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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, 1998

                                       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 of             (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 22, 1999, the aggregate market value of
the 31,623,336 shares of voting stock of the Registrant held by nonaffiliates of
the Registrant on such date was $243,183,454.  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 31,934,143
at March 22, 1999.


                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of Registrant's  definitive proxy statement for its 1999 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, 1998 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 Year Ended December 31, 1998


                                      INDEX

                                                                            Page
                                     PART I
Item 1. Business...............................................................3
Item 2. Properties.............................................................9
Item 3. Legal Proceedings......................................................9
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 .................11
        Stockholder Matters
Item 6. Selected Financial Data...............................................11
Item 7. Management's Discussion and Analysis of Financial Condition ..........12
        and Results of Operations
Item 8. Financial Statements and Supplementary Data...........................12
Item 9. Changes in and Disagreements with Accountants on Accounting ..........12
        and Financial Matters
                                    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

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<PAGE>


                                     PART I


Item 1.  Business

GENERAL

FileNET  Corporation  (FileNET or the Company) develops,  markets and services a
family of Integrated  Document  Management (IDM) software  products that provide
solutions   for  managing   unstructured   information   thereby   enhancing  an
enterprise's  productivity.   The  Company  also  offers  professional  services
relative to the implementation of these products. FileNET's Panagon(TM) software
allows  users to access,  edit,  process,  organize,  secure,  store and archive
documents in client/server and Web-based environments. Additionally, the Company
manufactures and sells a line of 12-inch optical storage and retrieval libraries
(OSARs(R)).

MARKETS AND APPLICATIONS

The  Company  offers a family of  complementary  products  under the brand  name
Panagon, which enable users to manage, on an enterprise-wide basis, the storage,
processing and workflow of documents and other unstructured information that are
part of a centralized or distributed  server  repository or Web site,  including
scanned images,  faxes,  text,  spreadsheets,  HTML pages,  graphics,  drawings,
photographs,  computer output reports,  voice, and video. The Company's products
provide   both   client/server-based   and   Web-centric   document   management
architecture solutions that can be implemented on a modular basis. Organizations
can choose one,  some,  or all of the  Company's  products to build the solution
that most effectively  meets their needs. The Company's  customers are typically
those  enterprises  that have active paper document files,  process  significant
numbers of electronic documents in their day-to-day operations, or have complex,
mission-critical  business  processes  for a  variety  of  applications  such as
mortgage loan servicing,  customer relationship management,  enterprise resource
planning, insurance claims processing,  regulatory compliance,  accounts payable
and receivable, and Web-based document management.  Additionally,  the Company's
products  address ad hoc business  processes at the  departmental  and workgroup
levels  to  improve   overall   enterprise   productivity   and  integrate  with
industry-standard  productivity applications like Microsoft Office, Lotus Notes,
and SAP R/3.

The Company  markets its  products  in more than 70  countries  through a direct
sales  force  and  its  ValueNET(R)  partner  community  consisting  of  systems
integrators,  value-added  resellers  and  distributors.  More  than 350  firms,
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 Law Cypress,  and MicroAge  Image Choice are  distributors  of the
Company's software products selling to resellers  throughout North America.  The
Company  also has OEM  agreements  with  other  firms  involving  the  Company's
software products.

The Company's  Customer Support  operating  segment offers software  maintenance
service  for  its  products  worldwide.   The  Company's  Professional  Services
operating segment offers  implementation and other technical consulting services
to both  end-users  of the  Company's  products and to  resellers.  Professional
Services are marketed by the Company's direct sales force and its resellers.

PRODUCTS

Software

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

Integrated Document Management

In February 1998, the Company introduced the Panagon family of IDM software. The
Panagon family of products  includes new desktop and Web services software and a
rebranding of  then-existing  server based products.  With Panagon,  the Company
created a software  infrastructure  that allows customers to capture any type of
document  electronically,   then  access,  manage,  publish  and  integrate  the
information with their existing  critical business  applications  throughout the
enterprise. Using Microsoft's Windows Explorer or Netscape, customers can search
the enterprise  network for information,  retrieve  documents of all types, work
with  the  information,  and  then  route  it  as  needed  for  further  review,
processing, or decision making.

The Panagon IDM Desktop products are built around Microsoft's component software
architecture  (COM) and allow  applications to be developed and tailored to meet
an organization's business requirements. Panagon IDM Desktop reduces the cost of
ownership  through  the  ability  to  deploy  applications  on  the  Web or in a
client/server environment.  Cost of ownership is also reduced through the use of
rapid  application   development   (RAD)  techniques  and   compatibility   with
industry-standard  programming  tools such as Visual  Basic,  PowerBuilder,  and
Java. As a result,  it takes less time to develop  customized IDM  applications,
less time to integrate the software components and deploy across the enterprise,
and less time to train users.

