasing their frequency. In 1996, the Company also acquired American People
Ambassador Programs, which allows the Company to offer cultural as well as
professional exchanges to adults. The Company has also broadened the geographic
and demographic scope of its marketing efforts.
Entered Into Strategic Alliances. Through a series of strategic alliances,
the Company now offers special travel programs for its Education Group that are
affiliated with Yosemite National Institutes, Eddie Bauer,
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<PAGE> 6
Inc. and the American Youth Soccer Organization. These strategic alliances
provide additional opportunities for the Company to expand its product lines and
increase its marketing channels.
THE OFFERING
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<S> <C>
Common Stock offered by the Company.............. 2,000,000 shares
Common Stock offered by the Selling
Stockholders................................... 218,000 shares
Common Stock to be outstanding after the
Offering....................................... 9,014,779 shares(1)
Use of Proceeds.................................. For future acquisitions and general corporate
purposes.
Nasdaq National Market Symbol.................... AMIE
</TABLE>
- ---------------
(1) Based on shares outstanding as of March 31, 1998. Does not include 498,988
shares of Common Stock issuable upon exercise of outstanding stock options
at a weighted average exercise price of $11.43 per share under the Company's
1995 Equity Participation Plan and 101,012 additional shares reserved for
issuance pursuant to such plan. The Company's Board of Directors has
approved, subject to stockholder approval at the 1998 Annual Meeting of
Stockholders, an increase in the total number of shares issuable under such
plan from 600,000 to 900,000.
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SUMMARY CONSOLIDATED FINANCIAL DATA
The following Summary Consolidated Financial Data should be read in
conjunction with the consolidated financial statements, including the notes
thereto, incorporated by reference in this Prospectus and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA(1):
Revenue.................................. $14,334 $16,990 $17,133 $18,843 $26,541
Operating expenses:
Selling and tour promotion............. 8,361 9,407 8,694 8,420 9,826
General and administrative............. 4,983 5,380 4,676 5,770 8,210
Operating income......................... 990 2,203 3,763 4,653 8,505
Net income............................... $ 1,142 $ 2,127 $ 5,157 $ 3,947 $ 5,637
======= ======= ======= ======= =======
Pro forma net income(2).................. -- $ 3,152 $ 3,179 -- --
======= =======
Net income per share -- basic(3)......... -- $ 0.63 $ 0.57 $ 0.60 $ 0.83
======= ======= ======= =======
Net income per share -- diluted(3)....... -- $ 0.63 $ 0.56 $ 0.59 $ 0.82
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------
ACTUAL AS ADJUSTED(4)
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(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $22,871 $70,986
Total assets................................................ 34,449 82,564
Long-term debt.............................................. 329 329
Total stockholders' equity.................................. 22,556 70,671
</TABLE>
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(1) Since 1995, the Company has made several acquisitions which have been
accounted for under the purchase method of accounting. Therefore, the
results of operations of these acquired entities are included in the results
of operations of the Company since their respective dates of acquisition.
The statement of income data for the years ended December 31, 1993, 1994 and
1995 only reflects the Education Group. During 1996, the Company commenced
operations of its Performance Group through the acquisition of two existing
entities engaged in this business. Due to the timing of these acquisitions,
the results of operations for only one of these entities are included in the
Company's results of operations for the year ended December 31, 1996. The
results of operations of the second acquisition are included in the year
ended December 31, 1997. The results of operations for the year ended
December 31, 1997 also include the acquisition in September 1997 of a third
company in the Performance Group.
(2) In connection with the Company's change in ownership and reincorporation in
1995, certain compensation agreements between the Company and certain
stockholders were terminated and new employment agreements were executed.
Also, notes receivable from certain stockholders were repaid. Therefore, the
pro forma net income for the year ended December 31, 1994 reflects
adjustments to (i) reduce certain incentive compensation costs, and (ii)
eliminate interest income on the repayment of notes receivable. The pro
forma net income for the years ended December 31, 1994 and 1995 reflects an
adjustment to record income taxes which would have been paid by the Company
as a C Corporation rather than as an S Corporation.
(3) Historical net income per share for the year ended December 31, 1993 has not
been presented due to the Company's change in ownership and reincorporation
in 1995.
(4) Adjusted to give effect to the sale of 2,000,000 shares of Common Stock
offered by the Company hereby at an assumed public offering price of $25.50
per share and the receipt of the estimated net proceeds therefrom. See "Use
of Proceeds" and "Capitalization."
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RISK FACTORS
Certain statements in this Prospectus, including statements included below
and under the captions "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and elsewhere, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, but are not limited to,
those discussed below and elsewhere in this Prospectus.
In evaluating the Company's business, prospective investors should
carefully consider the following factors in addition to the other information
contained in this Prospectus.
INTERNATIONAL OPERATIONS AND NATURAL OCCURRENCES
Because substantially all of the Company's travel programs associated with
its Education Group are conducted outside the United States, the Company's
operations are subject to special risks inherent in doing business
internationally. Such risks include the adverse effects on operations from war,
international terrorism, civil disturbances, political instability, governmental
activities and deprivation of contract rights. Periods of international unrest
may reduce demand for the Company's travel programs and could have a material
adverse effect on the Company's business and results of operations. Examples of
such events which have adversely affected the Company's operations include
terrorist activities generally, the Gulf War in 1991, civil unrest in China in
1989 and the Chernobyl disaster in 1986. In 1997, approximately 34% of the
Company's revenues were derived from its programs in Europe (predominantly the
United Kingdom), 24% of its revenues were derived from its programs in the South
Pacific (predominantly Australia and New Zealand), and 11% of its revenues were
derived from its programs in China. The Company expects gross receipts from
programs to these regions to continue to account for a majority of its gross
receipts in 1998. The occurrence of any of the events described above or other
unforeseen developments in one or more of these regions would have a material
adverse effect on the Company. Demand for the Company's travel programs also may
be adversely affected by natural occurrences such as hurricanes, earthquakes,
epidemics and flooding in geographic regions in which the Company conducts its
travel programs.
ACQUISITIONS; EXPANSION OF BUSINESS
Part of the Company's business strategy is to acquire selected travel and
performance improvement businesses which will complement its existing
businesses. The Company's ability to acquire these businesses is dependent in
part upon management's relationship with the owners of these businesses, many of
which are small and closely held by individual stockholders. In addition, the
Company will be competing for expansion opportunities with other companies, many
of which have greater name recognition, marketing support and financial
resources than the Company, which may result in fewer acquisition opportunities
available to the Company as well as higher acquisition prices. There can be no
assurance that the Company will be able to identify, pursue or acquire any
targeted businesses and, if acquired, there can be no assurance that the Company
will be able to profitably manage additional businesses or successfully
integrate acquired businesses into the Company without substantial costs, delays
and other operational or financial problems.
The Company has engaged in informal acquisition discussions with a number
of companies within the last six months, but the Company is not currently a
party to any agreement with respect to any specific acquisition. If the Company
proceeds with any significant acquisition for cash, a substantial portion of the
Company's available cash could be used in order to consummate any such
acquisition. The Company may also seek to finance any such acquisition through
additional debt or equity financings, and there can be no assurance that such
financing will be available on acceptable terms or at all. If consideration for
an acquisition consists of equity securities, the Company's stockholders could
be diluted.
Acquisitions involve a number of special risks in addition to those
mentioned above, including the diversion of management's attention to the
assimilation of the operations and personnel of the acquired
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companies, the potential loss of key employees of acquired companies, potential
exposure to unknown liabilities of acquired companies, adverse effects on the
Company's reported operating results due to acquisition costs and expenses due
to integrating and assimilating the operations of newly acquired businesses, and
the amortization of acquired intangible assets. No assurance can be given that
any acquisition by the Company will or will not occur, that if an acquisition
does occur that it will not materially and adversely affect the Company or that
any such acquisition will be successful in enhancing the Company's business.
SEASONALITY; FLUCTUATIONS IN QUARTERLY RESULTS
The Company's businesses are highly seasonal. The Company recognizes gross
program receipts, revenues and program pass-through expenses upon the overseas
departure of its Education Group program participants. The majority of the
Education Group's travel programs are scheduled in May through July and October
of each year. Substantially all of the Company's operating income from its
Education Group is generated in this period, which historically has offset the
operating losses incurred during the rest of the year. The Company anticipates
that this trend will continue for the foreseeable future. The Company's annual
results would be adversely affected if the Company's revenues were to be
substantially below seasonal norms during the second and third quarters of the
year. The Company's operating results may fluctuate as a result of many factors,
including the mix of programs and program destinations offered by the Company
and its competitors, the introduction and acceptance of new programs and program
enhancements by the Company and its competitors, timing of program completions,
cancellation rates, competitive conditions in the industry, marketing expenses,
extreme weather conditions, international conflicts, timing of and costs related
to acquisitions, changes in relationships with certain travel providers,
economic factors and other considerations affecting travel. In addition, the
Company records on a quarterly basis unrealized and realized gains and losses on
its forward foreign exchange contracts. As a result of the foregoing, annual or
quarterly operating results may be below the expectations of public market
analysts and investors. In such event, the price of the Common Stock could be
materially and adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
COMPETITION
The travel industry in general, and the educational and performance
incentive segments of the travel industry in particular, are highly competitive.
The Company's student programs compete with other companies that provide similar
educational travel programs for students as well as independent programs
organized and sponsored by local teachers with the assistance of local travel
agents. In addition, People to People retains the right under its contract with
the Company to offer programs to college students for studies abroad and may
grant other entities the right to use its name in connection with adult
educational programs. In addition, the Company's adult programs compete with
independent professional associations that sponsor and organize their own travel
programs through the assistance of local travel agents with tour operators and
other organizations that design travel programs for adults.
The business of providing employee incentive programs for corporate clients
also is highly competitive. The Company's incentive programs compete with other
companies which provide similar programs, many of which are larger than the
Company and have greater resources than the Company as well as with the
corporations themselves which may choose to provide these programs "in house."
In addition, the Company competes with other companies that are in the business
of providing comprehensive housing reservation, registration and travel services
for meetings, conventions, expositions and trade shows.
The Company believes that the barriers to entry in each of the fields in
which it operates are relatively low. Certain of the Company's competitors have
substantially greater financial, marketing and sales resources than the Company.
There can be no assurance that the Company's present competitors or competitors
that choose to enter the marketplace in the future will not exert significant
competitive pressures on the Company. Such competition could have a material
adverse effect on the Company. See "Business -- Competition."
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DEPENDENCE ON "PEOPLE TO PEOPLE"
The Company's agreements with People to People give the Company the
exclusive right to develop and conduct programs for kindergarten through college
age students using the People to People name, and the non-exclusive right to
develop and conduct programs for adults using the People to People name. The
Company's agreements with People to People, however, allow People to People to
continue to conduct college and professional seminars and internship programs
and to develop other student activities and adult programs. The contracts expire
in 2005 and may be renewed for successive ten year periods, but either party has
the right to terminate either of such contracts at the end of any ten year
period upon six months' prior notice. The Company believes that it derives
benefit from its ability to market its programs using the People to People name.
If the Company's agreements with People to People are terminated or if the
Company is unable to use the People to People name to market new programs or
destinations, the Company's business, financial condition and results of
operations could be materially and adversely affected.
DEPENDENCE ON TRAVEL SUPPLIERS
In order to offer its services and products, the Company is dependent on
airlines, hotels and other suppliers of travel services. Consistent with
industry practices, the Company currently has no long-term agreements with its
travel suppliers that obligate such suppliers to sell services or products
through the Company on an ongoing basis. Restricted access to travel suppliers'
capacity or changes in pricing arrangements with travel suppliers could have a
material adverse effect on the Company's business, financial condition and
results of operations.
POTENTIAL EFFECTS OF GENERAL ECONOMIC CONDITIONS
The Company derives a significant portion of its revenues directly or
indirectly from the travel industry. The travel industry, especially leisure
travel, which is dependent on personal discretionary spending levels, is
sensitive to changes in economic conditions and tends to decline during general
economic downturns and recessions. The travel industry is also highly
susceptible to unforeseen events, such as fuel price escalation, travel-related
accidents, unusual weather patterns or other adverse occurrences. Any event that
results in decreased travel generally would likely have a material adverse
effect on the Company's business, financial condition and results of operations.
Performance incentive programs and business meetings are more often
conducted by employers when the economy is strong and when such incentives are
needed to retain and motivate employees. Any significant downturn or recession
in the United States could cause the Company's Performance Group clients to
substantially reduce or eliminate entirely their employee incentive programs,
which could result in a material adverse effect on the Company's business,
financial condition and results of operations.
MANAGEMENT OF POTENTIAL GROWTH
The Company's operations and business have expanded substantially in recent
years, with a large increase in employees and business areas in a short period
of time. To properly manage its rapid growth, the Company has been and will be
required to expend significant management and financial resources. There can be
no assurance that the Company's systems, procedures and controls will be
adequate to support the Company's operations as they expand. There also can be
no assurance that the Company's management will be able to manage its growth and
operate a larger organization efficiently or profitably. To the extent the
Company is unable to manage its growth efficiently and effectively or is unable
to attract and retain additional qualified management personnel, the Company's
business, financial condition and results of operations could be materially and
adversely affected.
FLUCTUATION OF CURRENCY EXCHANGE RATES
Many of the Company's arrangements with its foreign-based suppliers require
payment to be made in foreign currencies. Any decrease in the value of the U.S.
dollar in relation to foreign currencies has the effect of increasing the cost
of the services to be provided. Since late 1993, the Company generally has
purchased
9
<PAGE> 11
forward contracts to help manage program costs and hedge against foreign
currency valuation increases. While the ability to utilize forward contracts for
the delivery of foreign currencies can mitigate the effect of increased program
costs and foreign currency exchange fluctuations, there can be no assurance that
increased program costs relating to such currency fluctuations will not be
substantial in future periods. The Company's contract with participants in its
travel programs provides the Company the option, and historically the Company
has attempted, to pass along any increase in program costs resulting from
currency fluctuations to program participants. Nonetheless, there can be no
assurance that the Company will be able to increase program prices to offset any
such cost increases in the future and any failure to do so could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
CASUALTY LOSSES
Due to the nature of its business, the Company may be subject to liability
claims arising out of accidents or disasters causing injury to participants in
its programs, including claims for serious personal injury or death. The Company
believes that it has adequate liability insurance for risks arising in the
normal course of its business. Although the Company has never experienced a
liability loss for which it did not have adequate insurance coverage, there can
be no assurance that insurance coverage will be sufficient to cover one or more
large claims or that the applicable insurer will be solvent at the time of any
covered loss. The Company has been named as a defendant in a lawsuit in which
the plaintiffs have claimed damages in excess of the Company's current insurance
coverage limits. Further, there can be no assurance that the Company will be
able to obtain insurance coverage at acceptable levels and cost in the future.
Successful assertion against the Company of one or a series of large uninsured
claims, or of one or a series of claims exceeding any insurance coverage, could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business -- Insurance" and "Business -- Legal
Proceedings."
DEPENDENCE ON KEY PERSONNEL
The Company's performance is substantially dependent on the continued
services and performance of its senior management and certain other key
personnel. The loss of the services of any of its executive officers or other
key employees could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company does not have
long-term employment agreements with any of its executive officers. The
Company's future success also depends on its ability to identify, attract, hire,
train, retain and motivate other highly skilled managerial, marketing and
customer service personnel. The failure to retain and attract necessary
managerial, marketing and customer service personnel could have a material
adverse effect on the Company's business, financial condition and results of
operations.
CONTINUED CONTROL OF THE COMPANY BY CERTAIN STOCKHOLDERS
Upon completion of this offering, John Ueberroth and Peter Ueberroth will
beneficially own in the aggregate approximately 30% of the outstanding shares of
the Company's Common Stock. See "Principal and Selling Stockholders."
Accordingly, they will likely be able to effectively exercise voting control of
the Company, and would likely be able to elect all of the Company's directors
and be able to determine the outcome of any matter being voted upon by the
Company's stockholders, including any merger, sale of assets or other change in
control of the Company. The Ueberroths' ownership position, together with the
antitakeover effects of certain provisions contained in the Company's
Certificate of Incorporation and Bylaws, may have the effect of delaying or
preventing a change of control of the Company. See "Principal and Selling
Stockholders."
USE OF PROCEEDS
All of the net proceeds from this offering will remain unallocated and the
Company intends to use such proceeds for future acquisitions and general
corporate purposes. Accordingly, management will have broad discretion with
respect to the expenditure of all of the proceeds from this offering. See "Use
of Proceeds."
10
<PAGE> 12
POTENTIAL VOLATILITY OF STOCK PRICE
Since its initial public offering in 1995, the Common Stock has often
experienced low daily trading volumes and there can be no assurance that a more
active trading market for the Common Stock will be developed as a result of this
offering or, if developed, that it will be sustained. The market price of the
Common Stock could be subject to significant fluctuations in response to
quarter-to-quarter variations in the Company's operating results, announcements
of new products or services by the Company or its competitors, and other events
or factors. For example, a shortfall in revenues or net income, or an increase
in losses, from levels expected by securities analysts, could have an immediate
and significant adverse effect on the market price of the Common Stock. In
addition, the stock market in recent years has experienced extreme price and
volume fluctuations that have particularly affected the market prices of many
emerging growth companies and that have often been unrelated or disproportionate
to the operating performance of companies. These fluctuations, as well as
general economic and market conditions, may adversely affect the market price
for the Common Stock.
11
<PAGE> 13
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock being offered by the Company are estimated to be approximately
$48.1 million (approximately $56.2 million if the Underwriters' over-allotment
option is exercised in full), based upon an assumed public offering price of
$25.50 per share and after deducting the estimated underwriting discount and
estimated offering expenses payable by the Company.
The Company intends to use the net proceeds from this offering for future
acquisitions of travel and performance improvement companies and related
businesses and general corporate purposes. The Company has engaged in informal
acquisition discussions with a number of companies within the last six months,
but the Company is not currently a party to any agreement with respect to any
specific acquisition. See "Risk Factors -- Acquisitions; Expansion of Business."
Pending such uses, the Company intends to invest the funds in short-term,
interest bearing investment grade securities.
The Company will not receive any of the proceeds from the sale of shares
sold by the Selling Stockholders. See "Principal and Selling Stockholders."
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has been traded on the Nasdaq National Market
under the symbol "AMIE" since August 3, 1995. Prior to such date, there was no
public trading market for the Company's equity securities. The last reported
sale price of the Common Stock on the Nasdaq National Market on April 2, 1998
was $25.50.
The following table sets forth for the calendar periods indicated the high
and low sale prices of a share of the Company's Common Stock as reported on the
Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1996:
Quarter ended March 31, 1996.............................. $13.25 $ 8.50
Quarter ended June 30, 1996............................... 16.13 9.88
Quarter ended September 30, 1996.......................... 14.25 7.88
Quarter ended December 31, 1996........................... 11.00 8.00
1997:
Quarter ended March 31, 1997.............................. $12.50 $ 9.00
Quarter ended June 30, 1997............................... 13.75 8.75
Quarter ended September 30, 1997.......................... 22.00 12.25
Quarter ended December 31, 1997........................... 26.75 17.25
1998:
Quarter ended March 31, 1998.............................. $26.75 $17.50
</TABLE>
As of March 31, 1998, there were approximately 48 holders of record of the
Common Stock. This number does not include beneficial owners holding shares
through nominee or "street" name.
DIVIDEND POLICY
The Company has not paid any dividends since the consummation of its
initial public offering of securities in 1995 and intends to continue to retain
its earnings for use in the operation and expansion of its business and
therefore does not anticipate declaring any cash dividends in the foreseeable
future. The payment of dividends in the future will be at the discretion of the
Board of Directors and will be dependent upon the Company's financial condition,
results of operations, capital requirements and such other factors as the Board
of Directors deems relevant. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
12
<PAGE> 14
CAPITALIZATION
The following table sets forth as of December 31, 1997: (i) the actual
capitalization of the Company; and (ii) the capitalization as adjusted to give
effect to the sale of the 2,000,000 shares of Common Stock offered by the
Company hereby at an assumed public offering price of $25.50 per share and the
receipt of the estimated net proceeds therefrom as described under "Use of
Proceeds." This table should be read in conjunction with the selected
consolidated financial data included elsewhere in this Prospectus and the
historical consolidated financial statements of the Company and the related
notes thereto which are incorporated herein by reference. See "Incorporation of
Certain Documents by Reference."
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long term debt.............................................. $ 329 $ 329
------- --------
Stockholders' equity:
Preferred stock, $0.01 par value per share; 2,000,000
shares authorized; no shares issued and outstanding.... -- --
Common stock, $0.01 par value per share; 20,000,000 shares
authorized; 6,768,223 shares issued and outstanding,
actual; 8,768,223 shares issued and outstanding, as
adjusted(1)............................................ 68 88
Additional paid-in capital................................ 13,761 61,856
Retained earnings......................................... 8,727 8,727
------- --------
Total stockholders' equity............................. 22,556 70,671
------- --------
Total capitalization.............................. $22,885 $ 71,000
======= ========
</TABLE>
- ---------------
(1) Excludes 447,052 shares of Common Stock issuable upon exercise of
outstanding stock options as of December 31, 1997, and 152,948 additional
shares reserved for issuance under the Company's 1995 Equity Participation
Plan as of such date. The Company's Board of Directors has approved, subject
to stockholder approval at the 1998 Annual Meeting of Stockholders, an
increase in the total number of shares issuable under such plan from 600,000
to 900,000.
