10-Q 1 e10-q.txt FORM 10-Q 1 =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 10-Q ---------------- QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED June 30, 2000 COMMISSION FILE NUMBER: 000-24539 ECLIPSYS CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 65-0632092 (State of Incorporation) (IRS Employer Identification Number) 777 East Atlantic Avenue Suite 200 Delray Beach, Florida 33483 (Address of principal executive offices) (561)-243-1440 (Telephone number of registrant) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. CLASS SHARES OUTSTANDING AS OF JULY 15, 2000 ----- -------------------------------------- Common Stock, $.01 par value 36,735,297. ----------- =============================================================================== 2 ECLIPSYS CORPORATION FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2000 INDEX
PART I. Financial Information Item 1. Condensed Consolidated Balance Sheets - As of June 30, 2000 (unaudited) and December 31, 1999 Condensed Consolidated Statements of Operations (unaudited) - For the Three and Six Months ended June 30, 2000 and 1999 Condensed Consolidated Statements of Cash Flows (unaudited) - For the Six Months ended June 30, 2000 and 1999 Notes to Condensed Consolidated Financial Statements (unaudited) - For the Three and Six Months ended June 30, 2000 and 1999 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II. Other Information Item 1. Legal Proceedings Item 2. Changes in Securities Item 6. Exhibits and Reports on Form 8-K
2 3 PART I. ITEM 1. ECLISPSYS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2000 (UNAUDITED) AND DECEMBER 31, 1999 (IN THOUSANDS)
JUNE 30, 2000 DECEMBER 31, 1999 ----------------------------- ----------------------- ASSETS Current assets: Cash and cash equivalents $ 23,084 $ 33,956 Accounts receivable, net 76,941 77,254 Inventory 526 660 Other current assets 11,914 11,800 ------------- ------------- TOTAL CURRENT ASSETS 112,465 123,670 Fixed assets, net 15,536 14,522 Capitalized software development costs, net 10,005 7,944 Acquired technology, net 28,273 33,161 Intangible assets, net 12,354 16,858 Other assets 5,493 6,780 ------------- ------------- TOTAL ASSETS $ 184,126 $ 202,935 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Deferred revenue $ 43,759 $ 49,279 Current portion of long-term debt 790 - Other current liabilities 36,078 41,288 ------------- ------------- TOTAL CURRENT LIABILITIES 80,627 90,567 Deferred revenue 6,265 8,803 Long-term debt 1,090 - Other long-term liabilities 2,264 2,264 STOCKHOLDERS' EQUITY Common stock 367 363 Unearned stock compensation (248) (320) Additional paid-in capital 256,709 254,085 Accumulated other comprehensive loss (206) (327) Accumulated deficit (162,742) (152,500) -------------- -------------- Total stockholders' equity 93,880 101,301 ------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 184,126 $ 202,935 ============= =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 3 4 ECLIPSYS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------------------- ------------------------------ 2000 1999 2000 1999 ---- ---- ---- ---- REVENUES Systems and services $ 45,174 $ 57,856 $105,814 $109,736 Hardware 1,955 3,970 6,005 9,468 ------------------ ------------------ -------------- --------------- TOTAL REVENUES 47,129 61,826 111,819 119,204 COSTS AND EXPENSES Cost of systems and services revenues 35,818 32,380 68,095 61,142 Cost of hardware revenues 1,525 3,343 4,801 8,013 Marketing and sales 9,920 8,798 19,195 16,563 Research and development 9,119 14,205 18,893 24,094 General and administrative 2,593 3,040 4,919 6,105 Depreciation and amortization 3,668 3,887 7,322 7,731 Stock compensation charge - 1,005 - 1,005 Restructuring charge - 3,359 - 3,359 Pooling and transaction costs - 1,034 3,100 1,648 ------------------ ------------------ -------------- --------------- TOTAL COSTS AND EXPENSES 62,643 71,051 126,325 129,660 ------------------ ------------------ -------------- --------------- LOSS FROM OPERATIONS (15,514) (9,225) (14,506) (10,456) Interest income, net 283 165 668 608 Other income, net - - 3,596 - ------------------ ------------------ -------------- --------------- NET LOSS $(15,231) $ (9,060) $(10,242) $ (9,848) ------------------ ------------------ -------------- --------------- BASIC AND DILUTED NET LOSS PER COMMON SHARE $ (0.42) $ (0.26) $ (0.28) $ (0.29) ------------------ ------------------ -------------- --------------- BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 36,715 34,984 36,608 34,337 ------------------ ------------------ -------------- ---------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 4 5 ECLIPSYS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED JUNE 30, --------------------------------------------- 2000 1999 ---------------------- ---------------------- OPERATING ACTIVITIES Net Loss $(10,242) $ (9,848) Adjustments to reconcile net loss to net cash Provided by (used in) operating activities: Depreciation and amortization 17,772 20,984 Provision for bad debts 1,720 1,576 Gain on sale of investment (4,462) - Write down of investments 836 - Write off of capitalized software development costs - 2,790 Stock compensation expense 72 1,232 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable (2,555) (7,124) Inventory (16) 11 Other current assets 1,414 (1,218) Other assets 350 116 Deferred revenue (9,115) (5,934) Other current liabilities (8,465) (7,365) Other liabilities - (4) ---------------------- ---------------------- Total adjustments to reconcile net loss