2003 PROXY for FILENET CORPORATION

DEF 14A 1 proxy03.htm 2003 PROXY 2003 PROXY for FILENET CORPORATION

[FileNet Corporation logo]

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

MAY 7, 2003

The 2003 Annual Meeting of Stockholders of FileNet Corporation (the
"Company") will be held at 9:00 a.m. Pacific time, on May 7, 2003, at The
Mondavi Center, 1570 Scenic Avenue, Costa Mesa, California 92626, for the
following purposes:

1. To elect six directors for the ensuing year or until the election and
qualification of their respective successors;

2. To approve an amendment to the Company's 2002 Incentive Award Plan to
increase the number of shares of Common Stock available for issuance
thereunder by an additional 1,400,000 shares, from 1,400,000 to
2,800,000 shares;

3. To ratify the appointment of Deloitte and Touche LLP as the independent
accountants of the Company for its year ending December 31, 2003; and

4. To transact such other business as may properly come before the
meeting or any postponement or adjournment thereof.

Only stockholders of record at the close of business on March 12, 2003, the
record date, will be entitled to notice of, and to vote at, the 2003 Annual
Meeting and any postponement or adjournment thereof.

By Order of the Board of Directors,

/s/ Sam M. Auriemma

Costa Mesa, California Sam M. Auriemma
April 2, 2003 Secretary

ALL STOCKHOLDERS ARE INVITED TO ATTEND THE ANNUAL MEETING. WHETHER OR NOT
YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN
THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE ANNUAL MEETING. A POSTAGE-PREPAID ENVELOPE IS ENCLOSED FOR
THAT PURPOSE. YOU MAY INSTEAD VOTE YOUR PROXY ELECTRONICALLY OR BY TELEPHONE.
PLEASE REFER TO PAGE 2 OF THE FOLLOWING PROXY STATEMENT AND THE ENCLOSED VOTING
FORM FOR INSTRUCTIONS. YOUR PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE ANNUAL
MEETING. IF YOU DECIDE TO ATTEND THE ANNUAL MEETING AND WISH TO CHANGE YOUR
PROXY VOTE, YOU MAY DO SO BY VOTING IN PERSON AT THE ANNUAL MEETING.

[FileNet Corporation logo]

3565 Harbor Boulevard
Costa Mesa, California 92626

ANNUAL MEETING OF STOCKHOLDERS TO BE HELD
MAY 7, 2003

PROXY STATEMENT

SOLICITATION OF PROXIES

The accompanying proxy is solicited on behalf of the Board of Directors of
FileNet Corporation (the "Company") for use at the Annual Meeting of
Stockholders to be held at The Mondavi Center, 1570 Scenic Avenue, Costa Mesa,
California 92626, on May 7, 2003 at 9:00 a.m. Pacific time, and at any and all
adjournments or postponements thereof (the "Annual Meeting").

All shares represented by each properly executed, unrevoked proxy received
in time for the Annual Meeting will be voted in the manner specified therein. If
the manner of voting is not specified in an executed proxy received by the
Company, the proxy will be voted FOR (i) the election of the six nominees for
election to the Board of Directors listed in the proxy; (ii) the approval of an
amendment to the Company's 2002 Incentive Award Plan to increase the number of
shares of Common Stock available for issuance thereunder by an additional
1,400,000 shares, from 1,400,000 to 2,800,000 shares; and (iii) the ratification
of the appointment of Deloitte and Touche LLP as the independent accountants of
the Company for its year ending December 31, 2003.

Any stockholder has the power to revoke his or her proxy at any time before
it is voted. A proxy may be revoked by delivering a written notice of revocation
to the Secretary of the Company, by presenting a later-dated proxy executed by
the person who executed the prior proxy, or by attendance at the meeting and
voting in person by the person who executed the proxy. Attendance at the meeting
will not, by itself, revoke a proxy.

This proxy statement is being mailed to the Company's stockholders on or
about April 2, 2003. The total cost of this solicitation will be borne by the
Company. In addition to use of the mails, proxies may be solicited by officers,
directors and regular employees of the Company personally by telephone or oral
communication. The Company has also retained Corporate Investor Communications,
Inc. to assist it in solicitation of proxies, and has agreed to pay
approximately $14,000 plus reimbursement of certain expenses for such services.

OUTSTANDING SHARES AND VOTING RIGHTS

Votes Required

Only holders of record of the approximately 35,957,315 shares of the
Company's Common Stock outstanding at the close of business on the record date,
March 12, 2003, will be entitled to notice of and to vote at the Annual Meeting
or any adjournment or postponement thereof. On each matter to be considered at
the Annual Meeting, each stockholder will be entitled to cast one vote for each
share of the Company's Common Stock held of record by such stockholder on March
12, 2003.

In order to constitute a quorum for the conduct of business at the Annual
Meeting, a majority of the outstanding shares of the Common Stock of the Company
entitled to vote at the Annual Meeting must be present or represented at the
Annual Meeting. Pursuant to Delaware law, directors are elected by a plurality
vote. The other matters submitted for stockholder approval at the Annual Meeting
will be decided by the affirmative vote of a majority of shares present in
person or represented by proxy at the Annual Meeting and entitled to vote on
such matters. With regard to the election of directors, votes may be cast in
favor of or withheld from each nominee; votes that are withheld will be excluded
entirely from the vote and will have no effect. Abstentions may be specified on
all proposals except the election of directors, and will be counted as present
for purposes of determining the existence of a quorum regarding the item on
which the abstention is noted and will also be counted as a vote against such
item for purposes of determining whether stockholder approval of that item has
been obtained. Shares that are not voted by the broker who is the record holder
of the shares because the broker is not instructed to vote and does not have
discretionary authority to vote (i.e., Broker Non-Votes) and shares that are not
voted in other circumstances in which proxy authority is defective or has been
withheld, will be counted for purposes of establishing a quorum but with respect
to any matter, those non-voted shares will not be deemed to be entitled to vote
for purposes of determining whether stockholder approval of that matter has been
obtained and thus will have no effect on the outcome of such matter.

Voting Electronically via the Internet or Telephone

If your shares are registered directly with EquiServe you may vote your
shares either via the Internet or by calling EquiServe. Specific instructions
for voting via the Internet or telephone are set forth on the enclosed proxy
card. The Internet and telephone voting procedures are designed to authenticate
the stockholder's identity and to allow stockholders to vote their shares and
confirm that their instructions have been properly recorded.

If your shares are registered in the name of a bank or brokerage firm, you
may be eligible to vote your shares electronically over the Internet or by
telephone. A large number of banks and brokerage firms are participating in the
ADP Investor Communication Services online program. This program provides
eligible stockholders who receive a paper copy of the Annual Report and Proxy
Statement the opportunity to vote via the Internet or by telephone. If your bank
or brokerage firm is participating in ADP's program, your voting form will
provide instructions. If your voting form does not reference Internet or
telephone information, please complete and return the enclosed paper Proxy in
the self-addressed postage paid envelope provided.

VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF

The following table sets forth as of March 12, 2003 the number and
percentage of the outstanding shares of the Common Stock of the Company which,
according to the information supplied to the Company, are beneficially owned by
(i) each person who, to the knowledge of the Company, is the beneficial owner of
more than 5% of the Company's outstanding Common Stock, (ii) each person who is
currently a director of the Company or is a nominee for election as a director
of the Company, (iii) each named executive officer in the Summary Compensation
Table that appears below and (iv) all current directors and executive officers
of the Company as a group. Except to the extent indicated in the footnotes to
the following table, the person or entity listed has sole voting and dispositive
power with respect to the shares that are deemed beneficially owned by such
person or entity, subject to community property laws, where applicable.

Percentage of
Total Outstanding Outstanding Common Stock
Name and Address Common Stock Options(1) Beneficially Owned(2)

5% Holders:
Berger Small Cap Value Fund............ 3,000,000 - 8.36%
210 University Blvd
Denver, CO 80206(3)

Perkins Wolf McDonnell and Co.......... 2,655,644 - 7.39
53 W. Jackson Blvd., Suite 722
Chicago, IL 60604(4)

Merrill Lynch and Co., Inc. ........... 2,194,513 - 6.1
4 World Financial Center
New York, NY 10080(5)

Directors:
Lee D. Roberts(6)...................... - 777,023 *
Theodore J. Smith(7)................... 10,000(7) 138,750 *
John C. Savage......................... 8,564 73,933 *
William P. Lyons(8).................... 2,000 61,500 *
L. George Klaus........................ - 44,250 *
Roger S. Siboni........................ - 20,500 *

Named Executive Officers:
Sam M. Auriemma........................ - 150,939 *
David D. Despard....................... 200 183,646 *
Ron L. Ercanbrack...................... - 210,106 *
Royce Murphy 1,088 14,583 *
All executive officers and directors 44,745 2,298,015 6.12
as a group (20 persons)(9).............

* Represents less than 1%.

(1) Represents shares of Common Stock that the holder may acquire upon exercise
of currently vested options or options that will become vested within 60
days after March 12, 2003.

(2) Shares of Common Stock subject to options which are currently exercisable
or which will become exercisable within 60 days after March 12, 2003 are
deemed to be beneficially owned by the person holding such options for the
purpose of computing the percentage of ownership of such person but are not
treated as outstanding for the purpose of computing the percentage of any
other person.

(3) Pursuant to a Schedule 13G filed on December 31, 2002, Berger Small Cap
Value Fund has shared dispositive and shared voting power over 3,000,000
shares.

(4) Pursuant to a Schedule 13G filed on February 28, 2003, Perkins Wolf
McDonnell and Co. has sole dispositive and sole voting power over 12,544
shares and has shared dispositive and shared voting power over 2,643,100
shares.

(5) Pursuant to a Schedule 13G filed on January 8, 2003, Merrill Lynch and Co.
has shared dispositive and shared voting power over 2,194,513 shares.
Merrill Lynch and Co. is a parent holding company. The following asset
management subsidiaries hold certain of these shares of common stock deemed
beneficially owned by Merrill Lynch and Co.: Fund Asset Management, L.P.,
Merrill Lynch Investment Managers Limited, Merrill Lynch Investment
Managers, L.P., and QA Advisor L.L.C.

(6) Mr. Roberts is also a Named Executive Officer.

(7) Represents shares held by the Theodore J. Smith Family Trust as to which
shares Mr. Smith, as co-trustee for this trust, has shared voting and
dispositive power.

(8) Includes 2,000 shares held by the William P. Lyons Family Trust as to which
shares Mr. Lyons, as co-trustee for this trust, has shared voting and
dispositive power.

(9) Includes shares held by the Theodore J. Smith Family Trust and William P.
Lyons Family Trust (see footnotes 7 and 8). Excludes shares held by Royce
Murphy whose employment with us terminated December 31, 2002.

EXECUTIVE OFFICERS OF THE COMPANY

The following table sets forth, as of March 12, 2003, the executive
officers of the Company.

Name Age Position

Lee D. Roberts 50 Chairman of the Board of the Company since December 2000 and Chief
Executive Officer since April 1998. Mr. Roberts served as our President
from May 1997 to October 2000 and as our Chief Operating Officer from May
1997 until April 1998. Mr. Roberts has also served as a director of the
Company since May 1998. Prior to joining the Company in May 1997,
Mr. Roberts was employed by International Business Machines Corporation
("IBM") for over 20 years, serving most recently as General Manager and
Vice President, Worldwide Marketing and Sales for the Networking Division
of IBM. Mr. Roberts also currently serves on the Board of Directors of
Onyx Software.

