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                                    FORM 10-K

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

[X]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES  EXCHANGE
     ACT OF 1934 For the fiscal year ended December 31, 1996 OR

[ ]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR 15 (d)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934 For the transition period from to

     Commission File Number        0-15997

                               FILENET CORPORATION
             (Exact name of Registrant as specified in its charter)

        Delaware                                       95-3757924
(State or other jurisdiction                (I.R.S. Employer Identification No.)
of incorporation or organization)           

             3565 Harbor Boulevard, Costa Mesa, California  92626
                (Address of principal executive office)   (Zip code)

       Registrant's telephone number, including area code: (714) 966-3400


        Securities registered pursuant to Section 12(b) of the Act: None
        Securities registered pursuant to Section 12(g) of the Act:

     Title of each class                  Name of each exchange which registered
Common stock,  $0.01 par value                          Nasdaq


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

Indicate by check mark whether the disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of the  Registrant's  knowledge,  in definitive proxy or information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. [X]

Based on the closing sale price of March 21, 1997, the aggregate market value of
the 14,835,635 shares of voting stock of the Registrant held by nonaffiliates of
the Registrant on such date was $237,370,160.  For purposes of such calculation,
only executive officers, board members and beneficial owners of more than 10% of
the Company's outstanding common stock are deemed to be affiliates.

The number of shares outstanding of the Registrant's common stock was 15,085,811
at March 21, 1997.


                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of Registrant's  definitive proxy statement for its 1997 Annual Meeting
are  incorporated  by reference  into Part III as set forth herein.  Portions of
Registrant's  Annual Report to  Stockholders  for the fiscal year ended December
31, 1996 are  incorporated  by reference  into Parts II, III and IV as set forth
herein.

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<PAGE>

                               FILENET CORPORATION

                                    FORM 10-K
                   For the Fiscal Year Ended December 31, 1996

                                      INDEX
<TABLE>
                                                                                              Page
                                     PART I

<S>                                                                                            <C>
Item 1. Business..............................................................................  3
Item 2. Properties............................................................................ 10
Item 3. Legal Proceedings..................................................................... 10
Item 4. Submission of Matters to a Vote of Security Holders................................... 10

                                     PART II

Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters.............. 10
Item 6. Selected Financial Data............................................................... 11
Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition. 12
Item 8. Financial Statements and Supplementary Data........................................... 12
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.. 12

                                    PART III

Item 10. Directors and Executive Officers of the Registrant................................... 12
Item 11. Executive Compensation............................................................... 12
Item 12. Security Ownership of Certain Beneficial Owners and Management....................... 12
Item 13. Certain Relationships and Related Transactions....................................... 12

                                     PART IV

Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K...................... 13
Signatures.................................................................................... 18
</TABLE>







                                       2

<PAGE>

                                     PART I


Item 1.  Business

GENERAL

FileNet Corporation ("FileNet" or the "Company") develops,  markets and services
an  open,   integrated   family  of   workflow,   document-imaging,   electronic
document-management  and computer  output to laser disk  ("COLD")  client/server
product  solutions  which  control and manage the  movement of document  images,
data, text and other information  throughout an enterprise.  In August 1995, the
Company   acquired   Watermark   Software  Inc.   ("Watermark"),   a  leader  in
document-imaging  software for the Microsoft  Windows NT platform.  In the first
quarter of 1996, the Company acquired Saros  Corporation  ("Saros"),  one of the
leading suppliers of enterprise  electronic  document-management  software,  and
International Financial Systems, Ltd. ("IFSL"), whose Greenbar(TM) product is an
innovative COLD software application for archiving  computer-generated  reports.
The current  product line enables FileNet to offer a broad range of software and
support  capabilities  to  customers  who are seeking a single  vendor to manage
their unstructured business information.

MARKETS AND APPLICATIONS

With its recent  acquisitions,  the Company now offers a family of complementary
products which will enable users to manage the storage,  processing and workflow
for all documents and other unstructured information,  including scanned images,
faxes, text,  spreadsheets,  graphics,  drawings,  photographs,  computer output
reports,  voice, and video on an  enterprise-wide  basis.  Because the Company's
products  provide an  integrated  document-management  architecture  that can be
implemented  on a modular basis,  organizations  can choose one, some, or all of
the  Company's  products to build the system that most  effectively  meets their
needs. The Company's products include workflow and document-imaging software for
those organizations which have large, active paper document files, process large
numbers  of  documents  in  their  day-to-day   operations,   or  have  complex,
mission-critical  business  processes  for a  variety  of  applications  such as
mortgage  loan  servicing,   credit  card  customer  service,  insurance  claims
processing,  retirement account  management,  technical document  management and
change  control,  and the management of personnel,  accounts  payable,  traffic,
property and criminal records.  Additionally,  the Company's products address ad
hoc  business  processes at the  departmental  and  workgroup  levels to improve
overall enterprise productivity.

The Company  markets its  products  through a direct  sales force in  Australia,
Canada, France,  Germany, the United Kingdom and the United States. In addition,
the Company markets in the United States and in 60 other  countries  through its
Valuenet(R)  partner program  consisting of systems  integrators,  resellers and
distributors.  A number of firms,  including  Andersen  Consulting  and American
Management  Systems,  operate  as  third-party  resellers  under  the  Company's
ValueNet  program and combine  FileNet  products with  vertical  market-specific
value-added   services  to  provide   turnkey   solutions  and  complex  systems
integration  for  customers.  Other firms such as Tech Data,  Law  Cypress,  IAI
Canada,  Image Choice and Paperlink are  distributors of the Company's  products
selling to hundreds of resellers  throughout the world. The Company also has OEM
agreements  with other firms  involving  the  Company's  software  and  hardware
products.

The Company offers software  maintenance  service for its products in the United
States  and in  countries  where it has  direct  international  operations.  Its
international  resellers  offer  maintenance  in the countries  they serve.  The
Company subcontracts hardware maintenance to Hewlett-Packard  Corporation ("HP")
and other third parties.

In June 1995, the Company entered into a joint venture  development  partnership
and  distribution  agreement with Novell,  Inc.  ("Novell") to provide  workflow
software components for Novell's Groupwise software product family. A version of
this software is also being marketed by FileNet directly as of November 1996.

In September  1995, the Company  entered into an alliance with SAP AG to deliver
data  archiving  and  document  solutions  for  their   client/server-based  R/3
enterprise application systems environment. Deliveries of this product commenced
in December 1995.

The  Company  also  has  porting  and  licensing  agreements  with  HP  and  Sun
Microsystems,  Inc. ("Sun") to co-market versions of FileNet's  document-imaging
and workflow software products to users of those companies'  products.  Sales of
the HP based  product  commenced in December  1993 and the Sun based  product in
March 1995.  In 1996,  the Company  became a Global  Partner  with HP's  General
Systems Division.

