2002 PROXY for FILENET CORPORATION

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Thgz/3az9oJvYeEZG+gWbbzPhkjhE/X9B2KCJb5qqOI+KNi7QpY4Zncvhsa3iGaR MwbO4j/n5HXQtBJ0S3CQ4A== 0000706015-02-000007.txt : 20020418 0000706015-02-000007.hdr.sgml : 20020418 ACCESSION NUMBER: 0000706015-02-000007 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020522 FILED AS OF DATE: 20020418 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FILENET CORP CENTRAL INDEX KEY: 0000706015 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 953757924 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: 1934 Act SEC FILE NUMBER: 000-15997 FILM NUMBER: 02614567 BUSINESS ADDRESS: STREET 1: 3565 HARBOR BLVD CITY: COSTA MESA STATE: CA ZIP: 92626 BUSINESS PHONE: 7149663400 MAIL ADDRESS: STREET 1: 3565 HARBOR BLVD CITY: COSTA MESA STATE: CA ZIP: 926261420 FORMER COMPANY: FORMER CONFORMED NAME: FILEX CORP DATE OF NAME CHANGE: 19830915 DEF 14A 1 proxy02.htm PROXY 2002 2002 PROXY for FILENET CORPORATION

14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934

Filed by the Registrant |X|

Filed by a party other than the Registrant | |

FILENET CORPORATION
(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of filing fee (Check the appropriate box):

|X| No fee required.

| | Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which transaction applies:

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(2) Aggregate number of securities to which transaction applies:

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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11(Set forth the amount on which the filing fee is
calculated and state how it was determined):

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(4) Proposed maximum aggregate value of transaction:

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(5) Total fee paid:

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| | Fee paid previously with preliminary materials.

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| | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2)
and identify the filing for which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the Form or Schedule and the date
of its filing.

(1) Amount previously paid:

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(2) Form, Schedule or Registration Statement No.:

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(3) Filing party:

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(4) Date filed:

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[FileNET Logo]

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

MAY 22, 2002

The 2002 Annual Meeting of Stockholders of FileNET Corporation (the
"Company") will be held at 9:00 a.m. Pacific time, on May 22, 2002, 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 the 2002 Incentive Award Plan pursuant to which an aggregate
of 1,400,000 shares would be available for issuance thereunder;

3. To approve an amendment to the Company's 1998 Employee Stock Purchase
Plan to increase the number of shares of Common Stock available for issuance
thereunder by an additional 1,100,000 shares, from 1,332,278 to 2,432,278
shares;

4. To ratify the appointment of Deloitte and Touche LLP as the independent
accountants of the Company for its year ending December 31, 2002; and

5. 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 27, 2002, the
record date, will be entitled to notice of, and to vote at, the 2002 Annual
Meeting and any postponement or adjournment thereof.

By Order of the Board of Directors,

/s/ Sam A. Auriemma

Costa Mesa, California Sam M. Auriemma
April 17, 2002 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 Logo]

FileNET Corporation
3565 Harbor Boulevard
Costa Mesa, California 92626

ANNUAL MEETING OF STOCKHOLDERS TO BE HELD
MAY 22, 2002

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 22, 2002 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 the
2002 Incentive Plan, pursuant to which an aggregate of 1,400,000 shares would be
available for issuance; (iii) the approval of an amendment to the Company's 1998
Employee Stock Purchase Plan to increase the number of shares of Common Stock
available for issuance thereunder by an additional 1,100,000 shares, from
1,332,278 to 2,432,278 shares; and (iv) the ratification of the appointment of
Deloitte and Touche LLP as the independent accountants of the Company for its
year ending December 31, 2002.

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 17, 2002. 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 $6,000 plus reimbursement of certain expenses for such services.

OUTSTANDING SHARES AND VOTING RIGHTS

Votes Required

Only holders of record of the approximately 35,397,418 shares of the
Company's Common Stock outstanding at the close of business on the record date,
March 27, 2002, 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
27, 2002.

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 matter. 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 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 (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 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 paper Proxy in the
self-addressed postage paid envelope provided.

VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF

The following table sets forth as of March 27, 2002 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 and Directors:
Perkins Wolf McDonnell and Co........... 3,237,864 0 9.2%
53 W. Jackson Blvd., Suite 722
Chicago, IL 60604(3)

Berger Small Cap Value.................. 2,300,000 0 6.5
210 University Blvd., Suite 900
Denver, CO 80206(4)

Merrill Lynch and Co., Inc. ............ 2,231,288 0 6.3
4 World Financial Center
New York, NY 10080(5)

Directors:
Lee D. Roberts(6)....................... 0 642,023 *
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......................... 0 33,000 *
Roger S. Siboni......................... 0 14,250 *

Named Executive Officers:
Sam M. Auriemma......................... 0 84,584 *
David D. Despard........................ 200 107,084 *
Ron L. Ercanbrack....................... 0 201,668 *
Antoine Granatino....................... 0 41,883 *
Michael J. Wallrich..................... 1,412 59,262 *

All executive officers and
directors as a group (20 persons)(9).... 40,688 1,834,251 5.3

* Represents less than 1%.

(1) Represents shares of Common Stock that the holder may acquire upon exercise
of currently vested options or options which will become vested within 60
days after March 27, 2002.

(2) Shares of Common Stock subject to options which are currently exercisable
or which will become exercisable within 60 days after March 27, 2002 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 February 25, 2002, Perkins Wolf
McDonnell and Co. has sole dispositive and sole voting power over 35,584
shares and has shared dispositive and shared voting power over 3,202,280
shares.

(4) Pursuant to a Schedule 13G filed on February 14, 2002, Berger Small Cap
Value has shared dispositive and shared voting power over 2,300,000 shares.

(5) Pursuant to a Schedule 13G filed on February 5, 2002, Merrill Lynch and Co.
has shared dispositive and shared voting power over 2,231,288 shares.
Merrill Lynch and Co. is a parent holding company. The following asset
management subsidiaries hold certain shares of the 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 is co-trustee for this trust.

(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).

EXECUTIVE OFFICERS OF THE COMPANY

The following table sets forth, as of April 1, 2002, the executive officers of the Company.

Name Age Position

Lee D. Roberts 49 Chairman of the Board of the Company since December 2000 and Chief
Executive Officer since April 1998. Mr. Roberts served as President from
May 1997 to October 2000 and as 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 49 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 40 Senior Vice President, Worldwide Corporate Marketing of the Company since
January 2002. From August 2000 to December 2001, Mr. Christian served as
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 Vice President, Marketing Programs. From March
1991 to September 1996, he served in various sales and marketing positions
with the Company.

David D. Despard 46 Senior Vice President, Worldwide 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 52 Vice President, Worldwide Sales Operations of the Company since January
1999. From December 1997 to January 1999, Mr. Dillon served as Director,
Worldwide Sales Operations and from January 1993 to December 1997 he
served as Director, Sales Operations.

Karl J. Doyle 37 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 47 President since October 2000. Mr. Ercanbrack also served as Executive
Vice President, Worldwide Sales and Marketing of the Company from April
1999 to October 2000. Mr. Ercanbrack served as Senior Vice President,
Worldwide Sales from October 1997 until April 1999. From June 1997 to
October 1997, Mr. Ercanbrack served as 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.

Name Age Position

Michael W. Harris 40 Senior Vice President, Products and Strategy 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 which he
founded in 1993. Mr. Harris was also the President and Chief Executive
Officer of Rememory Corporation.

William J. Kreidler 57 Senior Vice President, Worldwide Support and Operations 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.

Katharina M. Mueller 36 Vice President, General Counsel sssince April 2002 and Assistant Secretary
since August 2000. Acting General Counsel from August 2000 to March 2002.
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.

Royce Murphy 45 Senior Vice President, Europe, Middle East, and Africa since December
2001. From January 1999 to July 2001, Mr. Murphy was CEO of PeopleDoc
Limited. From June 1997 to December 1998, Mr. Murphy served as Vice
President and General Manager of Europe, Middle East, and Africa at
Eastman Software, a subsidiary of Kodak. Mr. Murphy also held several
positions at Hewlett-Packard, including Division Sales and Marketing
Manager.

Audrey N. Schaeffer 57 Vice President, Human Resources of the Company since January 1993 and
Assistant Secretary since April 1988.

Michael J. Wallrich 50 Senior Vice President, North America Sales of the Company since September
1999. From January 1996 to September 1999, Mr. Wallrich served as Vice
President, Sales, Eastern Region and previously served as District Manager
for the Midwest area since joining the Company in 1991.

Daniel S. Whelan 44 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 55 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, 1999, 2000, 2001) by the Company's Chief Executive Officer, and (i) 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 2001, and (ii) one
additional highly compensated executive officer who served as such during fiscal
2001 but not as of the end of fiscal year 2001 (collectively, the "Named
Executive Officers").

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 2001 $525,000 $0 400,000 $5,945
Chief Executive Officer, Chairman of 2000 454,875 529,200 80,000 4,876
the Board and Director 1999 419,613 200,000 0 4,228

Ron L. Ercanbrack 2001 375,000 0 45,000 3,586
President 2000 337,420 347,069 240,000 3,173
1999 336,780 150,000 25,000 1,114

Antoine Granatino(3) 2001 293,635 0 16,000 27,364
Senior Vice President, International 2000 289,447 283,941 80,000 20,024
Operations 1999 110,047 55,188 0 9,190

David D. Despard 2001 275,000 0 70,000 5,370
Senior Vice President, Worldwide 2000 274,500 254,800 35,000 4,460
Professional Services 1999 247,394 192,500 25,000 2,369

Sam M. Auriemma(4) 2001 275,000 0 75,000 2,100
Senior Vice President, Chief Financial 2000 82,500 66,624 175,000 2,100
Officer and Secretary

Michael J. Wallrich 2001 250,000 0 50,000 3,192
Senior Vice President, 2000 266,000 218,152 0 3,192
The Americas 1999 385,941 0 40,000 1,133

(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 2001, consists of (a) premiums paid by the Company in the amounts of $5,945,
$1,486, $3,270 and $1,092 on certain term-life insurance policies maintained for Messrs.
Roberts, Ercanbrack, Despard, and Wallrich, 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, Auriemma and Wallrich 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. Granatino in the amount of $27,364. During fiscal year 2001,
no premiums were paid by the Company for life insurance for either of Messrs. Auriemma or
Granatino, and no Company contributions under the Company's Section 401(k) Plan were made on
behalf of Mr. Roberts.

(3) Mr. Granatino joined the Company as an executive officer in August 1999. Effective as of
September 30, 2001, Mr. Granatino ceased to be an executive of the Company, in connection
with his termination of employment to be effective as of August 2, 2003. Salary paid in 2001
includes payment of accrued vacation time.

(4) Mr. Auriemma joined the Company as an executive officer in September 2000.

Option Grants in Last Fiscal Year

The following table provides information on option grants made in fiscal year 2001 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
Securities Options
Underlying Granted to Potential Realizable Value
Options Employees Exercise at Assumed Annual Rates of
Granted in Fiscal Price Expiration Stock Price Appreciation for
Name (#)(2) Year ($/Sh) Date Option Term(1)
5% 10%

Lee D. Roberts......... 200,000 8.3% $23.47 01/02/11 $ 2,952,032 $ 7,481,027
200,000 8.3% 18.45 12/12/11 2,320,621 5,880,910
Ron L. Ercanbrack...... 45,000 1.9% 13.38 07/12/11 378,657 959,592
Antoine Granatino...... 16,000 0.7% 23.47 01/02/11 236,163 598,482
David D. Despard....... 35,000 1.5% 23.47 01/02/11 516,606 1,309,180
35,000 1.5% 13.38 07/12/11 294,511 746,350
Sam M. Auriemma........ 35,000 1.5% 23.47 01/02/11 516,505 1,554,595
40,000 1.7% 13.38 07/12/11 336,584 852,971
Michael J. Wallrich.... 30,000 1.2% 23.47 01/02/11 442,805 1,122,154
20,000 0.8% 13.38 07/12/11 168,292 426,485

(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) Each option was granted under the Company's 1995 Stock Option Plan and, with the exception of
the options granted to Mr. Roberts, will 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 thereafter except for options granted to
Mr. Roberts which become exercisable in two equal annual installments commencing January 2, 2002
and December 11, 2003, respectively. Options granted to Mr. Roberts in 2001 vest 50% on each of
the first and second anniversaries of the date of grant. 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.

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 2001 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 2001.

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............ 1,000 $21,840 511,190/479,167 $5,277,522/554,150
Ron L. Ercanbrack......... 76,250 1,088,181 170,417/213,333 968,616/765,703
Antoine Granatino......... 3,450 28,255 36,550/ 56,000 377,196/412,800
David D. Despard.......... 18,752 248,584 91,771/150,729 128,000/598,013
Sam M. Auriemma........... 0 0 54,688/195,312 19,141/322,109
Michael J. Wallrich....... 0 0 48,220/ 73,750 433,881/328,288

(1) Calculated on the basis of the average of the high and low selling prices of the Company's Common Stock on
December 31, 2001 ($20.38), the last trading day in 2001, 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.

Employment Contracts and Change in Control Agreements

None of the Company's Named Executive Officers have employment agreements
currently in effect with the Company, and the employment of each Named Executive
Officer may be terminated at any time at the discretion of the Board of
Directors.

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 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; Mssrs. 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 years of base salary, together with the
CEO's target bonus which 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 2001, 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
which 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. If the proposed 2002
Incentive Award Plan is approved at this Annual Meeting, the Compensation
Committee will have the authority to make discretionary option grants and other
awards to the Company's executive officers and other employees.

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 their personal performance, the financial performance of the
Company and their 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. For fiscal 2001, the Compensation Committee consulted with Westward
Pay Strategies ("Westward Pay"), who studied competitive practices with the
Company's industries. The principal factors that were taken into account in
establishing each executive officer's compensation package for 2001 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. In setting base salaries, Westward Pay and the Compensation
Committee reviewed relevant published compensation surveys. The Committee also
identified a group of companies for comparative compensation purposes, and it
reviews detailed compensation data incorporated into each such company's proxy
statements. This group is comprised of approximately 15 companies within the
Company's industry. The base salary for each officer reflects 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. The relative weight given to each factor varies with each
individual in the sole discretion of the Compensation Committee. Each executive
officer's base salary is adjusted each year on the basis of (i) the Compensation
Committee's evaluation of the officer's personal performance for the year and
(ii) the competitive marketplace for persons in comparable positions. The
Company's performance and profitability may also be a factor in determining the
base salaries of executive officers. The Compensation Committee targeted the
75th Percentile of published survey values for base salary for comparable
positions for 2001, with salaries ranging generally approximately 27% below to
4% below this target.

Annual Incentives. The annual incentive bonus for the Chief Executive
Officer is based on a percentage of his base pay (i.e., 60% for 2001) and is
adjusted to reflect the actual financial performance of the Company in
comparison to the Company's business plan. 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. Most of the other executive officers of
the Company are also eligible to receive annual incentive bonuses that are based
on a percentage of their base salary (i.e., 25% to 60% for 2001) and are
calculated on the basis of the Company's performance to plan as measured in
terms of achievement of the Company's target earnings per share. On the basis of
the foregoing and the actual earnings per share compared to target, no bonuses
were awarded to any of our executive officers for 2001 under our annual
incentive bonus program, and no executive officers were awarded quarterly
incentive bonuses based on Company sales for 2001.

Long Term Incentives. Generally, stock option grants are made annually by
the Compensation Committee to each of the Company's executive officers. During
2001, however, grants were made to our executive officers, excluding our Chief
Executive Officer, in January and July 2001. The grants made in July 2001 were
made in place of regular annual grants to be made in January 2002. Each 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 market price on the grant date)
over a specified period of time (up to ten years). Each option granted in 2001,
other than option grants to our Chief Executive Officer, become 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.

CEO Compensation. In setting the total compensation payable to Mr. Roberts,
who served as the Company's Chief Executive Officer for 2001, the Compensation
Committee sought to make his compensation competitive with other companies in
the comparison group and the surveyed values, while at the same time assuring
that a significant percentage of his total compensation package was tied to
Company performance, as measured in terms of the achievement of the Company's
target earnings per share.

The Compensation Committee established Mr. Roberts' base salary for the
year 2001 with the objective of maintaining his base salary at a competitive
level when compared with the base salary levels in effect for similarly situated
chief executive officers. It is the Compensation Committee's intent to provide
Mr. Roberts with a level of stability and certainty each year and not have this
particular component of compensation affected to any significant degree by
Company performance factors.

For the year 2001, Mr. Roberts' base salary was set above the median but
below the 75th percentile of the base salary levels of other chief executive
officers at the surveyed companies. The balance of Mr. Roberts' targeted cash
compensation package for the year 2001 was primarily dependent upon corporate
performance. Based upon actual earnings per share compared to targeted earnings
per share, Mr. Roberts was not awarded a cash bonus for 2001.

The Compensation Committee made two grants of options covering 200,000
shares to Mr. Roberts, one in January 2001 and the second in December 2001, in
recognition of his personal performance and leadership role in the Company. The
second grant in December 2001 was made instead of the expected January 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.

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 which is not considered to be performance-based.
The non-performance based compensation paid in cash to the Company's executive
officers for 2001 did not exceed the $1 million limit per officer. The option
grants made in 2001 were made under the 1995 Stock Option Plan, and 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. The Company's 2002 Incentive Award Plan, which the
stockholders are being asked to approve at this Annual Meeting (See Proposal 2)
has been structured so that any compensation deemed paid in connection with the
exercise of option grants made under that plan with an exercise price equal to
the fair market value of the option shares on the grant date will qualify as
performance-based compensation and not be subject to the $1 million limitation.
It also is designed to provide the Company with the opportunity to make cash and
equity awards that would satisfy the requirements for performance-based
compensation under Section 162(m) of the Internal Revenue Code.

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 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, 1996 to December 31, 2001.

FILENET CORPORATION PERFORMANCE
COMPARATIVE 5-YEAR CUMLATIVE TOTAL REUTRN

Measurement Period FILENET NASDAQ NASDAQ
(Fiscal year covered) CORPORATION STOCK MARKET CandDPS INDEX
Measurement
Point 12/31/96 $100.00 $100.00 $100.00
FYE 12/31/97 $ 94.00 $123.00 $123.00
FYE 12/31/98 $ 72.00 $172.00 $220.00
FYE 12/31/99 $159.00 $312.00 $464.00
FYE 12/31/00 $170.00 $193.00 $223.00
FYE 12/31/01 $127.00 $153.00 $179.00

ASSUMES $100 INVESTED ON DECEMBER 31, 1996
ASSUMES DIVIDENDS REINVESTED YEAR ENDED DECEMBER 31, 2001

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 2001 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).

