2004 PROXY for FILENET CORPORATION

DEF 14A 1 proxy05.htm 2005 FN PROXY 2004 PROXY for FILENET CORPORATION

[FileNet Corporation logo]

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

MAY 5, 2005
___________________

The 2005 Annual Meeting of Stockholders of FileNet Corporation (the
"Company") will be held at 9:00 a.m. Pacific time, on May 5, 2005, at the
Company's headquarters, 3565 Harbor Boulevard, Costa Mesa, California 92626, for
the following purposes:

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

2. To approve an amendment of the Company's Amended and Restated 2002
Incentive Award Plan which (i) increases the number of shares of
Common Stock available for issuance thereunder by an additional
1,400,000 shares, from 4,800,000 to 6,200,000 shares; (ii) increases
the number of such shares that may be awarded as Restricted Stock,
Restricted Stock Units, Deferred Stock, Performance Awards and Stock
Payments from 700,000 shares to 1,100,000 shares, an increase of
400,000 shares; (iii) changes the minimum price per share of Options
that may be granted to no less than 100% of the Fair Market Value of a
share on the date of grant; and (iv) provides certain minimum vesting
periods for Restricted Stock and Restricted Stock Units.

3. To ratify the appointment of Deloitte and Touche LLP as the
independent accountants of the Company for its year ending December
31, 2005; and

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

Only stockholders of record at the close of business on March 14, 2005, the
record date, will be entitled to notice of, and to vote at, the 2005 Annual
Meeting and any postponement or adjournment thereof.

By Order of the Board of Directors,

/s/ Philip C. Maynard

Costa Mesa, California Philip C.Maynard
April 4, 2005 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 VOTING INSTRUCTIONS AND FOR INFORMATION REGARDING REVOKING OR CHANGING
A PROXY.

[FileNet Corporation logo]

3565 Harbor Boulevard
Costa Mesa, California 92626

ANNUAL MEETING OF STOCKHOLDERS TO BE HELD
MAY 5, 2005

_____________________

PROXY STATEMENT
_____________________

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 Company's headquarters, 3565 Harbor Boulevard,
Costa Mesa, California 92626, on May 5, 2005 at 9:00 a.m. Pacific time, and at
any and all adjournments or postponements thereof (the "Annual Meeting"), for
the purposes set forth herein and in the accompanying Notice of Annual Meeting.

Voting Rights and Outstanding Shares

Only holders of record of the approximately 40,669,006 shares of the
Company's Common Stock outstanding at the close of business on the record date,
March 14, 2005, 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
14, 2005.

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. With regard to the election of directors, votes may be cast in favor of or
withheld from each nominee. The five nominees securing the most "in favor" votes
are elected. The other matters submitted for stockholder approval at the Annual
Meeting will be decided by the affirmative vote of a majority of shares present
in person or represented by proxy at the Annual Meeting and entitled to vote on
such matters. Abstentions may be specified on all proposals (except the election
of directors), and will be counted as present for purposes of determining the
existence of a quorum regarding the item on which the abstention is noted and
will also be counted as a vote against such item for purposes of determining
whether stockholder approval of that item has been obtained.

All votes will be tabulated by an inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes.

Broker Non-Votes

Shares that are not voted by the broker who is the record holder of the
shares because the broker is not instructed to vote and does not have
discretionary authority to vote (i.e., Broker Non-Votes) and shares that are not
voted in other circumstances in which proxy authority is defective or has been
withheld, will be counted for purposes of establishing a quorum. Brokers have
discretionary authority to vote on the election of directors and the
ratification of accountants, but do not have discretionary authority to approve
amendments to the Company's Amended and Restated 2002 Incentive Award Plan (the
"Incentive Plan"). Broker Non-Votes and other non-voted shares will not be
deemed to be entitled to vote for purposes of determining whether stockholder
approval of the proposed amendment to the Incentive Plan has been obtained and
thus will have no effect on the outcome of such matter.

Revocability of Proxies

Any stockholder has the power to revoke his or her proxy at any time before
it is voted. A proxy may be revoked by a stockholder of record 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 Annual Meeting and voting in person by the person who executed
the proxy. Attendance at the Annual Meeting will not, by itself, revoke a proxy.
If your shares are held in the name of a broker, bank or other nominee, you may
change your vote by submitting new voting instructions to your bank, broker or
other record holder. Please note that if your shares are held of record by a
broker, bank or other nominee, and you decide to attend and vote at the Annual
Meeting, your vote in person at the Annual Meeting will not be effective unless
you present a legal proxy, issued in your name from the record holder, your
broker.

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 in favor of all five Director nominees and in
favor of Proposal 2 and 3.

Solicitation

This proxy statement is being mailed to the Company's stockholders on or
about April 4, 2005. 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 who will not receive any additional payment for these services.
The Company has also retained Georgeson Shareholder Communications, Inc. to
assist it in solicitation of proxies, and has agreed to pay approximately $9,000
plus reimbursement of certain expenses for such services. In accordance with
Delaware law, a list of stockholders entitled to vote at the Annual Meeting will
be available at the Annual Meeting, and for 10 days prior to the Annual Meeting
at FileNet Corporation, 3565 Harbor Boulevard, Costa Mesa, California 92626
between the hours of 9 a.m. and 4 p.m. local time.

Stockholder Proposals for 2006 Annual Meeting

It is currently contemplated that the Company's 2006 Annual Meeting of
Stockholders will be held on or about May 5, 2006. In the event that a
stockholder desires to have a proposal considered for presentation at the 2006
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 2, 2005. 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 2006 Annual Meeting of Stockholders or seeks to nominate a candidate for
election or propose business for consideration at such meeting, the Company must
receive notice of such proposal no later than February 4, 2006. Any such notice

must comply with the requirements of the Company's Bylaws. If the notice is not
received by such date, it will be considered untimely under the Company's
Bylaws, and the Company will have discretionary voting authority under proxies
solicited for the 2006 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.

Voting Electronically via the Internet or by Telephone

If your shares are registered directly with the Company's transfer agent,
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 proxy card provided. 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. The Internet and telephone voting facilities will close at
11:59 p.m. E.S.T. on May 4, 2005. Stockholders who vote through the Internet
should be aware that they may incur costs to access the Internet, such as usage
charges from telephone companies or Internet service providers, and that these
costs must be borne by the stockholder. Stockholders who vote by Internet or
telephone need not return a proxy card by mail.

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 voting instructions in the
self-addressed postage paid envelope provided.

Code of Ethics

The Company has adopted Values and Standards of Business Conduct ("Code of
Ethics") that applies to the Company's officers, directors and employees. The
Company's Code of Ethics, as applied to the Company's Chief Executive Officer,
principal financial officers, principal accounting officer, controller and other
senior financial officers, is intended to comply with the requirements of
Section 406 of the Sarbanes-Oxley Act. The Company's Code of Ethics was filed as
an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2003. In addition, a copy of the Code of Ethics will be provided
without charge upon request to the Corporate Secretary, FileNet Corporation,
3565 Harbor Boulevard, Costa Mesa, California 92626. The Company intends to
timely disclose any amendments to or waivers of certain provisions of the
Company's Code of Ethics applicable to the Company's Chief Executive Officer,
principal financial officers, principal accounting officer, controller and other
senior financial officers on the Company's website at www.filenet.com.

PROPOSAL 1

ELECTION OF DIRECTORS

The Company's stockholders are being asked to elect five 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 five.

Based upon the recommendation of the Nominating Committee, the following
persons have been nominated for re-election to the Board of Directors at this
2005 Annual Meeting of Stockholders.

NOMINEES FOR ELECTION AT THIS MEETING

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

L. George Klaus, 64, Chairman, President and Chief Executive Officer of Epicor 1998
Software Corporation (formerly Platinum Software Corporation) since February
1996. Mr. Klaus also currently serves as a director of Epicor Software.

Lee D. Roberts, 52, Chairman of the Board of the Company since December 2000 and 1998
Chief Executive Officer since April 1998. Mr. Roberts served as the Company's
President from May 1997 to October 2000 and as the Company's 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
Noetix Software and Message Gate, Inc., both of which are not publicly traded
companies.

John C. Savage, 57, Managing Director of Alliant Partners, an investment banking 1982
firm, since June 1998. Since the acquisition of Alliant Partners by Silicon
Valley Bankshares in September 2001, Mr. Savage has been a Managing Director of
Alliant Partners. From 1990 to July 1998, Mr. Savage served as Managing Partner
of Glenwood Capital Partners and Managing Director of its successor, Redwood
Partners, LLC, both venture buy-out firms.

Roger S. Siboni, 50, Chairman of the Board of Epiphany, Inc. since July 2003. 1998
Mr. Siboni served as President, Chief Executive Officer and a director of
Epiphany, Inc. from August 1998 to July 2003. From October 1996 to August 1998,
Mr. Siboni was Deputy Chairman and Chief Operating Officer of KPMG Peat Marwick
LLP, a member firm of KPMG International. From 1993 to October 1996, Mr. Siboni
was Managing Partner of KPMG Peat Marwick LLP, Information, Communication and
Entertainment practice. Mr. Siboni also currently serves as a director of
Cadence Design Systems, Inc. and Dolby Laboratories.

Theodore J. Smith, 75, Chairman of the Board of the Company from its inception 1982
in 1982 to December 2000 and has been a director of the Company since 1982. Mr.
Smith served as the Chief Executive Officer of the Company from its inception in
1982 to April 1998, and President of the Company from 1982 to May 1997. Mr.
Smith is also currently a director of Intershop Communications, A.G.

Additionally, William P. Lyons served as a Director of the Company during
2004. Mr. Lyons resigned his position as a Director of the Company effective
November 19, 2004, to pursue other business interests. Mr. Lyons had served on
the Company's Board of Directors since August 1992. 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.

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 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 five 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 FIVE
NOMINEES NAMED ABOVE.

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 2004: (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 that was not held on the same day as a Board meeting.

Pursuant to the Amended and Restated 2002 Incentive Award Plan, each
non-employee director is automatically granted Options covering 10,000 shares on
the date of each annual meeting of stockholders, at which such director is
re-elected to the Board. Each Option has an exercise price equal to the fair
market value of the Company's Common Stock on the date of grant and vests in
four successive equal annual installments on the anniversary of the Option grant
date, subject to the optionee's continued service on the Board. Each 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. Accordingly, at
the 2004 Annual Stockholders Meeting held on May 7, 2004, current directors,
Messrs. Klaus, Savage, Siboni and Smith each automatically received, upon their
reelection to the Board, a stock Option to purchase 10,000 shares of the
Company's Common Stock with an exercise price of $27.765 per share.

Meetings of the Board

The Board of Directors held five meetings and met in two executive sessions
of independent directors during the year ended December 31, 2004. The Chairman
of the Nominating/Corporate Governance Committee presided over the executive
sessions. All of the Company's directors attended or participated in at least
75% of the aggregate number of meetings of the Board of Directors. Each director
attended at least 75% of the aggregate number of meetings of those committees of
the Board of Directors on which such person served, which were held during such
period. It is expected that each Board member will attend the Annual Meeting of
Stockholders; provided, however, that members may attend such annual meeting by
telephone or video conference, if necessary, to mitigate conflicts. There was
one member of the Board of Directors present at last year's Annual Meeting of
Stockholders.

Communications with the Board of Directors

The Board believes management speaks for the Company. Inquiries from
institutional investors, the media, employees and others should be referred to
the Chief Executive Officer or other appropriate officers of the Company, who
may forward such materials to members of the Board as they deem appropriate.
Individual Board members may, from time to time, meet or otherwise communicate
with various constituencies of the Company, but the Board expects that this
would be done only with its concurrence or that of management.

Director Independence

The Board has adopted the standards of the National Association of
Securities Dealers ("NASD") and reviews all commercial and other relationships
of each director and his family members in making its determination as to the
independence of its directors. The Board has determined that each of Messrs.
Klaus, Savage, Siboni and Smith qualify as independent under the requirements of
NASD.