                                       3

<PAGE>

The Company is a Certified  Microsoft  Solutions  Developer and will continue to
develop products for the Microsoft BackOffice computing environment.


PRODUCTS

SOFTWARE

The following software products are currently being offered by the Company:

Document Imaging

The Company's Image Management Services ("IMS") software is used for organizing,
storing and accessing  multiple types of information  including document images,
data, text, graphics, voice and photographs from different sources. IMS software
currently  supports the  Microsoft  Windows NT Server  operating  system and the
AIX/6000,  HP-UX, and Solaris operating environments which are IBM Corporation's
("IBM"),   HP's,  and  Sun's   implementation  of  the  UNIX  operating  system,
respectively.  IMS software  operates on high  performance  servers  attached to
Token-Ring,  Ethernet and FDDI local area networks  utilizing TCP/IP and SPX/IPX
communication protocols.

The Company's  WorkForce  Desktop(R) Software is a suite of document-imaging and
workflow  management  products  which  run on IBM  and IBM  compatible  personal
computers  running  Microsoft  Corporation's   ("Microsoft")  Windows  operating
environments  or IBM's OS/2  operating  system.  The suite  provides  search and
access features, image viewing, and manipulation capabilities for stored images.
Additionally, the user can develop custom applications for the WorkForce Desktop
products using one of the following  software  development tools and application
programming interfaces:

     WorkFlo(R)--a  proprietary  application  development  software product that
     enables users to develop business process  automation  programs by defining
     individual  processing tasks and process flows using a series of high level
     language  commands.  WorkFlo programs can be easily modified by the user to
     respond to new business  requirements.  In addition,  the software  enables
     users to create  standard  electronic  forms for  entering  information  in
     prescribed formats.

     WorkFlo  Controls--a   software   development  tool  that  integrates  with
     Microsoft's Visual Basic programming  system to increase  productivity when
     developing custom document-imaging and workflow applications.

     WorkFlo Power Libraries--a  software  development tool that integrates with
     Sybase/Powersoft's  PowerBuilder programming system and C language programs
     to  increase  productivity  when  developing  custom  document-imaging  and
     workflow applications.

     WorkFlo Application Libraries--a standard application programming interface
     layer to  FileNet's  IMS  software  for various  workstations,  network and
     application  environments  including Microsoft Windows,  OS/2, Sun Solaris,
     HP-UX, and IBM AIX/6000.

The Company's FileNet:WorkGroup(TM) software is a midrange document-imaging  and
work  management  product based on a subset of the above products  combined with
certain prepackaged software applications.

The Company's Document Warehouse(TM) for SAP software  product is a document and
data  archiving  application,  certified  by SAP,  for use with the  popular R/3
Enterprise Resource Planning (ERP) application suite.

FileNet  Image View II(TM) is a client software  product introduced in 1996 that
integrates  with and accesses  documents  stored in FileNet's IMS server and the
Watermark Image Server products to enable the use of scanned documents and faxes
with any OLE-compatible  Windows application,  such as spreadsheets,  workflows,
forms, databases, e-mail, etc.

The Company's Watermark(R) software products enable users worldwide to exchange,
process and share scanned images,  faxes and other  electronic  documents within
departments and workgroups of large enterprises and throughout midsize and small
business  environments.  Watermark  documents and folders are easily  integrated
into existing  line-of-business  applications  and take  advantage of the latest
Microsoft operating systems,  database  technologies and Internet  capabilities.
The Watermark family consists of the following products:

                                       4


<PAGE>

     Watermark  Client  software  replaces  document  handling  procedures  with
     integrated  electronic  processing  of  scanned  images,  faxes  and  other
     electronic documents.  The software provides easy-to-use tools for document
     capturing,  filing, viewing,  annotation and OCR that image enable any OLE-
     or ODMA-  compatible  Windows  application,  such as e-mail,  databases and
     workflows.

     Watermark  Image  Server  software  is used  for  organizing,  storing  and
     optimizing shared network access to scanned documents, faxes and electronic
     files.  The software  intelligently  captures the business rules  governing
     document  security,  version  control,  migration and storage  through easy
     client-based  administration  and  reporting  tools  designed for Microsoft
     Backoffice.

     Watermark  Hierarchical  Storage  Manager  software  extends  the  document
     storage and retrieval  capacity of the Watermark  Image Server by providing
     Windows NT services to migrate documents to and from  high-density  optical
     disks.

     Watermark Fax Router software is a fax management solution that streamlines
     inbound fax  communications  with  customers,  suppliers and other business
     partners.  The software delivers  documents  electronically to the intended
     recipient and immediately routes for processing. Faxes are securely managed
     side-by-side with all other business documents.

     Watermark   Developer's  Toolkit  software  allows  a  developer  to  build
     client/server  and intranet  applications  by taking  advantage of the full
     power and range of  Watermark  functionality  via OLE  Objects  and ActiveX
     Controls specifically designed to simplify application building.

Workflow

The Company's Visual WorkFlo(R)  software provides an open, flexible,  component
software framework for workflow  application  development.  This product enables
users and ValueNet partners to automate business processes using object-oriented
programming  technology,  and supports standard tools such as C++, Visual Basic,
PowerBuilder,  Microsoft  Windows-compatible  tools, and FileNet's other WorkFlo
products. All work management functions,  including routing, queuing,  exception
handling,  and management control,  are managed by Visual WorkFlo using standard
Windows interfaces and graphical tools.

FileNet  Ensemble(TM) is a general purpose workflow tool introduced in 1996 that
automates a wide range of everyday  business  processes and is  integrated  with
Microsoft  Exchange and Novell  Groupwise to enhance  these  messaging  (e-mail)
system  products.  FileNet  markets this  product  through all of its direct and
indirect sales channels  worldwide.  A version of this software will be marketed
by Novell starting in 1997 under the product name "Groupwise Workflow."

Electronic Document Management

The Company's Saros(R) software products simplify the management and maintenance
of electronic documents and other unstructured  information,  ensuring the right
information  is always  available.  Needed  information  is readily  accessible,
providing  total  manageability  and security.  The Saros family consists of the
following products:

     Saros  Mezzanine(R) is a server software  product that  enables  electronic
     document management  applications across large enterprise LANs and WANs. It
     acts as a network librarian,  simplifying the management and maintenance of
     all files on the user's network.

     Saros Document Manager is a client-based  ready-to-use  document management
     system based on Saros  Mezzanine.  Saros Document Manager provides the user
     with tools to create, communicate and control electronic documents.

     Saros  @mezzanine(TM) is a software product used to  organize,  protect and
     maintain  documents  published on the World Wide Web.  @mezzanine  provides
     improved  organization  and access  methods to the Web  browser and special
     document  management  features  such  as  version  control,   security  and
     archiving needed by the Web server.

