EXHIBIT 10.12
 
SEVERANCE PLAN AND AGREEMENT
 
THIS SEVERANCE PLAN AND AGREEMENT (this “Agreement”) is entered into as of March
9, 2011, by and between Ambassadors Group, Inc. (“AGI”) and Ambassador Programs,
Inc. (“API”), on the one hand, and Margaret M. Thomas (the “Executive”), on the
other hand.  For purposes of this Agreement, AGI and API shall be referred to
collectively as the “Company”.
 
The Board of Directors of the Company (the “Board”) has determined that it is in
the best interests of the Company and its shareholders to enter into this
Agreement with Executive to assure that the Company will have the continued
dedication of the Executive.  The Board further believes it is imperative to
diminish the distraction of the Executive by any uncertainties and risks
associated with involuntary severance and/or change of control of the Company,
while at the same time to safeguard for the Company its confidential and trade
secret information, its valuable business relationships and its highly trained
workforce. Therefore, in order to accomplish these objectives, the Board has
caused the Company to enter into this Agreement.  Unless otherwise stated, all
capitalized terms used herein shall have the meanings set forth in Section 10.
 
AGREEMENT
 
NOW, THEREFORE, in consideration of the continued employment of the Executive
and the mutual covenants and agreements hereinafter set forth, the Company and
the Executive agree as follows:
 
1. Severance Benefits.  In consideration of the Executive’s compliance with all
of the terms of this Agreement, including but not limited to the noncompete,
nonsolicitation, nondisparagement and confidentially provisions below, and the
Executive’s execution of a General Release as of the effective date of the
Executive’s Termination of Service, in substantially the form attached hereto as
Exhibit A, the Company hereby agrees that, in the event of the Executive’s
Involuntary Termination Without Cause or Termination for Good Reason, the
Executive shall be entitled to the following “Severance Benefits”:
 
(a) Continued base salary for the six (6) month period (except in the event that
such Termination of Service occurs within the eighteen (18) month period
immediately following a “Change In Control,” in which event it shall be base
salary for the twelve (12) month period) immediately following Termination of
Service (the “Severance Period”) at the annual rate in effect as of Termination
of Service.  Payments for such continued base salary shall commence upon the
next normal payroll date following Termination of Service and be paid in
accordance with the Company’s normal payroll practices over the same period such
amounts would otherwise have been paid had the Executive continued in the employ
of the Company.
 
(b) An annual bonus equal to 100% of the Executive’s “Target Annual Bonus”
established by the Company for the calendar year in which Termination of Service
occurs, payable at the same time the Executive’s annual bonus would otherwise
have been paid had the Executive continued in the employ of the Company and,
furthermore, payable whether or not the target is met.
 
(c) Continued medical insurance benefits (in the form of the payment of COBRA
benefits) comparable to the benefits provided to other executive’s of the
Company for the lesser of the Severance Period, or until the Executive becomes
reemployed with another employer and is eligible to receive medical benefits
under another employer-provided plan.
 
(d) Executive shall be fully vested in all outstanding unvested equity grants
under any Company stock option, stock appreciation right, or restricted stock
plan or agreement; provided, however any and all stock options must be timely
exercised in accordance with the existing stock option agreements between the
Executive and the Company.
 
(e) Notwithstanding the forgoing, the timing of payment of the Severance
Benefits shall be subject to and may be delayed in compliance with all
requirements of IRC Section 409A as provided in Section 9 below.
 
(f) Notwithstanding the foregoing, in the event that any Severance Benefits
payable under this Agreement or any other compensation, benefit or other amounts
payable from the Company for the benefit of the Executive are subject to the
deduction limitations and tax imposed by Sections IRC Sections 280G and 4999
(including any applicable interest and penalties), the Employee’s Severance
Benefits under this Agreement shall be limited so as to avoid the application of
any such excise taxes.
 