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The Panagon family includes a complete suite of IDM software components that are
built to work together,  eliminating  integration  issues  competitors have when
combining products from different vendors. Panagon products include:

         Panagon IDM Desktop  (Thick  Client) and Panagon IDM Web Services (Thin
         Client) are software  applications that offer best-of-class  integrated
         document  management for ad hoc query and access,  or  mission-critical
         applications.  Customers can access all documents  stored in enterprise
         libraries  from within an Internet  browser  interface  or via a custom
         application  integrated  into line of  business  systems.  Panagon  IDM
         Desktop delivers  "out-of-the-box"  integration with Microsoft  Windows
         environments and productivity  applications  such as Microsoft  Office,
         seamlessly  managing and viewing more than 200 document formats.  Users
         can  create  work  processes  to  include  others  that  need to share,
         distribute,  or approve,  with the  built-in  workflow  and  integrated
         e-mail features.

         Panagon  IDM  Services is a  server-based  IDM  solution  incorporating
         Panagon IDM Image Services and Panagon Document Services  technologies.
         This is the  high-performance  repository  system that  integrates with
         Panagon IDM Desktop and Panagon IDM Web Services for managing all types
         of  documents.  Panagon IDM Services can be used as both an imaging and
         document system together or as separate applications.

         Panagon  Visual  WorkFlo(R)  is  an  object-oriented,  enterprise-wide,
         scaleable  business  process  automation  solution  that can be used to
         create  applications that reflect the way work processes are performed.
         It allows  managers to control and modify  work  processes  to meet the
         needs of a dynamic  business  environment,  and integrates  information
         flow  between  software   applications   within  a  company's  business
         processes.  Panagon Visual WorkFlo supports multiple client, server and
         applications  development environments such as Java and integrates with
         leading   business   process   reengineering   products   for   reduced
         implementation time.

         Panagon Report Manager is a  high-performance,  client/server  computer
         output to laser  disk  (COLD)  product  that  eliminates  printing  and
         distributing    computer-generated    reports   and   statements.    It
         significantly  lowers costs and inefficiencies by allowing companies to
         index,   store,   retrieve,    view,   print,   fax,   and   distribute
         computer-generated  output on magnetic or optical disk.  Panagon Report
         Manager  is  built  around  industry  standards  and has an  intuitive,
         graphical user interface with report mining capabilities.

         Panagon Capture is an enterprise  document capture application that has
         a  complete  set  of   highly-configurable   components  for  capturing
         virtually all document types:  scanned paper  documents,  fax,  e-mail,
         word processing documents,  spreadsheets,  HTML, audio and video-clips,
         and images  making them  immediately  available  to users.  Its modular
         components  can be configured to meet simple  capture  requirements  in
         distributed  environments or enterprise-wide  capture  requirements for
         production operations.

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

         Panagon  Web  Publisher   simplifies   and  automates  Web   publishing
         operations  for  Internet,   intranet,   and  extranet  Web  sites.  It
         eliminates  virtually  all  HTML  hand  coding,  dramatically  reducing
         workloads for Web masters,  Information  Technology (IT) staff, and Web
         publishers.  It  automatically  updates  entire  Web sites and  on-line
         compound  documents with no manual  intervention,  avoids problems with
         broken links, and virtually eliminates  out-of-date Web documents.  Web
         Publisher can be further  extended using Microsoft  Active Server Pages
         (ASPs) to deliver customized Web applications. Panagon Web Publisher is
         an advanced  Web  publishing  solution  that  leverages  FileNET's  IDM
         software.

         Panagon WorkGroup(TM)  software is a midrange document imaging and work
         management  product  based  on a subset  of the  Panagon  IDM  products
         combined with certain pre-packaged software applications.

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<PAGE>

         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 integrated into existing line-of-business  applications and
         take advantage of the latest Microsoft  operating  systems and database
         technologies.

          The  Panagon  family of  products  is  available  to new and  existing
          customers.  New  customers  will  receive the  benefits of  integrated
          document  and  image  management  functions  as  opposed  to  separate
          solutions  offered by competitors.  Existing  customers can deploy new
          IDM  applications  independently or along-side  existing  applications
          that were created with FileNET's legacy software.  Existing  customers
          choosing to take advantage of Panagon's  broader IDM  capabilities for
          applications  already deployed can recreate the existing  applications
          using the IDM development environment.

HARDWARE

The Company  manufactures  and markets an OSAR product based on 12-inch  optical
disk storage technology and also offers optional  integration services providing
customers the ability to purchase complete solutions.

