An investor group with a sizable percentage of stock in Ambassadors Group Inc., the Spokane-based student-travel program provider, says it has lost confidence in the company's leadership and is proposing its own three candidates to Ambassadors' executive board.

Lane Five Partners LP, a Towson, Md.-based group of investors that collectively owns 7.6 percent of Ambassadors' common stock, recently filed a preliminary proxy with the U.S. Securities and Exchange Commission seeking a stockholders' vote for its three candidates to the company's nine-member board of directors.

In the filing, Lane Five Partners cites its concerns with Ambassadors' declining stock price performance, operating record, capital allocation, and corporate governance.

James Bellessa, a Great Falls, Mont.-based D.A. Davidson & Co. senior vice president and research analyst who tracks Ambassadors, says Lane Five currently is the company's fourth largest investor group, and that three other investor groups have increased their ownership stake since the May 2011 shareholders meeting so that each now owns more than 10 percent of Ambassadors. He adds that another large investment group held 9.6 percent as of last year's proxy meeting, but has since sold that interest.

"Others are taking on more of the stock, and the price has gone down in the past year," Bellessa says. "Some of these investors are suggesting maybe this company is vulnerable and will restructure, or go private, or leverage, or whatever it is."

When contacted for comment, Ambassadors responded that a company executive would call back. The only response, however, was from a New-York-based corporate communications and public relations firm, named Joele Frank, Wilkinson Brimmer Katcher. Matt Cuneo, who is with that firm, emailed a statement he said should be attributed to Anthony Dombrowik, Ambassadors' senior vice president and chief financial officer.

The emailed statement said, "Ambassadors Group has not yet announced the date of its 2012 Annual Meeting of Stockholders. The company expects to file its preliminary proxy in due course."

At annual shareholders meetings, companies typically ask for a vote on their slate of candidates for board election. Ambassadors' held its last annual shareholders meeting May 12, 2011. Publicly traded companies usually hold annual shareholders meetings at about the same time each year.

Ambassadors Group in early February reported a 2011 fourth-quarter net loss of $7.8 million, or 45 cents a diluted share, compared with a loss of $6.7 million, or 36 cents a share, in the year-earlier period. For all of 2011, the company posted net income of $3 million, or 17 cents a share, down from $8.1 million, or 42 cents a share, in the year-earlier period.

Bellessa uses an old western TV show analogy for investor groups that move to increase their holdings in a company as that company's stock declines. In those shows, he says, "The Indians would always circle the cowboys or the pilgrims, and the cowboys or pilgrims better have a defense or they're going to get slaughtered. The Indians are circling, and they're thinking there's a battle that can be won."

D.A. Davidson in a Feb. 9 report had given Ambassadors a neutral rating, but it raised its forecast of the company's 2012 earnings to 17 cents a share, from 9 cents a share "to reflect a modest improvement in enrollees, management's commitment to lower variable expenses," and a lower expected tax rate.

In its own annual report, Ambassadors suggested that there could be increased costs that it might incur in entering into this proxy fight, Bellessa says.

"It literally says a proxy contest may well ensue, which may require the company to incur additional expenses," he says. "They didn't specify what the cost might be for legal and professional fees to defend their recommended slate of directors."

He adds, "Our estimates for the year 2012 do not include any additional legal or professional costs for a potential defense or for a proxy fight. When I discussed this with management, they said they had engaged in professionals to help defend themselves."

"It's not a final thing because Lane Five's proxy is only a preliminary proxy and they could always withdraw it," he says.

Lane Five's preliminary proxy nominees for the board of directors are Lisa O'Dell Rapuano, founder and CEO of Lane Five Capital Management LP that manages investments of Lane Five Partners; Peter Kamin, managing partner of the private 3K Limited Partnership who owns about 0.8 percent common stock of Ambassadors and is part of the participant group named in the Lane 5 proxy; and Sharon van Wyk, an American Public University System executive.

Based on its 2011 proxy document, Ambassadors has three board terms set to expire at the 2012 annual meeting. They're identified as directors John Ueberroth, the company's chairman of the board; James Kalustian, an independent consultant for health care, retail and consumer products; and the position previously held by Joe Ueberroth, who resigned as a director effective Aug. 11, 2011, "because of his significant number of business interests," a SEC filing says. Ambassadors announced Feb. 16 that Timothy Walsh, director of the New Jersey Department of the Treasury Division of Investments, was appointed to replace Joe Ueberroth, a nephew of John Ueberroth.

Rapuano says the SEC has 10 days to respond to Lane Five's preliminary proxy to make any comments. "If the SEC feels there are any concerns, then you can make any corrections, and then you file a definitive proxy," she says. "Once that is filed, we can make further comments to state our case."

However, referring to a history detailed in the preliminary proxy, Rapuano says that the group has held stock in Ambassador since 2008. The company has investments in publicly traded companies it perceives to be good but undervalued.

"Since 2008, when they (Ambassadors) reached their first speed bump with enrollment dropping each year, they have deteriorated both in terms of enrollment and profitability," Rapuano says. "They've had declining revenue for five years."

Rapuano says that, as outlined in the preliminary proxy, the Lane Five group spoke with Ambassadors' management and wrote a letter to the board about what its expectations were "for more accountability in managing expenses, and we were not satisfied with the response we got from both the board and management that it understood the urgency needed."

She says the group made further attempts, but "they refused to speak to us further," and Lane Five subsequently filed a proxy document proposing its candidates as directors, including Rapuano.

Bellessa says Ambassadors likely will propose its own slate of director positions in its company proxy that will come out several days prior to the shareholders meeting.

"Once the proxy is out there, they can go out and present their position and defense," he adds. "They'll show this is what happened; this is how we correct it."

He says Ambassadors also has dealt the past few years with a decline in the number of participants in its travel programs, likely impacted in large part by the poor economy. Ambassadors sells packaged trips, mostly to school-aged youth, that are designed to expose Americans to other cultures.

The number of traveling delegates dropped in 2011, to about 23,990 from about 26,700 a year earlier. In early 2009, the company reported that it had 36,474 enrolled participants for that year, compared with 45,634 participants enrolled a year earlier.

Additionally, Bellessa says there is an ongoing SEC investigation that goes back to 2007 looking at whether there was some insider stock selling prior to a crash of the company's stock. He says Ambassadors stock plummeted after it announced in 2007 that a large marketing effort had failed to produce an expected number of potential enrollees in the program.

"We don't know a whole lot yet," he adds about the investigation. "The SEC, they haven't said; the company hasn't said anything, but they've been battling this for four years."

Ambassadors, best known as the contract provider of the nonprofit People to People programs launched by President Dwight D. Eisenhower in 1956, had 228 full-time and temporary associates after it completed a downsizing in February 2009 that trimmed payroll by about 40 people.

In 2007, the company moved into a new headquarters building at 2001 S. Flint Road, near Spokane International Airport, that at the time was estimated to cost about $20 million.