2. Noncompetition.  The Executive acknowledges and agrees that he or she has
received and shall continue to receive valuable Confidential Information and
Trade Secrets of the Company and exposure to key suppliers, service providers,
group leaders and tour customers of the Company.  Accordingly, because of
Executive’s access to, and knowledge of, the Company’s Confidential Information
and Trade Secrets and key suppliers, service providers, group leaders and tour
customers, as well as Executive’s extraordinary position within the Company,
Executive would be in a unique position to divert business from the Company and
to commit irreparable damage to the Company were Executive to be allowed to
compete with the Company or to commit any of the other acts prohibited below.
 
The Executive therefore agrees that, in order to protect the legitimate business
interests of the Company, the Executive shall not, during Executive’s employment
and for the Noncompete Period, directly or indirectly, own, organize, consult
with, be employed by, advise, be a partner of or joint venturer with, be a
director or managing member of, or otherwise assist or provide services to, any
Competitor within the Restricted Area except to the extent Executive is acting
on behalf of the Company or in furtherance of the Company’s interests.  The
Executive further agrees that, during Executive’s employment and for the
Noncompete Period, the Executive shall not, directly or indirectly, purchase any
equity securities of any corporation or other business (other than as a
shareholder or beneficial owner directly or indirectly owning one percent (1%)
or less of the outstanding securities of a public company) which is a Competitor
without the prior written consent of the Company.
 
3. Nonsolicitation of Employees.  The Executive acknowledges and agrees that the
Company has expended and will continue to expend significant time, effort and
resources in the hiring, training and development of an unusual and
extraordinary workforce whose identities and abilities the Executive would not
know of or learn but for his or her relationship with the Company.  The
Executive therefore agrees that, during Executive’s employment and for the
Nonsolicitation Period, the Executive shall not, directly or indirectly,
(a) solicit, or attempt to solicit, any employee of, consultant or tour group
leader associated with the Company to work for, contract with, become a partner
with or otherwise be retained by any Competitor of the Company; (b) assist or
advise any such Competitor in hiring, employing, retaining or soliciting such
employees, consultants or tour group leaders; or (c) encourage any such
employee, consultant or tour group leader to be hired, employed, retained or
solicited by any Competitor.
 
4. Nonsolicitation of Customers.  The Executive acknowledges and agrees that the
Executive possesses and may continue to receive valuable Confidential
Information and Trade Secrets of the Company and exposure to tour customers and
potential customers of the Company.  The Executive therefore agrees that, during
Executive’s employment and for the Nonsolicitation Period, the Executive shall
not, directly or indirectly, solicit any tour customers or potential customers
of the Company with whom the Executive had contact with or about whom Executive
learned information during Executive’s employment with the Company, on behalf of
any other entity or person.  Executive further agrees that he shall not
disparage the Company, its officers and directors or tour programs to such
customers or potential customers.
 
5. Nonsolicitation of Suppliers and Service Providers.  The Executive
acknowledges and agrees that the Executive has received and may continue to
receive valuable Confidential Information and Trade Secrets of the Company with
respect to its relationships with its suppliers and service providers such as
hotels, travel operators and other vendors and that the ability to acquire
services from such suppliers and service providers is limited.  Accordingly,
such relationships constitute valuable assets of the Company.  The Executive
therefore agrees that, during Executive’s employment and for the Nonsolicitation
Period, the Executive shall not, for, on behalf of or in connection with any
Competitor, directly or indirectly, solicit any suppliers or service providers
with whom the Executive had contact with or about whom Executive learned
information during Executive’s employment with the Company on behalf of any
other entity or person.  Executive further agrees that Executive shall not
disparage the Company, its officers, directors or tour programs to such
suppliers or service providers.
 
6. Confidentiality of Information.  The Executive acknowledges and agrees that
the Executive has been and shall be exposed to the Company’s Confidential
Information and Trade Secrets.  The Executive agrees to keep all such
information strictly confidential at all times.  Except as required by the
Executive’s duties for the Company or by virtue of a subpoena or other court
order applicable to the Executive, the Executive agrees not to make use of or
disclose any Confidential Information or Trade Secrets to any person, company,
firm, organization or other entity, or encourage any such person, company, firm,
organization or other entity to make use of such Confidential Information or
Trade Secrets.  The Executive’s obligations under this Section 6 shall survive
the Termination of Service.
 