All named products  mentioned in this Form 10-K,  other than the Company's named
products,  may  reference  trademarks  or  registered  trademarks  owned  by the
respective holder.

RESEARCH AND DEVELOPMENT

The  Company's  research  and  development  activities  are  focused on software
product development.  Research and development  expenditures were $50.1 million,
$40.9 million and $37.6 million for the years ended December 31, 1998, 1997, and
1996,  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  that  provide  both
pre-sales and post-sales services on a worldwide basis.

The  Company's  Customer  Support  segment  provides  software  maintenance  and
technical  support  services to customers and resellers who have  contracted for
such services.  This service is provided through  telephone  response centers in
Costa Mesa, California;  Dublin, Ireland;  Sydney,  Australia; and Singapore, or
through on-site visits to customer sites when necessary.  Customer  Support will
also  provide  support  on a  fee-per-service  basis  for  those  customers  and
resellers  who have not entered into a  maintenance  contract  with the Company.
During  1998,  the  Company  completed  the  process  of  transferring  hardware
maintenance  it  previously  provided to  Hewlett-Packard  (HP).  Customers  who
require  maintenance  of hardware  products  bought  from the  Company  will now
contract  directly  with  HP  or  other  service  providers  for  such  service.
Previously,   customers  had  contracted   with  the  Company,   which  in  turn
subcontracted the maintenance work to HP.

The Company's  Professional  Services  segment provides  consulting  services to
customers,  primarily on a time and material  basis.  These  services range from
management  of  large-scale   implementations   of  the  Company's  products  to
pre-packaged  standard  services  such as software  installation.  Services  are
provided by consultants  employed  directly by the Company and through a network
of qualified  partners.

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<PAGE>

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

EMPLOYEES

As of December 31, 1998, the Company had 1,666 full-time  employees of which 387
were employed in research and development; 491 in sales, 76 in marketing, 157 in
professional  services,  296 in customer support;  95 in operations;  and 164 in
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.

COMPETITION

The market for the Company's  products is highly  competitive.  According to the
GartnerGroup,  the market for  imaging,  workflow,  and document  management  is
serviced by over 50 software companies.  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,   Eastman   Software  (a  Kodak   company),   2)   Electronic   Document
Management--Documentum,   IBM,  Interleaf,  Novasoft,  Novell,  Open  Text,  and
Hummingbird 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.

Database vendors such as Oracle,  Sybase and Informix and messaging vendors such
as  Microsoft  and IBM may compete  with the  Company in the future.  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.  See
"Certain Considerations - Competition" below.

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. See "Certain  Considerations - Intellectual  Property
and Other Proprietary Rights" below.

CERTAIN CONSIDERATIONS

This Annual Report on Form 10-K contains  forward-looking  statements within the
meaning of the Private Securities  Litigation Reform Act of 1995, Section 21E of
the  Securities  Exchange  Act  of  1934,  as  amended  and  Section  27A of the
Securities Act of 1933, as amended,  and is subject to the safe harbors  created
by  those  sections.   These  forward  looking   statements  involve  risks  and
uncertainties,  including  those  discussed in the  Company's  Annual  Report to
Stockholders for the year ended December 31, 1998, certain sections of which are
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,  which reflect management's opinions only as of the
date hereof.  The Company undertakes no obligation to revise or publicly release
the results of any revisions to these forward-looking statements. Readers should
carefully review the factors  described below and in other documents the Company
files from time to time with the Securities and Exchange  Commission,  including
its 1998 Annual Report to Stockholders and the Quarterly Reports on Form 10-Q to
be filed by the Company in 1999.

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,  including  without  limitation
enhancements to certain specified Company software products to achieve year 2000
compliance.  There can be no assurance  that the Company will be  successful  in
developing and marketing new products or enhancements  to its existing  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,  including
without limitation enhancements to certain existing software products to achieve
year 2000  compliance,  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

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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  and to
achieve the desired level of sales from such product  integration;  the level of
product  and  price  competition;  the  length  of the  Company's  sales  cycle;
improvements in the  productivity  of the Company's sales force;  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
including EURO exchange  rates  beginning in 1999; 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.

Competition:  The document imaging, workflow,  computer output to laser disk and
electronic  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 the Company 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, financial condition or results of operations. In
addition,  current and potential  competitors  have established or may establish
cooperative relationships among themselves or with third parties to increase the
ability of their  products  to address  the needs of the  markets  served by the
Company.  Accordingly,  it is possible that new  competitors or alliances  among
competitors may emerge and rapidly acquire  significant market share.  Increased
competition  may result in price  reductions,  reduced gross margins and loss of
market share, any of which could have a material adverse effect on the Company's
business, financial condition or results of operations.