     Saros Document  Server for BackOffice is a special version of the Mezzanine
     software and is designed  expressly  for the  Microsoft  BackOffice  server
     platform.  Saros Document Server for BackOffice takes advantage of the full
     power  of  Microsoft  Windows  NT  Server  to  create  an   enterprise-wide
     electronic information library.

                                       5


<PAGE>

COLD

The Company's Greenbar software product stores and retrieves  computer-generated
reports to replace the use of printed reports and computer output to microfiche.
It also  enables the user to search for specific  information  located in one or
more reports and extract the  information to use with popular  desktop  software
applications.  It is a client/server  software  product running on servers using
the Microsoft  Windows NT Server  operating  system and PC workstations  running
Microsoft  Windows.  It also integrates  with FileNet's IMS software  product to
provide large capacity archival storage capabilities.


HARDWARE

The Company  markets an optional  integration  service,  offering  customers the
option to purchase complete  solutions,  including  industry standard  hardware,
directly  from  FileNet.  The Company also  manufactures  and markets an optical
storage and  retrieval library (OSAR(R))  based on 12-inch  optical disk storage
technology.

All named products  mentioned in this Form 10-K,  other than the Company's named
products, are trademarks or registered trademarks of the respective holder.

RESEARCH AND DEVELOPMENT

The  Company's  research  and  development  activities  are  focused on software
product development.  Research and development  expenditures were $36.5 million,
$24.7  million and $18.3  million for the fiscal years ended  December 31, 1996,
December 31, 1995, and January 1, 1995, respectively.  The Company believes that
its future success  depends upon its ability to continue to enhance its existing
software products and to develop new software products that  satisfactorily meet
market needs.  Accordingly,  the Company intends to continue to make substantial
investments in its research and development activities.

BACKLOG

The Company  typically  ships its  products  within a short period of time after
acceptance of orders,  which is common in the computer  software  industry.  The
Company does not consider the level of backlog to be a significant  or important
indicator of future revenue or earnings.

SERVICES, SUPPORT AND MANUFACTURING

The Company  maintains  service and support  organizations  which  provide  both
pre-sales and post-sales services in the United States and the foreign countries
where the Company has direct operations.

The  Company's  integration  facilities  in Costa Mesa,  California  and Dublin,
Ireland, conduct software manufacturing,  integration, test and quality control.

In those cases in which the customer  requests  that  FileNet  provide a turnkey
solution,  the Company uses standard products and components which are available
from multiple  vendors.  Certain parts and  components  are purchased  from sole
sources,  including  optical  disk drives for its OSAR  product.  The Company is
dependent upon the ability of vendors to deliver these items in accordance  with
the  Company's  specifications  and  delivery  schedules.   Scanners,  printers,
magnetic disks, memory circuits, frames, panels and harnesses are available from
a number of domestic  sources.  The failure of certain  suppliers  to deliver on
schedule could delay or interrupt the Company's delivery of products and thereby
adversely affect the Company's  operating results.  To date, the Company has not
experienced  any  delays  in  deliveries  from its  suppliers  which  have had a
material impact on its business.

EMPLOYEES

As of December 31, 1996, the Company had 1,443 full-time  employees of which 364
were employed in research and development; 853 in sales, marketing, professional
services  and  customer  support;  96 in  operations;  and  130 in  finance  and
administration.  Employees in the Company's German subsidiary are represented by
a labor union.  No other  employees are  represented  by labor  unions,  and the
Company has never  experienced  a work  stoppage.  The Company  believes that it
enjoys good employee relations.

                                       6


<PAGE>

COMPETITION

The market for the  Company's  products  is highly  competitive.  The  Company's
principal  competitors  for its various  product  lines  include  the  following
companies:  1) Workflow and document  imaging--  Banctec,  Inc.,  IBM,  Keyfile,
Optika,  Unisys  Corporation,  Mosaix,  Wang  Laboratories,  Inc., 2) Electronic
Document Management--Documentum, IBM, Interleaf, Novasoft, Novell, Open Text, PC
DOCS, and 3)  COLD--Computron,  IBM and  Microbank.  Numerous  smaller  software
vendors  also  compete  in each  product  area.  The  Company  also  experiences
competition  from systems  integrators who configure  hardware and software into
customized systems.

In addition,  RDBMS vendors,  such as Oracle,  Sybase and Informix,  may compete
with the Company in the future.  Oracle has announced products that compete with
the  Company's  document  management  products.  It is also  possible  that  new
competitors  or  alliances  among  competitors  may emerge and  rapidly  acquire
significant  market  share.  The Company  also  expects  that  competition  will
increase as a result of software industry  consolidations.  To the extent one or
more of the  Company's  competitors  introduce  products that more fully address
customer  requirements,  the Company's  business and operating  results could be
adversely affected.

PATENTS AND  LICENSES

The Company  holds three  patents for its OSAR product  which expire  August 26,
2003,  June 23,  2004 and August 4, 2004,  respectively.  The  Company  has also
entered into non-exclusive  license arrangements with a number of organizations,
including  IBM and Oracle,  which permit the Company and its  resellers to grant
sublicenses to end users of the Company's  systems to use software  developed by
these third-party vendors.

CERTAIN CONSIDERATIONS

This report and the Company's  Annual Report to Stockholders  for the year ended
December 31, 1996  contains  forward-looking  statements  that involve risks and
uncertainties,   including  those  discussed  below  and  in  the   Management's
Discussion and Analysis of Financial Condition and Results of Operations section
and Notes to Consolidated Financial Statements in the Company's Annual Report to
Stockholders  incorporated  herein by reference as set forth in Items 7 and 8 of
this report.  The actual results that the Company achieves may differ materially
from any  forward-looking  statements due to such risks and  uncertainties.  All
such factors should be considered by investors in the Company.

     Rapid  Technological  Change;  Product  Development.  The  market  for  the
Company's  products  is  characterized  by  rapid  technological   developments,
evolving industry standards,  changes in customer  requirements and frequent new
product introductions and enhancements.  The Company's continued success will be
dependent upon its ability to continue to enhance its existing products, develop
and introduce,  in a timely  manner,  new products  incorporating  technological
advances and respond to customer requirements.  To the extent one or more of the
Company's  competitors  introduce  products  that more  fully  address  customer
requirements,  the Company's business could be adversely affected.  There can be
no assurance  that the Company will be successful  in  developing  and marketing
enhancements to its existing  products or new products on a timely basis or that
any new or enhanced  products will adequately  address the changing needs of the
marketplace.  If the Company is unable to develop and  introduce new products or
enhancements  to existing  products  in a timely  manner in response to changing
market conditions or customer requirements, the Company's business and operating
results  could be  adversely  affected.  From time to time,  the  Company or its
competitors may announce new products,  capabilities  or technologies  that have
the  potential to replace or shorten the life cycles of the  Company's  existing
products.  There can be no assurance that  announcements of currently planned or
other new products will not cause customers to delay their purchasing  decisions
in anticipation of such products,  which could have a material adverse effect on
the Company's business and operating results.

