Corporate Governance Statement

The Board is committed to high standards of corporate governance. With one limited exception, the Board considers that the Company has, throughout the year ended June 30, 2010, complied with all relevant provisions of the Main Principles as set out in Section 1 of the United Kingdom Financial Reporting Council’s June 2008 Combined Code on Corporate Governance (the “Combined Code”), made available at the Financial Reporting Council’s web site (www.frc.org.uk).

The one exception in which the Board believes the Company is not in strict compliance is in relation to William T Comfort III’s appointment to the Remuneration Committee. Due to the fact that the Combined Code requires all Remuneration Committee members to be independent and due to William T Comfort III’s relationship with a major shareholder, he does not meet the technical definition of independent under the Combined Code’s provisions. The Board otherwise considers William T Comfort III to be independent in character and judgment and does not believe his Combined Code status in any way actually impedes his ability to fulfil his duties on the Remuneration Committee with all due impartiality like any other member.

This Statement explains how the Company has applied the Main and Supporting Principles of Corporate Governance and describes the company’s general compliance with its provisions.

THE BOARD

The Board is currently made up of eight Directors, being the Chairman, who is part-time, two Executive and five Non-Executive Directors. The Chairman is responsible for the running of the Board. The Board considers that the balance of its constitution brings an appropriate balance of experience in judging matters of strategy, performance, resources, investor relations, internal controls and corporate governance.

Greg Lock continued to serve as the Non-Executive Chairman. James Arnold, Jr., the Company’s new Chief Financial Officer, was appointed to the Company’s Board of Directors on June 15, 2010, with Stefan Gaiser resigning from the Company’s Board of Directors on the same day. Biographical details of the Directors and the Board Committees on which they sit are set out here.

Considering the guidance for determining independence as set out in the Combined Code, the Board considers that Chris Conway, Greg Lock, Joe Rose and Mark Wells were independent throughout the year. As further explained below, the Board considers William T Comfort III to be independent in character and in judgment, but is unable to determine him to be independent according to the Combined Code definition based upon his relationship with a significant shareholder. In addition, and after careful review, the Board has again concluded that Bruce Powell, who has served the Board for 14 years, was independent throughout the year. In coming to this view the Board considered his expertise and independence of judgment and opinion.

During the year ended June 30, 2010 the Board met on seven occasions. The attendance of individual Directors at all Board and committee meetings is shown in the following table.

	Board Meetings	Nomination Committee	Remuneration Committee	Audit Committee
No. of meetings in year	7	1	4	5
Reynolds Bish	7	-	-	5*
Stefan Gaiser (retired on June 15, 2010)	7	-	-	5*
James Arnold, Jr. (appointed on June 15, 2010)	1	-	-	1*
Greg Lock	7	1	-	-
Bruce Powell	7	1	-	5
Chris Conway	7	1	4	5
Mark Wells	6	1	4	5
William T Comfort III	7	1	4	-
Joe Rose	7	1	4	-

* At the express request of the Audit Committee.

During the year the Chairman and Non-Executive Directors regularly met without the Executive Directors present. In addition, the Chief Executive Officer met with just the Non-Executive Directors and the Chairman on a regular basis.

Director	Position	Main Board	Commitees
			Audit	Remuneration	Nomination
Reynolds C.Bish	Chief Executive Officer	Member	-	-	-
James Arnold, Jr.	Chief Financial Officer	Member	-	-	-
Greg Lock	Non-Executive Chairman	Chairman	-	-	Chairman
Bruce Powell	Non-Executive Director and Senior Independent Director	Member	Chairman	-	Member
Chris Conway	Non-Executive Director	Member	Member	Chairman	Member
Mark Wells	Non-Executive Director	Member	Member	Member	Member
William T Comfort III	Non-Executive Director	Member	-	Member	Member
Joe Rose	Non-Executive Director	Member	-	Member	Member

There is a formal schedule of matters reserved for the Board’s consideration. These include:

The Company’s strategic plans and annual operating budgets;
Business acquisitions and disposals;
Major litigation; and
Employee share schemes.