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 a  commercial  advantage  to the
Company.  The Company 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,  financial  condition or results of
operations.  In addition,  the Company also relies on certain  software  that it
licenses  from  third  parties,  including  software  that  is  integrated  with
internally  developed  software  used in the  Company's  products to perform key
functions.  There can be no  assurance  that such third  parties  will remain in
business, that they will continue to support their products, that their products
are, or will be, year 2000  compliant,  or that their  products  will  otherwise
continue to be available to the Company on commercially  reasonable  terms.  The
loss or inability to maintain  any of these  software  licenses  could result in
delays or  reductions  in product  shipments  until  equivalent  software can be
developed, identified, licensed and integrated, which could adversely affect the
Company's business, financial condition or results of operations.

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 that may give rise to claims of infringement.
While no actions other than those discussed below are currently  pending against

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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 (the FileNET Case). 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
Software  Inc.,  formerly a wholly  owned  subsidiary  that was merged  into the
Company,  is  infringing  three  of the same  patents  asserted  in the  initial
complaint (the Watermark  Case).  On October 9, 1996, Wang withdrew its claim in
the FileNET Case that one of the patents it  initially  asserted is infringed by
certain of 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.

In March 1997, Eastman Kodak Company (Kodak) purchased the Wang imaging business
unit that has responsibility  for this litigation.  The patents in the suit have
been  transferred to a Kodak  subsidiary,  Kodak Limited of England,  which,  in
turn,  has  exclusively  licensed  them to  another  Kodak  subsidiary,  Eastman
Software,  Inc. in the United  States  (Eastman).  On July 30,  1997,  the Court
permitted  Eastman  and  Kodak  Limited  of  England  to be  substituted  in the
litigation in place of Wang.

The Company has moved for summary judgement on noninfringement as to each of the
five patents in the suit,  and for summary  judgment of  invalidity as to one of
the  patents.   Eastman   moved  for  summary   judgment  as  to  the  Company's
unenforceability  defense on one of the patents.  In July 1998,  the  Magistrate
Judge  assigned to the case,  heard oral  arguments on the Company's  motion for
summary  judgement that U.S.  Patent  4,918,588 is not infringed and is invalid.
The  Magistrate  Judge has not yet decided these motions.  The Company  believes
that after he has ruled on these  motions,  he will hear oral  arguments  in the
remaining motions in the sequence in which they were filed. A trial date has not
been set.

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.  Based on the  Company's  analysis  of these  Eastman  patents  and their
respective file histories, the Company believes that it has meritorious defenses
to Eastman's claims;  however,  the ultimate outcome or any resulting  potential
loss cannot be determined at this time.

Dependence  on Certain  Relationships:  The Company has entered into a number of
key relationships with other companies such as Microsoft Corporation, IBM Global
Services, SAP AG, Hewlett-Packard Company, 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.

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.  In general,  the
Company does not utilize employment  agreements for its key employees.  The loss
of the  services  of one or more key  employees  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,   particularly
engineers  and other  technical  personnel,  is  intense,  and pay scales in the
software  industry are  increasing.  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;
varying   requirements   for  localized   products;   potentially   adverse  tax
consequences; currency exchange fluctuations including those related to the EURO
beginning  in 1999;  the  burden of  complying  with a wide  variety  of complex
foreign laws,  regulations and treaties;  and the possibility of difficulties in
collecting accounts  receivable.  In particular,  the current economic crisis in
the Asia Pacific  region and Latin  America may limit  future  growth or cause a
decline in international  revenues.  There can be no assurance that any of these
factors  will not have a  material  adverse  effect on the  Company's  business,
financial condition or results of operations.

                                       8
<PAGE>

Product  Liability:  Products  as complex  as  those  sold  by the  Company  are
susceptible to errors or failures,  especially when first introduced or when new
versions are  released.  The  Company's  products are often  intended for use in
applications  that are  critical  to a  customer's  business.  As a result,  the
Company's  customers may rely on the effective  performance of the software to a
greater  extent than the market for  software  products  generally.  The Company
conducts  extensive  product  testing to ensure  that its  products  are free of
significant errors and defects. In addition, the Company has designed and tested
the most current  versions of its products to be year 2000  compliant.  However,
some of the Company's  customers are running earlier  products that are not year
2000  compliant.  Although the Company has been  encouraging  such  customers to
migrate to current product versions,  no assurance can be given that all of them
will do so in a timely fashion, if at all. Moreover,  the Company also relies on
certain software that it licenses from third parties, including software that is
integrated  with  internally  developed  software  and is used in the  Company's
products  to  perform  key  functions.  There  can  be no  assurance  that  such
third-party  software  will  be free  of  errors  and  defects  or be year  2000
compliant  in a timely  fashion.  Although the Company has not  experienced  any
material product liability claims to date, there can be no assurance that errors
or defects,  whether associated with year 2000 functions or otherwise,  will not
result in product  liability  claims  against  the  Company in the  future.  The
Company's  license  agreements  with  customers   typically  contain  provisions
designed to limit its 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 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 trading 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,  have experienced  extreme price  fluctuations  that have often been
unrelated to the operating performance of affected companies.  Such fluctuations
could adversely affect the trading price of the Company's common stock.