     Uncertainty  of  Future  Operating   Results;   Fluctuations  in  Quarterly
Operating  Results.  Prior growth rates in the  Company's  revenue and operating
results  should not  necessarily  be  considered  indicative of future growth or
operating  results.  Future  operating  results  will depend upon many  factors,
including  the demand  for the  Company's  products,  the  effectiveness  of the
Company's  efforts to continue to integrate various products it has developed or
acquired  through  acquisition  of others and to achieve the  desired  levels of
sales from such product integration, the level of product and price competition,
the length of the Company's  sales cycle,  seasonality  of  individual  customer
buying patterns,  the size and timing of individual  transactions,  the delay or
deferral  of  customer  implementations,  the  budget  cycles  of the  Company's
customers,  the timing of new product  introductions and product enhancements by
the Company and its  competitors,  the mix of sales by  products,  services  and
distribution   channels,   levels  of  international   sales,   acquisitions  by
competitors,  changes in foreign  currency  exchange  rates,  the ability of the
Company to develop  and market new  products  and  control  costs,  and  general
domestic and  international  economic and political  conditions.  As a result of
these  factors,  revenues and  operating  results for any quarter are subject to
variation  and are not  predictable  with any  significant  degree of  accuracy.
Therefore, the Company believes that period-to-period comparisons of its results
of operations  are not  necessarily  meaningful and should not be relied upon as
indications  of future  performance.  Moreover,  such  factors  could  cause the
Company's  operating  results in a given quarter to be below the expectations of
public market analysts and investors. In either case, the price of the Company's
common stock could be materially adversely affected.

                                       7
 
<PAGE>

     Competition.  The document imaging,  workflow, COLD and document management
software markets are highly  competitive,  and there are certain  competitors of
the  Company  with  substantially  greater  sales,  marketing,  development  and
financial resources. The Company believes that the competitive factors affecting
the market for its products and services include vendor and product  reputation;
product quality, performance and price; the availability of products on multiple
platforms;  product  scalability;  product  integration  with  other  enterprise
applications;  product functionality and features;  product ease-of use; and the
quality of customer  support services and training.  The relative  importance of
each of these factors  depends upon the specific  customer  involved.  While the
Company believes it competes  favorably in each of these areas,  there can be no
assurance  that it will continue to do so.  Moreover,  the Company's  present or
future  competitors  may be able to develop  products  comparable or superior to
those offered by the Company,  offer lower price  products or adapt more quickly
than  the  Company  to  new  technologies  or  evolving  customer  requirements.
Competition  is expected to intensify.  In order to be successful in the future,
the Company must respond to  technological  change,  customer  requirements  and
competitors' current products and innovations. There can be no assurance that it
will be able to  continue  to compete  effectively  in its market or that future
competition will not have a material  adverse effect on its business,  operating
results and financial condition.

     Intellectual  Property and Other Proprietary  Rights. The Company's success
depends  in part  on its  ability  to  protect  its  proprietary  rights  to the
technologies used in its principal products. The Company relies on a combination
of  copyrights,   trademarks,  trade  secrets,  confidentiality  procedures  and
contractual  provisions  to  protect  its  proprietary  rights.  There can be no
assurance that the Company's  existing or future copyrights,  trademarks,  trade
secrets or other  intellectual  property  rights will be of sufficient  scope or
strength  to  provide  meaningful  protection  or  commercial  advantage  to the
Company.  FileNet  has no  software  patents.  Also,  in selling  certain of its
products,  the Company  relies on "shrink wrap"  licenses that are not signed by
licensees  and,  therefore,  may be  unenforceable  under  the  laws of  certain
jurisdictions.  In addition,  the laws of some foreign  countries do not protect
the Company's proprietary rights to the same extent as do the laws of the United
States.  There can be no assurance  that such factors  would not have a material
adverse effect on the Company's business or operating results.

     The Company may from time to time be notified that it is infringing certain
patent or  intellectual  property  rights of others.  Combinations of technology
acquired through past or future  acquisitions and the Company's  technology will
create  new  products  and   technology   which  may  give  rise  to  claims  of
infringement. While no actions other than the ones discussed below are currently
pending  against  the Company for  infringement  of patent or other  proprietary
rights of third  parties,  there can be no assurance that third parties will not
initiate  infringement  actions against the Company in the future.  Infringement
actions can result in  substantial  cost to and  diversion  of  resources of the
Company.  If the Company  were found to infringe  upon the rights of others,  no
assurance can be given that licenses would be obtainable on acceptable  terms or
at all, that significant  damages for past infringement would not be assessed or
that further litigation  relative to any such licenses or usage would not occur.
The failure to successfully  defend any claims or obtain  necessary  licenses or
other rights, the ultimate disposition of any claims or the advent of litigation
arising out of any claims of infringement,  could have a material adverse effect
on the Company's business, financial condition or results of operations.

     In October 1994, Wang Laboratories,  Inc. ("Wang") filed a complaint in the
United States District Court for the District of Massachusetts alleging that the
Company is infringing  five patents held by Wang. On June 23, 1995, Wang amended
its complaint to include an additional  related  patent.  On July 2, 1996,  Wang
filed a  complaint  in the  same  court  alleging  that  Watermark,  formerly  a
wholly-owned subsidiary that was merged into the Company, is infringing three of
the same patents  asserted in the initial  complaint.  On October 9, 1996,  Wang
withdrew its claim that one of the patents it initially asserted is infringed by
the Company's  products which were  commercialized  before the initial complaint
was filed.  Wang reserved the right to assert that patent  against the Company's
products  commercialized  after  that date in a separate  lawsuit.  Based on the
Company's  analysis of these Wang patents and their  respective  file histories,
the Company believes that it has meritorious defenses to Wang's claims; however,
the ultimate  outcome or any  resulting  potential  loss cannot be determined at
this time.

     In January 1997,  Wang and Eastman Kodak Company  ("Kodak")  announced that
they have  entered  into an  agreement  under which Kodak will  acquire the Wang
business unit that has  responsibility  for this litigation.  The acquisition is
scheduled to close in March-April  1997 and the Company can not predict what, if
any,  impact this will have on the  litigation.  If it should be determined that
the patents at issue in the litigation are valid and are infringed by any of the
Company's products, including Watermark products, the Company will, depending on
the  product,  redesign the  infringing  products or seek to obtain a license to
market the products.  There can be no assurance that the Company will be able to
obtain such a license on acceptable terms.