Committees of the Board of Directors

The Board of Directors currently has an Audit Committee, a Compensation
Committee, a Special Stock Option Committee, that grants stock options to
eligible individuals and non-executive officers under specified guidelines in
concurrent authority with the Compensation Committee and a Nominating/Corporate
Governance Committee. Committee assignments are re-evaluated annually by the
Nominating/Corporate Governance Committee who makes recommendations regarding
Committee assignments for approval by the Board of Directors.

Audit Committee. The Audit Committee currently consists of three directors,
Messrs. Klaus, Savage, and Siboni, with Mr. Savage serving as the Chairman, all
who have been determined by the Board to be independent (as defined in NASD Rule
4200(a)(15) and under U.S. Securities and Exchange Commission ("SEC") Rule
10A-3). The Board of Directors has also determined that each of Messrs. Klaus,
Savage and Siboni qualify as audit committee financial experts and are
financially sophisticated within the meaning of SEC Regulation S-K, Item 401(h)
and NASD Rule 4350. The Audit Committee meets at least quarterly with the
Company's management and independent accountants. During the year ended December
31, 2004, the Audit Committee held six meetings and met in four executive
sessions.

The Board of Directors of the Company adopted an Audit Committee charter in
December 2000. The Board of Directors amended the charter in July 2003, and
further amended the charter in April 2004, a copy of which appears on the
Company's website at www.filenet.com and is attached as Appendix A. The Audit
Committee's responsibilities include, but are not limited to, (i) selecting the
Company's independent public accountants; (ii) reviewing the scope and results
of the audit engagement with the independent public accountants and management;
(iii) reviewing the adequacy of the Company's internal accounting control
procedures; (iv) reviewing the independence of the independent public
accountants; and (v) reviewing the range of audit and non-audit fees charged by
the independent public accountants.

Compensation Committee. The Compensation Committee consists of at least two
independent directors of the Company. During 2004, Messrs. Lyons and Klaus
comprised the Compensation Committee, with Mr. Lyons serving as the Chairman,
until November 19, 2004, when he resigned from the Board of Directors.
Thereafter, Mr. Siboni was appointed to the Compensation Committee and Mr. Klaus
served as Chairman through the end of 2004, as well as currently. The Board of
Directors has determined that each of Messrs. Lyons, Klaus and Siboni qualified
as independent directors of the Company during their tenure on the Compensation
Committee in 2004. The Compensation Committee held six meetings and acted on
seven occasions by unanimous written consent during the year ended December 31,
2004.

The Board of Directors of the Company adopted a Compensation Committee
Charter in December 2003. The Board of Directors made revisions to the charter
in December 2004, a current copy of which is available for viewing on the
Company's website at www.filenet.com.

The Compensation Committee's responsibilities include, but are not limited
to, (i) reviewing, establishing and revising the compensation policy for the
Company's executive officers; (ii) producing an annual report on executive
compensation for inclusion in the Company's annual proxy statement, in
accordance with applicable rules and regulations; (iii) reviewing and approving
corporate goals and objectives relevant to the compensation of the Chief
Executive Officer and other executive officers, evaluating the performance of
these officers in light of those goals and objectives and setting the
compensation of these executive officers based on the evaluation, and other
relevant factors; (iv) reviewing and approving the Company's benefit plans and
perquisites that apply to executive officers and making recommendations to the
Board of Directors; (v) making awards under and acting as administrator of the
Company's 1995 Stock Option Plan, as amended, the 1996 Saros Plan (acting as
administrator only, no additional awards are granted under this plan), the 1998
Employee Stock Purchase Plan, as amended, and the Incentive Plan; (vi) reviewing
the amount and composition of director compensation in relation to the goals of
the Company, and making recommendations to the Board of Directors; (vii)
reviewing and evaluating, at least annually, the performance of the compensation
committee and its members, including the compliance of the Compensation
Committee with its charter; and (viii) performing other related functions upon
request of the Board of Directors.

Special Stock Option Committee. In addition to the above, in December 1999,
the Board of Directors granted Mr. Roberts separate but concurrent authority
with the Compensation Committee to make discretionary option grants to eligible
individuals, other than executive officers and Board members, subject to a
limitation of 20,000 shares per individual employee grant, that are to be made
no more than once per calendar month, on the first market trading day of each
month, and that shall comply with express terms and conditions of the applicable
plan under which such grants are made. Mr. Roberts acted under this authority on
eight occasions during 2004.

Nominating/Corporate Governance Committee. The Nominating/Corporate
Governance Committee currently consists of Messrs. Klaus, Savage, Siboni, and
Smith, with Mr. Siboni serving as the Chairman, all of who are independent as
defined by NASD. The Nominating/Corporate Governance Committee held three
meetings during the fiscal year ended December 31, 2004.

The Board of Directors of the Company adopted a Nominating/Corporate
Governance Committee Charter in February 2004. The Nominating/Corporate
Governance Committee adopted a set of corporate governance principles that
address the composition of the Board, orientation and continuing education of
the Board, Board meetings, Board committees, management succession, Board
self-evaluation and expectation of directors. The Nominating/Corporate
Governance Charter and the Corporate Governance Guidelines are available on the
Company's website at www.filenet.com.

The Nominating/Corporate Governance Committee is responsible for, among
other things: (i) identifying individuals who are qualified to be members of the
Board of Directors and selecting or recommending that the board select the
nominees for directorships; (ii) developing and recommending to the Board of
Directors a set of corporate governance principles applicable to the Company;
(iii) establishing the criteria and procedures for selecting new directors; (iv)
overseeing the process for evaluating the Board of Directors and management; and
(v) reviewing and evaluating, at least annually, the performance of the
nominating and corporate governance committee and its members, including the
compliance of the nominating and corporate governance committee with its
charter.

The Nominating/Corporate Governance Committee will consider recommendations
for director nominations by stockholders who have held the Company's common
stock for at least one year and who hold a minimum of 1% of the Company's
outstanding voting securities. All recommendations should be submitted to the
Nominating/Corporate Governance Committee care of the Company's Secretary. The
stockholder must submit a detailed resume of the candidate and an explanation of
the reasons why the stockholder believes this candidate is qualified for service
on the Company's Board. The stockholder must also provide such other information
about the candidate that would be required by the SEC rules to be included in a
proxy statement. In addition, the stockholder must include the consent of the
candidate and describe any relationships, arrangements or undertakings between
the stockholder and the candidate regarding the nomination or otherwise. The
stockholder must also submit proof of Company stockholdings. All communications
are to be directed to the Chairperson of the Nominating/Corporate Governance
Committee, care of the Corporate Secretary, FileNet Corporation, 3565 Harbor

Boulevard, Costa Mesa, California 92626. Recommendations received after 120 days
prior to the mailing of the proxy will likely not be considered timely for
consideration at that year's annual meeting.

The Nominating/Corporate Governance Committee focuses on the following
criteria in determining whether a candidate is qualified to serve on the Board:
(i) personal qualities and characteristics, accomplishments and reputation in
the business community; (ii) current knowledge and contacts in the communities
in which the Company does business and in the Company's industry or other
industries relevant to the Company's business; (iii) ability and willingness to
commit adequate time to the Board and committee matters; (iv) the fit of the
individual's skills and personality with those of other directors and potential
directors in building a Board that is effective, collegial and responsive to the
needs of the Company; (v) diversity of viewpoints, background and experience;
and (vi) leadership.

The Nominating/Corporate Governance Committee reviews each existing
director whose term is set to expire and considers the following in determining
whether to recommend the re-election of that director: (i) the director's
overall effectiveness; and (ii) whether changes in employment status, health,
community activity or other factors may impair the director's continuing
contributions to the Board. The Nominating/Corporate Governance Committee
applies the same criteria to nominees recommended by stockholders as to new
candidates recommended by the Nominating/Corporate Governance Committee.

The Company's Bylaws allow stockholders entitled to vote in the election of
directors to submit nominations for the election of directors. Nominations must
be forwarded in writing to the Corporate Secretary of the Company so that the
nomination is received no later than 90 days prior to the annual meeting. In the
event less than 100 days notice of the date of the meeting is given to
stockholders, notice must be received no later than the tenth day following the
day on which notice of the meeting is given. Each notice must set forth (i) the
name and address of the stockholder and of the person or persons to be
nominated; (ii) a representation that the stockholder is a holder of record of
stock of the Company; (iii) a description of all arrangements or understandings
between the stockholder and each nominee; (iv) other information regarding each
nominee as is required to be disclosed in a proxy statement filed pursuant to
the proxy rules of the SEC had the nominee been nominated by the Board of
Directors; and (v) the consent of each nominee to serve as a director of the
Company if elected. Please refer to the Company's Bylaws for complete
information. Notices should be directed to the attention of the Corporate
Secretary, FileNet Corporation, 3565 Harbor Boulevard, Costa Mesa, California
92626.

PROPOSAL 2

APPROVAL OF AMENDMENT NO. 1 TO THE
AMENDED AND RESTATED 2002 INCENTIVE AWARD PLAN

The Company's stockholders are being asked to approve an amendment to the
Amended and Restated 2002 Incentive Award Plan (the "Incentive Plan"). The
Incentive Plan was adopted by the Board of Directors on March 28, 2002, became
effective on May 22, 2002 and was subsequently amended and restated and approved
by the stockholders of the Company on May 7, 2004. On March 10, 2005, the Board
approved an amendment to the Incentive Plan, subject to stockholder approval at
this Annual Meeting, which provides for:

(i) an increase of the total number of shares of Common Stock available
for issuance thereunder by an additional 1,400,000 shares, from
4,800,000 shares to 6,200,000 shares;

(ii) an increase of the number of shares (included in the additional
1,400,000 shares referenced above) that may be awarded as Restricted
Stock, Restricted Stock Units, Deferred Stock, Performance Awards and
Stock Payments from 700,000 shares to 1,100,000 shares, an increase of
400,000 shares;

(iii) a change in the minimum price per share of the shares subject to any
Option that may be granted to no less than 100% of the Fair Market
Value of a share on the date an Option is granted; and

(iv) certain minimum vesting periods for Restricted Stock and Restricted
Stock Units.

As of March 14, 2005, without giving effect to the proposed amendment to
the Incentive Plan, 1,333,653 shares remain available for grant under the
Incentive Plan, of which 422,500 shares remain available for grant as Restricted
Stock, Restricted Stock Units, Deferred Stock, Performance Awards and Stock
Payments, each without giving effect to the proposed increases. The text of
Amendment No. 1 to the Incentive Plan is attached as Appendix B.

The amendment allows the Company to continue to provide eligible employees
of the Company and its participating affiliates with the opportunity to acquire
a proprietary interest in the Company through participation in a comprehensive
equity incentive program and will allow the Company to continue to retain,
motivate and attract qualified non-employee directors.

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

General Nature of the Amended Incentive Plan

The principal purposes of the Incentive Plan are to provide incentives for
key employees, independent directors and consultants 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, Restricted Stock Units, Stock Appreciation Rights,
Performance Awards, Dividend Equivalents, Deferred Stock and Stock Payments
(collectively, "Awards").

Shares Reserved

Under the Incentive Plan, the aggregate number of shares of Common Stock
that may be issued upon the exercise of Options or any other Award is 6,200,000
shares, which includes the 1,400,000 share increase for which stockholder
approval is sought under this proposal. The portion of these shares that may be
issued as Restricted Stock, Restricted Stock Units, Deferred Stock, Performance
Awards and Stock Payments is 1,100,000 shares, which includes the 400,000 share
increase for which stockholder approval is being sought under this proposal.
After giving effect to the proposed amendment, approximately 2,733,653 shares
would be available for grant under the Incentive Plan, of which 822,500 shares
would be available for grant as Restricted Stock, Restricted Stock Units,
Deferred Stock, Performance Awards and Stock Payments. The 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 14, 2005, the average of the high and low price of a share of the
Company's Common Stock on the Nasdaq Stock Market was $23.34.