Item 2.  Properties

The Company  currently  leases  280,000 square feet of office,  development  and
manufacturing  space in Costa Mesa,  California and 92,000 square feet of office
and development space in Kirkland, Washington. The Company also leases sales and
support  offices in 31  locations  in the  United  States,  17 in  Europe,  3 in
Australia,  4 in Canada, and 4 in Asia. The Company believes that the Costa Mesa
and Kirkland  facilities  will be adequate for the Company's  anticipated  needs
through 1999.

Item 3.  Legal Proceedings

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 (the FileNET Case). 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  (the
Watermark Case). On October 9, 1996, Wang withdrew its claim in the FileNET Case
that one of the patents it  initially  asserted is  infringed  by the  Company's
products that 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.

In March 1997, Eastman Kodak Company (Kodak) purchased the Wang imaging business
unit that has responsibility  for this litigation.  The patents in the suit have
been  transferred to a Kodak  subsidiary,  Kodak Limited of England,  which,  in
turn,  has  exclusively  licensed  them to  another  Kodak  subsidiary,  Eastman
Software,  Inc. in the United  States  (Eastman).  On July 30,  1997,  the Court
permitted  Eastman  and  Kodak  Limited  of  England  to be  substituted  in the
litigation in place of Wang.

FileNET has moved for summary  judgement  on  noninfringement  as to each of the
five patents in the suit,  and for summary  judgment of  invalidity as to one of
the  patents.   Eastman   moved  for  summary   judgment  as  to  the  Company's
unenforceability  defense on one of the patents.  In July 1998,  the  Magistrate
Judge  assigned to the case,  heard oral  arguments on the Company's  motion for
summary  judgement that U.S.  Patent  4,918,588 is not infringed and is invalid.

                                       9
<PAGE>

The  Magistrate  Judge has not yet decided these motions.  The Company  believes
that after he has ruled on these  motions,  he will hear oral  arguments  in the
remaining motions in the sequence in which they were filed. A trial date has not
been set.

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.  Based on the  Company's  analysis  of these  Eastman  patents  and their
respective file histories, the Company believes that it has meritorious defenses
to Eastman's claims;  however,  the ultimate outcome or any resulting  potential
loss cannot be determined at this time.

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 Goldman State Action).  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.  The
plaintiff alleged that the Company and other defendants violated Cal. Corp. Code
ss.ss.  25400 and 25500,  Cal. Civ. Code ss.ss.  1709-1710 and Cal. Bus. & Prof.
Code ss.ss.  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. On September 30, 1998, the Court entered an order dismissing this action
in its entirety without prejudice.

On April 1, 1997,  plaintiff  Michael I.  Goldman  filed  another  class  action
complaint  against the Company and certain of its officers and  directors in the
United States District Court for the Central District of California (the Goldman
Federal Action). The action purportedly was filed on behalf of the same class of
purchasers  of the  Company's  common  stock as the Goldman  State  Action.  The
allegations  contained  in the Goldman  Federal  Action were very similar to the
allegations  contained  in the  Goldman  State  Action,  except that the Goldman
Federal  Action  asserts claims under Sections 10(b) and 20(a) of the Securities
Exchange Act and Rule 10b-5.  On September 23, 1998,  the Court entered an order
dismissing this action in its entirety without prejudice.

On October 23, 1998, plaintiff Avram Gart 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 Gart State Action). The action was purportedly
filed on behalf of a class of purchasers  of the  Company's  common stock during
the period January 13, 1998 through October 7, 1998. The plaintiff  alleges that
the Company and the other defendants  violated Cal. Corp. Code ss.ss.  25400 and
25500 in  connection  with  various  public  statements  made by the Company and
certain of its  officers and  directors  during the putative  class  period.  On
November  5, 1998,  the court  entered an order  dismissing  this  action in its
entirety without prejudice.

On October 27, 1998,  plaintiff Thomas P. Nyquist filed a class action complaint
against  the Company and certain of its  officers  and  directors  in the United
States  District  Court for the Central  District  of  California  (the  Nyquist
Federal  Action).  The  action  was  purportedly  filed on  behalf of a class of
purchasers  of the  Company's  common  stock  during the period  April 16,  1998
through  October 7, 1998. The plaintiff  alleges claims under Sections 10(b) and
20(a) of the Securities  Exchange Act and Rule 10b-5 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
damages, interest, attorneys' fees, expert witness fees and costs. Plaintiff has
filed a motion for the appointment of lead plaintiffs and  consolidation  of any
future related actions.  Defendants have not yet responded to the complaint. The
Company  believes that all of the  allegations  contained in the Nyquist Federal
Action are without merit and intends to defend the actions vigorously.