     Dependence on Certain  Relationships  The Company has entered into a number
of   co-marketing   relationships   with  other   companies  such  as  Microsoft
Corporation, Compaq Computer Corporation, SAP AG, Hewlett-Packard Company ("HP")
and Sun  Microsystems,  Inc. There can be no assurance that these companies will
not reduce or discontinue their relationships with or support of the Company and
its products.  Disruption of these  relationships  could have a material adverse
effect on the Company's business and operating results.

                                       8

<PAGE>

     Dependence on Key Management and Technical Personnel. The Company's success
depends to a  significant  degree upon the  continued  contributions  of its key
management, marketing, technical and operational personnel, including members of
senior management and technical personnel of acquired companies. The Company has
no agreements  providing  for the  employment of any of its key employees or any
fixed term contracts and the Company's key employees may  voluntarily  terminate
their  employment  with the Company at any time. The loss of the services of one
or more key employees, including key employees of acquired companies, could have
a material adverse effect on the Company's  operating results.  The Company also
believes  its  future  success  will  depend in large  part upon its  ability to
attract and retain additional highly skilled management,  technical,  marketing,
product development and operational personnel. Competition for such personnel is
intense,  and there can be no assurance  that the Company will be  successful in
attracting and retaining such personnel.

     International Sales.  Historically,  the Company has derived  approximately
one-third of its total revenues from international sales. International business
is subject to certain risks including varying technical  standards,  tariffs and
trade  barriers,  political and economic  instability,  reduced  protection  for
intellectual property rights in certain countries,  difficulties in staffing and
maintaining foreign operations,  difficulties in managing foreign  distributors,
potentially adverse tax consequences, currency exchange fluctuations, the burden
of  complying  with  a  wide  variety  of  complex  operations,   foreign  laws,
regulations  and treaties and the  possibility  of  difficulties  in  collecting
accounts  receivable.  There can be no assurance  that any of these factors will
not have a  material  adverse  effect on the  Company's  business  or  operating
results.

     Acquisition-Related  Risks. The Company recently completed the acquisitions
of  Watermark,  Saros and IFSL.  These recent  acquisitions  by the Company have
presented and will continue to present it with  numerous  challenges,  including
difficulties in the assimilation of the operations, technologies and products of
the  acquired  companies  and  managing  separate  geographic  operations.   The
challenges  have  absorbed  and may  continue to absorb  significant  management
attention that would  otherwise be available for the ongoing  development of the
Company's  business.  If the  Company's  management  does not  respond  to these
challenges  effectively,  the Company's results of operations could be adversely
affected.  Moreover,  there can be no assurance that the anticipated benefits of
the acquisitions will be realized.  The Company and the acquired companies could
experience  difficulties or delays in integrating their respective  technologies
or developing and  introducing new products.  In particular,  one of the reasons
for FileNet's acquisition of Saros was the perceived market potential for Saros'
new products,  including the recently  announced  @mezzanine  and Saros Document
Server for BackOffice,  which have yet to be proven in the marketplace,  as well
as other products  currently under  development.  Delays in or non-completion of
the  development  of these new  products,  or lack of market  acceptance of such
products,  could  have an  adverse  impact on the  Company's  future  results of
operations  and  result in a failure  to  realize  anticipated  benefits  of the
acquisitions.

     Product   Liability.   The  Company's  license  agreements  with  customers
typically  contain  provisions  designed  to limit their  exposure to  potential
product  liability  claims.  However,  it is possible  that such  limitation  of
liability   provisions   may  not  be  effective   under  the  laws  of  certain
jurisdictions.  Although the Company has not experienced  any product  liability
claims to date,  the sale and support of products by them may entail the risk of
such claims,  and there can be no assurance that the Company will not be subject
to such claims in the future.  A  successful  product  liability  claim  brought
against  the Company  could have a material  adverse  effect upon the  Company's
business, operating results and financial condition.

     Stock  Price  Volatility.  The Company  believes  that a variety of factors
could cause the price of its common stock to fluctuate,  perhaps  substantially,
including quarter-to-quarter  variations in operating results;  announcements of
developments related to its business;  fluctuations in its order levels; general
conditions in the technology sector or the worldwide  economy;  announcements of
technological  innovations,  new products or product enhancements by the Company
or its  competitors;  key  management  changes;  changes in joint  marketing and
development  programs;  developments  relating to patents or other  intellectual
property rights or disputes;  and  developments  in the Company's  relationships
with its customers, distributors and suppliers. In addition, in recent years the
stock market in general,  and the market for shares of high technology stocks in
particular,  has experienced  extreme price  fluctuations  which have often been
unrelated to the operating performance of affected companies.  Such fluctuations
could adversely affect the market price of the Company's common stock.



                                       9

<PAGE>

Item 2.  Properties

The Company  currently  leases  250,000 square feet of office,  development  and
manufacturing space in Costa Mesa, California;  42,000 square feet of office and
development  space in  Bellevue,  Washington;  12,500  square feet of office and
development  space in Burlington,  Massachusetts.  The Company also leases sales
and support  offices in 41 locations in the United  States,  13 in Europe,  2 in
Australia, 3 in Canada, and 3 in Asia. The Company believes that the Costa Mesa,
Bellevue  and  Burlington   facilities   will  be  adequate  for  the  Company's
anticipated needs through 1997.

Item 3.  Legal Proceedings

In October 1994,  Wang filed a complaint in the United States District Court for
the  District of  Massachusetts  alleging  that the Company is  infringing  five
patents held by Wang. On June 23, 1995, Wang amended its complaint to include an
additional  related patent.  On July 2, 1996, Wang filed a complaint in the same
court  alleging that  Watermark,  formerly a  wholly-owned  subsidiary  that was
merged into the Company, is infringing three of the same patents asserted in the
initial  complaint.  On October 9, 1996, Wang withdrew its claim that one of the
patents it initially  asserted is infringed by the Company's products which were
commercialized  before the initial  complaint was filed. Wang reserved the right
to assert that patent against the Company's products  commercialized  after that
date in a  separate  lawsuit.  Based on the  Company's  analysis  of these  Wang
patents and their  respective file histories,  the Company  believes that it has
meritorious  defenses to Wang's  claims;  however,  the ultimate  outcome or any
resulting potential loss cannot be determined at this time.

In  January  1997,  Wang and Kodak  announced  that they  have  entered  into an
agreement  under  which  Kodak  will  acquire  the Wang  business  unit that has
responsibility  for this  litigation.  The  acquisition is scheduled to close in
March-April  1997 and the Company cannot predict what, if any,  impact this will
have on the litigation.  If it should be determined that the patents at issue in
the  litigation  are valid and are infringed by any of the  Company's  products,
including  Watermark  products,  the Company  will,  depending  on the  product,
redesign  the  infringing  products  or seek to obtain a license  to market  the
products. There can be no assurance that the Company will be able to obtain such
a license on acceptable terms.