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.

The following table sets forth certain information concerning the nominees
for election to the Board of Directors:

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

L. George Klaus, 61, Chairman, President and Chief Executive Officer of
Epicor Software Corporation (formerly Platinum Software Corporation) since
February 1996. Mr. Klaus currently serves as a director of Epicor Software. 1998

William P. Lyons, 57, President, Chief Executive Officer and a director of
NeuVis Inc., an Internet Rapid Application Development (I-Rad) company since
January 2001. From February 1998 to January 2001, Mr. Lyons served as
President, Chief Executive Officer and a director of Finjan Software, Inc. 1992

Lee D. Roberts, 49, Chairman of the Board of the Company since December 2000 and
Chief Executive Officer since April 1998. Mr. Roberts served as President from
May 1997 to October 2000 and as 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. 1998

John C. Savage, 54, Managing Partner of Alliant Partners, an investment banking
firm, since June 1998. 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. 1982

Roger S. Siboni, 47, President, Chief Executive Officer and a director of
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 currently serves as a director of Cadence
Design Systems, Inc. 1998

Theodore J. Smith, 72, Chairman of the Board of the Company from its inception
in 1982 to December 2000. Mr. Smith served as the Chief Executive Officer of
the Company since its inception in 1982 to April 1998, and President of the
Company from 1982 to May 1997. Mr. Smith is currently a director of Intershop
Communications, A.G. 1982

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 ten meetings during the year ended December 31,
2001. Mr. Siboni attended six of the meetings of the Board of Directors (i.e.,
60%). All of the other directors attended or participated in at least 75% of the
aggregate number of meetings of the Board of Directors. Each director (including
Mr. Siboni) 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 Committees.

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, 2001. 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 2001, Messrs. Lyons and Klaus comprised the Compensation Committee.
The Compensation Committee held five meetings during the year ended December 31,
2001. The Compensation Committee reviews and approves executive salaries,
considers awards to be granted under the Company's officer bonus plan, has the
exclusive authority to make stock option grants under the Company's option plans
to our executive officers and performs other related functions upon request of
the Board of Directors. Either the Compensation Committee or the full Board of
Directors may award option grants to all other eligible individuals. 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 13 occasions during 2001.

The Nominating Committee was formed in December of 2001 and held no
meetings. The Nominating Committee consists of Messrs. Siboni and Smith.

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 2001: (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 2001 Annual Stockholders Meeting held on May 16, 2001, Messrs.
Lyons, Klaus, Savage, Smith and Siboni each 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 Program in effect for non-employee Board
members under the 1995 Stock Option Plan. Each option has an exercise price of
$14.39 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.

If the proposed 2002 Incentive Award Plan is approved by the stockholders
at this Annual Meeting (see Proposal 2) each independent director reelected to
the Board at the Annual Meeting will receive an option grant for 7,000 shares of
the Company's Common Stock under the 2002 Incentive Award Plan, with an exercise
price equal to the fair market value of our common stock on the date of grant.
The proposed 2002 Incentive Award Plan continues the automatic grant program
that the Company had in effect under its 1995 Stock Option Plan, as amended and
restated.

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 the 2002 Incentive Award Plan

The Board is submitting for stockholder approval the 2002 Incentive Award
Plan (the "2002 Incentive Plan"). On March 28, 2002, the Board approved and
adopted the 2002 Incentive Plan, subject to approval by the stockholders of the
Company. The 2002 Incentive Plan provides for an aggregate of 1,400,000 shares
that may be issued under the plan, of which only 140,000 shares may be issued as
Restricted Stock.

The 2002 Incentive Plan serves as a successor to the Company's 1995 Stock
Option Plan as there remain only 99,470 shares as of March 27, 2002 shares
available for grant under the 1995 Stock Option Plan. The Board of Directors has
determined that it is advisable to continue to provide stock-based incentive
compensation to the Company's officers, directors, consultants and employees
thereby continuing to align the interests of such individuals with those of the
stockholders, and that awards under the 2002 Incentive Plan are an effective
means of providing such compensation. In addition, the 2002 Incentive Plan gives
the Compensation Committee the ability to qualify cash and non-cash compensation
paid to executive officers as performance-based compensation, thereby preserving
the Company's ability to take a deduction with respect to such compensation.

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").

The principal features of the 2002 Incentive Plan are summarized below, but
the summary is qualified in its entirety by reference to the 2002 Incentive Plan
itself, which is included as Appendix A to this Proxy Statement.

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
1,400,000 shares; provided that 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 27, 2002, the average of the high and low price of a share of the
Company's Common Stock on the Nasdaq Stock Market was $17.66.

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 Directors.

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 which 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 a separate 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, commencing with the 2002 Annual
Meeting of Stockholders. 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 months
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 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 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 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 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 intestate
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 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.

The 2002 Incentive Plan must be approved by the stockholders within twelve
months of the date of its adoption. Awards under the 2002 Incentive Plan may be
granted prior to such approval, provided that such Awards may not vest or become
exercisable prior to the stockholders' approval of the 2002 Incentive Plan, and
that if such approval is not received within the twelve-month period, all such
Awards shall become null and void.

Plan Benefits

If the 2002 Incentive Plan is approved by the stockholders, then each
Independent Director as of the date of the Annual Meeting, shall receive
automatically effective as of the date of the Annual Meeting, options covering
7,000 shares of common stock with an exercise price equal to the fair market
value of the common stock on the date of grant, and shall vest 25% per year from
the date of grant, subject to continued service on the Board.

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 which
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 shares present in person or by
proxy at the Annual Meeting, and entitled to vote, is required to approve 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. Shares that are not voted
by the broker who is the record holder of the shares (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 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 THAT THE STOCKHOLDERS VOTE FOR APPROVAL
OF THE 2002 INCENTIVE AWARD PLAN.

Proposal 3

APPROVAL OF AMENDMENT TO THE 1998 EMPLOYEE STOCK PURCHASE PLAN

The Company's stockholders are being asked to approve an amendment to the
1998 Employee Stock Purchase Plan (the "Purchase Plan") that will increase the
number of shares of Common Stock issuable under the Purchase Plan by an
additional 1,100,000 shares, from 1,332,278 to 2,432,278 shares. As of March 27,
2002, 373,150 shares remain available for grant under the Purchase 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
Purchase 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 payroll-deduction based employee stock purchase
program designed to operate in compliance with Section 423 of the Internal
Revenue Code.

The Purchase Plan was adopted by the Board of Directors on March 17, 1998
and became effective on October 1, 1998 (the "Effective Date"). The amendment to
the Purchase Plan that is the subject of this Proposal was adopted by the Board
on March 28, 2002.

The following is a summary of the principal features of the Purchase Plan,
as most recently amended. The summary, however, does not purport to be a
complete description of all the provisions of the Purchase 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.

Share Reserve

The maximum number of shares of the Company's Common Stock available for
issuance over the term of the Purchase Plan may not exceed 2,432,278 shares,
which includes the 1,100,000-share increase for which stockholder approval is
sought under this Proposal. This share reserve is also be used to fund all stock
purchases under the International Employee Stock Purchase Plan which the Company
has established for the employees of its foreign subsidiaries. The provisions of
the International Employee Stock Purchase Plan are substantially the same as
those in effect for the Purchase Plan, except for certain modifications that
were made to satisfy legal or regulatory requirements of the applicable foreign
jurisdictions.

In the event any change is made to the outstanding shares of Common Stock
by reason of any recapitalization, stock dividend, stock split, combination of
shares, exchange of shares or other change in corporate structure effected
without the Company's receipt of consideration, appropriate adjustments will be
made to (i) the class and maximum number of securities issuable in the aggregate
under the Purchase Plan, including the class and maximum number of securities
issuable per Participant or in the aggregate on any one purchase date, and (ii)
the class and maximum number of securities subject to each outstanding purchase
right and the purchase price payable per share thereunder.

Administration

The Purchase Plan is currently administered by the Compensation Committee
of the Board of Directors. Such committee, as Plan Administrator, has full
authority to adopt such rules and procedures as it may deem necessary for proper
plan administration and to interpret the provisions of the Purchase Plan. All
costs and expenses incurred in plan administration will be paid by the Company
without charge to Participants.

Offering Periods

Shares will be issued through a series of successive six-month offering
periods. Each Participant is granted a purchase right to purchase shares of
Common Stock on the first day of each offering period under the Purchase Plan in
which he or she participates. Offering periods under the Purchase Plan run
from the first business day of May to the last business day of October each year

and from the first business day of November each year to the last business day
of April in the immediately succeeding year. Each purchase right entitles the
Participant to purchase the whole number of shares of Common Stock obtained by
dividing the Participant's payroll deductions for the offering period by the
purchase price in effect for such offering period. Each purchase right is
automatically exercised and the shares so purchased are issued, as of the
closing day of each offering period.

Eligibility

Any individual who customarily works for more than twenty (20) hours per
week and more than five (5) months per calendar year in the employ of the
Company or any participating affiliate will be eligible to participate in one or
more offering periods. An eligible employee may only join an offering period by
submitting the appropriate forms to the Company on or before the start date of
that period. No new forms need to be submitted to continue participation under
the Purchase Plan.

Participating affiliates include any parent or subsidiary corporations of
the Company, whether now existing or hereafter organized, which elect, with the
approval of the Plan Administrator, to extend the benefits of the Purchase Plan
to their eligible employees.

As of March 27, 2002, approximately 818 employees, including four executive
officers, were eligible to participate in the Purchase Plan.

Purchase Provisions

Each Participant authorizes periodic payroll deductions in any multiple of
one percent (1%) of his or her cash earnings, up to a maximum of ten percent
(10%). A Participant may not increase his or her rate of payroll deduction for
an offering period after the start of that period, but he or she may decrease
the rate once per offering period.

On the last business day of each offering period, the accumulated payroll
deductions of each Participant will automatically be applied to the purchase of
whole shares of Common Stock at the purchase price in effect for that offering
period.

Purchase Price

The purchase price per share at which Common Stock is purchased by a
Participant for each offering period is equal to eighty-five percent (85%) of
the lower of (i) the fair market value per share of Common Stock on the start
date of that offering period or (ii) the fair market value per share of Common
Stock on the last day of that offering period.

The fair market value per share of Common Stock on any relevant date is the
average of the high and low selling prices per share on such date on the Nasdaq
National Market. On March 27, 2002, the fair market value per share of Common
Stock determined on such basis was $17.66.

Special Limitations

The Purchase Plan imposes certain limitations upon a Participant's rights
to acquire Common Stock, including the following limitations:

- No purchase right may be granted to any individual who owns stock
(including stock purchasable under any outstanding options) possessing five
percent (5%) or more of the total combined voting power or value of all classes
of stock of the Company or any of its affiliates.

- No purchase right granted to a Participant may permit such individual to
purchase Common Stock at a rate greater than $25,000 worth of such Common Stock
(valued at the time such purchase right is granted) for each calendar year the
purchase right remains outstanding at any time.

- No Participant may purchase more than 800 shares of Common Stock on any
one purchase date (e.g., the last day of an offering period).

- No more than 170,000 shares of Common Stock may be purchased in the
aggregate by all Participants on any one purchase date (e.g., the last day of an
offering period).

The Plan Administrator will have the discretionary authority, exercisable
prior to the start of any offering period, to increase or decrease the 800-share
and 170,000-share limitations to be in effect for the number of shares
purchasable per Participant or in the aggregate by all Participants on each
purchase date during that offering period.

Termination of Purchase Rights

A Participant's purchase right will immediately terminate upon such
Participant's loss of eligible employee status, and his or her accumulated
payroll deductions for the offering period in which the purchase right
terminates will be promptly refunded, without interest. A Participant may
withdraw from an offering period at any time prior to the last fifteen (15) days
of an offering period and elect to have his or her accumulated payroll
deductions for the offering period in which such withdrawal occurs either
refunded without interest or applied to the purchase of shares of Common Stock
on the next purchase date.

Stockholder Rights

No Participant will have any stockholder rights with respect to the shares
of Common Stock covered by his or her purchase right until the shares are
actually purchased on the last day of the offering period. No adjustment will be
made for dividends, distributions or other rights for which the record date is
prior to the date of such purchase. Shares when issued are deposited
to a Company-designated brokerage account maintained for each Participant.

Assignability

No purchase right or other interest of a Participant under the Purchase
Plan is assignable or transferable and may be exercised only by the
Participant.

Acquisition

Should the Company be acquired by merger or asset sale during an offering
period, all outstanding purchase rights will automatically be exercised
immediately prior to the effective date of such acquisition. The purchase
price will be equal to eighty-five (85%) of the lower of (i) the fair market
value per share of Common Stock on the start date of that offering period or
(ii) the fair market value per share of Common Stock immediately prior to such
acquisition. The limitation on the maximum number of shares purchasable in the
aggregate on any one purchase date will not apply to the share purchases
effected in connection with such acquisition.

Amendment and Termination

The Purchase Plan will terminate upon the earliest to occur of (i) October
31, 2008, (ii) the date on which all available shares are issued or (iii) the
date on which all outstanding purchase rights are exercised in connection with
an acquisition of the Company.

The Board of Directors may at any time alter, suspend or discontinue the
Purchase Plan. However, the Board of Directors may not, without stockholder
approval, (i) increase the number of shares issuable under the Purchase Plan,
except in connection with certain changes in the Company's capital structure,
(ii) alter the purchase price formula so as to reduce the purchase price or
(iii) modify the requirements for eligibility to participate in the Purchase
Plan.

Certain Federal Income Tax Consequences

The Purchase Plan is intended to be an "employee stock purchase plan"
within the meaning of Section 423 of the Internal Revenue Code. Under a plan
that so qualifies, no taxable income will be recognized by a Participant, and no
deductions will be allowable to the Company, in connection with the grant or the
exercise of a purchase right under the plan.

Taxable income will not be recognized until there is a sale or other
disposition of the shares acquired under the Purchase Plan or in the event the
Participant should die while still owning the purchased shares.

If the Participant sells or otherwise disposes of the purchased shares
within two (2) years after the start date of the offering period in which such
shares were acquired or within one (1) year after the actual purchase date of
those shares, then the Participant will recognize ordinary income in the year of
sale or disposition equal to the amount by which the fair market value of the
shares on the purchase date exceeded the purchase price paid for those shares,
and the Company will be entitled to an income tax deduction, for the taxable
year in which such sale or disposition occurs, equal in amount to such excess.

If the Participant sells or disposes of the purchased shares more than two
(2) years after the start date of the offering period in which such shares were
acquired and more than one (1) one year after the actual purchase date of those
shares, then the Participant will recognize ordinary income in the year of sale
or disposition equal to the lesser of (i) the amount by which the fair market
value of the shares on the sale or disposition date exceeded the purchase price
paid for those shares or (ii) fifteen percent (15%) of the fair market value of
the shares on the start date of the offering period, and any additional gain
upon the disposition will be taxed as a long-term capital gain. The Company will
not be entitled to any income tax deduction with respect to such sale or
disposition.

If the Participant still owns the purchased shares at the time of death,
the lesser of (i) the amount by which the fair market value of the shares on the
date of death exceeds the purchase price or (ii) fifteen percent (15%) of the
fair market value of the shares on the start date of the offering period in
which those shares were acquired will constitute ordinary income in the year of
death.

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 Purchase Plan providing for a 1,100,000 share increase
under the Purchase 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. Shares that are
not voted by the broker who is the record holder of the shares (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 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 1,100,000 share
increase will not be implemented, and any purchase rights granted on the basis
of that increase would immediately terminate. No additional purchase rights
will be granted on the basis of such share increase, and the Purchase Plan will
terminate once the existing share reserve has been issued.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT
TO THE PURCHASE 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, 2001,
which include the consolidated balance sheets of the Company as of December 31,
2001 and 2000, 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, 2001, and the notes thereto. The information contained
in this report shall not be deemed to be "soliciting material" or to be "filed"
with the Securities and Exchange Commission, nor shall such information be
incorporated by reference into any future filing under the Securities Act of
1933, as amended, or the Securities Exchange Act of 1934, as amended, except to
the extent that the Company specifically incorporates it by reference in such
filing.

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, 2001.

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 2001

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 2001 and for the review of the financial
statements included in the Company's Quarterly Reports on Form 10-Q for 2001
were approximately $305,118.

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, 2001.

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, 2001 were approximately $399,780
and can be subcategorized as follows:

Attestation Fees. The aggregate fees for attestation services rendered by
Deloitte for matters such as consents related to SEC and other registration
statements, audits of employee benefit plans, statutory audits, and
consultation on accounting standards or transactions was approximately
$141,834.

Other Fees. The aggregate fees for all other services rendered by Deloitte
such as consultation related to tax planning and compliance and improving
business and operational processes was approximately $257,946.

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, 2001, 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, 2002. 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 accounts for 2002. 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. Shares
that are not voted by the broker who is the record holder of the shares (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 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 2003 ANNUAL MEETING

It is currently contemplated that the Company's 2003 Annual Meeting of
Stockholders will be held on or about May 21, 2003. In the event that a
stockholder desires to have a proposal considered for presentation at the 2003
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 18, 2002. 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 2003 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 December 18, 2002. If the notice
is not received by such date, it will be considered untimely under Rule 14a-4(c)

promulgated under the Exchange Act, and the Company will have discretionary
voting authority under proxies solicited for the 2003 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 17, 2002

By Order of the Board of Directors,

/s/ Sam A. Auriemma
Sam M. Auriemma
Secretary

APPENDIX A

THE 2002 INCENTIVE AWARD PLAN

FILENET CORPORATION

FileNET Corporation, a Delaware corporation, has adopted the 2002 Incentive
Award Plan of FileNET Corporation, (the "Plan"), effective May 22, 2002
("Effective Date"), for the benefit of its eligible employees, consultants and
directors.

The purposes of the Plan are as follows:

(1) To provide an additional incentive for directors, key Employees and
Consultants (as such terms are defined below) to further the growth, development
and financial success of the Company by personally benefiting through the
ownership of Company stock and/or rights which recognize such growth,
development and financial success.

(2) To enable the Company to obtain and retain the services of directors,
key Employees and Consultants considered essential to the long range success of
the Company by offering them an opportunity to own stock in the Company and/or
rights which will reflect the growth, development and financial success of the
Company.