13
<PAGE> 15
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth for the periods indicated certain selected
consolidated financial information and operating data for the Company. The
selected consolidated financial data set forth below for the Company as of
December 31, 1996 and 1997 and for each of the three years in the period ended
December 31, 1997 are derived from the consolidated financial statements which
have been audited by Coopers & Lybrand L.L.P., independent public accountants,
which are incorporated by reference herein. The selected consolidated financial
data set forth below as of December 31, 1993, 1994 and 1995 and for each of the
two years in the period ended December 31, 1994 are derived from audited
consolidated financial statements not included or incorporated by reference
herein. The following selected financial and operating data are qualified by the
more detailed consolidated financial statements of the Company and the notes
thereto incorporated by reference in this Prospectus and should be read in
conjunction with such consolidated financial statements and notes and the
discussion under "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA
AND PROGRAM PARTICIPANTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA(1):
Revenue.................................. $14,334 $16,990 $17,133 $18,843 $26,541
Operating expenses:
Selling and tour promotion............. 8,361 9,407 8,694 8,420 9,826
General and administrative............. 4,983 5,380 4,676 5,770 8,210
------- ------- ------- ------- -------
Total operating expenses....... 13,344 14,787 13,370 14,190 18,036
------- ------- ------- ------- -------
Operating income......................... 990 2,203 3,763 4,653 8,505
Other income (expense):
Interest expense....................... (39) (14) (2) (1) (9)
Interest and dividend income........... 555 545 786 1,080 1,588
Realized and unrealized gain (loss) on
investments......................... 7 (555) 278 290 (1,102)
Other, net............................. (65) (52) (8) (41) 1
------- ------- ------- ------- -------
458 (76) 1,054 1,328 478
------- ------- ------- ------- -------
Income before income taxes............... 1,448 2,127 4,817 5,981 8,983
Income tax provision (benefit)........... 306 -- (340) 2,034 3,346
------- ------- ------- ------- -------
Net income............................... $ 1,142 $ 2,127 $ 5,157 $ 3,947 $ 5,637
======= ======= ======= ======= =======
Pro forma net income(2).................. -- $ 3,152 $ 3,179 -- --
======= =======
Net income per share -- basic(3)......... -- $ 0.63 $ 0.57 $ 0.60 $ 0.83
======= ======= ======= =======
Net income per share -- diluted(3)....... -- $ 0.63 $ 0.56 $ 0.59 $ 0.82
======= ======= ======= =======
SELECTED OPERATING DATA:
Gross program receipts (rounded to the
nearest million)....................... $40,000 $45,000 $47,000 $57,000 $80,000
Total Education Group program
participants (rounded to the nearest
hundred)............................... 9,400 11,200 11,600 12,200 14,000
</TABLE>
14
<PAGE> 16
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA(4):
Cash and cash equivalents................ $ 674 $ 6,634 $12,974 $18,281 $22,871
Total assets............................. 6,247 9,637 16,016 27,269 34,449
Long-term debt........................... 25 17 6 0 329
Total stockholders' equity............... 1,829 1,829 11,135 16,783 22,556
</TABLE>
- ---------------
(1) Since 1995, the Company has made several acquisitions which have been
accounted for under the purchase method of accounting. Therefore, the
results of operations of these acquired entities are included in the results
of operations of the Company since their respective dates of acquisition.
The statement of income data for the years ended December 31, 1993, 1994 and
1995 only reflect the Education Group. During 1996, the Company commenced
operations of its Performance Group through the acquisition of two existing
entities engaged in the business. Due to the timing of these acquisitions,
the results of operations for only one of these entities are included in the
Company's results of operations for the year ended December 31, 1996. The
results of operations of the second acquisition are included in the
financial presentation for the year ended December 31, 1997. The results of
operations for the year ended December 31, 1997 also include the acquisition
in September 1997 of a third company in the Performance Group.
(2) In connection with the Company's change in ownership and reincorporation in
1995, certain compensation agreements between the Company and certain
stockholders were terminated and new employment agreements were executed.
Also, notes receivable from certain stockholders were repaid. Therefore, the
pro forma net income for the year ended December 31, 1994 reflects
adjustments to (i) reduce certain incentive compensation costs and (ii)
eliminate interest income on the repayment of notes receivable. The pro
forma net income for the years ended December 31, 1994 and 1995 reflects an
adjustment to record income taxes which would have been paid by the Company
as a C Corporation rather than as an S Corporation.
(3) Historical net income per share for the year ended December 31, 1993 has not
been presented due to the Company's change in ownership and reincorporation
in 1995.
(4) All of the Company's acquisitions have been accounted for under the purchase
method of accounting. Therefore, the balance sheet data include the accounts
of the acquired entities as of their respective dates of acquisition. Since
one of the acquisitions occurred effective December 31, 1996, the balance
sheet data includes the accounts of this entity as of December 31, 1996;
however, the results of operations of this entity are not included in the
statement of income data until the year ended December 31, 1997.
15
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements and the notes thereto incorporated by
reference in this Prospectus. Certain statements contained herein that are not
related to historical results, including, without limitation, statements
regarding the Company's business strategy and objectives, future financial
position, expectations about pending litigation and estimated cost savings, are
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Securities Exchange Act of 1934, as amended, and
involve risks and uncertainties. Actual results could differ materially from
those discussed in the forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
below and under "Risk Factors." All forward-looking statements contained in this
Prospectus are qualified in their entirety by this statement.
GENERAL
The Company is engaged primarily in (i) organizing, marketing and operating
international educational travel programs on a worldwide basis for students and
adults and (ii) developing, marketing and managing performance improvement
programs that utilize merchandise awards and incentive travel, providing
business meeting management services and providing comprehensive housing
reservations, registration and travel services for meetings, conventions,
expositions and trade shows.
Since its initial public offering in August 1995, the Company has expanded
its operations primarily through internal growth and a series of acquisitions of
businesses within the travel and performance improvement industries. Prior to
1996, the Company's business was conducted through its Education Group.
In January 1996, the Company completed the acquisition of The Helin
Organization and commenced operations of the Performance Group. This acquisition
was followed in February 1996 by the acquisition of certain assets of Marc L.
Bright & Associates, which expanded the business of the Company's already
existing Education Group. In December 1996, the Company acquired Bitterman &
Associates, Inc., in September 1997, the Company acquired certain of the assets
of Debol & Associates, and in February 1998, the Company acquired certain of the
assets of Rogal America, Co. and the stock of Travel Incentives, Inc., further
expanding its Performance Group. All of these acquisitions were accounted for
under the purchase method of accounting. Therefore, the results of operations of
the acquired businesses are included in the Company's results of operations
since their respective dates of acquisition.
Gross program receipts reflect the total payments received by the Company
from Education Group participants and Performance Group clients. Gross program
receipts less program pass-through expenses constitute the Company's revenues.
Program pass-through expenses include all direct costs associated with the
Company's programs, including costs related to airfare, ships, hotels, meals,
ground transportation, guides, professional exchanges, changes in currency
exchange rates and merchandise costs. The Company recognizes gross program
receipts, pass-through expenses and revenues upon the departure of the program
participant or as the Performance Group service is rendered. Operating expenses,
which are expensed by the Company as incurred, are the costs related to the
creation of programs, promotional materials and marketing costs, salaries, rent,
other general and administrative expenses and all of the Company's ordinary
expenses. The Company's policy is to obtain payment for substantially all travel
services prior to entering into commitments for incurring expenses relating to
such travel.
The Company's businesses are highly seasonal. The majority of the Company's
travel programs occur in May through July and October of each year.
Substantially all of the Company's operating income is generated in these
periods, which historically has offset the operating losses incurred during the
rest of the year. The Company anticipates that this trend will continue for the
foreseeable future. The Company's annual results would be adversely affected if
the Company's revenues were to be substantially below seasonal norms during
these periods. The Company's operating results may fluctuate as a result of many
factors, including the mix of Education Group and Performance Group programs and
services, the mix of programs and program destinations offered by the Company
and its competitors, the introduction and acceptance of new programs
16
<PAGE> 18
and program enhancements by the Company and its competitors, timing of program
completions, cancellation rates, competitive conditions in the industry,
marketing expenses, extreme weather conditions, international conflicts, timing
of and costs relating to acquisitions, changes in relationships with certain
travel providers, economic factors and other considerations affecting travel.
The substantial majority of the Company's programs takes place outside of
the United States and most foreign suppliers require payment in local currency
rather than U.S. dollars. Accordingly, the Company is exposed to foreign
currency risks in certain countries as foreign currency exchange rates between
those currencies and the U.S. dollar fluctuate. To manage these risks, the
Company enters into forward foreign exchange contracts and foreign currency
option contracts. These foreign exchange contracts and options are entered into
to support normal recurring purchases, and accordingly, are not entered into for
speculative purposes. The Company is exposed to credit risk under the forward
contracts and options to the extent that the counterparty is unable to perform
under the agreement. The Company anticipates hedging the majority of its foreign
currency risk in future periods. There can be no assurance that the Company's
hedging strategies will be successful in mitigating the impact of foreign
currency fluctuations. The Company records its forward foreign exchange
contracts at market value on a quarterly basis. Unrealized and realized gains
and losses on these securities are recognized in the statement of income.
RESULTS OF OPERATIONS
The following table is derived from the selected consolidated financial
data set forth under "Selected Consolidated Financial Data" and sets forth, for
the periods indicated, the relative percentages that certain income and expense
items bear to revenues.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Revenue..................................................... 100.0% 100.0% 100.0%
Operating expenses:
Selling and tour promotion................................ 50.7 44.7 37.0
General and administrative................................ 27.3 30.6 31.0
----- ----- -----
Total operating expenses.......................... 78.0 75.3 68.0
----- ----- -----
Operating income............................................ 22.0 24.7 32.0
Other income (expense)...................................... 6.1 7.0 1.8
----- ----- -----
Income before income taxes.................................. 28.1 31.7 33.8
Income tax provision (benefit).............................. (2.0) 10.8 12.6
----- ----- -----
Net income........................................ 30.1% 20.9% 21.2%
===== ===== =====
Pro forma information:(1)
Income before income taxes.................................. 28.1%
Pro forma income tax provision.............................. 9.5
-----
Pro forma net income........................................ 18.6%
=====
</TABLE>
- ---------------
(1) The pro forma net income for the year ended December 31, 1995 reflects an
adjustment to record income taxes which would have been paid by the Company
as a C Corporation rather than as an S Corporation for such year. The
Company's S Corporation status terminated in 1995.
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO YEAR ENDED DECEMBER 31, 1996
The Company is organized in two operating divisions: the Education Group
and the Performance Group. For the year ended December 31, 1997, the Education
Group increased its productivity by growth within the core product lines while
realizing efficiencies through the sales and marketing process. The Performance
Group contribution resulted from its acquisitions and additional sales of
incentive travel programs and business meeting management services.
17
<PAGE> 19
Gross program receipts increased 42% in 1997 over 1996, from $56.7 million
to $80.3 million, and net revenue increased 41% from $18.8 million in 1996 to
$26.5 million in 1997. These increases were driven by an increase in the number
of Education Group program participants, the addition of new acquisitions, and
improved cross-selling in the Performance Group.
The overall gross margins (revenues as a percentage of gross program
receipts) for the 1997 year remained consistent with the prior year at 33%. This
reflects a strengthening of the Education Group margins, combined with the
margins achieved by the new acquisitions in the Performance Group. Gross margins
of the Performance Group are expected to be slightly lower than those achieved
in the Education Group.
Selling and tour promotion expenses increased during 1997 when compared to
1996 by $1.4 million, or 17%. Most of this increase results from an acquisition
in late 1996 within the Performance Group. As a percentage of revenues, selling
and tour expenses decreased to 37% in 1997 from 45% in 1996, as a result of
sales and marketing efficiencies and the benefits of a cost management program.
General and administrative expenses increased from $5.8 million to $8.2
million between 1996 and 1997. Most of this increase is due to the assumption of
continuing expenses associated with the Performance Group acquisitions.
Operating income increased 83% in the year ended December 31, 1997 compared
to the year ended December 31, 1996.
Other income includes interest income and unrealized foreign currency gains
or losses. Other income decreased from $1.3 million in 1996 to $0.5 million in
1997. The cash component of other income, interest income, increased to $1.6
million from $1.1 million, a 47% increase on a 25% increase in year-end cash
balances. This increase in interest income is the effect of improved cash
management practices implemented in 1997. The overall net decrease in other
income can be attributed to the non-cash component of other income, unrealized
foreign exchange losses. In 1997, the Company incurred $0.7 million of net
unrealized losses compared to an insignificant amount in 1996. The face amount
of forward foreign exchange contracts outstanding at December 31, 1997, was
$17.4 million.
The Company's income before taxes in 1997 increased 50% over 1996 as a
result of the foregoing factors. The Company has recorded an income tax
provision of $3.3 million for 1997 which represents an effective tax rate of
37%. The tax provision has increased over the prior year's provision of $2.0
million due to the effect of certain non-deductible expenses as well as the
increase in state income taxes with the expansion of the Company through
acquisitions.
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995
The expansion of the Company's programs in 1996 resulted in a 24% increase
in the number of participants from 11,635 in 1995 to 14,377 in 1996, which
increased the Company's gross program receipts 21%, from $46.7 million in 1995
to $56.7 million in 1996. Revenues also increased to $18.8 million or 10% over
1995 revenues.
The Company maintained a 33% gross margin for the year, even with the
addition of the expected lower margins of the Performance Group.
Selling and tour promotion expenses decreased approximately $0.3 million in
1996 when compared to 1995. The Company's marketing efforts were more effective
and efficient than in prior years. This more targeted effort contributed to the
increase in revenues for 1996. Company policy is to expense all promotional
expenses as they are incurred.
In 1996, these expenses included the integration of American People
Ambassador Programs, The Helin Organization, and the developmental costs related
to Eddie Bauer Travel.
General and administrative expenses increased from $4.7 million in 1995 to
$5.8 million in 1996 primarily due to the acquisitions of The Helin Organization
and American People Ambassador Programs in early 1996.
18
<PAGE> 20
Other income includes interest income and foreign currency gains or losses.
During 1996, other income increased 26% from $1.1 million to $1.3 million. This
increase was due to improved cash management systems, as well as a full year's
benefit of investing the proceeds from the initial public offering. These two
factors increased interest income from $0.8 million in 1995 to $1.1 million in
1996.
Also included in other income are gains from foreign currency contracts and
options which are marked to market. The Company enters into forward foreign
exchange contracts and foreign currency option contracts to offset certain
operational exposures from changes in foreign currency exchange rates. These
foreign exchange contracts and options are entered into to support normal
recurring purchases, and accordingly are not entered into for speculative
purposes. Forward foreign exchange contracts are utilized to manage the risk
associated with currency fluctuations on certain purchase commitments. The face
amount of forward foreign exchange contracts outstanding as of December 31,
1996, was $6.7 million.
The Company has recorded an income tax provision of $2.0 million for 1996
which represents an effective tax rate of 34%. The income tax benefit of $0.3
million in 1995 reflected the benefit of the net operating loss incurred by the
Company which was generated after the Company became a C Corporation in
mid-1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's business is not capital intensive. However, the Company does
retain funds for working capital purposes in order to conduct sales and
marketing efforts for future programs and services.
Net cash provided by operations for the years ended December 31, 1995, 1996
and 1997 was $1.8 million, $6.1 million and $6.2 million, respectively. The
increase in cash flow from operations between 1996 and 1997 resulted primarily
from the increase in net income. The increase from 1995 to 1996 can be
attributed to the increase in cash receipts from Education Group participants in
1996 and the payment in 1995 of approximately $2.4 million of incentive
compensation for the 1994 year to previous owners of the Company.
Net cash used in investing activities for the years ended December 31,
1995, 1996 and 1997 was $0.4 million, $0.8 million and $1.5 million,
respectively. The investing activities during 1997 were due primarily to
leasehold improvements in the corporate headquarters facilities as well as the
purchase of a company in the third quarter of the year. The $0.4 million
increase from 1995 to 1996 was due to the acquisition of subsidiaries and
purchase of other investments. The Company does not have any material capital
expenditure commitments for 1998. However, the Company is continuing to pursue
further acquisitions of related travel and performance improvement businesses
that may require the use of cash and cash equivalents. The Company had no
significant long- or short-term debt as of December 31, 1996; however, at
December 31, 1997, the Company had $0.3 million in long-term debt as a result of
an acquisition during 1997. Subsequent to December 31, 1997, the Company
utilized $7.5 million in cash to fund acquisitions.
Net cash provided by financing activities in 1995 was $5.0 million as a
result of the reorganization of the Company and the initial public offering. Net
cash used in financing activities in 1996 and 1997 was insignificant.
The Company has a credit facility available with Seafirst Bank for up to
$23.0 million U.S. dollars for foreign currency purchases and forward contracts.
Although this facility expires in July 1998, the Company expects it to be
renewed.
At December 31, 1997, the Company had approximately $22.9 million of cash
and cash equivalents, including participant deposits of $7.4 million. Under the
Company's cancellation policy, a participant may be entitled to a refund of a
portion of his or her deposit (less certain fees) depending on the time of
cancellation. Management believes existing cash and cash equivalents and cash
flows from operations, together with the net proceeds of this offering, will be
sufficient to fund the Company's anticipated future acquisitions, operating
needs and capital expenditures at least through 1998.
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YEAR 2000 ISSUES
The nature of the Company's business systems is such that the year 2000 is
expected to have a minimal impact on the Company's operations or financial
performance. However, there can be no assurance that the systems of other
parties upon which the Company's businesses also rely will address the year 2000
problem adequately.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings per Share," was issued. SFAS No. 128 established standards for
computing and presenting earnings per share ("EPS"). It requires the dual
presentation and a reconciliation of basic and diluted EPS. The Company adopted
the provisions of SFAS No. 128 in 1997, which had no effect on EPS as previously
reported.
In June 1997, SFAS No. 130, "Reporting Comprehensive Income," was issued,
which requires the reporting of comprehensive income. Comprehensive income is
defined as the change in equity of a business enterprise arising from non-owner
sources. This Statement is effective for fiscal years beginning after December
15, 1997. Management does not believe that the implementation of SFAS No. 130
will have a material impact on the presentation of its consolidated financial
statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments for an Enterprise and Related Information." This
Statement requires presentation of segment information in reports to
stockholders, including disclosures about the products and services an entity
provides and its major customers. The Statement is effective for fiscal years
beginning after December 15, 1997. Management of the Company has not determined
the disclosure to be made upon implementation of SFAS No. 131.
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BUSINESS
OVERVIEW
The Company is a leading educational travel, travel services and
performance improvement company. The Company is engaged primarily in (i)
organizing, marketing and operating international educational travel programs on
a worldwide basis for students and adults (the "Education Group"); and (ii)
developing, marketing and managing performance improvement programs that utilize
merchandise awards and incentive travel, providing business meeting management
services, and providing comprehensive housing reservation, registration and
travel services for meetings, conventions, expositions and trade shows (the
"Performance Group").
Since its founding in 1967, the Company has offered educational travel
programs to both students and adults through its People to People Student
Ambassador Programs ("Student Ambassador Programs") and People to People
Ambassador Programs ("Adult Ambassador Programs.") In 1995, John Ueberroth and
Peter Ueberroth became principal stockholders of the Company and members of the
Company's Board of Directors. John Ueberroth was appointed Chief Executive
Officer and President of the Company and Peter Ueberroth was appointed Chairman
of the Board. Under new management, the Company expanded its educational travel
programs, improved operating margins and, through a series of acquisitions,
commenced operations of the Performance Group. As a result of new management's
initiatives and acquisitions, the Company's revenues increased 41% from $18.8
million in 1996 to $26.5 million in 1997, and the Company's net income increased
43% from $3.9 million in 1996 to $5.6 million in 1997.
The Education Group. The Education Group organizes, markets and operates
international educational travel programs for students and adults. The Student
Ambassador Programs provide an opportunity for students in the sixth through
twelfth grades to visit one or more foreign countries to learn about the
politics, economy and culture of such countries. The Adult Ambassador Programs
provide adults with common interests the opportunity to travel abroad to meet
and exchange ideas with foreign citizens that have similar backgrounds,
interests or professions. The Company believes that its programs provide
participants with more enriching experiences and deeper understandings of
foreign cultures and peoples than visits arranged independently or through
travel agencies. Since 1983, the Company has organized programs for more than
70,000 students and 45,000 adults in more than 35 countries on 5 continents. In
1997, the Company's educational travel programs featured visits to such
countries as Australia, China, France, Germany, Great Britain, India, Italy and
New Zealand. In 1996 and 1997, respectively, approximately 12,200 and 14,000
participants traveled on the Company's educational programs.
A majority of the Education Group's programs are organized in connection
with People to People International ("People to People"), a private, non-profit
organization dedicated to the promotion of world peace through cultural
exchange. People to People was founded by President Dwight D. Eisenhower in 1956
and was originally administered by the U.S. State Department. Seven Presidents
since President Eisenhower have served as Honorary Chairman of People to People,
including President Bill Clinton, who currently holds that position. Subject to
certain exceptions, the Company's agreements with People to People give the
Company the exclusive right to develop and conduct programs for kindergarten
through college age students using the People to People name and the
non-exclusive right to develop and conduct programs for adults using the People
to People name. The Company believes that its long association with People to
People has been a major factor in its ability to provide quality educational
student and adult travel programs, and that this relationship provides the
Company with greater access to foreign governmental agencies, officials and
institutions. The Company also believes that its association with the People to
People programs and the recent efforts of management have provided the
foundation for the Company to develop strategic alliances with Eddie Bauer,
Inc., Yosemite National Institutes, and the American Youth Soccer Organization.
In addition to providing specialized programs, the Company believes that these
alliances provide additional opportunities for the Company to expand its product
lines and increase its marketing channels.
The Performance Group. The Performance Group develops, markets and manages
performance improvement programs for a nationwide roster of clients. The
programs offer services in three principal areas: (i) performance improvement
programs, (ii) business meeting management services and (iii) comprehensive
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housing reservation, registration and travel services. The Company's performance
improvement programs utilize merchandise awards and travel incentives designed
to help clients achieve sales goals, improve productivity and attract and retain
qualified employees. The Company's business meeting management services assist
clients in planning, coordinating and producing business meetings and
conferences. The Company also provides comprehensive housing reservation,
registration and travel services for meetings, conventions, expositions and
trade shows. These services include hotel booking, guest registration,
confirmation, and on-site services.
The Performance Group's clients include both small and large businesses and
organizations, including several Fortune 500 companies and nationally recognized
trade and professional associations.
GROWTH STRATEGY
The Company believes that high quality programs and exceptional customer
service are and will remain key elements of the Company's success. The Company's
strategy is to maintain its quality standards while increasing its volume of
business. To increase its business, the Company intends to (i) expand the
marketing and tour volume of its existing student travel programs, (ii)
introduce new student travel programs and strategic alliances, (iii) broaden its
adult travel programs, (iv) expand the scope of services and increase the market
penetration of the Performance Group, and (v) pursue selective acquisitions of
travel and performance improvement businesses.