The Directors may, at the Company’s expense, take independent professional advice and receive training on appointment and subsequently as they see fit. In addition, all Directors have access to the advice and services of the Company Secretary, the appointment and removal of whom is a matter of the whole Board. The Secretary advises the Chairman and the Board on appropriate procedures for the management of its meetings and duties (and the meetings of the Company’s principal Committees), as well as the implementation of Corporate Governance and compliance within the Company.

Prior to appointment, prospective Directors usually participate as observers to the Board. This allows the individual and the existing Directors to get to know each other prior to appointment. On appointment, the Directors take part in an induction programme. They receive information about the Company, the role of the Board, matters reserved to the Board, terms of reference and membership of principal Board and management Committees, the powers delegated to Committees, the Company’s Corporate Governance practices and procedures, and the latest financial information on the Company. This is supplemented by visits to key Company locations and meetings with key senior executives. Throughout their period in office, the Directors are continually updated on Company business and the competitive environment in which it operates, technology matters and other changes affecting the Company. Directors are also advised on appointment of their legal and other duties, responsibilities and obligations as a Director of a listed company, both in writing and in face-to face meetings with the Company’s solicitors.

Any Director appointed by the Board during the year is required, under the provisions of the Company’s Articles of Association, to retire and seek re-election by shareholders at the next Annual General Meeting (AGM). The Articles also require one-third of the Board to retire by rotation each year. All Directors are required to offer themselves for re-election at least every three years.

James Arnold, Jr. is submitting himself for election in the forthcoming AGM, having been appointed since the last AGM;
Chris Conway is submitting himself for re-election in the forthcoming AGM;
Mark Wells is submitting himself for re-election in the forthcoming AGM;
Bruce Powell is submitting himself for re-election in the forthcoming AGM in accordance with the provisions of the Combined Code.

There is a clear division of responsibilities between the Chairman and the Chief Executive Officer which has been approved by the Board. The Chairman is responsible for leadership of the Board, ensuring its effectiveness in all aspects of its role and setting its agenda. He facilitates both the contribution of the Non-Executive Directors and constructive relations between the Executive and Non-Executive Directors. He ensures that the Chief Executive Officer develops a strategy with which the Board as a whole is comfortable. The Chief Executive Officer is responsible for formulating strategy and for ensuring its delivery once agreed upon by the Board. He creates a framework of strategy, values, organisation and objectives to ensure the successful delivery of results, allocating decision making and responsibility to support this. In doing so, he works with the executive management team, which comprises the Executive Directors and certain other senior executives.

This separation of responsibilities, together with the ratio of Board membership between Executive and Non-Executive Directors, ensures there is a balance of power and authority at the head of the Company. The views of all Directors are taken into account in the decision-making process.

To enable the Board to function effectively and assist Directors to discharge their responsibilities, full and timely access is given to all relevant information. In the case of Board meetings, this consists of a comprehensive set of papers, including regular business progress reports and discussion documents regarding specific matters. Senior executives are regularly invited to Board meetings and make business presentations. The Board also discusses which decisions can be delegated to senior management within the Company, such as decisions needing to be made by senior management on a day-to-day basis for the Company’s ongoing and effective operation, including but not limited to lower level employee hiring and termination decisions, and financial expenditures falling within already approved budget levels which have not been designated as decisions expressly reserved to the Board.

EVALUATION OF THE BOARD’S PERFORMANCE

During the year the Board used a structured evaluation process to assess and improve its performance. This included collective feedback and discussion of the results and agreement on areas of improvement. Each Board member was individually assessed as was the performance of the Board as a whole and of its Committees. The Non-Executive Directors, led by the Chairman of the Audit Committee, conducted a review of the performance of the Chairman and this was discussed subsequently with him. In all cases the objectives were to address areas needing improvement.

