SEC Info - Eclipsys Corp - ‘424B1’ on 1/24/01

SEC Info℠

Home

Help

Please Sign In

Eclipsys Corp – ‘424B1’ on 1/24/01

On: Wednesday, 1/24/01, at 8:51am ET · Accession #: 950133-1-187 · File #: 333-50348

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 1/24/01  Eclipsys Corp                     424B1                  1:276K                                   Bowne - DC/FA

Prospectus — Rule 424(b)(1)
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 424B1       Prospectus                                            83    438K

Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Alltel Business Cash and cash equivalents Depreciation and amortization Description of Capital Stock Dilution Dividend Policy Experts General and administrative Goldman, Sachs & Co Incorporation by Reference Index to Financial Statements Legal Matters Management Management's Discussion and Analysis of Financial Condition and Results of Operations Offering, The Price Range of Common Stock Prospectus Summary Report of Independent Accountants Research and development Risk Factors Sdk Selected Financial Data Special Note Regarding Forward-Looking Statements Summary Financial Data The Offering Transition Underwriting Use of proceeds Where You Can Find More Information
1	1st Page - Filing Submission
"	Goldman, Sachs & Co
3	Prospectus Summary
5	The Offering
6	Summary Financial Data
7	Risk Factors
15	Special Note Regarding Forward-Looking Statements
16	Use of proceeds
"	Price Range of Common Stock
17	Dividend Policy
"	Dilution
18	Selected Financial Data
20	Management's Discussion and Analysis of Financial Condition and Results of Operations
22	Research and development
"	General and administrative
"	Depreciation and amortization
27	Alltel
28	Sdk
29	Transition
31	Business
41	Management
43	Description of Capital Stock
46	Underwriting
47	Legal Matters
"	Experts
48	Where You Can Find More Information
"	Incorporation by Reference
49	Index to Financial Statements
50	Report of Independent Accountants
58	Cash and cash equivalents

424B1 1st Page of 83 TOC ↑Top Previous Next ↓Bottom Just 1st

5,000,000 Shares

ECLIPSYS LOGO

Common Stock

---------------------
The common stock is quoted on the Nasdaq National Market under the symbol
"ECLP". The last reported sale price of the common stock on January 23, 2001 was
$23.38 per share.

See "Risk Factors" beginning on page 7 to read about factors you should
consider before buying shares of the common stock.
---------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
---------------------

[Download Table]

Per Share Total
--------- -----

Initial price to public..................................... $22.75 $113,750,000
Underwriting discount....................................... $ 1.19 $ 5,950,000
Proceeds, before expenses, to Eclipsys...................... $21.56 $107,800,000

To the extent that the underwriters sell more than 5,000,000 shares of
common stock, the underwriters have the option to purchase up to an additional
750,000 shares from Eclipsys at the initial price to the public less the
underwriting discount.
---------------------
The underwriters expect to deliver the shares against payment in New York,
New York on January 29, 2001.

GOLDMAN, SACHS & CO.

CIBC WORLD MARKETS

U.S. BANCORP PIPER JAFFRAY
---------------------
Prospectus dated January 23, 2001.

424B1 2nd Page of 83 TOC 1st Previous Next ↓Bottom Just 2nd

[INSIDE FRONT COVER]

Under the caption "Balanced outcomes" and a sub-caption "Appropriate,
sustainable combination of clinical quality, resource utilization and patient
satisfaction" is a triangular graphic with the words "financial", "satisfaction"
and "clinical" on each of the three legs of the graphic.

Beside the caption "End-to-end Solutions Provider" is a graphic consisting
of a circle divided into six segments. Each segment has a title and has
associated bullet point text as follows:

[Download Table]

Services - Wireless network services
- Remote hosting
- Business solutions group
- Implementation
- Network services
Applications - Sunrise Access Manager
- Sunrise Clinical Manager
- Sunrise Patient Financial Manager
- Sunrise ERP Manager
- Sunrise Record Manager
Collect Data - Sunrise Enterprise Application Integrator (eWebIT)
Store Data - Health Data Repository
-- clinical
-- financial
-- decision support
Analyze, plan - Sunrise Decision Support Manager
& measure
Change process - Knowledge-Based Orders
- Clinical decision support
- Clinical pathways
- Business solutions consulting
- Workflow reengineering

424B1 3rd Page of 83 TOC 1st Previous Next ↓Bottom Just 3rd

PROSPECTUS SUMMARY

The following summary is qualified by the more detailed information,
including our financial statements and related notes, appearing elsewhere in
this prospectus. Unless otherwise indicated, all information in this prospectus
assumes the underwriters do not exercise their over-allotment option.

We are a healthcare information technology company. Our solutions assist
healthcare organizations in achieving balanced outcomes through an appropriate
and sustainable combination of clinical quality, efficient use of resources and
patient satisfaction. We have designed our solutions to help our customers
deliver better healthcare through information. We believe our solutions provide
the comprehensive functionality needed to help solve the business issues
healthcare organizations face.

Traditional healthcare information systems are limited in their ability to
support the modernization of healthcare delivery processes. Rapid changes in the
healthcare industry, along with historically low levels of investment in
healthcare information technology, have forced healthcare providers to begin
evaluating the changes they must make to their current systems and processes in
order to address the evolving requirements of managed care and new healthcare
legislation and regulations, including patient safety initiatives. These forces
have increased the need among providers for clinical, financial, and
administrative information technology to help achieve cost-effective,
high-quality outcomes.

Our solutions are designed to:

- provide automated processes that improve clinical workflow and support
clinical decision making;

- integrate clinical, financial and patient satisfaction data to support
balanced outcomes;

- provide tools that permit healthcare organizations to analyze past
performance, model new plans for the future and measure and monitor the
effectiveness of those plans;

- leverage our modular product architecture in order to offer our customers
a solution targeted at their particular needs while preserving their
investment in existing systems;

- provide for rapid and cost-effective implementation;

- enable healthcare providers to access patient information and other
supporting clinical information, both through wireless devices within the
healthcare facility and over the Internet; and

- assist our customers in their efforts to improve workflow processes and
implement best practices within their organizations through our
comprehensive service offerings.

Our software applications consist of individual product modules that can be
implemented in any combination and integrated with our customers' existing
information technology systems. We believe that the open, modular nature of our
software architecture reduces the overall cost of ownership and reduces the time
to productive use because our solutions do not require the initial investment
and disruption associated with the complete replacement of a customer's existing
systems. To facilitate rapid adoption by our customers, we have engineered our
solutions to take advantage of Web-based technologies. Our software applications
are available to our customers for implementation in-house or through our remote
hosting service, and are designed to work in a variety of healthcare settings.

Our products include:

- SUNRISE CLINICAL MANAGER, which provides patient information to
physicians at the point of care to support clinical decision-making;

424B1 4th Page of 83 TOC 1st Previous Next ↓Bottom Just 4th

- SUNRISE ACCESS MANAGER, which enables our customers to identify, collect
and maintain patient information;

- SUNRISE PATIENT FINANCIAL MANAGER, which helps manage patient accounting
processes;

- SUNRISE DECISION SUPPORT MANAGER, which provides a clinical and financial
data repository to analyze and measure clinical processes and outcomes;

- SUNRISE RECORD MANAGER, which provides an automated record management
system;

- SUNRISE ERP MANAGER, which provides a supply and materials management
tool; and

- SUNRISE ENTERPRISE APPLICATION INTEGRATOR, which provides a tool to
enable integration of data from a customer's existing systems.

In addition, we provide a range of services to our customers, including
implementation, support, maintenance and training. We also provide outsourcing,
remote hosting, network services and business solutions consulting to assist
customers in meeting their healthcare information technology requirements.
Through this comprehensive service offering and our integrated software suites,
we provide our customers with an end-to-end solution for their clinical,
financial, and administrative information needs.

Our objective is to become the leading provider of healthcare information
technology solutions to the healthcare industry. Key elements of our strategy
include continuing to provide a comprehensive, integrated healthcare information
technology solution as well as providing our customers with flexible product and
product-delivery options in order to meet their varying information technology
requirements. We intend to continue to target large healthcare organizations,
particularly academic medical centers, and we believe that there is a
significant opportunity to achieve further penetration of our existing customer
base. We have one or more of our products installed or being installed in over
1,400 facilities in the United States and 9 other countries.

424B1 5th Page of 83 TOC 1st Previous Next ↓Bottom Just 5th

THE OFFERING

Common stock offered by us............ 5,000,000 shares

Common stock to be outstanding after
this offering......................... 42,133,040 shares

Use of proceeds....................... For general corporate purposes,
including working capital.

Nasdaq National Market symbol......... ECLP

The number of shares to be outstanding after the offering is based upon
shares outstanding at December 29, 2000 and excludes:

- 9,170,342 shares subject to outstanding options and warrants at a
weighted average exercise price of $12.88 per share as of that date; and

- 1,458,032 additional shares reserved as of that date for issuance under
our stock plans.

Our principal executive offices are located at 777 East Atlantic Avenue,
Suite 200, Delray Beach, Florida 33483 and our telephone number is (561)
243-1440. Our Web address is www.eclipsys.com. The information on our website is
not incorporated by reference into this document and should not be considered
part of this document. Our website address is included in this document as an
inactive textual reference only.

424B1 6th Page of 83 TOC 1st Previous Next ↓Bottom Just 6th

SUMMARY FINANCIAL DATA

The following table is a summary of the financial data for our business.
You should read this information together with our financial statements and the
related notes appearing at the end of this prospectus and the information under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The as adjusted balance sheet data reflect the sale of the common
stock offered by us in this offering, after deducting underwriting discounts and
estimated offering expenses payable by us.

[Enlarge/Download Table]

NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1997 1998 1999 1999 2000
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

STATEMENT OF OPERATIONS DATA:
Revenues:
Systems and services........................... $ 142,908 $ 168,025 $ 226,610 $ 168,097 $ 153,697
Hardware....................................... 4,420 14,433 22,717 15,937 8,736
---------- ---------- ---------- ---------- ----------
Total revenues............................... 147,328 182,458 249,327 184,034 162,433
---------- ---------- ---------- ---------- ----------
Costs and expenses:
Cost of systems and services revenues.......... 92,635 94,775 126,158 93,375 108,799
Cost of hardware revenues...................... 2,991 12,134 18,606 13,421 6,968
Sales and marketing............................ 22,902 29,651 35,987 26,150 29,143
Research and development....................... 21,369 37,139 43,751 34,149 28,102
General and administrative..................... 10,179 11,107 11,322 9,033 8,231
Depreciation and amortization.................. 11,514 11,981 15,415 11,734 11,107
Write-down of investment....................... -- 4,778 -- -- --
Write-off of in-process research and
development.................................. 105,481 2,392 -- -- --
Write-off of MSA............................... -- 7,193 -- -- --
Pooling and transaction costs.................. -- 5,033 1,648 1,648 1,900
Restructuring charge........................... -- -- 5,133 5,133 1,198
Stock compensation charge...................... -- -- 1,987 1,987 --
---------- ---------- ---------- ---------- ----------
Total costs and expenses..................... 267,071 216,183 260,007 196,630 195,448
---------- ---------- ---------- ---------- ----------
Loss from operations............................. (119,743) (33,725) (10,680) (12,596) (33,015)
---------- ---------- ---------- ---------- ----------
Interest income, net............................. 1,511 2,701 1,235 945 891
Other income, net................................ -- -- -- -- 3,596
---------- ---------- ---------- ---------- ----------
Loss before income taxes......................... (118,232) (31,024) (9,445) (11,651) (28,528)
Provision for income taxes....................... 8,096 4,252 -- -- --
---------- ---------- ---------- ---------- ----------
Net loss......................................... (126,328) (35,276) (9,445) (11,651) (28,528)
---------- ---------- ---------- ---------- ----------
Dividends and accretion on mandatorily redeemable
preferred stock................................ (5,850) (10,928) -- -- --
Preferred stock conversion....................... (3,105) -- -- -- --
---------- ---------- ---------- ---------- ----------
Net loss available to common stockholders........ $ (135,283) $ (46,204) $ (9,445) $ (11,651) $ (28,528)
========== ========== ========== ========== ==========
Basic and diluted net loss per common share...... $ (8.60) $ (1.95) $ (0.27) $ (0.34) $ (0.78)
========== ========== ========== ========== ==========
Basic and diluted weighted average common shares
outstanding.................................... 15,734,208 23,668,072 34,803,934 34,575,264 36,672,204
========== ========== ========== ========== ==========

[Download Table]

AS OF SEPTEMBER 30,
2000
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)

BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 17,900 $125,000
Working capital............................................. 15,462 122,562
Total assets................................................ 161,061 268,161
Debt, including current portion............................. 1,728 1,728
Total stockholders' equity.................................. 76,221 183,321

424B1 7th Page of 83 TOC 1st Previous Next ↓Bottom Just 7th

RISK FACTORS

You should carefully consider the following risk factors and all other
information contained in this prospectus before investing in our common stock.
Investing in our common stock involves a high degree of risk. Any of the
following factors could harm our business and future operating results and could
result in a partial or complete loss of your investment.

GENERAL RISKS RELATED TO OUR BUSINESS

GIVEN THE LENGTH OF OUR SALES AND IMPLEMENTATION CYCLES, IF A SIGNIFICANT NUMBER
OF OUR CUSTOMERS DELAY IMPLEMENTATION, OUR FUTURE OPERATING RESULTS MAY SUFFER

We have experienced long sales and implementation cycles. How and when to
implement, replace, expand or substantially modify an information system, or
modify or add business processes, are major decisions for healthcare
organizations. Furthermore, the solutions we provide typically require
significant capital expenditures by the customer. The sales cycle for our
systems has ranged from 6 to 18 months or more from initial contact to contract
execution. Historically, our implementation cycle has ranged from 6 to 36 months
from contract execution to completion of implementation. During the sales cycle
and the implementation cycle, we will expend substantial time, effort and
financial resources preparing contract proposals, negotiating the contract and
implementing the solution. We may not realize any revenues to offset these
expenditures, and, if we do, accounting principles may not allow us to recognize
the revenues during corresponding periods, which could harm our future operating
results. Additionally, any decision by our customers to delay implementation may
adversely affect our revenues.

THE HEALTHCARE INDUSTRY FACES FINANCIAL CONSTRAINTS WHICH COULD ADVERSELY AFFECT
THE DEMAND FOR OUR PRODUCTS AND SERVICES

The healthcare industry has faced, and will likely continue to face,
significant financial constraints. For example, the shift to managed healthcare
in the 1990s put pressure on healthcare organizations to reduce costs, and the
Balanced Budget Act of 1997 dramatically reduced Medicare reimbursement to
healthcare organizations. Our solutions often involve a significant financial
commitment by our customers, and, as a result, our ability to grow our business
is largely dependent on our customers' information technology budgets. To the
extent healthcare information technology spending declines or increases more
slowly than we anticipate, demand for our products would be adversely affected.

OUR OPERATING RESULTS MAY BE ADVERSELY AFFECTED AS WE COMPLETE CONTRACTS WE
INHERITED FROM ACQUISITIONS AND AS OUR CUSTOMERS ELECT TO LICENSE OUR PRODUCTS
UNDER COMPREHENSIVE BUNDLED ARRANGEMENTS

In 2000, in response to our customers' desire for flexible pricing and more
comprehensive bundled information technology solutions, we began to offer our
customers the option of purchasing our solutions under arrangements that bundled
the software license fees (including the right to future products within the
suite sold), implementation, maintenance, outsourcing, remote hosting,
networking services and other related services in one comprehensive contract
that provides for monthly or annual payments over the term of the contract. We
generally recognize revenue under these arrangements on a monthly basis over the
term of the contract, which typically ranges from five to ten years.

The shift toward providing comprehensive bundled solutions was a factor
contributing to the decline in our revenue in 2000, particularly in the second
and third quarters. Under these comprehensive bundled arrangements, revenues are
recognized over the term of the contract consistent with the timing of the
performance of all services offered under the arrangement. Generally, less
revenue is recognized under these arrangements during the first 12 to 24 months
compared to traditional licensing arrangements that we sell. We will continue to
offer our

424B1 8th Page of 83 TOC 1st Previous Next ↓Bottom Just 8th

solutions under our traditional licensing arrangements. Our initial experience
leads us to believe that customers will increasingly elect to purchase our
solutions under comprehensive bundled arrangements. If we continue to increase
contract signings under these type of arrangements as opposed to our traditional
licensing arrangements, our revenues may continue to be adversely affected for
the next two to three years as compared to historic results.

WE HAVE A HISTORY OF OPERATING LOSSES AND WE CANNOT PREDICT WHEN, OR IF, WE WILL
ACHIEVE PROFITABILITY

We have incurred net losses in each year since our inception, including net
losses of $126.3 million in 1997, $35.3 million in 1998, $9.4 million in 1999
and $28.5 million in the nine months ended September 30, 2000. We expect to
continue to incur net losses, and we cannot predict when or if we will achieve
profitability.

OUR OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY AND MAY CAUSE OUR STOCK PRICE
TO DECLINE

We have experienced significant variations in revenues and operating
results from quarter to quarter. Our quarterly operating results may continue to
fluctuate due to a number of factors, including:

- the timing, size and complexity of our product sales and implementations;

- overall demand for healthcare information technology;

- market acceptance of new services, products and product enhancements by
us and our competitors;

- product and price competition;

- the relative proportions of revenues we derive from systems and services
and from hardware;

- changes in our operating expenses;

- the timing and size of future acquisitions;

- personnel changes;

- the performance of our products; and

- fluctuations in general economic and financial market conditions.

It is difficult to predict the timing of revenues from product sales
because the sales cycle can vary depending upon several factors. These factors
include the size of the transaction, the changing business plans of the
customer, the effectiveness of the customer's management and general economic
conditions. In addition, depending upon the extent to which our customers elect
to license our products under comprehensive bundled arrangements, the timing of
revenue recognition could vary considerably. We will also continue to offer
contracts using our more traditional licensing arrangements, under which revenue
is recognized on a percentage-of-completion basis. For these contracts, the
revenue recognition will depend upon a variety of factors including the
availability of implementation personnel, the implementation schedule and the
complexity of the implementation process. Because a significant percentage of
our expenses
8

424B1 9th Page of 83 TOC 1st Previous Next ↓Bottom Just 9th

will be relatively fixed, a variation in the timing of sales and implementations
could cause significant variations in operating results from quarter to quarter.
We believe that period-to-period comparisons of our historical results of
operations are not necessarily meaningful. You should not rely on these
comparisons as indicators of future performance.

WE HAVE GROWN THROUGH ACQUISITIONS, AND IF WE FAIL TO SUCCESSFULLY INTEGRATE THE
OPERATIONS AND PRODUCTS OF THE BUSINESSES WE HAVE ACQUIRED, OUR BUSINESS COULD
SUFFER

We began operations in 1996 and have grown through a series of acquisitions
completed since January 1997. The rapid growth in the size and complexity of our
business as a result of our acquisitions has placed a significant strain on our
management and other resources. Our success will depend in part on our ability
to continue to integrate the operations of the businesses we acquired and to
consolidate their product offerings with our own. We may not be able to manage
the combined entity and implement our operating or growth strategies
effectively. To compete effectively and to manage any future growth, we will
need to implement and improve operational and financial systems on a timely
basis and to expand, train, motivate and manage our work force. Our personnel,
systems, procedures and controls may not be adequate to support our rapidly
growing operations.

WE OPERATE IN AN INTENSELY COMPETITIVE MARKET THAT INCLUDES COMPANIES THAT HAVE
GREATER FINANCIAL, TECHNICAL AND MARKETING RESOURCES THAN WE DO

We operate in a market that is intensely competitive. Our principal
competitors include Cerner Corp., McKessonHBOC, Inc., IDX Systems Corp. and
Shared Medical Systems Corporation. We also face competition from providers of
practice management systems, general decision support and database systems and
other segment-specific applications, as well as from healthcare technology
consultants. A number of existing and potential competitors are more established
than we are and have greater name recognition and financial, technical and
marketing resources than we do. We expect that competition will continue to
increase. Increased competition could harm our business.

IF THE HEALTHCARE INDUSTRY CONTINUES TO UNDERGO CONSOLIDATION, THIS COULD IMPOSE
PRESSURE ON OUR PRODUCTS' PRICES, REDUCE OUR POTENTIAL CUSTOMER BASE AND REDUCE
DEMAND FOR OUR PRODUCTS

Many healthcare providers have consolidated to create larger healthcare
delivery enterprises with greater market power. If this consolidation continues,
it could erode our customer base and could reduce the size of our target market.
In addition, the resulting enterprises could have greater bargaining power,
which may lead to price erosion.

POTENTIAL REGULATION BY THE U.S. FOOD AND DRUG ADMINISTRATION OF OUR PRODUCTS AS
MEDICAL DEVICES COULD IMPOSE INCREASED COSTS, DELAY THE INTRODUCTION OF NEW
PRODUCTS AND HURT OUR BUSINESS

The U.S. Food and Drug Administration is likely to become increasingly
active in regulating computer software intended for use in the healthcare
setting. The FDA has increasingly focused on the regulation of computer products
and computer-assisted products as medical devices under the federal Food, Drug,
and Cosmetic Act. If the FDA chooses to regulate any of our products as medical
devices, it can impose extensive requirements upon us, including the following:

- requiring us to seek FDA clearance of a pre-market notification
submission demonstrating that the product is substantially equivalent to
a device already legally marketed, or to obtain FDA approval of a
pre-market approval application establishing the safety and effectiveness
of the product;

424B1 10th Page of 83 TOC 1st Previous Next ↓Bottom Just 10th

- requiring us to comply with rigorous regulations governing the
pre-clinical and clinical testing, manufacture, distribution, labeling
and promotion of medical devices; and

- requiring us to comply with the FDC Act's general controls, including
establishment registration, device listing, compliance with good
manufacturing practices, reporting of specified device malfunctions and
adverse device events.

If we fail to comply with applicable requirements, the FDA could respond by
imposing fines, injunctions or civil penalties, requiring recalls or product
corrections, suspending production, refusing to grant pre-market clearance or
approval of products, withdrawing clearances and approvals, and initiating
criminal prosecution. Any final FDA policy governing computer products, once
issued, may increase the cost and time to market of new or existing products or
may prevent us from marketing our products.

NEW AND POTENTIAL FEDERAL REGULATIONS RELATING TO PATIENT CONFIDENTIALITY COULD
DEPRESS THE DEMAND FOR OUR PRODUCTS AND IMPOSE SIGNIFICANT PRODUCT REDESIGN
COSTS ON US

State and federal laws regulate the confidentiality of patient records and
the circumstances under which those records may be released. These regulations
govern both the disclosure and use of confidential patient medical record
information and may require the users of such information to implement specified
security measures. Regulations governing electronic health data transmissions
are evolving rapidly and are often unclear and difficult to apply.

On August 22, 1996, President Clinton signed the Health Insurance
Portability and Accountability Act of 1996, or HIPAA. This legislation requires
the Secretary of Health and Human Services, or HHS, to adopt national standards
for some types of electronic health information transactions and the data
elements used in those transactions, adopt standards to ensure the integrity and
confidentiality of health information, and establish a schedule for implementing
national health data privacy legislation or regulations. In December 2000, HHS
published its final health data privacy regulations, which will take effect in
December 2002. These regulations restrict the use and disclosure of personally
identifiable health information without the prior informed consent of the
patient. HHS has not yet issued final rules on most of the other topics under
HIPAA and has yet to issue proposed rules on some topics. The final rules, if
and when issued, may differ from the proposed rules. We cannot predict the
potential impact of the rules that have not yet been proposed or any other rules
that might be finally adopted instead of the proposed rules. In addition, other
federal and/or state privacy legislation may be enacted at any time.

These laws or regulations, when adopted, could restrict the ability of our
customers to obtain, use or disseminate patient information. This could
adversely affect demand for our products and force us to re-design our products
in order to meet the requirements of any new regulations. We have included
security features in our products that are intended to protect the privacy and
integrity of patient data. Despite the existence of these security features,
these products may be vulnerable to break-ins and similar disruptive problems
that could jeopardize the security of information stored in and transmitted
through the computer systems of our customers. We may need to expend significant
capital, research and development and other resources to modify our products to
address evolving data security and privacy issues.

OUR PRODUCTS ARE USED TO ASSIST CLINICAL DECISION-MAKING AND PROVIDE INFORMATION
ABOUT PATIENT MEDICAL HISTORIES AND TREATMENT PLANS, AND IF THESE PRODUCTS FAIL
TO PROVIDE ACCURATE AND TIMELY INFORMATION, OUR CUSTOMERS COULD ASSERT CLAIMS
AGAINST US THAT COULD RESULT IN SUBSTANTIAL COST TO US, HARM OUR REPUTATION IN
THE INDUSTRY AND CAUSE DEMAND FOR OUR PRODUCTS TO DECLINE

We provide products that assist clinical decision-making and relate to
patient medical histories and treatment plans. If these products fail to provide
accurate and timely information,
10

424B1 11th Page of 83 TOC 1st Previous Next ↓Bottom Just 11th

customers could assert liability claims against us. Litigation with respect to
liability claims, regardless of its outcome, could result in substantial cost to
us, divert management's attention from operations and decrease market acceptance
of our products. We attempt to limit by contract our liability for damages
arising from negligence, errors or mistakes. Despite this precaution, the
limitations of liability set forth in our contracts may not be enforceable or
may not otherwise protect us from liability for damages. We maintain general
liability insurance coverage, including coverage for errors or omissions.
However, this coverage may not continue to be available on acceptable terms or
may not be available in sufficient amounts to cover one or more large claims
against us. In addition, the insurer might disclaim coverage as to any future
claim. One or more large claims could exceed our available insurance coverage.

Highly complex software products such as ours often contain undetected
errors or failures when first introduced or as updates and new versions are
released. It is particularly challenging for us to test our products because it
is difficult to simulate the wide variety of computing environments in which our
customers may deploy them. Despite extensive testing, from time to time we have
discovered defects or errors in our products. Defects, errors or difficulties
could cause delays in product introductions and shipments, result in increased
costs and diversion of development resources, require design modifications or
decrease market acceptance or customer satisfaction with our products. In
addition, despite testing by us and by current and potential customers, errors
may be found after commencement of commercial shipments, resulting in loss of or
delay in market acceptance.

IF WE UNDERTAKE ADDITIONAL ACQUISITIONS, THEY MAY BE DISRUPTIVE TO OUR BUSINESS
AND COULD HAVE AN ADVERSE EFFECT ON OUR FUTURE OPERATIONS AND THE MARKET PRICE
OF OUR COMMON STOCK

An important element of our business strategy has been expansion through
acquisitions. Since 1997, we have completed eight acquisitions. Any future
acquisitions would involve a number of risks, including the following:

- The anticipated benefits from any acquisition may not be achieved. The
integration of acquired businesses requires substantial attention from
management. The diversion of the attention of management and any
difficulties encountered in the transition process could hurt our
business.

- In future acquisitions, we could issue additional shares of our capital
stock, incur additional indebtedness or pay consideration in excess of
book value, which could have a dilutive effect on future net income, if
any, per share.

- Many business acquisitions must be accounted for under the purchase
method of accounting. These acquisitions may generate significant
goodwill or other intangible assets and result in substantial related
amortization charges to us. Acquisitions could also involve significant
one-time charges.

IF WE FAIL TO ATTRACT, MOTIVATE AND RETAIN HIGHLY QUALIFIED TECHNICAL,
MARKETING, SALES AND MANAGEMENT PERSONNEL, OUR ABILITY TO EXECUTE OUR BUSINESS
STRATEGY COULD BE IMPAIRED

Our success depends, in significant part, upon the continued services of
our key technical, marketing, sales and management personnel and on our ability
to continue to attract, motivate and retain highly qualified employees.
Competition for these employees is intense. In addition, the process of
recruiting personnel with the combination of skills and attributes required to
execute our business strategy can be difficult, time-consuming and expensive. We
believe that our ability to implement our strategic goals depends to a
considerable degree on our senior management team. The loss of any member of
that team, particularly Harvey J. Wilson, our founder, chairman of the board and
chief executive officer, could hurt our business.

424B1 12th Page of 83 TOC 1st Previous Next ↓Bottom Just 12th

CHANGING CUSTOMER REQUIREMENTS COULD DECREASE THE DEMAND FOR OUR PRODUCTS, WHICH
COULD HARM OUR BUSINESS AND DECREASE OUR REVENUES

The market for our products and services is characterized by rapidly
changing technologies, evolving industry standards and new product introductions
and enhancements that may render existing products obsolete or less competitive.
As a result, our position in the healthcare information technology market could
erode rapidly due to unforeseen changes in the features and functions of
competing products, as well as the pricing models for such products. Our future
success will depend in part upon our ability to enhance our existing products
and services and to develop and introduce new products and services to meet
changing customer requirements. The process of developing products and services
such as those we offer is extremely complex and is expected to become
increasingly complex and expensive in the future as new technologies are
introduced. If we are unable to enhance our existing products or develop new
products to meet changing customer requirements, demand for our products could
suffer.