Expand the Marketing and Tour Volume of Existing Student Travel
Programs. U.S. Census data projects that there will be more than 27.3 million
people in the 12 to 18 year old age range by 1999. The Company believes that a
large number of qualified students in this age group are not aware of the
Company's student travel programs. In light of these factors, the Company
intends to improve its marketing techniques by targeting additional age groups,
making greater use of referrals from teachers, parents and past student
travelers, and expanding and refining its extensive databases of potential
participants.
Introduce New Student Travel Programs and Strategic Alliances. The Company
continually seeks to develop and introduce additional innovative, educational
travel experiences. The Company intends to continue to maintain its contacts
with foreign governmental agencies and officials and intends to continue to use
its People to People and other foreign contacts to organize opportunities for
its program participants that other travel programs do not currently offer. In
addition, the Company intends to introduce new youth travel programs organized
around common extracurricular activities such as sports, science and nature. For
instance, the Company is implementing pilot programs with the American Youth
Soccer Organization and Yosemite National Institutes.
Broaden Adult Travel Programs. According to U.S. Census data, the number of
Americans 45 to 74 years old is expected to grow substantially, increasing to
more than 89.4 million people in 2005 from 71.0 million people in 1995. This
trend is expected to benefit the Company, since this population segment
historically has been the most likely to participate in one of the Company's
adult travel programs. In addition, the Company believes that American adults
increasingly seek the convenience and unique experiences offered by prepackaged
vacation tours. Consequently, the Company believes that the opportunity exists
to expand its adult educational travel programs by continuing to improve the
quality and number of its specialty adult programs and by exploring new country
destinations. The Company also intends to develop alliances with partners that
have strong brand recognition and access to well defined customer segments. For
example, the Company recently implemented an alliance with Eddie Bauer, Inc.,
which offers outdoor recreational travel experiences under the name "Eddie Bauer
Travel."
Expand the Scope of Services and Market Penetration of the Performance
Group. The Company believes that several trends are increasing the opportunities
for growth by its Performance Group. These include the general trends toward
corporate outsourcing and the increasing concern of employers to retain and
motivate employees. Management also believes that the performance improvement
industry is benefiting from the broader use of incentive programs beyond their
traditional sales force applications. In order to capitalize on these trends,
the Company intends to expand, integrate and cross-sell its complementary
service offerings. In addition, the Company intends to increase the size and
industry expertise of its sales force, serve new
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<PAGE> 24
geographic areas and broaden the scope of services offered. In executing its
expansion strategy, the Company will seek to create broader market recognition
and brand awareness.
Pursue Acquisition Opportunities. The Company believes that the industries
encompassed by the Education Group and the Performance Group are large and
fragmented, and present attractive acquisition opportunities. For instance, more
than $22 billion was spent on performance improvement programs in 1996,
according to Incentive Magazine, an industry trade publication. The Company
believes that the industry's large size and fragmentation will facilitate
acquisitions of businesses which are either compatible with the Company's
current business or represent a developing specialty segment not currently
addressed by the Company's operations. The Company believes that the industry
experience collectively held by the Ueberroths and the Company's management will
be valuable in identifying promising acquisition candidates. By executing its
acquisition strategy, the Company believes that it can obtain a competitive
advantage through economies of scale, heightened opportunities for
cross-selling, expanded product offerings and an increased market presence.
THE EDUCATION GROUP
Through its Education Group, the Company provides educational travel
programs for students and adults, principally using the People to People name.
The Company has the exclusive right to develop and conduct programs for
kindergarten through college age students using the People to People name. The
Company also has the non-exclusive right to develop, market and operate programs
for adults using the People to People name; however, at the present time the
Company is the only entity that has been given this right by People to People.
These rights have been granted pursuant to agreements with People to People,
which expire in 2005. The agreements will be automatically renewed for an
additional 10 years unless either party elects otherwise.
Student Ambassador Programs. The Student Ambassador Programs provide an
opportunity for students in the sixth through twelfth grades to visit one or
more foreign countries to learn about the politics, economy and culture of such
countries. The Company markets its Student Ambassador Programs through a
combination of direct mail and local informational meetings. Representatives of
the Company review candidate applications and conduct informational meetings
throughout the country from September through April, after which selected
applicants register to participate in the program.
Student Ambassador Program delegations depart during the summer and
generally travel for approximately 21 days, during which time each delegation
visits one or more foreign countries. Each delegation generally consists of
approximately 35 students and several teachers, who act as the delegation's
leaders. Teachers and students comprising a delegation generally come from the
same locale.
Programs are designed by the Company's staff of international planners and
researchers to provide an educational and entertaining travel experience by
exposing students to the history, government, economy and culture of the country
or countries visited. In each country the Company contracts with overseas
program coordinators to provide day-to-day oversight of the programs.
Additionally, a guide trained by the Company accompanies the group throughout
the duration of its program. In most instances, the Company also arranges to
provide students the opportunity for a "homestay" (a brief stay with a host
family), which gives students a glimpse of daily life in the visited country.
Other interesting opportunities for students may include meeting with a member
of Parliament, visiting a U.S. Embassy and participating in a review of
different types of governments. The Company believes it provides a unique, safe
and well-chaperoned opportunity for participants to learn in a global setting.
Students who complete certain written assignments and other projects can
receive high school and university credit for their participation in the
program. Universities which recognize academic credit include Stanford
University, University of California at Los Angeles, and Georgetown University.
Adult Ambassador Programs. The Adult Ambassador Programs provide adults
with common interests the opportunity to travel abroad to meet and exchange
ideas with foreign citizens that have similar backgrounds, interests or
professions. The Company markets its Adult Ambassador Programs through a direct
mail marketing effort throughout the year. Programs originate from the Company's
internal marketing and
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<PAGE> 25
research staff who identify potential delegation topics and leaders. Adult
programs have been conducted in such areas as agriculture, economics, education,
medicine and science.
The Company believes that its Adult Ambassador Programs provide
participants with enriching experiences and deeper understandings of foreign
cultures and people than visits arranged independently or through travel
agencies. The Adult Ambassador Programs operate year-round and are generally
designed to provide a more specialized adult educational experience. Adult
programs generally last from ten days to two weeks and are designed to provide
adults with similar backgrounds or common interests the opportunity to exchange
information and ideas with their counterparts in other countries. Unlike travel
programs provided by travel agencies, these professional exchanges are intended
largely as working trips, with a significant amount of the participant's time
involved in organized meetings, seminars and round-table discussions with their
foreign counterparts, inspection visits to major foreign facilities and
institutions and informal gatherings with foreign counterparts. Each program is
led by a delegation leader chosen by the Company based upon his or her
recognition in the field and expertise regarding the special focus of the
particular program.
Strategic Alliances. The Company also operates travel programs pursuant to
alliances with Eddie Bauer, Inc., a direct mail and retail company, and Yosemite
National Institutes, a non-profit organization with operations in Yosemite
National Park, Olympic National Park and Golden Gate National Recreation Area.
Under its exclusive agreement with Eddie Bauer, Inc., the Company recently began
to offer outdoor recreational travel experiences under the name "Eddie Bauer
Travel." The agreement with Yosemite National Institutes is exclusive, except
that Yosemite National Institutes may conduct its own programs. The Company also
has an exclusive agreement with the American Youth Soccer Organization to
provide international travel for its players. The initial program includes
travel to Paris, London and Madrid to play soccer matches against local teams.
THE PERFORMANCE GROUP
The Performance Group develops, markets and manages performance improvement
programs for a nationwide roster of clients. The programs offer services in
three principal areas: (i) performance improvement programs, (ii) business
meeting management services, and (iii) comprehensive housing reservation,
registration and travel services. The Company's Performance Group commenced
operations through a series of acquisitions commencing in 1996.
In offering performance improvement programs and business meeting
management services, the Performance Group follows a strategy aimed at
developing and implementing programs tailored to each client's objectives. The
Company's employees first meet with existing or potential clients to determine
their business objectives and performance enhancement opportunities. Once a
client agrees to pursue a program, the Company works with the client to
determine the scope of the program by identifying concepts and parameters in
terms of purpose, costs, time and employee participation. Subsequently, the
Company's employees develop and provide customized services that fall within the
identified parameters.
Employees of the Performance Group participate in various aspects of a
client's program development. The staff of creative writers and graphic
designers often delivers promotional campaigns and materials that are complete
from concept through production, including design, printing, collating, labeling
and mailing. The Company has developed computerized monitoring systems and
provides each client with lists generated by internally-designed software
programs which track the program participants and enable the client to know the
status of each participant at any time. Additionally, the Company provides a
program coordinator to formulate, maintain and finalize each aspect of the
client's event.
For its services, the Company is usually paid a percentage markup of the
program components including air and ground transportation, promotional gifts,
meals and hotel accommodations. In addition, the Company is reimbursed for
expenses incurred in organizing the program.
The Company also provides comprehensive housing reservation, registration
and travel services for meetings, conventions, expositions and trade shows. The
contracts for these services generally cover an annual meeting or event and may
be for a term of one to several years. Pursuant to these agreements, the Company
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provides a wide range of services associated with booking hotel space and guest
registration including securing sufficient and appropriate hotel room
inventories, coordinating blocking and booking of all hotel rooms, monitoring
the status and volume of reservations, accepting individual and group
reservations, mailing reservation confirmations and providing an on-site housing
services desk at a meeting site to coordinate attendees' housing needs. For
providing these and other services, the Company generally receives a fixed
commission, which is paid directly by the hotels.
ACQUISITIONS
In January 1996, the Company acquired all of the capital stock of The Helin
Organization, a company engaged in the performance incentives and meeting
management businesses.
In February 1996, the Company completed the acquisition of certain assets
from Marc L. Bright, d/b/a M.L. Bright Associates, American People Ambassador
Programs and Missions in Understanding. Mr. Bright operated adult education and
exchange travel programs under the "People to People" name.
In December 1996, the Company acquired all of the issued and outstanding
shares of capital stock of Bitterman & Associates Inc., a merchandise incentive
and performance improvement company.
In September 1997, the Company acquired certain of the assets of Debol &
Associates, a company engaged in the performance incentives and meeting
management businesses.
In February 1998, the Company acquired certain of the assets of Rogal
America, Co., a company engaged in providing comprehensive housing reservation,
registration and travel services for meetings, conventions, expositions and
trade shows.
In February 1998, the Company further expanded the operations of its
Performance Group through its acquisition of the stock of Travel Incentives,
Inc., a company engaged in the performance incentives and meeting management
businesses.
COMPETITION
The travel industry in general, and the educational segment of the travel
industry in particular, is highly competitive. The Company's student programs
compete with similar educational travel programs operated by other individuals
and organizations, as well as independent programs organized and sponsored by
local teachers with the assistance of local travel agents. The Company's adult
programs also compete with independent professional associations that sponsor
and organize their own travel programs through the assistance of local travel
agents with tour operators and other organizations that design travel programs
for adults.
The Company believes that the barriers to entry for any future competitors
are relatively low. Certain organizations engaged in the travel business have
substantially greater financial, marketing and sales resources than the Company.
There can be no assurance that the Company's present competitors or competitors
that choose to enter the marketplace in the future will not exert significant
competitive pressures on the Company.
The Company believes that the principal bases of competition in the
educational segment of the market are the quality and uniqueness of the
educational program offered, customer service, reputation and program cost. The
Company believes that its agreements with People to People, as well as its years
of experience organizing student educational programs and established
relationships with public officials, organizations and residents in countries in
which it provides programs, allows the Company to provide an educational
opportunity that is not easily duplicated by competitors' programs.
The Performance Group also competes in segments of the travel industry that
are highly competitive. In the meeting management and incentives businesses, the
Company competes with companies which are larger and have greater resources. The
Company believes that, although some potential clients will focus on price
alone, other clients will also be interested in the quality of the programs
developed by the Performance Group and customer service. The Company believes
that its programs are not easily duplicated by its competitors.
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SERVICEMARKS
The Company has registered a variety of service and trademarks, including
the names "High School Student Ambassador Program" and "Citizen Ambassador
Program." In addition, the Company has the right, subject to certain exceptions,
to use People to People's name, servicemark and logo for use in marketing
student and adult programs. In February 1996, the Company acquired the exclusive
rights to the names "American People Ambassador Programs" and "Missions in
Understanding." The Company believes that the strength of its service and
trademarks is valuable to its business and intends to continue to protect and
promote its marks as appropriate. However, the Company believes that its
business is not dependent upon any trademark or servicemark.
INSURANCE
The Company maintains insurance coverage in amounts it believes are
adequate for its business, including a $5 million professional liability policy
and a $5 million umbrella policy. The Company also maintains a $1 million
general liability and property coverage policy. The Company has not experienced
difficulty in obtaining adequate insurance coverage. There is no assurance that
the insurance maintained by the Company will be adequate in the event of a
claim, or that such insurance will continue to be available in the future.
EMPLOYEES
At February 28, 1998 the Company had approximately 302 employees, of which
288 were full-time employees. Of the Company's total employees, 118 are located
in Spokane, Washington, 17 are located in Newport Beach, California, 3 are
located in Winnebago, Illinois, 50 are located in Minneapolis, Minnesota, 86 are
located in Watertown, Massachusetts, 5 are located in Alexandria, Virginia, and
23 are located in Westlake, California. The Company has 76 full-time employees
engaged in marketing and sales and 226 in operations, administration and
finance. The Company also occasionally employs temporary labor on a seasonal
basis to assist it with its direct marketing efforts in recognition of the fact
that the Company's student travel programs are seasonal in nature. None of the
Company's employees is subject to collective bargaining agreements or is
represented by a union. The Company believes its labor relations are good.
PROPERTIES
The principal executive offices of the Company, consisting of approximately
41,000 square feet, are located in Spokane, Washington and are occupied pursuant
to a lease dated January 3, 1995 that expires December 31, 2004. The lease
currently provides for monthly rental payments of $36,992. The Company may
cancel the lease without penalty (upon one year's prior notice) and also may
extend the term of the lease for an additional ten year period upon providing
written notice to the Lessor of its intention to exercise such option at least
six months prior to the end of the initial term. If the Company elects to
exercise the extension option, the monthly rental during the renewal period will
be the fair market rental value of the leased premises as of the date the option
is exercised (as determined based on market rentals of similar properties in the
Spokane, Washington area). The owner of the premises is a partnership consisting
of two former principals of the Company, who subsequently sold their interest in
the Company in January 1995.
In March 1998, the Company entered into a new lease for general
administrative offices in Newport Beach, California. The lease commences on or
about June 15, 1998 and is for a term of seven years. The initial base rental is
$28,346 per month. The premises consist of approximately 26,996 square feet.
The Company leases 900 square feet of office space in Winnebago, Illinois
pursuant to a lease that expires in August 2000. The Company also leases 4,500
square feet of office space in Newport Beach, California. The lease expires in
June 2000, and currently provides for monthly rental payments of $4,742. In
addition, the Company leases approximately 10,690 square feet of office and
warehouse space in Plymouth, Minnesota, pursuant to a lease which expires in
1999 and provides for current monthly rental payments of $9,101.
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In February 1998, the Company assumed two additional leases for office
space in connection with its acquisition of certain of the assets of Rogal
America, Co. One lease is for approximately 15,900 square feet in Watertown,
Massachusetts, with a current monthly rental of $15,640, which lease expires in
2003, and a second lease is for approximately 1,805 square feet in Alexandria,
Virginia, with a currently monthly rental of $2,074, which lease expires in
November 1998; however, the Company has an option to extend the term for three
years.
In February 1998, the Company assumed a month-to-month lease for office
space in connection with its acquisition of Travel Incentives, Inc. The lease is
for approximately 4,841 square feet with a current monthly rental of $6,051.
Management believes that its existing facilities are sufficient to meet its
present needs and anticipated needs for the foreseeable future. However,
additional facilities may be required in connection with future business
acquisitions.
LEGAL PROCEEDINGS
On September 22, 1997, Sarah Buffington and certain other individuals, for
themselves and on behalf of their children, six teenage students (the
"Plaintiffs"), filed a lawsuit in the District Court of Harris County, Texas,
against People to People and three individual tour leaders. In February 1998,
the lawsuit was amended to include the Company (the original named defendants
and the Company are collectively referred to as the "Defendants"). The basis for
the Plaintiffs' claim is their allegation that, while the six teenagers were in
Europe in June 1997 as part of a tour involving 31 students, three of the tour
leaders behaved in an inappropriate manner toward the six teenagers. The
Plaintiffs allege breach of contract, negligence, negligent hiring and retention
of the tour leaders, slander, intentional infliction of emotional distress, and
assault and battery. The Plaintiffs seek at least $15.0 million in punitive and
exemplary damages against the Defendants, together with unspecified actual
damages, attorneys' fees, court costs and other incidental costs. The Company
believes that it has meritorious defenses to this lawsuit and intends to defend
itself vigorously.
Except for the foregoing, the Company is not a party to any pending legal
proceedings other than ordinary routine litigation incidental to its business,
the outcome of which the Company believes will not have a material adverse
affect on its business, financial condition or results of operations.
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MANAGEMENT
The Company has a classified Board of Directors, which is divided into
three classes, consisting of two Class I Directors, two Class II Directors, and
two Class III Directors. At each annual meeting of stockholders, directors are
elected for a term of three years to succeed those directors whose terms expire
on the annual meeting dates.
The following table sets forth certain information regarding the Company's
executive officers and directors:
<TABLE>
<CAPTION>
TERM
NAME AGE POSITION CLASS EXPIRES
---- --- -------- ----- -------
<S> <C> <C> <C> <C>
John A. Ueberroth....... 54 Chief Executive Officer, President and II 2000
Director
Jeffrey D. Thomas....... 31 Executive Vice President, Chief Financial -- --
Officer and Secretary
Ronald L. Merriman...... 53 Executive Vice President -- --
Peter V. Ueberroth...... 60 Chairman of the Board of Directors I 1998
James L. Easton......... 62 Director II 2000
Rafer L. Johnson........ 62 Director III 1999
John C. Spence.......... 68 Director III 1999
Richard D.C. Whilden.... 64 Director I 1998
</TABLE>
John A. Ueberroth has served as President, Chief Executive Officer and a
director of the Company since 1995. Since 1989, Mr. Ueberroth has been a
principal of The Contrarian Group, a business management company. From 1990 to
1993, he served as Chairman and Chief Executive Officer of Hawaiian Airlines.
Hawaiian Airlines filed for bankruptcy protection pursuant to Chapter 11 of the
Bankruptcy Code in 1993 and emerged from bankruptcy in 1994. From 1980 to 1989,
Mr. Ueberroth served as President of Carlson Travel Group. In addition, Mr.
Ueberroth has served as Chairman of the Travel Industry Association of America
(1986-1987) and President of the United States Tour Operator Association
(1987-1988).
Jeffrey D. Thomas has served as Chief Financial Officer, Vice President of
Finance and Secretary of the Company since January 1996, and from October 1995
to December 1995, he was Assistant Vice President of Finance of the Company. Mr.
Thomas also serves as President (since August 1996) of Ambassador Education
Group, Inc., and Vice President, Secretary and Treasurer (since January 1996) of
Ambassador Performance Group, Inc., both wholly-owned subsidiaries of the
Company. From July 1994 to October 1995, Mr. Thomas was Director of Business
Development for Adia Personnel Services, one of the largest personnel companies
in the world. From September 1993 to July 1994, Mr. Thomas was employed by The
Contrarian Group, a business management company, and from 1989 to 1993, he was a
consultant for Corporate Decisions, Inc., an international business consulting
firm.
Ronald L. Merriman has served as Executive Vice President of the Company
and President of Ambassador Performance Group, Inc. since August 1997. From 1967
to August 1997, Mr. Merriman was with KPMG Peat Marwick ("KPMG"), the
international accounting and consulting firm, where he was a partner from July
1977 to August 1997, and served on KPMG's National Management Committee from
October 1990 to August 1997. Mr. Merriman also served as KPMG's National and
International Managing Partner -- Health Care from July 1993 to August 1997, and
as Area Managing Partner for the Western Region from October 1990 to June 1993.
Previously, he served on KPMG's Board of Directors and as International Partner
in charge of KPMG's transportation and tourism business.
Peter V. Ueberroth has served as Chairman of the Board of the Company since
1995. Since 1989, Mr. Ueberroth has been serving as Managing Director of The
Contrarian Group, a business management company. From 1984 to 1989, Mr.
Ueberroth served as the sixth Commissioner of Major League Baseball. From 1979
to 1984, he served as President and Chief Executive Officer of the Los Angeles
Olympic Organizing Committee. Mr. Ueberroth founded First Travel Corporation in
1962, and sold it to the Carlson
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Travel Group in 1979. Mr. Ueberroth currently serves as a director of The Coca
Cola Company, CB Commercial Real Estate Services Group, Inc., Promus Hotel
Corp., and Transamerica Corporation.
James L. Easton has served as a director of the Company since 1995. Since
1973, Mr. Easton has served as Chairman and President of J.D. Easton Inc. and
Easton Sports Inc., a diversified international sporting goods company. He is
one of only three United States citizens to serve as a member of the
International Olympic Committee. He also serves as President of Federation
Internationale de Tir a l'Arc (FITA -- International Archery Association), is a
member of the Board of Visitors of John E. Anderson Graduate School of
Management at the University of California at Los Angeles, and is an Executive
Board Member of the Salt Lake City Organizing Committee and the U.S. Olympic
Committee.
Rafer L. Johnson has served as a director of the Company since 1995. Mr.
Johnson is a World and Olympic record holder in the decathlon. Mr. Johnson
devotes a substantial amount of his time to mentally and physically handicapped
children and adults. He has been associated with California Special Olympics
since its inception in 1969, served as the President of its Board of Directors
for ten years, and currently is Chairman of its Board of Governors. He has been
appointed to national and international foundations and Presidential
Commissions, with a concentration on youth development. Mr. Johnson also is
National Head Coach for Special Olympics International and a member of its Board
of Directors, and, in addition, serves on a variety of special boards and
committees in the world of sports and community services.
John C. Spence has served as a director of the Company since 1995. From
April 1993 to January 1998, Mr. Spence was President of Avco Insurance Services,
a provider of credit and credit-related insurance to financial institutions, and
a wholly-owned subsidiary of Avco Financial Services, Inc. Since January 1998,
Mr. Spence has been Chairman of the Board of Avco Insurance Services. From
October 1990 to April 1993, he served as President of Endovascular Instruments,
Inc., a manufacturer of medical devices. Prior to that time, Mr. Spence was an
independent business consultant. He is also a director of Avco Financial
Services, Inc., a wholly-owned subsidiary of Textron, Inc.
