F-1 1 d486137df1.htm KOFAX LIMITED - FORM F-1 Kofax Limited - Form F-1
Table of Contents

As filed with the Securities and Exchange Commission on October 3, 2013

Registration No. 333-            

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

Kofax Limited

(Exact name of Registrant as specified in its charter)

 

 

Not Applicable

(Translation of Registrant’s name into English)

 

 

 

Bermuda   7372   Not Applicable
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
 

(I.R.S. Employer

Identification Number)

Kofax Limited

15211 Laguna Canyon Road

Irvine, CA 92618-3146

(949) 783-1000

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

 

Reynolds C. Bish

Kofax Limited

15211 Laguna Canyon Road

Irvine, CA 92618-3146

(949) 783-1000

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

David S. Rosenthal, Esq.

Dechert LLP

1095 Avenue of the Americas

New York, NY 10036

(212) 698-3500

 

Thomas S. Levato, Esq.

Goodwin Procter LLP

The New York Times Building

620 Eighth Avenue

New York, NY 10018

(212) 813-8800

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, please check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of each class of

securities to be registered

 

Proposed

maximum

aggregate
offering price(1)(2)

 

Amount of

registration fee

Common shares, $0.001 par value per share

  $5,750,000   $741.00

 

 

(1) Estimated solely for the purpose of determining the amount of the registration fee in accordance with Rule 457(o) under the Securities Act of 1933.
(2) Including common shares that may be purchased by the underwriter to cover over-allotments, if any.

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine.

 

 

 


Table of Contents

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION

DATED OCTOBER 3, 2013

             Common Shares

 

LOGO

Kofax Limited

 

 

We are offering              of our common shares. We expect the initial public offering price will be between $         and $         per common share. We intend to apply for listing of our common shares on The NASDAQ Global Select Market under the symbol “KFX.” Prior to this offering the ordinary shares of Kofax plc have traded, and subsequent to this offering the common shares of Kofax Limited will trade, on the London Stock Exchange under the symbol “KFX.L.” The last reported sales price of Kofax plc on the London Stock Exchange on October 2, 2013 was 359 pence or $5.82 (based on the rate of exchange on that day).

 

 

Before buying any common shares, you should carefully consider the risk factors described in “Risk Factors” beginning on page 13. These “Risk Factors” include discussion of our status as an “emerging growth company” under the federal securities laws, and the reduced public company reporting requirements that we are required to comply with based on that status.

We are an “emerging growth company” as defined under the federal securities laws and, as such, may elect to comply with certain reduced public company reporting requirements.

Neither the United States Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

     Per
Share
     Total  

Public Offering Price

   $                    $                

Underwriting Discounts and Commissions (1)

   $         $     

Proceeds, Before Expenses, to the Company

   $         $     

 

(1) See “Underwriting” beginning on page 125 for disclosure regarding compensation payable to the underwriter.

The underwriter may also purchase up to an additional              common shares from us at the public offering price, less the underwriting discounts and commissions, within 30 days from the date of this prospectus to cover over-allotments, if any.

The underwriter expects to deliver common shares against payment in New York, New York on or about                     , 2013.

 

 

Craig-Hallum Capital Group

The date of this prospectus is                     , 2013


Table of Contents

LOGO


Table of Contents

TABLE OF CONTENTS

 

     Page  

Prospectus Summary

     1   

The Offering

     8   

Summary Historical Consolidated Financial Data

     10   

Risk Factors

     13   

Forward-Looking Statements

     32   

Industry and Market Data

     33   

Corporate Structure

     34   

Use of Proceeds

     35   

Dividend Policy

     36   

Capitalization

     37   

Dilution

     38   

Market for our Shares

     40   

Selected Historical Consolidated Financial Data

     41   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     43   

Business

     63   

Management

     76   

Principal Shareholders

     94   

Related Party Transactions

     96   

Description of Share Capital

     97   

Comparison of Delaware Law and Bermuda Law

     103   

Shares Eligible for Future Sale

     115   

Taxation

     116   

Cautionary Statement on Service of Process and the Enforcement of Civil Liabilities

     124   

Indemnification for Securities Act Liabilities

     124   

Underwriting

     125   

Expenses Related to this Offering

     128   

Legal Matters

     128   

Experts

     128   

Where You Can Find Additional Information

     128   

Index to Financial Statements

     F-1   

Consent under the Exchange Control Act 1972 (and its related regulations) has been obtained from the Bermuda Monetary Authority for the issue and transfer of the common shares to and between non-residents of Bermuda for exchange control purposes provided our shares remain listed on an appointed stock exchange, which includes The NASDAQ Global Select Market. In granting such consent the Bermuda Monetary Authority does not accept any responsibility for our financial soundness or the correctness of any of the statements made or opinions expressed in this prospectus.

You should rely only on the information contained in this prospectus. Neither we nor the underwriter have authorized any other person to provide you with information that is different from that contained in this prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. Neither we nor the underwriter are making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. The information contained in this prospectus is accurate only as of the date of this prospectus.

We have not taken any action to permit a public offering of the securities outside the United States or to permit the possession or distribution of this prospectus outside the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about and observe any restrictions relating to the offering of the securities and the distribution of the prospectus outside the United States.


Table of Contents

PROSPECTUS SUMMARY

This summary highlights information contained in this prospectus. It does not contain all of the information that you should consider in making your investment decision. Before investing in our common shares, you should read this entire prospectus carefully, including the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Kofax plc and Kofax Limited financial statements and related notes for a more complete understanding of our business and this offering.

Except as otherwise required by the context, references to “Kofax,” “the Company,” “we,” “us” and “our” are to (1) Kofax plc, a public limited company organized under the laws of the United Kingdom, and its subsidiaries, or Kofax (U.K.), for all periods prior to the completion of the scheme of arrangement described below, and (2) Kofax Limited, a Bermuda company, and its subsidiaries, or Kofax (Bermuda), for all periods after the completion of the scheme of arrangement.

WHO WE ARE

We are a leading provider of smart process applications software and related maintenance and professional services for the critical First Mile of interactions between businesses, government agencies and other organizations (collectively, organizations) and their customers, citizens, vendors, employees and other parties (collectively, constituents). The First Mile represents those initial information-intensive interactions customers have with organizations. Our software enables organizations to design, deploy, and operate comprehensive systems that create an essential link between their systems of engagement, which generate real time, information-intensive communications from constituents, and their systems of record, which are typically large scale enterprise applications and repositories used to manage their internal operations. Our software is designed to streamline critical information processing, which we believe allows our users to be more responsive to their constituents and is intended to enable our customers to provide better service, gain competitive advantage and grow their organizations while reducing their costs and improving their regulatory compliance.

We operate on a global basis, and as of June 30, 2013, we had 1,248 employees located in 32 countries. We utilize a hybrid go-to-market model that delivers our software and services through both our direct sales and service employees and an indirect channel of more than 850 authorized resellers, original equipment manufacturers and distributors located in more than 75 countries as of June 30, 2013. We have approximately 20,000 active installations of our software with users in financial services, insurance, government, healthcare, supply chain (manufacturing, distribution, retail and logistics), business process outsourcing and other vertical markets, including 67 of the Fortune Global 100 companies.

Our annual total revenue grew from $170.0 million for the fiscal year ended June 30, 2009, to $266.3 million for the fiscal year ended June 30, 2013, representing a compound annual growth rate (CAGR) of 11.9%. During this same period, our income from operations grew from $3.4 million to $25.1 million, representing a CAGR of 64.8%, and our income from operations as a percentage of total revenue decreased from 10.6% to 9.4%. On a non-IFRS basis, our adjusted income from operations grew from $18.0 million to $46.3 million, representing a CAGR of 26.7%, and our adjusted income from operations as a percentage of total revenue grew from 10.6% to 17.4%. For a reconciliation of IFRS income from operations to non-IFRS adjusted income from operations, see “Summary Historical Consolidated Financial Data—Non-IFRS Measures.”

THE CHALLENGE

The business challenge arising in First Mile interactions is that their flow is often controlled by inflexible systems of record, which can make them labor intensive, slow and prone to errors and can adversely affect a customer’s perception of the business. Systems of record are generally large scale, expensive and typically rigid

 

 

1


Table of Contents

enterprise applications and repositories enterprise resource planning (ERP), customer relationship management (CRM), enterprise content management (ECM) records management and other systems) that organizations use to manage their internal operations.

Systems of engagement are the ways in which organizations interact with their customers. They range from face to face interactions at “brick and mortar” branch offices to web portals to other demand generating activities that drive customers to an organization’s web or social media sites. An organization’s systems of engagement generate an enormous amount and variety of real time, information intensive communications from constituents on a daily basis via paper, faxes, emails, internet portals, mobile devices, Electronic Data Interchange and eXtensible Markup Language data streams, short message services, multimedia messaging services and other sources, all of which need to be processed in an accurate, timely, and cost effective manner. These communications arrive as both structured and unstructured information in the form of letters, resumes, new account enrollments, loan applications, insurance claims, purchase orders, invoices, regulatory filings and many other interactions.

The information in these communications must be captured, extracted, validated, analyzed and acted upon, and then delivered into an organization’s systems of record for additional processing, use and storage in repositories for archive and retrieval purposes. Delays and errors caused by invalid information and inconsistent processing can adversely impact an organization’s competitive positioning, finances, financial reporting and relations with its constituents and regulatory agencies.

Traditional methods for accomplishing the tasks referenced above typically begin with the aggregation of paper-based documents in a central location or mailroom. The documents are then distributed to relatively highly paid workers who manually enter information into systems of record, before storing the documents in cabinet based filing systems. The continued use of these paper-based processes is substantiated by data from numerous independent sources. For example, in March 2010, CNN reported that organizations archive 62% of their important documents in paper form. More recently in July 2013, Harvey Spencer Associates estimated that organizations globally spend approximately $25-30 billion a year manually keying information from paper documents.

As a result of these challenges, we believe there is a significant opportunity to automate these processes and thereby address these challenges and limitations.

OUR SOLUTION

Our smart process applications software combines industry leading capture, business process management and dynamic case management, mobile and analytics capabilities to automate the labor-intensive processes needed to capture and extract information, and then analyze, act upon and deliver that information to systems of record.

Smart process applications are a new category of software designed to support business activities that are people-intensive, highly variable, loosely structured and subject to frequent change. Our smart process applications software allows users to scan paper-based communications using desktop scanners, high volume, production level scanners and multi-function peripherals, to take pictures of those communications using cameras in mobile devices to produce digital images and import communications received in an electronic format. Regardless of how the information is captured, any related images are then automatically enhanced for better viewing and information extraction purposes. The captured information is separated into logical parts such as pages, documents and attachments. A variety of optical character recognition, intelligent character recognition, barcode recognition, mark sense, parsing algorithms, and other extraction technologies are then automatically applied. Our users only have to manually correct or enter any erroneous or suspicious information or any

 

 

2


Table of Contents

additional content that cannot be effectively captured using automated information extraction technologies. “Check box” and complex custom business rules can also be automatically applied to all extracted information to ensure its accuracy and validity.

Our software then automates the labor-intensive processes needed to analyze, act upon and deliver that information to systems of record. Additional business rules are applied to identify and resolve any inconsistencies or exceptions that arise, users can collaborate with constituents to obtain missing or trailing documents, and users can view and manipulate graphical reports produced by our analytics software in order to make more intelligent decisions sooner than otherwise possible. The resulting information from such interactions is then automatically delivered into systems of record. The entire process is automatically directed and controlled by predefined workflows and incorporates dynamic case management capabilities to deal with unpredictable workflow requirements.

In its July 2013 report, “The 2013-2014 Worldwide Market for Document Capture Software,” Harvey Spencer Associates reported that in 2012 Kofax was the leading revenue vendor with 14% share. In August 2012 Forrester published its “Wave” for Multichannel Capture, or the ability to capture information from a wide variety of different sources, and ranked Kofax as the “Leader” in providing those capabilities. In addition, in January 2013 Forrester published the results of a study commissioned by Kofax, and reported that in 2012 Kofax had a market leading 15% share of the Multichannel Capture market.

Kofax TotalAgility, our business process and dynamic case management software, was shown to be “Visionary” in Gartner’s April 2011 “Magic Quadrant” for Business Process Management (BPM) and a “Leader” in Forrester’s January 2011 “Wave” for Dynamic Case Management. In addition, Kofax was shown as a “Leader” Forrester’s April 2013 “Wave” for Smart Process Applications. As a result of this independent recognition and our business strengths, we believe we can secure a meaningful share of the BPM and smart process applications software markets.

OUR OPPORTUNITY

In June 2010, Gartner reported that chief information officers ranked improving business processes and reducing costs as two of their top three priorities. In November 2010, the Association for Image and Information Management (AIIM), reported that image and content capture yield two of the three fastest returns on investment of any enterprise application software expenditures. Further, 42% of capture users surveyed by AIIM in 2012 report returns on investment of 12 months or less and 57% report returns on investment of 18 months or less.

In April 2012, AIIM published a separate report that estimated the following survey responses:

 

   

One out of three small and medium sized businesses and 22% of the largest businesses have yet to adopt any paper free processes;

 

   

10% or less of the processes that could be paper free have in fact been addressed;

 

   

70% of survey respondents believed the use of scanning and automated capture improves the speed of responses to constituents by three times or more, and nearly 30% believe the factor is ten times or more;

 

   

52% believe administrative staff would be 33% or more productive if processes were automated using capture-based technology; and

 

   

Two out of three consider mobile technologies to be important or extremely important to improving business processes, and 45% believe mobile devices would improve the speed of responses to constituents by three times or more. However, more than 75% have made no progress in taking advantage of this opportunity.

 

 

3


Table of Contents

We believe that the size of the market for our smart process applications software can be best estimated by combining the market for capture software and services, the market for BPM software and the market for vertically oriented information-intensive smart process applications that fit our strength in addressing the First Mile challenge of business. Capture software automates the labor intensive processes needed to enter business critical information into enterprise applications and repositories. BPM software automates the labor intensive processes needed to understand and act upon that business critical information. Smart process applications software combines capture, business process and dynamic case management, mobile and analytics capabilities to automate the labor-intensive processes needed to capture and extract information, and then analyze, act upon and deliver that information to systems of record.

A July 2013 Harvey Spencer Associates report estimated that the market for capture software and services will grow from approximately $2.7 billion in 2012 to approximately $4.2 billion in 2017, a CAGR of almost 9.2%. In July 2013, Gartner stated that the total market value for business process management suites (BPMS) in 2012 was $2.3 billion and that growth for the years up to 2017 is expected to grow at a compound annual growth rate of 10% over the next five years. These reports suggest that these markets reached $5 billion in calendar 2012.

In January 2013 Forrester published the results of a study commissioned by Kofax, and estimated that the software and maintenance services market for capture, BPM and vertically-oriented information-sensitive smart process applications totaled $7.1 billion in 2012 and will grow to $14.0 billion in 2016, a CAGR of approximately 18%.

OUR BUSINESS STRENGTHS

We believe the following business strengths position us to capitalize on the opportunity for our smart process applications software and compete effectively in the market:

 

   

Comprehensive Solutions—Our software allows users to design, deploy, and operate comprehensive systems that connect their systems of engagement with their systems of record, transforming and simplifying the First Mile™ of interactions between organizations and their constituents in a way that is designed to produce an optimized constituent experience and reduced operating costs, which we believe enables our customers to achieve increased competitiveness, growth and profitability. It is a highly flexible and scalable platform that combines industry leading capture, business process and dynamic case management, mobile and analytics capabilities to automate the labor-intensive processes needed to capture and extract information, and then analyze, act upon and deliver that information to systems of record. In addition to our software, we offer a wide range of related professional and maintenance services to better address the deployment and support needs of our users and channel partners, which helps us achieve a greater level of customer satisfaction.

 

   

Large and Diversified User Base—We had approximately 20,000 active installations across more than 100 countries as of June 30, 2013. We serve users in the financial services, insurance, government, healthcare, supply chain, business process outsourcing and other vertical markets. Most users initially license our software to automate one or several processes in a single geographic region, business unit, line of business, function, or department. Over time, many users license additional software to automate other processes and some eventually enter into enterprise-wide license arrangements. As a result, we believe we are well positioned to take advantage of additional opportunities within the same organizations. In addition, we believe our large number of users effectively gives us preferential access to a greater share of the market. We have minimal user concentration, with no user having accounted for more than 5% of our total revenue for the fiscal year ended June 30, 2013.

 

   

Global Reach and Hybrid Go-to-Market Model—We operate on a global basis, with 1,248 employees located in 32 countries as of June 30, 2013. We utilize a hybrid go-to-market model that delivers our software and services through our own direct sales and service employees, as well as through an indirect channel of more than 850 authorized resellers, original equipment manufacturers and distributors located

 

 

4


Table of Contents
 

in more than 75 countries as of June 30, 2013. Our direct sales and service employees focus their attention on large corporations and government entities, while our indirect channel allows us to better reach small and medium sized organizations and departments of larger organizations. This hybrid go-to-market strategy allows us to penetrate a much broader portion of the market.

 

   

Recurring Revenue Streams—We have significant recurring revenue streams attributable to our maintenance services and to our software license and royalty revenue generated from sales by our channel partners. We have historically had a significant portion of our users renew their maintenance service agreements with us, typically on an annual basis. Our maintenance services revenue was $121.8 million and $113.8 million, representing 45.7% and 43.3% of our total revenue, for the fiscal years ended June 30, 2013 and 2012, respectively.

 

   

Experienced Management Team—Our executive management team and other senior management employees have on average, more than 25 years of software industry experience. We believe that our management team has been, and will continue to be, instrumental in growing our business, both organically and through acquisitions.

OUR GROWTH STRATEGY

Our objective is to extend our position as a leading provider of smart process applications software and related services. We intend to pursue this objective by executing these key strategies:

 

   

Broaden Our Software Offerings and Markets—We believe mobile devices will rapidly transform the way in which interactions occur between organizations and their constituents. Our recently introduced mobile software offers patented functionality that pushes capture and BPM capabilities to the “Point of Origination”, the time and location where constituent interactions occur and the information is first available. We intend to continue to extend and improve the functionality of these capabilities to take advantage of the opportunity for mobile capabilities.

We have historically offered our software under a perpetual license model for on-premise or private cloud deployments, and recently began offering portions of it through both a public cloud-based hosted Software-as-a-Service (SaaS) subscription offering and through term-based on premise software licenses. We intend to accelerate the SaaS initiative and eventually offer substantially all of our software as a SaaS offering. We believe that the SaaS offering will allow users to avoid significant capital expenditures and other on-premise deployment costs, while providing immediate access to all of the benefits of our software. We additionally believe that our term-based licenses will attract customers that otherwise may not license our software on a perpetual basis. The software that we acquired through our July 2013 acquisition of Kapow Technologies, Inc. is predominantly licensed on a term-based model. While we believe that these offerings will ultimately broaden our existing market reach, we did not record a significant amount of revenue from our SaaS offering nor our term-based licenses in fiscal 2013. Additionally, we do not expect that revenue from our SaaS or term-based offerings will adversely affect revenue from perpetual licenses in fiscal 2014.

We also intend to continue to enhance and further develop our proven technologies and introduce new software for sale to our existing users, new users in existing vertical markets and new users in new vertical markets. We believe these new initiatives offer significant opportunities to grow both our addressable market and revenue.

 

   

Further Penetrate Our Installed User Base—Most users initially license our software to automate one or several processes in a single geographic region, business unit, line of business, function or department rather than doing so on an enterprise-wide basis. Over time many users license additional software to automate other processes and some eventually enter into enterprise-wide license arrangements. As a result, we believe that there are significant opportunities to expand our revenue by

 

 

5


Table of Contents
 

selling additional software and services into our large and growing installed user base. As evidence of this, in the fiscal year ended June 30, 2013, our existing user base generated more than half of our software licenses revenue.

 

   

Expand and Optimize Our Hybrid Go-To-Market Model—In the fiscal year ended June 30, 2013 we derived approximately 46% of our total revenue from direct sales and approximately 54% from sales made through our indirect channel, and in the fiscal year ended June 30, 2012 we derived approximately 43% of our total revenue from direct sales and approximately 57% from sales made through our indirect channel. We intend to grow our revenue by improving the execution and productivity of both of these “routes to market” and by adding new direct sales and service employees and channel partners.

 

   

Pursue Strategic Acquisitions—We believe that strategic acquisitions will allow us to better serve the needs of our users, expand our software offerings, augment our routes to market, expand our market opportunities, and broaden our user base. Our executive management team has substantial experience in successfully effecting acquisitions of software businesses and integrating these entities into our business operations. Recent examples of executing on this strategy include our acquisitions of OptiInvoice Digital Technology AB in October 2008 (electronic invoice capabilities), 170 Systems, Inc. in September 2009 (accounts payable automation solutions), Atalasoft Corp. in May 2011 (web capture capabilities), Singularity Limited in December 2011 (BPM and dynamic case management capabilities), Altosoft, Corp. in March 2013 (business intelligence and analytics capabilities) and Kapow Technologies, Inc. in July 2013 (data integration). In the future we intend to evaluate and pursue similar opportunities.

CORPORATE STRUCTURE

Kofax (U.K.) is currently organized as a public limited company under the laws of England and Wales. A company organized under the laws of England and Wales is not permitted to directly list its common equity (as opposed to depositary interests) on The NASDAQ Global Select Market. Under English law, it is not possible to change the place of incorporation of Kofax (U.K.) from one jurisdiction to another, requiring us to establish Kofax (Bermuda) as the new parent company of Kofax (U.K.). Accordingly, subject to the passing of the resolutions of the scheme of arrangement, and prior to the closing of this offering, Kofax (U.K.) will become a wholly-owned subsidiary of Kofax (Bermuda). Kofax (Bermuda) was incorporated solely for this purpose. Prior to the Migration (as defined below), Kofax (Bermuda) has or will have nominal assets and has had no historic operations.

The establishment of Kofax (Bermuda) as the new parent company of Kofax (U.K.) will be achieved through a scheme of arrangement under Part 26 of the U.K. Companies Act of 2006. Pursuant to the scheme of arrangement, the shareholders of Kofax (U.K.) will need to agree to have their ordinary shares in Kofax (U.K.) cancelled in consideration for (i) the issuance to those shareholders of common shares in Kofax (Bermuda) and (ii) the issuance by Kofax (U.K.) of new shares to Kofax (Bermuda). The scheme of arrangement provides for one common share of Kofax (Bermuda) to be issued in exchange for each ordinary share of Kofax (U.K.).

The scheme of arrangement will have no effect on the manner in which our business is conducted. We refer to the transactions contemplated by the scheme of arrangement throughout this prospectus as the “Migration.” If the shareholders of Kofax (U.K.) do not vote to approve the Migration, we will not consummate this offering. Depending upon the Kofax (U.K.) share price at the effective date of the scheme of arrangement, Kofax (Bermuda) may decide to implement a share capital consolidation (also known as a reverse stock split) on a one for two basis, in respect of the common shares of Kofax (Bermuda) issued pursuant to the scheme of arrangement. This would be done in order to enable the common shares of Kofax (Bermuda) to trade initially on The NASDAQ Global Select Market at a price more readily comparable to its peers.

 

 

6


Table of Contents

Although the Company is incorporated in and organized under the laws of Bermuda, the directors intend that the affairs of the Company should be managed and conducted so that it will be resident in the United Kingdom for tax purposes. No guarantee can be given that the Company will be respected as a United Kingdom resident for tax purposes.

RISK FACTORS

Before investing in our common shares you should carefully consider all of the information in this prospectus, including matters set forth under the heading “Risk Factors.” Risks relating to our business include, among other things:

 

   

our ability to successfully meet anticipated revenue levels from sales of our software licenses and services;

 

   

our ability to successfully develop, market or sell new products or adopt new technology platforms;

 

   

our ability to continue to grow through acquisitions or investments in other companies or technologies;

 

   

our ability to realize the anticipated benefits of our consummated acquisitions or investments in other companies or technologies;

 

   

risks related to the continued uncertainty in the global financial markets and unfavorable global economic conditions; and

 

   

certain other risks set forth under the heading “Risk Factors” as well as factors that we may not have identified at this time.

RECENT DEVELOPMENTS

We expect to report financial results for our first fiscal quarter ended September 30, 2013 on November 5, 2013 in line with our expectations for that quarter as well as our guidance for the fiscal year ending June 30, 2014.

CORPORATE INFORMATION

Our principal executive offices are located at 15211 Laguna Canyon Road, Irvine, California 92618, our telephone number is (949) 783-1000 and our Internet website address is www.kofax.com. We do not incorporate the information on our website into this prospectus and you should not consider any information on, or that can be accessed through, our website as part of this prospectus.

 

 

7


Table of Contents

THE OFFERING

 

Common shares offered by us

             shares

 

Common shares to be outstanding immediately after this offering

             shares

 

Over-allotment Option

We have granted to the underwriter an option, which is exercisable within 30 days from the date of this prospectus, to purchase up to              additional common shares to cover over-allotments, if any.

 

Use of Proceeds

We estimate the net proceeds to us from this offering will be approximately $         million, after deducting the underwriting discounts and commissions and the estimated offering expenses payable by us, assuming an initial offering price of $         per common share. We intend to use the net proceeds from this offering for general corporate purposes. Pending our use of the net proceeds as described above, we intend to invest the net proceeds in short-term bank deposits or interest-bearing, investment-grade securities. See “Use of Proceeds.”

 

Dividend Policy

We do not currently pay dividends. See “Dividend Policy.”

 

Risk Factors

Investing in our common shares involves a high degree of risk. You should read and consider the information set forth under the heading “Risk Factors” beginning on page 13 and all other information included in this prospectus before deciding to invest in our common shares.

 

Trading Market

We intend to apply to list our common shares on The NASDAQ Global Select Market under the symbol “KFX.” Prior to this offering, the ordinary shares of Kofax (U.K.) have traded, and subsequent to this offering the common shares of Kofax (Bermuda) will trade, on the London Stock Exchange under the symbol “KFX.L.”

 

Share Registrar and Transfer Agent

A register of holders of our common shares will be maintained by Codan Services Limited in Bermuda, and a branch register will be maintained in the United States by American Stock Transfer & Trust Company, LLC, who will serve as branch registrar and transfer agent. Capita Registrars Limited will maintain a register of holders of our common shares in the United Kingdom.

The number of our common shares that will be issued and outstanding immediately after this offering is based on 89,638,519 common shares of Kofax (U.K.) outstanding as of June 30, 2013, and excludes:

 

   

5,061,862 common shares issuable upon the exercise of outstanding options granted under the Kofax plc 2000 Share Option Plan and 323,900 common shares issuable upon the exercise of outstanding options granted under the 2012 Equity Incentive Plan at a weighted average exercise price of 211 pence ($3.22, based on the exchange rate on June 30, 2013) per share; and

 

   

3,285,529 common shares issuable pursuant to outstanding awards granted under the Kofax plc 2007 Long Term Incentive Plan.

 

 

8


Table of Contents

Except as otherwise indicated, all information in this prospectus assumes no exercise of the underwriter’s over-allotment option and any reverse stock split that may be implemented by Kofax (Bermuda).

Emerging Growth Company

We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, or the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and the requirement to present only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations in the registration statement of which this prospectus forms a part. We are currently utilizing or intend to utilize both of these exemptions. We have not made a decision whether to take advantage of any other exemptions available to emerging growth companies. We do not know if some investors will find our common shares less attractive as a result of our utilization of these or other exemptions. The result may be a less active trading market for our common shares and our share price may be more volatile.

In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We currently prepare our financial statements in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), which do not have separate provisions for publicly traded and private companies. However, in the event we convert to U.S. GAAP while we are still an “emerging growth company”, we may be able to take advantage of the benefits of this extended transition period.

We will remain an “emerging growth company” until the earliest of (a) the last day of the first fiscal year in which our annual gross revenues exceed $1.0 billion, (b) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common shares that are held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, (c) the date on which we have issued more than $1.0 billion in nonconvertible debt during the preceding three-year period or (d) the last day of our fiscal year containing the fifth anniversary of the date on which our shares become publicly traded in the United States.

 

 

9


Table of Contents

SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA

The tables below present the summary historical consolidated financial data of Kofax (U.K.) and its consolidated subsidiaries, which upon effectiveness of the Migration and prior to the consummation of this offering, directly or indirectly, will be wholly-owned subsidiaries of Kofax (Bermuda). The summary historical consolidated financial data of Kofax (U.K.) and its consolidated subsidiaries as of June 30, 2013 and 2012, and for the years ended June 30, 2013 and 2012 has been derived from Kofax (U.K.)’s audited consolidated income statements, statements of financial position and statements of cash flows for those periods, which are included elsewhere in this prospectus. The consolidated financial statements have been prepared and presented in accordance with IFRS as issued by the IASB.

The following summary historical consolidated financial data should be read in conjunction with our audited historical consolidated financial statements and the related notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” each of which is included elsewhere in this prospectus. The historical results for any prior period are not necessarily indicative of results to be expected for any future period.

 

       Fiscal Year Ended June 30,    
         2013             2012      
    

(in thousands, except per share data)

 

Software licenses

   $ 112,228      $ 117,255   

Maintenance services

     121,751        113,784   

Professional services

     32,339        31,442   
  

 

 

   

 

 

 

Total revenue

     266,318        262,481   
  

 

 

   

 

 

 

Cost of software licenses

     10,688        11,301   

Cost of maintenance services

     18,194        16,420   

Cost of professional services

     28,343        26,784   

Research and development

     34,686        33,804   

Sales and marketing

     98,209        96,292   

General and administrative

     37,286        39,096   

Amortization of acquired intangible assets

     6,707        5,190   

Acquisition-related costs

     4,682        5,870   

Restructuring costs

     —          4,917   

Other operating expenses, net

     2,395        669   
  

 

 

   

 

 

 

Operating costs and expenses

     241,190        240,343   
  

 

 

   

 

 

 

Income from operations

     25,128        22,138   

Finance income (expense), net

     (6,929     5,294   
  

 

 

   

 

 

 

Income from continuing operations, before income taxes

     18,199        27,432   

Income tax expense

     (8,198     (9,995
  

 

 

   

 

 

 

Income from continuing operations, after income taxes

   $ 10,001      $ 17,437   
  

 

 

   

 

 

 

Earnings per Share From Continuing Operations:

    

Basic

   $ 0.12      $ 0.21   

Diluted

   $ 0.11      $ 0.20   

 

 

10


Table of Contents
     As of June 30,  
             2013                      2012          
    

(in thousands)

 

Cash and cash equivalents

   $ 93,413       $ 81,122   

Working capital (1)

     49,861         43,008   

Total assets

     379,143         357,777   

Total shareholders’ equity

     237,127         217,940   

 

     Fiscal Year Ended June 30,  
             2013                      2012          
    

(in thousands)

 

Cash flows from operations

   $ 30,523       $ 18,776   

 

(1) Working capital is defined as current assets less current liabilities.

Non-IFRS Measures

Management uses several financial measures, both IFRS and non-IFRS, in analyzing and assessing the overall performance of the business and for making operational decisions. Our annual financial plan and our multiple-year strategic plan are prepared on both an IFRS and non-IFRS basis, both of which are approved by our Board of Directors. Historically, we have provided non-IFRS measures to our shareholders. The Board of Directors and management utilize both our IFRS and non-IFRS measures in a number of ways, including: to facilitate our determination of our allocation of resources, to measure our actual performance against budgeted and forecasted financial plans and to establish and measure management’s compensation. We believe that these non-IFRS measures are also useful to investors and other users of our financial statements in evaluating our performance because these non-IFRS financial measures may be used as additional tools to compare business performance across peer companies and across periods.

While we use non-IFRS measures as a tool to enhance our understanding of certain aspects of our financial performance, we do not believe that these non-IFRS measures are a substitute for, or are superior to, the information provided by IFRS results. As such, the presentation of non-IFRS measures is not intended to be considered in isolation or as a substitute for any measure prepared in accordance with IFRS. The primary limitations associated with the use of non-IFRS measures as compared to IFRS results are that non-IFRS measures may not be comparable to similarly titled measures used by other companies in our industry and that non-IFRS measures may exclude financial information that some investors may consider important in evaluating our performance. We compensate for these limitations by providing disclosure of the differences between non-IFRS measures and IFRS results, including providing a reconciliation of each non-IFRS measure to IFRS results, in order to enable investors to perform their own analysis of our operating results.

Management’s assessment of certain non-IFRS measures are included elsewhere in this prospectus, in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Financial and Operational Metrics.”

Adjusted Income from Operations

We define adjusted income from operations as income from operations, as reported under IFRS, excluding the effect of share-based payment expense, depreciation expense, amortization of acquired intangible assets, acquisition-related costs, restructuring costs and other operating expense, net. Share-based payment expense, depreciation expense and amortization of acquired intangible assets in our adjusted income from operations reconciliation represent non-cash charges which are not considered by management in evaluating our operating performance. Acquisition-related costs consist of: (i) costs directly attributable to our acquisition strategy and the evaluation, consummation and integration of our acquisitions (composed substantially of professional services

 

 

11


Table of Contents

fees including legal, accounting and other consultants and to a lesser degree to our personnel whose responsibilities are devoted to acquisition activities), and (ii) transition compensation costs (composed substantially of contingent payments for shares that are treated as compensation expense and retention payments that are anticipated to become payable to employees, as well as severance payments to employees whose positions were made redundant). These acquisition-related costs are not considered to be related to the organic continuing operations of the acquired businesses and are generally not relevant to assessing or estimating the long-term performance of the acquired assets. Restructuring costs are not considered in assessing our performance as we have not generally incurred such costs for our continuing operations. Other operating expense, net represents items that are not necessarily related to our recurring operations and which therefore are not, under IFRS, included in other expense lines. Accordingly, we exclude those amounts when assessing adjusted income from operations. At times when we are communicating with our shareholders, analysts and other parties we refer to adjusted income from operations as adjusted EBITDA.

We assess adjusted income from operations as a percentage of total revenue and by doing so, we are able to evaluate our relative performance of our revenue growth compared to the expense growth for those items included in adjusted income from operations. This measure allows management and our Board of Directors to compare our performance against that of other companies in our industry that may be of different sizes. The table below provides a reconciliation of IFRS income from operations to adjusted income from operations and presents adjusted income from operations as a percentage of total revenue:

 

       Fiscal Year Ended June 30,    
         2013             2012      
    

(in thousands, except
percentages)

 

Income from operations

   $ 25,128      $ 22,138   

Share-based payment expense

     1,393        3,905   

Depreciation expense

     6,009        5,913   

Amortization of acquired intangible assets

     6,707        5,190   

Acquisition-related costs, excluding share-based payment expense

     4,682        5,758   

Restructuring costs

     —          4,917   

Other operating expense, net

     2,395        669   
  

 

 

   

 

 

 

Adjusted income from operations

   $ 46,314      $ 48,490   
  

 

 

   

 

 

 

Adjusted income from operations as a percentage of total revenue

     17.4     18.5
  

 

 

   

 

 

 

Adjusted Cash Flows from Operations

We define adjusted cash flows from operations as net cash inflows from operating activities, as reported under IFRS, adjusted for income taxes paid or refunded and payments under restructurings. Income tax payments paid/(refunded) is included in this reconciliation as the timing of cash payments and receipts can vary significantly from year-to-year based on a number of factors, including the influence of acquisitions on our consolidated tax attributes. Payments for restructurings relate to a specific activity that is not part of ongoing operations. The table below provides a reconciliation of IFRS cash flows from operations to adjusted cash flows from operations:

 

       Fiscal Year Ended June 30,    
         2013              2012      
    

(in thousands)

 

Net Cash inflow from operating activities

   $ 30,523       $ 18,776   

Income taxes paid / (refunded)

     10,749         12,172   

Payments under restructuring-personnel

     863         3,331   
  

 

 

    

 

 

 

Adjusted cash flows from operations

   $ 42,135       $ 34,279   
  

 

 

    

 

 

 

 

 

12


Table of Contents

RISK FACTORS

Investing in our common shares involves a high degree of risk. You should carefully consider the risks described below, which we believe are the material risks of our business, our industry and this offering, before making an investment decision. If any of the following risks actually occurs, our business, financial condition and operating results could be harmed. In that case, the trading price of our common shares could decline and you might lose all or part of your investment in our common shares. In assessing these risks, you should also refer to the other information contained in this prospectus, including our consolidated financial statements and the related notes thereto.

