UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-K/A


 

x ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended September 30, 2012

 

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _______________ to ___________________

 

Commission File No. 0-26053


 

MDU COMMUNICATIONS INTERNATIONAL, INC.

(exact name of registrant as specified in its charter)

 

Delaware   84-1342898
(State of Incorporation)   (IRS Employer ID. No.)

 

60-D Commerce Way, Totowa, New Jersey 07512

(Address of Principal Executive Offices) (Zip Code)

 

Issuer's telephone number, including area code: (973) 237-9499


 

Securities registered under Section 12(b) of the Act:

 

none

 

Securities registered under Section 12(g) of the Act:

 

Common Stock, par value $0.001 per share

(Title of Class)

 

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

 

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

 

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. Yes x 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 (Sec. 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). Yes x No ¨

 

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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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. x

 

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 definition of "large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ¨  Accelerated filer ¨   Non-accelerated filer ¨    Smaller reporting company x

 

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

 

The aggregate market value of the voting and nonvoting common equity (based upon the closing price on the OTC Bulletin Board on March 31, 2012) held by non-affiliates was approximately $5.2 million.

 

The number of shares of common stock ($0.001 par value) outstanding as of December 21, 2012 was 5,672,820.

 

EXPLANATORY NOTE

 

The purpose of this Amendment No. 2 on Form 10-K/A to MDU Communications International, Inc.’s annual report on Form 10-K for the year ended September 30, 2012, filed with the Securities and Exchange Commission on December 21, 2012, is solely to furnish the required Part III. MDU Communications International, Inc. has postponed the filing of its proxy statement, which was to have provided the Part III information forward incorporated by reference into the Form 10-K. Therefore, to comply with regulations, MDU Communications International, Inc. is required to file this amendment.

 

No other changes have been made to the original Form 10-K. This Amendment No. 2 speaks as of the original filing date of the Form 10-K, does not reflect events that may have occurred subsequent to the original filing date, and does not modify or update in any way disclosures made in the original Form 10-K.

 

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PART III

 

Item 10. Directors, Executive Officers and Corporate Governance

 

The following table and the narrative below sets forth the information concerning the Company’s directors and officers for the fiscal year ended September 30, 2012:

 

Directors and Executive Officers   Age   Position(s)
Sheldon Nelson   51   President, CEO, CFO, Director
Carolyn Howard   49   Director
Richard Newman   60   Director
J.E. “Ted” Boyle   65   Director (beginning November 1, 2012)
Gregory L. Osborn   55   Director (beginning November 1, 2012)
Patrick Cunningham   44   Vice President, Sales and Marketing
Brad Holmstrom   47   General Counsel and Corporate Secretary
Carmen Ragusa, Jr.   64   Vice President, Finance and Administration
Mike Stanway   47   Vice President, Operations and Technology

 

Sheldon B. Nelson, 51, has served as President and Chief Executive Officer of the Company and a member of the Board of Directors, including a term as Chairman, since November 1998. From 1983 to 1998 he was President of 4-12 Electronics Corporation, a provider of products and services to the Canadian satellite, cable, broadcasting and SMATV industries. In addition to his day-to-day responsibilities during his tenure at 4-12 Electronics, Mr. Nelson developed that company into one of Canada’s largest private cable system operators. Mr. Nelson is a 1983 graduate of Gonzaga University in Spokane, Washington where he graduated from the School of Business Administration, Magna cum Laude, and was the recipient of the School of Business Administrations’ Award of Excellence. Mr. Nelson also sits on the board of Diamcor Mining, Inc.

 

Carolyn C. Howard, 49, was elected to the Board of Directors in July 2005. Ms. Howard has been employed by Howard Interests since 1987, a venture capital firm, of which she is a co-founder and manager. She has held positions in banking with a focus on Fannie Mae/Freddie Mac lending. She has managed positions with securities firms trading and covering institutional accounts. In 1992 through 1997, she acted as CEO and COO of one of New Hampshire’s largest food service and bottled water companies. In 1997, she facilitated the sale of that company to Vermont Pure Springs, Inc., a publicly traded company. Ms. Howard also sits on the board and chairs the audit committee of Video Display Corporation (VIDE), a publicly traded company. Ms. Howard studied accounting and finance at both New Hampshire College and Franklin Pierce University. Presently she serves as President to the Jaffrey Gilmore Foundation and Board Chair to the Sharon Arts Center, both non-profit educational and art organizations in New Hampshire.

 

Richard Newman, 60, joined the Board of Directors in December 2007 and resides in New York City. He is currently a Managing Partner of Atlantis Associates, a private equity firm he founded, that is mainly focused on business services, manufacturing, education and media investment opportunities. Previously, he was Managing Director at Andlinger & Co., a private equity firm with investments in media, business services, and manufacturing. Prior to joining Andlinger, Mr. Newman was a Managing Director at East Wind Advisors, a boutique investment banking firm and a partner at Hart Capital, a private equity firm. In addition to the experience noted above, Mr. Newman has 20 years of experience in financial advisory and operating roles for both profitable and financially-challenged corporations. He holds an MBA from the Stanford University Graduate School of Business, an MA from the Stanford University School of Education and a BA from Brown University.