ARTICLE I.
DEFINITIONS

Wherever the following terms are used in the Plan they shall have the
meanings specified below, unless the context clearly indicates otherwise. The
singular pronoun shall include the plural where the context so indicates.

1.1. "Administrator" shall mean the entity that conducts the general
administration of the Plan as provided herein. With reference to the
administration of the Plan with respect to Options granted to Independent
Directors, the term "Administrator" shall refer to the Board. With reference to
the administration of the Plan with respect to any other Award, the term
"Administrator" shall refer to the Committee, unless the Board has assumed the
authority for administration of the Plan generally as provided in Section 10.1
or the Committee has delegated its authority to administer the Plan as provided
in Section 10.5, in which events "Administrator" shall refer to the Board or
such delegated sub-committee, as applicable.

1.2. "Award" shall mean an Option, a Restricted Stock award, a Performance
Award, a Dividend Equivalents award, a Deferred Stock award, a Stock Payment
award or a Stock Appreciation Right which may be awarded or granted under the
Plan (collectively, "Awards").

1.3. "Award Agreement" shall mean a written agreement executed by an
authorized officer of the Company and the Holder, which shall contain such terms
and conditions with respect to an Award as the Administrator shall determine,
consistent with the Plan.

1.4. "Award Limit" shall mean 400,000 shares of Common Stock, as adjusted
pursuant to Section 11.3; provided, however, that solely with respect to
Performance Awards granted pursuant to Section 8.2(b), Award Limit shall mean
Seven Hundred Fifty Thousand Dollars ($750,000).

1.5. "Board" shall mean the Board of Directors of the Company.

1.6. "Change in Control" shall mean a change in ownership or control of
the Company effected through any of the following transactions:

(a) Any person or related group of persons (other than the Company or
a person that, prior to such transaction, directly or indirectly controls,
is controlled by, or is under common control with, the Company) directly or
indirectly acquires beneficial ownership (within the meaning of Rule 13d-3
under the Exchange Act) of securities possessing more than 50% of the total
combined voting power of the Company's outstanding securities pursuant to a
tender or exchange offer made directly to the Company's stockholders which
the Board does not recommend such stockholders accept; or

(b) There is a change in the composition of the Board over a period of
36 consecutive months (or less) such that a majority of the Board members
(rounded up to the nearest whole number) ceases, by reason of one or more
proxy contests for the election of Board members, to be comprised of
individuals who either (i) have been Board members continuously since the
beginning of such period, or (ii) have been elected or nominated for
election as Board members during such period by at least a majority of the
Board members described in clause (i) who were still in office at the time
such election or nomination was approved by the Board; or

1.7. "Code" shall mean the Internal Revenue Code of 1986, as amended.

1.8. "Committee" shall mean the Compensation Committee of the Board, or
another committee or subcommittee of the Board, appointed as provided in Section
10.1.

1.9. "Common Stock" shall mean the common stock of the Company, par value
$0.01 per share.

1.10. "Company" shall mean FileNET Corporation, a Delaware corporation.

1.11. "Consultant" shall mean any consultant or adviser if:

(a) The consultant or adviser renders bona fide services to the
Company;

(b) The services rendered by the consultant or adviser are not in
connection with the offer or sale of securities in a capital-raising
transaction and do not directly or indirectly promote or maintain a market
for the Company's securities; and

1.12. "Corporate Transaction" shall mean:

(a) The stockholders of the Company approve a merger or consolidation
of the Company with any other corporation (or other entity), other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 50% of the combined voting
power of the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation; provided,
however, that a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no person
acquires more than 25% of the combined voting power of the Company's then
outstanding securities shall not constitute a Change in Control; or

(b) The stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all of the Company's assets.]

1.13. "Deferred Stock" shall mean Common Stock awarded under Article VIII
of the Plan.

1.14. "Director" shall mean a member of the Board.

1.15. "Dividend Equivalent" shall mean a right to receive the equivalent
value (in cash or Common Stock) of dividends paid on Common Stock, awarded under
Article VIII of the Plan.

1.16. "DRO" shall mean a domestic relations order as defined by the Code or
Title I of the Employee Retirement Income Security Act of 1974, as amended, or
the rules thereunder.

1.17. "Effective Date" shall mean May 22, 2002.

1.18. "Employee" shall mean any officer or other employee (as defined in
accordance with Section 3401(c) of the Code) of the Company, or of any
corporation that is a Subsidiary.

1.19. "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.

1.20. "Fair Market Value" of a share of Common Stock as of a given date
shall be (a) the average of the high and low selling prices of a share of Common
Stock on the principal exchange or the Nasdaq Stock Market on which shares of
Common Stock are then trading, if any (or as reported on any composite index
which includes such principal exchange), on such date, or if shares were not
traded on such date, then on the next preceding date on which a trade occurred,
or (b) if Common Stock is not traded on an exchange or the Nasdaq Stock Market,
but is quoted on Nasdaq or a successor quotation system, the average of the
closing representative bid and asked prices for the Common Stock on such date as
reported by Nasdaq or such successor quotation system, or (c) if Common Stock is
not publicly traded on an exchange and not quoted on Nasdaq or a successor
quotation system, the Fair Market Value of a share of Common Stock as
established by the Administrator acting in good faith.

1.21. "Holder" shall mean a person who has been granted or awarded an
Award.

1.22. "Incentive Stock Option" shall mean an option which conforms to the
applicable provisions of Section 422 of the Code and which is designated as an
Incentive Stock Option by the Administrator.

1.23. "Independent Director" shall mean a member of the Board who is not an
Employee of the Company.

1.24. "Non-Qualified Stock Option" shall mean an Option that is not
designated as an Incentive Stock Option by the Administrator.

1.25. "Option" shall mean a stock option granted under Article IV of the
Plan. An Option granted under the Plan shall, as determined by the
Administrator, be either a Non-Qualified Stock Option or an Incentive Stock
Option; provided, however, that Options granted to Independent Directors and
Consultants shall be Non-Qualified Stock Options.

1.26. "Performance Award" shall mean a cash bonus, stock bonus or other
performance or incentive award that is paid in cash, Common Stock or a
combination of both, awarded under Article VIII of the Plan.

1.27. "Performance Criteria" shall mean the following business criteria
with respect to the Company, any Subsidiary or any division or operating unit:
(a) net income, (b) pre-tax income, (c) operating income, (d) cash flow, (e)
earnings per share, (f) return on equity, (g) return on invested capital or
assets, (h) cost reductions or savings, (i) funds from operations, (j)
appreciation in the fair market value of Common Stock, and (k) earnings before
any one or more of the following items: interest, taxes, depreciation or
amortization each as determined in accordance with generally accepted accounting
principles or subject to such adjustments as may be specified by the Committee
with respect to a Performance Award.

1.28. "Permanent Disability" shall mean, for purposes of Awards granted to
Independent Directors, the inability of the Holder to perform his usual duties
as a Board member by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
months or more.

1.29. "Plan" shall mean the 2002 Incentive Award Plan of FileNET
Corporation, as amended and/or restated from time to time.

1.30. "Restricted Stock" shall mean Common Stock awarded under Article VII
of the Plan.

1.31. "Rule 16b-3" shall mean Rule 16b-3 promulgated under the Exchange
Act, as such Rule may be amended from time to time.

1.32. "Section 162(m) Participant" shall mean any key Employee designated
by the Administrator as a key Employee whose compensation for the fiscal year in
which the key Employee is so designated or a future fiscal year may be subject
to the limit on deductible compensation imposed by Section 162(m) of the Code.

1.33. "Securities Act" shall mean the Securities Act of 1933, as amended.

1.34. "Stock Appreciation Right" shall mean a stock appreciation right
granted under Article IX of the Plan.

1.35. "Stock Payment" shall mean (a) a payment in the form of shares of
Common Stock, or (b) an option or other right to purchase shares of Common
Stock, as part of a deferred compensation arrangement, made in lieu of all or
any portion of the compensation, including without limitation, salary, bonuses
and commissions, that would otherwise become payable to a key Employee or
Consultant in cash, awarded under Article VIII of the Plan.

1.36. "Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.

1.37. "Substitute Award" shall mean an Option granted under this Plan upon
the assumption of, or in substitution for, outstanding equity awards previously
granted by a company or other entity in connection with a corporate transaction,
such as a merger, combination, consolidation or acquisition of property or
stock; provided, however, that in no event shall the term "Substitute Award" be
construed to refer to an award made in connection with the cancellation and
repricing of an Option.

1.38. "Termination of Consultancy" shall mean the time when the engagement
of a Holder as a Consultant to the Company or a Subsidiary is terminated for any
reason, with or without cause, including, but not by way of limitation, by
resignation, discharge, death or retirement, but excluding terminations where
there is a simultaneous commencement of employment with the Company or any
Subsidiary. The Administrator, in its absolute discretion, shall determine the
effect of all matters and questions relating to Termination of Consultancy,
including, but not by way of limitation, the question of whether a Termination
of Consultancy resulted from a discharge for good cause, and all questions of
whether a particular leave of absence constitutes a Termination of Consultancy.
Notwithstanding any other provision of the Plan, the Company or any Subsidiary
has an absolute and unrestricted right to terminate a Consultant's service at
any time for any reason whatsoever, with or without cause, except to the extent
expressly provided otherwise in writing.

1.39. "Termination of Directorship" shall mean the time when a Holder who
is an Independent Director ceases to be a Director for any reason, including,
but not by way of limitation, a termination by resignation, failure to be
elected, death or retirement. The Board, in its sole and absolute discretion,
shall determine the effect of all matters and questions relating to Termination
of Directorship with respect to Independent Directors.

1.40. "Termination of Employment" shall mean the time when the
employee-employer relationship between a Holder and the Company or any
Subsidiary is terminated for any reason, with or without cause, including, but
not by way of limitation, a termination by resignation, discharge, death,
disability or retirement; but excluding (a) terminations where there is a
simultaneous reemployment or continuing employment of a Holder by the Company or
any Subsidiary, (b) at the discretion of the Administrator, terminations which
result in a temporary severance of the employee-employer relationship, and (c)
at the discretion of the Administrator, terminations which are followed by the
simultaneous establishment of a consulting relationship by the Company or a
Subsidiary with the former employee. The Administrator, in its absolute
discretion, shall determine the effect of all matters and questions relating to
Termination of Employment, including, but not by way of limitation, the question

of whether a Termination of Employment resulted from a discharge for good cause,
and all questions of whether a particular leave of absence constitutes a
Termination of Employment; provided, however, that, with respect to Incentive
Stock Options, unless otherwise determined by the Administrator in its
discretion, a leave of absence, change in status from an employee to an
independent contractor or other change in the employee-employer relationship
shall constitute a Termination of Employment if, and to the extent that, such
leave of absence, change in status or other change interrupts employment for the
purposes of Section 422(a)(2) of the Code and the then applicable regulations
and revenue rulings under said Section.

ARTICLE II.
SHARES SUBJECT TO PLAN

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 One Million Three Hundred and Fifty
Thousand (1,400,000) shares, and the aggregate number of shares that may be
issued as Restricted Stock shall not exceed One Hundred and Thirty-Five
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.

(b) The maximum number of shares which may be subject to Awards
granted under the Plan to any individual in any calendar year shall not
exceed the Award Limit.

2.2 Add-back of Options and Other Awards. If any Option, or other right to
acquire shares of Common Stock under any other Award under the Plan, expires or
is canceled without having been fully exercised, or is exercised in whole or in
part for cash as permitted by the Plan, the number of shares subject to such
Option or other right but as to which such Option or other right was not
exercised prior to its expiration, cancellation or exercise may again be
optioned, granted or awarded hereunder, subject to the limitations of Section
2.1. Furthermore, any shares subject to Awards which are adjusted pursuant to
Section 11.3 and become exercisable with respect to shares of stock of another
corporation shall be considered cancelled and may again be optioned, granted or
awarded hereunder, subject to the limitations of Section 2.1. Shares of Common
Stock which are delivered by the Holder or withheld by the Company upon the
exercise of any Award under the Plan, in payment of the exercise price thereof
or tax withholding thereon, may again be optioned, granted or awarded hereunder,
subject to the limitations of Section 2.1. If any shares of Restricted Stock are
surrendered by the Holder or repurchased by the Company pursuant to Section 7.4
or 7.5 hereof, such shares may again be optioned, granted or awarded hereunder,
subject to the limitations of Section 2.1. Notwithstanding the provisions of
this Section 2.2, no shares of Common Stock may again be optioned, granted or
awarded if such action would cause an Incentive Stock Option to fail to qualify
as an incentive stock option under Section 422 of the Code.

ARTICLE III.
GRANTING OF AWARDS

3.1. Award Agreement. Each Award shall be evidenced by an Award Agreement.
Award Agreements evidencing Awards intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code shall contain such
terms and conditions as may be necessary to meet the applicable provisions of
Section 162(m) of the Code. Award Agreements evidencing Incentive Stock Options
shall contain such terms and conditions as may be necessary to meet the
applicable provisions of Section 422 of the Code.

3.2. Provisions Applicable to Section 162(m) Participants.

(a) The Administrator, in its discretion, may determine whether an
Award is to qualify as performance-based compensation as described in
Section 162(m)(4)(C) of the Code.

(b) Notwithstanding anything in the Plan to the contrary, the
Administrator may grant any Award to a Section 162(m) Participant,
including Restricted Stock the restrictions with respect to which lapse
upon the attainment of performance goals which are related to one or more
of the Performance Criteria and any performance or incentive award
described in Article VIII that vests or becomes exercisable or payable upon
the attainment of performance goals which are related to one or more of the
Performance Criteria.

(c) To the extent necessary to comply with the performance-based
compensation requirements of Section 162(m)(4)(C) of the Code, with respect
to any Award granted under Articles VII and VIII which may be granted to
one or more Section 162(m) Participants, no later than ninety (90) days
following the commencement of any fiscal year in question or any other
designated fiscal period or period of service (or such other time as may be
required or permitted by Section 162(m) of the Code), the Administrator
shall, in writing, (i) designate one or more Section 162(m) Participants,
(ii) select the Performance Criteria applicable to the fiscal year or other
designated fiscal period or period of service, (iii) establish the various
performance targets, in terms of an objective formula or standard, and
amounts of such Awards, as applicable, which may be earned for such fiscal
year or other designated fiscal period or period of service, and (iv)
specify the relationship between Performance Criteria and the performance
targets and the amounts of such Awards, as applicable, to be earned by each
Section 162(m) Participant for such fiscal year or other designated fiscal
period or period of service. Following the completion of each fiscal year
or other designated fiscal period or period of service, the Administrator
shall certify in writing whether the applicable performance targets have
been achieved for such fiscal year or other designated fiscal period or
period of service. In determining the amount earned by a Section 162(m)
Participant, the Administrator shall have the right to reduce (but not to
increase) the amount payable at a given level of performance to take into
account additional factors that the Administrator may deem relevant to the
assessment of individual or corporate performance for the fiscal year or
other designated fiscal period or period of service.

(d) Furthermore, notwithstanding any other provision of the Plan or
any Award which is granted to a Section 162(m) Participant and is intended
to qualify as performance-based compensation as described in Section
162(m)(4)(C) of the Code shall be subject to any additional limitations set
forth in Section 162(m) of the Code (including any amendment to Section
162(m) of the Code) or any regulations or rulings issued thereunder that
are requirements for qualification as performance-based compensation as
described in Section 162(m)(4)(C) of the Code, and the Plan shall be deemed
amended to the extent necessary to conform to such requirements.

3.3. Limitations Applicable to Section 16 Persons. Notwithstanding any
other provision of the Plan, the Plan, and any Award granted or awarded to any
individual who is then subject to Section 16 of the Exchange Act, shall be
subject to any additional limitations set forth in any applicable exemptive rule
under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of
the Exchange Act) that are requirements for the application of such exemptive
rule. To the extent permitted by applicable law, the Plan and Awards granted or
awarded hereunder shall be deemed amended to the extent necessary to conform to
such applicable exemptive rule.

3.4. Consideration. In consideration of the granting of an Award under the
Plan, the Holder shall agree, in the Award Agreement, to remain in the employ of
(or to consult for or to serve as an Independent Director of, as applicable) the
Company or any Subsidiary for a period of at least one year (or such shorter
period as may be fixed in the Award Agreement or by action of the Administrator
following grant of the Award) after the Award is granted (or, in the case of an
Independent Director, until the next annual meeting of stockholders of the
Company).

3.5. At-Will Employment. Nothing in the Plan or in any Award Agreement
hereunder shall confer upon any Holder any right to continue in the employ of,
or as a Consultant for, the Company or any Subsidiary, or as a director of the
Company, or shall interfere with or restrict in any way the rights of the
Company and any Subsidiary, which are hereby expressly reserved, to discharge
any Holder at any time for any reason whatsoever, with or without cause, except
to the extent expressly provided otherwise in a written employment agreement
between the Holder and the Company and any Subsidiary.

ARTICLE IV.
GRANTING OF OPTIONS TO EMPLOYEES,
CONSULTANTS AND INDEPENDENT DIRECTORS

4.1. Eligibility. Any Employee or Consultant selected by the Administrator
pursuant to Section 4.4(a)(i) shall be eligible to be granted an Option. Each
Independent Director of the Company shall be eligible to be granted Options at
the times and in the manner set forth in Section 4.5.

4.2. Disqualification for Stock Ownership. No person may be granted an
Incentive Stock Option under the Plan if such person, at the time the Incentive
Stock Option is granted, owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or any then
existing Subsidiary or parent corporation (within the meaning of Section 422 of
the Code) unless such Incentive Stock Option conforms to the applicable
provisions of Section 422 of the Code.

4.3. Qualification of Incentive Stock Options. No Incentive Stock Option
shall be granted to any person who is not an Employee.

4.4. Granting of Options to Employees and Consultants.

(a) The Administrator shall from time to time, in its absolute
discretion, and subject to applicable limitations of the Plan:

(i) Determine which Employees are key Employees and select from
among the key Employees or Consultants (including Employees or
Consultants who have previously received Awards under the Plan) such
of them as in its opinion should be granted Options;

(ii) Subject to the Award Limit, determine the number of shares
to be subject to such Options granted to the selected key Employees or
Consultants;

(iii) Subject to Section 4.3, determine whether such Options are
to be Incentive Stock Options or Non-Qualified Stock Options and
whether such Options are to qualify as performance-based compensation
as described in Section 162(m)(4)(C) of the Code; and

(iv) Determine the terms and conditions of such Options,
consistent with the Plan; provided, however, that the terms and
conditions of Options intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code shall
include, but not be limited to, such terms and conditions as may be
necessary to meet the applicable provisions of Section 162(m) of the
Code.