Risks Related to Our Business

Sales of our software licenses and the related revenue from those sales, particularly those sales made through our direct sales force, require significant time and effort and are therefore difficult to predict accurately. In addition, since the majority of our expenses are based on anticipated revenue levels, if those revenue levels are not met, we may not be able to reduce our expenses in a timely manner to offset a shortfall in revenue. This unpredictability in the timing or amount of our receipt of revenue may cause our quarterly results of operations to vary considerably and the market price of our common shares to be materially adversely affected.

Many of our contracts, particularly those sold through our direct sales force, are finalized in the latter portions of any given quarter. Additionally, our revenue may vary from quarter to quarter, depending on the timing and size of our license revenue, which may contain individually large contracts in any given period. Our first and third fiscal quarters have historically been seasonally weaker than our second and fourth quarters.

Our direct sales force’s efforts to attract new customers require substantial time and effort, and we cannot assure you that we will be successful in establishing new relationships or maintaining or advancing our current relationships. Further, many of our customers typically require one or more internal levels of approval before they can purchase our products and services. As a result, during our sales efforts, we must identify multiple people involved in the purchasing decision and devote a sufficient amount of time to presenting our products and services to those individuals. The breadth of our offerings often requires us to spend substantial time and effort assisting potential customers in evaluating our products and services, including providing demonstrations and benchmarking against other available offerings. This process can be costly and time consuming, and we often do not know if any given sales efforts will be successful until the latter stages of those efforts. Additionally, if we are unable to forecast market demand and conditions, we may not be able to expand our sales efforts at appropriate times and our revenue and related results of operations could be materially adversely affected.

We plan our expenditures based on anticipated future revenue. If the timing or amount of revenue fails to meet our expectations in any given quarter, our financial performance could be materially adversely affected because only small portions of expenses vary with revenue. Quarterly or annual operating results that are not in line with the expectations of public market analysts and other investors could materially adversely affect the market price of our common shares. As a result, period-to-period comparisons of operating results are not necessarily meaningful and should not be relied upon to predict future performance.

Our failure to successfully develop, market or sell new products or adopt new technology platforms could materially adversely affect our results of operations and financial condition.

Our software competes in a market characterized by rapid technological advances, evolving standards in software technology and frequent new product introductions and enhancements that may render existing products and services obsolete. We cannot assure you that we will be able to compete effectively or respond to rapid technological changes in our industry. In addition, the introduction of new products or updated versions of existing products has inherent risks, including, but not limited to, risks concerning:

 

   

product quality, including the possibility of software defects, which could result in claims against us or the inability to sell our software products;

 

13


Table of Contents
   

the fit of the new products and features with a customer’s needs;

 

   

the need to educate our sales, marketing and services personnel to work with the new products and features, which may strain our resources and lengthen sales cycles;

 

   

market acceptance of initial product releases;

 

   

marketing effectiveness; and

 

   

the accuracy of research or assumptions about the nature and extent of customer demand.

We may need to adopt newer technology platforms for our enterprise software products as older technologies become obsolete. We cannot assure you that we will be successful in making the transition to new technology platforms for our products in the future. We may be unable to adapt to the new technology, may encounter errors resulting from a significant rewrite of the software code for our products or may be unable to complete the transition in a timely manner. In addition, as we transition to newer technology platforms for our products, our customers may encounter difficulties in the upgrade process, delay decisions about upgrading our products or review their alternatives with a competing supplier.

Because we commit substantial resources to developing new software products and services, if the markets for these new products or services do not develop as anticipated, or demand for our products and services in these markets does not materialize or materializes later than we expect, we will have expended substantial resources and capital without realizing sufficient offsetting or resulting revenue, and our business and operating results could be materially and adversely affected. Developing, enhancing and localizing software is expensive, and the investment in product development may involve a long payback cycle. Our future plans include significant additional investments in research and development of our software and other intellectual property. We believe that we must continue to dedicate a significant amount of resources to our research and development efforts to maintain our competitive position. However, we may not receive significant revenue from these investments for several years, if at all. In addition, as we or our competitors introduce new or enhanced products, the demand for our products, particularly older versions of our products may decline. If we are unable to provide continued improvements in the functionality of our older products or move users that are using our older products to our newer products, our revenue may decline.

We may not be able to continue to grow through acquisitions or investments in other companies or technologies which could lead to our revenue not growing at an acceptable rate and may in turn harm our business.

Our business has expanded, in part, as a result of acquisitions of, or investments in, other companies. We intend to consider additional acquisitions of companies, products and technologies, as well as investments in other businesses. We cannot assure you that we will be able to identify other suitable acquisitions or investment candidates. Even if we do identify suitable candidates, we cannot assure you that we will be able to make other acquisitions or investments on commercially acceptable terms, if at all. Even if we agree to purchase a company, technology or other assets, we cannot assure you that we will be successful in consummating the purchase. If we are unable to continue to expand through acquisitions, our revenue may fail to grow or may decline, and our business may be harmed.

Our ability to realize the anticipated benefits of our consummated acquisitions will depend on successfully integrating the acquired businesses, which if not done successfully could adversely affect our operating results and financial condition. If we are unable to successfully integrate acquired businesses, or if an acquired business’ results of operations do not meet our expectations, we may record charges to earnings.

Acquisitions involve numerous risks, any of which could harm our business, including:

 

   

difficulties in integrating the operations, technologies, services and personnel of acquired businesses;

 

14


Table of Contents
   

cultural challenges associated with integrating employees from an acquired company into our organization;

 

   

ineffectiveness or incompatibility of acquired technologies or services;

 

   

additional financing required to make contingent payments;

 

   

potential loss of key employees of acquired businesses;

 

   

inability to maintain the key business relationships and the reputations of acquired businesses;

 

   

diversion of management’s attention from other business concerns;

 

   

inability to maintain our standards, controls, procedures and policies;

 

   

litigation for activities of the acquired company, including claims from terminated employees, customers, former shareholders or other third parties;

 

   

in the case of acquisitions made across multiple geographic areas, the need to integrate operations across different cultures and languages and to address the particular economic, currency, political and regulatory risks associated with specific countries;

 

   

failure to successfully further develop the acquired technology; and

 

   

increased fixed costs.

While we have not experienced any material issues associated with integrating acquisitions completed to date, as a result of these and other risks, if we are unable to successfully integrate acquired businesses in the future, we may not realize the anticipated benefits from our acquisitions. Any failure to achieve these benefits or failure to successfully integrate acquired businesses and technologies could seriously harm our business.

We will incur costs in connection with executing our acquisition strategy. Fees related to our acquisition strategy include amounts incurred during the evaluation of possible acquisition targets that may, or may not, ultimately be acquired by us. These costs, in addition to the time of our management and employees, include amounts payable to attorneys and other professional services firms. All fees relating to our acquisition strategy are expensed as incurred. In addition to costs to consummate an acquisition, we may record a significant amount of other charges to our operating results that are directly related to our acquisitions, including those acquisitions that are deemed to be operationally or strategically successful, including: the amortization of intangible assets acquired; charges to our operating results due to the accounting for contingent payments made in connection with acquisitions; costs incurred to combine the operations of companies we acquire, such as employee retention, redeployment or relocation expenses; charges to our operating results to eliminate certain duplicative pre-acquisition activities, to restructure our combined operations or to reduce our cost structure; charges to our operating results due to changes in deferred tax asset valuation allowances and liabilities related to uncertain tax positions after the measurement period of any given acquisition has ended; and charges to our operating results due to the expensing of certain equity awards assumed in an acquisition.

The accounting for acquisitions requires assets and liabilities to be stated at their acquisition date fair value, which generally results in an increase being recorded to the historic value of net assets, including recording the fair value of assets such as acquired intangible assets and goodwill, and also including a reduction in the value of acquired deferred revenue. The increased value of net assets generally results in lower post-acquisition earnings when compared to the pre-acquisition earnings of the acquired businesses. These costs, when and if recorded, could be material and could differ substantially from similar costs recorded in prior years.

Continued uncertainty in the global financial markets and unfavorable global economic conditions may adversely affect our business, results of operations and financial condition.

Continued uncertainty in the global financial markets and unfavorable global economic conditions may adversely affect us. Our revenue was adversely affected in each of fiscal 2013 and fiscal 2012, in part due to

 

15


Table of Contents

unfavorable global economic conditions, including the recessionary economic environment in many southern European and other countries, as well as the financial services segment of the market. These macroeconomic developments could continue to negatively affect our business, operating results or financial condition in a number of ways, which, in turn, could adversely affect our share price. A prolonged period of economic decline could have a material adverse effect on our results of operations and financial condition and exacerbate some of the other risk factors described herein. Our customers may defer or reduce purchases of our software licenses and services. Our customers may also not be able to obtain adequate access to credit, which could affect their ability to make timely payments to us or ultimately cause the customer to file for protection from creditors under applicable insolvency or bankruptcy laws. In addition, a significant portion of our revenues are generated from users in the financial services, insurance and government vertical markets, including the U.S. federal government. A decline in revenues generated from these users, including any decline due to a protracted shutdown of the U.S. federal government, could have a material adverse effect on our results of operations and financial condition.

Our future revenue depends in part on our installed user base continuing to purchase software licenses, renew customer maintenance agreements and purchase additional professional services. If existing customers do not continue, or expand, the use of our products or services our results of operations could be materially adversely affected.

The success of a portion of our strategic plan depends on our ability to expand our installed base of customers’ usage of our products. Our ability to sell additional products to existing customers may depend, in part, on the degree to which new products have been integrated with our existing applications, which may vary with the timing of new product releases or the acquisition of new businesses or products. In future periods, customers may not necessarily license additional products or contract for additional maintenance or other services. Customer maintenance agreements are generally renewable annually at a customer’s option, and there are generally no mandatory payment obligations or obligations to license additional software. Maintenance services revenue is primarily influenced by the renewal rate of existing maintenance contracts, the pricing of those renewals and the number and size of new maintenance contracts sold in connection with software licenses. We measure the renewal rates associated with our organic maintenance revenue, during each of fiscal 2013 and fiscal 2012 those organic maintenance renewal rates were in excess of 90%. See “Management Discussion and Analysis of Financial Condition and Results of Operations—Key Financial and Operational Metrics” for the definition of what is included in our organic operations. In the future, if we do not maintain a similarly high level of renewals of our customer maintenance contracts, or if our customers fail to license additional products or contract for additional professional services, our revenue and related results of operations could be materially adversely affected.

We depend on the services of key personnel to execute our business strategy. If we lose the services of our key personnel or are unable to attract and retain other qualified personnel, we may be unable to operate our business effectively.

We believe that the future success of our business depends on the services of a number of key management and operating personnel, including, in particular, our direct sales personnel and our executive management team. Some of these key employees have strong relationships with our customers and our business may be harmed if these employees leave us. In addition, our ability to manage our growth depends, in part, on our ability to identify, hire and retain additional qualified employees. We face intense competition for qualified individuals from numerous technology, software and service companies. Competition for qualified personnel is particularly intense in many of the large, international metropolitan markets in which we have offices, including for example, Irvine, California and Boston, Massachusetts. Several positions require significant training and new hires may, in some cases, take more than a year before they achieve full productivity. Further, given the rapid pace of our expansion to date, we may be unable to attract and retain suitably qualified individuals who are capable of meeting our growing operational and managerial requirements, or may be required to pay increased compensation in order to do so. If we are unsuccessful in attracting and retaining these key management and operating personnel, including as a result of limitations on the size of stock awards that can be granted to such persons under our existing equity compensation plans (unless the availability of stock awards thereunder is

 

16


Table of Contents

approved for increase by our shareholders or our shareholders approve a new equity compensation plan), our ability to operate our business effectively could be negatively impacted and our business, operating results and financial condition would be materially adversely affected.

Our failure to adequately manage our growth may adversely affect our business.

Our growth has placed, and is expected to continue to place, a significant strain on our managerial, administrative, operational and financial resources and our infrastructure. Our future success will depend, in part, upon the ability of our senior management to manage growth effectively. This will require us to, among other things:

 

   

implement additional management information systems;

 

   

further develop our operating, administrative, legal, financial and accounting systems and controls;

 

   

hire additional personnel;

 

   

develop additional levels of management within our company;

 

   

locate additional office space in various countries; and

 

   

maintain close coordination among our engineering, operations, legal, finance, sales and marketing and customer service and support organizations.

Failure to accomplish any of these requirements could adversely affect our ability to deliver our product and service offerings in a timely fashion, fulfill existing customer commitments or attract and retain new customers.

We compete in a highly competitive software product and services market, and any failure by us to compete effectively in such a market could result in price reductions, reduced margins or loss of market share, any of which could materially adversely affect our operating results and financial condition.

The enterprise software industry in general, and our segments of the market in particular, are highly competitive. Certain of our current and potential competitors have longer operating histories, significantly greater financial, technical and marketing resources, greater name recognition, broader or more integrated product offerings, larger technical staffs and a larger installed customer base than we do. A number of companies offer products that are similar to our products and target the same markets as we do. In addition, many of these competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements, and devote greater resources to the development, promotion and sale of their products than we can. Furthermore, because there are relatively low barriers to entry in the software industry, we expect additional competition from other established and emerging companies. Accordingly, our current or potential competitors may develop or acquire products or services comparable or superior to those that we develop. Additionally, our competitors could combine or merge to become more formidable competitors or may adapt more quickly than we can to new technologies, evolving industry trends and changing customer requirements. Failure by us to compete effectively could result in price reductions, reduced margins or loss of market share, any of which could materially adversely affect our strategy, our business, results of operations and financial condition.

We rely on our channel partners for a significant portion of our revenue. If we are not successful in maintaining good relations with our channel partners, our ability to grow our business may be harmed, which could materially adversely affect our operating results and financial condition.

We sell a significant portion of our licenses and related services through our extensive network of channel partners, with 54% and 57% of total revenue being derived from channel partners in fiscal 2013 and fiscal 2012, respectively. These channel partners include authorized resellers, original equipment manufacturers and distributors. We may experience difficulty in maintaining or establishing third-party relationships with our channel partners. Once established, we need to maintain good relationships and communications with our

 

17


Table of Contents

channel partners, including ensuring that we are not competing with these channel partners through our direct sales force. Additionally, we are exposed to the risk that the parties through which we indirectly sell our products and services will not devote sufficient time, attention and resources to learning our products, markets and potential customers and may promote and sell competing products and services. If we are unable to maintain good relations with our channel partners, our ability to organically grow our business could be harmed, which may materially adversely affect our reputation, the reputation of our products in the market and our operating results and financial condition.

We have business operations located in many countries and a significant level of operations outside of the U.S., which subjects us to additional costs and risks that could adversely affect our operating results.

A significant portion of our operations are located outside of the U.S. Compliance with international and U.S. laws and regulations that apply to our international operations increases our cost of doing business. We are subject to a variety of risks and challenges in managing an organization operating in various countries, including those related to:

 

   

challenges caused by distance as well as language and cultural differences;

 

   

general economic conditions in each country or region;

 

   

regulatory changes;

 

   

political unrest, terrorism and the potential for other hostilities;

 

   

public health risks, particularly in areas in which we have significant operations;

 

   

longer payment cycles and difficulties in collecting accounts receivable;

 

   

overlapping or changes in tax regimes;

 

   

difficulties in transferring funds from certain countries;

 

   

laws such as the UK Bribery Act 2010 and the U.S. Foreign Corrupt Practices Act, and local laws which also prohibit corrupt payments to governmental officials; and

 

   

reduced protection for intellectual property rights in some countries.

If we are unable to manage the foregoing international aspects of our business, our operating results and overall business could be adversely affected.

Our results of operations may be adversely affected by fluctuations in currency values.

The majority of our revenue is transacted in the U.S. dollar and the euro, and we incur the majority of our costs in the U.S. dollar, the euro and the British pound, and to a lesser extent in Swiss francs and other currencies. Changes in the relative value of major currencies, particularly the U.S. dollar as compared to each of the euro and the British pound, may significantly affect our operating results. In fiscal 2013, approximately 53%, 20%, 13% and 5% of our revenue were transacted in U.S. dollars, euros, British pounds and Swiss francs, respectively; and in fiscal 2013, approximately 53%, 17%, 17% and 5% of our expenses were transacted in U.S. dollars, euros, British pounds and Swiss francs, respectively. As we have a larger amount of our euro-denominated transactions associated with revenue, a devaluation of the euro relative to the U.S. dollar would adversely affect our results of operations reported in U.S. dollars. As the transactions in British pounds are primarily expenses, a decline of the U.S. dollar relative to the British pound would negatively impact our results of operations reported in U.S. dollars. We also maintain intercompany trade balances and cash balances that are subject to currency remeasurement, and for which a change in currency exchanges rates between U.S. dollars, euros, British pounds and Swiss francs could result in an adverse charge being recorded to our income statement. Our currency remeasurement gains and losses are charged against earnings in the period incurred.

 

18


Table of Contents

At times we may enter into forward contracts for the purpose of hedging all, or a portion of, either our anticipated future currency transactions, or our net investments in, or assets and liabilities of, our subsidiaries located outside of the United States. We may not be able to enter into contracts to hedge our currency exposure in the future, or may not be able to do so on a cost effective basis, which may adversely affect our results of operations.

We have organized certain of our software development capabilities in locations outside of the U.S., which subjects us to risks that may result in certain staffing and management difficulties. If these risks are not effectively addressed, it could delay development of upgrades and new products, which could materially adversely affect our results of operations.

In addition to our software development centers in Irvine, California and Bedford, Massachusetts, we have software development centers in Hanoi, Vietnam; St. Petersburg, Russia; Freiburg, Germany; Vienna, Austria; Derry, Northern Ireland; and Hyderabad, India. These foreign locations account for approximately two-thirds of our software development personnel. With certain of our software development activities being conducted at geographically dispersed locations, we are subject to various risks, including: language and other communications barriers; cultural differences; time zone differences, which make communications more difficult; and challenges related to the need to remotely manage developers and programmers, particularly when the persons most familiar with the needs of our customer base and the desired new functionality and features are not located there. If we are unable to expand or adequately staff and manage our existing research and development operations located outside of the U.S., we may not realize, in whole or in part, the anticipated benefits from these initiatives (including lower research and development expenses), which in turn could materially adversely affect our business, financial condition, and results of operations.

We operate in an industry with extensive intellectual property litigation. Claims of infringement against us could materially adversely affect our business, operating results and financial condition.

Our success depends, in part, upon us and our customers not infringing upon intellectual property rights owned by others and being able to resolve claims of intellectual property infringement without major financial expenditures or adverse consequences. The technology industry generally is characterized by extensive intellectual property litigation. Many participants that own, or claim to own, intellectual property historically have aggressively asserted their rights. Many of our contracts provide our customers or partners with indemnification with respect to their use of our intellectual property. We cannot predict whether any existing or future third party intellectual property rights would require us to alter our technologies, obtain licenses or cease certain activities.

Future litigation may be necessary to defend ourselves, our customers or our partners by determining the scope, enforceability and validity of third party proprietary rights or to establish our proprietary rights. Some of our competitors have substantially greater resources than we do and are able to sustain the costs of complex intellectual property litigation to a greater degree and for longer periods of time than we could. In addition, patent holding companies that focus solely on extracting royalties and settlements by enforcing patent rights may target us. Regardless of whether claims that we are infringing patents or other intellectual property rights have any merit, these claims are time-consuming and costly to evaluate and defend and could:

 

   

adversely affect our relationships with our current or future customers or partners;

 

   

cause delays or stoppages in providing new sales of our products;

 

   

divert management’s attention and resources;

 

   

require technology changes that would cause us to incur substantial cost;

 

   

subject us to significant liabilities;

 

   

require us to enter into royalty or licensing agreements on unfavorable terms; and

 

   

require us to cease certain activities.

 

19


Table of Contents

In addition to liability for monetary damages, which may be trebled and may include attorneys’ fees, or, in certain circumstances, our customers’ fees, we may be prohibited from developing, commercializing or continuing to provide new sales of our products unless we obtain licenses from the holders of the patents or other intellectual property rights. We cannot assure you that we will be able to obtain any such licenses on commercially favorable terms, or at all. If we do not obtain such licenses, we could, for example, be required to cease or materially alter our product offerings and our business, operating results and financial condition could be materially adversely affected.

If we are unable to protect our intellectual property and proprietary rights, our competitive position and our business could be materially adversely affected.

We regard the protection of our developed technologies and intellectual property rights as an important element of our business operations and as crucial to our success. Unauthorized use of our intellectual property and proprietary rights may reduce our revenue, devalue our brands and property and harm our reputation. We rely primarily on a combination of patent laws, trademark laws, copyright laws, trade secrets, confidentiality procedures and contractual provisions to protect our proprietary technology.

We generally require our employees, consultants and advisors to enter into confidentiality agreements. These agreements provide that all confidential information developed or made known to the individual during the course of the individual’s relationship with us is to be kept confidential and not disclosed to third parties except under specific circumstances. In the case of our employees, the agreements provide that all of the technology which is conceived by the individual during the course of employment is our exclusive property. The development of our technology and many of our processes are dependent upon the knowledge, experience and skills of key technical personnel.

The laws of many countries, including countries where we conduct business, do not protect our proprietary rights to as great an extent as do the laws of the United States and European countries. Further, the laws in the United States and elsewhere change rapidly, and any future changes could materially adversely affect us and our intellectual property. As of June 30, 2013, we held 20 issued U.S. patents and had 30 pending U.S. patent applications, as well as 14 foreign patents and nine patent applications pending in jurisdictions outside of the United States. We are also in the process of filing additional corresponding foreign applications pursuant to the Patent Cooperation Treaty for our issued U.S. patents and our pending U.S. patent applications. Any “in process” or pending patent applications may or may not be issued and any existing or future patents that may issue may not survive a legal challenge to their scope, validity or enforceability, or provide significant protection for us. The failure of our patents, or our reliance upon copyright and trade secret laws to adequately protect our technology might make it easier for our competitors to offer similar products or technologies. In addition, patents may not be issued for any of our current or any future applications.

Monitoring unauthorized use of our intellectual property is difficult and costly. Our efforts to protect our proprietary rights may not be adequate to prevent misappropriation of our intellectual property. Further, we may not be able to detect unauthorized use of, or take appropriate steps to enforce, our intellectual property rights. We may in the future need to initiate infringement claims or litigation. Litigation, whether we are a plaintiff or a defendant, can be expensive, time-consuming and may divert the efforts of our technical staff and managerial personnel, which could harm our business, whether or not such litigation results in a determination favorable to us. In addition, litigation is inherently uncertain, and thus we may not be able to stop our competitors from infringing upon our intellectual property rights.

Restrictions in our revolving credit facility may limit our activities.

On August 11, 2011, we entered into a $40.0 million revolving credit facility with Bank of America Merrill Lynch that expires on June 30, 2014. As of June 30, 2013, we had $39.6 million available under our revolving

 

20


Table of Contents

credit facility. The revolving credit facility contains restrictions, including covenants limiting our ability to incur additional debt, grant liens, make certain investments, make restricted payments, consolidate, merge or acquire other businesses, sell assets, pay dividends and other distributions, repurchase stock and enter into transactions with affiliates. There can be no assurance that we will be able to remain in compliance with the covenants to which we are subject in the future and, if we fail to do so, that we will be able to obtain waivers from our lenders or amend the covenants.

In the event of a default under our revolving credit facility, we could be required to immediately repay all then-outstanding borrowings, which we might not be able to do. In addition, certain of our subsidiaries are required to guarantee amounts borrowed under the revolving credit facility, and we have pledged the shares of certain of our subsidiaries as collateral for our obligations under the revolving credit facility. Any such default could have a material adverse effect on our ability to operate, including allowing lenders under the revolving credit facility to enforce guarantees of our subsidiaries, if any, or exercise their rights with respect to the shares of our subsidiaries pledged as collateral.

We may need to raise additional funds to support our business operations or to finance future acquisitions, including through the issuance of equity or debt securities, which could have a material adverse affect on our ability to grow our business.

If we do not generate sufficient cash from operations or do not otherwise have sufficient cash and cash equivalents to support our business operations or to finance future acquisitions, we may need to issue debt or equity, if prevailing market conditions are favorable and we are permitted to do so under the terms of our current revolving credit facility. We may not be able to raise cash on terms acceptable to us or at all. Financings, if available, may be on terms that are dilutive to our shareholders, and the prices at which new investors would be willing to purchase our securities may be lower than the current price of our common shares. The holders of new securities may also receive rights, preferences or privileges that are senior to those of existing holders of our common shares. If new sources of financing are required but are insufficient or unavailable, we would be required to modify our plans to the extent of available funding, which could harm our ability to grow our business.

Our business and products are dependent on the availability, integrity and security of our and other third party information technology systems.

Our information technology (IT) systems (including our telecommunications) and related software applications are integral to our business. We rely on controls and systems to ensure data integrity of critical business information. Lack of data integrity could create inaccuracies and hinder our ability to perform meaningful business analysis and make informed business decisions. Computer programmers and hackers may be able to penetrate our network security and misappropriate, copy or pirate our confidential information or that of third parties, create system disruptions or cause interruptions or shutdowns of our internal systems and services. A number of websites have been subject to denial of service attacks, where a website is bombarded with information requests eventually causing the website to overload, resulting in a delay or disruption of service. Also, there is a growing trend of advanced persistent threats being launched by organized and coordinated groups against corporate networks to breach security for malicious purposes. If successful, any of these events could damage our computer or telecommunications systems or those of our customers and could disrupt or prevent us from providing timely maintenance services for our products. Computer programmers and hackers also may be able to develop and deploy viruses, worms and other malicious software programs that attack our products or otherwise exploit any security vulnerabilities of our products. The costs to us to eliminate or alleviate security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant, and the efforts to address these problems could result in interruptions, delays, cessation of service and loss of existing or potential customers and may impede our sales, distribution and other critical functions.

In the course of our regular business operations and providing maintenance services to our customers, we process and transmit proprietary information and sensitive or confidential data, including personal information of

 

21


Table of Contents

employees, customers and others. Breaches in security could expose us, our customers or the individuals affected to a risk of loss or misuse of this information, resulting in potential regulatory actions, litigation and potential liability for us, as well as the loss of existing or potential customers and damage to our brand and reputation.

Despite network security, disaster recovery and systems management measures in place, we may encounter unexpected general systems outages or failures that may affect our ability to conduct research and development, provide maintenance services for our products, manage our contractual arrangements, accurately and efficiently maintain our books and records, record our transactions, provide critical information to our management and prepare our financial statements. Additionally, these unexpected systems outages or failures may require additional personnel and financial resources, disrupt our business or cause delays in the reporting of our financial results. We may also be required to modify, enhance, upgrade or implement new systems, procedures and controls to reflect changes in our business or technological advancements, which could cause us to incur additional costs and require additional management attention, placing burdens on our internal resources. We also outsource certain IT-related functions and support for our SaaS subscription offering to third parties that are responsible for maintaining their own network security, disaster recovery and systems management procedures. If we, or our third party IT vendors, fail to manage our IT systems and related software applications effectively, it could adversely affect our business operations, operating results and cash flows.

We could be subject to potential product liability claims and third-party litigation related to our products and services, which could materially adversely affect our operating results and financial condition.

Our products are used in connection with critical business functions and may result in significant liability claims if they do not work properly. Limitation of liability provisions included in our license agreements may not sufficiently protect us from product liability claims because of limitations in existing or future laws or unfavorable judicial decisions. The sale and support of our products may give rise to claims in the future that may be substantial in light of the use of those products in business-critical applications. Liability claims could require expenditure of significant time and money in litigation or payment of significant damages which could materially adversely affect our operating results and financial condition.

Our future results of operations could be materially adversely affected by unanticipated performance problems or bugs in our software product offerings.

If the software products that we offer and continue to introduce are not accepted in the marketplace, our future financial results could be materially adversely affected. Most of our products are continually being enhanced or further developed in response to general marketplace demands. Accordingly any unanticipated performance problems or bugs that we have not been able to detect could result in additional development costs, diversion of technical and other resources from our other development efforts, negative publicity regarding us and our products, harm to our customer relationships and exposure to potential liability claims. In addition, if our products do not enjoy wide commercial success, our long-term business strategy could be affected, which could materially adversely affect our business, operating results and financial condition.

We may be restricted as to how we use or distribute our technologies or may be required to release the source code of certain technologies that may be subject to open source licenses.

We have incorporated open source software into our products. Certain open source licenses require that source code subject to the license be released or made available to the public. Such open source licenses typically mandate that proprietary technologies, when combined in specific ways with open source software, become subject to the open source license. We take steps to ensure that our proprietary technologies are not combined with, or do not incorporate, open source software in ways that would require our proprietary technologies to be subject to an open source license. However, few courts have interpreted the open source licenses, and the manner in which these licenses may be interpreted and enforced is therefore subject to uncertainty. While our end-user license agreement prohibits the use of our technologies in any way that would cause them to become subject to an open source license, our customers could, in violation of our end user license agreement, combine our technologies with technologies covered by an open source license.

 

22


Table of Contents

In addition, we rely on multiple software engineers to design our intellectual property. Although we take steps to ensure that our engineers do not include open source software in the technologies they design without our permission, we may not exercise complete control over the product development efforts of our engineers and we cannot be certain that they have not incorporated open source software into our proprietary technologies. In the event that portions of our proprietary technologies are determined to be subject to an open source license, we might be required to publicly release the affected portions of our source code, which could reduce or eliminate our ability to commercialize our products. Also, our ability to market our products depends in part on the existence of proprietary operating systems. If freely distributed operating systems like Linux become more prevalent, the need for our products may diminish and our revenue could be adversely affected.

Our business could be adversely affected by the loss of licenses to use third-party intellectual property or the lack of support or enhancement of such software.

We currently utilize a limited number of third-party software providers for inclusion of their intellectual property in our product offerings. If such third-party intellectual property were not available from these or alternative providers, we might experience delays or increased costs in the development of our products. These third-party intellectual property licenses may not continue to be available to us on commercially reasonable terms, and the intellectual property may not continue to be appropriately supported, maintained, or enhanced by the licensors. The loss by us of the license to use, or the inability by licensors to support, maintain, and enhance any of such intellectual property, could result in increased costs or in delays or reductions in product shipments until equivalent intellectual property is developed or licensed and integrated with internally developed intellectual property. Such increased costs or delays or reductions in product shipments could adversely affect our business.

We may have exposure to greater than anticipated tax liabilities which could adversely affect our operating results.

Our future income taxes could be adversely affected by earnings being lower than anticipated in jurisdictions where we are subject to lower statutory tax rates and higher than anticipated in jurisdictions where we are subject to higher statutory tax rates, by changes in the valuation of our deferred tax assets and liabilities or changes in tax laws, regulations, accounting principles or interpretations thereof. In addition, there is a risk that amounts paid or received in transactions between us and our various international subsidiaries in the past and/or the future could be deemed for transfer pricing purposes to be lower or higher than we previously recognized or expected to recognize. Our determination of our tax liability is always subject to review by applicable tax authorities. Any negative outcome of such a review could have an adverse effect on our operating results and financial condition. In addition, the determination of our worldwide provision for income taxes and other tax liabilities requires significant judgment, and there are many transactions and calculations where the ultimate tax determination is uncertain. Although we believe our estimates are reasonable, the ultimate tax outcome may differ from the amounts recorded in our financial statements and could adversely affect our operating results.

Unfavorable weather conditions and natural disasters could have a material adverse effect on our business.

We operate on a global basis, including areas prone to unfavorable weather conditions or natural disasters, such as hurricanes, earthquakes, tsunamis, floods or fires. For example, our operating headquarters are located in a known seismic area. Any unfavorable weather conditions or natural disasters in the geographic regions in which we operate could negatively impact our business by interrupting production or communications, increasing our cost of sales, disrupting product or service deliveries or preventing us from sourcing necessary materials.

 

23


Table of Contents

Risks Related to this Offering and Our Common Shares

We have had no prior public market in the U.S. for our common shares, the trading price of our common shares is likely to be volatile, and you might not be able to sell your shares at or above the initial public offering price.

There has been no public market in the U.S. for our common shares prior to this offering. Since 1997, the ordinary shares of Kofax (U.K.) have been listed for trading on the London Stock Exchange. The per share price of the ordinary shares on the London Stock Exchange has been highly volatile. For example, the highest price at which the ordinary shares traded in fiscal 2013 was 341 pence ($5.18, based on the exchange rate as of that trading date) and the lowest price was 248.25 pence ($3.86, based on the exchange rate as of that trading date). Investors who purchase our common shares in this offering may not be able to sell their common shares at or above the initial public offering price. Market prices for companies similar to us experience significant price and volume fluctuations.

An active or liquid market for our common shares in the U.S. may not develop upon completion of this offering or, if it does develop, it may not be sustainable given the limited number of common shares being issued in this offering. The initial public offering price for our common shares will be determined through negotiations with the underwriter, and the negotiated price may not be indicative of the market price of the common shares after this offering. This initial public offering price will vary from the market price of our common shares after the offering. As a result of these and other factors, you may be unable to resell your common shares at or above the initial public offering price.

The following factors, in addition to other risks described in this prospectus, may have a significant effect on the market price of our common shares:

 

   

variations in our operating results;

 

   

actual or anticipated changes in the estimates of our operating results;

 

   

changes in stock market analyst recommendations regarding our common shares, other comparable companies or our industry generally;

 

   

macro-economic conditions in the numerous countries in which we do business;

 

   

currency exchange fluctuations and the denominations in which we conduct business and hold our cash reserves;

 

   

market conditions in our industry, the industries of our customers and the economy as a whole;

 

   

actual or expected changes in our growth rates or our competitors’ growth rates;

 

   

changes in the market valuation of similar companies;

 

   

the trading volume of our shares both on the London Stock Exchange and The NASDAQ Global Select Market;

 

   

sales of our common shares by us or our shareholders; and

 

   

the adoption or modification of regulations, policies, procedures or programs applicable to our business.

In addition, if the market for technology stocks or the stock market in general experiences a loss of investor confidence, the trading price of our common shares could decline for reasons unrelated to our business, financial condition or operating results. The trading price of our common shares might also decline in reaction to events that affect other companies in our industry, even if these events do not directly affect us. Each of these factors, among others, could harm the value of your investment in our common shares. In the past, following periods of volatility in the market, securities class-action litigation has often been instituted against companies. Such litigation, if instituted against us, could result in substantial costs and diversion of management’s attention and resources, which could materially adversely affect our business, operating results and financial condition.