WE DEPEND ON LICENSES FROM THIRD PARTIES FOR RIGHTS TO THE TECHNOLOGY USED IN
SEVERAL OF OUR PRODUCTS, AND IF WE ARE UNABLE TO CONTINUE THESE RELATIONSHIPS
AND MAINTAIN OUR RIGHTS TO THIS TECHNOLOGY, OUR BUSINESS COULD SUFFER

We depend upon licenses for some of the technology used in our products
from a number of third-party vendors, including Computer Corporation of America,
Computer Associates, Oracle Corporation and Microsoft. We also have licenses
from Premier, Inc. for comparative database systems and other software
components and clinical benchmarking data. Most of these licenses expire within
one to four years, can be renewed only by mutual consent and may be terminated
if we breach the terms of the license and fail to cure the breach within a
specified period of time. We may not be able to continue using the technology
made available to us under these licenses on commercially reasonable terms or at
all. As a result, we may have to discontinue, delay or reduce product shipments
until we obtain equivalent technology, which could hurt our business. Most of
our third-party licenses are non-exclusive. Our competitors may obtain the right
to use any of the technology covered by these licenses and use the technology to
compete directly with us. In addition, if our vendors choose to discontinue
support of the licensed technology in the future, we may not be able to modify
or adapt our own products.

OUR PRODUCTS RELY ON OUR INTELLECTUAL PROPERTY, AND ANY FAILURE BY US TO PROTECT
OUR INTELLECTUAL PROPERTY, OR ANY MISAPPROPRIATION OF IT, COULD ENABLE OUR
COMPETITORS TO MARKET PRODUCTS WITH SIMILAR FEATURES, WHICH COULD REDUCE DEMAND
FOR OUR PRODUCTS

We are dependent upon our proprietary information and technology. Our means
of protecting our proprietary rights may not be adequate to prevent
misappropriation. The laws of some foreign countries may not protect our
proprietary rights as fully as do the laws of the United States. Also, despite
the steps we have taken to protect our proprietary rights, it may be possible
for unauthorized third parties to copy aspects of our products, reverse engineer
our products or otherwise obtain and use information that we regard as
proprietary. In some limited instances, customers can access source-code
versions of our software, subject to contractual limitations on the permitted
use of the source code. Although our license agreements with these customers
attempt to prevent misuse of the source code, the possession of our source code
by third parties increases the ease and likelihood of potential misappropriation
of such software. Furthermore, others could independently develop technologies
similar or superior to our technology or design around our proprietary rights.
In addition, infringement or invalidity claims, or claims for indemnification
resulting from infringement claims, could be asserted or prosecuted against us.
Regardless of the validity of any claims, defending against these claims could
result in significant costs and diversion of our resources. The assertion of
infringement claims could also result in injunctions preventing us from
distributing products. If any claims or actions are asserted against

424B1 13th Page of 83 TOC 1st Previous Next ↓Bottom Just 13th

us, we might be required to obtain a license to the disputed intellectual
property rights, which might not be available on reasonable terms or at all.

RISKS RELATED TO THIS OFFERING

OUR STOCK WILL LIKELY BE SUBJECT TO SUBSTANTIAL PRICE AND VOLUME FLUCTUATIONS
DUE TO A NUMBER OF FACTORS, MANY OF WHICH WILL BE BEYOND OUR CONTROL, WHICH MAY
PREVENT OUR STOCKHOLDERS FROM RESELLING OUR COMMON STOCK AT A PROFIT

The securities markets have experienced significant price and volume
fluctuations and the market prices of the securities of technology companies
have been especially volatile. This market volatility, as well as general
economic, market or political conditions, could reduce the market price of our
common stock regardless of our operating performance. In addition, our operating
results could be below the expectations of public market analysts and investors,
and, in response, the market price of our common stock could decrease
significantly. Investors may be unable to resell their shares of our common
stock at or above the offering price. In the past, companies that have
experienced volatility in the market price of their stock have been the object
of securities class action litigation. If we were the object of securities class
action litigation, it could result in substantial costs and a diversion of
management's attention and resources.

WE HAVE BROAD DISCRETION IN HOW WE USE THE PROCEEDS OF THIS OFFERING, AND WE MAY
NOT USE THE PROCEEDS EFFECTIVELY

We have broad discretion with respect to how we use the proceeds of this
offering. In addition, our management could spend most of the proceeds from this
offering in ways with which our stockholders may not agree. We cannot assure you
that the proceeds of this offering will be used effectively.

OUR OFFICERS, DIRECTORS AND PERSONS AFFILIATED WITH OUR DIRECTORS, WHO HOLD A
SUBSTANTIAL PORTION OF OUR STOCK, HAVE SIGNIFICANT INFLUENCE OVER OUR BUSINESS
AND COULD REJECT MERGERS OR OTHER BUSINESS COMBINATIONS THAT A STOCKHOLDER MAY
BELIEVE ARE DESIRABLE

We anticipate that our directors, officers and individuals or entities
affiliated with our directors will beneficially own approximately 24.8% of our
outstanding common stock as a group after this offering closes. Acting together,
these stockholders would be able to significantly influence all matters that our
stockholders vote upon, including the election of directors and mergers or other
business combinations, and may reject mergers or business combinations that
other stockholders may favor.

FUTURE SALES OF OUR COMMON STOCK COULD DEPRESS OUR STOCK PRICE

Sales of substantial amounts of common stock by our officers, directors and
other stockholders in the public market after this offering, or the awareness
that a large number of shares is available for sale, could adversely affect the
market price of our common stock. In addition to the adverse effect a price
decline could have on holders of our common stock, that decline would likely
impede our ability to raise capital through the issuance of additional shares of
common stock or other equity securities. Substantially all of the shares of
common stock currently outstanding are eligible for resale in the public market.

In October and November of 2000, some of our officers and directors or
their affiliates sold shares of common stock in the public market. In
particular, Wilfam L.P., an affiliate of Harvey Wilson, our chief executive
officer, and of Gregory Wilson, our chief financial officer, sold 344,800 shares
between October 27 and November 6, 2000; James Hall, our president, sold 20,416
shares on October 27, 2000; and T. Jack Risenhoover, II, our senior vice
president, sold 19,902 shares on October 27, 2000.

424B1 14th Page of 83 TOC 1st Previous Next ↓Bottom Just 14th

Although our officers, directors and principal stockholders have agreed
that for 90 days after the date of this prospectus they will not offer, sell,
contract to sell or otherwise dispose of any shares of our common stock,
Goldman, Sachs & Co. may, in its discretion, waive this lock-up at any time for
any holder.

THE PROVISIONS OF OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY INHIBIT POTENTIAL
ACQUISITION BIDS THAT A STOCKHOLDER MAY BELIEVE IS DESIRABLE, AND THE MARKET
PRICE OF OUR COMMON STOCK MAY BE LOWER AS A RESULT

Our board of directors has the authority to issue up to 4,900,000 shares of
preferred stock. The board of directors can fix the price, rights, preferences,
privileges and restrictions of the preferred stock without any further vote or
action by our stockholders. The issuance of shares of preferred stock may
discourage, delay or prevent a merger or acquisition of our company. The
issuance of preferred stock may result in the loss of voting control to other
stockholders. We have no current plans to issue any shares of preferred stock.
In August 2000, our board of directors adopted a shareholder rights plan under
which we issued preferred stock purchase rights that would adversely affect the
economic and voting interests of a person or group that seeks to acquire us or a
15% or more interest in our common stock without negotiations with our board of
directors.

Our charter documents contain additional anti-takeover devices including:

- only one of the three classes of directors is elected each year;

- the ability of our stockholders to remove directors without cause is
limited;

- the right of stockholders to act by written consent has been eliminated;

- the right of stockholders to call a special meeting of stockholders has
been eliminated;

- advance notice must be given to nominate directors or submit proposals
for consideration at stockholder meetings;

Section 203 of the Delaware corporate statute may inhibit potential
acquisition bids for our company. We are subject to the anti-takeover provisions
of the Delaware corporate statute, which regulate corporate acquisitions.
Delaware law will prevent us from engaging, under specified circumstances, in a
business combination with any interested stockholder for three years following
the date that the interested stockholder became an interested stockholder unless
our board of directors or a supermajority of our uninterested stockholders
agree. For purposes of Delaware law, a business combination includes a merger or
consolidation involving us and the interested stockholder and the sale of more
than 10% of our assets. In general, Delaware law defines an interested
stockholder as any holder beneficially owning 15% or more of the outstanding
voting stock of a corporation and any entity or person affiliated with or
controlling or controlled by the holder.

These provisions could discourage potential acquisition proposals and could
delay or prevent a change in control transaction. They could also have the
effect of discouraging others from making tender offers for our common stock. As
a result, these provisions may prevent the market price of our common stock from
increasing substantially in response to actual or rumored takeover attempts.
These provisions may also prevent changes in our management.

424B1 15th Page of 83 TOC 1st Previous Next ↓Bottom Just 15th

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended and Section 21E of the
Exchange Act of 1934, as amended, that involve substantial risks and
uncertainties. You can identify these statements by forward-looking words such
as "anticipate," "believe," "could," "estimate," "expect," "intend," "may,"
"should," "will" and "would" or similar words. You should read statements that
contain these words carefully because they discuss our future expectations,
contain projections of our future results of operations or of our financial
position or state other forward-looking information. We believe that it is
important to communicate our future expectations to our investors. However,
there may be events in the future that we are not able to accurately predict or
control. The factors listed above in the section captioned "Risk Factors," as
well as any cautionary language in this prospectus, provide examples of risks,
uncertainties and events that may cause our actual results to differ materially
from the expectations we describe in our forward-looking statements. Before you
invest in our common stock, you should be aware that the occurrence of the
events described in these risk factors and elsewhere in this prospectus could
have a material adverse effect on our business, results of operations and
financial position. We do not assume any obligation to update any
forward-looking statement we make.

424B1 16th Page of 83 TOC 1st Previous Next ↓Bottom Just 16th

USE OF PROCEEDS

We estimate that our net proceeds from the sale of the 5,000,000 shares of
common stock we are offering will be approximately $107.1 million, after
deducting underwriting discounts and commissions and estimated offering expenses
payable by us. If the over-allotment option is exercised in full, we estimate
that our net proceeds will be approximately $123.3 million.

We expect to use the net proceeds for working capital and general corporate
purposes. Although we may use a portion of the net proceeds to acquire
businesses, products or technologies that are complementary to our business, we
have no specific acquisitions planned. Pending these uses, we plan to invest the
net proceeds in investment grade, interest-bearing securities.

PRICE RANGE OF COMMON STOCK

Our common stock has been traded on the Nasdaq National Market under the
symbol ECLP since our initial public offering on August 6, 1998. The following
table shows the high and low sales prices of our common stock as reported by the
Nasdaq National Market for the periods indicated.

[Download Table]

HIGH LOW
------ ------

1998:
Third Quarter (from August 6, 1998)......................... $23.38 $11.88
Fourth Quarter.............................................. 29.50 18.38
1999:
First Quarter............................................... 40.25 20.00
Second Quarter.............................................. 30.38 20.00
Third Quarter............................................... 34.13 12.63
Fourth Quarter.............................................. 30.88 11.63
2000:
First Quarter............................................... 31.06 16.50
Second Quarter.............................................. 20.50 6.44
Third Quarter............................................... 17.00 7.08
Fourth Quarter.............................................. 28.00 14.13
2001:
First Quarter (through January 23).......................... 28.81 20.38

On January 23, 2001, the last reported sale price of our common stock on
the Nasdaq National Market was $23.38 per share. As of December 29, 2000, we had
approximately 180 stockholders of record.

424B1 17th Page of 83 TOC 1st Previous Next ↓Bottom Just 17th

DIVIDEND POLICY

We have never paid or declared any cash dividends on our common stock or
other securities and do not anticipate paying cash dividends in the foreseeable
future. We currently intend to retain all future earnings, if any, for use in
the operation of our business. Our revolving credit facility currently prohibits
the payment of dividends.

DILUTION

Our net tangible book value as of September 30, 2000 was $31.3 million, or
$0.85 per share of common stock. We have calculated this amount by:

- subtracting our total liabilities from our total tangible assets; and

- then dividing the difference by the total number of shares of common
stock outstanding.

If we give effect to our sale of 5,000,000 shares of common stock in this
offering, after deducting the underwriting discounts and commissions and the
estimated offering expenses payable by us, our adjusted net tangible book value
as of September 30, 2000 would have been $138.4 million, or $3.31 per share.
This amount represents an immediate dilution of $19.44 per share to new
investors. The following table illustrates this per share dilution:

[Download Table]

Assumed public offering price per share..................... $22.75
Net tangible book value per share before this offering.... $0.85
Increase in net tangible book value per share attributable
to new investors....................................... 2.46
-----
Net tangible book value per share after this offering....... 3.31
------
Dilution per share to new investors......................... $19.44
======

424B1 18th Page of 83 TOC 1st Previous Next ↓Bottom Just 18th

SELECTED FINANCIAL DATA

You should read the following selected financial data in conjunction with
our consolidated financial statements and the related notes thereto, and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," included elsewhere in this prospectus. The statement of operations
data for the years ended December 31, 1997, 1998 and 1999 and the balance sheet
data at December 31, 1998 and 1999 are derived from, and are qualified by
reference to, our audited consolidated financial statements, which appear
elsewhere in this document. The statement of operations data for the year ended
December 31, 1996 and the balance sheet data at December 31, 1996, under the
heading "Company" set forth below, are derived from, and are qualified by
reference to, our audited consolidated financial statements, which are not
included in this document and are retroactively restated to give effect to three
pooling of interest transactions. The statement of operations data for the years
ended December 31, 1995 and 1996, and the balance sheet data at December 31,
1995 and 1996 under the heading "Predecessor," are derived from, and are
qualified by reference to, the audited financial statements of Alltel Healthcare
Information Services, Inc., which are not included in this document, and are
retroactively restated to give effect to one pooling of interest transaction.
The statement of operations data for the nine months ended September 30, 1999
and 2000, and the balance sheet data as of September 30, 2000, are derived from
our unaudited consolidated financial statements that are included in this
prospectus. The unaudited consolidated financial statements have been prepared
on the same basis as the audited consolidated financial statements and, in our
opinion, include all adjustments, consisting of normally recurring adjustments,
necessary for a fair presentation of the information. Historical results,
including those for the nine months ended September 30, 2000, are not
necessarily indicative of results that you may expect for any future period.

[Enlarge/Download Table]

YEAR ENDED DECEMBER 31,
--------------------------------------------------
PREDECESSOR COMPANY
--------------------- --------------------------
1995 1996 1996 1997
--------- --------- ----------- ------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

STATEMENT OF OPERATIONS DATA:
Revenues:
Systems and services................... $119,626 $135,410 $ 41,778 $ 142,908
Hardware............................... 9,377 9,587 -- 4,420
-------- -------- ---------- -----------
Total revenues....................... 129,003 144,997 41,778 147,328
Costs and expenses:
Cost of systems and services
revenues............................. 61,736 73,230 12,240 92,635
Cost of hardware revenues.............. 7,950 7,911 -- 2,991
Sales and marketing.................... 15,071 15,989 7,067 22,902
Research and development............... 11,186 13,529 6,067 21,369
General and administrative............. 11,834 9,847 4,143 10,179
Depreciation and amortization.......... 6,735 9,643 1,646 11,514
Write-down of investment............... -- -- -- --
Write-off of in-process research and
development.......................... -- -- -- 105,481
Write-off of MSA....................... -- -- -- --
Pooling and transaction costs.......... -- -- -- --
Restructuring charge................... -- -- -- --
Stock compensation charge.............. -- 3,024 3,024 --
-------- -------- ---------- -----------
Total costs and expenses............. 114,512 133,173 34,187 267,071
-------- -------- ---------- -----------
Income (loss) from operations........... 14,491 11,824 7,591 (119,743)
-------- -------- ---------- -----------
Interest expense (income), net.......... 2,187 3,286 (682) (1,511)
Other income, net....................... -- -- -- --
-------- -------- ---------- -----------
Income (loss) before income taxes and
extraordinary item..................... 12,304 8,538 8,273 (118,232)
Provision for income taxes.............. 6,185 3,847 4,690 8,096
-------- -------- ---------- -----------
Income (loss) before extraordinary
item................................... 6,119 4,691 3,583 (126,328)
-------- -------- ---------- -----------
Loss on early extinguishment of debt
(net of taxes $1,492).................. -- 2,149 2,149 --
-------- -------- ---------- -----------
Net income (loss)....................... 6,119 2,542 1,434 (126,328)
-------- -------- ---------- -----------
Dividends and accretion on mandatorily
redeemable preferred stock............. -- -- (593) (5,850)
Preferred stock conversion.............. -- -- -- (3,105)
-------- -------- ---------- -----------
Net income (loss) available to common
stockholders........................... $ 6,119 $ 2,542 $ 841 $ (135,283)
======== ======== ========== ===========
Basic net income (loss) per common
share.................................. $ 0.06 $ (8.60)
========== ===========
Diluted net income (loss) per common
share.................................. $ 0.05 $ (8.60)
========== ===========
Basic weighted average common shares
outstanding............................ 13,780,156 15,734,208
========== ===========
Diluted weighted average common shares
outstanding............................ 15,404,421 15,734,208
========== ===========

YEAR ENDED DECEMBER 31,
--------------------------- NINE MONTHS ENDED
COMPANY SEPTEMBER 30,
--------------------------- ---------------------------
1998 1999 1999 2000
------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

STATEMENT OF OPERATIONS DATA:
Revenues:
Systems and services................... $ 168,025 $ 226,610 $ 168,097 $ 153,697
Hardware............................... 14,433 22,717 15,937 8,736
----------- ----------- ----------- -----------
Total revenues....................... 182,458 249,327 184,034 162,433
Costs and expenses:
Cost of systems and services
revenues............................. 94,775 126,158 93,375 108,799
Cost of hardware revenues.............. 12,134 18,606 13,421 6,968
Sales and marketing.................... 29,651 35,987 26,150 29,143
Research and development............... 37,139 43,751 34,149 28,102
General and administrative............. 11,107 11,322 9,033 8,231
Depreciation and amortization.......... 11,981 15,415 11,734 11,107
Write-down of investment............... 4,778 -- -- --
Write-off of in-process research and
development.......................... 2,392 -- -- --
Write-off of MSA....................... 7,193 -- -- --
Pooling and transaction costs.......... 5,033 1,648 1,648 1,900
Restructuring charge................... -- 5,133 5,133 1,198
Stock compensation charge.............. -- 1,987 1,987 --
----------- ----------- ----------- -----------
Total costs and expenses............. 216,183 260,007 196,630 195,448
----------- ----------- ----------- -----------
Income (loss) from operations........... (33,725) (10,680) (12,596) (33,015)
----------- ----------- ----------- -----------
Interest expense (income), net.......... (2,701) (1,235) (945) (891)
Other income, net....................... -- -- -- 3,596
----------- ----------- ----------- -----------
Income (loss) before income taxes and
extraordinary item..................... (31,024) (9,445) (11,651) (28,528)
Provision for income taxes.............. 4,252 -- -- --
----------- ----------- ----------- -----------
Income (loss) before extraordinary
item................................... (35,276) (9,445) (11,651) (28,528)
----------- ----------- ----------- -----------
Loss on early extinguishment of debt
(net of taxes $1,492).................. -- -- -- --
----------- ----------- ----------- -----------
Net income (loss)....................... (35,276) (9,445) (11,651) (28,528)
----------- ----------- ----------- -----------
Dividends and accretion on mandatorily
redeemable preferred stock............. (10,928) -- --
Preferred stock conversion.............. -- -- -- --
----------- ----------- ----------- -----------
Net income (loss) available to common
stockholders........................... $ (46,204) $ (9,445) $ (11,651) $ (28,528)
=========== =========== =========== ===========
Basic net income (loss) per common
share.................................. $ (1.95) $ (0.27) $ (0.34) $ (0.78)
=========== =========== =========== ===========
Diluted net income (loss) per common
share.................................. $ (1.95) $ (0.27) $ (0.34) $ (0.78)
=========== =========== =========== ===========
Basic weighted average common shares
outstanding............................ 23,668,072 34,803,934 34,575,264 36,672,204
=========== =========== =========== ===========
Diluted weighted average common shares
outstanding............................ 23,668,072 34,803,934 34,575,264 36,672,204
=========== =========== =========== ===========

424B1 19th Page of 83 TOC 1st Previous Next ↓Bottom Just 19th

[Enlarge/Download Table]

AS OF DECEMBER 31,
--------------------------------------------------------------
PREDECESSOR COMPANY AS OF
------------------- ---------------------------------------- SEPTEMBER 30,
1995 1996 1996 1997 1998 1999 2000
-------- -------- ------- -------- -------- -------- -------------
(IN THOUSANDS)

BALANCE SHEET DATA:
Cash and cash equivalents........................ $ 14,541 $ 55,858 $59,940 $ 63,914 $ 37,983 $ 33,956 $ 17,900
Working capital.................................. 11,487 49,357 65,306 34,870 25,724 33,103 15,462
Total assets..................................... 116,550 176,789 80,393 201,327 221,014 202,935 161,061
Debt, including current portion.................. 250 105 756 18,038 1,890 -- 1,728
Mandatorily redeemable preferred stock........... -- -- -- 35,607 -- -- --
Stockholders' equity (deficit)................... (5,640) 38,609 71,395 58,882 98,442 101,301 76,221

424B1 20th Page of 83 TOC 1st Previous Next ↓Bottom Just 20th

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis in conjunction with
our financial statements and related notes included elsewhere in this
prospectus.

OVERVIEW

We were founded in December 1995 and have grown primarily through a series
of strategic acquisitions. For acquisitions accounted for as a purchase, our
consolidated financial statements reflect the financial results of the purchased
entities from the respective dates of the purchase. For all transactions
accounted for using the pooling of interests method, our consolidated financial
statements have been retroactively restated as if the transactions had occurred
at the beginning of the earliest period presented. Our acquisitions are
summarized in the following table:

[Download Table]

METHOD OF
TRANSACTION DATE ACCOUNTING
----------- -------- ----------

ALLTEL Healthcare Information Services, Inc., or Alltel..... 1/24/97 Purchase
SDK Medical Computer Services Corporation, or SDK........... 6/26/97 Purchase
Emtek Healthcare Systems, or Emtek, a division of Motorola,
Inc....................................................... 1/30/98 Purchase
HealthVISION, Inc. (acquired by Transition), or HV.......... 12/3/98 Purchase
Transition Systems, Inc., or Transition..................... 12/31/98 Pooling
PowerCenter Systems, Inc., or PCS........................... 2/17/99 Pooling
Intelus Corporation and Med Data Systems, Inc., or Intelus
and Med Data.............................................. 3/31/99 Purchase
MSI Solutions, Inc. and MSI Integrated Services, Inc.,
collectively MSI.......................................... 6/17/99 Pooling

In July 1999, we sold Med Data for a total sales price of $5.0 million in
cash.

During July 1999, we invested in HEALTHvision, Inc., or HEALTHvision, a
Dallas-based, privately held internet healthcare company, in conjunction with
VHA, Inc. and General Atlantic Partners, LLC. We purchased 3,400,000 shares of
common stock for $34,000, which at the time represented 34% of the outstanding
common stock on an as converted basis. HEALTHvision provides Internet solutions
to hospital organizations to assist them in improving patient care in the local
communities they serve. In connection with our relationship with HEALTHvision,
we have entered into a joint marketing arrangement under which both
organizations agreed to jointly market products and services to their customers.
We account for our investment in HEALTHvision using the equity method of
accounting.

REVENUES

Revenues are derived from sales of systems and services, which include the
licensing of software, software and hardware maintenance, implementation and
training, remote hosting, outsourcing, networking services and consulting, and
from the sale of computer hardware. Our products and services are generally sold
to customers pursuant to contracts that range in duration from three to ten
years.

We have generally licensed our software products pursuant to arrangements
that include maintenance for periods that range from three to seven years. For
software licenses that are bundled with services and maintenance that require
significant implementation efforts and provide for payments upon the achievement
of implementation milestones, we have generally recognized revenue using the
percentage-of-completion method. Under these arrangements, revenues are
recognized over the implementation period, which has typically ranged from 12 to
24 months.

424B1 21st Page of 83 TOC 1st Previous Next ↓Bottom Just 21st

Revenue from other software licenses, which are bundled with long-term
maintenance agreements, is recognized on a straight-line basis over the
contracted maintenance period. Remote hosting and outsourcing services are
marketed under long-term agreements that are generally of five to seven years in
duration. Revenues under these arrangements are recognized monthly as the work
is performed. Revenues related to other support services, such as training,
consulting, and other implementation services, are recognized when the services
are performed. We recognize revenues from the sale of hardware upon delivery of
the equipment to the customer.

The shift toward providing comprehensive bundled solutions, together with
the completion in early 2000 of the implementation of some of our contracts
accounted for using the percentage-of-completion method, contributed to the
decline in our revenue in 2000, particularly in the second and third quarters.
Under these comprehensive bundled arrangements, revenues are recognized over the
term of the contract consistent with the timing of the performance of all
services offered under the arrangement. Generally, less revenue is recognized
under these arrangements during the first 12 to 24 months compared to
traditional licensing arrangements that we sell. If the level of new contracted
business under these comprehensive bundled arrangements increases, we believe
that it will mitigate some of the volatility in our revenues. However, if we
continue to increase contract signings under these type of arrangements as
opposed to our traditional licensing arrangements, our revenues may continue to
be adversely affected for the next two to three years as compared to historic
results.

COSTS OF REVENUES

The principal costs of systems and services revenues are salaries, benefits
and related overhead costs for implementation, remote hosting and outsourcing
personnel. Other significant costs of systems and services revenues are the
amortization of acquired technology, capitalized software development costs and
a network services intangible asset. Acquired technology is amortized over three
to five years based upon the estimated economic life of the underlying asset,
and capitalized software development costs are amortized generally over three
years on a straight-line basis commencing upon general release of the related
product or based on the ratio that current revenues bear to total anticipated
revenues for the applicable product. The network services intangible asset is
being amortized on a straight-line basis over three years. Cost of revenues
related to hardware sales include only our cost to acquire the hardware from the
manufacturer.

GROSS MARGIN

The cost of revenues associated with both our traditional licensing
arrangements and the more comprehensive arrangements discussed above are
primarily related to services, which are expensed as incurred over the service
period. The shift to these bundled comprehensive arrangements adversely affected
margins in the second and third quarters of 2000 as our costs are greater in the
first 12 to 24 months under these arrangements than under the traditional
license arrangements. This is due to the costs associated with our providing
significant other services, including remote hosting, networking and
outsourcing, at the same time we are performing our implementation services,
which generally occurs during the early years of the

424B1 22nd Page of 83 TOC 1st Previous Next ↓Bottom Just 22nd

arrangement. This, coupled with the timing of revenues discussed above,
contributed to our reduced margins in the second and third quarters of 2000.
Although we expect margins to return to historic levels in the long term, as
more customers enter into these types of arrangements our margins may continue
to be adversely affected.

In addition, in connection with certain acquisitions, we inherited
contracts that did not provide a reasonable margin for the cost and scope of the
services involved. In order to build customer loyalty, we continued to honor our
commitments under these contracts during 2000 and in some cases performed work
outside the scope of these contracts for which we received nominal or no fees.
This adversely impacted our margins in the second and third quarter 2000 as we
continued to incur costs with minimal incremental revenues. To address this
problem, we are negotiating payments for future work under some of these
contracts and under some other contracts, we have decided not to continue our
work, which has resulted in a write-down in the related accounts receivable.
Additionally, we have consolidated our research and development and
implementation functions to improve operating efficiencies. While we believe
these actions will help to mitigate the future effect of these contracts on our
operating results, we believe that margins may continue to be adversely affected
as we continue to provide services under these contracts.

MARKETING AND SALES

Marketing and sales expenses consist primarily of salaries, benefits,
commissions and related overhead costs. Other costs include expenditures for
marketing programs, public relations, trade shows, advertising and related
communications.