BOARD COMMITTEES

The Board has delegated certain responsibilities to Board Committees, which operate within clearly defined terms of reference, reporting regularly to the Board. These are as follows:

The Audit Committee assists the Board in reviewing the reporting of financial and non-financial information to shareholders, the system of internal control and risk management, and the audit process. The Committee comprises three Non-Executive Directors, chaired by Bruce Powell, who has recent relevant experience as Finance Director of ApaTech Ltd., and meets formally at least four times a year. The Committee met five times during the year ended June 30, 2010, with no Committee members missing any meetings. The Chief Executive Officer, Chief Financial Officer and external auditors attended these meetings as required by the Committee.

The purpose of the Audit Committee is to assist the Board in the discharge of its responsibilities for financial reporting and corporate control and to provide a forum for reporting by the external auditors. The responsibilities of the Committee include:

To monitor the integrity of the Financial Statements and review significant financial reporting judgments contained in them, challenging where necessary the methods used;
To review the Company’s internal control and risk management systems;
To review internal audit reports and take the necessary action there from;
To make recommendations to the Board in relation to the appointment of the external auditor and to approve the remuneration and terms of engagement of the external auditor;
To review and monitor the independence, objectivity and effectiveness of the external auditor;
To develop and implement policy on the engagement of the external auditors to supply non-audit services;
To review regularly and at least annually the Company’s handling of its internal audit function;
To review whether published accounting standards, legal and regulatory requirements and best practices have been followed; and
To review the Company’s arrangements for its employees to raise concerns, in confidence, and to ensure that these arrangements allow proportionate and independent investigations of such matters and appropriate follow up action.

During the year the Committee undertook the following activities at these meetings:

Reviewed the semi-annual and annual results and reports, including a review of matters raised by the external auditor and areas of judgment;
Reviewed the system of internal control in operation throughout the Company;
Reviewed and approved the Company’s reporting under International Financial Reporting Standards;
Reviewed the Company’s compliance with the Combined Code;
Reviewed the external auditors and re-appointed the Company’s audit firm following a review process; and
Continued to utilize an Internet based mechanism by which Company employees may in confidence raise concerns about possible improprieties in matters of financial reporting or other matters, and ensured further that appropriate mechanisms are in place for independent investigations of such matters and appropriate follow up action, pursuant to the provisions set forth in the Combined Code.

The Audit Committee reviewed the nature and amount of non-audit work undertaken by Ernst & Young LLP (EY) in the current year, this being the fourth year with EY as auditors, to satisfy itself that there remains no impact on their independence. In some cases the nature of the advice may make it more timely and cost-effective to select EY, which has already developed a good understanding of the Company. Details of this year’s fees are given in note 6 to the Financial Statements. EY is also subject to professional standards which safeguard the integrity of the auditing role it performs on behalf of the shareholders. There is a formal policy in place for the provision of non-audit services by the auditors. This policy prohibits the provision of certain services, such as any service requiring an external auditor to make management decisions on behalf of the Company, any services creating mutuality of interest and any services in which the external auditor would be required to audit their own work. The policy requires that other services are subject to prior approval, such as services for which the cost is beyond the agreed-upon monetary threshold.

The Remuneration Committee comprises four Non-Executive Directors, is chaired by Chris Conway and meets formally at least three times a year. It met four times during the year ended June 30, 2010, with no Committee members missing any meetings.

Under provision B.2.1 of the Combined Code, the Board is required to establish a Remuneration Committee of independent Non-Executive Directors. Three out of four of the members of the Remuneration Committee throughout the financial year were determined independent according to the Combined Code definition of independence. The Board considers the other, William T Comfort III, to be independent in character and judgment, but has historically considered itself unable to determine him to be independent according to the Combined Code definition. This is due to his technically falling within merely one of seven criteria in the Combined Code said to indicate a potential impediment to independence: his relationship with a significant shareholder. Notwithstanding his membership in the Remuneration Committee therefore resulting in technical non-compliance with a single provision of the Combined Code throughout the financial year, the Board does not consider his Combined Code status in any way actually to impede his ability to fulfil his duties on that committee with all due impartiality like any other member. The Board feels that his extensive experience in investing in the public markets makes him a valuable contributor to the work of the committee, notwithstanding this purely technical non-compliance.