The shares of Common Stock available for issuance under the Incentive Plan
may be either previously authorized and unissued shares or treasury shares. The
Incentive Plan provides for appropriate adjustments in the number and kind of
shares subject to the 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 Incentive 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 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 Rule 16b-3 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 Incentive
Plan to independent directors, the Board as a whole shall administer the
Incentive Plan. The Compensation Committee, however, has the power to delegate
authority for administration of the Incentive Plan as to Awards made to certain
employees to a committee comprised of one or more of the Company's 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 Incentive Plan.

Eligibility

Awards under the Incentive Plan may be granted to employees of the Company
or any of its present or future subsidiaries, consultants to the Company and
Independent Directors. More than one Award may be granted to an employee,
consultant or Independent Director. As of March 14, 2005, six executive
officers, four non-employee Board members and approximately 1600 other employees
and consultants were eligible to participate in the Incentive Plan.

Awards Under the Incentive Plan

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

For purposes of the 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, under the proposed
amendment to the Incentive Plan, may not be less than 100% of the fair market
value of the Company's common stock on the date of grant. NSOs 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 Administrator.

Incentive Stock Options. Incentive Stock Options 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 100% 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 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 Incentive Plan
provides for automatic grants of NSOs to Independent Directors for the purchase
of 10,000 shares on the date of each annual meeting of stockholders at which the
Independent Director is reelected to the Board, provided such person has served
as an Independent Director for at least 6 months prior to the annual meeting of
stockholders. Additionally, during the term of the Incentive Plan, 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, is
automatically granted an Option to purchase 25,000 shares on the date of such
initial election or appointment. Options automatically granted to Independent
Directors have an exercise price equal to the fair market value of the Company's
common stock on the date of grant, and vest in equal annual installments of 25%
from the date of grant, subject to accelerated vesting upon the happening of
certain events including any change in control or corporate transactions (as
defined). The Independent Director shall have until the earlier of (i) ten years
following option grant date or (ii) 12 months following cessation of Board
Service, to exercise his or her vested options. The Board may also grant Options
to Independent Directors from time to time, on such terms as the Board deems
appropriate.

Restricted Stock and Restricted Stock Units. Restricted Stock may be sold
to Participants at various prices or granted in connection with the performance
of services and made subject to such conditions and restrictions as may be
determined by the Administrator. Restricted Stock, typically, may be repurchased
by the Company at the original purchase price or otherwise be subject to
forfeiture if the conditions or restrictions are not met. Restricted Stock Units
are granted in connection with the performance of services and made subject to
such conditions and restrictions as may be determined by the Administrator.
Restricted Stock Units are subject to forfeiture if the conditions or
restrictions are not met. In general, Restricted Stock and Restricted Stock
Units may not be sold, or otherwise transferred or hypothecated, until all
restrictions are removed or expire. The proposed amendment to the Incentive Plan
provides that the minimum period as of which all restrictions may lapse and the
Award vests in full (e.g. after all installments have vested) shall be three
years, except for Awards that are intended to be "performance-based"
compensation under Section 162(m) of the Internal Revenue Code or are otherwise
subject to satisfaction of performance criteria or individual performance (other
than the passage of time) the minimum period as of which all restrictions may
lapse and the Award vests in full shall be one year. Holders of Restricted Stock
will have voting rights and will receive dividends prior to the time the
restrictions lapse. Holders of Restricted Stock Units, however, will not have
voting rights nor have other rights as a stockholder, unless otherwise provided
by the Administrator.

To the extent that the Administrator determines that it is desirable for a
grant of Restricted Stock or Restricted Stock Units to qualify as "performance
based" compensation under Internal Revenue Code Section 162(m), such grant of
shall be subject to vesting upon attainment of performance goals, which are
pre-established by the Administrator based on the Performance Criteria set forth
in the Incentive Plan.

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 an SAR. 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 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 the Company's common stock and are credited as of dividend payment
dates, as specified in the Incentive Plan. Such Dividend Equivalents are
converted to cash or additional shares of the Company's 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
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.

Performance Criteria. The performance goal upon which awards intended to
qualify as performance-based compensation under Section 162(m) of the Internal
Revenue Code 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: (i) net income; (ii) pre-tax
income; (iii) operating income; (iv) cash flow; (v) earnings per share; (vi)
return on equity; (vii) return on invested capital or assets; (viii) cost
reductions or savings; (ix) funds from operations; (x) appreciation in the fair
market value of Common Stock; or (xi) earnings before any one or more of
interest, taxes, depreciation or amortization (the "Performance Criteria").

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 (i) by delay in
payment for up to 30 days, (ii) 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; (iii) by a full recourse promissory note bearing interest at a
market rate of interest; (iv) by an irrevocable instruction to a broker to
exercise the Option and 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, (v) by delivery of other
property of any kind which constitutes good and valuable consideration, or (vi)
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 Incentive Plan at any time. The
Administrator may also amend the Incentive Plan wholly or in part at any time,
however, the stockholder approval is required in order to (i) increase the
number of shares of common stock subject to the Incentive Plan or the maximum
number of shares of common stock which may be awarded to any individual during
any calendar year, except for any increase or other change due to stock
dividends, split-ups, consolidations, recapitalizations, reorganization or like
events; or (ii) amend the Incentive Plan in a manner that requires stockholder
approval under applicable law or the listing requirements of the Nasdaq Stock
Market. Amendments of the 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 Incentive Plan after February 24, 2014.
The Board may terminate the Incentive Plan at any time prior to such date with
respect to the shares that are not then subject to Awards. Termination of the
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 Incentive Plan first
become exercisable and on which they expire will be set forth in individual
Award notices and agreements setting forth the terms of the Awards. These
Agreements generally will provide that Options and other Awards expire upon
termination of the Participant's employment, although the Administrator may
provide in the agreement or after grant 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 Incentive Plan which has not vested generally will be subject to
repurchase by the Company or forfeiture 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 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
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 certain Awards, 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 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 Incentive Plan, the maximum number of shares that may
be granted during any calendar year, the number and kind of shares covered by,
and the exercise or purchase price of, each outstanding Option and other Award,
and other limitations on shares applicable under the Incentive Plan, shall be
proportionately adjusted.

Certain Federal Income Tax Consequences

The federal income tax consequences of the Incentive Plan under current
federal income tax law are summarized in the following discussion that deals
with the general tax principles applicable to the 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 Incentive Plan will not recognize taxable income upon
the grant of the Option, nor will the Company then be entitled to any deduction.
Generally, upon exercise of NSOs, at the time of transfer of the stock, the
optionee will recognize ordinary income, and the Company will be entitled to a
deduction, in an amount equal to the fair market value of the stock at the date
of transfer, less the option exercise price.

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 stock at the time of transfer exceeds the option
exercise price will be an "item of tax adjustment" for the optionee for
alternative minimum tax purposes. Generally, upon the sale or other taxable
disposition of the 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 sale or disposition over the option exercise
price, provided that the sale or disposition of the stock does not occur within
either (a) two years from the date of grant of the ISO or (b) one year after the
date of transfer of the stock upon exercise. If the stock is sold or otherwise
disposed of before the end of the one-year and two-year periods specified above,
the excess of the fair market value of the stock on the date of transfer
generally will be taxable as ordinary income; the balance of the amount realized
from such sale or disposition, if any, generally will be taxed as capital gain.
If the stock is sold or 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 transfer, the optionee's ordinary income generally is
limited to the excess, if any, of the amount realized in such transfer 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
stock.

An Option will only qualify as an ISO 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 Option is granted. To the extent an Option is exercisable for
shares in excess of this $100,000 limitation, the excess shares shall be taxable
under the rules for "Nonqualified Stock Options," described above.

Restricted Stock. A Participant to whom Restricted Stock is issued will not
generally recognize taxable income upon issuance or purchase of the Restricted
Stock, and the Company generally will not then be entitled to a deduction,
unless an election is made by the Participant with respect to Restricted Stock
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
a substantial risk of forfeiture or are transferable, the Participant generally
will recognize ordinary income, and the Company generally will be entitled to a
deduction, in an amount equal to the excess of the fair market value of the
shares at the date such restrictions lapse over the purchase price. If a timely
election is made under Section 83(b) with respect to Restricted Stock, the
Participant generally will recognize ordinary income on the date of issuance or
purchase of the Restricted Stock, equal to the excess, if any, of the fair
market value of the shares at that date over the purchase price, and the Company
will be entitled to a deduction for the same amount.

Restricted Stock Units and Deferred Stock. No taxable income is generally
recognized by the Participant upon the award of Restricted Stock Units or
Deferred Stock. When Restricted Stock Units vest, and the Company's shares are
issued to the Participant, the Participant generally will recognize ordinary
income, and the Company generally will be entitled to a deduction, for the
amount equal to the fair market value of the shares at the date of issuance.
When Deferred Stock vests and is issued to the Participant, the Participant
generally will realize ordinary income and the Company generally will be
entitled to a deduction in an amount equal to the fair market value of the
shares at the date of issuance. The Internal Revenue Code does not permit a
Section 83(b) election to be made with respect to Deferred Stock or Restricted
Stock Units.

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 stock (or cash in lieu of stock) 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 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 the Company will not be
entitled to a deduction at that time. When a Dividend Equivalent is paid, the
Participant will recognize ordinary income, and the Company 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 the Company will not
be entitled to a deduction at that time. When an award is paid, whether in cash
or stock, the Participant will have ordinary income (in the case of stock, in
the amount of the fair market value of the stock) and the Company will be
entitled to a corresponding deduction.

Stock Payments. A Participant who receives a Stock Payment will recognize
ordinary income when the Stock Payment is made equal to the fair market value of
the stock, and the Company 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) 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 Incentive Plan has been structured with the intent that Awards
granted under the Incentive Plan may meet the requirements for
"performance-based" compensation and Internal Revenue Code Section 162(m). To
the extent granted at a fair market value exercise price, Options granted under
the Incentive Plan are intended to qualify as "performance-based" under Section
162(m) of the Internal Revenue Code. Restricted Stock and other Awards granted
under the Incentive Plan may qualify as "performance-based" under Internal
Revenue Code Section if such Awards vest based solely upon the Performance
Criteria and the other requirements for qualification as "performance-based"
compensation are met.

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

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

PROPOSAL 3

RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS

The firm of Deloitte and Touche LLP, the Company's independent accountants
for the year ended December 31, 2004, 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, 2005. 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 Audit Committee. Even if the selection is ratified, the
Audit Committee in its discretion may direct the appointment of a different
independent accounting firm at any time during the year if the Audit Committee
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.

Required Vote and Board of Directors Recommendation

The affirmative vote of a majority of the Company's voting stock present or
represented and entitled to vote on the proposal is required for ratification of
the appointment of Deloitte and Touche LLP to serve as the Company's independent
accountants for 2005. Abstentions on this proposal will be counted for purposes
of determining the total number of shares that voted on the proposal and thus
will have the effect of a vote against the proposal. Broker Non-Votes will not
result on 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.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table presents fees for professional services rendered by
Deloitte and Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their
respective affiliates (collectively, "Deloitte and Touche") for the audit of the
Company's financial statements for the years ended December 31, 2003 and
December 31, 2004 and fees for other services rendered during those periods:

Fee Category 2004 2003

Audit Fees(a) $522,421 $544,341

Audit-Related Fees(b) 749,340 46,407

Tax Fees(c) 279,518 160,264

All Other Fees(d) 17,450 16,700

Total $1,568,729 $767,712

(a) Fees for audit services billed in 2004 and 2003 consisted of:
(i) audit of the Company's annual financial statements; (ii) reviews of the
Company's quarterly financial statements; and (iii) consents and other services
related to SEC matters.