RESEARCH AND DEVELOPMENT

Research and development expenses consist primarily of salaries, benefits
and related overhead associated with the design, development and testing of new
products by us. We capitalize internal software development costs subsequent to
attaining technological feasibility. These costs are amortized as an element of
cost of revenues.

GENERAL AND ADMINISTRATIVE

General and administrative expenses consist primarily of salaries, benefits
and related overhead costs for administration, executive, finance, legal, human
resources, purchasing and internal systems personnel, as well as accounting and
legal fees and expenses.

DEPRECIATION AND AMORTIZATION

We depreciate the costs of our tangible capital assets on a straight-line
basis over the estimated economic life of the asset, which is generally not
longer than five years. Acquisition-related intangible assets, which primarily
consist of the value of ongoing customer relationships and goodwill, are
amortized based upon the estimated economic life of the asset at the time of the
acquisition, and will therefore vary among acquisitions.

TAXES

As of December 31, 1999, we had operating loss carryforwards for federal
income tax purposes of $92.0 million. The carryforwards expire in varying
amounts through 2019 and are subject to certain restrictions. Based on evidence
then available, we did not record any benefit for income taxes at December 31,
1998 and 1999, because we believe it is more likely then not that we would not
realize our net deferred tax assets. Accordingly, we have recorded a valuation
allowance against our total net deferred tax assets.

424B1 23rd Page of 83 TOC 1st Previous Next ↓Bottom Just 23rd

RESULTS OF OPERATIONS

COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000

Total revenues for the nine months ended September 30, 2000 decreased $21.6
million, or 11.7%, to $162.4 million, from $184.0 million for the same period in
1999. Systems and services revenues decreased $14.4 million, or 8.6%, to $153.7
million for the nine months ended September 30, 2000 from $168.1 million for the
same period in 1999.

This decrease in revenue was primarily attributable to the shift toward
providing comprehensive bundled solutions and the completion of the
implementations under traditional licensing arrangements with some of our
customers and the contracts we inherited as a result of recent acquisitions,
which are all discussed above. In addition, our proposed transactions with
Shared Medical Systems Corp., or SMS, and Neoforma.com, Inc., or Neoforma, which
we have since abandoned, resulted in a significant diversion of management's
time and attention, which also adversely affected revenues during early 2000.

Hardware revenues decreased $7.2 million, or 45.2%, to $8.7 million for the
nine months ended September 30, 2000 from $15.9 million for the same period in
1999. The decrease was primarily due to decreased volume of hardware sales as a
result of less hardware-intensive transactions.

Total cost of revenues increased $9.0 million, or 8.4%, to $115.8 million,
or 71.3% of total revenues, for the nine months ended September 30, 2000 from
$106.8 million, or 58.0% of total revenues, for the same period in 1999.
Increased costs of system and services revenues were partially offset by a
decrease in costs of hardware revenues. Systems and services costs increased as
a result of higher royalty related expenses associated with revenue recognized
during the period, an increased level of outsourcing revenue and associated
expenses, and a charge of $8.7 million during the quarter ended September 30,
2000, to write-down some receivables related to contracts assumed in
acquisitions. Furthermore, we recorded a charge of $675,000 for other costs
related to finalizing our acquisition integrations. These amounts were partially
offset by decreased amortization of acquired technology in connection with
acquisitions completed in prior years and by cost savings associated with the
consolidation of our research and development and implementation functions. We
recorded acquisition related amortization of acquired technology and a network
services asset of $18.9 million and $13.7 million for the nine months ended
September 30, 1999 and 2000, respectively.

Marketing and sales expenses increased $3.0 million, or 11.4%, to $29.1
million, or 17.9% of total revenues, for the nine months ended September 30,
2000 from $26.1 million, or 14.2% of total revenues, for the same period in
1999. The increase was primarily due to an increase in commissions as the result
of an increase in new contracted business for the nine months ended September
30, 2000.

Research and development expenses decreased $6.0 million, or 17.7%, to
$28.1 million, or 17.3% of total revenues, for the nine months ended September
30, 2000 from $34.1 million, or 18.6% of total revenues, for the same period in
1999. The decrease was due primarily to a write-off of $2.8 million of
capitalized software development costs related to duplicate products with no
alternative future use due to the acquisition of MSI in 1999 and the realization
of integration synergies. Research and development expenses that were
capitalized were $4.8 million and $4.9 million for the nine months ended
September 30, 1999 and 2000, respectively.

General and administrative expenses decreased $802,000, or 8.9%, to $8.2
million, or 5.1% of total revenues, for the nine months ended September 30, 2000
from $9.0 million, or 4.9% of total revenues, for the same period in 1999. The
decrease for the nine months was primarily due to our restructuring plans that
were completed in late 1999 and 2000. This was partially offset by a $746,000
write-down of receivables during the nine months ended September 30, 2000.

424B1 24th Page of 83 TOC 1st Previous Next ↓Bottom Just 24th

Depreciation and amortization decreased $627,000, or 5.3%, to $11.1
million, or 6.8% of total revenues, for the nine months ended September 30, 2000
from $11.7 million, or 6.4% of total revenues, for the same period in 1999. The
decrease was primarily the result of certain fixed assets becoming fully
depreciated, partially offset by depreciation related to purchases of fixed
assets during the nine months ended September 30, 2000. For the nine months
ended September 30, 1999 and 2000, respectively, we recorded acquisition related
amortization of $5.6 million and $5.4 million.

During the nine months ended September 30, 1999, we initiated and completed
a restructuring of our operations, which resulted in a charge totaling $5.1
million related to the closing of duplicate facilities and the termination of
employees. During the nine months ended September 30, 2000, we initiated and
completed another restructuring of our operations. This restructuring
rationalized employee headcount following our finalizing the integration of our
acquisitions. Additionally, we consolidated our research and development and
implementation functions. Charges in connection with this restructuring in 2000
totaled $1.2 million.

Pooling and transaction costs increased $252,000 to $1.9 million for the
nine months ended September 30, 2000 from $1.6 million for the same period in
1999. Pooling and transaction costs incurred during the nine months ended
September 30, 1999 were related to the poolings of PowerCenter and MSI. The
transaction costs during the nine months ended September 30, 2000 were primarily
the result of costs associated with the proposed transactions with SMS and
Neoforma.

Other income recorded during the nine months ended September 30, 2000
related to a realized gain on the sale of our investment in SMS of $4.5 million,
which was offset in part by a write-down in our investment in equity securities.

As a result of these factors, net loss increased 144.9% to $28.5 million
for the nine months ended September 30, 2000 from $11.7 million in the
comparable period of 1999.

1999 COMPARED TO 1998

Total revenues increased by $66.8 million, or 36.6%, from $182.5 million in
1998 to $249.3 million in 1999. This increase was caused primarily by the
inclusion in 1999 of twelve months of operations of HV compared to only one
month in 1998, and nine months of operations of Intelus. Also contributing to
the increase was new business contracted in 1999 and incremental sales of
hardware.

Total cost of revenues increased by $37.9 million, or 35.5%, from $106.9
million in 1998 to $144.8 million in 1999. The increase in cost was due
primarily to the associated growth in revenues, offset in part by a reduction in
expenses related to integrating the acquisitions. As a percentage of total
revenues, the total cost of revenues decreased from 58.6% in 1998 to 58.1% in
1999. Included in total cost of revenues is acquisition related amortization
expense of $17.2 million and $25.3 million in 1998 and 1999, respectively,
related to the amortization of acquired technology and a network services asset.

Marketing and sales expenses increased by $6.3 million, or 21.2%, from
$29.7 million in 1998 to $36.0 million in 1999. The increase in marketing and
sales expense was due primarily to the addition of marketing and direct sales
personnel following the acquisitions and the continued hiring of additional
marketing and direct sales personnel. As a percentage of total revenues,
marketing and sales expenses decreased from 16.3% in 1998 to 14.4% in 1999.

Research and development expenses increased by $6.6 million, or 17.8%, from
$37.1 million, or 20.4% of total revenues, in 1998 to $43.8 million, or 17.5% of
total revenues, in 1999. These amounts exclude amortization of previously
capitalized expenditures, which are recorded as cost of revenues. The increase
was due primarily to the inclusion in 1999 of nine months of operations of
Intelus, the continued development of our Sunrise Clinical Management product

424B1 25th Page of 83 TOC 1st Previous Next ↓Bottom Just 25th

suite and a $2.8 million write-off of previously capitalized research and
development expenditures related to duplicate products with no alternate use as
a result of the MSI acquisition. In 1999, we wrote off $1.3 million of
previously capitalized expenditures related to duplicate products as a result of
1998 acquisitions. Capitalized research and development expenditures increased
by $2.4 million, or 55.8%, from $4.3 million in 1998 to $6.7 million in 1999.
The increase in capitalized software development costs was primarily due to the
acquisitions and the continued development of our Sunrise Clinical Management
product suite.

General and administrative expenses increased by $215,000, or 1.9%, from
$11.1 million in 1998 to $11.3 million in 1999. The increase was primarily due
to the timing of the purchase acquisitions and was partially offset by savings
due to overall expense reductions. As a percentage of total revenues, general
and administrative expenses decreased from 6.1% in 1998 to 4.5% in 1999.

Depreciation and amortization expense increased by $3.4 million, or 28.3%,
from $12.0 million in 1998 to $15.4 million in 1999. The increase was due
primarily to the amortization of goodwill related to the acquisition of HV. As a
percentage of total revenues, depreciation and amortization expense decreased
from 6.6% in 1998 to 6.2% in 1999. Included in depreciation and amortization
expense is acquisition related amortization of $3.9 million and $7.5 million in
1998 and 1999, respectively.

During 1999, in connection with the MSI transaction, we recorded a stock
compensation charge of $1.0 million related to the required vesting of stock
options that were granted to former MSI employees. We also incurred pooling
costs of $1.0 million related to the MSI transaction. Additionally, in July
1999, in connection with the formation of HEALTHvision, we incurred a stock
compensation charge of $982,000 related to the accelerated vesting of former
employees' stock options.

During the quarter ended June 30, 1999, we initiated a restructuring of our
operations. The restructuring was completed during the quarter ended September
30, 1999 and resulted in a charge totaling $5.1 million related to the closing
of duplicate facilities and the termination of certain employees.

As a result of these factors, net loss decreased 73.4% from $35.3 million
in 1998 to $9.4 million in 1999.

1998 COMPARED TO 1997

Total revenues increased by $35.2 million, or 23.8%, from $147.3 million in
1997 to $182.5 million in 1998. This increase was caused primarily by the
inclusion in 1998 of twelve full months of the operations of Alltel and SDK, as
well as the inclusion of eleven months of operations of Emtek. Also contributing
to the increase was new business contracted in 1998, which was the result of an
increase in marketing efforts related to the regional realignment of our
operations completed in 1997 and the integration of acquisitions completed in
1997 and 1998.

Total cost of revenues increased by $11.3 million, or 11.8%, from $95.6
million in 1997 to $106.9 million in 1998. The increase in cost was due
primarily to the increase in business activity, offset in part by a reduction in
expenses related to integrating the acquisitions. As a percentage of total
revenues, total cost of revenues decreased from 64.9% in 1997 to 58.5% in 1998.
Included in total costs of revenues is acquisition related amortization expense
of $21.9 million and $17.2 million in 1997 and 1998, respectively, related to
the amortization of acquired technology and the MSA intangible asset.

Marketing and sales expenses increased by $6.8 million, or 29.6%, from
$22.9 million, or 15.5% of total revenues, in 1997 to $29.7 million, or 16.3% of
total revenues, in 1998. The increase was due primarily to the addition of
marketing and direct sales personnel following the acquisitions and the regional
realignment of our sales operations.

424B1 26th Page of 83 TOC 1st Previous Next ↓Bottom Just 26th

Research and development expenses increased by $15.8 million, or 73.8%,
from $21.4 million, or 14.5% of total revenues, in 1997 to $37.1 million, or
20.4% of total revenues, in 1998. The increase was due primarily to the
inclusion in 1998 of twelve full months of the operations of Alltel and SDK and
eleven months of Emtek operations, as well as the continued development of our
Sunrise Clinical Management product suite. Capitalized research and development
expenditures increased by $2.0 million, from $2.3 million in 1997 to $4.3
million in 1998. The increase in capitalized software development costs was due
primarily to the acquisitions.

General and administrative expenses increased by $928,000, or 9.1%, from
$10.2 million in 1997 to $11.1 million in 1998. The increase was due primarily
to the timing of the acquisitions, partially offset by the savings generated by
the rationalization of our administrative, financial and legal organizations. As
a percentage of total revenues, general and administrative expenses decreased
from 6.9% in 1997 to 6.1% in 1998.

Depreciation and amortization expense increased by $467,000, or 4.1%, from
$11.5 million in 1997 to $12.0 million in 1998. The increase was due primarily
to the amortization of the value of ongoing customer relationships and goodwill
related to the acquisitions. Partially offsetting this increase was a reduction
in goodwill amortization as a result of the re-negotiation of matters relating
to the Alltel acquisition. As a percentage of total revenues, depreciation and
amortization expense decreased from 7.8% in 1997 to 6.6% in 1998. Included in
depreciation and amortization expense is acquisition related amortization of
$3.7 million and $3.9 million in 1997 and 1998, respectively.

We recorded write-offs of acquired in-process research and development of
$105.5 million in 1997, of which $92.2 million was attributable to the Alltel
acquisition, $7.0 million was attributable to the SDK acquisition and $6.3
million was attributable to an acquisition completed by Transition.
Additionally, we recorded a write-off of $2.4 million in 1998 related to
Transition's acquisition of HV.

We recorded a $7.2 million charge during 1998 related to the buyout of a
master services agreement. Additionally, we recorded a charge of $4.8 million
related to the write down of our investment in Simione Central Holdings, Inc.
and recognized $5.0 million of costs related to the merger with Transition.

As a result of these factors, net loss decreased from $126.3 million in
1997 to $35.3 million in 1998.

ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT

In connection with the Alltel, SDK and HV acquisitions, we wrote off
in-process research and development totaling $92.2 million and $7.0 million in
1997 and $2.4 million in 1998, respectively. These amounts were expensed as
non-recurring charges on the respective acquisition dates. These write-offs were
necessary because the acquired technology had not yet reached technological
feasibility and had no future alternative uses. We are using the acquired
in-process research and development to create new products, which will become
part of the Sunrise product suite over the next several years. We generally
released some products using the acquired in-process technology and expect to
release additional products through 2001. We expect that the acquired in-process
research and development will be successfully developed, but there can be no
assurance that commercial viability of these products will be achieved.

The nature of the efforts required for us to develop the purchased
in-process technology into commercially viable products principally relate to
the completion of all planning, designing, prototyping, verification and testing
activities that are necessary to establish that the products can be produced to
meet their design specifications, including functions, features and technical
performance requirements.

424B1 27th Page of 83 TOC 1st Previous Next ↓Bottom Just 27th

The value of the purchased in-process technology was determined by
estimating the projected net cash flows related to the products, including costs
to complete the development of the technology and the future revenues to be
earned upon commercialization of the products. These cash flows were discounted
back to their net present value. The resulting projected net cash flows from
these projects were based on management's estimates of revenues and operating
profits related to these projects. These estimates were based on several
assumptions, including those summarized below for each of the respective
acquisitions.

Through September 30, 2000, revenues and operating profit attributable to
the acquired in-process technology have not materially differed from the
projections used in determining its value. Throughout 1999 and during the first
nine months of 2000, we have continued the development of the in-process
technology that was acquired in the transactions. We are installing modules
derived from the acquired in-process technology in various field trial sites and
have activated some sites. Additionally, we have begun to successfully market
certain aspects of the technology to new and existing customers. We expect to
continue releasing products derived from the technology through 2001. We
continue to believe the projections used reasonably estimate the future benefits
attributable to the in-process technology. However, we cannot assure you that
deviations from these projections will not occur.

If these projects to develop commercial products based on the acquired
in-process technology are not successfully completed, our sales and
profitability may be adversely affected in future periods. Additionally, the
value of other intangible assets may become impaired.

ALLTEL

The primary purchased in-process technology acquired in the Alltel
acquisition was the client-server based core application modules of an
integrated clinical software product whose functionality included order
management, health information management, physician applications, nursing
applications, pharmacy, laboratory and radiology applications and ancillary
support. Additionally, the product included functionality facilitating the
gathering and analysis of data throughout a healthcare organization, a data
integration engine and various other functionality.

Revenue attributable to the in-process technology was assumed to increase
over the twelve-year projection period at annual rates ranging from 234% to 5%,
resulting in annual revenues of approximately $27.0 million to $640.0 million.
These projections were based on assumed penetration of the existing customer
base, new customer transactions, historical retention rates and experiences of
prior product releases. The projections reflected accelerated revenue growth in
the first five years, 1997 to 2001, as the products derived from the in-process
technology were generally released. In addition, the projections were based on
annual revenue to be derived from long-term contractual arrangements ranging
from seven to ten years. New customer contracts for products developed from the
in-process technology were assumed to peak in 2001, with rapidly declining sales
volume in the years 2002 to 2003 as other new products were expected to enter
the market. The projections assumed no new customer contracts after 2003.
Projected revenue in years after 2003 was determined using a 5% annual growth
rate, which reflected contractual increases.

Operating profit was projected to grow over the projection period at rates
ranging from 1238% to 5%, resulting in incremental annual operating profit
(loss) of approximately $(5.0) million to $111.0 million. The operating profit
projections during the years 1997 to 2001 assumed a growth rate slightly higher
than the revenue projections. The higher growth rate was attributable to the
increase in revenues discussed above, together with research and development
costs then expected to remain constant at approximately $15 million annually.
The operating profit projections included a 5% annual growth rate for the years
after 2003 consistent with the revenue projections.

424B1 28th Page of 83 TOC 1st Previous Next ↓Bottom Just 28th

Through September 30, 2000, revenues and operating profit attributable to
the acquired in-process technology have not materially differed from the
projections used in determining its value. Through September 30, 2000, we
continued the development of the in-process technology that was acquired in the
Alltel transaction. We have installed modules derived from the acquired
in-process technology and are continuing to develop additional functionality
from this technology. Additionally, we have begun to successfully market certain
aspects of the technology to new and existing customers. We expect to continue
releasing products derived from the technology through 2001. We continue to
believe the projections used reasonably estimated the future benefits
attributable to the in-process technology. However, no assurance can be given
that deviations from these projections will not occur.

The projected net cash flows were discounted to their present value using
the weighted average cost of capital. The weighted average cost of capital
calculation produces the average required rate of return of an investment in an
operating enterprise, based on required rates of return from investments in
various areas of the enterprise. The weighted average cost of capital used in
the projections was 21%. This rate was determined by applying the capital asset
pricing model. This method yielded an estimated average weighted average cost of
capital of approximately 16.5%. A risk premium was added to reflect the business
risks associated with our stage of development, as well as the technology risk
associated with the in-process software, resulting in a weighted average cost of
capital of 21%. In addition, the value of customer relationships was calculated
using a discount rate of 21% and a return to net tangible assets was estimated
using a rate of return of 11.25%. The value of the goodwill was calculated as
the remaining intangible value not otherwise allocated to identifiable
intangible assets, resulting in an implied discount rate on the goodwill of
approximately 28%.

We used a 21% discount rate for valuing existing technology because this
technology faced substantially the same risks as the business as a whole.
Accordingly, a rate equal to the weighted average cost of capital of 21% was
used. We used a 28% discount rate for valuing in-process technology. The spread
over the existing technology discount rate reflected the inherently greater risk
of the research and development efforts. The spread reflected the nature of the
development efforts relative to the existing base of technology and the
potential market for the in-process technology once the products were released.

We estimated that the costs to develop the purchased in-process technology
acquired in the Alltel acquisition into commercially viable products would be
approximately $75.0 million in the aggregate through 2001, $15.0 million per
year from 1997 to 2001.

SDK

The purchased in-process technology acquired in the SDK acquisition
comprised three major enterprise-wide modules in the areas of physician billing,
home health care billing and long-term care billing; a graphical user interface;
a corporate master patient index; and a standard query language module.

Revenue attributable to the in-process technology was assumed to increase
in the first three years of the ten-year projection period at annual rates
ranging from 497% to 83%, then to decrease over the remaining years at annual
rates ranging from 73% to 14% as other products were released in the market
place. Projected annual revenue ranged from approximately $5.0 million to $56.0
million over the term of the projections. These projections were based on
assumed penetration of the existing customer base, synergies as a result of the
SDK acquisition, new customer transactions and historical retention rates.
Projected revenues from the in-process technology were assumed to peak in 2000
and decline from 2000 to 2007 as other new products were expected to enter the
market.

Operating profit was projected to grow over the projection period at annual
rates ranging from 1497% to 94% during the first three years, decreasing during
the remaining years of the

424B1 29th Page of 83 TOC 1st Previous Next ↓Bottom Just 29th

projection period similar to the revenue growth projections described above.
Projected annual operating profit ranged from approximately $250,000 to $8
million over the term of the projections.

Through September 30, 2000, revenues and operating profit attributable to
in-process technology have been consistent with the projections. However, we
cannot assure you that deviations from these projections will not occur in the
future.

The weighted average cost of capital used in the analysis was 20%. This
rate was determined by applying the capital asset pricing model and a review of
venture capital rates of return for companies in a similar life cycle stage.

We used a 20% discount rate for valuing existing and in-process technology
because both technologies face substantially the same risks as the business as a
whole. Accordingly, a rate equal to the weighted average cost of capital of 20%
was used.

We estimated that the costs to develop the in-process technology acquired
in the SDK acquisition would be approximately $1.7 million in the aggregate
through the year 2000, comprised of $500,000 in 1998, $600,000 in 1999 and
$600,000 in 2000.

TRANSITION

In connection with the purchase by Transition of HV, based on an
independent appraisal, we recorded $40.6 million of intangible assets, which
included $2.4 million of acquired in-process research and development. The
amount allocated to acquired in-process research and development represented
development projects in areas that had not reached technological feasibility and
which had no alternative future use. Accordingly, the amount was charged to
operations at the date of the acquisition.

LIQUIDITY AND CAPITAL RESOURCES

During the nine months ended September 30, 2000, we used $15.2 million in
operations, including approximately $10.5 million of annual employee
compensation related liabilities paid during the first quarter. Investing
activities used $5.9 million for the purchase of fixed assets and the funding of
development costs partially offset by the sale of investments. Financing
activities provided $5.0 million, due to borrowings under an equipment financing
arrangement, exercise of stock options and the employee stock purchase plan.

We have a revolving credit facility with a commercial bank providing for
maximum borrowings of up to $30.0 million. Available borrowings under this
facility are based on accounts receivable and other criteria. As of September
30, 2000, our available borrowings under the facility were approximately $16.4
million and there were no outstanding borrowings under the facility.

As of September 30, 2000, our principal sources of liquidity consisted of
$17.9 million in cash and cash equivalents and our available borrowings under
our revolving credit facility of $16.4 million.

Our future capital requirements will depend upon a number of factors,
including the rate of growth of our sales and the timing and level of research
and development activities. As of September 30, 2000, we did not have any
material commitments for capital expenditures.

We believe that our available cash and cash equivalents, anticipated cash
generated from our future operations and amounts available under the existing
revolving credit facility will be sufficient to meet our operating requirements
for at least the next twelve months.

424B1 30th Page of 83 TOC 1st Previous Next ↓Bottom Just 30th

RECENT ACCOUNTING PRONOUNCEMENTS

In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, or FIN 44, Accounting for Certain Transactions Involving
Stock Compensation, an interpretation of APB Opinion No. 25. The interpretation
provides guidance for issues relating to stock compensation involving employees
that arose in applying APB Opinion No. 25. The provisions of FIN 44 were
effective July 1, 2000. The adoption of FIN 44 has had no effect on our
financial statements.

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, or SAB 101, Revenue Recognition in Financial
Statements. SAB No. 101 summarizes the SEC staff's view in applying generally
accepted accounting principles to revenue recognition in financial statements.
On June 26, 2000, the SEC staff issued SAB No. 101-B to provide registrants with
additional time to implement guidance contained in SAB No. 101. SAB 101-B delays
the implementation date of SAB No. 101 until no later than the fourth fiscal
quarter of fiscal years beginning after December 15, 1999. While we continue to
study the SEC's recently issued guidance on SAB No. 101, we believe our revenue
recognition policies are compliant with the Staff Accounting Bulletin.

424B1 31st Page of 83 TOC 1st Previous Next ↓Bottom Just 31st

BUSINESS

OVERVIEW

We are a healthcare information technology company. Our solutions assist
healthcare organizations in achieving balanced outcomes through an appropriate
and sustainable combination of clinical quality, efficient use of resources and
patient satisfaction. We have designed our solutions to help our customers
deliver better healthcare through information. Our solutions consist of a
comprehensive service offering and seven integrated software suites that we
market under the Sunrise brand name.

Our software applications consist of individual product modules that can be
implemented in any combination and integrated with our customers' existing
information technology systems. We believe the open, modular nature of our
software architecture reduces the overall cost of ownership and reduces the time
to productive use because our solutions do not require the initial investment
and disruption associated with a complete replacement of a customer's existing
legacy systems. To facilitate rapid adoption by our customers, we have
engineered our solutions to take advantage of Web-based technologies. Our
software applications are available to our customers for implementation in-house
or through our remote hosting service, and are designed to work in a variety of
healthcare settings.

We market our solutions primarily to large healthcare organizations,
particularly academic medical centers. We have one or more of our products
installed or being installed in over 1,400 facilities in the United States and 9
other countries. We maintain decentralized sales and customer support teams in
each of our five North American regions to provide direct, sustained customer
contact.

INDUSTRY BACKGROUND

A HISTORY OF LOW INVESTMENT IN HEALTHCARE INFORMATION TECHNOLOGY.
Historically, the healthcare industry has invested relatively less in
information technology than some other industries. For example, Dataquest, an
independent industry analyst, estimated that in 1995 healthcare organizations
invested less than 3% of their revenues in information technology as compared to
7% invested by financial services companies. As a result, while physicians,
nurses and other care givers are using leading edge diagnostic and therapeutic
technologies, we believe information and workflow remain largely paper-based and
depend heavily on word-of-mouth communication. As a result of industry trends,
healthcare providers are beginning to make greater investments in healthcare
information technology that capitalize on evolving information management
technologies. Industry analysts estimate that healthcare organizations spent
approximately $17 billion in 1997 for information technology solutions, and
anticipate that such expenditures will increase to approximately $28 billion
annually by 2002.

RAPID CHANGE IN THE HEALTHCARE INDUSTRY INCREASES THE NEED FOR INFORMATION
TECHNOLOGY. The healthcare industry continues to undergo dramatic change.
Throughout the 1990s, the increasing cost of providing healthcare led to the
rise of managed care, in which providers were aligned within networks and
healthcare delivery followed rules established by health plans in order to
qualify for reimbursement. Furthermore, in 1997, Congress passed the Balanced
Budget Act, which dramatically decreased Medicare reimbursement to healthcare
organizations. As a result, healthcare organizations have become increasingly
focused on cost containment and fiscal

424B1 32nd Page of 83 TOC 1st Previous Next ↓Bottom Just 32nd

responsibility. A number of other developments in the last few years have
resulted, and will likely continue to result, in significant changes in the
healthcare industry:

- In 1996, Congress passed the Healthcare Information Portability and
Accountability Act, referred to as HIPAA, which required HHS to establish
standards for information sharing, security and patient confidentiality
in healthcare organizations. In December 2000, HHS published its final
health data privacy regulations, which will take effect in December 2002.
Although HHS has not yet issued final rules on most of the other topics
under HIPAA and has yet to issue proposed rules on some topics, we
believe these regulations will create a need for advanced information
technology that enables healthcare organizations to comply with these
emerging requirements.

- In 1999, the Institute of Medicine, or IOM, published a report entitled
"To Err is Human: Building a Safer Health System" chronicling the high
rate of avoidable error in patient care, which result in an estimated
44,000 to 98,000 deaths annually.

- Since the IOM report was released, California has passed legislation
requiring the eventual adoption of information technologies aimed at
reducing avoidable medical errors. In addition, a consortium of large
employers called the Leapfrog Group, which includes such companies as
General Motors, General Electric, AT&T and IBM, and whose members
reportedly spend $40 billion annually on healthcare, has announced its
intention to begin steering its members' employees toward hospitals that,
among other things, invest in computerized systems designed to prevent
avoidable medical errors.

As a result, healthcare providers have begun to evaluate the changes they
must make to their systems and processes in order to address these developments.

