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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K/A

(Amendment No. 1)

(Mark One)

Commission file number: 0-33347

Ambassadors Group, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Registrant’s telephone number, including area code: (509) 568-7800

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes x No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes x No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes oNo

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No

The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing sales price of the Common Stock on the NASDAQ Stock Market on June 30, 2011, was $76.2 million. Shares of Common Stock held by each executive officer and director, and by each individual and entity that owns 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

The number of shares of the registrant’s Common Stock, $0.01 par value, outstanding as of February 28, 2012, was 17,590,300.

DOCUMENTS INCORPORATED BY REFERENCE

None.

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EXPLANATORY NOTE

Ambassadors Group, Inc. (“Ambassadors,” “Company,” “we,” “us” or “our”)  filed its Annual Report on Form 10-K for the fiscal year ended December 31, 2011 (the “Original Form 10-K”) with the Securities and Exchange Commission (the “SEC”) on March 12, 2012. We are filing this Amendment No. 1 to the Original Form 10-K (this “Form 10-K/A”) solely for the purpose of including in Part III the information that was to be incorporated by reference from our definitive proxy statement for our 2012 Annual Meeting of Stockholders, which will not be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2011. This Form 10-K/A amends and restates: (i) the cover page of the Original Form 10-K; (ii) Items 10 through 14 of Part III of the Original Form 10-K; and (iii) Item 15(b) of Part IV of the Original Form 10-K. Pursuant to Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), this Form 10-K/A also contains new certifications.

No attempt has been made in this Form 10-K/A to modify or update the other disclosures presented in the Original Form 10-K. This Form 10-K/A does not reflect events occurring after the filing of the Original Form 10-K or modify or update the disclosures in the Original Form 10-K, except as set forth in this Form 10-K/A, and should be read in conjunction with the Original Form 10-K and our other filings with the SEC.

Forward-Looking Statements

Statements contained in this Form 10-K/A, which are not historical in nature, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Act”) and Section 21E of the Exchange Act. These forward-looking statements include, without limitation, statements that relate to expectations concerning matters that are not historical facts. Words such as “projects,” “believes,” “anticipates,” “plans,” “expects,” “intends,” and similar words and expressions are intended to identify forward-looking statements. These forward-looking statements reflect our beliefs or current expectations with respect to, among other things, trends in the travel and education industry, our business and growth strategies, our use of technology, our ability to integrate acquired businesses, and fluctuations in our results of operations.

Forward-looking statements involve certain risks and uncertainties that could cause actual results to differ materially from anticipated results. These risks and uncertainties include factors generally affecting the travel and education industry, competition, dependence on key personnel and vendor relationships, our ability to successfully integrate the operations of existing or acquired companies, and a variety of other factors such as periods of international unrest, the outbreak of disease, changes in the direct-mail environment, protection of intellectual rights, unidentified taxation exposure, recession, weather conditions and concerns for passenger safety that could cause a decline in travel demand, as well as the risk factors set forth in Item 1A of the Original Form 10-K and other factors as may be identified from time to time in our filings with the SEC or in our press releases. All forward-looking statements are expressly qualified in their entirety by these factors and all related cautionary statements. We do not undertake any obligation to update any forward-looking statements.

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PART III

Item 10.                 Directors, Executive Officers and Corporate Governance

Directors

The table below sets forth certain information regarding our Class I, Class II and Class III Directors.

(1)       Member of Audit Committee

(2)       Member of Compensation Committee

(3)       Member of Nominating Committee

Class II Directors

James M. Kalustian has served as a director of the Company since May 2006. Mr. Kalustian also served as a director of Conance, Inc. from June 2007 to February 2009. Mr. Kalustian is a consultant and involved in several entrepreneurial business activities.  He is co-founder and senior vice president of HRInet, Inc., a healthcare technology and services company, where he manages network development, sales and marketing, and technology systems. Mr. Kalustian served as the vice president and general manager of Emerging Industries Business Unit of Fair Isaac Corporation (“Fair Isaac”) from April 2007 to January 2009. From November 2004 to February 2007, Mr. Kalustian served as vice president of the Pharmaceutical and Healthcare Business Unit of Fair Isaac. He also has managed Fair Isaac’s business strategy consulting practice. From May 1999 to October 2004, Mr. Kalustian led the healthcare practice, account management discipline, and served as chief operating officer and a member of the board of directors of Braun Consulting, Inc., a professional services firm delivering customer-focused business solutions to Fortune 1000 and middle market companies and offers business intelligence and CRM/ECRM technologies. Mr. Kalustian was a member of the executive management team that took Braun Consulting, Inc. public in 1999. From 1994 to 1999, he was also a co-founder of Vertex Partners, a customer-focused strategic consulting firm that joined

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Braun in 1999. Prior to founding Vertex Partners, Mr. Kalustian served as a manager at the consulting firm of Corporate Decisions, Inc. (a division of Mercer Management Consulting), and in marketing positions for Raytheon Company, W.R. Grace & Company and Canada Dry. Mr. Kalustian was selected to serve as a member of our Board of Directors because of his leadership experience and accomplishments as a senior executive, and his extensive business experience spanning 15 years in the healthcare, pharmaceutical, retail and consumer products industries. This experience makes him exceptionally qualified in overseeing the Company’s business functions, objectives and short and long-term business strategies. In addition, Mr. Kalustian’s business expertise, his board service, and leadership in several industry-leading companies provide meaningful perspectives to the products and services offered by the Company.

John A. Ueberroth has served as chairman of the board of the Company since November 2001. Mr. Ueberroth also serves on the board of directors of the Company’s wholly owned subsidiaries, Ambassador Programs, Inc., World Adventures Unlimited, Inc., and BookRags, Inc. Since 2004, Mr. Ueberroth has served as chairman and chief executive officer of Preferred Hotel Group, Inc., a worldwide hotel distribution network. Mr. Ueberroth is also the principal shareholder of Preferred Hotel Group, Inc. He served as co-chairman, director, chief executive officer and president of Ambassadors International, Inc. from 1995 to June 2004. He has also been a member of the board of directors of Navigant International from October 2003 to September 2006. Since 1989, Mr. Ueberroth has been a principal of Contrarian Group, Inc., an investment and management company. From 1990 to 1993, he served as chairman and chief executive officer of Hawaiian Airlines. 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 during 1986 and 1987, and president of the United States Tour Operators Association during 1987 and 1988. Mr. Ueberroth was selected to serve as a member of our Board of Directors because as a former chairman and chief executive officer of a major airline together with his senior executive positions with national travel and accommodations companies, he brings outstanding travel industry expertise, operational expertise and international expertise to the Company. We also believe that Mr. Ueberroth’s substantial investment and management industry experience gained in part while serving as a former senior executive in the travel industry, as well as his affiliation with national travel associations, are important assets to the Company.