Richard D.C. Whilden has served as a director of the Company since 1995.
Since 1990, Mr. Whilden has been a principal of The Contrarian Group, a business
management company. He is also Chairman of the Board, President and Chief
Executive Officer of Internet Travel Network, an Internet software service
bureau. From April 1993 to August 1994, Mr. Whilden was the Chairman of the
Board of Directors of Caliber Bank in Phoenix, Arizona and, from December 1993
to August 1994, he was the Chief Executive Officer, President and Chairman of
the Board of Directors of the bank's holding company, Independent Bankcorp of
Arizona, Inc. In addition, Mr. Whilden remained as a director of the holding
company and of the bank until they were sold in 1995. From 1959 to 1989, Mr.
Whilden was employed by TRW, during which time he served as Executive Vice
President from 1984 to 1989.
John A. Ueberroth and Peter V. Ueberroth are brothers. Jeffrey D. Thomas is
the son-in-law of Peter V. Ueberroth. Other than these relationships, there are
no family relationships among the directors and executive officers of the
Company.
29
<PAGE> 31
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 31, 1998, and as adjusted to
reflect the sale of Common Stock offered hereby by the Company and the Selling
Stockholders (assuming no exercise of the Underwriters' over-allotment option)
by (i) each director of the Company, (ii) each executive officer of the Company,
(iii) the Selling Stockholders, (iv) all executive officers and directors of the
Company as a group, and (v) each person known by the Company to own beneficially
5% or more of the outstanding Common Stock.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO OFFERING(1) NUMBER OF AFTER OFFERING(1)
-------------------- SHARES BEING --------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
------------------------ --------- ------- ------------ --------- -------
<S> <C> <C> <C> <C> <C>
Peter V. Ueberroth(2)................. 1,352,575 19.3% -- 1,352,575 15.0%
John A. Ueberroth(3).................. 1,541,585 22.0% 200,000 1,341,585 14.9%
Jeffrey D. Thomas(4).................. 130,100 1.9% -- 130,100 1.4%
Ronald L. Merriman(5)................. 50,000 * -- 50,000 *
James L. Easton(6).................... 5,000 * -- 5,000 *
John C. Spence(7)..................... 6,000 * -- 6,000 *
Rafer L. Johnson(8)................... 5,000 * -- 5,000 *
Richard D. C. Whilden(9).............. 7,620 * -- 7,620 *
Rogal America, Co..................... 140,187 2.0% 18,000 122,187 1.4%
The Kaufmann Fund, Inc.(10)........... 1,000,000 14.3% -- 1,000,000 11.1%
T. Rowe Price Associates, Inc.(11).... 793,600 11.3% -- 793,600 8.8%
All executive officers and directors
as a group (8 persons).............. 3,097,880 44.2% 200,000 2,897,880 32.1%
</TABLE>
- ---------------
* Less than 1%
(1) Includes shares issuable upon the exercise of options or warrants that are
exercisable within 60 days of March 31, 1998. The shares underlying such
options or warrants are deemed to be outstanding for the purpose of
computing the percentage of outstanding stock owned by such persons
individually and by each group of which they are a member, but are not
deemed to be outstanding for the purpose of computing the percentage
ownership of any other person.
(2) Chairman of the Board of the Company. These shares are held in a family
trust of which Mr. Ueberroth is a co-trustee. Mr. Ueberroth's address is
500 Newport Center Drive, Suite 900, Newport Beach, CA 92660.
(3) President and Chief Executive Officer of the Company. Mr. Ueberroth's
address is One Corporate Plaza, Newport Beach, CA 92660.
(4) Executive Vice President, Secretary and Chief Financial Officer of the
Company. Consists of 111,350 shares of Common Stock held in a family trust
and 18,750 shares of Common Stock issuable upon exercise of employee stock
options. Mr. Thomas' address is 110 South Ferrall Street, Spokane, WA
99202.
(5) Executive Vice President of the Company. Includes 37,500 shares of Common
Stock underlying a restrictive stock award to Mr. Merriman, which shares
vest in three equal annual installments commencing January 1, 1999 and as
to which Mr. Merriman has sole voting rights currently. Mr. Merriman's
address is One Corporate Plaza, Newport Beach, CA 92660.
(6) Director. Consists of 5,000 shares of Common Stock issuable upon exercise
of director options. Mr. Easton's address is 7855 Haskell Avenue, Van Nuys,
CA 91406.
(7) Director. Includes 5,000 shares of Common Stock issuable upon exercise of
director options. Mr. Spence's address is 18581 Teller Avenue, Irvine, CA
92715.
(8) Director. Consists of 5,000 shares of Common Stock issuable upon exercise
of director options. Mr. Johnson's address is 6071 Bristol Parkway, #100,
Culver City, CA 90230.
30
<PAGE> 32
(9) Director. Includes 5,000 shares of Common Stock issuable upon exercise of
director options. Mr. Whilden's address is 106 Poinsettia Avenue, Manhattan
Beach, CA 90266.
(10) As reported in a Schedule 13G filed with the Securities and Exchange
Commission by The Kaufmann Fund, Inc., whose address is 140 E. 45th Street,
43rd Floor, New York, NY 10017.
(11) As reported in a Schedule 13G filed with the Securities and Exchange
Commission by T. Rowe Price Associates, Inc., whose address is 100 East
Pratt Street, Baltimore, MD 21202. According to such Schedule 13G, these
securities are owned by various individual and institutional investors,
including T. Rowe Price New Horizon Funds, Inc. (which owns 433,000
shares), for which T. Rowe Price Associates, Inc. serves as an investment
advisor with power to direct investments and/or sole power to vote the
securities. T. Rowe Price Associates, Inc. expressly disclaims that it is
the beneficial owner of such securities.
31
<PAGE> 33
UNDERWRITING
NationsBanc Montgomery Securities LLC, Allen & Company Incorporated,
Donaldson, Lufkin & Jenrette Securities Corporation and D.A. Davidson & Co.
(collectively, the "Underwriters") have severally agreed, subject to the terms
and conditions contained in the Underwriting Agreement (the "Underwriting
Agreement"), to purchase from the Company and the Selling Stockholders the
number of shares of Common Stock indicated below opposite their respective
names, at the public offering price less the underwriting discount set forth on
the cover page of this Prospectus. The Underwriting Agreement provides that the
obligations of the Underwriters are subject to certain conditions precedent and
that the Underwriters are committed to purchase all of the shares of Common
Stock if they purchase any.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
<S> <C>
NationsBanc Montgomery Securities LLC.......................
Allen & Company Incorporated................................
Donaldson, Lufkin & Jenrette Securities Corporation.........
D.A. Davidson & Co. ........................................
---------
Total............................................. 2,218,000
=========
</TABLE>
The Underwriters have advised the Company and the Selling Stockholders that
they propose initially to offer the Common Stock to the public on the terms set
forth on the cover page of this Prospectus. The Underwriters may allow selected
dealers a concession of not more than $ per share, and the Underwriters may
allow, and such dealers may reallow, a concession of not more than $ per
share to certain other dealers. After the Offering, the offering price and other
selling terms may be changed by the Underwriters. The Common Stock is offered
subject to receipt and acceptance by the Underwriters and to certain other
conditions, including the right to reject orders in whole or in part.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to 332,700
additional shares of Common Stock to cover over-allotments, if any, at the same
price per share as the initial 2,218,000 shares to be purchased by the
Underwriters. To the extent that the Underwriters exercise this option, each of
the Underwriters will be committed, subject to certain conditions, to purchase
such additional shares in approximately the same proportion as set forth in the
above table. The Underwriters may purchase such shares only to cover over-
allotments made in connection with the Offering.
The Underwriting Agreement provides that the Company and the Selling
Stockholders will indemnify the Underwriters against certain liabilities,
including civil liabilities under the Securities Act of 1933, as amended (the
"Securities Act"), or will contribute to payments the Underwriters may be
required to make in respect thereof.
Each director and officer of the Company and each Selling Stockholder has
agreed, for a period of 90 days from the date of this Prospectus, that they will
not, directly or indirectly, offer to sell, sell, contract or grant any option
to sell, or otherwise dispose of or transfer any shares of Common Stock or any
securities convertible into or exchangeable for Common Stock without the consent
of NationsBanc Montgomery Securities LLC. The Company has agreed not to,
directly or indirectly, offer to sell, sell, contract or grant any option to
sell or otherwise dispose of or transfer any shares of Common Stock or any
securities convertible into or exchangeable for Common Stock for a period of 90
days from the date of this Prospectus without the prior written consent of
NationsBanc Montgomery Securities LLC, except that the Company may, without such
consent, grant stock options pursuant to its 1995 Equity Participation Plan,
issue shares of Common Stock upon exercise of outstanding stock options and
issue unregistered shares as consideration for acquired businesses.
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission (the "Commission") may limit the ability of
the Underwriters and certain selling group members to bid for and purchase the
Common Stock. As an exception to these rules, an Underwriter is permitted to
engage in certain transactions that stabilize the price of the Common Stock.
Such transactions
32
<PAGE> 34
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the Common Stock. If the Underwriters create a short position in
the Common Stock in connection with the offering, i.e., if they sell more shares
of Common Stock than are set forth on the cover page of this Prospectus, the
Underwriters may reduce that short position by purchasing Common Stock in the
open market. The Underwriters may also elect to reduce any short position by
exercising all or part of the over-allotment option described above. The
Underwriters may also impose a penalty bid on certain selling group members.
This means that if the Underwriters purchase shares of Common Stock in the open
market to reduce their short position or to stabilize the price of the Common
Stock, they may reclaim the amount of the selling concession from the selling
group members who sold those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security. Neither the Company nor any of the
Underwriters makes any representation or predictions as to the direction or
magnitude of any effect that the transactions described above may have on the
price of the Common Stock. In addition, neither the Company nor any of the
Underwriters makes any representation that the Underwriters will engage in such
transactions or that such transactions, once commenced, will not be discontinued
without notice.
In connection with this offering, certain Underwriters may engage in
passive market making transactions in the Common Stock on the Nasdaq National
Market immediately prior to the commencement of sales in this offering, in
accordance with Rule 103 under Regulation M. Passive market making consists of
displaying bids on the Nasdaq National Market that are limited by the bid prices
of independent market makers and completing purchases in response to order flow
at prices limited by such bids. Net purchases by a passive market maker on each
day are limited to a specified percentage of the passive market maker's average
daily trading volume in the Common Stock during a specified period and must be
discontinued for any day in which such limit is reached. Passive market making
may stabilize the market price of the Common Stock at a level above that which
might otherwise prevail and, if commenced, may be discontinued at any time.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company and the Selling Stockholders by Richman, Lawrence, Mann, Chizever &
Phillips, Beverly Hills, California. Pillsbury Madison & Sutro LLP, San
Francisco, California, is acting as counsel for the Underwriters in connection
with certain legal matters relating to the shares of the Common Stock offered
hereby.
EXPERTS
The consolidated balance sheets as of December 31, 1997 and 1996 and the
consolidated statements of income, changes in shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1997
incorporated by reference in this Prospectus have been incorporated herein in
reliance on the report, which includes an explanatory paragraph for the change
in accounting for impairment of long-lived assets in 1996, of Coopers & Lybrand
L.L.P., independent accountants, given on the authority of that firm as experts
in accounting and auditing.
The financial statements with respect to the acquisition of Rogal America,
Co. incorporated in this Prospectus by reference to the Company's Current Report
on Form 8-K dated February 12, 1998 (as amended on Form 8-K/A dated April 2,
1998) have been audited by Starr, Finer, Starr LLP, independent auditors, as
stated in their report incorporated herein by reference, and have been so
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
33
<PAGE> 35
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act with respect to the Common Stock offered hereby. As
used herein, the term "Registration Statement" means the initial Registration
Statement and any and all amendments thereto. This Prospectus omits certain
information contained in said Registration Statement as permitted by the rules
and regulations of the Commission. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement, including the exhibits thereto. Statements herein
concerning the contents of any contract or other document are not necessarily
complete and in each instance reference is made to such contract or other
document filed with the Commission as an exhibit to the Registration Statement
or otherwise filed with the Commission. Each such statement is qualified in its
entirety by such reference.
The Company is subject to the reporting requirements of the Exchange Act
and files reports, proxy statements and other information with the Commission in
accordance therewith. Such reports, proxy statements, and other information
filed by the Company are available for inspection and copying at the public
reference facilities of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices located at 7 World Trade
Center, Suite 1300, New York, New York 10048, and at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material may be obtained by mail from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission maintains a World Wide Web site on the Internet at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants, including the Company, that file
electronically with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by the Company (File No.
0-26420) are incorporated by reference in this Prospectus:
1. The Company's Annual Report on Form 10-K for the year ended
December 31, 1997;
2. The Company's Current Report on Form 8-K dated February 12, 1998
(as amended on Form 8-K/A dated April 2, 1998); and
3. The description of the Company's Common Stock contained in the
Company's registration statement on Form 8-A filed under Section 12 of the
Exchange Act, dated July 12, 1995, including any amendment or report
updating such description.
In addition, all documents filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and
prior to the termination of the Offering shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing of
such documents (such documents, and the documents enumerated above, being
hereinafter referred to as "Incorporated Documents"). Any statement contained
herein or in an Incorporated Document shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed Incorporated Document
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus has been delivered, upon the written or oral request of any such
person, a copy of any and all of the Incorporated Documents, other than exhibits
to such documents, unless such exhibits are specifically incorporated by
reference therein. Requests should be directed to Investor Relations,
Ambassadors International, Inc., 110 S. Ferrall Street, Spokane, Washington
99202, Attention: Jeffrey D. Thomas, telephone number (509) 534-6200. The
information relating to the Company contained in this Prospectus does not
purport to be comprehensive and should be read together with the information
contained in the Incorporated Documents.
34
<PAGE> 36
[Inside Cover]
[Artwork]
35
<PAGE> 37
======================================================
No dealer, salesperson or other person has been authorized to give any
information or to make any representation other than those contained in this
Prospectus in connection with this offering and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or the Selling Stockholders or any Underwriter. This Prospectus
does not constitute an offer to sell or a solicitation of an offer to buy any of
the securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer in such jurisdiction. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that the information contained herein is correct as of any time
subsequent to the date hereof or that there has been no change in the affairs of
the Company since such date.
----------------------------------------
TABLE OF CONTENTS
----------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary................ 3
Risk Factors...................... 7
Use of Proceeds................... 12
Price Range of Common Stock....... 12
Dividend Policy................... 12
Capitalization.................... 13
Selected Consolidated Financial
Data............................ 14
Management's Discussion and
Analysis of Financial Condition
and Results of Operations....... 16
Business.......................... 21
Management........................ 28
Principal and Selling
Stockholders.................... 30
Underwriting...................... 32
Legal Matters..................... 33
Experts........................... 33
Available Information............. 34
Incorporation of Certain Documents
By Reference.................... 34
========================================
</TABLE>
======================================================
2,218,000 SHARES
[AMBASSADORS INTERNATIONAL, INC. LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
NationsBanc Montgomery
Securities LLC
Allen & Company Incorporated
Donaldson, Lufkin & Jenrette
Securities Corporation
D.A. Davidson & Co.
, 1998
======================================================
<PAGE> 38
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses relating to the distribution will be borne by the registrant.
Such expenses are estimated to be as follows:
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 19,658
The Nasdaq Stock Market Listing Fee......................... 17,500
NASD Filing Fee............................................. 7,164
Blue Sky Fees and Expenses.................................. 7,500
Transfer Agent and Registrar Fees........................... 2,500
Legal Fees and Expenses..................................... 125,000
Printing Expenses........................................... 75,000
Accounting Fees and Expenses................................ 80,000
Miscellaneous............................................... 678
--------
Total............................................. $335,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation provides that, to the fullest
extent permitted by the Delaware General Corporation Law ("Delaware Law"), a
Director of the Company shall not be liable to the Company or its stockholders
for monetary damages for breach of fiduciary duty as a Director. Under current
Delaware Law, liability of a director may not be limited (i) for any breach of
the director's duty of loyalty to the Company or its stockholders, (ii) for acts
or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) in respect of certain unlawful dividend payments
or stock redemptions or repurchases, and (iv) for any transaction from which the
director derives an improper personal benefit. The effect of the provision of
the Company's Certificate of Incorporation is to eliminate the rights of the
Company and its stockholders (through stockholders' derivative suits on behalf
of the Company) to recover monetary damages against a director for breach of the
fiduciary duty of care as a director (including breaches resulting from
negligent or grossly negligent behavior) except in the situations described in
clauses (i) through (iv) above. This provision does not limit or eliminate the
rights of the Company or any stockholder to seek nonmonetary relief such as an
injunction or rescission in the event of a breach of a director's duty of care.
In addition, the Company's Certificate of Incorporation provides that the
Company shall indemnify its directors, officers, employees and agents against
losses incurred by any such person by reason of the fact that such person was
acting in such capacity.
In addition, the Company has entered into agreements (the "Indemnification
Agreements") with each of the directors and officers of the Company pursuant to
which the Company has agreed to indemnify such director or officer from claims,
liabilities, damages, expenses, losses, costs, penalties or amounts paid in
settlement incurred by such director or officer and arising out of his capacity
as a director, officer, employee and/or agent of the corporation of which he is
a director or officer to the maximum extent provided by applicable law. In
addition, such director or officer is entitled to an advance of expenses to the
maximum extent authorized or permitted by law to meet the obligations
indemnified against. The Indemnification Agreements also obligate the Company to
purchase and maintain insurance for the benefit and on behalf of its directors
and officers insuring against all liabilities that may be incurred by such
director or officer in or arising out of his capacity as a director, officer,
employee and/or agent of the Company.
To the extent that the Board of Directors or the stockholders of the
Company may in the future wish to limit or repeal the ability of the Company to
indemnify directors, such repeal or limitation may not be effective as to
directors and officers who are currently parties to the Indemnification
Agreements, because their rights to full protection are contractually assured by
the Indemnification Agreements. It is anticipated that similar contracts may be
entered into, from time to time, with future directors of the Company.
II-1
<PAGE> 39
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
4.1 Specimen Stock Certificate (Filed as an exhibit of the same
number to the Company's Registration Statement on Form S-1
(Registration No. 33-93586) and incorporated herein).
5.1 Opinion of Richman, Lawrence, Mann, Chizever & Phillips.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Starr, Finer, Starr LLP.
23.3 Consent of Richman, Lawrence, Mann, Chizever & Phillips
(included in its opinion set forth in Exhibit 5.1).
24.1 Powers of Attorney (set forth on Page II-3).
</TABLE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act
of 1933, each filing of the registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(2) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by a controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of
such issue.
(3) That for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(4) That for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE> 40
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Spokane, Washington, on April 3, 1998.
AMBASSADORS INTERNATIONAL, INC.
By: /s/ JOHN A. UEBERROTH
------------------------------------
John A. Ueberroth
President and Chief Executive
Officer
POWER OF ATTORNEY
Each of the undersigned hereby constitutes and appoints Messrs. John A.
Ueberroth and Jeffrey D. Thomas, and each of them, as his attorneys-in-fact and
agents, with full power of substitution and resubstitution for him in any and
all capacities, to sign any and all amendments or post-effective amendments to
this Registration Statement, and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto each of such attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary in connection with such matters and hereby ratifying and confirming
all that each of such attorneys-in-fact and agents or his substitutes may do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on the 3rd day of April, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ JOHN A. UEBERROTH President and Chief Executive Officer
- ----------------------------------------------------- (Principal Executive Officer)
John A. Ueberroth
/s/ PETER V. UEBERROTH Chairman of the Board of Directors
- -----------------------------------------------------
Peter V. Ueberroth
/s/ JEFFREY D. THOMAS Chief Financial Officer
- ----------------------------------------------------- (Principal Financial and Accounting Officer)
Jeffrey D. Thomas
/s/ JAMES L. EASTON Director
- -----------------------------------------------------
James L. Easton
/s/ RICHARD D.C. WHILDEN Director
- -----------------------------------------------------
Richard D.C. Whilden
/s/ JOHN C. SPENCE Director
- -----------------------------------------------------
John C. Spence
/s/ RAFER L. JOHNSON Director
- -----------------------------------------------------
Rafer L. Johnson
</TABLE>
II-3
<PAGE> 41
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1 Form of Underwriting Agreement
4.1 Specimen Stock Certificate (Filed as an exhibit of the same
number to the Company's Registration Statement on Form S-1
(Registration No. 33-93586) and incorporated herein)
5.1 Opinion of Richman, Lawrence, Mann, Chizever & Phillips
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Starr, Finer, Starr LLP.
23.3 Consent of Richman, Lawrence, Mann, Chizever & Phillips
(included in its opinion set forth in Exhibit 5.1)
24.1 Powers of Attorney (set forth on Page II-3)
</TABLE>
<PAGE> 1
EXHIBIT 1.1
2,218,000 SHARES
AMBASSADORS INTERNATIONAL, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
, 1998
NATIONSBANC MONTGOMERY SECURITIES LLC
ALLEN & COMPANY INCORPORATED
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
D. A. DAVIDSON & CO.
c/o NATIONSBANC MONTGOMERY SECURITIES LLC
600 Montgomery Street
San Francisco, California 94111
Ladies and Gentlemen:
SECTION 1. Introductory. Ambassadors International, Inc., a Delaware
corporation (the "Company"), proposes to issue and sell 2,000,000 shares of its
authorized but unissued Common Stock, par value $0.01 per share (the "Common
Stock"), and certain stockholders of the Company named in Schedule B annexed
hereto (the "Selling Stockholders") propose to sell an aggregate of 218,000
shares of the Company's issued and outstanding Common Stock to you (sometimes
called herein the "Underwriters"). Said aggregate of 2,218,000 shares are herein
called the "Firm Common Shares." In addition, the Company proposes to grant to
the Underwriters an option to purchase up to 332,700 additional shares of Common
Stock (the "Optional Common Shares"), as provided in Section 5 hereof. The Firm
Common Shares and, to the extent such option is exercised, the Optional Common
Shares are hereinafter collectively referred to as the "Common Shares."