SHORTCOMINGS OF TRADITIONAL HEALTHCARE INFORMATION SYSTEMS. Traditional
healthcare information systems are limited in their ability to support the
modernization of healthcare delivery processes or the evolving requirements of
managed care, new healthcare legislation and regulations and patient safety
initiatives. Traditional systems have generally been oriented toward financial
functions, which have focused primarily on the ability to capture charges and
generate bills. These traditional systems do not provide updated, real-time
information to healthcare organizations to aid clinical decision-making and
lessen the increased administrative burdens they face. Furthermore, individual
clinical and administrative departments have purchased or developed their own
proprietary ancillary systems, resulting in disparate information systems within
a single healthcare delivery network that do not operate well with one another.
In addition, traditional systems were typically designed to operate in a single
facility, which has made them less effective in today's geographically dispersed
integrated health networks.

These forces have increased the need among healthcare organizations for
clinical, financial and administrative information technology to help achieve
cost-effective, high-quality outcomes. As a result, healthcare providers are
increasingly demanding greater investment in integrated information technology
solutions that offer all of the core functions required to manage the entire
healthcare delivery process. Furthermore, the Internet now allows disparate
participants in geographically dispersed health networks to communicate easily
with one another to share data and facilitate the flow of information.

THE ECLIPSYS SOLUTION

Our solutions assist healthcare organizations in achieving balanced
outcomes through an appropriate and sustainable combination of clinical quality,
resource utilization and patient satisfaction. They provide comprehensive
functionality to focus on solving the business issues healthcare organizations
face.

424B1 33rd Page of 83 TOC 1st Previous Next ↓Bottom Just 33rd

Our solutions are designed to:

- provide automated processes that improve clinical workflow and support
clinical decision-making;

- integrate clinical, financial and patient satisfaction information to
support balanced outcomes;

- provide tools that permit healthcare organizations to analyze past
performance, model new plans for the future and measure and monitor the
effectiveness of those plans;

- leverage our modular product architecture in order to offer our customers
a solution targeted at their particular needs while preserving their
investment in existing systems;

- provide for rapid and cost-effective implementation, whether through the
installation of an in-house system or the option of remote hosted
services;

- enable healthcare providers to access patient information and other
supporting clinical information, such as medical journals, both through
wireless devices within the healthcare facility and over the Internet;
and

- assist our customers in their efforts to improve workflow processes and
implement best practices within their organizations through our
comprehensive service offerings.

THE ECLIPSYS STRATEGY

Our objective is to become the leading provider of healthcare information
technology solutions to the healthcare industry. Key elements of our strategy
include:

PROVIDE COMPREHENSIVE, INTEGRATED HEALTHCARE INFORMATION TECHNOLOGY
SOLUTIONS. Our goal is to continue to provide an integrated software and
service offering that represents a comprehensive healthcare information
technology solution for our customers. We intend to continue to enhance our
existing products and develop new solutions to meet the evolving healthcare
information needs of our customers. For example, we have been enhancing our
products to take advantage of our eHealthSource architecture, which is a
browser-enabled, database-neutral software architecture that supports multiple
operating system platforms and can be used across a broad range of computing
environments, including the Internet, client-server systems and older mainframe
computer systems. We have a team of over 400 internal research, development and
technical support professionals dedicated to developing, enhancing, supporting
and commercializing new and enhanced healthcare information technology products.
For example, we recently began development of a software application focused on
the needs of pharmacies within healthcare organizations.

PROVIDE FLEXIBLE PRODUCT OPTIONS. We intend to continue to offer our
customers flexible product and product-delivery options in order to meet their
varying information technology requirements. Our software suites can be
purchased individually or in any combination, and can be integrated with a
customer's existing systems, thereby minimizing cost and disruption. On a
combined basis, our software suites provide an integrated solution to the major
clinical, financial and administrative needs of a healthcare organization. In
addition, we intend to continue to offer our products on both an in-house and a
remote-hosted basis, depending on the needs of the customer.

FURTHER PENETRATE OUR EXISTING CUSTOMER BASE. We believe there is a
significant opportunity to sell our integrated healthcare technology solutions
to our existing customers, which include large healthcare organizations,
particularly academic medical centers. Of these customers, only a few have
enterprise-wide healthcare information systems. Our products are installed or
being installed in more than 1,400 facilities, and most of these facilities have
only one or two of our

424B1 34th Page of 83 TOC 1st Previous Next ↓Bottom Just 34th

software applications. We intend to continue to market our solutions
aggressively to our customers in order to capitalize on the growth opportunity
within our existing customer base.

EMPLOY A TARGETED MARKETING APPROACH. We intend to continue to target
large healthcare organizations, particularly academic medical centers. We
believe that these entities are the first to adopt new technology. In addition,
we believe that physicians are becoming increasingly involved in the process of
selecting information technology. We believe that our clinically oriented
products and our inclusion of physicians in the product design process provide
us with an advantage as we compete for business. We will also continue to
leverage the extensive industry experience of our senior management and sales
force in this effort.

PRODUCTS

Our products perform the core information technology functions required by
large healthcare organizations and other healthcare providers throughout the
healthcare enterprise. Our software applications are available to our customers
for implementation in-house or through our remote hosting service, and are
designed to work in a variety of healthcare settings. In addition, our products
are designed to work both through wireless devices within a healthcare facility
and over the Internet. The following table summarizes our product offerings:

[Enlarge/Download Table]

PRODUCT PRIMARY FUNCTIONS
------- -----------------

SUNRISE CLINICAL MANAGER - Provide clinical rules and information to
facilitate clinical decision-making
- Access to patient records
- On-line ordering of clinical services and
prescriptions
-----------------------------------------------------------------------------------------------------------------------
SUNRISE ACCESS MANAGER - Access to patient information and coordination
of gathering of additional information at each
stage of patient care
- Coordinate scheduling of appointments
-----------------------------------------------------------------------------------------------------------------------
SUNRISE PATIENT FINANCIAL MANAGER - Coordinate compliance with managed-care
contract reimbursement terms, patient billing,
and third-party reimbursement
-----------------------------------------------------------------------------------------------------------------------
SUNRISE DECISION SUPPORT MANAGER - Clinical and financial data repository to
analyze past clinical, operational and financial
performance
- Model future plans and alternatives
- Measure and monitor performance
-----------------------------------------------------------------------------------------------------------------------
SUNRISE RECORD MANAGER - Automated medical record management system
- Enterprise-wide document and image-management
-----------------------------------------------------------------------------------------------------------------------
SUNRISE ERP MANAGER - Supply and materials management, along with
other financial management tools
-----------------------------------------------------------------------------------------------------------------------
SUNRISE ENTERPRISE APPLICATION INTEGRATOR - Tools to enable integration of data from
(EWEBIT) existing legacy systems
-----------------------------------------------------------------------------------------------------------------------

SUNRISE CLINICAL MANAGER. Sunrise Clinical Manager is a physician-oriented
application that provides patient information to physicians, nurses and other
clinicians at the point-of-care. Sunrise Clinical Manager also allows a
physician to enter orders quickly and efficiently into the system and provides
clinical decision support at the time of order entry. Sunrise Clinical Manager

424B1 35th Page of 83 TOC 1st Previous Next ↓Bottom Just 35th

is designed for use in ambulatory, acute care and other healthcare settings, and
includes the following features:

- Knowledge-based orders, which is a clinical decision support system that
automatically provides real-time guidance to physicians by alerting them
to possible problems with or conflicts between newly entered orders and
existing patient information using the system's rules database. A
comprehensive set of clinical rules developed by physicians is available
with knowledge-based orders. Customers can modify these existing rules or
can develop their own clinical rules.

- Clinical decision support, which triggers alerts, including by email or
pager, upon the occurrence of a specified change in a patient's condition
or any other physician-designated event, such as the delivery of
unfavorable laboratory results, while relating the new information to
information already in the system for that patient.

- Clinical pathways and scheduled activities lists, which provide access to
standardized patient-care profiles and assist in the scheduling of
clinical treatment procedures.

- Order entry, communication and management, which enables physicians to
order online prescriptions and laboratory or diagnostic tests or
procedures and routes the order to the appropriate department or party
within the organization for fulfillment.

- Clinical documentation, which gathers and presents organized, accurate
and timely patient information by accepting and arranging input from
caregivers, laboratories or monitoring equipment.

- Sunrise Universal Viewer, which provides physicians with Web-based access
to patient information from within the healthcare facility or at a remote
location.

- Health data repository, which permanently stores clinical and financial
information in easily accessible patient care records.

SUNRISE ACCESS MANAGER. Sunrise Access Manager enables the healthcare
provider to identify the patient at any point in the healthcare delivery system
and to collect and maintain patient information throughout the entire process of
patient care on an enterprise-wide basis. The single database structure of
Sunrise Access Manager permits simultaneous access to the entire patient record
by authorized personnel from any access point on the system. The elements of
Sunrise Access Manager include:

- Patient registration, admission, discharge and transfer.

- Patient scheduling and resource management, which is used to schedule
patient appointments throughout an organization while accounting for
patient preferences and resource availability.

- Enterprise person identifier, which is a single index of all patients and
healthcare plan members within a healthcare provider's system that
supports searches on the basis of a variety of characteristics, such as
name, Social Security number or other demographic data.

- Managed-care support features, such as verifying insurance eligibility
online and compliance with managed-care plan rules and procedures.

SUNRISE PATIENT FINANCIAL MANAGER. Sunrise Patient Financial Manager uses
a single, integrated database for patient-accounting processes, including the
automatic generation of patient billing and accounts receivable functions, a
system of reimbursement management to monitor receivables, the automation of
collection activities and contract compliance analysis, as well as follow-up
processing and reporting functions. This product suite supports the growing

424B1 36th Page of 83 TOC 1st Previous Next ↓Bottom Just 36th

trend toward the centralized business office for multiple entities, which
improves compliance with managed care contracts. Sunrise Patient Financial
Manager includes the following functions:

- Patient accounting, which automates the patient-billing and accounts
receivable functions, including bill generation, reimbursement
calculation, account follow-up and account write-offs. Paperless
processing is achieved through real-time inquiry, editing, sorting,
reporting, commenting and updating from other applications, including
modules in Sunrise Access Manager and Sunrise Clinical Manager.

- Contract management, which includes a repository for the payment terms,
restrictions, approval requirements and other rules and regulations of
each insurance plan and managed care contract accepted by an
organization. Contract management is used in conjunction with other
Sunrise products to ensure that patient care complies with these rules
and regulations.

- Reimbursement management, which facilitates the monitoring of
receivables, performance of collection activity, reconciliation with
third parties and analysis of contract compliance and performance.

SUNRISE DECISION SUPPORT MANAGER. Sunrise Decision Support Manager creates
a clinical and financial data repository by integrating data from throughout the
enterprise. Sunrise Decision Support Manager gathers information from the many
different departmental information systems through connections that enable
concurrent updating of distributed data. The data can then be analyzed to
determine the patient-level costs of care and identify areas for improvement.
This information allows the organization to evaluate its cost structure, make
changes in clinical processes to reduce costs and accurately price reimbursement
contracts on a profitable basis. Sunrise Decision Support Manager also analyzes
and measures clinical process and outcomes data, helping to identify the
practice patterns that most consistently result in the highest quality care at
the lowest cost. Sunrise Decision Support Manager is an important component of
our customers' ability to measure and document improved clinical outcomes and
return on investment. Sunrise Decision Support Manager includes support for:

- case mix, reimbursement and utilization management;

- cost and profitability analysis; and

- strategic planning, modeling and forecasting.

SUNRISE RECORD MANAGER. Sunrise Record Manager is designed to meet the
healthcare information management needs of organizations of virtually any size.
It includes comprehensive applications for clinical data management and
enterprise-wide document and image-management functions designed to improve
productivity, efficiency and accountability. Sunrise Record Manager provides
multiple users with convenient and concurrent access to information, wherever
they may be throughout the organization. Sunrise Record Manager includes:

- management of patient charts, including tracking, chart requests and
release of information;

- transcription and electronic signature functions;

- medical records abstracting and medical image viewer, which make medical
information more readily accessible to caregivers; and

- concurrent care manager, which facilitates coordination of the efforts of
all providers involved in the care of the patient.

SUNRISE ERP MANAGER. Sunrise ERP Manager is an enterprise resource
planning product that has been specifically designed for the healthcare
industry. Among other things, it recognizes the close relationship between the
materials management function and the surgery department,

424B1 37th Page of 83 TOC 1st Previous Next ↓Bottom Just 37th

which is generally the largest consumer of medical supplies in a hospital.
Sunrise ERP Manager largely automates the cost-intensive process of ordering,
paying for and tracking supplies. It includes tools for managing materials and
accounts payable.

SUNRISE ENTERPRISE APPLICATION INTEGRATOR (EWEBIT). Sunrise Enterprise
Application Integrator provides tools to enable the integration of data from a
customer's existing systems. As integrated health networks emerge, the
individual entities within the network will often have their own different
information systems. The clinical and financial data in these disparate systems
must be integrated to provide an enterprise-wide view. Sunrise Enterprise
Application Integrator's product suite includes tools to achieve this
integration, primarily through the use of Web-based integration technologies.
Sunrise Enterprise Application Integrator achieves a comprehensive integration
solution which provides:

- a Web-based composite view of data from different information systems;

- data sharing among disparate information systems; and

- enterprise security and single system sign-on capabilities.

HARDWARE AND RELATED OFFERINGS. Finally, as part of our commitment to
being a comprehensive healthcare information solutions provider, we also sell a
variety of desktop, network and platform solutions including hardware,
middleware and related services.

SERVICES

Drawing on the functionality and flexibility of our software products, we
offer a range of professional services as part of our healthcare information
technology solutions. These services consist of the following:

- IMPLEMENTATION, PRODUCT SUPPORT, TRAINING AND MAINTENANCE -- To
facilitate successful product implementation, our consultants assist our
customers with initial installation of a system, conversion of their
historical data and ongoing training and support. We offer 24-hour
support and electronic distribution to provide our customers with the
latest information regarding our products. We also provide regular
maintenance releases to our customers. Our service and support activities
are supplemented by comprehensive training programs, including
introductory training courses for new customers and seminars for existing
customers, to allow them to take full advantage of the capabilities of
our products. We believe that a high level of service and support is
critical to our success. Furthermore, we believe that a close and active
service and support relationship is important to customer satisfaction
and provides us with important information regarding evolving customer
requirements and additional sales opportunities.

- OUTSOURCING SERVICES -- We assume the management of the customer's entire
information-technology function onsite using our employees. Outsourcing
services include facilities management, network outsourcing and
transition management.

- Facilities management enables our customers to improve their
information-technology operations by having us assume responsibility
for all aspects of the customer's onsite information-technology
operations, from equipment to human resources.

- Network outsourcing provides our customers with total healthcare
information network support, relieving them of the need to secure
and maintain expensive resources in a rapidly changing technological
environment.

- Transition management offers our customers a solution for migrating
their information technology to new processes, technologies or
platforms without interfering with the existing rules and
initiatives critical to the delivery of healthcare.

424B1 38th Page of 83 TOC 1st Previous Next ↓Bottom Just 38th

- REMOTE HOSTING SERVICES -- We assume the complete processing of our
customers' applications from our Technology Solutions Center using our
equipment and personnel. This service frees an organization from the need
to maintain the environment, equipment and technical staff required for
systems processing and offers support for an organization's
fault-management, configuration-management and utilization-management
processes.

- NETWORK SERVICES -- We offer a comprehensive package of services that
enable our customers to receive critical data quickly and accurately
without incurring a substantial increase in cost. We assess changes in
network utilization and function, forecast any necessary upgrades to
accommodate the customer's growth and design any changes necessary to
provide the customer with the required performance and functionality. We
offer our services in various forms, ranging from onsite assistance on a
time-and-expense basis to complete turnkey project deliveries with
guaranteed fixed price rates.

- BUSINESS SOLUTIONS CONSULTING -- Our business solutions services aid our
customers in achieving improved return on investment through their use of
information obtained from our products. The members of our business
solutions group have wide and varied experience in healthcare delivery
and healthcare information management, enabling them to help customers
effectively manage change that will ensure maximum return on investment
and improved outcomes.

TECHNOLOGY

We have defined a single, unifying software architecture for our products,
referred to as SOLA, which stands for Structured Object Layered Architecture. We
have continually enhanced and expanded SOLA and recently renamed it
eHealthSource. eHealthSource is engineered to achieve the following objectives:

- to remain open and modular;

- to be scalable and flexible;

- to increase speed of implementation; and

- to reduce the total cost of ownership.

We are in the process of enhancing each software suite to take advantage of
our eHealthSource architecture, which we believe will facilitate integration,
enhance automation, increase reliability and improve security and workflow
processes. eHealthSource draws on a Web-based, thin-client architecture to
integrate business logic with an intuitive graphical user interface, thereby
enhancing automation and reducing the cost of ownership. This thin-client
architecture enables the user interface to be improved without disturbing the
core application set and facilitates integration of our products with new
operating systems, display environments and devices.

eHealthSource also features a high-performance rules engine to implement a
sizable portion of the business logic for our products. These rules guide
clinical and business workflow, clinical decision support for order entry,
clinical and financial event monitoring and screen logic, enabling structured
development of new applications while maintaining consistency across
applications. Because the rules are managed and stored as data, customers are
able to update the business logic without modifying and distributing new code.
This enables customers to reduce programming expenses, while enhancing the
flexibility of our applications and facilitating their rapid adoption.
eHealthSource features a seamless and consistent architecture which promotes
reliability.

eHealthSource also uses advanced technology to maintain security both
across Internet connections and within an organization's internal network. This
ability to support secure

424B1 39th Page of 83 TOC 1st Previous Next ↓Bottom Just 39th

communications and incorporate reliable protocols for authenticating users and
services enhances the ability of an organization to maintain the confidentiality
of patient information.

CUSTOMERS, MARKETING AND SALES

Our marketing and sales efforts focus on large health care organizations,
primarily academic medical centers. We sell our products and services in North
America exclusively through our direct sales force. Management of the sales
force is decentralized, with five regional presidents having primary
responsibility for sales and marketing within their regions. National account
representatives manage some multi-region accounts. Within each region, the
direct sales force is generally organized into two groups, one focused
principally on generating sales to new customers and the other focused on
additional sales to existing customers. The direct sales force works closely
with our implementation and product line specialists. Supporting the field staff
is a team of domain experts who have extensive experience and expertise in their
specific field. A significant component of compensation for all direct sales
personnel is performance based, although we base incentive compensation on a
number of factors in addition to actual sales, including customer satisfaction
and accounts receivable performance.

In addition to the United States, we have customers in Australia, Belgium,
Canada, France, Germany, The Netherlands, New Zealand, Singapore and the United
Kingdom.

RESEARCH AND DEVELOPMENT

We believe that our future success depends in large part on our ability to
maintain and enhance our current product line, develop new products, maintain
technological competitiveness and meet an expanding range of customer
requirements. Our current development efforts are focused on enhancing our
products to utilize the eHealthSource architecture and the development of
additional functionality and applications for our existing software
applications.

As of December 31, 2000, our research, development and technical support
organization consisted of over 400 employees. Our research and development
expenses were $43.8 million for the year ended December 31, 1999 and $28.1
million for the nine months ended September 30, 2000.

COMPETITION

The market for our products and services is intensely competitive and is
characterized by rapidly changing technology, evolving user needs and the
frequent introduction of new products. Our principal competitors include Cerner
Corp., McKessonHBOC Inc., IDX Systems Corp. and Shared Medical Systems, which
was acquired by Siemens AG in 2000. We also face competition from providers of
practice-management systems, general decision support and database systems and
other segment-specific applications, as well as from healthcare technology
consultants.

A number of our competitors are more established, benefit from greater name
recognition and have substantially greater financial, technical and marketing
resources than we do. We also expect that competition will continue to increase
as a result of consolidation in both the information technology and healthcare
industries. We believe that the principal factors affecting competition in the
healthcare information technology market include product functionality,
performance, flexibility and features, use of open standards technology, quality
of service and support, company reputation, price and overall cost of ownership.

PROPRIETARY RIGHTS

We are dependent upon our proprietary information and technology. We rely
primarily on a combination of copyright, trademark and trade secret laws and
license agreements to establish and protect our rights in our software products
and other proprietary technology. We require

424B1 40th Page of 83 TOC 1st Previous Next ↓Bottom Just 40th

third-party consultants and contractors to enter into nondisclosure agreements
to limit use of, access to and distribution of our proprietary information. In
addition, we currently require employees who receive stock option grants under
any of our stock option plans to enter into nondisclosure agreements. We cannot
assure you, however, that these protections will be adequate to prevent
misappropriation of our proprietary rights. In addition, the laws of some
foreign countries may not protect our proprietary rights as fully or in the same
manner as do the laws of the United States. Also, despite the steps we have
taken to protect our proprietary rights, it may be possible for unauthorized
third parties to copy aspects of our products, reverse engineer such products or
otherwise obtain and use information that we regard as proprietary. In certain
limited instances, customers can access source-code versions of our software,
subject to contractual limitations on the permitted use of such source code.
Although our license agreements with such customers attempt to prevent misuse of
the source code, the possession of our source code by third parties increases
the ease and likelihood of potential misappropriation of such software.
Furthermore, there can be no assurance that others will not independently
develop technologies similar or superior to our technology or design around our
proprietary rights.

EMPLOYEES

As of December 31, 2000, we employed 1,460 people, including 689 in field
operations, sales, account management, implementation and education; 631 in
research, development and product delivery; and 140 in marketing, finance, human
resources, legal and other administrative functions. Our success depends on our
continued ability to attract and retain highly skilled and qualified personnel.
Competition for such personnel is intense in the information-technology
industry, particularly for talented software developers, service consultants,
and sales and marketing personnel. There can be no assurance that we will be
able to attract and retain qualified personnel in the future. Our employees are
not represented by any labor unions. We considers our relations with our
employees to be good.

FACILITIES

We are headquartered in Delray Beach, Florida, where we lease office space
under several leases expiring at various times through June 2003. In addition,
we maintain leased office space in cities throughout the United States and in
Australia, Canada, Belgium and the United Kingdom. These leases expire at
various times through June 2009.

LEGAL PROCEEDINGS

We are not party to any material legal proceedings.

424B1 41st Page of 83 TOC 1st Previous Next ↓Bottom Just 41st

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

Our executive officers and directors, and their ages as of December 31,
2000, are as follows:

[Enlarge/Download Table]

NAME AGE TITLE
---- --- -----

Harvey J. Wilson.......................... 61 Chief executive officer and chairman of
the board of directors
James E. Hall............................. 67 President and chief operating officer
Gregory L. Wilson......................... 31 Senior vice president, chief financial
officer and treasurer
T. Jack Risenhoover, II................... 35 Senior vice president, general counsel and
secretary
Steven A. Denning(2)...................... 52 Director
G. Fred DiBona(2)......................... 49 Director
Eugene V. Fife(1)(2)...................... 60 Director
William E. Ford(1)........................ 39 Director
Jay B. Pieper (1)......................... 57 Director

---------------
(1) Member of the audit committee

(2) Member of the executive development and compensation committee

Harvey J. Wilson, our founder, served as our president, chief executive
officer and chairman of the board of directors since we were formed in December
1995 until February 1999, and continues to serve as chief executive officer and
chairman of the board of directors. Mr. Wilson was a co-founder of Shared
Medical Systems Corporation, or SMS, a healthcare information systems provider.
Mr. Wilson is a director of Philadelphia Suburban Corporation, a water utility
company. Harvey Wilson is the father of Gregory Wilson, our chief financial
officer.

James E. Hall has served as our chief operating officer since January 1997
and became president in February 1999. From August 1995 to January 1997, Mr.
Hall was senior vice president of sales and marketing for Multimedia Medical
Systems, Inc., a clinical information systems company.

Gregory L. Wilson has served as our senior vice president, chief financial
officer and treasurer since December 1999. From January to December 1999, he
served as our president of the Southeast region and, from April 1997 to January
1999, as our vice president of mergers and acquisitions. Before joining us, Mr.
Wilson was a vice president and healthcare services equity analyst for Lehman
Brothers, from March 1996 to April 1997. From May 1995 to March 1996, Mr. Wilson
was a vice president of Needham & Co., an investment bank. Gregory Wilson is the
son of Harvey Wilson.

T. Jack Risenhoover, II has served as vice president and general counsel
from February 1997 through February 2000, and as senior vice president and
general counsel since March 2000. From May 1994 to January 1997, Mr. Risenhoover
was general counsel for The Right Angle, Inc., a marketing firm.

Steven A. Denning has served on our board of directors since March 1997.
Mr. Denning is the executive managing member of General Atlantic Partners LLC, a
private equity firm focused exclusively on Internet and information technology
investments on a global basis, and has been with General Atlantic Partners, LLC
(or its predecessor) since 1980. Mr. Denning is also a director of Infogrames,
Inc., an interactive entertainment software development company, EXE
Technologies, Inc., a supply chain execution software company, Manugistics
Group, Inc., a supply chain management software company, and Exult, Inc., an
Internet-enabled human resources outsourcing company.

424B1 42nd Page of 83 TOC 1st Previous Next ↓Bottom Just 42nd

G. Fred DiBona has served on our board of directors since May 1996. Since
1990, Mr. DiBona has been the president and chief executive officer of
Independence Blue Cross and its subsidiaries. Mr. DiBona is also a director of
Magellan Health Services, Inc., a specialized managed healthcare company, Exelon
Corporation, a public energy holding company, Philadelphia Suburban Corporation,
a water utility company, and Tasty Baking Company, a packaged foods company.

Eugene V. Fife has served on our board of directors since May 1997. Since
September 1999, Mr. Fife has served as the founding principal of Vawter Capital,
L.L.C., a private equity investment firm. From September 1996 to December 1999,
Mr. Fife served as the co-chairman and chief executive officer of Illuminis,
Inc., a clinical information systems company. Mr. Fife was formerly a general
partner in Goldman, Sachs & Co. where he served as a member of its management
committee and as chairman of Goldman Sachs International. Mr. Fife retired from
Goldman, Sachs & Co. in 1995, and remained a limited partner of the firm until
May 1999, at which time he became a senior director of the firm in which
capacity he continues to serve.

William E. Ford has served on our board of directors since May 1996. Mr.
Ford is a managing member of General Atlantic Partners, LLC, and has been with
General Atlantic since 1991. Mr. Ford also serves as a director of E*Trade
Group, Inc., an on-line investment services company, Priceline.com Incorporated,
a buyer-driven e-commerce company, Prime Response, Inc., an enterprise customer
relationship management software company, and Tickets.com, Inc., an automated
ticketing solutions company.

Jay B. Pieper has served on our board of directors since May 1996. Since
May 1995, Mr. Pieper has served as vice president of corporate development and
treasury affairs for Partners HealthCare System, Inc., the parent of Brigham and
Women's Hospital and Massachusetts General Hospital in Boston, Massachusetts.
From March 1986 to May 1995, Mr. Pieper was senior vice president and chief
financial officer for Brigham and Women's Hospital.

424B1 43rd Page of 83 TOC 1st Previous Next ↓Bottom Just 43rd

DESCRIPTION OF CAPITAL STOCK

Our authorized capital stock consists of 200,000,000 shares of common
stock, 5,000,000 shares of non-voting common stock and 5,000,000 shares of
preferred stock, of which 100,000 have been designated Series A Junior
Participating Preferred Stock. As of December 29, 2000, there were 37,133,040
shares of common stock outstanding held by 180 stockholders of record. No shares
of non-voting common stock or preferred stock are outstanding.

The following summary of the provisions of the common stock, non-voting
common stock, preferred stock, amended and restated certificate of
incorporation, amended and restated by-laws and rights plan is not intended to
be complete and is qualified by reference to the provisions of applicable law
and to the restated certificate of incorporation and by-laws included as
exhibits to the registration statement of which this prospectus is a part.

COMMON STOCK AND NON-VOTING COMMON STOCK

Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Holders of non-voting common stock do not have voting rights other than
as provided by statute. Accordingly, holders of a majority of the shares of
common stock entitled to vote in any election of directors may elect all of the
directors standing for election. Holders of common stock and non-voting common
stock are entitled to receive ratably such dividends, if any, as may be declared
by the board of directors out of funds legally available therefor, subject to
any preferential dividend rights of outstanding preferred stock. Upon our
liquidation, dissolution or winding up, the holders of common stock and
non-voting common stock are entitled to receive ratably our net assets available
after the payment of all debts and other liabilities and subject to the prior
rights of any outstanding preferred stock. Holders of common stock and
non-voting common stock have no preemptive, subscription or redemption rights.
The outstanding shares of common stock and non-voting common stock are, and the
shares of common stock offered by us in this offering will be, when issued and
paid for, fully paid and nonassessable. The rights, preferences and privileges
of holders of common stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of preferred stock that we may
designate and issue in the future.