Timothy M. Walsh has served as a director of the Company since February 2012. Mr. Walsh was appointed the Director (chief investment officer) for the State of New Jersey pension fund in August 2010, where he serves as the chief fiduciary for the approximately $70 billion New Jersey pension fund as well as approximately $15 billion in money markets funds, deferred compensation plans and college savings plans. Prior to joining the State of New Jersey, he was the chief investment officer managing the $8 billion Indiana State Teachers’ Retirement Fund.  Before joining the Indiana State Teachers’ Retirement Fund, he was head of investor relations for a global macro hedge fund, and a vice president and senior trader in fixed income securities and foreign currencies for several large money center banks in Chicago, Illinois. Mr. Walsh founded an investment advisory firm, Walsh Financial Services that provided wealth management services for individuals, private trusts and corporate clients. Mr. Wash has been a board member of various private companies and a trustee of the Indiana State Teachers’ Retirement Fund as well as a Commissioner of the Indiana Gaming Commission. Mr. Walsh graduated from Merrimack College in North Andover, Massachusetts in 1984 with a Bachelor of Science degree in business management and from the Kellogg School of Management at Northwestern University in 1989 with an MBA. With over 25 years of experience in the investment industry, Mr. Walsh has a deep and diverse background in the capital markets and portfolio management area. Mr. Walsh was selected to serve as a member of our Board of Directors because of his vast experience in the investment management industry, and his professional background and experience in business administration, finance, and operational management. This experience further supports his leadership and oversight roles for the products and services offered by the Company. In addition, Mr. Walsh’s guidance and expertise on financial and investment matters qualifies him well to perform the audit committee’s oversight role and provides valuable insight to the Company’s various investment holdings and business functions.

Class I Directors

Thomas J. Rusin has served as director of the Company since July 2010. Mr. Rusin has served as the Chief Executive Officer of HomeServe USA, a provider of emergency repair service plans, since July 2011. Prior to joining HomeServe USA, Mr. Rusin served as President and Chief Executive Officer, of Affinion Group North America, from June 2007 to June 2010.  From October 2005 to May 2007, Mr. Rusin served as Affinion’s Executive Vice President and Chief Revenue Officer. Mr. Rusin joined Affinion in December 1999 as Product

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Manager in the Netmarket Group overseeing Travel Marketing and was subsequently promoted to Vice President of Travel in January 2001, Senior Vice President Consumer Saving Group with responsibility for Travel, Auto and Leisure in October 2001, and then to Executive Vice President of Product Management, New Product Development in December 2003. From 1990 to 1998, he owned and operated Just for Travel Inc., a business he then sold. Mr. Rusin also serves on the board of directors of the Connecticut Yankee Council of the Boy Scouts of America. Mr. Rusin has a Bachelor of Science Degree in Marketing from the University of Connecticut. Mr. Rusin was selected to serve as a member of our Board of Directors because of his leadership experience and accomplishments as a senior executive, and his extensive business experience spanning 20 years in the product development, database modeling and analysis, and the marketing industry, including extensive expertise in direct mail, telemarketing, and online marketing. He also has a strong finance, marketing and consumer products background gained through his experience with Affinion Group and Trilegiant Corporation. This blend of experience coupled with his exposure to the travel industry, allows him to bring innovative marketing solutions across multiple channels and media that strengthen our customer relationships and provides the Board of Directors with a unique perspective into strategy, operations, business and vision for the Company.

Jeffrey D. Thomas has served as chief executive officer, president and director of the Company since November 2001. Mr. Thomas also serves on the board of directors of the Company’s wholly owned subsidiaries, Ambassador Programs, Inc., World Adventures Unlimited, Inc., and BookRags, Inc. He served as president of Ambassador Programs, Inc. from August 1996 through July 2002, and has served as chief executive officer since January 2000. For Ambassadors International, Inc., he served as a director from August 2001 through February 2002 and as chief financial officer between January 1996 and February 2002. From 1989 to 1995, Mr. Thomas held a variety of strategy and business development positions with Adia Personnel Services (now Adecco), Contrarian Group, Inc., and Corporate Decisions, Inc. Mr. Thomas currently serves as the lead director on the board of directors of Scientific Learning (NASDAQ: SCIL), a publicly traded company that creates and distributes educational software which accelerates learning to more than 40 countries around the world. He also serves on the board of directors of Inland Northwest Council for Boy Scouts of America and on the board of trustees of Greater Spokane Incorporated. Mr. Thomas previously served on the boards of SATO Travel, a travel agency that specializes in arranging travel tours and transportation for government and military members, and Off the Beaten Path LLC, an adventure travel company specializing in distinctive travel experiences for independent and small group travelers. Mr. Thomas was selected to serve as a member of our Board of Directors because he has extensive experience in executive level management and serves as a board member for several other companies. In addition, he has served as chief financial officer for six years and has fourteen years of tenure in the travel industry, which gives him a vast array of experiences to draw from and uniquely qualifies him to lead the Company and serve on the Board of Directors. As chief executive officer and president, Mr. Thomas has consistently demonstrated an ability to exercise sound judgment and prudent management skills.

Ricardo Lopez Valencia has served as director of the Company since May of 2007. In July 2007, Mr. Valencia started, and currently serves as principal at, ZAMAS Holdings, LLC, a privately owned company that includes a consulting business and a business incubator for entrepreneurial ventures and early stage companies. From 2001 to July 2007, Mr. Valencia was a senior executive for ING. He served as the vice president of Hispanic markets for ING Group. In 2003, he became senior vice president. He had strategic, fiscal and operational responsibility for the development of wealth accumulations strategies focused on diversity markets with specific focus in the African American, Asian American, Hispanic, women, LGBT and capabilities market segments. Since returning to Arizona in 2007, Mr. Valencia was appointed by Arizona Governor Jan Brewer as Corporate Chair of the 2010 Border Governors Conference and to serve a term on the Arizona Mexico Commission to chair the strategic development committee. In 2008, Mr. Valencia was also appointed by Governor Janet Napolitano to serve on the Arizona State Charter School Board. Mr. Valencia also serves on the board of West Ed, a national nonprofit education research, development, and service agency. He serves on the board of the Children’s Action Alliance, an Arizona based advocacy movement. Mr. Valencia has served on the boards of the National PTA, International Association of Marketing Students (DECA), the White House Millennium Youth Initiative and the U.S. Department of Education’s Partnership for Family Involvement. Additionally he has served on the boards of the National 4-H, the National Future Farmers of America Foundation and the New York Hispanic Ballet. Prior to his role with ING, Mr. Valencia served as the Director of Education for USA Today, where he helped make K-12 outreach a major initiative for the nation’s newspaper. He previously served as the executive director of the National Future Farmers of America Alumni Association. In 1983, he became the first Hispanic president of Arizona’s Future Farmers of America. He also served as the Director of Professional Development for Career and Technical Education for the State of

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Arizona. Mr. Valencia was selected to serve as a member of our Board of Directors because of his attributes, skills and qualifications he has developed through 7 years as senior executive with a national investment and financial management company and 20 years as a senior executive with profit and loss responsibilities in a number of high profile corporations and organizations. This experience allows him to provide unique customer, sales and marketing, and community perspective to the Company. In addition, Mr. Valencia’s senior executive experience provides leadership and business operations expertise to the Company. Mr. Valencia serves on a number of company boards and government agencies focused on education, agriculture, arts, and non-profit initiatives, which complement the Company’s products and services. His strong and firsthand knowledge of the student education market is a valuable asset to the Company. Furthermore, his active involvement in community and civic affairs represent an ethical character that we seek in our leaders and Company culture.

Class III Directors

Daniel G. Byrne has served as a director of the Company since May 2005. Mr. Byrne is currently an independent consultant in the financial services sector. Between February 2011 and April 2012, Mr. Byrne served as executive vice president of Corporate Development and between June 1983 and January 2011 served as executive vice president—finance, chief financial officer and assistant secretary of Sterling Financial Corporation. Before joining Sterling, Mr. Byrne was employed by the accounting firm of Coopers & Lybrand in Spokane, Washington. He is a past lieutenant governor of Kiwanis International. Mr. Byrne is a past member of the Board of Trustees, the Executive Committee and the Finance Committee for Gonzaga Preparatory School. He is also president of the Board of Directors of Frontier Behavioral Health. He serves as a member of the American Institute of Certified Public Accountants, the Washington Society of Certified Public Accountants, the Financial Manager’s Society and the American Community Bankers Association and its Accounting Committee. Mr. Byrne is a certified public accountant and graduated from Gonzaga University in 1977 with a bachelor’s degree in Accounting. Mr. Byrne was selected to serve as a member of our Board of Directors because of his vast experience in the banking industry, his professional background and experience in business administration, accounting, operational management, and risk management. This experience lends much support to his leadership and oversight of the products and services offered by the Company. In addition, Mr. Byrne’s guidance and expertise on accounting, financial and investment matters qualifies him well to perform the audit committee’s oversight role and provides valuable insight to the Company’s various business functions.

Rafer L. Johnson has served as a director of the Company since November 2001 and as a director of Ambassadors International, Inc. since 1995. Mr. Johnson is a world and Olympic record holder in the decathlon. Mr. Johnson devotes a substantial amount of his time to intellectually and physically disabled 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 11 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. In addition, Mr. Johnson serves on a variety of special boards and committees in the worlds of sports and community services. In the early 1960s, Mr. Johnson became affiliated with the international peace movement of “People to People” and was instrumental in establishing chapters on college campuses nationwide. Mr. Johnson has spent many years before and after his Olympic triumph spreading the message of peace as an international ambassador of goodwill and in 1984 he received the distinctive honor of lighting the Olympic flame at the games in Los Angeles, California. Mr. Johnson was selected to serve as a member of our Board of Directors because he brings to the board over 40 years of diverse experience in the Special Olympics and athletic industry. His extensive understanding of these challenging aspects of this industry, together with his demonstrated leadership and management ability at senior levels, provides the Company with valuable industry-specific awareness and experience. In addition, Mr. Johnson’s early leadership and development with the international peace movement of People to People provides him with an important perspective and oversight to the Company’s core brand, foundations, youth and education development for the products and services offered by the Company. Mr. Johnson’s service on other special boards and committees in the worlds of sports and community service adds a depth of knowledge and essential insight and his subsequent civic capacities is a valuable asset to the Company.

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Nilofer Merchant has served as a director of the Company since August 2011. Since December 2010, Mrs. Merchant has been a business innovator, author, keynote speaker, and university lecturer, focusing on a wide range of business leadership events, technology expos, women’s conferences and universities including AjaxWorld, TEDIndia, Web 2.0, Cisco Partner Velocity, National HR conferences, and Stanford University. She is also a regular contributor to the Harvard Business Review on the topics of culture, innovation, and strategy, has been profiled by the Wall Street Journal, published by BusinessWeek, Forbes and AdAge, and author of “The New How”, a critically acclaimed 2010 book on business solutions through collaborative strategy. From June 1999 through December 2010, Mrs. Merchant served as the founder and chief executive officer of Rubicon Consulting, Inc., a management consulting company advising companies on strategic business modeling used for increasing growth, expanding into new markets, analyzing competitor markets, and optimizing revenue for companies ranging from start-ups to multi-billion dollar global enterprises. Her sought after strategic insight was profitably deployed by Adobe, Symantec, Symbian, HP, Yahoo, Openwave, Logitech, and VMWare. Prior to Mrs. Merchant founding Rubicon Consulting, she drove pricing, channel strategy, product launches, vertical segments, and marketing investment decisions for the Americas division of Autodesk (ADSK) from 1997 to 1999.  From 1996 to 1997, Mrs. Merchant served as the vice president of sales and marketing for GoLive, a start-up company acquired by Adobe, where she grew revenues to $4.5 million in 16 months. Mrs. Merchant graduated from University of San Francisco in 1993 with a bachelor’s of science degree in applied economics and from Santa Clara University in 2000 with a master’s degree in business administration. Mrs. Merchant has extensive fiduciary and governance experience and currently serves on the board of directors of the Leavey School of Business at Santa Clara University, the California Community College Board of Trustees, ModeWalk, and Buyosphere.  Mrs. Merchant previously served on the board of directors for Northwest YMCA. Mrs. Merchant was selected to serve as a member of our Board of Directors because she has substantial experience in the social arena, building social business models, developing and expanding new markets, including specific focus in the educational realm, and establishing a culture of innovation and strategic redesign. Her demonstrated record of innovation, achievement and leadership in the areas of marketing, strategic development, and culture will augment the Board of Directors with unique perspectives regarding operations and vision for the Company. Through her 20 years of experience as an industry leader in culture, innovation and strategy, she is able to provide the Board of Directors with unique evaluation and insight into a number of important areas as we develop our digital strategies, including platforms for global innovation regarding the Company’s products and services, social media, brand marketing, and international distribution. In addition, Mrs. Merchant’s knowledge of and experience in financial matters while driving operational performance qualifies her well to perform the audit committee’s oversight role and provides valuable insight to the Company’s various business functions.

Executive Officers

Jeffrey D. Thomas, age 45, has served as chief executive officer and president of the Company since November 2001. He has served as president of Ambassador Programs, Inc., a wholly owned subsidiary of the Company, from August 1996 through July 2002, and chief executive officer since January 2000. For Ambassadors International, Inc., he served as chief financial officer between January 1996 and February 2002. From 1989 to 1995, Mr. Thomas held a variety of strategy and business development positions with Adia Personnel Services (now Adecco), Contrarian Group, Inc., and Corporate Decisions, Inc.

Margaret M. Thomas, age 45, has served as executive vice president of the Company since November 2001. She served as chief financial officer and secretary of the Company from November 2001 through October 2003. She has also served as president of Ambassador Programs, Inc., since August 2002, chief operating officer of Ambassador Programs, Inc., since January 2002, and chief financial officer of Ambassador Programs, Inc., from November 1997 through April 2003. Mrs. Thomas served as treasurer of Ambassadors International, Inc., from February 1999 through February 2002. From 1988 to 1995, Mrs. Thomas was in public accounting and employed by Ernst & Young LLP and PricewaterhouseCoopers LLP, and was the financial reporting officer for Physio-Control Corporation.

Anthony F. Dombrowik, age 41, has served as senior vice president, chief financial officer and secretary of the Company since October 2010. Mr. Dombrowik previously served as the senior vice president, chief financial officer and principal financial and accounting officer of Red Lion Hotels Corporation, a NYSE-listed hospitality and leisure company, since March 2008. Prior to that, Mr. Dombrowik was the senior vice president, corporate controller and principal accounting officer of Red Lion Hotels Corporations since May 2003. Mr. Dombrowik was previously employed as senior manager at the public accounting firm of BDO USA, LLP, where he served as an auditor, certified public accountant and consultant from 1992 to 2003.

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Kristi J. Gravelle, age 45, has served as vice president of operations management of Ambassadors Programs, Inc. since April 2012. She served as vice president of finance and accounting of the Company from October 2010 to April 2012. Mrs. Gravelle served as interim chief financial officer and secretary of the Company from November 2009 to November 2010 and as controller for the Company from September 2007 to April 2012. Prior to joining the Company, Mrs. Gravelle was an independent financial consultant in Denver, Colorado to publicly held and private companies from January 2003 through August 2007. From May 2001 to January 2003, Mrs. Gravelle held a controllership position at AIMCO, a real-estate investment trust in Denver, Colorado. Previously, Mrs. Gravelle held controllership positions specializing in supply chain management at retail companies, including Bi-Lo Stores, a division of AHOLD, Inc., Babies-R-Us, a division of Toys-R-Us, Inc. and One Price Clothing Stores, Inc. in Greenville, South Carolina between 1992 and April 2001.

Relationships Among Directors or Executive Officers

Jeffrey D. Thomas, the Company’s chief executive officer, president and a member of the Company’s Board of Directors, is married to Margaret M. Thomas, the Company’s executive vice president, and president and chief operating officer of the Company’s wholly owned subsidiary, Ambassador Programs, Inc. Other than these relationships, there are no family relationships among the directors or executive officers of the Company.

Audit Committee

The Company has a separately designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. The Audit Committee makes recommendations for selection of the Company’s independent registered public accounting firm, reviews with the independent registered public accounting firm the plans and results of the audit engagement, approves professional services provided by the independent registered public accounting firm, reviews the independence of the independent registered public accounting firm, considers the range of audit and any non-audit fees, and reviews the financial statements of the Company and the adequacy of the Company’s internal accounting controls and financial management practices.

The Audit Committee currently consists of Daniel G. Byrne, chairman, Rafer L. Johnson, Nilofer Merchant, and Timothy M. Walsh. The Board of Directors has determined that, based upon their prior work experience and Mr. Byrne’s tenure and experience on the Company’s Audit Committee, both Mr. Byrne and Mr. Walsh qualify as “Audit Committee Financial Experts” as this term has been defined under the rules and regulations of the Securities and Exchange Commission.

Code of Ethics and Conduct

The Company has adopted a Code of Ethics and Conduct, which is a code of conduct and ethics that applies to all of its directors, officers and employees. A copy of the Code of Ethics and Conduct may be obtained, without charge, upon written request addressed to the attention of the secretary, Dwight D. Eisenhower Building, 2001 South Flint Road, Spokane, Washington 99224.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires the executive officers, directors, and persons who beneficially own more than 10% of a class of securities registered under Section 12(b) the Exchange Act to file initial reports of ownership and reports of changes in ownership with the Securities and Exchange Commission. Such officers, directors and stockholders are required by Securities and Exchange Commission regulations to furnish the Company with copies of all such reports that they file. Based solely upon the Company’s review of such forms furnished to the Company during the fiscal year ended December 31, 2011, and written representations from certain reporting persons, the Company believes that all filing requirements applicable to the Company’s executive officers, directors and more than 10% stockholders have been complied, except as follows: John A. Ueberroth, our director, failed to timely file one Form 4 with respect to one transaction.

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Item 11.                 Executive Compensation

Compensation Discussion and Analysis

Overview

This Compensation Discussion and Analysis describes the Company’s compensation philosophy, objectives, and processes, including the methodology for determining executive compensation for the “Named Executive Officers,” as defined under the section entitled “Compensation of Executive Officers and Directors—Summary Compensation Table.”

Executive Summary

Since 2008, the student travel industry has been challenged by continued economic declines influencing consumer confidence and discretionary spending decisions.  This trend combined with the changes in postal services and fast-paced advances in technology and social media have created a rapidly changing environment with growing complexity. Although the Company has experienced difficulties in meeting and exceeding stockholder expectations in recent years, Ambassador’s executive team has navigated through these operating challenges and led the Company in its efforts to remain profitable during these difficult times.

In its evaluation of the Named Executive Officers and their performance, the Compensation Committee has carefully considered the immense and continued challenges faced by the Company and its executives over the past few years and the importance of rewarding and retaining talented experienced managers to continue to guide the Company through these difficult times.

2011 Compensation Decisions:

·                  The Compensation Committee considered recommendations made by Towers Watson in conjunction with its partially completed executive compensation study, covering performance reviews, executive compensation philosophy, and the design of our 2012 incentive plans for executives;

·                  No salary increases were approved for the Named Executive Officers effective in 2012 based on reduced financial performance;

·                  2012 cash incentive opportunities were reduced by approximately 50 percent of normally targeted and externally competitive levels for the Named Executive Officers considering the financial performance outlook for 2012;

·                  Based on the Company’s stock price, the Compensation Committee reduced the value of stock awards to the Named Executive Officers, resulting in lower multiples used to determine the equity grants issued in 2011.  The number of stock awards granted was similar to the prior year.  This decision was aimed at rewarding a financial rebound over a longer term basis; and

·                  The Compensation Committee considered the stockholders’ approval of the Company’s executive compensation in the Say-on-Pay vote held at our annual meeting in May 2011 and made no material changes to the existing executive compensation philosophy, policies, or structure.

Please also refer to the more detailed compensation disclosures beginning with and following the “Summary Compensation Table” contained in this report.

Overview of Compensation Philosophy and Guiding Principles

The Company recognizes and values the critical role that executive leadership plays in its performance. The Company’s executive compensation philosophy is intended to ensure that executive compensation is aligned with its business strategy, objectives and stockholder interests, and is designed to attract, motivate and retain highly qualified and key executives and employees. The Company’s executive compensation philosophy is designed to pay

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competitive total compensation based on continuous improvements in corporate performance, and individual and team contributions that are aligned with stated business strategies and objectives. To implement its philosophy, the Company sets base compensation at competitive levels relative to executives holding positions with similar responsibilities at comparable companies and focuses heavily on performance-based incentives to motivate and encourage employees to achieve superior results for the Company and its stockholders. Compensation elements generally consist of a base salary, an annual cash incentive award, and for key employees and executives, long-term equity compensation.

Role of the Compensation Committee

The Company’s Board of Directors appoints members to the Compensation Committee to assist in recommending, managing and reviewing executive compensation for the Named Executive Officers. The Compensation Committee reviews and approves salaries, annual awards, long-term incentive compensation, benefits, and other compensation in order to ensure that the Company’s executive compensation strategy and principles are aligned with its business strategy, objectives and stockholder interests. The Compensation Committee meets quarterly prior to the quarterly meeting of the Board of Directors. Each member of the Compensation Committee is independent within the meaning of the rules and regulations of the Securities and Exchange Commission and the Nasdaq Listing Standards, as currently in effect. Further, the Board of Directors has determined that each member of the Compensation Committee is an “outside director” within the meaning of Section 162(m) of the Internal Revenue Code (the “Code”).

The Compensation Committee engages consulting firms to provide external advisory services with respect to the Company’s executive compensation. The Compensation Committee maintains the sole authority to enter or terminate the relationship with an independent compensation consultant.

Say-On Pay Proposals

The Dodd-Frank Wall Street Reform and Consumer Protection Act that was passed by Congress in July of 2010 requires that companies include in their annual proxy statement a non-binding resolution seeking stockholder approval of Named Executive Officer compensation at stockholder meetings at least once every three years.  It also mandated a separate vote to determine how often the Say-On-Pay vote will be held (every one, two or three years), with such separate vote to be held at least once every six years. In 2011, stockholders voted to hold the Say-On-Pay vote every year and approved the compensation of the Company’s Named Executive Officers. The Compensation Committee reviewed the results of the advisory votes and based upon the results determined to hold the Say-On-Pay vote at the 2012 Annual Meeting and not to make any material changes to the Company’s executive compensation philosophy, policy, or structure.

Executive Compensation Methodology

The Compensation Committee takes into account various qualitative and quantitative indicators of corporate and individual performance in determining the level and composition of compensation to be paid to the Named Executive Officers. The Compensation Committee considers such corporate performance measures as net income, earnings per share, cash flow, operational excellence, execution of strategic plans, and growth and enrollments. The Compensation Committee also appreciates the importance of achievements that may be difficult to quantify, and accordingly recognizes qualitative factors such as individual performance, new responsibilities or positions within the Company, leadership ability and overall management contributions to the Company. The Committee also considers stockholder feedback provided from the Say-On-Pay advisory vote. The Compensation Committee may vary its quantitative measurements from employee to employee, and from year to year. The Company’s chief executive officer and Vice President of Human Resources consult with the Compensation Committee and provide recommendations with respect to the compensation of other Named Executive Officers. The Compensation Committee determines the compensation of the chief executive officer in its executive sessions. Compensation consultants assist the Compensation Committee in aligning the Company’s practices with the marketplace for talent, internal equity and performance requirements unique to the Company.

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In general, the process by which the Compensation Committee makes decisions relating to executive compensation includes, but is not limited to, consideration of the following factors:

·                  The Company’s executive compensation philosophy and practices

·                  The Company’s performance relative to peers and industry standards

·                  Success in attaining annual and long-term goals and objectives

·                  Alignment of executive interests with stockholder interests through equity-based awards and performance-based compensation

·                  Individual and team contributions, performance and experience

·                  Total compensation and the mix of compensation elements for each Named Executive Officer

·                  Competitive market practices

The Compensation Committee assesses the competitive market of each component of the executives’ compensation and in the aggregate. Based upon these competitive reference points, the Compensation Committee establishes base salary ranges and target short-term and long-term incentive amounts. The Compensation Committee then considers each individual’s experience and performance in determining base salary levels and determines the required performance for short and long-term target incentives.

In implementing the Company’s compensation program, the Compensation Committee seeks to achieve a balance between compensation and the Company’s annual and long-term budgets and business objectives, encourage executive performance in furtherance of stated Company goals, provide variable compensation based on the performance of the Company, create a stake in the executive officer’s efforts by encouraging stock ownership in the Company, and align executive remuneration with the long-term interests of the Company’s stockholders.

In November 2011, the Compensation Committee engaged Towers Watson to perform a review of the current comprehensive compensation program offered by the Company, including the philosophy, policies, and structure of the program with respect to executive and director compensation.  The engagement also provides for assistance in implementing any approved design changes that result from the study. As of the date of this report, the compensation study was not entirely completed and thus was not fully available for consideration by the Compensation Committee in connection with executive compensation decisions for 2012. The Compensation Committee utilized the study completed by Towers Watson (formerly known as Watson Wyatt) in 2008 to serve as a basis for making compensation decisions for 2012. Details regarding this study are set forth in the Company’s proxy statement filed with the Securities and Exchange Commission on April 12, 2011.

Towers Watson has reviewed and recommended changes regarding the Company’s performance reviews and executive compensation philosophy, provided limited advice associated with total compensation packages for the current executive team, specifically related to the 2012 incentive plans, and reviewed the Compensation, Discussion and Analysis section contained in this report. For these services, Towers Watson earned approximately $7,000 in contracted fees as they executed the initial scope of their engagement, which was paid by the Company in 2012.

Executive Compensation Program Elements

For 2011, Named Executive Officers included Jeffrey D. Thomas, chief executive officer and president of the Company, Margaret M. Thomas, executive vice president of the Company, Anthony F. Dombrowik, senior vice president, chief financial officer, and secretary of the Company, and Kristi J. Gravelle, vice president of finance and accounting, and principal accounting officer of the Company. Effective April 1, 2012, Mrs. Gravelle left that role and transitioned to vice president of operations management for Ambassador Programs, Inc.

Base Salary. Base salary is set to attract and retain executive talent taking into consideration competitive market conditions with respect to comparable companies. Base salaries for the Named Executive Officers are established at levels considered appropriate in light of the duties and scope of responsibilities of each executive officer’s position, and the experience the individual brings to the position. Each Named Executive Officer has a salary band associated with such officer, which determines the minimum, median and maximum cash compensation level for such officer. Salaries are reviewed periodically and adjusted as warranted. Factors that are considered in this review of executive officers base salary include, but are not limited to, sustained individual performance and long-term business growth and development. Base salaries are managed within a competitive range for each position, reflecting both job performance and market forces, using data provided by the Company’s compensation consultants.

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The Compensation Committee annually reviews the Company’s compensation program to ensure that pay levels and incentive opportunities are competitive with the market and reflect the performance of the Company. The Committee believes discussing the history of the decisions made since 2008 may be helpful in understanding and assessing the current base salaries offered to the Named Executive Officers. Based upon the research and recommendations of the 2008 Towers Watson compensation study, which took into account position, responsibilities, experience and performance of the Named Executive Officers, the Compensation Committee approved increases in base salary from $400,000 to $525,000 and from $220,000 to $341,000 for Mr. Thomas and Mrs. Thomas, respectively, in August 2008. However, based upon economic conditions and the outlook for 2009, management and the Compensation Committee subsequently determined that it was not the appropriate time to implement the Towers Watson’s market and performance based recommendations. In 2010, based on Towers Watson’s recommendations, Mr. Thomas did not receive a salary increase and his salary remained at $400,000; however, Mrs. Thomas’s salary was increased from $220,000 to $300,000, the first increase since 2007.  As a result of Mrs. Gravelle’s change in position from interim Chief Financial Officer to vice president, finance and accounting, Mrs. Gravelle’s base salary was decreased from $168,000 to $155,000 in November of 2010.

In November 2011, the Compensation Committee determined there would be no base salary increases for any of the Named Executive Officers effective in 2012 considering the Company’s current results. The Compensation Committee determined that overall compensation would be weighted more heavily on equity based awards or long-term incentive compensation to offer an overall competitive compensation package. With this in mind, the Compensation Committee establishes targets for annual cash incentive awards and equity-based compensation.

Annual Incentive Awards. Annual incentive awards are designed to focus the Company’s Named Executive Officers on annual operating achievement by compensating individuals based on achievement of specific goals related to Company performance and long-term stockholder value. Each Named Executive Officer is eligible for an annual incentive award, calculated by the Compensation Committee using the target percentage aligned with the executive officer’s unique base salary. For 2011, the target award for Named Executive Officers ranged from 30% to 75%, with a maximum potential award that ranged from 60% to 150% of base annual salary, depending on the executive officer’s position. For 2011, Mr. Thomas and Mr. Dombrowik did not receive an award, Mrs. Thomas received an award of $36,987 (20.5% of target), and Mrs. Gravelle received an award of $9,555 (20.5% of target).

The Company pays annual incentive awards to its Named Executive Officers based upon the achievement of pre-established targets that are indicative of the Company’s performance, as well as individual performance milestones to the extent they are met by the executive officer. Each Named Executive Officer has performance targets that align with the Company’s short-term and long-term goals.  In determining the goals of each individual, the Compensation Committee also considers job responsibilities and may align individual goals with areas of the business that the Named Executive Officer directly influences. For the 2011 goals, all Named Executive Officers had the 2011 pre-tax net income and 2012 enrolled revenue goal which reward overall financial performance for the current year and growth of the travel business for the upcoming year. Mr. Thomas and Mr. Dombrowik were assigned an earnings per share goal aimed to reward stockholder return on a consolidated basis.  Outside the financial performance and growth goal, Mrs. Thomas and Mrs. Gravelle were assigned goals that were more operational in nature aimed at rewarding new distribution channel development and operational efficiency and customer satisfaction.

The Compensation Committee approved the pre-established targets and individual performance milestones for 2011 for each Named Executive Officer in February 2011. In February 2012, the Compensation Committee reviewed actual performance achieved during 2011 against the pre-established targets and individual milestones. A summary of the results of the Compensation Committee’s review is set forth below:

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Information regarding the annual incentive compensation for 2011 awarded to each of the Named Executive Officers is also shown in the “Non-Equity Incentive Plan Information” column of the “Summary Compensation Table” and the “Estimated Future Payouts Under Non-Equity Incentive Plan Awards” column of the “Grants of Plan-Based Awards Table”.

For 2012, the Compensation Committee approved pre-established targets and individual performance milestones for each Named Executive Officer in February 2012. Due to the decreased financial performance anticipated in 2012, the Compensation Committee decided to reduce cash incentive eligibility of each Named Executive Officer by approximately 50 percent from the previous year. In prior years, the Chief Executive Officer’s and Chief Financial Officer’s incentive plans predominately targeted financial performance. Considering the Company’s focus to aggressively develop non-mail growth initiatives, the Compensation Committee determined to restructure the annual incentives for the Chief Executive Officer and Chief Financial Officer to increase the emphasis on growth initiatives by providing more evenly weighted potential payouts for financial performance and growth, in particular for developing new non-mail sales and marketing channels.  Beyond the baseline cash incentive, Mr. Thomas has an opportunity to earn an additional 25 percent of his target award, which has been included in the target dollars stated in the table below, related to the non-mail growth initiative if achieved as this goal has direct alignment to advancements in the business that are expected to spur growth related to new initiatives.  Mrs. Thomas has an opportunity to earn an additional 25 percent of her target award, which has been included in the target dollars stated in the table below, related to return on invested operating capital utilized in Ambassador Programs as this goal directly aligns with lowering our cost to acquire a traveler.

For the 2012 goals, all Named Executive Officers were assigned three baseline goals: 2012 pre-tax net income, 2013 traditional enrolled revenue, and 2013 enrolled revenue from non-mail sources. These goals are aimed to reward overall financial performance for the current year, and both general enrollment growth and new distribution channel growth for the travel business for the upcoming year. In addition to these goals, Mrs. Thomas, Mr. Dombrowik, and Mrs. Gravelle have a goal for return on invested operating capital targeted at increasing operational efficiency and reducing the cost to acquire a traveler. A summary of the Compensation Committee’s 2012 incentive plan developed for the Named Executive Officers is set forth below:

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Long-Term Incentive Compensation/Equity-Based Awards. The Company’s long-term incentive program is designed to retain the Named Executive Officers and to align the interests of the Named Executive Officers with the interests of the Company’s stockholders. The Company’s long-term incentive program consists of periodic grants of stock options and restricted stock, which are made at the discretion of the Compensation Committee under the Incentive Plan. Decisions made by the Compensation Committee regarding the amount of the grant and other discretionary aspects of the grant take into consideration Company performance, growth, individual performance and experience, contributions to the Company’s development, competitive forces to attract and retain senior management, and the nature and terms of grants made in prior years. The Compensation Committee considers the compensation data, provided by consultants, which sets forth median annualized long-term incentive values, the objectives of the long-term incentives, the availability of shares and the perceived value of the available instruments. A combination of stock options and time-based restricted stock were granted to the Named Executive Officers in 2011 to achieve the objectives of the Company’s long-term incentive program. Stock options create incentive for increasing the Company’s stock price by aligning executives’ interests with the stockholders’ interests. Time based restricted stock awards that have cliff vesting and pay dividends are intended to provide retention value even with fluctuations in the equity market.

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Under the Incentive Plan, in addition to options and restricted stock, the Compensation Committee may also grant, in its discretion, stock appreciation rights and may make other awards.

The Compensation Committee typically grants awards to the Named Executive Officers under the Incentive Plan at its fourth-quarter meeting held each year. Except in very limited circumstances, the Compensation Committee does not grant equity awards to Named Executive Officers at other times during the year. All equity awards are made at fair market value on the date of grant, which is the date on which the Compensation Committee authorizes the grant. Under the Incentive Plan, fair market value is determined by the closing price of the Company’s Common Stock on the date of grant.

Each Named Executive Officer has a salary band associated with such officer that determines the minimum, median and maximum cash compensation level as well as the possible multiples used to calculate equity awards for such officer. Each Named Executive Officer is assigned to a unique salary band and therefore has different starting points and ranges for multiples.

In November 2011, a combination of stock options and time-based restricted stock were granted to the Named Executive Officers, based upon a multiple of their current base salaries. In considering the equity award multiple, the Compensation Committee chose to award at a lower multiple than in the prior year since the share price had substantially declined over the last year. Awards were made using the same number of shares awarded in 2010 for all Named Executive Officers, except for Mr. Dombrowik whose grant was made in accordance with his offer letter.  These awards resulted in a lower cash value and accomplished the Compensation Committee’s objective of allotting a considerable portion of compensation toward long-term incentives. This action was designed to reward and leverage improved financial performance over the longer term and aligns the interests of the Named Executive Officers and the stockholders.

As stated above, base salaries remained the same as 2011 for all Named Executive Officers and cash incentives were reduced due to the lower earnings performance achieved. In making its determination, among other factors, the Compensation Committee considered the decreased financial performance of the Company and the possibility that part of the decline in financial performance could be attributed to general economic factors influencing the educational travel business as a whole. The Compensation Committee believes the Named Executive Officers should be rewarded for individual contributions to strategic initiatives and incented to continue rebuilding the business through long-term awards.  The Compensation Committee’s decision to award equity to the Named Executive Officers recognizes individual performance, which includes providing notable leadership, building a team experienced in change management and aimed at implementing the strategic plans, and advancing activities that drive non-mail marketing initiatives, improving quality and enhancing customer satisfaction. These contributions advance the Company’s development and position the Company for long-term success.

The Compensation Committee awarded Mr. Thomas an equity grant award valued at $365,853 based upon his base salary of $400,000 and a multiple of 0.91, which was in the 29th percentile of competitive equity award multiples. The Compensation Committee chose a multiple of 0.91 due to the following factors:

·                  Mr. Thomas exhibited high individual performance by leading the Company’s efforts to identify new strategic initiatives, maintaining gross margin near 40 percent, building a change team to drive non-mail initiatives;

·                  Mr. Thomas’ salary has not increased since 2004; and

·                  To provide a competitive total compensation package that considers the decline in financial performance yet rewards continued progress in the long-term.

The Compensation Committee awarded Mrs. Thomas an equity grant award valued at $109,754 based upon her base salary of $300,000 and a multiple of 0.37, which was the 18th percentile of competitive equity award multiples. The Compensation Committee chose a multiple of 0.37 due to the following factors:

·                  Mrs. Thomas exhibited individual performance by leading the Company’s efforts to implement operational excellence measurements that improve quality and customer satisfaction as well as achieving high gross margins;

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·                  Mrs. Thomas implemented new strategies targeted at building a non-mail marketing initiatives which will serve as a baseline for improved lead generation, customer service, and financial ratios; and

·                  To provide a competitive total compensation package that considers the decline in financial performance yet rewards continued progress in the long-term.

The Compensation Committee awarded Mr. Dombrowik an equity grant award valued at $157,074 based upon his base salary of $240,000 and a multiple of 0.64, which was the 45th percentile of competitive equity award multiples. This award multiple was set as part of the overall compensation package offered to Mr. Dombrowik to join the Company in 2010 and was considered commensurate with his experience and expected contribution in his position.

The Compensation Committee awarded Mrs. Gravelle an equity grant award valued at $33,805 based upon her base salary of $155,000 and a multiple of 0.22, which was the 32nd percentile of competitive equity award multiples. The Compensation Committee chose a multiple of 0.22 due to the following factors:

·                  Mrs. Gravelle exhibited individual performance by successfully leading the Company’s accounting and compliance efforts, driving the Company’s efforts to implement operational excellence measurements that improve quality and customer satisfaction and achieving high gross margins; and

·                  To provide a competitive total compensation package that considers the decline in financial performance yet rewards continued progress in the long-term.