Sam M. Auriemma 50 Senior Vice President, Chief Financial Officer and Secretary of the
Company since September 2000. Before joining the Company, Mr. Auriemma
served as the Executive Vice President and Chief Financial Officer of
Wonderware Corporation, which specializes in providing software solutions
for industrial and process automation applications, between April 1996 and
September 2000.

Martyn D. Christian 41 Senior Vice President, Worldwide Field Marketing of the Company since
January 2003. From January 2002 to December 2002, Mr. Christian served as
our Senior Vice President Corporate Marketing, and from August 2000 to
December 2001, he served as our Senior Vice President of Worldwide
Corporate and Applications Marketing. From November 1998 to August 2000,
Mr. Christian served as the Company's Vice President of Solutions Sales
and Marketing and from September 1996 to November 1998 he served as our
Vice President, Marketing Programs. From March 1991 to September 1996, he
served in various sales and marketing positions with the Company.

David D. Despard 47 Senior Vice President, Global Professional Services of the Company since
July 1998. Prior to joining the Company, Mr. Despard served as the Vice
President, Customer Services of Wall Data, Inc. from 1995.

Frederick P. Dillon 53 Vice President, Sales Operations of the Company since January 1999. From
December 1997 to January 1999, Mr. Dillon served as Director, Worldwide
Sales Operations and from November 1987 to December 1997 he served as
Director, Sales Operations.

Karl J. Doyle 38 Vice President, Business Development of the Company since August 2000.
From October 1998 to August 2000, Mr. Doyle served as the Company's
Director of Corporate Strategy. From March 1992 to October 1998, Mr.
Doyle was employed in sales and marketing with the Company.

Ron L. Ercanbrack 48 President of the Company since October 2000. Mr. Ercanbrack served as
Executive Vice President, Worldwide Sales and Marketing of the Company
from April 1999 to October 2000. Mr. Ercanbrack served as our Senior Vice
President, Worldwide Sales from October 1997 until April 1999. From June
1997 to October 1997, Mr. Ercanbrack served as our Senior Vice President,
International. Prior to joining the Company in June 1997, Mr. Ercanbrack
was employed by IBM for over 19 years, serving most recently as Vice
President, Worldwide Sales, Channel and OEM for the Networking Hardware
Division of IBM.

Michael W. Harris 41 Senior Vice President, Product Marketing, Strategy and Corporate
Communications of the Company since August 2000. From April 1999 to
August 2000, Mr. Harris served as the Company's Vice President, Product
Marketing, and from December 1997 to April 1999 he was the Company's
Director, Product Marketing. From March 1995 through December 1997, Mr.
Harris held several executive management positions with Stac Software,
Inc., a provider of storage and communication software utilities. Mr.
Harris joined Stac as a result of the acquisition of Rememory Corporation,
a storage management software company that he founded in 1993. Mr. Harris
was also the President and Chief Executive Officer of Rememory Corporation.

William J. Kreidler 58 Senior Vice President, Customer Technical Operations and Services of the
Company since July 1997. From August 1992 to July 1997, Mr. Kreidler
served as Vice President, Operations of the Company. From 1993 to July
1998, he was also responsible for Professional Services.

Chas W. Kunkelmann 53 Senior Vice President, Worldwide Channel Operations of the Company since
October 2002. From November 2001 to October 2002, Mr. Kunkelmann served
as Vice President, Brightspire of the Company and, from November 1999 to
November 2001, he served as the Eastern Regional Vice President of the
Company. Prior to joining the Company between November 1996 and November
1999, Mr. Kunkelmann served as Vice President of North American Operations
for Internet Dynamics, Inc., which specialized in internet security and
access control software.

Katharina M. Mueller 37 Vice President, General Counsel of the Company since April 2002 and
Assistant Secretary of the Company since August 2000. Ms. Mueller served
as Acting General Counsel from August 2000 to March 2002, and as Assistant
General Counsel from May 2000 through July 2000. From 1999 to 2000, Ms.
Mueller served as in-house counsel at Aprisma Technologies, Inc., a
division of Cabletron Systems, Inc. From 1993 to 1998, Ms. Mueller
maintained a private practice in the areas of corporate, business
litigation and real estate law.

Philip L. Rugani 46 Mr. Rugani joined the Company on January 12, 2003 as Senior Vice
President, Sales - The Americas. From September 2000 to June 2002, Mr.
Rugani served as Executive Vice President for Altavista Software, a
division of AltaVista Company, which provides search services and software
and, from January 1999 to June 2000, as Senior Vice President Americas for
Informix Corporation, a supplier of data base and e-business software
solutions. Mr. Rugani also served from November 1995 to January 1999 as
Group Vice President-General Business and Alliances for Oracle Corporation
a supplier of data base and application software.

Audrey N. Schaeffer 58 Vice President, Human Resources of the Company since January 1993 and
Assistant Secretary of the Company since April 1988.

Daniel S. Whelan 45 Vice President and Chief Technology Officer of the Company since
May 2000. From January 1994 to May 2000, Mr. Whelan served as a Computer
Scientist and Section Manager in the Company's Product Development
department.

Franz X. Zihlmann 56 Senior Vice President of Software Development of the Company since
January 2000. From September 1996 to January 2000, Mr. Zihlmann was the
Company's Vice President of Product Development and from January 1991 to
September 1996 Mr. Zihlmann was the Vice President, Engineering Systems.

EXECUTIVE COMPENSATION

The following table sets forth certain information regarding the annual and
long-term compensation earned for services rendered in all capacities to the
Company for the last three completed fiscal years (i.e., years ended December
31, 2000, 2001, 2002) by the Company's Chief Executive Officer, and each of the
other four most highly compensated executive officers of the Company who were
serving as executive officers at the end of fiscal year 2002.

Summary Compensation Table

Long-Term
Compensation
Annual Compensation Awards
Stock All Other
Option Compen-
Name and Principal Position Year Salary(1) Bonus (Shares) sation(2)
Lee D. Roberts 2002 $525,000 $252,000 - $5,946
2001 525,000 - 400,000 5,945
Chief Executive Officer, Chairman of 2000 454,875 529,200 80,000 4,876
the Board and Director

Ron L. Ercanbrack 2002 375,000 180,000 100,000 3,587
President 2001 375,000 - 45,000 3,586
2000 337,420 347,069 240,000 3,173

Royce Murphy(3) 2002 284,288 125,566 - 15,346
Senior Vice President, EMEA 2001 63,892 32,549 50,000 3,472

David D. Despard 2002 275,000 110,000 40,000 5,370
Senior Vice President, Worldwide 2001 275,000 - 70,000 5,370
Professional Services 2000 274,500 254,800 35,000 4,460

Sam M. Auriemma(4) 2002 275,000 110,000 60,000 2,100
Senior Vice President, Chief Financial 2001 275,000 - 75,000 2,100
Officer and Secretary 2000 82,500 66,624 175,000 2,100

(1) Includes amounts deferred under (a) the Company's Employee Savings and
Investment Plan, a tax-qualified plan under Section 401(k) of the Internal
Revenue Code, and (b) the Company's Deferred Compensation Plan.

(2) For fiscal year 2002, consists of (a) premiums paid by the Company in the
amounts of $5,946, $1,486 and $3,270 on certain term-life insurance
policies maintained for Messrs. Roberts, Ercanbrack and Despard,
respectively, under which such individuals designate their own
beneficiaries, and (b) contributions by the Company of $2,100 on behalf of
each of Messrs. Ercanbrack, Despard and Auriemma to the Company's Section
401(k) Plan, and (c) a contribution to the Company's defined contribution
pension plan maintained in the United Kingdom for Mr. Murphy in the amount
of $15,346. During fiscal year 2002, no premiums were paid by the Company
for life insurance for Messrs. Auriemma and Murphy and no Company
contributions under the Company's Section 401(k) Plan were made on behalf
of Mr. Roberts.

(3) Mr. Murphy joined the Company as an executive officer in October 2001. Mr.
Murphy ceased to be an executive officer and employee of the Company on
December 31, 2002.

(4) Mr. Auriemma joined the Company and was first appointed an executive
officer in September 2000.

Option Grants in Last Fiscal Year

The following table provides information on option grants made in fiscal
year 2002 to the Named Executive Officers. No stock appreciation rights were
granted during such year to the Named Executive Officers.

Individual Grants
Number of % of Total Potential Realizable Value
Securities Options at Assumed Annual Rates of
Underlying Granted to Stock Price Appreciation for
Options Employees Exercise Option Term(1)
Granted in Fiscal Price Expiration
Name (#)(2) Year ($/Sh) Date 5% 10%

Lee D. Roberts(3).......... - - N/A N/A - -
Ron L. Ercanbrack.......... 100,000 6.4% $12.85 12/04/12 $808,130 $2,047,959
Royce Murphy............... - - N/A N/A - -
David D. Despard........... 40,000 2.6 13.63 07/01/12 342,873 868,908
Sam M. Auriemma............ 35,000 2.3 13.63 07/01/12 300,014 760,295
25,000 1.6 13.21 12/11/12 207,693 526,334

(1) The assumed 5% and 10% annual rates of stock price appreciation are for
illustrative purposes only. Actual stock prices will vary from time to time
based upon market factors and the Company's financial performance. No
assurance can be given that such rates will be achieved. Unless the market
price of the Common Stock appreciates over the option term, no value will
be realized from the option grants made to the Named Executive Officers.

(2) Options were granted under the Company's 2002 Incentive Award Plan to
Messrs. Auriemma and Despard , and options were granted under the Company's
1995 Stock Option Plan to Mr. Ercanbrack. Mr. Ercanbrack's 100,000 option
shares were granted On December 4, 2002 in exchange for the prior
cancellation of 100,000 option shares in May 2002 that had an exercise
price of $35.16 per share. Options granted to our executive officers become
exercisable as to twenty-five percent (25%) of the option shares after
twelve (12) months of service with the Company from the grant date and the
balance of the shares are exercisable in thirty-six (36) successive equal
monthly installments upon completion of each additional month of service.
Each option will become fully exercisable in certain events. Each option
has a maximum term of ten years, subject to earlier termination following
the optionee's termination of employment, permanent disability or death.

(3) Mr. Roberts received a grant of 200,000 shares in December 2001 in lieu of
a grant of shares in 2002.

Aggregated Option Exercises in Last Fiscal Year and Year End Option Value

The following table sets forth certain information with respect to the
Named Executive Officers concerning their exercise of options during 2002 and
the unexercised options held by them at the close of such year. No stock
appreciation rights were held or exercised by the Named Executive Officers at
any time during 2002.

Number of Unexercised Value of Unexercised
Options at Fiscal In-the-Money
Year End Options at
Shares (Number of Shares) Fiscal Year End(1)
Acquired Value
Name on Exercise(#) Realized($)(2) Exercisable/Unexercisable Exercisable/Unexercisable

Lee D. Roberts........ - + 668,690/321,667 $1,995,276/$-
Ron L. Ercanbrack..... - + 191,772/191,978 348,037/21,719
Royce Murphy(3) ...... - - 14,583/35,417 41,562/100,938
David D. Despard...... 12,500 $92,126 173,438/96,562 94,225/7,850
Sam M. Auriemma....... - + 129,376/180,624 -/-

(1) Calculated on the basis of the average of the high and low selling prices
of the Company's Common Stock on December 31, 2002 ($12.35), the last
trading day in 2002, minus the exercise price of the in-the-money option,
multiplied by the number of shares subject to the option.