(b) Fees for audit-related services billed in 2004 and 2003 consisted of:
(i) audits and/or due diligence associated with mergers/acquisitions; (ii)
financial accounting and reporting consultations; (iii) Sarbanes-Oxley Act,
Section 404 advisory services - $722,322 of the fiscal 2004 Audit-Related Fees
relate to the professional services provided for Sarbanes-Oxley compliance; and
(iv) employee benefit plan audits.

(c) Fees for tax services billed in 2004 and 2003 consisted of tax
compliance and tax planning and advice. These services include assistance
regarding federal, state and international tax compliance, assistance with tax
reporting requirements and audit compliance, and mergers and acquisitions tax
compliance:

o Fees for tax compliance services totaled $279,518 and $160,264 in 2004
and 2003, respectively.

o Tax compliance services are services rendered based upon facts already
in existence or transactions that have already occurred to document,
compute, and obtain government approval for amounts to be included in
tax filings and consisted of: (i) Federal, state and local income tax
return assistance; (ii) assistance with tax return filings in certain
foreign jurisdictions; (iii) research and assistance with executive
compensation and other employment tax reporting issues; (iv) requests
for technical advice from taxing authorities; (v) assistance with tax
audits and voluntary disclosures with tax authorities; and (vi)
preparation of expatriate tax returns

(d) Fees for all other services billed in 2004 consisted of permitted
non-audit services, such as: transfer price documentation for software license.

In considering the nature of the services provided by the independent
auditor, the Audit Committee determined that all such services are compatible
with the provision of independent audit services. The Audit Committee discussed
these services with the independent auditor and Company management to determine

that they are permitted under the rules and regulations concerning auditor
independence promulgated by the SEC to implement the Sarbanes-Oxley Act of 2002,
as well as the American Institute of Certified Public Accountants.

Policy on Audit Committee Pre-Approval of Audit and Non-audit Services of
Independent Auditor

The services performed by the independent auditor in 2004 were pre-approved
in accordance with the pre-approval policy and procedures adopted by the Audit
Committee on January 21, 2004. This policy describes the permitted audit,
audit-related, tax, and other services (collectively, the "Disclosure
Categories") that the independent auditor may perform up to a $20,000 limit per
project. The policy requires that prior to the beginning of each fiscal year, a
description of the material services (the "Service List") expected to be
performed by the independent auditor in each of the Disclosure Categories in the
following fiscal year be presented to the Audit Committee for approval.

Any requests for audit, audit-related, tax, and other services not
contemplated on the Service List or exceeding $20,000 per project must be
submitted to the Audit Committee for specific pre-approval and cannot commence
until such approval has been granted. Normally, pre-approval is provided at
regularly scheduled meetings. However, the authority to grant specific
pre-approval between meetings, as necessary, has been delegated to the Chairman
of the Audit Committee. The Chairman must update the Audit Committee at the next
regularly scheduled meeting of any services that were granted specific
pre-approval. On a quarterly basis, the Audit Committee reviews the status of
services and fees incurred year-to-date against the original Service List and
the forecast of remaining services and fees for the fiscal year.

VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF

The following table sets forth as of March 14, 2005 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
Common Stock
Total Outstanding Outstanding Beneficially
Name and Address Common Stock Options(1) Owned(2)

5% Holders:
FMR Corp. 6,199,427 0 15.2%
82 Devonshire Street
Boston, MA 02109(3)

Franklin Resources, Inc. 3,472,368 0 8.5%
One Franklin Parkway
Building 920
San Mateo, CA 94403 (4)

T. Rowe Price Associates, Inc. 3,352,200 0 8.2%
100 E. Pratt Street
Baltimore, MD 21202(5)

Barclays Global Investors, NA 2,553,350 0 6.3%
45 Fremont Street
San Francisco, CA 94105(6)

Directors:
Lee D. Roberts(7) (8) (9) 60,000 667,607 1.8%
John C. Savage 8,564 72,750 *
Theodore J. Smith(10) 207 77,100 *
L. George Klaus 0 35,250 *
Roger S. Siboni 0 14,750 *

Named Executive Officers:
Sam M. Auriemma(8) 30,000 297,083 *
Ron L. Ercanbrack(8) 30,000 71,771 *
Martyn D. Christian(8) 18,985 65,886 *
Franz X. Zihlmann(8) (11) 10,000 17,292 *

All executive officers and directors
as a group (11 persons) (12) 191,456 1,364,552 3.7%
_____________________________
*Represents less than 1%

(1) Represents shares of Common Stock that the holder may acquire upon exercise
of currently vested Options or Options that will become vested within 60
days after March 14, 2005.

(2) The percentage of shares beneficially owned is based on 40,669,006 shares
of Common Stock outstanding as of March 14, 2005.

(3) This information is based upon a Schedule 13G/A dated February 14, 2005 and
filed with the SEC jointly by FMR Corp., Edward C. Johnson 3d, Abigail P.
Johnson, Fidelity Management and Research Company ("Fidelity"), Fidelity
Mid Cap Stock Fund ("Fund"), Fidelity Management Trust Company and
Strategic Advisors, Inc., (as a group, the "Fidelity Parties"). The 13G/A
filed by the Fidelity Parties indicated an aggregate percentage ownership
interest of the Fidelity Parties of 15.000% based on the number of
outstanding shares of Company Common Stock reported in the Company's Form
10-Q for the quarter ended September 30, 2004, which reported number
included treasury shares. The actual percentage ownership of Company Common
Stock of the Fidelity Parties when applying the number of outstanding
shares reported in the Company's Form 10-Q for the quarter ended September
30, 2004 was 14.9998%. The Company's Board of Directors has determined
that, because the Fidelity Parties relied on the information contained in
the Company's Form 10-Q for the quarter ended September 30, 2004 and have
certified that they have no intention to influence control over the
Company, among other reasons, the ownership of Company Common Stock by the
Fidelity Parties as of December 31, 2004 did not result in, and will not
due to the filing or distribution of this proxy statement result in, any of
the Fidelity Parties being considered an Acquiring Person under the
Company's shareholder rights plan. FMR Corp. is a parent holding company of
Fidelity, acting as an investment adviser to various investment companies,
including the Fund and is the beneficial owner of 5,555,127 of the shares
(2,623,589 of which are held by the Fund). Edward C. Johnson 3d, FMR Corp.
and the Fund, each has sole investment power over these shares, while
neither FMR Corp., nor Mr. Johnson has voting power over the shares, as
that power resides with the various funds' Board of Trustees. Fidelity
Management Trust Company and Strategic Advisors, Inc., both wholly-owned
subsidiaries of FMR Corp., are the beneficial owners of 644,100 and 200 of
the shares, respectively. Both Mr. Johnson and FMR Corp. have sole
investment and voting power over the shares held by Fidelity Management
Trust Company. Members of the Edward C. Johnson 3d family, including
Abigail Johnson, may be deemed to form a controlling group with respect to
FMR Corp. by reason of their ownership of approximately 49% of the voting
power of FMR Corp. and a shareholders' voting agreement among them and the
other shareholders of the voting stock of FMR Corp.

(4) This information is based upon a 13G dated February 14, 2005 and filed with
the SEC jointly by Franklin Resources, Inc. ("FRI"), Franklin Advisers,
Inc. ("FAI"), Charles B. Johnson and Rupert H. Johnson, Jr. According to
the Schedule 13G, FRI is a parent holding company of various investment
advisory subsidiaries, which act as an investment adviser to various
investment companies. FAI is the beneficial owner of 2,776,100 of the
shares (and has sole power to vote and dispose of such shares) and Franklin
Templeton Portfolio Advisors, Inc. ("FTPA") is the beneficial owner of
696,268 of the shares (and has sole power to vote and dispose of such
shares). Charles B. Johnson and Rupert H. Johnson, Jr. (the "Principal
Stockholders"), may be deemed to form a controlling group with respect to
FRI by reason of their collective ownership of over 20% of the voting power
of FRI. For purposes of the reporting requirements of the Securities
Exchange Act of 1934, FRI and the Principal Stockholders are deemed to be a
beneficial owner of such securities; however, FRI, its subsidiaries and the
Principal Stockholders expressly disclaim that any of them are, in fact,
the beneficial owner of such securities.

(5) This information is based upon a Schedule 13G/A filed on February 10, 2005
with the SEC. The securities are owned by various individual and
institutional investors that T. Rowe Price Associates, Inc. serves as
investment adviser, and has sole power to dispose of all of the shares and
sole power to vote 427,000 shares. For purposes of the reporting
requirements of the Securities Exchange Act of 1934, T. Rowe Price
Associates, Inc. is deemed to be a beneficial owner of such securities;
however, T. Rowe Price Associates, Inc. expressly disclaims that it is, in
fact, the beneficial owner of such securities.

(6) This information is based upon a 13G dated February 14, 2005 and filed with
the SEC jointly by Barclays Global Investors, NA ("Barclays"), Barclays
Global Fund Advisors ("Fund Advisors") and Palomino Limited ("Palomino")
and includes: (a) 1,279,056 shares held by Barclays, as to which Barclays
has the sole power to dispose of all such shares and the sole power to vote
1,078,208 shares; (b) 975,009 shares held by Fund Advisors, as to which
Fund Advisors has the sole power to dispose all of such shares and the sole
power to vote 969,140 shares; and (c) 299,285 shares held by Palomino, as
to which Palomino has the sole power to dispose and vote all of such
shares. The address of Palomino is Walker House, Mary Street, P.O. Box 908
GT, George Town, Grand Cayman (Cayman Islands).

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

(8) Includes under the heading "Total Outstanding Common Stock," 60,000,
30,000, 30,000, 17,500 and 10,000 shares respectively, for Messrs. Roberts,
Ercanbrack, Auriemma, Christian and Zihlmann, granted in 2004 as Restricted
Stock under the Incentive Plan.

(9) Includes 67,075 Options that, pursuant to a divorce decree, Mr. Robert's
ex-spouse is entitled, subject to certain timing limitations, to direct the
exercise and receive the underlying securities. Mr. Roberts disclaims
beneficial ownership of such 67,075 shares.

(10) The 207 shares are held by the Theodore J. Smith Family Trust, as to which
shares Mr. Smith, as co-trustee for this trust, has shared voting and
dispositive power.

(11) Mr. Zihlmann resigned from his position as Senior Vice President, Software
Development effective as of December 31, 2004.

(12) Includes under the heading "Total Outstanding Common Stock," shares held by
the Theodore J. Smith Family Trust (see footnote 10) and 15,000 shares and
17,500 shares granted as Restricted Stock in 2004 for Messrs. Poindexter
and Maynard, respectively; and includes under the heading "Outstanding
Options," 45,063 Options for Mr. Poindexter.

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 2004 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).

EXECUTIVE OFFICERS OF THE COMPANY

The following table sets forth, as of March 14, 2005, the executive
officers of the Company. In connection with the prior year's reorganization of
the marketing and sales divisions, and based in part, in the shift over time of
policy-making and operational responsibilities, the Board reduced the number of
executive officers effective as of January 1, 2004.

Name Age Position .

Lee D. Roberts 52 Chairman of the Board of the Company since December 2000 and Chief Executive
Officer since April 1998. Mr. Roberts served as the Company's President from
May 1997 to October 2000 and as the Company's 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 Noetix
Software and Message Gate Inc., both of which are not publicly traded
companies.

Sam M. Auriemma 52 Executive Vice President of the Company since January 2004 and Chief
Financial Officer of the Company since September 2000. Mr. Auriemma served
as Senior Vice President Finance from September 2000 until January 2004 and
as Secretary of the Company from September 2000 to May 2003. Before joining
the Company, Mr. Auriemma served as the Executive Vice President and Chief
Financial Officer of Wonderware Corporation (acquired by Invensys, PLC),
which specializes in providing software solutions for industrial and process
automation applications, between April 1996 and September 2000.