7. Return of Documents and Electronic Media.  At the termination of the
Executive’s employment, the Executive agrees to promptly return to the Company
any and all documents and other tangible information and data, regardless of the
form in which it is recorded, as well as any and all copies and reproductions of
such documents or other tangible information and data (regardless of the form of
such copies or reproductions), which the Executive (i) received or obtained from
or on behalf of the Company or (ii) prepared, compiled or collected while
employed by the Company.  The Executive specifically agrees not to retain any
copies of any Confidential Information or Trade Secrets.
 
8. Ownership of Work Product.  All work product, data, documentation,
information or materials conceived, discovered, developed or created by the
Executive in the course of the Executive’s work for the Company (collectively,
the “Work Product”) shall be owned exclusively by the Company.  To the greatest
extent possible, any Work Product shall be deemed to be a “work made for hire”
(as defined in the United States Copyright Act, 17 U.S.C.A. §101 et seq., as
amended) and owned exclusively by the Company.  The Executive hereby
unconditionally and irrevocably transfers and assigns to the Company all right,
title and interest in or to any such Work Product.  The Company and the
Executive acknowledge that, pursuant to Wash. Rev. Code § 49.44.140(3), any
provision in this Agreement requiring Employee to assign his rights in any Work
Product does not apply to an invention for which no equipment, supplies,
facility, or trade secret information of the employer was used and which was
developed entirely on the employee’s own time, unless (a) the invention relates
(i) directly to the business of the employer, or (ii) to the employer’s actual
or demonstrably anticipated research or development, or (b) the invention
results from any work performed by the employee for the employer.
 
9. Compliance with Section IRC 409A.
 
(a) Unless otherwise expressly provided, any payment of compensation by Company
to the Executive, whether pursuant to this Agreement or otherwise, shall be made
within two and one-half months (2½ months) after the end of the later of the
calendar year or the Company’s fiscal year in which the Executive’s right to
such payment vests (i.e., is not subject to a substantial risk of forfeiture for
purposes of IRC Section 409A).  Such amounts shall not be subject to the
requirements of subsection 9(b) below applicable to “nonqualified deferred
compensation.”  Each installment of any Severance Benefits provided for under
this Agreement shall be treated as a separate payment for purposes of
application of IRC Section 409A and Section 9(b) shall not apply to that portion
of any amounts payable upon Termination of Service which (i) are required to be
paid within the 2½ period provided above, or (ii) qualify as “involuntary
severance” under IRC Section 409A because such amount is payable no later than
the end of the second year commencing after Termination of Service and does not
exceed the lesser of (A) two hundred percent (200%) of the Executive’s
annualized compensation from the Company for the calendar year immediately
preceding the calendar year during which the Termination of Service occurs, or
(B) two hundred percent (200%) of the annual limitation amount under IRC Section
401(a)(17) of the Code (the maximum amount of compensation that may be taken
into account for purposes of a tax-qualified retirement plan) for the calendar
year during which Termination of Service occurs.
 
(b) All payments of “nonqualified deferred compensation” (within the meaning of
IRC Section 409A) are intended to comply with the requirements of IRC Section
409A, and shall be interpreted in accordance therewith.  Neither party
individually or in combination may accelerate, offset or assign any such
deferred payment, except in compliance with IRC Section 409A.  No amount shall
be paid prior to the earliest date on which it is permitted to be paid under IRC
Section 409A and Executive shall have no discretion with respect to the timing
of payments except as permitted under IRC Section 409A. In the event that the
Executive is determined to be a “specified employee” (as defined and determined
under IRC Section 409A) of Company at a time when its stock is deemed to be
publicly traded on an established securities market, payments determined to be
“nonqualified deferred compensation” payable by reason of Termination of Service
shall be paid no earlier than (i) the first day of the seventh (7th) calendar
month commencing after such Termination of Service, or (ii) the Executive’s
death, consistent with and to the extent necessary to meet the requirements IRC
Section 409A without the imposition of excise taxes.  Any payment delayed by
reason of the prior sentence shall be paid out in a single lump sum on the
earliest date permitted under IRC Section 409A in order to catch up to the
original payment schedule.
 