 

24


Table of Contents

As a new investor, you will experience dilution as a result of this offering.

The public offering price per common share will be higher than the net tangible book value per common share prior to the offering. Consequently, if you purchase common shares in this offering at an assumed public offering price of $         per common share, you will incur immediate dilution of $         per common share, based on our capitalization as of June 30, 2013. For further information regarding the dilution of our common shares, please see the section entitled “Dilution.” In addition, you may experience further dilution to the extent that additional shares are issued upon exercise of outstanding stock options, the vesting of shares under our long term incentive plan, or if the underwriter exercises its over-allotment option.

We may lose our foreign private issuer status in the future, which would result in significant additional costs and expenses.

We are a “foreign private issuer,” as defined in Rule 405 under the Securities Act and therefore, we are not required to comply with all the periodic disclosure and current reporting requirements of the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act, and related rules and regulations. In addition, as a foreign private issuer, we are exempt from many of the corporate governance requirements that apply to domestic U.S. issuers under applicable rules of The NASDAQ Global Select Market, Inc., or NASDAQ. Under Rule 405, the determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter and, accordingly, the next determination will be made with respect to us on December 31, 2013.

In the future, we will lose our foreign private issuer status if a majority of our shareholders and a majority of our directors or management are U.S. citizens or residents. If we lose our foreign private issuer status, we will have to mandatorily comply with U.S. federal proxy requirements, and our officers, directors and principal shareholders will become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act. We will be required to file periodic reports and registration statements on U.S. domestic issuer forms containing financial statements prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP, with the U.S. Securities and Exchange Commission, or SEC, which are more detailed and extensive than the forms available to a foreign private issuer. In addition, if we lose our status as a foreign private issuer we will become subject to the NASDAQ corporate governance requirements, which are more strenuous than the corporate governance requirements under Bermuda law and those applicable to companies with shares admitted to trading on the London Stock Exchange. As a result, the regulatory and compliance costs to us may be significantly higher if we cease to qualify as a foreign private issuer.

As a foreign private issuer, we are subject to different U.S. securities laws and rules than a domestic U.S. issuer, which may limit the information publicly available to our U.S. shareholders.

We are a foreign private issuer under applicable U.S. federal securities laws, and therefore, we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act applicable to a domestic U.S. issuer. As a result, we will not file the same reports that a U.S. domestic issuer would file with the SEC, although we will be required to file with or furnish to the SEC the continuous disclosure documents that we are required to file in the United Kingdom under applicable securities laws. In addition, our officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions of Section 16 of the Exchange Act. In addition, as a foreign private issuer, we are exempt from the proxy rules under the Exchange Act.

We are an “emerging growth company” under the JOBS Act of 2012, and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common shares less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not

 

25


Table of Contents

“emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common shares less attractive because we may rely on these exemptions. If some investors find our common shares less attractive as a result, there may be a less active trading market for our common shares and our stock price may be more volatile.

In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We currently prepare our financial statements in accordance with IFRS as issued by the IASB, which do not have separate provisions for publicly traded and private companies. However, in the event we convert to U.S. GAAP while we are still an “emerging growth company”, we may be able to take advantage of the benefits of this extended transition period.

We will remain an “emerging growth company” until the earliest to occur of any of the following: our revenue exceeds $1.0 billion; the date we issue more than $1.0 billion in non-convertible debt in a three year period; the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter; or the last day of our fiscal year containing the fifth anniversary of the date on which our shares become publicly traded in the United States.

Our status as an “emerging growth company” under the JOBS Act of 2012 may make it more difficult to raise capital as and when we need it.

Because of the exemptions from various reporting requirements provided to us as an “emerging growth company” and because, if we convert to U.S. GAAP, we will have an extended transition period for complying with new or revised financial accounting standards, we may be less attractive to investors and it may be difficult for us to raise additional capital as and when we need it. Investors may be unable to compare our business with other companies in our industry if they believe that our financial accounting is not as transparent as other companies in our industry. If we are unable to raise additional capital as and when we need it, our financial condition and results of operations may be materially and adversely affected.

Future equity issuances or sales of our common shares in the public market could cause our share price to decline.

If we issue equity securities in the future, including as consideration for future acquisitions or investments, the ownership interests of our existing shareholders will be diluted, and the market price of our common shares could decline. Additionally, if our shareholders sell a substantial number of our common shares in the public market after this offering, or if there is a perception that these sales or issuances might occur, the market price of our common shares could decline. Based on the number of common shares outstanding as of June 30, 2013, upon the closing of this offering, and assuming no outstanding options are exercised prior to the closing of this offering, we will have              common shares outstanding. All of the common shares sold in this offering will be freely tradable without restrictions or further registration under the Securities Act, except for any shares purchased by our affiliates, as such term is defined in Rule 144 under the Securities Act, which will be eligible for resale subject to the volume and manner of sale limitations of Rule 144. See “Shares Eligible for Future Sale” for a discussion of the common shares that may be sold into the public market in the future.

Immediately following the consummation of this offering, we intend to file a registration statement on Form S-8 under the Securities Act to register our common shares available for issuance under our share incentive plans. Once we register these shares, they can be freely sold in the public market upon issuance.

 

26


Table of Contents

Upon the completion of this offering, our common shares will be listed on two separate stock markets for the foreseeable future and investors seeking to take advantage of price differences between such markets may create unexpected volatility in our share price; in addition, investors may not be able to easily move shares for trading between such markets.

The ordinary shares of Kofax (U.K.) are already listed and traded on the London Stock Exchange and upon completion of this offering our common shares will be listed and traded on the London Stock Exchange and The NASDAQ Global Select Market. While our shares are traded on both markets, price and volume levels for our common shares could fluctuate significantly on either market, independent of our share price or trading volume on the other market. Investors could seek to sell or buy our shares to take advantage of any price differences between the two markets through a practice referred to as arbitrage. Any arbitrage activity could create unexpected volatility in both our share prices on either exchange and in the volumes of shares available for trading on either market. In addition, holders of shares in either jurisdiction will not be immediately able to transfer such shares for trading on the other market without effecting necessary procedures with our transfer agent. This could result in time delays and additional cost for our shareholders. In addition, while we have no current plans to do so, we may decide to delist our shares from the London Stock Exchange in the future, in which case shareholders on the London Stock Exchange may seek to sell their shares on The NASDAQ Global Select Market as the date for our delisting on the London Stock Exchange draws near, which could cause the trading price of our common shares on The NASDAQ Global Select Market to decline. Furthermore, following such de-listing, trading in our shares will be available only on The NASDAQ Global Select Market. If we are unable to continue to meet the regulatory requirements for listing on The NASDAQ Global Select Market, we may lose our listing on The NASDAQ Global Select Market, which could further impair the liquidity of our shares.

Certain of our executive officers, directors and principal shareholders will continue to have control over us after this offering and may be able to exercise significant influence over matters subject to shareholder approval.

One of our directors, William T. Comfort III, together with his affiliates, beneficially owned approximately 18.0% of our outstanding common shares as of June 30, 2013, and we expect that, upon completion of this offering, that same group will beneficially own at least     % of the combined total of our outstanding common shares, on a fully-diluted basis, assuming no exercise of the underwriter’s over-allotment option. Sales by Mr. Comfort of a substantial number of shares, or the expectation that such sales may occur, could significantly reduce the market price of our common shares. In aggregating this director’s beneficial ownership with all of our executive officers and directors, together with their respective affiliates, they collectively beneficially owned approximately 24.0% of our outstanding shares as of June 30, 2013, and we expect that upon completion of this offering, that same group will beneficially own at least     % of the combined total of our outstanding common shares, on a fully-diluted basis, assuming no exercise of the underwriter’s over-allotment option.

Accordingly, Mr. Comfort, either alone or in combination with other executive officers and directors, together with their respective affiliates, if they act together, may be able to exercise influence over all matters requiring shareholder approval, including the election of directors and approval of corporate transactions, such as a merger or other sale of our company or its assets, for the foreseeable future. This concentration of ownership could have the effect of delaying or preventing a change in our control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which in turn could have a material adverse effect on the market value of our common shares. For information regarding the ownership of our outstanding common shares by our executive officers and directors and their affiliates, please see the section entitled “Principal Shareholders.”

A change in our tax residence could have a negative effect on our future profitability.

Although we are organized under the laws of Bermuda, a British overseas territory that is an island located off the coast of the United States, we are a resident in the United Kingdom for tax purposes. It is possible that in

 

27


Table of Contents

the future, whether as a result of a change in law or the practice of any relevant tax authority or as a result of any change in the conduct of our affairs following a review by our directors or for any other reason, we could become, or be regarded as having become, a resident in a jurisdiction other than the United Kingdom. Should we cease to be tax resident in the United Kingdom, we may have exposure related to unexpected tax liabilities, such as a charge of United Kingdom capital gains tax on a deemed disposal at market value of our assets and of unexpected tax charges in other jurisdictions on our income. Similarly, if the tax residency of any of our subsidiaries were to change from their current jurisdiction for any of the reasons listed above, we may be subject to a charge of local capital gains tax on the assets. Furthermore, while we expect we and certain of our non-U.S. subsidiaries will qualify for the benefits of the Convention Between the United States of America and the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation, etc., or the U.S.-U.K. Treaty, we have not sought or obtained a ruling from the IRS or an opinion of counsel addressing the issue, and there can be no assurances we or our non-U.S. subsidiaries will qualify for the benefits of the U.S.-U.K. Treaty.

We are a Bermuda company and it may be difficult for you to enforce judgments against us or certain of our directors or officers.

We are a Bermuda exempted company. As a result, the rights of holders of our common shares will be governed by Bermuda law and our memorandum of association and bye-laws. The rights of shareholders under Bermuda law may differ from the rights of shareholders of companies incorporated in other jurisdictions. Bermuda legislation regarding companies is largely based on English corporate law principles. However, there can be no assurance that Bermuda law will not change in the future or that it will serve to protect investors in a similar fashion afforded under corporate law principles in the U.S., which could adversely affect the rights of investors. Most of our directors and some of the named experts referred to in this prospectus are not residents of the U.S., and a substantial portion of our assets are located outside the U.S. As a result, it may be difficult for investors to effect service of process on those persons in the U.S. or to enforce in the U.S. judgments obtained in U.S. courts against us or those persons based on the civil liability provisions of the U.S. securities laws. We have been advised by our special Bermuda counsel that uncertainty exists as to whether courts in Bermuda will enforce judgments obtained in other jurisdictions, including the U.S., against us or our directors or officers under the securities laws of those jurisdictions or entertain actions in Bermuda against us or our directors or officers under the securities laws of other jurisdictions.

Furthermore, we have been advised by our special Bermuda counsel that Bermuda courts will not recognize or give effect to U.S. federal securities laws that such Bermuda courts consider to be procedural in nature, are revenue or penal laws or the application of which would be inconsistent with public policy in Bermuda. Certain remedies available under the laws of U.S. jurisdictions, including certain remedies under U.S. federal securities laws, will not be recognized or given effect to in any action brought before a court of competent jurisdiction in Bermuda where the application of such remedies would be inconsistent with public policy in Bermuda. Further, no claim may be brought in Bermuda against us or our directors and officers in the first instance for violations of U.S. federal securities laws because those laws do not have the force of law in Bermuda. A Bermuda court may, however, impose civil liability on us or our directors and officers if the facts alleged in a complaint constitute or give rise to a cause of action under Bermuda law. Shareholders of a Bermuda company may have a cause of action against us or our directors for breach of any duty in the bye-laws or any shareholders’ agreement owed personally by us to the shareholder. Directors of a Bermuda company may be liable, to the company for breach of their duties as directors to that company under the Companies Act 1981 of Bermuda, or the Bermuda Companies Act, and at common law. Such actions must, as a general rule, be brought by the company. Where the directors have carried on an act which is ultra vires or illegal, then the shareholder has the right, with leave of the court, to bring a derivative action to sue the directors on behalf of the company with any damages awarded going to the company itself. Shareholders are also able to take action against a company if the affairs of the company are being conducted in a manner which is oppressive or unfairly prejudicial to the shareholders or some number of them, and to seek either a winding-up order or an alternative remedy if a winding-up order would be unfairly prejudicial to them.

 

28


Table of Contents

Our bye-laws restrict shareholders from bringing legal action against our officers and directors.

Our bye-laws that are to be effective upon completion of the Migration contain a broad waiver by our shareholders of any claim or right of action, both individually and on our behalf, against any of our officers or directors. The waiver applies to any action taken by an officer or director, or the failure of an officer or director to take any action, in the performance of his or her duties, except with respect to any matter involving any fraud or dishonesty on the part of the officer or director or any claims of violations of the Securities Act of 1933 or the Securities Exchange Act of 1934 the waiver of which would be prohibited by Section 14 of the Securities Act and Section 29(a) of the Exchange Act. This waiver limits the right of shareholders to assert claims against our officers and directors unless the act or failure to act involves fraud or dishonesty.

We have provisions in our bye-laws that may discourage a change of control.

Our bye-laws that are to be effective upon completion of the Migration contain provisions that could make it more difficult for a third party to acquire us without the consent of our Board of Directors. These provisions include, among others:

 

   

restrictions on the time period in which directors may be nominated;

 

   

the inclusion in the bye-laws of provisions substantially equivalent to those contained in the UK Takeover Code, including limitations on the acquisition of additional shares above a 30% threshold, as further set out in the bye-laws;

 

   

our bye-laws do not permit cumulative voting in the election of directors; and

 

   

our bye-laws require shareholders wishing to propose a person for election as a director (other than persons proposed by our Board of Directors) to give advance written notice of nominations for the election of directors.

These provisions could make it more difficult for a third party to acquire us, even if the third party’s offer may be considered beneficial by many shareholders. As a result, shareholders may be limited in their ability to obtain a premium for their shares. See “Description of Share Capital.”

U.S. Holders of our common shares could be subject to material adverse tax consequences if we are considered a Passive Foreign Investment Company for U.S. federal income tax purposes.

There is a risk that we will be classified as a Passive Foreign Investment Company, or PFIC, for U.S. federal income tax purposes. Our status as a PFIC could result in a reduction in the after-tax return to U.S. Holders of our common shares and may cause a reduction in the value of such shares. For U.S. federal income tax purposes, “U.S. Holders” include individuals and various entities that are subject to U.S. federal income tax. A corporation is classified as a PFIC for any taxable year in which (i) at least 75% of its gross income is passive income or (ii) at least 50% of the average value of all its assets produces or are held for the production of passive income. For this purpose, passive income includes among other things, dividends, interest, certain rents and royalties, annuities, certain gains from the sale of stock and securities, and certain gains from commodities transactions. Based on the projected composition of our income and valuation of our assets, we do not believe we were a PFIC in any previous taxable year, and we do not expect to become a PFIC in the foreseeable future, although there can be no assurance in this regard. The U.S. Internal Revenue Service or a U.S. court could determine that we are a PFIC in any of these years. If we were classified as a PFIC, U.S. Holders of our common shares could be subject to greater U.S. income tax liability than might otherwise apply, imposition of U.S. income tax in advance of when tax would otherwise apply and detailed tax filing requirements that would not otherwise apply. The PFIC rules are complex and a U.S. holder of our common shares is urged to consult its own tax advisors regarding the possible application of the PFIC rules to it in its particular circumstances. See “Taxation—United States Taxation Consequences—Taxation of U.S. Holders—Passive Foreign Investment Company”.

 

29


Table of Contents

Our management will have broad discretion over the use and investment of the net proceeds we receive in this offering and might not apply the proceeds in ways that increase the value of your investment.

Our management will have broad discretion over the use and investment of the net proceeds from this offering, and you will be relying on the judgment of our management regarding the application of these net proceeds. Our management intends to use the net proceeds from this offering for general corporate purposes. Pending this use, we intend to invest the net proceeds in short-term bank deposits or interest-bearing, investment-grade securities. Our management might not be able to yield a significant return, if any, on any investment of these net proceeds. You will not have the opportunity to influence our decisions on how the net proceeds from this offering are used. If the banking system or the fixed income, credit or equity markets deteriorate or remain volatile, our investment portfolio may be impacted and the values and liquidity of our investments could be adversely affected.

Our share price and trading volume could decline if securities or industry analysts that follow the U.S. equity markets do not publish research or publish unfavorable or inaccurate research about our business.

The trading market for our common shares will depend, in part, on the research and reports that securities or industry analysts publish about us or our business. Certain analysts in the U.S. markets have historically published research about our business, and we anticipate that coverage expanding in connection with our initial public offering of common shares in the U.S. We may be unable to sustain coverage by well-regarded securities and industry analysts. If either none or only a limited number of securities or industry analysts maintain coverage of our company, or if these securities or industry analysts are not widely respected within the general investment community, the trading price for our common shares could be negatively impacted. In the event one or more of the securities or industry analysts who may cover us downgrade our common shares or publish inaccurate or unfavorable research about our business, our share price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our common shares could decrease, which could cause our share price and trading volume to decline.

Our management will be required to devote substantial time to new compliance initiatives.

As a company whose shares will be publicly traded in the U.S., the Sarbanes-Oxley Act, the rules of the SEC and NASDAQ will impose various requirements on us, including requiring the establishment and maintenance of effective disclosure and financial controls. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives as well as investor relations activities. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to incur substantial costs to maintain the same or similar coverage.

If we fail to maintain an effective system of internal control over financial reporting in the future, we may not be able to accurately report our financial condition, results of operations or cash flows, which may adversely affect investor confidence in us and, as a result, the value of our common shares.

The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. In particular, in the future, we will be required to perform system and process evaluation and testing of our internal control over financial reporting to allow management and our independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. This assessment will need to include disclosure of any material weaknesses identified by management or our independent registered public accounting firm in our internal control over financial reporting. A material weakness is a control deficiency, or combination of control deficiencies, in internal control over financial reporting that results in more than a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented

 

30


Table of Contents

or detected on a timely basis. Section 404 of the Sarbanes-Oxley Act also generally requires an independent audit of the effectiveness of our internal control over financial reporting by our independent registered public accounting firm. Because we are an “emerging growth company” under the JOBS Act, however, so long as we retain our status as an “emerging growth company,” we are not required to comply with the audit requirements of Section 404 of the Sarbanes-Oxley Act.

Our compliance with Section 404 of the Sarbanes-Oxley Act will require that we incur substantial accounting expense and expend significant management efforts. We may determine that our current internal audit function may be insufficient, and we may need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. We also expect that we will need to continue to improve existing, and implement new operational and financial systems, procedures and controls to manage our business effectively. Any delay in the implementation of, or disruption in the transition to, new or enhanced systems, procedures or controls, may cause our operations to suffer and we may be unable to conclude that our internal control over financial reporting is effective. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition, results of operations or cash flows. If we are unable to conclude that our internal control over financial reporting is effective or we are unable to obtain an unqualified audit report on our internal control over financial reporting from our independent registered public accounting firm as required under Section 404 of the Sarbanes-Oxley Act, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our common shares could decline and we could be subject to sanctions or investigations by NASDAQ, the SEC or other regulatory authorities. Moreover, even if we were to conclude, and our independent registered public accounting firm were to concur, that our internal control over financial reporting provided reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with applicable generally accepted accounting principles, because of its inherent limitations, internal control over financial reporting may not prevent or detect fraud or misstatements. Failure to remediate any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of U.S. public companies, could also restrict our future access to the capital markets.

We may, but do not anticipate, paying dividends in the foreseeable future.

We do not currently pay dividends. We last declared and paid cash dividends during our fiscal year ended June 30, 2009, when we paid approximately $2.0 million in dividends. We stopped paying dividends after fiscal 2009 and have since retained all available funds and earnings to support the operation of and to finance the growth and development of our business. Any future determination to declare dividends will be made at the discretion of our Board of Directors, subject to compliance with applicable laws and covenants under our revolving credit facility, which may restrict or limit our ability to pay dividends, and will depend on our financial condition, operating results, capital requirements, general business conditions and other factors that our Board of Directors may deem relevant. We may, but do not anticipate, paying any dividends for the foreseeable future. As a result, a return on your investment will only occur if our share price appreciates.

 

31


Table of Contents

FORWARD-LOOKING STATEMENTS

This prospectus, including the sections entitled “Prospectus Summary,” “Risk Factors,” “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” contains forward-looking statements that reflect our current expectations and views of future events. These forward-looking statements can be identified by words or phrases such as “may,” “will,” “expect,” “should,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “is/are likely to” or other similar expressions. These forward-looking statements include, among other things, statements relating to our goals and strategies, our competitive strengths, our expectations and targets for our results of operations, our business prospects and our expansion strategy. We have based these forward-looking statements largely on current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. Although we believe that we have a reasonable basis for each forward-looking statement contained in this prospectus, we caution you that these statements are based on our projections of the future that are subject to known and unknown risks and uncertainties and other factors that may cause our actual results, level of activity or performance expressed or implied by these forward-looking statements, to differ.

The forward-looking statements included in the prospectus are subject to risks, uncertainties and assumptions about our company. Our actual results of operations may differ materially from the forward-looking statements as a result of risk factors described under “Risk Factors” and elsewhere in this prospectus, including, among other things:

 

   

our ability to successfully meet anticipated revenue levels from sales of our software licenses;

 

   

our ability to successfully develop, market or sell new products or adopt new technology platforms;

 

   

our ability to continue to grow through acquisitions or investments in other companies or technologies;

 

   

our ability to realize the anticipated benefits of our consummated acquisitions or investments in other companies;

 

   

risks related to the continued uncertainty in the global financial markets and unfavorable global economic conditions;

 

   

our installed customer base continuing to license additional products, renew maintenance agreements and purchase additional professional services;

 

   

our ability to attract and retain qualified personnel;

 

   

our ability to adequately manage our growth;

 

   

risks related to competition;

 

   

our ability to maintain good relations with our channel partners;

 

   

risks associated with our international operations and fluctuations in currency values;

 

   

risks related to unanticipated performance problems or bugs in our software product offerings; and

 

   

our ability to protect our intellectual property and proprietary rights.

These risks are not exhaustive. Other sections of this prospectus include additional factors that could adversely impact our business and financial performance. Moreover, we operate in an evolving environment and new risk factors emerge from time to time. It is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause our actual results to differ materially from those contained in any forward-looking statement.

You should not rely upon forward-looking statements as predictions of future events. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements included in this prospectus. These forward-looking statements speak only as of the date of this prospectus. We do not intend to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise, unless the securities laws require us to do so.

 

32


Table of Contents

INDUSTRY AND MARKET DATA

This prospectus includes information with respect to market share and industry conditions from third-party sources, public filings and our good faith estimates, which are derived from management’s review of internal data and information, as well as the following third-party sources: Harvey Spencer Associates, an industry analyst firm focused on capture software and services; Association for Image and Information Management (AIIM), a global trade association; AberdeenGroup, an independent information technology research firm; and Forrester Research, Inc., or Forrester, a global research and advisory firm. While we believe that such information and estimates are reasonable and reliable, we have not independently verified the data from these third-party sources, including Harvey Spencer Associates, dated July 2013, CNN, March 2010, AIIM, April 2012, AIIM, November 2010, AberdeenGroup, June 2010, Gartner—The 2010 Gartner Scenario: The Current State and Future Directions of the IT Industry, May 2011, Gartner—“Magic Quadrant” for BPM, April 2011, Gartner—Market Snapshot, July, 2013, Gartner—Market Update, December 2012, Forrester Research, Inc.—“Wave” for Dynamic Case Management, January 2011, Forrester Research, Inc.—The Forrester WaveTM: Multichannel Capture, Q3 2012, August 2012 Forrester Research, Inc.—Market Analysis of Multichannel Capture, Business Process Management, and Smart Process Applications, 2013 through 2016, January 2013, and Forrester Research, Inc.—“Wave” for Smart Process Applications, April 2013.

Similarly, our internal research is based upon our understanding of industry conditions, and such information has not been verified by independent sources. Specifically, when we refer to the relative size, regions served, number of users, experience and financial performance of our business as compared to other companies in our sector, our assertions are based upon comparisons provided by third-party sources and on management estimates, as outlined above. Our estimates involve risks and uncertainties, and are subject to change based on various factors, including those discussed in this prospectus under the heading “Risk Factors.”

All references to “U.S. dollars” or “$” are to the legal currency of the United States; all references to “£,” “pound,” “British pound,” “pound sterling,” “p” or “pence” are to the legal currency of the United Kingdom (and “p” or “pence” shall mean one-hundredth of £1); all references to “€” or “euro” are to the currency introduced at the start of the third stage of European economic and monetary union pursuant to the treaty establishing the European Community, as amended; and all references to “Swiss franc” are to the legal currency of Switzerland.

 

33


Table of Contents

CORPORATE STRUCTURE

Kofax (U.K.) is currently organized as a public limited company under the laws of England and Wales. A company organized under the laws of England and Wales is not permitted to directly list its common equity (as opposed to depositary interests) on The NASDAQ Global Select Market. Under English law, it is not possible to change the place of incorporation of Kofax (U.K.) from one jurisdiction to another, requiring us to establish Kofax (Bermuda) as the new parent company of Kofax (U.K.). Accordingly, subject to the passing of the resolutions of the scheme of arrangement, and prior to the closing of this offering, Kofax (U.K.) will become a wholly-owned subsidiary of Kofax (Bermuda). Kofax (Bermuda) was incorporated solely for this purpose. Prior to the Migration, has or will have nominal assets and has had no historic operations.

The establishment of Kofax (Bermuda) as the new parent company of Kofax (U.K.) will be achieved through a scheme of arrangement under Part 26 of the U.K. Companies Act of 2006. Pursuant to the scheme of arrangement, the shareholders of Kofax (U.K.) will need to agree to have their ordinary shares in Kofax (U.K.) cancelled in consideration for (i) the issuance of common shares of Kofax (Bermuda) to the former shareholders of Kofax (U.K.) and (ii) the issuance of new shares in Kofax (U.K.) to Kofax (Bermuda). The scheme of arrangement provides for one common share of Kofax (Bermuda) to be issued in exchange for each ordinary share of Kofax (U.K.).

The scheme of arrangement will have no effect on the manner in which our business is conducted. We refer to the transactions contemplated by the scheme of arrangement throughout this prospectus as the “Migration.”

The Migration requires the approval of the shareholders of Kofax (U.K.) and the sanction of the English courts, although it only becomes effective when a copy of the order of the court approving the scheme of arrangement is delivered to the registrar of companies in England for registration. Kofax (U.K.) and Kofax (Bermuda) have agreed to be bound by the scheme of arrangement and to do what is necessary to facilitate its implementation. The approval of the shareholders of Kofax (U.K.) and the sanction of the court will have been obtained and the directors of Kofax (U.K.) will proceed to deliver the court order sanctioning the scheme of arrangement to the registrar of companies in England immediately prior to the closing of this offering. If the shareholders of Kofax (U.K.) do not vote to approve the Migration, we will not consummate this offering. Depending upon the Kofax (U.K.) share price at the effective date of the scheme of arrangement, Kofax (Bermuda) may decide to implement a share capital consolidation (also known as a reverse stock split) on a one for two basis, in respect of the common shares of Kofax (Bermuda) issued pursuant to the scheme of arrangement. This would be done in order to enable the common shares of Kofax (Bermuda) to trade initially on The NASDAQ Global Select Market at a price more readily comparable to its peers.

Following the Migration and this offering, holders of outstanding options to purchase ordinary shares of Kofax (U.K.) will be given the opportunity to exchange their options relating to ordinary shares of Kofax (U.K.) for equivalent rights relating to common shares of Kofax (Bermuda). The replacement options will be treated as having been granted at the same time as the old rights which they replace and they will become exercisable or vest on similar terms subject to the rules of the 2012 Equity Incentive Plan. If a holder of outstanding options does not elect to receive equivalent new awards, such awards will lapse.

Although Kofax (Bermuda) is incorporated in and organized under the laws of Bermuda, the directors intend that the affairs of Kofax (Bermuda) should be managed and conducted so that it will be resident in the United Kingdom for tax purposes. No guarantee can be given that Kofax (Bermuda) will be respected as a United Kingdom resident for tax purposes. See “Taxation.”

 

34


Table of Contents

USE OF PROCEEDS

We estimate that the net proceeds to us from this offering, after deducting underwriting discounts and commissions, and the estimated offering expenses payable by us, will be approximately $         million (or approximately $             million if the underwriter’s over-allotment option is exercised in full), assuming an initial offering price of $         per common share.

A $1.00 increase (decrease) in the assumed initial public offering price of $         per common share would increase (decrease) the net proceeds from this offering by $         million, assuming no exercise of the underwriter’s over-allotment option and no other change to the number of common shares offered as set forth on the cover page of this prospectus. An increase (decrease) of 100,000 in the number of common shares offered by us would increase (decrease) the net proceeds to us by $         million.

We intend to use the net proceeds from this offering for general corporate purposes, including the development and introduction of new software offerings and the expansion of our marketing efforts, which may include the addition of new direct sales and service employees.

The foregoing represents our current intentions with respect to the use and allocation of the net proceeds of this offering based upon our present plans and business conditions, but our management will have significant flexibility and discretion in applying the net proceeds. The occurrence of unforeseen events or changed business conditions could result in the application of the net proceeds of this offering in a manner other than as described above. Pending our use of the net proceeds as described above, we intend to invest the net proceeds in short-term bank deposits or interest-bearing, investment-grade securities.

 

35


Table of Contents

DIVIDEND POLICY

Our Board of Directors has discretion as to whether we will pay dividends in the future, subject to restrictions under the Bermuda Companies Act and in accordance with our bye-laws. Under the Bermuda Companies Act, we may not declare or pay dividends if there are reasonable grounds for believing that either we are, or would after the payment be, unable to pay our liabilities as they become due, or that the realizable value of our assets would thereby be less than our liabilities. See “Description of Share Capital.” In addition, our ability to declare and pay dividends is restricted by covenants in our revolving credit facility.

We do not currently pay dividends. We last declared and paid cash dividends during our fiscal year ended June 30, 2009, when we paid approximately $2.0 million in dividends. We stopped paying dividends after fiscal 2009 in order to invest in the growth of our software business, which, after the sale of our hardware business on May 31, 2011, is our sole business. Accordingly, we may, but do not anticipate, declaring or paying any dividends for the foreseeable future.

 

36


Table of Contents

CAPITALIZATION

The following table sets forth our capitalization as of June 30, 2013:

 

   

on an actual historical basis for Kofax (U.K.);

 

   

on a pro forma basis to give effect to the Migration; and

 

   

on a pro forma as adjusted basis to give effect to the sale of the common shares we are offering at an assumed initial public offering price of $         per share, the midpoint of the estimated price range set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses that are payable by us.

You should read this table together with our consolidated financial statements and the related notes included elsewhere in this prospectus as well as the information under “Selected Historical Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

     As of June 30, 2013 (1)  
     Kofax (U.K.)
Actual
    Kofax
(Bermuda)
Pro Forma (2)
    Kofax
(Bermuda)

Pro  Forma
As Adjusted (3)
 
           (in thousands)        

Shareholders’ equity:

      

Share capital

   $ 4,290      $ 95      $                

Share premium account

     14,762        18,957     

ESOP/EBT shares

     (15,294     (15,294  

Treasury shares

     (15,980     (15,980  

Merger reserve

     2,835        2,835     

Retained earnings

     227,197        227,197     

Currency translation adjustment

     19,317        19,317     
  

 

 

   

 

 

   

 

 

 

Total shareholders’ equity

     237,127        237,127     
  

 

 

   

 

 

   

 

 

 

Total capitalization

   $ 237,127      $ 237,127      $     
  

 

 

   

 

 

   

 

 

 

 

(1) A $1.00 increase or decrease in the assumed initial public offering price would increase or decrease as adjusted total shareholders’ equity and total capitalization by approximately $         million, assuming the number of shares offered by us set forth on the cover page of this prospectus remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
(2) Kofax (Bermuda) Pro Forma reflects the consummation of the Migration as of June 30, 2013. Pursuant to the Migration, one ordinary share of Kofax (U.K.) will be exchanged for one common share of Kofax (Bermuda). The adjusted par value of Kofax (U.K.)’s ordinary shares compared to the common shares of Kofax (Bermuda) results in the reduction of the Kofax (Bermuda) Pro Forma share capital amount to $95, with the balance allocated to the share premium account. The total value of the shareholders’ equity after giving effect to the Migration will not change. The Migration will take effect prior to the closing of this offering.
(3) Kofax (Bermuda) Pro Forma As Adjusted reflects the Kofax (Bermuda) Pro Forma adjustment and the sale of Kofax (Bermuda) common shares in this offering at an assumed initial public offering price of $         per share, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The number of our common shares that will be issued and outstanding immediately after this offering is based on 89,638,519 common shares of Kofax (U.K.) outstanding as of June 30, 2013, and excludes:

 

   

5,061,862 common shares issuable upon the exercise of outstanding options granted under the Kofax plc 2000 Share Option Plan and 323,900 common shares issuable upon the exercise of outstanding options granted under the 2012 Equity Incentive Plan at a weighted average exercise price of 211 pence ($3.22, based on the exchange rate on June 30, 2013) per share; and

 

   

3,285,529 common shares issuable pursuant to outstanding awards granted under the Kofax plc 2007 Long Term Incentive Plan.

 

37


Table of Contents

DILUTION

If you invest in our common shares, your ownership interest will be diluted for each common share you purchase to the extent of the difference between the initial public offering price per common share and our net tangible book value per common share after this offering.

Our adjusted net tangible book value as of June 30, 2013, on a pro forma as adjusted basis, after giving effect to the Migration, was $         million, or $         pro forma as adjusted per common share of Kofax (Bermuda). Pro forma as adjusted net tangible book value per share represents the amount of our total tangible assets less our total liabilities after giving effect to the Migration, divided by the pro forma as adjusted number of common shares outstanding as of June 30, 2013.

After giving effect to the sale of              common shares in this offering at the initial public offering price of $         per common share, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of June 30, 2013 would have been $         million, or $         per share.

This amount represents an immediate increase in pro forma as adjusted net tangible book value of $         per share to our existing shareholders and an immediate dilution in pro forma as adjusted net tangible book value of $         per share to new investors purchasing common shares in this offering at the initial public offering price. The following table illustrates this dilution on a per share basis:

 

Assumed initial public offering price per share

      $                

Pro forma as adjusted net tangible book value as of June 30, 2013

   $                   

Pro forma as adjusted increase per share attributable to new investors

     
  

 

 

    

Pro forma as adjusted net tangible book value per share after this offering

     
     

 

 

 

Dilution per share to new investors

      $                
     

 

 

 

A $1.00 increase (decrease) in the assumed initial public offering price of $         per share would increase (decrease) our pro forma as adjusted net tangible book value after giving effect to the Migration and this offering by $         million, or approximately $         per share, and the dilution per share to investors in this offering by approximately $         per share, assuming no change to the number of shares offered by us as set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and the estimated offering expenses payable by us. An increase (decrease) of 100,000 in the number of shares offered by us would increase (decrease) our pro forma as adjusted net tangible book value after giving effect to this offering by $         million, or approximately $         per share, and the dilution per share to investors in this offering by approximately $         per share. The adjusted information discussed above is illustrative only. Our net tangible book value following the completion of this offering is subject to adjustment based on the Migration and the actual initial public offering price of our shares and other terms of this offering determined at pricing.