(2) The excess of the fair market value of the purchased shares on the date of
exercise over the exercise price paid for such shares.

(3) Mr. Murphy ceased employment with us on December 31, 2002.

Equity Compensation Plans

The following tables summarizes information about our common stock that may
be issued upon the exercise of options, warrants and rights under all of our
compensation plans as of December 31, 2002. The following is a list of our
equity compensation plans under which we are authorized to make future grants,
all of which were approved by our stockholders: 1995 Stock Option Plan of
FileNet Corporation, as amended and restated on March 28, 2001; FileNet
Corporation 1998 Employee Stock Purchase Plan, as amended and restated on May 1,
2002; International Employee Stock Purchase Plan, as amended and restated on May
1, 2002; and 2002 Incentive Award Plan of FileNet Corporation.

Number of securities Number of securities remaining
to be issued upon Weighted average available for future issuance under
exercise of exercise price of equity compensation plans
outstanding options, outstanding options, (excluding securities reflected in
warrants and rights warrants and rights column (a))
Plan Category (a) (b) (c)
Equity compensation plans approved
by security holders...... 8,170,534 $ 15.44 459,327

Employee compensation plans not
approved by security holders...... 535,782(1) 10.55 -

Employee stock purchase plans
approved by security holders...... N/A N/A 1,134,434
Total............................. 8,706,316 $ 15.12 1,593,761

(1) Includes amounts granted under Non-Qualified Stock Option Agreements with
each of Messrs. Roberts, Ercanbrack, and Auriemma: on May 22, 1997, Mr.
Roberts was granted an option to purchase 600,000 shares with an exercise
price of $7.16 per share; on June 18, 1997, Mr. Ercanbrack was granted an
option to purchase 160,000 shares with an exercise price of $7.53 per
share; and on September 13, 2000, Mr. Auriemma was granted an option to
purchase 140,000 shares with an exercise price of $20.03 per share. Such
option shares were granted as inducement to accept employment with the
Company. The number of securities listed in the chart underlying the number
of options granted to Messrs. Roberts and Ercanbrack gives effect to the
May 15, 1998 stock split.

Ten-Year Option Repricings

Due to the option exchange with Mr. Ercanbrack that occurred during 2002, the Company has set forth
information concerning all repricing or cancellation and reissuance of options held by any executive officer
since January 1, 1993.

Length of
original
option term
Securities remaining
underlying Market Exercise at date of
Date of number of price of price at repricing
cancellation options stock at time of New or
or repriced time of repricing exercise amendment
Name and Principal Position (4) amendment (1) repricing (2) price (2) (3)

Martyn D. Christian 08/08/96 8,000 $18.75 $26.75 $13.00 9.7
Senior Vice President, 07/11/97 4,000 18.75 13.57 9.00 6.8
Worldwide Field Marketing 07/11/97 4,000 18.75 12.25 9.00 7.3
07/11/97 8,000 18.75 13.00 9.00 9.1

Frederick P. Dillon 08/08/96 12,000 26.25 26.76 13.00 9.8
Vice President, Sales 07/11/97 7,200 18.75 11.75 9.00 6.7
Operations 07/11/97 12,000 18.75 13.00 9.00 9.1

Karl J. Doyle 08/08/96 2,400 26.25 20.88 13.00 9.3
Vice President, Business 07/11/97 2,400 18.75 13.00 9.00 9.1
Development

Ron L. Ercanbrack 05/22/02 100,000 15.97 35.16 12.85 7.8
President

William J. Kreidler 07/11/97 16,000 18.75 9.19 9.00 6.5
Senior Vice President, 07/11/97 20,000 18.75 12.44 9.00 7.4
Customer Technical 07/11/97 20,000 18.75 20.41 9.00 8.5
Operations and Services 07/11/97 20,000 18.75 17.57 9.00 9.5

Audrey N. Schaeffer 07/11/97 6,400 18.75 10.69 9.00 5.5
Vice President, Human 07/11/97 12,800 18.75 9.19 9.00 6.5
Resources 07/11/97 16,000 18.75 12.44 9.00 7.4
07/11/97 16,000 18.75 20.41 9.00 8.5
07/11/97 16,000 18.75 17.57 9.00 9.5

Daniel S. Whelan 07/11/97 5,000 18.75 12.25 9.00 7.3
Vice President and Chief 07/11/97 3,000 18.75 13.07 9.00 9.3
Technology Officer

Franz X. Zihlmann 08/08/96 20,000 26.25 20.41 13.00 8.5
Senior Vice President of 07/11/97 8,000 18.75 10.69 9.00 5.5
Development 07/11/97 20,000 18.75 12.44 9.00 7.4
07/11/97 20,000 18.75 13.00 9.00 9.1
07/11/97 20,000 18.75 13.07 9.00 9.3
07/11/97 20,000 18.75 17.57 9.00 9.5

(1) The securities underlying the number of options repriced gives effect to the May 15, 1998 stock split.

(2) The exercise price for the cancelled and replacement options is equal to the average of the high and low
selling price per share of the Company's common stock at the close of market on the Nasdaq National Market on
the grant date of the replacement grant and gives effect to the May 15, 1998 stock split.

(3) Expressed in years and fractions thereof.

(4) Excludes executive officers whose employment was terminated as of December 31, 2002.

Employment Contracts, Termination of Employment and Change in Control Agreements

Change in Control Severance Program

In 2001, the Compensation Committee of the Board of Directors reviewed,
revised and consolidated the Company's previously approved program concerning
severance payments for terminations relating to a change-in-control (the
"Change-in-Control Severance Program") for the Company's CEO and certain other
executive officers. Under the Change-in-Control Severance Program, each eligible
executive officer will be entitled to certain benefits in the event his or her
employment with the Company is involuntarily terminated, other than for "Cause"
(as defined), or if such executive officer resigns for "Good Reason" (as
defined), in either case within 18 months following a "change in control" of the
Company (as defined). Mr. Roberts is entitled to receive a cash lump sum payment

equal to twelve months of applicable base salary and target bonus (discussed
below) plus twelve months of continuation payments of such salary and bonus;
Messrs. Ercanbrack and Auriemma are each entitled to receive a cash lump sum
payment equal to nine months of the applicable base salary and target bonus plus
nine months of continuation payments of such salary and bonus; and all other
eligible executive officers are entitled to receive a cash lump sum payment
equal to six months of the applicable base salary and target bonus plus six
months of continuation payments of such salary and bonus. The cash lump sum and
continuation payments to be provided to an eligible executive officer are based
upon the monthly equivalent of (A) the annual base salary in effect for such
executive officer immediately before the change in control or, if greater, at
the time of termination or resignation, plus (B) the annual incentive bonus that
such executive officer would have been entitled to receive under the Company's
officer bonus plan for the calendar year in which the termination occurs or, if
greater, the calendar year in which the change in control occurs, plus the
pro-rata portion of the bonus earned by such executive officer during the
calendar year in which the change of control occurs. The continuation payments
are to be made at bi-weekly intervals.

Each eligible executive officer is also entitled to a lump sum payment
equal to 12, 18 or 24 months, depending upon his or her position, of the
then-current monthly Internal Revenue Code 4980B medical premium ("COBRA") for
that officer and his or her eligible dependents, plus, if applicable, the
then-current life insurance premium paid by the Company. Mr. Roberts is entitled
to receive a cash lump sum equal to 24 months of medical and life insurance
premiums; Messrs. Ercanbrack and Auriemma are each entitled to receive a cash
lump sum equal to 18 months of medical and life insurance premiums; and all
other eligible executive officers are each entitled to receive a cash lump sum
equal to 12 months of medical and life insurance premiums. In addition, under
the Change-in-Control Severance Program, any shares of Common Stock that are
then subject to outstanding options held by an eligible executive officer will
automatically vest in full on an accelerated basis.

CEO Severance Program

In October 2001, the Compensation Committee implemented its previously
approved CEO Severance Program originally adopted in 1999, by entering into the
CEO Severance Agreement with Mr. Roberts, the Company's Chief Executive Officer
(the "CEO"). Under this Agreement, the CEO would be entitled to receive certain
severance payments and option acceleration upon the involuntary termination of
the CEO's employment under certain circumstances. The benefits include a cash
lump sum severance payment equal to one year of base salary, together with the
CEO's target bonus that would otherwise be earned by the CEO for the year of
termination but for the occurrence of the termination (which bonus is limited to
50% of the eligible annual award if the CEO has completed less than six months
of service during the bonus year). The CEO would also be provided a lump sum
payment equal to one year of COBRA benefits, and one year of Group Universal
Life insurance premiums. In addition, a pro-rata portion of all unvested option
shares would vest, to, in effect, provide for option vesting on a monthly basis
through the date of termination. No benefits are payable under this Agreement in
the event of the death or Permanent disability of the CEO, or in the event of
termination of the CEO's employment for Cause or in connection with a Change in
Control.

Compensation Committee Interlocks and Insider Participation

The Compensation Committee is composed of Messrs. Klaus and Lyons. No
member of the Compensation Committee was at any time during 2002, or at any
other time, an officer or employee of the Company. No executive officer of the
Company served on the board of directors or compensation committee of any entity
that has one or more executive officers serving as members of the Company's
Board of Directors or Compensation Committee.

Compensation Committee Report on Executive Compensation

It is the duty of the Compensation Committee of the Company to review and
determine the salaries and bonuses of executive officers of the Company,
including the Chief Executive Officer, and to establish the general compensation
policies for such individuals. The Compensation Committee also has the authority

to make discretionary option grants to the Company's executive officers and
other employees under the Company's 1995 Stock Option Plan and 2002 Incentive
Award Plan.

The Compensation Committee believes that the compensation programs for the
Company's executive officers should reflect the Company's performance and the
value created for the Company's stockholders. In addition, the compensation
programs should support the short-term and long-term strategic goals and values
of the Company and should reward individual contribution to the Company's
success. The Company is engaged in a very competitive industry, and the
Company's success depends upon its ability to attract and retain qualified
executives through the competitive compensation packages it offers to such
individuals.

General Compensation Policy. The Compensation Committee's policy is to
provide the Company's executive officers with compensation opportunities that
are based upon the financial performance of the Company and the individual's
contribution to that performance, and which are competitive enough to attract
and retain highly skilled individuals. Each executive officer's compensation
package is comprised of three elements: (i) base salary that is competitive with
the market and reflects individual performance, (ii) annual variable performance
awards payable in cash and tied to the Company's achievement of annual financial
performance goals, and (iii) long-term stock-based incentive awards designed to
strengthen the mutuality of interests between the executive officers and the
Company's stockholders. As an officer's level of responsibility increases, a
greater proportion of his or her total compensation will be dependent upon the
Company's financial performance and stock price appreciation.

The Company has, at such times in the past as it deemed necessary, retained
the services of an independent compensation consulting firm to advise the
Compensation Committee as to how the Company's executive compensation compares
to that of companies within and outside of its industry. The Company also
subscribes to and participates in compensation surveys of the companies in its
industry. The principal factors that were taken into account in establishing
each executive officer's compensation package for 2002 are described below.
However, the Compensation Committee may in its discretion apply entirely
different factors, such as different measures of financial performance, for
future years.