Further details about the Remuneration Committee are included in the Remuneration Report.

The Nomination Committee keeps under review the Board structure, size and composition; proposes to the Board suitable candidates for appointment as Directors of the Company; and considers Board succession plans. The Committee comprises all Non-Executive Directors, is chaired by Greg Lock and meets as required. It met once during the year ended June 30, 2010, with all members in attendance.

During the year the Nomination Committee met and made recommendations to the Board regarding the:

Appointment and re-election of James Arnold, Jr.;
Re-election of Chris Conway;
Re-election of Mark Wells; and
Re-election of Bruce Powell.

To appoint a new Director to the Board, the Chairman has initial meetings with candidates and recruiting firms and recommends a short list of individuals who then meet with other Nomination Committee members and the Executive Directors. The Nomination Committee then meets and decides after appropriate due diligence which candidate, if any, will be invited to join the Board.

RELATIONS WITH SHAREHOLDERS

The Company is committed to maintaining good communications across its entire shareholder base, whether institutional investors, private or employee shareholders. This is achieved principally through annual and half-yearly financial reports and other trading statements, as well as via the Annual General Meeting. Normal shareholder contact is the responsibility of the Chief Executive Officer, the Chief Financial Officer and the Company’s investor relations department.

The Chairman is available to discuss matters with institutional shareholders where it would be inappropriate for those discussions to take place with either the Chief Executive Officer or the Chief Financial Officer.

Regular dialogue and presentations take place throughout the year with institutional investors and buy-side and sell-side analysts. Shareholders have the opportunity to meet and question the Board at the Annual General Meeting, which will be held in London on November 4, 2010. The Company seeks to ensure that the Chairmen of the Audit, Remuneration and Nomination Committees are available to answer questions. The results of proxy voting will be disclosed at the meeting after the shareholders have voted on each resolution by a show of hands.

In addition, the Board receives reports from the Company’s broker and investor relations agency several times a year that communicate feedback from institutional shareholders and analysts.

The Company’s web site at www.kofax.com contains both corporate and customer information, updated on a regular basis.

INTERNAL CONTROL AND RISK MANAGEMENT

The Board has overall responsibility for the Company’s approach to assessing risk and the systems of internal control, and has delegated the process of reviewing its effectiveness to the Audit Committee, which reports back to the Board. This includes financial, operational and compliance controls and risk management procedures. The role of executive management is to implement the Board’s policies on risk and control, and present assurance of compliance with these policies. This process, regularly reviewed by the Directors, is carried out in conjunction with business planning by the executive management team.

Because of the limitations that are inherent in any system of internal control, this system is designed to manage rather than eliminate the risk of failure to achieve the Company’s business objectives. Accordingly, it can only provide reasonable but not absolute assurance against material misstatement or loss.

Risk assessment:

The Board has established an ongoing process for identifying, evaluating and managing the significant risks faced by the Company. This process, which is regularly reviewed by the Board and accords with the Turnbull guidance, was in place throughout the year under review and has continued up to the date of approval of these accounts. A key control procedure is the day-to-day involvement of executive members of the Board and Company management in all aspects of the business and their attendance at regular management meetings at which performance against plan and business prospects are reviewed.

Internal control:

Whilst the Board maintains full control and direction over appropriate strategic, financial, organisational and compliance issues, it has delegated to executive management the implementation of the systems of internal control within an established framework.

The Board has put in place an organisational structure with formally defined lines of responsibilities and delegation of authority. There are also established procedures for planning, capital expenditure, information and reporting systems, and for monitoring the Company’s business and performance.