On  December  20,  1996,  plaintiff  Michael  I.  Goldman  filed a class  action
complaint  against the Company and certain of its officers and  directors in the
Superior Court of California, County of Orange. The action was purportedly filed
on behalf of a class of  purchasers  of the  Company's  common  stock during the
period October 19, 1995 through July 2, 1996. Plaintiff alleges that the Company
and other  defendants  violated Cal. Corp.  Code Sections 25400 and 25500,  Cal.
Civ. Code Sections  1709-1710 and Cal. Bus. & Prof.  Code Sections 17200 et seq.
in connection with various public  statements made by the Company and certain of
its officers and directors during the putative class period. The complaint seeks
unspecified compensatory and punitive damages,  interest,  payment of attorney's
fees and costs, and equitable or injunctive relief;  however, at this time it is
not possible to determine the potential  liability,  if any. The Company has not
yet responded to the  complaint.  The Company  believes the complaint is without
merit and intends to defend the action vigorously.

The Company, in the normal course of business, is subject to various other legal
matters.  While the results of litigation  and claims  cannot be predicted  with
certainty,  the Company  believes  that the final outcome of these other matters
will not have a materially adverse effect on the Company's  consolidated results
of operations or financial condition.

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

None.


                                     PART II


Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
There is hereby incorporated herein by reference the information appearing under
the caption "Stock Market and Dividend Information," which appears on page 42 of
the  Registrant's  Annual Report to Stockholders for the year ended December 31,
1996 and is filed herewith as Exhibit 13.1.

                                       10

<PAGE>

Item 6.  Selected Financial Data 1

The following table summarizes certain selected financial data:
<TABLE>
<CAPTION>
                                                                              For Fiscal Years Ended
                                              --------------------------------------------------------------------------------------
                                               Dec. 31, 1996     Dec. 31, 1995     Jan. 1, 1995      Jan. 2, 1994     Jan. 3, 1993
                                              ----------------  ----------------  ---------------  ----------------  ---------------
                                                   (1996)            (1995)            (1994)            (1993)           (1992)
                                                   ------            ------            ------            ------           ------
(In thousands, except per share amounts)
Consolidated statements of operations data:
<S>                                              <C>               <C>               <C>              <C>               <C>
Revenue:
  Software revenue                               $140,659          $116,052          $ 81,102         $ 54,067          $ 34,089
  Service revenue                                  82,118            67,174            60,753           60,933            45,803
  Hardware revenue                                 46,136            46,152            50,480           51,410            62,608
                                              ---------------------------------- ---------------- ----------------- ----------------
                                                               
      Total revenue                               268,913           229,378           192,335          166,410           142,500

Costs and expenses:
  Cost of software revenue                         16,464            15,146            12,472            7,831             6,324
  Cost of service revenue                          53,568            44,277            41,645           42,812            36,650
  Cost of hardware revenue                         29,633            28,800            30,999           34,116            28,330
  Research and development                         36,502            24,711            18,274           15,247            15,142
  Selling, general and administrative             117,761            96,499            71,267           61,711            59,277
  Merger, restructuring and write-off of
   purchased in-process research and
   development costs                               16,011             6,393                --               --            10,044
                                              --------------------------------------------------------------------------------------
      Total costs and expenses                    269,939           215,826           174,657          161,717           155,767

                                              --------------------------------------------------------------------------------------
Operating income (loss)                            (1,026)           13,552            17,678            4,693           (13,267)

  Other income                                      2,838             2,780             1,821              333               348

                                              --------------------------------------------------------------------------------------
Income (loss) before income taxes                   1,812            16,332            19,499            5,026           (12,919)

  Provision (benefit) for income taxes              4,456             8,116             5,356            4,760            (1,827)

                                              --------------------------------------------------------------------------------------
Net income (loss)                                $ (2,644)         $  8,216          $ 14,143         $    266          $(11,092)
                                              ================= ================= ================ ================= ===============

Net income (loss) per share                      $  (0.18)         $   0.52          $   0.95         $   0.02          $  (0.95)

Weighted average common and common
  equivalent shares outstanding                    15,007*           15,856            14,834           13,178            11,705*

*Excludes common share equivalents

Consolidated balance sheet data:

Working capital                                  $ 89,339          $ 86,354          $ 63,149         $ 47,819          $ 46,292
Total assets                                      195,679           189,682           152,642          124,986           104,350
Long-term debt, excluding
  current portion                                      --                --                --              163                68
Stockholders' equity                              132,806           131,158           101,006           78,383            71,346

</TABLE>
1 All  historical  data has been  restated to reflect the  acquisition  of Saros
 Corporation on March 1, 1996 which was accounted for as a pooling of interests.

 Certain  reclassifications  have  been  made  to  the  prior  years'  selected
 financial data to conform with the current year's presentation.

                                       11

<PAGE>

Item 7.  Management's  Discussion  and  Analysis  of Results of  Operations  and
         Financial Condition

There is hereby incorporated herein by reference the information appearing under
the caption  "Management's  Discussion and Analysis of Results of Operations and
Financial  Condition,"  which appears on pages 18 through 24 of the Registrant's
Annual Report to Stockholders  for the year ended December 31, 1996 and is filed
herewith as Exhibit 13.2.


Item 8.  Financial Statements and Supplementary Data

There is hereby  incorporated  herein by reference the information  appearing on
pages 25 through 39 of the  Registrant's  Annual Report to Stockholders  for the
year  ended  December  31,  1996 and is filed  herewith  as  Exhibit  13.3.  The
accompanying  Independent  Auditors'  Report  is  also  incorporated  herein  by
reference and filed herewith as Exhibit 13.3.


Item  9. Changes  in and  Disagreements  with  Accountants  on  Accounting  and
         Financial Disclosure

None.


                                    PART III


Item 10. Directors and Executive Officers of the Registrant

There is hereby incorporated herein by reference the information appearing under
the caption  "Election of Directors," under the caption  "Executive  Officers of
the Company,"  and under the caption  "Compliance  with Securities  Laws" of the
Registrant's  definitive Proxy Statement for its 1997 Annual Meeting to be filed
with the Securities and Exchange Commission.


Item 11. Executive Compensation

There is hereby incorporated herein by reference the information appearing under
the  caption  "Executive  Compensation"  and  under  the  caption  "Election  of
Directors" of the  Registrant's  definitive  Proxy Statement for its 1997 Annual
Meeting to be filed with the Securities and Exchange Commission.


Item 12. Security Ownership of Certain Beneficial Owners and Management

There is hereby incorporated herein by reference the information appearing under
the  caption  "Voting   Securities  and  Principal   Holders   Thereof"  of  the
Registrant's  definitive Proxy Statement for its 1997 Annual Meeting to be filed
with the Securities and Exchange Commission.