(b) Upon the selection of a key Employee or Consultant to be granted
an Option, the Administrator shall instruct the Secretary of the Company to
issue the Option and may impose such conditions on the grant of the Option
as it deems appropriate.

(c) Any Incentive Stock Option granted under the Plan may be modified
by the Administrator, with the consent of the Holder, to disqualify such
Option from treatment as an "incentive stock option" under Section 422 of
the Code.

4.5. Automatic Granting of Options to Independent Directors. During the
term of the Plan, each person who is an Independent Director as of the Effective
Date automatically shall be granted an Option to purchase 7,000 shares of Common
Stock (subject to adjustment as provided in Section 11.3) on the date of each
annual meeting of stockholders at which the Independent Director is reelected to
the Board, commencing with the 2002 Annual Meeting of Stockholders. During the
term of the Plan, a person who is initially elected or appointed to the Board
after the Effective Date and who is an Independent Director at the time of such
initial election or appointment automatically shall be granted (x) an Option to
purchase 25,000 shares of Common Stock (subject to adjustment as provided in
Section 11.3) on the date of such initial election or appointment, and (y) an
Option to purchase 7,000 shares of Common Stock (subject to adjustment as
provided in Section 11.3) on the date of each annual meeting of stockholders

after such initial election or appointment, at which the Independent Director is
reelected to the Board, provided such individual has served as an Independent
Director for at least six months prior to the date of such annual meeting of
stockholders. Members of the Board who are employees of the Company who
subsequently retire from the Company and remain on the Board will not receive an
initial Option grant pursuant to clause (x) of the preceding sentence, but to
the extent that they are otherwise eligible, will receive, after retirement from
employment with the Company, Options as described in clause (y) of the preceding
sentence. Certain material terms of the Options granted pursuant to this Section
4.5 are set forth in Section 5.4. All the foregoing Option grants authorized by
this Section 4.5 are subject to stockholder approval of the Plan.

4.6. Discretionary Granting of Options to Independent Directors. The Board
may from time to time, in its absolute discretion, and subject to applicable
limitations of the Plan:

(a) Select from among the Independent Directors (including Independent
Directors who have previously received Options under the Plan) such of them
as in its opinion should be granted Options;

(b) Subject to the Award Limit, determine the number of shares to be
subject to such Options granted to the selected Independent Directors;

(c) Subject to the provisions of Article 5, determine the terms and
conditions of such Options, consistent with the Plan.

4.7. Options in Lieu of Cash Compensation. Options may be granted under the
Plan to Employees and Consultants in lieu of cash bonuses which would otherwise
be payable to such Employees and Consultants and to Independent Directors in
lieu of directors' fees which would otherwise be payable to such Independent
Directors, pursuant to such policies which may be adopted by the Administrator
from time to time.

ARTICLE V.
TERMS OF OPTIONS

5.1 Option Price. The price per share of the shares subject to each Option
granted to Employees and Consultants shall be set by the Administrator;
provided, however, that such price shall be no less than 85% of the Fair Market
Value of a share of Common Stock on the date the Option is granted and:

(a) In the case of Options intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code, such price
shall not be less than 100% of the Fair Market Value of a share of Common
Stock on the date the Option is granted;

(b) In the case of Incentive Stock Options such price shall not be
less than 100% of the Fair Market Value of a share of Common Stock on the
date the Option is granted (or the date the Option is modified, extended or
renewed for purposes of Section 424(h) of the Code);

(c) In the case of Incentive Stock Options granted to an individual
then owning (within the meaning of Section 424(d) of the Code) more than
10% of the total combined voting power of all classes of stock of the
Company or any Subsidiary or parent corporation thereof (within the meaning
of Section 422 of the Code), such price shall not be less than 110% of the
Fair Market Value of a share of Common Stock on the date the Option is
granted (or the date the Option is modified, extended or renewed for
purposes of Section 424(h) of the Code).

5.2 Option Term. The term of an Option granted to an Employee or consultant
shall be set by the Administrator in its discretion; provided, however, that,
the term shall not be more than ten years from the date the Option is granted,
or five years from the date the Incentive Stock Option is granted if the
Incentive Stock Option is granted to an individual then owning (within the
meaning of Section 424(d) of the Code) more than 10% of the total combined
voting power of all classes of stock of the Company or any Subsidiary or parent
corporation thereof (within the meaning of Section 422 of the Code). Except as
limited by requirements of Section 422 of the Code and regulations and rulings
thereunder applicable to Incentive Stock Options, the Administrator may extend

the term of any outstanding Option in connection with any Termination of
Employment or Termination of Consultancy of the Holder, or amend any other term
or condition of such Option relating to such a termination.

5.3 Option Vesting.

(a) The period during which the right to exercise, in whole or in
part, an Option granted to an Employee or a Consultant vests in the Holder
shall be set by the Administrator and the Administrator may determine that
an Option may not be exercised in whole or in part for a specified period
after it is granted. At any time after grant of an Option, the
Administrator may, in its sole and absolute discretion and subject to
whatever terms and conditions it selects, accelerate the period during
which an Option granted to an Employee or Consultant vests.

(b) No portion of an Option granted to an Employee or Consultant which
is unexercisable at Termination of Employment or Termination of
Consultancy, as applicable, shall thereafter become exercisable, except as
may be otherwise provided by the Administrator either in the Award
Agreement or by action of the Administrator following the grant of the
Option.

(c) To the extent that the aggregate Fair Market Value of stock with
respect to which "incentive stock options" (within the meaning of Section
422 of the Code, but without regard to Section 422(d) of the Code) are
exercisable for the first time by a Holder during any calendar year (under
the Plan and all other incentive stock option plans of the Company and any
parent or subsidiary corporation, within the meaning of Section 422 of the
Code) of the Company, exceeds $100,000, such Options shall be treated as
Non-Qualified Stock Options to the extent required by Section 422 of the
Code. The rule set forth in the preceding sentence shall be applied by
taking Options into account in the order in which they were granted. For
purposes of this Section 5.3(c), the Fair Market Value of stock shall be
determined as of the time the Option with respect to such stock is granted.

5.4 Terms of Options Automatically Granted to Independent Directors
Pursuant to Section 4.5. Options granted to an Independent Director pursuant to
Section 4.5 shall be subject to the following terms and conditions:

(a) The exercise price per share shall equal 100% of the Fair Market
Value of a share of Common Stock on the date the Option is granted.

(b) The Options shall become exercisable in cumulative annual
installments of 25% on each of the first, second, third and fourth
anniversaries of the date of Option grant, except that any Option granted
to an Independent Director shall become immediately exercisable in full
upon the Termination of Directorship due to death or Permanent Disability
of the Independent Director.

(c) Subject to Section 6.6, the term of each Option granted to an
Independent Director shall be ten years from the date the Option is
granted.

(d) No portion of an Option which is unexercisable at Termination of
Directorship shall thereafter become exercisable.

(e) Each vested Option may be exercised until the earlier of (i) the
expiration of the Option term or (ii) 12 months following the Independent
Director's cessation of service on the Board for any reason.

5.5 Substitute Awards. Notwithstanding the foregoing provisions of this
Article V to the contrary, in the case of an Option that is a Substitute Award,
the price per share of the shares subject to such Option may be less than the
Fair Market Value per share on the date of grant, provided, that the excess of:

(a) The aggregate Fair Market Value (as of the date such Substitute
Award is granted) of the shares subject to the Substitute Award; over

(b) The aggregate exercise price thereof;

does not exceed the excess of:

(c) The aggregate fair market value (as of the time immediately
preceding the transaction giving rise to the Substitute Award, such fair
market value to be determined by the Administrator) of the shares of the
predecessor entity that were subject to the grant assumed or substituted
for by the Company; over

(d) The aggregate exercise price of such shares.

ARTICLE VI.
EXERCISE OF OPTIONS

6.1. Partial Exercise. An exercisable Option may be exercised in whole or
in part. However, an Option shall not be exercisable with respect to fractional
shares and the Administrator may require that, by the terms of the Option, a
partial exercise be with respect to a minimum number of shares.

6.2. Manner of Exercise. All or a portion of an exercisable Option shall be
deemed exercised upon delivery of all of the following to the Secretary of the
Company or his or her office:

(a) A notice complying with the applicable rules established by the
Administrator stating that the Option, or a portion thereof, is exercised.

(b) Such representations and documents as the Administrator, in its
absolute discretion, deems necessary or advisable to effect compliance with
all applicable provisions of the Securities Act and any other federal or
state securities laws or regulations. The Administrator may, in its
absolute discretion, also take whatever additional actions it deems
appropriate to effect such compliance including, without limitation,
placing legends on share certificates and issuing stop-transfer notices to
agents and registrars;

(c) In the event that the Option shall be exercised pursuant to
Section 11.1 by any person or persons other than the Holder, appropriate
proof of the right of such person or persons to exercise the Option; and

(d) Full cash payment to the of the Company for the shares with
respect to which the Option, or portion thereof, is exercised. However, the
Administrator may, in its discretion, (i) allow a delay in payment up to 30
days from the date the Option, or portion thereof, is exercised; (ii) allow
payment, in whole or in part, through the delivery of shares of Common
Stock which have been owned by the Holder for at least six months, duly
endorsed for transfer to the Company with a Fair Market Value on the date
of delivery equal to the aggregate exercise price of the Option or
exercised portion thereof; (iii) allow payment, in whole or in part,
through the surrender of shares of Common Stock then issuable upon exercise
of the Option having a Fair Market Value on the date of Option exercise
equal to the aggregate exercise price of the Option or exercised portion
thereof; (iv) allow payment, in whole or in part, through the delivery of
property of any kind which constitutes good and valuable consideration; (v)
allow payment, in whole or in part, through the delivery of a full recourse
promissory note bearing interest (at no less than such rate as shall then
preclude the imputation of interest under the Code) and payable upon such
terms as may be prescribed by the Administrator; (vi) allow payment, in
whole or in part, through the delivery of a notice that the Holder has
placed a market sell order with a broker with respect to shares of Common
Stock then issuable upon exercise of the Option, and that the broker has
been directed to pay a sufficient portion of the net proceeds of the sale
to the Company in satisfaction of the Option exercise price,
provided that payment of such proceeds is then made to the Company
upon settlement of such sale; or (vii) allow payment through any
combination of the consideration provided in the foregoing subparagraphs
(ii), (iii), (iv), (v) and (vi). In the case of a promissory note, the
Administrator may also prescribe the form of such note and the security to
be given for such note.

The Option may not be exercised, however, by delivery of a promissory note
or by a loan from the Company when or where such loan or other extension of
credit is prohibited by law.

6.3. Conditions to Issuance of Stock Certificates. The Company shall not be
required to issue or deliver any certificate or certificates for shares of stock
purchased upon the exercise of any Option or portion thereof prior to
fulfillment of all of the following conditions:

(a) The admission of such shares to listing on all stock exchanges on
which such class of stock is then listed;

(b) The completion of any registration or other qualification of such
shares under any state or federal law, or under the rulings or regulations
of the Securities and Exchange Commission or any other governmental
regulatory body which the Administrator shall, in its absolute discretion,
deem necessary or advisable;

(c) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Administrator shall, in its absolute
discretion, determine to be necessary or advisable;

(d) The lapse of such reasonable period of time following the exercise
of the Option as the Administrator may establish from time to time for
reasons of administrative convenience; and

(e) The receipt by the Company of full payment for such shares,
including payment of any applicable withholding tax, which in the
discretion of the Administrator may be in the form of consideration used by
the Holder to pay for such shares under Section 6.2(d).

6.4. Rights as Stockholders. Holders shall not be, nor have any of the
rights or privileges of, stockholders of the Company in respect of any shares
purchasable upon the exercise of any part of an Option unless and until
certificates representing such shares have been issued by the Company to such
Holders.

6.5. Ownership and Transfer Restrictions. The Administrator, in its
absolute discretion, may impose such restrictions on the ownership and
transferability of the shares purchasable upon the exercise of an Option as it
deems appropriate. Any such restriction shall be set forth in the respective
Award Agreement and may be referred to on the certificates evidencing such
shares. The Holder shall give the Company prompt notice of any disposition of
shares of Common Stock acquired by exercise of an Incentive Stock Option within
(a) two years from the date of granting (including the date the Option is
modified, extended or renewed for purposes of Section 424(h) of the Code) such
Option to such Holder, or (b) one year after the transfer of such shares to such
Holder.

6.6. Limitations on Exercise of Options Granted to Independent Directors.
No Option granted to an Independent Director may be exercised to any extent by
anyone after the first to occur of the following events:

(a) The expiration of twelve months from the date of the Holder's
Termination of Directorship; or

(b) The expiration of ten years from the date the Option was granted.

6.7. Additional Limitations on Exercise of Options. Holders may be required
to comply with any timing or other restrictions with respect to the settlement
or exercise of an Option, including a window-period limitation, as may be
imposed in the discretion of the Administrator.

ARTICLE VII.
AWARD OF RESTRICTED STOCK

7.1. Eligibility. Subject to the Award Limit, Restricted Stock may be
awarded to any Employee who the Administrator determines is a key Employee or
any Consultant who the Administrator determines should receive such an Award.

7.2. Award of Restricted Stock.

(a) The Administrator may from time to time, in its absolute
discretion:

(i) Determine which Employees are key Employees and select from
among the key Employees or Consultants (including Employees or
Consultants who have previously received other awards under the Plan)
such of them as in its opinion should be awarded Restricted Stock; and

(ii) Determine the purchase price, if any, and other terms and
conditions applicable to such Restricted Stock, consistent with the
Plan.

(b) The Administrator shall establish the purchase price, if any, and
form of payment for Restricted Stock; provided, however, that such purchase
price shall be no less than the par value of the Common Stock to be
purchased, unless otherwise permitted by applicable state law. In all
cases, legal consideration shall be required for each issuance of
Restricted Stock.

(c) Upon the selection of a key Employee or Consultant to be awarded
Restricted Stock, the Administrator shall instruct the Secretary of the
Company to issue such Restricted Stock and may impose such conditions on
the issuance of such Restricted Stock as it deems appropriate.

7.3. Rights as Stockholders. Subject to Section 7.4, upon delivery of the
shares of Restricted Stock to the escrow holder pursuant to Section 7.6, the
Holder shall have, unless otherwise provided by the Administrator, all the
rights of a stockholder with respect to said shares, subject to the restrictions
in his or her Award Agreement, including the right to receive all dividends and
other distributions paid or made with respect to the shares; provided, however,
that in the discretion of the Administrator, any extraordinary distributions
with respect to the Common Stock shall be subject to the restrictions set forth
in Section 7.4.

7.4. Restriction. All shares of Restricted Stock issued under the Plan
(including any shares received by holders thereof with respect to shares of
Restricted Stock as a result of stock dividends, stock splits or any other form
of recapitalization) shall, in the terms of each individual Award Agreement, be
subject to such restrictions as the Administrator shall provide, which
restrictions may include, without limitation, restrictions concerning voting
rights and transferability and restrictions based on duration of employment with
the Company, Company performance and individual performance; provided, however,
that, unless the Administrator otherwise provides in the terms of the Award
Agreement or otherwise, no share of Restricted Stock granted to a person subject
to Section 16 of the Exchange Act shall be sold, assigned or otherwise
transferred until at least six months and one day have elapsed from the date on
which the Restricted Stock was issued, and provided, further, that, except with
respect to shares of Restricted Stock granted to Section 162(m) Participants and
intended to be "performance-based" compensation under Section 162(m) of the
Code, by action taken after the Restricted Stock is issued, the Administrator
may, on such terms and conditions as it may determine to be appropriate, remove
any or all of the restrictions imposed by the terms of the Award Agreement.
Restricted Stock may not be sold or encumbered until all restrictions are
terminated or expire.

If no consideration was paid by the Holder upon issuance, a Holder's rights
in unvested Restricted Stock shall lapse, and such Restricted Stock shall be
surrendered to the Company without consideration, upon Termination of Employment
or, if applicable, upon Termination of Consultancy with the Company; provided,
however, that the Administrator in its sole and absolute discretion may provide
that such rights shall not lapse in the event of a Termination of Employment
following a "change of ownership or control" (within the meaning of Treasury
Regulation Section 1.162-27(e)(2)(v) or any successor regulation thereto) of the
Company or because of the Holder's death or disability; provided, further,

except with respect to shares of Restricted Stock granted to Section 162(m)
Participants, the Administrator in its sole and absolute discretion may provide
that no such lapse or surrender shall occur in the event of a Termination of
Employment, or a Termination of Consultancy, without cause or following any
Change in Control of the Company or because of the Holder's retirement, or
otherwise.

7.5. Repurchase of Restricted Stock. The Administrator shall provide in the
terms of each individual Award Agreement that the Company shall have the right
to repurchase from the Holder the Restricted Stock then subject to restrictions
under the Award Agreement immediately upon a Termination of Employment or, if
applicable, upon a Termination of Consultancy between the Holder and the
Company, at a cash price per share equal to the price paid by the Holder for
such Restricted Stock; provided, however, that the Administrator in its sole and
absolute discretion may provide that no such right of repurchase shall exist in
the event of a Termination of Employment following a "change of ownership or
control" (within the meaning of Treasury Regulation Section 1.162-27(e)(2)(v) or
any successor regulation thereto) of the Company or because of the Holder's
death or disability; provided, further, that, except with respect to shares of
Restricted Stock granted to Section 162(m) Participants, the Administrator in
its sole and absolute discretion may provide that no such right of repurchase
shall exist in the event of a Termination of Employment or a Termination of
Consultancy without cause or following any Change in Control of the Company or
because of the Holder's retirement, or otherwise.

7.6. Escrow. The Secretary of the Company or such other escrow holder as
the Administrator may appoint shall retain physical custody of each certificate
representing Restricted Stock until all of the restrictions imposed under the
Award Agreement with respect to the shares evidenced by such certificate expire
or shall have been removed.

7.7. Legend. In order to enforce the restrictions imposed upon shares of
Restricted Stock hereunder, the Administrator shall cause a legend or legends to
be placed on certificates representing all shares of Restricted Stock that are
still subject to restrictions under Award Agreements, which legend or legends
shall make appropriate reference to the conditions imposed thereby.

7.8. Section 83(b) Election. If a Holder makes an election under Section
83(b) of the Code, or any successor section thereto, to be taxed with respect to
the Restricted Stock as of the date of transfer of the Restricted Stock rather
than as of the date or dates upon which the Holder would otherwise be taxable
under Section 83(a) of the Code, the Holder shall deliver a copy of such
election to the Company immediately after filing such election with the Internal
Revenue Service.

ARTICLE VIII.
PERFORMANCE AWARDS, DIVIDEND EQUIVALENTS, DEFERRED STOCK, STOCK PAYMENTS

8.1. Eligibility. Subject to the Award Limit, one or more Performance
Awards, Dividend Equivalents, awards of Deferred Stock and/or Stock Payments may
be granted to any Employee whom the Administrator determines is a key Employee
or any Consultant whom the Administrator determines should receive such an
Award.

8.2. Performance Awards.

(a) Any key Employee or Consultant selected by the Administrator may
be granted one or more Performance Awards. The value of such Performance
Awards may be linked to any one or more of the Performance Criteria or
other specific performance criteria determined appropriate by the
Administrator, in each case on a specified date or dates or over any period
or periods determined by the Administrator. In making such determinations,
the Administrator shall consider (among such other factors as it deems
relevant in light of the specific type of award) the contributions,
responsibilities and other compensation of the particular key Employee or
Consultant.

(b) Without limiting Section 8.2(a), the Administrator may grant
Performance Awards to any 162(m) Participant in the form of a cash bonus
payable upon the attainment of objective performance goals which are
established by the Administrator and relate to one or more of the
Performance Criteria, in each case on a specified date or dates or over any
period or periods determined by the Administrator. Any such bonuses paid to
162(m) Participants shall be based upon objectively determinable bonus

formulas established in accordance with the provisions of Section 3.2. The
maximum amount of any Performance Award payable to a 162(m) Participant
under this Section 8.2(b) shall not exceed the Award Limit with respect to
any calendar year of the Company. Unless otherwise specified by the
Administrator at the time of grant, the Performance Criteria payable to a
Section 162(m) Participant shall be determined on the basis of generally
accepted accounting principles.

8.3. Dividend Equivalents.

(a) Any key Employee or Consultant selected by the Administrator may
be granted Dividend Equivalents based on the dividends declared on Common
Stock, to be credited as of dividend payment dates, during the period
between the date a Stock Appreciation Right, Deferred Stock or Performance
Award is granted, and the date such Stock Appreciation Right, Deferred
Stock or Performance Award is exercised, vests or expires, as determined by
the Administrator. Such Dividend Equivalents shall be converted to cash or
additional shares of Common Stock by such formula and at such time and
subject to such limitations as may be determined by the Administrator.

(b) Any Holder of an Option who is an Employee or Consultant selected
by the Administrator may be granted Dividend Equivalents based on the
dividends declared on Common Stock, to be credited as of dividend payment
dates, during the period between the date an Option is granted, and the
date such Option is exercised, vests or expires, as determined by the
Administrator. Such Dividend Equivalents shall be converted to cash or
additional shares of Common Stock by such formula and at such time and
subject to such limitations as may be determined by the Administrator.

(c) Any Holder of an Option who is an Independent Director selected by
the Board may be granted Dividend Equivalents based on the dividends
declared on Common Stock, to be credited as of dividend payment dates,
during the period between the date an Option is granted and the date such
Option is exercised, vests or expires, as determined by the Board. Such
Dividend Equivalents shall be converted to cash or additional shares of
Common Stock by such formula and at such time and subject to such
limitations as may be determined by the Board.

(d) Dividend Equivalents granted with respect to Options intended to
be qualified performance-based compensation for purposes of Section 162(m)
of the Code shall be payable, with respect to pre-exercise periods,
regardless of whether such Option is subsequently exercised.

8.4. Stock Payments. Any key Employee or Consultant selected by the
Administrator may receive Stock Payments in the manner determined from time to
time by the Administrator. The number of shares shall be determined by the
Administrator and may be based upon the Performance Criteria or other specific
performance criteria determined appropriate by the Administrator, determined on
the date such Stock Payment is made or on any date thereafter.

8.5. Deferred Stock. Any key Employee or Consultant selected by the
Administrator may be granted an award of Deferred Stock in the manner determined
from time to time by the Administrator. The number of shares of Deferred Stock
shall be determined by the Administrator and may be linked to the Performance
Criteria or other specific performance criteria determined to be appropriate by
the Administrator, in each case on a specified date or dates or over any period
or periods determined by the Administrator. Common Stock underlying a Deferred
Stock award will not be issued until the Deferred Stock award has vested,
pursuant to a vesting schedule or performance criteria set by the Administrator.
Unless otherwise provided by the Administrator, a Holder of Deferred Stock shall
have no rights as a Company stockholder with respect to such Deferred Stock
until such time as the Award has vested and the Common Stock underlying the
Award has been issued.

8.6. Term. The term of a Performance Award, Dividend Equivalent, award of
Deferred Stock and/or Stock Payment shall be set by the Administrator in its
discretion.

8.7. Exercise or Purchase Price. The Administrator may establish the
exercise or purchase price of a Performance Award, shares of Deferred Stock or
shares received as a Stock Payment; provided, however, that such price shall not
be less than the par value of a share of Common Stock, unless otherwise
permitted by applicable state law.

8.8. Exercise Upon Termination of Employment, Termination of Consultancy or
Termination of Directorship. A Performance Award, Dividend Equivalent, award of
Deferred Stock and/or Stock Payment is exercisable or payable only while the
Holder is an Employee, Consultant or Independent Director, as applicable;
provided, however, that the Administrator in its sole and absolute discretion
may provide that the Performance Award, Dividend Equivalent, award of Deferred
Stock and/or Stock Payment may be exercised or paid subsequent to a Termination
of Employment following a "change of control or ownership" (within the meaning
of Section 1.162-27(e)(2)(v) or any successor regulation thereto) of the
Company; provided, further, that except with respect to Performance Awards
granted to Section 162(m) Participants, the Administrator in its sole and
absolute discretion may provide that Performance Awards may be exercised or paid
following a Termination of Employment or a Termination of Consultancy without
cause, or following a Change in Control of the Company, or because of the
Holder's retirement, death or disability, or otherwise.

8.9. Form of Payment. Payment of the amount determined under Section 8.2 or
8.3 above shall be in cash, in Common Stock or a combination of both, as
determined by the Administrator. To the extent any payment under this Article
VIII is effected in Common Stock, it shall be made subject to satisfaction of
all provisions of Section 6.3.

ARTICLE IX.
STOCK APPRECIATION RIGHTS

9.1. Grant of Stock Appreciation Rights. A Stock Appreciation Right may be
granted to any key Employee or Consultant selected by the Administrator. A Stock
Appreciation Right may be granted (a) in connection and simultaneously with the
grant of an Option, (b) with respect to a previously granted Option, or (c)
independent of an Option. A Stock Appreciation Right shall be subject to such
terms and conditions not inconsistent with the Plan as the Administrator shall
impose and shall be evidenced by an Award Agreement.

9.2. Coupled Stock Appreciation Rights.

(a) A Coupled Stock Appreciation Right ("CSAR") shall be related to a
particular Option and shall be exercisable only when and to the extent the
related Option is exercisable.

(b) A CSAR may be granted to the Holder for no more than the number of
shares subject to the simultaneously or previously granted Option to which
it is coupled.

(c) A CSAR shall entitle the Holder (or other person entitled to
exercise the Option pursuant to the Plan) to surrender to the Company
unexercised a portion of the Option to which the CSAR relates (to the
extent then exercisable pursuant to its terms) and to receive from the
Company in exchange therefor an amount determined by multiplying the
difference obtained by subtracting the Option exercise price from the Fair
Market Value of a share of Common Stock on the date of exercise of the CSAR
by the number of shares of Common Stock with respect to which the CSAR
shall have been exercised, subject to any limitations the Administrator may
impose.

9.3. Independent Stock Appreciation Rights.

(a) An Independent Stock Appreciation Right ("ISAR") shall be
unrelated to any Option and shall have a term set by the Administrator. An
ISAR shall be exercisable in such installments as the Administrator may
determine. An ISAR shall cover such number of shares of Common Stock as the
Administrator may determine; provided, however, that unless the
Administrator otherwise provides in the terms of the ISAR or otherwise, no
ISAR granted to a person subject to Section 16 of the Exchange Act shall be

exercisable until at least six months have elapsed from (but excluding) the
date on which the Option was granted. The exercise price per share of
Common Stock subject to each ISAR shall be set by the Administrator. An
ISAR is exercisable only while the Holder is an Employee or Consultant;
provided, that the Administrator may determine that the ISAR may be
exercised subsequent to Termination of Employment or Termination of
Consultancy without cause, or following a Change in Control of the Company,
or because of the Holder's retirement, death or disability, or otherwise.

(b) An ISAR shall entitle the Holder (or other person entitled to
exercise the ISAR pursuant to the Plan) to exercise all or a specified
portion of the ISAR (to the extent then exercisable pursuant to its terms)
and to receive from the Company an amount determined by multiplying the
difference obtained by subtracting the exercise price per share of the ISAR
from the Fair Market Value of a share of Common Stock on the date of
exercise of the ISAR by the number of shares of Common Stock with respect
to which the ISAR shall have been exercised, subject to any limitations the
Administrator may impose.

9.4. Payment and Limitations on Exercise.

(a) Payment of the amounts determined under Section 9.2(c) and 9.3(b)
above shall be in cash, in Common Stock (based on its Fair Market Value as
of the date the Stock Appreciation Right is exercised) or a combination of
both, as determined by the Administrator. To the extent such payment is
effected in Common Stock it shall be made subject to satisfaction of all
provisions of Section 6.3 above pertaining to Options.

(b) Holders of Stock Appreciation Rights may be required to comply
with any timing or other restrictions with respect to the settlement or
exercise of a Stock Appreciation Right, including a window-period
limitation, as may be imposed in the discretion of the Administrator.

ARTICLE X.
ADMINISTRATION

10.1. Compensation Committee. The Compensation Committee (or another
committee or a subcommittee of the Board assuming the functions of the Committee
under the Plan) shall consist solely of two or more Independent Directors
appointed by and holding office at the pleasure of the Board, each of whom is
both a "non-employee director" as defined by Rule 16b-3 and an "outside
director" for purposes of Section 162(m) of the Code. Appointment of Committee
members shall be effective upon acceptance of appointment. Committee members may
resign at any time by delivering written notice to the Board. Vacancies in the
Committee may be filled by the Board. In its absolute discretion, the Board may
at any time and from time to time exercise any and all rights and duties of the
Committee under the Plan except with respect to matters which under Rule 16b-3
or Section 162(m) of the Code, or any regulations or rules issued thereunder,
are required to be determined in the sole discretion of the Committee.
Notwithstanding the foregoing, the full Board, acting by a majority of its
members in office, shall conduct the general administration of the Plan with
respect to Awards granted to Independent Directors.

10.2. Duties and Powers of the Administrator. It shall be the duty of the
Administrator to conduct the general administration of the Plan in accordance
with its provisions. The Administrator shall have the power to interpret the
Plan and the Award Agreements, and to adopt such rules for the administration,
interpretation and application of the Plan as are consistent therewith, to
interpret, amend or revoke any such rules and to amend any Award Agreement
provided that the rights or obligations of the Holder of the Award that is the
subject of any such Award Agreement are not affected adversely. Any such grant
or award under the Plan need not be the same with respect to each Holder. Any
such interpretations and rules with respect to Incentive Stock Options shall be
consistent with the provisions of Section 422 of the Code.

10.3. Majority Rule; Unanimous Written Consent. The Administrator shall act
by a majority of its members in attendance at a meeting at which a quorum is
present or by a memorandum or other written instrument signed by all members of
the Administrator.

10.4. Compensation; Professional Assistance; Good Faith Actions. Members of
the Administrator shall receive such compensation, if any, for their services as
members as may be determined by the Board. All expenses and liabilities, which
members of the Administrator incur in connection with the administration of the
Plan, shall be borne by the Company. The Administrator may, with the approval of
the Board, employ attorneys, consultants, accountants, appraisers, brokers or
other persons. The Administrator, the Company and the Company's officers and
Directors shall be entitled to rely upon the advice, opinions or valuations of
any such persons. All actions taken and all interpretations and determinations
made by the Administrator or the Board in good faith shall be final and binding
upon all Holders, the Company and all other interested persons. No members of
the Administrator or Board shall be personally liable for any action,
determination or interpretation made in good faith with respect to the Plan or
Awards, and all members of the Administrator and the Board shall be fully
protected by the Company in respect of any such action, determination or
interpretation.

10.5. Delegation of Authority to Grant Awards. The Committee may, but need
not, delegate from time to time some or all of its authority to grant Awards
under the Plan and administer the Plan as to such Awards to a committee
consisting of one or more members of the Committee or of one or more officers of
the Company; provided, however, that the Committee may not delegate its
authority to grant Awards to individuals (a) who are subject on the date of the
grant to the reporting rules under Section 16(a) of the Exchange Act, (b) who
are Section 162(m) Participants, or (c) who are officers of the Company who are
delegated authority by the Committee hereunder. Any delegation hereunder shall
be subject to the restrictions and limits that the Committee specifies at the
time of such delegation of authority and may be rescinded at any time by the
Committee. At all times, any committee appointed under this Section 10.5 shall
serve in such capacity at the pleasure of the Committee.

ARTICLE XI.
MISCELLANEOUS PROVISIONS

11.1. Transferability of Awards.

(a) Except as provided in Section 11.1(b):

(i) No Award under the Plan may be sold, pledged, assigned or
transferred in any manner other than by will or the laws of descent
and distribution or, subject to the consent of the Administrator,
pursuant to a DRO, unless and until such Award has been exercised, or
the shares underlying such Award have been issued, and all
restrictions applicable to such shares have lapsed.

(ii) No Award or interest or right therein shall be liable for
the debts, contracts or engagements of the Holder or his or her
successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other
means whether such disposition be voluntary or involuntary or by
operation of law by judgment, levy, attachment, garnishment or any
other legal or equitable proceedings (including bankruptcy), and any
attempted disposition thereof shall be null and void and of no effect,
except to the extent that such disposition is permitted by the
preceding sentence.

(iii) During the lifetime of the Holder, only he or she may
exercise an Option or other Award (or any portion thereof) granted to
him or her under the Plan, unless it has been disposed of with the
consent of the Administrator pursuant to a DRO. After the death of the
Holder, any exercisable portion of an Option or other Award may, prior
to the time when such portion becomes unexercisable under the Plan or
the applicable Award Agreement, be exercised by his or her personal
representative or by any person empowered to do so under the deceased
Holder's will or under the then applicable laws of descent and
distribution.

(b) Notwithstanding Section 11.1(a), the Administrator, in its sole
discretion, may determine to permit a Holder to transfer an Option to any
one or more Permitted Transferees (as defined below), subject to the
following terms and conditions:

(i) an Option transferred to a Permitted Transferee shall not be
assignable or transferable by the Permitted Transferee other than by
will or the laws of descent and distribution; (ii) an Option which is
transferred to a Permitted Transferee shall continue to be subject to
all the terms and conditions of the Option as applicable to the
original Holder (other than the ability to further transfer the
Option); and

(iii) the Holder and the Permitted Transferee shall execute any
and all documents requested by the Administrator, including, without
limitation documents to (A) confirm the status of the transferee as a
Permitted Transferee, (B) satisfy any requirements for an exemption
for the transfer under applicable federal and state securities laws
and (C) evidence the transfer.

For purposes of this Section 11.1(b), "Permitted Transferee"
shall mean, with respect to a Holder, any child, stepchild,
grandchild, parent, stepparent, grandparent, spouse, former spouse,
sibling, niece, nephew, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law, or sister-in-law, including adoptive
relationships, any person sharing the Holder's household (other than a
tenant or employee), a trust in which these persons (or the Holder)
control the management of assets, and any other entity in which these
persons (or the Holder) own more than fifty percent of the voting
interests, or any other transferee specifically approved by the
Administrator after taking into account any state or federal tax or
securities laws applicable to transferable Options."

11.2. Amendment, Suspension or Termination of the Plan. Except as otherwise
provided in this Section 11.2, the Plan may be wholly or partially amended or
otherwise modified, suspended or terminated at any time or from time to time by
the Administrator. However, without approval of the Company's stockholders given
within 12 months before or after the action by the Administrator, no action of
the Administrator may, except as provided in Section 11.3, increase the limits
imposed in Section 2.1 on the maximum number of shares which may be issued under
the Plan. No amendment, suspension or termination of the Plan shall, without the
consent of the Holder, alter or impair any rights or obligations under any Award
theretofore granted or awarded, unless the Award itself otherwise expressly so
provides. No Awards may be granted or awarded during any period of suspension or
after termination of the Plan, and in no event may any Incentive Stock Option be
granted under the Plan after the first to occur of the following events:

(a) The expiration of ten years from the date the Plan is adopted by
the Board; or

(b) The expiration of ten years from the date the Plan is approved by
the Company's stockholders under Section 11.4.

11.3. Changes in Common Stock or Assets of the Company, Acquisition or
Liquidation of the Company and Other Corporate Events.

(a) Subject to Section 11.3(e), in the event that the Administrator
determines that any dividend or other distribution (whether in the form of
cash, Common Stock, other securities or other property), recapitalization,
reclassification, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase, liquidation,
dissolution, or sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company, or exchange of Common Stock
or other securities of the Company, issuance of warrants or other rights to
purchase Common Stock or other securities of the Company, or other similar
corporate transaction or event, in the Administrator's sole discretion,
affects the Common Stock such that an adjustment is determined by the
Administrator to be appropriate in order to prevent dilution or enlargement
of the benefits or potential benefits intended to be made available under
the Plan or with respect to an Award, then the Administrator shall, in such
manner as it may deem equitable, adjust any or all of:

(i) The number and kind of shares of Common Stock (or other
securities or property) with respect to which Awards may be granted or
awarded (including, but not limited to, adjustments of the limitations
in Section 2.1 on the maximum number and kind of shares which may be
issued and adjustments of the Award Limit);

(ii) The number and kind of shares of Common Stock (or other
securities or property) subject to outstanding Awards; and

(iii) The grant or exercise price with respect to any Award.

(b) Subject to Section 11.3(c) and 11.3(e), in the event of any
transaction or event described in Section 11.3(a), any Change in Control,
any Corporate Transaction or any unusual or nonrecurring transactions or
events affecting the Company, any affiliate of the Company, or the
financial statements of the Company or any affiliate, or of changes in
applicable laws, regulations or accounting principles, the Administrator,
in its sole and absolute discretion, and on such terms and conditions as it
deems appropriate, either by the terms of the Award or by action taken
prior to the occurrence of such transaction or event and either
automatically or upon the Holder's request, is hereby authorized to take
any one or more of the following actions whenever the Administrator
determines that such action is appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made
available under the Plan or with respect to any Award under the Plan, to
facilitate such transactions or events or to give effect to such changes in
laws, regulations or principles:

(i) To provide for either the purchase of any such Award for an
amount of cash equal to the amount that could have been attained upon
the exercise of such Award or realization of the Holder's rights had
such Award been currently exercisable or payable or fully vested or
the replacement of such Award with other rights or property selected
by the Administrator in its sole discretion;

(ii) To provide that the Award cannot vest, be exercised or
become payable after such event;

(iii) To provide that such Award shall be exercisable as to all
shares covered thereby, notwithstanding anything to the contrary in
Section 5.3 or 5.4 or the provisions of such Award;

(iv) To provide that such Award be assumed by the successor or
survivor corporation, or a parent or subsidiary thereof, or shall be
substituted for by similar options, rights or awards covering the
stock of the successor or survivor corporation, or a parent or
subsidiary thereof, with appropriate adjustments as to the number and
kind of shares and prices; and

(v) To make adjustments in the number and type of shares of
Common Stock (or other securities or property) subject to outstanding
Awards, and in the number and kind of outstanding Restricted Stock or
Deferred Stock and/or in the terms and conditions of (including the
grant or exercise price), and the criteria included in, outstanding
options, rights and awards and options, rights and awards which may be
granted in the future.

(vi) To provide that, for a specified period of time prior to
such event, the restrictions imposed under an Award Agreement upon
some or all shares of Restricted Stock or Deferred Stock may be
terminated, and, in the case of Restricted Stock, some or all shares
of such Restricted Stock may cease to be subject to repurchase under
Section 7.5 or forfeiture under Section 7.4 after such event.

(c) In the event of a Change in Control or a Corporate Transaction
each Option granted to an Independent Director shall be exercisable as to
all shares covered thereby upon such Change in Control or during the five
days immediately preceding the consummation of such Corporate Transaction
and subject to such consummation, notwithstanding anything to the contrary
in Section 5.4 or the vesting schedule of such Options. In the event of a
Change in Control, each Option granted to an Independent Director shall
remain exercisable for such fully-vested option shares until the expiration
or sooner termination of the Option term. In the event of a Corporate
Transaction, to the extent that the Board does not have the ability under
Rule 16b-3 to take or to refrain from taking the discretionary actions set
forth in Section 11.3(b)(ii) above, no Option granted to an Independent
Director may be exercised following such Corporate Transaction unless such

Option is, in connection with such Corporate Transaction, either assumed by
the successor or survivor corporation (or parent or subsidiary thereof) or
replaced with a comparable right with respect to shares of the capital
stock of the successor or survivor corporation (or parent or subsidiary
thereof).

(d) Subject to Sections 11.3(e), 3.2 and 3.3, the Administrator may,
in its discretion, include such further provisions and limitations in any
Award, agreement or certificate, as it may deem equitable and in the best
interests of the Company.

(e) With respect to Awards which are granted to Section 162(m)
Participants and are intended to qualify as performance-based compensation
under Section 162(m)(4)(C), no adjustment or action described in this
Section 11.3 or in any other provision of the Plan shall be authorized to
the extent that such adjustment or action would cause such Award to fail to
so qualify under Section 162(m)(4)(C), or any successor provisions thereto.
No adjustment or action described in this Section 11.3 or in any other
provision of the Plan shall be authorized to the extent that such
adjustment or action would cause the Plan to violate Section 422(b)(1) of
the Code. Furthermore, no such adjustment or action shall be authorized to
the extent such adjustment or action would result in short-swing profits
liability under Section 16 or violate the exemptive conditions of Rule
16b-3 unless the Administrator determines that the Award is not to comply
with such exemptive conditions. The number of shares of Common Stock
subject to any Award shall always be rounded to the next whole number.

(f) The existence of the Plan, the Award Agreement and the Awards
granted hereunder shall not affect or restrict in any way the right or
power of the Company or the shareholders of the Company to make or
authorize any adjustment, recapitalization, reorganization or other change
in the Company's capital structure or its business, any merger or
consolidation of the Company, any issue of stock or of options, warrants or
rights to purchase stock or of bonds, debentures, preferred or prior
preference stocks whose rights are superior to or affect the Common Stock
or the rights thereof or which are convertible into or exchangeable for
Common Stock, or the dissolution or liquidation of the company, or any sale
or transfer of all or any part of its assets or business, or any other
corporate act or proceeding, whether of a similar character or otherwise.

11.4. Approval of Plan by Stockholders. The Plan will be submitted for the
approval of the Company's stockholders within 12 months after the date of the
Board's initial adoption of the Plan. Awards may be granted or awarded prior to
such stockholder approval, provided that such Awards shall not be exercisable
nor shall such Awards vest prior to the time when the Plan is approved by the
stockholders, and provided further that if such approval has not been obtained
at the end of said twelve-month period, all Awards previously granted or awarded
under the Plan shall thereupon be canceled and become null and void. In
addition, if the Board determines that Awards other than Options or Stock
Appreciation Rights which may be granted to Section 162(m) Participants should
continue to be eligible to qualify as performance-based compensation under
Section 162(m)(4)(C) of the Code, the Performance Criteria must be disclosed to
and approved by the Company's stockholders no later than the first stockholder
meeting that occurs in the fifth year following the year in which the Company's
stockholders previously approved the Performance Criteria.

11.5. Tax Withholding. The Company shall be entitled to require payment in
cash or deduction from other compensation payable to each Holder of any sums
required by federal, state or local tax law to be withheld with respect to the
issuance, vesting, exercise or payment of any Award. The Administrator may in
its discretion and in satisfaction of the foregoing requirement allow such
Holder to elect to have the Company withhold shares of Common Stock otherwise
issuable under such Award (or allow the return of shares of Common Stock) having
a Fair Market Value equal to the sums required to be withheld. Notwithstanding
any other provision of the Plan, the number of shares of Common Stock which may
be withheld with respect to the issuance, vesting, exercise or payment of any
Award (or which may be repurchased from the Holder of such Award within six
months after such shares of Common Stock were acquired by the Holder from the
Company) in order to satisfy the Holder's federal and state income and payroll
tax liabilities with respect to the issuance, vesting, exercise or payment of
the Award shall be limited to the number of shares which have a Fair Market
Value on the date of withholding or repurchase equal to the aggregate amount of
such liabilities based on the minimum statutory withholding rates for federal
and state tax income and payroll tax purposes that are applicable to such
supplemental taxable income.

11.6. Loans. The Administrator may, in its discretion, extend one or more
loans to key Employees in connection with the exercise or receipt of an Award
granted or awarded under the Plan, or the issuance of Restricted Stock or
Deferred Stock awarded under the Plan. The terms and conditions of any such loan
shall be set by the Administrator.

11.7. Forfeiture Provisions. Pursuant to its general authority to determine
the terms and conditions applicable to Awards under the Plan, the Administrator
shall have the right to provide, in the terms of Awards made under the Plan, or
to require a Holder to agree by separate written instrument, that (a)(i) any
proceeds, gains or other economic benefit actually or constructively received by
the Holder upon any receipt or exercise of the Award, or upon the receipt or
resale of any Common Stock underlying the Award, must be paid to the Company,
and (ii) the Award shall terminate and any unexercised portion of the Award
(whether or not vested) shall be forfeited, if (b)(i) a Termination of
Employment, Termination of Consultancy or Termination of Directorship occurs
prior to a specified date, or within a specified time period following receipt
or exercise of the Award, or (ii) the Holder at any time, or during a specified
time period, engages in any activity in competition with the Company, or which
is inimical, contrary or harmful to the interests of the Company, as further
defined by the Administrator or (iii) the Holder incurs a Termination of
Employment, Termination of Consultancy or Termination of Directorship for cause.

11.8. Effect of Plan Upon Options and Compensation Plans. The adoption of
the Plan shall not affect any other compensation or incentive plans in effect
for the Company or any Subsidiary. Nothing in the Plan shall be construed to
limit the right of the Company (a) to establish any other forms of incentives or
compensation for Employees, Directors or Consultants of the Company or any
Subsidiary, or (b) to grant or assume options or other rights or awards
otherwise than under the Plan in connection with any proper corporate purpose
including but not by way of limitation, the grant or assumption of options in
connection with the acquisition by purchase, lease, merger, consolidation or
otherwise, of the business, stock or assets of any corporation, partnership,
limited liability company, firm or association.

11.9. Compliance with Laws. The Plan, the granting and vesting of Awards
under the Plan and the issuance and delivery of shares of Common Stock and the
payment of money under the Plan or under Awards granted or awarded hereunder are
subject to compliance with all applicable federal and state laws, rules and
regulations (including but not limited to state and federal securities law and
federal margin requirements) and to such approvals by any listing, regulatory or
governmental authority as may, in the opinion of counsel for the Company, be
necessary or advisable in connection therewith. Any securities delivered under
the Plan shall be subject to such restrictions, and the person acquiring such
securities shall, if requested by the Company, provide such assurances and
representations to the Company as the Company may deem necessary or desirable to
assure compliance with all applicable legal requirements. To the extent
permitted by applicable law, the Plan and Awards granted or awarded hereunder
shall be deemed amended to the extent necessary to conform to such laws, rules
and regulations.

11.10. Titles. Titles are provided herein for convenience only and are not
to serve as a basis for interpretation or construction of the Plan.

11.11. Governing Law. The Plan and any agreements hereunder shall be
administered, interpreted and enforced under the internal laws of the State of
California without regard to conflicts of laws thereof.

* * *

I hereby certify that the foregoing Plan was duly adopted by the Board of
Directors of FileNet Corporation on March 28, 2002. I hereby certify that the
foregoing Plan was approved by the stockholders of FileNet Corporation on May
22, 2002.

Executed on this ____ day of May 2002.

Secretary

APPENDIX B

FILENET CORPORATION
1998 EMPLOYEE STOCK PURCHASE PLAN

(As Amended and Restated Effective as of May 1, 2002)

I. PURPOSE OF THE PLAN

This Employee Stock Purchase Plan is intended to promote the interests of
FileNET Corporation by providing eligible employees with the opportunity to
acquire a proprietary interest in the Corporation through participation in a
payroll-deduction based employee stock purchase plan designed to qualify under
Section 423 of the Code.

This Plan shall serve as the successor to the Corporation's existing 1988
Employee Stock Purchase Plan (the "Predecessor Plan"), and no further shares of
Common Stock will be issued under the Predecessor Plan from and after the
Effective Date.

Capitalized terms herein shall have the meanings assigned to such terms in
the attached Appendix.

All share numbers in this Plan reflect the 2-for-1 split of the Common
Stock effected on June 12, 1998.

II. ADMINISTRATION OF THE PLAN

The Plan Administrator shall have full authority to interpret and construe
any provision of the Plan and to adopt such rules and regulations for
administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. Decisions of the Plan Administrator shall be
final and binding on all parties having an interest in the Plan.

III. STOCK SUBJECT TO PLAN

A. The stock purchasable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares of Common Stock purchased
on the open market. The maximum number of shares of Common Stock which may be
issued over the term of the Plan and the International Plan shall not exceed Two
Million Four Hundred Thirty Two Thousand Two Hundred Seventy-Eight (2,432,278)
shares in the aggregate and shall be limited to the following components: (i)
the actual number of shares of Common Stock remaining for issuance under the
Predecessor Plan on the Effective Date (Ninety Two Thousand Two Hundred Seventy
Eight (92,278) shares) plus (ii) an additional Three Hundred Thousand (300,000)
shares of Common Stock approved by the stockholders at the 1998 Annual Meeting
in connection with the implementation of the Plan plus (iii) an additional
increase of Three Hundred Thousand (300,000) shares authorized by the Board on
March 22, 1999 and approved by the stockholders at the 1999 Annual Meeting, (iv)
an additional increase of Three Hundred Forty Thousand (340,000) shares
authorized by the Board on March 20, 2000 and approved by the stockholders at

the 2000 Annual Meeting, plus (v) an additional increase of Three Hundred
Thousand (300,000) shares authorized by the Board on March 28, 2001 and approved
by the stockholders at the 2001 Annual Meeting, plus (vi) an additional increase
of One Million One Hundred Thousand (1,100,000) shares authorized by the Board
on March 28, 2002 and subject to stockholder approval at the 2002 Annual
Meeting.

B. Should any change be made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class without
the Corporation's receipt of consideration, appropriate adjustments shall be
made to (i) the maximum number and class of securities issuable under the Plan
and the International Plan, (ii) the maximum number and class of securities
purchasable per Participant on any one Purchase Date, (iii) the maximum number
and class of securities purchasable by all Participants in the aggregate on any
one Purchase Date and (iv) the number and class of securities and the price per
share in effect under each outstanding purchase right in order to prevent the
dilution or enlargement of benefits thereunder.

IV. PURCHASE PERIODS

A. Shares of Common Stock shall be offered for purchase under the Plan
through a series of successive purchase periods until such time as (i) the
maximum number of shares of Common Stock available for issuance under the Plan
shall have been purchased or (ii) the Plan shall have been sooner terminated.

B. Each purchase period shall have a duration of six (6) months. Purchase
periods shall run from the first business day in May to the last business day in
October each year and from the first business day in November each year to the
last business day in April of the following year.

V. ELIGIBILITY

A. Each individual who is an Eligible Employee on the start date of any
purchase period shall be eligible to participate in the Plan for that purchase
period.

B. To participate in the Plan for a particular purchase period, the
Eligible Employee must complete the enrollment form prescribed by the Plan
Administrator and file such form with the Plan Administrator (or its designate)
on or before the start date of the purchase period.

VI. PAYROLL DEDUCTIONS

A. The payroll deduction authorized by the Participant for purposes of
acquiring shares of Common Stock under the Plan may be any multiple of one
percent (1%) of the Cash Earnings paid to the Participant during each purchase
period, up to a maximum of ten percent (10%). The deduction rate so authorized
shall continue in effect for the entire purchase period and for each subsequent
purchase period the Participant remains in the Plan. The Participant may not
increase his or her rate of payroll deduction during a purchase period, but may

effect such increase as of the start date of any subsequent purchase period
following the filing of a new payroll deduction authorization with the Plan
Administrator. However, the Participant may, at any time during the purchase
period, reduce his or her rate of payroll deduction to become effective as soon
as possible after filing the appropriate form with the Plan Administrator. The
Participant may not, however, effect more than one (1) such reduction per
purchase period.

B. Payroll deductions shall begin on the first pay day following the start
date of the purchase period and shall (unless sooner terminated by the
Participant) continue through the pay day ending with or immediately prior to
the last day of the purchase period. The amounts so collected shall be credited
to the Participant's book account under the Plan, but no interest shall be paid
on the balance from time to time outstanding in such account. The amounts
collected from the Participant shall not be required to be held in any
segregated account or trust fund and may be commingled with the general assets
of the Corporation and used for general corporate purposes.

C. Payroll deductions shall automatically cease upon the termination of the
Participant's purchase right in accordance with the provisions of the Plan.

D. The Participant's acquisition of Common Stock under the Plan on any
Purchase Date shall neither limit nor require the Participant's acquisition of
Common Stock on any subsequent Purchase Date.

VII. PURCHASE RIGHTS

A. Grant of Purchase Right. A Participant shall be granted a separate
purchase right on the start date of each purchase period in which he or she
participates. The purchase right shall provide the Participant with the right to
purchase shares of Common Stock on the Purchase Date upon the terms set forth
below. The Participant shall execute a stock purchase agreement embodying such
terms and such other provisions (not inconsistent with the Plan) as the Plan
Administrator may deem advisable.

Under no circumstances shall purchase rights be granted under the Plan to
any Eligible Employee if such individual would, immediately after the grant, own
(within the meaning of Code Section 424(d)) or hold outstanding options or other
rights to purchase, stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Corporation or any
Corporate Affiliate.

B. Exercise of the Purchase Right. Each purchase right shall be
automatically exercised on the Purchase Date, and shares of Common Stock shall
accordingly be purchased on behalf of each Participant on such date. The
purchase shall be affected by applying the Participant's payroll deductions for
the purchase period ending on such Purchase Date to the purchase of shares of
Common Stock at the purchase price in effect for that purchase period.

C. Purchase Price. The purchase price per share at which Common Stock will
be purchased on the Participant's behalf on each Purchase Date shall be equal to

eighty-five percent (85%) of the lower of (i) the Fair Market Value per share of
Common Stock on the start date of the purchase period or (ii) the Fair Market
Value per share of Common Stock on that Purchase Date.

D. Number of Purchasable Shares. The number of shares of Common Stock
purchasable by a Participant on each Purchase Date shall be the number of whole
shares obtained by dividing the amount collected from the Participant through
payroll deductions during the purchase period ending with that Purchase Date by
the purchase price in effect for that period. However, the maximum number of
shares of Common Stock purchasable per Participant on any one Purchase Date
shall not exceed eight hundred (800) shares, subject to periodic adjustments in
the event of certain changes in the Corporation's capitalization. In addition,
the maximum number of shares of Common Stock purchasable by all Participants in
the aggregate on any one Purchase Date under the Plan and the International Plan
shall not exceed One Hundred Seventy Thousand (170,000) shares, subject to
periodic adjustments in the event of certain changes in the Corporation's
capitalization. However, the Plan Administrator shall have the discretionary
authority, exercisable prior to the start of any purchase period under the Plan,
to increase or decrease the limitations to be in effect for the number of shares
purchasable per Participant and in the aggregate by all Participants on the
Purchase Date in effect for that period.

E. Excess Payroll Deductions. Any payroll deductions not applied to the
purchase of shares of Common Stock on any Purchase Date because they are not
sufficient to purchase a whole share of Common Stock shall be held for the
purchase of Common Stock on the next Purchase Date. However, any payroll
deductions not applied to the purchase of Common Stock by reason of the
limitation on the maximum number of shares purchasable by the Participant on the
Purchase Date or the limitation on the maximum number of shares purchasable in
the aggregate on the Purchase Date by all Participants shall be promptly
refunded.

