Item 1. Business

OVERVIEW

      Eclipsys Corporation (the “Company” or “Eclipsys”) is a healthcare information technology company delivering solutions that enable healthcare delivery organizations to achieve improved clinical, financial and satisfaction outcomes. Eclipsys is positioned as an end-to-end solutions provider offering integrated suites in seven critical areas — clinical management, access management, patient financial management, health information management, strategic decision support, resource planning management and enterprise application integration. These solutions combine software applications, technology and services that focus on solving the business problems that healthcare organizations (HCO) face. These solutions can be purchased in any combination to address the particular needs of an HCO. Eclipsys’ solutions have been designed specifically to deliver a measurable impact on outcomes, enabling Eclipsys’ customers to quantify clinical benefits and return on investment in a precise and timely manner. Eclipsys’ solutions can be integrated with a customer’s existing information systems, which Eclipsys believes reduces overall cost of ownership and increases the attractiveness of its products. In fact, Eclipsys believes that a key differentiator in the marketplace is the ability for Eclipsys enterprise application integration (EAI) solutions to solve the integration problems faced by any HCO. Eclipsys also provides outsourcing, remote hosting and networking services to assist customers in meeting their healthcare information technology requirements. Eclipsys markets its products primarily to large hospitals, academic medical centers and integrated health networks. Eclipsys has one or more of its products installed or being installed in over 1,400 facilities in the U.S. and 17 other countries. To provide direct and sustained customer contact, Eclipsys maintains decentralized sales, implementation and customer support teams in each of its seven North American regions.

      The Company was formed in December 1995 and has grown primarily through a series of strategic acquisitions as follows:

2

Table of Contents

      The consolidated financial statements of the Company 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, the Company’s consolidated financial statements have been retroactively restated as if the transactions had occurred as of the beginning of the earliest period presented.

      In May 1996, the Company entered into a license with Partners HealthCare System, Inc. (“Partners”) for the development, commercialization, distribution and support of certain intellectual property relating to the BICS clinical information systems software developed at the Brigham and Women’s Hospital, Inc. (BWH). In connection with this license, the Company issued to Partners 988,290 shares of Common Stock.

      In July 1999, Eclipsys, in partnership with the Voluntary Hospitals of America (VHA) and General Atlantic Partners (GAP), formed HEALTHvision, Inc. (“HV”) an internet company focused on enabling secure interactive patient care. Eclipsys, VHA and HV all market HV’s products which are designed to integrate seamlessly with the Company’s Sunrise product line. The entity is a start up enterprise that bears no relationship to the acquisition of HealthVISION by Transition in December 1998.

COMPETITIVE STRENGTHS

      Eclipsys believes that its solutions, focus on physicians’ needs, leading technology, strategic relationships, management team and well-positioned customer base are competitive strengths that will enable it to capitalize on continued opportunities for growth.

3

Table of Contents

INDUSTRY

      The healthcare industry continues to undergo radical and rapid change. Through the 1990s, the increasing cost of providing healthcare led the government sector, followed by the private sector, to develop new payment mechanisms that encouraged healthcare providers to contain costs. This has caused the provider-reimbursement environment to move away from the indemnity model, characterized by fee-for-service arrangements and traditional indemnity insurance, toward the managed-care model, in which providers are aligned within networks and healthcare delivery must follow plan-established rules to qualify for reimbursement. As a result, the emphasis of healthcare providers has shifted from providing care regardless of cost to providing high-quality care in the most cost-effective manner possible. Many providers are realizing that the traditional method of cost containment — cutting expenses — is not by itself enough to maintain their competitiveness in the face of these pressures. Management believes that providers must also improve the processes by which healthcare is provided, including improving the quality of care, the efficiency with which it is delivered and patient and provider satisfaction. In particular, healthcare providers are focusing on avoiding costly adverse clinical events.

      Recent events in the healthcare industry have brought the need for good quality yet cost effective care more sharply into focus. The Balanced Budget Act (BBA), passed by Congress in 1997, reduced the level of Medicare funding to hospitals. Hardest hit by this legislation are the academic medical centers. In late 1999, the Institute of Medicine(IOM) released a report on patient safety — “To Err is Human: Building a Safer Health System” — which documented the high incidence of avoidable medical errors that result in disabilities and death. The report cites the issues of illegibility of medical orders as well as the unreasonable reliance on memory as key contributors to medical mistakes. The regulations mandated by the Healthcare Information Portability and Accountability Act (HIPAA) will likely be finalized in 2000. The combination of reduced reimbursement as a result of BBA, demands — even requirements — for improved patient safety instigated by the IOM report, and requirements for improved access and security to patient information will place significant pressures on healthcare organizations. Eclipsys believes that the most effective means to cope with the pressures of this triple threat is through information.