If the underwriter exercises its over-allotment option in full in this offering, our pro forma as adjusted net tangible book value per share will be $        , representing an immediate increase in pro forma as adjusted net tangible book value per share attributable to this offering of $         per share to our existing shareholders and an immediate pro forma as adjusted dilution per share to new investors in this offering of $         per share.

The following table summarizes, on a pro forma as adjusted basis, after giving effect to the Migration, and the sale of              shares in this offering, the differences as of June 30, 2013, between our existing shareholders and the new investors with respect to the number of shares purchased from us, the total consideration paid and the average price per share paid. The total number of our shares does not include any shares issuable pursuant to the exercise of the over-allotment option granted to the underwriter.

 

38


Table of Contents
     Shares Purchased     Total Consideration     Average Price
Per Share
 
     Number    Percent     Amount      Percent    

Existing shareholders

                       $                                     $                

New Investors

            
  

 

  

 

 

   

 

 

    

 

 

   

 

 

 

Total

                       $                          $     
  

 

  

 

 

   

 

 

    

 

 

   

 

 

 

A $1.00 increase (decrease) in the assumed initial public offering price of $         per share would increase (decrease) total consideration paid by new investors, total consideration paid by all shareholders and the average price per share paid by all shareholders by $         million, $         million and $        , respectively, assuming no change in the number of shares sold by us as set forth on the cover page of this prospectus and without deducting the estimated underwriting discounts and commissions and the offering expenses payable by us. An increase (decrease) of 100,000 shares offered by us would increase (decrease) the total consideration paid to us by new investors and total consideration paid to us by all shareholders by $         million. If the underwriter exercises its over-allotment option in full, our existing shareholders would own approximately     % and our new investors would own approximately     % of the total number of our shares outstanding after this offering, on a pro forma as adjusted basis.

The above tables and discussion exclude, as of June 30, 2013:

 

   

5,061,862 common shares issuable upon the exercise of outstanding options granted under the Kofax plc 2000 Share Option Plan and 323,900 common shares issuable upon the exercise of outstanding options granted under the 2012 Equity Incentive Plan at a weighted average exercise price of 211 pence ($3.22, based on the exchange rate on June 30, 2013) per share; and

 

   

3,285,529 common shares issuable pursuant to outstanding awards granted under the Kofax plc 2007 Long Term Incentive Plan.

If all of these options had been exercised, and other equity incentive shares had vested on June 30, 2013, our net tangible book value would have been approximately $         million, or $         per share, and the dilution in net tangible book value to new investors would have been $         per share.

 

39


Table of Contents

MARKET FOR OUR SHARES

The ordinary shares of Kofax (U.K) began trading in the United Kingdom on AIM (the London Stock Exchange’s international market for small growing companies) in 1996 and subsequently transferred to the main market of the London Stock Exchange on December 8, 1997. The current stock symbol on the London Stock Exchange is “KFX.L.” Historical reports of transactions of Kofax (U.K.) shares are available on the London Stock Exchange under the symbol “KFX.L.”

The common shares of Kofax (Bermuda) will trade on the London Stock Exchange under the symbol “KFX.L” and on The NASDAQ Global Select Market under the symbol “KFX” after the effective date of the registration statement to which this prospectus relates.

The following table lists the high and low sales prices and the average daily trading volume on the London Stock Exchange for the ordinary shares of Kofax (U.K.) for the last six months; the last eight fiscal quarters; and the last five fiscal years. Prices indicated below with respect to Kofax (U.K.)’s ordinary share price include inter-dealer prices, without retail mark up, mark down or commission and may not necessarily represent actual transactions. All prices are quoted in pence and U.S. dollars using the exchange rate on the applicable trading date.

 

      Pence      U.S. Dollars      Average  Daily
Trading Volume
 

Period

   High      Low      High      Low     

Monthly

              

September 30, 2013

     388.00         344.50       $ 6.24       $ 5.36         84,235   

August 31, 2013

     360.00         331.00         5.58         5.14         48,545   

July 31, 2013

     348.00         322.25         5.34         4.82         78,419   

June 30, 2013

     341.00         295.75         5.18         4.64         54,525   

May 31, 2013

     334.25         314.00         5.21         4.87         60,057   

April 30, 2013

     340.00         300.75         5.21         4.61         97,005   

Quarterly

              

September 30, 2013

     388.00         322.25         6.24         4.82         70,646   

June 30, 2013

     341.00         295.75         5.18         4.64         70,787   

March 31, 2013

     330.00         260.00         5.18         4.05         173,293   

December 31, 2012

     309.50         270.00         4.98         4.32         88,201   

September 30, 2012

     307.75         248.25         4.99         3.86         161,175   

June 30, 2012

     315.50         236.50         5.02         3.80         236,613   

March 31, 2012

     336.25         233.50         5.31         3.65         204,409   

December 31, 2011

     299.75         215.50         4.74         3.46         263,521   

Yearly

              

June 30, 2013

     341.00         248.25         5.18         3.86         123,385   

June 30, 2012

     503.00         215.50         8.11         3.46         259,564   

June 30, 2011

     536.00         230.00         8.64         3.55         223,269   

June 30, 2010

     270.00         129.00         4.01         2.09         148,648   

June 30, 2009

     214.00         101.00         3.75         1.50         124,400   

 

40


Table of Contents

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

The tables below present the selected historical consolidated financial data of Kofax (U.K.) and its consolidated subsidiaries, which upon effectiveness of the Migration and prior to consummation of this offering, directly or indirectly, will be wholly-owned subsidiaries of Kofax (Bermuda). The selected historical consolidated financial data of Kofax (U.K.) and its consolidated subsidiaries as of June 30, 2013 and 2012, and for the years ended June 30, 2013 and 2012 has been derived from Kofax (U.K.)’s audited consolidated income statements, statements of financial position and statements of cash flows for those periods, which are included elsewhere in this prospectus. The consolidated financial statements have been prepared and presented in accordance with IFRS as issued by the IASB. As an emerging growth company, we are not required to present, and have not presented, selected financial data for any period prior to our most recently completed two fiscal years.

On May 31, 2011, Kofax (U.K.) completed the disposition of its hardware business to an investor group composed of an unrelated third party and members of that business’ management team. The operating results of this business have been reclassified and reported as discontinued operations in the Company’s historical consolidated income statements. Subsequent to the sale of the hardware business, during the year ended June 30, 2013, the Company recorded additional costs associated with disposing of the hardware business.

The following selected historical consolidated financial data should be read in conjunction with our audited consolidated historical financial statements and the related notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” each of which is included elsewhere in this prospectus. The historical results for any prior period are not necessarily indicative of results to be expected for any future period.

 

       Fiscal Year Ended June 30,    
         2013              2012      
     (in thousands, except per share data)  

Software licenses

   $ 112,228       $ 117,255   

Maintenance services

     121,751         113,784   

Professional services

     32,339         31,442   
  

 

 

    

 

 

 

Total revenue

     266,318         262,481   
  

 

 

    

 

 

 

Cost of software licenses

     10,688         11,301   

Cost of maintenance services

     18,194         16,420   

Cost of professional services

     28,343         26,784   

Research and development

     34,686         33,804   

Sales and marketing

     98,209         96,292   

General and administrative

     37,286         39,096   

Amortization of acquired intangible assets

     6,707         5,190   

Acquisition-related costs

     4,682         5,870   

Restructuring costs

     —           4,917   

Other operating expenses, net

     2,395         669   
  

 

 

    

 

 

 

Operating costs and expenses

     241,190         240,343   
  

 

 

    

 

 

 

 

41


Table of Contents
       Fiscal Year Ended June 30,    
         2013             2012      
     (in thousands, except per share
data)
 

Income from operations

     25,128        22,138   

Finance income (expense), net

     (6,929     5,294   
  

 

 

   

 

 

 

Income from continuing operations, before income taxes

     18,199        27,432   

Income tax expense

     (8,198     (9,995
  

 

 

   

 

 

 

Income from continuing operations, after income taxes

     10,001        17,437   

Loss from discontinued operations, net of tax

     —          (1,413
  

 

 

   

 

 

 

Income attributable to equity holders

   $ 10,001      $ 16,024   
  

 

 

   

 

 

 

Earnings per Share Attributable to Equity Holders: 

    

Basic

   $ 0.12      $ 0.19   

Diluted

   $ 0.11      $ 0.18   

Earnings per Share From Continuing Operations, after income taxes:

    

Basic

   $ 0.12      $ 0.21   

Diluted

   $ 0.11      $ 0.20   

 

     As of June 30,  
     2013      2012  
     (in thousands)  

Cash and cash equivalents

   $ 93,413       $ 81,122   

Working capital (1)

     46,861         43,008   

Total assets

     379,143         357,777   

Total shareholders’ equity

     237,127         217,940   

 

       Fiscal Year Ended June 30,    
         2013              2012      
     (in thousands)  

Cash flows from operations

   $ 30,523       $ 18,776   

 

(1) Working capital is defined as current assets less current liabilities.

 

42


Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the section entitled “Selected Historical Consolidated Financial Data” and the Kofax (U.K.) and Kofax (Bermuda) consolidated financial statements and the related notes thereto included elsewhere in this prospectus. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and opinions. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences or cause our actual results or the timing of selected events to differ materially from those anticipated in these forward-looking statements include those set forth under “Risk Factors” and elsewhere in this prospectus.

Overview

We are a leading provider of smart process applications software and related maintenance and professional services for the critical First Mile of interactions between businesses, government agencies and other organizations (collectively, organizations) and their customers, citizens, vendors, employees and other parties (collectively, constituents). Our software enables organizations to design, deploy, and operate comprehensive systems that create an essential link between their systems of engagement, which generate real time, information-intensive communications from constituents, and their systems of record, which are typically large scale enterprise applications and repositories used to manage their internal operations. Our software streamlines critical information processing, which we believe allows our users to be more responsive to their constituents, provide better service, gain competitive advantage and grow their organizations while reducing our users’ costs and improving their regulatory compliance.

We operate on a global basis, and as of June 30, 2013, we had 1,248 employees located in 32 countries. We utilize a hybrid go-to-market model that delivers our software and services through both our direct sales and service employees and an indirect channel of more than 850 authorized resellers, original equipment manufacturers and distributors located in more than 75 countries as of June 30, 2013. We have approximately 20,000 active installations of our software with users in financial services, insurance, government, healthcare, supply chain (manufacturing, distribution, retail and logistics), business process outsourcing and other vertical markets, including 67 of the Fortune Global 100 companies.

We began operations in Switzerland in 1985 as a distributor of document imaging hardware and maintenance services under the name Dicom AG. We listed our ordinary (i.e., common) shares on AIM (the London Stock Exchange’s international market for smaller growing companies) in 1996 and subsequently transferred to the main market of the London Stock Exchange in 1997. Since then we have maintained a Premium Listing, which requires meeting the UK’s highest standards of regulation and corporate governance. We subsequently expanded into the distribution of related software products and services and became an independent software vendor through the acquisition of a number of software businesses beginning in 1999.

Our business has expanded, in part, as a result of acquisitions of, or investments in, other companies. In recent years, we have acquired the following software companies: OptiInvoice Digital Technology AB (October 2008), 170 Systems, Inc. (September 2009), Atalasoft, Inc. (May 2011), Singularity Limited (December 2011), Altosoft, Corp. (March 2013) and Kapow Technologies, Inc. (July 2013). We expect to continue to make additional acquisitions of companies, products and technologies, as well as investments in other businesses.

On May 31, 2011, Kofax (U.K.) completed the disposition of its hardware business to an investor group composed of an unrelated third party and members of that business’ management team. The operating results of this business have been reclassified and reported as discontinued operations in the consolidated income statements for all historical periods.

 

43


Table of Contents

The capture, BPM and smart process applications markets are highly competitive software product and service markets, and we compete against many global competitors that are larger than us and better financed. These markets are characterized by technological innovation, which requires companies to introduce and/or acquire new products and functionality to remain competitive, and extensive intellectual property litigation. We are a global company with significant level of operations outside the U. S., which subjects us to risks and uncertainties, including global market conditions, and which may subject us to additional costs.

We believe that the ongoing challenges for our business include our ability to grow our customer base and associated revenue, both from channel partners and our direct sales organization; expand our product offerings in response to market demands; expand our expertise in new and existing industries to which we sell; and to remain a leader in the markets for capture, BPM, and smart process applications. We have been affected by uncertainty in global financial markets and unfavorable global economic conditions, particularly in many Southern European countries, and we continue to face challenges in those locations.

To support our growth and successfully address these challenges we plan to:

 

   

continue to invest in our direct sales force and marketing professionals;

 

   

further develop our relationships with our channel partners;

 

   

continue to devote resources to ensuring the continued high level satisfaction of our existing customer base;

 

   

continue to invest in our research and development resources;

 

   

expand our product offerings, including through the development of mobile capabilities and SaaS product offerings; and

 

   

continue to closely monitor and assess our operations, notably our sales and services offerings, in regions and markets where unfavorable global economic conditions have adversely affected us, and may continue to do so.

In addition to the growth and management of our organic operations discussed above, we believe that strategic acquisitions will allow us to better serve the needs of our users, expand our software offerings, augment our routes to market, expand our market opportunities, and broaden our user base. In the future we intend to evaluate and pursue such opportunities.

Key Financial and Operational Metrics

We manage our business by focusing on several key financial measures. These financial measures include both IFRS based financial measures and non-IFRS measures. The non-IFRS measures, including the basis for why we review them, and how they reconcile to IFRS measures, are discussed in more detail in this prospectus, in “Summary Historical Consolidated Financial Data—Non-IFRS Measures”. The following are key financial measures that we review when assessing our financial performance.

Revenue

We generate revenue from licensing the right to use our software products as well as from maintenance and professional services. We utilize a hybrid go-to-market model that delivers our software and services through our own direct sales and service employees, as well as through an indirect channel of authorized resellers, original equipment manufacturers and distributors. We have employees located in 32 countries, including sales and service personnel in most of those countries. Our indirect channel is composed of more than 850 authorized resellers, original equipment manufacturer partners and distributors located in more than 75 countries. Our channel partners, many of whom are long-standing partners, make sales that are limited to a single geographic region, business unit, line of business, function, or department. Our direct sales force often sells software and

 

44


Table of Contents

services that often encompass multiple regions, business units, lines of business, functions or departments, including, at times, enterprise-wide arrangements. Sales made to the small and medium-sized businesses targeted by our channel partners, on average, have smaller overall transaction sizes as compared to sales made by our direct sales force. Additionally, the volume of licenses sold by our channel partners is larger than the volume sold by our direct sales force, which makes our revenue from channel partner sales less reliant on any particular customer. Because they sell a higher volume of software, the revenue generated by these channel partners is generally subject to less volatility than the revenue generated by our direct sales force. We also receive royalty revenue from a number of original equipment manufacturers, many of whom are also longstanding channel partners, who include our software in the offerings that they sell to their customers.

In the fiscal year ended June 30, 2013 we derived approximately 46% of our total revenue from direct sales and approximately 54% from sales made through our indirect channel, and in the fiscal year ended June 30, 2012 we derived approximately 43% of our total revenue from direct sales and approximately 57% from sales made through our indirect channel.

Software licenses revenue has historically fluctuated on a quarterly basis, and we expect that it will continue to fluctuate on a quarterly basis, due to seasonality, which historically has resulted in higher software license revenue in our second and fourth fiscal quarters as well as uncertain and inconsistent timing of large transactions. In order to recognize software licenses revenue, the following conditions must be met: evidence of the arrangement must exist; the fees must be fixed and determinable; collectability is probable; the fair value attributable to the undelivered products or services can be measured reliably; and delivery of the software licenses must have occurred.

Maintenance services include software license updates and upgrades, including bug fixes, on a “when and if available” basis, as well as our providing support of customer inquiries. Our maintenance service agreements typically cover a one-year period. We measure the renewal rates associated with our organic maintenance revenue and during each of fiscal 2013 and fiscal 2012, those organic maintenance renewal rates were in excess of 90%. We generally price our maintenance services, and the associated renewals, on a consistent percentage of the associated software license fee. Payments for maintenance services are generally made at the outset of the maintenance service period and are non-refundable. Maintenance services revenue is earned ratably over the period of maintenance agreement.

Professional services revenue is derived from the provision of software implementation services, including data migration and business process assessments, from follow on services that our customers purchase from us from time to time, as well as from customer training. Our professional service engagements are predominantly sold on a time and materials basis with some sold on a fixed price basis. Fees for professional services are charged separately from fees for software licenses and maintenance services. Professional services contracted under time and material projects are recognized as the services are performed. With respect to professional services contracted on a fixed price basis, we have significant experience in providing these services and are able to estimate the stage of completion. Accordingly, we realize the revenue and profit on fixed price professional service engagements on a milestone basis.

Our operations and our customers are located around the world. Our global presence allows our local operating subsidiaries to contract with and service customers in their local market. We monitor our sales based on the following regions: the Americas, which is composed predominantly of the United States; Europe, including the Middle East and Africa (collectively, EMEA); and Asia Pacific (APAC). The geographic mix of our revenue in fiscal 2013, based on the locations of our customers, was as follows: Americas 53.3%, EMEA 39.4% and APAC 7.3%.

 

45


Table of Contents

Income from Continuing Operations and Earnings per Share Data

In addition to the assessment of revenue as discussed above, management and the Board of Directors also review certain results from operations, including our income from continuing operations and earnings per share data.

 

       Fiscal Year Ended June 30,    
         2013             2012      
     (in thousands, except percentages)  

Total revenue

   $ 266,318      $ 262,481   

Income from operations

   $ 25,128      $ 22,138   

Income from operations as a percentage of total revenue

     9.4     8.4

Income from continuing operations, after income taxes

   $ 10,001      $ 17,437   

Income from continuing operations, after income taxes as a percentage of total revenue

     3.8     6.6

Our ‘income from continuing operations, after income taxes’ decreased $7.4 million or 42.6% in fiscal 2013 compared to fiscal 2012. This decrease was primarily attributable to our ‘finance income (expense), net’ having decreased by $12.2 million, offset in part by our ‘income tax expense’ being $1.8 million less in fiscal 2013. The change in ‘finance income (expense), net’ was primarily due to the impact of changes in foreign exchange rates in fiscal 2013 compared to fiscal 2012. When excluding both ‘finance (income), expense, net’ and ‘income tax expense’, our ‘income from operations’ increased by $3.0 million, or 13.5%. As a percentage of total revenue our ‘income from operations’ was 9.4% and 8.4% in fiscal 2013 and fiscal 2012, respectively. Refer to results of operations below for further discussion of individual components of that change.

Our diluted earnings per share from continuing operations decreased by 45.0% in fiscal 2013, largely in line with our ‘income from continuing operations, after income taxes’, as our share count did not change significantly from fiscal 2012.

Adjusted Income from Operations and Adjusted Cash Flows from Operations

In addition to ‘income from operations’ discussed above, we evaluate our performance based on a non-IFRS metric, ‘adjusted income from operations’. Adjusted income from operations is our income from operations, excluding the effect of share-based payment expense, depreciation expense, amortization of acquired intangible assets, acquisition-related costs, restructuring costs and other operating expense, net. This financial measure is used by us to evaluate our financial operating performance, both in terms of absolute dollars and as a percentage of revenue. The Board of Directors and management utilize IFRS and non-IFRS measures to facilitate our determination of our allocation of resources, to measure our actual performance against budgeted and forecasted financial plans and to establish and measure management’s compensation. The following table presents our total revenue, adjusted income from operations and adjusted income from operations as a percentage of total revenue:

 

       Fiscal Year Ended June 30,    
         2013             2012      
     (in thousands, except percentages)  

Total revenue

   $ 266,318      $ 262,481   

Adjusted income from operations

   $ 46,314      $ 48,490   

Adjusted income from operations as a percentage of total revenue

     17.4     18.5

Adjusted income from operations as a percentage of total revenue is used when assessing period to period performance or to allow comparison with companies of varying size as it compares our performance as a percentage of the associated revenue during any given period. Adjusted income from operations, as expressed in dollars, decreased $2.2 million in fiscal 2013 compared to fiscal 2012, and our adjusted income from operations as a percentage of total revenue decreased to 17.4% compared to 18.5%. Our adjusted income from operations, and the related adjusted income from operations as a percentage of total revenue, decreased in fiscal 2013 compared to fiscal 2012 as a result of our having committed expenses in fiscal 2013 based on a forecasted level of revenue that we were not able to achieve, particularly in the first half of fiscal 2013. We experienced only a minor increase in total revenues of $3.8 million due to sales execution issues and weakened economic conditions

 

46


Table of Contents

while our operating expenses increased $6.0 million primarily due to investing more into our sales and research and development organizations as well as incurring professional service costs that did not experience the anticipated level of revenue during the year. Refer to results of operations below for further discussion.

We closely monitor our cash balances and the sources and uses of our cash flows, including our adjusted cash flows from operations. Our adjusted cash flows from operations generated $42.1 million and $34.3 million in fiscal 2013 and fiscal 2012, respectively. Our adjusted income from operations comprises the majority of our adjusted cash flows from operations, with the primary difference arising from changes in working capital. Additional discussion of our cash flows from operations, including changes in components of our working capital is discussed below in “—Liquidity and Capital Resources”.

Organic Results of Operations

When we acquire a company, we include in our consolidated income statement their operating results beginning on the date of acquisition. Accordingly, when reviewing our period to period results, our prior results are not necessarily comparable to the current period results. Management reviews the comparable results of operations on a basis including the results of the acquired companies, and also on a basis that excludes the results of the acquired companies. The results excluding the acquired companies are referred to as organic results. For purposes of measuring our organic performance for fiscal 2013 against fiscal 2012, we have excluded all results for Singularity (acquired in December 2011) and Altosoft (acquired in March 2013).

RESULTS OF OPERATIONS

Revenue

The following table presents revenue for each fiscal year, along with the percentage change compared to the prior fiscal year. Revenue is presented for each financial statement line, as well as in total for each of our geographic regions.

 

     Fiscal Year Ended June 30,     % of Total Revenue  
     2013      2012      $
Change
    %
Change
    Fiscal
2013
    Fiscal
2012
 
     ( in thousands, except percentages)  

Revenue

              

Software licenses

   $ 112,228       $ 117,255       $ (5,027     (4.3 %)      42.1     44.7 %

Maintenance services

     121,751         113,784         7,967        7.0     45.7     43.3 %

Professional services

     32,339         31,442         897        2.9     12.1     12.0 %
  

 

 

    

 

 

    

 

 

     

 

 

   

 

 

 

Total revenue

   $ 266,318       $ 262,481       $ 3,837        1.5     100.0     100.0 %
  

 

 

    

 

 

    

 

 

     

 

 

   

 

 

 

Revenue by Geography

              

Americas

   $ 141,872       $ 140,125       $ 1,747        1.2     53.3     53.4 %

EMEA

     104,906         103,789         1,117        1.1     39.4     39.5 %

Asia Pacific

     19,540         18,567         973        5.2     7.3     7.1 %
  

 

 

    

 

 

    

 

 

     

 

 

   

 

 

 

Total revenue

   $ 266,318       $ 262,481       $ 3,837        1.5     100.0     100.0 %
  

 

 

    

 

 

    

 

 

     

 

 

   

 

 

 

Total revenue increased $3.8 million, or 1.5%, in the twelve months ended June 30, 2013 compared to the twelve months ended June 30, 2012 due to a $5.8 million increase associated with our acquisition of Singularity and Altosoft offset by a $2.0 million or 0.8% decrease in organic revenue.

Software licenses revenue decreased $5.0 million, or 4.3%, in fiscal 2013, due to a $1.6 million increase associated with our acquisitions of Singularity and Altosoft offset by a $6.6 million decrease in organic software licenses revenue. Organic license revenue decreased $4.1 million in the Americas and $3.8 million in EMEA,

 

47


Table of Contents

offset by a $1.3 million increase in Asia Pacific. The net decline was due to a combination of sales execution issues, including not progressing transactions through the pipeline to timely closure and continued economic weakness in many parts of EMEA. Software licenses revenue increased $17.9 million in the second half of fiscal 2013 as compared to the first half of fiscal 2013, and $5.3 million, or 8.9%, against the second half of fiscal 2012 as we started to improve our sales execution.

Maintenance services revenue increased $8.0 million, or 7.0%, in fiscal 2013 due to a $5.3 million, or 4.8%, increase in organic maintenance services and a $2.6 million increase associated with our acquisitions of Singularity and Altosoft. Our maintenance services revenue increased due primarily to higher maintenance contract renewal rates as well as the expansion of our user base.

Professional services revenue increased $0.9 million, or 2.9%, in fiscal 2013 due to a $1.2 million and $0.4 million increase associated with our acquisitions of Singularity and Altosoft, respectively, partially offset by a $0.7 million, decrease in our organic professional services revenue. Professional services revenue was relatively flat in EMEA and declined in the Americas and Asia Pacific.

Costs and Expenses

Cost of Software Licenses

Cost of software licenses primarily consists of royalties to third-party software developers as well as personnel costs related to the distribution of our software licenses and associated costs such as facilities and related overhead charges. The following table reflects cost of software license revenue, in dollars and as a percentage of software licenses revenue:

 

     Fiscal Year Ended June 30,  
     2013     2012     $
Change
    %
Change
 
     (in thousands, except percentages)  

Cost of software licenses

   $ 10,688      $ 11,301      $ (613     (5.4 )% 
  

 

 

   

 

 

     

As a percentage of software licenses revenue

     9.5     9.6    
  

 

 

   

 

 

     

Cost of software licenses decreased $0.6 million, or 5.4%, in fiscal 2013, as a result of the decrease in software licenses revenue as well as a change in product mix resulting in lower royalty expense. As royalty costs vary by product, as applicable, the cost of software licenses as a percentage of the software licenses revenue can fluctuate based on the mix of software licenses sold.

Cost of Maintenance Services

Cost of maintenance services primarily consists of personnel costs for our staff who respond to customer inquiries as well as associated costs, such as facilities and related overhead charges. The following table shows cost of maintenance services, in dollars and as a percentage of maintenance services revenue:

 

     Fiscal Year Ended June 30,  
     2013     2012     $
Change
     %
Change
 
     (in thousands, except percentages)  

Cost of maintenance services

   $ 18,194      $ 16,420      $ 1,774         10.8
  

 

 

   

 

 

      

As a percentage of maintenance services revenue

     14.9     14.4     
  

 

 

   

 

 

      

Cost of maintenance services increased $1.8 million, or 10.8%, in fiscal 2013 due to an increase of $0.6 million associated with our acquisitions of Singularity and Altosoft, and an increase of $1.2 million, or 7.2%, for our organic maintenance services as we invested to ensure we maintain high service levels.

 

48


Table of Contents

Cost of Professional Services

Cost of professional services primarily consists of personnel costs for our staff of consultants and trainers, other associated costs such as facilities and related overhead charges, travel related expenses and the cost of contractors, whom we engage from time to time to assist us in delivering professional services. The following table shows cost of professional services, in dollars and as a percentage of professional services revenue:

 

     Fiscal Year Ended June 30,  
     2013     2012     $
Change
     %
Change
 
     (in thousands, except percentages)  

Cost of professional services

   $ 28,343      $ 26,784      $ 1,559         5.8
  

 

 

   

 

 

      

As a percentage of professional services revenue

     87.6     85.2     
  

 

 

   

 

 

      

Cost of professional services increased $1.6 million, or 5.8%, in fiscal 2013 due to $2.0 million of costs associated with our acquisition of Singularity partially offset by a $0.4 million decrease in our organic professional services revenue. Our gross margin on professional services decreased from 14.8% in fiscal 2012 to 12.4% in fiscal 2013 as we were not able to deploy our resources as efficiently because professional services revenue did not increase as fast as we expected and investments in headcount were made to maintain the anticipated level of service.

Research and Development

Research and development expenses consist primarily of personnel costs incurred in connection with the design, development, testing and documentation of our software products as well as associated costs such as facilities and related overhead charges. Our research and development expenses are expensed as incurred. The following table shows research and development expenses, in dollars and as a percentage of total revenue:

 

     Fiscal Year Ended June 30,  
     2013     2012     $
Change
     %
Change
 
     (in thousands, except percentages)  

Research and development expenses

   $ 34,686      $ 33,804      $ 882         2.6
  

 

 

   

 

 

      

As a percentage of total revenue

     13.0     12.9     
  

 

 

   

 

 

      

Research and development expenses increased $0.9 million, or 2.6%, in fiscal 2013 due to $3.0 million of costs associated with our acquisitions of Singularity and Altosoft and our new mobile product, partially offset by a $2.2 million, decrease in research and development expenses for our organic products. We have continued to assemble certain of our research and development staff in offshore facilities, which allows us to access and utilize talented but lower cost resources in our research and development efforts.

Sales and Marketing

Sales and marketing expenses consist primarily of personnel costs related to our sales and marketing staff, costs for trade shows, advertising and other lead generating activities, as well as associated costs such as facilities and related overhead charges. The following table shows sales and marketing expenses, in dollars and as a percentage of total revenue:

 

     Fiscal Year Ended June 30,  
     2013     2012     $
Change
     %
Change
 
     (in thousands, except percentages)  

Sales and marketing expenses

   $ 98,209      $ 96,292      $ 1,917         2.0
  

 

 

   

 

 

      

As a percentage of total revenue

     36.9     36.7     
  

 

 

   

 

 

      

 

49


Table of Contents

Sales and marketing expenses increased $1.9 million, or 2.0%, in fiscal 2013 with a $2.2 million increase resulting from the integration of Singularity and Altosoft sales and marketing operations into our organic operations partially offset by savings from effecting efficiencies in our sales and marketing operations. In the second half of fiscal 2013 we began investing in sales and marketing, particularly in quota carrying sales staff, and we implemented enhancements to continue improving our sales execution.

General and Administrative

General and administrative expenses consist primarily of personnel costs for our executive, finance, human resource and legal functions, as well as associated costs such as facilities and related overhead charges. Also included in general and administrative expenses are costs associated with legal, accounting, tax and advisory fees. The following table shows general and administrative expense, in dollars and as a percentage of total revenue:

 

     Fiscal Year Ended June 30,  
     2013     2012     $
Change
    %
Change
 
     (in thousands, except percentages)  

General and administrative expenses

   $ 37,286      $ 39,096      $ (1,810     (4.6 )% 
  

 

 

   

 

 

     

As a percentage of total revenue

     14.0     14.9    
  

 

 

   

 

 

     

General and administrative expenses decreased $1.8 million, or 4.6%, in fiscal 2013 primarily from a decrease in legal, accounting and tax fees and share-based payment expense.

Amortization of Acquired Intangible Assets

We recognize amortization expense relating to our acquired intangible assets using the straight-line method over the estimated useful life of the respective asset. Our intangible assets include acquired contractual and customer relationships, technology and trade names, each based on their fair values ascribed in accounting for the initial business combination. The following table shows expense related to the amortization of acquired intangible assets, in dollars and as a percentage of total revenue:

 

     Fiscal Year Ended June 30,  
     2013     2012     $
Change
     %
Change
 
                           
    

(in thousands, except percentages)

 

Amortization of acquired intangible assets

   $ 6,707      $ 5,190      $ 1,517         29.2
  

 

 

   

 

 

      

As a percentage of total revenue

     2.5     2.0     
  

 

 

   

 

 

      

Amortization of acquired intangible assets increased $1.5 million, or 29.2%, in fiscal 2013, due to $1.2 million of additional amortization of acquired intangible assets arising from our acquisition of Singularity and $0.3 million of additional amortization of acquired intangible assets arising from our acquisition of Altosoft.

 

50


Table of Contents

Acquisition-related costs

Acquisition-related costs include those costs related to business and other acquisitions and consist of (i) costs directly attributable to our acquisition strategy and the evaluation, consummation and integration of our acquisitions and (ii) transition compensation costs. The following table shows acquisition-related costs, in dollars and as a percentage of total revenue:

 

     Fiscal Year Ended June 30,  
     2013     2012     $
Change
    %
Change
 
                          
    

(in thousands, except percentages)

 

Acquisition-related costs

   $ 4,682      $ 5,870      $ (1,188     (20.2 %) 
  

 

 

   

 

 

     

As a percentage of total revenue

     1.8     2.2    
  

 

 

   

 

 

     

Acquisition-related costs decreased $1.2 million, or 20.2%, in fiscal 2013 due to a decrease in direct acquisition diligence costs offset by an increase in contingent consideration expense. The acquisition of Kapow was completed subsequent to year end.

Restructuring Costs

Restructuring costs consist of expenses related to plans of restructuring that we have undertaken to reorganize and streamline certain of our operations in EMEA following our sale of our former hardware business, and in response to a weak global economic environment. The following table shows restructuring costs, in dollars and as a percentage of total revenue:

 

     Fiscal Year Ended June 30,  
         2013             2012         $
Change
    %
Change
 
                          
    

(in thousands, except percentages)

 

Restructuring costs

   $ —        $ 4,917      $ (4,917     (100.0 %) 
  

 

 

   

 

 

     

As a percentage of total revenue

     —       1.9    
  

 

 

   

 

 

     

In fiscal 2012, due to a weak global economic environment, we recorded a charge of $4.9 million for staff redundancy payments associated with headcount reductions of approximately 60 personnel, and future payments for excess unused facility leases.

The staff redundancy payments related to our fiscal 2012 staff redundancy were mostly paid in fiscal 2012 and fiscal 2013, with $0.6 million remaining as of June 30, 2013, which is expected to be paid in fiscal 2014. Additionally, payments related to $0.6 million of onerous lease charges expensed prior to fiscal 2012 are being paid through fiscal 2015, with $0.4 million and $0.2 million being paid in fiscal 2014 and fiscal 2015, respectively.

 

51


Table of Contents

Other Operating Expenses, net

Other operating expenses, net consists of all income or expense that is not directly attributable to one of our other operating revenue or expense lines. The following table shows other operating expenses, net, in dollars and as a percentage of total revenue:

 

       Fiscal Year Ended June 30,    
         2013             2012         $
Change
     %
Change
 
                           
    

(in thousands, except percentages)

 

Other operating expenses, net

   $ 2,395      $ 669      $ 1,726         258.0
  

 

 

   

 

 

      

As a percentage of total revenue

     0.9     0.3     
  

 

 

   

 

 

      

Other operating expenses, net increased $1.7 million, or 258.0%, in fiscal 2013 primarily due to professional fees incurred for attorneys, accountants and other advisors associated with the preliminary work needed for us to complete an initial public offering (IPO) in the United States.

Finance Income (Expense), net

Finance income (expense), net consists primarily of foreign exchange gains or losses related to our intercompany receivables and payables, to fair value adjustments relating to forward contracts or other financial instruments and to a lesser extent to interest income (expense). The following table shows finance income (expense), net, in dollars and as a percentage of total revenue:

 

         Fiscal Year Ended June 30,      
     2013     2012     $
Change
    %
Change
 
                          
    

(in thousands, except percentages)

 

Finance income (expense), net

   $ (6,929   $ 5,294      $ (12,223     (230.9%
  

 

 

   

 

 

     

As a percentage of total revenue

     (2.6 %)      2.0    
  

 

 

   

 

 

     

During fiscal 2013, the U.S. dollar weakened against each of the euro and the Swiss franc and strengthened against the pound sterling. During fiscal 2012, the U.S. dollar strengthened against the euro and the Swiss franc and weakened against the pound sterling.