Shares of non-voting common stock may be converted, at the holder's option,
into shares of common stock at the rate of one share of common stock for each
share of non-voting common stock surrendered for conversion, subject to
adjustments in some cases. The holder can elect to convert all or any part of
its non-voting common stock at any time, except that, if the holder is subject
to federal banking regulations, the holder may only convert in connection with
specified sales of the common stock to be issued upon the conversion.

PREFERRED STOCK

Under the terms of our amended and restated certificate of incorporation,
the board of directors is authorized, subject to any limitations prescribed by
law, without stockholder approval, to issue up to 5,000,000 shares of preferred
stock in one or more series. Any series of preferred stock will have rights,
preferences, privileges and restrictions, including voting rights, dividend
rights, conversion rights, redemption privileges and liquidation preferences, as
may be determined by the board of directors. The purpose of authorizing the
board of directors to issue preferred stock and determine its rights and
preferences is to eliminate delays associated with a stockholder vote on
specific issuances. The issuance of preferred stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from acquiring, a majority of our
outstanding voting stock. We have no present plans to issue any shares of
preferred stock.

424B1 44th Page of 83 TOC 1st Previous Next ↓Bottom Just 44th

In connection with the adoption of the rights plan discussed below, the
board of directors designated 100,000 of these shares as Series A Junior
Participating Preferred Stock.

RIGHTS PLAN

Under our shareholder rights plan, each share of our common stock has one
associated preferred stock purchase right. The description and terms of the
rights are set forth in a Rights Agreement dated as of July 26, 2000 between us
and Fleet National Bank, as rights agent. The rights will expire on July 26,
2010, unless the rights are redeemed or exchanged before that time.

Each right entitles the registered holder to purchase one one-thousandth of
a share of our Series A Junior Participating Preferred Stock, $.01 par value per
share, at a purchase price of $65.00 per right, subject to adjustment. In
general, the rights are not exercisable unless and until a person or group,
other than an exempt person, acquires beneficial ownership of 15% or more of the
outstanding shares of our common stock or commences a tender or exchange offer
that would result in that person or group owning 15% or more of the outstanding
shares of our common stock. Exempt persons are General Atlantic Partners LLC,
its officers and directors and affiliates. With specified exceptions, if any
person or group, other than an exempt person, becomes the beneficial owner of
15% or more of the shares of our common stock, each right not owned by the 15%
stockholder will entitle its holder to purchase that number of shares of our
common stock which equals $65.00 divided by one-half of the market price of our
common stock at that time.

In addition, following an acquisition of our common stock described in the
prior sentence, if we are involved in a merger or other business combination
transaction with another entity in which we are not the surviving corporation or
in which our common stock is changed or converted, or if we sell or transfer 50%
or more of our assets or earning power to another entity, each right will
generally entitle its holder to purchase that number of shares of common stock
of the acquiror which equals the exercise price of the right divided by one-half
of the market price of that common stock at such time. We also have the ability
to amend the rights plan or to redeem the rights at $.001 per right subject to
specified restrictions.

Until a right is exercised, the holder of a right will have no rights as a
stockholder with respect to the shares purchasable upon exercise of the right,
including without limitation the right to vote or to receive dividends.

The rights have anti-takeover effects. The rights may cause substantial
dilution to a person or group that attempts to acquire us in a manner or on
terms not approved by our board of directors. The rights, however, are intended
not to deter any prospective offeror willing to negotiate in good faith with our
board of directors, and the rights should not interfere with any merger or other
business combination approved by our board of directors.

DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS

We are subject to the provisions of Section 203 of the Delaware corporate
statute. Section 203 prohibits a publicly held Delaware corporation from
engaging in a business combination with an interested stockholder for a period
of three years after the date of the transaction in which the person became an
interested stockholder, unless the business combination is approved in a
prescribed manner. A business combination includes mergers, asset sales and
other transactions resulting in a financial benefit to the interested
stockholder. Subject to specified exceptions, an interested stockholder is a
person who, together with affiliates and associates, owns, or within three years
did own, 15% or more of the corporation's voting stock.

Our certificate of incorporation provides for the division of the board of
directors into three classes as nearly equal in size as possible with staggered
three-year terms. In addition, the

424B1 45th Page of 83 TOC 1st Previous Next ↓Bottom Just 45th

certificate of incorporation provides that directors may be removed only for
cause by the affirmative vote of the holders of 75% of the shares of our capital
stock entitled to vote. Under our certificate of incorporation, any vacancy on
the board of directors, however occurring, including a vacancy resulting from an
enlargement of the board of directors, may only be filled by vote of a majority
of the directors then in office. The limitations on the removal of directors and
filling of vacancies could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from acquiring, control
of us.

Our certificate of incorporation also provides that any action required or
permitted to be taken by our stockholders at an annual meeting or special
meeting of stockholders may only be taken if it is properly brought before the
meeting and may not be taken by written action in lieu of a meeting. Our
certificate of incorporation also provides that special meetings of the
stockholders may only be called by the chairman of the board, the president or
the board of directors. Under our by-laws, in order for any matter to be
considered properly brought before a meeting, a stockholder must comply with
specified requirements regarding advance notice to us. These provisions could
have the effect of delaying, until the next stockholders meeting, stockholder
actions which are favored by the holders of a majority of our outstanding voting
securities. These provisions may also discourage another person or entity from
making a tender offer for the common stock, because the person or entity, even
if it acquired a majority of our outstanding voting securities, would be able to
take action as a stockholder, such as electing new directors or approving a
merger, only at a duly called stockholders' meeting, and not by written consent.

The Delaware corporate statute provides generally that the affirmative vote
of a majority of the shares entitled to vote on any matter is required to amend
a corporation's certificate of incorporation or by-laws, unless a corporation's
certificate of incorporation or by-laws, as the case may be, requires a greater
percentage. Our certificate of incorporation and our by-laws require the
affirmative vote of the holders of at least 75% of the shares of our capital
stock issued and outstanding and entitled to vote to amend or repeal any of the
provisions described in the prior two paragraphs.

Our certificate of incorporation contains provisions permitted under the
Delaware corporate statute relating to the liability of directors. The
provisions eliminate a director's liability for monetary damages for a breach of
fiduciary duty, except in some circumstances involving wrongful acts, such as
the breach of a director's duty of loyalty or acts or omissions which involve
intentional misconduct or a knowing violation of law. Our certificate of
incorporation also contains provisions to indemnify our directors and officers
to the fullest extent permitted by the Delaware corporate statute. We believe
that these provisions will assist us in attracting and retaining qualified
individuals to serve as directors.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the common stock is EquiServe, L.P.

424B1 46th Page of 83 TOC 1st Previous Next ↓Bottom Just 46th

UNDERWRITING

We and the underwriters for the offering named below have entered into an
underwriting agreement with respect to the shares being offered. Subject to
certain conditions, each underwriter has severally agreed to purchase the number
of shares indicated in the following table. Goldman, Sachs & Co., CIBC World
Market Corp. and U.S. Bancorp Piper Jaffray Inc. are the representatives of the
underwriters.

[Download Table]

Underwriters Number of Shares
------------ ----------------

Goldman, Sachs & Co. .................................. 2,640,000
CIBC World Markets Corp. .............................. 880,000
U.S. Bancorp Piper Jaffray Inc......................... 880,000
Advest, Inc. .......................................... 75,000
William Blair & Company, L.L.C......................... 75,000
Brean Murray & Co., Inc. .............................. 75,000
Dain Rauscher Incorporated............................. 75,000
Prudential Securities Incorporated..................... 75,000
Raymond James & Associates, Inc. ...................... 75,000
The Robinson-Humphrey Company, LLC..................... 75,000
Scott & Stringfellow, Inc. ............................ 75,000
---------
Total............................................. 5,000,000
=========

If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional 750,000
shares from us to cover these sales. They may exercise that option for 30 days.
If any shares are purchased pursuant to this option, the underwriters will
severally purchase shares in approximately the same proportion as set forth in
the table above.

The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by us. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase 750,000 additional shares.

Paid by Eclipsys

[Download Table]

No Full
Exercise Exercise
----------- -------------

Per share.............................................. $1.19 $1.19
Total.................................................. $5,950,000 $6,842,500

Shares sold by the underwriters to the public will initially be offered at
the initial price to public set forth on the cover of this prospectus. Any
shares sold by the underwriters to securities dealers may be sold at a discount
of up to $0.72 per share from the initial price to public. Any such securities
dealers may resell any shares purchased from the underwriters to certain other
brokers or dealers at a discount of up to $0.10 per share from the initial price
to public. If all the shares are not sold at the initial price to public, the
representatives may change the offering price and the other selling terms.

We have agreed with the underwriters not to dispose of or hedge any of our
common stock or securities convertible into or exchangeable for shares of common
stock during the period from the date of this prospectus continuing through the
date 90 days after the date of this prospectus, except with the prior written
consent of Goldman, Sachs & Co., subject to limited exceptions. In addition,
each of our executive officers and directors, stockholders affiliated with our
directors and certain other stockholders have agreed with the underwriters not
to sell, dispose of or hedge

424B1 47th Page of 83 TOC 1st Previous Next ↓Bottom Just 47th

any of their common stock, or securities convertible into or exchangeable for
shares of common stock, for the same 90-day period. These executive officers,
directors and stockholders together hold more than 12.8 million shares of common
stock as of December 29, 2000.

In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering. Covered
short sales are sales made in an amount not greater than the underwriters'
option to purchase additional shares from us in the offering. The underwriters
may close out any covered short position by either exercising their option to
purchase additional shares or purchasing shares in the open market. Naked short
sales are any sales in excess of their option. The underwriters must close out
any naked short position by purchasing shares in the open market. A naked short
position is more likely to be created if the underwriters are concerned that
there may be a downward pressure on the price of the common stock in the open
market after pricing that could adversely affect investors who purchase in the
offering. Stabilizing transactions consist of various bids for or purchases of
common stock made by the underwriters in the open market for the purpose of
preventing or retarding a decline in the market price of the common stock while
the offering is in progress.

The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such underwriter in stabilizing or short covering
transactions.

These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.

We estimate that our expenses of the offering, excluding underwriting
discounts and commissions, will be approximately $700,000.

We have agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.

Certain of the underwriters and their affiliates may in the future from
time to time provide commercial or investment banking services to us, for which
they may receive customary fees.

LEGAL MATTERS

The validity of the shares of common stock we are offering will be passed
upon for us by Hale and Dorr LLP, Reston, Virginia. Certain legal matters in
connection with this offering will be passed upon for the underwriters by Davis
Polk & Wardwell, New York, New York.

EXPERTS

The financial statements as of December 31, 1999 and 1998 and for each of
the three years in the period ended December 31, 1999, included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.

424B1 48th Page of 83 TOC 1st Previous Next ↓Bottom Just 48th

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the Securities and Exchange Commission, a registration
statement on Form S-3 under the Securities Act with respect to the common stock
we propose to sell in this offering. This prospectus, which constitutes part of
the registration statement, does not contain all of the information set forth in
the registration statement. For further information about us and the common
stock we propose to sell in this offering, we refer you to the registration
statement and the exhibits and schedules filed as a part of the registration
statement. Statements contained in this prospectus as to the contents of any
contract or other document filed as an exhibit to the registration statement are
not necessarily complete. If a contract or document has been filed as an exhibit
to the registration statement, we refer you to the copy of the contract or
document that has been filed. The registration statement may be inspected
without charge at the principal office of the SEC in Washington, D.C. and copies
of all or any part of which may be inspected and copied at the public reference
facilities maintained by the SEC at 450 Fifth Street, N.W., Judiciary Plaza,
Room 1024, Washington, D.C. 20549, and at the SEC's regional offices located at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511 and 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of such material can also be obtained at prescribed rates by mail from
the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington,
D.C. 20549. In addition, the SEC maintains a website (http://www.sec.gov) that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC.

INCORPORATION BY REFERENCE

The SEC allows us to incorporate by reference the information we file with
them, which means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is considered
to be a part of this prospectus, and later information filed with the SEC will
update and supersede this information. We incorporate by reference the documents
listed below and any future filings made with the SEC under Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until our offering is
completed.

- Our Annual Report on Form 10-K for the year ended December 31, 1999,
filed March 29, 2000, as amended by our Annual Report on Form 10-K/A,
filed April 28, 2000;

- Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2000,
filed May 15, 2000;

- Our Quarterly Report on Form 10-Q for the quarter ended June 30, 2000,
filed August 14, 2000;

- Our Quarterly Report on Form 10-Q for the quarter ended September 30,
2000, filed November 14, 2000; and

- Our Current Reports on Form 8-K filed on April 3, 2000, May 30, 2000, May
31, 2000 and August 8, 2000.

You may request a copy of these filings at no cost by writing or
telephoning us at the following address:

Eclipsys Corporation
Attention: T. Jack Risenhoover, II
777 East Atlantic Avenue
Suite 200
Delray Beach, Florida 33483
(561) 243-1440

424B1 49th Page of 83 TOC 1st Previous Next ↓Bottom Just 49th

INDEX TO FINANCIAL STATEMENTS

[Download Table]

PAGE
----

Report of Independent Accountants........................... F-2
Consolidated Balance Sheets as of December 31, 1998 and 1999
and as of September 30, 2000 (unaudited).................. F-3
Consolidated Statements of Operations for the years ended
December 31, 1997, 1998 and 1999 and for the nine months
ended September 30, 1999 and 2000 (unaudited)............. F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999 and for the nine months
ended September 30, 1999 and 2000 (unaudited)............. F-5
Consolidated Statement of Stockholders' Equity for the years
ended December 31, 1997, 1998 and 1999 and for the nine
months ended September 30, 2000 (unaudited)............... F-7
Notes to the Consolidated Financial Statements.............. F-9

F-1

424B1 50th Page of 83 TOC 1st Previous Next ↓Bottom Just 50th

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
and the Stockholders of Eclipsys Corporation

In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of cash flows and of changes in
stockholders' equity present fairly, in all material respects, the financial
position of Eclipsys Corporation and its subsidiaries at December 31, 1998 and
December 31, 1999, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.

PRICEWATERHOUSECOOPERS LLP

Atlanta, Georgia
February 18, 2000, except as to
Note 15 which is as of March 30, 2000

F-2

424B1 51st Page of 83 TOC 1st Previous Next ↓Bottom Just 51st

ECLIPSYS CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

[Enlarge/Download Table]

DECEMBER 31,
--------------------- SEPTEMBER 30,
1998 1999 2000
--------- --------- -------------
(UNAUDITED)

ASSETS
Current assets:
Cash and cash equivalents............................... $ 37,983 $ 33,956 $ 17,900
Investments............................................. 17,003 -- --
Accounts receivable, net of allowance for doubtful
accounts of $3,724, $3,692 and $14,711 (unaudited).... 62,324 77,254 63,739
Inventory............................................... 517 660 437
Other current assets.................................... 10,013 11,800 10,096
--------- --------- ---------
Total current assets.................................. 127,840 123,670 92,172
Property and equipment, net............................... 12,620 14,522 15,697
Capitalized software development costs, net............... 5,248 7,944 10,836
Acquired technology, net.................................. 43,318 33,161 23,993
Intangible assets, net.................................... 25,928 16,858 10,077
Other assets.............................................. 6,060 6,780 8,286
--------- --------- ---------
Total assets.......................................... $ 221,014 $ 202,935 $ 161,061
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Deferred revenue........................................ $ 51,366 $ 49,279 $ 45,294
Current portion of long-term debt....................... 1,890 -- 551
Other current liabilities............................... 48,860 41,288 30,865
--------- --------- ---------
Total current liabilities............................. 102,116 90,567 76,710
Deferred revenue.......................................... 16,700 8,803 5,083
Long-term debt............................................ -- -- 1,177
Other long-term liabilities............................... 3,756 2,264 1,870
Commitments and contingencies
Stockholders' equity:
Preferred stock:
Series A, convertible preferred stock of PCS.......... 1 -- --
Common stock:
Voting, $.01 par value, 200,000,000 shares authorized;
issued and outstanding 32,177,452, 36,303,825 and
36,860,060 (unaudited)............................. 321 363 368
Non-voting, $.01 par value, 5,000,000 shares
authorized; issued and outstanding 896,431, 0 and 0
(unaudited)........................................ 9 -- --
Non-voting common stock warrant......................... 395 -- --
Unearned stock compensation............................. (1,623) (320) (212)
Additional paid-in capital.............................. 241,975 254,085 257,336
Accumulated deficit..................................... (142,680) (152,500) (181,028)
Accumulated other comprehensive income.................. 44 (327) (243)
--------- --------- ---------
Total stockholders' equity............................ 98,442 101,301 76,221
--------- --------- ---------
Total liabilities and stockholders' equity....... $ 221,014 $ 202,935 $ 161,061
========= ========= =========

The accompanying notes are an integral part of these consolidated financial
statements.
F-3

424B1 52nd Page of 83 TOC 1st Previous Next ↓Bottom Just 52nd

ECLIPSYS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

[Enlarge/Download Table]

NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ ------------------------
1997 1998 1999 1999 2000
---------- ---------- ---------- ---------- -----------
(UNAUDITED)

Revenues:
Systems and services................... $ 142,908 $ 168,025 $ 226,610 $ 168,097 $ 153,697
Hardware............................... 4,420 14,433 22,717 15,937 8,736
---------- ---------- ---------- ---------- ----------
Total revenues....................... 147,328 182,458 249,327 184,034 162,433
---------- ---------- ---------- ---------- ----------
Costs and expenses:
Cost of systems and services
revenues............................. 92,635 94,775 126,158 93,375 108,799
Cost of hardware revenues.............. 2,991 12,134 18,606 13,421 6,968
Sales and marketing.................... 22,902 29,651 35,987 26,150 29,143
Research and development............... 21,369 37,139 43,751 34,149 28,102
General and administrative............. 10,179 11,107 11,322 9,033 8,231
Depreciation and amortization.......... 11,514 11,981 15,415 11,734 11,107
Write-down of investment............... -- 4,778 -- -- --
Write-off of in-process research and
development.......................... 105,481 2,392 -- -- --
Write-off of MSA....................... -- 7,193 -- -- --
Pooling and transaction costs.......... -- 5,033 1,648 1,648 1,900
Restructuring charge................... -- -- 5,133 5,133 1,198
Stock compensation charge.............. -- -- 1,987 1,987 --
---------- ---------- ---------- ---------- ----------
Total costs and expenses............. 267,071 216,183 260,007 196,630 195,448
---------- ---------- ---------- ---------- ----------
Loss from operations..................... (119,743) (33,725) (10,680) (12,596) (33,015)
---------- ---------- ---------- ---------- ----------
Interest income, net..................... 1,511 2,701 1,235 945 891
Other income, net........................ -- -- -- -- 3,596
---------- ---------- ---------- ---------- ----------
Loss before income taxes................. (118,232) (31,024) (9,445) (11,651) (28,528)
Provision for income taxes............... 8,096 4,252 -- -- --
---------- ---------- ---------- ---------- ----------
Net loss................................. (126,328) (35,276) (9,445) (11,651) (28,528)
---------- ---------- ---------- ---------- ----------
Dividends and accretion on mandatorily
redeemable preferred stock............. (5,850) (10,928) -- -- --
Preferred stock conversion............... (3,105) -- -- -- --
---------- ---------- ---------- ---------- ----------
Net loss available to common
stockholders........................... $ (135,283) $ (46,204) $ (9,445) $ (11,651) $ (28,528)
========== ========== ========== ========== ==========
Loss per share:
Basic and diluted net loss per common
share.................................. $ (8.60) $ (1.95) $ (0.27) $ (0.34) $ (0.78)
========== ========== ========== ========== ==========
Basic and diluted weighted average common
shares outstanding..................... 15,734,208 23,668,072 34,803,934 34,575,264 36,672,204
========== ========== ========== ========== ==========

The accompanying notes are an integral part of these consolidated financial
statements.
F-4

424B1 53rd Page of 83 TOC 1st Previous Next ↓Bottom Just 53rd

ECLIPSYS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

[Enlarge/Download Table]

NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------- ---------------------
1997 1998 1999 1999 2000
--------- -------- --------- --------- ---------
(UNAUDITED)

Operating activities:
Net loss................................ $(126,328) $(35,276) $ (9,445) $ (11,651) $ (28,528)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization......... 33,426 29,932 42,134 31,747 27,019
Tax benefit of stock option
exercises........................... 1,626 1,171 -- -- --
Provision for bad debts............... 750 1,100 2,304 1,576 2,705
Write-down of accounts receivable..... -- -- -- -- 9,400
Loss on disposal of property and
equipment........................... 557 8 -- -- --
Write-off of in-process research and
development......................... 105,481 2,392 -- -- --
Write-off of MSA intangible asset..... -- 7,193 -- -- --
Write-down of investment.............. -- 4,778 -- -- 802
Gain on sale of investment............ -- -- -- -- (4,462)
Write-off of capitalized software
development costs................... -- 1,306 2,790 2,790 --
Stock compensation expense............ 38 150 2,285 2,250 108
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable................... (8,263) (1,712) (9,967) (6,231) 262
Inventory............................. 655 349 (143) 91 (102)
Other current assets.................. (84) 3,301 (1,411) (1,447) 2,900
Other assets.......................... (71) (1,562) (1,521) 289 (2,444)
Deferred taxes........................ 3,301 -- -- -- --
Deferred revenue...................... (860) 17,300 (11,863) (8,406) (8,762)
Other current liabilities............. 4,005 2,253 (8,732) (6,340) (13,679)
Other long-term liabilities........... (148) (971) (114) (5) (394)
--------- -------- --------- --------- ---------
Total adjustments................ 140,413 66,988 15,762 16,314 13,353
--------- -------- --------- --------- ---------
Net cash provided by (used in)
operating activities................ 14,085 31,712 6,317 4,663 (15,175)

The accompanying notes are an integral part of these consolidated financial
statements.
F-5

424B1 54th Page of 83 TOC 1st Previous Next ↓Bottom Just 54th
ECLIPSYS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
(IN THOUSANDS)

[Enlarge/Download Table]

NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------- ---------------------
1997 1998 1999 1999 2000
--------- -------- --------- --------- ---------
(UNAUDITED)

Investing activities:
Purchase of investments................. (750) (33,591) -- -- (7,905)
Maturities of investments............... 250 16,838 17,003 17,003 --
Sale of investments..................... -- 250 -- -- 12,432
Purchase of property and equipment,
net of acquisitions................... (4,314) (5,951) (8,477) (5,698) (5,571)
Capitalized software development
costs................................. (2,303) (4,329) (6,747) (4,847) (4,905)
Acquisitions, net of cash acquired...... (111,650) (29,259) (25,000) (25,000) --
Proceeds from sale of business.......... -- -- 5,000 5,000 --
Payments under MSA...................... -- (16,000) -- -- --
Changes in other assets................. (6,094) (5,565) -- -- --
--------- -------- --------- --------- ---------
Net cash used in investing
activities.......................... (124,861) (77,607) (18,221) (13,542) (5,949)
Financing activities:
Borrowings.............................. 10,713 18,940 20,000 20,000 2,012
Payments on borrowings.................. (1,018) (35,088) (20,000) (20,000) (284)
Distributions -- MSI.................... (495) (585) (375) (377) --
Sale of common stock.................... 52 65,399 -- -- --
Sale of preferred stock................. 73,764 9,000 -- -- --
Sale of mandatorily redeemable
preferred stock....................... 30,000 -- -- -- --
Redemption of mandatorily
redeemable preferred stock............ -- (38,771) -- -- --
Exercise of warrants.................... -- -- -- -- 4
Exercises of stock options.............. 1,132 1,266 6,036 5,905 1,760
Employee stock purchase plan............ 74 287 2,587 1,893 1,492
--------- -------- --------- --------- ---------
Net cash provided by financing
activities.......................... 114,222 20,448 8,248 7,421 4,984
Effect of exchange rates on cash and cash
equivalents............................. 28 16 (371) 20 84
Net increase (decrease) in cash and cash
equivalents............................. 3,474 (25,431) (4,027) (1,438) (16,056)
Cash and cash equivalents -- beginning of
year.................................... 59,940 63,414 37,983 37,983 33,956
--------- -------- --------- --------- ---------
Cash and cash equivalents -- end of
year.................................... $ 63,414 $ 37,983 $ 33,956 $ 36,545 $ 17,900
========= ======== ========= ========= =========
Cash paid for interest.................... $ 990 $ 612 $ 124
========= ======== =========
Cash paid for income taxes................ $ 2,944 $ 4,364 $ 758
========= ======== =========

The accompanying notes are an integral part of these consolidated financial
statements.
F-6

424B1 55th Page of 83 TOC 1st Previous Next ↓Bottom Just 55th

ECLIPSYS CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)

[Enlarge/Download Table]

VOTING AND

PREFERRED STOCK
NON-VOTING -----------------------------------------
COMMON STOCK COMMON SERIES A SERIES D
-------------------- STOCK ------------------- -------------------
SHARES AMOUNT WARRANT SHARES AMOUNT SHARES AMOUNT
----------- ------ ------- ---------- ------ ---------- ------

BALANCE AT DECEMBER 31, 1996............... $15,610,276 $156 395 1,020,000 $ 11
Issuance of Series D Preferred stock....... 4,981,289 $ 50
Acquisition of Alltel...................... 2,077,497 21
Issuance of Series E Preferred stock.......
Issuance of common stock warrants..........
Exchange of Series A for Series F.......... (1,000,000) (10)
Stock warrant exercise -- PCS.............. 46,926 1
Acquisition of SDK......................... 499,997 5
Acquisition of Vital....................... 132,302 1
Employee stock purchase -- Transition...... 3,921
Stock option exercises..................... 356,102 4
Income tax benefit from stock options
exercised.................................
Stock grants............................... 15,000
Dividends and accretion on mandatorily
redeemable preferred stock................
Distribution -- MSI........................
Issuance of stock options..................
Compensation expense recognized............
Comprehensive income.......................
Net loss...................................
Foreign currency translation adjustment....
Other comprehensive income.................
Comprehensive income.......................
----------- ---- ---- ---------- ---- ---------- ----
BALANCE AT DECEMBER 31, 1997............... 16,664,524 167 395 20,000 1 7,058,786 71
EMTEK Acquisition.......................... 1,000,000 10
Sale of common stock -- Eclipsys initial
public offering........................... 4,830,000 48
Conversion of preferred stock -- Eclipsys
initial public offering................... 10,033,313 100 (7,058,786) (71)
Issuance of Series G Preferred Stock.......
Stock warrant exercise -- PCS.............. 60,238
Stock option exercise...................... 465,008 5
Employee stock purchase.................... 20,800
Income tax benefit from stock options
exercised.................................
Dividends and accretion on mandatorily
redeemable preferred stock................
Issuance of stock options..................
Distribution -- MSI........................
Compensation expense recognized............
Comprehensive income.......................
Net loss...................................
Foreign currency translation adjustment....
Other comprehensive income.................
Comprehensive income.......................
----------- ---- ---- ---------- ---- ---------- ----

PREFERRED STOCK
-----------------------------------------------------------
SERIES E SERIES F SERIES G ADDITIONAL
----------------- ------------------- ----------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
-------- ------ ---------- ------ -------- ------ ----------

BALANCE AT DECEMBER 31, 1996............... $ 50,965
Issuance of Series D Preferred stock....... 62,464
Acquisition of Alltel...................... 26,051
Issuance of Series E Preferred stock....... 896,431 $ 9 11,241
Issuance of common stock warrants.......... 10,501
Exchange of Series A for Series F.......... 1,478,097 $ 15 (5)
Stock warrant exercise -- PCS.............. 51
Acquisition of SDK......................... 3,243
Acquisition of Vital....................... 3,624
Employee stock purchase -- Transition...... 74
Stock option exercises..................... 1,128
Income tax benefit from stock options
exercised................................. 1,626
Stock grants............................... 97
Dividends and accretion on mandatorily
redeemable preferred stock................ (5,850)
Distribution -- MSI........................
Issuance of stock options.................. 55
Compensation expense recognized............
Comprehensive income.......................
Net loss...................................
Foreign currency translation adjustment....

Other comprehensive income.................