Base Salary. The Compensation Committee's philosophy is that the base
salary of each executive officer, including the Chief Executive Officer, should
reflect the salary levels for comparable positions in the industry and the
comparative group of companies, as well as the individual's personal performance
and internal alignment considerations. In addition, the Company's performance
and profitability should be a factor in determining the base salaries of
executive officers. Given the difficult economic environment, the senior
management team elected and the Compensation Committee agreed that no salary
increases would be made in 2002 or 2003. Current base salaries were established
in December 2000 based, in part, on the Compensation Committee's review of
relevant published compensation surveys and an independent survey conducted by
WestWard Pay Strategies.

Annual Incentives. The annual incentive bonus for our Chief Executive
Officer and most other executive officers is based on a percentage of base pay
(i.e., ranging from 20% to 60% for 2002) and is adjusted to reflect the actual
financial performance of the Company in comparison to the Company's business
plan, which for 2002 was measured in terms of the Company's achievement against
targeted earnings per share. For example, no bonus is paid if the Company's
attainment of the target earnings per share is less than 70% of plan; 100% of
the bonus is paid if the Company's attainment of the target goal is 100% of plan
and 200% of the bonus is paid if the Company's attainment of the target goal is
equal to or greater than 125% of plan. The actual bonus is calculated on a pro
rata basis between these points. In connection with the Company's acquisition of
eGrail in April 2002, the Compensation Committee adjusted target earnings per
share for 2002 to reflect the anticipated effects of the eGrail acquisition on
the Company's earnings. The Company's actual earnings per share compared to the
adjusted target resulted in bonuses payable to our executives, including our
Chief Executive Officer. In making the final bonus determination, the
Compensation Committee reviewed both (i) the Company's financial performance
against plan, and (ii) the Company's performance as compared to that of the
Company's competitors. The Compensation Committee specifically considered the
Company's software revenue growth, market share growth, cash growth and customer
loyalty/satisfaction indices. The Compensation Committee also considered the
fact that there have not been any salary increases for officers since salaries
were last established in December 2000. Based on the foregoing, the Compensation
Committee set bonuses at approximately 80% of targeted bonus. As a result of

this decision, 2002 bonuses increased all executive officers as a group from
approximately $1,170,000 which was payable in accordance with the bonus formula,
to approximately $1,337,000.

Long Term Incentives. Generally, stock option grants are made annually by
the Compensation Committee to each of the Company's executive officers. During
2002, special performance options were granted to Messrs. Auriemma, Harris,
Despard, Kreidler and Doyle to recognize their exceptional contributions to the
Company.

Each option grant is designed to align the interests of the executive
officer with those of the stockholders and provide each individual with a
significant incentive to manage the Company from the perspective of an owner
with an equity stake in the business. Each grant allows the officer to acquire
shares of the Company's Common Stock at a fixed price per share (the fair market
value on the grant date) over a specified period of time (up to ten years). Each
option granted in 2002 becomes exercisable in installments equal to 25% of the
option shares on the first anniversary of grant, and for the balance of the
option shares in 36 successive equal monthly installments thereafter.
Accordingly, the options will provide a return to the executive officer only if
he or she remains employed by the Company during the vesting periods, and then
only if the market price of the shares appreciates over the option term.

The size of the option grant to each executive officer, including the Chief
Executive Officer, is set by the Compensation Committee at a level that is
intended to create a meaningful opportunity for stock ownership based upon the
individual's current position with the Company, the individual's personal
performance in recent periods, and his or her potential for future
responsibility and promotion over the option term. The Compensation Committee
also takes into account the number of unvested options held by the executive
officer and considers the potential impact that a grant can have on an
executive's motivation and future performance with the desire to maintain an
appropriate level of equity incentive for that individual. The relevant weight
given to each of these factors varies from individual to individual.

Option Exchange. In May 2002, the Compensation Committee agreed with Mr.
Ercanbrack, President of the Company, to cancel 100,000 option shares granted to
him in February 2000 (the "2000 Option Shares") in exchange for new options to
be granted at a later time. The 2000 Option Shares had an exercise price of
$35.16, which was significantly higher than the then current market price of the
Company's common stock ($15.97). The Committee believed that the 2000 Option
Shares were unlikely to be exercised in the foreseeable future, which did not
serve the purpose of such options (i) to promote the long-term success of the
Company and the creation of stockholder value by encouraging Mr. Ercanbrack to
focus on critical long-range objectives, (ii) to encourage the retention of Mr.
Ercanbrack, and (iii) to link his interests directly to those of stockholders
through increased stock ownership. Additionally, the Committee believed that the
2000 Option Shares failed to provide Mr. Ercanbrack with a meaningful incentive
to extend his best efforts on behalf of the Company and its stockholders, and
that it was in the best interests of the Company and its stockholders to
encourage maximum performance by Mr. Ercanbrack. The Committee reviewed a
proposed exchange agreement (the "Exchange Agreement") and subsequently approved
the terms of the Exchange Agreement.

The Exchange Agreement provided for the following: (i) cancellation of the
2000 Option Shares, (ii) the return of such Option Shares to the pool of shares
available for grant of new options under the plan, (iii) a replacement option
grant covering 100,000 shares, granted under the Plan on the first business day
that is at least six months and one day from the date of option cancellation, at
an exercise price equal to the average of the high and low selling price per
share of the Company's common stock on the Nasdaq National Market on the grant
date of the replacement grant, (iv) the replacement option is contingent upon
Mr. Ercanbrack remaining an executive officer of the Company through the date
that the replacement option is granted and compliance with applicable law, (v)
the replacement option, once granted, will commence vesting on the replacement
option grant date and will vest as to twenty-five percent (25%) of the shares
subject to the replacement option on the one year anniversary of the replacement
grant date and 1/36 each month thereafter until the replacement option is fully
vested on the fourth anniversary of the replacement option grant date, and (vi)
the replacement option will be designated a non-qualified stock option.

In December 2002, Mr. Ercanbrack received a replacement option grant
covering 100,000 shares with an exercise price of $12.85 per share, pursuant to
the terms and conditions of the Exchange Agreement outlined above.

CEO Compensation. As with all of our other executive officers and at Mr.
Roberts recommendation, the Compensation Committee decided to keep 2002 base
salary of Mr. Roberts, our Chief Executive Officer, at the level established in
December 2000 of $525,000. In setting the total compensation package of Mr.
Roberts at that time, the Compensation Committee sought to make his compensation
competitive when compared with the base salary levels in effect for similarly
situated chief executive officers of companies in the comparison group and
competitive with the surveyed values. The Compensation Committee also strived to
assure that a significant percentage of Mr. Roberts' total compensation package
is tied to Company performance, as measured in terms of the achievement of the
Company's target earnings per share. In 2002, the Compensation Committee treated
Mr. Roberts in the same manner as the other senior executives and elected to pay
his annual bonus at 80% of targeted bonus, which resulted in Mr. Roberts' bonus
increasing from $220,000 (which would have been payable pursuant to the bonus
formula) to $252,000.

The Compensation Committee made an additional grant of options covering
200,000 shares to Mr. Roberts in December 2001 in recognition of his personal
performance and leadership role in the Company. The grant in December 2001 was
made instead of the expected 2002 grant. All of these options vest 50% on each
of the second and third anniversary of the grant date and are intended to tie a
significant portion of his total compensation to stockholder value since the
value of those grants will depend upon the future appreciation in the market
price of the Company's Common Stock.

In July 2001, the Compensation Committee offered Mr. Roberts a secured loan
by the Company to enable Mr. Roberts to purchase a home in Orange County,
California. The Compensation Committee forwarded its recommendation to the Board
to approve, in principle, a loan in the amount of $1.2 million to Mr. Roberts.
In September 2001, upon request of Mr. Roberts, the Compensation Committee
approved, in principle, an increase in the previously approved loan amount to
$1.9 million, subject to review of final loan documents and approval of the
Board. In May 2002, the Compensation Committee reviewed proposed loan
documentation for a First Trust Deed secured loan to Mr. Roberts and forwarded
its recommendation to the Board to approve the loan on the terms set forth in
the loan documents. On June 5, 2002, the Board approved the loan documents and
the loan. The authority to grant such a loan is "grand fathered" under Section
13 of the Securities Exchange Act of 1934, as amended by Section 402 of the
Sarbanes-Oxley Act on July 30, 2002.

The $1.9 million loan bears interest at 2.89% per annum (applicable
short-term Federal interest rate) and is secured by the home purchased by Mr.
Roberts. Accrued interest on the principal balance is payable annually beginning
February 15, 2003 and on each February 15th thereafter until the entire
principal balance becomes due. The entire outstanding principal balance and any
accrued interest is due and payable at the earliest of (a) June 7, 2005, (b) one
year after termination of Mr. Roberts' employment by the Company, or (c) ninety
(90) days after voluntary termination of employment by Mr. Roberts.
Additionally, the Company is named as the loss payee in the insurance policy for
mortgagee interests on this property.

Compliance with Internal Revenue Code Section 162(m). Section 162(m) of the
Internal Revenue Code disallows a tax deduction to publicly held companies for
compensation paid to certain of their executive officers, to the extent that
compensation exceeds $1 million per covered officer in any year. The limitation
applies only to compensation that is not considered to be performance-based. The
cash compensation paid to the Company's executive officers for 2002 that did not
qualify as "performance based compensation" did not exceed the $1 million limit
per officer. The option grants made in 2002 were structured so that any
compensation would not be subject to the $1 million limitation, and the
compensation deemed paid in connection with the exercise of those options will
qualify as performance-based compensation which will not be subject to the $1
million limitation.

It is the opinion of the Compensation Committee that the executive
compensation policies and plans provide the necessary total remuneration program
to properly align the Company's performance and the interests of the Company's
stockholders through the use of competitive and equitable executive compensation
in a balanced and reasonable manner, for both the short and long-term.

Submitted by the Compensation Committee of the Company's Board of
Directors:

William P. Lyons L. George Klaus

Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, which might incorporate future filings made by
the Company under those statutes, neither the preceding Compensation Committee
Report on Compensation, nor the following Stock Price Performance Graph will be
incorporated by reference into any of those prior filings, nor will such report
or graph be incorporated by reference into any future filings made by the
Company under those statutes.

Stock Price Performance Graph

The following graph compares the five-year cumulative total stockholder
return on the Company's Common Stock against the cumulative total return of the
Nasdaq Stock Market Index and the Nasdaq Computer and Data Processing Services
Index for the period from December 31, 1997 to December 31, 2002.

FileNet Nasdaq Nasdaq Comp Computer
Measurement Period Corporation Stock And Data
(fiscal year covered) Stock Market Index Processing

Measurement Point 12/31/97 $ 100.00 $ 100.00 $ 100.00
FYE 12/31/98 $ 76.13 $ 140.57 $ 178.95
FYE 12/31/99 $ 169.27 $ 254.51 $ 377.37
FYE 12/31/00 $ 180.88 $ 157.56 $ 181.32
FYE 12/31/01 $ 134.68 $ 125.02 $ 145.38
FYE 12/31/02 $ 80.98 $ 86.36 $ 100.27

ASSUMES $100 INVESTED ON DECEMBER 31, 1997
ASSUMES DIVIDENDS REINVESTED
YEAR ENDED DECEMBER 31, 2002

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors, executive officers and persons who own more than 10% of
a registered class of the Company's equity securities to file initial reports of
ownership and reports of changes in ownership with the SEC and the Nasdaq
National Market. Such persons are required by SEC regulations to furnish the
Company with copies of all Section 16(a) forms they file. Based solely on a
review of copies of such forms received with respect to the year 2002 and the
written representations received from certain reporting persons that no other
reports were required, the Company believes that all directors, executive
officers and persons who own more than 10% of the Company's Common Stock have
complied with the reporting requirements of Section 16(a).