Item 13. Certain Relationships and Related Transactions

There is hereby incorporated herein by reference the information appearing under
the caption "Note 11:  Related Party  Transaction,"  which appears on page 38 of
the  Registrant's  Annual Report to Stockholders for the year ended December 31,
1996 and is filed herewith as part of Exhibit 13.4.

                                       12


<PAGE>

                                     PART IV



Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K

(a)      Financial statements

         1.   The list of financial  statements  contained in the  accompanying
              Index  to  Consolidated   Financial  Statements  covered  by  the
              Independent Auditors' Report is herein incorporated by reference.

         2.   Financial statement schedule

              The  listed   financial   statement   schedule  contained  in  the
              accompanying Index to  Consolidated  Financial  Statements covered
              by the  Independent  Auditors'  Report is  herein  incorporated by
              reference.

         3.   Exhibits

              The  list  of  exhibits  contained  in the  accompanying  Index to
              Exhibits is herein incorporated by reference.

(b)      Reports on Form 8-K

         No  reports on  Form 8-K were filed during the fourth quarter of fiscal
         1996.



               Index to Consolidated Financial Statements Covered
                         by Independent Auditors' Report

                             Item 14(a) (1) and (2)
<TABLE>
<CAPTION>   
                                                                                  Page Reference
                                                                                ---------------------------
                                                                                               1996 Annual
                                                                                                 Report to
                                                                                Form 10-K      Stockholders

The information  under  the  following  captions, which  is included in the 1996
     Annual Report to Stockholders, is incorporated herein by reference:
<S>                                                                                <C>             <C>
Independent Auditors' Report                                                                       39
Consolidated balance sheets at December 31, 1996 and December 31, 1995                             25
Consolidated statements of operations for each of the years ended
     December 31, 1996, December 31, 1995 and January 1, 1995                                      26
Consolidated statements of stockholders' equity for each of the years ended
     December 31, 1996, December 31, 1995 and January 1, 1995                                      27
Consolidated statements of cash flows for each of the years ended
     December 31, 1996, December 31, 1995 and January 1, 1995                                      28
Notes to consolidated financial statements                                                         29

Independent Auditors' Report on Schedule                                           14

Schedule for each of the three years ended  December 31, 1996,
     December 31, 1995 and January 1, 1995
II.  Valuation and qualifying accounts and reserves                                15

</TABLE>

                                       13

<PAGE>

INDEPENDENT AUDITORS' REPORT ON SCHEDULE 



To the Stockholders and the Board of Directors of FileNet Corporation:

We have audited the consolidated financial statements of FileNet Corporation and
its  subsidiaries  as of  December  31,  1996 and 1995 and for each of the three
years in the period ended  December 31, 1996, and have issued our report thereon
dated February 10, 1997. Such consolidated  financial  statements and report are
included in your 1996 Annual Report to Stockholders and are incorporated  herein
by reference.  Our audits also  included the  consolidated  financial  statement
schedule of FileNet  Corporation  and its  subsidiaries,  listed in Item 14. The
consolidated financial statement schedule is the responsibility of the Company's
management.  Our responsibility is to express an opinion based on our audits. In
our opinion, such consolidated financial statement schedule,  when considered in
relation  to the  basic  consolidated  financial  statements  taken  as a whole,
presents fairly, in all material respects, the information set forth therein.

/s/ Deloitte & Touche LLP

February 10, 1997
Costa Mesa, California




















                                       14
<PAGE>

                                   SCHEDULE II

                        VALUATION AND QUALIFYING ACCOUNTS
                                ($ in thousands)
<TABLE>
<CAPTION>
                                      Balance at         Additions- 
                                     Beginning of     Charged to Costs                      Balance at End
Description                             Period          and Expenses         Deductions        of Period
----------------------------------- ----------------------------------------------------------------------
<S>                                   <C>                <C>                <C>               <C>
Year ended January 1, 1995:
Inventory reserves                    $  771             $  532             $  652 (1)        $  651
Allowance for doubtful accounts          562                222                 53 (2)           731
Reserve for returned systems           3,418                489              1,160 (3)         2,747

Year ended December 31, 1995:
Inventory reserves                       651                482                560 (1)           573
Allowance for doubtful accounts          731                857                 48 (2)         1,540
Reserve for returned systems           2,747                869                463             3,153

Year ended December 31, 1996:
Inventory reserves                       573                635                548 (1)           660
Allowance for doubtful accounts        1,540              1,205                605 (2)         2,140
Reserve for returned systems           3,153                 32                  -             3,185
</TABLE>




                                    

(1) Consists primarily of the write-off of excess/obsolete inventories.

(2) Consists primarily of uncollectible invoice amounts.

(3) Includes an amount  attributable  to the  resolution of a specific  customer
    dispute. Such amount was recognized in revenue in 1994.

 





                                       15

<PAGE>

                                Index to Exhibits

Exhibit
  No.     Description
-------   ----------------------------------------------------------------------

3.1*      Restated  Certificate of  Incorporation,  as amended (filed as Exhibit
          3.1  to  Form  S-4  filed  on  January  26,  1996;   Registration  No.
          333-00676).
 
3.1.1*    Certificate  of Amendment  of Restated  Certificate  of  Incorporation
          (filed  as  Exhibit  3.1.1 to Form  S-4  filed on  January  26,  1996,
          Registration No. 333-00676).

3.2*      Bylaws  (filed  as  Exhibit  3.2  of  the  Registrant's   registration
          statement on Form S-1, Registration No. 33-15004 (the "Form S-1")).

4.1*      Form of certificate  evidencing  Common Stock (filed as Exhibit 4.1 to
          the Form S-1, Registration No. 33-15004).

4.2*      Rights  Agreement,  dated  as of  November  4,  1988  between  FileNet
          Corporation and the First National Bank of Boston,  which includes the
          form of Rights  Certificate  as Exhibit A and the Summary of Rights to
          Purchase  Common Shares as Exhibit B (filed as Exhibit 4.2 to Form S-4
          filed on January 26, 1996; Registration No. 333-00676).

10.1*     Amended and Restated Credit Agreement (Multicurrency) by and among the
          Registrant and Bank of America National Trust and Savings  Association
          dated August 8, 1995,  effective May 1, 1995 (filed as Exhibit 10.1 to
          Form 10-Q for the quarter ended July 2, 1995).

10.2      Waiver and Second  Amendment  dated  December 18, 1996, to the Amended
          and  Restated  Credit  Agreement  (Multicurrency)  by  and  among  the
          Registrant and Bank of America National Trust and Savings  Association
          dated August 8, 1995.

10.3*     Business  Alliance Program Agreement between the Registrant and Oracle
          Corporation  dated July 1, 1996,  as amended by Amendment  One thereto
          (filed as Exhibit  10.4 to Form 10-QA for the  quarter  ended June 30,
          1996).