Comprehensive income.......................
-------- --- ---------- ---- -------- --- --------
BALANCE AT DECEMBER 31, 1997............... 896,431 9 1,478,097 15 -- -- 165,265
EMTEK Acquisition.......................... 9,050
Sale of common stock -- Eclipsys initial
public offering........................... 65,351
Conversion of preferred stock -- Eclipsys
initial public offering................... (896,431) (9) (1,478,097) (15) (900,000) $(9) 4
Issuance of Series G Preferred Stock....... 900,000 9 8,991
Stock warrant exercise -- PCS.............. 61
Stock option exercise...................... 1,200
Employee stock purchase.................... 287
Income tax benefit from stock options
exercised................................. 1,171
Dividends and accretion on mandatorily
redeemable preferred stock................ (10,928)
Issuance of stock options.................. 1,523
Distribution -- MSI........................
Compensation expense recognized............
Comprehensive income.......................
Net loss...................................
Foreign currency translation adjustment....

Other comprehensive income.................

Comprehensive income.......................
-------- --- ---------- ---- -------- --- --------

RETAINED ACCUMULATED

EARNINGS OTHER
UNEARNED (ACCUMULATED COMPREHENSIVE COMPREHENSIVE
COMPENSATION DEFICIT) INCOME (LOSS) INCOME (LOSS) TOTAL
------------ ------------ ------------- ------------- ---------

BALANCE AT DECEMBER 31, 1996............... $ (136) $ 20,004 $ 71,395
Issuance of Series D Preferred stock....... 62,514
Acquisition of Alltel...................... 26,072
Issuance of Series E Preferred stock....... 11,250
Issuance of common stock warrants.......... 10,501
Exchange of Series A for Series F.......... --
Stock warrant exercise -- PCS.............. 52
Acquisition of SDK......................... 3,248
Acquisition of Vital....................... 3,625
Employee stock purchase -- Transition...... 74
Stock option exercises..................... 1,132
Income tax benefit from stock options
exercised................................. 1,626
Stock grants............................... 97
Dividends and accretion on mandatorily
redeemable preferred stock................ (5,850)
Distribution -- MSI........................ (495) (495)
Issuance of stock options.................. (55) --
Compensation expense recognized............ (59) (59)
Comprehensive income....................... --
Net loss................................... (126,328) $(126,328) (126,328)
Foreign currency translation adjustment.... 28 $ 28 28
---------
Other comprehensive income................. 28
---------
Comprehensive income....................... (126,300)
------- --------- --------- ----- ---------
BALANCE AT DECEMBER 31, 1997............... (250) (106,819) 28 58,882
EMTEK Acquisition.......................... 9,060
Sale of common stock -- Eclipsys initial
public offering........................... 65,399
Conversion of preferred stock -- Eclipsys
initial public offering................... --
Issuance of Series G Preferred Stock....... 9,000
Stock warrant exercise -- PCS.............. 61
Stock option exercise...................... 1,205
Employee stock purchase.................... 287
Income tax benefit from stock options
exercised................................. 1,171
Dividends and accretion on mandatorily
redeemable preferred stock................ (10,928)
Issuance of stock options.................. (1,523) --
Distribution -- MSI........................ (585) (585)
Compensation expense recognized............ 150 150
Comprehensive income....................... --
Net loss................................... (35,276) (35,276) (35,276)
Foreign currency translation adjustment.... 16 16 16
---------
Other comprehensive income................. 16
---------
Comprehensive income....................... (35,260)
------- --------- --------- ----- ---------

F-7

424B1 56th Page of 83 TOC 1st Previous Next ↓Bottom Just 56th

[Enlarge/Download Table]

VOTING AND

BALANCE AT DECEMBER 31, 1998............... 33,073,883 330 395 20,000 1 -- --
Stock option exercises..................... 1,610,556 16
Employee stock purchase.................... 156,755 2
Stock warrant exercise -- Transition....... 156,320 2 (395)
Stock warrant exercise..................... 962,513 10
Conversion of preferred stock -- PCS....... 241,283 2 (20,000) (1)
Conversion of convertible debt -- PCS...... 102,515 1
Compensation expense recognized............
Distributions MSI..........................
Comprehensive income:......................
Net loss...................................
Foreign currency translation adjustment....
Other comprehensive income.................
Comprehensive income.......................
----------- ---- ---- ---------- ---- ---------- ----
BALANCE AT DECEMBER 31, 1999............... 36,303,825 363 -- -- -- -- --
Stock option exercises..................... 315,609 3
Employee stock purchase.................... 199,861 2
Exercise of warrants....................... 40,765 --
Compensation expense recognized............
Net loss...................................
Foreign currency translation adjustment....
Other comprehensive income.................
Comprehensive income.......................
----------- ---- ---- ---------- ---- ---------- ----
BALANCE AT SEPTEMBER 30, 2000.............. 36,860,060 $368 -- -- $ -- -- $ --
=========== ==== ==== ========== ==== ========== ====

BALANCE AT DECEMBER 31, 1998............... -- -- -- -- -- -- 241,975
Stock option exercises..................... 6,020
Employee stock purchase.................... 2,585
Stock warrant exercise -- Transition....... 393
Stock warrant exercise..................... (10)
Conversion of preferred stock -- PCS....... (1)
Conversion of convertible debt -- PCS...... 2,141
Compensation expense recognized............ 982
Distributions MSI..........................
Comprehensive income:......................
Net loss...................................
Foreign currency translation adjustment....
Other comprehensive income.................
Comprehensive income.......................
-------- --- ---------- ---- -------- --- --------
BALANCE AT DECEMBER 31, 1999............... -- -- -- -- -- -- 254,085
Stock option exercises..................... 1,050
Employee stock purchase.................... 2,075
Exercise of warrants....................... 4
Compensation expense recognized............ 122
Net loss...................................
Foreign currency translation adjustment....
Other comprehensive income.................
Comprehensive income.......................
-------- --- ---------- ---- -------- --- --------
BALANCE AT SEPTEMBER 30, 2000.............. -- $-- -- $ -- -- $-- $257,336
======== === ========== ==== ======== === ========

RETAINED ACCUMULATED

EARNINGS OTHER
UNEARNED (ACCUMULATED COMPREHENSIVE COMPREHENSIVE
COMPENSATION DEFICIT) INCOME (LOSS) INCOME (LOSS) TOTAL
------------ ------------ ------------- ------------- ---------

BALANCE AT DECEMBER 31, 1998............... (1,623) (142,680) 44 98,442
Stock option exercises..................... 6,036
Employee stock purchase.................... 2,587
Stock warrant exercise -- Transition....... --
Stock warrant exercise..................... --
Conversion of preferred stock -- PCS....... --
Conversion of convertible debt -- PCS...... 2,142
Compensation expense recognized............ 1,303 2,285
Distributions MSI.......................... (375) (375)
Comprehensive income:...................... --
Net loss................................... (9,445) (9,445) (9,445)
Foreign currency translation adjustment.... (371) (371) (371)
---------
Other comprehensive income................. (371)
---------
Comprehensive income....................... (9,816)
------- --------- --------- ----- ---------
BALANCE AT DECEMBER 31, 1999............... (320) (152,500) (327) 101,301
Stock option exercises..................... 1,053
Employee stock purchase.................... 2,077
Exercise of warrants....................... 4
Compensation expense recognized............ 108 230
Net loss................................... (28,528) (28,528) (28,528)
Foreign currency translation adjustment.... 84 84 84
---------
Other comprehensive income................. 84
---------
Comprehensive income....................... $ (28,444)
------- --------- --------- ----- ---------
BALANCE AT SEPTEMBER 30, 2000.............. $ (212) $(181,028) $(243) $ 76,221
======= ========= ===== =========

The accompanying notes are an integral part of these consolidated financial
statements.

F-8

424B1 57th Page of 83 TOC 1st Previous Next ↓Bottom Just 57th

ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

Eclipsys Corporation ("Eclipsys") and its subsidiaries (collectively, the
"Company") is a healthcare information technology solutions provider which was
formed in December 1995 and commenced operations in January 1996. The Company
provides, on an integrated basis, enterprise-wide, clinical management, access
management, patient financial management, health information management,
strategic decision support, resource planning management and enterprise
application integration solutions to healthcare organizations. Additionally,
Eclipsys provides other information technology solutions including outsourcing,
remote hosting, networking technologies and other related services.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The financial statements include the accounts of Eclipsys and its wholly
owned subsidiaries. All significant intercompany transactions have been
eliminated in consolidation.

FINANCIAL STATEMENT PRESENTATION

The Company has completed mergers with Transition Systems, Inc.
("Transition") effective December 31, 1998, PowerCenter Systems, Inc. ("PCS")
effective February 17, 1999 and MSI Solutions, Inc. and MSI Integrated Services,
Inc. (collectively "MSI") effective June 17, 1999. Each of these mergers were
accounted for as a pooling of interests and, accordingly, the consolidated
financial statements have been retroactively restated as if the mergers had
occurred as of the beginning of the earliest period presented. Transition had a
September 30 fiscal year end. In connection with the retroactive restatement,
the financial statements of Transition were recast to a calendar year end to
conform to Eclipsys' presentation.

A reconciliation between revenue and net loss as previously reported by the
Company in the 1998 Annual report on Form 10-K and as restated for the PCS and
MSI pooling of interests is as follows:

[Download Table]

1997 1998
--------- --------

Revenue:
As previously reported............................. $ 141,071 $170,689
PCS................................................ 659 1,437
MSI................................................ 5,598 10,332
--------- --------
As restated........................................ $ 147,328 $182,458
========= ========
Net loss:
As previously reported............................. $(125,040) $(34,678)
PCS................................................ (2,083) (2,472)
MSI................................................ 795 1,874
--------- --------
As restated........................................ $(126,328) $(35,276)
========= ========

USE OF ESTIMATES

The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses and disclosures of contingent assets and liabilities. The
estimates and assumptions used in the accompanying consolidated financial
statements are based upon management's evaluation of the relevant facts

F-9

424B1 58th Page of 83 TOC 1st Previous Next ↓Bottom Just 58th
ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
and circumstances as of the date of the financial statements. Actual results
could differ from those estimates.

CASH AND CASH EQUIVALENTS

For purposes of the consolidated statement of cash flows, the Company
considers all highly liquid investments with an original maturity of three
months or less to be cash equivalents. Cash equivalents are stated at cost plus
accrued interest, which approximates market value.

INVESTMENTS

In accordance with FAS 115, "Accounting for Certain Investments in Debt and
Equity Securities", the Company has classified all investments as held to
maturity. The securities totaled $17.0 million as of December 31, 1998 and
consisted of federal agency obligations. The estimated fair value of each
investment approximates the amortized cost plus accrued interest. Unrealized
gains at December 31, 1998 were $18,000. As of December 31, 1999, the Company
held no investments.

REVENUE RECOGNITION

The Company's products are sold to customers based primarily on contractual
arrangements that include implementation services that often extend for periods
in excess of one year. Revenues are derived from licensing of computer software,
software and hardware maintenance, remote hosting and outsourcing, training,
implementation assistance, consulting, and the sale of computer hardware. For
arrangements in which the Company does not use percentage of completion
accounting, the Company recognizes revenue in accordance with the American
Institute of Certified Public Accountants Statement of Position 97-2 "Software
Revenue Recognition" ("SOP 97-2") which requires, among other matters, that
there be a signed contract evidencing that an arrangement exists, delivery of
the software has occurred, the fee is fixed and determinable and collectibility
of the fee is probable.

SYSTEMS AND SERVICES REVENUE

MULTIPLE ELEMENT ARRANGEMENTS

The Company generally licenses its software products pursuant to multiple
element arrangements that include maintenance for periods that range from 3 to 7
years. For software license fees sold to customers that are bundled with
services and maintenance and require significant implementation efforts, the
Company recognizes revenue using the percentage of completion method, as the
services are considered essential to the functionality of the software.

For the Eclipsys product line ("EPL") transactions entered into with
customers that require significant implementation efforts, the Company
recognizes the bundled license and services fee from the arrangement using the
percentage of completion method over the implementation period based on input
measures (based substantially on implementation hours incurred).

For the Transition Systems, Inc. product line ("TPL"), the Company
recognizes revenue for transactions entered into prior to January 1, 1998 under
the percentage of completion method based principally upon progress and
performance as measured by achievement of contract milestones. Effective January
1, 1998, the Company adopted SOP 97-2 with respect to TPL transactions. In
connection with the adoption, the Company accounted for TPL transactions entered
into on or after January 1, 1998 under the same percentage of completion method
used

F-10

424B1 59th Page of 83 TOC 1st Previous Next ↓Bottom Just 59th
ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
for the EPL as the Company's management intended to manage implementation
efforts of the TPL on the basis of inputs rather than the output method used by
pre-merger Transition management. The Company recognizes the TPL bundled license
and service fee revenue ratably over the implementation period, which
corresponds with the timing of the related implementation efforts.

Revenue from other software license fees, which are bundled with long-term
maintenance agreements (3 to 7 years), is recognized on a straight-line basis
over the contracted maintenance period. Other software license fee arrangements
relate to certain "add-on" module EPL products sold to customers in the EPL
installed base. Because the Company does not sell the "add-on" modules or the
associated extended term maintenance elements separately, the entire arrangement
fee is recognized as revenue over the contracted maintenance period in
accordance with paragraph 12 of SOP 97-2.

SERVICES

Remote processing and outsourcing services are marketed under long-term
arrangements generally over periods from 5 to 7 years. Revenues from these
arrangements are recognized as the services are performed.

Software maintenance fees are marketed under annual and multi year
agreements and are recognized as revenue ratably over the contracted maintenance
term. The Company's software maintenance arrangements include when and if
available upgrades and do not contain specific upgrade rights.

Implementation revenues and other services, including training and
consulting, are recognized as services are performed for time and material
arrangements and using the percentage of completion method based on labor input
measures for fixed fee arrangements. The Company sells these services separately
and accordingly has sufficient vendor specific objective evidence of the element
to recognize revenue.

HARDWARE SALES AND MAINTENANCE REVENUE

Hardware sales are generally recognized upon shipment of the equipment to
the customer. Hardware maintenance revenues are billed and recognized monthly
over the contracted maintenance term.

UNBILLED ACCOUNTS RECEIVABLE

The timing of revenue recognition and contractual billing terms under
certain multiple element arrangements may not precisely coincide resulting in
the recording of unbilled accounts receivable or deferred revenue. Customer
payments are due under these arrangements in varying amounts upon the
achievement of certain contractual milestones throughout the implementation
period. Implementation periods generally range from 12 to 24 months. The current
portion of unbilled accounts receivable of $8.1 million and $15.3 million as of
December 31, 1998 and 1999, respectively, is included in accounts receivable in
the accompanying financial statements.

In addition, the Company maintains certain long-term contracts used to
finance a portion of certain customer hardware and software fees owed. Alltel
Healthcare Information Services, Inc. ("Alltel") prior to the Company's January
1997 acquisition of that business (see Note 7) entered into such contracts.
These arrangements generally provide for payment terms that range from three to
five years and carry interest rates that range from 7% to 10%. Such amounts are

F-11

424B1 60th Page of 83 TOC 1st Previous Next ↓Bottom Just 60th
ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
recorded as non-current unbilled accounts receivable until the customers are
billed which is generally on a monthly basis. The non-current portion of amounts
due related to these arrangements was $1.5 million and $1.4 million as of
December 31, 1998 and 1999, respectively, and is included in other assets in the
accompanying financial statements. The current portion of amounts due related to
these arrangements was $2.6 million and $1.6 million as of December 31, 1998 and
1999, respectively, and is included in accounts receivable in the accompanying
financial statements. The Company does not have any obligation to refund any
portion of the software or hardware fees and its contracts are generally
non-cancelable.

INVENTORY

Inventory consists of computer parts and peripherals and is stated at the
lower of cost or market. Cost is determined using the first-in, first-out
method.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation and amortization
are provided using the straight-line method over the estimated useful lives,
which range from two to ten years. Computer equipment is depreciated over two to
five years. Office equipment is depreciated over two to ten years. Purchased
software for internal use is amortized over three to five years. Leasehold
improvements are amortized over the shorter of the useful lives of the assets or
the remaining term of the lease. When assets are retired or otherwise disposed
of, the related costs and accumulated depreciation are removed from the accounts
and any resulting gain or loss is reflected in income. Expenditures for repairs
and maintenance not considered to substantially lengthen the property and
equipment lives are charged to expense as incurred.

CAPITALIZED SOFTWARE DEVELOPMENT COSTS

The Company capitalizes a portion of its internal computer software
development costs incurred subsequent to establishing technological feasibility,
including salaries, benefits, and other directly related costs incurred in
connection with programming and testing software products. Capitalization ceases
when the products are generally released for sale to customers. Management
monitors the net realizable value of all capitalized software development costs
to ensure that the investment will be recovered through margins from future
sales. Capitalized software development costs were approximately $2.3 million,
$4.3 million and $6.7 million for the years ended December 31, 1997, 1998 and
1999, respectively. These costs are amortized over the greater of the ratio that
current revenues bear to total and anticipated future revenues for the
applicable product or the straight-line method over three to five years.
Amortization of capitalized software development costs, which is included in
cost of systems and services revenues, were approximately $700,000, $777,000 and
$1.2 million for the years ended December 31, 1997, 1998 and 1999, respectively.
Accumulated amortization of capitalized software development costs were $5.8
million and $6.7 million as of December 31, 1998 and 1999, respectively.

In December 1998, based on a review of products acquired in conjunction
with the Transition merger and other related activities, the Company recorded a
write-off of approximately $1.3 million of capitalized software development
costs related to duplicate products that did not have any alternative future
use.

In June 1999, based on a review of products acquired in conjunction with
the MSI merger and other related activities, the Company recorded a write-off of
approximately $2.8 million of

F-12

424B1 61st Page of 83 TOC 1st Previous Next ↓Bottom Just 61st
ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
capitalized software development costs related to duplicate products that did
not have any alternative future use.

ACQUIRED TECHNOLOGY AND INTANGIBLE ASSETS

The intangible assets from the Company's acquisitions (Notes 6 and 7)
consisted of the following as of December 31, 1998 and 1999 (in thousands):

[Enlarge/Download Table]

DECEMBER 31, USEFUL LIFE
--------------------------------------- ------------
1998 1999
------------------ ------------------
GROSS NET GROSS NET
-------- ------- -------- -------

Acquired technology............ $ 79,118 $43,318 $ 92,536 $33,161 3 - 5 Years
Ongoing customer
relationships................ 10,846 6,690 10,690 4,366 5 Years
Management and services
agreement.................... 9,543 -- -- -- 4 Years
Network services............... 5,764 4,324 5,764 2,404 3 Years
Goodwill....................... 17,537 14,779 17,793 10,081 5 - 12 Years
Other.......................... 863 135 162 7 3 - 5 Years
-------- ------- -------- -------
$123,671 $69,246 $126,945 $50,019
======== ======= ======== =======

The carrying values of intangible assets are reviewed if the facts and
circumstances suggest that it may be impaired. This review indicates whether
assets will be recoverable based on future expected cash flows. Based on its
review, the Company does not believe that an impairment of its excess of cost
over fair value of net assets acquired has occurred.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of the Company's financial instruments, including cash
and cash equivalents, accounts receivable, and other current liabilities,
approximate fair value.

INCOME TAXES

The Company accounts for income taxes utilizing the liability method, and
deferred income taxes are determined based on the estimated future tax effects
of differences between the financial reporting and income tax basis of assets
and liabilities and tax carryforwards given the provisions of the enacted tax
laws.

Prior to the pooling of interests merger with the Company, MSI had elected
"S" corporation status for income tax purposes. As a result of the merger, MSI
terminated its "S" corporation election. The pro forma provision for income
taxes, taken together with reported income tax expense, presents the combined
pro forma tax expense of MSI as if it had been a "C" corporation during the
periods presented. The pro forma net loss of the Company considering this impact
is as follows (in thousands):

[Download Table]

YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
--------- -------- -------

Net loss................................... $(126,328) $(35,276) $(9,445)
Pro forma tax adjustments.................. (270) (637) --
--------- -------- -------
Pro forma net loss......................... $(126,598) $(35,913) $(9,445)
========= ======== =======

F-13

424B1 62nd Page of 83 TOC 1st Previous Next ↓Bottom Just 62nd
ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
STOCK-BASED COMPENSATION

The Company has chosen to continue to account for stock-based compensation
using the intrinsic value method prescribed in Accounting Principles Board
Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees", and related
Interpretations and to elect the disclosure option of Statement of Financial
Accounting Standards ("FAS") No. 123, "Accounting for Stock-Based Compensation".
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the estimated market price of the Company's stock at the date of the
grant over the amount an employee must pay to acquire the stock.

BASIC AND DILUTED NET LOSS PER SHARE

For all periods presented, basic and diluted net loss per common share is
presented in accordance with FAS 128, "Earnings per Share", which provides for
the accounting principles used in the calculation of earnings per share and was
effective for financial statements for both interim and annual periods ending
after December 15, 1997. Basic net loss per common share is based on the
weighted average number of shares of common stock outstanding during the period.
Diluted net loss per share reflects the potential dilution from assumed
conversion of all dilutive securities such as stock options and warrants. Stock
options to acquire 3,835,565, 4,344,958 and 5,494,673 shares of common stock at
December 31, 1997, 1998 and 1999, respectively, and warrants to acquire up to
1,179,483, 1,119,245 and 40,829 shares of common stock at December 31, 1997,
1998 and 1999 respectively, were the only securities issued which would be
included in the diluted earnings per share calculation if dilutive.

In 1997, 1998 and 1999, the inclusion of stock options and warrants would
have been antidilutive due to the net loss reported by the Company. The Company
has excluded 370,609 contingently returnable shares of common stock from basic
and diluted earnings per share computations for the years ended December 31 1997
and 1998, respectively (Note 4).

CONCENTRATION OF CREDIT RISK

The Company's customers operate primarily in the healthcare industry. The
Company sells its products and services under contracts with varying terms. The
accounts receivable amounts are unsecured. Management believes the allowance for
doubtful accounts is sufficient to cover credit losses. The Company does not
believe that the loss of any one customer would have a material effect on the
financial position of the Company.

FOREIGN CURRENCY TRANSLATION

The financial position and results of operations of foreign subsidiaries
are measured using the currency of the respective countries as the functional
currency. Assets and liabilities are translated at the foreign exchange rate in
effect at the balance sheet date, while revenue and expenses for the year are
translated at the average exchange rate in effect during the year. Translation
gains and losses are not included in determining net income or loss but are
accumulated and reported as a separate component of stockholders' equity. The
Company has not entered into any hedging contracts during the three-year period
ended December 31, 1999.

COMPREHENSIVE INCOME

Effective January 1, 1998, the Company implemented Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income". This standard
requires that the total changes in equity resulting from revenue, expenses, and
gains and losses, including those that

F-14

424B1 63rd Page of 83 TOC 1st Previous Next ↓Bottom Just 63rd
ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
do not affect the accumulated deficit, be reported. Accordingly, those amounts
that are comprised solely of foreign currency translation adjustments are
included in other comprehensive income in the consolidated statement of
stockholders' equity.

NEW ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board issued FAS 131,
"Disclosure about Segments of an Enterprise and Related Information". In October
1997, the American Institute of Certified Public Accountants issued Statement of
Position 97-2 ("SOP 97-2"), "Software Revenue Recognition". Effective January 1,
1998, the Company adopted FAS 131 and SOP 97-2. The adoption of FAS 131 has not
had a material impact on the Company's financial statement disclosures. In
connection with the adoption of SOP 97-2, the Company deferred approximately
$9.1 million of revenue under certain Transition contracts that were entered
into after December 31, 1997.

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities". This statement establishes accounting and reporting
standards for derivative instruments embedded in other contracts and for hedging
activities. This statement is effective for financial statements for all fiscal
quarters of all fiscal years beginning after June 15, 2000. The Company intends
to adopt this statement when required; however, it is not expected to have a
material impact on the Company's financial position or results of operations.

3. PROPERTY AND EQUIPMENT

Property and equipment as of December 31, 1998 and 1999 is summarized as
follows (in thousands):

[Download Table]

DECEMBER 31,
-------------------
1998 1999
-------- --------

Computer equipment.................................... $ 15,039 $ 17,329
Office equipment and other............................ 4,310 4,631
Purchased software.................................... 5,112 6,631
Leasehold improvements................................ 3,349 4,405
-------- --------
27,810 32,996
Less: Accumulated depreciation and amortization....... (15,190) (18,474)
-------- --------
$ 12,620 $ 14,522
======== ========

Depreciation and amortization expense of property and equipment totaled
approximately $7.1 million, $7.6 million and $7.2 million in 1997, 1998 and
1999, respectively.

4. LICENSING ARRANGEMENT

In May 1996, the Company entered into an exclusive licensing arrangement
with Partners HealthCare System, Inc. ("Partners") to further develop,
commercialize, distribute and support certain intellectual property which was
being developed at Partners. As consideration for the license, the Company
issued 988,290 shares of Common Stock of the Company and agreed to pay royalties
to Partners on sales of the developed product until the Company completed an
initial public offering of common stock with a per share offering price of
$10.00 or higher. There was no revenue recognized by the Company or royalties
paid to Partners under the arrangement

F-15

424B1 64th Page of 83 TOC 1st Previous Next ↓Bottom Just 64th
ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. LICENSING ARRANGEMENT -- (CONTINUED)
in 1997 or 1998. In August of 1998, the Company completed an initial public
offering (Note 5) whereby the royalty provision of the agreement terminated.
Under the terms of the license, the Company may further develop, market,
distribute and support the original technology and license it, as well as market
related services, to other healthcare providers and hospitals throughout the
world (other than in the Boston, Massachusetts metropolitan area). The Company
is obligated to offer to Partners and certain of their affiliates an internal
use license, granted on most favored customer terms, to any new software
applications developed by the Company, whether or not derived from the licensed
technology, and major architectural changes to the licensed software. After May
3, 1998, Partners and certain of their affiliates are entitled to receive
internal use licenses for any changes to any modules or applications included in
the licensed technology, as defined. The Company has an exclusive right of first
offer to commercialize new information technologies developed in connection with
Partners. If the Company fails to pay the required royalties, breaches any
material term under the licensing arrangement or if the current Chairman of the
Board and Chief Executive Officer of the Company voluntarily terminates his
employment with the Company prior to May 1999, the license may become
non-exclusive, at the option of Partners. If Partners elects to convert the
license to non-exclusive, it must return 370,609 shares of Common Stock to the
Company. This provision expired May 1999, whereby Partners did not convert the
license to non-exclusive.

At the time the license arrangement was consummated, the licensed
technology had not reached technological feasibility and had no alternative
future use. The licensed technology being developed consisted of
enterprise-wide, clinical information software. The Company released certain
commercial products derived from the licensed technology in late 1998. The
Company accounted for the license arrangement with Partners by recording a
credit to additional paid-in capital of $1.5 million (representing the estimated
fair value of the licensed technology) and a corresponding charge to its
statement of operations for the year ended December 31, 1996. The charge was
taken because the technology had not reached technological feasibility and had
no alternative future use.

As part of the agreement, the Company has provided development services to
Partners related to commercializing the intellectual property; fees for these
development services totaled $2.5 million, $1.2 million and $976,000 for the
years ended December 31, 1997, 1998 and 1999, respectively, and are included as
a reduction in research and development expenses in the accompanying
consolidated statements of operations.

5. STOCKHOLDERS' EQUITY AND MANDATORILY REDEEMABLE PREFERRED STOCK

STOCK SPLIT

In May 1997, the Company declared a three-for-two split for all Voting
Common Stock and Non-Voting Common Stock issued and outstanding. In addition,
the shareholders approved an increase in the number of authorized shares of
Voting Common Stock from 30,000,000 to 50,000,000. In June 1998, the Company
effected a two-for-three reverse stock split of all Voting Common Stock and
Non-Voting Common Stock outstanding. The accompanying consolidated financial
statements give retroactive effect to the May 1997 and June 1998 stock splits as
if they had occurred at the beginning of the earliest period presented.
Effective upon the closing of the IPO, the authorized common stock and
non-voting common stock was increased to 205,000,000.

F-16

424B1 65th Page of 83 TOC 1st Previous Next ↓Bottom Just 65th
ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. STOCKHOLDERS' EQUITY AND MANDATORILY REDEEMABLE PREFERRED
STOCK -- (CONTINUED)
MANDATORILY REDEEMABLE PREFERRED STOCK

In connection with its acquisition of Alltel (Note 7), the Company sold
30,000 shares of Series B 8.5% Cumulative Redeemable Preferred Stock ("Series
B") and warrants to purchase up to 1,799,715 shares of Non-Voting Common Stock
at $.01 per share for total consideration of $30.0 million. The number of
warrants to be issued was subject to adjustment in the event the Company
redeemed all or a portion of the Series B prior to its mandatory redemption
date. The Series B was non-voting and was entitled to a liquidation preference
of $1,000 per share plus any unpaid dividends. Dividends are cumulative and
accrue at an annual rate of 8.5%.