Martyn D. Christian 43 Executive Vice President and Chief Marketing Officer of the Company since
February 2004. From January 2003 to February 2004, Mr. Christian served as
the Company's Senior Vice President, Worldwide Field Marketing. From January
2002 to December 2002, Mr. Christian served as the Company's Senior Vice
President Corporate Marketing, and from August 2000 to December 2001, he
served as the Company's 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 the Company's Vice
President, Marketing Programs. From March 1991 to September 1996, he served
in various sales and marketing positions with the Company.

Ron L. Ercanbrack 50 President of the Company since October 2000 and Executive Vice President,
Worldwide Sales of the Company since January 2004. Mr. Ercanbrack served as
Executive Vice President, Worldwide Sales and Marketing of the Company from
April 1999 to October 2000. Mr. Ercanbrack served as the Company's Senior
Vice President, Worldwide Sales from October 1997 until April 1999. From
June 1997 to October 1997, Mr. Ercanbrack served as the Company's 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.

Philip C. Maynard 50 Senior Vice President, Chief Legal Officer and Secretary of the Company since
August 2004. From March 2004 to August 2004, Mr. Maynard served as Executive
Vice President and Chief Legal Officer at SRS Labs, Inc., a leading provider
of audio enhancement and integrated circuit solutions. From 2003 to 2004 Mr.
Maynard was of counsel with the law firm of Stradling Yocca Carlson and Rauth
in Newport Beach, California. From 2000 to 2002, Mr. Maynard served as Vice
President and Division General Counsel for Invensys Software Systems, a
division of Invensys, PLC a UK-based engineering firm. From 1997 to 2000, Mr.
Maynard was General Counsel for Wonderware Corporation, a leading developer
of industrial automation software solutions, which was acquired by Invensys.

L. Kim Poindexter 49 Senior Vice President, Development of the Company since January 2005. Mr.
Poindexter joined the Company in July 1983 as a founding member of the
Company's engineering team. From July 1983 through December 2004, Mr.
Poindexter has held various positions with the Company including, Vice
President Software Development from 2000 through 2004, Director-IDM Desktop
from 1997 through 2000, Section Manager - Visual WorkFlo, Manager from 1993
through 1997, and Principal Engineer before 1993.

OTHER KEY EMPLOYEES OF THE COMPANY

The following table sets forth, as of March 14, 2005, other key employees
of the Company.

Name Age Position .

David D. Despard 49 Senior Vice President, Global Professional Services of the Company since July
1998. Prior to joining the Company, Mr. Despard served as the Vice
President, Customer Services of Wall Data, Inc. from 1995.

Karl J. Doyle 40 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 April 1993 to October 1998, Mr. Doyle was employed
in sales and marketing with the Company.

William J. Kreidler 60 Senior Vice President, Customer Technical Operations and Services of the
Company since July 1997. From August 1992 to July 1997, Mr. Kreidler served
as Vice President, Operations of the Company. From 1993 to July 1998, he was
also responsible for Professional Services.

Chas W. Kunkelmann 55 Senior Vice President, Worldwide Channel Operations of the Company since
October 2002. From November 2001 to October 2002, Mr. Kunkelmann served as
Vice President, Brightspire of the Company and, from November 1999 to
November 2001, he served as the Eastern Regional Vice President of the
Company. Prior to joining the Company between November 1996 and November
1999, Mr. Kunkelmann served as Vice President of North American Operations
for Internet Dynamics, Inc., which specialized in internet security and
access control software.

David McCann 45 Senior Vice President, Product Marketing of the Company since September 2004.
From January 2002 to September 2004 Mr. McCann served as CEO, Carparts
Technologies, a provider of e-commerce software. From 1999 to 2001, Mr.
McCann served as Senior Vice President, Worldwide Operations, at
Continuus/Telelogic Software Corporation, a software development and
management company.

Philip L. Rugani 47 Senior Vice President, Sales - The Americas since January 2003. From June
2002 to January 2003, Mr. Rugani served as a consultant advising public
companies and venture capitalists on merger and acquisition opportunities in
the market. From September 2000 to June 2002, Mr. Rugani served as Executive
Vice President for Altavista Software, a division of AltaVista Company, which
provides search services and software and, from January 1999 to June 2000, as
Senior Vice President Americas for Informix Corporation, a supplier of
database and e-business software solutions. Mr. Rugani also served from
November 1995 to January 1999 as Group Vice President-General Business and
Alliances for Oracle Corporation, a supplier of data base and application
software.

Hugh Sutherland 43 Vice President, Asia Pacific Operations since November 2001. Prior to
joining the company, from September 2000 to November 2001, Mr. Sutherland
served as Vice President of Asia Pacific for Access360, a provider of
resource provisioning software management. From 1995 through 2000 Mr.
Sutherland served as Managing Director of Asia operations for BMC Software.

Stephan Van Herck 43 Senior Vice President, EMEA (Europe, Middle East and Africa) of the Company
since 2003. Mr. Van Herck joined FileNet as regional Vice President for
Northern Europe in 2002. Prior to joining the Company, Mr. Van Herck served
as Vice President, Continental Europe, at Eastman Software (now, eiStream)
and as CEO of Offon, a Belgium systems integration company after that.

Daniel S. Whelan 47 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.

EXECUTIVE COMPENSATION

The following table sets forth certain information regarding the annual and
long-term compensation earned or paid for services rendered in all capacities to
the Company for the last three completed fiscal years (i.e., years ended
December 31, 2002, 2003, 2004) by the Company's Chief Executive Officer, and
each of the other four most highly compensated executive officers of the Company
who were serving as executive officers at the end of fiscal year 2004.

Summary Compensation Table

Long Term Compensation
Annual Compensation Awards .
Restricted Shares
Stock Awards Underlying All Other
Name and Principal Position Year Salary(1) Bonus ($)(2) Options Compensation(3)

Lee D. Roberts 2004 $ 545,758 $ 249,495 $ 1,617,600 80,000 $ 8,369
Chief Executive Officer, 2003 525,000 256,000 0 60,000 8,144
Chairman of the Board and 2002 525,000 252,000 0 0 5,946
Director

Ron L. Ercanbrack 2004 389,827 178,211 808,800 40,000 4,900
President and Executive 2003 375,000 183,000 0 30,000 4,281
Vice President, Worldwide 2002 375,000 180,000 0 100,000 3,587
Sales

Sam M. Auriemma 2004 285,873 110,582 808,800 40,000 4,553
Executive Vice President 2003 275,000 113,000 0 25,000 4,487
and Chief Financial 2002 275,000 110,000 0 60,000 2,100
Officer

Franz X. Zihlmann(4) 2004 257,414 90,512 269,300 0 5,872
Senior Vice President, 2003 250,000 84,000 0 20,000 5,791
Software Development 2002 250,000 80,000 0 30,000 5,275

Martyn D. Christian 2004 253,077 100,529 471,725 100,000 4,242
Executive Vice President, 2003 215,000 122,000 0 40,000 3,971
Marketing 2002 215,000 86,000 0 10,000 3,356
_____________________________________

(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) Represents Restricted Stock awards granted on March 9, 2004, under the
Company's Incentive Plan in the amounts of 30,000, 15,000, 15,000, 10,000
and 10,000, respectively, to Messrs. Roberts, Ercanbrack, Auriemma,
Zihlmann and Christian, at a market closing price per share of $26.93 and
Restricted Stock awards granted on December 15, 2004, in the amounts of
30,000, 15,000, 15,000, and 7,500, respectively, to Messrs. Roberts,
Ercanbrack, Auriemma and Christian, at a market closing price per share of
$26.99. Based on a per share price of $25.915, the average of the high and
low selling prices of the Company's Common Stock on December 31, 2004, the
dollar value for the Restricted Stock awards (all of which were unvested),
respectively, for each of Messrs. Roberts, Ercanbrack, Auriemma, Zihlmann
and Christian, was $1,554,900, $777,450, $777,450, $259,150, and $453,512
as of December 31, 2004.

(3) For fiscal year 2004, consists of (a) premiums paid by the Company in the
amounts of $8,369, $2,800, $2,453, $3,772 and $2,142 on certain term-life
insurance policies maintained for Messrs. Roberts, Ercanbrack, Auriemma,
Zihlmann and Christian, 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, Auriemma, Zihlmann and
Christian to the Company's Section 401(k) Plan. During fiscal year 2004, no
Company contributions under the Company's Section 401(k) Plan were made on
behalf of Mr. Roberts.

(4) Mr. Zihlmann resigned from his position as Senior Vice President, Software
Development effective December 31, 2004.

Option Grants in Last Fiscal Year

The following table provides information on Option grants made in fiscal
year 2004 to the Named Executive Officers. No stock appreciation rights were
granted during such year to the Named Executive Officers.

Individual Grants .

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

Lee D. Roberts 80,000 4.3% $ 26.64 12/15/14 $ 1,340,300 $ 3,396,584

Ron L. Ercanbrack 40,000 2.2 26.64 12/15/14 670,150 1,698,292

Sam M. Auriemma 40,000 2.2 26.64 12/15/14 670,150 1,698,292

Franz X. Zihlmann 0 0 0 N/A 0 0

Martyn D. Christian 75,000 4.1 28.19 02/25/14 1,329,405 3,368,972
25,000 1.4 26.64 12/15/14 418,844 1,061,432
_________________________

(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) All Options granted during 2004 to the Named Executive Officers were
granted under the Company's Incentive Plan. Options granted to the
Company's executive officers become exercisable as to twenty-five percent
(25%) of the option shares after twelve (12) months of service with the
Company from the grant date and the balance of the shares are exercisable
in thirty-six (36) successive equal monthly installments upon completion of
each additional month of service. Each Option will become fully exercisable
in certain events. Each Option has a maximum term of ten years, subject to
earlier termination following the optionee's termination of employment,
permanent disability or death.

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 2004 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 2004.

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 294,000 $ 5,997,235 661,357 125,000 $ 3,795,107 $ 0 / /
Ron L. Ercanbrack 281,146 4,007,514 53,542 119,062 156,945 735,505 / /
Sam M. Auriemma 0 0 283,334 91,666 1,960,542 403,908 / /
Franz X. Zihlmann 124,271 1,134,090 7,396 36,146 19,626 257,101 / /
Martyn D. Christian 0 0 36,251 128,385 240,137 118,972 / /
__________________________

(1) Calculated on the basis of the average of the high and low selling prices
of the Company's Common Stock on December 31, 2004 ($25.915), the last
trading day in 2004, 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.

Equity Compensation Plans

The following tables summarizes information about the Company's common
stock that may be issued upon the exercise of options, warrants and rights under
all of the Company's compensation plans as of December 31, 2004.

Number of securities Number of securities
to be issued upon Weighted average remaining available for future
exercise of exercise price of issuance under equity compensation
outstanding options, outstanding options, plans (excluding securities
warrants and rights warrants and rights reflected in columns(a))

Plan Category (a) (b) (c)

Equity compensation plans approved
by stockholders 6,673,835 $ 19.99 1,591,566
Equity compensation plans not approved
by stockholders 196,782(1) $ 16.32 0
Employee stock purchase plans approved
by stockholders N/A N/A 559,015
Total 6,870,617 $ 19.99 2,150,581
_______________________________

(1) Represents Options outstanding under Non-Qualified Stock Option Agreements
with each of Messrs. Roberts and Auriemma: Mr. Roberts, 56,782 Options with
an exercise price of $7.16 per share granted May 22, 1997; and Mr.
Auriemma, 140,000 Options with an exercise price of $20.03 per share
granted September 13, 2000. All Option shares were granted as inducement to
accept employment with the Company. The number of Options held by Mr.
Roberts gives effect to the May 15, 1998 stock split. All Options are
currently fully vested.