You have advised the Company and the Selling Stockholders that you propose
to make a public offering of your respective portions of the Common Shares on
the effective date of the registration statement hereinafter referred to, or as
soon thereafter as in your judgment is advisable.
The Company and each of the Selling Stockholders hereby confirm(s) their
respective agreements with respect to the purchase of the Common Shares by the
Underwriters as follows:
SECTION 2. Representations and Warranties of the Company. The Company
represents and warrants to the several Underwriters that as of the date hereof:
(a) A registration statement on Form S-3 (File No. 333- ) with
respect to the Common Shares has been prepared by the Company in conformity
in all material respects with the requirements of the Securities Act of
1933, as amended (the "Act"), and the rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission")
thereunder, and has been filed with the Commission. The Company has
prepared and has filed or proposes to file prior to the effective date of
such registration statement an amendment or amendments to such registration
statement, which amendment or amendments have been or will be similarly
prepared. There have been delivered to you two signed copies of such
registration statement and amendments, together with two copies of each
exhibit filed therewith. Conformed copies of such registration statement
and amendments (but without exhibits) and of the related preliminary
prospectus have been delivered to you in such reasonable quantities as you
have requested. The Company will next file with the Commission one of the
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following: (i) prior to effectiveness of such registration statement, a
further amendment thereto, including the form of final prospectus, (ii) a
final prospectus in accordance with Rules 430A and 424(b) of the Rules and
Regulations, or (iii) a term sheet (the "Term Sheet") as described in and
in accordance with Rules 434 and 424(b) of the Rules and Regulations. As
filed, the final prospectus, if one is used, or the Term Sheet and
Preliminary Prospectus (as hereinafter defined), if a final prospectus is
not used, shall include all Rule 430A Information (as hereinafter defined)
and, except to the extent that you shall agree in writing to a
modification, shall be in all substantive respects in the form furnished to
you prior to the date and time that this Agreement was executed and
delivered by the parties hereto, or, to the extent not completed at such
date and time, shall contain only such specific additional information and
other changes (beyond that contained in the latest Preliminary Prospectus
as hereinafter defined) as the Company shall have previously advised you in
writing would be included or made therein.
The term "Registration Statement" as used in this Agreement shall mean
such registration statement at the time such registration statement becomes
effective and, in the event any post-effective amendment thereto becomes
effective prior to the First Closing Date (as hereinafter defined), shall
also mean such registration statement as so amended; provided, however,
that such term shall also include (i) all Rule 430A Information deemed to
be included in such registration statement at the time such registration
statement becomes effective as provided by Rule 430A of the Rules and
Regulations, and (ii) a registration statement, if any, filed pursuant to
Rule 462(b) of the Rules and Regulations relating to the Common Shares. The
term "Preliminary Prospectus" shall mean any preliminary prospectus
referred to in the preceding paragraph and any preliminary prospectus
included in the Registration Statement at the time it becomes effective
that omits Rule 430A Information. The term "Prospectus" as used in this
Agreement shall mean either (i) the prospectus relating to the Common
Shares in the form in which it is first filed with the Commission pursuant
to Rule 424(b) of the Rules and Regulations, or (ii) if a Term Sheet is not
used and no filing pursuant to Rule 424(b) of the Rules and Regulations is
required, the form of final prospectus included in the Registration
Statement at the time such registration statement becomes effective, or
(iii) if a Term Sheet is used, the Term Sheet in the form in which it is
first filed with the Commission pursuant to Rule 424(b) of the Rules and
Regulations, together with the Preliminary Prospectus included in the
Registration Statement at the time it becomes effective. The term "Rule
430A Information" means information with respect to the Common Shares and
the offering thereof permitted to be omitted from the Registration
Statement when it becomes effective pursuant to Rule 430A of the Rules and
Regulations. Any reference herein to any Preliminary Prospectus or the
Prospectus shall be deemed to refer to and include the documents
incorporated or deemed to be incorporated by reference therein pursuant to
Form S-3 under the Act, as of the date of such Preliminary Prospectus or
Prospectus, as the case may be; all references herein to financial
statements and schedules and other information which is "contained,"
"included" or "stated" in the Registration Statement or the Prospectus (and
all other references of like import) shall be deemed to mean and include
all such financial statements and schedules and other information which is
or is deemed to be incorporated by reference in the Registration Statement
or the Prospectus, as the case may be; and all references in this Agreement
to amendments or supplements to the Registration Statement or the
Prospectus shall be deemed to mean and include the filing of any document
under the Securities Exchange Act of 1934 and the rules and regulations
promulgated thereunder (collectively, the "Exchange Act") which is or is
deemed to be incorporated by reference in the Registration Statement or the
Prospectus, as the case may be.
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus, and each Preliminary Prospectus has
conformed in all material respects to the requirements of the Act and the
Rules and Regulations and, as of its date, has not included any untrue
statement of a material fact or omitted to state a material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading; and at the time the Registration
Statement becomes effective, and at all times subsequent thereto up to and
including each Closing Date hereinafter mentioned, the Registration
Statement and the Prospectus, and any amendments or supplements thereto,
will contain all material statements and information required to be
included therein by the Act and the Rules and Regulations and will in all
material respects conform to the requirements of
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the Act and the Rules and Regulations, and neither the Registration
Statement nor the Prospectus, nor any amendment or supplement thereto, did
or will include 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 not misleading; provided, however, no representation or
warranty contained in this subsection 2(b) shall be applicable to
information contained in or omitted from any Preliminary Prospectus, the
Registration Statement, the Prospectus or any such amendment or supplement
in reliance upon and in conformity with written information furnished to
the Company by or on behalf of you, specifically for use in the preparation
thereof. Each Preliminary Prospectus and the Prospectus was, when and if
filed by electronic transmission pursuant to the Commission's Electronic
Data Gathering, Analysis and Retrieval System ("EDGAR") (except as may be
permitted by Regulation S-T under the Act), identical to the copy thereof
delivered to the Underwriters for use in connection with the offer and sale
of the Common Shares. The documents incorporated by reference in the
Prospectus, when they were filed with the Commission, conformed in all
material respects to the requirements of the Exchange Act, and the rules
and regulations of the Commission thereunder, and none of such documents
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading.
(c) The Company does not own or control, directly or indirectly, any
corporation, association or other entity other than the subsidiaries listed
in Exhibit 21.1 to the Annual Report on Form 10-K for the Company's fiscal
year ended December 31, 1997 (the "Company Form 10-K"), Ambassador
Specialty Group, Inc. a Delaware corporation (such entities being referred
to herein as the "subsidiaries" of the Company). The Company and each of
its subsidiaries have been duly incorporated and are validly existing as
corporations in good standing under the laws of their respective
jurisdictions of incorporation, with full power and authority (corporate
and other) to own and lease their properties and conduct their respective
businesses as described in the Prospectus; the Company, or one of its
wholly owned subsidiaries, owns all of the outstanding capital stock of its
subsidiaries free and clear of all claims, liens, charges and encumbrances;
the Company and each of its subsidiaries are in possession of and operating
in compliance with all authorizations, licenses, permits, consents,
certificates and orders material to the conduct of their respective
businesses, all of which are valid and in full force and effect; the
Company and each of its subsidiaries are duly qualified to do business and
in good standing as foreign corporations in each jurisdiction in which the
ownership or leasing of properties or the conduct of their respective
businesses requires such qualification, except for jurisdictions in which
the failure to so qualify would not have a material adverse effect upon the
Company or its subsidiaries, taken as a whole; and no proceeding has been
instituted in any such jurisdiction, revoking, limiting or curtailing, or
seeking to revoke, limit or curtail, such power and authority or
qualification.
(d) The Company has an authorized and outstanding capital stock as set
forth under the heading "Capitalization" in the Prospectus; the issued and
outstanding shares of Common Stock have been duly authorized and validly
issued, are fully paid and nonassessable, have been issued in compliance
with all federal and state securities laws, were not issued in violation of
or subject to any preemptive rights or other rights to subscribe for or
purchase securities, and conform to the description thereof contained in
the Prospectus. All issued and outstanding shares of capital stock of each
subsidiary of the Company have been duly authorized and validly issued and
are fully paid and nonassessable. Except as disclosed in or contemplated by
the Prospectus and the financial statements of the Company, and the related
notes thereto, included in the Prospectus, neither the Company nor any
subsidiary has outstanding any options to purchase, or any preemptive
rights or other rights to subscribe for or to purchase, any securities or
obligations convertible into, or any contracts or commitments to issue or
sell, shares of its capital stock or any such options, rights, convertible
securities or obligations. The description of the Company's stock option,
stock bonus and other stock plans or arrangements, and the options or other
rights granted and exercised thereunder, set forth in or incorporated by
reference in the Prospectus accurately and fairly presents the information
required to be shown with respect to such plans, arrangements, options and
rights.
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(e) The Common Shares to be sold by the Company have been duly
authorized and, when issued, delivered and paid for in the manner set forth
in this Agreement, will be duly authorized, validly issued, fully paid and
nonassessable, and will conform to the description thereof contained in the
Prospectus. No preemptive rights or other rights to subscribe for or
purchase exist with respect to the issuance and sale of the Common Shares
by the Company pursuant to this Agreement. No stockholder of the Company
has any right which has not been waived to require the Company to register
the sale of any shares owned by such stockholder under the Act in the
public offering contemplated by this Agreement. No further approval or
authority of the stockholders or the Board of Directors of the Company will
be required for the transfer and sale of the Common Shares to be sold by
the Selling Stockholders or the issuance and sale of the Common Shares to
be sold by the Company as contemplated herein.
(f) The Company has full legal right, power and authority to enter
into this Agreement and perform the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by the Company
and constitutes a valid and binding obligation of the Company in accordance
with its terms. The making and performance of this Agreement by the Company
and the consummation of the transactions herein contemplated will not
violate any provisions of the certificate of incorporation or bylaws, or
other organizational documents, of the Company or any of its subsidiaries,
and will not conflict with, result in the breach or violation of, or
constitute, either by itself or upon notice or the passage of time or both,
a default under any agreement, mortgage, deed of trust, lease, franchise,
license, indenture, permit or other instrument to which the Company or any
of its subsidiaries is a party or by which the Company or any of its
subsidiaries or any of its respective properties may be bound or affected,
any statute or any authorization, judgment, decree, order, rule or
regulation of any court or any regulatory body, administrative agency or
other governmental body applicable to the Company or any of its
subsidiaries or any of their respective properties. No consent, approval,
authorization or other order of any court, regulatory body, administrative
agency or other governmental body is required for the execution and
delivery of this Agreement or the consummation of the transactions
contemplated by this Agreement, except for compliance with the Act, the
Blue Sky laws applicable to the public offering of the Common Shares by the
several Underwriters and the clearance of such offering with the National
Association of Securities Dealers, Inc. (the "NASD").
(g) Coopers & Lybrand L.L.P., who have expressed their opinion with
respect to the financial statements and schedules included in or
incorporated by reference in the Prospectus and in the Registration
Statement, are independent accountants as required by the Act and the Rules
and Regulations and by the Exchange Act.
(h) The financial statements and schedules of the Company, and the
related notes thereto, included in or incorporated by reference in the
Registration Statement and the Prospectus present fairly the financial
position of the Company as of the respective dates of such financial
statements and schedules, and the results of operations and changes in
financial position of the Company for the respective periods covered
thereby. Such statements, schedules and related notes have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis as certified by the independent accountants named in
subsection 2(g). No other financial statements or schedules are required to
be included in the Registration Statement. The selected financial and
statistical data set forth in the Prospectus under the captions "Prospectus
Summary -- Summary Selected Financial Data," "Capitalization" and "Selected
Financial Data" fairly present the information set forth therein on the
basis stated in the Registration Statement.
(i) The pro forma consolidated condensed financial statements of the
Company and its subsidiaries and the related notes thereto included under
the captions "Prospectus Summary -- Summary Pro Forma Selected Financial
Data" and "Pro Forma Selected Financial Data" and elsewhere in the
Prospectus and the Registration Statement (including the pro forma summary
information included in the documents incorporated or deemed incorporated
by reference therein), present fairly the information contained therein,
have been prepared in accordance with the Commission's rules and guidelines
with respect to pro forma financial statements and have been properly
presented on the bases described therein, and the assumptions used in the
preparation thereof are reasonable and the adjustments used therein are
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appropriate to give effect to the transactions and circumstances referred
to therein. The financial statements of Rogal America, Co. included or
incorporated by reference in the Registration Statement and the Prospectus
present fairly the consolidated financial position of such entities as of
and at the dates indicated and the results of their operations and cash
flows for the periods specified. Such financial statements have been
prepared in conformity with generally accepted accounting principles
applied on a consistent basis throughout the periods involved as certified
by the independent accountants named therein (each of which are independent
accountants as required by the Act and the Rules and Regulations and by the
Exchange Act), except as may be expressly stated in the related notes
thereto.
(j) Except as disclosed in the Prospectus, and except as to defaults
which individually or in the aggregate would not be material to the
Company, neither the Company nor any of its subsidiaries is in violation or
default of any provision of its certificate of incorporation or bylaws, or
other organizational documents, or is in breach of or default with respect
to any provision of any agreement, judgment, decree, order, mortgage, deed
of trust, lease, franchise, license, indenture, permit or other instrument
to which it is a party or by which it or any of its properties are bound;
and there does not exist any state of facts which constitutes an event of
default on the part of the Company or any such subsidiary as defined in
such documents or which, with notice or lapse of time or both, would
constitute such an event of default.
(k) There are no contracts or other documents required to be described
in the Registration Statement or to be filed as exhibits to the
Registration Statement by the Act or by the Rules and Regulations which
have not been described or filed as required. The contracts so described in
the Prospectus are in full force and effect on the date hereof; and neither
the Company nor any of its subsidiaries, nor to the best of the Company's
knowledge, any other party is in breach of or default under any of such
contracts.
(l) Except as disclosed in the Prospectus, there are no legal or
governmental actions, suits or proceedings pending or, to the best of the
Company's knowledge, threatened to which the Company or any of its
subsidiaries is or may be a party or of which property owned or leased by
the Company or any of its subsidiaries is or may be the subject, or related
to environmental or discrimination matters, which actions, suits or
proceedings might, individually or in the aggregate, prevent or adversely
affect the transactions contemplated by this Agreement or result in a
material adverse change in the condition (financial or otherwise),
properties, business, results of operations or prospects of the Company and
its subsidiaries, taken as a whole; and no labor disturbance by the
employees of the Company or any of its subsidiaries exists or is imminent
which might be expected to affect adversely such condition, properties,
business, results of operations or prospects. Neither the Company nor any
of its subsidiaries is a party or subject to the provisions of any material
injunction, judgment, decree or order of any court, regulatory body,
administrative agency or other governmental body.
(m) The Company or the applicable subsidiary has good and marketable
title to all the properties and assets reflected as owned in the financial
statements hereinabove described (or elsewhere in the Prospectus), subject
to no lien, mortgage, pledge, charge or encumbrance of any kind except (i)
those, if any, reflected in such financial statements (or elsewhere in the
Prospectus), or (ii) those which are not material in amount and do not
adversely affect the use made and proposed to be made of such property by
the Company and its subsidiaries. The Company or the applicable subsidiary
holds its leased properties under valid and binding leases, with such
exceptions as are not materially significant in relation to the business of
the Company and its subsidiaries, taken as a whole. Except as disclosed in
the Prospectus, the Company and its subsidiaries own or lease all such
properties as are necessary to its operations as now conducted or as
proposed to be conducted.
(n) Since the respective dates as of which information is given in the
Registration Statement and Prospectus, and except as described in or
specifically contemplated by the Prospectus: (i) the Company and its
subsidiaries have not incurred any material liabilities or obligations,
indirect, direct or contingent, or entered into any material verbal or
written agreement or other transaction which is not in the ordinary course
of business or which is reasonably likely to have a material adverse effect
on the condition (financial or otherwise), business, results of operations
or prospects of the Company and its subsidiaries,
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taken as a whole; (ii) the Company and its subsidiaries have not sustained
any loss or interference with their respective businesses or properties
material to the Company and its subsidiaries, taken as a whole, from fire,
flood, windstorm, accident or other calamity, whether or not covered by
insurance; (iii) the Company has not paid or declared any dividends or
other distributions with respect to its capital stock and the Company and
its subsidiaries are not in default in the payment of principal or interest
on any outstanding debt obligations; (iv) there has not been any change in
the capital stock (other than upon the sale of the Common Shares hereunder
and upon the exercise of options and warrants described in the Registration
Statement) or indebtedness material to the Company and its subsidiaries,
taken as a whole (other than in the ordinary course of business); and (v)
there has not been any material adverse change in the condition (financial
or otherwise), business, properties, results of operations or prospects of
the Company and its subsidiaries.
(o) Except as disclosed in or specifically contemplated by the
Prospectus, (i) the Company and its subsidiaries own or have the legal
right to use all trademarks, trade names, patent rights, mask works,
copyrights, licenses, approvals and governmental authorizations to conduct
their respective businesses as now conducted; (ii) the expiration of any
trademarks, trade names, patent rights, mask works, copyrights, licenses,
approvals or governmental authorizations would not have a material adverse
effect on the condition (financial or otherwise), business, results of
operations or prospects of the Company or its subsidiaries, taken as a
whole; and (iii) the Company has no knowledge of any material infringement
by it or its subsidiaries of trademark, trade name rights, patent rights,
mask works, copyrights, licenses, trade secret or other similar rights of
others, and there is no claim being made against the Company or its
subsidiaries regarding trademark, trade name, patent, mask work, copyright,
license, trade secret or other infringement which is reasonably likely to
have a material adverse effect on the condition (financial or otherwise),
business, results of operations or prospects of the Company and its
subsidiaries, taken as a whole.
(p) The Company has not been advised, and has no reason to believe,
that either it or any of its subsidiaries is not conducting business in
compliance with all applicable laws, rules and regulations of the
jurisdictions in which it is conducting business, including, without
limitation, all applicable local, state and federal environmental laws and
regulations; except where failure to be so in compliance would not
materially adversely affect the condition (financial or otherwise),
business, results of operations or prospects of the Company and its
subsidiaries, taken as a whole.
(q) The Company and its subsidiaries have filed all necessary federal,
state and foreign income and franchise tax returns and have paid all taxes
shown as due thereon; and the Company has no knowledge of any tax
deficiency which has been or might be asserted or threatened against the
Company or its subsidiaries which could materially and adversely affect the
business, operations or properties of the Company and its subsidiaries,
taken as a whole.
(r) The Company is not an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
(s) The Company has not distributed and will not distribute prior to
the First Closing Date any offering material in connection with the
offering and sale of the Common Shares other than the Prospectus, the
Registration Statement and the other materials permitted by the Act.
(t) Each of the Company and its subsidiaries maintains insurance of
the types and in the amounts generally deemed adequate for its business,
including, but not limited to, insurance covering real and personal
property owned or leased by the Company and its subsidiaries against theft,
damage, destruction, acts of vandalism and all other risks customarily
insured against, all of which insurance is in full force and effect.
(u) Neither the Company nor any of its subsidiaries has at any time
during the last five years (i) made any unlawful contribution to any
candidate for foreign office, or failed to disclose fully any contribution
in violation of law, or (ii) made any payment to any foreign, federal or
state governmental
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officer or official, or other person charged with similar public or
quasi-public duties, other than payments required or permitted by the laws
of the United States or any jurisdiction thereof.
(v) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might be reasonably expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Common Shares.
(w) The Common Stock (including the Common Shares) is registered
pursuant to Section 12(g) of the Exchange Act and is duly listed on the
Nasdaq National Market, and the Company has taken no action designed to, or
likely to have the effect of, terminating the registration of the Common
Stock under the Exchange Act or delisting the Common Stock from the Nasdaq
National Market, nor has the Company received any notification that the
Commission or the NASD is contemplating terminating such registration or
listing.
SECTION 3. Representations, Warranties and Covenants of the Selling
Stockholders.
(a) Each of the Selling Stockholders severally represents and warrants to,
and agrees with, the several Underwriters that:
(i) Such Selling Stockholder has, and on the First Closing Date
hereinafter mentioned will have, good and valid title to the Common Shares
proposed to be sold by such Selling Stockholder hereunder on such Closing
Date and full right, power and authority to enter into this Agreement and
to sell, assign, transfer and deliver such Common Shares hereunder, free
and clear of all voting trust arrangements, liens, encumbrances, equities,
security interests, restrictions and claims whatsoever other than pursuant
to the Stockholders Agreement (as defined in paragraph (ii) below); and
upon delivery of and payment for such Common Shares hereunder in accordance
with the terms and conditions of this Agreement, the Underwriters will
acquire good and valid title thereto, free and clear of all liens,
encumbrances, equities, claims, restrictions, security interests, voting
trusts or other defects of title whatsoever, other than any of the
foregoing created by or through the Underwriters.
(ii) Such Selling Stockholder has executed and delivered a Power of
Attorney and caused to be executed and delivered on his or her behalf a
Custody Agreement (hereinafter collectively referred to as the
"Stockholders Agreement"), and in connection therewith such Selling
Stockholder has deposited in custody, under the Stockholders Agreement,
with the agent named therein (the "Agent") as custodian, certificates in
negotiable form for the Common Shares to be sold hereunder by such Selling
Stockholder, for the purpose of delivery pursuant to this Agreement. Such
Selling Stockholder agrees that the Common Shares to be sold by such
Selling Stockholder on deposit with the Agent are subject to the interests
of the Company and the Underwriters under this Agreement, that the
arrangements made for such custody are to that extent irrevocable, and that
the obligations of such Selling Stockholder hereunder shall not be
terminated, except as provided in this Agreement or in the Stockholders
Agreement, by any act of such Selling Stockholder, by operation of law, by
the death or incapacity of such Selling Stockholder or by the occurrence of
any other event. If the Selling Stockholder should die or become
incapacitated, or if any other event should occur, before the delivery of
the Common Shares hereunder, the documents evidencing Common Shares then on
deposit with the Agent shall be delivered by the Agent in accordance with
the terms and conditions of this Agreement as if such death, incapacity or
other event had not occurred, regardless of whether or not the Agent shall
have received notice thereof. This Agreement and the Stockholders Agreement
have been duly executed and delivered by or on behalf of such Selling
Stockholder and the form of such Stockholders Agreement has been delivered
to you.