RELATED PARTY TRANSACTIONS

On June 5, 2002, the Board approved a secured loan by the Company of $1.9
million to enable Mr. Roberts, the Company's Chief Executive Officer, to
purchase a home in Orange County, California. The loan bears interest at 2.89%
per annum (applicable short-term Federal interest rate). Accrued interest on the
principal balance of this note is payable annually beginning February 15, 2003
and on each February 15th thereafter until the entire principal balance becomes
due. The entire outstanding principal balance and any accrued interest is due
and payable at the earliest of (a) June 7, 2005, (b) one year after termination
of Mr. Roberts' employment by the Company, or (c) ninety (90) days after
voluntary termination of employment by Mr. Roberts. The outstanding balance as
of December 31, 2002 is $1.9 million and Mr. Roberts paid the February 15, 2003
interest payment.

Mr. John Savage, a member of our Board and Audit Committee, is one of the
Managing Directors of Alliant Partners who acted as financial advisor to eGrail
in connection with FileNet's acquisition of eGrail and Alliant Partners was paid
approximately $500,000 by eGrail. Accordingly, Mr. Savage recused himself from
all discussions related to the acquisition between FileNet and eGrail and
abstained from voting on the transaction.

Proposal 1

ELECTION OF DIRECTORS

The Company's stockholders are being asked to elect six directors for the
ensuing year or until the election and qualification of their respective
successors. Directors are elected at each Annual Meeting of Stockholders and
hold office until their successors are duly elected and qualified at the next
Annual Meeting of Stockholders. Pursuant to the Company's Bylaws and a
resolution adopted by a majority of the authorized number of directors, the
authorized number of members of the Board of Directors has been set at six.

Based upon the recommendation of the Nominating Committee, the following
persons have been nominated for re-election to the Board of Directors at this
2003 Annual Meeting of Stockholders. The following table sets forth certain
information concerning the nominees for election to the Board of Directors.

Name, Age, Principal Occupation or Position, Year Became
and Directorships of Other Publicly Owned Companies Director

L. George Klaus, 62, Chairman, President and Chief Executive Officer of Epicor 1998
Software Corporation (formerly Platinum Software Corporation) since February
1996. Mr. Klaus also currently serves as a director of Epicor Software.

William P. Lyons, 58, President, Chief Executive Officer and a director of 1992
Caminus Corporation, an integrated software company providing solutions for the
energy markets, since July 2002. From January 2001 to July 2002, when it was
sold to Ratimal Software, Mr. Lyons served as President, Chief Executive Officer
and a director of NeuVis Inc., an Internet Rapid Application Development (I-Rad)
company . From February 1998 to January 2001, Mr. Lyons served as President,
Chief Executive Officer and a director of Finjan Software, Inc.

Lee D. Roberts, 50, Chairman of the Board of the Company since December 2000 and 1998
Chief Executive Officer since April 1998. Mr. Roberts served as our President
from May 1997 to October 2000 and as our Chief Operating Officer from May 1997
until April 1998. Mr. Roberts has also served as a director of the Company since
May 1998. Prior to joining the Company in May 1997, Mr. Roberts was employed by
IBM for over 20 years, serving most recently as General Manager and Vice
President, Worldwide Marketing and Sales for the Networking Division of IBM. Mr.
Roberts also currently serves as a director of Onyx Software.

John C. Savage, 55, Managing Director of Alliant Partners, an investment banking 1982
firm, since June 1998. Since the acquisition of Alliant Partners by Silicon
Valley Bankshares in September 2001, Mr. Savage has been a Managing Director of
Alliant Partners. From 1990 to July 1998, Mr. Savage served as Managing Partner
of Glenwood Capital Partners and Managing Director of its successor, Redwood
Partners, LLC, both venture buy-out firms.

Roger S. Siboni, 48, President, Chief Executive Officer and a director of 1998
Epiphany, Inc. since August 1998. From October 1996 to August 1998, Mr. Siboni
was Deputy Chairman and Chief Operating Officer of KPMG Peat Marwick LLP, a
member firm of KPMG International. From 1993 to October 1996, Mr. Siboni was
Managing Partner of KPMG Peat Marwick LLP, Information, Communication and
Entertainment practice. Mr. Siboni also currently serves as a director of
Cadence Design Systems, Inc.

Theodore J. Smith, 73, Chairman of the Board of the Company from its inception 1982
in 1982 to December 2000 and has been a director of the Company since 1982. Mr.
Smith served as the Chief Executive Officer of the Company from its inception in
1982 to April 1998, and President of the Company from 1982 to May 1997. Mr.
Smith is also currently a director of Intershop Communications, A.G.

Except as otherwise indicated, during the past five years, each of the
nominees has held the same position with the same entities as listed above.

The Board of Directors held seven meetings during the year ended December
31, 2002. All of our directors attended or participated in at least 75% of the
aggregate number of meetings of the Board of Directors. Each director attended
at least 75% of the aggregate number of meetings of those committees of the
Board of Directors on which such person served, which were held during such
period. The Company has standing Audit, Compensation and Nominating/Corporate
Governance Committees.

Committees of the Board of Directors

Audit Committee. The Audit Committee currently consists of three directors,
Messrs. Lyons, Savage and Siboni, each of whom is independent (as defined in
Rule 4200(a)(15) of the National Association of Securities Dealers' listing
standards). The Audit Committee held five meetings during the year ended
December 31, 2002. The Audit Committee's responsibilities include recommending
the selection of the Company's independent public accountants to the Board of
Directors, as well as reviewing (i) the scope and results of the audit
engagement with the independent public accountants and management, (ii) the
adequacy of the Company's internal accounting control procedures, (iii) the
independence of the independent public accountants, and (iv) the range of audit
and non-audit fees charged by the independent public accountants. The Board of
Directors of the Company adopted an Audit Committee charter in December 2000;
during 2003, the Audit Committee and the Board of Directors expect to review
this charter and the responsibilities of the Audit Committee and make
appropriate revisions to satisfy the applicable requirements of the
Sarbanes-Oxley Act of 2002 and the Nasdaq.

Compensation Committee. During 2002, Messrs. Lyons and Klaus comprised the
Compensation Committee. The Compensation Committee held three meetings during
the year ended December 31, 2002.

The compensation committee is responsible for, among other things:

o Reviewing, establishing and revising the compensation policy for our officers;

o Producing an annual report on executive compensation for inclusion in our
annual proxy statement, in accordance with applicable rules and regulations;

o Reviewing and approving corporate goals and objectives relevant to the compensation
of the chief executive officer and other senior officers, evaluating the performance
of these officers in light of those goals and objectives and setting the compensation
of these officers based on the evaluation, and other relevant factors;

o Reviewing and approving our benefit plans and perquisites and making recommendations
to the board of directors;

o Acting as administrator of the Company's 1998 Employee Stock Purchase Plan, as amended,
1995 Stock Option Plan, as amended, and 2002 Incentive Award Plan;

o Making awards under the 1995 Stock Option Plan and 2002 Incentive Award Plan to the
Company's executive officers; and

o Performing other related functions upon request of the Board of Directors.

In addition, in December 1999, the Board of Directors appointed Mr. Roberts
as the sole member of a Special Stock Option Committee which has separate but
concurrent authority with the Compensation Committee to make discretionary
option grants to eligible individuals, other than executive officers and
non-employee Board members, subject to a limitation of 20,000 shares per
individual employee grant. The Special Stock Option Committee acted by written
consent on 12 occasions during 2002.

The Nominating/Corporate Governance Committee. The Nominating Committee was
formed in December of 2001 and, in November 2002, the Board expanded the
Committee's duties to include oversight of corporate governance and changed the
name of the Committee to reflect inclusion of corporate governance
responsibilities. The Board also increased the number of members on the
Committee. The Nominating/Corporate Governance Committee currently consists of
Messrs. Siboni, Savage, Smith and Klaus. The Nominating/Corporate Governance
Committee will be responsible for, among other things:

o Identifying individuals who are qualified to be members of the board of directors
and selecting, or recommending that the board select, the nominees for directorships;

o Developing and recommending to the board of directors a set of corporate governance
principles applicable to the Company;

o Establishing the criteria and procedures for selecting new directors;

o Overseeing the process for evaluating the board of directors and management;

o Reviewing and evaluating, at least annually, the performance of the nominating and
corporate governance committee and its members, including the compliance of the
nominating and corporate governance committee with its charter; and

o Making recommendations regarding director fees to the Board of Directors.

The Company's Bylaws allow stockholders entitled to vote in the election of
directors to submit nominations for the election of directors. Nominations must
forwarded in writing to the Corporate Secretary of the Company so that the
nomination is received no later than 90 days prior to the annual meeting. In the
event less than 100 days notice of the date of the meeting is given to
stockholders, notice must be received no later than the tenth day following the
day on which notice of the meeting is given. Each notice must set forth (a) the
name and address of the stockholder and of the person or persons to be
nominated; (b) a representation that the stockholder is a holder of record of
stock of the Company; (c) a description of all arrangements or understandings
between the stockholder and each nominee; (d) other information regarding each
nominee as is required to be disclosed in a proxy statement filed pursuant to
the proxy rules of the Securities and Exchange Commission had the nominee been
nominated by the Board of Directors; and (e) the consent of each nominee to
serve as a director of the Company if elected. Please refer to our Bylaws for
complete information.

Notices should be directed to the attention of the Corporate Secretary,
FileNet Corporation, 3565 Harbor Boulevard, Costa Mesa, California 92626.

Board Compensation and Benefits

Each director who is not an employee of the Company is reimbursed for
actual expenses incurred in attending Board meetings. In addition, each
non-employee director received the following compensation for his Board service
during 2002: (i) an annual retainer fee of $24,000; (ii) a fee of $3,000 for
each Board meeting attended; and (iii) a fee of $2,000 for each Committee
meeting attended which was not held on the same day as a Board meeting.

At the 2002 Annual Stockholders Meeting held on May 22, 2002, Messrs.
Lyons, Klaus, Savage, Smith and Siboni each automatically received, upon their
reelection to the Board, a stock option to purchase 7,000 shares of the
Company's Common Stock under the automatic option grant provisions in effect for
non-employee Board members under the 2002 Incentive Award Plan. Each option has
an exercise price of $16.14 per share, representing the fair market value per
share of Common Stock on the grant date. Each option vests in four successive
equal annual installments on the anniversary of option grant date, subject to
the optionee's continued service on the Board. The option has a maximum term of
ten years measured from the grant date, subject to earlier termination following
the optionee's cessation of Board service.

Required Vote for Approval and Recommendation of the Board of Directors

Directors will be elected by an affirmative vote of a plurality of the
shares of voting stock present and entitled to vote, in person or by proxy, at
the Annual Meeting. Abstentions or Broker Non-Votes as to the election of
directors will not affect the election of the candidates receiving the plurality
of votes.