      Traditional healthcare information systems are limited in their ability to support restructuring of healthcare delivery processes or the evolving requirements of integrated health networks — actions that are demanded by the current pressures in healthcare. Such systems have generally been financially oriented, focusing primarily on the ability to capture charges and generate bills. Many information-technology vendors have attempted to apply their existing financially oriented systems to meet the demand for clinical solutions. However, because these systems were not originally developed to address clinical requirements, they often lack the basic structure and functionality to support better overall management of costs, care quality, outcome measurement and patient satisfaction across the healthcare delivery continuum. Moreover, because these vendors historically developed and marketed such systems primarily to financial managers, physicians, who

4

Table of Contents

      The growth of the managed care environment, the rise of integrated health networks and the pervasive acceptance of the Internet has created an opportunity for new healthcare information technology products and services. Healthcare providers are increasingly demanding integrated solutions that offer all of the core functions required to manage the entire healthcare delivery process. These core functions include clinical management, access management, patient financial management, health information management (HIM) and enterprise resource planning (ERP) solutions. In addition, large and widely spread health networks require decision support tools that permit them to effectively analyze past performance, model new plans for the future and measure and monitor the effectiveness of those plans — to measure clinical results and return on investment and to support process improvement. These solutions must also allow providers to preserve their investment in existing legacy applications and technologies, which often are significant and vary from facility to facility. Sophisticated, web-based integration tools are required to achieve the level of information integration needed together with ease of access. Finally, active physician use of healthcare information technology is necessary for these solutions to improve clinical outcomes. Eclipsys believes that active physician use will increase as information-technology solutions provide greater functionality, including Internet-based access, alerts, reminders, sub-second response times, just-in-time clinical decision support and an intuitive browser based user interfaces.

      Historically, the healthcare industry has invested relatively less in technology compared to certain other industries. Eclipsys believes that healthcare providers are realizing that a relatively small investment in healthcare information technology can significantly reduce variable costs. As a result of industry trends, healthcare providers are making significant investments in healthcare information technology solutions 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.

STRATEGY

      Eclipsys’ objective is to become the leading provider of healthcare information technology solutions to meet the needs of the healthcare industry as it consolidates and evolves. Key elements of Eclipsys’ strategy to achieve this objective include:

      Provide Comprehensive, Integrated Healthcare Information Technology Solutions. Eclipsys is focused on providing a full suite of clinical management, access management, patient financial management, strategic decision support, health information management, enterprise resource planning and enterprise application integration solutions. Eclipsys’ solutions are positioned to:

5

Table of Contents

      Further Penetrate Existing Customer Base. Eclipsys believes there is a significant opportunity to sell its integrated healthcare technology solutions to its existing customers. Eclipsys has at least one of its products installed or being installed in more than 1,400 facilities. Of these customers, only a few have an enterprise-wide healthcare information system. Eclipsys believes that it is well-positioned to capitalize on the growth opportunity within its existing customer base as a result of several factors:

      Employ a Targeted Marketing Approach. Eclipsys’ target market primarily includes large hospitals, integrated health networks and academic medical centers. Eclipsys believes that these entities are the first to adopt new technology and are the drivers of industry consolidation. As the size and complexity of these customers grow, their need for integrated information-technology solutions increases. Eclipsys has identified potential new customers, including those who are currently relying on legacy systems that lack the functions and features such customers require, and is targeting decision makers within these entities. In particular, Eclipsys believes that physicians are becoming increasingly involved in the information-technology selection process as recent technological developments and the impact of managed care have increased the utility of information systems to physicians. Eclipsys believes that it’s clinically oriented, physician-designed products provide it with an advantage as it competes for business. Eclipsys also leverages the extensive industry experience of its senior management and sales force, as well as its strategic relationships with leading institutions such as BWH and MGH, to pursue this opportunity.