Employment Contracts, Termination of Employment and Change-in-Control Agreements

Change-in-Control Severance Program

In 2001, the Compensation Committee of the Board of Directors reviewed,
revised and consolidated the Company's previously approved program concerning
severance payments for terminations relating to a change-in-control (the
"Change-in-Control Severance Program") for the Company's CEO and certain other
executive officers. In 2003, the Compensation Committee amended the
Change-in-Control Severance Program in order to add tax gross-up rights for Mr.
Roberts and to make certain other changes. Under the Change-in-Control Severance
Program, each eligible executive officer will be entitled to certain benefits in
the event his or her employment with the Company is involuntarily terminated,
other than for "Cause" (as defined), or if such executive officer resigns for
"Good Reason" (as defined), in either case within 18 months following a "change
in control" of the Company (as defined). Mr. Roberts is entitled to receive a
cash lump sum payment equal to twelve months of applicable base salary and
target bonus (discussed below) plus twelve months of continuation payments of
such salary and bonus; Messrs. Ercanbrack and Auriemma are each entitled to
receive a cash lump sum payment equal to nine months of the applicable base
salary and target bonus plus nine months of continuation payments of such salary
and bonus; and all other eligible executive officers are entitled to receive a
cash lump sum payment equal to six months of the applicable base salary and
target bonus plus six months of continuation payments of such salary and bonus.
The cash lump sum and continuation payments to be provided to an eligible
executive officer are based upon the monthly equivalent of (A) the annual base
salary in effect for such executive officer immediately before the change in
control or, if greater, at the time of termination or resignation, plus (B) the
annual incentive bonus that such executive officer would have been entitled to
receive under the Company's officer bonus plan for the calendar year in which
the termination occurs or, if greater, the calendar year in which the change in
control occurs, plus the pro-rata portion of the bonus earned by such executive
officer during the calendar year in which the change of control occurs. The
continuation payments are to be made at bi-weekly intervals.

Each eligible executive officer is also entitled to a lump sum payment
equal to 12, 18 or 24 months, depending upon his or her position, of the
then-current monthly Internal Revenue Code 4980B medical premium ("COBRA") for
that officer and his or her eligible dependents, plus, if applicable, the
then-current life insurance premium paid by the Company. Mr. Roberts is entitled
to receive a cash lump sum equal to 24 months of medical and life insurance
premiums; Messrs. Ercanbrack and Auriemma are each entitled to receive a cash
lump sum equal to 18 months of medical and life insurance premiums; and all
other eligible executive officers are each entitled to receive a cash lump sum
equal to 12 months of medical and life insurance premiums. The Company will also
provide at its expense, for a period of 12, 18 or 24 months, outplacement
services for eligible executive officers. Mr. Roberts is entitled to 24 months
of outplacement services; Messrs Ercanbrack and Auriemma are each entitled to 18
months of outplacement services; and all other eligible executive officers are
entitled to 12 months of outplacement services. In addition, 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.

Mr. Roberts is entitled to an additional payment to cover any excise taxes
levied on payments received under the Change-in-Control Severance Program. The
amount payable to all executive officers, other than Mr. Roberts, under the
Change-in-Control Severance Program is subject to reduction in the event certain
excise taxes may be levied on such payments.

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. The benefits include a cash lump sum severance payment
equal to one year of base salary, together with the CEO's target bonus that
would otherwise be earned by the CEO for the year of termination but for the
occurrence of the termination (which bonus is limited to 50% of the eligible
annual award if the CEO has completed less than six months of service during the
bonus year). The CEO would also be provided a lump sum payment equal to one year
of COBRA benefits, and one year of Group Universal Life insurance premiums. In

addition, a pro-rata portion of all unvested option shares would vest, to, in
effect, provide for option vesting on a monthly basis through the date of
termination. No benefits are payable under this Agreement in the event of the
death or Permanent disability of the CEO, or in the event of termination of the
CEO's employment for Cause or in connection with a Change-in-Control.

Related Party Transactions

On June 5, 2002, the Board approved a secured loan by the Company of $1.9
million to enable Mr. Roberts, the Company's Chief Executive Officer, to
purchase a home in Orange County, California. The loan bears interest at 2.89%
per annum (applicable short-term Federal interest rate). Accrued interest on the
principal balance of this note is payable annually beginning February 15, 2003
and on each February 15th thereafter until the entire principal balance becomes
due. The entire outstanding principal balance and any accrued interest is due
and payable at the earliest of (a) June 7, 2005, (b) one year after termination
of Mr. Roberts' employment by the Company, or (c) ninety (90) days after
voluntary termination of employment by Mr. Roberts. Mr. Roberts repaid the loan
balance in full as of December 10, 2004 and the Company executed and recorded a
Substitution of Trustee and Full Reconveyance in favor of Mr. Roberts evidencing
release of its lien. The Company also removed itself as the loss payee on the
insurance policy for the mortgage interests. Mr. Roberts made total payments of
$2,020,576, including $120,576 in interest and $1,900,000 in principal.

Compensation Committee Interlocks and Insider Participation

The Compensation Committee was composed of Messrs. Klaus and Lyons until
November 19, 2004, when Mr. Lyons resigned his position as a Director of the
Company to pursue other business interests. Mr. Siboni, a Director of the
Company was appointed to the Compensation Committee on that date to replace Mr.
Lyons. No member of the Compensation Committee at any time during 2004, or at
any other time, was an officer or employee of the Company. No executive officer
of the Company served on the board of directors or compensation committee of any
entity that has one or more executive officers serving as members of the
Company's Board of Directors or Compensation Committee.

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

Overview. The Compensation Committee of the Board of Directors assists the
Board in fulfilling its responsibilities for reviewing and determining the
salaries and bonuses for executive officers, including the Chief Executive
Officer, and establishing the general compensation policies for such
individuals. The Compensation Committee also has the authority to make
discretionary option grants, restricted stock and other equity awards to the
Company's executive officers and other employees under the Company's equity
plans. The Compensation Committee has the authority to engage and terminate
independent, third party compensation consultants and to obtain advice and
assistance from internal and external legal, accounting and other advisors. The
Committee reviews the adequacy of its charter at least annually, most recently
at its December 2004 meeting. The Committee's complete charter is available at
the Company's website at www.filenet.com.

The Compensation Committee consists of two independent, non-employee
directors, each of whom meets the independence requirements specified by the
Nasdaq and qualify as an "outside director" under Section 162(m) of the Internal
Revenue Code of 1986 (the "Internal Revenue Code") and as a "non-employee
director" under Rule 16b-3 under the Exchange Act. The Chairperson reports the
Committee's actions and recommendations to the full Board following each
Committee meeting. The Committee held five meetings during 2004 and acted by
unanimous written consent seven times.

General Compensation Philosophy and Policy. The Compensation Committee
believes that the compensation programs for the Company's executive officers
should reflect the Company's performance, the value created for the Company's
stockholders and the long term protection of shareholder value. 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.

The Compensation Committee's policy is to provide the Company's executive
officers with compensation opportunities that are based upon the financial
performance of the Company and the individual's contribution to that
performance, and which are competitive enough to attract and retain highly
skilled individuals. Each executive officer's compensation package is comprised
of three elements: (i) base salary that is competitive with the market and
reflects individual responsibilities and performance, (ii) annual variable
performance awards payable in cash and tied predominately 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. Most recently, in November and December 2003, the Compensation
Committee retained Towers Perrin who presented a competitive assessment of
executive and non-employee director compensation levels.

The principal factors that were taken into account in establishing each
executive officer's compensation package for 2004 are described below. However,
the Compensation Committee may in its discretion apply entirely different
factors, such as different measures of financial performance, for future years.

Base Salary. The Compensation Committee's philosophy is that the base
salary of each executive officer, including the Chief Executive Officer, should
reflect the salary levels for comparable positions in the industry and in a
comparative group of companies, the position's job scope and responsibilities
and the individual's personal performance. In addition, the Company's
performance and profitability should be a factor in determining the base
salaries of executive officers. Each year from 2000 through 2003, the senior
management team elected, and the Compensation Committee agreed, that no salary
increases for senior management would be made. Historically, FileNet has
targeted the 75th percentile of competitive practices for base salaries. Due to
the salary freeze, 2003 base salaries were on average around the 55th
percentile. In its 2003 report, Towers Perrin recommended unfreezing base
salaries and moving forward with normal merit increases. Accordingly, for 2004,
the Compensation Committee approved an approximately 4 percent increase in base
salary for the Chief Executive Officer and the other executive officers.

Annual Incentives. The target annual incentive bonus for the Company's
Chief Executive Officer and most other executive officers and key employees is
based on a percentage of base pay (i.e., ranging from 35% to 65% for 2004). In
its 2003 report, the Committee's independent compensation consultant reviewed
the bonus target levels and reported to the Committee that the target levels
were competitive. The target bonus for executives is earned based on the
Company's actual financial and other performance in comparison to
pre-established targets. The 2004 incentive bonus plan consisted of three
fundamental components: (i) achievement of earnings per share targets, (ii)
achievement of target scores on a customer loyalty index ("CLI"), and (iii)
achievement of other financial or performance targets that enable the Committee
and the CEO to award a portion of the annual bonus based on each officer's
performance and contribution toward achieving particular financial or
performance targets, provided the minimum earnings per share threshold for bonus
payment is achieved. Attainment of the earnings per share target was weighted
more heavily than the other factors. Depending on the Company's achievement of
the earnings per share target, achievement of target CLI scores and each
officer's achievement of particular financial or performance targets, each
officer could earn between 50% of target bonus if the Company attained the
minimum threshold of its earnings per share target, 100% of target bonus if the
Company attained 100% of its earnings per share target, and up to 200% of target
bonus if the Company achieved 125% of its earnings per share target. No bonus is
paid if the Company failed to achieve the minimum earnings per share target
threshold. The actual bonus is calculated on a pro rata basis between the
minimum threshold and maximum threshold for the earnings per share target. In
making the final 2004 bonus determination, the Compensation Committee reviewed
the Company's earnings per share against the target, the Company's CLI scores
against the target CLI scores, the officers' performance and contribution toward
achieving other financial and performance targets and also considered other
factors indicative of the Company's overall operating performance and individual
performance. The Committee also determined that it would not be appropriate to
give full credit under the 2004 Incentive Bonus Plan for the positive effect on

earnings resulting from the Company's release of approximately $13.5 million of
the Company tax valuation allowance. The bonus amounts paid to executive
officers and shown in the compensation table constitute attainment of
approximately 70% of the target bonus payouts.

Long Term Incentives. The Company's long-term incentive program consists of
two components: stock options and restricted stock. At last year's Annual
Meeting the Company's stockholders amended the Incentive Plan to increase the
number of shares that may be awarded as restricted stock from 140,000 shares to
700,000 shares. 2004 is the first year the Compensation Committee awarded
restricted stock as a component of long-term incentive compensation for
executive officers. Each stock option grant and restricted stock award (referred
to collectively as "equity participation awards") 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. While stock
options provide an excellent incentive to promote stock price appreciation,
restricted shares provide a long-term incentive to preserve shareholder value
and achieve other long-term, financial performance goals.

Generally, equity participation awards are made annually by the
Compensation Committee to each of the Company's executive officers. Equity
participation awards are also often granted as an inducement upon initial
hiring.

Each stock option grant allows the officer to acquire shares of the
Company's Common Stock at a fixed price per share (the fair market value on the
grant date) over a specified period of time (up to ten years). Generally,
options 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. A restricted stock award allows the
officer to acquire shares of the Company's Common Stock over time without
payment of an exercise price. Most of the restricted stock awards made during
2004 vest five years after the date of grant, subject to earlier vesting in
increments if the Company achieves pre-determined financial performance targets
for specified fiscal years. The balance of the restricted stock awards made
during 2004 vest in four equal, annual, installments beginning on the first
anniversary of the award. Accordingly, the return to the executive officer will
decline if the Company is not successful in preserving and protecting
shareholder value, and the return to the executive officer may be accelerated if
the Company is successful in achieving pre-determined financial goals.