 

John Edward “Ted” Boyle, 65, joined the Board of Directors effective November 1, 2012. He has been nominated by the Board for a one-year term subject to stockholder election at the Company’s next Annual General Meeting. Mr. Boyle previously served as a Company director from 2000 through 2011 and as chairman from 2008 to 2011. Mr. Boyle currently consults with several media companies including RR Enterprises, the subscriber management system developer, which he currently serves as CMO. From 2008 to 2010 Mr. Boyle managed the marketing and sales of triple play services at Summit Broadband in Orlando, Florida. From 2006 to 2008, Mr. Boyle oversaw the launch of cable VoIP telephony at Cable Bahamas in Nassau. From 2002 until 2006 he worked for 180 Connect Inc., North America's largest cable and satellite installation and service contractor, and was the president of their $50M per annum cable division.  From 1998 to 2001 he was the President and CEO of Multivision (Pvt.) Ltd., the MMDS wireless cable television provider for Sri Lanka. From 1996 to 1997 Mr. Boyle was the President and CEO of PowerTel TV, a Toronto based digital wireless cable company. As founding President and CEO of ExpressVu Inc. (1994 -1996), Mr. Boyle was responsible for taking Canada's first Direct-to-Home satellite service from inception to launch. Prior to 1994, Mr. Boyle held executive positions with Tee-Comm Electronics, Regional Cablesystems and Canadian Satellite Communications (Cancom). In addition to the Company, he currently sits on the Board of Asian Television Network (SAT-TSX-V).

 

 

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Gregory L. Osborn, CPA, 55, joined the Board of effective November 1, 2012. He has been nominated by the Board for a one-year term subject to stockholder election at the Company’s next Annual General Meeting. Mr. Osborn is a certified public accountant and has served as Chief Financial Officer of Video Display Corporation since 2007, where he also sits as a director. Prior to joining Video Display Corporation he was involved in the mattress industry in various capacities including controller and CFO. Mr. Osborne is a graduate of Georgia State University with a B.B.A. in accounting and holds a Masters of Business Administration from the University of New Orleans. As referenced in a Schedule 13D filed with the Securities and Exchange Commission on September 11, 2012, Video Display Corporation, along with Ronald Ordway, its Chairman and Chief Executive Officer, and Jonathan Ordway, own or beneficially control 33% of the outstanding voting stock of the Company. Due to Mr. Osborne’s involvement as an officer and director of Video Display Corporation, Mr. Osborne will not be considered an independent director of the Company.

 

Patrick Cunningham, Vice President of Sales and Marketing, 44, has been a Vice President with the Company since 2000. He has over fifteen years of management experience focused on the telecommunications industry. Mr. Cunningham was formerly the Vice President of Distribution and Sales for SkyView World Media. At SkyView, he was responsible for the distribution, sales, marketing and technical service of the SkyView products. SkyView was one of the leading private providers of television services to the MDU and ethnic communities with over 100,000 subscribers nationwide. SkyView was the largest Master Systems Operator for DIRECTV and a leading producer and distributor of foreign language television programming. Prior to SkyView, and after some time as a maintenance manager with Schnieder National, Inc., Mr. Cunningham was an Officer in the U.S. Army where he served as a Battalion Communications Officer and an M1A1 Tank Platoon Leader. Mr. Cunningham has a Bachelor of Science from Union College in Schenectady, NY where he majored in Industrial Economics.

 

Brad Holmstrom, General Counsel and Corporate Secretary, 47, has been with the Company since 2000. Prior to joining the Company, Mr. Holmstrom was partner in the Kansas City, Missouri office of the law firm Shughart Thomson & Kilroy, PC.

 

Carmen Ragusa, Jr., Vice President of Finance and Administration, 64, has been with the Company since 2004. He is a CPA, holds an MBA and brought to the Company over twenty-five years of experience in both the public and private sectors of the manufacturing and construction industry, with the last ten years in a senior financial capacities of Vice President of Finance and Chief Financial Officer in privately held corporations with $40 to $50 million in recurring annual revenue. Mr. Ragusa has experience not only in the management of all aspects of accounting and finance departments, but has made significant contributions in the areas of business development, financial stability and has assisted in the implementation of operational strategies that support business development and financial objectives.

 

Michael Stanway, Vice President of Operations and Technology, 47, joined the Company in 2000 as Manager and then Director of MIS/IT Services. Mr. Stanway then assumed the position of Director and thereafter Vice President of Operations prior to becoming Vice President of Operations and Technology. Mr. Stanway has a post-secondary degree as a Network Specialist with Microsoft and Novell certifications.

 

Code of Ethics. The Company has adopted a Code of Ethics that applies to all upper management, officers and directors of the Company. A copy of the Company’s Code of Ethics is posted on the Company’s website.

 

Board of Directors Meeting and Committees. All Board members are expected to attend the Company’s Annual Meeting of Stockholders and to attend 75% of all regular Board and committee meetings. All of the then-current Board members attended the 2011 Annual Meeting of Stockholders. There was no Annual Meeting of Stockholders called for 2012. During the fiscal year ended September 30, 2012, there were four regularly scheduled meetings and six additional material conference calls of the Board of Directors. Each director attended at least 75% of the total number of meetings of the Board of Directors and committees on which the director served. The Board of Directors has three standing committees; the Audit Committee, the Compensation Committee, and the Corporate Governance and Nominating Committee.

 

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Audit Committee. The Board of Directors has adopted a charter governing the duties and responsibilities of the Audit Committee. The principal functions of the Audit Committee include:

 

  overseeing the integrity of the Company’s financial statements and compliance with related legal and regulatory requirements;

 

  monitoring the adequacy of the Company’s accounting and financial reporting, and its internal controls, procedures and processes for financial reporting; and

 

  overseeing the Company’s relationship with its independent auditors, including appointing, evaluating, and reviewing the compensation of the independent auditors.

 

Members of the Audit Committee include Mr. Newman (Chair) and Ms. Howard. Both Mr. Newman and Ms. Howard qualify as an "audit committee financial expert" as defined by the Securities and Exchange Commission (“SEC”). All members of the Audit Committee are “independent” as defined by Rule 4200 of the National Association of Securities Dealers (“NASD”). Each member is an “outside director” as defined in Section 162(m) of the Internal Revenue Code and a “non-employee director” as defined in Rule 16b-3 under the Securities Exchange Act of 1934. The Audit Committee met four times during the fiscal year ended September 30, 2012 for approval and filing of the Company's reports and other matters.

 

Compensation Committee. The Board of Directors has adopted a charter governing the duties and responsibilities of the Compensation Committee. The principal functions of the Compensation Committee include:

 

  reviewing and making recommendations to the Board of Directors regarding all forms of salary, bonus and stock compensation provided to executive officers;

 

  the long-term strategy for employee compensation, including the types of stock and other compensation plans to be used by the Company; and

 

  overseeing the overall administration of the Company’s equity-based compensation and stock option plans.

 

Members of the Compensation Committee include Ms. Howard and Mr. Newman. All members of the Compensation Committee are "independent” as defined by Rule 4200 of the NASD. Each member is an “outside director” as defined in Section 162(m) of the Internal Revenue Code and a “non-employee director” as defined in Rule 16b-3 under the Securities Exchange Act of 1934. In addition, there are no Compensation Committee interlocks between the Company and other entities involving the Company's executive officers and directors who serve as executive officers of such entities. None of the Company’s executive officers have served as members of a compensation committee or as a director of any other entity that has an executive officer serving on the Compensation Committee of our Board of Directors or as a member of our Board of Directors. The Compensation Committee met once during fiscal 2012.

 

Corporate Governance and Nominating Committee. The Board of Directors has adopted a charter governing the duties and responsibilities of the Corporate Governance and Nominating Committee. The Corporate Governance and Nominating Committee insures that the Company has the best management processes in place to run the Company legally, ethically and successfully in order to increase stockholder value. The principal functions of the Corporate Governance and Nominating Committee are:

 

  assisting the Board of Directors in identifying, evaluating, and nominating candidates to serve as members of the Board of Directors and as a qualified Audit Committee financial expert;

 

  recommending to the Board of Directors any director nominees for the next annual meeting of stockholders;

 

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  reviewing and making recommendations to the Board of Directors regarding the composition of the Board, the operations of the Board, and the continuing qualifications of incumbent directors, including any changes to a director's primary activity;

 

  reviewing annually and making recommendations to the Board as to whether each non-management director is independent and otherwise qualified in accordance with applicable law or regulation; and

 

  reviewing and making recommendations to the Board of Directors regarding corporate governance policies and ethical conduct.

 

The Corporate Governance and Nominating Committee identifies potential director nominees based upon recommendations by directors, management, or stockholders, and then evaluates the candidates based upon various factors, including, but not limited to:

 

  a reputation for honesty and integrity and a willingness and ability to spend the necessary time to function effectively as a director;

 

  an understanding of business and financial affairs and the complexities of business organizations;

 

  a general understanding of the Company’s specific business and industry;

 

  strategic thinking and willingness to share ideas, network of contacts, and diversity of experience; and

 

  a proven record of competence and accomplishments through leadership in industry, education, the professions or government.

 

The Corporate Governance and Nominating Committee considers these and other criteria to evaluate potential nominees and does not evaluate proposed nominees differently depending upon who has made the proposal. To date, the Company has not paid any third-party fees to assist in this process.

 

The Corporate Governance and Nominating Committee will consider and make recommendations to the Board of Directors regarding any stockholder recommendations for candidates to serve on the Board of Directors. However, it has not adopted a formal process for that consideration because it believes that the informal consideration process has been adequate given the historical absence of those proposals. If a stockholder wishes to suggest a candidate for director consideration, the stockholder should send the name of the recommended candidate, together with pertinent biographical information, a document indicating the candidate’s willingness to serve if elected, and evidence of the nominating stockholder’s ownership of Company stock, to the attention of the Corporate Secretary, 60-D Commerce Way, Totowa, NJ 07512 at least five months prior to the 2013 Annual Meeting of Stockholders to ensure time for meaningful consideration.

 

Members of the Corporate Governance and Nominating Committee are Ms. Howard (Chair), Mr. Newman and Mr. Nelson. All members of the Corporate Governance and Nominating Committee, except Mr. Nelson, are "independent” as defined by Rule 4200 of the NASD. Additionally, each member is an “outside director” as defined in Section 162(m) of the Internal Revenue Code and a “non-employee director” as defined in Rule 16b-3 under the Securities Exchange Act of 1934, both with the exception of Mr. Nelson. The Corporate Governance and Nominating Committee met once during fiscal 2012 to discuss the nominations of Mr. Boyle and Mr. Osborn.

 

Compensation of Directors. Each director who is not an employee or full-time consultant of the Company receives compensation of $1,500 per month and an attendance fee of $2,000 per in-person meeting, plus out-of-pocket expenses for each Board or committee meeting attended. The Chairman of the Board receives an additional $5,000 per year. The Chairperson of the Audit Committee (who may also serve as the financial expert) receives an additional $4,000 per year and the Chairpersons of the Compensation and Corporate Governance and Nominating Committees each receive an additional $2,000 per year in compensation.

 

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Directors may also receive grants of restricted stock as additional compensation. For Board terms beginning in the years 2010 and 2011, directors each received 9,000 shares of restricted common stock. No grants were made during fiscal 2012.

 

The table below sets forth, for each non-employee director, the amount of cash compensation paid and the number of stock options or shares of common stock received for his or her service during fiscal 2012:

 

Non-Employee Director Fiscal Year Fees Earned or Paid in Cash(2)
($)
  Stock Awards(3) ($)  Option Awards ($)  Non-Equity Incentive Plan Compensation ($)  All Other Compensation ($)  Total ($) 
J.E. “Ted” Boyle (1) 2012     4,500            4,500 
  2011  10,000   26,900            36,900 
                           
Carolyn Howard 2012  20,750   30,362            51,112 
  2011  19,000   26,900            45,900 
                           
Richard Newman 2012  18,250   30,362            48,612 
  2011  12,000   26,900            38,900 

 

  (1) Mr. Boyle was not re-elected to the Board as of July 14, 2011, but was thereafter appointed to the Board effective November 1, 2012.

 

  (2) During the year ended September 30, 2012, each Director received $1,500 per month for Board service, with the exception of (i) three months where each Director received $1,000 per month cash and a deferral of $500 per month to be paid in restricted stock, and (ii) two months where 100% and 50% were paid in restricted stock. Additionally, Mr. Newman’s and Ms. Howard’s committee chair fees that were still outstanding for fiscal 2011, were paid in 2012. During the year ended September 30, 2011, each Director received $1,000 per month cash for Board service and a deferral of $500 per month paid in restricted stock (the deferral was paid in fiscal 2012).

 

  (3) During the year ended September 30, 2012, Ms. Howard and Mr. Newman each received (i) 2,250 shares of restricted common stock as compensation in lieu of certain monthly cash payments and 2,250 as incentive, (ii) 1,210 shares of restricted common stock as compensation in lieu of certain monthly cash payments, (iii) 9,000 shares of restricted common stock as part of their approved compensation for Board terms beginning in 2011 and ending in 2012, and (iv) 2,942 shares of restricted common stock as compensation in lieu of certain monthly cash payments. Additionally, the Company issued 2,206 shares of restricted common stock to Mr. Boyle as compensation in lieu of certain monthly cash payments previously owed during fiscal 2011. During the year ended September 30, 2011, Ms. Howard, Mr. Newman and Mr. Boyle were each granted (i) 9,000 shares of restricted common stock as part of their approved compensation for Board terms beginning in 2010 and ending in 2011, and (ii) 1,000 shares of restricted common stock as compensation in lieu of certain monthly cash payments. As a result, 30,000 shares of restricted stock were issued during the year ended September 30, 2011. All stock is valued at its grant date.

 

Item 11. Executive Compensation

 

Overview. The Compensation Committee has responsibility for establishing, monitoring and implementing the Company’s compensation program. The Compensation Committee designs its policies to attract, retain and motivate highly qualified executives. It generally compensates executive officers (Mr. Sheldon Nelson, Mr. Patrick Cunningham, Mr. Brad Holmstrom and Mr. Carmen Ragusa, Jr. (collectively, “Executives”)) through a combination of base salary, incentive bonus payments and stock options and grants, designed to be competitive with comparable employers and to align each Executive’s compensation with the long-term interests of our stockholders. Currently, bonus payments, stock options and stock grants are not available as compensation.

 

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What the Compensation Program is Designed to Reward. The Compensation Committee focuses on the long-term goals of the Company and designs reward programs that recognize business achievements it believes are likely to promote sustainable growth. The Compensation Committee believes compensation programs should reward Executives who take actions that are best for the long-term performance of the Company while delivering positive annual operating results. Compensation decisions take into account performance by both the Company and the Executive. To supplement its decision making, the Compensation Committee has the authority to retain an independent compensation consultant to provide data, analysis and counsel as necessary.

 

Role of the President / Chief Executive Officer in Compensation Decisions. The President / Chief Executive Officer is required to provide to the Compensation Committee annual reviews of the performance of each Executive, other than himself. The Compensation Committee considers these evaluations and the recommendations of the President/CEO in determining adjustments to base salaries, bonus and equity incentive awards for the Executives. The Compensation Committee considers the President/CEO’s recommendations regarding the compensation of Executives and a number of qualitative and quantitative factors, including the Company’s performance during the fiscal year and rates of compensation for similar public and private companies. The Compensation Committee itself reviews the performance of the President/CEO.

 

Elements of the Executive Compensation Plan and How it Relates to Company Objectives. The Compensation Committee believes that compensation paid to Executives should be closely aligned with the performance of the Company on both a short-term and long-term basis and that such compensation should assist the Company in attracting and retaining key executives critical to long-term success.The Compensation Committee uses short-term compensation (base salary and incentive bonuses) and long-term equity compensation (stock options and/or stock grant incentive awards) to achieve its goal of driving sustainable growth. Specifically, the Compensation Committee considers: (i) overall financial, strategic and operational Company performance; (ii) individual performance; (iii) market data; and (iv) certain additional factors within the Committee’s discretion. The Compensation Committee may exercise its discretion in modifying any recommended adjustments or awards to Executives or determining the mix of compensation.

 

Employment Agreements. The Company has previously entered into Management Employment Agreements with each of the Executives described below:

 

Sheldon Nelson. The Company has a Management Employment Agreement with its President/Chief Executive Officer Sheldon Nelson, with a current annual salary of $275,000 terminable by the Company upon four (4) weeks’ notice and a termination payment equal to twenty four (24) months’ salary. Upon a change in control, either party may terminate the Agreement with the Company paying a termination payment equal to thirty-six (36) months’ salary.

 

Patrick Cunningham. The Company has a Management Employment Agreement with its Vice President of Sales and Business Development, Patrick Cunningham, with a current annual salary of $189,000 terminable by the Company upon four (4) weeks’ notice and a termination payment equal to twelve (12) months’ salary. Upon a change in control, either party may terminate the Agreement with the Company paying a termination payment equal to twenty four (24) months’ salary.

 

Brad Holmstrom. The Company has a Management Employment Agreement with its General Counsel, Brad Holmstrom, with a current annual salary of $175,000 terminable by the Company upon four (4) weeks’ notice and a termination payment equal to four (4) months’ salary. Upon a change in control, either party may terminate the Agreement with the Company paying a termination payment equal to twelve (12) months’ salary.

 

Carmen Ragusa, Jr. The Company has a Management Employment Agreement with its Vice President of Finance and Administration, Carmen Ragusa, Jr., with a current annual salary of $176,000 terminable by the Company upon four (4) weeks’ notice and a termination payment equal to four (4) months’ salary. Upon a change in control, either party may terminate the Agreement with the Company paying a termination payment equal to twelve (12) months’ salary.

 

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Short-Term Compensation.

 

Base Salary. Base salary is negotiated into each Executive’s Management Employment Agreement. Increases are not preset and take into account the individual’s performance, responsibilities of the position, experience and the methods used to achieve results, as well as external market practices. At the end of the year, the President/CEO evaluates the Executive’s performance in light of Company objectives. Base salary compensates each Executive for the primary responsibilities of his position and level of experience and is set at levels that the Company believes enables it to attract and retain talent. There have been no raises to the base salary in the past five years and during fiscal 2012, Executives voluntarily forfeited portions of their salary due to cash constraints.

 

Management Incentive Bonus Plan 2012. Due to financial constraints, there was no official 2012 Management Incentive Bonus Plan instituted for fiscal 2012.

 

Management Incentive Bonus Plan 2011. Due to financial constraints, there was no official 2011 Management Incentive Bonus Plan instituted for fiscal 2011.

 

Salary Forfeiture Incentive Plan 2012. During the year ended September 30, 2012, in an effort to conserve cash and improve EBITDA for financial covenants, the Board approved a voluntary employee salary forfeiture and incentive plan with the reduction and incentive to be compensated in Company restricted common stock. As a result, certain employees and Executives received restricted shares of common stock based on the amount of the salary forfeiture. The President/CEO and top two highly compensated Executives earned the following incentive for fiscal 2012 as set forth below:

 

  - For fiscal 2012, Mr. Nelson received an incentive of $24,483, paid in restricted shares of common stock.

 

  - For fiscal 2012, Mr. Holmstrom received an incentive of $15,241, paid in restricted shares of common stock.

 

  - For fiscal 2012, Mr. Ragusa received an incentive of $9,580, paid in restricted shares of common stock.

 

Long-Term Compensation.

 

Currently, the Company has no means to provide long-term compensation to its employees. However, previously, long-term performance-based compensation for the Executives took the form of stock option awards from the 2001 Stock Option Plan and occasional stock awards from the 2009 Employee Stock Purchase Plan or of restricted shares of common stock. The Compensation Committee continues to believe in the importance of equity ownership for all Executives and certain management for purposes of incentive, retention and alignment with stockholders. The long-term incentive compensation is intended to motivate Executives to make stronger business decisions, improve financial performance, focus on both short-term and long-term objectives and encourage behavior that protects and enhances the long-term interests of stockholders.

 

Pursuant to the Management Employment Agreements mentioned above, Executives are entitled to receive stock options at an exercise price equal to the fair market value of the Company’s common stock on the date of grant. Stock options vest based on an Executive’s continued employment with the Company over a period of three years. In fiscal 2011, the Company granted 13,630 stock options to Executives at an exercise price of $2.94 per share (see Outstanding Cumulative Equity Awards Table). The 2001 Stock Option Plan expired on March 20, 2011 and has not been replaced. In 2011, the stockholders voted against an increase in the authorized number of shares for the 2009 Employee Stock Purchase Plan. As a result, no further stock options, stock grants or stock purchases could be made after fiscal 2011.

 

The Company also provides retirement benefits to all employees, including limited matching contributions, under the terms of its tax-qualified 401(k) defined contribution plan. The Executives participate in the 401(k) plan on the same terms as other participating employees.

 

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Severance Benefits.

 

The Company provides severance in certain cases as a means to attract individuals with superior ability and managerial talent and to protect our competitive position.

 

The Management Employment Agreements, described above, may require the Company to make certain payments to certain Executives in the event of a termination of employment or a change of control. The following table summarizes the potential payments to each Executive assuming that one of the events listed in the tables below occurs.

 

Named Executive Officer Payments upon a
termination by the
Company without cause(1)
  Payments upon a termination
by the Executive or Company without cause during
a change in control(1)
 
Sheldon Nelson $550,000  $825,000 
Patrick Cunningham $189,000  $378,000 
Bradley Holmstrom $58,333  $175,000 
Carmen Ragusa, Jr. $58,666  $176,000 

(1) Does not assume any pro-rata portion of target bonus for a fiscal year, if any.

 

SUMMARY COMPENSATION TABLE FOR FISCAL YEAR ENDED SEPTEMBER 30, 2012

 

The following summary compensation table sets forth certain information concerning compensation for services rendered in all capacities awarded to, earned by or paid to our Chief Executive Officer and our three other most highly compensated Executives, who were serving as executive officers at the end of our fiscal year ended September 30, 2012:

 

Name and Principal Position  Fiscal Year(1)  Annual Salary   Incentive/
Bonus
   Stock Awards   Option Awards(2)   Total 
Sheldon Nelson,  2012  $268,654   $24,483(4)  $-   $-   $293,137 
CEO  2011  $275,000   $41,250(3)  $8,070   $7,338   $331,658 
                             
Patrick Cunningham,  2012  $184,638   $-   $-   $-   $184,638 
Vice President Sales / Mktng.  2011  $189,000   $-   $-   $6,138   $195,138 
                             
Brad Holmstrom,  2012  $170,962   $15,241(4)  $-   $-   $186,203 
General Counsel  2011  $175,000   $-   $-   $6,138   $181,138 
                             
Carmen Ragusa,  2012  $171,938   $9,580(4)  $-   $-   $181,518 
Vice President Finance / Admin.  2011  $176,000   $-   $-   $6,138   $182,138 


 

  (1) The information is provided for each fiscal year referenced beginning October 1 and ending September 30 for compensation paid during or earned for each fiscal year. During the fiscal year 2012, Executives implemented a 15% uncompensated pay reduction for a period of two months to conserve cash.

 

  (2) Granted in the fiscal year. Represents the dollar amount recognized for financial statement reporting purposes, in accordance with share based compensation. Assumptions used in the calculation of this amount are included in Note 4 to the audited financial statements. Executive officers will not realize the value of these awards in cash unless and until these awards vest, are exercised, and the underlying shares subsequently sold. Per the terms of the 2001 Option Plan, it expired as of March 20, 2011 and no further grants can be made. No options were issued during fiscal 2012.

 

  (3) The qualitative component to Mr. Nelson’s 2009 fiscal yearend bonus was deferred pending the outcome of certain acquisitions and was discussed and approved by the Board in fiscal 2011. The amount indicated represents 50% of the bonus paid in cash.

 

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  (4) During the year ended September 30, 2012, in an effort to conserve cash and improve EBITDA for financial covenants, the Board approved a voluntary employee salary forfeiture and incentive plan with the reduction and incentive to be compensated in Company restricted common stock, As a result of the salary forfeiture, the Company issued shares of restricted common stock. The incentive represent the fair value of the shares of restricted common stock based on the quoted market price at the grant date.

 

OUTSTANDING CUMULATIVE EQUITY AWARDS AT SEPTEMBER 30, 2012

 

The following table provides a summary of equity awards outstanding at September 30, 2012 for the CEO and top three highly compensated named Executives:

 

    Option Expiration Date   Option Exercise Price ($)   Number of Securities Underlying Options (#) Exercisable   Number of Securities Underlying Options (#) Unexercisable
Sheldon Nelson,   12/19/2013   2.00   10,000  
   Chief Executive Officer   12/29/2014   4.00   9,167   833
    3/21/2016   2.94   1,315   1,315
                 
Patrick Cunningham,   11/30/2012   4.50   9,000  
   VP of Sales and Marketing   12/19/2013   2.00   9,000  
    12/29/2014   4.00   5,500   500
    3/21/2016   2.94   1,100   1,100
                 
Bradley Holmstrom,   11/30/2012   4.50   13,000  
   General Counsel   12/19/2013   2.00   9,000  
    12/29/2014   4.00   5,500   500
    3/21/2016   2.94   1,100   1,100
                 
Carmen Ragusa, Jr.,   11/30/2012   4.50   9,000  
   VP of Finance and Admin.   12/19/2013   2.00   10,500  
    12/29/2014   4.00   4,583   417
    3/21/2016   2.94   1,100   1,100

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

The following table sets forth information (to the best of the Company’s knowledge) with respect to beneficial ownership of MDU Communications International, Inc. outstanding common stock as of January 30, 2013 by each person or group known to the Company to be the beneficial owner of more than 5% of the Company’s common stock based upon Schedules 13G and 13D (and amendments and Forms 4) filed with the Securities and Exchange Commission:

 

Name and Address of Beneficial Owner of Common Stock   Shares     Percent of Class
Jonathan Ordway          
1868 Tucker Industrial Rd., Tucker, GA 30084     609,664       10.8%
               
Ronald Ordway              
1868 Tucker Industrial Rd., Tucker, GA 30084     1,269,996       22.4%
               
SF Investors, LP              
27 Hidden Valley Dr., Suffern, NY 10901     354,521       6.42%
               
Whetstone Capital, LP              
2001 Shawnee Mission Pkwy., Mission Woods, KS 66205     318,950       5.62%
               
SC Fundamental, et al.              
747 Third Ave., New York, NY 10017     256,101       4.67%

 

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The following table sets forth information with respect to beneficial ownership of our outstanding common stock (only outstanding voting security) as of September 30, 2012, including; (i) each executive officer named in the Summary Compensation Table and one other executive officers; (ii) each of the Company’s directors, and; (iii) all of the Company’s executive officers and directors as a group:

 

Name and of Beneficial Owner of Common Stock

Amount and

Nature of Beneficial

Ownership (shares)

Percent of

Class (%)

Sheldon Nelson 1 279,340 4.8
Patrick Cunningham 2 102,524 1.8
Brad Holmstrom 3 112,700 1.9
Carmen Ragusa, Jr. 4 78,163 1.3
Michael Stanway 5 31,732 0.6
Richard Newman 6 42,030 0.7
Carolyn Howard 7 58,720 1.0
All executive officers and directors as group (7 persons) 8 705,209 12.1

 

  (1) Includes 97,292 shares held of record by 567780 BC Ltd., a British Columbia Canada corporation wholly owned by the Sheldon Nelson Family Trust whose trustees are Sheldon Nelson and his sister, Nicole Nelson, 161,566 shares held personally and 20,482 exercisable options, within the next sixty days, to purchase shares of common stock.

 

  (2) Includes 77,924 shares of common stock and 24,600 exercisable options, within the next sixty days, to purchase shares of common stock.

 

  (3) Includes 84,100 shares of common stock and 28,600 exercisable options, within the next sixty days, to purchase shares of common stock.

 

  (4) Includes 47,755 shares of common stock and 30,408 exercisable options, within the next sixty days, to purchase shares of common stock.

 

  (5) Mr. Stanway is Vice President of Operations. Includes 26,648 shares of common stock and 5,084 exercisable options, within the next sixty days, to purchase shares of common stock.

 

  (6) Includes 38,980 shares of common stock owned directly, 2,050 beneficially owned through family members or trusts, and 1,000 beneficially owned through a wholly owned company.