      Continue to Enhance and Develop New Solutions. Eclipsys intends to continue upgrading existing products and developing new solutions to meet the evolving healthcare information needs of its customers. For example, Eclipsys has been currently migrating its products to SOLA, which is designed to facilitate the integration and web-enablement of new and existing applications as they are developed or acquired by Eclipsys with legacy systems of its customers. Eclipsys has a team of approximately 400 internal research, development and technical support professionals dedicated to developing, enhancing, supporting and commercializing new and enhanced healthcare information technology products. Eclipsys also has an exclusive right of first offer to commercialize certain new information technologies developed in connection with Partners. In addition, Eclipsys’ relationship with Partners allows it to test new and existing products in a potential forum that provides feedback from medical and administrative users, which Eclipsys believes gives it a competitive advantage in developing new products.

      Pursue Selected Acquisitions. Eclipsys intends to continue pursuing selected acquisitions that will enhance its product line, customer base, technological capabilities and management team. Historically, Eclipsys has experienced significant growth through acquisitions, and intends to continue to target acquisitions that will help it achieve its overall strategic goals. Eclipsys also believes that such transactions will provide it with the opportunity to leverage its existing sales, marketing and development teams and offer the potential to achieve operating synergies across the organization.

PRODUCTS

      Eclipsys’ products perform the core information-technology functions required by integrated health networks and other healthcare providers across the entire continuum of healthcare. These functions include (i) clinical management,(ii) access management, (iii) patient financial management, (iv) strategic decision

6

Table of Contents

      These products enable Eclipsys to offer a comprehensive line of core applications that can be purchased individually or combined to form a fully integrated single-source information technology solution. Most of Eclipsys’ products are functional in several different healthcare settings, including ambulatory care, critical care and acute care.

      The Sunrise Clinical Manager suite, the Sunrise Access Manager suite, the Sunrise Patient Financial Manager suite, the Sunrise Decision Support Manager suite, the Sunrise Chart Manager suite, the Sunrise Enterprise Resource Planning suite and the Sunrise Enterprise Application Integrator suite are generally available to Eclipsys’ customers.

SUNRISE CLINICAL MANAGER

      Sunrise Clinical Manager is a physician-oriented application that provides patient information to the physician and other clinicians at the point-of-care anywhere in the healthcare continuum, allows a physician to

7

Table of Contents

      Sunrise Clinical Manager includes the following features:

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 continuum of patient care on an enterprise-wide basis. The single database structure of Sunrise Access Manager permits simultaneous access to the entire patient record from any access point on the system. The Sunrise Access Manager suite is based primarily on the SDK products, which Eclipsys has integrated with its other product offerings and has continued to enhance. It also includes the Enterprise Person Identifier from Transition. The elements of Sunrise Access Manager include:

8

Table of Contents

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. Billing and receivables management activities are automated through rules-based processing and can be customized to reflect each organization’s specific procedures. This product suite supports the growing trend toward the centralized business offices for multiple entities, which improves compliance with managed care contracts across the entire enterprise and at all stages of the healthcare delivery continuum. The Sunrise Patient Financial Manager suite is based primarily on the products acquired in the SDK acquisition, which Eclipsys has integrated with its other product offerings and has continued to enhance. Sunrise Patient Financial Manager includes the following functions:

9

Table of Contents

SUNRISE DECISION SUPPORT MANAGER

      Sunrise Decision Support Manager creates a clinical and financial data repository by integrating data from across the enterprise. Sunrise Decision Support Manager gathers information from the many different departmental information systems through interfaces 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 at the lowest cost. In addition, Sunrise Decision Support Manager includes capabilities for case mix, reimbursement and utilization management, cost and profitability analysis, strategic planning, modeling and forecasting. Sunrise Decision Support Manager is an important component of the customers’ ability to measure and document improved clinical outcomes and return on investment.

      The Sunrise Decision Support Manager suite is based primarily on products acquired in the Transition merger.

SUNRISE CHART MANAGER

      Sunrise Chart Manager is able to meet the HIM needs of organizations of virtually any size. It includes comprehensive applications for clinical data management and enterprise-wide document and image-management functions;functions designed to improve productivity, efficiency and accountability in all areas of HIM. Chart Manager does this by providing convenient, concurrent information access to multiple users, wherever they may be throughout the organization. The Sunrise Chart Manager suite of products includes Electronic Chart Manager, Chart Tracking and Request, Chart Completion, Release of Information, Transcription, Electronic Signature, Medical Record Abstracting, Medical Image Viewer, and Concurrent Care Manager.