The size of the equity participation award 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 term of the award. The Compensation
Committee also takes into account the number and value of unvested equity
participation awards 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.

Equity Dilution. The Compensation Committee makes an annual recommendation
to the Board regarding the equity participation pool for the coming year. In
developing the recommendation the Compensation Committee considers Company
performance, anticipated hiring, competitive practices, contingencies for
mergers and acquisitions, and impact on dilution and overhang. For 2004, the
burn rate (total equity participation awards granted during the year as a
percentage of common shares outstanding) was 5.9%, compared to the 2003 burn
rate of 2.1%. The three-year average burn rate for 2002 through 2004 was
approximately 4.1%. Overhang (total equity participation awards outstanding as a
percentage of the sum of common shares outstanding and total equity
participation awards outstanding) was 14.5% as of December 31, 2004, compared to
overhang of 16.6% as of December 31, 2003.

CEO Compensation. As with all of the Company's other executive officers the
Compensation Committee provided Mr. Roberts a 4% increase in base salary for
2004, moving his annual base salary from $525,000 to $546,000. In setting the
total compensation package of Mr. Roberts, the Compensation Committee sought to

make his compensation competitive when compared with the base salary levels in
effect for similarly situated chief executive officers of companies in the
comparison group and competitive with the surveyed values. The Compensation
Committee also strived to assure that a significant percentage of Mr. Roberts'
total compensation package is tied to Company performance, as measured in terms
of the achievement of the Company's target earnings per share. In 2004, Mr.
Roberts participated in the same bonus program as the other senior executives,
discussed above, resulting in 70% of targeted bonus base paid.

During 2004, the Compensation Committee granted to Mr. Roberts options for
80,000 shares and 60,000 restricted stock awards in recognition of his personal
performance and leadership role in the Company. These equity participation
awards are intended to link a significant portion of his total compensation to
protecting and increasing stockholder value.

Board Compensation. Consistent with the amendment of the Company's
Incentive Plan approved by the stockholders at the 2004 Annual Meeting, the
directors currently receive an annual automatic grant of 10,000 options.

Compliance with Internal Revenue Code Section 162(m). Section 162(m) of the
Internal Revenue Code disallows a tax deduction to publicly held companies for
compensation paid to certain of their executive officers, to the extent that
compensation exceeds $1 million per covered officer in any year. The limitation
applies only to compensation that is not considered to be performance-based. The
cash compensation paid to the Company's executive officers for 2004 that did not
qualify as "performance based compensation," did not exceed the $1 million limit
per officer. The options granted in 2004 were structured so that any
compensation would not be subject to the $1 million limitation, and the
compensation deemed paid in connection with the exercise of those options will
qualify as performance-based compensation which will not be subject to the $1
million limitation.

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

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

L. George Klaus Roger S. Siboni

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, 2004,
which include the consolidated balance sheets of the Company as of December 31,
2004 and 2003, 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, 2004, and the notes thereto.

The purpose of the Audit Committee is to assist the Board of Directors in
its oversight of the Company's financial reporting, internal controls and audit
functions. The Audit Committee Charter describes in further detail the duties of
the Audit Committee. The Audit Committee reviews its Charter at least annually.
The Audit Committee most recently reviewed and amended its Charter on April 19,
2004, and a copy of the amended Charter is included in this proxy statement as
Appendix A, and is also available at the Company's website.

Review with Management. The Audit Committee has reviewed and discussed the
Company's audited financial statements with management. The Company's management
is responsible for the preparation, presentation and integrity of the Company's
financial statements. Management is also responsible for establishing and
maintaining internal controls over financial reporting (as defined in Exchange
Act Rule 13a-15(f)) and for evaluating the effectiveness of those internal
controls and for evaluating any changes in those controls that will, or is
reasonably likely to, affect internal controls over financial reporting.
Management is also responsible for establishing and maintaining disclosure
controls (as defined in Exchange Act Rule 13a-15(e)) and for evaluating the
effectiveness of disclosure controls and procedures.

During 2004 the Company's management completed the documentation, testing
and evaluation of the Company's system of internal controls over financial
reporting as prescribed by section 404 of the Sarbanes-Oxley Act of 2002 and
regulations promulgated thereunder. Management kept the Audit Committee informed
of the progress of this evaluation, including periodic updates provided by
management at regularly scheduled meetings of the Audit Committee; and the Audit
Committee provided management advice and oversight during the process. The Audit
Committee continues to oversee the Company's efforts relating to the Company's
internal controls over financial reporting.

Review and Discussions with Independent Accountants. Deloitte and Touche
LLP, the Company's independent auditor, is responsible for performing an
independent audit of the consolidated financial statement and expressing an
opinion on the conformity of those financial statements with generally accepted
accounting principles in the United States. Deloitte and Touche LLP is also
responsible for expressing an opinion on management's assessment of the
effectiveness of internal controls over financial reporting and also the
effectiveness of the Company's internal controls over financial reporting.

The Audit Committee has reviewed and discussed the Company's audited
financial statements with Deloitte and Touche LLP. The Audit Committee has
discussed with Deloitte and Touche LLP the matters required to be discussed by
Statement on Auditing Standards No. 61, as amended, "Communications with Audit
Committees," which includes, among other items, matters related to the conduct
of the audit of the Company's financial statements, and the matters required to
be discussed by PCAOB Auditing Standard No. 2, "An Audit of Internal Control
Over Financial Reporting Performed in Conjunction with an Audit of Financial
Statements." Further, the Audit Committee reviewed Deloitte and Touche LLP's
Report of Independent Registered Public Accounting Firm included in the
Company's Annual Report on Form 10-K related to its audit of the consolidated
financial statements and financial statement schedules, management's assessment
of the effectiveness of internal controls over financial reporting, and the
effectiveness of internal controls over financial reporting.

The Audit Committee has also received written disclosures and the letter
from Deloitte and Touche LLP required by Independence Standards Board Standard
No. 1, as amended "Independence Discussions with Audit Committees," and has
discussed with Deloitte and Touche LLP its independence from the Company.

The Audit Committee met with representatives of Deloitte and Touche LLP in
executive session (without the presence of management) on four occasions during
2004. An executive session meeting with the Company's auditors is a standing
agenda item for each regular meeting of the Audit Committee.

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, 2004.

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

John C. Savage
Roger S. Siboni
L. George Klaus

Incorporation by Reference

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, the Audit Committee Report, nor the following Stock Performance Graph
will be incorporated by reference into any of those prior filings, nor will any
such report be incorporated by reference into any future filings made by the
Company under those statutes. In addition, information on the Company's website,
other than our Proxy Statement and form of Proxy, is not part of the proxy
soliciting material and is not incorporated herein by reference.

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, 1999 to December 31, 2004.

FileNet Corporation Performance
Comparative 5-Year Cumulative Total Return

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

Measurement Point 12/31/99 $ 100.00 $ 100.00 $ 100.00
FYE 12/31/00 $ 237.60 $ 112.08 $ 101.32
FYE 12/31/01 $ 176.91 $ 88.93 $ 81.24
FYE 12/31/02 $ 106.37 $ 61.43 $ 56.03
FYE 12/31/03 $ 236.11 $ 92.06 $ 73.84
FYE 12/31/04 $ 224.61 $ 100.11 $ 80.10

ASSUMES $100 INVESTED ON DECEMBER 31, 1999
ASSUMES DIVIDENDS REINVESTED
YEAR ENDED DECEMBER 31, 2004

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 4, 2005

By Order of the Board of Directors,

/s/ Philip C. Maynard

Philip C. Maynard
Secretary

APPENDIX A

AMENDED AUDIT COMMITTEE CHARTER

FILENET CORPORATION

(Approved and Adopted July 21, 2003)
(Amended April 19, 2004)

Purpose

The Audit Committee (the "Committee") assists the Board of the Company in
fulfilling its oversight responsibilities regarding the Company's accounting and
system of internal controls, the quality and integrity of the Company's
financial reports, the independence and performance of the Company's outside
auditor, and compliance by the Company with legal and regulatory requirements.
In so doing, the Committee should endeavor to maintain free and open means of
communication between and among the members of the Committee, with other members
of the Board, the outside auditor and the financial management of the Company.

In the exercise of its oversight responsibilities, it is not the duty of
the Committee to plan or conduct audits or to determine that the Company's
financial statements fairly present the Company's financial position and results
of operation and are in accordance with generally accepted accounting principles
and applicable rules and regulations. Instead, such duties remain the
responsibility of management and the outside auditor. Nothing contained in this
charter is intended to alter or impair the operation of the "business judgment
rule" as interpreted by the courts under the Delaware General Corporation Law.
Further, nothing contained in this charter is intended to alter or impair the
right of the members of the Committee under the Delaware General Corporation Law
to rely, in discharging their responsibilities, on the records of the Company
and on other information presented to the Committee, the Board or the Company by
its officers or employees or by outside experts such at the outside auditor.

Membership

The Committee shall consist of three independent members of the Board. The
members and the Chair shall be appointed by action of the Board and shall serve
at the discretion of the Board. Each Committee member shall satisfy the
"independence" requirements, and applicable laws and regulations concerning
independence such as those of the Securities and Exchange Commission (the "SEC")
and of The NASDAQ Stock Market ("NASDAQ") set forth below. If a member of the
Committee ceases to be independent for reasons outside the member's reasonable
control, then the member may remain on the Committee until the earlier of the
Company's next annual stockholders meeting or one year from the occurrence of
the event that caused the member to cease to be independent.

1. Committee members will have no relationship to the Company that may
interfere with the exercise of their independence from management and the
company.

2. Each Committee member must meet all applicable experience or financial
knowledge requirements at the time of appointment or during the period of time
after his or her appointment to the Committee permitted by applicable laws and
regulations.

3. At least one Committee member must meet the standards for knowledge and
experience required to be designated as the financial expert under the SEC's
rules and the rules of the NASDAQ.

If at any time there is a vacancy on the Committee and the remaining
members meet all membership requirements, then the Committee may consist of two
members until the earlier of the Company's next annual stockholders meeting or
one year from the occurrence of the vacancy.

Committee Organization and Procedures

1. The Chair (or in his or her absence, a member designated by the Chair)
shall preside at all meetings of the Committee.

2. The Committee shall have the authority to establish its own rules and
procedures consistent with the bylaws of the Company for notice and conduct of
its meetings, should the Committee, in its discretion, deem it desirable to do
so.

3. The Committee shall meet at least four times in each fiscal year, and
more frequently as the Committee in its discretion deems desirable.

4. The Committee may, in its discretion, include in its meetings members of
the Company's financial management, representatives of the outside auditor, the
senior internal audit manager and other financial personnel employed or retained
by the Company. The Committee may meet with the outside auditor or the senior
internal audit manager in separate executive sessions to discuss any matters
that the Committee believes should be addressed privately, without management's
presence. The Committee may likewise meet privately with management, as it deems
appropriate.

5. The Committee may, in its discretion, utilize the services of the
Company's regular corporate legal counsel with respect to legal matters or, at
its discretion, retain independent counsel and other advisors, as it determines
necessary to carry out its duties. The Company shall provide for appropriate
funding, as determined by the Committee, for payment of compensation to the
independent auditor for the purpose of rendering or issuing an audit report and
to any advisors employed by the Committee.

Responsibilities

Outside Auditor

1. The outside auditor shall be directly responsible to the Committee and
ultimately accountable to the Committee and the Board in connection with the
audit of the Company's annual financial statements and related services. In this
regard, the Committee shall have the sole authority for the appointment,
compensation, retention and oversight of the work of any registered public
accounting firm engaged for the purpose of preparing or issuing an audit report
or performing other audit, review or attest services for the Company. The
Committee's appointment of the outside auditor shall remain subject, if
applicable, to stockholder approval. The outside auditor shall report directly
to the Committee.