(iii) The performance of this Agreement and the Stockholders Agreement
and the consummation of the transactions contemplated hereby and by the
Stockholders Agreement will not result in a breach or violation by such
Selling Stockholder of any of the terms or provisions of, or constitute a
default by such Selling Stockholder under, any indenture, mortgage, deed of
trust, trust (constructive or other), loan agreement, lease, franchise,
license or other agreement or instrument to which such Selling Stockholder
is a party or by which such Selling Stockholder or any of its properties is
bound, any statute, or any judgment, decree, order, rule or regulation of
any court or governmental agency or body applicable to
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such Selling Stockholder or any of its properties, except in each case for
any violation, breach or default which would not have a material adverse
effect on the ability of such Selling Stockholder to perform its
obligations under this Agreement.
(iv) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action designed to or which has constituted or
which might reasonably be expected to cause or result in stabilization or
manipulation of the price of any security of the Company to facilitate the
sale or resale of the Common Shares.
(v) Such Selling Stockholder has read each Preliminary Prospectus and
the Prospectus, and to the best knowledge of such Selling Stockholder each
Preliminary Prospectus, at its date of issue, and the Prospectus, from its
date of issue through each Closing Date, has not included any untrue
statement of a material fact or omitted to state a material fact necessary
to make the statements therein not misleading in light of the circumstances
under which they were made; and to the best knowledge of such Selling
Stockholder neither the Registration Statement nor the Prospectus, nor any
amendment or supplement thereto, will include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading.
(b) Each of the Selling Stockholders agrees that, for a period commencing
on the date hereof and continuing through the close of trading on the date 90
days after the date of the Prospectus, such Selling Stockholder will not,
without the prior written consent of NationsBanc Montgomery Securities LLC
(which consent may be withheld in its sole discretion), directly or indirectly,
sell, offer, contract or grant any option to sell (including without limitation
any short sale), pledge, transfer, establish an open "put equivalent position"
within the meaning of Rule 16a-1(h) under the Exchange Act, or otherwise dispose
of any shares of the Company's Common Stock or other equity securities, options
or warrants to acquire shares of Common Stock, or securities exchangeable or
exercisable for or convertible into shares of Common Stock currently or
hereafter owned either of record or beneficially (as defined in Rule 13d-3 under
the Exchange Act) by such Selling Stockholder, or publicly announce his
intention to do any of the foregoing.
SECTION 4. Representations and Warranties of the Underwriters. You
represent and warrant to the Company and to the Selling Stockholders that the
information set forth (i) on the cover page of the Prospectus with respect to
price, underwriting discounts and commissions and terms of offering and (ii)
under the caption "Underwriting" in the Prospectus was furnished to the Company
by and on behalf of the Underwriters for use in connection with the preparation
of the Registration Statement and the Prospectus and is correct in all material
respects. NationsBanc Montgomery Securities LLC represents and warrants that it
has been authorized by each of the Underwriters to enter into this Agreement on
their behalf and to act for them in the manner herein provided.
SECTION 5. Purchase, Sale and Delivery of Common Shares. On the basis of
the representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, (i) the Company agrees to issue and
sell to the Underwriters 2,000,000 of the Firm Common Shares, and (ii) the
Selling Stockholders agree, severally and not jointly, to sell to the
Underwriters in the respective amounts set forth in Schedule B hereto, an
aggregate of 218,000 of the Firm Common Shares. The Underwriters agree,
severally and not jointly, to purchase from the Company and the Selling
stockholders, respectively, the number of Firm Common Shares described below.
The purchase price per share to be paid by the several Underwriters to the
Company and to the Selling stockholders, respectively, shall be $ per
share.
The obligation of each Underwriter to the Company shall be to purchase from
the Company that number of full shares which (as nearly as practicable, as
determined by you) bears to 2,000,000 the same proportion as the number of
shares set forth opposite the name of such Underwriter in Schedule A hereto
bears to the total number of Firm Common Shares. The obligation of each
Underwriter to the Selling Stockholders shall be to purchase from the Selling
Stockholders that number of full shares which (as nearly as practicable, as
determined by you) bears to 218,000 the same proportion as the number of shares
set forth opposite the name of such Underwriter in Schedule A hereto bears to
the total number of Firm Common Shares.
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<PAGE> 9
Delivery of certificates for the Firm Common Shares to be purchased by the
Underwriters and payment therefor shall be made at the offices of NationsBanc
Montgomery Securities LLC, 600 Montgomery Street, San Francisco, California (or
such other place as may be agreed upon by the Company and you) at 6:00 a.m., San
Francisco time, on the third (or, if the Firm Common Shares are priced, as
contemplated by Rule 15c6-1(c) of the Exchange Act, after 4:30 p.m. Washington,
D.C. Time, the fourth) full business day following the first date that any of
the Common Shares are released by you for sale to the public, or at such other
time and date not later than 10:30 a.m., San Francisco time, on ,
1998 [insert date 10 business days following the originally contemplated First
Closing Date] as you shall designate by notice to the Company (the time and date
of such closing are referred to herein as the "First Closing Date"); provided,
however, that if the Prospectus is at any time prior to the First Closing Date
recirculated to the public, the First Closing Date shall occur upon the later of
the third or fourth, as the case may be, full business day following the first
date that any of the Common Shares are released by you for sale to the public
(as set forth above) or the date that is 48 hours after the date that the
Prospectus has been so recirculated.
Delivery of certificates for the Firm Common Shares shall be made by or on
behalf of the Company and the Selling Stockholders to you with respect to the
Firm Common Shares to be sold by the Company and by the Selling Stockholders
against the irrevocable release of a wire transfer of immediately available
funds in the amount of the purchase price therefor to the order of the Company
and of the Agent in proportion to the number of Firm Common Shares to be sold by
the Company and the Selling Stockholders, respectively. The certificates for the
Firm Common Shares shall be registered in such names and denominations as you
shall have requested at least two full business days prior to the First Closing
Date, and shall be made available for checking and packaging on the business day
preceding the First Closing Date at a location in New York, New York, as may be
designated by you. Time shall be of the essence, and delivery at the time and
place specified in this Agreement is a further condition to the obligations of
the Underwriters.
In addition, on the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company hereby grants an option to the several Underwriters to purchase,
severally and not jointly, up to an aggregate of 332,700 Optional Common Shares
at the purchase price per share to be paid for the Firm Common Shares, for use
solely in covering any over-allotments made by you for the account of the
Underwriters in the sale and distribution of the Firm Common Shares. The option
granted hereunder may be exercised at any time (but not more than once) within
30 days after the first date that any of the Common Shares are released by you
for sale to the public, upon notice by you to the Company setting forth the
aggregate number of Optional Common Shares as to which the Underwriters are
exercising the option, the names and denominations in which the certificates for
such shares are to be registered and the time and place at which such
certificates will be delivered. Such time of delivery (which may not be earlier
than the First Closing Date), being herein referred to as the "Second Closing
Date," shall be determined by you, but if at any time other than the First
Closing Date shall not be earlier than three nor later than five full business
days after delivery of such notice of exercise. The number of Optional Common
Shares to be purchased by each Underwriter shall be determined by multiplying
the number of Optional Common Shares to be sold by the Company pursuant to such
notice of exercise by a fraction, the numerator of which is the number of Firm
Common Shares to be purchased by such Underwriter as set forth opposite its name
in Schedule A and the denominator of which is 2,218,000 (subject to such
adjustments to eliminate any fractional share purchases as you in your
discretion may make). Certificates for the Optional Common Shares will be made
available for checking and packaging on the business day preceding the Second
Closing Date at a location in New York, New York, as may be designated by you.
The manner of payment for and delivery of the Optional Common Shares shall be
the same as for the Firm Common Shares purchased from the Company as specified
in the two preceding paragraphs. At any time before lapse of the option, you may
cancel such option by giving written notice of such cancellation to the Company.
Notwithstanding the foregoing, in the event that the Registration Statement is
amended or the Prospectus is supplemented between the date hereof and any
Closing Date, the Underwriters shall have the right to delay the Closing Date to
a date which will allow the Underwriters the time necessary to distribute the
Prospectus as amended or supplemented.
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<PAGE> 10
Not later than 12:00 p.m. on the second business day following the date the
Common Shares are released by the Underwriters for sale to the public, the
Company shall deliver or cause to be delivered copies of the Prospectus in such
quantities and at such places as you shall request.
Subject to the terms and conditions hereof, the Underwriters propose to
make a public offering of their respective portions of the Common Shares as soon
after the effective date of the Registration Statement as in your judgment is
advisable and at the public offering price set forth on the cover page of and on
the terms set forth in the Prospectus.
SECTION 6. Covenants of the Company. The Company covenants and agrees that:
(a) The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date
that this Agreement is executed and delivered by the parties hereto, to
become effective. If the Registration Statement has become or becomes
effective pursuant to Rule 430A of the Rules and Regulations, or the filing
of the Prospectus is otherwise required under Rule 424(b) of the Rules and
Regulations, the Company will file the Prospectus, properly completed,
pursuant to the applicable paragraph of Rule 424(b) of the Rules and
Regulations within the time period prescribed and will provide evidence
satisfactory to you of such timely filing. The Company will promptly advise
you in writing (i) of the receipt of any comments of the Commission, (ii)
of any request of the Commission for amendment of or supplement to the
Registration Statement (either before or after it becomes effective), any
Preliminary Prospectus or the Prospectus or for additional information,
(iii) when the Registration Statement shall have become effective and (iv)
of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of the institution of any
proceedings for that purpose. If the Commission shall enter any such stop
order at any time, the Company will use its best efforts to obtain the
lifting of such order at the earliest possible moment. The Company will not
file any amendment or supplement to the Registration Statement (either
before or after it becomes effective), any Preliminary Prospectus or the
Prospectus (including any amendment or supplement through incorporation by
reference of any report filed under the Exchange Act) of which you have not
been furnished with a copy a reasonable time prior to such filing or to
which you reasonably object or which is not in compliance with the Act and
the Rules and Regulations.
(b) The Company will prepare and file with the Commission, promptly
upon your request, any amendments or supplements to the Registration
Statement or the Prospectus which in your judgment may be necessary or
advisable to enable the several Underwriters to continue the distribution
of the Common Shares and will use its best efforts to cause the same to
become effective as promptly as possible. The Company will fully and
completely comply with the provisions of Rule 430A of the Rules and
Regulations with respect to information omitted from the Registration
Statement in reliance upon such Rule.
(c) If at any time within the nine-month period referred to in Section
10(a)(3) of the Act during which a prospectus relating to the Common Shares
is required to be delivered under the Act any event occurs, as a result of
which the Prospectus, including any amendments or supplements, would
include an untrue statement of a material fact, or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, or if it is necessary at any time to
amend the Prospectus, including any amendments or supplements, to comply
with the Act or the Rules and Regulations, the Company will promptly advise
you thereof and will promptly prepare and file with the Commission, at its
own expense, an amendment or supplement which will correct such statement
or omission or an amendment or supplement which will effect such compliance
and will use its best efforts to cause the same to become effective as soon
as possible; and, in case any Underwriter is required to deliver a
prospectus after such nine-month period, the Company upon request, but at
the expense of such Underwriter, will promptly prepare such amendment or
amendments to the Registration Statement and such Prospectus or
Prospectuses as may be necessary to permit compliance with the requirements
of Section 10(a)(3) of the Act.
(d) As soon as practicable, but not later than 45 days after the end
of the first quarter ending after one year following the "effective date of
the Registration Statement" (as defined in Rule 158(c) of the
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Rules and Regulations), the Company will make generally available to its
security holders an earnings statement (which need not be audited) which
will satisfy the provisions of the last paragraph of Section 11(a) of the
Act.
(e) During such period as a prospectus is required by law to be
delivered in connection with sales by an Underwriter or dealer, (i) the
Company, at its expense, but only for the nine-month period referred to in
Section 10(a)(3) of the Act, will furnish to you and the Selling
Stockholders or mail to your order copies of the Registration Statement,
the Prospectus, the Preliminary Prospectus and all amendments and
supplements (including any documents incorporated or deemed incorporated by
reference therein) to any such documents in each case as soon as available
and in such quantities as you and the Selling Stockholders may request, for
the purposes contemplated by the Act and (ii) the Company will file with
the Commission and The Nasdaq Stock Market on a timely basis all documents
required to be filed with the Commission pursuant to the Exchange Act.
(f) The Company shall cooperate with you and your counsel in order to
qualify or register the Common Shares for sale under (or obtain exemptions
from the application of) the Blue Sky laws of such jurisdictions as you
designate, will comply with such laws and will continue such
qualifications, registrations and exemptions in effect so long as
reasonably required for the distribution of the Common Shares. The Company
shall not be required to qualify as a foreign corporation or to file a
general consent to service of process in any such jurisdiction where it is
not presently qualified or where it would be subject to taxation as a
foreign corporation. The Company will advise you promptly of the suspension
of the qualification or registration of (or any such exemption relating to)
the Common Shares for offering, sale or trading in any jurisdiction or any
initiation or threat of any proceeding for any such purpose, and in the
event of the issuance of any order suspending such qualification,
registration or exemption, the Company, with your cooperation, will use its
best efforts to obtain the withdrawal thereof.
(g) During the period of five years hereafter, the Company will
furnish to you: (i) as soon as practicable after the end of each fiscal
year, copies of the Annual Report of the Company containing the balance
sheet of the Company as of the close of such fiscal year and statements of
income, stockholders' equity and cash flows for the year then ended and the
opinion thereon of the Company's independent public accountants; (ii) as
soon as practicable after the filing thereof, copies of each proxy
statement, Annual Report on Form 10-K, Quarterly Report on Form 10-Q,
Current Report on Form 8-K or other report filed by the Company with the
Commission, the NASD or any securities exchange; and (iii) as soon as
available, copies of any report or communication of the Company mailed
generally to holders of its Common Stock.
(h) During the period of 90 days following the date of the Prospectus,
the Company will not, without the prior written consent of NationsBanc
Montgomery Securities LLC (which consent may be withheld at the sole
discretion of NationsBanc Montgomery Securities LLC), directly or
indirectly, sell, offer, contract or grant any option to sell, pledge,
transfer or establish an open "put equivalent position" within the meaning
of Rule 16a-1(h) under the Exchange Act, or otherwise dispose of or
transfer, or announce the offering of, or file any registration statement
under the Act in respect of, any shares of the Company's Common Stock or
other equity securities, options or warrants to acquire shares of the
Company's Common Stock or securities exchangeable or exercisable for or
convertible into shares of Common Stock (other than as contemplated by this
Agreement with respect to the Common Shares, other than the granting of
stock options pursuant to the Company's 1995 Equity Participation Plan and
the exercise of stock options disclosed in the Prospectus, and other than
restricted shares of Common Stock issued as consideration for any
acquisition of a business).
(i) The Company will apply the net proceeds of the sale of the Common
Shares sold by it substantially in accordance with its statements under the
caption "Use of Proceeds" in the Prospectus.
(j) The Company will use its best efforts to qualify or register its
Common Stock for sale in non-issuer transactions under (or obtain
exemptions from the application of) the Blue Sky laws of the State of
California (and thereby permit market making transactions and secondary
trading in the Company's
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<PAGE> 12
Common Stock in California), will comply with such Blue Sky laws and will
continue such qualifications, registrations and exemptions in effect for a
period of five years after the date hereof.
(k) The Company will use its best efforts to maintain the Common Stock
for quotation as a national market system security on The Nasdaq Stock
Market (or for quotation on The New York Stock Exchange).
You may, in your sole discretion, waive in writing the performance by the
Company of any one or more of the foregoing covenants or extend the time for
their performance.
SECTION 7. Payment of Expenses. Whether or not the transactions
contemplated hereunder are consummated or this Agreement becomes effective or is
terminated, the Company agrees to pay all costs, fees and expenses incurred in
connection with the performance of the obligations of the Company and, except as
provided below, the Selling Stockholders, hereunder and in connection with the
transactions contemplated hereby, including without limiting the generality of
the foregoing, (i) all expenses incident to the issuance and delivery of the
Common Shares (including all printing and engraving costs), (ii) all fees and
expenses of the registrar and transfer agent of the Common Stock, (iii) all
necessary issue, transfer and other stamp taxes in connection with the issuance
and sale of the Common Shares to the Underwriters, (iv) all fees and expenses of
the Company's counsel (including fees and expenses relating to the
representation of the Selling Stockholders by the Company's counsel) and the
Company's independent accountants, (v) all costs and expenses incurred in
connection with the preparation, printing, filing, shipping and distribution of
the Registration Statement, each Preliminary Prospectus and the Prospectus
(including all exhibits and financial statements) and all amendments and
supplements provided for herein, this Agreement, the Agreement Among
Underwriters, the Selected Dealers Agreement, the Underwriters' Questionnaire,
the Underwriters' Power of Attorney and the Blue Sky memorandum, (vi) all filing
fees, attorneys' fees and expenses incurred by the Company or the Underwriters
in connection with qualifying or registering (or obtaining exemptions from the
qualification or registration of) all or any part of the Common Shares for offer
and sale under the Blue Sky laws, (vii) the filing fee of the National
Association of Securities Dealers, Inc., and (viii) all other fees, costs and
expenses referred to in Item 13 of the Registration Statement. Except as
provided in this Section 7, Section 9 and Section 11 hereof, the Underwriters
shall pay all of their own expenses, including the fees and disbursements of
their counsel (excluding those relating to qualification, registration or
exemption under the Blue Sky laws and the Blue Sky memorandum referred to
above). This Section 7 shall not affect any agreements relating to the payment
of expenses between the Company and the Selling Stockholders.
The Selling Stockholders will pay (directly or by reimbursement) all fees
and expenses incident to the performance of their obligations under this
Agreement which are not otherwise specifically provided for herein, including
but not limited to (i) any fees and expenses of counsel for such Selling
Stockholders, (ii) any fees and expenses of the Agent, and (iii) all expenses
and taxes incident to the sale and delivery of the Common Shares to be sold by
such Selling Stockholders to the Underwriters hereunder.
SECTION 8. Conditions of the Obligations of the Underwriters. The
obligations of the several Underwriters to purchase and pay for the Firm Common
Shares on the First Closing Date and the Optional Common Shares on the Second
Closing Date shall be subject to the accuracy of the representations and
warranties on the part of the Company and the Selling Stockholders herein set
forth as of the date hereof and as of the First Closing Date or the Second
Closing Date, as the case may be, to the accuracy of the statements of Company
officers and the Selling Stockholders made pursuant to the provisions hereof, to
the performance by the Company and the Selling Stockholders of their respective
obligations hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become effective not later
than 5:00 p.m. (or, in the case of a registration statement filed pursuant
to Rule 462(b) of the Rules and Regulations relating to the Common Shares,
not later than 10:00 p.m.), Washington, D.C. Time, on the date of this
Agreement, or at such later time as shall have been consented to by you; if
the filing of the Prospectus, or any supplement thereto, is required
pursuant to Rule 424(b) of the Rules and Regulations, the Prospectus shall
have been filed in the manner and within the time period required by Rule
424(b) of the Rules and
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<PAGE> 13
Regulations; and prior to such Closing Date, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or shall be pending
or, to the knowledge of the Company, the Selling Stockholders or you, shall
be contemplated by the Commission; and any request of the Commission for
inclusion of additional information in the Registration Statement, or
otherwise, shall have been complied with to your satisfaction.
(b) You shall be satisfied that since the respective dates as of which
information is given in the Registration Statement and Prospectus, (i)
there shall not have been any change in the capital stock of the Company or
its direct or indirect subsidiaries other than pursuant to the exercise of
outstanding options and warrants disclosed in the Prospectus of the Company
or any of its subsidiaries or any material change in the indebtedness
(other than in the ordinary course of business) of the Company or any of
its subsidiaries, taken as a whole, (ii) except as set forth or
contemplated by the Registration Statement or the Prospectus, no material
verbal or written agreement or other transaction shall have been entered
into by the Company or any of its subsidiaries, which is not in the
ordinary course of business or which is reasonably likely to have a
material adverse effect on the condition (financial or otherwise),
business, results of operations or prospects of the Company and its
subsidiaries, taken as a whole, (iii) no loss or damage (whether or not
insured) to the property of the Company or any of its subsidiaries shall
have been sustained which materially and adversely affects the condition
(financial or otherwise), business, results of operations or prospects of
the Company and its subsidiaries, taken as a whole, (iv) no legal or
governmental action, suit or proceeding affecting the Company or any of its
subsidiaries which is material to the Company or any of its subsidiaries,
taken as a whole, or which affects or may affect the transactions
contemplated by this Agreement shall have been instituted or threatened and
(v) there shall not have been any material change in the condition
(financial or otherwise), business, management, results of operations or
prospects of the Company or any of its subsidiaries, taken as a whole,
which makes it impractical or inadvisable in your judgment to proceed with
the public offering or purchase the Common Shares as contemplated hereby.
(c) There shall have been furnished to you, on each Closing Date, in
form and substance satisfactory to you, except as otherwise expressly
provided below:
(i) An opinion of Richman, Lawrence, Mann, Chizever & Phillips,
counsel for the Company, addressed to you and dated the First Closing
Date, or the Second Closing Date, as the case may be, to the effect
that:
(1) Each of the Company and its Material Subsidiaries (as
defined below) has been duly incorporated and is validly existing and
in good standing under the laws of the jurisdiction of its
incorporation, with corporate power and authority to own, lease and
operate its properties and conduct its business as described in the
Registration Statement and the Prospectus, and is duly qualified as a
foreign corporation to transact business and is in good standing in
each jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of
business, except where the failure to so qualify or to be in good
standing would not, individually or in the aggregate, have a material
adverse effect on the Company and its subsidiaries, taken as a whole.
(As used herein, "Material Subsidiary" means (a) each of Ambassador
Education Group, Inc., a Delaware corporation ("AEG"), Ambassador
Performance Group, Inc., a Delaware corporation, The Helin
Organization, a California corporation (all of the foregoing being
wholly owned subsidiaries of the Company), Ambassador Programs, Inc.,
a Delaware corporation, and Ambassador Specialty Group, Inc., a
Delaware corporation (the latter two corporations being wholly owned
subsidiaries of AEG), (b) any subsidiary of the Company deemed to be
such by the Company and you and (c) any corporation (i) of which more
than 50% of the voting stock is owned or controlled by the Company or
by one or more of its subsidiaries and (ii) to such counsel's
knowledge either (x) the total assets of which represent 5% or more
of the total assets of the Company on a consolidated basis as of
March 31, 1998 or (y) the net sales of which represent 5% or more of
the net sales of the Company on a consolidated basis for the year
ended December 31, 1997 or
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for the quarter ended March 31, 1998 or (z) the Company's and its
other subsidiaries' equity in the income from continuing operations
before income taxes, extraordinary items and cumulative effect of
changes in accounting principles of such corporation exceeds 5% of
such income of the Company on a consolidated basis for the year ended
December 31, 1997 or for the quarter ended March 31, 1998.)