The Series B was redeemable by the Company at its redemption price at any
time on or before the mandatory redemption date of December 31, 2001. The
redemption price, as defined, equaled the liquidation preference amount plus all
accrued and unpaid dividends. With respect to liquidation preferences, the
Series B ranked equal to the Series C 8.5% Cumulative Redeemable Preferred Stock
("Series C") and senior to all other equity instruments.

In January 1997, 20,000 shares of the Series C were issued to Alltel
Information Services, Inc. ("AIS") as part of the consideration paid for Alltel
(Note 7). The Series C contained substantially the same terms, including voting
rights, ability to redeem and liquidation preferences as the Series B. The
Series B has preferential rights in the event of a change of ownership
percentages of certain of the Company's stockholders; the Series C did not have
these preferential rights. The Series C redemption price was determined the same
as Series B and had to be redeemed on or before December 31, 2001.

The Company has accounted for the Series B and C as mandatorily redeemable
preferred stock. Accordingly, the Company accrued dividends and amortized any
discount over the redemption period with a charge to additional paid-in capital
("APIC"). The Company recorded a discount on the Series B at the time of its
issuance for the estimated fair value of the warrants ($10.5 million). The
Company valued the maximum amount of warrants that would be issued up to the
mandatory redemption date of the Series B as of the acquisition date, January
23, 1997 and the mandatory redemption date, December 31, 2001. The Company
recorded the Series C on the date of acquisition of Alltel at $10.3 million
(after adjustment for the 4,500 shares returned by AIS (Note 7)), which included
a discount from its face amount of $5.2 million.

Dividends and accretion on the Series B was $4.1 million and $10.7 million
for the years ended December 31, 1997 and 1998, respectively. During the years
ended December 31, 1997 and 1998, dividends and accretion on the Series C was
$1.8 million and $200,000, respectively. The Series B and C were redeemed in
August 1998 for $38.8 million with proceeds from the Company's initial public
offering. In connection with this early redemption, the Company recorded a
one-time charge to APIC of $10.9 million, which represented the difference
between the carrying value of the Series B and C and the redemption value. This
amount is included in dividends and accretion in the accompanying financial
statements.

During 1999, 962,513 shares of Common Stock were issued related to the
warrants issued in conjunction with Series B and Series C.

SERIES A CONVERTIBLE PREFERRED STOCK

In May 1996, concurrent with entering into the Partners' licensing
arrangement, the Company sold 1,000,000 shares of Series A Convertible Preferred
Stock ("Series A") for $6.0 million to outside investors. The Series A was
convertible on a one-to-one basis to shares of Common Stock of the Company at
the discretion of the outside investors. The Series A had voting rights

F-17

424B1 66th Page of 83 TOC 1st Previous Next ↓Bottom Just 66th
ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. STOCKHOLDERS' EQUITY AND MANDATORILY REDEEMABLE PREFERRED STOCK --
(CONTINUED)

equivalent to Common Stock on an as converted basis and a liquidation preference
of $6 per share. The Company did not declare or pay dividends on Series A. In
January 1997, the Company issued 1,478,097 shares of Series F Convertible
Preferred Stock ("Series F") in exchange for the cancellation of Series A. The
Company accounted for the transaction analogously to an extinguishment of debt
with a related party and, accordingly, recorded a charge of $3.1 million to
additional paid-in capital at the date of this transaction. In addition, the
charge is recorded as an increase to net loss available to common stockholders
in the accompanying statement of operations.

In March 1996, PCS sold 20,000 shares of its Series A Convertible Preferred
Stock ("PCS Series A") for $2.0 million to outside investors. At the time of the
merger the PCS Series A were converted into 241,183 shares of Common Stock of
the Company.

SERIES D CONVERTIBLE PREFERRED STOCK

In January 1997, the Company sold 4,981,289 shares of the Series D
Convertible Preferred Stock ("Series D") for $62.5 million to private investors
and issued 2,077,497 shares to AIS in connection with the acquisition of Alltel.
Each share of Series D was convertible into one share of Common Stock. The
Series D contained voting rights as if it were converted into Common Stock and
had a liquidation preference of $12.55 per share plus any declared but unpaid
dividends. The Series D was equivalent to Series E Convertible Preferred Stock
("Series E") with respect to liquidation preference and rank.

Both the Series D and E ranked junior to the Series B and C and senior to
Series F. The Company did not declare or pay any dividends on the Series D.

Concurrent with the Company's initial public offering, the Series D were
converted into 7,058,786 shares of Common Stock.

SERIES E CONVERTIBLE PREFERRED STOCK

In January 1997, the Company sold 896,431 shares of Series E for $11.3
million. The Series E was non-voting and was identical to the Series D with
respect to liquidation preference and rank. Each share of Series E was
convertible into one share of Non-Voting Common Stock. The Company did not
declare or pay any dividends on the Series E.

Concurrent with the Company's initial public offering, the Series E were
converted into 896,431 shares of Non-Voting Common Stock. Each share of
Non-Voting Common Stock is convertible into one share of voting Common Stock.
During 1999, all shares of Non-Voting Common Stock were converted into voting
Common Stock.

SERIES F CONVERTIBLE PREFERRED STOCK

As described above, in January 1997, 1,478,097 shares of Series F were
issued in exchange for the cancellation of the outstanding shares of Series A.
The Series F contained a liquidation preference of $6 per share. The Series F
ranked junior to the Company's other classes of preferred stock with respect to
liquidation preferences. Each share of Series F was convertible into one share
of Common Stock. The Company did not declare or pay any dividends on the Series
F.

Concurrent with the Company's initial public offering, the Series F were
converted into 1,478,097 shares of Common Stock.

F-18

424B1 67th Page of 83 TOC 1st Previous Next ↓Bottom Just 67th
ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. STOCKHOLDERS' EQUITY AND MANDATORILY REDEEMABLE PREFERRED STOCK --
(CONTINUED)

SERIES G CONVERTIBLE PREFERRED STOCK

In February 1998, the Company sold 900,000 shares of Series G Convertible
Preferred Stock ("Series G") to outside investors for total consideration of
$9.0 million. The proceeds were utilized to repay the outstanding Term Loan
balance. Each share of the Series G was convertible on a two-for-three basis to
shares of Common Stock. The conversion rate was subject to adjustment in certain
circumstances. The Series G had a liquidation preference of $10 per share. In
the event of an involuntary liquidation of the Company, the Series G would have
participated on a pro rata basis with the Series D and E.

Concurrent with the Company's initial public offering, the Series G was
converted into 599,999 shares of Common Stock.

VOTING AND NON-VOTING COMMON STOCK

Holders of Common Stock are entitled to one vote per share. Holders of
Non-Voting Common Stock do not have voting rights other than as provided by
statute.

UNDESIGNATED PREFERRED STOCK

The Company has available for issuance 5,000,000 shares of undesignated
preferred stock (the "Undesignated Preferred"). The liquidation, voting,
conversion and other related provisions of the Undesignated Preferred will be
determined by the Board of Directors at the time of issuance. Currently, there
are no outstanding shares.

INITIAL PUBLIC OFFERING

Effective August 6, 1998, the Company completed an initial public offering
("IPO"). Net proceeds from the offering were $65.4 million, including proceeds
from the exercise of the underwriters' over allotment option. The Company used
the net proceeds from the offering to redeem the outstanding shares of the
Company's Mandatorily Redeemable Preferred Stock, repay the principal balance
and accrued interest on acquisition related debt and to repay amounts
outstanding under the Company's revolving credit facility. In connection with
the redemption of the Mandatorily Redeemable Preferred Stock, the Company
recorded an increase to net loss available to common shareholders of $10.9
million reflecting the difference between the carrying value and redemption
value of the stock.

Concurrent with the initial public offering, all Series of Convertible
Preferred Stock were automatically converted into Common Stock or Non-Voting
Common Stock and all Mandatorily Redeemable Preferred Stock was redeemed.

6. TRANSITION MERGER

As discussed in Note 2, on December 31, 1998, the Company completed a
merger with Transition, a publicly traded provider of integrated clinical and
financial decision support systems for hospitals, integrated health networks,
physician groups and other healthcare organizations. Transition stockholders
received .525 shares of common stock of Eclipsys for each share of Transition
common stock, or an aggregate of 11.1 million shares. The transaction was
accounted for as a pooling of interests, and accordingly, all prior periods have
been restated to give effect to this transaction. The Company incurred
transaction costs of approximately $5.0 million directly related to the merger.

F-19

424B1 68th Page of 83 TOC 1st Previous Next ↓Bottom Just 68th
ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. TRANSITION MERGER -- (CONTINUED)

Significant transactions of Transition during the three years ended
December 31, 1998, after giving effect to the 0.525 conversion ratio were as
follows:

1996 RECAPITALIZATION

In January 1996, prior to its contemplation of an initial public offering,
Transition effected a leveraged recapitalization transaction (the "
Recapitalization"), in which Transition repurchased 15,011,012 shares of
Common Stock then issued and outstanding from New England Medical Center,
Inc. ("NEMC") and other stockholders of Transition for an aggregate amount
of approximately $111.4 million. Additionally, Transition incurred
approximately $4.8 million in costs related to the Recapitalization
(approximately $3.4 million is included in the statement of operations). Up
until the Recapitalization, Transition was a majority-owned subsidiary of
NEMC. In addition, Warburg, Pincus Ventures, L.P. ("WP Ventures") purchased
from certain executive officers of Transition shares of Common Stock,
including shares of Common Stock acquired by such executive officers
pursuant to their exercise of stock options, for an aggregate of $9.0
million. WP Ventures then contributed such shares of Common Stock to
Transition. The principal purpose of the Recapitaliztion was to provide
liquidity to Transition's existing stockholders while permitting them to
retain an ownership interest in Transition. Transition accounted for this
transaction as a leveraged recapitalization. To finance the repurchase of
these shares, Transition issued to certain institutional investors shares
of Series A non-voting preferred stock for an aggregate of $20.0 million,
shares of Series B convertible preferred stock (convertible into 4,529,338
shares of Common Stock) for an aggregate of $33.6 million and shares of
Series C non-voting convertible preferred stock(convertible into 187,038
shares of Common Stock) for an aggregate of $1.4 million. In addition,
Transition entered into a secured term loan in the amount of $35.0 million
and received an advance of $5.0 million under a secured revolving credit
facility in the maximum principal amount of $15.0 million, and issued
Senior Subordinated Notes, due 2003, in the aggregate principal amount of
$10.0 million (the "Senior Subordinated Notes").

The holder of the Senior Subordinated Notes also received a warrant to
acquire an aggregate of 156,412 shares of non-voting common stock at an
initial exercise price of $7.43 per share, subject to adjustment in certain
circumstances. Transition recorded a discount on the Senior Subordinated
Notes for the estimated fair value of the warrants ($395,000). In addition,
in the first quarter of 1996, Transition incurred a non-cash compensation
charge of approximately $3.0 million. This compensation charge arose from
the purchase by Transition (both directly and indirectly, through WP
Ventures) from certain of its executive officers shares of Common Stock
that had been acquired by such officers immediately prior to the
Recapitalization through the exercise of employee stock options. The amount
of the compensation charge was equal to the difference between the
approximately $766,000 exercise price paid by such officers upon such
exercise and the proceeds received by the officers from the purchase by
Transition of such shares.

During 1999, 156,320 shares of Common Stock were issued related to the
warrants issued in conjunction with the Senior Subordinated Notes.

TRANSITION INITIAL PUBLIC OFFERING

On April 18, 1996, Transition completed an initial public offering of
3,622,500 shares of its common stock that generated net proceeds of $114.4
million. A substantial part of the proceeds were used to redeem $20.6
million of Series A preferred stock and accrued

F-20

424B1 69th Page of 83 TOC 1st Previous Next ↓Bottom Just 69th
ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. TRANSITION MERGER -- (CONTINUED)

dividends (included as part of the recapitalization on the statement of
changes in stockholders' equity), to repay the $34.7 million outstanding
principal amount and accrued interest under a secured term loan facility,
to repay the $10.3 million outstanding principal amount and accrued
interest related to the senior subordinated notes and to repay the $5.1
million outstanding principal amount and accrued interest under a revolving
credit facility.

ACQUISITIONS

On July 22, 1996, Transition acquired substantially all of the outstanding
stock and a note held by a selling principal of Enterprising HealthCare,
Inc. ("EHI"), based in Tucson, Arizona, for a total purchase price of
approximately $1.8 million in cash. EHI provides system integration
products and services for the health care market. The acquisition was
accounted for under the purchase method of accounting and accordingly the
results of operations of EHI are included from the date of the acquisition.
Acquired technology costs of $1.6 million are being amortized on a
straight-line basis over 7 years.

On September 19, 1997, Transition acquired all outstanding shares of Vital
Software Inc. ("Vital"), a privately held developer of products that
automate the clinical processes unique to medical oncology. The purchase
price was approximately $6.3 million, which was comprised of $2.7 million
in cash and 132,302 shares of the Company's common stock with a value of
$3.6 million. The acquisition was accounted for under the purchase method
of accounting and accordingly the results of operations of Vital are
included from the date of the acquisition. The amount allocated to acquired
in-process research and development was based on the results of an
independent appraisal. Acquired in-process research and development
represented development projects in areas that had not reached
technological feasibility and which had no alternative future use.
Accordingly, the amount was written off at the date of the acquisition.

On December 3, 1998, Transition acquired substantially all of the
outstanding stock of HealthVISION ("HV"), a provider of electronic medical
record software. The purchase price was approximately $41.1 million, which
was comprised of approximately $31.6 million in cash (of which $6.0 million
was paid in 1997) and the assumption of approximately $9.5 million in
liabilities, plus an earn-out of up to $10.8 million if specified financial
milestones were met. The earnout period expired in 1999 with no amounts
earned under the provisions of the agreement. The acquisition was accounted
for under the purchase method of accounting and accordingly the results of
operations of HV are included from the date of the acquisition. In
connection with the transaction, based on an independent appraisal, the
Company recorded $40.6 million of intangible assets which consisted of $2.4
million of acquired in-process research and development, $27.3 million of
acquired technology and $10.9 million of goodwill. The amount allocated to
acquired in-process research and development ($2.4 million) represented
development projects in areas that had not reached technological
feasibility and which had no alternative future use. Accordingly, the
amount was charged to operations at the date of the acquisition. The amount
allocated to acquired technology and goodwill are being amortized on a
straight-line basis over three years.

Unaudited pro forma results of operations have not been presented for EHI
and Vital, as the effects of these acquisitions on the financial statements
are not material. For unaudited pro forma results of operations for the
years ended December 31, 1997 and 1998, as if the HV acquisition had
occurred on January 1, 1997, see Note 7.

F-21

424B1 70th Page of 83 TOC 1st Previous Next ↓Bottom Just 70th
ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. ACQUISITIONS

Effective January 24, 1997, Eclipsys completed the acquisition of Alltel.
As consideration for this transaction, Eclipsys paid AIS $104.8 million cash,
issued 15,500 (after consideration of the return of 4,500 shares by AIS in
October 1997) shares of Series C valued at approximately $10.3 million and
2,077,497 shares of Series D valued at approximately $26.1 million. Concurrent
with the acquisition, the Company and Alltel entered into the Management and
Services Agreement ("MSA") whereby Alltel agreed to provide certain services to
the Company and its customers together with certain non-compete provisions. In
exchange, the Company agreed to pay Alltel $11.0 million in varying installments
through December 2000. The obligation and equivalent corresponding asset were
recorded at its net present value of $9.5 million at the date of signing. To
finance the transaction, the Company sold, for $30.0 million, 30,000 shares of
Series B and warrants to purchase up to 1,799,715 shares of Non-Voting Common
Stock to private investors. Additionally, the Company sold 4,981,289 shares of
Series D and 896,431 shares of Series E for total proceeds of $73.8 million.

The transaction was accounted for as a purchase and accordingly, the
purchase price was allocated based on the fair value of the net assets acquired.

The purchase price is composed of and allocated as follows (in thousands):

[Download Table]

Cash, net of cash acquired.................................. $104,814
Issuance of Series D........................................ 26,072
Issuance of Series C........................................ 10,258
Transaction costs........................................... 2,008
Liabilities assumed......................................... 58,397
--------
201,549
--------
Current assets.............................................. 31,803
Property and equipment...................................... 12,242
Other assets................................................ 3,148
Identifiable intangible assets:
In-process research and development....................... 92,201
Acquired technology....................................... 42,312
Ongoing customer relationships............................ 10,846
--------
192,552
--------
Goodwill.................................................... $ 8,997
========

The acquisition agreement contains certain provisions whereby the purchase
price could be adjusted within twelve months from the acquisition date based on
certain criteria defined in the agreement. Based on these provisions, in October
1997, AIS returned 4,500 shares of Series C to Eclipsys. In December 1997, the
Company presented its final analysis to AIS of items for which, under the
agreement, the Company believed it was entitled to consideration. In the first
quarter of 1998, the Company and AIS renegotiated, in two separate transactions,
certain matters relating to the acquisition of Alltel. In one transaction, AIS
returned to the Company, for cancellation, 11,000 shares of Series C in exchange
for resolving certain open issues in connection with the Alltel acquisition, and
the Company agreed, at AIS' option, to redeem the remaining 4,500 shares of
Series C held by AIS for an aggregate price of $4.5 million at the time of the
IPO and for a period of 30 days thereafter. These shares were redeemed with the
proceeds from the Company's IPO (Note 5). In the second transaction, the Company
paid AIS an aggregate of $14.0 million in exchange for terminating all of the
rights and obligations of both parties under the MSA. The Company recorded a
charge of approximately $7.2 million related to

F-22

424B1 71st Page of 83 TOC 1st Previous Next ↓Bottom Just 71st
ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. ACQUISITIONS -- (CONTINUED)

the write-off of the MSA intangible asset. In addition, the Company recorded a
reduction to goodwill of approximately $7.8 million related to the final
settlement of certain issues related to the Alltel acquisition resulting in the
return of the 11,000 shares of Series C. Additionally, the Company recorded a
Network Service intangible asset related to the Company's ability to provide
services in this area as a result of the settlement. This asset is being
amortized over three years. After accounting for these adjustments, the
Company's total consideration paid for this acquisition was $201.5 million,
including liabilities assumed, net of cash acquired.

In connection with the recording of the acquisition of Alltel, the Company
reduced the predecessor's reported deferred revenue by $7.3 million to the
amount that reflects the estimated fair value of the contractual obligations
assumed. This adjustment results from the Company's requirement, in accordance
with generally accepted accounting principles, to record the fair value of the
obligation assumed with respect to arrangements for which the predecessor
company previously collected the related revenue. The Company's liability at
acquisition includes its estimated costs in fulfilling those contract
obligations.

Effective June 26, 1997, the Company acquired all of the common stock of
SDK Computer Services Corporation ("SDK") in exchange for 499,997 shares of
Common Stock valued at approximately $3.2 million, $2.2 million in cash and
acquisition debt due to SDK shareholders totaling $7.6 million. The transaction
was accounted for as a purchase and, accordingly, the purchase price was
allocated based on the estimated fair value of the net assets acquired.

The purchase price is composed of and allocated as follows (in thousands):

[Download Table]

Cash, net of cash acquired.................................. $ 2,161
Issuance of Common Stock.................................... 3,248
SDK acquisition debt........................................ 7,588
Liabilities assumed......................................... 3,514
-------
16,511
-------
Current assets.............................................. 1,061
Property and equipment...................................... 671
Other assets................................................ 33
Identifiable intangible assets:
In-process research and development....................... 6,988
Acquired technology....................................... 3,205
-------
11,958
-------
Goodwill.................................................... $ 4,553
=======

The Company is using the acquired in-process research and development to
create new clinical, patient financial, access management and data warehousing
products, which will become part of its product suite over the next several
years. The Company anticipates that certain products will be generally released
through 2001. It is management's expectation that the acquired in-process
research and development will be successfully developed; however, there can be
no assurance that commercial viability of these products will be achieved. In
the event that these products are not generally released in a timely manner, the
Company may experience fluctuations in future earnings as a result of such
delays.

In connection with the Alltel and SDK acquisitions, the Company wrote off
in-process research and development of $92.2 million and $7.0 million,
respectively, related to the appraised values of certain in-process research and
development acquired in these acquisitions.

F-23

424B1 72nd Page of 83 TOC 1st Previous Next ↓Bottom Just 72nd
ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. ACQUISITIONS -- (CONTINUED)

Effective January 30, 1998, the Company acquired the net assets of the
Emtek Healthcare Division of Motorola, Inc. ("Motorola"), ("Emtek") for an
aggregate purchase price of approximately $11.7 million, including 1,000,000
shares of Common Stock valued at $9.1 million and liabilities assumed of
approximately $12.3 million. In addition, Motorola agreed to pay the Company
$9.6 million in cash due within one year for working capital purposes.

The purchase price is composed of and allocated as follows (in thousands):

[Download Table]

Issuance of Common Stock.................................... $ 9,060
Receivable from Motorola.................................... (9,600)
Liabilities assumed......................................... 12,275
-------
11,735
-------
Current assets.............................................. 5,033
Property and equipment...................................... 2,629
-------
7,662
-------
Identifiable intangible assets (acquired technology)........ $ 4,073
=======

As discussed in Note 2, on February 17, 1999, the Company completed a
merger with PCS for total consideration of approximately $35.0 million. The
Company issued 1,104,000 of its common stock for all of the common stock
outstanding of PCS. No adjustments were made to the net assets of PCS as a
result of the acquisition. The merger was accounted for as a pooling of
interests and accordingly, the accompanying consolidated financial statements
have been retroactively restated as if the merger occurred as of the earliest
period presented. PCS provides enterprise resource planning software throughout
the healthcare industry.

Effective March 31, 1999, the Company acquired the common stock of Intelus
Corporation ("Intelus") and Med Data Systems, Inc. ("Med Data"), both wholly
owned subsidiaries of Sungard Data Systems, Inc., for total consideration of
$25.0 million in cash. The acquired entities both provide document imaging
technology and workflow solutions to entities throughout the healthcare
industry. The acquisition was accounted for as a purchase and, accordingly, the
purchase price was allocated based on the fair value of the net assets acquired.

The purchase price is composed of and allocated as follows after
adjustments for the sale of Med Data (in thousands) :

[Download Table]

Cash........................................................ $25,000
Liabilities assumed......................................... 4,306
-------
29,306
Current assets.............................................. 9,830
Fixed assets................................................ 778
-------
10,608
Identifiable intangible assets (acquired technology)........ $18,698
=======

F-24

424B1 73rd Page of 83 TOC 1st Previous Next ↓Bottom Just 73rd
ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. ACQUISITIONS -- (CONTINUED)

Unaudited pro forma results of operations as if the aforementioned
acquisitions had occurred on January 1, 1998 is as follows including the
acquisition of HV discussed in Note 6 (in thousands except per share data):

[Download Table]

YEARS ENDED DECEMBER 31,
-------------------------
1998 1999
-------- --------

Revenues........................................... $213,444 $252,818
Net loss........................................... (57,623) (9,884)
Basic and diluted net loss per share............... (2.88) (0.28)

As discussed in Note 2, on June 17, 1999, the Company completed a merger
with MSI for total consideration of approximately $53.6 million. The Company
issued 2,375,000 of its common stock for all of the common stock outstanding of
MSI. No adjustments were made to the net assets of MSI as a result of the
acquisition. The merger was accounted for as a pooling of interests and
accordingly, the accompanying consolidated financial statements have been
retroactively restated as if the merger occurred as of the earliest period
presented. MSI provides web enabling and integration software. In connection
with the pooling of MSI, the Company recorded a stock compensation charge of
$1.0 million related to certain MSI options that were required to be fully
vested at the merger date. Prior to the merger with Eclipsys, MSI was a
Subchapter S Corporation. During 1997, 1998 and 1999, MSI paid distributions to
stockholders' of $495,000, $585,000 and $375,000, respectively. In connection
with the Eclipsys merger, The Subchapter S election was terminated.

Effective July 1, 1999, the Company sold Med Data for total consideration
of $5.0 million in cash. The Company reduced acquired technology originally
recorded in the purchase during the quarter ended September 30, 1999 by $4.4
million, which represents the difference between the sales price and the net
tangible assets sold.

During July 1999, the Company invested in HEALTHvision, Inc., a Dallas
based, privately held internet healthcare company, in conjunction with VHA, Inc.
and General Atlantic Partners, LLC. The Company purchased 3,400,000 shares of
common stock for $34,000, which represents 34% of the outstanding common stock
on an as if converted basis of HEALTHvision, Inc. The Company accounts for the
investment using the equity method of accounting. This entity is a start-up
enterprise that bears no relationship to the acquisition of HV by Transition in
December 1998 (Note 6). In connection with the formation of HEALTHvision, Inc.
certain employees of Eclipsys became employees of HEALTHvision, Inc., and as a
result the Company recorded a stock compensation charge of $982,000 due to
accelerated vesting of those employees stock options. As of December 31, 1999,
HEALTHvision, Inc. has total revenues of approximately $3.7 million (unaudited),
a net loss of approximately $6.0 million (unaudited) and total assets of
approximately $22.4 million (unaudited).

8. LONG-TERM DEBT

In connection with the Alltel acquisition, the Company entered into a $30.0
million credit facility (the "Facility"). The Facility included a $10.0 million
term loan (the "Term Loan") and a $20.0 million revolving credit facility (the
"Revolver"). Borrowings under the Facility are secured by substantially all of
the assets of the Company. The Term Loan was payable in varying quarterly
installments through January 2000. As more fully discussed in Note 5, the Term
Loan was repaid in full with the proceeds of the sale of Series G Convertible
Preferred Stock in February 1998. On May 29, 1998, the Company entered into an
agreement to increase the

F-25

424B1 74th Page of 83 TOC 1st Previous Next ↓Bottom Just 74th
ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. LONG-TERM DEBT -- (CONTINUED)

available borrowings under the Facility from $20.0 million to $50.0 million. In
August 1998, the long-term debt balance and accrued interest were repaid in full
with proceeds from the Company's IPO.

Borrowings under the Facility bear interest, at the Company's option, at
(i) LIBOR plus 1% to 3% or (ii) the higher of a) the banks prime lending rate or
b) the Federal Funds Rate plus 0.5%; plus 0% to 1.75%. The interest rates vary
based on the Company's ratio of earnings to consolidated debt, as defined. At
December 31, 1998 and 1999, the Company's borrowing rate under the Facility was
6.85% and 5.92%, respectively. Under the terms of the Facility, the Company is
required to maintain certain financial covenants related to consolidated debt to
earnings, consolidated earnings to interest expense and consolidated debt to
capital. In addition, the Company has limitations on the amounts of certain
types of expenditures and is required to obtain certain approvals related to
mergers and acquisitions, as defined. The Company was in compliance with all
provisions of the Facility as of December 31, 1999.

As of December 31, 1999, the Company has $50.0 million available for future
borrowings under the Revolver. The Revolver expires in August 2001. Under the
terms of the Revolver, the Company pays an annual commitment fee of .375% for
any unused balance, as defined. Additionally, the Company pays a fee of .125%
for any Letters of Credit issued under the agreement. As of December 31, 1999,
unused Letters of Credit totaling approximately $300,000 were outstanding
against the Revolver.

PCS issued convertible notes and warrants to purchase common stock to
certain investors. As of December 31, 1998, the balance of convertible notes
payable was $1.9 million. At the time of the merger, the convertible debt was
converted into 102,515 shares of Common Stock of the Company.

9. OTHER CURRENT LIABILITIES

Other current liabilities consist of the following (in thousands):

[Download Table]

DECEMBER 31,
--------------------
1998 1999
------- -------

Accounts payable....................................... $ 7,782 $ 6,864
Accrued compensation and incentives.................... 15,206 16,982
Customer deposits...................................... 9,576 4,154
Accrued royalties...................................... 6,586 4,640
Accrued interest....................................... 295 --
Other.................................................. 9,415 8,648
------- -------
$48,860 $41,288
======= =======

During the quarter ended June 30, 1999, the company initiated a restructure
of its operations. This restructure was completed during the quarter ended
September 30, 1999 and resulted in a charge totaling $5.1 million. The charge
principally related to the closing of duplicate facilities and the termination
of certain employees. As of December 31, 1999 accrued restructuring costs of
$2.3 million are included in other current liabilities.