Subsequent to December 31, 1998, the former  shareholders  of Saros  Corporation
filed a demand for mandatory  arbitration to release  approximately  0.2 million
shares which were held in escrow  pursuant to the  Agreement  and Plan of Merger
dated  January  17,  1996  between  FileNET  Corporation,   FileNET  Acquisition
Corporation and Saros Corporation and for damages.  The Company believes that it
has  meritorious  reasons for not releasing the shares and other defenses to the
claims;  however, the ultimate outcome or any resulting potential loss cannot be
presently determined.

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

No  matters  were  submitted  to a vote of  security  holders  during the fourth
quarter of fiscal 1998.

                                       10
<PAGE>

                                     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 48 of
the  Registrant's  Annual Report to Stockholders for the year ended December 31,
1998 and is filed herewith as Exhibit 13.1.

Item 6.  Selected Financial Data

The following table summarizes certain selected financial data:
<TABLE>
<CAPTION>

                                                                              For Fiscal Years Ended
                                              -------------------------------------------------------------------------------
                                               Dec. 31, 1998     Dec. 31, 1997   Dec. 31, 1996  Dec. 31, 1995  Jan. 1, 1995
                                                   (1998)           (1997)          (1996)         (1995)         (1994)
                                              -------------------------------------------------------------------------------
                                                                     (In thousands, except per share amounts)
Consolidated statements of operations data:
<S>                                                <C>               <C>              <C>            <C>           <C>
Revenue:
     Software revenue                               $171,153         $132,723         $140,659       $116,052      $  81,102
     Service revenue                                 115,501           89,280           82,118         67,174         60,753
     Hardware revenue                                 23,579           29,422           46,136         46,152         50,480
                                                   ----------        ---------        ---------      ---------     ----------
            Total revenue                            310,233          251,425          268,913        229,378        192,335

Costs and expenses:
     Cost of software revenue                         16,814           13,416           15,389         14,688         12,307
     Cost of service revenue                          73,786           56,503           53,568         44,277         41,645
     Cost of hardware revenue                         13,181           20,330           29,633         28,800         30,999
     Research and development                         50,132           40,927           37,577         25,169         18,439
     Selling, general and administrative             156,813          125,122          117,761         96,499         71,267
     Merger, restructuring, write-off of
        purchased in-process research and
        development and other costs                    2,000            6,000           16,011          6,393              0
                                                   ----------        ---------       ----------      ---------     ----------
         Total costs and expenses                    312,726          262,298          269,939        215,826        174,657
                                                   ----------        ---------       ----------      ---------     ----------
Operating income (loss)                               (2,493)         (10,873)          (1,026)        13,552         17,678

     Other income, net                                 3,840            3,160            2,838          2,780          1,821
                                                   ----------        ---------       ----------      ---------     ----------
Income (loss) before income taxes                      1,347           (7,713)           1,812         16,332        19,499
     Provision (benefit) for income taxes                391           (2,187)           4,456          8,116          5,356
                                                   ----------        ---------       ----------      ---------     ----------
Net income (loss)                                  $     956         $ (5,526)       $  (2,644)      $  8,216      $  14,143
                                                   ==========        =========       ==========      =========     ==========

Basic earnings (loss) per share                    $    0.03         $  (0.18)       $   (0.09)      $   0.28      $    0.52
Diluted earnings (loss) per share                  $    0.03         $  (0.18)       $   (0.09)      $   0.26      $    0.48

Weighted average shares outstanding - basic           31,083           30,310           30,014         28,860         27,322

Weighted average shares outstanding - diluted         33,367           30,310           30,014         31,712         29,668

Consolidated balance sheet data:

Working capital                                    $  67,722         $   79,091      $  85,475       $ 83,797      $  63,149
Total assets                                         206,822            179,440        192,274        187,393        152,642
Stockholders' equity                                 130,320            118,811        132,806        131,158        101,006

Certain reclassifications have been made to the prior years' selected financial data to conform with the current year's
presentation.
</TABLE>
                                       11
<PAGE>

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

There is hereby incorporated herein by reference the information appearing under
the caption  "Management's  Discussion  and Analysis of Financial  Condition and
Results of Operations," which appears on pages 16 through 26 of the Registrant's
Annual Report to Stockholders  for the year ended December 31, 1998 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 27 through 46 of the  Registrant's  Annual Report to Stockholders  for the
year  ended  December  31,  1998 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 1999 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 1999 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 1999 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 13: Related Party  Transactions,"  which appears on page 44 of
the  Registrant's  Annual Report to Stockholders for the year ended December 31,
1998 and is filed herewith as 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 1998.