F. Termination of Purchase Right. The following provisions shall govern the
termination of outstanding purchase rights:

(i) A Participant may, at any time prior to the last fifteen (15) days
of the purchase period, terminate his or her outstanding purchase right by
filing the appropriate form with the Plan Administrator (or its designate),
and no further payroll deductions shall be collected from the Participant
with respect to the terminated purchase right. Any payroll deductions
collected during the purchase period in which such termination occurs
shall, at the Participant's election, be immediately refunded or held for
the purchase of shares on the next Purchase Date. If no such election is
made at the time the purchase right is terminated, then the payroll
deductions collected with respect to the terminated right shall be refunded
as soon as possible.

(ii) The termination of such purchase right shall be irrevocable, and
the Participant may not subsequently rejoin the purchase period for which
the terminated purchase right was granted. In order to resume participation
in any subsequent purchase period, such individual must re-enroll in the

Plan (by making a timely filing of the prescribed enrollment forms) before
the start date of the new purchase period.

(iii) Should the Participant cease to remain an Eligible Employee for
any reason (including death, disability or change in status) while his or
her purchase right remains outstanding, then that purchase right shall
immediately terminate, and all of the Participant's payroll deductions for
the purchase period in which the purchase right so terminates shall be
immediately refunded. However, should the Participant cease to remain in
active service by reason of an approved unpaid leave of absence, then the
Participant shall have the right, exercisable up until the last business
day of the purchase period in which such leave commences, to (a) withdraw
all the payroll deductions collected to date on his or her behalf during
such purchase period or (b) have such funds held for the purchase of shares
on the next scheduled Purchase Date. In no event, however, shall any
further payroll deductions be collected on the Participant's behalf during
such leave. Upon the Participant's return to active service (i) within
ninety (90) days after the start of the leave or (ii) prior to the
expiration of any longer period during his or her re-employment rights are
guaranteed by law or contract, his or her payroll deductions under the Plan
shall automatically resume at the rate in effect at the time the leave
began.

G. Corporate Transaction. Each outstanding purchase right shall
automatically be exercised, immediately prior to the effective date of any
Corporate Transaction, by applying the payroll deductions of each Participant
for the purchase period in which such Corporate Transaction occurs to the
purchase of whole shares of Common Stock at a purchase price per share equal to
eighty-five percent (85%) of the lower of (i) the Fair Market Value per share of
Common Stock on the start date of the purchase period in which such Corporate
Transaction occurs or (ii) the Fair Market Value per share of Common Stock
immediately prior to the effective date of such Corporate Transaction. However,
the applicable limitation on the number of shares of Common Stock purchasable
per Participant shall continue to apply to any such purchase, but not the
limitation on the aggregate number of shares purchasable by all Participants.

The Corporation shall use its best efforts to provide at least ten (10)
days prior written notice of the occurrence of any Corporate Transaction, and
Participants shall, following the receipt of such notice, have the right to
terminate their outstanding purchase rights prior to the effective date of the
Corporate Transaction.

H. Proration of Purchase Rights. Should the total number of shares of
Common Stock which are to be purchased pursuant to outstanding purchase rights
on any particular date exceed either (i) the number of shares then available for
issuance under the Plan or (ii) the maximum number of shares purchasable by all
Participants (and all participants in the International Plan) in the aggregate
on that Purchase Date, then the Plan Administrator shall make a pro-rata
allocation of the available shares on a uniform and nondiscriminatory basis, and
the payroll deductions of each Participant (and each participant in the

International Plan), to the extent in excess of the aggregate purchase price
payable for the Common Stock pro-rated to such individual, shall be refunded.

I. Assignability. The purchase right shall be exercisable only by the
Participant and shall not be assignable or transferable by the Participant.

J. Stockholder Rights. A Participant shall have no stockholder rights with
respect to the shares subject to his or her outstanding purchase right until the
shares are purchased on the Participant's behalf in accordance with the
provisions of the Plan and the Participant has become a holder of record of the
purchased shares.

VIII. ACCRUAL LIMITATIONS

A. No Participant shall be entitled to accrue rights to acquire Common
Stock pursuant to any purchase right outstanding under this Plan if and to the
extent such accrual, when aggregated with (i) rights to purchase Common Stock
accrued under any other purchase right granted under this Plan and (ii) similar
rights accrued under other employee stock purchase plans (within the meaning of
Code Section 423) of the Corporation or any Corporate Affiliate, would otherwise
permit such Participant to purchase more than Twenty-Five Thousand Dollars
($25,000) worth of stock of the Corporation or any Corporate Affiliate
(determined on the basis of the Fair Market Value of such stock on the date or
dates such rights are granted) for each calendar year such rights are at any
time outstanding.

B. For purposes of applying such accrual limitations, the following
provisions shall be in effect:

(i) The right to acquire Common Stock under each outstanding purchase
right shall accrue on the Purchase Date in effect for the purchase period
for which such right is granted.

(ii) No right to acquire Common Stock under any outstanding purchase
right shall accrue to the extent the Participant has already accrued in the
same calendar year the right to acquire Common Stock under one (1) or more
other purchase rights at a rate equal to Twenty-Five Thousand Dollars
($25,000) worth of Common Stock (determined on the basis of the Fair Market
Value per share on the date or dates of grant) for each calendar year such
rights were at any time outstanding.

D. In the event there is any conflict between the provisions of this
Article and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article shall be controlling.

IX. EFFECTIVE DATE AND TERM OF THE PLAN

A. The Plan was adopted by the Board on March 17, 1998 and approved by the
Corporation's stockholders at the 1998 Annual Meeting held on May 15, 1998. The
Plan shall become effective on the Effective Date. However, no purchase rights
granted under the Plan shall be exercised, and no shares of Common Stock shall
be issued hereunder, until the Corporation shall have complied with all
applicable requirements of the 1933 Act (including the registration of the
shares of Common Stock issuable under the Plan on a Form S-8 registration
statement filed with the Securities and Exchange Commission), all applicable
listing requirements of any stock exchange (or the Nasdaq National Market, if
applicable) on which the Common Stock is listed for trading and all other
applicable requirements established by law or regulation.

B. The Plan was amended and restated on March 22, 1999 (the "1999
Restatement") to increase the number of shares of Common Stock authorized for
issuance under the Plan and the International Plan by an additional Three
Hundred Thousand (300,000) shares. The increase was approved by the stockholders
at the 1999 Annual Meeting. No purchase rights were granted, and no shares were
issued, on the basis of the Three Hundred Thousand (300,000)-share increase
authorized by the 1999 Restatement until such increase was approved by the
stockholders at the 1999 Annual Meeting.

C. The Plan was amended and restated on March 20, 2000 (the "2000
Restatement") to increase the number of shares of Common Stock authorized for
issuance under the Plan and the International Plan by an additional Three
Hundred Forty Thousand (340,000) shares. The share increase was approved by the
stockholders at the 2000 Annual Meeting. No purchase rights were granted, and no
shares were issued, on the basis of the Three Hundred Forty Thousand
(340,000)-share increase authorized by the 2000 Restatement until the increase
had been so approved by the stockholders.

D. The Plan was amended and restated on March 28, 2001 (the "2001
Restatement") to increase the number of shares of Common Stock authorized for
issuance under the Plan and the International Plan by an additional Three
Hundred Thousand (300,000) shares, subject to stockholder approval at the 2001
Annual Meeting. No purchase rights were granted, and no shares were issued, on
the basis of the Three Hundred Thousand (300,000) share increase authorized by
the 2001 Restatement until such increase was approved by the stockholders at the
2001 Annual Meeting.

E. The Plan was amended and restated on March 28, 2002 (the "2002
Restatement") to increase the number of shares of Common Stock authorized for
issuance under the Plan and the International Plan by an additional One Million
One Hundred Thousand (1,100,000) shares, subject to stockholder approval at the
2002 Annual Meeting. No purchase rights shall be granted, and no shares shall be
issued, on the basis of the One Million One Hundred Thousand (1,100,000) share
increase authorized by the 2002 Restatement until the share increase has been
approved by the stockholders at the 2002 Annual Meeting.

F. Unless sooner terminated by the Board, the Plan shall terminate upon the
earliest to occur of (i) the last business day in October 2008, (ii) the date on
which all shares available for issuance under the Plan (and the International
Plan) shall have been sold pursuant to purchase rights exercised under the Plan
(and the International Plan) or (iii) the date on which all purchase rights are
exercised in connection with a Corporate Transaction. No further purchase rights
shall be granted or exercised, and no further payroll deductions shall be
collected, under the Plan following such termination.

X. AMENDMENT OF THE PLAN

The Board may alter, amend, suspend or discontinue the Plan at any time to
become effective immediately following the close of any purchase period.
However, the Board may not, without the approval of the Corporation's
stockholders, (i) increase the number of shares of Common Stock issuable under
the Plan, except for permissible adjustments in the event of certain changes in
the Corporation's capitalization, (ii) alter the purchase price formula so as to
reduce the purchase price payable for the shares of Common Stock purchasable
under the Plan, or (iii) modify the requirements for eligibility to participate
in the Plan.

XI. GENERAL PROVISIONS

A. All costs and expenses incurred in the administration of the Plan shall
be paid by the Corporation.

B. Nothing in the Plan shall confer upon the Participant any right to
continue in the employ of the Corporation or any Corporate Affiliate for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Corporation (or any Corporate Affiliate employing such person)
or of the Participant, which rights are hereby expressly reserved by each, to
terminate such person's employment at any time for any reason, with or without
cause.

C. The provisions of the Plan shall be governed by the laws of the State of
California without resort to that State's conflict-of-laws rules.

Schedule A

Corporations Participating in
Employee Stock Purchase Plan

FileNET Corporation, a Delaware corporation

APPENDIX

The following definitions shall be in effect under the Plan:

A. Board shall mean the Corporation's Board of Directors.

B. Cash Earnings shall mean the (i) base salary payable to a Participant by
one or more Participating Companies during such individual's period of
participation in one or more purchase periods under the Plan plus (ii) all
overtime payments, bonuses, commissions and other incentive-type payments
received during such period. Such Cash Earnings shall be calculated before
deduction of (A) any income or employment tax withholdings or (B) any pre-tax
contributions made by the Participant to any Code Section 401(k) salary deferral
plan or any Code Section 125 cafeteria benefit program now or hereafter
established by the Corporation or any Corporate Affiliate. However, Cash
Earnings shall not include any contributions (other than Code Section 401(k) or
Code Section 125 contributions) made on the Participant's behalf by the
Corporation or any Corporate Affiliate to any employee benefit or welfare plan
now or hereafter established.

C. Code shall mean the Internal Revenue Code of 1986, as amended.

D. Common Stock shall mean the Corporation's common stock.

E. Corporate Affiliate shall mean any parent or subsidiary corporation of
the Corporation (as determined in accordance with Code Section 424), whether now
existing or subsequently established.

F. Corporate Transaction shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:

(i) a merger or consolidation in which securities possessing fifty
percent (50%) or more of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to
such transaction, or

(ii) the sale, transfer or other disposition of all or substantially
all of the assets of the Corporation in complete liquidation or dissolution
of the Corporation.

G. Corporation shall mean FileNET Corporation, a Delaware corporation and
any corporate successor to all or substantially all of the assets or voting
stock of FileNET Corporation which shall by appropriate action adopt the Plan.

H. Effective Date shall mean the October 1, 1998 effective date of the
Plan.

I. Eligible Employee shall mean any person who is employed by a
Participating Corporation on a basis under which he or she is regularly expected

A-1

to render more than twenty (20) hours of service per week for more than five (5)
months per calendar year for earnings considered wages under Code Section
3401(a).

J. Fair Market Value per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:

(i) If the Common Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be the average of the high and low
selling prices per share of Common Stock on the date in question, as those
prices are reported by the National Association of Securities Dealers on
the Nasdaq National Market and published in The Wall Street Journal. If
there are no selling prices for the Common Stock on the date in question,
then the Fair Market Value shall be the average of the high and low selling
prices on the last preceding date for which such quotations exist.

(ii) If the Common Stock is at the time listed on any Stock Exchange,
then the Fair Market Value shall be the average of the high and low selling
prices per share of Common Stock on the date in question on the Stock
Exchange determined by the Plan Administrator to be the primary market for
the Common Stock, as those prices are officially quoted in the composite
tape of transactions on such exchange and published in The Wall Street
Journal. If there are no selling prices for the Common Stock on the date in
question, then the Fair Market Value shall be the average of the high and
low selling prices on the last preceding date for which such quotations
exist.

K. International Plan shall mean the FileNET Corporation International
Employee Stock Purchase Plan.

L. 1933 Act shall mean the Securities Act of 1933, as amended.

M. Participant shall mean any Eligible Employee of a Participating
Corporation who is actively participating in the Plan.

N. Participating Corporation shall mean the Corporation and such Corporate
Affiliate or Affiliates as may be authorized from time to time by the Board to
extend the benefits of the Plan to their Eligible Employees. The Participating
Corporations in the Plan as of the Effective Date are listed in attached
Schedule A.

O. Plan shall mean the Corporation's Employee Stock Purchase Plan, as set
forth in this document.

P. Plan Administrator shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the Plan.

Q. Predecessor Plan shall mean the Corporation's 1988 Employee Stock
Purchase Plan.

R. Purchase Date shall mean the last business day of each purchase period.
The initial Purchase Date shall be April 30, 1999.

A-2

S. Stock Exchange shall mean either the American Stock Exchange or the New
York Stock Exchange.

A-3

APPENDIX C

APPENDIX C
FILENET CORPORATION
INTERNATIONAL EMPLOYEE STOCK PURCHASE PLAN

(As Amended and Restated Effective as of May 1, 2002)

I. PURPOSE OF THE PLAN

This Plan is intended to promote the interests of the Corporation by
providing eligible employees of the Corporation's Foreign Subsidiaries with the
opportunity to acquire a proprietary interest in the Corporation through the
purchase of shares of the Corporation's Common Stock at periodic intervals.

Capitalized terms herein shall have the meanings assigned to such terms in
the attached Appendix. All share numbers in this restatement reflect the 2-for-1
split of Common Stock effected on June 12, 1998.

II. ADMINISTRATION OF THE PLAN

The Plan Administrator shall have full authority to interpret and construe
any provision of the Plan and to adopt such rules and regulations for
administering the Plan, as it may deem necessary. Decisions of the Plan
Administrator shall be final and binding on all parties having an interest in
the Plan.

III. STOCK SUBJECT TO PLAN

A. The stock purchasable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares of Common Stock purchased
on the open market. The maximum number of shares of Common Stock which may be
issued over the term of the Plan and the U.S. Plan shall be limited to Two
Million Four Hundred Thirty Two Thousand Two Hundred Seventy-Eight (2,432,278)
shares and shall consist of the following: (i) the actual number of shares of
Common Stock remaining for issuance under the Predecessor Plan on the Effective
Date (92,278 shares) plus (ii) an additional Three Hundred Thousand (300,000)
shares of Common Stock effected on May 15, 1998, plus (iii) an additional Three
Hundred Thousand (300,000) shares of Common Stock effected on May 20, 1999, plus
(iv) an additional Three Hundred Forty Thousand (340,000) shares of Common Stock
effected on May 18, 2000, plus (v) an additional Three Hundred Thousand
(300,000) shares of Common Stock effected on May 16, 2001, plus (vi) an
additional One Million One Hundred Thousand (1,100,000) shares of Common Stock
effected on March 28, 2002 and subject to stockholder approval at the 2002
Annual Meeting.

securities purchasable by all Participants in the aggregate on any one Purchase
Date and (iv) the number and class of securities and the price per share in
effect under each outstanding purchase right in order to prevent the dilution or
enlargement of benefits thereunder.

IV. PURCHASE PERIODS

V. ELIGIBILITY

A. Each individual who is an Eligible Employee on the start date of any
purchase period shall be eligible to participate in the Plan for that purchase
period.

B. To participate in the Plan for a particular purchase period, the
Eligible Employee must complete the enrollment forms prescribed by the Plan
Administrator and file such forms with the Plan Administrator (or its designate)
on or before the start date of the purchase period.

VI. PAYROLL DEDUCTIONS

A. Except to the extent otherwise provided in the Plan (or any addendum
thereto) or authorized by the Plan Administrator, the purchase price for the
shares of Common Stock acquired under the Plan shall be paid from accumulated
payroll deductions authorized by the Participant.

B. The payroll deduction authorized by the Participant for purposes of
acquiring shares of Common Stock under the Plan may be any multiple of one
percent (1%) of the Cash Earnings paid to the Participant during each purchase
period, up to a maximum of ten percent (10%). The payroll deduction authorized
by the Participant shall be collected in the currency in which paid by the
Foreign Subsidiary. The payroll deductions collected during each purchase period
shall be converted into U.S. Dollars on the Purchase Date for that purchase
period on the basis of the exchange rate in effect on that date. The Plan
Administrator shall have the absolute discretion to determine the applicable
exchange rate to be in effect for each Purchase Date by any reasonable method
that may be based on the exchange rate actually available in the ordinary course
of business on such date. Any changes or fluctuations in the exchange rate at
which the payroll deductions collected on the Participant's behalf are converted
into U.S. Dollars on each Purchase Date shall be borne solely by the
Participant.

C. The rate of payroll deduction so authorized by the Participant shall
continue in effect for the entire purchase period and for each subsequent
purchase period that the Participant remains in the Plan. The Participant may
not increase his or her rate of payroll deduction during a purchase period, but
may affect such increase as of the start date of any subsequent purchase period
following the filing of a new payroll deduction authorization with the Plan
Administrator. However, the Participant may, at any time during the purchase
period, reduce his or her rate of payroll deduction to become effective as soon
as possible after filing the appropriate form with the Plan Administrator. The
Participant may not, however, effect more than one (1) such reduction per
purchase period.

D. Payroll deductions shall begin on the first payday following the start
date of the purchase period and shall (unless sooner terminated by the
Participant) continue through the payday ending with or immediately prior to the
last day of the purchase period. The amounts so collected shall be credited to
the Participant's book account under the Plan, initially in the currency in
which paid by the Foreign Subsidiary until converted into U.S. Dollars on the
applicable Purchase Date. Except to the extent otherwise provided by the Plan
(including any addendum thereto) or by the Plan Administrator, no interest shall
be paid on the balance from time to time outstanding in any book account and the
amounts collected from the Participant shall not be required to be held in any
segregated account or trust fund and may be commingled with the general assets
of the Corporation and used for general corporate purposes.

E. Payroll deductions shall automatically cease upon the termination of the
Participant's purchase right in accordance with the provisions of the Plan.