F-26

424B1 75th Page of 83 TOC 1st Previous Next ↓Bottom Just 75th
ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10. INCOME TAXES

A reconciliation of the effect of applying the federal statutory rate and
the effective income tax rate on the Company's income tax provision is as
follows (in thousands):

[Download Table]

YEARS ENDED DECEMBER 31,
-----------------------------
1997 1998 1999
-------- -------- -------

Statutory federal income tax rate........... $(39,761) $(10,683) $(3,212)
In-process research and development......... 4,418 813 --
State income taxes.......................... (4,516) (872) (374)
Non-deductible deal costs................... -- 1,546 650
Non-deductible amortization................. 747 927 2,610
Other....................................... 232 237 326
Valuation allowance, includes effect of
acquisitions.............................. 46,976 12,284 --
-------- -------- -------
Income tax provision........................ $ 8,096 $ 4,252 $ --
======== ======== =======

The significant components of the Company's net deferred tax asset were as
follows (in thousands):

[Download Table]

DECEMBER 31,
-----------------
1998 1999
------- -------

Deferred tax assets:
Intangible assets....................................... $35,546 $34,747
Deferred revenue........................................ 7,752 434
Allowance for doubtful accounts......................... 1,097 2,760
Accrued expenses........................................ 2,448 3,644
Depreciation and amortization........................... 1,111 1,148
Other................................................... 2,481 1,843
Net operating loss carryforwards........................ 23,084 36,984
------- -------
$73,519 $81,560
======= =======

Deferred tax liabilities:
Unbilled receivables.................................... $(2,445) $(7,718)
Capitalization of software development costs............ (1,992) (3,016)
------- -------
Net deferred tax asset.................................. 69,082 70,826
------- -------
Valuation allowance..................................... (69,082) (70,826)
------- -------
$ -- $ --
======= =======

At December 31, 1999, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $92.0 million. The carryforwards
expire in varying amounts through 2019. Of this amount, $21.0 million related to
stock option tax deductions which will be tax-effected and reflected as
additional paid-in-capital when realized. Additionally, the Company has Canadian
net operating loss carryovers of approximately $5.5 million that expire in
varying amounts through 2004.

Under the Tax Reform Act of 1986, the amounts of, and the benefits from,
net operating loss carryforwards may be impaired or limited in certain
circumstances. The Company experienced ownership changes as defined under
Section 382 of the Internal Revenue Code in January 1997

F-27

424B1 76th Page of 83 TOC 1st Previous Next ↓Bottom Just 76th
ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10. INCOME TAXES -- (CONTINUED)

and December 1998. As a result of the ownership changes, net operating loss
carryforwards of approximately $1.5 million at January 1997 and $55.0 million at
December 1998, which were incurred prior to the date of change, are subject to
annual limitation on their future use. As of December 31, 1999, a valuation
allowance has been established against the deferred tax assets that management
does not believe are more likely than not to be realized. The future reduction
of the valuation allowance, up to $7.2 million, will be reflected as a reduction
of goodwill.

11. EMPLOYEE BENEFIT PLANS

1996 STOCK OPTION PLAN

In April 1996, the Board of Directors of the Company (the "Board") adopted
the 1996 Stock Plan (the "1996 Stock Plan"). The 1996 Stock Plan, as amended,
provides for grants of stock options, awards of Company stock free of any
restrictions and opportunities to make direct purchases of restricted stock of
the Company. The 1996 Stock Plan allows for the issuance of options or other
awards to purchase up to 2,500,000 shares of Common Stock. Pursuant to the terms
of the 1996 Stock Plan, a committee of the Board is authorized to grant awards
to employees and non-employees and establish vesting terms. The options expire
ten years from the date of grant.

1998 STOCK INCENTIVE PLAN

In January 1998, the Board adopted the 1998 Stock Incentive Plan (the
"Incentive Plan"). The Incentive Plan provides for the granting of stock
options, stock appreciation rights, restricted stock awards or unrestricted
stock awards. Under the provisions of the Incentive Plan, no options or other
awards may be granted after April 2008. There are currently 4,333,333 shares of
common stock reserved under the Incentive Plan, together with the 1996 Stock
Plan and the 1998 Employee Stock Purchase Plan. Options granted under the
Incentive Plan will be granted at the fair market value of the stock as of the
date of grant.

1999 STOCK INCENTIVE PLAN

In February 1999, the Board adopted the 1999 Stock Incentive Plan (the
"1999 Plan"). The 1999 Plan provides for the granting of stock options,
restricted stock, or other stock-based awards. Under the provisions of the 1999
Plan, no options or other awards may be granted after April 2009. The 1999 Plan
increases the number of shares of common stock reserved under the

F-28

424B1 77th Page of 83 TOC 1st Previous Next ↓Bottom Just 77th
ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. EMPLOYEE BENEFIT PLANS -- (CONTINUED)

1999 Plan, together with the Incentive Plan, the 1996 Plan and the 1998 Employee
Stock Purchase Plan to 7,000,000.

[Enlarge/Download Table]

1997 1998 1999
-------------------- -------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- -------- --------- -------- ---------- --------

Outstanding at beginning of
year........................ 2,679,224 $ 3.75 3,835,565 $ 7.78 4,344,958 $10.69
Granted..................... 1,823,559 14.27 1,217,463 18.85 3,141,212 19.62
Exercised................... (356,102) 3.05 (465,008) 2.61 (1,610,556) 3.75
Forfeited................... (311,116) 17.04 (243,062) 21.06 (380,941) 22.53
--------- --------- ----------
Outstanding at end of year.... 3,835,565 7.78 4,344,958 10.69 5,494,673 16.98
--------- --------- ----------
Exercisable at end of the
year..................... 1,280,480 1,654,029 1,115,891
========= ========= ==========

[Enlarge/Download Table]

1997 1998 1999
------------------- ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE FAIR AVERAGE FAIR AVERAGE FAIR
EXERCISE MARKET EXERCISE MARKET EXERCISE MARKET
OPTION GRANTED DURING THE YEAR PRICE VALUE PRICE VALUE PRICE VALUE
------------------------------ -------- -------- -------- -------- -------- --------

Option price > fair market value....... $34.56 $24.49 --
Option price = fair market............. 6.54 21.31 $19.62
Option price < fair market value....... -- --
Weighted Fair Market Value of
Options.............................. $12.49 $18.43 -- $18.51

During 1997, pursuant to the 1996 Stock Plan, the Board issued 15,000
shares of Common Stock to employees and non-employees for services. Compensation
expense of approximately $97,000 was recorded in 1997 related to these
transactions.

The Company has adopted the disclosure only provision of FAS 123. Had
compensation cost for the Company's stock option grants described above been
determined based on the fair value at the grant date for awards in 1997, 1998
and 1999 consistent with the provisions of FAS 123, the Company's net loss and
loss per share would have been increased to the pro forma amounts indicated
below (in thousands, except per share data):

[Download Table]

YEAR ENDED DECEMBER 31,
-------------------------------
1997 1998 1999
--------- -------- --------

Net loss:
As reported............................. $(126,328) $(35,276) $ (9,445)
Pro forma............................... (131,806) (47,780) (23,788)
Basic net loss per share:
As reported............................. $ (8.60) $ (1.95) $ (0.27)
Pro forma............................... $ (8.95) $ (2.48) $ (0.68)
Diluted net loss per share:
As reported............................. $ (8.60) $ (1.95) $ (0.27)
Pro forma............................... $ (8.95) $ (2.48) $ (0.68)

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1997, 1998 and 1999: dividend yield of 0% for all
years, risk-free interest rate of 5.55% for 1997 and

F-29

424B1 78th Page of 83 TOC 1st Previous Next ↓Bottom Just 78th
ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. EMPLOYEE BENEFIT PLANS -- (CONTINUED)

1998, and 6.34% for 1999, expected life of 9.98, 8.35 and 7.44 based on the plan
and volatility of 103% for 1997 and 1998, and 133% for 1999.

The following table summarizes information about stock options outstanding
at December 31, 1999:

[Enlarge/Download Table]

OPTIONS OUTSTANDING
------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
RANGE OF EXERCISE PRICE AT 12/31/99 LIFE (YEARS) PRICE AT 12/31/99 PRICE
----------------------- ----------- ------------ -------- ----------- --------

$0.01-$6.00............................ 380,268 6.3 $ .42 241,797 $ .60
$6.01-$12.00........................... 1,318,603 7.4 7.56 548,294 7.53
$12.01-$18.00.......................... 1,408,541 9.5 14.85 136,028 14.22
$18.01-$24.00.......................... 1,934,227 9.2 22.16 5,780 21.79
$24.01-$30.00.......................... 90,815 8.0 28.86 39,854 28.70
$30.01-$36.00.......................... 102,371 6.0 35.47 53,544 35.41
$36.01-$42.00.......................... -- -- -- -- --
$42.01-$48.00.......................... 159,848 8.1 44.46 57,266 44.40
$48.01-$54.00.......................... -- -- -- -- --
$54.01-$60.00.......................... 100,000 8.3 60.00 33,328 60.00

In connection with the Transition merger, options held by employees of
Transition were converted into options to purchase 1,792,854 shares of Voting
Common Stock based on the .525 conversion ratio. All option disclosures reflect
the impact of Transition options after retroactive restatement for the impact of
the Transition merger. As of December 31, 1997, 1998 and 1999, respectively,
there were 1,999,867, 1,792,854 and 327,626 options outstanding related to
Transition's stock options plans.

In connection with the PCS and MSI mergers, options held by employees were
converted into outstanding options of the Company. As of December 31, 1997, 1998
and 1999, respectively, there were 9,048, 56,551 and 11,764 options outstanding
related to PCS's stock option plan. As of December 31, 1997, 1998 and 1999,
respectively, there were 0, 117,090 and 72,435 options outstanding related to
MSI's stock option plan. Additionally, in connection with the MSI merger, the
Company recorded unearned stock compensation of $1,523,000 related to options
granted to MSI employees during 1998.

EMPLOYEE SAVINGS PLAN

During 1997, the Company established a Savings Plan (the "Plan") pursuant
to Section 401(k) of the Internal Revenue Code (the "Code"), whereby employees
may contribute a percentage of their compensation, not to exceed the maximum
amount allowable under the Code. At the discretion of the Board, the Company may
elect to make matching contributions, as defined in the Plan. For the year ended
December 31, 1998, the Board authorized matching contributions totaling
$1,400,000. No contributions were authorized for 1999.

Transition maintained a savings plan pursuant to Section 401(k) of the
Code. In connection with this plan, employer contributions totaling $306,000 and
$376,000 were made in 1997 and 1998, respectively. In connection with the
Transition merger, employees of Transition became eligible to enroll in the
Plan.

F-30

424B1 79th Page of 83 TOC 1st Previous Next ↓Bottom Just 79th
ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. EMPLOYEE BENEFIT PLANS -- (CONTINUED)

1998 EMPLOYEE STOCK PURCHASE PLAN

Under the Company's 1998 Employee Stock Purchase Plan (the "Purchase Plan")
(implemented in April 1998), employees of the Company, including directors of
the Company who are employees, are eligible to participate in quarterly plan
offerings in which payroll deductions may be used to purchase shares of Common
Stock. The purchase price of such shares is the lower of 85% of the fair market
value of the Common Stock on the day the offering commences and 85% of the fair
market value of the Common Stock on the day the offering terminates.

12. COMMITMENTS AND CONTINGENCIES

NONCANCELABLE OPERATING LEASES

The Company leases its office space and certain equipment under
noncancelable operating leases. Rental expense under operating leases was
approximately $7.0 million, $8.7 million and $11.6 million for the years ended
December 31, 1997, 1998 and 1999, respectively. Future minimum rental payments
for noncancelable operating leases as of December 31, 1999 are as follows (in
thousands):

[Download Table]

YEAR ENDING DECEMBER 31,
------------------------

2000........................................................ $ 7,310
2001........................................................ 6,603
2002........................................................ 6,333
2003........................................................ 5,888
2004........................................................ 3,500
Thereafter.................................................. 6,790
-------
$36,424
=======

LITIGATION

The Company is involved in litigation incidental to its business. In the
opinion of management, after consultation with legal counsel, the ultimate
outcome of such litigation will not have a material adverse effect on the
Company's financial position or results of operations or cash flows.

13. RELATED PARTY TRANSACTIONS

During 1997, the Company paid AIS $1.7 million for certain transition
services provided by AIS related to accounting services, computer processing and
other various activities.

During 1997, Eclipsys paid a total of $348,000 to certain subsidiaries of
AIS and Alltel Corporation related to the purchase of various goods and
services.

The Company leases office space from a former stockholder of SDK. During
the year ended December 31, 1997, 1998 and 1999, the Company paid $178,000,
$330,000 and $330,000, respectively, under this lease. The lease is
noncancelable and expires in 2009.

In 1997, 1998 and 1999, the Company paid $336,000, $446,000 and $530,000,
respectively, to a charter company for the use of an aircraft for corporate
purposes. The aircraft provided for the Company's use was leased by the charter
company from a company owned by the Chairman of the Board and Chief Executive
Officer of the Company (the "Chairman"). The Chairman's

F-31

424B1 80th Page of 83 TOC 1st Previous Next ↓Bottom Just 80th
ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13. RELATED PARTY TRANSACTIONS -- (CONTINUED)

company received $219,000, $310,000 and $339,000, during 1997, 1998 and 1999,
respectively, for these transactions. The Chairman has no interest in the
charter company.

As discussed in Note 7, during July 1999, the Company invested in
HEALTHvision, Inc., a Dallas based, privately held internet healthcare company,
in conjunction with VHA, Inc. and General Atlantic Partners, LLC. The Company
purchased 3,400,000 shares of common stock for $34,000, which represents 34% of
the outstanding common stock on an as if converted basis of HEALTHvision, Inc.
During 1999, the Company earned revenues of $522,400 and had accounts receivable
due from HEALTHvision of $287,400 at December 31, 1999.

14. INVESTMENT WRITE-DOWN

In April 1998, the Company made a strategic investment in Simione Central
Holdings, Inc. ("Simione") a publicly traded company, purchasing 420,000 shares
of restricted common stock from certain stockholders of Simione for $5.6
million. At the time of the transaction, the common stock represented 4.9% of
Simione's outstanding common stock. The Company accounts for its investment in
these shares using the cost method.

Concurrent with the investment, the Company and Simione entered into a
remarketing agreement pursuant to which the Company has certain rights to
distribute Simione software products.

At December 31, 1998, the Company determined that an other than temporary
impairment of its investment occurred. Accordingly, the investment was written
down to its estimated fair value of $787,000 and the Company recorded a charge
of $4.8 million in the accompanying statement of operations.

15. SUBSEQUENT EVENTS

On March 30, 2000, the Company entered into a definitive merger agreement
to be acquired by Neoforma.com, Inc. ("Neoforma") of Santa Clara, California.
Neoforma is a provider of business-to-business e-commerce services in the
medical products, supplies and equipment industry. The merger is subject to the
approval of both stockholders of the Company and Neoforma. In connection with
the transaction, Eclipsys stockholders will receive 1.344 shares of Neoforma
common stock for each share of Eclipsys stock they own. The transaction will be
accounted for as a purchase and is expected to close during the second quarter
of 2000 (see update in Note 16).

16. UNAUDITED INTERIM FINANCIAL INFORMATION

BASIS OF PRESENTATION

The unaudited interim financial information as of September 30, 2000 and
for the nine months ended September 30, 1999 and 2000 has been prepared in
accordance with generally accepted accounting principles for interim financial
information. The unaudited interim financial information includes all
adjustments that, in the opinion of management, are necessary for a fair
presentation of the results for the periods presented. All such adjustments are
considered of a normal recurring nature. Quarterly results of operations are not
necessarily indicative of annual results.

F-32

424B1 81st Page of 83 TOC 1st Previous Next ↓Bottom Just 81st
ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

16. UNAUDITED INTERIM FINANCIAL INFORMATION -- (CONTINUED)

ACQUISITIONS

During the quarter ended March 31, 2000, the Company finalized the purchase
price allocation related to the Intelus acquisition. As a result, the Company
recorded an increase of $3.3 million to acquired technology (disclosed in Note 7
above).

Unaudited pro forma results of operations as if the Intelus and Med Data
acquisitions had occurred on January 1, 1999 is as follows (in thousands except
per share data):

[Download Table]

NINE MONTHS ENDED
SEPT. 30, 1999
-----------------

Revenues.................................................. $187,525
Net loss.................................................. (12,090)
Basic and diluted net loss per share...................... (0.35)

ACCOUNTS RECEIVABLE

The current portion of unbilled accounts receivable was $13.5 million as of
September 30, 2000 and is included in accounts receivable. The non-current
portion of unbilled accounts receivable was $4.7 million as of September 30,
2000 and is included in other assets.

During the quarter ended September 30, 2000, the Company recorded a charge
totaling $9.4 million in connection with the write down of certain receivables
related to contracts assumed in acquisitions.

INVESTMENTS

During the quarter ended March 31, 2000, the Company recorded a gain on its
investment in Shared Medical Systems Corp. ("SMS") of approximately $4.5
million. The investment was made in connection with a proposed merger with SMS
that was not consummated. In connection with the proposed merger, the Company
recorded transaction costs of approximately $50,000.

Additionally, during first quarter 2000, the Company recorded a charge of
approximately $802,000 to write down certain equity securities to their net
realizable value.

2000 STOCK INCENTIVE PLAN

On May 22, 2000, the Board adopted the 2000 Stock Incentive Plan (the "2000
Plan"). The 2000 Plan provides for the granting of stock options, restricted
stock, or other stock-based awards. Under the provisions of the 2000 Plan, no
options or other awards may be granted after May 2010. The 2000 Plan increases
the number of shares of common stock reserved under the 2000 Plan, together with
the 1999 Plan, the Incentive Plan, the 1996 Plan and the 1998 Employee Stock
Purchase Plan, to 12,000,000.

CHANGES IN SECURITIES

On July 26, 2000, the Board of Directors of the Company declared a dividend
of one Right for each outstanding share of the Company's Common Stock to
stockholders of record at the close of business on August 9, 2000. Each Right
entitles the registered holder to purchase from the Company one one-thousandth
of a share of Series A Junior Participating Preferred Stock, $.01 par value per
share, at a Purchase Price of $65.00 in cash, subject to adjustment. The Rights
will initially trade together with the Eclipsys Common Stock and will not be
exercisable. If a person or group (other than an exempt person) acquires 15% or
more of the outstanding

F-33

424B1 82nd Page of 83 TOC 1st Previous Next ↓Bottom Just 82nd
ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

16. UNAUDITED INTERIM FINANCIAL INFORMATION -- (CONTINUED)

shares of Eclipsys Common Stock, the Rights generally will become exercisable
and allow the holder (other than the 15% purchaser) to purchase shares of
Eclipsys Common Stock at a 50% discount to the market price. The effect will be
to discourage acquisitions of 15% or more of Eclipsys Common Stock without
negotiations with the Board. The terms of the Rights are set forth in a Rights
Agreement dated as of July 26, 2000 (the "Rights Agreement") between the Company
and Fleet National Bank, as Rights Agent. The Board has designated 100,000 of
the 5,000,000 authorized shares of preferred stock as Series A Junior
Participating Preferred Stock.

TERMINATION OF MERGER

During the quarter ended June 30, 2000, the Company and Neoforma agreed to
terminate the Merger Agreement between them without the payment of a termination
fee. Transaction costs incurred in connection with the proposed merger were
approximately $1.9 million.

In April 2000, plaintiffs alleging themselves to be Eclipsys stockholders
filed two lawsuits concerning the proposed Eclipsys merger in the Court of
Chancery of the State of Delaware, New Castle County. In general, the complaints
alleged that Eclipsys and the Eclipsys Board of Directors breached their
fiduciary duties to Eclipsys stockholders in approving the Eclipsys merger. The
complaint alleged that Eclipsys stockholders would not receive adequate
compensation for their shares of Eclipsys common stock pursuant to the merger
agreement. The plaintiffs in these cases sought injunctive relief to block the
merger, or a rescission of the merger if it was consummated. In addition, they
sought an unspecified amount of damages. During the third quarter, all
stockholder lawsuits were dismissed.

NEW ACCOUNTING PRONOUNCEMENTS

In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44 "Accounting for Certain Transactions Involving Stock
Compensation, an interpretation of APB Opinion No. 25" ("FIN 44"). The
interpretation provides guidance for certain issues relating to stock
compensation involving employees that arose in applying APB Opinion No. 25. The
provisions of FIN 44 were effective July 1, 2000. The adoption of FIN 44 has had
no effect on the Company's financial statements.

In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements"
("SAB No. 101"). SAB No. 101 summarizes certain of the SEC staff's view in
applying generally accepted accounting principles to revenue recognition in
financial statements. On June 26, 2000, the SEC staff issued SAB No. 101-B to
provide registrants with additional time to implement guidance contained in SAB
No. 101. SAB 101-B delays the implementation date of SAB No. 101 until no later
than the fourth fiscal quarter of fiscal years beginning after December 15,
1999. While the Company continues to study the Commission's recently issued
guidance on SAB 101, the Company believes its revenue recognition policies are
compliant with the Staff Accounting Bulletin.

F-34

424B1 Last Page of 83 TOC 1st Previous Next ↓Bottom Just 83rd

------------------------------------------------------
------------------------------------------------------

No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell only the shares offered hereby, but only under circumstances
and in jurisdictions where it is lawful to do so. The information contained in
this prospectus is current only as of its date.

----------------------

TABLE OF CONTENTS

[Download Table]

Page
----

Prospectus Summary................... 3
Summary Financial Data............... 6
Risk Factors......................... 7
Special Note Regarding Forward-
Looking Statements................. 15
Use of Proceeds...................... 16
Price Range of Common Stock.......... 16
Dividend Policy...................... 17
Dilution............................. 17
Selected Financial Data.............. 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 20
Business............................. 31
Management........................... 41
Description of Capital Stock......... 43
Underwriting......................... 46
Legal Matters........................ 47
Experts.............................. 47
Where You Can Find More
Information........................ 48
Incorporation by Reference........... 48
Index to Financial Statements........ F-1

------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------

5,000,000 Shares

ECLIPSYS LOGO

Common Stock

------------------------
PROSPECTUS

------------------------

GOLDMAN, SACHS & CO.
CIBC WORLD MARKETS
U.S. BANCORP PIPER JAFFRAY

Representatives of the Underwriters
------------------------------------------------------
------------------------------------------------------

424B1	1st Page of 83	TOC	↑Top	Previous	Next	↓Bottom	Just 1st

424B1	2nd Page of 83	TOC	1st	Previous	Next	↓Bottom	Just 2nd

424B1	3rd Page of 83	TOC	1st	Previous	Next	↓Bottom	Just 3rd

424B1	4th Page of 83	TOC	1st	Previous	Next	↓Bottom	Just 4th

424B1	5th Page of 83	TOC	1st	Previous	Next	↓Bottom	Just 5th

424B1	6th Page of 83	TOC	1st	Previous	Next	↓Bottom	Just 6th

424B1	7th Page of 83	TOC	1st	Previous	Next	↓Bottom	Just 7th

424B1	8th Page of 83	TOC	1st	Previous	Next	↓Bottom	Just 8th

424B1	9th Page of 83	TOC	1st	Previous	Next	↓Bottom	Just 9th

424B1	10th Page of 83	TOC	1st	Previous	Next	↓Bottom	Just 10th

424B1	11th Page of 83	TOC	1st	Previous	Next	↓Bottom	Just 11th

424B1	12th Page of 83	TOC	1st	Previous	Next	↓Bottom	Just 12th

424B1	13th Page of 83	TOC	1st	Previous	Next	↓Bottom	Just 13th

424B1	14th Page of 83	TOC	1st	Previous	Next	↓Bottom	Just 14th

424B1	15th Page of 83	TOC	1st	Previous	Next	↓Bottom	Just 15th

424B1	16th Page of 83	TOC	1st	Previous	Next	↓Bottom	Just 16th

424B1	17th Page of 83	TOC	1st	Previous	Next	↓Bottom	Just 17th

424B1	18th Page of 83	TOC	1st	Previous	Next	↓Bottom	Just 18th

424B1	19th Page of 83	TOC	1st	Previous	Next	↓Bottom	Just 19th

424B1	20th Page of 83	TOC	1st	Previous	Next	↓Bottom	Just 20th

424B1	21st Page of 83	TOC	1st	Previous	Next	↓Bottom	Just 21st

424B1	22nd Page of 83	TOC	1st	Previous	Next	↓Bottom	Just 22nd

424B1	23rd Page of 83	TOC	1st	Previous	Next	↓Bottom	Just 23rd

424B1	24th Page of 83	TOC	1st	Previous	Next	↓Bottom	Just 24th

424B1	25th Page of 83	TOC	1st	Previous	Next	↓Bottom	Just 25th

424B1	26th Page of 83	TOC	1st	Previous	Next	↓Bottom	Just 26th

424B1	27th Page of 83	TOC	1st	Previous	Next	↓Bottom	Just 27th

424B1	28th Page of 83	TOC	1st	Previous	Next	↓Bottom	Just 28th

424B1	29th Page of 83	TOC	1st	Previous	Next	↓Bottom	Just 29th

424B1	30th Page of 83	TOC	1st	Previous	Next	↓Bottom	Just 30th

424B1	31st Page of 83	TOC	1st	Previous	Next	↓Bottom	Just 31st

424B1	32nd Page of 83	TOC	1st	Previous	Next	↓Bottom	Just 32nd

424B1	33rd Page of 83	TOC	1st	Previous	Next	↓Bottom	Just 33rd

424B1	34th Page of 83	TOC	1st	Previous	Next	↓Bottom	Just 34th

424B1	35th Page of 83	TOC	1st	Previous	Next	↓Bottom	Just 35th

424B1	36th Page of 83	TOC	1st	Previous	Next	↓Bottom	Just 36th

424B1	37th Page of 83	TOC	1st	Previous	Next	↓Bottom	Just 37th

424B1	38th Page of 83	TOC	1st	Previous	Next	↓Bottom	Just 38th

424B1	39th Page of 83	TOC	1st	Previous	Next	↓Bottom	Just 39th

424B1	40th Page of 83	TOC	1st	Previous	Next	↓Bottom	Just 40th

424B1	41st Page of 83	TOC	1st	Previous	Next	↓Bottom	Just 41st

424B1	42nd Page of 83	TOC	1st	Previous	Next	↓Bottom	Just 42nd

424B1	43rd Page of 83	TOC	1st	Previous	Next	↓Bottom	Just 43rd

424B1	44th Page of 83	TOC	1st	Previous	Next	↓Bottom	Just 44th

Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘424B1’ Filing	Date	First	Last	Other Filings

	7/26/10	44		8-K
	12/31/01	65		10-K
	1/29/01	1
Filed on:	1/24/01
	1/23/01	1	16
	12/31/00	39	41	10-K
	12/29/00	5	47
	11/14/00	48		10-Q
	11/6/00	13
	10/27/00	13
	9/30/00	6	81	10-Q
	8/14/00	48		10-Q
	8/9/00	81
	8/8/00	48		8-A12B, 8-A12G, 8-K
	7/26/00	44	82	8-K
	7/1/00	30	82
	6/30/00	48	82	10-Q
	6/26/00	30	82
	6/15/00	63
	5/31/00	48		8-K
	5/30/00	48		8-K
	5/22/00	81
	5/15/00	48		10-Q
	4/28/00	48		10-K/A
	4/3/00	48		8-K
	3/31/00	48	81	10-Q
	3/30/00	50	80	8-K
	3/29/00	48		10-K, S-8
	2/18/00	50
	12/31/99	18	80	10-K, 10-K/A
	12/15/99	30	82
	9/30/99	18	81	10-Q
	7/1/99	73
	6/30/99	25	74	10-Q
	6/17/99	57	73
	3/31/99	72		10-Q
	2/17/99	57	72	8-K
	1/1/99	81
	12/31/98	18	80	10-K, 8-K
	12/3/98	69
	8/6/98	16	67
	5/29/98	73
	5/3/98	64
	1/30/98	72
	1/1/98	58	73
	12/31/97	18	79
	12/15/97	62
	9/19/97	69
	6/26/97	71
	1/24/97	70
	1/23/97	65
	1/1/97	69
	12/31/96	18	64
	8/22/96	10
	7/22/96	69
	4/18/96	68
	12/31/95	18
				List all Filings

↑Top

Filing Submission 0000950133-01-000187 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

Eclipsys Corp – ‘424B1’ on 1/24/01

On: Wednesday, 1/24/01, at 8:51am ET · Accession #: 950133-1-187 · File #: 333-50348

Prospectus — Rule 424(b)(1)Filing Table of Contents

Document Table of Contents

Dates Referenced Herein and Documents Incorporated by Reference

Prospectus — Rule 424(b)(1)
Filing Table of Contents