Unless instructed to the contrary, the shares represented by the proxies
will be voted FOR the election of the six nominees named above as directors.
Although it is anticipated that each nominee will be able to serve as a
director, should any nominee become unavailable to serve, the proxies will be
voted for such other person or persons as may be designated by the Company's
Board of Directors. As of the date of this Proxy Statement, the Board of
Directors is not aware of any nominee who is unable or will decline to serve as
a director.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF ALL SIX
NOMINEES NAMED ABOVE.

Proposal 2

APPROVAL OF AMENDMENT TO THE 2002 INCENTIVE AWARD PLAN

The Company's stockholders are being asked to approve an amendment to the
2002 Incentive Award Plan (the "2002 Incentive Plan") that will increase the
number of shares of Common Stock issuable under the 2002 Incentive Plan by an
additional 1,400,000 shares, from 1,400,000 to 2,800,000 shares. As of March 12,
2003, 125,070 shares remain available for grant under the 2002 Incentive Plan.

The purpose of the share increase is to ensure that the Company will
continue to have a sufficient reserve of Common Stock available under the 2002
Incentive Plan to provide eligible employees of the Company and its
participating affiliates with the opportunity to acquire a proprietary interest
in the Company through participation in a comprehensive equity incentive
program.

The 2002 Incentive Award Plan was adopted by the Board of Directors on
March 28, 2002 and became effective on May 22, 2002 (the "Effective Date"). The
amendment to the 2002 Incentive Plan that is the subject of this Proposal was
adopted by the Board on February 26, 2003.

The following is a summary of the principal features of the 2002 Incentive
Plan. The summary, however, does not purport to be a complete description of all
the provisions of the 2002 Incentive Plan. Any stockholder of the Company who
wishes to obtain a copy of the actual plan document may do so upon written
request to the Corporate Secretary at the Company's principal executive offices
in Costa Mesa, California.

General Nature of the 2002 Incentive Award Plan

The principal purposes of the 2002 Incentive Plan are to provide incentives
for independent directors, consultants and key employees of the Company and its
subsidiaries to further the growth, development and financial success of the
Company by personally benefiting through the ownership of Company stock, and to
obtain and retain the services of such individuals who are considered essential
to the long range success of the Company through the grant or issuance of
options, restricted stock, stock appreciation rights, performance awards,
dividend equivalents, deferred stock and stock payments (collectively,
"Awards").

Shares Reserved

Under the 2002 Incentive Plan, the aggregate number of shares of Common
Stock that may be issued upon the exercise of options or any other Award is
2,800,000 shares, which includes the 1,400,000 share increase for which
stockholder approval is sought under this proposal. As previously approved under
the original 2002 Incentive Plan, only 140,000 shares may be issued as
Restricted Stock. Additionally, the 2002 Incentive Plan limits the number of
Awards that may be granted to any one individual during any calendar year to
400,000 shares and the amount of performance awards is limited to $750,000 per
employee during any calendar year.

On March 12, 2003, the average of the high and low price of a share of the
Company's Common Stock on the Nasdaq Stock Market was $11.44.

The shares of Common Stock available for issuance under the 2002 Incentive
Plan may be either previously authorized and unissued shares or treasury shares.
The 2002 Incentive Plan provides for appropriate adjustments in the number and
kind of shares subject to the 2002 Incentive Plan and to outstanding Awards
thereunder in the event of a stock split, stock dividend and certain other types
of transactions. Available for future issuance under the Plan are (i) shares
subject to expired, exchanged or canceled Options; (ii) shares subject to
restricted stock or other Awards which are forfeited by the Participant or
repurchased by the Company; (iii) shares subject to Awards which terminate
without payment being made; and (iv) shares delivered by the Participant or
withheld by the Company upon exercise or purchase of any Award in payment of the
exercise or purchase price of such Award or any related tax-withholding
obligation.

Administration

The 2002 Incentive Plan is generally administered by the Compensation
Committee, consisting of at least two members of the Board who are both
"non-employee" directors for purposes of Section 16-b of the Exchange Act and
"outside directors" under Section 162(m) of the Internal Revenue Code of 1986,
as amended (the "Internal Revenue Code. However, with respect to grants under
the 2002 Incentive Plan to independent directors, the Board as a whole shall
administer the 2002 Incentive Plan. The Compensation Committee, however, has the
power to delegate authority for administration of the Plan as to Awards made to
certain employees to a committee comprised of one or more of our executive
officers. The Committee, the subcommittee and the Board are collectively
referred to as the "Administrator" herein.

The Administrator is authorized to determine the individuals who will
receive Awards (the "Participants"), when they will receive Awards, the number
of shares to be subject to each Award, whether Options are to be incentive stock
options or non-qualified stock options and whether an Award is to qualify as
performance-based compensation as described in Section 162(m)(4)(C) of the
Internal Revenue Code; the price of the Awards granted, payment terms, payment
method, vesting requirements, including any specific performance goals and any
Performance Criteria (as defined) to be used, any vesting acceleration
provisions and the expiration date applicable to each Award. The Administrator
is also authorized to adopt, amend and rescind rules relating to the
administration of the 2002 Incentive Plan.

Eligibility

Awards under the 2002 Incentive Plan may be granted to employees of the
Company or any of its present or future subsidiaries, consultants to the Company
and Independent Directors. More than one Award may be granted to an employee,
consultant or Independent Director. As of March 12, 2003, fifteen executive
officers, five non-employee Board members and approximately 1,657 other
employees and consultants were eligible to participate in the 2002 Incentive
Plan

Awards Under the 2002 Incentive Plan

The 2002 Incentive Plan provides that the Committee may grant options (both
incentive stock options ("ISOs") within the meaning of Section 422 of the
Internal Revenue Code and options that do not qualify as incentive stock options
within the meaning of Section 422 of the Internal Revenue Code ("NSOs" or
"non-qualified options") and restricted stock. Each Award grant will be set
forth in both a notice of grant and option agreement with the person receiving
the Award and will indicate the type, terms and conditions of the Award.

For purposes of the 2002 Incentive Plan, "fair market value" means the
average of the high and low selling prices of a share of Common Stock as of a
given date.

Nonqualified Stock Options. Nonqualified Stock Options provide for the
right to purchase Common Stock at a specified price which may not be less than
85% of the fair market value of our common stock on the date of grant, and
usually will become exercisable (in the discretion of the Committee) in one or
more installments after the grant date. NSOs may be granted for any term not
exceeding ten years after the grant date, as specified by the Committee.

Incentive Stock Options. Incentive Stock Options ("ISOs") will be designed
to comply with the provisions of the Internal Revenue Code and will be subject
to certain restrictions contained in the Internal Revenue Code. Among such
restrictions, ISOs must have an exercise price not less than the fair market
value of a share of Common Stock on the date of grant, may only be granted to
employees, must expire within a specified period of time following the
optionee's termination of employment, and must be exercised within ten years
after the date of grant; but may be subsequently modified to disqualify them
from treatment as ISOs. In the case of an ISO granted to an individual who owns
(or is deemed to own) at least 10% of the total combined voting power of all
classes of stock of the Company, the 2002 Incentive Plan provides that the
exercise price must be at least 110% of the fair market value of a share of
Common Stock on the date of grant and the ISO must expire no later than the

fifth anniversary of the date of its grant. The aggregate fair market value
(determined at the time of grant) of shares with respect to which an ISO (as
defined herein) is first exercisable by an optionee (i.e., "vests") during any
calendar year cannot exceed $100,000.

Automatic Grant of Options to Independent Directors. The 2002 Incentive
Plan provides for automatic grants to Independent Directors of NSOs to purchase
7,000 shares on the date of each annual meeting of stockholders at which the
Independent Director is reelected to the Board. Additionally, during the term of
the 2002 Incentive Plan, the Plan automatically grants to any person who is
initially elected or appointed to the Board after May 22, 2002 and who is an
Independent Director at the time of such initial election or appointment (1) an
option to purchase 25,000 shares on the date of such initial election or
appointment and (2) an option to purchase 7,000 shares on the date of each
annual meeting of stockholders at which the Independent Director is elected to
the Board, provided such person has served as an Independent Director for at
least 6 months prior to the annual meeting of stockholders. Options
automatically granted to Independent Directors have an exercise price equal to
the fair market value of our common stock on the date of grant, and vest in
equal annual installments of 25% from the date of grant, subject to accelerated
vesting upon the happening of certain events including any change in control or
corporate transactions (as defined). The Independent Director shall have until
the earlier of (i) ten years following option grant date or (ii) 12 months
following cessation of Board Service, to exercise his or her vested options. The
Board may also grant options to Independent Directors from time to time, on such
terms as the Board deems appropriate.

Restricted Stock. Restricted stock may be sold to Participants at various
prices or granted in connection with the performance of services and made
subject to such restrictions as may be determined by the Administrator.
Restricted stock, typically, may be repurchased by the Company at the original
purchase price or otherwise subject to forfeiture, if the conditions or
restrictions are not met. In general, restricted stock may not be sold, or
otherwise transferred or hypothecated, until restrictions are removed or expire.
Purchasers of restricted stock, unlike recipients of options, will have voting
rights and will receive dividends prior to the time the restrictions lapse. To
the extent that the Administrator determines that it is desirable for a grant of
restricted stock to qualify as "performance based" under Internal Revenue Code
Section 162(m), such grant of restricted stock shall be subject to vesting only
upon attainment of performance goals, which are pre-established by the
Administrator. Such performance goals may be based upon any of the following
business criteria with respect to the Company, any subsidiary or any division or
operating unit thereof, as the Administrator may determine: (1) net income; (2)
pre-tax income; (3) operating income; (4) cash flow; (5) earnings per share; (6)
return on equity; (7) return on invested capital or assets; (8) cost reductions
or savings; (9) funds from operations; (10) appreciation in the fair market
value of Common Stock; or (11) earnings before any one or more of interest,
taxes, depreciation or amortization (the "Performance Criteria").

Stock Appreciation Rights. A Stock Appreciation Right ("SAR") may be
granted in connection and simultaneously with the grant of an option, or with
respect to a previously granted option, or independent of an option. The
Administrator determines the terms and conditions of a Stock Appreciation Right.
A coupled SAR is related to a particular option, is granted for no more than the
number of shares subject to the simultaneously or previously granted option, and
is exercisable only when and to the extent that the Participant may exercise the
related option. An independent SAR is unrelated to any option, and has terms
(including the number of shares of common stock covered and the vesting
installments) that are set by the Administrator. Payment for SARs may be in
cash, common stock or a combination of both, as determined by the Administrator.

Deferred Stock. Deferred stock may be awarded to Participants, typically
without payment of consideration, but subject to vesting conditions based upon a
vesting schedule or performance criteria established by the Administrator.
Unlike restricted stock, deferred stock will not be issued until the deferred
stock award has vested, and recipients of deferred stock generally will have no
voting or dividend rights prior to the time the vesting conditions are
satisfied.

Performance Awards. The value of a Performance Award may be linked either
to the Performance Criteria specified in the 2002 Incentive Plan or to any other
performance criteria determined appropriate by the Administrator. In making such
determinations, the Administrator considers, among other factors, the
Participant's contributions, responsibilities and other compensation received.
The maximum amount of cash bonuses that may be paid as a Performance Award is
limited to $750,000 per calendar year per person.

Dividend Equivalents. Dividend Equivalents are based on the dividend
declared on our common stock and are credited as of dividend payment dates, as
specified in the 2002 Incentive Plan. Such Dividend Equivalents are converted to
cash or additional shares of our common stock by such formula, at such time and
subject to such limitations as may be determined by the Administrator.