2. The Committee shall pre-approve all auditing services and permissible
non-audit services and the fees and terms of the engagement of the outside
auditor. The Committee may form and delegate authority to subcommittees
consisting of one or more members when appropriate, including the authority to
grant preapprovals of audit and permitted non--audit services, provided that
decisions of such subcommittees to grant preapprovals shall be presented to the
full Committee at its next scheduled meeting.

3. The Committee shall receive from the outside auditor, at least annually,
a written statement delineating all relationships between the outside auditor
and the Company, consistent with Independence Standards Board Standard No. 1.
The Committee shall actively engage in a dialogue with the outside auditor with
respect to any disclosed relationships or services that, in the view of the
Committee, may impact the objectivity and independence of the outside auditor.
If the Committee determines that further inquiry is advisable, the Committee
shall take any appropriate action in response to the outside auditor's report to
satisfy itself of the auditor's independence.

4. The Committee shall confirm with the independent auditor that the
independent auditor is in compliance with the partner rotation requirements
established by the SEC.

5. The Committee, with the Board, shall evaluate the performance and
independence of the independent auditor and, if so determined in the Audit
Committee's sole authority, replace the independent auditor.

Annual Audit

6. The Committee shall meet with the outside auditor and management of the
Company in connection with each annual audit to discuss the scope of the audit,
staffing and the procedures to be followed.

7. The Committee shall meet with the outside auditor and management prior
to the public release of the financial results of operations for the year under
audit and discuss with the outside auditor any matters within the scope of the
pending audit that have not yet been completed.

8. The Committee shall review1 and discuss the audited financial statements
with the management of the Company.

9. The Committee shall discuss with the outside auditor the matters
required to be discussed by Statement on Auditing Standards No. 61 as then in
effect including, among others, (i) the methods used to account for any
significant unusual transactions reflected in the audited financial statements;
(ii) the effect of significant accounting policies in any controversial or
emerging areas for which there is a lack of authoritative guidance or a
consensus to be followed by the outside auditor; (iii) the process used by
management in formulating particularly sensitive accounting estimates and the
basis for the auditor's conclusions regarding the reasonableness of those
estimates; and (iv) any disagreements with management over the application of
accounting principles, the basis for management's accounting estimates or the
disclosures in the financial statements.

10. The Committee shall, based on the review and discussions in paragraphs
6 and 7 above, and based on the disclosures received from the outside auditor
regarding its independence and discussions with the auditor regarding such
independence in paragraph 3 above, recommend to the Board whether the audited
financial statements should be included in the Company's Annual Report on Form
10-K for the fiscal year subject to the audit.

Quarterly Review

11. The Committee shall participate in a discussion with the outside
auditor and management of the Company's financial results prior to the public
release of quarterly earnings. The Chair may represent the entire Committee for
purposes of this discussion.

12. The Committee shall discuss with management and the outside auditor the
results of the outside auditor's quarterly review and significant financial
reporting issues and judgments made in connection with the preparation of the
company's financial statements, including any significant changes in the
selection or application of accounting principles, changes in management
judgments or accounting estimates, disagreements with management and any issues
regarding the adequacy of the Company's disclosure controls and procedures or
controls over financial reporting and other issues arising from the disclosures
required by the CEO and CFO certification process or any material written
communications between the outside auditor and management Internal Controls.

_______________________________________
1 Auditing literature, particularly, Statement of Accounting Standards No.
71, defines the term "review" to include a particular set of required
procedures to be undertaken by independent accountants. The members of the
Audit Committee are not independent accountants, and the term "review" as
used in this Audit Committee charter is not intended to have this meaning.
Consistent with footnote 47 of SEC Release No. 34-42266, any use in this
Audit Committee Charter of the term "review" should not be interpreted to
suggest that the Committee members can or should follow the procedures
required of auditors performing reviews of interim financial statements.

Internal Controls

13. The Committee shall discuss with the outside auditor and the senior
internal audit manager, at least quarterly, the adequacy and effectiveness of
the disclosure controls and procedures and internal control over financial
reporting of the Company, any major financial risk exposures and the steps
management has taken to monitor and control such exposure and any changes
thereto that have or are reasonably likely to materially affect them, and
consider any recommendations for improvement of such internal control and
reporting procedures.

14. The Committee shall discuss with the outside auditor and with
management any management letter provided by the outside auditor and any other
significant matters brought to the attention of the Committee by the outside
auditor as a result of its quarterly reviews or annual audit. The Committee
should allow management adequate time to consider any such matters raised by the
outside auditor.

Internal Audit

15. The Committee shall discuss at least annually with the outside auditor,
CFO and senior internal audit manager the, responsibilities, budget, activities
and organizational structure of the Company's internal audit function and the
qualifications of the primary personnel performing such function.

16. Management shall furnish to the Committee a copy of each audit report
prepared by the senior internal audit manager of the Company.

17. The Committee shall, at its discretion, meet in executive session with
the senior internal audit manager to discuss any reports prepared by him or her
or any other matters brought to the attention of the Committee by the senior
internal auditor manager.

18. The senior internal audit manager shall be granted unfettered access to
the Committee.

Compliance Oversight Responsibilities

19. The Committee shall establish procedures for the receipt, retention and
treatment of complaints received by the Company regarding accounting, internal
accounting controls or auditing matters, including procedures for the
confidential, anonymous submission by employees of the Company of concerns
regarding questionable accounting or auditing matters.

20. The Committee must review and approve all related-party transactions
and any waivers of the Code of Conduct for directors or officers of the Company.

21. The Committee shall obtain and discuss reports from management, the
senior internal audit manager and the outside auditor regarding the Company and
its subsidiaries conformity with applicable legal requirements and the Company's
Code of Conduct, and advise the Board regarding compliance policies and
procedures and the Company's Code of Conduct and related policies.

22. The Committee shall discuss with management and the outside auditor any
correspondence or inquiries from government agencies or regulators which raise
significant issues regarding the Company's financial statements or accounting
and control policies or practices.

23. The Committee shall discuss with the Company's general counsel legal
matters that may have a significant impact on the financial statements or the
Company's compliance policies.

Other Responsibilities

24. The Committee shall review and reassess the Committee's charter at
least annually and submit any recommended changes to the Board for its
consideration.

25. The Committee shall provide the report for inclusion in the Company's
Annual Proxy Statement required by Item 306 of Regulation S-K of the Securities
and Exchange Commission.

26. The Committee, through its Chair, shall regularly report to the Board
regarding the Committee's actions and recommendations, if any.

APPENDIX B

AMENDMENT NO. 1 TO THE

AMENDED AND RESTATED 2002 INCENTIVE AWARD PLAN

FILENET CORPORATION

This Amendment No. 1 to the Amended and Restated 2002 Incentive Award Plan
of FileNet Corporation ("Amendment") is adopted by FileNet Corporation, a
Delaware corporation (the "Company"), effective as of May 5, 2005.

RECITALS

The Amended and Restated 2002 Incentive Award Plan of FileNet Corporation
(the "Plan") was approved by the stockholders of the Company on May 7, 2004.

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

Section 11.2 also provides that the Plan may otherwise be wholly or
partially amended at any time from time to time by the Administrator of the
Plan, which is the Compensation Committee of the Board of Directors.

The Board of Directors and the Administrator of the Plan have determined
that the Plan be amended to (i) increase the number of shares of Common Stock
available for issuance by an additional 1,400,000 shares, from 4,800,000 to
6,200,000 shares; (ii) increase the number of such shares that may be awarded as
Restricted Stock, Restricted Stock Units, Deferred Stock, Performance Awards and
Stock Payments from 700,000 shares to 1,100,000 shares, an increase of 400,000
shares; (iii) provide that the exercise price per share for Options shall be no
less than 100% of the Fair Market Value of a share on the date an Option is
granted; and (iv) provide certain minimum vesting periods for Restricted Stock
and Restricted Stock Units.

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

AMENDMENT

I. Effective as of May 5, 2005, Subsection (a) of Section 2.1 of the Plan is
hereby amended in its entirety as follows:

2.1. "Shares Subject to Plan.

(a) The shares of stock subject to Awards shall be Common Stock,
initially shares of the Company's Common Stock. Subject to adjustment as
provided in Section 11.3, the aggregate number of such shares which may be
issued upon exercise of such Options or rights or upon any other Awards
under the Plan shall not exceed Six Million Two Hundred Thousand
(6,200,000) shares, and the aggregate number of shares that may be issued
as Restricted Stock, Restricted Stock Units, Deferred Stock, Performance
Awards and Stock Payments shall not exceed One Million One Hundred Thousand
(1,100,000) 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."

II. Effective as of May 5, 2005, the first paragraph of Subsection 5.1 of the
Plan is hereby amended in its entirety as follows:

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 100% of the Fair Market
Value of a share of Common Stock on the date the Option is granted."

III. Effective as of May 5, 2005, the following sentence shall be added to the
end of the first paragraph of Subsection 7.4 of the Plan:

"Subject to the other provisions of this Section 7.4, the minimum period as
of which all restrictions may lapse and the Award vests in full (e.g. after
all installments have vested) shall be three years, except for awards that
are intended to be "performance-based" compensation under Section 162(m) of
the Code or are otherwise subject to satisfaction of performance criteria
or individual performance (other than the passage of time), the minimum
period as of which all restrictions may lapse and the Award vests in full
shall be one year."

[FileNet Corporation logo]

Dear Stockholder:

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

Thank you for your cooperation.

FileNet Corporation

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DETACH HERE
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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 Lee Roberts as Proxy
holders, or either of them acting alone, each with the power to appoint his
substitute, and hereby authorizes them to represent and vote, as designated
below, all of the shares of Common Stock of FileNet Corporation (the "Company"),
held of record by the undersigned on March 14, 2005 at the 2005 Annual Meeting
of Stockholders to be held at 9:00 a.m., Pacific time, on May 5, 2005, at the
Company headquarters, 3565 Harbor Boulevard, Costa Mesa, California 92626, and
any adjournment thereof (the "Annual Meeting").

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. EVEN IF YOU HAVE GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF
YOU ATTEND THE ANNUAL MEETING AND ARE THE NAMED STOCKHOLDER OF RECORD.

CONTINUED AND TO BE SIGNED ON REVERSE SIDE

_____________________________ ________________________

SEE REVERSE SEE REVERSE
SIDE SIDE
_____________________________ ________________________

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

Your vote is important. Please vote immediately.
_________________________________ ________________________________

Vote-by-Internet Vote-by-Telephone

Log on to the Internet and go to OR Call Toll-Free
http://www.eproxyvote.com/file 1-877-PRX-VOTE (1-877-779-8683)
_________________________________ ________________________________

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

--------------------------------------------------------------------------------
DETACH HERE IF YOU ARE RETURNING YOUR PROXY CARD BY MAIL
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[X] Please mark votes as in this example.

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

1. Election of Directors. 2. To approve the Amendment to the Amended and Restated
Nominees: (01)L. George Klaus, (02)Lee D. Roberts, and Restated 2002 Incentive Award Plan.
(03)John C. Savage, (04)Roger S. Siboni, and (05) FOR[_] AGAINST[_] ABSTAIN[_]
Theodore J. Smith

FOR ALL NOMINEES[_] WITHHELD FROM ALL NOMINEES[_]

3. To ratify the appointment of Deloitte and Touche LLP
as the independent accountants of the Company for
its year ending December 31, 2005.
FOR[_] AGAINST[_] ABSTAIN[_]

[_]___________________________________________
For all nominees except as noted above To transact such other business as may properly
come before the meeting.

MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [_]

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

Signature:_____________________________ Date:____________ Signature:_______________________ Date:____________