(c) All benefit plans, programs and policies sponsored by the Company are
intended to comply with all requirements of IRC Section 409A or to be structured
so as to be exempt from the application of IRC Section 409A.  All expense
reimbursement or in-kind benefits subject to IRC Section 409A which are provided
under this Agreement or, unless otherwise specified in writing, under any
Company program or policy shall be subject to the following rules: (i) the
amount of expenses eligible for reimbursement or in-kind benefits provided
during one calendar year may not affect the benefits provided during any other
year; (ii) reimbursements shall be paid no later than the end of the calendar
year following the year in which the Executive incurs such expenses, and the
Executive shall take all actions necessary to claim all such reimbursements on a
timely basis to permit the Company to make all such reimbursement payments prior
to the end of said period, and (iii) the right to reimbursement or in-kind
benefits shall not be subject to liquidation or exchange for another benefit by
the Executive.
 
(d) The Executive shall be responsible for the payment of all taxes applicable
to payments or benefits received from the Company.  It is the intent of the
Company that the provisions of this Agreement and all other plans and programs
sponsored by the Company be interpreted to comply in all respects with IRC
Section 409A, however, the Company shall have no liability to the Executive, or
any successor or beneficiary thereof, in the event taxes, penalties or excise
taxes may ultimately be determined to be applicable to any payment or benefit
received by the Executive or any successor or beneficiary thereof.
 
10. Definitions.
 
(a) “Change In Control” shall mean any of the following events:
 
i. The date on which any person, entity or group that has entered into a merger,
acquisition, consolidation, purchase, stock acquisition, asset acquisition, or
similar business transaction with AGI acquires:
 
(1) ownership of stock of AGI that, together with any stock previously held by
such person, entity or group, constitutes more than fifty percent (50%) of the
total voting power of the stock of the Company; or
 
(2) assets from AGI (including its subsidiaries) that have a total gross fair
market value (determined without regard to any liabilities associated with such
assets) of fifty percent (50%) of all of the assets of AGI (including its
subsidiaries) during the twelve-month period ending on the date of such
acquisition; provided, however, that any transfer of assets to related parties
described in Treasury Regulation § 1.409A-3(i)(5)(vii)(B)(1) shall not
constitute a Change In Control.
 
ii. the date on which a majority of members of AGI’s Board of Directors is
replaced during any twelve-month period by directors whose appointment or
election is not endorsed by a majority of the members of the Board of Directors
before the date of such appointment or election.
 
(b) “Competitor” shall mean any person, company (except the Company), firm,
organization or other entity which engages in the development, marketing,
organizing, operation or conducting of student tours, including, without
limitation, those tours designed for primary and secondary school students.
 
(c) “Confidential Information” shall be given its broadest possible
interpretation and shall mean any and all information disclosed or made
available by the Company to the Executive including, without limitation, any
information which is not publicly known or available upon which the Company’s
business or success depends.
 
(d) “IRC” shall mean the Internal Revenue Code of 1984, as amended, and all
Treasury regulations and applicable authorities promulgated thereunder.
 
(e) “Involuntary Termination Without Cause”  shall mean the Executive’s
Termination of Service which is initiated by the Company without “Cause” as
defined herein.  Involuntary Termination Without Cause shall not include a
termination by reason of the Executive’s death or disability and shall not
include a termination which is initiated by the Executive for which the Company
requires an alternative effective date. For purposes of this Agreement, “Cause”
shall mean termination for any one of the following reasons: (i) the Executive’s
conviction, pleading guilty or no contest with respect to a felony or a
misdemeanor involving dishonesty or moral turpitude; (ii) the Executive’s
commission of any act of theft, fraud, dishonesty, or falsification of any
employment or Company records; (iii) the Executive’s engagement in misconduct
that is materially detrimental to the Company’s reputation or business, as
determined by at least two thirds (2/3) of the members of the Board; (iv) upon
written notice to the Executive of Executive’s insubordination or refusal
without proper legal reason to substantially perform the duties and
responsibilities required  by the Chief Executive Officer of the Company or the
Board, other than by reason of mental or physical illness or incapacity, and the
Executive’s failure to cure such insubordination or to perform such duties and
responsibilities, as determined by the Chief Executive Officer of the Company or
the Board, in his or its sole discretion, within thirty (30) days of the date of
such notice; or (v) upon written notice to Executive of any breach by the
Executive of any material term of this Agreement and/or of the Executive’s
fiduciary duties to the Company and, if the breach is reasonably susceptible of
cure, the Executive’s failure to cure such breach within thirty (30) days of the
date of such notice, as determined by the Chief Executive Officer of the Company
or the Board, in his or its sole discretion.
 
(f) “Noncompete Period” shall be a period of two (2) years following the
termination of the Executive’s employment for any reason.
 
(g) “Nonsolicitation Period” shall be a period of two (2) years following the
termination of the Executive’s employment for any reason.
 
(h) “Restricted Area” shall be any state, province, territory or foreign country
in which the Company markets, operates or conducts its tour programs.
 
(i) “Termination for Good Reason”  shall mean a Termination of Service which is
initiated by the Executive by reason of (i) a material reduction in Executive’s
base compensation; (ii) a material reduction in Executive’s authority, titles,
duties and responsibilities; or (iii) the relocation of the Executive’s
principal office location of more than 50 miles from his or her present
location, where such reduction or change is made without the Executive’s prior
consent, and is not cured by the Company within forty-five (45) days of its
receipt of written notice of such adverse circumstances from the Executive.  Any
notice of termination for Good Reason must be made no later than ninety (90)
days following the initial existence of such adverse circumstance and shall be
effective no earlier than the end of the Company’s forty-five (45) day cure
period and no later than one hundred thirty-five (135) days following such
initial occurrence.  If the Executive does not deliver to the Company a notice
of termination within the ninety (90) day period after Executive has knowledge
of an event constituting Good Reason, such event shall no longer constitute Good
Reason.
 
(j) “Termination of Service”  shall mean a “separation from service” (as such
concept is defined under IRC Section 409A) of the Executive’s employment with
the Company for any reason whatsoever, whether voluntary or involuntary.
 
(k) “Trade Secrets” shall be given its broadest possible interpretation and
shall mean any and all documents, information or other data (whether recorded or
otherwise) (as defined below), which concerns the Company or business and which
(i) derives independent economic value, actual or potential, from not being
generally known to the public or to other persons who can obtain economic value
from its disclosure or use, and (ii) is the subject of efforts that are
reasonable under the circumstances to maintain its secrecy.  Trade Secrets
includes, without limitation, information related to the Company’s student
customers, potential student customers, suppliers, partners, service providers,
travel operators, vendors, marketing plans, advertising, contracts, potential
contracts, tour group leaders, potential tour group leaders, tour group leader
training plans, strategies, forecasts, pricing, methods, practices, techniques,
business plans, financial plans, research, development, purchasing, accounting,
programming and/or tour development.
 
(l) “Severance Benefits” shall mean the involuntary severance benefits provided
under Section 1.
 
11. Remedies and Injunctive Relief.  Executive understands and agrees that any
violation of this Agreement may cause immediate and irreparable harm to the
Company, the exact extent of which may be difficult to ascertain, and that the
remedies at law for any such violation may not adequately compensate the
Company.  Therefore, Executive agrees that, in addition to such other damages or
remedies that may be available, including but not limited to the cessation of
payments provided for in Section 1 above, Executive shall be entitled to
specific performance and/or immediate, preliminary and permanent injunctive
relief for any violations of this Agreement and, for such purposes, Executive
irrevocably consents to the jurisdiction of the United States District Court for
the Eastern District of Washington and the Spokane County Superior Court.  The
Company shall be entitled to such relief without the necessity of proving actual
damages or posting a bond.
 
12. Arbitration.  Except as set forth in Section 11 above, any controversy
relating to this Agreement shall be settled by binding arbitration according to
the applicable employment dispute resolution rules of the American Arbitration
Association in Spokane, Washington.
 
13. Governing Law.  To the extent not preempted by federal law, this Agreement
shall be governed by and construed in accordance with the laws of the State of
Washington, without reference to principles of conflict of laws.  The Agreement
is intended to constitute a “welfare benefit plan” providing benefits to “a
select group of management and highly compensated employees” under Employee
Retirement Income Security Act of 1974, as amended (“ERISA”).  The Company is
the “named fiduciary” and hereby adopted the ERISA Claims Procedures which are
attached hereto as Exhibit B and incorporated herein.
 
14. Assignment.  The Executive shall not assign, sell, transfer, delegate or
otherwise dispose of any rights or obligations under this Agreement without the
prior written consent of the Company.  The Company may assign its rights under
this Agreement without Executive’s consent.
 
15. Voluntary Agreement.  The Executive expressly acknowledges that the
Executive has voluntarily executed this Agreement and that the Executive has had
the opportunity to be represented and advised by counsel concerning the terms
and conditions of this Agreement as well as the Executive’s execution thereof.
 
16. Entire Agreement; Waivers; Modification.  Except as provided below, with the
exception of previously executed nondisclosure, nonsolicitation, noncompetition
or confidentiality agreements, this Agreement is intended by the parties to be
the complete, exclusive and final expression of the Company’s and the
Executive’s agreement with respect to the subject matters hereof, provided,
however, to the extent that the terms of this Agreement enhance to the benefit
of the Company the provisions of such previously executed agreements, if any,
such terms in this Agreement shall prevail.  No waiver of any of the provisions
of this Agreement, whether by conduct or otherwise, in any one or more
instances, shall be deemed or construed as a further, continuing or subsequent
waiver of any such provision or as a waiver of any other provision of this
Agreement.  No failure to exercise and no delay in exercising any right, remedy
or power hereunder shall preclude any other or further exercise of any other
right, remedy or power provided herein or by law or in equity.  The Company and
the Executive expressly agree that (i) this Agreement shall survive any
termination or cessation of the Executive’s employment by the Company or by the
Executive, and (ii) this Agreement may not be altered, amended, changed,
terminated or modified in any respect except by a written instrument clearly
expressing the intent to so modify this Agreement signed by the Executive and an
officer or director of the Company.
 
17. Severability.  If any term, provision, covenant or condition of this
Agreement is held by a court of competent jurisdiction to exceed the limitations
permitted by applicable law, as determined by such court in such action, then
the provisions will be deemed reformed to the maximum limitations permitted by
applicable law and the parties hereby expressly acknowledge their desire that in
such event such action be taken.  Notwithstanding the foregoing, the Company and
the Executive further agree that if any term, provision, covenant or condition
of this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the provisions shall remain in full
force and effect and in no way shall be affected, impaired or invalidated.
 
18. Descriptive Headings.  Descriptive headings contained herein are for
reference only and in no way define, limit, extend or describe the scope of this
Agreement or any provisions thereof.
 
19. Counterparts.  This Agreement may be executed in two or more counterparts,
with each an original, and with both together constituting one and the same
instrument.
 
 
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
first above written.
 

   
THE COMPANY:
         
Ambassadors Group, Inc.
         
By:
Jeffrey D. Thomas
   
President and Chief Executive Officer
   
Executive:
     Margaret M. Thomas