Income Tax Expense

The following table shows income tax expense, in dollars and as a percentage of profit from continuing operations:

 

    Fiscal Year Ended June 30,  
    2013     2012     $
Change
    %
Change
 
                         
   

(in thousands, except percentages)

 

Income from continuing operations

  $ 18,199      $ 27,432      $ (9,233     (33.7 %) 
 

 

 

   

 

 

     

Income tax expense

  $ (8,198   $ (9,995   $ (1,797     (18.0 %) 
 

 

 

   

 

 

     

Effective income tax rate

    45.0     36.4    
 

 

 

   

 

 

     

 

52


Table of Contents

We are a tax resident of the United Kingdom, and anticipate retaining that status after the Migration. The standard income tax rate in the United Kingdom has been decreasing according to a scheduled reduction. During fiscal 2013 our standard United Kingdom income tax rate was 23.75%, and for fiscal 2012 it was 25.5%. The standard income tax rate in the United Kingdom is further scheduled to decrease to 21%. We are subject to tax based on the income earned from sales of our products and services in the country from which we sell our products or in which we provide our services. Certain of these jurisdictions other than the United Kingdom have tax rates that exceed the United Kingdom rate and have a significant impact on our effective tax rate. Our income tax expense is most notably affected by the higher rate in the United States, which carries a federal statutory rate of 35% (before incremental state income taxes), and where a considerable portion of our pre-tax income was generated in fiscal 2013 and fiscal 2012. Deferred tax assets and liabilities, including net loss carryforwards, are determined based on differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse.

Income tax expense as a percentage of income from continuing operations increased from 36.4% in fiscal 2012 to 45.0% in fiscal 2013, primarily due to non-tax deductible expenses including amortization of intangible assets, acquisition-related costs and professional fees in connection with the US IPO. Those items reduce the pre-tax profit but provide no tax relief, thus increasing the effective tax rate.

Loss from Discontinued Operations, net of tax

On May 31, 2011, we completed the sale of our hardware business. In fiscal 2012, we recorded associated expense of $1.4 million, which included transaction fees, legal fees, asset values, and other administrative and transition costs. We had no such costs in fiscal 2013.

Liquidity and Capital Resources

Historically, we have financed our business primarily through our cash flows from operations. In the period from July 1, 2011 to June 30, 2013, we generated aggregate cash flows from operations of $49.3 million. We had no outstanding debt as of June 30, 2013. We have a revolving credit facility that provides for borrowings of up to $40.0 million and matures on June 30, 2014. As of June 30, 2013, we had $39.6 million available under this revolving credit facility, with $0.4 million reserved for letters of credit on certain facility leases.

The following table sets forth the summary of our cash flows:

 

     Fiscal Year Ended June 30,  
     2013     2012     $
Change
 
    

(in thousands)

 

Cash generated from (used in):

      

Operating activities

   $ 30,523      $ 18,776      $ 11,747   

Investing activities

     (19,075     (27,642     8,567   

Financing activities

     1,120        (1,992     3,112   

Effect of exchange rate fluctuations

     (277     (6,291     6,014   
  

 

 

   

 

 

   

 

 

 

Net increase (decrease)

   $ 12,291      $ (17,149   $ 29,440   
  

 

 

   

 

 

   

 

 

 

We had $93.4 million of cash and cash equivalents at June 30, 2013, compared to $81.1 million at June 30, 2012.

Operating Activities

Net cash generated from operating activities was $30.5 million in fiscal 2013, compared to $18.8 million in fiscal 2012, an increase of $11.7 million. That increase was attributable primarily to a reduction of $4.0 million

 

53


Table of Contents

for our working capital requirements and a $3.9 million increase in our net income, adjusted for reconciling items such as depreciation and amortization, share based payments, finance income and expense in fiscal 2013 as compared to fiscal 2012. In addition, in fiscal 2013 we paid $2.5 million and $1.4 million less in restructuring charges and income tax payments, respectively.

Investing Activities

Net cash used in investing activities was $19.1 million in fiscal 2013, compared to $27.6 million in fiscal 2012, a decrease of $8.6 million. The primary use of cash in both years was associated with our acquisitions. We used $16.8 million in fiscal 2013 and $30.3 million in fiscal 2012, a difference of $13.6 million. Our fiscal 2013 payments included $11.7 million for our March 2013 acquisition of Altosoft and $5.1 million of contingent payments related to prior years’ acquisitions of Singularity and Atalasoft. Our fiscal 2012 payments included $28.5 million related to our acquisition of Singularity and $1.9 million of contingent payments related to our acquisition of Atalasoft. The payments associated with these acquisitions were partially offset by a number of other items, primarily by our receipt of $4.5 million less in fiscal 2013 than 2012 of proceeds from our May 2011 sale of our hardware business.

Financing Activities

Net cash generated from financing activities was $1.1 million in fiscal 2013 compared to $2.0 million used in fiscal 2012, an incremental change of $3.1 million. There was an incremental $0.5 million issuance of share capital, offsett by an incremental decrease of $1.9 million from purchases and proceeds of employee benefit trust shares during the twelve months ended June 30, 2013.

Exchange Rate Effects

We operate in many countries around the world, and maintain cash balances in locations outside of the United States, in currencies other than the U.S. dollar. In fiscal 2013 our cash and cash equivalents decreased by $0.3 million due to changes in foreign exchange rates, while in fiscal 2012, our cash and cash equivalents decreased by $6.3 million due to changes in foreign exchange rates. Our cash and cash equivalents will continue to fluctuate in the future, as foreign currency exchange rates vary. See “—Quantitative and Qualitative Disclosures about Market Risk—Foreign Currency” below for further discussion.

Future Cash Requirements and Sources of Liquidity

As discussed above, we have funded our business primarily with cash flows from our operating activities, and to a lesser extent from proceeds received from our stock option schemes. We expect that our future operating requirements will continue to be funded from cash flows from these sources. Following this offering, we expect that our liquidity needs relating to our operations will arise primarily from costs associated with expanding our direct and indirect sales channels; research and development expenses; capital expenditures; working capital; incremental costs associated with being a public company listed on both The NASDAQ Global Select Market and the London Stock Exchange; cash taxes; and acquisitions.

We believe that our cash and cash equivalents, and our working capital, each as of June 30, 2013, and our future net cash flows from operating activities, together with the net proceeds to us from this offering and our borrowing capacity under our revolving credit facility, will be sufficient to fund our currently anticipated uses of cash relating to our organic operations for the next twelve months. Other than commitments of $0.4 million relating to several standby letters of credit, we had no borrowings outstanding under our $40.0 million revolving credit facility as of June 30, 2013 and therefore we had $39.6 million of borrowing capacity under this revolving line of credit as of June 30, 2013. Our revolving credit facility matures on June 30, 2014, and is secured by certain of our assets, including those of certain of our subsidiaries. The revolving credit facility is subject to certain affirmative and negative covenants, including meeting defined EBITDA milestones, leverage and liquidity ratios, and also

 

54


Table of Contents

contains a non-committed $10.0 million expansion feature. As of June 30, 2013, we were in compliance with these covenants. Thereafter, our ability to fund these expected uses of cash will depend on our future results of operations, performance, and cash flows, which will be affected by prevailing economic conditions, and on financial, business, regulatory, legislative and other factors, many of which are beyond our control.

If we do not generate sufficient cash from operations or do not otherwise have sufficient cash and cash equivalents, including the net proceeds from this offering, we may need to issue debt or equity, if the market and if the terms of our current revolving credit facility permit. In addition to cash requirements relating to our current organic operations, our strategy includes future acquisitions and/or investments. We may not be able to raise cash on terms acceptable to us or at all. Financings, if available, may be on terms that are dilutive to our shareholders, and the prices at which new investors would be willing to purchase our securities may be lower than the current price of our common shares. The holders of new securities may also receive rights, preferences or privileges that are senior to those of existing holders of our common shares. If new sources of financing are required but are insufficient or unavailable, we would be required to modify our plans to the extent of available funding, which could harm our ability to grow our business.

Off-balance Sheet Arrangements

We do not have any outstanding off-balance sheet arrangements or commitments. In our on-going business, we have not entered into transactions involving, or otherwise formed relationships with unconsolidated entities or financial partnerships established for the purpose of facilitating off-balance sheet arrangements, commitments or other contractually limited purposes.

Contractual Obligations

The following table summarizes our contractual obligations as of June 30, 2013:

 

     Payments Due by Fiscal Year Ended June 30,  
     Total      2014      2015
and  2016
     2017
and  2018
     Thereafter  
     (in thousands)  

Operating leases

   $ 21,349       $ 7,690       $ 10,334       $ 2,860       $ 465   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual cash obligations

   $ 21,349       $ 7,690       $ 10,334       $ 2,860       $ 465   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Contingent Liabilities and Commitments

In connection with our acquisitions of Singularity, Atalasoft and Altosoft, we agreed to make certain contingent cash payments, based on the achievement of certain financial and operational metrics, and in some cases, based on the continuing employment of the recipients of those payments. A summary of the contingent payments for each of these acquisitions follows, and additional information related to each of these can be found in Note 4, “Acquisitions” in the notes to the accompanying audited consolidated financial statements of Kofax (U.K.) appearing elsewhere in this prospectus.

In connection with our acquisition of Singularity, we agreed to make certain contingent cash payments, denominated in British pounds, based on the achievement of certain financial and operational metrics, and further dependent on the continuing employment of certain of the recipients of those payments. As of June 30, 2013, after first year payments, the range of those contingent payments was $0 to $14.7 million (based on the exchange rate between the British pound and U.S. dollar as of June 30, 2013). On December 31, 2012, the Singularity share purchase agreement was amended to extend the time period in which contingent consideration may be earned by one year. We estimate that we will be required to pay additional cash obligations of $5.4 million in fiscal 2014. We have recorded the fair value related to $2.8 million of these payments as provisions on our June 30, 2013 consolidated statement of financial position, including $0.6 million that was included as part of the purchase

 

55


Table of Contents

consideration at the time of acquisition, and $7.5 million that has been expensed to acquisition-related costs from the date of acquisition to June 30, 2013. Based on our current estimate of future total cash obligations of $5.4 million, we will record an additional $2.6 million to acquisition-related costs, on a straight-line basis from July 1, 2013 to December 31, 2013. To the extent that the estimates relating to our cash obligations change, we will be required to adjust the amount of each of our acquisition-related expenses, and the associated cash payments.

In connection with our acquisition of Atalasoft, we agreed to make certain contingent cash payments based on the achievement of certain financial and operational metrics. As of June 30, 2013, the range of those contingent payments was $0 to $1.2 million. We estimate that we will be required to pay cash obligations of $1.2 million, payable in fiscal 2014. The discounted fair value of those amounts is included in provisions on our June 30, 2013 consolidated statement of financial position, which was included as part of the purchase consideration at the time of acquisition.

In connection with our acquisition of Altosoft, we agreed to make certain contingent cash payments based on the achievement of certain financial and operational metrics. As of June 30, 2013, the range of those contingent payments was $0 to $4.4 million, excluding $2.0 million that was considered deferred consideration at the time of acquisition. We estimate that we will be required to pay cash obligations of $5.0 million, with $3.0 million, $1.0 million and $1.0 million of that amount payable in fiscal 2014, fiscal 2015 and fiscal 2016, respectively. The discounted fair value of $4.0 million related to these payments is included in provisions on our June 30, 2013 consolidated statement of financial position, which was included as part of the purchase consideration at the time of acquisition. To the extent that the estimates relating to our cash obligations change, we will be required to adjust the amount of each of our acquisition-related expenses, and the associated cash payments.

Financial Instruments

The carrying amount of cash and cash equivalents, restricted cash, accounts receivable, deposits, prepayments and other receivables, accounts payable, other payables, purchase consideration payable, accrued liabilities, short-term debts and long-term debt approximate their fair values because of their short maturity.

We operate our business in countries throughout the world and transact business in various foreign currencies. Periodically, we enter into forward exchange contracts to hedge against foreign currency fluctuations. We established this program so that gains and losses from remeasurement or settlement of these assets and liabilities are offset by gains or losses on the forward exchange contracts thus mitigating the risks and volatility associated with our foreign currency transactions. Generally, we enter into contracts with terms of 90 days or less, and at June 30, 2013 we had outstanding contracts with a total notional value of $0.9 million.

Critical Accounting Policies, Judgments and Estimates

Our financial statements are prepared in accordance with IFRS as issued by the IASB. IFRS comprise international accounting standards, or IASs, that are issued to address specific accounting matters. The preparation of our financial statements in accordance with IFRS requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, cost of sales, operating expenses and related disclosures. We consider an accounting policy to be critical if it is important to our financial condition and/or results of operations, and if it requires significant judgment and estimates on the part of management in its application. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances and we evaluate our estimates on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions. If actual results or events differ materially from the judgments and estimates that we have made in reporting our financial position and results of operations, our financial position and results of operations could be materially affected.

 

56


Table of Contents

While our significant accounting policies are more fully described in Note 1 in the notes to the audited consolidated financial statements of Kofax (U.K.) appearing elsewhere in this prospectus, the following accounting policies involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical in fully understanding and evaluating our financial condition and results of operations.

Revenue Recognition

We generate revenue from the sale of licenses to use our software license products, including royalty arrangements and from maintenance and professional services. Our typical initial sale to a customer consists of: (i) a perpetual software license, (ii) a maintenance service arrangement that includes technical support and access to product updates, generally for an initial period of one year, and (iii) in some cases, a separate professional services engagement for software implementation, education, training and other services.

We recognize revenue in accordance with IAS 18, “Revenue”, which includes our interpretations of other literature that constitutes IFRS. In addition to a transaction being evidenced in customary form, each of the following must be met in order for the recognition of revenue: the fees are determinable, collectability is probable, the amount of revenue attributable to undelivered products or services can be measured reliably based on their fair value, and delivery has occurred.

Our transactions with customers are documented by written agreements, generally taking the form of a sales contract and a purchase order for direct sales. Sales through our indirect channel are made via a master agreement with the applicable channel partner, under which the key legal terms and conditions are noted, and each order is then evidenced by a purchase order or other written evidence of the order provided to us from our channel partner. When products are sold through channel partners, title and risk of loss generally pass upon delivery, at which time the transaction is invoiced and payment is due. We do not offer a right of return on sales to our channel partners and, accordingly, revenue is recognized upon delivery (the sell-in method), provided all other revenue recognition criteria are met. Arrangements involving the resale of our software products by our original equipment manufacturer customers do not include any undelivered elements. We receive quarterly royalty reports from our original equipment manufacturer customers, and recognize the value of those sales in license revenue each quarter, provided that all other revenue recognition criteria have been met.

We evaluate the elements of a transaction to identify the appropriate accounting elements so that revenue recognition criteria may be applied to separately identifiable elements of a single transaction, and when appropriate, the recognition criteria may be applied to two or more transactions when their economic substance cannot be understood individually.

For those transactions with multiple elements, if we have determined that the undelivered elements of that contract have fair value, we record the revenue associated with the delivered elements (generally the software license) at an amount that represents the fee for the transaction, less the fair value of any undelivered element and defers the undelivered elements of the transaction (generally the maintenance and professional services) based on their fair values. We have determined the fair values of our maintenance service and professional services based on an evaluation of the pricing, delivery costs and margins for each of those elements. Fair values are set such that the revenue deferred will cover cost plus a reasonable margin. We have assessed the level of margin by reference to our own performance and that of other companies in the software industry.

Our maintenance services revenue is recorded on a straight-line over the life of the maintenance contract. Professional services contracted under time and material projects are recognized as the services are performed. With respect to professional services contracted on a fixed price basis, we have significant experience in providing these services and we are able to estimate the effort to complete. Accordingly, we recognize the revenue and profit on fixed price professional service engagements on a percentage of completion basis, except when there is customer acceptance criteria, in which case we recognize revenue upon customer acceptance.

 

57


Table of Contents

Income Tax Expense

Income tax expense represents the sum of current and deferred tax. Income tax is recognized in the income statement except to the extent that it relates to items recognized directly in equity. Current income tax expense is based on the best estimate of taxable income or loss for the year for each country in which we have operations, using tax rates that have been enacted or substantively enacted at the balance sheet date, and adjustments for current taxes payable (receivable) for prior years. Future operational changes or acquisitions could affect the tax rate if there is a shift in the mix of operations between higher tax rate countries and lower tax rate countries. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities and the corresponding tax basis used in the computation of taxable income. Deferred tax assets and liabilities are generally recognized for all temporary differences, except to the extent that a deferred tax liability arises from the initial recognition of goodwill. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realized.

Deferred tax assets, including deferred tax assets for tax loss carryforward positions and tax credit carryforward positions, are recognized to the extent that it is probable that future taxable income will be available against which temporary differences, unused tax losses or unused tax credits can be utilized. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable income will be available to allow all or part of the assets to be recovered.

Deferred tax assets and liabilities are not discounted. Deferred income tax assets and liabilities are offset on the balance sheet when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes relate to income taxes levied by the same fiscal authority. Current income tax assets and liabilities are offset on the balance sheet when there is a legally enforceable right to offset and we intend either to settle on a net basis, or to realize the asset and settle the liability simultaneously.

The ultimate tax effects of some transactions can be uncertain for a considerable period of time, requiring management to estimate the related current and deferred tax positions. We recognize liabilities for uncertain tax positions when it is ‘more likely than not’ that additional taxes will be due. We classify liabilities for uncertain tax positions as noncurrent liabilities unless the uncertainty is expected to be resolved within one year. These liabilities are presented as current income taxes payable, except in jurisdictions where prior tax losses are being carried forward to be used to offset future taxes that will be due. In these instances the liabilities are presented as a reduction to deferred tax assets. To the extent that we incur penalties or interest related to income taxes, we record those amounts as a component of our income tax expense.

As a company with global operations, we use significant judgment to calculate and provide for income taxes in each of the tax jurisdictions in which we operate. An example of an uncertainty requiring such judgment is assessing the transfer pricing for transactions with, and among, our subsidiaries and the calculation of tax attributes and the associated limitations related to companies that we acquire. We estimate our exposure to unfavorable outcomes related to uncertainties and estimate the probability for such outcomes. Although we believe our estimates are reasonable, no assurance can be given that the final outcome will not be different from what is reflected in our previously recorded income tax provisions, returns, and accruals. Such differences, or changes in estimates relating to potential differences, could have a material impact on our previously recorded income tax provisions and operating results in the period in which such a determination is made.

See Note 9 “Income Tax Expense” in the notes to the accompanying audited consolidated financial statements of Kofax (U.K.), appearing elsewhere in this prospectus, for further information.

Business Combinations

The accounting for business combinations is predicated on assessing the fair value, as of the date of the business combination, of a number of items, including the consideration paid for an acquisition, and the allocation of the consideration paid to the tangible and intangible assets acquired, and liabilities assumed, based on their estimated fair values.

 

58


Table of Contents

Depending on the structure of each business combination, the determination of the fair value of the consideration transferred may include a number of factors including, but not limited to: an assessment of the value of equity interests issued; the likelihood and amount of future contingent payments, being paid; the attribution of contingent payments to purchase price or to future compensation; and the valuation of assumed stock options or other equity interests. The determination of many of these factors may require significant management estimates and assumptions.

The allocation of the consideration to acquired intangible assets requires us to make significant estimates and assumptions, relating to the acquired business, including assumptions about future revenue, operating expenses, the fair values of certain assets and liabilities based on appraisals, industry trends and other market participant data, discount rates based on our weighted average cost of capital, and assumptions regarding the period of time the acquired technology, customer relationships and other assets will continue.

The fair value of other acquired assets and assumed liabilities may also require us to exercise significant estimates and assumptions, including fair value estimates, as of the date of the business combination, including: estimated fair value of the assumed contractual commitments to customers (deferred revenue), estimated fair value of income tax assets acquired and liabilities assumed, and estimated fair value of pre-acquisition contingencies assumed from the acquiree. If during the initial allocation of the consideration, we are able to determine the fair value of a pre-acquisition contingency, we will include that amount in the allocation. If we are unable to determine the fair value of a pre-acquisition contingency at the end of the allocation period, we will evaluate whether to include an amount in the allocation based on whether it is probable a liability had been incurred and whether an amount can be reasonably estimated.

Although we believe the assumptions and estimates we have made in the past have been reasonable and appropriate, they are based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain. Accordingly, assumptions made by us, and facts known by us, at the date of a business combination may be incomplete or inaccurate. Additionally, unanticipated events and circumstances may occur which may affect the accuracy or validity of such assumptions and estimates. At the end of the allocation period, any adjustment to amounts recorded for a pre-acquisition contingency will be included in our operating results in the period in which the adjustment is determined.

Intangible Assets, including Impairment Assessments

We maintained intangible assets (excluding goodwill) with a carrying value of $30.1 million as of June 30, 2013, of which $26.8 million represents the carrying value of intangible assets recorded from our acquisitions, and $3.3 million represents the carrying value of licenses and similar rights which have been licensed from unrelated third parties. Intangible assets relating to historic acquisitions are recorded at their fair value as of the date of acquisition. Inbound licenses are valued based on the arm’s length payments made to the third party provider. Based on our review of the nature and timing of our software development efforts relative to that of the underlying products, we have not historically capitalized any software development expenditures. Each of our intangible assets is amortized over its expected useful life on a straight-line basis.

We assess at each reporting date whether there are any indications that an intangible asset, other than goodwill, which is discussed below, may be impaired. If any such indication exists, or when annual impairment testing for an intangible asset is required, we calculate an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of such asset’s fair value, less costs to sell and its value in use. Each asset is assessed individually, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case an aggregated group of assets is assessed. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Whether impaired or not, the assessment of the future useful life of an intangible asset may cause that life to be revised prospectively.

 

59


Table of Contents

An assessment is also made at each reporting date as to whether there is any indication that previously recognized impairment losses of intangible assets, other than goodwill, may no longer exist or may have decreased. If such indication exists, the recoverable amount is determined. A previously recognized impairment loss for intangible assets is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of amortization, had no impairment loss been recognized for the asset in prior periods. Such reversal is recognized in the income statement, and would affect the timing of the future periods’ amortization.

Goodwill, including Impairment Assessments

We maintained goodwill with a carrying value of $159.7 million as of June 30, 2013. Goodwill represents the excess of the consideration over the fair value of net assets acquired. Goodwill is not amortized. Goodwill is tested for impairment annually at each reporting date or whenever indicators of impairment exist. Factors that could trigger an impairment review include significant negative industry or economic trends, exiting an activity in conjunction with a restructuring of operations, or current, historical or projected losses that demonstrate continuing losses associated with an asset. Goodwill is tested for impairment based on the cash generating units, or CGUs, that form the basis for management reporting. Subsequent to the disposition of the hardware business on May 31, 2011, we operate under one CGU. If the recoverable amount of a CGU is less than its carrying amount, the impairment loss is first allocated to goodwill and is then allocated pro rata to the other assets of the CGU. Once an impairment charge is recorded against goodwill, there is no future recovery for previous impairment charges allowed in later periods.

The recoverable amounts of the CGU have been derived from a value in use calculation, using a three year cash flow projection from financial budgets approved by senior management. These forecasts have then been extrapolated for a further two years using management’s best estimate of expected growth rates derived from both past performance and expectations within the software industry. Forecasted operating cash flows for the value in use calculation are based on the following key assumptions: past experience of expected revenues and associated margins; future market inflation; tax rates; discount rates; and terminal growth rates. We perform a sensitivity analysis to demonstrate that a reasonable change in the key assumptions would not reduce the difference between the carrying amount and recoverable amount of goodwill to zero. As of our fiscal 2013 annual impairment assessment, our estimated fair value of the CGU significantly exceeded its carrying value.

Share-Based Payments

We account for share-based awards, including grants of employee stock options and awards in the form of restricted shares, through the amortization of the grant date fair value of the share-based awards as a charge against earnings over the requisite service period. We use the Black-Scholes option pricing method in determining the fair value of share-based awards, which requires us to assess of a number of factors, some of which require management’s judgment. Our shares have been traded on the London Stock Exchange since 1997, and we use the market price for our common shares, on the date of grant, as an input into our assessment of the fair value of our share-based awards. Additional factors include: grant date estimates of expected dividends, expected life of the share-based payment, risk-free interest rates, and share price volatility. We also are required to continue to estimate the portion of share-based awards that are expected to be forfeited.

Contingent Liabilities

We regularly assess the estimated impact and probability of various uncertain events, and account for such events in accordance with IAS 37, “Provisions, Contingent Liabilities, and Contingent Assets”. Provisions are recognized when a present obligation (legal or constructive) exists as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Contingencies arise from conditions or situations where the outcome depends on future events.

 

60


Table of Contents

We are subject to legal proceedings, lawsuits and other claims relating to labor, service and other matters arising in the ordinary course of business. Additionally, our acquisitions may be structured to include contingent consideration whereby the amount payable is determinable based on future events. Management judgment is required in deciding the amount and timing of the accrual of provisions or contingencies. Depending on the timing of when conditions or situations arise, the timing of provisions or contingencies becoming probable and estimable is not necessarily determinable. The amount of the provisions or contingencies may change in the future as incremental knowledge, factors or other matters change or become known.

Restructuring Costs

A provision for restructuring is recognized when we have established and approved a detailed and formal restructuring plan and the restructuring has either commenced or been announced publicly. Restructuring costs require us to make judgments and estimate related to the expected future costs to be incurred associated with employee compensation and onerous leases. In particular, in order to assess the provision related to onerous leases, we are required to evaluate the likelihood and terms of subleases of facilities that we are no longer using.

Recently Issued Accounting Standards

See Note 2 “Changes in Accounting Policies” in the notes to the accompanying audited consolidated financial statements, appearing elsewhere in this prospectus, for a discussion of new accounting standards that have been issued by the IASB but not yet adopted by us.

Quantitative and Qualitative Disclosures about Market Risk

Concentration of Credit Risk

Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents, short-term investments and trade accounts receivable. Cash and cash equivalents consist primarily of bank deposits and overnight repurchase agreements. Our cash and cash equivalents within the United States are placed primarily with high credit-quality financial institutions, which are members of the FDIC. Since entering into our revolving credit facility in August 2011 with Bank of America, we have migrated most of our cash held in the United States to Bank of America, and we are in the process of migrating our cash held outside of the United States to Bank of America as well. With regards to the cash held outside of the United States that has not yet been migrated to Bank of America, that cash is held across a large number of our non-United States subsidiaries, at a number of financial institutions, with the majority of those balances being in euro, and balances in other currencies being individually smaller, and we have performed a risk assessment of those financial institutions that hold relatively larger proportions of our cash located outside of the United States, including analysis of their credit quality rating with no action item resulting. Short-term investments relate primarily to short-term investment funds, and have not historically been significant, as the market value and cost basis have not been materially different.

We grant credit to customers in the ordinary course of business. Credit evaluations are performed on an ongoing basis to reduce credit risk, and no collateral is required from our customers. An allowance for uncollectible accounts is provided for those accounts receivable considered to be uncollectible based upon historical experience and credit evaluation. Historically, we have not recorded material losses due to customers’ nonpayment. As of June 30, 2013 and 2012, no customer individually accounted for 10% or more of our accounts receivable. No customer individually accounted for more than 10% of our revenue during fiscal 2013 or fiscal 2012.

Foreign Currency

Foreign currency exchange rate risk is the risk of loss due to adverse changes in foreign currency exchange rates. Under IFRS, foreign currency exchange rate risks arise on account of monetary financial instruments

 

61


Table of Contents

denominated in currencies other than the functional currency where the non-functional currency is the respective risk variable; translation risks are not taken into consideration. See Note 21 “Financial Instruments—Risk Management” in the notes to the accompanying audited consolidated financial statements of Kofax (U.K.) for further information, which provides discussion and sensitivity analysis regarding foreign currency exchange rates risk related to financial instruments including intercompany trade balances and cash balances denominated in currencies other than the U.S. dollar.

We have global operations, and accordingly, we are subject to risks associated with fluctuations in foreign currencies with regard to our operations. Our subsidiaries mainly conduct business with third parties in each subsidiary’s own functional currency, and so our risk of exchange rate fluctuations from foreign currency denominated third party accounts receivables or accounts payable from ongoing operations is not significant.

A relatively large portion of our transactions are denominated in one of: the British pound, the euro or the Swiss franc. The results of operations that we report in our consolidated income statement will vary based on the relative movements of foreign currency exchange rates. In fiscal 2013, approximately 20%, 13% and 5% of our revenue were transacted in euros, British pounds and Swiss francs, respectively; and in fiscal 2013, approximately 17%, 17% and 5% of our expenses were transacted in euros, British pounds and Swiss francs, respectively. As we have a larger amount of our euro-denominated transactions associated with revenue, any devaluation of the euro relative to the U.S. dollar would adversely affect our results of operations reported in U.S. dollars. As the transactions in British pounds are primarily expenses, a decline of the U.S. dollar relative to the British pound would negatively impact our results of operations reported in U.S. dollars. Transactions denominated in the Swiss franc, as well as other currencies not discussed above, maintain a relatively equal proportion of revenue and expense.

The following table presents the exchange rates used by us when translating our historical financial statements located in this prospectus:

 

     Fiscal Year Ended  
     June 30, 2013      June 30, 2012  

British pound to U.S. dollar

     1.5466         1.5826   

euro to U.S. dollar

     1.3191         1.3359   

Swiss franc to U.S. dollar

     1.0700         1.1247   

 

     As of  
     June 30, 2013      June 30, 2012  

British pound to U.S. dollar

     1.5210         1.5612   

euro to U.S. dollar

     1.3008         1.2562   

Swiss franc to U.S. dollar

     1.0575         1.0459   

Periodically, we enter into forward exchange contracts to hedge against foreign currency fluctuations. These contracts may or may not be designated as cash flow hedges for accounting purposes. At June 30, 2013, we had forward exchange contracts related to a portion of cash balances held in currencies other than the U.S. dollar, with total notional values of $0.9 million. These contracts mature within the next twelve months. During fiscal 2013 and fiscal 2012, we recorded $0.1 million and $0.7 million, respectively, of gains related to forward exchange contracts.

Interest Rate Sensitivity

We are exposed to interest rate risk as a result of our cash and cash equivalents and short-term investments. At June 30, 2013, we held approximately $93.4 million of cash and cash equivalents, and short-term investments, primarily consisting of cash and money-market funds. Due to the low current market yields and the short-term nature of our investments, a hypothetical change in market rates of one percentage point would not have a material effect on the fair value of our portfolio or results of operations.

 

62


Table of Contents

BUSINESS

OVERVIEW

We are a leading provider of smart process applications software and related maintenance and professional services for the critical First Mile of interactions between businesses, government agencies and other organizations (collectively, organizations) and their customers, citizens, vendors, employees and other parties (collectively, constituents). Our software enables organizations to design, deploy, and operate comprehensive systems that create an essential link between their systems of engagement, which generate real time, information-intensive communications from customers, and their systems of record, which are typically large scale enterprise applications and repositories used to manage their internal operations. Our software is designed to streamline critical information processing, which we believe allows our users to be more responsive to their constituents, and is intended to enable or customers to provide better service, gain competitive advantage and grow their organizations while reducing their costs and improving their regulatory compliance.

We operate on a global basis, and as of June 30, 2013, we had 1,248 employees located in 32 countries. We utilize a hybrid go-to-market model that delivers our software and services through both our direct sales and service employees and an indirect channel of more than 850 authorized resellers, original equipment manufacturers and distributors located in more than 75 countries as of June 30, 2013. We have approximately 20,000 active installations of our software with users in financial services, insurance, government, healthcare, supply chain (manufacturing, distribution, retail and logistics), business process outsourcing and other vertical markets, including 67 of the Fortune Global 100 companies.

We began operations in Switzerland in 1985 as a distributor of digital imaging hardware and maintenance services under the name Dicom AG. We listed our ordinary (i.e., common) shares on AIM (the London Stock Exchange’s market for smaller companies) in 1996 and subsequently transferred to the main market of the London Stock Exchange in 1997. Since then we have maintained a Premium Listing, which requires meeting the UK’s highest standards of regulation and corporate governance. We subsequently expanded into the distribution of related software products and services and eventually became an independent software vendor through the acquisition of a number of software businesses beginning in 1999.

During the fiscal year ended June 30, 2008, as a result of a strategic review by the Board of Directors and our executive management team, we began the implementation of a broad array of strategic initiatives in order to focus our resources on the software portion of our business, as well as the transition to a more performance-oriented culture. These included:

 

   

leveraging the name of our most successful software product by renaming the company Kofax plc, and relocating our operating headquarters to Irvine, California;

 

   

recruiting a new executive management team with software business experience;

 

   

transitioning from a purely indirect channel sales model to a hybrid go-to-market model by restructuring our sales organization and adding direct sales and service employees;

 

   

making significant capital expenditures to upgrade our information and telecommunications technology and systems infrastructure;

 

   

acquiring OptiInvoice Digital Technology AB, 170 Systems, Inc., Atalasoft, Inc., Singularity Limited, Altosoft, Corp. and Kapow Technologies, Inc.—all software businesses—to enhance our competitive position, increase our addressable market and broaden our market reach; and

 

   

disposing of our hardware business.

Our annual total revenue grew from $170.0 million for the fiscal year ended June 30, 2009, to $266.3 million for the fiscal year ended June 30, 2013, representing a compound annual growth rate (CAGR) of 11.9%.

 

63


Table of Contents

During this same period, our income from operations grew from $3.4 million to $25.1 million, representing a CAGR of 64.8%, and our income from operations as a percentage of total revenue decreased from 10.6% to 9.4%. On a non-IFRS basis, our adjusted income from operations grew from $18.0 million to $46.3 million, representing a CAGR of 26.7%, and our adjusted income from operations as a percentage of total revenue grew from 10.6% to 17.4%. For a reconciliation of IFRS income from operations to non-IFRS adjusted income from operations, see “Summary Historical Consolidated Financial Data—Non-IFRS Measures.”

THE CHALLENGE

The business challenge arising in First Mile interactions is that their flow is often controlled by inflexible systems of record, which can make them labor intensive, slow and prone to errors and can adversely affect a customer’s perception of the business. Systems of record are generally large scale, expensive and typically rigid enterprise applications and repositories (ERP, CRM, ECM records management and other systems) that organizations use to manage their internal operations.

Systems of engagement are the ways in which organizations interact with their customers. They range from face to face interactions at “brick and mortar” branch offices to web portals to other demand generating activities that drive customers to an organization’s web or social media sites. An organization’s systems of engagement generate an enormous amount and variety of real time, information intensive communications from constituents on a daily basis via paper, faxes, emails, internet portals, mobile devices, Electronic Data Interchange and eXtensible Markup Language data streams, short message services, multimedia messaging services and other sources, all of which need to be processed in an accurate, timely, and cost effective manner. These communications arrive as both structured and unstructured information in the form of letters, resumes, new account enrollments, loan applications, insurance claims, purchase orders, invoices, regulatory filings and many other interactions.