SUNRISE ENTERPRISE RESOURCE PLANNING MANAGER

      Sunrise Enterprise Resource Planning Manager provides tools which effectively manage the cost-intensive materials management (including surgery, and package tracking), accounts payable, general ledger, fixed assets, budgeting, human resources and payroll functions. Sunrise Enterprise Resource Planning Manager is unique in that it includes the only materials management, surgery and accounts payable applications designed specifically for the healthcare industry. UltiPro HRMS/ Payroll, a leading product provided by Eclipsys strategic partner Ultimate Software, Inc, provides integrated human resources and payroll functionality.

SUNRISE ENTERPRISE APPLICATION INTEGRATOR

      Sunrise Enterprise Application Integrator (“Sunrise EAI”) provides tools to enable the integration of data from existing legacy systems. As integrated health networks form, the individual entities within the emerging network will have their own information systems. It is important that the clinical and financial data in these disparate systems be integrated to provide an enterprise-wide view. The applications in Sunrise EAI create this required integration, primarily through the use of state-of-the-art Web-based integration technologies. Sunrise EAI’s eWebIT product suite includes tools to cost-effectively link disparate systems, providing composite views of data. Eclipsys’ EPI and Sunrise Dictionary Manager (enterprise-wide data dictionary) are utilized in conjunction with eWebIT’s eVIEW (a Web-based composite view of data from different information systems), eLINK (data sharing among disparate information systems) and eSIGN (enterprise security and single system sign-on) to form a comprehensive integration solution.

10

Table of Contents

SERVICES

      Drawing on the functionality and flexibility of its software products, Eclipsys offers a range of professional services as part of its healthcare information technology solutions. These services include outsourcing, remote hosting, network services and business solutions.

      Outsourcing Services typically involve Eclipsys assuming the management of the customer’s entire information-technology function onsite using Eclipsys’ employees. Outsourcing Services include Facilities Management, Network Outsourcing and Transition Management.

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

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

      Transition Management offers 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.

      Remote Hosting involves the complete processing of an enterprise’s applications from Eclipsys’ Technology Solutions Center using Eclipsys’ equipment and personnel. This service frees an organization from having 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 is a comprehensive package of services enabling Eclipsys’ customers to receive critical data quickly and accurately without incurring a substantial increase in cost. Eclipsys assesses changes in network utilization and function, forecasts any necessary upgrades to accommodate growth of the customer and designs any changes necessary to provide the customer with the required performance and functionality. Eclipsys offers its services in various forms ranging from onsite assistance on a time and expense basis to complete turnkey project deliveries with guaranteed fixed price rates and outcomes.

      Business Solutions focuses on aiding Eclipsys customers in achieving improved return on investment through their use of information obtained from Eclipsys products. The Business Solutions Group staff have wide and varied experience in healthcare delivery and healthcare information management, enabling them to help customers implement effective change management that will ensure maximum return on investment and improved outcomes.

IMPLEMENTATION, PRODUCT SUPPORT AND TRAINING

      Eclipsys believes that a high level of service and support is critical to its success. Furthermore, Eclipsys believes that a close and active service and support relationship is important to customer satisfaction and provides Eclipsys with important information regarding evolving customer requirements and additional sales opportunities. To facilitate successful product implementation, Eclipsys’ consultants assist customers with initial installation of a system, conversion of a customer’s historical data and ongoing training and support. In addition, 24-hour telephone support is available and Eclipsys offers electronic distribution to provide customers with the latest information regarding Eclipsys’ products. Eclipsys also provides regular maintenance releases to its customers. Eclipsys’ 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 more fully utilize the capabilities of Eclipsys’ products.

OTHER PRODUCTS

      Eclipsys further extends its comprehensive range of core healthcare information solutions through strategic marketing alliances with selected best-of-breed niche vendors. These include, but are not limited to, Ultimate Software, Inc (UltiPro HRMS/payroll), Motorola (for Doclink), Nine Rivers Technology for the

11

Table of Contents

      As part of its commitment to being an end-to-end information-solutions provider, Eclipsys also sells a variety of desktop, network and platform solutions including hardware, middleware and related services.

PRODUCT ARCHITECTURE: STRUCTURED OBJECT LAYERED ARCHITECTURE (SOLA)

      Eclipsys continues to migrate its products to the SOLA architecture, which Eclipsys believes will facilitate integration, enhance automation, increase reliability and improve security and workflow processes. SOLA 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 Eclipsys’ products with new operating systems, display environments and devices.