10.4*     Runtime   Sublicense   Addendum  between  the  Registrant  and  Oracle
          Corporation  dated July 1, 1996,  as amended by Amendment  One thereto
          (filed as Exhibit  10.4 to Form 10-QA for the  quarter  ended June 30,
          1996).

10.5*     Full Use and Deployment Sublicense Addendum between the Registrant and
          Oracle  Corporation  dated July 1, 1996,  as amended by Amendment  One
          thereto  (filed as Exhibit  10.4 to Form 10-QA for the  quarter  ended
          June 30, 1996).

10.6*     Lease  between  the  Registrant  and C. J.  Segerstrom  & Sons for the
          headquarters  of the  Company,  dated April 30, 1987 (filed as Exhibit
          10.19 to the Form S-1).

10.7      Third  Amendment  to the  Lease  between  the  Registrant  and  C.  J.
          Segerstrom & Sons dated April 30, 1987, for  additional  facilities at
          the headquarters of the Company, dated October 1, 1992.

10.8*     1989  Stock  Option  Plan  for   Non-Employee   Directors  of  FileNet
          Corporation,  as amended  by the First  Amendment,  Second  Amendment,
          Third  Amendment  thereto  (filed as Exhibit 10.9 to Form S-4 filed on
          January 26, 1996; Registration No. 333-00676).

10.9*     Amended and Restated 1995 Stock Option Plan of FileNet  Corporation as
          approved by stockholders at the Registrant's  Annual Meeting on May 8,
          1996 (filed as Exhibit 99.1 to Form S-8 filed on July 29, 1996).

10.10*    Second Amended and Restated Stock Option Plan of FileNet  Corporation,
          together  with the  forms of  Incentive  Stock  Option  Agreement  and
          Non-Qualified  Stock Option  Agreements  (filed as Exhibits 4(a), 4(b)
          and 4(c), respectively,  to the Registrant's Registration Statement on
          Form S-8, Registration No. 33-48499),  and an Amendment thereto (filed
          as Exhibit  4(d) to the  Registrant's  Registration  Statement on Form
          S-8,  Registration No.  33-69920),  and the Second  Amendment  thereto
          (filed as  Appendix  A to the  Registrant's  Proxy  Statement  for the
          Registrant's  1994 Annual Meeting of Stockholders,  filed on April 29,
          1994).

--------------------------------------------
* Incorporated herein by reference

                                       16

<PAGE>

Exhibit No.             Description
----------------------- --------------------------------------------------------

10.11*    Agreement  for the  Purchase of IBM products  dated  December 20, 1991
          (filed on May 5, 1992 with the Form 8 amending the Company's Form 10-K
          for the fiscal year ended December 31, 1991).

10.12     Amendment  #A1011-941003-01 dated September 30, 1994, to the Agreement
          for the Purchase of IBM products dated December 20, 1991.

10.13*    Development  and Initial Supply  Agreement  between the Registrant and
          Quintar  Company dated August 20, 1992 (filed as Exhibit 10.21 to Form
          10-K for the year ended January 3, 1993).

10.14*    Amendment  dated  December  22,  1992 to the  Development  and Initial
          Supply  Agreement  between the  Registrant  and Quintar  Company dated
          August  20,  1992  (filed as  Exhibit  10.22 to Form 10-K for the year
          ended January 3, 1993).

10.15*    Product  License  Agreement  between the Registrant  and Novell,  Inc.
          dated  May 16,  1995  (filed  as  Exhibit  10.26 to Form  10-Q for the
          quarter ended July 2, 1995).

10.16*    Agreement  and Plan of Merger  between the  Registrant  and  Watermark
          Software Inc. dated July 18, 1995 (filed as Exhibit 10.27 to Form 10-Q
          for the quarter ended July 2, 1995).

10.17*    Agreement  and  Plan  of  Merger  between  the  Registrant  and  Saros
          Corporation,  as  amended,  dated  January 17, 1996 (filed as Exhibits
          2.1, 2.2, 2.3, and 2.4 to Form 8-K on March 13, 1996).

10.18*    Stock  Purchase  Agreement  by  and  Among  FileNet  Corporation,  IFS
          Acquisition Corporation, Jawaid Khan and Juergen Goersch dated January
          17, 1996 and Amendment 1 to Stock Purchase Agreement dated January 30,
          1996 (filed as Exhibit  10.2 to form 10-K for the year ended  December
          31, 1995).

13.1      Market  for the  Registrant's  Common  Stock and  Related  Stockholder
          Matters  incorporated  by  reference  to  page 42 of the  1996  Annual
          Report.

13.2      Management's  Discussion  and  Analysis of Results of  Operations  and
          Financial  Condition  incorporated by reference to pages 18 through 24
          of the 1996 Annual Report.

13.3      Financial Statements  incorporated by reference to pages 25 through 39
          of the 1996 Annual Report.

13.4      Certain   Relationships  and  Related  Transactions   incorporated  by
          reference to page 38 of the 1996 Annual Report.

21.1      List of  subsidiaries  of  Registrant  (filed as  FileNet  Corporation
          Subsidiary Information).

23.1      Consent  of  Deloitte & Touche  LLP  (filed as  Independent  Auditors'
          Consent).

27        Financial Data Schedule

---------------------------------------------
* Incorporated herein by reference

                                       17


<PAGE>

                                   Signatures

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

                                                         FILENET CORPORATION



Date:  April 2, 1997          By:   /s/  T. J. Smith
                                    --------------------------------------------
                                         T. J. Smith
                                         President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities and on the dates indicated.


Date: April 2, 1997           By:   /s/  T. J. Smith
                                    --------------------------------------------
                                         T. J. Smith
                                         President
                                         (Principal Executive Officer) Director

Date: April 2, 1997           By:   /s/  Mark S. St. Clare
                                    --------------------------------------------
                                         Mark S. St. Clare
                                         Chief Financial Officer and
                                         Sr. Vice President, Finance
                                         (Principal Financial Officer)

Date: April 2, 1997           By:   /s/  William R. Hughes
                                    --------------------------------------------
                                         William R. Hughes
                                         Chief Accounting Officer and Controller

Date: April 2, 1997           By:   /s/  Frederick K. Fluegel
                                    --------------------------------------------
                                         Frederick K. Fluegel
                                         Director

Date: April 2, 1997           By:   /s/  J. Burgess Jamieson
                                    --------------------------------------------
                                         J. Burgess Jamieson
                                         Director

Date: April 2, 1997           By:   /s/  John C. Savage
                                    --------------------------------------------
                                         John C. Savage
                                         Director

Date: April 2, 1997           By:   /s/  William P. Lyons
                                    --------------------------------------------
                                         William P. Lyons
                                         Director
 






                                       18

<PAGE>