F. The Participant's acquisition of Common Stock under the Plan on any
Purchase Date shall neither limit nor require the Participant's acquisition of
Common Stock on any subsequent Purchase Date.

VII. PURCHASE RIGHTS

A. Grant of Purchase Right. A Participant shall be granted a separate
purchase right on the start date of each purchase period in which he or she
participates. The purchase right shall provide the Participant with the right to
purchase shares of Common Stock on the Purchase Date upon the terms set forth
below. The Participant shall execute such document or documents embodying such
terms and such other provisions (not inconsistent with the Plan) as the Plan
Administrator may deem advisable.

B. Exercise of the Purchase Right. Each purchase right shall be
automatically exercised on the Purchase Date, and shares of Common Stock shall

accordingly be purchased on behalf of each Participant on such date. The
purchase shall be affected by applying the Participant's payroll deductions (as
converted into U.S. Dollars) for the purchase period ending on such Purchase
Date to the purchase of shares of Common Stock at the purchase price in effect
for that purchase period.

C. Purchase Price. The U.S. Dollar purchase price per share at which Common
Stock will be purchased on the Participant's behalf on each Purchase Date shall
be equal to eighty-five percent (85%) of the lower of (i) the Fair Market Value
per share of Common Stock on the start date of the purchase period or (ii) the
Fair Market Value per share of Common Stock on that Purchase Date.

D. Number of Purchasable Shares. The number of shares of Common Stock
purchasable by a Participant on each Purchase Date shall be the number of whole
shares obtained by dividing the amount collected from the Participant through
payroll deductions (as converted into U.S. Dollars) during the purchase period
ending with that Purchase Date by the purchase price in effect for that period.
However, the maximum number of shares of Common Stock purchasable per
Participant on any one Purchase Date shall not exceed Eight Hundred (800)
shares, subject to periodic adjustments in the event of certain changes in the
Corporation's capitalization. In addition, the maximum number of shares of
Common Stock purchasable by all Participants in the aggregate on any one
Purchase Date under the Plan and the U.S. Plan shall not exceed One Hundred
Seventy Thousand (170,000) shares, subject to periodic adjustments in the event
of certain changes in the Corporation's capitalization.

F. Termination of Purchase Right. The following provisions shall govern the
termination of outstanding purchase rights:

(i) A Participant may, at any time prior to the last fifteen (15) days
of the purchase period, terminate his or her outstanding purchase right by
filing the appropriate form with the Plan Administrator (or its designate),
and no further payroll deductions shall be collected from the Participant
with respect to the terminated purchase right. Any payroll deductions
collected during the purchase period in which such termination occurs
shall, at the Participant's election, be immediately refunded in the
currency in which payroll (from which such deductions were made) was paid
to the Participant by the Foreign Subsidiary or held for the purchase of
shares on the next Purchase Date. If no such election is made at the time

the purchase right is terminated, then the payroll deductions collected
with respect to the terminated right shall be refunded as soon as possible.

(iii) Should the Participant cease to remain an Eligible Employee for
any reason (including death, disability or change in status) while his or
her purchase right remains outstanding, then that purchase right shall
immediately terminate, and all of the Participant's payroll deductions for
the purchase period in which the purchase right so terminates shall be
immediately refunded in the currency in which payroll (from which such
deductions were made) was paid to the Participant by the Foreign
Subsidiary. However, should the Participant cease to remain in active
service by reason of an approved unpaid leave of absence, then the
Participant shall have the right, exercisable up until the last business
day of the purchase period in which such leave commences, to (a) withdraw
all the payroll deductions collected to date on his or her behalf during
such purchase period or (b) have such funds held for the purchase of shares
on the next scheduled Purchase Date. In no event, however, shall any
further payroll deductions be collected on the Participant's behalf during
such leave. Upon the Participant's return to active service (i) within
ninety (90) days after the start of the leave or (ii) prior to the
expiration of any longer period during which his or her re-employment
rights are guaranteed by law or contract, his or her payroll deductions
under the Plan shall automatically resume at the rate in effect at the time
the leave began.

G. Transfer of Employment. In the event that a Participant who is an
Eligible Employee of a Foreign Subsidiary is transferred and becomes an Eligible
Employee of the Corporation during a purchase period under the Plan, such
individual shall continue to remain a Participant in the Plan and payroll
deductions shall continue to be collected until the next Purchase Date as if the
Participant had remained an Eligible Employee of the Foreign Subsidiary.

In the event that an employee of the Corporation who is a participant in
the U.S. Plan is transferred and becomes an Eligible Employee of a Foreign
Subsidiary during a purchase period in effect under the U.S. Plan, such
individual shall automatically become a Participant under the Plan for the
duration of the purchase period in effect at that time under the Plan and the
balance in such individual's book account maintained under the U.S. Plan shall
be transferred as a balance to a book account opened for such individual under
the Plan. Such balance, together with all other payroll deductions collected
from such individual by the Foreign Subsidiary for the remainder of the purchase
period under the Plan (as converted into U.S. Dollars), shall be applied on the
next Purchase Date to the purchase of Common Stock under the Plan.

H. Corporate Transaction. Each outstanding purchase right shall
automatically be exercised, immediately prior to the effective date of any
Corporate Transaction, by applying the payroll deductions of each Participant
for the purchase period in which such Corporate Transaction occurs, as converted
into U.S. Dollars on the basis of the exchange rate in effect as determined by
the Plan Administrator at the time of the Corporate Transaction, to the purchase
of whole shares of Common Stock at a purchase price per share equal to
eighty-five percent (85%) of the lower of (i) the Fair Market Value per share of
Common Stock on the start date of the purchase period in which such Corporate
Transaction occurs or (ii) the Fair Market Value per share of Common Stock
immediately prior to the effective date of such Corporate Transaction. However,
the applicable limitation on the number of shares of Common Stock purchasable
per Participant shall continue to apply to any such purchase, but not the
limitation on the aggregate number of shares purchasable by all Participants.

I. Proration of Purchase Rights. Should the total number of shares of
Common Stock which are to be purchased pursuant to outstanding purchase rights
on any particular date exceed either (i) the number of shares then available for
issuance under the Plan and the U.S. Plan or (ii) the maximum number of shares
purchasable by all Participants (and all participants in the U.S. Plan) in the
aggregate on that Purchase Date, then the Plan Administrator shall make a
pro-rata allocation of the available shares on a uniform and nondiscriminatory
basis, and the payroll deductions of each Participant (and each participant in
the U.S. Plan), to the extent in excess of the aggregate purchase price payable
for the Common Stock pro-rated to such individual, shall be refunded in the
currency in which payroll (from which such deductions were made) was paid to the
Participant by the Foreign Subsidiary.

J. Assignability. The purchase right shall be exercisable only by the
Participant and shall not be assignable or transferable by the Participant.

K. Stockholder Rights. A Participant shall have no stockholder rights with
respect to the shares subject to his or her outstanding purchase right until the
shares are purchased on the Participant's behalf in accordance with the
provisions of the Plan and the Participant has become a holder of record of the
purchased shares.

VIII. ACCRUAL LIMITATIONS

A. No Participant shall be entitled to accrue rights to acquire Common
Stock pursuant to any purchase right outstanding under this Plan if and to the
extent such accrual, when aggregated with (i) rights to purchase Common Stock
accrued under any other purchase right granted under this Plan and (ii) similar
rights accrued under other employee stock purchase plans (within the meaning of
Code Section 423) of the Corporation or any Corporate Affiliate, would otherwise
permit such Participant to purchase more than Twenty-Five Thousand U.S. Dollars
(U.S.$25,000) worth of stock of the Corporation or any Corporate Affiliate

(determined on the basis of the Fair Market Value of such stock on the date or
dates such rights are granted) for each calendar year such rights are at any
time outstanding.

B. For purposes of applying such accrual limitations, the following
provisions shall be in effect:

(i) The right to acquire Common Stock under each outstanding purchase
right shall accrue on the Purchase Date in effect for the purchase period
for which such right is granted.

(ii) No right to acquire Common Stock under any outstanding purchase
right shall accrue to the extent the Participant has already accrued in the
same calendar year the right to acquire Common Stock under one (1) or more
other purchase rights at a rate equal to Twenty-Five Thousand U.S. Dollars
(U.S.$25,000) worth of Common Stock (determined on the basis of the Fair
Market Value per share on the date or dates of grant) for each calendar
year such rights were at any time outstanding.

C. If by reason of such accrual limitations, any purchase right of a
Participant does not accrue for a particular purchase period, then the payroll
deductions which the Participant made during that purchase period with respect
to such purchase right shall be promptly refunded in the currency in which
payroll (from which such deductions were made) was paid to the Participant by
the Foreign Subsidiary.

IX. EFFECTIVE DATE AND TERM OF THE PLAN

A. The Plan was adopted by the Board on July 31, 1998 and shall become
effective on the Effective Date. No purchase rights granted under the Plan shall
be exercised, and no shares of Common Stock shall be issued hereunder, until the
Corporation shall have complied with all applicable requirements of the 1933 Act
(including the registration of the shares of Common Stock issuable under the
Plan on a Form S-8 registration statement filed with the Securities and Exchange
Commission), all applicable listing requirements of any stock exchange (or the
Nasdaq National Market, if applicable) on which the Common Stock is listed for
trading and all other applicable requirements established by law or regulation.

B. Unless sooner terminated by the Board, the Plan shall terminate upon the
earliest to occur of (i) the last business day in October 2008, (ii) the date on
which all shares available for issuance under the Plan and the U.S. Plan shall
have been sold pursuant to purchase rights exercised under the Plan and the U.S.
Plan or (iii) the date on which all purchase rights are exercised in connection
with a Corporate Transaction. No further purchase rights shall be granted or
exercised, and no further payroll deductions shall be collected, under the Plan
following such termination.

X. AMENDMENT OF THE PLAN

The Board may alter, amend, suspend or discontinue the Plan at any time to
become effective immediately following the close of any purchase period.
However, the Board may not, without the approval of the Corporation's
stockholders, (i) increase the number of shares of Common Stock issuable under
the Plan and the U.S. Plan, except for permissible adjustments in the event of
certain changes in the Corporation's capitalization, (ii) alter the purchase
price formula so as to reduce the purchase price payable for the shares of
Common Stock purchasable under the Plan, or (iii) modify the requirements for
eligibility to participate in the Plan.

XI. GENERAL PROVISIONS

A. All costs and expenses incurred in the administration of the Plan shall
be paid by the Corporation.

C. Except to the extent otherwise provided in any addendum to the Plan, the
provisions of the Plan shall be governed by the laws of the State of California
without resort to that State's conflict-of-laws rules.

D. A Foreign Subsidiary or the Plan Administrator, as the case may be,
shall have the right to deduct from any payment to be made under this Plan, or
to otherwise require, prior to the issuance or delivery of any shares of Common
Stock or the payment of any cash, payment by each Participant of any tax
required by applicable law to be withheld.

E. Additional provisions for individual Foreign Subsidiaries may be
incorporated in one or more Addenda to the Plan. Such Addenda shall have full
force and effect with respect to the Foreign Subsidiaries to which they apply.
In the event of a conflict between the provisions of such an Addendum and one or
more other provisions of the Plan, the provisions of the Addendum shall be
controlling.

Schedule A

Foreign Subsidiaries Participating in
International Employee Stock Purchase Plan

FileNET Canada, Inc. (Canada)
FileNET France (France)
FileNET GmbH (Germany)
FileNET Company Limited (Ireland)
FileNET BV (Netherlands)
FileNET Limited (United Kingdom)

Addendum A

FILENET CORPORATION
INTERNATIONAL EMPLOYEE STOCK PURCHASE PLAN

PLAN ADDENDUM FOR AUSTRALIAN PARTICIPANTS

The following provision shall apply with respect to the extension of the FileNET
Corporation International Employee Stock Purchase Plan to Participants (the
"Australian Participants") who are Eligible Employees of FileNET Corporation Pty
Limited (ACN 056 639 500) ("FileNET Australia").

Notwithstanding the last sentence of Paragraph D of Article VI, the amounts
collected from an Australian Participant (including amounts converted into
U.S.Dollars on the applicable Purchase Date) shall be held on trust by
FileNET Australia in a specific account established by FileNET Australia
for such purpose and may not be commingled with the general assets of
FileNET Australia or the Corporation or used for general corporate
purposes.

APPENDIX

The following definitions shall be in effect under the Plan:

A. Board shall mean the Corporation's Board of Directors.

B. Cash Earnings shall mean the (i) base salary payable to a Participant by
one or more Foreign Subsidiaries during such individual's period of
participation in one or more purchase periods under the Plan plus (ii) all
overtime payments, bonuses, commissions, and other incentive-type payments
before deduction of any income or employment taxes. Such Cash Earnings shall be
calculated before deduction of (A) any income or employment tax withholdings or
(B) any pre-tax contributions made by the Participant to any plan or program now
or hereafter established by the Corporation or any Corporate Affiliate. However,
Cash Earnings shall not include any contributions made on the Participant's
behalf by the Corporation or any Corporate Affiliate to any employee benefit or
welfare plan now or hereafter established.

C. Code shall mean the U.S. Internal Revenue Code of 1986, as amended.

D. Common Stock shall mean the Corporation's common stock.

E. Corporate Affiliate shall mean any parent or subsidiary corporation of
the Corporation (as determined in accordance with Code Section 424), whether now
existing or subsequently established.

F. Corporate Transaction shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:

(ii) the sale, transfer or other disposition of all or substantially
all of the assets of the Corporation in complete liquidation or dissolution
of the Corporation.

G. Corporation shall mean FileNET Corporation, a Delaware corporation, and
any corporate successor to all or substantially all of the assets or voting
stock of FileNET Corporation which shall by appropriate action adopt the Plan.

H. Effective Date shall mean September 1, 1998. Any Foreign Subsidiary
which elects, with the approval of the Board, to extend the benefits of this
Plan to its employees after such Effective Date shall designate a subsequent
Effective Date with respect to its Participants.

A-1

I. Eligible Employee shall mean any person who is employed by a Foreign
Subsidiary on a basis under which he or she is regularly expected to render more
than twenty (20) hours of service per week for more than five (5) months per
calendar year for earnings considered wages under Code Section 3401(a).

J. Fair Market Value per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:

(i) If the Common Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be the average of the high and low
U.S. Dollar selling prices per share of Common Stock on the date in
question, as those prices are reported by the National Association of
Securities Dealers on the Nasdaq National Market. If there are no selling
prices for the Common Stock on the date in question, then the Fair Market
Value shall be the average of the high and low U.S. Dollar selling prices
on the last preceding date for which such quotations exist.

(ii) If the Common Stock is at the time listed on any Stock Exchange,
then the Fair Market Value shall be the average of the high and low U.S.
Dollar selling prices per share of Common Stock on the date in question on
the Stock Exchange determined by the Plan Administrator to be the primary
market for the Common Stock, as those prices are officially quoted in the
composite tape of transactions on such exchange. If there are no selling
prices for the Common Stock on the date in question, then the Fair Market
Value shall be the average of the high and low U.S. Dollar selling prices
on the last preceding date for which such quotations exist.

K. Foreign Subsidiary shall mean any non-U.S. Corporate Affiliate or
Affiliates as may be authorized from time to time by the Board to extend the
benefits of the Plan to their Eligible Employees. The Foreign Subsidiaries in
the Plan are listed in attached Schedule A.

L. 1933 Act shall mean the Securities Act of 1933, as amended.

M. Participant shall mean any Eligible Employee of a Foreign Subsidiary who
is actively participating in the Plan.

N. Plan shall mean the FileNET Corporation International Employee Stock
Purchase Plan, as set forth in this document.

O. Plan Administrator shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the Plan.

P. Predecessor Plan shall mean the Corporation's 1988 Employee Stock
Purchase Plan to which the U.S. Plan is a successor.

A-2

Q. Purchase Date shall mean the last business day of each purchase period.

R. Stock Exchange shall mean either the American Stock Exchange or the New
York Stock Exchange.

S. U.S. Plan shall mean the FileNET Corporation 1998 Employee Stock
Purchase Plan.

A-3

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

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PROXY
FILENET CORPORATION
3565 Harbor Boulevard
Costa Mesa, CA 92626
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints Sam Auriemma and Katharina Martinka as
proxy holders, or either of them acting alone, each with the power to appoint
his or her 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 22, 2001 at the 2001
Annual Meeting of Stockholders to be held at 9:00 a.m., Pacific time, on May 16,
2001, at The Mondavi Center, 1570 Scenic Avenue, Costa Mesa, California 92626,
and any adjournment thereof (the "Annual Meeting").

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

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Vote by Telephone Vote by Internet
It's fast, convenient, and immediate! It's fast, convenient, and your vote is
Call Toll-Free on a Touch-Tone Phone immediately confirmed and posted.
1-877-PRX-VOTE (1-877-779-8683)
Follow these four easy steps: Follow these four easy steps:
1. Read the accompanying Proxy 1. Read the accompanying Proxy
Statement/Prospectus and Proxy Card. Statement/Prospectus and Proxy Card.
2. Call the toll-free number 2. Go to the Website
1-877-PRX-VOTE (1-877-779-8683). http://www.eproxyvote.com/file
3. Enter your 14-digit Voter Control 3. Enter your 14-digit Voter Control Number
Number located on your Proxy Card located on your Proxy Card above your name.
above your name.
4. Follow the recorded instructions. 4. Follow the instructions provided.

YOUR VOTE IS IMPORTANT! YOUR VOTE IS IMPORTANT!
Call 1-877-PRX-VOTE anytime! Go to http://www.eproxyvote.com/file anytime!

DO NOT RETURN YOUR PROXY CARD IF YOU ARE VOTING BY TELEPHONE OR INTERNET

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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, 3 and 4. 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 ALL NOMINEES [_] WITHHELD FROM ALL NOMINEES [_]

[_] _______________________________________ [_] MARK HERE FOR ADDRESS
For all nominees except as noted above CHANGE AND NOTE BELOW

2. To approve The 2002 Incentive Award Plan

FOR [_] AGAINST [_] ABSTAIN [_]

3. To approve an amendment to the Company's 1998 Employee Stock Purchase Plan
to increase the number of shares of Common Stock available for issuance
thereunder by an additional 1,100,000 shares.

FOR [_] AGAINST [_] ABSTAIN [_]

4. To ratify the appointment of Deloitte and Touche LLP as the independent
accountants of the Company for its year ending December 31, 2002.

FOR [_] AGAINST [_] ABSTAIN [_]

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

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: ________________

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