The information in these communications must be captured, extracted, validated, analyzed and acted upon, and then delivered into an organization’s systems of record for additional processing, use and storage in repositories for archive and retrieval purposes. Delays and errors caused by invalid information and inconsistent processing can adversely impact an organization’s competitive positioning, finances, financial reporting and relations with its constituents and regulatory agencies.

Traditional methods for accomplishing the tasks referenced above typically begin with the aggregation of paper-based documents in a central location or mailroom. The documents are then distributed to relatively highly paid workers who manually enter information into systems of record, before storing the documents in cabinet based filing systems. The continued use of these paper-based processes is substantiated by data from numerous independent sources. For example, in March 2010, CNN reported that organizations archive 62% of their important documents in paper form. More recently in July 2013, Harvey Spencer Associates estimated that organizations globally spend approximately $25-30 billion a year manually keying information from paper documents.

Using an invoice as an example, organizations typically receive paper-based invoices, or print invoices received in an electronic format, from their systems of engagement with vendors and then route them to accounts payable specialists who visually review them and manually enter information into accounting or enterprise resource planning systems (their systems of record). This data entry would typically include the invoice number, date, vendor name and address, payment terms, payment discounts available, purchase order number, individual line item details (such as each item’s product number and description, the number of units shipped, etc.), sales tax and freight charges, and the total invoice amount. If any of this information is incorrectly entered, not entered, or entered correctly but nonetheless invalid for any number of reasons, then downstream processes will be suspended until an accounts payable specialist has corrected or otherwise addressed the issues. Downstream

 

64


Table of Contents

processes may also be suspended when an accounts payable specialist has to resolve the inevitable inconsistencies that arise between the invoice information entered and the related purchase order and receiving information. As with most manual, labor-intensive processes, these are time-consuming, expensive, and prone to error. They can also delay the processing of invoices, limit or preclude an organization’s ability to take advantage of prompt payment discounts, hinder cash management, and jeopardize valuable vendor relationships. Finally, at the end of these processes, someone has to manually file and when necessary retrieve the paper source documents.

The time required for and cost of such manual, labor-intensive processes can be significant. In May 2011, Aberdeen Group reported that the industry average organization takes 9.7 days to process an invoice at a cost of $15.61 while “laggards” take 20.8 days at a cost of $38.77.

The demand for shorter response time, increased use of mobile devices, desire for a paperless office, and mounting pressure to reduce costs require management of an organization to constantly evaluate and improve an organization’s operations. All of this becomes even more challenging as organizations contend with increasing volumes of information, globally distributed operations, and more intense global competition. In addition, as external compliance requirements and internal governance processes continue to grow in breadth and complexity, it is difficult for knowledge workers to remember and consistently apply business rules.

Some organizations do not view these processes as part of their core competencies so they turn to business process outsourcers to perform them as a service. Because of a business process outsourcer’s singular focus and scale, they are able to often provide that service at a lower cost. Unfortunately, this approach frequently suffers from unreliable information and reduced accuracy levels and turnaround times. These factors, coupled with an overall loss of control and security have limited the adoption of this approach. This is particularly true for confidential or time sensitive communications as well as communications whose dissemination is legally restricted.

As a result of these challenges, we believe there is a significant opportunity to automate these processes and thereby address these challenges and limitations.

OUR SOLUTION

We provide a comprehensive smart process applications software solution that automates the labor-intensive processes needed to capture and extract information from critical interactions, and then understand, act upon and deliver that information to systems of record. Our solution automatically captures business critical interactions regardless of how, where and when they arise. Once captured, the content of those interactions is automatically extracted and perfected. The solution then initiates and executes the downstream business processes needed to collaborate with customers to resolve the inconsistencies that inevitably arise, capture missing or trailing information, obtain necessary approvals, act upon and export the results into the appropriate systems of record, all while ensuring the consistent application of business rules needed for regulatory compliance and internal governance purposes.

Smart process applications are a relatively new category of software designed to support business activities that are people and information-intensive, highly variable, loosely structured and subject to frequent change. Smart process applications typically have the following core capabilities: awareness of relevant data and content, information capture, business process management (BPM) workflow, collaboration both inside and outside an organization, and analytics.

Again, using an invoice as an example, our software allows users to scan paper-based invoices using desktop scanners, high volume, production level scanners and multi function peripherals. Further, invoices received in an electronic format can be imported and pictures of invoices can be captured using cameras in mobile devices to produce digital images. Regardless of how the invoices are captured, any related images are then automatically enhanced for better viewing and information extraction purposes.

 

65


Table of Contents

Regardless of origin, the captured invoices are separated into logical parts such as pages, documents and attachments. A variety of optical character recognition, intelligent character recognition, barcode recognition, mark sense, parsing algorithms, and other extraction technologies are then automatically applied. Accounts payable specialists only have to manually correct or enter any erroneous or suspicious information or any additional content that cannot be effectively captured using automated information extraction technologies. “Check box” and complex custom business rules can also be automatically applied to all extracted information to ensure its accuracy and validity.

Next, the extracted information is automatically compared to the related purchase order and receiving information. Additional business rules are applied to resolve any inconsistencies. If any exceptions arise, accounts payable specialists can be prompted to manually correct inconsistencies, with all relevant information displayed in order to increase productivity. Accounts payable specialists can collaborate with vendors to obtain missing or trailing documents, and treasury management staff can view and manipulate graphical reports produced by our analytics software in order to make more intelligent decisions sooner than otherwise possible. The resulting information is then automatically delivered into accounting or enterprise resource planning systems, and the information and images are delivered to content repositories for future retrieval. The entire process is automatically directed and controlled by predefined workflows and incorporates dynamic case management capabilities to deal with unpredictable workflow requirements.

As demonstrated by the above example, our smart process applications software transforms and simplifies the entire accounts payable process by accelerating the processing of invoices. Our software is designed to reduce costs and improve the ability of customers to take advantage of prompt payment discounts, optimize its cash management and better manage valuable vendor relationships.

The May 2011 Aberdeen Group report noted that “best-in-class” organizations using automated processes take 3.8 days to process an invoice at a cost of $3.09—or 5.9 days less than and at only 20% of the cost incurred by the industry average organization, and 17.0 days less than and at only 8% of the cost incurred by “laggards.”

Similar benefits are available for new customer on-boarding in financial services and insurance, benefit enrollment processes in government, new patient enrollment processes in healthcare and other processes in these and other vertical markets.

In its July 2013 report, “The 2013-2014 Worldwide Market for Document Capture Software,” Harvey Spencer Associates reported that in 2012 Kofax was the leading revenue vendor with 14% share. In August 2012 Forrester published its “Wave” for Multichannel Capture, or the ability to capture information from a wide variety of different sources, and ranked Kofax as the “Leader” in providing those capabilities. In addition, in January 2013 Forrester published the results of a study commissioned by Kofax, and reported that in 2012 Kofax had a market leading 15% share of the Multichannel Capture market.

Kofax TotalAgility, our business process and dynamic case management software, was shown to be “Visionary” in Gartner’s April 2011 “Magic Quadrant” for Business Process Management (BPM) and a “Leader” in Forrester’s January 2011 “Wave” for Dynamic Case Management. In addition, Kofax was shown as a “Leader” Forrester’s April 2013 “Wave” for Smart Process Applications. As a result of this independent recognition and our business strengths, we believe we can secure a meaningful share of the BPM and smart process applications software markets.

OUR OPPORTUNITY

In June 2010, Gartner reported that chief information officers ranked improving business processes and reducing costs as two of their top three priorities. In November 2010, the Association for Image and Information Management (AIIM), reported that image and content capture yield two of the three fastest returns on investment of any enterprise application software expenditures. Further, 42% of capture users surveyed by AIIM in 2012 report returns on investment of 12 months or less and 57% report returns on investment of 18 months or less.

 

66


Table of Contents

In April 2012, AIIM published a separate report that estimated the following survey responses:

 

   

One out of three small and medium sized businesses and 22% of the largest businesses have yet to adopt any paper free processes;

 

   

10% or less of the processes that could be paper free have in fact been addressed;

 

   

70% of survey respondents believed the use of scanning and automated capture improves the speed of responses to constituents by three times or more, and nearly 30% believe the factor is ten times or more;

 

   

52% believe administrative staff would be 33% or more productive if processes were automated using capture-based technology; and

 

   

Two out of three consider mobile technologies to be important or extremely important to improving business processes, and 45% believe mobile devices would improve the speed of responses to constituents by three times or more. However, more than 75% have made no progress in taking advantage of this opportunity.

We believe that the size of the market for our smart process applications software can be best estimated by combining the market for capture software and services, the market for BPM software and the market for vertically oriented information-intensive smart process applications that fit Kofax’s strength in addressing the First Mile challenge of business. Capture software automates the labor intensive processes needed to enter business critical information into enterprise applications and repositories. BPM software automates the labor intensive processes needed to understand and act upon that business critical information. Smart process applications software combines awareness, capture, business process and dynamic case management, collaboration, and analytics capabilities to automate the labor-intensive processes needed to capture and extract information, and then analyze, act upon and deliver that information to systems of record.

A July 2013 Harvey Spencer Associates report estimated that the market for capture software and services will grow from approximately $2.7 billion in 2012 to approximately $4.2 billion in 2017, a CAGR of almost 9.2%. In July 2013, Gartner stated that the total market value for business process management suites (BPMS) in 2012 was $2.3 billion and that growth for the years up to 2017 is expected to grow at a compound annual growth rate of 10% over the next five years. These reports suggest that these markets reached $5 billion in calendar 2012.

In January 2013 Forrester published the results of a study commissioned by Kofax, and estimated that the software and maintenance services market for capture, BPM and vertically-oriented information-sensitive smart process applications totaled and will grow from $7.1 billion in 2012 to $14.0 billion in 2016, a CAGR of approximately 18%.

OUR BUSINESS STRENGTHS

We believe the following business strengths position us to capitalize on the opportunity for our smart process applications software and compete effectively in the market:

Comprehensive Solutions

Our software enables organizations to design, deploy, and operate comprehensive systems that create an essential link between their systems of engagement, which generate real time, information-intensive communications from constituents, and their systems of record, which are typically large scale enterprise applications and repositories used to manage their internal operations. Our software is designed to streamline critical information processing, which we believe allows our users to be more responsive to their constituents and is intended to enable our customers to provide better service, gain competitive advantage and grow their organizations while reducing their costs and improving their regulatory compliance. In addition to our software, we offer a wide range of related professional and maintenance services to better address the deployment and support needs of our users and channel partners, which helps us achieve a greater level of customer satisfaction.

 

67


Table of Contents

Large and Diversified User Base

We had approximately 20,000 active installations across more than 100 countries as of June 30, 2013. We serve users in the financial services, insurance, government, healthcare, supply chain, business process outsourcing and other vertical markets. Most users initially license our software to automate one or several processes in a single geographic region, business unit, line of business, function, or department. Over time, many users license additional software to automate other processes and some eventually enter into enterprise-wide license arrangements. As a result, we believe we are well positioned to take advantage of additional opportunities within the same organizations. In addition, we believe our large number of users effectively gives us preferential access to a greater share of the market. We have minimal user concentration, with no user having accounted for more than 5% of our total revenue for the fiscal year ended June 30, 2013.

Global Reach and Hybrid Go-to-Market Model

We operate on a global basis, with 1,248 employees located in 32 countries as of June 30, 2013. We utilize a hybrid go-to-market model that delivers our software and services through our own direct sales and service employees, as well as through an indirect channel of more than 850 authorized resellers, original equipment manufacturers and distributors located in more than 75 countries as of June 30, 2013. Our direct sales and service employees focus their attention on large corporations and government entities, while our indirect channel allows us to better reach small and medium sized organizations and departments of larger organizations. This hybrid go-to-market strategy allows us to penetrate a much broader portion of the market.

Recurring Revenue Streams

We have significant recurring revenue streams attributable to our maintenance services and to our software license and royalty revenue generated from sales by our channel partners. We have historically had a significant portion of our users renew their maintenance service agreements with us, typically on an annual basis. Our maintenance services revenue was $121.8 million and $113.8 million, representing 45.7% and 43.3% of our total revenue, for the fiscal years ended June 30, 2013 and 2012, respectively. Due to the large number of our channel partners, there is a significant level of predictability in the sales made by our channel partners in each period. Our channel partners, many of whom are long-standing partners, generally transact sales that are limited to a single geographic region, business unit, line of business, function, or department. Our direct sales force often sells software and services that encompass multiple regions, business units, lines of business, functions or departments, including, at times, enterprise-wide arrangements. Sales made to the small and medium-sized businesses targeted by our channel partners, on average, have smaller overall transaction sizes as compared to sales made by our direct sales force. The volume of licenses sold by our channel partners is larger than the volume sold by our direct sales force, which makes our revenue from channel partner sales less reliant on any particular customer. We also receive royalty revenue from a number of original equipment manufacturers, many of whom are also long-standing channel partners, who include our software in the offerings that they sell to their customers.

Experienced Management Team

Our executive management team and other senior management employees have on average, over 25 years of software industry experience. We believe that our management team has been, and will continue to be, instrumental in growing our business, both organically and through acquisitions.

OUR GROWTH STRATEGY

Our objective is to extend our position as a leading provider of smart process applications software and related services. We intend to pursue this objective by executing these key strategies:

Broaden Our Software Offerings and Markets

We believe mobile devices will rapidly transform the way in which interactions occur between organizations and their constituents. Our recently introduced mobile software offers patented functionality that

 

68


Table of Contents

pushes capture, BPM, collaboration and analytics capabilities to the “Point of Origination™” where constituent interactions occur. We intend to continue to extend and improve the functionality of these capabilities to take advantage of the opportunity for mobile capabilities.

We have historically offered our software under a perpetual license model for on-premise or private cloud deployments, and recently began offering portions of it through both a public cloud-based hosted SaaS subscription offering and through term-based on premise software licenses. We intend to accelerate the SaaS initiative and eventually offer substantially all of our software as a SaaS offering. We believe that the SaaS offering will allow users to avoid significant capital expenditures and other on-premise deployment costs, while providing immediate access to the benefits of our software. We additionally believe that our term-based licenses will attract customers that otherwise may not license our software on a perpetual basis. The software that we acquired through our July 2013 acquisition of Kapow Technologies, Inc. is predominantly licensed on a term-based model. While we believe that these offerings will ultimately broaden our existing market reach, we did not record a significant amount of revenue from our SaaS offering nor our term license offering in fiscal 2013. Additionally, we do not expect that revenue from our SaaS or term-based offerings will adversely affect revenue from perpetual licenses in fiscal 2014.

We also intend to continue to enhance and further develop our proven technologies and introduce new software for sale to our existing users, new users in existing vertical markets and new users in new vertical markets. We believe these new product initiatives offer significant opportunities to grow both our addressable market and revenue.

Further Penetrate Our Installed User Base

Most users initially license our software to automate one or several processes in a single geographic region, business unit, line of business, function or department rather than doing so on an enterprise-wide basis. Over time many users license additional software to automate other processes and some eventually enter into enterprise-wide license arrangements. As a result, we believe that there are significant opportunities to expand our revenue by selling additional software and services into our large and growing installed user base. As evidence of this, in the fiscal year ended June 30, 2013, our existing user base generated more than half of our software license revenue.

Expand and Optimize Our Hybrid Go-To-Market Model

In the fiscal year ended June 30, 2013 we derived approximately 46% of our total revenue from direct sales and approximately 54% from sales made through our indirect channel, and in the fiscal year ended June 30, 2012 we derived approximately 43% of our total revenue from direct sales and approximately 57% from sales made through our indirect channel. We intend to grow our revenue by improving the execution and productivity of both of these “routes to market” and by adding new direct sales and service employees and channel partners.

Pursue Strategic Acquisitions

We believe that strategic acquisitions will allow us to better serve the needs of our users, expand our software offerings, augment our routes to market, expand our market opportunities, and broaden our user base. Our executive management team has substantial experience in successfully effecting acquisitions of software businesses and integrating these entities into our business operations. Recent examples of executing on this strategy include our acquisitions of OptiInvoice Digital Technology AB in October 2008 (electronic invoice capabilities), 170 Systems, Inc. in September 2009 (accounts payable automation solutions), Atalasoft, Inc. in May 2011 (web capture capabilities), Singularity Limited in December 2011 (BPM and dynamic case management capabilities), Altosoft, Corp. in March 2013 (business intelligence and analytics capabilities) and Kapow Technologies, Inc. in July 2013 (data integration). In the future we intend to evaluate and pursue similar opportunities.

 

69


Table of Contents

OUR SOFTWARE PRODUCTS AND RELATED SERVICES

Our smart process applications software and related services include a broad array of offerings.

Software

Our software, the nature of the business problems it addresses and the value it provides to users have evolved over time. This can be summarized in the diagram below:

LOGO

Our smart process applications software combines industry leading capture, business process and dynamic case management, collaboration and analytics capabilities to automate the labor-intensive processes needed to capture and extract information, and then analyze, act upon and deliver that information to systems of record. Users typically need to capture and extract information in high volumes in an efficient, productive and consistent manner in order to be more responsive to their constituents. It also allows users to provide better service levels, gain competitive advantage and grow while reducing a user’s costs and improving its regulatory compliance. We have optimized our software to provide a high level of system performance and availability. Most of our software uses complex queuing algorithms to ensure sub-second response times and minimize the number of system calls required to complete tasks, and typically include some or all of the following steps and capabilities:

 

   

controlling and directing scanners, multi function peripherals, mobile devices and other hardware that transform paper-based communications into digital images;

 

   

importing communications received in an electronic format;

 

   

enhancing images for better viewing and information extraction purposes;

 

   

identifying and classifying communication types;

 

   

separating individual communications into logical parts such as pages, documents and attachments;

 

   

applying various information extraction technologies;

 

   

applying appropriate business rules against the extracted information to ensure its consistent accuracy and validity;

 

   

comparing the extracted information to relevant sources such as databases in other enterprise software applications;

 

70


Table of Contents
   

routing erroneous or suspicious extracted information to knowledge workers to correct, enter or resolve;

 

   

routing the validated information extracted to knowledge workers and constituents to act upon as required to complete the processes;

 

   

using dynamic case management capabilities to deal with unpredictable workflow requirements;

 

   

collaborating with and enabling constituents to obtain missing or trailing documents;

 

   

Viewing and manipulating graphical reports produced by our analytics software and enables users to make more intelligent decisions sooner than otherwise possible;

 

   

repurposing or properly formatting the extracted information and images for delivery; and

 

   

delivering the extracted information and images to other enterprise software applications and repositories.

Our software can be used on standalone personal computers, client-server platforms and Microsoft Windows Azure as a SaaS offering. Much of our software includes modules that function as servers, which means that their resources can be shared by multiple users and that additional modules can be added as required to address more complex processing or greater throughput requirements.

Our software is generally licensed and priced on either a per-server or per-user basis, with the server based processes typically configured to support a specified throughput. Most of our software uses Microsoft SQL Server to store information while maintaining high throughput rates.

Most of our software is available in United States English, French, German, Italian, Portuguese, Spanish, Russian, Chinese and Japanese. We expect to provide additional localized versions as needed over time to expand our international presence.

Services

We offer a variety of services that allow us to address the deployment and support needs of our users and to a lesser extent our indirect channel in order to achieve a greater level of customer satisfaction. These include a comprehensive range of services provided by our professional and technical services staff, which consisted of 323 employees as of June 30, 2013.

Our professional services staff provides training, project management, functional and detailed specification preparation, configuration, testing, and installation services, to our users. While our channel partners can and do provide these services to their customers, we sometimes provide these services on their behalf to their customers on a sub-contract basis. We generally charge for professional services on a time and materials basis, but we also charge on a fixed fee basis for projects with milestone payments utilizing mutually agreed upon functional and detailed specifications.

Our technical services staff provides maintenance for the dependable and timely resolution of technical inquiries via telephone, email and the Internet. We offer several levels of maintenance, with the most comprehensive covering 24 hours a day, seven days a week. We generally charge for maintenance as a percentage of the related software license fee that varies, depending upon the related level of service and other factors. While we offer multiple year maintenance agreements, most of our customers prefer annual maintenance agreements. We measure the renewal rates associated with our organic maintenance revenue and during each of fiscal 2013 and fiscal 2012, those organic maintenance renewal rates were in excess of 90%. As a result of our large installed user base, our maintenance revenues represent a significant portion of our total revenue.

 

71


Table of Contents

SALES AND MARKETING

We utilize a hybrid go-to-market model that delivers our software and services through our direct sales and service employees, as well as through an indirect channel of more than 850 authorized resellers, original equipment manufacturers and distributors located in more than 75 countries as of June 30, 2013. During the fiscal years ended June 30, 2013 and June 30, 2012, approximately 54% and 57%, respectively, of our total revenue came from our indirect channel, and none of our channel partners accounted for more than 5% of our total revenue for that year. We believe our ability to successfully work through these diverse and sometimes competing channels, coupled with our global market reach, is a significant competitive advantage.

Our software is designed to address the smart process applications needs of users in a broad range of vertical markets, including financial services, insurance, government, healthcare, supply chain, business process outsourcing and others. As of June 30, 2013 we had approximately 20,000 active installations of our software with a broad base of users, including 67 of the Fortune Global 100 companies. During the fiscal year ended June 30, 2013, no single user accounted for more than 5% of our total revenue.

As part of a sales process, we, or our channel partners, typically explain the benefits of our software to prospective users, communicate an ability to deliver a solution that meets their needs, and often provide a “proof of concept” pilot demonstration prior to receiving an order. Many of our prospective users typically require one or more internal levels of approval before they can purchase our products and services. We must therefore identify multiple people involved in the purchasing decision and process. As a result, sales cycles can vary significantly between prospective users in different geographies and vertical markets, and can typically take anywhere from 60 days to 18 months. All of this can consume significant resources without the assurance of success.

Our marketing strategy uses a variety of programs to build awareness of Kofax and the need for our software within our user base and with prospective users, including market research, communicating and interacting with industry analysts, public relations activities, email and Internet based marketing programs, seminars, trade shows, speaking engagements and a variety of user and partner conferences. Our marketing staff also produces collateral materials to support our selling efforts including brochures, data sheets, white papers, presentations, videos and demonstrations.

Our sales and marketing staff consisted of 376 employees as of June 30, 2013. We intend to expand this staff as well as our marketing programs to increase our market reach and add new channel partners. We intend to devote significant resources to accomplishing these objectives.

RESEARCH AND DEVELOPMENT

We believe our future success depends in large part on our ability to enhance our current software, develop new software, maintain technological competitiveness, implement industry standards as they emerge and satisfy an evolving range of requirements for existing and prospective users. Our research and development employees are responsible for achieving these objectives, and we have and intend to continue to devote substantial resources to these efforts.

We have assembled a team of skilled research, development, quality assurance, and documentation engineers with substantial and relevant experience. Some members of this team work from offices in Hyderabad, India; Hanoi, Vietnam; and St. Petersburg, Russia, which allows us to access and utilize talented but lower cost resources in our research and development efforts.

Our research and development expenditures were $34.7 million and $33.8 million for the fiscal years ended June 30, 2013 and June 30, 2012, respectively. As of June 30, 2013, our research and development staff consisted of 360 employees. All research and development expenditures are expensed as incurred.

 

72


Table of Contents

INTELLECTUAL PROPERTY

We have invested, and intend to continue to invest, significantly in the development of proprietary technology and information. We believe our success and ability to compete is dependent on our ability to protect this intellectual property. We rely on a combination of patent, trademark, trade secret and copyright laws and confidentiality, non-disclosure and other contractual arrangements to protect these rights.

As of June 30, 2013, we held 20 issued U.S. patents and had 30 pending U.S. patent applications, as well 14 foreign patents and nine patent applications pending in jurisdictions outside of the United States. We are in the process of filing additional corresponding foreign applications pursuant to the Patent Cooperation Treaty for our issued patents and pending U.S. patent applications.

Our users’ use of our software products is governed by shrink-wrap or executed license agreements. We also enter into written agreements with each of our channel partners governing the sale, marketing and licensing of our software. In addition, we seek to avoid disclosure of our proprietary technology and information by requiring each of our employees and others with access to our intellectual property to execute confidentiality and non-disclosure agreements with us. We protect our software, documentation, and other written materials under trade secret, trademark and copyright laws. All of these measures can only afford limited protection.

COMPETITION

We compete in the smart process applications, capture, BPM and software markets. The market for our products is highly fragmented, competitive, evolving, and subject to technological change. Competitors vary in size and in the scope and breadth of the products and services offered. Our principal competitors are companies addressing various segments of the capture, BPM and smart process applications markets, including EMC, IBM, Lexmark, Nuance, OpenText, Pegasystems, Readsoft, and many other smaller companies, as well as certain of our existing users and prospective users pursuing in-house development efforts.

We believe the principal competitive factors in the smart process applications, capture and BPM market are product offerings, service and pricing. We believe our competitive advantages include:

 

   

our large installed user base and access to prospective new users;

 

   

our sufficiently comprehensive, flexible, scalable, and quality software that is capable of addressing each customer’s requirements in a predictable and reliable manner;

 

   

our software’s ability to automate the processing of all types of information flowing into an organization;

 

   

the vertical market experience we and our channel partners have in providing the complete solutions users desire;

 

   

our proven track record of successful user deployments and having users willing to provide positive references to prospective users;

 

   

our ability to sell, market and deploy solutions on a global basis and having channel partners who can also do so; and

 

   

our financial strength and stability, which instills buying confidence on the part of users and our channel partners.

GOVERNMENTAL REGULATION

Our operations and the activities of our employees, contractors, and agents around the world are subject to the laws and regulations of numerous countries, including the U.S. These laws and regulations include data privacy requirements, labor relations laws, tax laws, anti-competition regulations, prohibitions on payments to

 

73


Table of Contents

governmental officials, import and trade restrictions, and export requirements. Violations of these laws and regulations could result in fines, criminal sanctions against our officers, our employees, or us and may result in prohibitions on the conduct of our business. Any such violations could also result in prohibitions on our ability to offer our products and services in one or more countries, could delay or prevent potential acquisitions, and could materially damage our reputation, our ability to attract and retain employees, our business and our operating results.

Our foreign operations (particularly in those countries with developing economies) are also subject to risks of violations of laws prohibiting improper payments and bribery, including the U.K. Bribery Act, U.S. Foreign Corrupt Practices Act and similar regulations in foreign jurisdictions. Although we implement policies and procedures designed to ensure compliance with these laws, our employees, contractors, and agents may take actions in violation of our policies. Any such violations, even if prohibited by our policies, could subject us to civil or criminal penalties or otherwise have an adverse effect on our business and reputation.

LEGAL PROCEEDINGS

We are, and from time to time may be, party to various pending and threatened claims, suits, and complaints. There are no material pending or threatened lawsuits against us except for one filed November 29, 2012 in which we were named as a defendant in a lawsuit filed by Scan Emea Holding GmbH in Zurich, Switzerland, alleging that we breached our contract with Scan Emea Holding GmbH in connection with the January 2011 sale of our hardware business. We have assessed the merits of the lawsuit, believe it is not reasonably likely to have a material adverse effect on our business, results of operations or financial condition and intend to vigorously litigate this matter and to take other actions available to us, including asserting appropriate counterclaims. Concurrent with filing the lawsuit, Scan Emea Holding GmbH withheld 1.5 million euro of the final 2.0 million euro payment associated with their purchase of our hardware business.

EMPLOYEES

As of June 30, 2013 we had 1,248 employees. This included 360 in research and development, 376 in sales and marketing, 323 in professional and technical services and 189 employees in general and administrative functions.

Our goal is to attract and retain highly qualified and motivated personnel. We also often employ independent contractors to support their efforts. None of our employees or contractors are subject to a collective bargaining agreement, however, some of our employees located in European offices are members of a work council that entitles them to certain rights as a matter of law. We consider our employee relations to be good and we have never experienced a work stoppage.

 

74


Table of Contents

FACILITIES

We own no real estate. As of June 30, 2013 our significant leased facilities were as follows:

 

Location

   Square Feet
(Approx.)
   Lease
Expiration Date
  

Primary Use

Irvine, California

   91,000    April 2016    Operating headquarters, technical and professional services, research and development, sales and marketing and administration.

Vienna, Austria (1)

   28,000    September 2014    Technical and professional services, research and development and sales.

Bedford, Massachusetts

   25,000    March 2018    Technical and professional services, research and development and sales.

Rotkreuz, Switzerland

   17,000    January 2015    Administration, sales and professional services.

Hyderabad, India

   15,000    November 2017    Research and development, technical and professional services.

Basingstoke, England

   14,000    June 2022    Registered corporate headquarters, sales and technical and professional services.

Derry, Northern Ireland

   12,000    July 2020    Research and development, sales and marketing, technical and professional services.
(1) Lease renews annually at the Company’s option.

We believe that our premises are sufficient for our current and anticipated needs in the near future and that additional space will be available on commercially reasonable terms as needed.

COMPANY INFORMATION

Our principal executive offices are located at 15211 Laguna Canyon Road, Irvine, California 92618. Our telephone number there is (949) 783-1000 and our web address is www.kofax.com. We do not incorporate the information on our website into this prospectus and you should not consider any such information that can be accessed through our website as part of this prospectus.

 

75


Table of Contents

MANAGEMENT

Directors and Executive Officers

Set forth below is the name, age, position and a brief account of the business experience of each of our directors and executive officers as of August 31, 2013.

 

Name

 

Age

 

Position

Reynolds C. Bish

  61   Chief Executive Officer and Director

James Arnold, Jr.

  57   Chief Financial Officer and Director

Howard Dratler

  53   Executive Vice President of Field Operations

Anthony Macciola

  50   Chief Technology Officer

Jim Nicol

  60   Executive Vice President of Products

Karl Doyle

  49   Senior Vice President of Corporate Development

Lynne Scheid

  55   Senior Vice President of Human Resources

Bradford Weller

  55   Executive Vice President of Legal Affairs, General Counsel and Company Secretary

Greg Lock

  65   Non-Executive Chairman of the Board of Directors

William T. Comfort III

  47   Director

Chris Conway

  68   Director

Wade W. Loo

  53   Director

Bruce Powell

  64   Director

Joe Rose

  62   Director

Mark Wells

  57   Director

The address of each of our executive officers and directors is c/o Kofax Limited, 15211 Laguna Canyon Road, Irvine, CA 92618.

Biographical Information

Reynolds C. Bish is our Chief Executive Officer and a member of Kofax’s Board of Directors, roles he has held since November 2007. Mr. Bish has been active in enterprise software markets for more than 20 years. In 1989, he co-founded Captiva Software Corporation, a provider of input management solutions. He served as Captiva’s President and CEO until its acquisition by EMC Corporation in December 2005. He then served as a Vice President of EMC’s Enterprise Software Group until June 2006 when he resigned to take a sabbatical until joining us. Prior to Captiva, Mr. Bish was President and CEO of Unibase Systems, Inc., a company that provides data entry systems on industry standard, open platforms. He has served on the board of directors of many industry organizations, including AeA and AIIM. He holds a Bachelor of Science in Business Administration from the Pennsylvania State University.

James Arnold, Jr. is our Chief Financial Officer and a member of Kofax’s Board of Directors, roles he has held since June 2010. He has almost 30 years of executive financial management experience. Most recently, he was with Nuance Communications, Inc., a leading provider of speech and imaging solutions, where he was Senior Vice President and Chief Financial Officer from September 2004 to August 2008, and then a consultant until September 2009, at which point he resigned to take a sabbatical until joining us in June 2010. From 2003 to 2004, Mr. Arnold was Vice President and Corporate Controller at Cadence Design Systems, Inc. From 1997 to 2003, he held several senior financial management roles at Ascential Software (formerly Informix Software, Inc.), including Vice President and Chief Financial Officer. Mr. Arnold began his career at PricewaterhouseCoopers. He holds a Bachelor of Business Administration in Finance from Delta State University and a Master of Business Administration from Loyola University.

Howard Dratler is our Executive Vice President of Field Operations, a role he has held since July 2012. Mr. Dratler is responsible for Kofax’s customer-facing functions on a global basis, including all sales, professional services, maintenance services, channel management, business development and sales operations

 

76


Table of Contents

activities. Mr. Dratler joined us in July 2012. Prior to joining us, Mr. Dratler was the CEO of Panzura, an early stage, venture capital funded cloud based storage service provider from April 2011 to April 2012. Mr. Dratler took a sabbatical for the period prior to joining us and after he left Panzura. Before that, he was the CEO of Anacomp, a publicly listed company and leading global provider of SaaS based document management services from February 2007 to April 2011. Before that, he was the Executive Vice President of Worldwide Field Operations at EMC/Captiva, a leading provider of input management software, and its predecessor, Captiva Software Corporation, until its acquisition by EMC in December 2005. Mr. Dratler has a Bachelor of Science degree in computer science from The Ohio State University.

Anthony Macciola is our Chief Technology Officer (CTO), a role he has held since July 2008. Mr. Macciola has more than 26 years of experience in the document imaging industry and has extensive experience in the areas of software, hardware and algorithm development and holds several patents. Mr. Macciola has been with Kofax since 1990, except for a brief period from 2000 to 2002 when he was Vice President of Worldwide Marketing for Lantronics, Inc., a company focused on the network enabling market. Prior to becoming Kofax’s CTO, Mr. Macciola held several senior level positions with Kofax, including EVP of Products and SVP of Marketing and Engineering. Prior to Kofax, Anthony was with Xionics. He holds a Bachelor of Arts in Management Information Systems from California State University, Fullerton.

Jim Nicol is our Executive Vice President of Products, a role he has held since September 2008. Prior to joining us, Mr. Nicol served as the Vice President and General Manager of the Captiva Product Business Unit at EMC (June 2006 to September 2008), where he was responsible for product strategy, product management and marketing, engineering, quality assurance, mergers and acquisitions, and strategic initiatives. Mr. Nicol holds a Bachelor of Sciences degree in Computer Science and a Master of Sciences degree in Biology from the California State University, Chico.

Karl Doyle is our Senior Vice President of Corporate Development responsible for executing inorganic growth strategies, a role he has held since December 2011. Mr. Doyle has been in the ECM industry for more than 20 years as an industry analyst, business development executive and consultant. From November 2010 to December 2011, Mr. Doyle acted as an external consultant providing acquisition advisory services for many companies in the ECM space, as well as Kofax. Prior to November 2010, Mr. Doyle spent 15 years at IBM FileNet, where he held a variety of executive leadership, product management and business development positions, including Director of Business Development and Strategy, and VP Business Development, where he was instrumental in the IBM acquisition of FileNet. Mr. Doyle started his ECM career in 1988 as an industry analyst covering the European document imaging and workflow markets. Mr. Doyle holds a Bachelor of Commerce in Business and a Masters in Business Services from University College Dublin.

Lynne Scheid is our Senior Vice President of Human Resources, a role she has held since July 2012. Ms. Scheid previously served as our Vice President of Human Resources from August 2008 to July 2012. From July 1996 to August 2008, Ms. Scheid served as our Director of Human Resources. Ms. Scheid attended Fullerton College and studied Human Resources at the University of California, Irvine.