(2) All shares of capital stock of the Company issued by the
Company subsequent to August 9, 1995 have been duly authorized and
validly issued, are fully paid and non-assessable, have been issued
in compliance with federal and state securities laws and, to the best
of such counsel's knowledge, are free of preemptive or similar
rights; without limiting the foregoing, to such counsel's knowledge
there are no preemptive or other rights to subscribe for or purchase
any of the Common Shares to be sold by the Company hereunder;
(3) All of the issued and outstanding shares of capital stock of
each of the Material Subsidiaries have been duly authorized and
validly issued, are fully paid and non-assessable, and are owned of
record by the Company (and to such counsel's knowledge, beneficially
by the Company free and clear of all liens, encumbrances, equities,
claims, security interests, voting trusts or other title defects);
and the authorized, issued and outstanding capital stock of the
Company is as set forth under the caption "Capitalization" in the
Prospectus and conforms to the descriptions thereof set forth or
incorporated by reference in the Prospectus;
(4) The Common Shares to be issued and sold by the Company
pursuant to this Agreement have been duly authorized, and when issued
to you and paid for by the Underwriters in accordance with the terms
of this Agreement, will be validly issued, fully paid and
nonassessable, and, to the best knowledge of such counsel, will not
have been issued in violation of or subject to any preemptive rights
or other rights to subscribe for or purchase securities, and the
certificates evidencing the Common Shares to be delivered hereunder
are in due and proper form under Delaware law and under the Company's
Certificate of Incorporation and Bylaws;
(5) The Company has the requisite corporate power and authority
to enter into this Agreement and to sell and deliver the Common
Shares to be sold by it to the several Underwriters; this Agreement
has been duly and validly authorized by all necessary corporate
action by the Company, has been duly and validly executed and
delivered by and on behalf of the Company, and is a valid and binding
agreement of the Company enforceable in accordance with its terms,
except as enforceability may be limited by general equitable
principles, bankruptcy, insolvency, reorganization, moratorium or
other laws affecting creditors' rights generally and except as to
those provisions relating to indemnity or contribution for
liabilities arising under the Act as to which no opinion need be
expressed; the issuance and sale of the Common Shares by the Company
pursuant to this Agreement will not result in the violation by the
Company of its Certificate of Incorporation or Bylaws or the Delaware
General Corporation Law or any federal or California statute, rule or
regulation known to such counsel to be applicable to the Company
(other than federal or state securities laws, which are specifically
addressed elsewhere in the opinion) or, to such counsel's knowledge,
any judgment, order or decree of any governmental body, agency or
court having jurisdiction over the Company or any of its property or
any of its subsidiaries or any of their property, or in a material
breach of or constitute, either by itself or upon notice or the
passage of time or both, a material default under any agreement which
has been filed as an exhibit to the Registration Statement or the
Company 10-K pursuant to Item 601(b)(10) of Regulation S-K, and no
consent, approval, authorization or order of, or filing with, any
court or governmental agency or body is required for the consummation
of the sale of the Common Shares pursuant to this Agreement, except
such as have been obtained and are in full force and effect under the
Act and such as may be required under the Exchange Act or state
securities laws in connection with the purchase and distribution of
such Common Shares by the Underwriters;
(6) The Common Shares have been approved for listing on the
Nasdaq National Market;
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(7) The Registration Statement has become effective under the
Act and, to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement or
preventing the use of the Prospectus has been issued under the Act
and no proceedings therefor have been initiated or threatened by the
Commission; and any required filing of the Prospectus pursuant to
Rule 424(b) under the Act has been made in accordance with Rule
424(b) and 430A under the Act;
(8) The Registration Statement and the Prospectus (including
each amendment or supplement thereto) comply as to form in all
material respects with the requirements for registration statements
on Form S-3 under the Act and the rules and regulations of the
Commission thereunder; it being understood, however, that such
counsel need not express an opinion with respect to the financial
statements, schedules and other financial data included in the
Registration Statement or the Prospectus;
(9) To the best of such counsel's knowledge, there are no
leases, contracts, agreements or documents of a character required to
be disclosed in the Registration Statement or Prospectus or to be
filed as exhibits to the Registration Statement which are not
disclosed or filed, as required;
(10) To the best of such counsel's knowledge, there are no legal
or governmental actions, suits or proceedings pending or threatened
against the Company which are required to be described in the
Prospectus which are not described as required;
(11) The documents incorporated by reference in the Prospectus
(except for any financial statements and schedules included in such
documents as to which such counsel need express no opinion), when
they were filed with the Commission, complied as to form in all
material respects with the requirements of the Exchange Act and the
rules and regulations of the Commission thereunder;
(12) The statements set forth in the Prospectus under the
headings "Risk Factors -- Shares Eligible for Future Sale,"
"Business -- Legal Proceedings" and "Certain Transactions" and the
description of the Company's capital stock included or incorporated
by reference in the Prospectus, insofar as such statements constitute
a summary of legal matters, legal proceedings, contracts or the
Company's charter or by-law provisions, are accurate in all material
respects;
(13) Except as disclosed in or specifically contemplated by the
Prospectus, to the best of such counsel's knowledge, there are no
outstanding options or warrants issued by the Company to purchase
capital stock of the Company or any security convertible into or
exchangeable for capital stock of the Company; and
(14) To the best of such counsel's knowledge, no holders of
securities of the Company have rights which have not been waived to
the registration of shares of Common Stock or other securities,
because of the filing of the Registration Statement by the Company or
the offering contemplated hereby.
In addition, such counsel shall state that they have participated in
conferences with officers and other representatives of the Company,
representatives of the independent public accountants for the Company, and
representatives of the Underwriters, at which the contents of the
Registration Statement and the Prospectuses and related matters were
discussed and, although such counsel is not passing upon, and does not
assume any responsibility for, the accuracy, completeness or fairness of
the statements contained in the Registration Statement and the Prospectuses
and has not made any independent check or verification thereof, during the
course of such participation, no facts came to their attention that caused
such counsel to believe that the Registration Statement, at the time it
became effective, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading, or that the Prospectus, as
of its date or as of the Closing Date, contained an untrue statement of a
material fact or omitted to state a material fact
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<PAGE> 16
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading; it being understood that such
counsel need not express a belief with respect to the financial statements,
schedules and other financial data included in the Registration Statement
or the Prospectus.
In rendering such opinions, such counsel may rely as to matters of
fact, on certificates of officers of the Company and of governmental
officials, in which case their opinion is to state that they are so doing
and the Underwriters are justified in relying on such certificates, and
copies of said certificates are to be delivered to counsel for the
Underwriters.
(ii) An opinion of Richman, Lawrence, Mann, Chizever & Phillips,
counsel for the Selling Stockholders, addressed to the Underwriters and
dated the First Closing Date, or the Second Closing Date, as the case
may be, to the effect that:
(1) This Agreement and the Stockholders Agreement have been duly
authorized, executed and delivered by or on behalf of each of the
Selling Stockholders; the Agent has been duly and validly authorized
to act as the custodian of the Common Shares to be sold by each such
Selling Stockholder; and the performance of this Agreement and the
Stockholders Agreement and the consummation of the transactions
herein contemplated by the Selling Stockholders will not result in a
breach of, or constitute a default under, any indenture, mortgage,
deed of trust, trust (constructive or other), loan agreement, lease,
franchise, license or other agreement or instrument to which any of
the Selling Stockholders is a party or by which any of the Selling
Stockholders or any of their properties may be bound, or violate any
statute, judgment, decree, order, rule or regulation known to such
counsel of any court or governmental body having jurisdiction over
any of the Selling Stockholders or any of their properties; and to
the best of such counsel's knowledge, no approval, authorization,
order or consent of any court, regulatory body, administrative agency
or other governmental body is required for the execution and delivery
of this Agreement or the Stockholders Agreement or the consummation
by the Selling Stockholders of the transactions contemplated by this
Agreement, except such as have been obtained and are in full force
and effect under the Exchange Act, the Act and such as may be
required under the rules of the NASD and applicable Blue Sky laws;
(2) To the best of such counsel's knowledge, the Selling
Stockholders have full right, power and authority to enter into this
Agreement and the Stockholders Agreement and to sell, transfer and
deliver the Common Shares to be sold on such Closing Date by such
Selling Stockholders hereunder and good and marketable title to such
Common Shares so sold, free and clear of all liens, encumbrances,
equities, claims, restrictions, security interests, voting trusts, or
other defects of title whatsoever, has been transferred to the
Underwriters (whom counsel may assume to be bona fide purchasers) who
have purchased such Common Shares hereunder; and
(3) To the best of such counsel's knowledge, this Agreement and
the Stockholders Agreement are valid and binding agreements of each
of the Selling Stockholders in accordance with their terms except as
enforceability may be limited by general equitable principles,
bankruptcy, insolvency, reorganization, moratorium or other laws
affecting creditors' rights generally and except with respect to
those provisions relating to indemnities or contributions for
liabilities under the Act, as to which no opinion need be expressed.
In rendering such opinions, such counsel may rely as to matters of
fact, on certificates of the Selling Stockholders and of officers of the
Company and of governmental officials, in which case their opinion is to
state that they are so doing and that they believe that the Underwriters
are justified in relying on such certificates and copies of said
certificates are to be delivered to counsel for the Underwriters.
(iii) Such opinion or opinions of Pillsbury Madison & Sutro LLP,
counsel for the Underwriters dated the First Closing Date or the Second
Closing Date, as the case may be, with respect to the incorporation of
the Company, the sufficiency of all corporate proceedings and other
legal matters relating to this Agreement, the validity of the Common
Shares, the Registration Statement and the
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Prospectus and other related matters as you may reasonably require, and
the Company and the Selling Stockholders shall have furnished to such
counsel such documents and shall have exhibited to them such papers and
records as they may reasonably request for the purpose of enabling them
to pass upon such matters. In connection with such opinions, such
counsel may rely on representations or certificates of officers of the
Company and governmental officials.
(iv) A certificate of the Company executed by the Chairman of the
Board or President and the chief financial or accounting officer of the
Company, dated the First Closing Date or the Second Closing Date, as the
case may be, to the effect that:
(1) The representations and warranties of the Company set forth
in Section 2 of this Agreement are true and correct as of the date of
this Agreement and as of the First Closing Date or the Second Closing
Date, as the case may be, and the Company has complied with all the
agreements and satisfied all the conditions on its part to be
performed or satisfied on or prior to such Closing Date;
(2) The Commission has not issued any order preventing or
suspending the use of the Prospectus or any Preliminary Prospectus
filed as a part of the Registration Statement or any amendment
thereto; no stop order suspending the effectiveness of the
Registration Statement has been issued; and to the best of the
knowledge of the respective signers, no proceedings for that purpose
have been instituted or are pending or contemplated under the Act;
(3) Each of the respective signers of the certificate has
carefully examined the Registration Statement and the Prospectus; in
his opinion and to the best of his knowledge, the Registration
Statement and the Prospectus and any amendments or supplements
thereto contain all statements required to be stated therein
regarding the Company and its subsidiaries; and neither the
Registration Statement nor the Prospectus nor any amendment or
supplement thereto includes any untrue statement of a material fact
or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading;
(4) Since the initial date on which the Registration Statement
was filed, no agreement, written or oral, transaction or event has
occurred which should have been set forth in an amendment to the
Registration Statement or in a supplement to or amendment of any
prospectus which has not been disclosed in such a supplement or
amendment;
(5) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, and except as
disclosed in or contemplated by the Prospectus, there has not been
any material adverse change or a development involving a material
adverse change in the condition (financial or otherwise), business,
properties, results of operations, management or prospects of the
Company and its subsidiaries; and no legal or governmental action,
suit or proceeding is pending or, to such person's knowledge,
threatened against the Company or any of its subsidiaries which is
material to the Company and its subsidiaries, taken as a whole,
whether or not arising from transactions in the ordinary course of
business, or which may adversely affect the transactions contemplated
by this Agreement; since such dates and except as so disclosed,
neither the Company nor any of its subsidiaries has entered into any
verbal or written agreement or other transaction which is not in the
ordinary course of business or which could result in a material
adverse effect on the condition (financial or otherwise), business,
results of operations or prospects of the Company and its
subsidiaries, taken as a whole, or incurred any material liability or
obligation, direct, contingent or indirect, made any change in its
capital stock, made any material change in its short-term debt or
funded debt or repurchased or otherwise acquired any of the Company's
capital stock; and the Company has not declared or paid any dividend,
or made any other distribution, upon its outstanding capital stock
payable to stockholders of record on a date prior to the First
Closing Date or Second Closing Date; and
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(6) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus and except as
disclosed in or contemplated by the Prospectus, the Company and its
subsidiaries have not sustained a material loss or damage by strike,
fire, flood, windstorm, accident or other calamity (whether or not
insured).
(v) On the First Closing Date, a certificate, dated such Closing
Date and addressed to you, signed by or on behalf of each of the Selling
Stockholders to the effect that the representations and warranties of
such Selling Stockholder in this Agreement are true and correct, as if
made at and as of the First Closing Date, and such Selling Stockholder
has complied with all the agreements and satisfied all the conditions on
his part to be performed or satisfied prior to the First Closing Date.
(vi) On the date before this Agreement is executed and also on the
First Closing Date and the Second Closing Date a letter addressed to you
from Coopers & Lybrand L.L.P., independent accountants, the first one to
be dated the day before the date of this Agreement, the second one to be
dated the First Closing Date and the third one (in the event of a Second
Closing) to be dated the Second Closing Date, in form and substance
satisfactory to you.
(vii) On or before the First Closing Date, letters from each of the
Selling Stockholders and each director and officer of the Company, in
form and substance satisfactory to you, confirming that for a period of
90 days after the date of the Prospectus, such person will not, without
the prior written consent of NationsBanc Montgomery Securities LLC
(which consent may be withheld in its sole discretion), directly or
indirectly, sell, offer, contract or grant any option to sell (including
without limitation any short sale), pledge, transfer, establish an open
"put equivalent position" within the meaning of Rule 16a-1(h) under the
Exchange Act, or otherwise dispose of any shares of the Company's Common
Stock or other equity securities, options or warrants to acquire shares
of Common Stock, or securities exchangeable or exercisable for or
convertible into shares of Common Stock currently or hereafter owned
either of record or beneficially (as defined in Rule 13d-3 under the
Exchange Act) by such person, or publicly announce his intention to do
any of the foregoing.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are satisfactory to you and
to Pillsbury Madison & Sutro LLP, counsel for the Underwriters. The Company
shall furnish you with such manually signed or conformed copies of such
opinions, certificates, letters and documents as you request. Any certificate
signed by any officer of the Company and delivered to you or to counsel for the
Underwriters shall be deemed to be a representation and warranty by the Company
to the Underwriters as to the statements made therein.
If any condition to the Underwriters' obligations hereunder to be satisfied
prior to or at the First Closing Date is not so satisfied, this Agreement at
your election will terminate upon notification by you to the Company and the
Selling Stockholders without liability on the part of any Underwriter, the
Company or the Selling Stockholders except for the expenses to be paid or
reimbursed by the Company and by the Selling Stockholders pursuant to Sections 7
and 9 hereof and except to the extent provided in Section 11 hereof.
SECTION 9. Reimbursement of Underwriters' Expenses. Notwithstanding any
other provisions hereof, if this Agreement shall be terminated by you pursuant
to Section 8, or if the sale to the Underwriters of the Common Shares at the
First Closing is not consummated because of any refusal, inability or failure on
the part of the Company or the Selling Stockholders to perform any agreement
herein or to comply with any provision hereof, the Company agrees to reimburse
you and the other Underwriters upon demand for all out-of-pocket expenses that
shall have been reasonably incurred by you and them in connection with the
proposed purchase and the sale of the Common Shares, including but not limited
to fees and disbursements of counsel, printing expenses, travel expenses,
postage, telegraph charges and telephone charges relating directly to the
offering contemplated by the Prospectus. Any such termination shall be without
liability of any party to any other party except that the provisions of this
Section, Section 7 and Section 11 shall at all times be effective and shall
apply.
SECTION 10. Effectiveness of Registration Statement. You, the Company and
the Selling Stockholders will use your, its and their best efforts to cause the
Registration Statement to become effective, to prevent the
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issuance of any stop order suspending the effectiveness of the Registration
Statement and, if such stop order be issued, to obtain as soon as possible the
lifting thereof.
SECTION 11. Indemnification.
(a) The Company agrees to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning of the Act
against any losses, claims, damages, liabilities or expenses, joint or several,
to which such Underwriter or such controlling person may become subject, under
the Act, the Exchange Act, or other federal or state statutory law or
regulation, or at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of the
Company), insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof as contemplated below) (i) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state in any of them a material fact
required to be stated therein or necessary to make the statements in any of them
not misleading (in the case of a Preliminary Prospectus or the Prospectus, in
light of the circumstances in which they are made), or (ii) arise out of or are
based in whole or in part on any inaccuracy in the representations and
warranties of the Company contained herein or any failure of the Company to
perform its obligations hereunder or under law; and will reimburse each
Underwriter and each such controlling person for any legal and other expenses as
such expenses are reasonably incurred by such Underwriter or such controlling
person in connection with investigating, defending, settling, compromising or
paying any such loss, claim, damage, liability, expense or action; provided,
however, that the Company will not be liable in any such case to the extent that
any such loss, claim, damage, liability or expense arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in the Registration Statement, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto in reliance upon and in
conformity with the information furnished to the Company pursuant to Section 4
hereof. The Company and the Selling Stockholders may agree, as among themselves
and without limiting the rights of the Underwriters under this Agreement, as to
their respective amounts of such liability for which they each shall be
responsible. In addition to its other obligations under this Section 11(a), the
Company agrees that, as an interim measure during the pendency of any claim,
action, investigation, inquiry or other proceeding arising out of or based upon
any statement or omission, or any alleged statement or omission, or any
inaccuracy in the representations and warranties of the Company herein or
failure to perform its obligations hereunder, all as described in this Section
11(a), it will reimburse each Underwriter on a quarterly basis for all
reasonable legal or other expenses incurred in connection with investigating or
defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Company's obligation to reimburse each Underwriter for
such expenses and the possibility that such payments might later be held to have
been improper by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, each Underwriter
shall promptly return it to the Company together with interest, compounded
daily, determined on the basis of the prime rate (or other commercial lending
rate for borrowers of the highest credit standing) announced from time to time
by Bank of America NT&SA, San Francisco, California (the "Prime Rate"). Any such
interim reimbursement payments which are not made to an Underwriter within 30
days of a request for reimbursement, shall bear interest at the Prime Rate from
the date of such request. This indemnity agreement will be in addition to any
liability which the Company may otherwise have.
(b) Each of the Selling Stockholders, jointly and severally, agree to
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of the Act against any losses,
claims, damages, liabilities or expenses, joint or several, to which such
Underwriter or such controlling person may become subject, under the Act, the
Exchange Act, or other federal or state statutory law or regulation, or at
common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of the Company), insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect thereof
as contemplated below) (i) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or arise out of or are based
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upon the omission or alleged omission to state in any of them a material fact
required to be stated therein or necessary to make the statements in any of them
not misleading (in the case of a Preliminary Prospectus or the Prospectus, in
light of the circumstances in which they are made), or (ii) arise out of or are
based in whole or in part on any inaccuracy in the representations and
warranties of the Selling Stockholders contained herein or any failure of the
Selling Stockholders to perform their respective obligations hereunder or under
law; and will reimburse each Underwriter and each such controlling person for
any legal and other expenses as such expenses are reasonably incurred by such
Underwriter or such controlling person in connection with investigating,
defending, settling, compromising or paying any such loss, claim, damage,
liability, expense or action; provided, however, that the Selling Stockholders
will not be liable in any such case to the extent that any such loss, claim,
damage, liability or expense arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto in reliance upon and in conformity with the
information furnished to the Company pursuant to Section 4 hereof; provided
further, that each Selling Stockholder shall only be liable under this paragraph
for an amount equal to the aggregate initial public offering price of the Common
Shares sold by such Selling Stockholder to the Underwriters minus the
underwriting discounts paid thereon to the Underwriters; provided further that
no Selling Stockholder shall be required to provide indemnification hereunder
until the Underwriter or controlling person seeking indemnification shall have
first made a demand for payment on the Company with respect to any such loss,
claim, damage, liability or expense and the Company shall have either rejected
such demand or failed to make such requested payment within 180 days after
receipt thereof. The Company and the Selling Stockholders may agree, as among
themselves and without limiting the rights of the Underwriters under this
Agreement, as to their respective amounts of such liability for which they each
shall be responsible. In addition to their other obligations under this Section
11(b), the Selling Stockholders agree that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other proceeding
arising out of or based upon any statement or omission, or any alleged statement
or omission, or any inaccuracy in the representations and warranties of the
Selling Stockholders herein or failure to perform its obligations hereunder, all
as described in this Section 11(b), it will reimburse each Underwriter on a
quarterly basis for all reasonable legal or other expenses incurred in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the Selling
Stockholders' obligation to reimburse each Underwriter for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, each Underwriter shall
promptly return it to the Selling Stockholders together with interest,
compounded daily, determined on the basis of the Prime Rate. Any such interim
reimbursement payments which are not made to an Underwriter within 30 days of a
request for reimbursement, shall bear interest at the Prime Rate from the date
of such request. This indemnity agreement will be in addition to any liability
which the Selling Stockholders may otherwise have.