      SOLA also features a high-performance rules engine to implement a sizable portion of the business logic for Eclipsys’ 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 Eclipsys’ applications and facilitating their rapid adoption. SOLA features a seamless and consistent architecture which promotes reliability for mission-critical applications and fault tolerance.

      SOLA also uses advanced technology to maintain security across both the Internet and organization intranets. This ability to support secure communications and incorporate reliable protocols for authenticating users and services permits the confidentiality of patient information to be maintained. SOLA is currently in production at those customers utilizing Sunrise Clinical Manager Release 3.0 and higher.

PRICING

      Historically, Eclipsys has employed a software pricing and payment model in which the software license fee is payable based upon various milestones over the implementation period. Service fees are paid as performed and maintenance fees, which typically equal a fixed percentage of the license fee are paid over the term of the related agreement. More recently, Eclipsys has begun to offer a variety of pricing models that further its philosophy that pricing and payment schedules should be closely aligned with the value received by the customer. Eclipsys encourages customers to elect a payment schedule that spreads software license payments, together with service fees and maintenance fees on a bundled basis, regularly over the life of the license. In addition, Eclipsys has commenced offering software license and maintenance fees that vary with the amount of patient traffic serviced by the customer, enabling the customer to analyze the cost on a per-case basis. Eclipsys also encourages customers to consider pricing models in which Eclipsys’ primary compensation takes the form of sharing in cost savings or other performance benefits realized by the customer. The pricing of Eclipsys’ contracts can vary significantly, depending upon the pricing model, product configuration and features, and implementation.

CUSTOMERS, MARKETING AND SALES

      Eclipsys’ marketing and sales efforts focus on large hospitals, integrated health networks and academic medical centers. Eclipsys sells its products and services in North America exclusively through its direct sales force. To provide direct and sustained customer contact, management of the sales force is decentralized, with eight 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 Eclipsys’ implementation and product line specialists. Supporting the field staff is a team of domain experts who have

12

Table of Contents

      In addition to the U.S., Eclipsys has customers in Australia, Belgium, Brazil, Canada, England, France, Germany, Greece, Ireland, Italy, Japan, Lebanon, New Zealand, Portugal, Singapore, The Netherlands and Yugoslavia. International sales representatives generally report to the Regional President of the International Region and are responsible for all customers within their sales regions. Eclipsys may also use sales agents to market its products internationally.

RESEARCH AND DEVELOPMENT

      Eclipsys believes that its future success depends in large part on its ability to maintain and enhance its current product line, develop new products, maintain technological competitiveness and meet an expanding range of customer requirements. A significant portion of Eclipsys’ research and development and product-testing effort is performed in conjunction with physicians at the BWH, MGH, Sarasota (FL) Memorial Hospital and other academic and/or large regional medical centers. Eclipsys’ current development efforts are focused on the migration of its products to the SOLA architecture and the development of additional functionality and applications for its existing software applications. Eclipsys believes that the open, integrated nature of its SOLA architecture facilitates the development of applications without the need for major rewriting or reconfiguration of code. As of March 10, 2000, Eclipsys’ research, development and technical support organization consisted of over 400 employees. Eclipsys’ research and development expenses were $43.8 million for 1999.

COMPETITION

      The market for Eclipsys’ products and services is intensely competitive and is characterized by rapidly changing technology, evolving user needs and the frequent introduction of new products. Eclipsys’ principal competitors include Cerner Corp., McKesson HBOC Inc., IDX Systems Corp. and SMS. Eclipsys also faces 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 Eclipsys’ competitors are more established, benefit from greater name recognition and have substantially greater financial, technical and marketing resources than Eclipsys. Eclipsys also expects that competition will continue to increase as a result of consolidation in both the information technology and healthcare industries. Eclipsys believes 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

      Eclipsys is dependent upon its proprietary information and technology. Eclipsys relies primarily on a combination of copyright, trademark and trade secret laws and license agreements to establish and protect its rights in its software products and other proprietary technology. Eclipsys requires third-party consultants and contractors to enter into nondisclosure agreements to limit use of, access to and distribution of its proprietary information. In addition, Eclipsys currently requires employees who receive stock option grants under any of its stock option plans to enter into nondisclosure agreements. There can be no assurance that Eclipsys’ means of protecting its proprietary rights will be adequate to prevent misappropriation. The laws of some foreign countries may not protect Eclipsys’ proprietary rights as fully or in the same manner as do the laws of the United States. Also, despite the steps taken by Eclipsys to protect its proprietary rights, it may be possible for unauthorized third parties to copy aspects of Eclipsys’ products, reverse engineer such products or otherwise obtain and use information that Eclipsys regards as proprietary. In certain limited instances, customers can access source-code versions of Eclipsys’ software, subject to contractual limitations on the permitted use of such source code. Although Eclipsys’ license agreements with such customers attempt to prevent misuse of the source code, the possession of Eclipsys’ 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