Bradford Weller is our Executive Vice President of Legal Affairs, General Counsel and Company Secretary, roles he has held since January 2008. Prior to joining us, Mr. Weller served as General Counsel and Company Secretary of St. Bernard Software from July 2006 to October 2007. Mr. Weller took a sabbatical for the period prior to joining us and after he left St. Bernard Software. Mr. Weller has had a successful career both working as an attorney at a law firm and as an in house attorney at a number of publicly held technology companies, including Captiva Software Corporation, where he served as General Counsel, Vice President of Legal Affairs and Secretary. Mr. Weller has complete responsibility for the management of all of our in-house attorneys, our use of any and all external law firms and our Corporate Secretary function. He holds a Bachelor of Arts in Economics from Stanford University and a Juris Doctor from Hastings College of Law.

Greg Lock was appointed as Non-Executive Chairman of the Kofax Board of Directors on March 15, 2007. In addition to serving on our Board, Mr. Lock serves as a director for two public companies, Computacenter (where

 

77


Table of Contents

he is also board chairman), and UBM plc. Mr. Lock holds a Master of Arts degree in Natural Sciences from Churchill College, Cambridge and is a Fellow of the Royal Society of Arts, Manufacturers and Commerce.

William T. Comfort III was appointed to the Kofax Board of Directors on August 24, 2007. In 2003, Mr. Comfort founded Conversion Capital Partners Ltd, an investment partnership with offices in London and New York. Prior to founding Conversion, Mr. Comfort worked for CVC Capital Partners and advised Citicorp Venture Capital in London, focusing on European mid to large management buyouts. Mr. Comfort currently serves as the Chairman of the board of directors of Lyris, Inc., a marketing technology solutions company, and is a member of the New York University Board of Trustees. Mr. Comfort holds a Bachelor of Science in Business Administration from Boston University and a Juris Doctor and Master of Laws degree in tax law from the New York University School of Law. Mr. Comfort is also a member of the New York State Bar.

Chris Conway was appointed to the Kofax Board of Directors on December 15, 2004. Mr. Conway currently serves as a Non-Executive Director of Artificial Solutions Ltd., a private equity backed company that provides customer service optimization solutions to a wide range of European clients. Mr. Conway holds a Bachelor of Arts degree in History and Philosophy from the University of South Africa.

Wade W. Loo was appointed to the Kofax Board of Directors on February 4, 2011 and is a member of Kofax’s Audit Committee. From 1980 until his retirement in September 2010, Mr. Loo worked for KPMG LLP, ultimately serving as the senior partner in charge of KPMG’s Northern California audit practice. Mr. Loo is a member of the board of directors of JobTrain, a not-for-profit organization located in Menlo Park, California dedicated to helping individuals find meaningful employment in the local community. Mr. Loo is a CPA and holds a Bachelor of Sciences degree in Accounting from the University of Denver.

Bruce Powell was appointed to the Kofax Board of Directors on March 16, 1996. Mr. Powell brings years of experience with the preparation of financial statements and accounting matters to our Board gathered through his professional background as a Chartered Accountant and chief financial officer of listed and unlisted U.K. companies. From 2009 to the present, Mr. Powell has served as the Non-Executive Chairman of Threadless Closures Ltd., a designer of packaging materials. Mr. Powell also currently serves as Chairman of Treloar Trust, a not-for-profit charity providing education to the young disabled and as a director of The Worshipful Company of Haberdashers. Mr. Powell holds a Master of Arts degree in Economics and History from the University of Cambridge.

Joe Rose was appointed to the Kofax Board of Directors on April 1, 2009. From 2003 to the present, Mr. Rose is the founder and president of Rosetta Partners, LLC, a company providing business advisory, executive management and investment support services to information technology, computer software and business process outsourcing companies. Mr. Rose also currently serves as a director of Paperless Transaction Management, Inc., as well as a director of its wholly owned subsidiary, eOriginal, Inc. Mr. Rose holds a Bachelor of Arts degree in Business, Liberal Arts and Architecture from Texas Tech University and a Director Education Program Certificate in Public Board Service from the University of California, Los Angeles’s Anderson School of Management.

Mark Wells was appointed to the Kofax Board of Directors on December 15, 2004. Mr. Wells currently serves as a Non-Executive Director for INVU plc (a public company), Romax Technology Limited, Wasp Management Software Limited, Execview Limited, and as a director of Cortexplus Limited. Mr. Wells is also a trustee of the Stoke Poges Parochial Church Council. Mr. Wells holds a Bachelor of Sciences degree in Electronic Engineering from the University of Bath and a Master of Business Administration from Cranfield University.

Board of Directors and Standing Committees

In general, under Rule 5615(a)(3) of the NASDAQ Marketplace Rules, foreign private issuers such as our company are permitted to follow home country corporate governance practices instead of certain provisions of

 

78


Table of Contents

the NASDAQ Marketplace Rules without having to seek individual exemptions from NASDAQ. A foreign private issuer making its initial public offering or first U.S. listing on NASDAQ that follows a home country practice instead of any such provisions of the NASDAQ Marketplace Rules must disclose in its registration statement or on its website each requirement of the NASDAQ Marketplace Rules that it does not follow and describe the home country practice its follows in lieu of such requirements.

The requirements of the NASDAQ Marketplace Rules with which we do not intend to comply and the corporate governance practices that we follow in lieu thereof are described below:

NASDAQ Marketplace Rule 5620(c) provides that the minimum quorum requirement for a meeting of shareholders is 33 1/3% of the outstanding common shares. In addition, Rule 5620(c) requires that an issuer listed on NASDAQ state its quorum requirement in its bylaws. The Company’s quorum requirement is set forth in its bye-laws, which provide that, for so long as the Company’s common shares are listed on the Official List of the Financial Services Authority in the UK (the “Official List”) and admitted to trading on the main market of the London Stock Exchange, a quorum for the transaction of business at any meeting of shareholders is two persons present in person or by proxy entitled to vote at the meeting.

Composition and Operation of the Board of Directors; Terms of Directors

Our bye-laws provide that our Board of Directors shall consist of not less than three and not more than ten directors as determined by resolution of the Board of Directors from time to time. Our Board of Directors currently consists of nine directors who shall stand for election at each annual general meeting. The Board of Directors is responsible for formulating strategy, corporate and capital structure, overseeing financial reporting and auditing, external communication, board appointments, compensation policy and maintenance of corporate governance standards. The Board of Directors is also responsible for ensuring that the necessary internal control mechanisms are in place to identify business, financial and operating risks and developing adequate structures and policies to mitigate those risks.

Director Independence

Considering the guidance for determining independence as set out in the UK Corporate Governance Code, the Board of Directors considers that Messrs. Conway, Lock, Powell, Rose, Wells and Loo were independent throughout the fiscal year ended June 30, 2013. The Board of Directors also considers Mr. Comfort to be independent in character and in judgment, but is unable to determine him to be independent according to the UK Corporate Governance Code definition based upon his relationship with a significant shareholder.

Indemnification Agreements

We intend to enter into new indemnification agreements with each of our directors and executive officers that will provide our directors and executive officers with additional protection regarding the scope of the indemnification set forth in our post-offering bye-laws. Pursuant to these agreements, we will indemnify each such person (to the fullest extent permitted by Bermuda law) against all costs and expenses, including expense advances, incurred in connection with any claim by reason or arising out of any event or occurrence relating to the fact that such person is our director or executive officer or is serving at our request at another corporation or entity, or by reason of any activity or inactivity while serving in such capacity. However, we are not obligated to indemnify our directors or executive officers under these agreements if:

 

   

indemnification is prohibited by our bye-laws or applicable law;

 

   

the action initiated by the person is not authorized by our Board of Directors; or

 

   

a court determines that the person did not act in good faith and in a manner that such officer or director reasonably believed to be in or not opposed to the best interests of the company.

 

79


Table of Contents

Meetings of Non-Executive Directors

Our independent directors meet in regularly scheduled sessions at which only independent directors are present.

Committees of our Board of Directors

Our Board of Directors has a separately designated standing Audit Committee, Remuneration Committee and Nomination Committee. Each committee has a written charter that has been approved by the Board of Directors.

The following table sets forth the composition of each committee:

 

Name

   Audit
Committee
   Remuneration
Committee
   Nomination
Committee

William T. Comfort III

         Member

Chris Conway

   Member    Chairman    Member

Greg Lock

         Chairman

Wade W. Loo

   Chairman      

Bruce Powell

   Member       Member

Joe Rose

      Member    Member

Mark Wells

   Member    Member    Member

Audit Committee

Our Audit Committee consists of Messrs. Loo (Chairman), Conway, Powell and Wells. The Board of Directors has determined that each member of the Audit Committee satisfies the independence requirements of NASDAQ and Rule 10A-3(b)(1) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and meets the requirements for financial literacy under the requirements under NASDAQ rules and SEC rules and regulations. The Board of Directors has determined that Mr. Loo qualifies as an “audit committee financial expert” as that term is defined in the rules and regulations established by the SEC.

Under the terms of the charter of our Audit Committee, its purpose is to provide an independent review of the effectiveness of the financial reporting process, internal control and risk management systems, whistleblowing procedures and oversee the audit process. The Audit Committee’s primary duties and responsibilities are to:

 

   

monitor the integrity of the Company’s financial statements, annual and half-yearly reports, interim management statements, preliminary results announcements or other announcements of financial performance;

 

   

review significant financial reporting issues and judgments they contain, significant financial returns to regulators and any financial information contained in documents published by the Company;

 

   

review and present recommendations to the Board of Directors regarding approval of any financial statements to be made (including the Company’s annual accounts) or financial information to be disclosed by the Company, in particular considering:

 

   

whether published accounting standards, legal and regulatory requirements and generally accepted best practice has been followed, appropriate estimates and judgments have been made, and the views of the external auditor have been taken into account; and

 

   

changes in accounting policies and practices, and the reasons for and effects of those changes;

 

   

review and challenge where necessary the methods used to account for significant or unusual transactions where different approaches were possible;

 

80


Table of Contents
   

review the adequacy and effectiveness of the Company’s Code of Ethics, internal controls and risk management processes; and

 

   

review the Company’s arrangements for its employees to raise concerns, in confidence, about possible wrongdoing in financial reporting or other matters and ensure that these arrangements allow proportionate and independent investigation of such matters and appropriate follow up action.

In relation to the Company’s external auditor, the Audit Committee, among other things:

 

   

recommends the appointment, reappointment or removal of the external auditor and considers any issues relating to their resignation, dismissal, remuneration or terms of engagement. If the Board of Directors does not accept the Audit Committee’s recommendation, the Audit Committee will publish in the Company’s annual report, and in any documents recommending appointment or re-appointment, a statement explaining the recommendation and why the Board of Directors has taken a different position;

 

   

considers and keeps under review, the external auditor’s independence, objectivity and effectiveness;

 

   

reviews and monitors the effectiveness of the audit process, considering relevant professional and regulatory requirements;

 

   

develops and implements policy on the engagement of the external auditor to provide non-audit services; and

 

   

approves the external auditors’ annual proposals regarding the level of audit fees and the nature and scope of proposed audit coverage.

In relation to the Company’s internal audit function, the Audit Committee, among other things:

 

   

monitors and reviews the effectiveness of the company’s internal audit function in the context of the overall risk management system;

 

   

approves the appointment and removal of the head of the internal audit function;

 

   

considers and approves the remit of the internal audit function and ensures it has adequate resources and appropriate access to information to enable it to perform its function effectively and in accordance with the relevant professional standards. The Audit Committee also ensures the function has adequate standing and is free from management or other restrictions;

 

   

reviews, assesses and approves the annual internal audit plan and any changes thereto;

 

   

reviews promptly all reports on the Company from the internal auditor(s); and

 

   

reviews and monitor management’s responsiveness to the findings and recommendations of the internal auditor.

The Audit Committee is authorized to obtain, at the Company’s expense, reasonable outside legal or other independent professional advice on any matters within the scope of its responsibilities.

Remuneration Committee

Our Remuneration Committee, which would commonly be referred to in the U.S. as the compensation committee, consists of Messrs. Conway (Chairman), Rose and Wells.

Under the terms of the Remuneration Committee’s charter, its primary duties and responsibilities are to:

 

   

determine, subject to ratification by the Board of Directors, the framework or broad policy for the remuneration for the executives of the Company;

 

81


Table of Contents
   

at least annually, review the entire individual remuneration packages for each member of the executive management team of the Company with particular regard to:

 

   

the composition of the total remuneration package as between salary, bonus, pension, share options and other benefits (including targets for any performance-related pay schemes);

 

   

where the Company aims to stand in relation to similar companies in its industry sector;

 

   

the need to provide the executive directors and executive management team members with every encouragement to enhance the Company’s performance and to ensure that these individuals are fairly, but responsibly, rewarded for their individual contributions;

 

   

the fairness, to both the Company and the relevant executive management team members, of the contractual terms on termination, and any payments made of their remuneration;

 

   

the compensation commitments in the event of early termination of employment of an executive management team member; and

 

   

the relationship between the remuneration of executive team members and that of other employees.

 

   

advise on and oversee all and any major changes in employee benefit structures of the Company;

 

   

approve the design of and determine targets for any performance-related pay schemes operated by the Company, and approve the total annual payments made by the Company under such schemes; and

 

   

determine, upon shareholder approval if appropriate, how the Company’s stock option, Long Term Incentive plans and cash incentive compensation plan should be operated, and oversee the grant of options and/or allocation of shares to each executive director, executive management team member or other eligible participant within the Company.

The Remuneration Committee has the power, at the Company’s expense, to employ the services of such advisers and/or consultants and the power to commission or purchase any relevant reports, surveys or information as the Remuneration Committee deems necessary to fulfill its responsibilities.

Nomination Committee

Our Nomination Committee consists of Messrs. Lock (Chairman), Comfort, Conway, Powell, Rose and Wells. The Nomination Committee keeps under review the structure, size and composition of the Board of Directors; proposes to the Board of Directors suitable candidates for appointment as directors of the Company; and considers Board of Directors succession plans.

Under the terms of the Nomination Committee’s charter, its primary duties and responsibilities are to:

 

   

regularly review the structure, size and composition (including the skills, knowledge and experience) required of the Board compared to its current position and make recommendations to the Board of Directors with regard to any changes;

 

   

give full consideration to succession planning for directors and other senior executives in the course of its work, taking into account the challenges and opportunities facing the Company, and what skills and expertise are therefore needed on the Board of Directors in the future;

 

   

identify and nominate, for the approval of the Board of Directors, candidates to fill board vacancies as and when they arise;

 

   

evaluate the balance of skills, knowledge and experience then currently on the Board of Directors, and, in the light of this evaluation, prepare a description of the role and capabilities required for a particular appointment to the Board of Directors;

 

82


Table of Contents
   

review the leadership needs of the Company, with a view to ensuring the continued ability of the Company to compete effectively in the marketplace;

 

   

review annually the time required for non-executive directors to perform their duties. Performance evaluation should be used to assess whether the non-executive directors are spending enough time to fulfill their duties; and

 

   

ensure that on appointment of a non-executive director to the Board, of Directors that non-executive director receives a formal letter of appointment setting out clearly what is expected of them, including, but not limited to, time commitment, committee service and involvement outside board meetings.

Committee Charters and Other Corporate Governance Materials

The Board of Directors has adopted a written charter for each of the Audit Committee, the Remuneration Committee and the Nomination Committee.

The UK Corporate Governance Code

The UK Corporate Governance Code is the key source of corporate governance recommendations for fully-listed companies in the U.K. The UK Corporate Governance Code consists of principles of good governance, most of which have their own set of more detailed provisions which, in most cases, amplify the principles. The principles deal with the following areas: directors, directors’ remuneration, accountability and audit, relations with shareholders and institutional investors. A copy of the UK Corporate Governance Code is available from the website of the Financial Reporting Council at http://www.frc.org.uk/getattachment/b0832de2-5c94-48c0-b771-ebb249fe1fec/The-UK-Corporate-Governance-Code.aspx. We do not incorporate the information available on the website of the Financial Reporting Council into this prospectus and you should not consider any such information on, or that can be accessed through, such website as part of this prospectus.

Code of Business Conduct and Ethics

In connection with the consummation of this offering, we plan to adopt an amended written code of business conduct and ethics, to be known as our code of conduct, which will outline the principles of legal and ethical business conduct under which we do business. The code of conduct will apply to all of our directors, officers and employees. A copy of our code of conduct will be available on our corporate website at www.kofax.com. We do not incorporate the information on our website into this prospectus and you should not consider any such information that can be accessed through our website as part of this prospectus. Any amendments or waivers from the provisions of the code of conduct for our executive officers or directors will be made only after approval by a committee consisting of a majority of our independent directors and will be disclosed on our corporate website promptly following the date of such amendment or waiver.

Director Compensation

The following table sets forth information concerning the compensation earned during the year ended June 30, 2013 by each of our non-employee directors:

 

Name    Cash
Compensation
     Share-Based
Compensation
 

William T. Comfort III (1)

   $ 58,770         —     

Chris Conway (1)

     66,503         —     

Greg Lock (1)

     185,590         —     

Wade W. Loo

     80,000         —     

Bruce Powell (1)

     71,143         —     

Joe Rose

     80,000         —     

Mark Wells (1)

     58,770         —     

 

83


Table of Contents
(1) Cash compensation received was converted from British pounds to U.S. dollars using the average exchange rate for the fiscal year ended June 30, 2013 of 1.5210.

We do not maintain any service contracts with our directors that provide monetary benefits, such as cash termination payments, upon our directors’ termination of service with us. Pursuant to the new indemnification agreements we plan to enter into with our directors, our directors will be provided with additional protection regarding the scope of the indemnification set forth in our post-offering bye-laws, which will include indemnification against all costs and expenses, including expense advances, incurred in connection with any claim by reason or arising out of any event or occurrence relating to the fact that such person is our director or is serving at our request at another corporation or entity, or by reason of any activity or inactivity while serving in such capacity.

Executive Officer Compensation and Employment Agreements

The following table sets forth information concerning the cash compensation earned during the fiscal year ended June 30, 2013 by our Chief Executive Officer and Chief Financial Officer:

 

Name and Principal Position    Salary      Bonus      All Other
Compensation
     Total  

Reynolds C. Bish

   $ 500,000       $ 288,588       $ 21,983       $ 810,571   

Chief Executive Officer and Director

           

James Arnold, Jr.

   $ 350,000       $ 115,435       $ 20,681       $ 486,116   

Chief Financial Officer and Director

           

 

(1) Includes (i) medical, dental, vision, life insurance and long-term disability coverage benefits of $19,983 and $18,681 for Mr. Bish and Mr. Arnold, respectively, and (ii) $2,000 in defined contribution payments made by Kofax (U.K.) for each of Messrs. Bish and Arnold.

Equity Compensation Plans

Kofax plc 2000 Share Option Plan and Kofax plc 2007 Long Term Incentive Plan

Background

Kofax (U.K.) has operated share option schemes since its initial public offering in 1996, as the Remuneration Committee considers share ownership and the award of incentive equity as a key compensation component in the overall remuneration package for executive directors, senior management and other employees. It is the Remuneration Committee’s objective that all executive directors and members of senior management should by direct ownership and/or by grant of equity awards have a material interest in the successful performance of Kofax.

Prior to the adoption of the Kofax plc 2012 Equity Incentive Plan, referred to herein as the 2012 Plan, Kofax (U.K.) maintained the Kofax plc. 2000 Share Option Plan, referred to herein as the Option Plan, and the Kofax plc 2007 Long-Term Incentive Plan, referred to herein as the LTIP or the LTIP Plan. The Option Plan expired with respect to new awards on January 26, 2012 and no grants have been made thereunder since such date. The LTIP expired with respect to new awards on October 2, 2012 and no new grants have been made thereunder since such date. As part of the scheme of arrangement described herein, the Option Plan and the LTIP will be adopted and assumed by Kofax (Bermuda).

The Option Plan provided for awards of options to acquire the ordinary shares of Kofax (U.K.). As of June 30, 2013, there were outstanding options covering 5,061,862 shares granted under the Option Plan, at a weighted average exercise price of 207 pence ($4.40 based on the exchange rate on June 30, 2013). Stock options granted under the Option Plan were required to have an exercise price of not less than the higher of the fair

 

84


Table of Contents

market value of a share at the grant date and the nominal value of a share. Generally, options granted under the Option Plan vest over four years, with 25% vesting on the first anniversary of the grant date, and 6.25% vesting quarterly thereafter over the next three years. Accelerated vesting is provided in the event of termination of employment due to death, disability, pregnancy, sickness, redundancy, corporate transfer and retirement. No term of any option granted under the Option Plan exceeds ten years from the grant date. In addition, upon termination of employment, the then vested and exercisable portion of an option granted under the Option Plan may be exercisable for up to twelve months (but not beyond the stated term of the option), depending on the reason for such termination. The exercise price for an option may be paid in the form of consideration determined by the Remuneration Committee.

Under the terms of the LTIP, both nil cost options and conditional share awards were permitted to be granted. However, no nil cost options were granted under the LTIP. As of June 30, 2013, there were 3,285,529 ordinary shares issuable upon the settlement of outstanding conditional share awards granted under the LTIP. A conditional share award entitles the holder to receive a specified number of shares following the end of a vesting and/or deferral period, subject to the satisfaction of the applicable vesting requirements. Prior to settlement, a participant will have no voting or dividend rights with respect to the shares underlying a conditional share award. Conditional share awards granted under the LTIP are generally subject to the achievement of software revenue growth and EBITDA growth targets over a three year performance period. An unvested conditional share award may be forfeited upon a termination of employment (provided that the Committee may provide for pro-rata vesting based on performance as of such termination of employment) and shall be forfeited upon the bankruptcy of the participant.

In connection with such scheme of arrangement, holders of awards granted under the Option Plan and LTIP will be provided the opportunity to exchange such awards for substitute awards in respect of common shares of Kofax (Bermuda)). Any such awards will be treated as having been granted at the same time as the old awards being substituted and will become vested on similar terms as such substituted awards,. Any awards not so exchanged will lapse upon the effective date of such scheme of arrangement.

Eligible Employees

All employees of Kofax (U.K.) and its subsidiaries were eligible to be selected to participate in the Option Plan and LTIP.

Administration; Amendment

The Option Plan and LTIP are administered by the Remuneration Committee. The Remuneration Committee generally has the power to amend the LTIP without the consent of participants or shareholders. The Remuneration Committee may amend the Option Plan, provided that amendments that are adverse to a participant generally must be consented to by such participant.

Certain Corporate Events

If there is a capitalization or rights issue, a subdivision, a consolidation or reduction or any other variation in the equity share capital of the Company, then the number of shares subject to an award granted under the Option Plan or LTIP and the terms and conditions of such award (including, without limitation, the exercise price of an option) shall be adjusted in such manner as the Remuneration Committee determines to be appropriate.

Under both the Option Plan and the LTIP, outstanding awards will become vested in connection with certain change in control transactions or a winding up of Kofax and, to the extent not exercised within a certain period of time before or after such change in control, will lapse (provided that vesting under the LTIP will be based on performance and, if determined by the Remuneration Committee, the extent of the completion of the service period as of the change in control). In addition, participants holding awards under either such plan may be

 

85


Table of Contents

provided the opportunity to exchange their old awards for new awards in respect of the surviving or acquiring company (or certain related entities), provided that such new awards are substantially equivalent in terms and value to the old awards.

Transferability

An award may not be transferred or assigned, provided that an option granted under the Option Plan may be transferred in the event of death by will or under the laws of descent and distribution.

This summary of the Option Plan and LTIP is qualified in its entirety by reference to the Option Plan and LTIP, copies of which are attached hereto as Exhibits 10.1 and 10.3, respectively.

2012 Equity Incentive Plan

On November 6, 2012, the shareholders of Kofax (U.K.) adopted the 2012 Equity Incentive Plan, or the Plan, in order to assist the Company and its shareholders in attracting, motivating and retaining valued employees and executive directors by offering them a greater stake in the Company’s success and a closer identity with it, and to encourage ownership of the Company’s stock by such employees and executive directors. The Plan allows us to grant options, stock appreciation rights (SARs), restricted stock, restricted stock units (RSUs), and other stock-based and cash-based awards, each an Award and collectively Awards. Due to the existing London Stock Exchange listing, the Plan has been formulated in accordance with UK regulations governing share incentive arrangements. However, the Plan takes account of the fact that a large proportion of qualifying management will be US based and the Plan will need to operate in such a way as to assist with attracting, motivating and retaining US based persons.

The total number of shares available for Awards on any day will not, when added to the total number of shares which have been allocated in the previous ten years under the Plan and any other equity incentive plans adopted by the Company, exceed 12.5 percent of the ordinary share capital of the Company in issue on a fully diluted basis immediately prior to that day, referred to as the Plan Limit (it being acknowledged that the Company intends to reduce the Plan Limit to 10.0 percent by November 2015). Shares awarded under the Plan may be reserved or made available from the Company’s authorized and unissued shares or from shares reacquired by the Company. For purposes of the Plan Limit, shares underlying Awards that have been forfeited, released, cancelled or lapsed without being exercised or which are satisfied by the transfer of shares already in issue or without the actual distribution of shares will again become available for Awards. The aggregate market value of shares which may be acquired pursuant to Awards granted to an Employee in any calendar year shall be limited to 250% of that Employee’s base salary (save that if exceptional circumstances exist in relation to the recruitment of an Employee such annual maximum level may be increased to 400%) referred to as, the Individual Limit.

The Plan will be administered by our Remuneration Committee, or the Committee. The Committee will have full and final authority in its discretion to (i) select eligible participants who will receive Awards; (ii) determine the type or types of Awards to be granted to each participant; (iii) determine the number of shares to which an Award will relate, the terms and conditions of any Award (including, but not limited to, restrictions as to vesting, transferability or forfeiture, exercisability or settlement of an Award and waivers or accelerations thereof, and waivers of or modifications to performance goals relating to an Award, based in each case on such considerations as the Committee will determine) and all other matters to be determined in connection with an Award; (iv) determine the exercise price, grant price or purchase price (if any) of an Award; (v) determine whether, to what extent, and under what circumstances an Award may be cancelled, forfeited, or surrendered; (vi) determine whether, and to certify that, performance goals to which an Award is subject are satisfied; (vii) correct any defect, supply any omission or reconcile any inconsistency in the Plan, and adopt, amend and rescind such rules, regulations, guidelines, forms of agreements and instruments relating to the Plan as it may deem necessary or advisable; (viii) construe and interpret the Plan; and (ix) make all other determinations as it may deem necessary or advisable for the administration of the Plan. Awards granted to members of our executive management team will always be subject to the satisfaction of appropriate performance conditions.

 

86


Table of Contents

Options granted under the Plan give a participant the right to purchase a specified number of shares from the Company for a specified time period at a fixed exercise price. Options may be granted in the form of non-qualified stock options and ISOs. The exercise price per share of an option will be not less than the fair market value of a share on the date the option is granted. In the case of the grant of an ISO to a participant who as of the grant date owns, directly or indirectly, more than 10% of the total combined voting power of all classes of stock of the Company or a subsidiary, referred to as a Ten Percent Shareholder, the exercise price per share will not be less than 110% of the fair market value of a share on the grant date. The term during which an option may be exercised will be set forth in the applicable Award agreement, but in no event will exceed ten years (five years in the case of an ISO granted to a Ten Percent Shareholder). The time at which an option vests, or becomes exercisable, will be set forth in the applicable Award agreement and may be based on the passage of time, the attainment of performance goals determined by the Committee or a combination thereof. Unless otherwise provided in the applicable Award agreement or as may be determined by the Committee, all unvested options will cease to vest and be forfeited upon a participant’s termination of service for any reason. The vested portion of the participant’s options will continue to be exercisable for the lesser of 90 days or the remaining term of the option if the participant is terminated by the Company without cause or the participant voluntarily resigns, for the lesser of 180 days or the remaining term of the option if the participant’s termination is due to the participant’s disability and for the lesser of 365 days or the remaining term of the option if the participant’s termination is due to the participant’s death. If the participant is terminated by the Company for cause, the participant will immediately forfeit all options, whether vested or not.

An SAR gives a participant the right to receive, upon the exercise thereof, the excess of the fair market value of one share on the exercise date over the grant price of the SAR, which may not be less than the fair market value of a share on the grant date. An SAR may be settled in shares, cash or a combination thereof. The term of an SAR will not exceed ten (10) years and the vesting of an SAR may be subject to the passage of time, the attainment of performance goals determined by the Committee or a combination thereof. Unless otherwise provided in the applicable Award agreement or as may be determined by the Committee, all unvested SARs will cease to vest and be forfeited upon a participant’s termination of service for any reason. The vested portion of the participant’s SARs will continue to be exercisable for the lesser of 30 days or the remaining term of the SAR if the participant is terminated by the Company without cause or the participant voluntary resigns and for the lesser of 180 days or the remaining term of the SAR if the participant’s termination is due to the participant’s death or disability. If the participant is terminated by the Company for cause, the participant will immediately forfeit all SARs, whether vested or not.

An Award of restricted stock is an award of a specified number of shares which are subject to forfeiture upon the occurrence of specified events during the applicable restriction period. The lapse of the restriction period may be based on the passage of time, the attainment of performance goals determined by the Committee or a combination thereof. During the restriction period, the transferability of the restricted stock may be prohibited, restricted or subject to any other conditions determined by the Committee, including, without limitation, rights of repurchase or first refusal in the Company or provisions subjecting the restricted stock to a continuing substantial risk of forfeiture in the hands of any transferee. Unless otherwise provided in the applicable Award agreement, the participant will have all the rights of a shareholder with respect to the restricted stock during the restriction period. Dividends paid during the restriction period will be subject to the same restrictions as the underlying restricted stock, unless otherwise determined by the Committee. Unless otherwise provided in the applicable Award agreement or as may be determined by the Committee, the unvested portion of a restricted stock Award will be forfeited without additional consideration upon the participant’s termination of employment for any reason.

An RSU is a right to receive, on the settlement date, an amount equal to the fair market value of one share, payable in cash, shares or any combination thereof. RSUs are solely a device for the measurement and determination of the amounts to be paid to a participant under the Plan and do constitute shares of the Company. An RSU is subject to forfeiture upon the occurrence of specified events during the applicable restriction period. The lapse of a restriction period may be based on the passage of time, the attainment of performance goals

 

87


Table of Contents

determined by the Committee or a combination thereof. An RSU does not confer on the participant any rights of a shareholder in the Company. Nevertheless, the Committee may provide in an award agreement for the payment of amounts equal to any dividends declared during the restriction period to be credited to the participant’s account and deemed invested in additional RSUs, which will be subject to the same restrictions as the RSUs to which they relate. Unless otherwise provided in the applicable Award agreement or as may be determined by the Committee, the unvested portion of any RSU will be forfeited without additional consideration upon the participant’s termination of employment for any reason.

The Committee is authorized, subject to limitations under applicable law, to grant to participants other stock-based Awards payable in, or valued in whole or in part by reference to, shares, and that are deemed by the Committee to be consistent with the purposes of the Plan. Such Awards may include deferred shares or share purchase awards. The Committee is also authorized to grant cash-based Awards denominated in cash in such amounts and subject to such terms and conditions as the Committee may determine. Each such cash-based Award will specify a payment amount or payment range as determined by the Committee. Cash-based Awards may be based on the attainment of performance goals.

Except as set forth below, upon the occurrence of a change in control, the Committee may take one or more of the following actions with respect to any Awards that are outstanding immediately prior to such change in control: (a) cancel outstanding Awards in exchange for a cash payment in an amount equal to the excess, if any, of the fair market value of the shares underlying the unexercised portion of the Award as of the date of the change in control over the exercise price or grant price, as the case may be, of such portion, provided that any Award with an exercise price or grant price, as the case may be, that equals or exceeds the fair market value of the shares on the date of such change in control shall be cancelled with no payment due the participant; (b) terminate Awards, effective immediately prior to the change in control, provided that the Company provides the participant an opportunity to exercise such Award within a specified period following the participant’s receipt of a written notice of such change in control and the Company’s intention to terminate such Awards, effective immediately prior to such change in control; (c) require the successor corporation (or its parent), following a change in control, to assume outstanding Awards and/or to substitute such Awards with awards involving the ordinary shares of such successor corporation (or its parent) on terms and conditions necessary to preserve the rights of participants with respect to such Awards; or (d) take such other actions as the Committee deems appropriate to preserve the rights of participants with respect to their Awards.

Upon the occurrence of a change of control, the Committee will, in its absolute discretion (save in respect of members of the executive management team, or EMT), determine the extent to which any Award may be exercised or will be released (as the context requires), having regard, to the extent practicable or to the extent it considers appropriate, to any performance requirements and/or any other relevant terms to which the Award is subject (and in particular the Committee will have regard to the underlying performance of the Company as compared to the performance requirements and shall take into account the vesting period which has lapsed in respect of each Award at the time the determination is to be made as to whether to release or cause to be exercisable all or part of such Award).

In respect of any member of the EMT, or an EMT Member, a change of control shall have no effect upon the timing of release of Awards made to EMT Members and there shall be no automatic vesting or releasing of Awards in such event, however in the event that the Plan is not assumed by the acquirer or successor to the Company pursuant to the occurrence of a change of control, 100% of such EMT Member’s Awards will vest and, to the extent permitted by Section 409A of the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder, referred to as the Code, be released. In the event that the Company or its successor terminates an EMT Member’s employment without cause upon or within 12 months after the occurrence of a change of control or the EMT Member terminates his or her employment for good reason upon or within 12 months following the occurrence of a change of control, upon such termination a minimum of 100% of the EMT Member’s Awards shall vest and, to the extent permitted by Section 409A of the Code, be released.

 

88


Table of Contents

No Award may be pledged, encumbered, or hypothecated to, or in favor of, or subject to any lien, obligation, or liability of any participant to, any party other than the Company or any subsidiary, and no Award may be assigned or transferred except by will or the laws of descent and distribution. During the lifetime of the participant, Awards may be exercised only by the participant or his or her guardian or legal representative. Notwithstanding the foregoing, the Committee may allow Awards to be transferred, without consideration, to immediate family members (i.e., children, grandchildren or spouse), to trusts for the benefit of such immediate family members and to partnerships in which such family members are the only partners.

If the Committee determines that, in connection with certain changes in the Company’s capitalization, an adjustment is appropriate in order to prevent the dilution or enlargement of any Award, the Committee will proportionately and equitably adjust any or all of (i) the number and kind of shares which may thereafter be issued in connection with Awards, (ii) the number and kind of shares issuable in respect of outstanding Awards, (iii) the Plan Limit and/or the Individual Limit, and (iv) the exercise price or grant price relating to any Award or, if deemed appropriate, make provision for a cash payment with respect to any outstanding Award. The Committee may also make adjustments to Awards in recognition of other unusual or nonrecurring events affecting the Company or any subsidiary or in response to changes in applicable laws, regulations or accounting principles.

Our Board of Directors, or the Board, may amend, alter, suspend, discontinue or terminate the Plan or any Award thereunder at any time without the consent of the participants or the Company’s shareholders, except that shareholder approval is required to increase the number of shares subject to the Plan and to take such other actions as may be specified by applicable law, regulation or stock exchange rule or listing requirement, and the consent of any affected participant is required for any action that would materially and adversely affect his or her rights under any outstanding Award.