(c) Each Underwriter will severally indemnify and hold harmless the
Company, each of its directors, each of its officers who signed the Registration
Statement, the Selling Stockholders and each person, if any, who controls the
Company or any Selling Stockholder within the meaning of the Act, against any
losses, claims, damages, liabilities or expenses to which the Company, or any
such director, officer, Selling Stockholder or controlling person may become
subject, under the Act, the Exchange Act, or other federal or state statutory
law or regulation, or at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of such
Underwriter), insofar as such losses, claims, damages, liabilities or expenses
(or actions in respect thereof as contemplated below) arise out of or are based
upon any untrue or alleged untrue statement of any material fact contained in
the Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, in reliance upon and in conformity with the information
furnished to the Company pursuant to Section 4 hereof; and will
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reimburse the Company, or any such director, officer, Selling Stockholder or
controlling person for any legal and other expense reasonably incurred by the
Company, or any such director, officer, Selling Stockholder or controlling
person in connection with investigating, defending, settling, compromising or
paying any such loss, claim, damage, liability, expense or action. In addition
to its other obligations under this Section 11(c), each Underwriter severally
agrees that, as an interim measure during the pendency of any claim, action,
investigation, inquiry or other proceeding arising out of or based upon any
statement or omission, or any alleged statement or omission, described in this
Section 11(c) which relates to information furnished to the Company pursuant to
Section 4 hereof, it will reimburse the Company (and, to the extent applicable,
each officer, director, controlling person or Selling Stockholder) on a
quarterly basis for all reasonable legal or other expenses incurred in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company (and, to the extent
applicable, each officer, director, controlling person or Selling Stockholder)
for such expenses and the possibility that such payments might later be held to
have been improper by a court of competent jurisdiction. To the extent that any
such interim reimbursement payment is so held to have been improper, the Company
(and, to the extent applicable, each officer, director, controlling person or
Selling Stockholder) shall promptly return it to the Underwriters together with
interest, compounded daily, determined on the basis of the Prime Rate. Any such
interim reimbursement payments which are not made to the Company within 30 days
of a request for reimbursement, shall bear interest at the Prime Rate from the
date of such request. This indemnity agreement will be in addition to any
liability which such Underwriter may otherwise have.
(d) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party under this
Section, notify the indemnifying party in writing of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party for contribution or
otherwise than under the indemnity agreement contained in this Section or to the
extent it is not prejudiced as a proximate result of such failure. In case any
such action is brought against any indemnified party and such indemnified party
seeks or intends to seek indemnity from an indemnifying party, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with all other indemnifying parties similarly notified, to assume the
defense thereof with counsel reasonably satisfactory to such indemnified party;
provided, however, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be a conflict between the positions of
the indemnifying party and the indemnified party in conducting the defense of
any such action or that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those available to
the indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to such indemnified
party of its election so to assume the defense of such action and approval by
the indemnified party of counsel, the indemnifying party will not be liable to
such indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed such counsel in
connection with the assumption of legal defenses in accordance with the proviso
to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel, approved by you in the case of paragraphs (a) and (b),
representing the indemnified parties who are parties to such action) or (ii) the
indemnifying party shall not have employed counsel reasonably satisfactory to
the indemnified party to represent the indemnified party within a reasonable
time after notice of commencement of the action, in each of which cases the fees
and expenses of counsel shall be at the expense of the indemnifying party.
(e) If the indemnification provided for in this Section 11 is required by
its terms but is for any reason held to be unavailable to or otherwise
insufficient to hold harmless an indemnified party under paragraphs (a), (b),
(c) or (d) in respect of any losses, claims, damages, liabilities or expenses
referred to herein, then each applicable indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of any losses,
claims, damages, liabilities or expenses referred to herein (i) in such
proportion as is
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appropriate to reflect the relative benefits received by the Company, the
Selling Stockholders and the Underwriters from the offering of the Common Shares
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company, the Selling Stockholders and the Underwriters in connection with
the statements or omissions or inaccuracies in the representations and
warranties herein which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The respective
relative benefits received by the Company, the Selling Stockholders and the
Underwriters shall be deemed to be in the same proportion, in the case of the
Company and the Selling Stockholders as the total price paid to the Company and
to the Selling Stockholders, respectively, for the Common Shares sold by them to
the Underwriters (net of underwriting commissions but before deducting
expenses), and in the case of the Underwriters as the underwriting commissions
received by them bears to the total of such amounts paid to the Company and to
the Selling Stockholders and received by the Underwriters as underwriting
commissions. The relative fault of the Company, the Selling Stockholders and the
Underwriters shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact or the inaccurate or the alleged
inaccurate representation and/or warranty relates to information supplied by the
Company, the Selling Stockholders or the Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The amount paid or payable by a party as a result of
the losses, claims, damages, liabilities and expenses referred to above shall be
deemed to include, subject to the limitations set forth in subparagraph (d) of
this Section 11, any legal or other fees or expenses reasonably incurred by such
party in connection with investigating or defending any action or claim. The
provisions set forth in subparagraph (d) of this Section 11 with respect to
notice of commencement of any action shall apply if a claim for contribution is
to be made under this subparagraph (e); provided, however, that no additional
notice shall be required with respect to any action for which notice has been
given under subparagraph (d) for purposes of indemnification. The Company, the
Selling Stockholders and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 11 were determined solely by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to in this subparagraph (e).
Notwithstanding the provisions of this Section 11, no Underwriter shall be
required to contribute any amount in excess of the amount of the total
underwriting commissions received by such Underwriter in connection with the
Common Shares underwritten by it and distributed to the public. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 11 are several in proportion to their respective
underwriting commitments and not joint.
(f) It is agreed that any controversy arising out of the operation of the
interim reimbursement arrangements set forth in Sections 11(a), 11(b) and 11(c)
hereof, including the amounts of any requested reimbursement payments and the
method of determining such amounts, shall be settled by arbitration conducted
under the provisions of the Constitution and Rules of the Board of Governors of
the New York Stock Exchange, Inc. or pursuant to the Code of Arbitration
Procedure of the NASD. Any such arbitration must be commenced by service of a
written demand for arbitration or written notice of intention to arbitrate,
therein electing the arbitration tribunal. In the event the party demanding
arbitration does not make such designation of an arbitration tribunal in such
demand or notice, then the party responding to said demand or notice is
authorized to do so. Such an arbitration would be limited to the operation of
interim reimbursement provisions contained in Sections 11(a), 11(b) and 11(c)
hereof and would not resolve the ultimate propriety or enforceability of the
obligation to reimburse expenses which is created by the provisions of such
Sections 11(a), 11(b) and 11(c) hereof.
SECTION 12. Default of Underwriters. It shall be a condition to this
Agreement and the obligation of the Company and the Selling Stockholders to sell
and deliver the Common Shares hereunder, and of each Underwriter to purchase the
Common Shares in the manner as described herein, that, except as hereinafter in
this paragraph provided, each of the Underwriters shall purchase and pay for all
the Common Shares agreed to be purchased by such Underwriter hereunder upon
tender to the Underwriters of all such shares in accordance
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with the terms hereof. If any Underwriter or Underwriters default in their
obligations to purchase Common Shares hereunder on either the First or Second
Closing Date and the aggregate number of Common Shares which such defaulting
Underwriter or Underwriters agreed but failed to purchase on such Closing Date
does not exceed 10% of the total number of Common Shares which the Underwriters
are obligated to purchase on such Closing Date, the non-defaulting Underwriters
shall be obligated severally, in proportion to their respective commitments
hereunder, to purchase the Common Shares which such defaulting Underwriters
agreed but failed to purchase on such Closing Date. If any Underwriter or
Underwriters so default and the aggregate number of Common Shares with respect
to which such default occurs is more than the above percentage and arrangements
satisfactory to you and the Company for the purchase of such Common Shares by
other persons are not made within 48 hours after such default, this Agreement
will terminate without liability on the part of any non-defaulting Underwriter
or the Company or the Selling Stockholders except for the expenses to be paid by
the Company and the Selling Stockholders pursuant to Section 7 hereof and except
to the extent provided in Section 11 hereof.
In the event that Common Shares to which a default relates are to be
purchased by the non-defaulting Underwriters or by another party or parties, the
Representatives or the Company shall have the right to postpone the First or
Second Closing Date, as the case may be, for not more than five business days in
order that the necessary changes in the Registration Statement, Prospectus and
any other documents, as well as any other arrangements, may be effected. As used
in this Agreement, the term "Underwriter" includes any person substituted for an
Underwriter under this Section. Nothing herein will relieve a defaulting
Underwriter from liability for its default.
SECTION 13. Effective Date. This Agreement shall become effective
immediately as to Sections 7, 9, 11, 14 and 16 and, as to all other provisions,
(i) if at the time of execution of this Agreement the Registration Statement has
not become effective, at 2:00 p.m., California Time, on the first full business
day following the effectiveness of the Registration statement, or (ii) if at the
time of execution of this Agreement the Registration Statement has been declared
effective, at 2:00 p.m., California Time, on the first full business day
following the date of execution of this Agreement; but this Agreement shall
nevertheless become effective at such earlier time after the Registration
Statement becomes effective as you may determine on and by notice to the Company
or by release of any of the Common Shares for sale to the public. For the
purposes of this Section 13, the Common Shares shall be deemed to have been so
released upon the release for publication of any newspaper advertisement
relating to the Common Shares or upon the release by you of telegrams (i)
advising Underwriters that the Common Shares are released for public offering,
or (ii) offering the Common Shares for sale to securities dealers, whichever may
occur first.
SECTION 14. Termination. Without limiting the right to terminate this
Agreement pursuant to any other provision hereof:
(a) This Agreement may be terminated by the Company by notice to you
and the Selling Stockholders or by you by notice to the Company and the
Selling Stockholders at any time prior to the time this Agreement shall
become effective as to all its provisions, and any such termination shall
be without liability on the part of the Company or the Selling Stockholders
to any Underwriter (except for the expenses to be paid or reimbursed by the
Company and the Selling Stockholders pursuant to Sections 7 and 9 hereof
and except to the extent provided in Section 11 hereof) or of any
Underwriter to the Company or the Selling Stockholders (except to the
extent provided in Section 11 hereof)
(b) This Agreement may also be terminated by you prior to the First
Closing Date by notice to the Company (i) if additional material
governmental restrictions, not in force and effect on the date hereof,
shall have been imposed upon trading in securities generally or minimum or
maximum prices shall have been generally established on the New York Stock
Exchange or on the American Stock Exchange or in the over the counter
market by the NASD, or trading in securities generally shall have been
suspended on either such Exchange or in the over the counter market by the
NASD, or a general banking moratorium shall have been established by
federal, New York or California authorities, (ii) if an outbreak or
escalation of major hostilities or other national or international calamity
or any substantial change in political, financial or economic conditions
shall have occurred or shall have accelerated or escalated to
23
<PAGE> 24
such an extent, as, in your judgment, to affect adversely the marketability
of the Common Shares, (iii) if any adverse event shall have occurred or
shall exist which makes untrue or incorrect in any material respect any
statement or information contained in the Registration Statement or
Prospectus or which is not reflected in the Registration Statement or
Prospectus but should be reflected therein in order to make the statements
or information contained therein not misleading in any material respect, or
(iv) if there shall be any action, suit or proceeding pending or
threatened, or there shall have been any development or prospective
development involving particularly the business or properties or securities
of the Company or any of its subsidiaries or the transactions contemplated
by this Agreement, which, in your reasonable judgment, may materially and
adversely affect the Company's business or earnings and makes it
impracticable or inadvisable to offer or sell the Common Shares. Any
termination pursuant to this subsection (b) shall be without liability on
the part of any Underwriter to the Company or the Selling Stockholders or
on the part of the Company or the Selling Stockholders to any Underwriter
(except for expenses to be paid or reimbursed by the Company and the
Selling Stockholders pursuant to Sections 7 and 9 hereof and except to the
extent provided in Section 11 hereof).
SECTION 15. Failure of the Selling Stockholders to Sell and Deliver. If one
or more of the Selling Stockholders shall fail to sell and deliver to the
Underwriters the Common Shares to be sold and delivered by such Selling
Stockholders at the First Closing Date under the terms of this Agreement, then
the Underwriters may at their option, by written notice from you to the Company
and the Selling Stockholders, either (i) terminate this Agreement without any
liability on the part of any Underwriter or, except as provided in Sections 7, 9
and 11 hereof, the Company or the Selling Stockholders, or (ii) purchase the
shares which the Company and other Selling Stockholders have agreed to sell and
deliver in accordance with the terms hereof. In the event of a failure by one or
more of the Selling Stockholders to sell and deliver as referred to in this
Section, either you or the Company shall have the right to postpone the Closing
Date for a period not exceeding seven business days in order that the necessary
changes in the Registration Statement, Prospectus and any other documents, as
well as any other arrangements, may be effected.
SECTION 16. Representations and Indemnities to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers, of the Selling Stockholders and of
the several Underwriters set forth in or made pursuant to this Agreement will
remain in full force and effect, regardless of any investigation made by or on
behalf of any Underwriter or the Company or any of its or their partners,
officers or directors or any controlling person, or the Selling Stockholders, as
the case may be, and will survive delivery of and payment for the Common Shares
sold hereunder and any termination of this Agreement.
SECTION 17. Notices. All communications hereunder shall be in writing and,
if sent to the Underwriters shall be mailed, delivered or telegraphed and
confirmed to you at 600 Montgomery Street, San Francisco, California 94111,
Attention: David Baylor, Esq., with a copy to Pillsbury Madison & Sutro LLP, 235
Montgomery Street, San Francisco, California 94104, Attention: Stanton D. Wong,
Esq.; if sent to the Company shall be mailed, delivered or telegraphed and
confirmed to the Company at Dwight D. Eisenhower Building, Spokane, Washington
99202 with a copy to Richman, Lawrence, Mann, Chizever & Phillips, 9601 Wilshire
Boulevard, Beverly Hills, California 90210, Attention: Gerald M. Chizever; and
if sent to the Selling Stockholders shall be mailed, delivered or telegraphed
and confirmed to the Selling Stockholders at Dwight D. Eisenhower Building,
Spokane, Washington 99202 with a copy to Richman, Lawrence, Mann, Chizever &
Phillips, 9601 Wilshire Boulevard, Beverly Hills, California 90210, Attention:
Gerald M. Chizever. The Company, the Selling Stockholders or you may change the
address for receipt of communications hereunder by giving notice to the others.
SECTION 18. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto, including any substitute Underwriters pursuant
to Section 12 hereof, and to the benefit of the officers and directors and
controlling persons referred to in Section 11, and in each case their respective
successors, personal representatives and assigns, and no other person will have
any right or obligation hereunder. No such assignment shall relieve any party of
its obligations hereunder. The term "successors" shall not include any purchaser
of the Common Shares as such from any of the Underwriters merely by reason of
such purchase.
24
<PAGE> 25
SECTION 19. Representation of Underwriters. Except as otherwise expressly
provided herein, any action under or in respect of this Agreement taken by you
jointly or by NationsBanc Montgomery Securities LLC will be binding upon all the
Underwriters.
SECTION 20. Partial Unenforceability. The invalidity or unenforceability of
any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof.
If any Section, paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, there shall be deemed to be made such
minor changes (and only such minor changes) as are necessary to make it valid
and enforceable.
SECTION 21. Applicable Law. This Agreement shall be governed by and
construed in accordance with the internal laws (and not the laws pertaining to
conflicts of laws) of the State of California.
SECTION 22. General. This Agreement constitutes the entire agreement of the
parties to this Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations with respect to
the subject matter hereof. This Agreement may be executed in several
counterparts, each one of which shall be an original, and all of which shall
constitute one and the same document.
In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This Agreement may be amended
or modified, and the observance of any term of this Agreement may be waived,
only by a writing signed by the Company, the Selling Stockholders and you.
Any person executing and delivering this Agreement as Attorney-in-fact for
the Selling Stockholders represents by so doing that he has been duly appointed
as Attorney-in-fact by such Selling Stockholder pursuant to a validly existing
and binding Power of Attorney which authorizes such Attorney-in-fact to take
such action. Any action taken under this Agreement by any of the
Attorneys-in-fact will be binding on all the Selling Stockholders.
25
<PAGE> 26
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to us the enclosed copies hereof, whereupon it will
become a binding agreement among the Company, the Selling Stockholders and the
several Underwriters including you, all in accordance with its terms.
Very truly yours,
AMBASSADORS INTERNATIONAL, INC.
By
-----------------------------------
John A. Ueberroth
President
SELLING STOCKHOLDERS
By
-----------------------------------
John A. Ueberroth
Attorney-in-Fact
The foregoing Underwriting Agreement
is hereby confirmed and accepted by
us in San Francisco, California as
of the date first above written.
NATIONSBANC MONTGOMERY
SECURITIES LLC
ALLEN & COMPANY INCORPORATED
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
D. A. DAVIDSON & CO.
By NATIONSBANC MONTGOMERY
SECURITIES LLC
By:
--------------------------------
Managing Director
26
<PAGE> 27
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF FIRM
COMMON SHARES
NAME OF UNDERWRITER TO BE PURCHASED
- ------------------- ---------------
<S> <C>
NationsBanc Montgomery Securities LLC.......................
Allen & Company Incorporated................................
Donaldson, Lufkin & Jenrette Securities Corporation.........
D. A. Davidson & Co. .......................................
---------
Total............................................. 2,218,000
=========
</TABLE>
27
<PAGE> 28
SCHEDULE B
<TABLE>
<CAPTION>
NUMBER OF FIRM
COMMON SHARES TO
BE SOLD BY SELLING
NAME OF SELLING STOCKHOLDER STOCKHOLDERS
- --------------------------- ------------------
<S> <C>
John A. Ueberroth........................................... 200,000
Rogal America, Co. ......................................... 18,000
-------
Total............................................. 218,000
=======
</TABLE>
28
<PAGE> 1
EXHIBIT 5.1
April 3, 1998
Ambassadors International, Inc.
110 S. Ferrall Street
Spokane, Washington 99202
Re: Registration Statement on Form S-3
Gentlemen:
We have acted as securities counsel to Ambassadors International, Inc., a
Delaware corporation (the "Company"), in connection with the preparation and
filing with the Securities and Exchange Commission under the Securities Act of
1933, as amended (the "Securities Act"), of a Registration Statement on Form
S-3, as amended (the "Registration Statement"). The Registration Statement
relates to the public offering by the Company and certain selling stockholders
named therein (the "Selling Stockholders") of up to 2,550,700 shares of Common
Stock of the Company, of which 2,332,700 shares are to be issued and sold by the
Company (the "New Shares"), including 332,700 shares to cover over-allotments,
if any, and 218,000 shares are to be sold by the Selling Stockholders (the
"Outstanding Shares").
The New Shares and the Outstanding Shares are to be sold by the Company and
the Selling Stockholders pursuant to an Underwriting Agreement (the
"Underwriting Agreement") by and among the Company, the Selling Stockholders and
NationsBanc Montgomery Securities LLC, Allen & Company Incorporated, Donaldson,
Lufkin & Jenrette Securities Corporation and D. A. Davidson & Co., acting as
co-managing underwriters under the Underwriting Agreement. This opinion is being
furnished in accordance with the requirements of Item 601(b)(5) of Regulation
S-K under the Securities Act.
In connection with this opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
such documents, corporate records and other instruments as we have deemed
necessary or appropriate as a basis for the opinions set forth herein, including
(i) the Registration Statement of the Company filed with the Securities and
Exchange Commission; (ii) the Certificate of Incorporation and the Bylaws of the
Company; (iii) the form of the Underwriting Agreement; (iv) the form of Common
Stock Certificate; (v) copies of certain resolutions adopted by the Board of
Directors of the Company relating to the issuance of the New Shares and the
Outstanding Shares, the filing of the Registration Statement and any amendments
or supplements thereto and related matters; and (vi) such other documents as we
have deemed necessary or appropriate as a basis for the opinions set forth
below.
In our examination, we have assumed the genuineness of all signatures, the
legal capacity of all natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such latter documents. In making our
examination of documents executed by parties other than the Company, we have
assumed that such parties had the power, corporate or other, to enter into and
perform all obligations thereunder and have also assumed the due authorization
by all requisite action, corporate or other, and execution and delivery by such
parties of such documents and the validity and binding effect thereof. As to any
facts material to the opinions expressed herein which were not independently
established or verified, we have relied upon oral or written statements and
representations of officers and other representatives of the Company and others.
Members of our firm are admitted to the bar in the State of California, and
we do not express any opinion as to the laws of any other jurisdiction, other
than the corporate laws of the State of Delaware and the laws of the United
States of America to the extent referred to specifically herein.
<PAGE> 2
Ambassadors International, Inc.
April 3, 1998
Page 2
Based on the foregoing, it is our opinion that, subject to effectiveness
with the Securities and Exchange Commission of the Registration Statement and to
registration or qualification under the securities laws of the states in which
securities may be sold,
1. The New Shares are duly and validly authorized and, upon the sale
and issuance thereof in the manner contemplated in the Registration
Statement and the Underwriting Agreement, and upon payment therefor, will
constitute legally issued, fully paid and nonassessable shares of Common
Stock of the Company; and
2. The Outstanding Shares are duly and validly authorized and
constitute legally issued, fully paid and nonassessable shares of Common
Stock of the Company.
We consent to the use of our name under the caption "Legal Matters" in the
Registration Statement, and to the filing of this opinion as an exhibit to the
Registration Statement. By giving you this opinion and consent, we do not admit
that we are experts with respect to any part of the Registration Statement
within the meaning of the term "expert" as used in Section 11 of the Securities
Act, or the rules and regulations promulgated thereunder, nor do we admit that
we are in the category of persons whose consent is required under Section 7 of
the Securities Act.
Very truly yours,
/s/ RICHMAN, LAWRENCE, MANN, CHIZEVER & PHILLIPS
----------------------------------------------------
RICHMAN, LAWRENCE, MANN, CHIZEVER & PHILLIPS
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement
of Ambassadors International, Inc. on Form S-3 of our report, which includes an
explanatory paragraph concerning a change in accounting for impairment of
long-lived assets in 1996, dated February 9, 1998, except for the first
paragraph of Note 12 as to which the date is February 19, 1998, on our audits of
the consolidated financial statements of Ambassadors International, Inc. We also
consent to the references to our firm under the captions "Experts" and "Selected
Consolidated Financial Data."
/s/ Coopers & Lybrand L.L.P.
Spokane, Washington
April 2, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of Ambassadors International, Inc. on Form S-3 of our report dated January 22,
1998 on our audits of the financial statements of Rogal America, Co. as of
December 31, 1997 and 1996 and for the years then ended. We also consent to the
reference to our firm under the caption "Experts."
/s/ Starr, Finer, Starr LLP
Boston, Massachusetts
April 2, 1998