Benefits and Perquisites. Benefits and perquisites are designed to attract and retain key employees in light of competitive market conditions. Currently, the Named Executive Officers are eligible to participate in benefit plans available to all employees including our 401(k) Plan and the Incentive Plan. Other benefits and perquisites are limited and are provided at the discretion of the Compensation Committee. These benefits include medical and dental health insurance plans, life, and long-term disability insurance plan benefits. The 401(k) Plan and the medical and dental plans require each participant to pay a contributory amount. The Company provides a matching contribution to its 401(k) Plan that is discretionary for participating employees, including the Named Executive Officers. Employee individual plan contributions are subject to the maximum contribution allowed by the Internal Revenue Service. Under the Company’s long-term disability insurance plan, the Company pays insurance premiums of up to $50,000. Although the benefits and perquisites are considered when determining the overall compensation of the Named Executive Officers, the amounts involved are not deemed to be so material as to significantly impact the other types of compensation provided to them.

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Severance Benefits.

Jeffrey D. Thomas. On September 27, 2006, the Company entered into an employment agreement with Jeffrey D. Thomas, which provides for certain severance benefits upon: (i) a termination of his employment by the Company for cause or by Mr. Thomas without good reason; (ii) termination of his employment by the Company without cause or by Mr. Thomas with good reason; (iii) termination of his employment by the Company without cause or by Mr. Thomas with good reason in connection with a change in control; and (iv) his death or permanent disability. The Company designed Mr. Thomas’ severance package to be commensurate with the marketplace and set payout amounts at levels it deemed appropriate to retain the services of Mr. Thomas in light of his significant personal knowledge, significant business experience, established track record in the Company’s business sector, and his contacts in the travel industry. The terms of Mr. Thomas’ severance benefits are summarized below under the heading “Employment Contracts, Termination of Employment and Change in Control Arrangements.”

Margaret M. Thomas. On March 9, 2011, the Company entered into a severance agreement with Margaret M. Thomas, which provides for certain severance benefits upon: (i) termination of her employment by the Company without cause or by Mrs. Thomas with good reason; and (ii) termination of her employment by the Company without cause or by Mrs. Thomas with good reason in connection with a change in control. The Company designed Mrs. Thomas’ severance package to be commensurate with the marketplace and set payout amounts at levels it deemed appropriate to retain the services of Mrs. Thomas in light of her significant personal knowledge, significant business experience, established track record in the Company’s business sector, and her contacts in the travel industry. The terms of Mrs. Thomas’ severance benefits are summarized below under the heading “Employment Contracts, Termination of Employment and Change in Control Arrangements.”

Anthony F. Dombrowik. On March 9, 2011, the Company entered into a severance agreement with Anthony F. Dombrowik, which provides for certain severance benefits upon: (i) termination of his employment by the Company without cause or by Mr. Dombrowik with good reason; and (ii) termination of his employment by the Company without cause or by Mr. Dombrowik with good reason in connection with a change in control. The Company designed Mr. Dombrowik’s severance package to be commensurate with the marketplace and set payout amounts at levels it deemed appropriate to retain the services of Mr. Dombrowik in light of his significant business experience, and established record of accomplishment in the public company and accounting sector. The terms of Mr. Dombrowik’s severance benefits are summarized below under the heading “Employment Contracts, Termination of Employment and Change in Control Arrangements.”

Total Compensation Mix

The Compensation Committee believes that the elements described above provide a well-proportioned mix of at-risk or performance-based compensation,  fixed compensation, and retention-based compensation that produces short-term and long-term incentives and rewards. The Company believes this compensation mix provides the Named Executive Officers a measure of security as to the minimum levels of compensation they are eligible to receive, while motivating the Named Executive Officers to focus on the business measures that will produce a high level of performance for the Company, as well as reducing the risk of recruitment of highly qualified executive talent by our competitors. The mix of annual incentives and equity-based awards likewise provides an appropriate balance between short-term financial performance and long-term financial and stock performance. The Company believes that its compensation mix results in a pay-for-performance orientation that is aligned with its compensation philosophy to pay median pay for median performance and above-market pay for superior performance.

Impact of Accounting and Tax on the Form of Compensation

The Compensation Committee considers applicable tax, securities laws and accounting regulation in structuring and modifying its compensation arrangements and employee benefit plans. The Compensation Committee has considered the impact of the generally accepted accounting principles (“GAAP”) on the Company’s use of equity-based awards. This consideration factored heavily in the Company’s decision with respect to restricted stock and stock options grants made in 2009, 2010 and 2011, limiting the total equity-based awards granted to non-executives. The Compensation Committee also considers the limits on deductibility of compensation imposed by Section 162(m) of the Code with respect to annual compensation exceeding $1.0 million and Section 280(b) of the Code with respect to change in control payments exceeding specified limits.

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Compensation Policies and Practices As They Relate to the Company’s Risk Management

In determining whether our compensation policies and procedures could have a material adverse effect on the Company, the Company conducted an assessment and assigned oversight of risk associated with compensation to the Compensation Committee because of their familiarity and involvement with the Company’s compensation policies. In completing this assessment, the Company developed a complete list of its compensation programs for all employees, including executives. We then analyzed each aspect of our compensation programs, including salaries, cash incentive, 401(k) benefits, sales compensation plans, and equity grants and/or awards to identify what kinds of risks it might pose. We paid particular attention to the programs in which executive officers and sales employees participate, since those employees have the kind of responsibilities and duties that may lead to risk. It is worthy to note that our industry does not lend itself to exceedingly risky activities that are out of the ordinary to most companies.

We then identified and evaluated the program features and design, potential risks associated with the program, and our practices that enable us to monitor or mitigate the identified risks. Based on our findings, we concluded that the Company does not have high-risk compensation policies and that as monitored and managed, risks relating to our compensation policies are not reasonably likely to have a material adverse effect on the Company as a whole.

Summary Compensation Table — 2011, 2010, and 2009

The following table sets forth the compensation for the principal executive officer, the principal financial officer, and the Company’s only other executive officer serving on December 31, 2011 whose individual remuneration exceeded $100,000 for the fiscal year ended December 31, 2011, 2010 and 2009 (the “Named Executive Officers”):

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Company Plans

Information regarding the Company’s plans is set forth in Item 12 of this report under the heading “Securities Authorized for Issuance under Equity Compensation Plans”.

Grants of Plan-Based Awards Table - 2011

The following table sets forth the plan-based grants made during the fiscal year ended December 31, 2011 to each of our Named Executive Officers.

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Outstanding Equity Awards at Fiscal Year-End Table — 2011

The following table sets forth the outstanding equity awards as of December 31, 2011.

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Option Exercises and Stock Vested Table — 2011

The following table sets forth certain information with respect to exercised options and vested stock awards for the fiscal year ended December 31, 2011.