               Index to Consolidated Financial Statements Covered
                         by Independent Auditors' Report

                             Item 14(a) (1) and (2)
<TABLE>
<CAPTION>

                                                                                        Page Reference
                                                                                -----------------------------
                                                                                                  1998 Annual
                                                                                                    Report to
                                                                                   Form 10-K     Stockholders

The information under the following captions, which is included in the 1998
Annual Report to Stockholders, is incorporated herein by reference:
<S>                                                                                       <C>              <C>
Independent Auditors' Report                                                                               46
Consolidated balance sheets at December 31, 1998 and December 31, 1997                                     27
Consolidated statements of operations for each of the years ended December 31,
     1998, 1997 and 1996                                                                                   28
Consolidated statements of comprehensive income (loss) for each of the years
     ended December 31, 1998, 1997 and 1996                                                                29
Consolidated statements of stockholders' equity for each of the years ended
     December 31, 1998, 1997 and 1996                                                                      30
Consolidated statements of cash flows for each of the years ended December 31,
     1998, 1997 and 1996                                                                                   31
Notes to consolidated financial statements                                                                 32

Independent Auditors' Report on Schedule                                                  14

Schedule for each of the three years ended  December 31, 1998, 1997 and 1996
     -  Schedule II.  Valuation and Qualifying Accounts and Reserves                      15
</TABLE>
                                       13
<PAGE>


INDEPENDENT AUDITORS' REPORT ON SCHEDULE



To the Stockholders and the Board of Directors
FileNET Corporation
Costa Mesa, California

We have audited the consolidated financial statements of FileNET Corporation and
its subsidiaries  (the Company) as of December 31, 1998 and 1997 and for each of
the three  years in the period  ended  December  31,  1998,  and have issued our
report  thereon  dated  January  26,  1999  (March 10,  1999 as to Note 8). Such
consolidated  financial statements and report are included in the Company's 1998
Annual Report to  Stockholders  and are  incorporated  herein by reference.  Our
audits also included the 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

January 26, 1999 (March 10, 1999 as to Note 8)
Costa Mesa, California


                                       14
<PAGE>


                                        SCHEDULE II

                             VALUATION AND QUALIFYING ACCOUNTS
                                  (dollars in thousands)

<TABLE>
<CAPTION>

                                            Balance at        Additions                      Balance at
                                             Beginning       Charged to                             End
Description                                  of Period      Costs & Exp      Deductions       of Period
--------------------------------------------------------------------------------------------------------
<S>                                            <C>              <C>         <C>                 <C>

Year ended December 31, 1998:
     Inventory reserves                        $   330          $   381     $   310 (1)         $   401
     Allowance for doubtful accounts           $ 1,690          $ 1,041     $   668 (2)         $ 2,063
     Allowance for sales returns               $ 2,725          $    52     $   458 (3)         $ 2,319

Year ended December 31, 1997:
     Inventory reserves                        $   660          $   380     $   710 (1)         $   330
     Allowance for doubtful accounts           $ 2,140          $   350     $   800 (2)         $ 1,690
     Allowance for sales returns               $ 3,185                      $   460 (3)         $ 2,725

Year ended December 31, 1996:
     Inventory reserves                        $   573          $   635     $   548 (1)         $   660
     Allowance for doubtful accounts           $ 1,540          $ 1,205     $   605 (2)         $ 2,140
     Allowance for sales returns               $ 3,153          $    32                         $ 3,185

(1) Consists primarily of the write-off of excess/obsolete inventories.
(2) Consists primarily of uncollectible invoice amounts.
(3) Consists primarily of returned systems.
</TABLE>
                                       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).

4.3*     Amendment One dated July 31, 1998 and  Amendment Two dated  November 9,
         1998 to Rights Agreements between  FileNET Corporation  and  BANKBOSTON
         N.A.  formerly  known  as  The First National Bank of Boston  (filed as
         Exhibit 4.3 to Form 10-Q for the quarter ended September 30, 1998).

10.1*    Second Amended  and Restated Credit Agreement  (Multicurrency)  by  and
         among  the  Registrant and  Bank of America  National Trust and Savings
         Association  dated  June 25, 1997,   effective  June 1,1997   (filed as
         Exhibit 10.1 to Form 10-Q for the quarter ended June 30, 1997).

10.2*    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).

10.3*    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).

10.3.1*  Runtime   Sublicense   Addendum   between  the  Registrant  and  Oracle
         Corporation  dated July 1, 1996; as  amended by  Amendments Two through
         Six thereto (filed  as  Exhibit  10.3.1  to Form  10-Q for the  quarter
         ended September 30, 1998).

10.4*    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).

10.5*    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).

10.6*    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  (filed as
         exhibit  10.7 to Form 10-K filed on April 4, 1997).

10.7*    Fifth   Amendment to the   Lease   between the   Registrant  and  C. J.
         Segerstrom & Sons dated April 30, 1987,  for the extension  of the term
         of the lease, dated March 28, 1997 (filed as exhibit  10.8 to Form 10-Q
         for the quarter ended March 31, 1997).

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  (filed as
         Exhibit  99.1   to  Form S-8  filed on  November 9, 1998;  Registration
         No. 333-66997).

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

                                       16
<PAGE>
Exhibit
No.      Description
-------  -----------------------------------------------------------------------

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).

10.11*   Non-Statutory  Stock  Option  Agreement (with  Notice of Grant of Stock
         Option and  Special Addendum)  between  Registrant  and Mr. Lee Roberts
         (filed as exhibit 99.17 to Form S-8 on August 20, 1997).

10.12*   Non-Statutory  Stock  Option  Agreement (with  Notice of Grant of Stock
         Option  and   Special   Addendum)   between   Registrant  and   Mr. Ron
         Ercanbrack (filed as exhibit 99.19 to Form S-8 on August 20, 1997).

10.13*  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).

10.14*  Amendment  #A1011-941003-01  dated September 30, 1994, to the  Agreement
        for the  Purchase  of IBM  products  dated  December  20, 1991 (filed as
        exhibit 10.12 to form 10-K for the fiscal year ended December 31, 1996).

10.15*  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).

10.16*  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).

10.17   Amendment 2 dated  December 18, 1998 to the  Product  License  Agreement
        between the Registrant and Novell, Inc. dated May 16, 1995.

10.18*  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).

10.19*  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).

10.20*  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).

10.21*  Amended and Restated  FileNET  Corporation 1998 Employee  Stock Purchase
        Plan  (filed as Exhibit 99.15 to Form S-8,  filed on  November 9,  1998;
        Registration No. 333-66997).

10.22*  FileNET Corporation  International  Employee Stock Purchase Plan. (filed
        as Exhibit  99.16 to  Form S-8, filed on  November 9, 1998; Registration
        No. 333-66997).

13.1    Market for the Registrant's Common Stock and Related Stockholder Matters
        incorporated by reference to page 48 of the 1998 Annual Report.

13.2    Management's Discussion and Analysis of Financial Condition and Results
        of Operations  incorporated by  reference to  pages 16 through 26 of the
        1998 Annual Report.

13.3    Financial Statements incorporated by reference to pages 27 through 46 of
        the 1998 Annual Report. 

13.4    Certain Relationships and Related Transactions incorporated by reference
        to page 44 of the 1998 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: March 30, 1999      By:      /s/     Lee D. Roberts
                                   ------- ------------------------------------
                                           Lee D. Roberts
                                           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: March 30, 1999       By:     /s/     Lee D. Roberts
                                   ------- ------------------------------------
                                           Lee D. Roberts
                                           President and Chief Executive Officer
                                           (Principal Executive Officer) 
                                           Director

Date: March 30, 1999       By:     /s/     Mark S. St. Clare
                                   ------- ------------------------------------
                                           Mark S. St. Clare
                                           Chief Financial Officer and
                                           Sr. Vice President, Finance
                                           (Principal Financial Officer)

Date: March 30, 1999       By:     /s/     Brian A. Colbeck
                                   ------- ------------------------------------
                                           Brian A. Colbeck
                                           Controller and 
                                           Chief Accounting Officer

Date: March 30, 1999       By:     /s/     Theodore J. Smith
                                   ------- ------------------------------------
                                           Theodore J. Smith
                                           Chairman of the Board

Date: March 30, 1999       By:     /s/     L. George Klaus
                                   ------- ------------------------------------
                                           L. George Klaus
                                           Director

Date: March 30, 1999       By:     /s/     William P. Lyons
                                   ------- ------------------------------------
                                           William P. Lyons
                                           Director

Date: March 30, 1999       By:     /s/     John C. Savage
                                   ------- ------------------------------------
                                           John C. Savage
                                           Director

Date: March 30, 1999       By:     /s/     Roger S. Siboni
                                   ------- ------------------------------------
                                           Roger S. Siboni
                                           Director

Date: March 30, 1999        By:    /s/     Carolyn M. Ticknor
                                  ------- -------------------------------------
                                           Carolyn M. Ticknor
                                           Director

                                       18