13

Table of Contents

EMPLOYEES

      As of February 21, 2000, Eclipsys employed 1,564 people, including approximately 1,040 in field operations (sales, account management, implementation and education); 410 in research, development and product delivery; and 114 in marketing, finance, human resources, legal and other administrative functions. The success of Eclipsys depends on its 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 Eclipsys will be able to attract and retain qualified personnel in the future. Eclipsys’ employees are not represented by any labor unions. Eclipsys considers its relations with its employees to be good.

CERTAIN FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS/ RISK FACTORS

      You should carefully consider the risks described below before you decide to buy our voting common stock. The risks and uncertainties described below are not the only ones facing our company. Additional risks and uncertainties may also impair our business operations.

      If any of the following risks actually occur, our business, financial condition, or results of operations would likely suffer. In such case, the trading price of our voting common stock could decline and you could lose all or part of your investment.

      Limited Operating History of Eclipsys; History of Operating Losses. We began operations in 1996 and have grown primarily through a series of acquisitions completed since January 1997. Accordingly, there is only a limited combined operating history of Eclipsys and its acquired operations upon which to base an evaluation of Eclipsys and its prospects. We will continue to integrate the operations of the businesses we acquired and to consolidate their product offerings. 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 and $9.4 million in 1999. These losses resulted primarily from certain write-offs related to acquisitions we completed during 1997 and 1998, and charges in the first quarter of 1998 related to the buyout by us of certain obligations under an agreement entered into in connection with one of the acquisitions. We expect to continue to incur net losses for the foreseeable future. We cannot predict when or if we will achieve profitability.

      Management of Growth. 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. To compete effectively and to manage future growth, if any, 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 operations.

      Risks Associated with Future Acquisitions. An important element of our business strategy has been expansion through acquisitions. We expect to continue this strategy. This acquisition strategy involves a number of risks, which include:

14

Table of Contents

      Potential Fluctuations in Quarterly Performance. 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:

      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, because revenue is recognized at various points during the term of a contract, the timing of revenue recognition varies considerably. Factors affecting the timing of revenue recognition include the type of contract, the availability of personnel, the implementation schedule and the complexity of the implementation process. Because a significant percentage of our expenses 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.

      Long Sales and Implementation Cycles. 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 or lines of business, are major decisions for customers. Furthermore, the license of solutions like those 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. Although we believe that the migration of our products to our new SOLA platform will significantly shorten the implementation cycle, we cannot provide any assurance in this regard. During the sales cycle and the implementation cycle, we will expend substantial time, effort and funds preparing contract proposals, negotiating the contract and implementing the solution.

      Risks Associated with Our Development of Our Integrated Clinical Management Suite. We are currently in the process of integrating selected features and functionalities from a number of clinical management products acquired in our mergers and acquisitions and licensed from Partners, to create the Sunrise Clinical Manager Suite. During 1999, the product was under field trials in several customer sites. In

15

Table of Contents

      Competition. We operate in a market that is intensely competitive. Our principal competitors include Cerner Corp., McKesson HBOC, Inc., IDX Systems Corp. and Shared Medical Systems Corporation. We will 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 and have greater name recognition and financial, technical and marketing resources than we do. We expect that competition will continue to increase as a result of consolidation in both the information technology and healthcare industries.

      Dependence on Relationship with Partners and Other Third Parties. We have an exclusive license granted by Partners to develop, commercialize, distribute and support certain intellectual property relating to clinical information systems software developed at BWH. If we breach certain terms of the license, then Partners has the option to convert the license to a non-exclusive license. Such conversion by Partners could cause the intellectual property and the ability to develop and commercialize such intellectual property to become more widely available to our competitors. We also work closely with physicians and research and development personnel at BWH and its affiliate, MGH, to develop and commercialize new information-technology solutions for the healthcare industry and to test and demonstrate new and existing products. If we fail to maintain the cooperative working relationship with BWH and MGH, including future access to products developed by personnel at BWH granted under the Partners license, could become strained or cease altogether. The loss of good relations with BWH or MGH could hurt our ability to develop new solutions and could cause delays in bringing new products to the market. In addition, our reputation and status in the industry could be hurt.