Other key features and the processes for reviewing the effectiveness of the internal control system are described below:

Terms of reference for the Board and its committees, including a schedule of matters reserved for the Board and an agreed-upon annual programme of fixed agenda items for Board approval;
Board approved strategy, three-year operating plans and yearly budget plans;
An authority matrix with clearly defined levels of authority;
Reviews of monthly management accounts, monthly reviews of business re-forecasts and reviews of performance indicators by management and the Board following approval of the annual Company budget;
Reviews of the scope of the work of the external auditors by the Audit Committee and any significant issues arising;
Operational controls in human resources management, information technology and asset security;
Appropriate monitoring of key suppliers to the Company; and
Preparation of internal audit reports for review by the Audit Committee and Board, summarising the scope of the internal audit review, along with findings and recommendations.

The Board, with the assistance of the Audit Committee, has conducted its annual review of the effectiveness of the systems of internal control based on a review of significant risks identified, the results of external audits and reports from management. The key processes applied in doing so are described on pages 30 to 31. The associated companies are not considered to be significant for group purposes and therefore are not part of the internal control system.

In accordance with its Charter, Kofax Internal Audit provides independent, objective assurance and consulting services designed to improve the efficiency and effectiveness of risk management, internal controls and governance processes throughout the organization. The nature and scope of work of Internal Audit is designed to assess whether the organization’s network of risk management, internal controls and governance processes implemented by management are adequate and functioning in an effective manner. In performing this role, Internal Audit liaises with the Chief Financial Officer and Chief Executive Officer to design a flexible annual audit plan using an appropriate risk-based methodology, including any risks or control concerns identified by management. The Audit Committee reviews the audit plan submitted and provides feedback before approving. The Audit Committee is also required to approve periodic updates of plan changes.

In executing the audit plan, Internal Audit provides both verbal and written recommendations for improvements. All significant recommendations arising from internal audit observations and audit procedures are documented in formal reports including action plans agreed with management. Action plans can take the form of fixing control gaps, improving existing internal controls, remediation of ineffective controls and enhancing operational efficiencies throughout the organization.

In performing procedures, Internal Audit has unrestricted access to all functions, records, property and personnel of the organization and its affiliates and has full and free access to the Audit Committee to discuss any matters that might require escalation to Board level. The Audit Committee Chairman discusses various issues with the Head of Internal Audit in advance of Audit Committee meetings. Internal Audit presents results of completed and in-progress projects at each meeting of the Audit Committee. On a continuous basis, Internal Audit communicates with management and reports status for all action plans at Audit Committee meetings. The Audit Committee monitors the progress of action plans until the plans are completed and objectives are achieved.

In addition to monitoring the work of Internal Audit, the Audit Committee evaluates the results of formal risk assessments by management and reviews the implementation of policies and procedures documents. Policies and procedures documents are incorporated in a structured Business Conduct Guidelines (BCG) framework at Kofax and are designed to facilitate reliable financial reporting, operating efficiency and compliance with laws and regulations. During the financial year 2010, the Audit Committee reviewed various Business Conduct Guidelines, amendments to the Internal Audit Charter and updates to the Code of Conduct.

COMPLIANCE WITH DTR 7.2.5 AND DTR 7.2.6

The Directors have considered compliance with DTR 7.2.5 and DTR 7.2.6 within the Directors’ Report.

GOING CONCERN

The group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Business Review on pages 2 to 11. The financial position of the group, its cash flows, liquidity position and borrowing facilities are described in the Chief Financial Officer’s Review on pages 7 to 11. In addition note 26 of the Financial Statements includes the group’s objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposures to credit risk and liquidity risk.

The group has considerable financial resources together with long-term contracts with a number of resellers, customers and suppliers across different geographic areas and industries. As a consequence, the Directors believe that the group is well placed to manage its business risks successfully despite the current uncertain economic outlook.

After making enquiries, the Directors are satisfied that the Company has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Financial Statements.

By order of the Board
Bradford Weller
Company Secretary
September 20, 2010