10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005

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

For The Transition Period From              To             

Commission file number 0-22292

Captiva Software Corporation

(Exact name of Registrant as specified in its charter)

Delaware	77-0104275
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

10145 Pacific Heights Boulevard

San Diego, CA 92121

(858) 320-1000

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

Former name, former address and former fiscal year, if changed since last report:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  x    No  ¨

As of July 31, 2005, there were 12,985,102 shares of the registrant’s common stock, par value $0.01, outstanding.

CAPTIVA SOFTWARE CORPORATION

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2005

INDEX

			Page No.
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
		Consolidated Condensed Balance Sheets at June 30, 2005 and December 31, 2004 (unaudited)	3
		Consolidated Condensed Statements of Operations for the Quarters and Six-Month Periods Ended June 30, 2005 and 2004 (unaudited)	4
		Consolidated Condensed Statement of Stockholders’ Equity and Comprehensive Income for the Period Ended June 30, 2005 (unaudited)	5
		Consolidated Condensed Statements of Cash Flows for the Six-Month Periods Ended June 30, 2005 and 2004 (unaudited)	6
		Notes to Consolidated Condensed Financial Statements (unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		35
Item 4.	Controls and Procedures		35
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings		36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		36
Item 3.	Defaults Upon Senior Securities		36
Item 4.	Submission of Matters to a Vote of Security Holders		36
Item 5.	Other Information		36
Item 6.	Exhibits		37
Signatures			38

2

PART I – FINANCIAL INFORMATION

Item 1 - Financial Statements

CAPTIVA SOFTWARE CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS

(UNAUDITED)

(IN THOUSANDS)

	June 30, 2005			December 31, 2004
ASSETS
Current assets:
Cash and cash equivalents	$	19,954		$	27,273
Accounts receivable, net		13,962			13,612
Prepaid expenses and other current assets		2,748			3,301
Total current assets		36,664			44,186
Property and equipment, net		1,736			1,355
Other assets		467			1,558
Goodwill		26,326			10,244
Intangible assets, net		7,338			3,197
Total assets	$	72,531		$	60,540
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,586		$	1,462
Accrued compensation and related liabilities		4,454			3,372
Other liabilities		6,660			4,508
Deferred revenue		14,084			13,296
Total current liabilities		27,784			22,638
Deferred revenue		479			496
Other liabilities		468			359
Total liabilities		28,731			23,493
Stockholders’ equity:
Preferred stock		—			—
Common stock		129			123
Additional paid-in capital		37,530			32,549
Retained earnings		6,809			4,179
Accumulated other comprehensive income (loss)		(668	)		196
Total stockholders’ equity		43,800			37,047
Total liabilities and stockholders’ equity	$	72,531		$	60,540

See accompanying notes to consolidated financial statements.

3

CAPTIVA SOFTWARE CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

	Quarter Ended June 30,				Six Months Ended June 30,
	2005		2004		2005		2004
Net revenues:
Software	$	10,795	$	8,426	$	19,619	$	15,104
Services		7,850		6,891		15,219		13,808
Hardware and other		1,545		1,485		2,946		3,752
Total revenues		20,190		16,802		37,784		32,664
Cost of revenues:
Software		1,024		1,179		2,235		2,025
Services		2,824		2,524		5,421		5,171
Hardware and other		1,205		1,229		2,256		3,053
Amortization of purchased intangible assets		746		654		1,403		1,265
Total cost of revenues		5,799		5,586		11,315		11,514
Gross profit		14,391		11,216		26,469		21,150
Operating expenses:
Research and development		2,830		2,506		5,241		5,197
Sales and marketing		6,524		5,448		12,341		10,646
General and administrative		2,450		1,704		4,366		2,972
Acquisition and restructuring charges		429		—		429		—
Write-off of in-process research and development		110		—		110		66
Write-off of withdrawn stock offering costs		—		205		—		205
Total operating expenses		12,343		9,863		22,487		19,086
Income from operations		2,048		1,353		3,982		2,064
Interest and other income, net		136		58		267		129
Income before income taxes		2,184		1,411		4,249		2,193
Provision for income taxes		784		550		1,619		855
Net income	$	1,400	$	861	$	2,630	$	1,338
Earnings per share:
Basic	$	0.11	$	0.07	$	0.21	$	0.12
Diluted	$	0.10	$	0.07	$	0.19	$	0.10
Shares used in computing earnings per share:
Basic		12,549		11,481		12,450		11,242
Diluted		13,644		13,116		13,537		13,046

See accompanying notes to consolidated financial statements.

4

CAPTIVA SOFTWARE CORPORATION

CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS’ EQUITY AND

COMPREHENSIVE INCOME

(UNAUDITED)

(IN THOUSANDS)

	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity			Comprehensive Income
	Shares	Par Value
Balance at December 31, 2004	12,294	$	123	$	32,549	$	4,179	$	196		$	37,047
Common stock issued under:
Stock option plans	310		3		887							890
Employee stock purchase plan	64		1		464							465
Common stock issued in conjunction with the acquisition of SWT	179		2		2,181							2,183
Stock compensation expense					323							323
Tax benefit from stock option exercises					1,126							1,126
Net income							2,630					2,630			2,630
Cumulative translation adjustments									(864	)		(864	)		(864	)
Balance at June 30, 2005	12,847	$	129	$	37,530	$	6,809	$	(668	)	$	43,800		$	1,766

See accompanying notes to consolidated financial statements.

5

CAPTIVA SOFTWARE CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(IN THOUSANDS)

	Six Months Ended June 30,
	2005			2004
Cash flows from operating activities:
Net income	$	2,630		$	1,338
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,732			1,541
Tax benefit from stock option exercises		1,126			2,161
Deferred income taxes		—			(1,307	)
Stock compensation expense		323			—
Write-off of in-process research and development		110			66
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable		1,673			1,855
Prepaid expenses and other current assets		985			1,168
Accounts payable		(1,470	)		(462	)
Deferred revenue		(277	)		(1,736	)
Other liabilities		963			524
Net cash provided by operating activities:		7,795			5,148
Cash flows from investing activities:
Purchases of property and equipment		(390	)		(421	)
Cash paid to acquire SWT, net of cash acquired		(15,768	)		—
Cash paid to acquire Context		—			(5,459	)
Net cash used in investing activities:		(16,158	)		(5,880	)
Cash flows from financing activities:
Repayment of SWT debt obligations		(108	)		—
Proceeds from issuance of common stock		1,355			3,884
Net cash provided by financing activities		1,247			3,884
Effect of exchange rate changes on cash		(203	)		(34	)
Net increase (decrease) in cash and cash equivalents		(7,319	)		3,118
Cash and cash equivalents at beginning of period		27,273			16,038
Cash and cash equivalents at end of period	$	19,954		$	19,156
Non-cash financing activities:
Issuance of common stock in SWT acquisition	$	(2,183	)	$	—

See accompanying notes to consolidated financial statements.

6

CAPTIVA SOFTWARE CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

1.    Nature of Business

Captiva Software Corporation

Captiva Software Corporation (together with its consolidated subsidiaries, referred to herein as we, us, our, and Captiva) develops, markets, and services input management software that helps automate and manage the capture of external information into an organization’s internal computing systems.

Principles of Consolidation and Basis of Presentation

We have prepared the accompanying unaudited interim condensed consolidated financial statements in accordance with the instructions to Form 10-Q. Consequently, we have not necessarily included in this Quarterly Report on Form 10-Q all information and footnotes required for audited financial statements. In our opinion, the accompanying unaudited interim condensed consolidated financial statements in this Quarterly Report on Form 10-Q reflect all adjustments (consisting only of normal recurring adjustments, except as otherwise indicated) necessary for a fair statement of our financial position and results of operations. These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with our audited consolidated financial statements and notes thereto presented in our Annual Report on Form 10-K for the fiscal year ended December 31, 2004. The interim financial information contained in this report is not necessarily indicative of the results to be expected for any other interim period or for the entire fiscal year. The results of operations of Captiva’s wholly owned subsidiary SWT SA (SWT) have been included commencing May 27, 2005, the effective date of the acquisition.

The consolidated financial statements include the accounts of Captiva and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. These estimates and assumptions include, but are not limited to, assessing the following: the recoverability of accounts receivable, goodwill, intangible assets and deferred tax assets; the ability to estimate hours in connection with fixed-fee service contracts; and the determination of whether fees are fixed or determinable and collection is probable or reasonably assured in connection with revenue recognition..

Stock-Based Compensation

We measure compensation expense for our employee stock-based compensation awards using the intrinsic value method and provide pro forma disclosures of net income and earnings per share as if a fair value method had been applied. Therefore, compensation cost for fixed employee stock awards would be measured as the excess, if any, of the quoted market price of our common stock at the grant date over the amount an employee must pay to acquire the stock, and would be amortized over the related service periods. Under the intrinsic value method, no compensation expense was recognized during the quarters or six months ended June 30, 2005 or 2004 related to new awards. Refer to Note 7 for a discussion of compensation expense recorded as a result of an award modification.

7

CAPTIVA SOFTWARE CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

Had compensation cost for our employee stock-based compensation awards been determined based on the fair value method, the amount of employee stock-based compensation cost and our pro forma results for the quarters and six months ended June 30, 2005 and 2004 would have been as follows (in thousands, except per share data):

	Quarter Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Net income as reported	$	1,400		$	861		$	2,630		$	1,338
Stock-based employee compensation cost, net of tax, utilizing the fair value method		(609	)		(657	)		(2,340	)		(1,234	)
Pro forma net income		791			204			290			104
Earnings per share as reported:
Basic	$	0.11		$	0.07		$	0.21		$	0.12
Diluted	$	0.10		$	0.07		$	0.19		$	0.10
Pro forma earnings per share:
Basic	$	0.06		$	0.02		$	0.02		$	0.01
Diluted	$	0.06		$	0.02		$	0.02		$	0.01

The pro forma net income and earnings per share amounts for the quarter and six months ended June 30, 2004 have been adjusted from that originally reported (pro forma net income of $0.1 million for each of the quarter and six months ended June 30, 2004, and pro forma basic and diluted earnings per share of $0.01 for each of the quarter and six months ended June 30, 2004), to reflect revisions in our calculation of stock-based employee compensation cost related to purchase rights issued under our employee stock purchase plan, as well as certain tax benefit attributes.

Recent Accounting Pronouncements

On December 16, 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), Share-Based Payment (SFAS No. 123(R)), which is a revision of SFAS No. 123 (SFAS No. 123), Accounting for Stock-Based Compensation. SFAS No. 123(R) supersedes Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and amends SFAS No. 95, Statement of Cash Flows (SFAS No. 95). Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. However, SFAS No. 123(R) will require all share-based payments to employees, including grants of employee stock options and other stock-based awards, to be recognized in our statements of operations based on their fair values. Pro forma disclosures, previously allowed by SFAS No. 123, will no longer be an alternative.

Statement No. 123(R) was to be effective for public companies for annual or interim periods beginning after June 15, 2005. However, on April 14, 2005 the U.S. Securities and Exchange Commission announced a deferral of the effective date of SFAS 123(R) for calendar year companies until the beginning of 2006; accordingly, we will be required to adopt SFAS 123(R) on January 1, 2006 (the effective date). We expect to adopt such standard using the modified prospective method, under which compensation cost will be recognized based on the requirements of SFAS No. 123(R) for all share-based awards granted to employees on or after the effective date and based on our original fair value calculations in accordance with SFAS No. 123 for all share-based awards granted to employees prior to the effective date, to the extent that they remain unvested on the effective date. Upon our adoption of SFAS No. 123(R), we anticipate that we will continue to apply the Black-Scholes option pricing model to estimate the fair value of our share-based awards. However, we may elect to use another valuation model as prescribed by SFAS No. 123(R).

8

CAPTIVA SOFTWARE CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

As permitted by SFAS No. 123, we currently account for share-based payments to employees using APB Opinion No. 25’s intrinsic value method and, as such, generally do not recognize compensation cost for employee stock option awards. Accordingly, the adoption of SFAS No. 123(R)’s fair value method will have a significant impact on our results of operations, although it will have no impact on our overall financial position. The impact of adoption of SFAS No. 123(R) cannot be predicted at this time because it will depend on the levels of share-based awards granted by us in the future. SFAS No. 123(R) also requires the benefit of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow, as is currently prescribed by SFAS No. 95. To the extent that we continue to recognize tax benefits upon the exercise or disqualifying disposition of employee stock options, our adoption of SFAS No. 123(R) will reduce our net operating cash flows and increase our net financing cash flows in periods after adoption.

2.    Intangible Assets

Intangible assets, net, consist of the following (in thousands):

	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
June 30, 2005:
Completed technology	$	8,743	$	(5,608	)	$	3,135
Customer contracts and relationships		4,621		(949	)		3,672
Trademarks and trade names		853		(424	)		429
Patents		163		(61	)		102
	$	14,380	$	(7,042	)	$	7,338
December 31, 2004:
Completed technology	$	6,371	$	(4,518	)	$	1,853
Customer contracts and relationships		1,536		(733	)		803
Trademarks and trade names		766		(344	)		422
Patents		163		(44	)		119
	$	8,836	$	(5,639	)	$	3,197

Amortization expense related to our intangible assets totaled $0.7 million and $1.4 million during the quarter and six months ended June 30, 2005, respectively, and $0.7 million and $1.3 million during the quarter and six months ended June 30, 2004, respectively. Future amortization expense for the remainder of 2005 and for 2006, 2007, 2008, and 2009 is expected to be $1.1 million, $1.8 million, $1.3 million, $1.2 million, and $0.7 million respectively, excluding any incremental expense that could result if we consummate future acquisitions.

3.    Computation of Earnings Per Share

Basic earnings per share is computed by dividing the net income available to common stockholders by the weighted average number of common shares outstanding for that period. Diluted earnings per share is computed based on the weighted-average number of common shares outstanding as well as potential common shares resulting from the exercise of outstanding stock options when they are dilutive under the treasury stock method. Dilutive securities consisting of 1.1 million shares related to outstanding stock options are included in the diluted earnings per share calculations for the quarter and six months ended June 30, 2005. Dilutive securities consisting of 1.6 million and 1.8 million shares related to outstanding stock options are included in the diluted earnings per share calculations for the quarter and six months ended June 30, 2004, respectively. Potentially dilutive securities consisting of 0.4 million and 0.7 million shares related to outstanding stock options were excluded from the

9

CAPTIVA SOFTWARE CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

diluted earnings per share calculations in the quarter and six months ended June 30, 2005, respectively, and 0.7 million and 0.5 million shares for the quarter and six months ended June 30, 2004, respectively, because they were anti-dilutive.

4.    Acquisition of SWT SA

On May 27, 2005, we consummated our acquisition of SWT SA, a privately held France-based provider of automatic data extraction and intelligent document capture solutions and technology, pursuant to a definitive purchase agreement dated May 10, 2005. The acquisition was consummated principally to expand our geographic presence into new markets, particularly in France, and to add synergistic technologies that we expect to leverage into our products, direct and indirect sales channels and customer base. We paid approximately $17.7 million in cash and issued approximately 179,000 shares of our common stock to SWT shareholders to purchase all of the outstanding share capital of SWT. Of the total cash consideration, we deposited approximately $1.9 million into an escrow account to secure potential future indemnification obligations of the primary selling shareholder.

We accounted for this transaction using the purchase method of accounting. Results of operations of SWT have been included in our results prospectively from May 27, 2005.

Our estimate of the total purchase price of SWT is summarized as follows (in thousands):

Total cash consideration	$	17,679
Captiva common stock issued		2,183
Estimated acquisition-related costs		1,717
Total estimated purchase price of acquisition	$	21,579

The total estimated purchase price was preliminarily allocated as follows (in thousands):

Tangible assets	$	4,787
Goodwill		16,668
Intangible assets:
Completed technology		2,460
In-process research and development		110
Customer contracts and relationships		3,200
Trademarks and trade names		90
Tangible liabilities		(4,543	)
Deferred tax liabilities, net		(1,193	)
Total estimated purchase price of acquisition	$	21,579

The assumed value of the Captiva common stock issued in the acquisition was calculated based on the average closing price of Captiva’s common stock for the five day period beginning two days before and ending two days after the public announcement of the acquisition.

The preliminary allocation of the purchase price is pending completion of several elements, including our determination of certain deferred tax and other tax attributes existing as of the purchase date. We do not expect future adjustments to the purchase price to be material. However, there may be material adjustments to the allocation of the purchase price.

10

CAPTIVA SOFTWARE CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

The completed technology, in-process research and development, customer contracts and relationships and trademarks and trade names were valued utilizing discounted cash flow models based on forecasts of future revenues and expenses related to the intangible assets, utilizing discount rates of 20%, 25%, 18-20% and 18%, respectively.

The acquired intangible assets have a weighted average estimated useful life of approximately six years and will be amortized using the straight-line method over their estimated useful lives as follows: completed technology – four years; customer contracts and relationships – eight years; and trademarks and trade names – two years. In connection with the acquisition, we wrote-off acquired in-process research and development totaling $0.1 million, which was recorded as an immediate charge to operations. None of the goodwill related to this acquisition is deductible for tax purposes.

The following table summarizes unaudited pro forma statement of operations data as if our acquisition of SWT had occurred on January 1, 2004 (unaudited; in thousands, except per share data):

	Quarter Ended June 30,				Six Months Ended June 30,
	2005		2004		2005		2004
Revenues	$	21,410	$	18,165	$	41,078	$	36,157
Net income		677		140		986		207
Basic earnings per share	$	0.05	$	0.01	$	0.08	$	0.02
Diluted earnings per share		0.05		0.01		0.07		0.02

These unaudited pro forma results are not necessarily indicative of those that would have actually occurred had the acquisition taken place on January 1, 2004.

SWT Debt Obligations

In connection with the acquisition of SWT, we assumed debt obligations consisting of a small business term loan, ANVAR subsidy advances and COFACE advances amounting to $0.1 million, $0.3 million and $0.3 million, respectively. ANVAR is a French organization that provides research and development subsidies to finance corporate development projects. Under the terms of the ANVAR loan subsidies, repayment is required only upon the success of defined research projects. If the projects are not deemed successful as per the project definitions, the subsidy loans are forgiven. COFACE is an affiliate of a French banking organization that provides advances to corporations for foreign expansion via insurance contracts that are designated to cover foreign losses resulting from French product exportation. Under the terms of the COFACE contracts, repayment of the advances may be forgiven if foreign expansion results do not achieve certain defined financial levels. In June 2005, repayments under SWT debt obligations amounted to $0.1 million. SWT debt obligations and scheduled repayment dates as of June 30, 2005 are as follows (in thousands):

	Liability at June 30, 2005
Small business term loans (payable in quarterly installments, including interest accrued at 4.4%, through February 2008)	$	114
ANVAR subsidy (payable in installments of $121 and $60 in September 2005 and September 2006, respectively)		181
COFACE advances ($220 payable in 2005 and $64 payable in 2006)		284
	$	579

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CAPTIVA SOFTWARE CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

Of SWT’s total debt obligations, $451 and $128 has been included in other current liabilities and other non-current liabilities, respectively, in the accompanying condensed consolidated balance sheet at June 30, 2005.

5.     Acquisition and Restructuring Charges

During the quarter ended June 30, 2005, in connection with our acquisition of SWT, we adopted a restructuring plan that included a reduction of our workforce and office space made redundant by the acquisition. In connection with this plan, we recorded a charge to operations of $0.3 million which consisted of a 0.1 million charge related to a reduction in our workforce, consisting primarily of employee severance costs, and a $0.2 million charge related to the accrual of estimated net future facility lease costs related to a vacated office lease. All of these charges represent future cash charges. As of June 30, 2005, the accruals relating to the workforce charge and the facility lease charge amounted to $0.1 million and $0.2 million, respectively.

Additionally, during the quarter ended June 30, 2005, we recorded non-recurring acquisition charges totaling $0.1, which consisted principally of internal acquisition-related travel costs that preceded the acquisition.

6.    Segment Information

We have a single reportable operating segment consisting of the development, marketing and servicing of input management solutions. Our President and Chief Executive Officer utilizes measurements of profitability related to this single operating segment, which are not disaggregated by product or geographical lines, to make primary business decisions and resource allocations.

International operations primarily consist of subsidiary offices in France, the United Kingdom, Germany, Spain and Australia, as well as a research and development center in Russia, and represent extensions of our core input management business.

Revenues derived from domestic and international sales, which are determined based on our primary selling office locations, were as follows during the quarters and six months ended June 30, 2005 and 2004, respectively (in thousands):

	Quarter Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Domestic (United States)	$	13,878		$	12,937		$	28,575		$	25,788
% of total		69	%		77	%		76	%		79	%
International	$	6,312		$	3,865		$	9,209		$	6,876
% of total		31	%		23	%		24	%		21	%

No single customer accounted for 10% or more of our total revenues during the quarters or six months ended June 30, 2005 or 2004.

7.    Stock Option Award Modifications

In February 2005, our Board of Directors approved the acceleration of vesting of certain unvested and “out-of-the-money” stock options previously awarded to employees and officers under our stock option plans. This action affected all unvested options with exercise prices greater than $11.51 on February 9, 2005. As a result of this action, options to purchase approximately 0.5 million shares of our common stock that would have otherwise vested over an approximate 39 month period became fully vested. In connection therewith, all of our

12

CAPTIVA SOFTWARE CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

affected executive officers have entered into agreements not to sell shares acquired through the exercise of an accelerated option prior to the date on which exercise would have been permitted under the options’ original vesting terms, other than shares sold for payment of taxes resulting from the exercise or in the case of termination of employment. The decision to accelerate the vesting of these options was made primarily to reduce compensation expense that would be recorded in future periods following our adoption of SFAS No. 123(R).

In May 2005, our Board of Directors approved an extension of the exercise period of certain stock options held by a former director. In connection with this award modification, we recorded a stock compensation charge of $0.3 million, which represented the intrinsic value of the options at the date of modification. This charge is included in general and administrative expense during the quarter and six months ended June 30, 2005.

8.    Guarantees

In the ordinary course of business, we are not subject to potential obligations under guarantees that fall within the scope of FIN No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, except for standard indemnification and warranty provisions that are contained within many of our customer license and service agreements and certain vendor agreements, as well as standard indemnification agreements that we have executed with certain of our officers and directors, and give rise only to the disclosure requirements prescribed by FIN No. 45. We continue to monitor the conditions that are subject to these guarantees and indemnifications to identify whether it is probable that a loss has occurred, and would recognize any such losses under the guarantees and indemnifications when those losses are estimable.

Indemnification and warranty provisions contained within our customer license and service agreements and certain supplier agreements are generally consistent with those prevalent in our industry. The duration of our product warranties generally does not exceed 90 days following delivery or installation of our products. We have not incurred significant obligations under customer indemnification or warranty provisions historically and do not expect to incur significant obligations in the future. Accordingly, we do not maintain accruals for potential customer indemnification or warranty-related obligations. The indemnification agreements that we have executed with certain of our officers and directors would require us to indemnify such officers and directors in certain instances. We have not incurred obligations under these indemnification agreements historically and do not expect to incur significant obligations in the future. Accordingly, we do not maintain accruals for potential officer or director indemnification obligations. The maximum potential amount of future payments that we could be required to make under the indemnification provisions in our customer license and service agreements, and officer and director agreements is unlimited.

9.    Contingencies

We are party to various claims and legal actions arising in the ordinary course of business. We do not believe that any of these claims or actions will result in a material adverse impact to our consolidated results of operations, liquidity or financial condition. However, the amount of the liabilities associated with these claims and actions, if any, cannot be determined with certainty.

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Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Statements in this Quarterly Report on Form 10-Q that are not strictly historical in nature are forward-looking statements. These statements relate to, among other things, future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue,” the negative of such terms, or other words of similar meaning. These statements are only predictions based on information currently available to us. Actual events or results may differ materially. Risks that may cause actual results to differ materially from the forward-looking statements are described in the section entitled “Risk Factors” in this Quarterly Report on Form 10-Q and identified from time to time in our filings with the Securities and Exchange Commission. Although we believe that the estimates and expectations reflected in the forward-looking statements are reasonable at the time the statements are made, we cannot guarantee future results, levels of activity, performance or achievements. We assume no obligation to update any of the forward-looking statements contained in this Quarterly Report on Form 10-Q.

Overview

We are a leading provider of input management solutions designed to manage business-critical information from paper, faxed and electronic forms, documents and transactions into the enterprise. Our solutions automate the processing of billions of forms, documents and transactions annually, converting their content into information that is usable in database, document, content and other information management systems. We believe that our products and services enable organizations to reduce operating costs, obtain higher information accuracy rates and speed processing times. Our objective is to extend our position as a leading provider of input management solutions. Key elements of our growth strategy include leveraging our existing customer base, broadening our sales channels and expanding our markets, expanding our international presence, broadening our product offerings and pursuing strategic acquisitions.

Our products offer organizations a cost-effective, accurate and automated alternative to both manual data entry and electronic data interchange. These traditional approaches are typically labor intensive, time consuming and costly methods of managing the input of information into the enterprise. Organizations can utilize our products to capture information digitally, extract the meaningful content or data, and apply business rules that ensure the data’s accuracy.

We are a Delaware corporation, formed by the merger of ActionPoint, Inc., a Delaware corporation (ActionPoint), with Captiva Software Corporation, a California corporation (Old Captiva), in the third quarter of 2002 (the Merger), pursuant to which ActionPoint acquired all of the capital stock of Old Captiva. In connection with the Merger, Old Captiva became a wholly-owned subsidiary of ActionPoint and ActionPoint changed its name to Captiva Software Corporation.

On May 27, 2005, we consummated our acquisition of SWT, a privately held France-based provider of automatic data extraction and intelligent document capture solutions and technology. The results of operations of SWT are included in our 2005 results of operations beginning on May 27, 2005.

On February 1, 2004, we acquired Context. Context’s products provide automated solutions to complex medical claims coding, editing and reimbursement challenges in the healthcare industry and allow us to better serve our claims processing customers and expand our reach in the healthcare insurance market. The results of operations of Context are included in our 2004 results of operations beginning on February 1, 2004.

Our business has historically been subject to some seasonality, principally as it relates to software license revenues. Our first quarters have generally been our weakest in terms of software license sales volume while our fourth quarters have generally been our strongest. We believe that this seasonality may be attributable to one or more of the following factors: i) when businesses feel comfortable spending their information technology budgets, ii) the impact that the Sarbanes-Oxley Act has had on the timing of new information technology deployments, and iii) sales commission plans based on calendar year achievement levels.

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Results of Operations

The following tables set forth, in absolute dollars and as a percentage of total revenues, certain statement of operations data for the quarters and six months ended June 30, 2005 and 2004:

	Quarter Ended June 30,				Percentage of Revenues				Period-to-Period Change			Period-to-Period Percentage Change
	2005		2004		2005		2004
	(In thousands)								(In thousands)
Net revenues:
Software	$	10,795	$	8,426	53	%	50	%	$	2,369		28	%
Services		7,850		6,891	39	%	41	%		959		14	%
Hardware and other		1,545		1,485	8	%	9	%		60		4	%
Total revenues		20,190		16,802	100	%	100	%		3,388		20	%
Cost of revenues:
Software		1,024		1,179	5	%	7	%		(155	)	(13	)%
Services		2,824		2,524	14	%	15	%		300		12	%
Hardware and other		1,205		1,229	6	%	7	%		(24	)	(2	)%
Amortization of purchased intangibles		746		654	4	%	4	%		92		14	%
Total cost of revenues		5,799		5,586	29	%	33	%		213		4	%
Gross profit		14,391		11,216	71	%	67	%		3,175		28	%
Operating expenses:
Research and development		2,830		2,506	14	%	15	%		324		13	%
Sales and marketing		6,524		5,448	32	%	32	%		1,076		20	%
General and administrative		2,450		1,704	12	%	10	%		746		44	%
Acquisition and restructuring charges		429		—	2	%	—			429		—
Write-off of in-process research and development		110		—	1	%	—			110		—
Write-off of withdrawn stock offering costs		—		205	—		1	%		(205	)	(100	)%
Total operating expenses		12,343		9,863	61	%	59	%		2,480		25	%
Income from operations		2,048		1,353	10	%	8	%		695		51	%
Interest and other income, net		136		58	1	%	—			78		134	%
Income before income taxes		2,184		1,411	11	%	8	%		773		55	%
Provision for income taxes		784		550	4	%	3	%		234		43	%
Net income	$	1,400	$	861	7	%	5	%		539		63	%

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	Six Months Ended June 30,				Percentage of Revenues				Period-to-Period Change			Period-to-Period Percentage Change
	2005		2004		2005		2004
	(In thousands)								(In thousands)
Net revenues:
Software	$	19,619	$	15,104	52	%	46	%	$	4,515		30	%
Services		15,219		13,808	40	%	42	%		1,411		10	%
Hardware and other		2,946		3,752	8	%	11	%		(806	)	(21	%)
Total revenues		37,784		32,664	100	%	100	%		5,120		16	%
Cost of revenues:
Software		2,235		2,025	6	%	6	%		210		10	%
Services		5,421		5,171	14	%	16	%		250		5	%
Hardware and other		2,256		3,053	6	%	9	%		(797	)	(26	%)
Amortization of purchased intangibles		1,403		1,265	4	%	4	%		138		11	%
Total cost of revenues		11,315		11,514	30	%	35	%		(199	)	(2	%)
Gross profit		26,469		21,150	70	%	65	%		5,319		25	%
Operating expenses:
Research and development		5,241		5,197	14	%	16	%		44		1	%
Sales and marketing		12,341		10,646	33	%	33	%		1,695		16	%
General and administrative		4,366		2,972	12	%	9	%		1,394		47	%
Acquisition and restructuring charges		429		—	1	%	—			429		—
Write-off of in-process research and development		110		66	—		—			44		67	%
Write-off of withdrawn stock offering costs		—		205	—		1	%		(205	)	(100	%)
Total operating expenses		22,487		19,086	60	%	58	%		3,401		18	%
Income from operations		3,982		2,064	11	%	6	%		1,918		93	%
Interest and other income, net		267		129	1	%	—			138		107	%
Income before income taxes		4,249		2,193	11	%	7	%		2,056		94	%
Provision for income taxes		1,619		855	4	%	3	%		764		89	%
Net income	$	2,630	$	1,338	7	%	4	%		1,292		97	%

Quarter Ended June 30, 2005 compared to Quarter Ended June 30, 2004

Revenues

Our total revenues increased 20% to $20.2 million in the quarter ended June 30, 2005 from $16.8 million in the quarter ended June 30, 2004.

Our software revenues increased 28% to $10.8 million in the quarter ended June 30, 2005 from $8.4 million in the quarter ended June 30, 2004. Software revenues accounted for 53% and 50% of total revenues in the quarters ended June 30, 2005 and 2004, respectively. The increase in software revenues in absolute dollars and as a percentage of total revenues was attributable primarily to strong software license sales execution by our direct sales force and channel partners domestically and also to an increase in international revenues resulting primarily from our acquisition of SWT.

Our service revenues increased 14% to $7.9 million in the quarter ended June 30, 2005 from $6.9 million in the quarter ended June 30, 2004. Service revenues accounted for 39% and 41% of total revenues in the quarters ended June 30, 2005 and 2004, respectively. The increase in service revenues in absolute dollars was attributable primarily to an increase in maintenance revenues resulting from a growing installed base of customers, most of

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who purchase and renew ongoing maintenance and support. The decrease in service revenues as a percentage of total revenues was attributable primarily to the increase in software revenues.

Our hardware and other revenues increased 4% to $1.5 million in the quarter ended June 30, 2005 from $1.5 million in the quarter ended June 30, 2004. Hardware and other revenues accounted for 8% and 9% of total revenues in the quarters ended June 30, 2005 and 2004, respectively. The decrease in hardware and other revenues in absolute dollars and as a percentage of total revenues resulted primarily from a decrease in digital scanner sales quarter over quarter.

International revenues totaled $6.3 million and $3.9 million in the quarters ended June 30, 2005 and 2004, respectively, representing 31% and 23% of total revenues in each of these quarters.

Gross Profit

Gross profit increased 28% to $14.4 million in the quarter ended June 30, 2005 from $11.2 million in the quarter ended June 30, 2004. Gross profit as a percentage of total revenues increased to 71% in the quarter ended June 30, 2005 from 67% in the quarter ended June 30, 2004. The increase in absolute dollars and as a percentage of total revenue was attributable primarily to the increase in software revenues, which have higher margins than service and hardware revenues, and to higher margins on our software sales due to a lower royalty component mix in the software we sold. The economies of scale gained by leveraging existing maintenance infrastructure to support higher maintenance revenues also contributed to the gross profit percentage increase.

Research and Development

Research and development expenses increased 13% to $2.8 million in the quarter ended June 30, 2005 from $2.5 million in the quarter ended June 30, 2004. As a percentage of total revenues, research and development expenses decreased to 14% in the quarter ended June 30, 2005 from 15% in the quarter ended June 30, 2004. The increase in absolute dollars was attributable primarily to an increase in research and development personnel in our Russia product development office and as a result of our SWT acquisition. The decrease as a percentage of total revenue was attributable primarily to cost benefits gained through the expanded utilization of lower cost research and development personnel in Russia to supplement our product development efforts.

Sales and Marketing

Sales and marketing expenses increased 20% to $6.5 million in the quarter ended June 30, 2005 from $5.4 million in the quarter ended June 30, 2004. As a percentage of total revenues, sales and marketing expenses remained consistent at 32% in the quarters ended June 30, 2005 and 2004. The increase in absolute dollars was attributable primarily to the expansion of our sales organization and related labor cost increases, including those related to SWT, an increase sales commission expense and an increase in tradeshow expenditures.

General and Administrative

General and administrative expenses increased 44% to $2.5 million in the quarter ended June 30, 2005 from $1.7 million in the quarter ended June 30, 2004. As a percentage of total revenues, general and administrative expenses increased to 12% in the quarter ended June 30, 2005 from 10% in the quarter ended June 30, 2004. The increase in absolute dollars and as a percentage of total revenue was attributable primarily to an increase in headcount related to the expansion of our operations, including those related to SWT, and to the recognition of a stock compensation charge related to the modification of a former director’s stock option awards in the quarter ended June 30, 2005.

Acquisition and Restructuring Charges

During the quarter ended June 30, 2005, in connection with our acquisition of SWT, we recognized expenses totaling $0.4 million which consisted of a $0.3 million restructuring charge that resulted from a reduction of our workforce and office space made redundant by the acquisition and $0.1 million in internal acquisition-related travel expenses that preceded the acquisition.

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In-Process Research and Development

In connection with our acquisition of SWT in the quarter ended June 30, 2005, we recorded $0.1 million charge related to acquired in-process research and development. No in-process research and development charge was recorded in the quarter ended June 30, 2004.

Provision for Income Taxes

Our tax rate for the quarter ended June 30, 2005 was 35.9%, as compared to a tax rate of 39.0% in the quarter ended June 30, 2004. The provision for income taxes during interim quarterly reporting periods is based on our estimates of the effective tax rates for the respective full fiscal year. During the quarter ended June 30, 2005, we revised our estimates of foreign taxable income, which is taxed at lower statutory rates than domestic income, as a percentage of estimated total taxable income in 2005. This revision had the impact of reducing our estimate of the 2005 effective tax rate from 40.4% to 38.1%, and resulted in an adjusted net tax rate of 35.9% for the quarter ended June 30, 2005.

Six Months Ended June 30, 2005 compared to the Six Months Ended June 30, 2004

Revenues

Our total revenues increased 16% to $37.8 million in the six months ended June 30, 2005 from $32.7 million in the six months ended June 30, 2004.

Our software revenues increased 30% to $19.6 million in the six months ended June 30, 2005 from $15.1 million in the six months ended June 30, 2004. Software revenues accounted for 52% and 46% of total revenues in the six months ended June 30, 2005 and 2004, respectively. The increase in software revenues in absolute dollars and as a percentage of total revenues was attributable primarily to strong software license sales execution by our direct sales force and channel partners domestically.

Our service revenues increased 10% to $15.2 million in the six months ended June 30, 2005 from $13.8 million in the six months ended June 30, 2004. Service revenues accounted for 40% and 42% of total revenues in the six months ended June 30, 2005 and 2004, respectively. The increase in service revenues in absolute dollars was attributable primarily to an increase in maintenance revenues resulting from a growing installed base of customers, most of who purchase and renew ongoing maintenance and support. The decrease in service revenues as a percentage of total revenues was attributable primarily to the increase in software revenues.

Our hardware and other revenues decreased 21% to $2.9 million in the six months ended June 30, 2005 from $3.8 million in the six months ended June 30, 2004. Hardware and other revenues accounted for 8% and 11% of total revenues in the six months ended June 30, 2005 and 2004, respectively. The decrease in hardware and other revenues in absolute dollars and as a percentage of total revenues resulted primarily from a decrease in digital scanner sales period over period.

International revenues totaled $9.2 million and $6.9 million in the six months ended June 30, 2005 and 2004, respectively, representing 24% and 21% in the six months ended June 30, 2005 and 2004, respectively.

Gross Profit

Gross profit increased 25% to $26.5 million in the six months ended June 30, 2005 from $21.2 million in the six months ended June 30, 2004. Gross profit as a percentage of total revenues increased to 70% in the six months ended June 30, 2005 from 65% in the six months ended June 30, 2004. The increase in absolute dollars and as a percentage of total revenue was attributable primarily to the increase in software revenues, which have higher margins than service and hardware revenues. The decrease in hardware and other revenues, which have lower

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gross margins than software and service revenues, and economies of scale gained by leveraging existing maintenance infrastructure to support higher maintenance revenues also contributed to the gross profit percentage increase.

Research and Development

Research and development expenses totaled $5.2 million in both the six months ended June 30, 2005 and 2004. As a percentage of total revenues, research and development expenses decreased to 14% in the six months ended June 30, 2005 from 16% in the six months ended June 30, 2004. The decrease as a percentage of total revenue was attributable primarily to cost benefits gained through the utilization of lower cost research and development personnel in Russia to supplement our product development efforts beginning in the second quarter of 2004.

Sales and Marketing

Sales and marketing expenses increased 16% to $12.3 million in the six months ended June 30, 2005 from $10.6 million in the six months ended June 30, 2004. As a percentage of total revenues, sales and marketing expenses remained consistent at 33% in the six months ended June 30, 2005 and 2004. The increase in absolute dollars was attributable primarily to an increase sales commission expense, the expansion of our sales organization and related labor cost increases, and an increase in tradeshow expenditures.

General and Administrative

General and administrative expenses increased 47% to $4.4 million in the six months ended June 30, 2005 from $3.0 million in the six months ended June 30, 2004. As a percentage of total revenues, general and administrative expenses increased to 12% in the six months ended June 30, 2005 from 9% in the six months ended June 30, 2004. The increase in absolute dollars and as a percentage of revenue was attributable primarily to an increase in professional service fees, including audit and consulting fees, relating to our first year Sarbanes-Oxley Act compliance initiatives that were completed in the first quarter of 2005, an increase in headcount related to the expansion of our operations, and the recognition of a stock compensation charge related to the modification of a former director’s stock option awards in the six months ended June 30, 2005.

Acquisition and Restructuring Charges

During the six months ended June 30, 2005, in connection with our acquisition of SWT, we recognized expenses totaling $0.4 million which consisted of a $0.3 million restructuring charge that resulted from a reduction of our workforce and office space made redundant by the acquisition and $0.1 million in internal acquisition-related travel expenses that preceded the acquisition.

In-Process Research and Development

In connection with our acquisition of SWT in the six months ended June 30, 2005, we recorded $0.1 million charge related to acquired in-process research and development. In connection with our acquisition of Context in the six months ended June 30, 2004, we recorded $0.1 million charge related to acquired in-process research and development.

Provision for Income Taxes

Our effective tax rate for the six months ended June 30, 2005 was 38.1%, as compared to an effective tax rate of 39.0% in the six months ended June 30, 2004. The provision for income taxes during interim quarterly reporting periods is based on our estimates of the effective tax rates for the respective full fiscal year. The decrease in our effective tax rate is attributable primarily to revised estimates of foreign taxable income, which is taxed at lower statutory rates than domestic income, as a percentage of total estimated taxable income in 2005.

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Liquidity and Capital Resources

Our working capital decreased from $21.5 million at December 31, 2004 to $8.9 million at June 30, 2005. The $12.6 million decrease in working capital consisted of a $7.3 million decrease in cash and cash equivalents, a $0.5 million decrease in prepaid and other current assets, a $0.8 million increase in deferred revenue, and a $4.4 million combined increase in other current liabilities, partially offset by a $0.4 million increase in accounts receivable, net. The decrease in cash and cash equivalents was attributable primarily to our acquisition of SWT. The increase in deferred revenue was attributable primarily to the addition of deferred maintenance revenues recorded in connection with our acquisition of SWT. The increase in other current liabilities was attributable primarily to an increase in accrued liabilities related to SWT, including accrued acquisition costs.

Our primary method for funding operations and growth has been through cash flows generated from operations. Net cash provided by operating activities increased from $5.1 million in the six months ended June 30, 2004 to $7.8 million in the six months ended June 30, 2005. The increase was attributable primarily to an increase in income before non-cash charges, including depreciation and amortization, the tax benefit from stock option exercises, stock compensation expense, and the write-off of in-process research and development.

Net cash used in investing activities increased from $5.9 million in the six months ended June 30, 2004 to $16.2 million in the six months ended June 30, 2005. The increase was attributable primarily to the use of $15.8 million in cash, net of cash acquired, to acquire SWT during the six months ended June 30, 2005.

Net cash provided by financing activities decreased from $3.9 million in the six months ended June 30, 2004 to $1.2 million in the six months ended June 30, 2005. Net cash provided by financing activities related primarily to proceeds from the exercise of common stock options and the sale of common stock under our employee stock purchase plan in both periods. The decrease resulted from lower stock option exercise activity and lower sales of common stock under our employee stock purchase plan in the six months ended June 30, 2005 as compared to the six months ended June 30, 2004.

We are party to a credit agreement with a bank that provides for a revolving line of credit through August 2005. Borrowings under the credit agreement are limited to the lesser of $3.0 million or 80% of eligible accounts receivable, as defined, and bear interest at the bank’s prime rate plus 0.5%. Borrowings under this agreement are secured by substantially all of our assets. At June 30, 2005, there were no outstanding amounts borrowed under this credit agreement. The credit agreement restricts us from paying dividends on our common stock, conducting merger and acquisition activities, or otherwise effecting material changes to our business without the express written consent of the bank, and also stipulates various financial covenants that include, but are not limited to, minimum monthly working capital and quarterly earnings levels. At June 30, 2005, we were in compliance with all covenants prescribed by this credit agreement.

We assumed $0.7 million in debt obligations in connection with our acquisition of SWT that included a small business term loan, ANVAR subsidy advances and COFACE advances. ANVAR is a French organization that provides research and development subsidies to finance corporate development projects. COFACE is an affiliate of a French banking organization that provides advances to corporations for foreign expansion via insurance contracts that are designated to cover foreign losses resulting from French product exportation. At June 30, 2005, our total liability under these obligations amounted to $0.6 million, $0.4 million of which is payable during the second half of 2005 and the remainder of which is primarily payable in 2006.

As of June 30, 2005, we had $20.0 million in cash and cash equivalents. We believe that these balances, anticipated future cash flows from operating and financing activities and, as necessary, borrowings under our credit agreement, will be sufficient to fund our working and other capital requirements over the course of the next twelve months and for the foreseeable future. We may, however, seek additional equity or debt financing to fund further expansion, including potential future acquisitions of technologies or businesses. There can be no assurance that additional financing will be available on terms favorable to us, or at all.

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Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.

Critical Accounting Policies and Estimates

We prepare our consolidated financial statements in conformity with U.S. generally accepted accounting principles. These accounting principles require management to make certain judgments and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. We periodically evaluate our estimates including, but not limited to, those relating to revenue recognition, our allowance for doubtful accounts, goodwill and other intangible assets resulting from business acquisitions and income taxes. We base our estimates on historical experience and various other assumptions that we believe to be reasonable based on the specific circumstances, the results of which form the basis for making judgments about the carrying value of certain assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

We believe the following critical accounting policies involve the most significant judgments and estimates used in the preparation of our consolidated financial statements:

Revenue Recognition

Our revenue is generated primarily from three sources: (i) software revenues, consisting primarily of software license revenue, subscription revenue and royalty revenue, (ii) service revenues, consisting primarily of software maintenance and support revenue, training revenue and professional service revenues and (iii) hardware and other revenues, consisting primarily of revenues related to our sale of digital scanners.

Software license revenue is recognized upon shipment provided that persuasive evidence of an arrangement exists, fees are fixed or determinable and collection is probable. Revenue under software subscription arrangements is recognized ratably over the term of the arrangements. Royalty revenue is recognized when our resellers ship or pre-purchase rights to ship products incorporating our software, provided that the above revenue recognition criteria are met, specifically ensuring that our resellers’ obligations to us are non-cancelable and are not subject to any acceptance or rights of return. In instances where we rely on reporting from our resellers to substantiate revenues earned based on usage and other factors, we do not recognize revenues until corroborative evidence is reported to us by the reseller, assuming that all other revenue recognition criteria are met. The timing of royalty reporting by our resellers, which is generally one quarter in arrears, has historically been consistent period to period.

We use the residual method to recognize revenue when an arrangement includes one or more elements to be delivered at a future date and vendor-specific objective evidence of the fair value of all undelivered elements exists. Vendor-specific objective evidence of fair value for ongoing maintenance and support obligations is determined based upon separate sales of renewals to customers or upon substantive renewal rates quoted in the agreements. Vendor-specific objective evidence of fair value for professional services is determined based on the pricing of these services when sold separately to other customers. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is recognized as revenue. If evidence of the fair value of one or more undelivered elements does not exist, the revenue is deferred and recognized when delivery of those elements occurs or when fair value can be established.

When software licenses are sold together with professional services, license fees are recognized upon delivery provided that the above revenue recognition criteria are met, payment of the license fees is not dependent upon

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the performance of the services, and the services do not provide significant customization or modification of the software products and are not essential to the functionality of the software that was delivered. For arrangements with services that do not meet this criteria, the license and related service revenues are recognized using contract accounting as described below.

Service revenues include software maintenance and support revenues, training revenues and professional service revenues. Revenues from software maintenance and support agreements are recognized on a straight-line basis over the term of the support period, generally twelve months. The majority of our software maintenance and support agreements provide technical support as well as unspecified software product upgrades and releases when and if made available by us during the term of the support period. We provide training, consulting and software integration services under both hourly-based time and materials and fixed-priced contracts. Revenues from these services are generally recognized as the services are performed. For fixed-price service contracts, we apply the percentage-of-completion method of contract accounting to determine progress towards completion, which requires the use of estimates. In such instances, management is required to estimate the input measures, generally based on hours incurred to date compared to total estimated hours of the project. Adjustments to estimates are made in the period in which the facts requiring such revisions become known and, accordingly, recognized revenues and profits are subject to revisions as the contract progresses to completion. Estimated losses, if any, are recorded in the period in which current estimates of total contract revenue and contract costs indicate a loss. If substantive uncertainty related to customer acceptance of services exists, we apply the completed contract method of accounting and defer the associated revenue until the contract is completed.

Revenue related to the sale of hardware and other products, which we typically procure from third-party vendors and resell to our customers for use with our software solutions, is recognized upon delivery provided that persuasive evidence of an arrangement exists, the selling price is fixed or determinable and collectibility is reasonably assured. Hardware and other product revenues are generally recognized on a gross basis because: (i) we are the primary obligor in our customer arrangements; (ii) we assume inventory, credit and collection risk with respect to these products; and (iii) we have latitude in establishing the price of such products with our customers. In instances where these criteria are not met, we would recognize revenue on a net, or commission basis.

If at the outset of an arrangement we determine that the arrangement fee is not fixed or determinable, revenue is deferred until the arrangement fee becomes due. If at the outset of an arrangement we determine that collectibility is not probable, revenue is deferred until the earlier of when collectibility becomes probable or the receipt of payment. If an arrangement provides for customer acceptance, revenue is not recognized until the earlier of receipt of customer acceptance or expiration of the acceptance period.

Deferred revenue is primarily comprised of undelivered maintenance services and to a lesser degree hardware and other products delivered but not yet accepted.

The determination of whether fees are fixed or determinable and whether collection is probable or reasonably assured involves the use of assumptions. We evaluate contract terms and customer information to ensure that these criteria are met prior to our recognition of revenues. Additionally, our accounting for fixed-price service contracts using the percentage-of-completion method of contract accounting involves the use of estimates. We have not experienced significant variances between our assumptions and estimates and actual results in the past, and anticipate that we will be able to continue to make reasonable assumptions and estimates in the future. However, differences in our assumptions and estimates could result in changes to the amount and timing of revenue recognition in any period.

Allowance for Doubtful Accounts

We make estimates regarding the collectibility of our accounts receivable. When we evaluate the adequacy of our allowance for doubtful accounts, we analyze specific accounts receivable balances, historical bad debts, customer

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creditworthiness and changes in our customer payment cycles. Material differences may result in the amount and timing of expenses for any period if we were to make different judgments or utilize different estimates. If the financial condition of our customers deteriorates resulting in an impairment of their ability to make payments, additional allowances might be required. We have not experienced significant variances in the past between our estimated and actual doubtful accounts and anticipate that we will be able to continue to make reasonable estimates in the future. If for some reason we did not reasonably estimate the amount of our doubtful accounts in the future, it could have a material impact on our consolidated results of operations.

Business Acquisitions; Valuation of Goodwill and Other Intangible Assets

Our business acquisitions typically result in the recognition of goodwill and other intangible assets, and in certain cases non-recurring charges associated with the write-off of in-process research and development (IPR&D), which affect the amount of current and future period charges and amortization expenses. Goodwill represents the excess of the purchase price over the fair value of net assets acquired, including identified intangible assets, in connection with our business combinations accounted for by the purchase method of accounting. We amortize our definite-lived intangible assets using the straight-line method over their estimated useful lives, while IPR&D is recorded as a non-recurring charge on the acquisition date. Goodwill is not amortized, but rather is periodically assessed for impairment.

The determination of the value of these components of a business combination, as well as associated asset useful lives, requires management to make various estimates and assumptions. Critical estimates in valuing intangible assets may include but are not limited to: future expected cash flows from product sales and services, maintenance agreements, consulting contracts, customer contracts, and acquired developed technologies and patents or trademarks; expected costs to develop the IPR&D into commercially viable products and estimating cash flows from the projects when completed; the acquired company’s brand awareness and market position, as well as assumptions about the period of time the acquired products and services will continue to be used in our product portfolio; and discount rates. Management’s estimates of fair value and useful lives are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable. Unanticipated events and circumstances may occur and assumptions may change. Estimates using different assumptions could also produce significantly different results.

We continually review the events and circumstances related to our financial performance and economic environment for factors that would provide evidence of the impairment of our intangible assets. When impairment indicators are identified with respect to our previously recorded intangible assets, we test for impairment using undiscounted cash flows. If such tests indicate impairment, we measure the impairment as the difference between the carrying value of the asset and the fair value of the asset, which is measured using discounted cash flows. Significant management judgment is required in forecasting of future operating results, which are used in the preparation of the projected discounted cash flows and should different conditions prevail, material write downs of net intangible assets and other long-lived assets could occur. We periodically review the estimated remaining useful lives of our acquired intangible assets. A reduction in our estimate of remaining useful lives, if any, could result in increased amortization expense in future periods.

We test goodwill for impairment at least annually during the second quarter of each year and more frequently if impairment indicators are identified. In connection with our most recent annual impairment testing date in the second quarter of 2005, we determined that there was no impairment. The timing and frequency of our goodwill impairment test is based on an ongoing assessment of events and circumstances that would more than likely reduce the fair value of our business below its carrying value. We will continue to monitor our goodwill balance and conduct formal tests on at least an annual basis or earlier when impairment indicators are present. There are various assumptions and estimates underlying the determination of an impairment loss, and estimates using different, but reasonable assumptions could produce significantly different results. Therefore, the timing and recognition of impairment losses by us in the future, if any, may be highly dependent upon our estimates and assumptions.

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Income Taxes

We use the asset and liability approach to account for income taxes. This methodology recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax base of assets and liabilities and operating loss and tax credit carryforwards. As necessary, we record a valuation allowance to reduce deferred tax assets to an amount that more likely than not will be realized. We consider future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, which requires the use of estimates. Although we believe that our estimates are reasonable, there is no assurance that a valuation allowance will not need to be established or, if previously established, will not need to be increased to cover additional deferred tax assets that may not be realizable, and such a determination could have a material adverse impact on our income tax provision and results of operations in the period in which such determination is made. In addition, the calculation of tax liabilities also involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws, including those in international jurisdictions. Resolution of these uncertainties in a manner inconsistent with management’s expectations could also have a material impact on our income tax provision and results of operations in the period in which such determination is made.

Recent Accounting Pronouncements

On December 16, 2004, the FASB issued SFAS No. 123(R), which is a revision of SFAS No. 123. SFAS No. 123(R) supersedes APB Opinion No. 25 and amends SFAS No. 95. Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. However, SFAS No. 123(R) will require all share-based payments to employees, including grants of employee stock options and other stock-based awards, to be recognized in our statements of operations based on their fair values. Pro forma disclosures, previously allowed by SFAS No. 123, will no longer be an alternative.

Statement No. 123(R) was to be effective for public companies for annual or interim periods beginning after June 15, 2005. However, on April 14, 2005 the U.S. Securities and Exchange Commission announced a deferral of the effective date of SFAS 123(R) for calendar year companies until the beginning of 2006; accordingly, we will be required to adopt SFAS 123(R) on the effective date, January 1, 2006. We expect to adopt such standard using the modified prospective method, under which compensation cost will be recognized based on the requirements of SFAS No. 123(R) for all share-based awards granted to employees on or after the effective date and based on our original fair value calculations in accordance with SFAS No. 123 for all share-based awards granted to employees prior to the effective date, to the extent that they remain unvested on the effective date. Upon our adoption of SFAS No. 123(R), we anticipate that we will continue to apply the Black-Scholes option pricing model to estimate the fair value of our share-based awards. However, we may elect to use another valuation model as prescribed by SFAS No. 123(R).

As permitted by SFAS No. 123, we currently account for share-based payments to employees using APB Opinion No. 25’s intrinsic value method and, as such, generally do not recognize compensation cost for employee stock option awards. Accordingly, the adoption of SFAS No. 123(R)’s fair value method will have a significant impact on our results of operations, although it will have no impact on our overall financial position. The impact of adoption of SFAS No. 123(R) cannot be predicted at this time because it will depend on the levels of share-based awards granted by us in the future. SFAS No. 123(R) also requires the benefit of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow, as is currently prescribed by SFAS No. 95. To the extent that we continue to recognize tax benefits upon the exercise or disqualifying disposition of employee stock options, our adoption of SFAS No. 123(R) will reduce our net operating cash flows and increase our net financing cash flows in periods after adoption.

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Risk Factors

You should carefully consider the following risk factors and all other information contained in this Quarterly Report on Form 10-Q. Investing in our common stock involves a high degree of risk. In addition to those we describe below, risks and uncertainties that are not presently known to us or that we currently believe are immaterial may also impair our business operations. See “Forward-Looking Statements” above. If any of the following risks occur, our business could be harmed, the price of our common stock could decline and you may lose all or part of your investment.

Because of the unpredictability and variability of revenues from our products, we may not accurately forecast revenues or match expenses to revenues, which could harm our quarterly operating results and cause volatility or declines in our stock price.

Our quarterly revenues, expenses and operating results have varied significantly in the past, and our quarterly revenues, expenses and operating results may fluctuate significantly from period to period in the future due to a variety of factors, including:

• fluctuations in the size and timing of significant orders;

• possible delays in recognizing software licensing revenues;

• the fact that a large portion of our orders are generally booked late in each quarter, increasing the risk that orders anticipated to close in the quarter might not close;

• uncertainty in the budgeting cycles of customers;

• the timing of introduction of new or enhanced products; and

• general economic and political conditions.

We believe that comparisons of quarterly operating results will not necessarily be meaningful and should not be relied upon as the sole measure of our performance. In addition, we may from time to time provide estimates of our future performance. For example, we typically estimate that the first quarter of each year is our weakest quarter and the fourth quarter of each year is our strongest quarter. Estimates are inherently uncertain, and actual results are likely to deviate, perhaps substantially, from our estimates as a result of the many risks and uncertainties in our business, including, but not limited to, those set forth in these risk factors. We do not undertake any duty to update estimates if given. Our operating results in one or more future quarters may fail to meet the expectations of securities analysts or investors. If this occurs, the trading price of our stock is likely to decline significantly.

If we fail to reduce expenses rapidly in the event our revenues unexpectedly decline, our results may be harmed.

We typically operate with little or no software order backlog because our software products are shipped shortly after orders are received. This fact makes software revenues in any quarter substantially dependent on orders booked and shipped throughout that quarter. In addition, a large portion of our orders tend to be booked late in each quarter and we obtain a significant portion of our revenues from indirect sales channels over which we have little control. The combination of these factors makes our revenues difficult to predict from period to period. Expense levels are based, to a significant extent, on expectations of future revenues and are relatively fixed in the short term. If revenue levels are below expectations, our operating results could be harmed.

We may not realize the benefits we expect from the acquisition of SWT.

The integration of SWT’s business into Captiva may be time consuming and expensive, and may disrupt our business. After the acquisition, we will need to overcome significant challenges in order to realize any benefits or

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synergies from the acquisition. These challenges include the timely, efficient and successful execution of a number of post-transaction integration activities, including:

• integrating the technologies of the two companies;

• entering markets in which we have no or limited prior experience;

• successfully completing the development of SWT’s technology and developing commercial products based on that technology;

• retaining and assimilating the key personnel of SWT;

• attracting additional customers for products based on SWT’s technology;

• implementing and maintaining uniform standards, controls, processes, procedures, policies and information systems; and

• managing expenses of any undisclosed or potential legal liability of SWT.

The process of integrating operations and technology could cause an interruption of, or loss of momentum in, the activities of one or more of our businesses and the loss of key personnel. The diversion of management’s attention and any delays or difficulties encountered in connection with the acquisition and the integration of SWT’s technology could have an adverse effect on our business, results of operations or financial condition. We may not succeed in addressing these risks or any other problems encountered in connection with the transaction. The inability to successfully integrate the technology and personnel of SWT, or any significant delay in achieving integration, could have an adverse effect on us and, as a result, on the market price of our common stock.

Acquisitions could prove difficult to integrate, disrupt our business, dilute stockholder value and strain our resources.

As part of our business strategy, we intend to continue to enter new markets and to expand our presence in existing markets by acquiring companies that allow us to increase our product offerings, augment our distribution channels, expand our market opportunities or broaden our customer base. Acquisitions, including most recently our acquisition of SWT, are accompanied by the risks commonly encountered in acquisitions of businesses, which include:

• the financial and strategic goals for the acquired and combined business may not be achieved;

• the possibility that we will pay more than the acquired companies or assets are worth;

• the difficulty of assimilating the operations and personnel of the acquired businesses;

• challenges in retaining customers of the acquired business, and customer dissatisfaction or performance problems with the acquired business post acquisition;

• the potential product liability associated with the sale of the acquired companies’ products;

• the potential disruption of our ongoing business;

• the potential dilution of our existing stockholders and earnings per share;

• unanticipated liabilities, legal risks and costs;

• the distraction of management from our ongoing business;

• the impairment of relationships with employees and customers as a result of any integration of new management personnel;

• The possibility that the acquired companies do not ultimately achieve the strategic purposes intended; and

• Other unanticipated events or circumstances.

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Acquisitions also frequently result in recording of goodwill and other intangible assets, which are subject to potential impairments in the future that could harm our operating results. In addition, if we finance acquisitions by issuing convertible debt or equity securities, our existing stockholders may be diluted. Such dilution could adversely affect the market price of our stock. It is also possible that at some point in the future we may decide to enter new markets, thus subjecting ourselves to new risks associated with those markets. Acquisitions of businesses having a significant presence outside the U.S., such as SWT, will increase our relative exposure to the risks of conducting operations in international markets. If we fail to achieve the anticipated benefits of any acquisitions we complete, our business, operating results, financial condition and prospects may be impaired.

Our future success depends on our key management, sales and marketing, professional services, technical support and research and development personnel, whose knowledge of our business and technical expertise would be difficult to replace.

Our products and technologies are complex, and we are substantially dependent upon the continued service of existing key management, sales and marketing, professional services, technical support and research and development personnel. All of these key employees are employees “at will” and can resign at any time. The loss of the services of one or more of these key employees could slow product development processes or sales and marketing efforts or otherwise harm our business.

A significant aspect of our ability to attract and retain highly qualified employees is the equity compensation that we offer, typically in the form of stock options. In December 2004, the FASB issued SFAS No. 123(R). In April 2005, the U.S. Securities and Exchange Commission announced a deferral of the effective date of this pronouncement for calendar year companies until the beginning of 2006. Accordingly, beginning on January 1, 2006, we will be required to include in our statements of operations compensation expense relating to the issuance of employee stock options. As a result, we may decide to issue fewer stock options and may be impaired in our efforts to attract and retain necessary personnel.

If we fail to recruit and retain a significant number of qualified technical personnel, we may not be able to develop, introduce or enhance products on a timely basis.

We require the services of a substantial number of qualified professional services, technical support and research and development personnel. The market for these highly skilled employees is characterized by intense competition, which is heightened by their high level of mobility. These factors make it particularly difficult to attract and retain the qualified technical personnel we require. We have experienced, and may continue to experience, difficulty in hiring and retaining highly skilled employees with appropriate technical qualifications.

If we are unable to recruit and retain a sufficient number of technical personnel with the skills required for existing and future products, we may not be able to complete development of, or upgrade or enhance, our products in a timely manner. Even if we are able to expand our staff of qualified technical personnel, they may require greater than expected compensation packages that would increase operating expenses.

We have a long sales cycle, and our products and services require a sophisticated sales effort, so we cannot predict when expected sales will occur and we may experience unexpected delays in sales despite expending significant sales resources.

Given the high average selling price and the cost and time required to implement our products and services, a customer’s decision to license our products typically involves a significant commitment of resources and is influenced by the customer’s budget cycles and internal approval procedures for IT purchases. In addition, selling our products and services requires us to educate potential customers on the uses and benefits of our products and services. As a result, our products and services have a long sales cycle, which can take three to six months or more. Consequently, we have difficulty predicting the quarter in which sales to expected customers may occur. The sales of our products and services are also subject to delays from the lengthy budgeting, approval and competitive evaluation processes of our customers, which typically accompany significant capital expenditures.

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Our products and services require a sophisticated sales effort targeted at senior management of our prospective customers. New employees in our sales department require extensive training and typically take at least six months to achieve full productivity. There is no assurance that new sales representatives will ultimately become productive. If we were to lose qualified and productive sales personnel, our revenues could be adversely impacted.

We may not be able to compete successfully against current and potential competitors.

The input management software industry is currently fragmented and extremely competitive, with no one company having a significant market share. We expect that competition in this industry will intensify in the future. The market for forms processing and document capture solutions is very competitive and subject to rapid change. In addition, because there are relatively low barriers to entry into the software market, we may encounter additional competition from both established and emerging companies. Our current competitors could be acquired by larger companies and could become more formidable competitors. Many potential competitors have longer operating histories and significantly greater financial, technical, marketing and other resources than we do, in addition to significantly greater name recognition and a larger installed base of customers. As a result, these potential competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements or to devote greater resources to the development, promotion and sale of competitive products than we can. There is also a substantial risk that announcements of competing products by current or potential competitors could result in the delay or postponement of customer orders in anticipation of the introduction of the competitors’ new products.

In addition, current and potential competitors have established or may establish cooperative relationships among themselves or with third parties to increase the ability of their products to address customer needs. These cooperative relationships may limit our ability to sell our products. Accordingly, new competitors or competitive cooperative relationships may emerge and rapidly gain significant market share. Contributing to these challenges, our industry is subject to consolidation, which could subject us to competition with larger companies offering integrated solutions and a greater breadth of products. Potential competitors may bundle their products or incorporate additional components into existing products in a manner that discourages users from purchasing our products.

Increased competition as a result of any combination of the above factors is likely to result in price reductions, fewer customer orders, reduced margins and/or loss of market share, any of which could harm our revenues, business and operating results.

If the market for input management software does not grow, our revenues are unlikely to grow.

The market for input management software has had limited growth in recent years. In addition, the concept of input management software is not widely understood in the marketplace. We have spent, and intend to continue to spend, considerable resources educating potential customers about our software products and the input management market in general. These expenditures may fail to achieve any broadening of the market or additional degree of market acceptance for our products. The rate at which organizations have adopted our products has varied significantly in the past, and we expect to continue to experience variations in the future. If the market for input management products grows more slowly than we anticipate or not at all, our revenues are unlikely to grow and our operating results will suffer.

We currently depend on repeat business for a substantial portion of our revenues and our business and operating results may be harmed if we fail to increase our customer base in the future.

Currently, a significant portion of our revenues is generated from existing customers. Many of our customers initially make a limited purchase of our products and services on a line of business basis or for limited form or document types. These customers may not choose to purchase additional licenses to expand their use of our

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products. If this occurs, or if existing customers fail to renew services or maintenance contracts, then our revenues from new customers may not be sufficient to offset this and enable us to sustain our current revenue levels.

Conversely, a significant factor in our ability to grow our revenues in the future will be our ability to expand our customer base. We believe our ability to grow depends in part on our ability to expand into the “mid-market” segment of the input management market. Some of our competitors are more established in this segment of the market, and price is a more significant factor in the mid-market segment than the ability of our products to handle large volumes of documents. We have recently released products that address this market segment, and it is uncertain whether and to what extent these products will be successful and to what extent price-driven competition will erode our margins. If we are unsuccessful in expanding into the mid-market segment, or otherwise fail to increase our customer base, our business and operating results will be harmed.

If we are unable to respond in an effective and timely manner to technological change and new products in our industry, our revenues and operating results will suffer.

We expect to release a number of new products and enhancements to existing products in the future and anticipate that a portion of our product revenue growth will come from these new releases. If we experience material delays in introducing new products or product enhancements, our customers may forego the use of our products and use those of our competitors. The market for input management is characterized by rapid technological change, frequent new product introductions and enhancements, uncertain product life cycles, changes in customer demands and evolving industry standards. The introduction of products embodying new technologies and the emergence of new industry standards can render existing products obsolete and unmarketable. Our future success will depend upon our ability to continue to enhance our current products while developing and introducing new products on a timely basis that keep pace with technological developments and satisfy increasingly sophisticated customer requirements. As a result of the complexities inherent in our software, new products and product enhancements can require long development and testing periods. Significant delays in the general availability of these new releases or significant problems in the installation or implementation of these new releases could harm our operating results and financial condition. We have experienced delays in the past in the release of new products and product enhancements. We may fail to develop and market on a timely and cost-effective basis new products or product enhancements that respond to technological change, evolving industry standards or customer requirements. We may also experience difficulties that could delay or prevent the successful development, introduction or marketing of our products or reduce the likelihood that our new products and product enhancements will achieve market acceptance. Any such failures or difficulties would harm our business and operating results.

We may not be successful in expanding into new markets.

One element of our strategy involves applying our technology in new applications for additional markets. To be successful in expanding our sales in new markets, we will need to develop additional expertise in these markets. We may be required to hire new employees with expertise in new target markets in order to compete effectively in those markets. If we are not successful in growing our sales in additional markets, we may not achieve desired sales growth.

We have incurred losses in the past and we may incur losses in the future.

We have been profitable since 2003. However, we have incurred net losses as recently as 2002 as well as in prior periods. Given the competitive and evolving nature of the industry in which we operate, we may not be able to sustain or increase profitability on a quarterly or annual basis, which would likely cause our stock price to decline.

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We could be subject to potential product liability claims and third-party litigation related to our products and services, and as a result our operating results might suffer.

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.

Software defects could damage our reputation, causing a loss of customers and resulting in significant costs.

Our software products are complex and may contain errors or defects, particularly when first introduced or when new versions or enhancements are released. In the past, we have discovered software errors in certain products after they were released to the market. In addition, our products are combined with complex products developed by other vendors. As a result, should problems occur, it may be difficult to identify the source or sources of the problems. Defects and errors or the perception of defects and errors, found in current versions, new versions or enhancements of these products after commencement of commercial shipments may result in:

• loss of customers;

• warranty claims;

• damage to brand reputation;

• delay in market acceptance of current and future products; and

• diversion of development and engineering resources.

The occurrence of any one or more of these factors could harm our operating results and financial condition.

If we cannot manage and expand our international operations or respond to changing regulatory conditions in international markets, our revenues may not increase and our business and results of operations could be harmed.

We currently have international operations, including offices in the United Kingdom, Germany, Australia, Russia, France, and Spain. During the quarters ended June 30, 2005 and 2004, international sales represented 31% and 23% of our revenues, respectively, and during the six months ended June 30, 2005 and 2004, international sales represented 24% and 21% of our revenues, respectively. We anticipate that international sales will increase as a percentage of our revenues and that, for the foreseeable future, a significant portion of our revenues will be derived from sources outside the United States. We intend to continue to expand sales and support operations internationally. We could enter additional international markets, which would require significant management time and financial resources and which, in turn, could adversely affect our operating margins and earnings. To expand international sales, we may establish additional international operations, expand international sales channels, management and support organizations, hire additional personnel, customize our products for local markets, recruit additional international resellers and attempt to increase the productivity of existing international resellers. If we are unable to do any of the foregoing in a timely and cost-effective manner, our international sales growth, if any, will be limited, and our business, operating results and financial condition may be harmed. Even if we are able to expand international operations successfully, we may not be able to maintain or increase international market demand for our products. Our international operations are generally subject to a number of risks, including:

• costs of and other difficulties in customizing products for foreign countries;

• costs and challenges of educating customers and developing brand awareness in new local markets;

• protectionist laws and business practices favoring local competition;

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• greater seasonal reductions in business activity;

• greater difficulty or delay in accounts receivable collection;

• difficulties in staffing and managing international operations and in establishing and managing sales channels;

• foreign and United States taxation issues;

• regulatory uncertainties in international countries;

• foreign currency exchange rate fluctuations; and

• political and economic instability.

The majority of our international revenues and costs are denominated in foreign currencies. Although we do not currently undertake foreign exchange hedging transactions to reduce foreign currency transaction exposure, we may do so in the future. However, we do not have any plans to eliminate all foreign currency transaction exposure. Foreign currency exchange rate fluctuations and other risks associated with international operations could increase our costs, which, in turn, could harm our business. If we are unable to expand and manage our international operations effectively, our business would be harmed.

Failure to further develop and sustain our indirect sales channels could limit or prevent future growth.

Our strategy for future growth depends in part on our ability to increase sales through our indirect sales channels. We have a limited number of distribution relationships for our products with distributors, systems integrators and other resellers, and we may not be able to maintain our existing relationships or form new or successful relationships. Competitors may have existing relationships with various distributors, systems integrators and other resellers that could make it difficult for us to form new relationships in some cases. If our indirect sales channels do not continue to grow, our ability to generate revenues may be harmed.

Our current agreements with our indirect sales channels typically do not prevent these companies from selling products of other companies, including products that may compete with our products, and they do not generally require these companies to purchase minimum quantities of our products. Some of these relationships are governed by agreements that can be terminated by either party with little or no prior notice. These indirect sales channels could give higher priority to the products of other companies or to their own products than they give to our products. The loss of, or significant reduction in, sales volume from any of our current or future indirect sales channels as a result of any of these or other factors could harm our revenues and operating results.

If we are unable to protect our intellectual property, our business may be harmed.

Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use our products or technology. Monitoring unauthorized use of our products is difficult, and we cannot be certain that the steps we have taken will prevent misappropriation of our technology, particularly in countries where the laws may not protect our proprietary rights as fully as in the United States.

We have begun performing significant research and development outside of the United States, where intellectual property protection is less stringent than in the United States. In addition, our competitors might independently develop similar technology, duplicate our products or circumvent any patents or other intellectual property rights that we may have. Due to rapid technological change in our market, we believe the various legal protections available for our intellectual property are of limited value. Instead, we seek to establish and maintain a technology leadership position by leveraging the technological and creative skills of our personnel to create new products and enhancements to existing products.

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We depend upon software that we license from and products provided by third parties, the loss of which could increase our expenses or even harm our ability to deliver our products to customers.

We rely upon certain software licensed from third parties, including software that is integrated with our internally developed software and used in our products to perform key functions. There can be no assurance that these technology licenses will not infringe the proprietary rights of others or will continue to be available to us on commercially reasonable terms, if at all. The loss of or inability to maintain any of these software licenses could result in shipment delays or reductions until equivalent software could be developed, identified, licensed and integrated. Delays of this type could materially adversely affect our business, operating results and financial condition.

In addition, we derive a significant portion of our revenues from reselling third-party products, primarily digital scanners. These third-party products may not continue to meet industry standards or be available to us on commercially reasonable terms if at all, in which case our operating results and financial condition would be harmed. In addition, we have little control over the quality of these third-party products other than our decisions as to which products to resell.

If we are subject to a claim that we infringe a third party’s intellectual property, our operating results could suffer.

Substantial litigation regarding intellectual property rights and brand names exists in the software industry. We expect that software product developers increasingly will be subject to infringement claims as the number of products and competitors in our industry grows and the functionality of products in related industries overlaps. Third parties, some with far greater financial resources than ours, may claim infringement of their intellectual property rights by our products.

Any claim of this type, with or without merit, could:

• be time consuming to defend;

• result in costly litigation;

• divert management’s attention and resources;

• cause product shipment delays;

• require us to redesign products;

• require us to enter into royalty or licensing agreements; or

• cause others to seek indemnity from us.

If we are required to enter into royalty or licensing agreements to resolve an infringement claim, we may not be able to enter into those agreements on favorable terms. A successful claim of product infringement against us, or failure or inability either to license the infringed or similar technology or to develop alternative technology on a timely basis could harm our operating results, financial condition or liquidity.

If we are unable to continue to implement and improve financial and managerial controls and continue to improve our reporting systems and procedures, we may not be able to manage growth effectively and our operating results may be harmed.

Growth will place a significant strain on our management, information systems and resources. In order to manage this growth effectively, we will need to continue to improve our financial and managerial controls and our reporting systems and procedures. Any inability of our management to integrate employees, products, technology advances and customer service into our operations and to eliminate unnecessary duplication may have a materially adverse effect on our business, financial condition and results of operations.

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If we are unable to build awareness of our brands, we may not be able to compete effectively against competitors with greater name recognition and our sales could be adversely affected.

If we are unable to economically achieve and maintain a leading position in input management software or to promote and maintain our brands; our business, results of operations and financial condition could suffer. In order to attract and retain customers and to promote and maintain our brands, we may be required to increase our marketing and advertising budget or increase our other sales expenses. There can be no assurance that our efforts will be sufficient or that we will be successful in attracting and retaining customers or promoting our brands.

Most of our revenues are currently derived from sales of and services associated with five software product lines. If demand for these product lines declines or fails to grow as expected, our revenues will be harmed.

We derive substantially all of our revenues from our FormWare, Input Accel, SWT, Pixel and Context product lines. Our future operating results will depend heavily upon continued and widespread market acceptance for these product lines and enhancements to these products. A decline in the demand for any of these product lines as a result of competition, technological change or other factors may cause our revenues to decrease.

In the past, we have depended heavily on service revenues to increase overall revenues, and we may not be able to sustain the existing levels of profitability of this part of our business.

Many of our customers enter into professional services and maintenance agreements, which together comprise a significant portion of our revenues. Service revenues represented 39% and 41% of our total revenues during the quarters ended June 30, 2005 and 2004, respectively, and 40% and 42% of our total revenues during the six months ended June 30, 2005 and 2004. The level of service revenues in the future will depend largely upon growing our professional services group and ongoing renewals of customer maintenance contracts by our installed customer base. Our professional services revenues could decline if third-party organizations such as systems integrators compete for the installation or servicing of our products. In addition, our customer maintenance contracts might be reduced in size or scope or might not be renewed in the future.

We are subject to the effects of general economic and geopolitical conditions.

Our business is subject to the effects of general economic conditions and, in particular, market conditions in the industries that we serve. Recent political turmoil in many parts of the world, including terrorist and military actions, may put pressure on global economic conditions. Our customers’ decisions to purchase our products are discretionary and subject to their internal budget and purchasing processes, which may be affected by the above factors. If economic conditions deteriorate, our business and operating results are likely to be adversely impacted.

Accounting charges resulting from mergers and acquisitions will continue to have a negative effect on earnings over future quarters.

As a result of the Merger and our acquisition of Context and SWT, we have recorded substantial goodwill and intangible assets. These non-cash charges will negatively affect earnings during these amortization periods, which could have a negative effect on our stock price. Additionally, we are required to test our goodwill for impairment at least annually, and more often if impairment indicators arise, and to review our intangible assets for impairment if indicators of impairment are present. In the event that we determine that our goodwill or intangible assets have become impaired, we would be required to recognize a non-cash charge that would negatively impact earnings in the impairment period, which could also have a negative effect on our stock price.

Provisions in our charter documents, Delaware law and our stockholder rights plan may have anti-takeover effects that could discourage or prevent a change in control, which may depress our stock price.

Provisions in our certificate of incorporation and bylaws and our stockholder rights plan may discourage, delay or prevent a merger or acquisition of us that the majority of our stockholders may consider favorable. Provisions of our certificate of incorporation and bylaws:

• prohibit cumulative voting in the election of directors;

33

• eliminate the ability of stockholders to call special meetings; and

• establish advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings.

The terms of our stockholder rights plan are set forth in the rights agreement entered into by us and the rights agent. The rights granted pursuant to the rights agreement may cause substantial dilution to any party that attempts to acquire us or our stock on terms that our board of directors determines are not in the best interests of our stockholders and therefore may have anti-takeover effects. Certain provisions of Delaware law also may discourage, delay or prevent a party from acquiring or merging with us, which may cause the market price of our common stock to decline.

We may incur increased costs as a result of recently enacted and proposed changes in laws and regulations relating to corporate governance matters and public disclosure.

Recently enacted and proposed changes in the laws and regulations affecting public companies, including the provisions of the Sarbanes-Oxley Act of 2002, rules adopted or proposed by the Securities and Exchange Commission (SEC) and by the Nasdaq National Market, and new accounting pronouncements will have resulted in increased costs to us as we have evaluated the implications of these laws, regulations and standards and responded to their requirements. To maintain high standards of corporate governance and public disclosure, we intend to invest all reasonable necessary resources to comply with evolving and increasingly complex and stringent standards. This investment has resulted in increased general and administrative expenses and a diversion of management time and attention from strategic revenue generating and cost management activities.

If we fail to maintain effective internal control over financial reporting, we may be required to make additional public disclosures related to our internal control deficiencies and our management may not be able to conclude that our internal control over financial reporting is effective in future periods.

Although we believe our existing internal control over financial reporting is effective, there is no assurance that we will meet the certification requirements at the end of any reporting period, which could result in inclusion of a negative attestation report of our independent registered public accounting firm in our subsequent annual report and cause a decline in our stock price.

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Item 3 – Quantitative and Qualitative Disclosures About Market Risk.

Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio. We maintain an investment policy that is intended to ensure the safety and preservation of our invested funds by limiting default risk, market risk and reinvestment risk. Our investment policy allows us to invest in high credit quality securities such as money market funds, debt instruments of the United States government and its agencies and high quality corporate issuers. To date, our investments of excess cash have principally consisted of bank money market accounts. We do not currently use, nor have we historically used, derivative financial instruments to manage or reduce market risk. At June 30, 2005, our cash and cash equivalents totaled $20.0 million, and consisted primarily of cash and money market accounts in banks with an original maturity of 90 days or less at the time of purchase.

We have operations internationally and, as a result, are subject to various risks, including foreign currency risks. We have not entered into foreign currency contracts for purposes of hedging or speculation. To date, we have not realized any significant gains or losses from transactions denominated in foreign currencies. During the quarter ended June 30, 2005, 23% of our sales and 22% of our operating expenses were denominated in currencies other than the United States dollar. During the six months ended June 30, 2005, 19% of our sales and 19% of our operating expenses were denominated in currencies other than the United States dollar. These foreign currencies are primarily British Pounds, Euros, Russian Roubles, and Australian dollars. Additionally, substantially all of the receivables and payables of our international subsidiaries are denominated in their respective local currencies.

Item 4 – Controls and Procedures

An evaluation regarding the effectiveness of our disclosure controls and procedures as of June 30, 2005, the end of the period covered by this report, was performed under the supervision and with the participation of management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO). Based on that evaluation, management, including the CEO and CFO, concluded that our disclosure controls and procedures were effective as of June 30, 2005. No change in our internal control over financial reporting was identified in connection with the evaluation mentioned above that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1.    Legal Proceedings

We are subject to various legal proceedings from time to time in the ordinary course of business, none of which is required to be disclosed under this Item 1 of Part II.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

On May 27, 2005, we issued 179,498 shares of Captiva common stock in connection with our acquisition of SWT. The issuance of shares was exempt from registration under the Securities Act of 1933, as amended, pursuant to Regulation S thereof, on the basis that the transaction did not involve a public offering.

Item 3.    Defaults Upon Senior Securities

None.

Item 4.    Submission of Matters to a Vote of Security Holders

The annual meeting of the stockholders of Captiva Software Corporation was held on May 26, 2005 to vote on the following proposals:

1. To elect directors to serve for the ensuing year and until their successors are elected.

2. To approve an increase in the aggregate number of shares of common stock authorized for issuance under our Amended and Restated 1993 Stock Option/Stock Issuance Plan by 1,000,000 shares.

3. To ratify the selection by the Audit Committee of the Board of Directors of PricewaterhouseCoopers LLP as the independent registered public accounting firm of Captiva Software Corporation for its fiscal year ending December 31, 2005.

The results were as follows:

	For	Withheld Authority	Abstained	Broker Non-Votes
Proposal 1
Reynolds C. Bish	11,112,538	437,883	—	—
Joe A. Rose	10,947,193	603,228	—	—
Patrick L. Edsell	11,120,253	430,168	—	—
Bruce Silver	11,120,253	430,168	—	—
Jeffrey J. Lenches	10,949,686	600,735	—	—
Mel S. Lavitt	10,949,786	600,635	—	—
	For	Against	Abstained	Broker Non-Votes
Proposal 2	6,930,319	1,759,229	8,857	2,852,016
Proposal 3	11,483,715	56,549	10,157	—

A more detailed discussion of each matter is included in Captiva Software Corporation’s Proxy Statement for the 2005 Annual Meeting of Stockholders.

Item 5.    Other Information

None.

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Item 6. Exhibits

a. Exhibits

Exhibit Number	Description
2.1	Agreement for the Sale, Purchase and Exchange of Shares in SWT SA between Certain Shareholders of SWT, Captiva Software Corporation and Captiva Software France EURL dated May 10, 2005.
2.2	Amendment Number 1 to the Agreement for the Sale, Purchase and Exchange of Shares in SWT SA between Certain Shareholders of SWT, Captiva Software Corporation and Captiva Software France EURL dated May 27, 2005.
10.1	Addendum – France, to the registrant’s Amended and Restated 1993 Stock Option Plan/Stock Issuance Plan and 2003 New Executive Recruitment Stock Option Plan
31.1	Certification by Chief Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a).
31.2	Certification by Chief Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a).
32.1	Certification by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Certain schedules are omitted from the Agreement for the Sale, Purchase and Exchange of Shares in SWT SA between Certain Shareholders of SWT, Captiva Software Corporation and Captiva Software France EURL dated May 10, 2005 filed as Exhibit 2,1 and the Amendment Number 1 to the Agreement for the Sale, Purchase and Exchange of Shares in SWT SA between Certain Shareholders of SWT, Captiva Software Corporation and Captiva Software France EURL dated May 27, 2005; however, the Company will furnish supplementally a copy of any omitted schedule to the Securities and Exchange Commission upon request.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	CAPTIVA SOFTWARE CORPORATION
Date: August 9, 2005	/s/ REYNOLDS C. BISH
	Reynolds C. Bish
	Chief Executive Officer
	/s/ RICK E. RUSSO
	Rick E. Russo
	Chief Financial Officer

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EX-2.1

Exhibit 2.1

10 May 2005

Certain Shareholders of SWT,

Captiva Software Corporation

And

Captiva Software France EURL

AGREEMENT

for the sale, purchase and exchange of shares in

SWT SA

HERBERT SMITH LLP

TABLE OF CONTENTS

Clause	Headings	Page
1.	DEFINITIONS AND INTERPRETATION	4
2.	SALE AND PURCHASE - EXCHANGE	8
3.	CONSIDERATION	9
4.	STOCK OPTIONS	12
5.	CONDITIONS PRECEDENT - TERMINATION	12
6.	COMPLETION	14
7.	WARRANTIES	16
8.	INDEMNIFICATION / PRICE REDUCTION	17
9.	SELLERS’ UNDERTAKINGS	22
10.	ESCROW ACCOUNT	24
11.	ANNOUNCEMENTS	24
12.	MISCELLANEOUS	25
13.	CONFIDENTIALITY	25
14.	COSTS	26
15.	NOTICES	26
16.	ADDITIONAL REPRESENTATIONS AND AGREEMENTS	27
17.	ASSIGNMENT	29
18.	GOVERNING LAW AND JURISDICTION	29

BY AND BETWEEN:

(1) The Persons whose names and addresses are set out in SCHEDULE O.

(Hereinafter collectively referred to as the “Sellers” and individually as a “Seller”, and which are not acting jointly but only severally (sans solidarité) for the purpose of this Agreement)

AND

(2) Captiva Software Corporation, a Delaware corporation whose offices are at 10415 Pacific Heights Boulevard, San Diego, CA 92121, represented by Mr. Reynolds C. Bish, CEO, duly authorised for the purpose herein, and

(3) Captiva Software France EURL, an Entreprise Unipersonnelle à Responsabilité Limitée, a company that is currently being incorporated (société en formation), that will have an issued and paid-up share capital of 1 Euro and whose registered office will be at 37, rue des Mathurins, 75008 Paris, and that will be registered at the French Companies Registry of Paris, represented by Mr. Reynolds C. Bish, duly authorised for the purpose herein,

(Hereinafter collectively referred to as the “Purchaser” and acting jointly (solidairement) for the purpose of this Agreement.)

Hereinafter collectively referred to as the “Parties” and individually as a “Party”.

WHEREAS:

(A) SWT S.A. is a limited liability company (société anonyme) incorporated under the laws of the Republic of France, details of which are set forth in SCHEDULE 1 (the “Company”), engaged in the following businesses:

SWT provides ADR (automatic extraction of data) and EDM (electronic document management) solutions to enable companies to do away with manual processing of paper documents.

(B) The Company has an issued share capital of EUR 991,320 divided into 49,566 shares of EUR 20 nominal value each (the “Shares”).

(C) The Company holds, directly or indirectly, title to 100% of the issued share capital of the companies detailed in SCHEDULE 2 (the “Subsidiaries”). The Company and the Subsidiaries are hereinafter collectively referred to as the “Group Companies” and each a “Group Company”.

(D) The Sellers are the owner of the entirety of the Shares.

(E) The Purchaser wishes to purchase and exchange, and the Sellers wish to sell or exchange, as the case may be, the Shares on the terms and subject to the conditions of this Agreement. In particular, the Purchaser’ agreement was reached in consideration of the representations, warranties and covenants granted by the Guarantor herein and the representations granted by the Private Equity Investors in sub-clause 7.2. Furthermore, the Purchaser is willing to purchase the Options Shares (or obtain the execution of a Forward Sale Agreement from the Option Holders) in order to hold 100% of the share capital of the Company fully diluted following Completion.

NOW, THEREFORE THE PARTIES AGREE AS FOLLOWS:

1. DEFINITIONS AND INTERPRETATION

1.1 Definitions

In this Agreement, the Schedules and the Exhibits, the following terms shall have the following meanings:

“Accounting Principles” With respect to each Group Company, (i) the accounting principles and methods generally accepted in the country of incorporation of such Group Company, and (ii) those accounting rules implementing said principles and methods as consistently applied by such Group Companies for the preparation of their financial statements.

“Accounts” The audited financial statements (balance sheet, profit and loss statement, statement of cash flows, and notes on the accounts, including off-balance sheet liabilities) of the Company and the un-audited financial statements of each of the Subsidiaries as of and for the year ended on the Accounts Date, attached as SCHEDULE 3.

“Accounts Date” 31 December 2004.

“Actual Net Cash Position” The Net Cash Position of the Group Companies as at the 30th April 2005, as finally determined pursuant to sub-clause 3.3.

“Affiliate” In relation to any person, any other person that, directly or indirectly, controls or is controlled by or is under the same control as such person and the term “control” shall mean the ability to exercise, or to promote the exercise, directly or indirectly, of at least 50% of the voting rights attached to the entity’s equity interests or shares.

“Agreement” This agreement together with its Schedules and Exhibits.

“Business Day” A day (not being a Saturday) on which banks are open for general banking business in France and in the United States of America.

“Business Information” All information, know-how and records (whether or not confidential and in whatever form held) including all formulas, designs, specifications, drawings, data, manuals and instructions and all customer lists, sales information, business plans and forecasts, and all technical or other expertise and all accounting and tax records, correspondence, orders and inquiries.

“Claim” A claim made by any Indemnified Person against the Founders pursuant to Clause 8.

“Company” SWT, as further described in Paragraph A of the Recitals.

“Competition Law” All Laws that are designed or intended to prohibit, restrict or regulate actions or situations having the purpose or effect of monopolisation or restraint of trade, or the creation or strengthening of a dominant position, or the substantial lessening of competition.

“Completion” means completion of the sale and purchase of the Shares in accordance with Clause 6.

“Completion Date” The date referred to in sub-clause 6.1.

“Confidential Business Information” Business Information which is confidential or not generally known.

“Consents and Approvals” Any notice, report or other filing required to be made, or any consent, registration, approval, permit or authorisation required to be obtained from any Governmental Entity, including Competition Approvals.

“Consideration Shares” 179,498 shares of common stock of Captiva Software Corporation, each Consideration Share being valued for the purposes of the exchange contemplated in this Agreement at EUR 8.64.

“Disclosures” Any risk, fact or other event disclosed by the Founders in an Exhibit hereto and subject to the provisions of sub-clause 8.8.3 hereof.

“Disputed Item” Any item in dispute as further described in sub-clause 3.3.1.

“Encumbrance(s)” Any pledge, privilège (lien), or other security interest, charge, condition, equitable interest, claim, usufruit, indivision or other community property interest, as well as any “delegation”, “subrogation”, agreement, option, undertaking, guarantee, prior approval, right of first offer, right of pre-emption or any other party right, or other obligation, claim, restriction or limitation of any nature whatsoever, and, if applicable, any mortgage, easement (“servitude”) or similar encumbrance

“Escrow Agent” Banque Privée Fideuram Wargny, société anonyme with a registered share capital of EUR 58,102,240, whose registered offices are 7, place Vendôme, 75001 Paris, registered with the Paris Registry of Companies under number 391546678.

“Escrow Agreement” The agreement pursuant to which the Escrow Funds and the Escrow Shares are placed in escrow in the form set forth in SCHEDULE 9.

“Escrow Account” The account on which the Escrow Funds are deposited, pursuant to the terms of the Escrow Agreement.

“Escrow Funds” That part of Mr. Debbah’s portion of the Purchase Price equal to EUR 1,500,000 to be deposited on the Escrow Account pursuant to the Escrow Agreement, in accordance with sub-clause 6.3.

“Estimated Net Cash Position” EUR 2,071,585.

“Exchange Shares” means 7,522 shares in the Company held by Mr. Hervé Debbah and available to be exchanged at Completion.

“Founders” means Hervé Debbah, Daniel Vaniche, Franck Signorile, François Courjaret, Muriel Debbah, Victor Lisbona and Sonia Lisbona.

“Founders Price” That part of the Purchase Price to be paid to Founders in consideration for the sale of the Founders Shares (EUR 6,612,227.45) and subject to adjustment in accordance with sub-clause 3.3.

“Founders Shares” The aggregate number of Shares, excluding the Exchange Shares, held by the Founders, i.e., 22,474 Shares.

“Forward Sale Agreement” The forward sale agreement in the agreed form attached as SCHEDULE 12 whereby each Option Holder shall undertake to sell the Options Shares then held by him immediately upon him exercising his Stock Options.

“Governmental Entity” Any public international, multinational or transnational organisation or any national, state, municipal or local governmental, judicial, arbitral, legislative, administrative or other person, authority, ministry, department, agency, instrumentality, office, organisation or stock exchange having jurisdiction over the Sellers or the Purchaser or the Group Companies or their respective properties or assets.

“Group Company” Any one of the Company or Subsidiaries as further detailed in paragraph C of the Recitals.

“Guarantor” shall mean Mr. Hervé Debbah.

5

“Indemnification Date” The date further defined in sub-clause 8.4.3.

“Indemnification Liability” The liability incurred by the Guarantor pursuant to the terms of Clause 8.

“Indemnified Person(s)” The person(s) defined as such in sub-clause 8.1 or any of its successors.

“Independent Expert” The expert referred to in Clause 3.

“Information Technology” Computer hardware, software, networks and/or other assets which include embedded technology used by or belonging to the Group Companies as listed in Exhibit 13.

“Intellectual Property” Patents, trade marks, rights in designs, models, trade or business names, copyrights and assimilated rights (including rights with respect to computer software), logos, database rights, know-how, trade secrets, internet web sites and domain names (whether or not any of these is registered) and all rights or forms of protection of a similar nature or having equivalent or similar effect to any of these which may subsist anywhere in the world, as well as all applications and registrations pertaining to such rights.

“Intellectual Property Rights” The Intellectual Property owned or used by any of the Group Companies.

“Law(s)” Any law, statute, regulation, rule, ordinance, decree, administrative law, provision of any code, principle of civil, administrative or common law, governmental or administrative instruction and any treaty.

“Material Adverse Change” Any event (i) affecting or likely to affect the condition (financial or otherwise), properties, business, results of operations or prospects of any Group Company and (ii) that has or is likely to have a materially adverse effect on the value of the Group Companies in excess of 250,000 Euros. Such events would include the loss of customers representing in aggregate more than 10% of sales or the loss of suppliers representing in aggregate more than 25% of supplies, as well as product liability exposure. For the avoidance of doubt, it is expressly stated that the materiality level set forth above is specific to the definition of Material Adverse Change and shall not be construed as a general materiality level applying to any other provision of this Agreement.

“Material Contracts” The contracts further described in sub-clause 7.1 of SCHEDULE 4.

“Net Cash Position” As at 30^th April 2005, the aggregate consolidated amount of the cash (disponibilités) and cash equivalents and short term securities (valeurs mobilières de placement) of the Group Companies as at 30^th April 2005 together with any interests and/or latent capital gains accrued thereon as at 30^th April 2005 but not accounted for as at 30^th April 2005, provided, however, that all checks signed by the Group Companies but not yet cleared by any of the Group Companies’ banks on 30^th April 2005 and all bank transfers ordered by the Group Companies but not debited from the Group Companies’ bank accounts as at 30^th April 2005 shall be deducted, whilst all checks received by the Group Companies but not yet credited on 30^th April 2005 and all bank transfers ordered by a third party but not yet credited to the Group Companies accounts shall be added.

“Option Holders” The individuals holding Stock Options as at the date of this Agreement as set out in SCHEDULE 2 (A).

“Option Shares” the shares to be issued by the Company as a result of the exercise of the Stock Options.

6

“Option Shares Price” The consideration for the sale of the entirety of the Option Shares equal to EUR 259,452.13, i.e, EUR 273.11 per Option Share.

“Order” Any permit or licence or any judgment, injunction, order, rulings, decree or other restriction of any Governmental Entity, court or tribunal.

“Private Equity Investors” Antin FCPI 1, Blue Insider, Matignon Technologies FCPR, FCPI Banque Populaire Innovation 5 and FCPI Banque Populaire Innovation 6, which are not acting jointly but only severally (sans solidarité) for the purpose of this Agreement.

“Private Equity Investors Price” That part of the Purchase Price to be paid to Private Equity Investors in consideration for the sale of the Private Equity Investors Shares (i.e. EUR 7,100,000).

“Private Equity Investors Shares” The aggregate number of Shares held by the Private Equity Investors, i.e., 19,570 Shares, together with any bons de souscription d’actions which may have been issued by the Company and subscribed by the Private Equity Investors.

“Properties” The properties listed in Exhibit 11.

“Purchase Price” The consideration for the sale of the Private Equity Investors Shares and the Founders Shares as defined in sub-clause 3.1.

“Shares” The shares referred to in Paragraph B of the Recitals.

“Sellers ‘ Group” The Sellers and the Sellers’s Affiliates, from time to time.

“Senior Executives” Messrs. Hervé Debbah and Daniel Vaniche.

“Statement of Net Cash Position” A statement setting out the Net Cash Position.

“Stock Options” The stock options, warrants, bons de souscription, bons de créateurs d’entreprise, bons de soucription de parts de créateurs d’entreprise and any other form of right or option to purchase equity in any of the Group Companies as set out in SCHEDULE 2 (A).

“Subsidiaries” Those companies further described in SCHEDULE 2.

“Taxation or Tax(es)” All taxes, levies, duties, assessments and governmental charges of any kind (in all cases including any related penalties, surcharges and interest thereon), whether payable directly or by withholding, including income tax, corporation tax, précompte, property tax, capital gains tax, value added tax, customs duties, excise duties, business tax, transfer and contribution taxes, stamp and registration duties, social security and other similar payroll related assessments, (including in respect of health, unemployment, housing, family allowances, pension, retirement and welfare contributions) tax-assimilated levies (taxes parafiscales) and any other taxes, levies, duties, charges or withholdings corresponding to, similar to, replaced by or replacing any of them, provided, that “Taxes” shall also mean (i) any liability of any Group Company determined on the basis of any Tax or by reference to any taxable basis, and (ii) any Tax due by a person other than a Group Company and for which any Group Company would be liable, in particular as a result of any joint and several obligation with such person, any obligation to hold harmless and indemnify such person, any obligation to bear the Taxes of such person (in particular as a result of a tax consolidation or any similar agreement).

“Warranties” The representations made and the warranties granted by the Guarantor and set forth in SCHEDULE 4.

1.2 Interpretation

In this Agreement, save where the context otherwise requires:

1.2.1 words in the singular shall include the plural, and vice versa.

7

1.2.2 masculine gender shall be deemed to include the feminine and neuter and vice versa.

1.2.3 a reference to a person shall include a reference to a firm, a body corporate, an unincorporated organisation, government agency, an independent authority or to a person’s executors, administrators, successors or assigns.

1.2.4 a reference to a sub-clause, Clause, Schedule or Exhibit shall be a reference to a sub-clause, Clause, Schedule or Exhibit (as the case may be) of or to this Agreement.

1.2.5 if a period of time is specified it shall be calculated in accordance with the provisions of articles 640 et seq. of the French Nouveau Code de Procédure Civile.

1.2.6 references to writing shall include any modes of reproducing words in a legible and non-transitory form.

1.2.7 a reference to a balance sheet or profit and loss statement shall include a reference to any note forming part of it.

1.2.8 where any statement set out in SCHEDULE 4 (Warranties) is expressed to be given or made “to the Guarantor’s knowledge” or “so far as the Guarantor is aware” or is qualified in some other manner having substantially the same effect, such statement shall, save to the extent specified in such statement, be deemed to include an additional statement that the Founders have made due and careful enquiry (including with the officers, accountants and/or auditors of each of the Group Companies) as to the facts and circumstances relevant to such statement and such other enquiries reasonably necessary to make such statement and shall have taken the results of such enquiries into account.

1.2.9 the headings in this Agreement are for convenience only and shall not affect the interpretation of any provision of this Agreement.

1.2.10 “including” and other similar expressions are not and must not be treated as words of limitation.

2. SALE AND PURCHASE - EXCHANGE

2.1 The Sellers hereby jointly agree to sell and the Purchaser hereby agrees to purchase all, but not some only, of the Founders Shares and the Private Equity Investors Shares at Completion.

2.2 In addition, on the Completion Date and in accordance with articles 1702 et seq. of the French Civil Code, Mr. Debbah shall exchange with Captiva Software Corporation all (and not some only) the Exchange Shares in return for all (and not some only) the Consideration Shares on the terms and subject to conditions set out in this Agreement.

2.3 As a result of sub-clauses 2.1 and 2.2 above, the Purchaser will hold, immediately following Completion, 100% of the Shares, it being specified that, immediately following Completion, Captiva Software Corporation may transfer to Captiva Software France any of the Exchange Shares and, as a result, Captiva Software France would hold 100% of the Shares.

2.4 On or before the Completion Date, the Sellers waive and agree to procure the waiver of any restrictions on transfer (including pre-emption rights or any other contractual right) including under any shareholders agreement in force prior to this Agreement or Completion which may exist in relation to the Shares under the articles of association of the Company, any shareholders agreement or otherwise so that the Shares will be transferred free and clear of any Encumbrances and will be exchanged with all rights to received dividends or other distribution attached.

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3. CONSIDERATION

3.1 Purchase Price

3.1.1 The consideration for the sale of the entirety of the Private Equity Investors Shares and the Founders Shares shall be equal to the aggregate of the Private Equity Price, the Founders Price, the Option Shares Price, i.e. EUR 13,971,679.58 to be adjusted with respect to the Founders Price and subject to the Founders Price Adjustment as provided for in sub-clause 3.3 (the “Purchase Price”).

3.1.2 The Purchase Price shall be allocated among the Sellers as follows:

(A)	Private Equity Price
	(1)	Matignon Technologies FCPR	EUR	2,989,721.97
	(2)	Antin FCPI 1	EUR	1,120,918.94
	(3)	Blue Insider	EUR	186,517.43
	(4)	FCPI Banque Populaire Innovation 5	EUR	934,467.41
	(5)	FCPI Banque Populaire Innovation 6	EUR	1,868,374.25
(B)	Founders Price
	(6)	Hervé Debbah	EUR	5,268,538.50
	(7)	Daniel Vaniche	EUR	655,458.02
	(8)	Franck Signorile	EUR	163,864.51
	(9)	François Courjaret	EUR	245,796.76
	(10)	Muriel Debbah	EUR	245,796.76
	(11)	Victor Lisbona	EUR	16,386.45
	(12)	Sonia Lisbona	EUR	16,386.45
(C)	Option Shares Price
	(13)		EUR	259,452.13

3.1.3 Each of the Sellers acknowledges that he/it has agreed that the price per Share he/it will receive hereunder may be different from that received by the other Sellers (in particular, but not only, as a result of the Founders Price Adjustment set out in sub-clause 3.3) given that the obligations of the Founders and the Private Equity Investors are different, and waive any claim that he/it may have against the Purchaser and the other Sellers as a result of such difference.

3.1.4 The Purchase Price is payable in cash on the Completion Date as provided for in sub-clause 6.3, and is subject to adjustment, with respect to the Founders, as provided for hereafter.

3.2 Consideration Shares

3.2.1 On the Completion Date, in consideration for Mr. Debbah tendering his Exchange Shares to be exchanged for the Consideration Shares, the latter shall be allotted to Mr. Debbah credited as fully paid and free from all Encumbrances and shall rank

9

in full for all dividends and in all other respects carry the same rights as the existing ordinary share capital of the Purchaser in issue on the Completion Date albeit issued pursuant to an exemption from registration (such as a private placement to accredited investors or an offshore placement pursuant to Regulation S of the 1933 Securities Act).

3.2.2 The Consideration Shares will be restricted securities and will not be freely tradable in the public market for the time period between Completion and the actual registration of the Consideration Shares as per the provisions hereunder. Subject to certain limitations, an exemption from registration is generally available to allow the public re-sale of restricted securities one year after the date the shares are issued. The Purchaser agrees to file for registration of the shares for resale on a Form S-3 resale registration statement with the United States Securities and Exchange Commission (“SEC”) within 120 days of Completion (provided that in the event the resale registration becomes effective, the Purchaser does not promise to maintain the effectiveness of such registration under all circumstances as it may allow it to lapse if its business would be harmed). The Purchaser represents that whenever the registration will have become effective, Mr. Debbah will have an unrestricted to sell his Consideration Shares on the Nasdaq. Mr Debbah agrees to pay for the registration costs of such filing up to a maximum amount of USD 15,000.

3.2.3 If and when Mr. Debbah desires to sell the Consideration Shares, Mr. Debbah and the Purchaser shall act in good faith with one another to the extent permitted by law and so as to comply with the Purchaser’s insider trading policy, to facilitate block trades or similar negotiated placements of the Consideration Shares in order, notably, to minimize market disruption resulting from offering large numbers of shares to the market at the same time.

3.3 Founders Price Adjustment

The Founders Price shall be adjusted Euro for Euro by the amount by which the Actual Net Cash Position differs from the Estimated Net Cash Position, as follows:

3.3.1 Determination of the Statement of the Net Cash Position

(A) As soon as reasonably practicable and in any event within ten (10) Business Days after the date hereof, the Founders shall prepare and send to the Purchaser a draft Statement of Net Cash Position together with all working papers, bank statements, accounts, reconciliation papers and documents sufficient to allow the Purchaser’s personal advisors to fully audit said documents.

(B) Immediately upon receipt of the draft Statement of Net Cash Position, the Purchaser shall have a period of ten (10) Business Days to review the same and confirm whether or not it approves the draft Statement of Net Cash Position, explaining in detail and in writing any disputed item (each, a “Disputed Item”). If after such time limit, the Purchaser has not notified to the Founders whether or not it approves such draft Statement of Net Cash Position, they shall be deemed to have been approved by the Purchaser and shall become final and binding on the Parties. Any item that has not been identified as a Disputed Item by the Purchaser, prior to the expiry of such time limit, shall be deemed to have been agreed and thus shall become final and binding on the Parties.

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(C) The Founders shall procure that the Group Companies provide to the Purchaser all requested assistance in order to complete their review, including access to all working papers, accounts and documents and access to and cooperation from relevant personnel.

(D) If the Purchaser confirm its agreement with the draft Statement of Net Cash Position (either as presented to them initially or as modified in such a manner that they have approved it), the draft Statement of Net Cash Position shall become final and binding on the Parties.

(E) If the Purchaser notifies the Founders of any Disputed Item, the Purchaser and the Founders shall:

(1) themselves reach an agreement in respect of the Disputed Item; or

(2) in the absence of such agreement within thirty (30) Business Days from the date of receipt by the Purchaser of notice of the Disputed Items in accordance with sub-clause 3.3.1(B) above, refer the matter to a partner to be appointed by the Managing Director of Amyot Exco Grant Thornton, 104 avenue des Champs Elysées, 75008 Paris or, if he is unavailable, or unable to (in particular as a reason of a conflict of interest) or refuses to carry out his assignment, an accounting firm of international reputation appointed, further to the instructions of the most diligent Party, with prior notice to the other Party, by the president of the Tribunal de Commerce of Paris in summary proceedings (the “Independent Expert”).

(F) The Independent Expert shall review the draft Statement of Net Cash Position as well as all necessary supporting documentation so as to settle all Disputed Items thereby finalising the Statement of Net Cash Position.

(G) The Parties shall make available (and cause the Group Companies to make available and to cause their respective auditors to make available) all such information, and provide such access, to the Independent Expert as may be required for the performance of his assignment.

(H) The Parties shall use their respective best endeavours to cause the Independent Expert to notify the Founders and the Purchaser of his decision covering the Disputed Items and finalising the Actual Net Cash Position, thereby confirming the Founders Price, as adjusted, together with any payment to be made by the Purchaser or the Founders as the case may be, having regards to the payments made on Completion in accordance with sub-clause 6.3, within thirty (30) Business Days from the date on which the Disputed Items were referred to him.

(I) In the course of his assignment, the Independent Expert shall act as a third party expert in accordance with article 1592 of the French Civil Code, shall apply the Accounting Principles and shall issue a decision only with respect to the Disputed Items (and thereby with respect to the finalisation of the Statement of Net Cash Position and the Founders Price). Save in the case of manifest error, the Expert’s decision shall be final and binding on the Parties and trigger the obligation to make the payments described in sub-clause 3.4.

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(J) The costs and fees incurred by the Independent Expert under this clause shall be (i) fully borne and paid by the Purchaser in the event the Independent Expert would confirm the Founders’ position with respect to all of the Disputed Items, or (ii) fully borne and paid by the Founders in the event the Independent Expert would confirm Purchaser’s position with respect to all of the Disputed Items, or (iii) divided and shared equally between the Purchaser and the Founders in all other instances.

3.3.2 The Statement of Net Cash Position, as finalised pursuant to the terms of this Clause 3 shall be deemed to be attached hereto as SCHEDULE 3.

3.3.3 For the avoidance of doubt, any approval by the Purchaser of the Statement of Net Cash Position in accordance with this sub-clause 3.3 shall be without prejudice to any Claims made pursuant to Clause 8.

3.4 Determination and Payment of the Founders Price Adjustment

If the Actual Net Cash Position (as finally determined pursuant to sub-clause 3.3.1 above) is greater than the Estimated Actual Net Cash Position, the Founders shall be entitled to a Euro for Euro increase of the Founders Price for an amount equal to such difference.

If the Actual Net Cash Position (as finally determined pursuant to sub-clause 3.3.1 above) is less than the Estimated Net Cash Position, the Purchaser shall be entitled to a Euro for Euro reduction of the Founders Price for an amount equal to such difference.

Any difference between Actual Net Cash Position and Estimated Net Cash Position shall be allocated among the Founders in proportion to the number of Founders Shares held by each of them.

Any amount due in connection with the Founders Price Adjustment pursuant to this sub-clause 3.4 shall be payable on Completion, in accordance with sub-clause 6.3 and, thereafter, as the case may be, in accordance with sub-clause 6.5.

4. STOCK OPTIONS

4.1.1 With a view to satisfying the condition precedent set out in sub-clause 5.2.4, the Founders shall make their best efforts to cause each of the Option Holders who may exercise their stock-option upon Completion, to exercise at Completion all their Stock Options and as result, to subscribe for the Options Shares and transfer such Option Shares to the Purchaser. Alternatively and for the Option Holders who are holding Stock Options which may not be exercised on Completion, the Founders shall make their best efforts to cause each of those Option Holders to execute a Forward Sale Agreement in respect of the Options Shares they will receive as a result of the exercise of their Stock Options after the Completion Date.

4.1.2 The Option Shares Price will be allocated to each of the Option Holders prorata the number of Option Shares to be held by each.

4.1.3 The Option Shares Price shall be payable in cash by Purchaser to each of the Option Holders on the date of Completion or upon the completion of each Forward Sale Agreement.

5. CONDITIONS PRECEDENT - TERMINATION

The obligations of the Parties hereunder, other than those set forth in this Clause 5 and in sub-clauses 9.1, 9.2, 9.3 and Clauses 1, 11, 12, 13, 14, 15 and 17, are subject to each of the

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following conditions being satisfied on or prior to Completion Date (or, when applicable, waived at Completion Date by the Party for the benefit of whom they have been provided):

5.1 Conditions to obligations of both Parties:

5.1.1 All Consents and Approvals required to be obtained by the Sellers or any of the Group Companies in connection with the execution of this Agreement and the consummation of the transactions contemplated herein shall have been obtained.

5.2 Conditions to obligations of the Purchaser:

5.2.1 The continuing accuracy, as at the Completion Date, of the Warranties (except that Warranties made as of a specified date need only be or remain true and correct as of such date);

5.2.2 The due performance of each of the covenants and agreements of the Sellers to be performed on or prior to the Completion Date set out in sub-clauses 4.1.1, 7 and 9;

5.2.3 The absence of occurrence of any Material Adverse Change;

5.2.4 Eighty percent (80%) of the Option Holders have agreed to either exercise all their Stock Options and to transfer to the Puchaser all the Option Shares acquired as a result of such exercise in each case for that part of the Option Shares Price applicable to each Option Holder or, to execute a Forward Sale Agreement.

5.3 Conditions to obligations of the Sellers:

5.3.1 the continuing accuracy in all material respects, as at the Completion Date, of the representations and warranties of Purchaser under sub-clause 7.2 (except that representations and warranties made as of a specified date need only be or remain true and correct as of such date);

5.3.2 the due performance in all material respects of each of the covenants and agreements of Purchaser to be performed on or prior to the Completion Date;

5.4 Reasonable Endeavours

The Parties shall use all reasonable endeavours to ensure that the above conditions are fulfilled as soon as reasonably practicable.

5.5 Termination

This Agreement may be terminated at any time prior to Completion:

5.5.1 by the mutual written agreement of the Sellers and the Purchaser; or

5.5.2 by either the Sellers or the Purchaser in the event of a breach of a representation, warranty, covenant or agreement contained in this Agreement by the other Party; or

5.5.3 by the Purchaser in the event of occurrence of a Material Adverse Change; or

5.5.4 Subject to any waiver by the Party for the benefit of whom the relevant condition(s) has (have) been provided, if the conditions set out in sub-clauses 5.1 through 5.3 (inclusive) are not fulfilled within three weeks of the date hereof.

5.6 Consequences of Termination

In the event of the termination of this Agreement in accordance with sub-clause 5.5, this Agreement (other than Clauses 1, 5, 11, 12, 13, 14, 15 and 16) shall become null and void (but without prejudice to either Party’s liability for failure to perform in a timely manner its respective covenants hereunder).

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6. COMPLETION

6.1 Completion Date

Completion shall take place at the offices of the Purchaser’s counsel, Herbert Smith LLP, 20 rue Quentin Bauchart, 75008 Paris, at the latest on 30th May 2005 or any later date agreed upon by the Parties (the “Completion Date”) which shall be not later than eight (8) Business Days following the fulfilment (or waiver) of the last to be fulfilled (or, as the case may be, waived) of the conditions precedent set out in Clause 5 (other than those conditions set out in sub-clauses 5.2.1, 5.2.3 and 5.3.1) provided that, on the Completion Date, the conditions set out in sub-clauses 5.2.1, 5.2.3 and 5.3.1 are fulfilled or, if and to the extent not fulfilled, that compliance therewith has been waived.

6.2 Completion Deliveries

6.2.1 At Completion, the Sellers shall deliver or cause to be delivered to the Purchaser:

(A) duly executed share transfer forms (“ordres de mouvement”) and registration duty forms in respect of the entirety of the Shares in favour of the person(s) specified by the Purchaser;

(B) unconditional resignations in writing of all the directors and officers who are representatives of any of the Private Equity Investors and if, and to the extent, requested by the Purchaser no later than 2 Business Days prior to the Completion Date, the unconditional resignations in writing of all other directors and other corporate officers of the Group Companies (other than those specifically identified by Purchaser);

(C) evidence from the Private Equity Investors of the capacity and authority of each of the Private Equity Investors to enter into this Agreement and on the validity of the powers of their respective representatives;

(D) all other documents useful or necessary for completion of the sale to the Purchaser of the Shares and completion of all other transactions contemplated herein, and all documents justifying the performance by the Sellers of their undertakings hereunder, which the Purchaser may reasonably request.

6.2.2 At Completion, the Founders shall deliver or cause to be delivered to the Purchaser:

(A) duly executed Forward Sale Agreements in respect of all outstanding Stock Options, as per sub-clause 5.2.4 hereof;

(B) all statutory meeting attendance sheets or books and minute books (updated up to and including the Completion Date) for each of the Group Companies;

(C) share transfer register (“registre des mouvements”) and shareholders’ accounts (“comptes individuels d’actionnaires”) for each of the Group Companies, in both cases updated so as to record the transfer of Shares provided for hereunder;

(D) certified copies of the minutes of the information and consulting meetings of the work council of the Company confirming that such work council has been duly notified of and attended a meeting for the purpose of being informed and consulted on the transfer of the Shares and have given an opinion (“avis”) in respect thereof;

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(E) if requested by the Purchaser, the unconditional resignation letter of the Statutory Auditor (“Commissaire aux Comptes”) of each of the Group Companies (both principal and alternate auditors), effective at the end of the general shareholders’ meeting called to approve the annual accounts for the current financial year;

(F) a certificate, in the form set forth in SCHEDULE 7 signed by the Guarantor confirming that (i) in accordance with sub-clause 5.2.1, the Warranties remain true and accurate in all respects as at the Completion Date; or, if such is not the case and the Purchaser has partially waived the condition referred to in sub-clause 5.2.1, a certificate signed by the Guarantor confirming that, save as mentioned therein, the said Warranties remain true and accurate as of the Completion Date; and (ii) in accordance with sub-clause 5.2.3, no Material Adverse Change has occurred with respect to the Group Companies;

(G) Daniel Vaniche shall execute the amendment to his service agreement, as attached as SCHEDULE 8 (A).

6.2.3 The Founders undertake to procure the holding at the Completion Date of such board and/or shareholder meetings of the Group Companies, as the Purchaser may request, in order to transact the following business:

(A) any person nominated by the Purchaser (no later than two (2)) Business Days prior to the Completion Date) for appointment as a director or officer of any of the Group Companies shall be so appointed;

(B) all existing mandates for the operation of the bank accounts of the Group Companies shall be revoked and new mandates issued giving authority to those persons nominated by the Purchaser;

(C) such board meeting will resolve on the new terms of the compensation of Mr. Hervé Debbah as set forth in SCHEDULE 8 (B).

6.2.4 On the Completion Date, Mr. Debbah and the Purchaser shall enter into the Escrow Agreement in the form set forth in SCHEDULE 9; and the Parties shall enter into the short-form share purchase agreement (for the sole purpose of registering the sale and the exchange of the Shares with the Tax authorities).

6.3 Payment of Purchase Price

At Completion, the Purchaser shall pay the Purchase Price as follows:

6.3.1 EUR 7,100,000 shall be paid to the order of the Private Equity Investors by banker’s draft (chèque de banque);

6.3.2 EUR 5,112,227.45 shall be paid to the order of the Founders by banker’s draft adjusted as follows:

(A) plus an amount equal to the difference (Euro for Euro) between the Actual Net Cash Position (as finally determined pursuant to sub-clause 3.3.1 above) if it is more than the Estimated Net Cash Position;

or

(B) less an amount equal to the difference (Euro for Euro) between the Actual Net Cash Position (as finally determined pursuant to sub-clause 3.3.1 above) if it is less than the Estimated Net Cash Position;

or

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(C) In the event of the occurrence of any Disputed Items, the Purchaser shall pay to the Founders the difference, if any, between (a) the Estimated Net Cash Position and (b) the undisputed part of the draft Statement of Net Cash Position, if (b) is greater than (a) and shall retain the difference if (a) is greater than (b).

6.3.3 EUR 1,500,000 shall be transferred to the Escrow Account in the name of the Escrow Agent, in accordance with the terms of the Escrow Agreement.

6.4 Delivery of the Consideration Shares

At Completion, the Purchaser shall deliver or procure to be delivered a stock certificate representing 100% of the Consideration Shares, issued in the name of Mr. Debbah and bearing the restrictive legend referred to in sub-clause 16.1.4.

6.5 After completion

In the event referred to in sub-clause 6.3.2(C) (Disputed Items), the Purchaser shall pay to the Founders (or vice versa, as the case may be) such amount as determined by the Independent Expert in accordance with sub-clause 3.3.1(H).

7. WARRANTIES

7.1 Guarantor’s Warranties

7.1.1 The Guarantor represents and warrants to the Purchaser that as at the date hereof each of the Warranties set out in Schedule 4 is true and accurate in all respects and is not misleading.

7.1.2 The Guarantor represents and warrants that each of the Warranties set out in Schedule 4 will be true and accurate at Completion and, for this purpose, the Warranties set out in Schedule 4 shall be deemed to be repeated at the Completion Date.

7.2 Private Equity Investors Warranties

Each of the Private Equity Investors represent and warrant to the Purchaser that:

7.2.1 Organisation, Authority and Validity

(A) They are Fonds Commun de Placement and, for Blue Insider, a limited liability company (société anonyme) duly organised and validly existing and in good standing under the laws of France.

(B) They have full power and authority to enter into and perform this Agreement, including the due authorisation of its competent corporate bodies.

7.2.2 Consents and Approvals - No Breach

(A) No Consents and Approvals are required to be obtained by each of the Private Equity Investor in connection with the execution of this Agreement and the consummation of the transactions contemplated herein; and

(B) The execution and performance by the each of the Private Equity Investor of this Agreement and of any other agreements contemplated herein shall not constitute, result or give rise to any of the following events:

(1) any violation of any applicable Law or Order; or

(2) any violation or breach of each of the Private Equity Investor’s articles of association (or other organisational documents),

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except for any such matters that would not, either individually or in the aggregate, have a material adverse effect on the ability of each of the Private Equity Investor to perform its obligations under this Agreement.

7.3 Purchaser’s Warranties

The Purchaser represents and warrants to the Sellers that:

7.3.1 Organisation, Authority and Validity

(A) Captiva Software Corporation is a joint stock company duly organised and validly existing and in good standing under the laws of the State of Delaware, U.S.A.

(B) Captiva Software Corporation has full power and authority to enter into and perform this Agreement, including the due authorisation of its competent corporate bodies.

7.3.2 Consents and Approvals – No Breach

(A) No Consents and Approvals are required to be obtained by Captiva Software Corporation in connection with the execution of this Agreement and the consummation of the transactions contemplated herein; and

(B) The execution and performance by Captiva Software Corporation of this Agreement and of any other agreements contemplated herein shall not constitute, result or give rise to any of the following events:

(1) any violation of any applicable Law or Order; or

(2) any violation or breach of the Purchaser’s articles of association (or other organisational documents),

except for any such matters that would not, either individually or in the aggregate, have a material adverse effect on the ability of the Purchaser to perform its obligations under this Agreement.

8. INDEMNIFICATION / PRICE REDUCTION

8.1 Indemnity

The Guarantor undertakes to indemnify the Purchaser by way of a reduction in the consideration paid for the Founders Shares and the Exchange Shares or, and if the Purchaser in his absolute discretion so wishes, by making good and holding harmless the relevant Group Company(ies) or the Purchaser (collectively, the “Indemnified Person(s)”) for the amount of:

8.1.1 all losses, claims, damages, shortfall in earnings, interests, costs, fines, penalties or expenses whatsoever suffered or incurred by the Purchaser or the Group Companies, as a result of any of the Warranties made by the Guarantor in Schedule 4 being untrue, inaccurate or incomplete;

8.1.2 any deficiency or reduction in the value, as at the Completion Date, of any of the assets of the Group Companies appearing in the Accounts (including any asset warranted hereby to exist but not in fact existing) which deficiency or reduction does not appear or is not fully provided for in the Accounts;

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8.1.3 any increase in the liabilities (including undisclosed liabilities) of the Group Companies as at the Completion Date, which increase does not fully appear in the Accounts; and

8.1.4 all reasonable costs and expenses of any proceedings and any legal advice incurred in connection with any loss or damage referred to in sub-clauses 8.1.1, 8.1.2 or 8.1.3.

• For the avoidance of doubt, the indemnification due by the Guarantor under this Clause 8 shall be for 100% of the amounts referred to in sub-Clauses 8.1.1 to 8.1.4. and shall not be limited by the fact that the shares sold or exchanged by him in the share capital of the Company do not represent 100% of the share capital but merely 50.59%, taking however into consideration the provisions of sub-clause 8.3;

8.2 Time Limits

Any claim by the Purchaser as a result of the occurrence of any of the events referred to in sub-clauses 8.1.1, 8.1.2 above and 8.1.3 (a “Claim”) shall be made by notice in writing to the Guarantor, within the following time limits:

8.2.1 Claims relating to Taxation or pertaining to the criminal liability of the Group Companies may be made up to three (3) months after (i) expiry of the relevant statute of limitation, or (ii) if later, the date on which any court decision in relation to the matter forming the basis of any such Claim is given, arbitration sentence is passed or settlement becomes definitive and without appeal;

8.2.2 Any other Claims are to be made within a period of two (2) years as from the Completion Date.

For the avoidance of doubt, in the event notice of any Claim is given within the applicable time limit, the rights of the Indemnified Person under this Clause 8 with respect to such Claim shall survive until such time as such Claim is finally resolved.

8.3 Quantum Limitations

The Guarantor’s potential Indemnification Liability shall be limited as follows:

8.3.1 The aggregate Indemnification Liability due hereunder shall not exceed:

(A) one million five hundred thousand euros (1,500,000 EUR) for any claim made on or before January 31^st, 2006;

(B) seven hundred and fifty thousand euros (EUR 750.000) for any claim made on or before January 31^st, 2007; and

(C) three hundred and seventy five thousand euros (EUR 375.000) for any claim made on or before March 31^st, 2006 ;

(D) and zero euros thereafter.

8.3.2 The Guarantor shall not be liable unless the aggregate amount of Claims made hereunder exceeds EUR 200,000 (two hundred thousand euros), in which event the Indemnified Persons shall be entitled to the full amount exceeeding the above mentionned EUR 200,000 exemption.

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8.4 Indemnification Procedure and Payment

8.4.1 Implementation of the Indemnification Procedure

(A) Subject to the terms of sub-clause 8.4.4, the Indemnified Persons shall be entitled to make a Claim against the Guarantor as soon as they become aware of any fact that could give rise to Indemnification Liability.

(B) If the Guarantor disputes the basis or the amount of the Claims made by the Indemnified Person, the Guarantor shall notify such Indemnified Person within thirty (30) Business Days following receipt of the Claim notice. Failure to make such a dispute notification within this time limit shall result in the dispute being disallowed and the Parties being deemed to have agreed to the basis and amount of the relevant Claims on the date of expiry of such time limit.

8.4.2 Disputed Claims

In the event that a Claim is disputed by the Guarantor :

(A) the Indemnified Person and the Guarantor shall endeavour to reach agreement in respect of the disputed points relating to a Claim within thirty (30) Business Days after the date on which the corresponding Claim notice was received by the Guarantor ; or

(B) in the absence of such agreement within fifteen (15) Business Days, either Party may refer the matter to the court provided for in Clause 16.

8.4.3 Payment Obligation

(A) Indemnification Payment – Any amount payable by the Guarantor to any Indemnified Person under this Clause 8 shall be payable within fifteen (15) Business Days from the date of quantification of the Indemnification Liability by mutual agreement or further to a court judgement or arbitration decision that is not subject to an appeal allowing for a stay in enforcement (such due date, the “Indemnification Date”) provided, the occurrence of the Indemnification Date shall be considered in itself as formal notice (mise en demeure) to pay the relevant Indemnification Liability and such amount shall therefore bear interest at an annually compounded interest rate of French legal rate from the Completion Date to its actual payment date; and provided, further, that in the event that, after the relevant Indemnification Date (and notwithstanding the provisions of sub-clause 8.2), the damage suffered by any relevant Indemnified Person is more that the amount actually paid by the Guarantor, the relevant Indemnified Person can make a further Claim, in accordance with the terms and provisions of this clause 8, and the Guarantor shall indemnify the Indemnified Person for such additional amount in accordance with the provisions of Clause 8.

(B) Specific cases – As a limited exception to the general principle set out in paragraph (a) above, the Indemnification Date shall:

(1) if the Claim made by the Indemnified Person is based on a claim by a third party (other than the Tax authorities) against any of the Group Companies or the successors to the whole or any part of their businesses, be the date on which the amount due by the Group Companies (or their successors) becomes payable, it being agreed that in the event of litigation with respect to the relevant third party claim, this date shall be the date on which an enforceable final judgement was issued; or

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(2) if the Claim made by the Indemnified Person is based on a claim made by the Tax authorities against any of the Group Companies or the successors to the whole or any part of their businesses, be the date on which the amount claimed is subject to a notice demanding payment, it being agreed that in the event that the Group Companies (or their successors) wish to contest the said notice demanding payment, the Guarantor shall only be bound to advance the amount of security claimed by the Tax authorities for the purposes of this claim, it being incumbent upon the Guarantor to pay the whole of the amount effectively due at the date on which an enforceable judgement has been issued with respect to this claim.

(C) Guarantee/ Security - If the Guarantor does not pay all or part of any sum due to any Indemnified Person under this Agreement within fifteen (15) Business Days as from the Indemnification Date, such Indemnified Person may claim the release of such amount of Escrow Funds as may be necessary to cover the corresponding sum from the Escrow Account pursuant to the terms of the Escrow Agreement.

8.4.4 Conduct of Proceedings

If any Indemnified Person becomes aware of any third party claim against any of the Group Companies or the successors to the whole or any part of their businesses (including any notification of a Tax audit) after Completion and if this claim is, in the reasonable opinion of such Indemnified Person, likely to give the Indemnified Persons the right to make a Claim against the Guarantor :

(A) the Indemnified Person shall give notice to the Guarantor of this third party claim within twenty (20) Business Days of the Purchaser becoming aware of such third party claim;

(B) the Guarantor may within a period of ten (10) Business Days from the date of receipt of the notice mentioned in paragraph (a) above or without delay, in the event of urgent proceedings or Tax proceedings, provide the Purchaser with the name of the representative responsible for assisting, on behalf of the Guarantor and at the Guarantor ‘ cost, in the negotiations or hearings relating to such third party claim;

(C) the Purchaser shall, and shall procure that the Group Companies or the successors to the whole or any part of their businesses shall, cooperate with this representative and provide all assistance to enable the representative to assess the third party claim in question;

(D) notwithstanding the appointment of a representative by the Guarantor, the Indemnified Person shall assume the defence of such third party claim and shall be free to take any action that it shall deem appropriate for best defending the interests of the Indemnified Person and in particular instigating, continuing or ceasing any arbitration or court proceedings, or reaching a settlement. The Purchaser shall, and shall procure that the Group Companies (or the successors to the whole or any part of their businesses) shall inform the Guarantor of any material changes in circumstances of any such proceedings and shall provide the Guarantor

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with all information reasonably requested by it in relation thereto. The Purchaser undertakes not to establish nor communicate regarding such third party claims without obtaining the prior agreement of the Guarantor on the proposed defence to such claim.

8.5 Limitations on Liability

The Guarantor shall not be liable in respect of a Claim:

8.5.1 to the extent that it arises or is increased as a result only of:

(A) an increase in the rates, method of calculation or scope of Taxation after Completion; or

(B) any change in generally accepted accounting practice in the country of incorporation of any of the Group Companies after Completion; or

(C) the passing of any Law with retroactive effect after Completion.

8.5.2 to the extent that it relates to any matter provided for or included as a liability in the Accounts but only to the extent of such provision or liability.

8.5.3 with respect to any reassessment made by the Tax authorities, the sole consequence of which is to shift a deductible or a Taxable element from one fiscal year to another or from one Group Company to another, provided, that with respect to any such reassessment, the Guarantor shall nevertheless be liable to the extent of any penalties, interest, increase in Tax liability resulting from a different applicable Tax rate or the transfer of a Taxable element from a loss-making to a profit-making year.

8.6 Recovery from Third Parties

Where the Indemnified Person (or a Group Company) recovers from some other person (including insurers) any sum in respect of any matter or event which has given rise or could give rise to a Claim, any sum so recovered will reduce the amount of the Claim. In the event of the recovery being delayed until after satisfaction by the Guarantor of its relevant Indemnification Liability, an amount equal to the sum so recovered by the Indemnified Person (or a Group Company), shall be paid to the Guarantor, but only to the extent of the amount paid by the Guarantor in respect of such Claim.

8.7 Tax Impact

8.7.1 If an amount payable to the Indemnified Person by the Guarantor under this Agreement is subject to Taxation, the Guarantor shall pay to the Indemnified Person all additional amounts necessary in order to ensure that the net amount received by the Indemnified Person is equal to the amount, which it would have received in the absence of such Taxation.

8.7.2 Any effective Tax savings resulting from the Tax deductibility of an indemnifiable loss in connection with the fiscal year where said loss has been recorded shall be deducted from the amount of the indemnifiable loss or shall be refunded by the Purchaser to the Guarantor.

8.7.3 In no event shall tax losses recorded subsequently to the Completion Date (resulting, in particular, from the deductibility of the loss or damage giving rise to Indemnification Liability) shall be taken into account so as to reduce the Guarantor’s Indemnification Liability towards the relevant Indemnified Person.

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8.8 Release

8.8.1 The Guarantor shall not be released from his obligations under this Clause 8 as a result of (i) his lack of awareness of the situation resulting in a Claim or (ii) any knowledge that the Purchaser has or may have of said situation, as a result, in particular, of any investigations made by the Purchaser, its representatives or its counsel, prior to the Completion Date, save to the extent the information has been properly disclosed in the Disclosures made herein, in compliance with sub-clause 8.8.3 hereunder.

8.8.2 The Guarantor shall not be released from his obligations under this Clause 8 in the event the structure and business of the Company and the Subsidiaries are altered by the Purchaser following Completion including, notably, by way of the transfer of the Exchange Shares to Captiva Software France, mergers, acquisitions, disposal of assets, amalgamation and any other change that may be implemented by the Purchaser, provided said alteration shall not be the cause of any Indemnification Liability.

8.8.3 The Guarantor shall be exempted from Indemnification Liability only as regards events or facts set forth in the Disclosures subject to the following:

(A) any such Disclosure shall clearly describe the identified matter and quantify the relevant risk;

(B) any Disclosure set forth in an Exhibit shall qualify only the Warranty to which such Exhibit corresponds (and the Purchaser shall not be considered as having knowledge or notice of any matter pertaining to the Group Companies, which is not set forth in the relevant Exhibit);

(C) any such Disclosure shall qualify the Warranties only to the extent of the relevant reserve, provision or allocation for contingent liabilities recorded for such matter in the Accounts; and

(D) Disclosures made by the Guarantor subsequently to the date hereof shall not exempt the latter from Indemnification Liability.

8.8.4 The approval of the annual accounts for any fiscal year by the shareholders’ meeting of any Group Company shall have no effect on any potential Indemnification Liability.

9. SELLERS’ UNDERTAKINGS

9.1 Pre-Completion Management of the Group Companies

As from the date hereof and up to and including the Completion Date and save with the prior written consent of the Purchaser (notified as provided for in Clause 15), the Founders shall ensure that:

9.1.1 none of the Shares shall become, directly or indirectly, the subject of any Encumbrances;

9.1.2 each of the Group Companies shall carry out its respective activities solely in the ordinary course of business and in a prudent and appropriate manner and that any Material Adverse Change in any of such businesses shall be forthwith notified to the Purchaser in writing;

9.1.3 the Group Companies shall comply with all relevant Laws and, in particular, with all applicable employment law requirements in relation to the subject matter of this Agreement;

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9.1.4 the Group Companies shall not (a) amend their respective articles of association (statuts), (b) undertake any merger, spin-off, contribution or other form of reorganisation, (c) propose, declare or pay any dividend or otherwise distribute any profit or dividend or (d) grant any Encumbrance, or take any other measure which may encumber or otherwise affect the free disposition of their respective assets or shares;

9.1.5 save for cost-of-living increases or increases which are mandatory under applicable labour Law or any relevant collective bargaining agreement there shall be no increase or undertakings to increase the compensation payable or other benefits due (including salaries, jetons de presence, profit-sharing, pension or retirement rights or other similar benefits) or any employee, director or officer (whether or not having employee status) of the Group Companies nor shall the Group Companies hire or dismiss any corporate officers or executive employees (cadres supérieurs) save in the case of serious misconduct (faute grave/lourde) and after consulting the Purchaser;

9.1.6 the Group Companies shall not enter into any contracts which are subject to unusual or unduly onerous terms, or which are outside the normal course of business of the Group Companies concerned nor terminate any significant business relationships;

9.1.7 the Group Companies shall not undertake any capital or non routine expenditure, save where such expenditure is essential to preserve the value of an asset of the relevant Group Company, nor transfer any of its assets except in the usual and prudent course of business;

9.1.8 the Group Companies shall neither grant nor receive any loan from a third party;

9.1.9 the Group Companies shall not grant any security interests with respect to the obligations of a third party;

9.1.10 the Group Companies and the Founders confer regularly with the Purchaser concerning operational matters and otherwise report regularly to the Purchaser concerning the status of the Group Companies’ businesses, condition, assets, liabilities, operations, financial performance and prospects ; and

9.1.11 undertake to do any of the foregoing.

9.2 Access to the Group Companies

9.2.1 Between the date hereof and the Completion Date, the Purchaser and its representatives (including its auditors and legal advisors) shall have reasonable access to the senior management, accountants, assets, books and records of the Group Companies.

9.2.2 For the avoidance of doubt, it is hereby specified that any visits by the Purchaser and/or persons designated by the Purchaser shall have no effect on any potential Indemnification Liability.

9.3 Restrictive Covenant

The Founders undertake that they shall not, either alone or in conjunction with or on behalf of any other person, for a period of two (2) full and consecutive years after Completion, in France, do any of the following:

9.3.1 be directly or indirectly engaged or otherwise interested in any form or manner whatsoever in carrying on a business which competes with the business activities of any of the Group Companies;

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9.3.2 solicit the custom of any client to whom any of the Group Companies has sold (or proposed to sell) competing goods or services in the course of its business activities, in order to propose similar goods or services;

9.3.3 directly or indirectly solicit or entice an employee away from the employment of any of the Group Companies; nor

9.3.4 assist any other person to do any of the foregoing things.

9.4 Further Efforts

The Founders shall from time to time at their own cost, at the request of the Purchaser, do or procure the doing of all such acts and/or execute all documents necessary for giving full effect to this Agreement and securing to the Purchaser the full benefit of the rights, powers and remedies conferred upon the Purchaser in this Agreement.

9.5 Relationship with the Sellers’ Groups

9.5.1 As from the Completion Date, each of the Sellers waive, on behalf of each of them and, as the case may be, any of their Affiliates, their rights to repayment of any amount due prior to the Completion Date by a Group Company to the Sellers other than any amounts due in connection with trading in the normal course of business and any amount properly reflected in the Statement of Net Cash Position.

9.6 Private Equity Investors Undertakings

9.6.1 As from the date hereof and up to and including the Completion Date and save with the prior written consent of the Purchaser (notified as provided for in Clause 15), the Private Equity Investors undertake that:

(A) they will not vote in favour of decisions that would result in a violation of any of the Founders’ undertakings as set out in sub-clause 9.1.

(B) none of the Private Equity Investors Shares shall become, directly or indirectly, the subject of any Encumbrances.

9.7 Breach of covenants and other undertakings by the Sellers

The indemnification due by the Sellers as a result of, or in connection with, or due to, any breach of any of their covenant(s) or other undertakings hereunder, save for the indemnification under clause 8, shall be without any limitation as to time or amount.

10. ESCROW ACCOUNT

As security for the Guarantor’s obligations, pursuant to Clause 8 - Indemnification, the Guarantor has placed the Escrow Funds in escrow pursuant to the terms of the Escrow Agreement.

The Guarantor hereby agrees that in the event any amount is due to the Purchaser or any other Indemnified Person, pursuant to Clause 8 - Indemnification, the Purchaser or the relevant Indemnified Person may request the release of such amount of the Escrow Funds from the Escrow Account by the Escrow Agent pursuant to the terms of the Escrow Agreement.

11. ANNOUNCEMENTS

Neither Party shall release any announcement relating to the existence or the terms of this Agreement, unless and until the form and content of such announcement have been submitted to, and agreed by, the other Party provided that nothing in this Clause 11 shall prohibit either Party from making any announcement as required by Law or the regulations of any stock exchange or the rules of any regulatory body of which it is a member, in which case the announcement shall only be released after consultation with the other Party and after taking into account the reasonable requirements of the other Party as to the content of such announcement.

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12. MISCELLANEOUS

12.1 Cooperation

Each of the Parties hereby undertakes to make every effort to ensure that all measures necessary or useful for the completion of the transactions provided for in this Agreement are taken in a timely manner. Each of the Parties also undertakes to take all necessary steps to permit the other Party and its counsel to ascertain the satisfactory performance of all of its undertakings made herein. In the event that at any time after Completion any additional measures are necessary or desirable for the completion of the subject matter hereof, the Parties shall take all such measures, or shall ensure that they are taken.

12.2 Successors - Assignment

12.2.1 All or any part of the benefit of this Agreement (including the benefit of Clause 8) may be assigned by the Purchaser to any of its Affiliates or to any person to whom all of part of the Shares (or the shares of any Subsidiaries) may be transferred after Completion, such assignment being notified to the Guarantor as provided for in Clause 15.

12.2.2 The Sellers (including the Guarantor) may not assign, in whole or in part, their rights or obligations under this Agreement.

12.3 Whole Agreement

This Agreement (including its Schedules and Exhibits) represents the entire understanding, and constitutes the whole agreement, in relation to its subject matter and supersedes any previous express or implied agreement in any form whatsoever (including letters, memoranda, protocols and contracts) between the Parties with respect thereto.

12.4 Severability

If at any time any provision of this Agreement is or becomes illegal, invalid or unenforceable in any respect under the law of any jurisdiction, that shall not affect or impair:

12.4.1 the legality, validity or enforceability in that jurisdiction of any other provision of this Agreement; or

12.4.2 the legality, validity or enforceability under the law of any other jurisdiction of that or any other provision of this Agreement.

12.5 Full Force and Effect

So far as it remains to be performed, this Agreement shall continue in full force and effect notwithstanding Completion.

12.6 Waivers

The failure by any Party promptly to avail itself in whole or in part of any right, power or privilege to which such Party is entitled pursuant to the terms of this Agreement shall not constitute a waiver of such right, power or privilege which may be exercised at any time. To be valid, waiver by any Party of any such right, power or privilege must be in writing and notified to the other Party as provided herein.

13. CONFIDENTIALITY

13.1 Each Party shall treat as confidential all information obtained as a result of entering into or performing this Agreement which relates to the provisions of this Agreement, the negotiations relating to this Agreement, the subject matter of this Agreement, or the other Party to this Agreement.

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13.2 However, either Party may disclose confidential information:

13.2.1 if and to the extent required by Law applicable in a particular country, after having given written notice to the other Party;

13.2.2 if and to the extent required by any Governmental Entity to which such Party is subject or submits, wherever situated;

13.2.3 if and to the extent required to vest the full benefit of this Agreement in each Party, after having given written notice to the other Party;

13.2.4 to its shareholders, employees and professional advisers on a need to know basis;

13.2.5 if and to the extent the information has come into the public domain through no fault of that Party; or

13.2.6 if and to the extent the other Party has given prior written consent to the disclosure.

13.3 The Founders shall assign to the Purchaser the benefit of all confidentiality undertakings given to the Founders in connection with the process leading up to the sale of the Group Companies, to the extent that such benefit relates to the Group Companies. The Founders undertake (at the cost of the Purchaser) to take all reasonable steps to assist the Purchaser in enforcing such undertakings.

14. COSTS

14.1 Registration Formalities and Stamp Duty

The Purchaser shall be responsible for the registration formalities (and the payment, if required, of the relevant stamp duty (“droits d’enregistrement”)) pertaining to the transfer of the Shares.

14.2 General Costs

Subject to the terms of sub-clause 14.1 and save as otherwise stated in this Agreement, each Party shall bear all costs and expenses incurred by it in connection with the preparation and negotiation, execution and carrying into effect of this Agreement and all other documents referred to in it and the Founders confirm that no expense of whatever nature relating to the Completion has been or is to be borne by any of the Group Companies.

15. NOTICES

15.1 Any notice, approval, consent or other communication in connection with this Agreement must be in writing and left at the address of the addressee against receipt, or sent by registered mail with return receipt requested or sent by e-mail or facsimile confirmed by registered mail with return receipt requested at the following address or, for the Sellers other than the Guarantor, at their respective addresses set out in SCHEDULE 0, or if the addressee notifies another address or facsimile number then to that address or facsimile number:

The address and facsimile number of each party is:

(a)Purchaser

Captiva Software Corporation and Captiva Software France

Attn. Bradford Weller, Esq., General Counsel

Address:   1045 Pacific Heights Bld, SAN DIEGO, CA 92121, USA

e-mail:        bweller@captivasoftware.com

With a copy to:

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Bruno Basuyaux, Herbert Smith
Address:	20, rue Quentin Bauchart, 75008 PARIS, FRANCE
e-mail:	bruno.basuyaux@herbertsmith.com
Facsimile:	+ 33.1.53.57.70.80
(b) Guarantor : Mr. Hervé Debbah
Address:	50, avenue Gabriel Peri, 92160 ANTONY
e-mail:	hdebbah@aol.com
With a copy to:
Marc Dumon
Address:	91, Faubourg Saint Honoré, 75008 PARIS
e-mail:	marc.dumon@wanadoo.fr
Facsimile:	+ 33.1.55.73.26.31

15.2 A notice, approval, consent or other communication shall take effect from the time it is effectively received (and, at the latest 5 Business Days after the first presentation of the registered letter) unless a later time is specified in it.

16. ADDITIONAL REPRESENTATIONS AND AGREEMENTS

16.1 Mr. Hervé Debbah makes the following acknowledgements, representations, warrants and agreements:

16.1.1 he has been advised by Captiva Software Corporation and understands that (i) the Consideration Shares have, at the date hereof, not been registered or qualified under the U.S. Securities Act of 1933, as amended (the “Securities Act”), or any other applicable securities law, and (ii) the Consideration Shares, unless so registered, may not be offered, sold or otherwise transferred except in compliance with the registration requirements of the Securities Act and any other applicable securities law, pursuant to an exemption therefrom or in a transaction not subject thereto and in each case in compliance with the conditions for transfer set forth in sub-clause 16.1.3 below;

16.1.2 he represents, warrants and agrees that he is not a U.S. person and is located outside the United States and any person for whose account or benefit he is acting is not a U.S. person and is located outside the United States and, upon acquiring the Consideration Shares, he and any such person will not be a U.S. person and will be located outside the United States (as used herein, “U.S. Person” and “United States” will have the meanings specified in Regulation S under the Securities Act);

16.1.3 he agrees and each subsequent holder of the Consideration Shares by its acceptance thereof will agree, to offer, sell or otherwise transfer such Consideration Shares only (a) to Captiva Software Corporation or any subsidiary thereof, (b) to an institutional “accredited investor” as such term is defined in Rule 501(a)(1), (2), (3), (7) and (8) under the Securities Act that is purchasing for its own account or for the account of such an institutional “accredited investor” and who delivers to Captiva Software Corporation a letter containing the same

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certifications as this letter, (c) pursuant to a registration statement which has been declared effective under the Securities Act, (d) in an offshore transaction in accordance with Rule 904 of the Regulation S under the Securities Act, or (e) pursuant to any other available exemption from the registration requirements of the Securities Act;

16.1.4 he acknowledges that each Consideration Share he receives upon certification will contain a legend substantially to the following effect:

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS. THIS SECURITY MAY NOT BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF, AGREES IT SHALL OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY ONLY (A) TO THE ISSUER OR ANY SUBSIDIARY THEREOF, (B) TO AN INSTITUTIONAL “ACCREDITED INVESTOR” AS SUCH TERM IS DEFINED IN RULE 501(A)(1), (2), (3), (7) AND (8) UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL “ACCREDITED INVESTOR”, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, AND WHO DELIVERS TO THE ISSUER A LETTER CONTAINING THE SAME CERTIFICATIONS AS THE LETTER DELIVERED BY THE INITIAL PURCHASER, A FORM OF WHICH IS AVAILABLE FROM THE ISSUER, (C) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (D) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. NO “EMPLOYEE BENEFIT PLAN” AS DEFINED IN SECTION 3 OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED, MAY ACQUIRE A BENEFICIAL INTEREST HEREIN. THE ISSUER RESERVES THE RIGHT PRIOR TO ANY OFFER, SALE, ASSIGNMENT, TRANSFER, PLEDGE, ENCUMBRANCE OR OTHER DISPOSITION PURSUANT TO CLAUSE (B) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATES AND/OR OTHER INFORMATION SATISFACTORY TO THE ISSUER.

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16.1.5 The Purchase commits to issue to Mr Debbah certificates for the Consideration Shares without the legend mentioned above sub-clause 16.1.3 within five (5) business days from the Consideration Shares being fully registered by the Securities and Exchange commission, as per the provisions of sub-clause 3.2 hereof.

17. ASSIGNMENT

All or any part of the benefit of this Agreement may be assigned by the Purchaser to any of its Affiliates or to any person to whom all of part of the Shares (or the shares of any Subsidiaries) may be transferred after Completion, such assignment being notified to the Sellers as provided for in clause 15.

18. GOVERNING LAW AND JURISDICTION

18.1 Governing Law

This Agreement shall be governed by, and construed in accordance with, French law.

18.2 Jurisdiction

The Parties irrevocably agree that the Commercial Court of Paris (France) shall have exclusive jurisdiction in relation to any claim, dispute or difference concerning this Agreement and any matter arising therefrom.

IN WITNESS of which the parties have executed this Agreement in Paris, on 10^th May 2005 in 16 original copies, 14 of which include Schedules 1 to 3 and no other schedules and 2 of which include all Schedules and Exhibits.

The Sellers

Hervé Debbah	Daniel Vaniche
François Courjaret	Franck Signorile
Muriel Debbah represented by Hervé Debbah pursuant to a power of attorney	Victor Lisbona represented by Hervé Debbah pursuant to a power of attorney
Sonia Lisbona represented by Hervé Debbah pursuant to a power of attorney	Matignon Investissement & Gestion represented by

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Antin FCPI 1 represented by BNP Private Equity represented by Brice Lionnet	Blue Insider represented by Christophe Douat
Spef Venture represented by	Matignon Technologie FCPR represented by Matignon Investissement & Gestion represented by Christophe Douat
FCPI Banque Populaire Innovation 5 represented by Spef Venture represented by David Giallorenzo	FCPI Banque Populaire Innovation 6 represented by Spef Venture represented by David Giallorenzo
Purchaser
Captiva Software Corporation represented by Mr. Reynolds C. Bish	Captiva Software France EURL represented by Mr. Reynolds C. Bish

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SCHEDULE 0

The Sellers

SCHEDULE 1

THE COMPANY

SCHEDULE 2

THE SUBSIDIARIES

SCHEDULE 2 (A)

STOCK OPTIONS – OPTION HOLDERS

BSPCE

SCHEDULE 2 (B)

STOCK OPTIONS – OPTION HOLDERS

Ratchet Options

SCHEDULE 3

1.1.1 ACCOUNTS

SCHEDULE 4

REPRESENTATIONS AND WARRANTIES

The Guarantor hereby represents and warrants to the Purchaser as follows:

1. CORPORATE ORGANISATION AND BUSINESS

1.1 Organisation - Operations

1.1.1 Each of the Group Companies is a business entity duly organised, validly existing and in good standing under the laws of its jurisdiction of organisation and has all the requisite power and authority, including all necessary approvals, licenses, permits and authorisations, to own its properties and to carry on its business(es) as now conducted.

1.1.2 A copy of the statuts (articles of association) and extrait k-bis or equivalent document in the relevant country of incorporation) of each of the Group Companies is set forth in Exhibit 1.1 and these copies are true, correct, complete and up-to-date copies of such. No resolution has been adopted providing for the amendment of these statuts or for the dissolution or winding-up of any of the Group Companies.

1.1.3 The corporate bodies of each Group Company operate in a regular fashion, and all corporate decisions have been taken in accordance with the Laws or internal rules applicable to such entities.

1.2 Share Transfer Register

1.2.1 The share transfer registers of the Group Companies have been properly maintained in compliance with the Law and contain an accurate record of the shareholders of such entities.

1.2.2 None of the Group Companies have received any notice of any application or intended application for rectification of such share transfer registers.

1.3 Statutory Books and Registers and Filings

1.3.1 The statutory books, records and registers (“registres sociaux” and “feuilles de presence”) (including all minute books) of the Group Companies are up to date and contain records, which are complete and accurate, of all matters required to be dealt with in such books and documents;

1.3.2 All documents, which must be delivered or filed by the Group Companies to or with the relevant Companies Registry (“greffe”) or registrar of the commercial court (“Registre du Commerce et des Sociétés”), have been duly so delivered.

1.4 Insolvency

1.4.1 None of the Group Companies is in a state of insolvency or in suspension of payments (cessation des paiements).

1.4.2 None of the Group Companies is or has been subject to a court-ordered reorganisation or court-ordered liquidation proceedings or any other conciliation or collective insolvency proceedings.

1.4.3 None of the Group Companies has requested an extension period (“délai de grace”) in application of Article 1244-1 of the French Civil Code.

1.4.4 None of the Group Companies is bound by any obligations whatsoever (including undertakings to hire employees, maintain employment, make investments or enter into rehabilitation works) made in connection with, or resulting from, any insolvency related reorganization plan (plan de cession ou de continuation), collective dismissal plan or the obtaining or continuation of subsidies, discounted loans, favourable Tax or social regimes.

1.5 Shareholdings in Other Entities

Save as set forth in Exhibit 1.6, none of the Group Companies (i) hold, nor have held in the past five years any interest, whether in the share capital, equity or other securities of, or otherwise, in any other entity (including groupement d’intérêt économique or partnership) (other than another Group Company), (ii) served as director or corporate officer of any such entity nor (iii) acted as de facto manager of any such entity.

2. SHAREHOLDINGS

2.1 Share Capital

2.1.1 The Shares represent the entirety of the Company’s issued share capital, and the entirety of the voting rights in the Company, have been validly issued in full compliance with all relevant provisions of its statuts and French law, are fully paid-up and are freely transferable by the Sellers to the Purchaser.

2.1.2 The share capital of each of the Subsidiaries is held as set forth in Error! Reference source not found.. All of the existing shares of the Subsidiaries are validly issued, fully paid up and have been issued in full compliance with all relevant provisions of the relevant entity’s statuts and Laws applicable to such entity’s country of incorporation.

2.1.3 Other rights

(A) There are no shares or other securities or equity interests of any of the Group Companies issuable upon conversion, exchange or redemption of any security or pursuant to any other agreement or undertaking (other than the Stock Options set forth in Error! Reference source not found.(A) and SCHEDULE 2(B)), nor are there any rights, options or warrants outstanding or other agreements to issue or acquire securities of any of the Group Companies, nor is any of the Group Companies obligated to purchase, redeem or otherwise acquire any of its outstanding shares or other securities.

(B) Neither the Sellers nor any person is entitled to any preferential or similar rights to subscribe for shares or other securities in the Group Companies.

(C) There are no voting trusts, proxies or other arrangements or understandings with respect to the voting of the shares or equity interests of the Group Companies.

(D) None of the securities issued by any of the Group Companies is listed on any stock exchange or other market and no Group Company may be characterised as a public company (“société faisant appel public à l’épargne”).

2.2 Title to the Shares

The Sellers are the owner of the entirety of the Shares, free and clear of any Encumbrances.

2.3 Subsidiary Shares

The Company has full title to the entirety of the shares issued by each Subsidiary, free and clear of any Encumbrances.

2.4 Capacity to Transfer Shares

The Sellers have full authority and legal capacity to sell and transfer the Shares to the Purchaser.

2.5 Effect of Transfer of Shares

The sale of the Shares to the Purchaser and, more generally, the execution and performance of this Agreement shall not affect the legal situation of any of the Group Companies, nor shall it affect their rights and obligations vis-à-vis third parties; in particular, it shall not give rise to the following events:

2.5.1 any violation of any Law or Order or any breach of agreement (including any Material Contract) or obligations;

2.5.2 any early termination of or significant variation of any contract, including any Material Contract, insurance policies, leases or finance leases (crédit-bail), supply, distribution agreements or subsidies;

2.5.3 any calls for early repayment of any loans or financing granted to any of the Group Companies;

2.5.4 any obligation to pay a bonus or indemnity to any of the employees or managers of any of the Group Companies;

2.5.5 any modification, suspension or withdrawal of any Consents and Approvals granted to any of the Group Companies, or of any favourable Tax or corporate regime in place as a result of an agreement of otherwise;

2.5.6 any entitlement for any person to be released from its obligations under the terms of any guarantee, comfort letter or other similar document issued as a security or in support of any undertakings on the part of any of the Group Companies; and

2.5.7 any registration or constitution of a pledge or other Encumbrances on the assets or securities of any of the Group Companies.

3. ACCOUNTS

3.1 General

The Accounts:

3.1.1 have been prepared in accordance with the Accounting Principles, as applied by the Group Company in a manner consistent with past practice;

3.1.2 where audited, the Accounts have been duly audited, and the auditors have issued unqualified reports;

3.1.3 in any event, show a true and fair view, in accordance with the Accounting Principles, of the assets and liabilities (patrimoine), financial position and results of operations and cash flows of the relevant Group Company as of the dates and for the periods stated;

3.1.4 comply with the requirements of applicable Laws (including, with respect to Group Companies incorporated in France, the requirements of the French Commercial Code (“Code de Commerce”) and Plan Comptable Général as determined by the Comité de Réglementation Comptable in regulation n° 99.03 of 29 April 1999).

3.2 Provision for Liabilities, Capital Commitments and Bad Debts

3.2.1 Save as disclosed in Exhibit 3.2, the Group Companies have no liabilities or obligations (due, payable, certain, contingent, conditional or otherwise and including any obligation resulting from an investment commitment, factoring or leasing agreement or from current, pending or threatened litigation) other than (i) those set out, or for which adequate provision has been made, in the Accounts or (ii) current liabilities which have arisen since the Accounts Date in the ordinary course of business and consistent with Group Companies’ past practice as applicable.

3.2.2 The depreciation and other provisions (including provisions for depreciation and for bad debts) appearing in the Accounts are sufficient to fully cover the potential losses which they refer to, have been determined in accordance with applicable legislation.

3.3 Accounting Books and Records

All the accounts, books and records of the Group Companies have been fully, properly and accurately kept and completed. They give a true, complete and fair view of the financial, contractual and business position of the Group Companies and of the fixed and current assets and liabilities (actual and contingent), debtors, creditors and inventories and work in progress of the Group Companies (subject to the method for acknowledging the revenues for software licences and for maintenance, set forth in Exhibit 3.3).

3.4 Off-Balance Sheet Liabilities

3.4.1 Save as disclosed in Exhibit 3.4, the Group Companies (i) have no off balance sheet liabilities and (ii) have not entered into any written agreement in respect of the forgiveness of any debt (with or without reinstatement clauses) or the repayment of any subsidy.

3.4.2 In particular no Group Company (i) has granted any guarantee in any form whatsoever, any surety or warranty with respect to the performance of the obligations of a third party (other than another Group Company) or (ii) has entered into any portage arrangement, interest rate or exchange rate, swap agreement or is (iii) bound by any undertakings on a futures market.

4. RECEIVABLES

4.1 The trade and other receivables of the Group Companies as recorded in the Accounts and any receivables which have arisen since the Accounts Date are valid and have been recovered, or are recoverable in full, within the relevant legal or contractual time-limits and at the latest, within twelve (12) months of the Completion Date for trade and other receivables from administrations and within six (6) months of the Completion Date for all other trade and other receivables.

4.2 If one or more of the Group Companies resorts to financing mechanisms such as factoring its receivables or another method of assigning its receivables (including transfer by bordereau Dailly), the relevant Group Companies are not subject to any claims in this respect.

4.3 The Group Companies have recorded the necessary provisions for rebates, discounts and other benefits or undertakings usually granted to customers to either periodically or on a limited basis.

5. INVENTORIES/WORK IN PROGRESS

5.1 Quality

The inventories/work in progress set out in the Accounts consist of billable work which, with respect to their quality and quantity, can be billed in the normal course of business at a price at least equal to the value at which they appear in the Accounts. The current levels of inventory are adequate for the present and anticipated requirements of the Group Companies.

6. ASSETS

6.1 Title to Assets

The assets included in the Accounts or acquired by the Group Companies since the Accounts Date (other than trading stock disposed of since that date in the ordinary course of business) are all the assets used in the course of the Group Companies’ businesses and are the property of the Group Companies free from any Encumbrance and are not the subject of any leasing, hiring or hire-purchase agreement or the subject of any agreement that title to any asset does not pass until full payment is made (clause de reserve de propriété).

6.2 Fonds de Commerce

6.2.1 Each Group Company has owned and continues to own full rights to its business (fonds de commerce) as well as tangible and intangible assets related to such business, in each case free and clear of any Encumbrances.

6.2.2 None of the Group Companies has leased or otherwise granted, in whole or in part, any rights with respect to its fonds de commerce (including société en participation, location-gérance, location libre or otherwise).

7. CONTRACTS AND COMMERCIAL RELATIONS

7.1 Material Contracts

7.1.1 Save for those contracts a copy of which is attached in Exhibit 7.1 (“Material Contracts”) the Group Companies are not a party to any verbal or written contracts or arrangements which may fall within one of the following categories:

(A) Contracts pursuant to which the obligations or liability of any of the Group Companies may exceed EUR 50,000 in the aggregate, or 50,000 per year;

(B) Contracts whose remaining term is greater than six (6) months and pursuant to which any of the Group Companies may incur obligations or a liability in excess of EUR 10,000 per year;

(C) Contracts concerning the disposal of assets for an annual amount in excess of EUR 50,000;

(D) Contracts which accounted for more than 7% of the consolidated turnover of the Group Companies for the financial year ended on the Accounts Date or covering the sale of products and/or services for more than EUR 50,000 per year;

(E) Contracts giving rise to the payment by any of the Group Companies of fees or of consideration in another form in return for business brought to the relevant Group Company by a third party;

(F) Contracts relating to profit-sharing or the payment of commissions, or which provide for a remuneration on the basis of profits or turnover;

(G) Contracts or undertakings pursuant to which one or more of the Group Companies has agreed to refrain from carrying out or to restrict certain activities, or to refrain from competing;

(H) Contracts granting exclusivity rights;

(I) Contracts which do not fall within the scope of the relevant Group Company’s normal day-to-day business, or which are entered into under terms other than those usually granted to independent parties, or which do not reflect market conditions;

(J) Contracts relating to the holding and/or transfer of capital shares or interest in any entity or the control or management thereof (including shareholder agreements etc.).

7.1.2 None of the Group Companies is in breach of any of its obligations under any Material Contract.

7.1.3 Neither the Group Companies nor the Sellers are aware of any breach of, or grounds for, termination, avoidance or repudiation of, any Material Contract.

7.2 Commercial Arrangements

7.2.1 All contracts existing between the Group Companies, on the one hand, and their suppliers, customers, distributors, agents, licensees or franchisees on the other hand, have been entered into in the ordinary course of business.

7.2.2 There are no agreements which may oblige any of the Group Companies in the future to accept imposed purchase prices or any restrictions whatsoever on their freedom to do business.

7.2.3 The Group Companies’ supply agreements are at normal market conditions.

7.2.4 Neither the Founders nor any of the Group Companies has received any notice whatsoever pursuant to which or has any knowledge whatsoever that any of the 20 largest customers of, or suppliers or lenders to, any of the Group Companies has disclosed its intention to cease or substantially reduce its commercial relationship with any of the Group Companies for any reason whatsoever including as a result of the transfer of the Shares to the Purchaser.

7.3 Arrangements in General

7.3.1 All contracts or undertakings to which any of the Group Companies is a party or a beneficiary are valid and the relevant Group Company is in a position to obtain enforcement of the terms thereof. None of these contracts or undertakings is contrary to any Law, or to any judicial or administrative decisions whatsoever to the Guarantor’s knowledge. None of the Group Companies is, or has been, in breach of any such contract or undertaking, in such a way as to incur its liability or justify the termination of the contract or its non-performance by the other party.

7.3.2 The Group Companies are not parties to a joint venture agreement or arrangement or an agreement or arrangement under which they are to participate or co-operate with, or invest in any other person or business whatsoever.

8. CONSENTS, APPROVALS AND COMPLIANCE WITH LAWS

8.1 Consents and Approvals

8.1.1 All Consents and Approvals required for the carrying on of each of the Group Companies’ activities have been obtained and are in full force and effect, and the activities of the Group Companies are carried out in accordance with such Consents and Approvals.

8.1.2 No proceedings of any nature whatsoever have been undertaken which may result in the withdrawal, suspension or modification of any of the Consents and Approvals referred to in sub-clause above, nor are any such proceedings threatened, to the Sellers’s knowledge.

8.2 Compliance with Law

8.2.1 The Group Companies have complied during the past three years, and shall continue to comply until Completion, with all Laws to which they are subject.

8.2.2 In particular, the Group Companies have complied in all respects will all applicable rules procedures for being selected by and entering into procurement agreements with any French public authority or governmental or state agency (Procédure de Marchés Publics) and the Founders are not aware of any reason why any such procurement agreement could be terminated or nullified as a result of a failure to comply with such rules and procedures or otherwise.

9. SECURITY, GUARANTEES AND BANKING FACILITIES

9.1 Security, Guarantees

9.1.1 Save as set forth in Exhibit 9.1, (i) the Group Companies have granted no security or guarantee to another company or to any third party, (ii) there is no Encumbrance on, over or affecting the whole or any part of the business or assets of the Group Companies, (iii) there is no fact or commitment giving or which could give rise to any such security or Encumbrance in favour of any person, and (iv) no claim, whether through legal proceedings or otherwise, has been made by any person claiming to be entitled to any such right.

9.1.2 The Group Companies are not parties to and have no obligation (present or future), in particular, in respect of any guarantee, indemnity, comfort letter, letter of credit, loan, finance lease (crédit-bail) or of any rental, hire purchase agreement, other than as set forth in Exhibit 9.1.

9.2 Banking and Credit Facilities

Details of all existing banking and other credit facilities are set forth in Exhibit 9.2 and such facilities provide each of the Group Companies with the necessary cash flow for its present requirements (namely, to enable it to continue to carry on its business in its present form and at its present and foreseeable level of turnover).

9.3 Bank Mandates

Exhibit 9.3 sets forth a true and complete list of the names of all persons authorised to make financial transactions from the bank accounts of the Group Companies.

10. INTRA-GROUP AND REGULATED ARRANGEMENTS

10.1 Intra-Group Agreements

Save as set forth in Exhibit 10.1, none of the Group Companies is bound by any contract, commitment or other arrangement directly or indirectly with the Sellers, any member of the Sellers’ Group, any of the Sellers’ Affiliates or any of their respective corporate officers (mandataires sociaux).

10.2 Regulated Agreements

10.2.1 Save as set forth in Exhibit 10.2, the procedures relating to the regulated agreements falling within the scope of article L.225-38 et seq. of the French Commercial Code, if any, have been complied with, as regards the Group Companies and as regards each regulated agreement, in the three financial years ending on the Accounts Date.

10.2.2 Details of all regulated agreements in force at any time during the three financial years ending on the Accounts Date and/or the period from the Accounts Date, up to and including Completion are set forth in Exhibit 10.2.

10.3 Title to Assets

Save as set forth in Exhibit 10.3, no member of the Sellers’s Group (other than one of the Group Companies) owns any assets, rights or properties used by Group Companies in the conduct of their respective businesses.

10.4 Indebtedness

There is not outstanding any loan made by the Group Companies to, or debt owing to the Group Companies by, any director, officer or employee of the Group Companies, the Sellers or an Affiliate of the Sellers.

11. LEASED PROPERTIES

11.1.1 The Group Companies have a valid leasehold interest in all properties occupied pursuant to any type of lease (the “Properties”) and each such lease is valid and enforceable in accordance with its terms.

11.1.2 Save as set forth in Exhibit 11, none of such leases provide that the lessee shall be responsible for the cost of any work or renovations necessary for compliance with all applicable Laws or contain any other unusual provisions.

11.1.3 All the Properties leased pursuant to commercial leases subject to the provisions of Articles 145-1 et seq. of the French Commercial Code are registered as principle office or as branches of the relevant Group Companies with the appropriate Company Registry.

11.1.4 The rent due under such leases has been revised in accordance with applicable Laws and contractual terms. No rent review is in progress or has been carried out up to and including the date hereof.

11.1.5 The Group Companies have not failed to comply with the provisions of such leases or with the Laws applicable to the relevant Properties or their tenants. No notice of breach (with or without a request to perform) or of termination (with or without an offer to renew) with respect to any such lease has been served on any Group Company and no Group Company has been responsible for any act or omission, which could result in the termination of any such lease by the lessor.

11.2 Condition

All the Properties are in a proper state of repair and maintenance, and therefore have all facilities allowing them to be used for their intended purpose.

11.3 Third Party Rights

The Properties are not subject to any leases, sub-leases, licence or other agreement (including a domiciliation agreement) granting to any person (other than a Group Company) any right to the use, occupancy or enjoyment of any portion thereof.

12. INTELLECTUAL PROPERTY RIGHTS

12.1 Interests

12.1.1 Exhibit 12 contains a list of the Intellectual Property Rights (including the following information: name, number and date of filing, registration and renewal), which are (i) owned by the Group Companies as set forth therein, free from any Encumbrance, or (ii) used pursuant to valid licenses from third parties.

12.1.2 The Group Companies have made all filings, statements and renewals, complied with all formalities and made all payments necessary in order to maintain their Intellectual Property Rights in full force and binding as regards third parties.

12.1.3 None of the directors, officers or employees of any of the Group Companies owns, directly or indirectly, in whole or in part, any Intellectual Property Right to which any Group Company has a license or to any Intellectual Property which is necessary or desirable for their commercial activities as presently carried on.

12.1.4 Save as provided for in Exhibit 12, no rights nor Encumbrances on the Intellectual Property Rights have been granted to third parties and there exists no fact nor event liable to affect the validity, enforceability or transferability of the Intellectual Property Rights.

12.1.5 The Group Companies have the unfettered right to use their respective corporate names and trade names for which each has full title and enjoyment, without paying any royalty to a third party.

12.2 Infringements

12.2.1 Save as provided for in Exhibit 12.2, the Group Companies are not infringing, are not liable to infringe and have not in the past three years infringed any Intellectual Property or made unauthorised use of any rights in Confidential Business Information of another person.

12.2.2 Save as provided for in Exhibit 12.2, to the Sellers’s knowledge, none of the Intellectual Property Rights are being, or have been, infringed, attacked or opposed by any person and no person is making unauthorised use of Confidential Business Information owned by any of the Group Companies.

12.3 Licences

Details of licences of Intellectual Property and/or Business Information granted to or by the Group Companies are set out in Exhibit 12 and none of the parties thereto are in breach of such licences.

12.4 Disclosure

So far as the Sellers are aware, the Group Companies have not disclosed any Confidential Business Information to any person, other than their employees, save under an obligation of confidentiality.

12.5 Necessary Rights

The Intellectual Property Rights and Business Information owned by or licensed to the Group Companies are all the Intellectual Property and Business Information that is necessary to carry on the business of the Group Companies in the same manner as it is presently carried on.

12.6 Data Protection

The Group Companies have materially complied with all applicable requirements of French statute no. 78-17 of 6^th January 1978 governing information services, data files and freedom of information (or any similar Law applicable in countries other than France).

13. INFORMATION TECHNOLOGY

13.1 Title

All Information Technology used by the Group Companies or required to carry on their respective businesses and fulfil their existing contracts and commitments is either owned by or validly leased or licensed to the Group Companies.

13.2 Condition

The Information Technology owned or used by the Group Companies:

13.2.1 is in a proper state of repair and working order, and has the capacity and performance necessary to fulfil the present requirements of the Group Companies;

13.2.2 is protected to a reasonable extent against any acts of malevolence, indiscretion or internal or external sabotage (including any virus, fraud, diversion or rerouting of information, etc.) and generally any intentional act which could jeopardise its normal use in accordance with its intended purpose;

13.2.3 has been and will be consistently maintained up to the Completion Date (including, in particular, by means of updates, installation of new versions or functions, replacement of obsolete equipment) and such maintenance has not in the last year revealed any material dysfunction or anomaly requiring replacement or repair;

13.2.4 has been, since its installation, and is installed in a physical environment ensuring normal use and operation in accordance with its intended purpose;

13.2.5 is appropriately and validly insured in respect of all bodily harm, loss or deterioration, whether intentional or unintentional, resulting from actions of any kind or from unauthorised use, that it may suffer or cause to any third party; and

13.3 Licences

13.3.1 Each Group Company has obtained under normal conditions all the licences to operate the software necessary for conducting its business.

13.3.2 To the Sellers’s knowledge, no Group Company has breached the terms of any such license, in particular, as regards unauthorised copies.

14. LITIGATION

14.1 Legal proceedings

Save as set forth in Exhibit 14, none of the Group Companies are involved in any litigation, arbitration, prosecution, administrative or Tax investigation or other legal proceedings, and there are no claims or actions (whether criminal or civil) in progress nor pending or

threatened against the Group Companies or any of their respective assets or any of their respective directors and, so far as the Sellers are aware, there is no fact or circumstance which could give rise to such proceedings.

14.2 Accounting Provisions

The provisions recorded in the Accounts are sufficient to cover any liability (including legal fees and other expenses) pertaining to such proceedings.

14.3 Criminal Liability

None of the Group Companies has been subject to any criminal prosecution since the entry into effect of the provisions of the New Criminal Code (Nouveau Code Pénal) concerning the imposition of criminal liability on legal entities and no fact or act accomplished by the Group Companies is likely to lead any such legal action against any of the Group Companies.

15. INSURANCE POLICIES

15.1 Insurance Details

15.1.1 Details of all current policies of insurance taken out in connection with the business or assets of the Group Companies are set forth in Exhibit 15 (stating the policy number, execution date, term, name of the insurer and of the insurance broker, nature of the risks covered and principal terms and conditions).

15.1.2 The Group Companies have taken out all insurance policies required by applicable Laws for their respective business and assets. Such policies are in full force and effect and are not voidable and provide sufficient coverage to the Group Companies at levels consistent with normal and customary practices of companies carrying on a similar business with similar assets.

15.1.3 Each of the Group Companies has fulfilled all of its obligations pursuant to such insurance policies, in particular with respect to declarations of risks and claims and payment of premiums.

15.2 Insurance Claims

15.2.1 No claims pursuant to any insurance policies are outstanding and, so far as the Sellers are aware, no event has occurred which could give rise to such a claim. Since 1 January 2000, no insurer in respect of any such policy has denied or disputed coverage thereunder in respect of any occurrence involving any of the Group Companies.

15.2.2 To the Sellers’s knowledge, no insurer has recommended that any Group Company change its respective methods of doing business or incur material expenditures as a condition to obtaining or renewing any insurance there from. To the Sellers’s knowledge, no state of facts exists and no event has occurred, which reasonably might form the basis of any claim against or relating to the Group Companies that might substantially increase the insurance premiums payable under or result in the cancellation or non-renewal of any of the policies.

15.3 Consequences of Completion on Insurance Coverage

Save as set out in Exhibit 15, the continuity and cost of the coverage provided by those policies shall not be affected by the sale of the Shares to the Purchaser.

16. COMPETITION AND TRADE REGULATION LAW

16.1 Current Practices

None of the Group Companies have been parties to or have been involved in an agreement or arrangement whatsoever or have conducted themselves (whether by omission or otherwise) in a manner which:

16.1.1 infringes article 81 and/or 82 of the Treaty establishing the European Union or any other Competition Law in any country in which the Group Companies have assets or in any place where their business may have an effect; or

16.1.2 to be valid, must be subject to notification, authorisation or negative clearance under any applicable Competition Law; or,

16.1.3 could render the Group Companies liable to any litigation, administrative proceedings or investigation by virtue of any Competition Law in any country in which the Group Companies have assets or in any place where their business may have an effect.

16.2 Enquiries, Investigations

16.2.1 The Group Companies are subject to no enquiry or investigation whatsoever, and have received no order or request for information from any institution or court whatsoever (including in particular any Governmental Entity and the European Commission) under any Competition Law in any country in which the Group Companies have assets or intend to carry on business or in any place where their business may have an effect.

16.2.2 The Guarantor is aware of no current or potential enquiry or investigation, proceedings or negative decision in relation to the granting of any subsidy or aid.

16.3 Application for Exemption

The Group Companies are or have been parties to and have been involved in no agreement in any form whatsoever in respect of which an application for negative clearance or confirmation has been made to the European Commission.

16.4 Sanctions

16.4.1 None of the business activities of the Group Companies as currently conducted could give rise to the imposition of any anti-dumping duty or other sanction under any trade Law, Competition Law or exchange control legislation in respect of any products designed or sold by the Group Companies or under which the Group Companies carry on their business.

16.4.2 No undertaking has been given by the Group Companies to any Governmental Entity (including, but not limited to, the authorities of the European Union) under any anti-dumping Law or other trade regulation, Competition Law or exchange control legislation.

17. TAXATION

17.1 Filings

Each of the Group Companies has filed on a timely basis all returns and reports in respect of Taxes for which such Group Company may be liable and all such Tax returns were correct and complete in all respects.

17.2 Payments and Provisions

17.2.1 All Taxes required to be paid by any of the Group Companies that were due and payable prior to the date hereof have been paid within the legally prescribed time limits.

17.2.2 The provisions recorded in the Accounts are sufficient to pay all Taxes due or accrued at the Accounts Date (regardless of the date on which payment is due).

17.3 Tax Claims/Inquiries

17.3.1 None of the Group Companies is or has been in the past three years, the subject of any inspection, inquiry, audit or any court or administrative proceedings with respect to payment of or liability for any Tax. None of the Group Companies has received any request for information or notice from Tax authorities in this respect and, to the Founders’ knowledge, no such request or inspection is anticipated.

17.4 Tax withholdings

The Group Companies have complied with all statutory provisions relating to Taxation which require the deduction of Taxes from any payment made by it, and have properly accounted to the appropriate Taxation authority for any such Taxation, which ought to have been accounted for.

17.5 VAT

The Group Companies have complied with all statutory requirements, orders, provisions, directions or conditions relating to VAT.

17.6 Registration/Stamp Duties

The Group Companies have no liability (whether actual or contingent) in respect of any registration or stamp duties that is not fully provided for in the Accounts and, in particular but without limitation, the Group Companies have no outstanding liability for any transfer of property, contribution, merger, purchase or sale relating to transactions effected prior to Completion (whether before or after the Accounts Date) that is not fully provided for in the Accounts.

17.7 Abnormal Practices

None of the Group Companies is a party to any transaction or arrangement under which they have acquired or sold any asset, or have remunerated or supplied goods or services of any kind whatsoever for a price that is below or above the market value of that asset or services in such a way that it could be considered to be an abnormal act of management (“act eanormal de gestion”) or to be in breach of regulations on transfer prices (“prix de transfert”); none of the Group Companies have ever been party to any transaction, arrangement or series of transactions or arrangements the purpose of which could be considered by the French Taxation authorities as principally or exclusively tax driven or which could constitute a misuse of law (“abus de droit”).

17.8 Tax Elections and Advantages

17.8.1 A complete and accurate list of the Tax elections made by the Group Companies (including, but not limited to, elections related to tax consolidation, corporate income tax and VAT) is attached as Exhibit 17.

17.8.2 No Group Company has any obligation to hold any person harmless from or to indemnify any person against such person’s Tax liabilities. Except as a result of the tax consolidation election mentioned in Exhibit 17 and the resulting tax consolidation agreement included in the same Exhibit, no Group Company has assumed or is bound to assume the Tax liabilities of any other person.

17.8.3 None of the Group Companies has benefited from any Tax advantage or favourable Tax regime in exchange for existing undertakings or obligations by which it is still bound. None of the Group Companies is bound by any obligation or shall incur any additional Tax burden as a result of the obtention of any fiscal advantages, carry-forward or postponement of Taxation, or of any favourable Tax regime.

17.8.4 None of the Group Companies shall incur any Tax burden or other obligation as a result of the cessation, due to the sale of the Shares, of any Tax consolidation regime applicable to it.

17.8.5 The Group Companies are the beneficiaries of the tax loss carry-forwards (including deferred depreciation) and carry-back receivables set forth in Exhibit 17 (the “Tax Losses”). The aggregate amount contained in Exhibit 17 of the Tax Losses is real, exact and its principle and amount can be justified. No event, omission or error has occurred which has or could in the future cause the existence or the limit for offsetting the Tax Losses to be questioned or challenged.

17.8.6 The cost of acquisition for the purpose of corporation tax on chargeable gains (impôt sur les sociétés) to the Group Companies of each of their assets (except trading stock and work-in-progress) is not less than the book value of that asset as provided for in the Accounts.

17.9 Distributions

The reserves and other distributable amounts appearing in the Accounts may be distributed without any Tax burden for any Group Company.

18. EMPLOYMENT

18.1 Employees

18.1.1 Set forth in Exhibit 18.1 is an exhaustive list, at the date hereof, of all employees of the Group Companies [with a gross annual remuneration of EUR 55,000 or more as well as all directors and officers (mandataires sociaux), such list including their age, length of service and present annual remuneration (including bonus rights, profit sharing rights, benefits in kind and any departure or retirement indemnities).

18.1.2 Exhibit 18.1 also includes a copy of the forms of employment agreements entered into by the Group Companies, as well as a copy of all employment agreements pursuant to which certain employees enjoy advantages in excess of these provided for in the aforementioned model form, or the collective status referred to in sub-clause 18.2 (including, increased severance payments, extended notice periods, advantages in kind, etc.).

18.2 Collective Agreements – Special Arrangements

18.2.1 Set forth in Exhibit 18.2 is an exhaustive list of the collective bargaining agreements as well as all other collective agreements applicable to the employees of the Group Companies.

18.2.2 Save as fully recorded in the Accounts, the Group Companies are subject to no obligation and owe no sum under any incentive scheme (“accord d’intéressement”), or profit-sharing scheme (“accord de participation”),

employee share ownership scheme (“plan d’actionnariat”) or employee share option scheme (“plan d’option ou de souscription d’achat d’actions”) or savings scheme (“plan d’épargne enterprise”). All such schemes enjoyed by the employees of any Group Company duly qualify for the purpose of the Tax exemptions normally applicable to them.

18.2.3 Save as set forth in Exhibit 18.2.3, no particular arrangement exists with the members of personnel providing for redundancy indemnities, retirement indemnities or compensation in lieu of notice or other form of compensation or benefits, for amounts that exceed those provided by Law or the applicable collective bargaining agreements.

18.2.4 The Group Companies do not pay and are not under an obligation (actual or contingent) to pay, contribute or secure (other than payment of employers’ contributions under social security legislation) to or in respect of any person any allowance or other benefit of any kind, whether related to length of service in the Group Companies or otherwise, on retirement, death or disability or on the attainment of a specified age or after a certain number of years of work; there are no special benefits, other than those required by the law, in favour of the employees of the Group Companies.

18.3 Compliance with Law

18.3.1 The Group Companies have complied at all times with all of applicable Laws concerning labour matters, in particular:

(A) the Group Companies have not enticed away any employee in a manner leading or which could lead to an action for unfair competition;

(B) the Group Companies are not in breach of the provisions of Articles L 125-1 to L 125-4 of the French employment code relating to “marchandage” (providing workers in order to make a profit and which causes a prejudice to the workers); and

(C) the Group Companies are in full compliance with working time regulations and in particular with the regulations concerning the 35-hour workweek.

18.3.2 The Group Companies have complied with all applicable Laws concerning the health and safety at work of their employees, and there are no claims (actual or contingent) in respect of any accident caused by any employee or third party which are not fully covered by insurance; a list of work accidents involving employees of each of the Group Companies since 1 January 2000, set forth in Exhibit 18.3.

18.3.3 The Group Companies having granted seasonal employment contracts or any other fixed-term contracts during the preceding three (3) years have complied with applicable Laws in this respect; in particular, no seasonal employment contract or any other fixed-term contract entered into during the three (3) years preceding the date of the Agreement could be considered as an open-ended contract.

18.3.4 The Group Companies are not the subject of any proceedings initiated by the labour inspector (Inspection du Travail).

18.4 Termination of Employment

18.4.1 Save as set forth in Exhibit 18.4, no director, officer or employee of the Group Companies is under notice of redundancy or dismissal for any reason whatsoever and no amount due to any current or former director, officer or employee for any reason whatsoever is in arrears or unpaid other than salaries due for the current month.

18.4.2 No employee of the Group Companies, whose gross annual remuneration is more than EUR 45,000 has resigned or, so far as the Sellers are aware, has threatened to do so.

18.4.3 Save as set forth in Exhibit 18.4, there have been no redundancies since 1 January 2000 No employee made redundant for economic reasons has requested to benefit from the re-hiring priority and no employee made redundant or dismissed for any reason whatsoever has brought a claim, whether in legal proceedings or not, against his employer.

18.4.4 No amount is due in any respect whatsoever to former employees of the Group Companies following a redundancy, dismissal for personal reasons, resignation, or termination by mutual agreement.

18.5 Employee Representation

Set forth in Exhibit 18.5 is a complete and up to date list of all employee representatives and employés protégés (protected employees) at the Group Companies, including members of the work council (comité d’entreprise), personnel delegates (délégués du personnel), members of the hygiene and safety committee (CHSCT) and union representatives (délégués syndicaux).

18.6 Collective Disputes – Other Employment Related Disputes

18.6.1 Save as set forth in Exhibit 18.6 no dispute between the Group Companies on the one hand, and, their employees, their former employees, an entity representing the employees or a trade union or similar organisation, on the other hand, is outstanding, pending, expected or foreseeable. The personnel delegates and the work councils have, as the case maybe, been duly elected (or the elections duly organised) and informed or consulted, including in connection with the sale of the Shares.

18.6.2 During the previous [two years] the Group Companies have not experienced any collective labour dispute, strike or other industrial action and there is no pending or threatened dispute, strike or other industrial action.

18.6.3 Save as set forth in Exhibit 18.6, there is not outstanding any dispute between any of the Group Companies, on the one hand, and any of their respective employees or directors (or former employees or directors), on the other hand. To the Sellers’s knowledge, no such disputes are threatened.

18.7 Powers/Authority to Represent

Set forth in Exhibit 18.7 is a complete list of all persons who have received general and/or special powers to represent any of the Group Companies.

18.8 Representatives

The Group Companies do not use any representatives or agents recognised as agent commercial or “V.R.P” or entitled to such status under French law.

18.9 Certain Benefits

No member of the Sellers’s Group nor any of the Group Companies have undertaken to grant any benefits to any employee or corporate officers of the Group Companies upon Completion.

19. PRODUCT LIABILITY

19.1 Claims

Except as set forth in Exhibit 19.1:

19.1.1 No claim has been made against any of the Group Companies in respect of damage suffered resulting from a defect in any product manufactured, assembled, sold or leased by any of them and none of the Group Companies has received any Order to recall any of this products or to inform its customers of a defect or any danger caused by a defect in any of its products or linked to their use;

19.1.2 All outstanding product liability claims are fully reserved against in the Accounts and/or are fully covered by insurance;

19.1.3 None of the Group Companies has had any liability arising out of an injury to individuals as a result of use of any product manufactured, assembled, sold or leased by them;

19.1.4 No product sold or licensed by any of the Group Companies has any latent defect or other defect likely to result in a claim for damages from a purchaser or user of the product or a third party.

19.2 Safety

The Group Companies comply with any Law relating to safety of products which they market and have been granted, when necessary, all necessary safety certificates.

19.3 Warranties

No warranties have been made with respect to such products under whose terms the Group Companies would be liable beyond the limits and periods provided for by their general conditions of sale set forth in Exhibit 19.3.

19.4 Specifications

The products manufactured (now or in the past) by the Group Companies comply with their specifications and (in all material respects) with industry standards.

20. SUBSIDIES

20.1 List of Subsidies

Set forth in Exhibit 20 is a list of each subsidy, aid, favourable Tax regime, grant program, loan at a preferential rate, special contract or lease or similar benefit which has been made available to the Group Companies (including by way of guaranty or other assurance) by any Governmental Entity.

20.2 Compliance

The Group Companies are in compliance with, and have neither breached or violated in any material respect, any representation, condition or undertaking made by it to obtain or to maintain any such subsidy. Save as set forth in Exhibit 20.2, the Group Companies have complied with all the obligations and conditions imposed by the grantor of any such subsidy and with all applicable Laws.

21. ABSENCE OF CERTAIN DEVELOPMENTS

Since the Accounts Date, each of the Group Companies has conducted its business solely within the normal course of business and there has not been in relation to any of the Group Companies:

21.1 any change in the financial position, the assets, liabilities, business or operations, including any acquisition of assets or other capital investment for more than EUR 50,000, otherwise than in the normal course of business;

21.2 any declaration or payment of any dividend or any other distribution of profits or reserves;

21.3 any damage, destruction or other casualty loss (whether or not covered by insurance) affecting the business or financial position of any Group Company;

21.4 any purchase or sale of securities, any issue of shares or other securities, rights or options to purchase or subscribe shares in any Group Company or which are capable of granting the right to acquire or subscribe securities which represent a share in the capital or a voting right of any Group Company;

21.5 any loan incurred, granted, promised or secured by any of the Group Companies in excess of EUR 20,000;

21.6 the assumption of an obligation or liability other than current obligations or liabilities incurred in the normal course of business;

21.7 any transaction which has given or may give rise to (i) a liability to Taxation on the Group Companies (other than corporation tax on normal trading income), or (ii) any payment or any obligation to make a payment which is not tax deductible in the computation of the base for corporation tax;

21.8 any change (except for salary increases or other items of remuneration made by virtue of applicable Laws or collective bargaining agreements) in the amounts or method of calculation of the salaries and other items of remuneration or the other terms of employment of any employees of the Group Companies nor any express commitment to do so nor any negotiation or claim in view of such changes;

21.9 any sale, lease or transfer of any tangible or intangible assets other than items of stock in the normal course of business, nor any cancellation or waiver of any receivables;

21.10 any guarantee, surety or letter of comfort in respect of the obligations of third parties;

21.11 any Encumbrance granted over any tangible or intangible assets;

21.12 any change in accounting methods, principles or practices unless required by a concurrent change in applicable Law;

21.13 any amendment to the Group Companies’ articles of association;

21.14 the entering into of any co-operation, partnership, joint venture or other similar agreements and

21.15 any undertaking to do any of the foregoing.

22. GENERAL

22.1 Information

To the Guarantor’s knowledge, all the information contained in this Agreement including the recitals, the Schedules and the Exhibits is true, correct, complete, up to date and accurate in all respects.

22.2 Guarantor’s knowledge

There is no existing fact or event known to the Guarantor which is likely to have a negative effect on the assets, business or activities of any of the Group Companies or which could reasonably be expected to affect adversely the willingness of the Purchaser to purchase the Shares upon the terms of this Agreement which has not been disclosed to the Purchaser, by or on behalf of the Founders, in writing in this Agreement.

SCHEDULE 7

WARRANTIES CERTIFICATE

In accordance with the provisions of Clause 5.2 of the share purchase agreement (the “Agreement”) signed on 10 May 2005 between certain shareholders of the company SWT and the company Captiva, which provides for the sale and/or exchange, as the case may be, by such shareholders to the company Captiva, subject to various conditions precedent, of the entire share capital and voting rights in the company SWT,

Mr. Herve´ Debbah hereby confirms:

(i) That the representations and warranties set forth in Schedule 4 of the Agreement are accurate, true and complete in all respects as at the date hereof, and

(ii) That no Material Adverse Change has occurred with respect to the Group Companies.

Signed in Paris

On 27 May 2005

Two originals

Herve´ Debbah

SCHEDULE 8 (A)

Amendment to Daniel Vaniche’s Service Agreement

SCHEDULE 8 (B)

Terms of compensation of Mr. Hervé Debbah

SCHEDULE 9

ESCROW AGREEMENT

SCHEDULE 10

CONSENTS AND APPROVALS

SCHEDULE 12

FORWARD SALE AGREEMENT

EX-2.2

Exhibit 2.2

27 May 2005

Certain Shareholders of SWT,

Captiva Software Corporation

And

Captiva Software France EURL

AMENDMENT N°1 to the

AGREEMENT

for the sale, purchase and exchange of shares in

SWT SA

HERBERT SMITH LLP

BY AND BETWEEN:

(1	)	Mr. Hervé Debbah born on 27 July 1961 at Tunis (Tunisia), of French nationality, residing at 50 avenue Gabriel Péri, 92160, Antony, hereby present;
(2	)	Mr. Daniel Vaniche born on 5 June 1970 at Fez (Morocco), of French nationality, residing at 4 rue de la Collégiale, 75005, Paris, hereby present;
(3	)	Mr. François Courjaret, born on 31 July 1960 at Angers, of French nationality, residing at 18 avenue Rauski, 64110, Jurançon, hereby present;
(4	)	Mr. Franck Signorile, born on 15 October 1971 at Suresnes (92), of French nationality, residing at 6 rue de la gare, 91400, Athis-Mons, hereby present;
(5	)	Mrs. Muriel Debbah, born on 5 January 1966 at Paris 14th, of French nationality, residing at 50 avenue Gabriel Péri, 92160, Antony, duly represented by Hervé Debbah according to a power of attorney;
(6	)	Mr. Victor Lisbona, born on 12 July 1938 at Cairo (Egypt), of French nationality, residing at residing at 89 rue Houdan, 92330 Sceaux, duly represented by Hervé Debbah according to a power of attorney;
(7	)	Mrs. Sonia Lisbona, born on 11 May 1947 at Cairo (Egypt), of French nationality, residing at 95 rue Victor Hugo, 92700 Colombes, duly represented by Hervé Debbah according to a power of attorney;

(Hereinafter collectively referred to as the “Sellers” and individually as a “Seller”, and which are not acting jointly but only severally (sans solidarité) for the purpose of this Agreement)

AND

(8	)	Captiva Software Corporation, a Delaware corporation whose offices are at 10415 Pacific Heights Boulevard, San Diego, CA 92121, represented by Mr. Reynolds C. Bish, CEO, duly authorised for the purpose hereof, and
(9	)	Captiva Software France EURL, a Société à Responsabilité Limitée, a company with an issued and paid-up share capital of 1 Euro and whose registered office are at 37, rue des Mathurins, 75008 Paris, registered at the French Companies Registry of Paris under number 482 377 975, represented by Mr. Reynolds C. Bish, duly authorised for the purpose hereof,

(Hereinafter collectively referred to as the “Purchaser” and acting jointly (solidairement) for the purpose of this Agreement.)

Hereinafter collectively referred to as the “Parties” and individually as a “Party”.

WHEREAS:

(A	)	On 10 May 2005, certain shareholders of the company SWT have entered into an Agreement for the sale, purchase and exchange of shares in SWT (the “Agreement”), pursuant to which Purchaser will acquire all of the outstanding shares of SWT (the “Company”).
(B	)	The Parties now wish to amend certain provisions of the Agreement, in particular to amend the Purchase Price and acknowledge that they have reached an agreement on the Net Cash Position.
(C	)	Capitalised terms used but not otherwise defined in this agreement shall have the meaning assigned to them in the Agreement.

NOW, THEREFORE THE PARTIES AGREE AS FOLLOWS:

1. DEFINITIONS

The definitions of “Exchange Shares”, “Founders Price”, “Founders Shares” and “Options Shares Price” shall be deleted and replaced by the following definitions:

“Exchange Shares” means 5,679 shares in the Company held by Mr. Hervé Debbah and available to be exchanged at Completion.

“Founders Price” That part of the Purchase Price to be paid to Founders in consideration for the sale of the Founders Shares (EUR 6,609,975.33).

“Founders Shares” The aggregate number of Shares, excluding the Exchange Shares, held by the Founders, i.e., 24,317 Shares.

“Option Shares Price” The consideration for the sale of the entirety of the Option Shares equal to EUR 259,454.50, i.e, EUR 273.11 per Option Share.

2. SALE AND PURCHASE – EXCHANGE

2.1 The Parties hereby agree to amend the consideration for the sale of the entirety of the Private Equity Investors Shares and the Founders Shares, specified in Clause 3.1.1, which shall be equal to EUR 13,969,429.83 (i.e. the aggregate of the Private Equity Price, the Founders Price and the Option Shares Price).

2.2 The Parties hereby agree to delete Clauses 3.1.2 (B) and (C) of the Agreement and replace such Clauses by the following:

(B)	Founders Price
	(6)	Hervé Debbah	EUR	5,253,942.06
	(7)	Daniel Vaniche	EUR	672,491.83
	(8)	Franck Signorile	EUR	162,747.96
	(9)	François Courjaret	EUR	244,121.94
	(10)	Muriel Debbah	EUR	244,121.94
	(11)	Victor Lisbona	EUR	16,274.80
	(12)	Sonia Lisbona	EUR	16,274.80
(C)	Option Shares Price
	(13)		EUR	259,454.50

2.3 Founders Price Adjustment

The Parties acknowledge that they have jointly determined, in accordance with Clause 3.3.1 of the Agreement, the Net Cash Position which amounts to EUR 2,026,332.88.

Such amount has been taken into account in order to compute the Founders Price. As a result, the Parties acknowledge that the determination of the Net Cash Position is final and binding upon each of the Founders and the Purchaser, and each Party irrevocably and unconditionally waives any rights it may have pursuant to Clause 3.3 of the Agreement.

3. CONDITIONS PRECEDENT

The Parties acknowledges that all the conditions precedent set out in the Agreement have been duly fulfilled.

4. PAYMENT OF PURCHASE PRICE

4.1 Clause 6.3.2 of the Agreement shall be deleted and replaced by the following clause:

EUR 5,109,975.33 shall be paid to the order of the Founders by wire transfer as follows:

(1)	Hervé Debbah	EUR	3,753,942.06
(2)	Daniel Vaniche	EUR	672,491.83
(3)	Franck Signorile	EUR	162,747.96
(4)	François Courjaret	EUR	244,121.94
(5)	Muriel Debbah	EUR	244,121.94
(6)	Victor Lisbona	EUR	16,274.80
(7)	Sonia Lisbona	EUR	16,274.80

The details of each bank account are attached hereto as Schedule 4.1

5. GOVERNING LAW AND JURISDICTION

This Agreement shall be governed by, and construed in accordance with French law.

The Parties irrevocably agree that the Commercial Court of Paris (France) shall have exclusive jurisdiction in relation to any claim, dispute or difference concerning this Agreement and any matter arising therefrom.

Unless expressly amended by the terms hereof, all other terms of the Agreement remain in full force and effect.

IN WITNESS of which the parties have executed this Agreement in Paris, on 27^th May 2005 in 9 original copies.

The Sellers

Hervé Debbah	Daniel Vaniche
François Courjaret	Franck Signorile
Muriel Debbah represented by Hervé Debbah pursuant to a power of attorney	Victor Lisbona represented by Hervé Debbah pursuant to a power of attorney
Sonia Lisbona represented by Hervé Debbah pursuant to a power of attorney
The Purchaser
Captiva Software Corporation represented by Mr. Reynolds C. Bish	Captiva Software France EURL represented by Mr. Reynolds C. Bish

SCHEDULE 4.1

FOUNDERS BANK ACCOUNT DETAILS

EX-10.1

Exhibit 10.1

CAPTIVA SOFTWARE CORPORATION

1993 STOCK OPTION/STOCK ISSUANCE PLAN

(AS AMENDED AND RESTATED EFFECTIVE DECEMBER 4, 2001

AND AMENDED EFFECTIVE JULY 30, 2002, APRIL 24, 2003,

FEBRUARY 10, 2005 AND MAY 13, 2005)

&

2003 RECRUITMENT EQUITY INCENTIVE PLAN

(ADOPTED OCTOBER 23, 2003 AND AMENDED AND RESTATED JULY 29, 2004)

AMENDING AND RESTATING

THE 2003 NEW EXECUTIVE RECRUITMENT STOCK OPTION PLAN

ADDENDUM - FRANCE

MAY 26, 2005

The provisions of this Addendum apply to French Options (as defined below) granted under the 1993 Captiva Software Corporation Stock Option/Stock Issuance Plan and/or the 2003 Recruitment Equity Incentive Plan (the “Plans”) to French Eligible Employees of the Company (as defined below).

These provisions supplement and supersede (where applicable) the provisions of the Plans with respect to French Options. In the event of a conflict or inconsistency between the terms and provisions of the Plans and the express provisions of this Addendum, the provisions of this Addendum shall govern and control the grant of French Options under the Plans.

Capitalised terms not defined herein shall have the meaning attributed to them in the Plans.

1. French Option means an Option granted to a French Eligible Employee under this Addendum.

2. The Company may grant a French Option over shares of the common stock of the Company (the “Shares”) to any person who is eligible to be granted an option under the Plans and subject to the additional terms and conditions in this Addendum.

3. Notwithstanding the definition of Employee, Director and Consultant in the Plans, French Options may only be granted to individuals, resident in France for the purposes of taxation, who are employees, Chairman of the Board (Président du conseil d’administration), Managing Directors (Directeurs généraux), members of the Executive Board (membres du Directoire) and Managers (gérants) of a French company of which at least 10% of the capital is controlled directly or indirectly by the Company (the “French Eligible Employee(s)”).

4. Notwithstanding any other provision of the Plan, French Options granted to any French Eligible Employees already owning Shares representing 10% or more of the Company’s capital shall be deemed not to have been granted pursuant to this Addendum.

5. The aggregate number of French Options granted and not yet exercised shall not, at any point in time, give right to subscribe for a number of Shares exceeding one third of the share capital of the Company. For the avoidance of doubt, Shares allocated under this Addendum shall be taken into account for the purposes of determining the maximum number of Shares subject to the Plans.

6. Notwithstanding any other provision of the Plans, if and so long as the Shares are admitted to trading on a regulated market, any Option providing for an Exercise Price per Share at the date of the grant of the Option which is less than 95% of the arithmetical average of the market value of the Share over the 20 daily sessions preceding the date of grant shall be deemed not to have been granted under this Addendum. For the purposes of this Rule, ‘market value’ shall be the middle market quotation of the Share.

7. Notwithstanding any other provision of the Plans, if and so long as the Shares are admitted to trading on a regulated market, and the Shares are to be transferred rather than issued to the French Eligible Employees:

(i) such Shares shall not have been held by the Company for a period exceeding one year prior to the grant of the French Option; and

(ii) the Exercise Price per Share shall not be less than 95% of the average purchase price of the Share held by the Company for the purposes of granting French Options under this Addendum.

8. Notwithstanding any other provision of the Plans, no Option can be granted to a French Eligible Employee before twenty daily sessions have elapsed after the date of issue of any dividend warrants or of the allotment of any further shares or debentures by way of dividends.

9. Notwithstanding any other provision of the Plans, the Exercise Price for French Eligible Employees and/or the number of French Options referred to above shall be adjusted upon the occurrence of the events specified in Article L. 225-181 of the French Commercial Code (Code de commerce) and in accordance therewith.

10. The Shares resulting, transferred or allotted on the exercise of a French Option shall be registered in the name of the French Eligible Employee or registered in a securities account opened in the name of the Eligible Employee.

11. Notwithstanding any other provision of the Plans, a French Option granted to a French eligible employee may not be exercised earlier than the expiry of the fourth anniversary of the date of grant.

However, any French Option may be exercised earlier than the expiry of the fourth anniversary of the date of grant (and the underlying Shares may be sold prior to the fourth anniversary of the date of grant) for one of the following reasons:

(i) disability (as defined by Article L. 341-1 of the French Social Security Code (Code de sécurité sociale);

(ii) involuntary retirement, provided that the Shares are subscribed or purchased at least three months prior to the date of the retirement;

(iii) dismissal (except when such dismissal is caused by the French Eligible Employee’s gross negligence – faute grave ou lourde under French law) or redundancy at the request of the Company provided that the Shares are subscribed or purchased at least three months prior to the notification of termination;

(iv) death of the French Eligible Employee.

Unless otherwise provided for in the Stock Option Agreement, the maximum number of French Options exercisable by the French Eligible Employee as a result of the occurrence of one of the events mentioned in (i) to (iv) above shall be limited to the aggregate amount of the options vested in accordance with the terms of the Plan under which the French Options have been granted.

12. On the death of a French Eligible Employee, at a time when the French Option has not lapsed, the French Option may not be exercised by the heirs of the French Eligible Employee later than 6 months following the date of the death.

13. Notwithstanding any other provision of the Plans, the French Options may not be disposed of by any French Eligible Employee before the French Option has been exercised.

14. The French Eligible Employee and its employer shall comply with the filing requirements provided for by French tax law.

EX-31.1

Exhibit 31.1

CERTIFICATION BY CHIEF EXECUTIVE OFFICER PURSUANT TO SECURITIES EXCHANGE ACT

RULES 13a-14(a) AND 15d-14(a)

I, Reynolds C. Bish, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Captiva Software Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

    Date:    August 9, 2005

/s/ REYNOLDS C. BISH

Reynolds C. Bish

Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION BY CHIEF FINANCIAL OFFICER PURSUANT TO SECURITIES EXCHANGE ACT

RULES 13a-14(a) AND 15d-14(a)

I, Rick Russo, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Captiva Software Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

    Date:    August 9, 2005

/s/ RICK E. RUSSO

Rick E. Russo

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION¹

Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. § 1350), Reynolds C. Bish, the Chief Executive Officer of Captiva Software Corporation (the “Company”), hereby certifies that, to the best of his knowledge:

1.    The Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2005, to which this Certification is attached as Exhibit 32.1 (the “Periodic Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act; and

2.    The information contained in the Periodic Report fairly presents, in all material respects, the financial condition of the Company at the end of the period covered by the Periodic Report and results of operations of the Company for the period covered by the Periodic Report.

Date: August 9, 2005

/s/ REYNOLDS C. BISH

Reynolds C. Bish

Chief Executive Officer

¹ This Certification accompanies the Periodic Report, is not deemed filed with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Periodic Report), irrespective of any general incorporation language contained in such filing.

EX-32.2

Exhibit 32.2

CERTIFICATION¹

Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. § 1350), Rick E. Russo, the Chief Financial Officer of the Company, hereby certifies that, to the best of his knowledge:

1.    The Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2005, to which this Certification is attached as Exhibit 32.2 (the “Periodic Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act ; and

2.    The information contained in the Periodic Report fairly presents, in all material respects, the financial condition of the Company at the end of the period covered by the Periodic Report and results of operations of the Company for the period covered by the Periodic Report.

Date: August 9, 2005

/s/ RICK E. RUSSO

Rick E. Russo

Chief Financial Officer

¹ This Certification accompanies the Periodic Report, is not deemed filed with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Periodic Report), irrespective of any general incorporation language contained in such filing.