      Additionally, we depend upon licenses for certain technology used in our products from a number of third-party vendors, including Computer Corporation of America, Computer Associates, Oracle Corporation and Sterling Software (United States of America), Inc. We also have licenses from Premier, Inc. for certain 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 licensed under these licenses on commercially reasonable terms or at all. As a result, we may have to discontinue, delay or reduce product shipments until equivalent technology is obtained, which could hurt us. Most of our third-party licenses, including our license from New England Medical Center, Inc., for the original version of the Transition I software, are non-exclusive. Our competitors may obtain the right to use any of the technology covered by the licenses and use the technology to directly compete with us. In addition, if our vendors choose to discontinue support of the licensed technology, we may not be able to modify or adapt our own products going forward.

      Uncertainty in the Healthcare Industry. We operate in an industry subject to changing political, economic and regulatory influences. The potential impact of these industry changes include:

16

Table of Contents

      Potential FDA Regulation. 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:

      If we failed to comply with applicable requirements, then 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.

      New Regulations Relating to Patient Confident iality. State and federal laws regulate the confidentiality of patient records and the circumstances under which such records may be released. These regulations govern both the disclosure and use of confidential patient medical record information. 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 (i) adopt national standards for certain types of electronic health information transactions and the data elements used in such transactions, (ii) adopt standards to ensure the integrity and confidentiality of health information, and (iii) establish a schedule for implementing national health data privacy legislation or regulations.

17

Table of Contents

      Potential for Product Liability; Security Issues. We provide products with applications that relate to patient medical histories and treatment plans. If these products fail to provide accurate and timely information, customers could assert liability claims against us. We attempt to contractually limit our liability for damages arising from negligence, errors or mistakes. Despite this precaution, the limitations of liability set forth in these 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, such 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. In addition, the insurer might disclaim coverage as to any future claim. One or more large claims could exceed available insurance coverage. Litigation with respect to liability claims, regardless of its outcome, could result in substantial cost to us, could divert management’s attention from operations and could decrease market acceptance of the our products. We have included security features in our products that are intended to protect the privacy and integrity of customer data. Despite the existence of these security features, these products may be vulnerable to break-ins and similar disruptive problems. Break-ins and other disruptions could jeopardize the security of information stored in and transmitted through the computer systems of customers. We may need to expend significant capital and other resources to address evolving security issues.

      Ability to Attract and Retain Key Personnel. 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 technical, marketing, sales and management employees is intense and the process of recruiting personnel with the combination of skills and attributes required to execute our 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 or, in particular, the loss of Harvey J. Wilson, our founder, Chairman of the Board and member of the Office of the Chairman, could hurt our business.

      Rapid Technological Change and Evolving Market. 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 offered by us is extremely complex and is expected to become increasingly complex and expensive in the future as new technologies are introduced. We have commenced migrating our products to the SOLA architecture. We cannot assure you that the development of SOLA or the migration of products to SOLA will be successful that such products will meet their scheduled release dates, that we will successfully complete the development and release of other new products or the migration of new or existing products to specific platforms or configurations in a timely fashion or that our current or future products will satisfy the needs of potential customers or gain general market acceptance.

      Limited Protection of Proprietary Rights. We are dependent upon our proprietary information and technology. We cannot assure you that our means of protecting our proprietary rights will be adequate to prevent misappropriation. The laws of some foreign countries may not protect our proprietary rights as fully nor 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 the our proprietary rights. In addition, although we do not believe that our products infringe the proprietary rights of third parties, we cannot assure you that infringement or invalidity claims (or claims for indemnification

18

Table of Contents

      Product Errors. Highly complex software products such as ours often contain undetected errors or failures when first introduced or as new versions are released. Testing of our products is particularly challenging because it is difficult to simulate the wide variety of computing environments in which our customers may deploy these products. Despite extensive testing, we from time to time have discovered defects or errors in our products. Accordingly, we cannot assure you that such defects, errors or difficulties will not 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, we cannot assure you that, despite testing by us and by current and potential customers, errors will not be found after commencement of commercial shipments, resulting in loss of or delay in market acceptance, which could have a material adverse effect upon our business, financial condition and results of operations.