Stock Payments. The number of shares for Stock Payments awarded under the
2002 Incentive Plan is determined by the Administrator and may be linked to the
market value, book value, net profits or other measure of the value of common
stock or other specific Performance Criteria determined to be appropriate by the
Administrator.

Payment for Shares

The exercise price for all options may be paid in full in cash at the time
of exercise, or if permitted by the Committee in its discretion (1) by delay in
payment for up to 30 days, (2) by delivery of Common Stock owned by the
Participant for at least six months, or the surrender of shares of common stock
then issuable upon exercise of the option, in each case having a fair market
value on the date of exercise equal to the aggregate exercise price of the
exercised option; (3) by a full recourse promissory note bearing interest at a
market rate of interest; (4) by an irrevocable instruction to a broker to
deliver to the Company sale or loan proceeds to pay for all of the Common Stock
acquired by exercising the options and any tax withholding obligations resulting
from such exercise, (5) by delivery of other property of any kind which
constitutes good and valuable consideration, or (6) any combination of the
foregoing. In the discretion of the Administrator, restricted stock awards may
be made for a purchase price or in consideration of performance of prior
services for the Company or any subsidiary.

Amendment and Termination

The Administrator may terminate the 2002 Incentive Plan at any time. The
Administrator may also amend the Plan wholly or in part at any time, however,
the board of directors must obtain stockholder approval in order to (i) increase
the number of shares of common stock subject to the 2002 Incentive Plan or the
maximum number of shares of common stock which may be awarded to any individual
during any calendar year, except for any increase or other change due to stock
dividends, split-ups, consolidations, recapitalizations, reorganization or like
events; or (ii) amend the 2002 Incentive Plan in a manner that requires
stockholder approval under applicable law. Amendments of the 2002 Incentive Plan
will not, without the consent of the Participant, affect such person's rights
under an Award previously granted, unless the Award itself otherwise expressly
so provides.

No Awards may be granted under the 2002 Incentive Plan after February 13,
2012. The Board may terminate the 2002 Incentive Plan at any time prior to such
date with respect to the shares that are not then subject to Awards. Termination
of the 2002 Incentive Plan will not affect the rights and obligations of any
Participant with respect to Awards granted before termination.

Terms of Awards

The dates on which options or other Awards under the 2002 Incentive Plan
first become exercisable and on which they expire will be set forth in
individual Award notices and agreements setting forth the terms of the Awards.
These Agreements generally will provide that options and other Awards expire
upon termination of the Participant's employment, although the Administrator may
provide that such options or other Awards continue to be exercisable following a
termination, or because of the grantee's retirement, death, disability or
otherwise. Similarly, restricted stock granted under the 2002 Incentive Plan
which has not vested generally will be subject to repurchase by the Company in
the event of the grantee's termination of employment, although the Administrator
may make exceptions, based on the reason for termination, or on other factors.

In the event of certain stated events in the 2002 Incentive Plan which may
affect the Company, such as merger, consolidation, liquidation, dissolution or
sale of all or substantially all the assets of the Company, the Administrator in
its sole discretion may take certain actions with respect to Awards under the
2002 Incentive Plan, including acceleration of the exercisability of any options
or the vesting in any restrictions on restricted stock, the purchase of

outstanding Awards, the substitution, assumption or replacement of any awards,
and other similar adjustments to facilitate any such transactions. The
Administrator may also provide that all Awards shall cease to be outstanding
following such events.

In consideration of the granting of a stock option or shares of restricted
stock, the Participant must agree in the written agreement embodying such Award
to remain in the employ of or to continue to be of service to, the Company or a
subsidiary. No Award under the 2002 Incentive Plan may be assigned or
transferred by the Participant, except by will or the laws of interstate
succession, or, with the consent of the Administrator, pursuant to a Domestic
Relations Order or to certain family member trusts without consideration
therefore.

Miscellaneous Provisions

In the event that the outstanding shares of Common Stock of the Company are
changed into or exchanged for a different number or kind of shares of capital
stock or other securities of the Company by reason of merger, reorganization,
consolidation, recapitalization, reclassification, stock split, reverse stock
split, stock dividend, combination of shares, or otherwise, the number and kind
of shares covered by the 2002 Incentive Plan, the maximum number of shares that
may be granted during any calendar year, the number and kind of shares covered
by, and the exercise or purchase price of, each outstanding option and other
award, and other limitations on shares applicable under the 2002 Incentive Plan,
shall be proportionately adjusted.

Certain Federal Income Tax Consequences

The federal income tax consequences of the 2002 Incentive Plan under
current federal income tax law are summarized in the following discussion that
deals with the general tax principles applicable to the 2002 Incentive Plan, and
is intended for general information only. In addition, the tax consequences
described below are subject to the limitations of Internal Revenue Code Section
162(m), as discussed in further detail below. Alternative minimum tax and other
federal taxes and foreign, state and local income taxes are not discussed, and
may vary depending on individual circumstances and from locality to locality.

Nonqualified Stock Options. For federal income tax purposes, the recipient
of NSOs granted under the 2002 Incentive Plan will not have taxable income upon
the grant of the option, nor will the Company then be entitled to any deduction.
Generally, upon exercise of NSOs the optionee will realize ordinary income, and
the Company will be entitled to a deduction, in an amount equal to the
difference between the option exercise price and the fair market value of the
stock at the date of exercise.

Incentive Stock Options. An optionee generally will not recognize taxable
income upon either the grant or exercise of an ISO. However, the amount by which
the fair market value of the shares at the time of exercise exceeds the exercise
price will be an "item of tax preference" for the optionee. Generally, upon the
sale or other taxable disposition of the shares of Common Stock acquired upon
exercise of an ISO, the optionee will recognize income taxable as capital gains
in an amount equal to the excess, if any, of the amount realized in such
disposition over the option exercise price, provided that no disposition of the
shares has taken place within either (a) two years from the date of grant of the
ISO or (b) one year from the date of exercise. If the shares of Common Stock are
sold or otherwise disposed of before the end of the one-year and two-year
periods specified above, the difference between the ISO exercise price and the
fair market value of the shares on the date of exercise generally will be
taxable as ordinary income; the balance of the amount realized from such
disposition, if any, generally will be taxed as capital gain. If the shares of
Common Stock are disposed of before the expiration of the one-year and two-year
periods and the amount realized is less than the fair market value of the shares
at the date of exercise, the optionee's ordinary income generally is limited to
the excess, if any, of the amount realized in such disposition over the option
exercise price paid. The Company (or other employer corporation) generally will
be entitled to a tax deduction with respect to an ISO only to the extent the
optionee has ordinary income upon sale or other disposition of the shares of
Common Stock.

An Option will only qualify as an incentive stock option to the extent that
the aggregate fair market value of the shares with respect to which the Option
becomes exercisable for the first time in any calendar year is equal to or less

than $100,000. For purposes of this rule, the fair market value of shares shall
be determined as of the date the incentive stock option is granted. To the
extent an incentive stock option is exercisable for shares in excess of this
$100,000 limitation, the excess shares shall be taxable under the rules for
"Non-Qualified Stock Options," described above.

Restricted Stock and Deferred Stock. A Participant to whom restricted or
deferred stock is issued will not have taxable income upon issuance and we will
not then be entitled to a deduction, unless in the case of restricted stock an
election is made under Section 83(b) of the Internal Revenue Code. However, when
restrictions on shares of restricted stock lapse, such that the shares are no
longer subject to repurchase by us, the Participant will realize ordinary income
and we will be entitled to a deduction in an amount equal to the fair market
value of the shares at the date such restrictions lapse, less the purchase price
therefor. Similarly, when deferred stock vests and is issued to the Participant,
the Participant will realize ordinary income and we will be entitled to a
deduction in an amount equal to the fair market value of the shares at the date
of issuance. If an election is made under Section 83(b) with respect to
restricted stock, the employee will realize ordinary income at the date of
issuance equal to the difference between the fair market value of the shares at
that date less the purchase price therefore and we will be entitled to a
deduction in the same amount. The Internal Revenue Code does not permit a
Section 83(b) election to be made with respect to deferred stock.

Stock Appreciation Rights. No taxable income is generally recognized by the
Participant upon the receipt of an SAR, but upon exercise of the SAR the fair
market value of the shares (or cash in lieu of shares) received generally will
be taxable as ordinary income to the Participant in the year of such exercise.
The Company generally will be entitled to a compensation deduction for the same
amount that the Participant recognizes as ordinary income.

Dividend Equivalents. A recipient of a dividend equivalent award will not
realize taxable income at the time of grant, and we will not be entitled to a
deduction at that time. When a dividend equivalent is paid, the Participant will
recognize ordinary income, and we will be entitled to a corresponding deduction.

Performance Awards. A Participant who has been granted a performance award
will not realize taxable income at the time of grant, and we will not be
entitled to a deduction at that time. When an award is paid, whether in cash or
common shares, the Participant will have ordinary income, and we will be
entitled to a corresponding deduction.

Stock Payments. A Participant who receives a stock payment in lieu of a
cash payment that would otherwise have been made will be taxed as if the cash
payment has been received, and we will have a deduction in the same amount.

Section 162(m). Under Internal Revenue Code Section 162(m), in general,
income tax deductions of publicly-traded companies may be limited to the extent
total compensation (including base salary, annual bonus, stock option exercises
and nonqualified benefits paid in 1994 and thereafter) for certain executive
officers exceeds $1 million in any one taxable year. However, under Internal
Revenue Code Section 162(m), the deduction limit does not apply to certain
"performance-based" compensation established by an independent compensation
committee which conforms to certain restrictive conditions stated under the
Internal Revenue Code and related regulations. The 2002 Incentive Plan has been
structured with the intent that Awards granted under the 2002 Incentive Plan may
meet the requirements for "performance-based" compensation and Internal Revenue
Code Section 162(m). To the extent granted, a fair market value exercise price,
options granted under the 2002 Incentive Plan are intended to qualify as
"performance-based" under Section 162(m) of the Internal Revenue Code.
Restricted Stock granted under the 2002 Incentive Plan may qualify as
"performance-based" under Internal Revenue Code Section if it vests based solely
upon the Performance Criteria.

Required Vote for Approval and Recommendation of the Board of Directors

The affirmative vote of a majority of the Company's voting stock present or
represented and entitled to vote at the Annual Meeting is required for approval
of the amendment to the 2002 Incentive Plan providing for a 1,400,000 share
increase under the 2002 Incentive Plan. Abstentions on this proposal will be

counted for purposes of determining the total number of shares that voted on the
proposal and thus will have the effect of a vote against the proposal. Broker
Non-Votes will not be deemed to be entitled to vote for purposes of determining
whether stockholder approval of this proposal has been obtained and will have no
effect on the outcome of this proposal.

Should stockholder approval not be obtained, then the 1,400,000 share
increase will not be implemented, and any options granted on the basis of that
increase will immediately terminate. No additional options will be granted on
the basis of such share increase, and the 2002 Incentive Plan will terminate
once the existing share reserve has been issued.

THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR APPROVAL
OF THE AMENDMENT TO THE 2002 INCENTIVE AWARD PLAN.