Without amending the Plan, the Committee may grant Awards to employees and executive directors who are foreign nationals or who are employed in foreign jurisdictions, or both, on terms and conditions different from those specified in the Plan as may, in the judgment of the Committee, be necessary or desirable to further the purpose of the Plan. In addition, the Committee may establish sub-plans to the Plan to set forth special rules and provisions applicable to Awards granted to any such person.

Unless terminated earlier by the Board, the Plan will terminate on the earlier of the 10th anniversary of its adoption or its approval by the Company’s shareholders and no Awards will be granted pursuant to the Plan thereafter.

As of June 30, 2013, there were 323,900 ordinary shares issuable upon the exercise of outstanding options granted under the 2012 Equity Incentive Plan, at a weighted average exercise price of 289 pence ($4.40 based on the exchange rate on June 30, 2013) per share, none of which options to purchase ordinary shares were then exercisable.

Tax Consequences to the Company

Generally, subject to the provisions of the Code described below, the Company or a subsidiary, as applicable, will be entitled to a deduction at the time the participant recognizes ordinary income in respect of an Award granted under the Plan, equal to the amount of ordinary income recognized by the participant.

Section 162(m)

Under Code Section 162(m), the Company or a subsidiary, as applicable, generally may not deduct remuneration paid to the chief executive officer of the Company and the three next highest paid executive officers other than the chief financial officer to the extent that such remuneration exceeds $1,000,000, unless such remuneration is performance-based compensation. Under the Plan, the Committee may, in its discretion, grant Awards that are intended to qualify as performance-based compensation.

 

89


Table of Contents

Section 280G

If the vesting and/or payment of an Award made to a “disqualified individual” (as defined in Code Section 280G) occurs in connection with a change in control of the Company, such vesting and/or payment, either alone or when combined with other compensation payments which such disqualified individual is entitled to receive, may result in an “excess parachute payment” (as defined in Code Section 280G). Code Section 4999 generally imposes a 20% excise tax on the amount of any such “excess parachute payment” received by such “disqualified individual” and Code Section 280G would prevent the Company or a subsidiary, as applicable, from deducting such “excess parachute payment.”

Cash Incentive Plan

Kofax Limited Incentive Compensation Plan

Purpose; Effective Date; Termination; Amendment

On             , 2013, Kofax (Bermuda) adopted the Kofax Limited Incentive Compensation Plan, or the ICP, in order to provide cash incentive compensation opportunities for certain employees of the Company and its subsidiaries. The ICP became effective on             , 2013 and, unless terminated earlier, the ICP will terminate on the 5th anniversary of such date. The Board, without the consent of any participant, may at any time terminate or from time to time amend the ICP in whole or in part, whether prospectively or retroactively, including in any manner that adversely affects the rights of participants.

Eligible Employees

All employees of the Company and its subsidiaries, including our executive officers, are eligible to be selected to participate in the ICP.

Administration

The ICP is administered by the Remuneration Committee of the Company (the “Committee”). Subject to the provisions of the ICP, the Committee has the authority to (i) select employees to participate in the ICP; (ii) establish and administer the performance goals, if any, and the bonus opportunities applicable to each participant and determine whether the performance goals, if any, have been attained; (iii) construe and interpret the ICP and any agreement or instrument entered into under or in connection with the ICP; (iv) establish, amend and waive rules and regulations for the ICP’s administration and (v) make all other determinations that may be necessary or advisable for the administration of the ICP. Any determination by the Committee pursuant to the ICP will be final, binding and conclusive.

ICP Bonus Opportunities

With respect to each participant, the Committee will determine (i) whether their bonus shall be based on the achievement of performance goals, and if so, the performance goals that will be utilized, (ii) each participant’s bonus opportunity and (iii) the method for computing the amount of bonuses that may be payable under the ICP to each participant. The Committee may, in its discretion, award a bonus based on its subjective assessment of Company, subsidiary, affiliate and/or individual performance or contributions, and accordingly, bonuses are not required to be based on the achievement of performance goals (pre-determined or otherwise).

To the extent that a bonus is based on the achievement of performance goals, such performance goals may include, without limitation: (i) stock price, (ii) the market share of the Company, its subsidiaries or affiliates (or any business unit thereof), (iii) sales by the Company, its subsidiaries or affiliates (or any business unit thereof), (iv) earnings of the Company, its subsidiaries or affiliates (or any business unit thereof), (v) diluted net income per share, (vi) return on stockholder equity of the Company, (vii) costs or expenses of the Company, its subsidiaries or affiliates (or any business unit thereof), (viii) cash, cash on hand or cash flow of the Company, its subsidiaries or

 

90


Table of Contents

affiliates (or any business unit thereof), (ix) return on total assets of the Company, its subsidiaries or affiliates (or any business unit thereof), (x) return on invested capital of the Company, its subsidiaries or affiliates (or any business unit thereof), (xi) return on net assets of the Company, its subsidiaries or affiliates (or any business unit thereof), (xii) operating income of the Company, its subsidiaries or affiliates (or any business unit thereof), (xiii) net income of the Company, its subsidiaries or affiliates (or any business unit thereof), (xiv) earnings (or net income) before interest and taxes of the Company, its subsidiaries or affiliates (or any business unit thereof), (xv) earnings (or net income) before interest, taxes, depreciation and amortization of the Company, its subsidiaries or affiliates (or any business unit thereof), (xvi) gross or net margin of the Company, its subsidiaries or affiliates (or any business unit thereof), (xvii) customer satisfaction of the Company, its subsidiaries or affiliates (or any business unit thereof) or (xviii) revenue or net revenue of the Company, its subsidiaries or affiliates (or any business unit thereof).

Payment of Bonuses

Earned bonuses will be paid in cash no later than March 15th of the calendar year following the calendar year in which the applicable performance period ends. Payment of any bonus is contingent upon the participant remaining employed by the Company or a subsidiary on the date such bonus is paid, unless otherwise provided in an employment agreement or waived by the Committee in its sole discretion. All bonuses paid or to be paid under the ICP are subject to rescission, cancellation or recoupment, in whole or in part, under any current or future “clawback” or similar policy of the Company or any subsidiary.

The above is a summary of the ICP. In the event of a conflict between the terms of the ICP and the summary above, the terms of the ICP will control.

Employment Agreements

The Company does not have any general policies regarding the use of employment agreements, but may, from time to time, enter into such a written agreement to reflect the terms and conditions of employment of a particular named executive officer, whether at the time of hire or thereafter.

Reynolds C. Bish

We entered into an employment agreement with Reynolds C. Bish, our Chief Executive Officer, in November 2007. Pursuant to Mr. Bish’s employment agreement he is entitled to an annual base salary of $500,000 (subject to review and adjustment by the Board under certain conditions) and an annual incentive bonus of up to $500,000 based on achievement of performance goals as established by the Remuneration Committee. Mr. Bish is also entitled to receive option awards and awards on an annual basis under our LTIP Plan on the basis of 200% of Mr. Bish’s then current base salary and is entitled to receive reimbursement for all reasonable out-of-pocket business expenses incurred in the performance of his duties on behalf of the Company.

Mr. Bish’s employment agreement provides that if he is terminated by the Company for “cause” he is entitled to receive his base salary pro rated to his date of termination. “Cause” is defined to include (i) theft, dishonesty, willful misconduct, breach of fiduciary duty for personal profit, or falsification of any Company documents or records; (ii) material failure to abide by the Company’s policies (including, without limitation, policies relating to confidentiality and reasonable workplace conduct) after written notice from the Company of such failure; (iii) unauthorized use, misappropriation, destruction or diversion of any material tangible or intangible assets or corporate opportunity of the Company (including, without limitation, improper use or disclosure of the Company’s confidential or proprietary information); (iv) misconduct which has a material detrimental effect on the Company’s reputation or business; (v) repeated failure or inability (other than due to injury or illness) to perform any reasonable assigned duties after written notice from the Company of, and a reasonable opportunity to cure such failure or inability; or (vi) conviction (including any plea of guilty or nolo contendere) of any criminal act involving fraud, dishonesty, misappropriation or moral turpitude and which impairs Mr. Bish’s ability to perform his duties with the Company.

 

91


Table of Contents

Mr. Bish’s employment agreement also provides that he is entitled to receive certain payments upon his termination by the Company without cause or upon Mr. Bish’s resignation for “Good Reason”. “Good Reason” is defined as the first to occur of any of the following, without Mr. Bish’s written consent: (i) a material diminution in base salary or target bonus then in effect; (ii) a material diminution in authority, duties or responsibilities, including without limitation, a requirement that Mr. Bish report to a corporate officer rather than directly to the Board or its successor; (iii) a relocation of Mr. Bish’s principal place of employment to a location that increases Mr. Bish’s one-way commute distance by more than thirty miles; or (iv) any other action or inaction by the Company that constitutes a material breach of Mr. Bish’s employment agreement. In the event of such a termination without cause or resignation for “Good Reason” Mr. Bish is entitled to receive: (a) base salary then in effect, pro rated to the date of termination; (b) severance equal to twelve months of base salary then in effect; (c) an amount equal to Mr. Bish’s bonus for the Company’s prior fiscal year ended on or prior to the date of termination or resignation; and (d) payment of COBRA premiums for a period of twelve months or until Mr. Bish is eligible to receive health benefits under another group health insurance plan. Upon such an event, all LTIP awards then held by Mr. Bish shall become vested and shares underlying such awards shall be released.

Mr. Bish’s employment agreement includes a change of control provision that entitles him to certain payments in the event of his termination without “Cause” or resignation for “Good Reason” upon or within 12 months following a “Change of Control” of the Company as defined in the LTIP Plan. Upon such a “Change of Control” Mr. Bish is entitled to receive: (i) base salary then in effect, pro rated to the date of termination; (ii) severance equal to twelve months on base salary then in effect; (iii) an amount equal to Mr. Bish’s bonus for the Company’s prior fiscal year ending on or prior to the date of termination or resignation; (vi) an amount equal to Mr. Bish’s target bonus then in effect; and (v) payment of COBRA premiums for a period of twelve months or until Mr. Bish is eligible to receive health benefits under another group health insurance plan. In the event that Kofax (Bermuda) or its successor terminates Mr. Bish’s employment without cause or Mr. Bish terminates his employment for good reason in either case upon or within 12 months following a “Change of Control”, upon such termination, Mr. Bish shall be entitled to at least 100% of the shares awarded to Mr. Bish under the LTIP awards made to him on September 7, 2009, September 8, 2010 and September 7, 2011.

In addition to the other provisions set forth above, Mr. Bish’s employment agreement provides that under certain conditions he shall receive certain levels of tax gross up payments from the Company with respect to any excise or similar taxes owed by him in respect of benefits received pursuant to the agreement.

Mr. Bish’s employment agreement also includes a nonsoliciation provision that provides that he shall not, during the term of the agreement or for one year after the termination of his employment, separately or in conjunction with others, encourage or cause others to solicit or personally encourage any employees of the Company to terminate or alter their relationships with the Company.

James Arnold, Jr.

We entered into an employment agreement with James Arnold, Jr., our Chief Financial Officer, in April 2010. Pursuant to Mr. Arnold’s employment agreement he is entitled to an annual base salary of $350,000 (subject to review and adjustment by the Board) and an annual incentive bonus based on achievement of performance goals as established by the Remuneration Committee. Mr. Arnold is also entitled to receive awards under our LTIP Plan and to reimbursement for all reasonable out-of-pocket business expenses incurred in the performance of his duties on behalf of the Company.

Mr. Arnold’s employment agreement provides that if he is terminated by the Company for “cause” he is entitled to receive his base salary pro rated to his date of termination. “Cause” is defined to include (i) theft, dishonesty, willful misconduct, breach of fiduciary duty for personal profit, or falsification of any Company documents or records; (ii) material failure to abide by the Company’s policies (including, without limitation, policies relating to confidentiality and reasonable workplace conduct) after written notice from the Company of such failure; (iii) unauthorized use, misappropriation, destruction or diversion of any material tangible or

 

92


Table of Contents

intangible assets or corporate opportunity of the Company (including, without limitation, improper use or disclosure of the Company’s confidential or proprietary information); (iv) misconduct which has a material detrimental effect on the Company’s reputation or business; (v) repeated failure or inability (other than due to injury or illness) to perform any reasonable assigned duties after written notice from the Company of, and a reasonable opportunity to cure such failure or inability; or (vi) conviction (including any plea of guilty or nolo contendere) of any criminal act involving fraud, dishonesty, misappropriation or moral turpitude and which impairs Mr. Arnold’s ability to perform his duties with the Company.

Mr. Arnold’s employment agreement also provides that he is entitled to receive certain payments upon his termination by the Company without cause or upon Mr. Arnold’s resignation for “Good Reason”. “Good Reason” is defined as the first to occur of any of the following, without Mr. Arnold’s written consent: (i) a material diminution in base salary or target bonus then in effect; (ii) a material diminution in authority, duties or responsibilities, including without limitation, a requirement that Mr. Arnold report to a corporate officer rather than directly to the Board or its successor; (iii) a relocation of Mr. Arnold’s principal place of employment to a location that increases Mr. Arnold’s one-way commute distance by more than thirty miles; or (iv) any other action or inaction by the Company that constitutes a material breach of Mr. Arnold’s employment agreement. In the event of such a termination without cause or resignation for “Good Reason” Mr. Arnold is entitled to receive: (a) base salary then in effect, pro rated to the date of termination; (b) severance equal to six months of base salary then in effect; (c) an amount equal to Mr. Arnold’s bonus for the Company’s prior fiscal year ending on or prior to the date of termination or resignation; and (d) payment of COBRA premiums for a period of six months or until Mr. Arnold is eligible to receive health benefits under another group health insurance plan. Upon such an event, all LTIP awards then held by Mr. Arnold shall vest in accordance with the vesting schedule included in the LTIP Plan.

Mr. Arnold’s employment agreement includes a change of control provision that entitles him to certain payments in the event of his termination without “Cause” or resignation for “Good Reason” upon or within 12 months following a “Change of Control” of the Company as defined in the LTIP Plan. Upon such a “Change of Control” Mr. Arnold is entitled to receive: (i) base salary then in effect, pro rated to the date of termination; (ii) severance equal to six months of base salary then in effect; (iii) an amount equal to Mr. Arnold’s bonus for the Company’s prior fiscal year ended on or prior to the date of termination or resignation; (vi) an amount equal to Mr. Arnold’s target bonus then in effect; and (v) payment of COBRA premiums for a period of six months or until Mr. Arnold is eligible to receive health benefits under another group health insurance plan. In the event that Kofax (Bermuda) or its successor terminates Mr. Arnold’s employment without cause or Mr. Arnold terminates his employment for good reason in either case upon or within 12 months following a “Change of Control”, upon such termination, Mr. Arnold shall be entitled to at least 100% of the shares awarded to Mr. Arnold under the LTIP awards made to him on June 7, 2010.

 

93


Table of Contents

PRINCIPAL SHAREHOLDERS

The following table sets forth information, as of June 30, 2013, regarding the beneficial ownership of our common shares: (i) immediately prior to the consummation of the offering and (ii) as adjusted to reflect the sale of our common shares in this offering, for:

 

   

each of our directors;

 

   

each of our executive officers;

 

   

all of our directors and our executive officers as a group; and

 

   

each person who is known by us to own beneficially 5% or more of our outstanding common shares.

The column entitled “Shares Beneficially Owned Prior to the Offering—Percent” is based on 89,638,519 common shares of Kofax (U.K.) outstanding as of June 30, 2013. The columns entitled “Shares Beneficially Owned After the Offering—Percent” is based on (i)              common shares to be issued and outstanding immediately after the closing of this offering, assuming no exercise of the underwriter’s over-allotment option, and (ii)              common shares to be issued and outstanding immediately after closing of this offering, assuming exercise of the underwriter’s over-allotment option.

Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days, including through the vesting of deferred share awards, exercise of any option, warrant or other right or the conversion of any other security. These shares, however, are not included in the computation of the percentage ownership of any other person. Unless otherwise indicated, the business address of each such person is c/o Kofax Limited, 15211 Laguna Canyon Road, Irvine, CA 92618.

 

     Shares Beneficially
Owned Prior to the Offering
    Shares Beneficially
Owned After the Offering
 
       Excluding
Exercise of
Over-Allotment
    Including
Exercise of
Over-Allotment
 
         Number              Percent         Number      Percent     Number      Percent  

Name of Beneficial Owner (1)

               

Holders of Greater than 5% (2)

               

65 BR Trust/ Natasha Foundation / NPC Foundation (3)

     15,008,838         16.8     15,008,838                  15,008,838             

Aberforth Partners LLP (4)

     8,140,091         8.3     8,140,091                  8,041,091             

Directors and Executive Officers:

               

Reynolds C. Bish (5)

     2,426,025         2.6     2,426,025                  2,426,025             

James Arnold, Jr. (6)

     755,000         *     755,000         *     755,000         *

Greg Lock (7)

     723,000         *     723,000         *     723,000         *

William T. Comfort III (8)

     16,115,702         18.0     16,115,702                  16,115,702             

Chris Conway

     285,000         *     285,000         *     285,000         *

Wade W. Loo

     5,000         *     5,000         *     5,000         *

Bruce Powell

     101,480         *     101,480         *     101,480         *

Joe Rose

     102,000         *     102,000         *     102,000         *

Mark Wells

     95,000         *     95,000         *     95,000         *

All directors and executive officers as a group (16 persons) (9)

     22,836,602         24.0     22,836,602                  22,836,602             

 

 * Less than 1%.
(1) Except as otherwise indicated, the persons named in this table have sole voting and investment power with respect to all common shares shown as beneficially owned by them, subject to community property laws where applicable and to the information contained in the footnotes to this table.

 

94


Table of Contents
(2) The information with respect to the holders of 5% or more of our outstanding common shares is derived from inquiries made by our authorized representatives to such holders. Such holders, and in particular financial institutions, may likely hold their shares as nominees on behalf of other beneficial owners, the identities of whom have not been disclosed to us by the above listed holders.
(3) Includes (i) 4,821,926 shares held by The 65 BR Trust which represented 5.4% of the issued and outstanding shares at June 30, 2013, (ii) 7,671,255 shares held by The Natasha Foundation which represented 8.6% of the issued and outstanding shares at June 30, 2013 and (iii) 2,515,657 shares held by The NPC Foundation which represented 2.8% of the issued and outstanding shares at June 30, 2013. The 65 BR Trust is a family trust with a registered office address of PO Box 242, Locust Valley, NY 11560 that holds assets for the benefit of Mr. Comfort’s children. Mr. Comfort maintains voting and dispositive power over the shares directly held by The 65 BR Trust. The Natasha Foundation is a Bermuda formed entity with a registered address of Clarendon House, 2 Church Street, Hamilton HM11, Bermuda HM CX). Mr. Comfort is a director of the Natasha Foundation. The NPC Foundation is a Bermuda formed entity with a registered address of Clarendon House, 2 Church Street, Hamilton HM11, Bermuda HM CX. Mr. Comfort is a director of The NPC Foundation. Mr. Comfort’s brother and brother-in-law share, with Mr. Comfort, voting and dispositive power of the shares held by the Natasha Foundation and NPC Foundation. Each of the Natasha Foundation and NPC Foundation are charitable foundations and the economic benefits of the securities held by those foundations are received by charitable causes unconnected with the Comfort family. Immediate family members of Mr. Comfort and entities controlled by Mr. Comfort’s immediate family members have voting or dispositive power over an additional 8,006,829 shares over which Mr. Comfort has no voting or dispositive power and from which Mr. Comfort receives no economic benefit.
(4) Aberforth Partners LP has an address of 14 Melville Street, Edinburgh EH3 7NS.
(5) Includes 1,496,875 shares Mr. Bish has the right to acquire from us within 60 days of June 30, 2013 pursuant to the exercise of stock options and 733,000 shares underlying outstanding awards under the LTIP Plan.
(6) Includes 300,000 shares Mr. Arnold has the right to acquire from us within 60 days of June 30, 2013 pursuant to the exercise of stock options and 200,000 shares underlying outstanding awards under the LTIP Plan.
(7) Includes 23,000 shares held directly by The Greg and Rosie Lock Charitable Foundation Trust, a registered UK charity, over which Mr. Lock has shared voting and dispositive power with his wife and an unrelated third party director of a professional trust management company. The economic benefits of the securities held by The Greg and Rosie Lock Charitable Foundation Trust are received by charitable causes that are disbursed gifts of cash or assets from the trust, as required by UK charities legislation.
(8) Includes (i) 15,008,838 shares held by The 65 BR Trust, The Natasha Foundation and The NPC Foundation over which Mr. Comfort has sole or shared voting and dispositive power and (ii) 1,106,864 shares held directly by Mr. Comfort.
(9) Includes 2,611,141 shares our directors and officers have the right to acquire from us within 60 days of June 30, 2013 pursuant to the exercise of stock options and 2,312,130 shares underlying outstanding awards under the LTIP Plan.

 

95


Table of Contents

RELATED PARTY TRANSACTIONS

Transactions with Related Companies

From time to time in the ordinary course of our business we contract for services from companies in which certain of our executive officers or directors may serve as director or advisor. The cost of these services is negotiated on an arm’s length basis and none of these arrangements is material to us.

Agreements with Directors and Officers

For information regarding agreements between us and certain of our executive officers and directors, see “Management—Executive Officer Compensation and Employment Agreements” and “Management—Indemnification Agreements” above.

 

96


Table of Contents

DESCRIPTION OF SHARE CAPITAL

The following description of our share capital summarizes certain provisions of our memorandum of association and our bye-laws that will become effective immediately prior to the consummation of this offering. Such summaries do not purport to be complete and are subject to, and are qualified in their entirety by reference to, all of the provisions of our memorandum of association and bye-laws, copies of which have been filed as exhibits to the registration statement of which this prospectus forms a part. Prospective investors are urged to read the exhibits for a complete understanding of our memorandum of association and bye-laws.

General

Kofax (Bermuda) is an exempted company incorporated under the laws of Bermuda. We are registered with the Registrar of Companies in Bermuda under registration number 45528. We were incorporated in Bermuda on June 23, 2011. We began operations in Switzerland in 1985 as a distributor of document imaging hardware and maintenance services under the name Dicom AG and subsequently re-organized in October 1995 as Kofax (U.K.), a public limited company under the laws of the United Kingdom. Prior to the completion of this offering, under a scheme of arrangement approved by the shareholders of Kofax (U.K.) and appropriate U.K. authorities, each share of Kofax (U.K.) will be cancelled and re-issued to Kofax (Bermuda), which will then issue shares of Kofax (Bermuda) to the former shareholders of Kofax (U.K.) in exchange for all outstanding shares of Kofax (U.K.) on a one-for-one basis.

The registered office of Kofax (Bermuda) is located at Clarendon House, 2 Church Street, Hamilton, Bermuda HM CX and its principal place of business is at 15211 Laguna Canyon Road, Irvine, CA 92618. The telephone number at its registered office is +441 295 1442. Codan Services Ltd. is our agent for service of process in Bermuda having an address of Clarendon House, 2 Church Street, Hamilton, Bermuda HM CX.

Authorized and Issued Share Capital

Our authorized share capital consists of $         divided into              common shares, par value $0.001 per share. Upon the completion of this offering and the repurchase, for $0.001, of one common share issued to Bradford Weller, our Executive Vice President of Legal Affairs, General Counsel and Company Secretary, there will be              common shares issued and outstanding, or              common shares issued and outstanding, if the underwriter’s overallotment option is exercised in full. All of our issued and outstanding common shares prior to completion of this offering are and will be fully paid, and all of our shares to be issued in this offering will be fully paid. Pursuant to our bye-laws, subject to the requirements of any stock exchange on which our shares are listed and to any resolution of the shareholders to the contrary, our Board of Directors is authorized to issue any of our authorized but unissued shares. There are no limitations on the right of non-Bermudians or non-residents of Bermuda to hold or vote our shares (for exchange control purposes, provided our shares remain listed on an appointed stock exchange, which includes The NASDAQ Global Select Market).

To date, Kofax (U.K.) has financed its operations through funds raised in public and private placements of ordinary shares and through borrowings under credit facilities. We also issued shares to our officers and employees pursuant to our incentive plans.

The following table shows our history of share capital for the last two years:

 

Year Ended

  

Number of

ordinary shares

issued

  

Price per

share

  

Gross proceeds or

Fair value of

share transaction

  

Process/Considerations

June 30, 2012

   576,358    N/A    N/A   

Exercise of options or vesting of

LTIP awards to employees

June 30, 2013

   1,520,460    N/A    N/A   

Exercise of options or vesting of

LTIP awards to employees

 

97


Table of Contents

Common Shares

The bye-laws contain pre-emption provisions in favor of the holders of “Relevant Shares” of the Company (as defined in the bye-laws), entitling such holders to be offered “Equity Securities” (as defined in the bye-laws) in proportion to their existing holdings. Such pre-emption provisions do not apply to allotments of “Equity Securities” which are paid otherwise than in cash, as more fully described in the bye-laws or to the allotment or securities which would be held under any “Employee Share Scheme” (as defined in the bye-laws). Holders of common shares have no pre-emptive rights (other than the pre-emptive rights described above), redemption, conversion or sinking fund rights. The pre-emption rights referred to above may be disapplied in whole or modified as the Board of Directors are given the power to do so by a “Special Resolution” (as defined in the bye-laws) of the shareholders. Holders of common shares are entitled to one vote per share on all matters submitted to a vote of holders of common shares. Unless a different majority is required by Bermuda law or by our bye-laws, resolutions to be approved by holders of common shares require approval by a simple majority of votes cast at a meeting at which a quorum is present.

In the event of our liquidation, dissolution or winding up, the holders of common shares are entitled to share equally and ratably in our assets, if any, remaining after the payment of all of our debts and liabilities.

Dividends and Other Distributions

Under Bermuda law, a company may not declare or pay dividends, or make a distribution out of contributed surplus, if there are reasonable grounds for believing either that (i) the company is, or would after the payment be, unable to pay its liabilities as they become due; or (ii) the realizable value of its assets would thereby be less than its liabilities. Share premium accounts maybe reduced in certain limited circumstances. There are no restrictions on our ability to transfer funds (other than funds denominated in Bermuda dollars) in and out of Bermuda or to pay dividends and/or make distributions to U.S. residents who are holders of our common shares.

Variation of Rights

Subject to the special rights for the time being attached to any class of shares, if at any time we have more than one class of issued and outstanding shares, the rights attaching to any class, unless otherwise provided for by the terms of issue of the relevant class, may be varied either: (1) with the consent in writing of the holders of three-fourths in nominal value of the issued shares of that class; or (2) with the sanction of a resolution passed by the holders of a majority of not less than three-fourths in nominal value of shares as voted (in person or by proxy) at a separate general meeting of the relevant class of shareholders at which a quorum consisting of at least two persons is present holding at least one-third in nominal value of the issued shares of the class (excluding any shares held as treasury shares).

Shareholder Meetings

Under our bye-laws, annual shareholder meetings will be held at a time and place selected by our Board of Directors. The meetings may be held in or outside of Bermuda. Bermuda law also requires that shareholders be given at least five days’ advance notice of a general meeting, but the accidental omission to give notice to any person does not invalidate the proceedings at a meeting. Our bye-laws provide that shareholders be given at least 21 clear days’ notice in advance of an annual general meeting and 14 clear days’ notice in advance of a special general meeting. Bermuda law provides that a special general meeting of shareholders may be called by the Board of Directors of a company and must be called upon the request of shareholders holding not less than 5% of the paid-up capital of the company carrying the right to vote at general meetings. Our bye-laws provide that the chairman of our Board of Directors or the Board of Directors may convene a special general meeting whenever in their judgment such meeting is necessary and that the Board of Directors must call a special general meeting upon the request of shareholders holding not less than 5% of the paid-up capital of the Company carrying the right to vote at a general meeting.

 

98


Table of Contents

Anti-Takeover Provisions

Several provisions of our bye-laws may have anti-takeover effects. These provisions are intended to avoid costly takeover battles, lessen our vulnerability to a hostile change of control and enhance the ability of our Board of Directors to maximize shareholder value in connection with any unsolicited offer to acquire us. However, these anti-takeover provisions, which are summarized below, could also discourage, delay or prevent (1) the recapitalization, amalgamation, merger or acquisition of our company by means of a tender offer, a proxy contest or otherwise, that a shareholder may consider in its best interest and (2) the removal of our incumbent directors and executive officers. The following is a summary of the provisions of our bye-laws that may be deemed to have an anti-takeover effect:

Takeover Provisions

Our bye-laws contain provisions that are substantially equivalent to the provisions of the UK Takeover Code, which provide that a person must not:

 

   

acting by himself or with persons determined by the Board of Directors to be acting in concert, seek to acquire shares in the Company, which carry 30% or more of the voting rights attributable to the shares in the Company; or

 

   

acting by himself or with persons determined by the Board of Directors to be acting in concert, hold not less than 30% but not more than 50% of the voting rights attributable to the shares in the Company, and seek to acquire after the Migration, by himself or with persons determined by the Board of Directors to be acting in concert, additional shares which, taken together with the shares held by the persons determined by the Board of Directors to be acting in concert with him, increase his voting rights attributable to the shares, except as a result of a “permitted acquisition” (meaning an acquisition made in compliance with Rule 9 of the Takeover Code).

Where the Board of Directors has reason to believe that any of such circumstances has taken place, then it may take all or any of following measures:

 

   

require the person(s) appearing to be interested in the shares of the Company to provide such information as the Board of Directors considers appropriate;

 

   

consider such public filings as may be necessary to determine any of the matters noted above;

 

   

make any determination as it thinks fit, either after calling for submissions by the relevant person(s) or without calling for any;

 

   

determine that the voting rights attached to such shares in breach of the bye-laws, the “Excess Shares”, are incapable of being exercised for a definite or indefinite period;

 

   

determine that some or all of the Excess Shares are to be sold;

 

   

determine that some or all of the Excess Shares will not carry any right to any dividends or other distributions for a definite or indefinite period; and

 

   

such actions as it thinks fit, including prescribing rules not inconsistent with our bye-laws, setting deadlines for the provision of information, drawing adverse inferences where information requested is not provided, making determinations or interim determinations, executing documents on behalf of a shareholder, converting any Excess Shares held in uncertificated form to certificated form and vice-versa, or converting any Excess Shares represented by depositary interests issued in uncertificated form into shares in certificated form paying costs and expenses out of proceeds of sale, and changing any decision or determination or rule previously made.

The Board of Directors has the full authority to determine the application of these restrictions including the deemed application of the whole or any part of the UK Takeover Code, and such authority shall include all the

 

99


Table of Contents

discretion that the Panel on Takeovers and Mergers (Panel) would exercise if the whole or part of the UK Takeover Code applied. Any resolution or determination made by the Board of Directors, any director or the chairman of any meeting acting in good faith is final and conclusive and is not open to challenge as to its validity or as to any other ground. The Board of Directors is not required to give any reason for any decision or determination it makes.

Election and Removal of Directors

Our bye-laws do not permit cumulative voting in the election of directors. Our bye-laws require shareholders wishing to propose a person for election as a director (other than persons proposed by our Board of Directors) to give advance written notice of nominations for the election of directors. Our bye-laws also provide that our directors may be removed only upon the affirmative vote of the holders of a majority of the common shares voted in person or by proxy at a duly authorized meeting of shareholders called for that purpose, provided that notice of such meeting is served on such director at least 14 days before the meeting and at such meeting the director shall be entitled to be heard on the motion for such removal. These provisions may discourage, delay or prevent the removal of our incumbent directors.

Limited Actions by Shareholders

Any action required or permitted to be taken by our shareholders must be effected at an annual or special meeting of shareholders. Shareholders may not act by written consent in lieu of a meeting. Our bye-laws provide that our Board of Directors or the Chairman may call special meetings of our shareholders and that the Board of Directors must call a special general meeting upon the request of shareholders holding not less than 5% of the paid-up capital of the company carrying the right to vote at a general meeting and the business transacted at a special meeting is limited to the purposes stated in the notice for that meeting.

Subject to certain rights set out in the Bermuda Companies Act, our bye-laws provide that shareholders are required to give advance notice to us of any business to be introduced by a shareholder at any annual general meeting. The advance notice provisions provide that, for business to be properly introduced by a shareholder when such business is not specified in the notice of meeting or brought by or at the direction of our Board of Directors, the shareholder must have given our secretary notice not less than 90 days nor more than 120 days prior to the anniversary date of the immediately preceding annual general meeting of the shareholders. In the event the annual general meeting is called for a date that is not within 30 days before or after such anniversary date, the shareholder must give our secretary notice not later than 10 days following the earlier of the date on which notice of the annual general meeting was given to the shareholders or the date on which public disclosure of the annual general meeting was made. The chairman of the meeting may, if the facts warrant, determine and declare that any business was not properly brought before such meeting and such business will not be transacted.

Limitations on Liability and Indemnification of Directors and Officers

We are a Bermuda exempted company. The Bermuda Companies Act provides generally that a Bermuda company may indemnify its directors, officers and auditors against any liability imposed on them by virtue of any rule of law in respect of any negligence, default, breach of duty or breach of trust, except in cases where such liability arises from fraud or dishonesty of which such director, officer or auditor may be guilty in relation to the company. The Bermuda Companies Act further provides that a Bermuda company may indemnify its directors, officers and auditors against any liability incurred by them in defending any proceedings, whether civil or criminal, in which judgment is awarded in their favor or in which they are acquitted or granted relief by the Supreme Court of Bermuda pursuant to the Bermuda Companies Act. We have adopted provisions in our bye-laws that provide that we shall indemnify our officers and directors in respect of their actions and omissions, except in respect of their fraud or dishonesty. The indemnification provided in the bye-laws is not exclusive of other indemnification rights to which a director or officer may be entitled, provided these rights do not extend to his or her fraud or dishonesty.

Our bye-laws further provide that the shareholders waive all claims or rights of action that they might have, individually or in right of our company, against any of our directors or officers for any act or failure to act in the

 

100


Table of Contents

performance of such director’s or officer’s duties, except in respect of any fraud or dishonesty of such director or officer or any claims of violations of the Securities Act or the Exchange Act the waiver of which would be prohibited by Section 14 of the Securities Act and Section 29(a) of the Exchange Act.

Our bye-laws also provide that no officers or directors shall be answerable for their own or the acts, receipts, neglects or defaults of the other officers or directors, or for any bankers or other persons with whom any moneys or effects belonging to us shall or may be lodged or deposited for safe custody, or for insufficiency or deficiency of any security upon which any moneys of or belonging to us shall be placed out on or invested, provided that this indemnity shall not extend to any matter in respect of any fraud or dishonesty which may attach to any of the said persons. Our bye-laws further provide that we shall pay to or on behalf of any such director or officer any and all costs and expenses associated in defending or appearing or giving evidence in the proceedings referred to above as and when such costs and expenses are incurred; provided that in the event of a finding of fraud or dishonesty, such person shall reimburse to us all funds paid by us in respect of costs and expenses of defending such proceedings.

The Bermuda Companies Act permits us to purchase and maintain insurance for the benefit of any officer or director in respect of any loss or liability attaching to him in respect of any negligence, default, breach of duty or breach of trust, whether or not we may otherwise indemnify such officer or director. Our bye-laws provide that we may purchase and maintain insurance for the benefit of any director or officer against any liability incurred by him under the Bermuda Companies Act in his capacity as a director or officer or indemnifying such director or officer in respect of any loss arising or liability attac