 

  (7) Includes 51,020 shares of common stock and 7,500 exercisable options, within the next sixty days, to purchase shares of common stock.

 

  (8) Based on 5,789,494 shares, which includes 5,672,820 outstanding shares on September 30, 2012, and the above mentioned 116,674 options.

 

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Under the securities laws of the United States, the Company’s directors and officers, and any persons who own more than 10% of the Company’s common stock, are required under Section 16(a) of the Securities Exchange Act of 1934 to file initial reports of ownership and reports of changes in ownership with the SEC. Specific due dates have been established by the SEC, and the Company is required to disclose any failure to file by those dates. The Company files Section 16(a) reports on behalf of its directors and executive officers to report their initial and subsequent changes in beneficial ownership of common stock. Based solely upon its review of the copies of such reports for fiscal year 2012 as furnished to MDU Communications and representations from its directors and officers, the Company believes that all directors, officers, and greater-than-10% beneficial owners have made all required Section 16(a) filings on a timely basis for such fiscal year.

 

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Item 13. Certain Relationships and Related Transactions, and Director Independence

 

The Audit Committee of the Board of Directors is responsible for the review, approval, or ratification of “related-person transactions” between the Company or its subsidiaries and related persons. Under SEC rules, a related person is a director, officer, nominee for director, or 5% stockholder of the Company since the beginning of the last fiscal year, and the immediate family members of these persons. The Audit Committee determines whether any such transaction constitutes a “related-person transaction” and may approve, ratify, rescind, or take other action with respect to the transaction in its discretion.

 

On October 15, 2006, the Company entered into a Consulting Agreement with Howard Interests for business advisory services, the principal of which is the spouse of Board member Carolyn Howard. The Consulting Agreement is a month-to-month agreement with a monthly payment required initially of $5,000 that decreased to $3,500 per month in July of 2009 and decreased to $2,000 per month in October 2010. The consulting agreement was terminated in September 2012.

 

Item 14. Principal Accounting Fees and Services

 

J.H. Cohn LLP has served as the Company's Principal Accountant since January 1, 2002. Their fees billed to the Company for the past two fiscal years are set forth below:

 

   Fiscal Year Ended
September 30, 2012
   Fiscal Year Ended
September 30, 2011
 
Audit Fees  $166,612   $157,806 
Audit Related Fess  $   $ 
Tax Fees  $36,687   $17,190 
All Other Fees  $   $ 

 

Audit Committee Pre-Approval Policy

 

All audit and non-audit services to be performed for the Company by its independent auditor must be pre-approved by the Audit Committee, or a designated member of the Audit Committee, to assure that the provision of such services do not impair the auditor’s independence. The Audit Committee has delegated interim pre-approval authority to the Chairman of the Audit Committee. Any interim pre-approval of service is required to be reported to the Audit Committee at the next scheduled Audit Committee meeting. The Audit Committee does not delegate its responsibility to pre-approve services performed by the independent auditor to management.

 

The engagement terms and fees for annual audit services are subject to the pre-approval of the Audit Committee. The Audit Committee will approve, if necessary, any changes in terms, conditions, and fees resulting from changes in audit scope or other matters. All other audit services not otherwise included in the annual audit services engagement must be pre-approved by the Audit Committee.

 

Audit-related services are services that are reasonably related to the performance of the audit or review of the Company’s financial statements or traditionally performed by the independent auditor. Examples of audit-related services include employee benefit and compensation plan audits, due diligence related to mergers and acquisitions, attestations by the auditor that are not required by statute or regulation, and consulting on financial accounting/reporting standards. All audit-related services must be specifically pre-approved by the Audit Committee.

 

The Audit Committee may grant pre-approval of other services that are permissible under applicable laws and regulations and that would not impair the independence of the auditor. All of such permissible services must be specifically pre-approved by the Audit Committee.

 

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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this amended report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

MDU COMMUNICATIONS INTERNATIONAL, INC.

 

 
       
  By: /s/ SHELDON NELSON  
    Sheldon Nelson  
    Chief Financial Officer  
   

January 30, 2013

 

 

 

  MDU COMMUNICATIONS INTERNATIONAL, INC.  
 

 

 
       
  By: /s/ CARMEN RAGUSA, JR.  
    Carmen Ragusa, Jr.  
    Vice President of Finance  
   

January 30, 2013

 

 

Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signature   Title   Date
         

 

/s/ SHELDON B. NELSON

       
Sheldon B. Nelson   Chief Executive Officer and Director   January 30, 2013
    (Principal Executive Officer)    

 

/s/ CAROLYN C. HOWARD

       
Carolyn C. Howard   Director   January 30, 2013
         

 

/s/ RICHARD NEWMAN

       
Richard Newman   Director   January 30, 2013

 

 

/s/ J.E. “TED” BOYLE

       
J.E. “Ted” Boyle   Director   January 30, 2013
         

 

/s/ GREGORY L. OSBORN

       
Gregory L. Osborn   Director  

January 30, 2013

 

 

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