AUDIT COMMITTEE REPORT

The following is the report of the Audit Committee with respect to FileNet
Corporation's audited financial statements for the year ended December 31, 2002,
which include the consolidated balance sheets of the Company as of December 31,
2002 and 2001, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for each of the three years in the
period ended December 31, 2002, and the notes thereto.

Review with Management. The Audit Committee has reviewed and discussed the
Company's audited financial statements with management.

Review and Discussions with Independent Accountants. The Audit Committee
has discussed with Deloitte and Touche LLP, the Company's independent
accountants, the matters required to be discussed by SAS 61 (Codification of
Statements on Accounting Standards) which includes, among other items, matters
related to the conduct of the audit of the Company's financial statements.

The Audit Committee has also received written disclosures and the letter
from Deloitte and Touche LLP required by Independence Standards Board Standard
No. 1 (which relates to the accountant's independence from the Company and its
related entities) and has discussed with Deloitte and Touche LLP their
independence from the Company.

Conclusion. Based on the review and discussions referred to above, the
Audit Committee recommended to the Board of Directors that the Company's audited
financial statements be included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2002.

Submitted by the Audit Committee of the Company's Board of Directors:

John C. Savage
William P. Lyons
Roger S. Siboni

Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, which might incorporate future filings made by
the Company under those statutes, the preceding Audit Committee Report will not
be incorporated by reference into any of those prior filings, nor will such
report be incorporated by reference into any future filings made by the Company
under those statutes.

FEES BILLED TO US BY DELOITTE AND TOUCHE LLP DURING 2002

Audit Fees. The aggregate fees billed by Deloitte and Touche LLP, the
member firms of Deloitte Tomatsu, and their respective affiliates (collectively,
"Deloitte") for professional services rendered for the audit of the Company's
annual financial statements for 2002 and for the review of the financial
statements included in the Company's Quarterly Reports on Form 10-Q for 2002
were approximately $470,893.

Financial Information Systems Design and Implementation Fees. The Company
did not engage Deloitte to provide services regarding financial information
systems design and implementation during the year ended December 31, 2002.

All Other Fees. The aggregate fees billed by Deloitte for professional
services rendered to the Company, other than the services described above under
"Audit Fees", for the year ended December 31, 2002 were approximately $369,113
and can be subcategorized as follows:

Audit-Related Fees. The aggregate fees billed by Deloitte for professional
services rendered to the Company for the audit of employee benefit plans,

internal control reviews, consultation concerning financial accounting and
reporting standards, and audits related to mergers and acquisitions, for
the year ended December 31, 2002, were approximately $109,068.

Tax Fees. The aggregate fees billed by Deloitte for professional services
rendered to the Company for tax compliance, tax planning, general tax
advice, employee benefit plans, requests for rulings or technical advice
from taxing authorities, and tax advice related to international tax
matters and mergers and acquisitions, for the year ended December 31, 2002,
were approximately $260,045.

The audit committee has considered whether the provision of non-audit
services is compatible with maintaining the principal accountant's independence.

RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS

The firm of Deloitte and Touche LLP, the Company's independent accountants
for the year ended December 31, 2002, was selected by the Board of Directors,
upon recommendation of the Audit Committee, to act in the same capacity for the
year ending December 31, 2003. Neither the firm nor any of its members has any
relationship with the Company or any of its affiliates except in the firm's
capacity as the Company's auditor.

In the event that the stockholders do not approve the selection of Deloitte
and Touche LLP, the appointment of the independent accountants will be
reconsidered by the Board of Directors. Even if the selection is ratified, the
Board of Directors in its discretion may direct the appointment of a different
independent accounting firm at any time during the year if the Board of
Directors believes that such a change would be in the best interests of the
Company and its stockholders.

Representatives of Deloitte and Touche LLP are expected to be present at
the Annual Meeting and will have the opportunity to make statements if they so
desire and respond to appropriate questions from the stockholders.

Stockholder Ratification

The affirmative vote of a majority of the Company's voting stock present or
represented and entitled to vote at the Annual Meeting is required for
ratification of the appointment of Deloitte and Touche LLP to serve as the
Company's independent accountants for 2003. Abstentions on this proposal will be
counted for purposes of determining the total number of shares that voted on the
proposal and thus will have the effect of a vote against the proposal. Broker
Non-Votes will not be deemed to be entitled to vote for purposes of determining
whether stockholder approval of this proposal has been obtained and will have no
effect on the outcome of this proposal.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE
APPOINTMENT OF DELOITTE AND TOUCHE LLP AS THE COMPANY'S INDEPENDENT ACCOUNTANTS.

STOCKHOLDER PROPOSALS FOR 2004 ANNUAL MEETING

It is currently contemplated that the Company's 2004 Annual Meeting of
Stockholders will be held on or about May 19, 2004. In the event that a
stockholder desires to have a proposal considered for presentation at the 2004
Annual Meeting of Stockholders, and inclusion in the proxy statement and form of
proxy used in connection with such meeting, the proposal must be forwarded in
writing to the Corporate Secretary of the Company so that it is received no
later than December 4, 2003. Any such proposal must comply with the requirements
of the Company's Bylaws and Rule 14a-8 promulgated under the Exchange Act.

If a stockholder, rather than including a proposal in the Company's proxy
statement as discussed above, commences his or her own proxy solicitation for
the 2004 Annual Meeting of Stockholders or seeks to nominate a candidate for

election or propose business for consideration at such meeting, the Company must
receive notice of such proposal no later than February 19, 2004. If the notice
is not received by such date, it will be considered untimely under the Company's
Bylaws, and the Company will have discretionary voting authority under proxies
solicited for the 2004 Annual Meeting of Stockholders with respect to such
proposal, if presented at the meeting.

Proposals and notices should be directed to the attention of the Corporate
Secretary, FileNet Corporation, 3565 Harbor Boulevard, Costa Mesa, California
92626.

OTHER MATTERS

As of the date of this Proxy Statement, the Board of Directors knows of no
other matters that may be presented for consideration at the Annual Meeting.
However, if any other matter is presented properly for consideration and action
at the Annual Meeting, or any adjournment or postponement thereof, it is
intended that the Proxies will be voted with respect thereto in accordance with
the best judgment and in the discretion of the proxy holders.

April 2, 2003

By Order of the Board of Directors,

/s/ Sam M. Auriemma

Sam M. Auriemma
Secretary

APPENDIX A

AMENDMENT TO THE
2002 INCENTIVE AWARD PLAN
OF.
FILENET CORPORATION

This Amendment to the 2002 Incentive Award Plan of FileNet Corporation
("Amendment") is adopted by FileNet Corporation, a Delaware corporation (the
"Company"), effective as of May 7, 2003.

RECITALS

The 2002 Incentive Award Plan of FileNet Corporation (the "Plan") was
approved by the Board of Directors on March 28, 2002 and by the stockholders on
May 22, 2002.

Section 11.2 of the Plan provides that the Plan may be amended by the Board
of Directors to increase the maximum number of securities that may be issued
under the Plan, subject to obtaining stockholder approval.

Capitalized terms used in this Amendment shall have the meanings assigned
to them in the Plan.

AMENDMENT

Subsection (a) of Section 2.1 of the Plan is hereby amended in its entirety
as follows:

2.1. Shares Subject to Plan.

(a) The shares of stock subject to Awards shall be Common Stock, initially
shares of the Company's Common Stock. Subject to adjustment as
provided in Section 11.3, the aggregate number of such shares which
may be issued upon exercise of such Options or rights or upon any
other Awards under the Plan shall not exceed Two Million Eight Hundred
Thousand (2,800,000) shares, and the aggregate number of shares that
may be issued as Restricted Stock shall not exceed One Hundred and
Forty Thousand (140,000) shares. The shares of Common Stock issuable
upon exercise of such Options or rights or upon any other Awards may
be either previously authorized but unissued shares or treasury
shares."

The undersigned, Sam M. Auriemma, Senior Vice President, Chief Financial
Officer and Secretary of the Company, hereby certifies that the Board adopted
the foregoing Amendment on February 26, 2003, and the stockholders approved the
foregoing Amendment on May 7, 2003.

Executed at , California this day of May 2003.

FileNet Corporation,
a Delaware corporation

By:
Sam. M. Auriemma
Senior Vice President,
Chief Financial Officer and
Secretary

[FileNet Corporation logo]

Dear Stockholder:

Please fill out, sign and return your Proxy card promptly or use our telephone
or Internet voting capabilities. Your vote is very important.

Thank you for your cooperation.

FileNet Corporation

DETACH HERE

PROXY

FILENET CORPORATION

3565 Harbor Boulevard
Costa Mesa, California 92626

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints Sam Auriemma and Lee Roberts as Proxy holders,
or either of them acting alone, each with the power to appoint his substitute,
and hereby authorizes them to represent and vote, as designated below, all of
the shares of Common Stock of FileNet Corporation (the "Company"), held of
record by the undersigned on March 12, 2003, at the 2003 Annual Meeting of
Stockholders to be held at 9:00 a.m., Pacific time, on May 7, 2003, at The
Mondavi Center, 1570 Scenic Avenue, Costa Mesa, California 92626, and any
adjournment thereof (the "Annual Meeting").

SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE SIDE SEE REVERSE
SIDE SIDE

FILENET CORPORATION
C/O EQUISERVE TRUST COMPANY, N.A.
P.O. BOX 8694
EDISON, NJ 08818-8694

Voter Control Number

Your vote is important. Please vote immediately.

Vote-by-Internet Vote-by-Telephone

1. Log on to the Internet and go to 1. Call toll-free
http://www.eproxyvote.com/file. 1-877-PRX-VOTE (1-877-779-8683)
OR
2. Enter your Voter Control Number listed 2. Enter your Voter Control Number listed
above and follow the easy steps outlined above and follow the easy recorded
on the secured website. instructions.

If you vote over the Internet or by telephone, please do not mail your card.

DETACH HERE IF YOU ARE RETURNING YOUR PROXY CARD BY MAIL

Please mark
[ X ] votes as in
this example.

This Proxy when properly executed will be voted in the manner directed herein by
the undersigned stockholder. If no direction is given, this Proxy will be voted
FOR the election to the Board of ALL the nominees listed below and FOR proposals
2 and 3. In their discretion, the Proxy holders are authorized to vote upon such
other business as may properly come before the meeting or any adjournment or
postponement thereof.

1. Election of Directors.
Nominees: (01) L. George Klaus, (02) William P. Lyons,
(03) Lee D. Roberts, (04) John C. Savage,
(05) Roger S. Siboni and (06) Theodore J. Smith

FOR WITHHELD
ALL FROM ALL
NOMINEES [ ] NOMINEES [ ]

For all nominees except as noted above

FOR AGAINST ABSTAIN
2. To approve an amendment to Company's [ ] [ ] [ ]
2002 Incentive Award Plan to increase the
number of shares of Common Stock available
for issuance thereunder by an additional
1,400,000 shares.

FOR AGAINST ABSTAIN
3. To ratify the appointment of Deloitte and [ ] [ ] [ ]
Touche LLP as the independent accountants
of the Company for its year ending
December 31, 2003.

To transact such other business as may properly come before the meeting.

MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT

Please date this Proxy and sign it exactly as your name or names appear. When
shares are held by joint tenants, both should sign. When signing as an attorney,
executor, administrator, trustee or guardian, please give full title as such. If
shares are held by a corporation, please sign in full corporate name by the
president or other authorized officer. If shares are held by a partnership,
please sign in full partnership name by an authorized person.

Signature: Date: