According to the Company’s FORM 10-K, 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 Action). The action was purportedly filed on behalf of a class of purchasers of the Company’s common stock during the period April16, 1998 through October 7, 1998. On July 22, 1999, defendant filed a motion to dismiss the complaint in its entirety. On August 19, 1999, the court ordered a stay of the action and removed defendants' motion to dismiss from the Court's hearing calendar in light of the pending petition for rehearing and rehearing enbanc in Silicon Graphics Sec. Litig., Nos. 97-16204, 97-16240, 1999 U.S. App LEXIS 14955 (9th Cir. July 2, 1999). On December 13, 1999, the court entered a Stipulation to Dismiss Entire Action Without Prejudice.

The original Complaint charges that defendants, FileNET and certain of its officers and directors, violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10-b(5) by, among other things: issuing false and misleading statements regarding strong sales of FileNet's existing Panagon products and the strong continuing growth of the document management market.