to net cash provided by (used in) operating activities (2,449) 5,064 ---------------------- ---------------------- NET CASH USED IN OPERATING ACTIVITIES (12,691) (4,784) ---------------------- ---------------------- INVESTING ACTIVITIES Purchase of fixed assets (3,935) (4,339) Purchase of investments (7,905) - Sale of investments 12,432 - Capitalized software development costs (3,402) (3,047) Acquisitions, net of cash acquired - (25,000) ---------------------- ---------------------- NET CASH USED IN INVESTING ACTIVITIES (2,810) (32,386) ---------------------- ---------------------- FINANCING ACTIVITIES Borrowings 2,012 20,000 Payments on borrowings (132) (20,000) Exercise of stock options 1,132 4,344 Employee stock purchase plan 1,492 1,192 Distributions - (377) Exercise of warrants 4 - ---------------------- ---------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 4,508 5,159 ---------------------- ---------------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 121 136 ---------------------- ---------------------- NET DECREASE IN CASH AND CASH EQUIVALENTS (10,872) (31,875) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 33,956 54,986 ---------------------- ---------------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 23,084 $ 23,111
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART TO THESE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 5 6 ECLIPSYS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED) 1. BASIS OF PRESENTATION The condensed consolidated financial statements include 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. Certain financial information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K dated March 29, 2000 and as amended April 28, 2000. 2. ACQUISITIONS 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 (in thousands): 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
As of March 31, 1999 the Company intended to dispose of Med Data. Effective July 1, 1999, the Company sold Med Data for total a sales price of $5.0 million in cash. The Company reduced the acquired technology originally recorded above in the purchase by $4.4 million, which represented the difference between the sales price and the net assets sold. No gain or loss was recorded. During the quarter ended March 31, 2000, the Company finalized the purchase price of Intelus. An increase of $3.3 million was recorded to acquired technology. Unaudited pro forma results of operations as if the aforementioned acquisitions had occurred on January 1, 1999 is as follows (in thousands except per share data):
SIX MONTHS ENDED JUNE 30, 1999 -------------------- Revenues $122,695 Net loss $(10,287) Basic and diluted net loss per share $(0.30)
3. UNBILLED ACCOUNTS RECEIVABLE The current portion of unbilled accounts receivable were $19.1 million and $18.2 million as of June 30, 2000 and 1999, respectively, and are included in accounts receivable in the accompanying condensed consolidated balance sheet. The non-current portion of unbilled accounts receivable were $1.7 and $1.1 million as of June 30, 2000 and 1999, respectively, and are included in other assets in the accompanying condensed consolidated balance sheet. 6 7 4. INVESTMENTS During the six months ended June 30, 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. The Company recorded transaction costs of approximately $50,000 related to the proposed merger with SMS, which was not consummated. Additionally, during first quarter 2000, the Company recorded a charge of approximately $802,000 to write down an equity investment to its net realizable value, unrelated to the SMS investment. 5. TERMINATION OF MERGER On March 30, 2000, the Company signed a merger agreement to be acquired by Neoforma.com Inc., (Neoforma) a California based, business-to-business e-commerce services provider in the medical products, supplies and equipment industry. The merger was subject to the approval of stockholders of both the Company and Neoforma and certain other transactions. In connection with the proposed merger, the Company recorded transaction costs of approximately $3.1million during the quarter ended March 31, 2000. During the second quarter of 2000, the Company and Neoforma agreed to terminate the Merger Agreement without the payment of a termination fee. 6. 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 No.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 No. 44 are effective July 1, 2000. Adoption of FIN 44 will have 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 issues 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. The Company believes its revenue recognition policies are compliant with the Staff Accounting Bulletin. 7 8 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This report contains forward-looking statements. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects," "intends," and similar expressions are intended to identify forward-looking statements. The important factors discussed under the caption "Certain Factors that May Affect Future Operating Results/Risk Factors," presented from time to time in the Company's filings with the Securities and Exchange Commission, among others, could cause actual results to differ materially from those indicated by forward-looking statements made herein. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. OVERVIEW Eclipsys Corporation ("Eclipsys" or "the Company") is a healthcare information technology company delivering solutions that enable healthcare providers to achieve improved clinical, financial and administrative outcomes. The Company offers an integrated suite of core products in seven functional areas - clinical management, access management, patient financial management, health information management, strategic decision support, resource planning management and enterprise application integration. These products can be purchased in combination to provide an enterprise-wide solution or individually to address specific needs. Eclipsys' products 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' products 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. 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. To provide direct and sustained customer contact, Eclipsys maintains decentralized sales, implementation and customer support teams in each of its eight North American regions. The Company was formed in December 1995 and has grown primarily through a series of strategic acquisitions as follows:
METHOD OF TRANSACTION DATE ACCOUNTING ----------- ------- ---------- ALLTEL Healthcare Information Services, Inc. 1/24/97 Purchase ("Alltel") SDK Medical Computer Services Corporation 6/26/97 Purchase ("SDK") Emtek Healthcare Systems 1/30/98 Purchase ("Emtek") a division of Motorola, Inc. HealthVISION, Inc. (acquired by Transition) 12/1/98 Purchase ("HealthVISION") Transition Systems, Inc. 12/31/98 Pooling ("Transition") PowerCenter Systems, Inc. 2/17/99 Pooling ("PCS") Intelus Corporation and Med Data Systems, Inc. 3/31/99 Purchase ("Intelus" and "Med Data") wholly owned subsidiaries of Sungard Data Systems, Inc. MSI Solutions, Inc. and MSI Integrated 6/17/99 Pooling Services, Inc. (collectively, "MSI")
The condensed 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 condensed consolidated financial statements have been retroactively restated as if the transactions had occurred as of the beginning of the earliest period presented. 8 9 RESULTS OF OPERATIONS SUMMARY Total revenues for the quarter ended June 30, 2000 decreased 23.8% to $47.1 million compared with $61.8 million for the second quarter 1999. For the six months ended June 30, 2000, total revenues decreased 6.2% to $111.8 million compared to $119.2 million for the same period in 1999. Total costs and expenses for the quarter ended June 30, 2000 decreased 11.8% compared to the same period in 1999. For the six months ended June 30, 2000, total costs and expenses decreased 2.6% compared to the same period in 1999. These changes in revenues and expenses combined to increase net loss for the quarter ended June 30, 2000 by 68.1% to $(15.2) million compared to the same period in 1999. Included in the reported quarterly results were acquisition related amortization of intangible assets and certain non-recurring charges of $6.5 million and $16.9 million for the quarter ended June 30, 2000 and 1999, respectively. Year to date changes in revenues and expenses combined to increase net loss for the six months ended June 30, 2000 by 4.0% to $(10.2) million compared to the same period in 1999. Included in the reported six month net losses were acquisition related amortization of intangible assets and certain non-recurring charges recorded in connection with the acquisitions of $12.1 million and $25.0 million for the six months ended June 30, 2000 and 1999, respectively. REVENUES System and services revenues decreased 21.9% to $45.2 million for the second quarter of 2000 compared to the same period in 1999 and 3.6% to $105.8 million for the six months ended June 30, 2000 compared to the same period in 1999. The decrease was primarily due to the completion of certain projects that were in process during 1999 and recognized using the percentage of completion method over the implementation period. Implementation periods generally range from 12 to 24 months. Hardware revenues decreased 50.8% to $2.0 million for the second quarter of 2000 compared to the same period in 1999 and 36.6% to $6.0 million for the six months ended June 30, 2000 compared to the same period in 1999. The decrease was primarily due to decreased volume as a result of less hardware-intensive transactions. EXPENSES Total cost of revenues increased 4.5% for the second quarter of 2000 compared to the same period in 1999 and 5.4% for the six months ended June 30, 2000 compared to the same period in 1999. Increased costs of system and services were partially offset by a decrease in hardware costs associated with the decrease in hardware sales. System and services costs increased primarily due to increased third party royalties associated with revenue recognized during the period. Marketing and sales expenses increased 12.8% for the second quarter of 2000 compared to the same period in 1999 and 15.9% for the six months ended June 30, 2000 compared to the same period in 1999. The increase was primarily due to an increase in commissions as the result of new contracted business for the quarter and the six months ended June 30, 2000. Total expenditures for research and development, including both capitalized and non-capitalized expenses decreased 33.1% to $10.7 million for the second quarter 2000 compared to the same period in 1999 and 17.9% to $22.3 million for the six months ended June 30, 2000 compared to 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 capitalized for the second quarter of 2000 decreased $212,000 compared to the same period in 1999 and increased $355,000 for the six months ended June 30, 2000 compared to the same period in 1999. The changes in capitalization were primarily the result of the completion of certain projects related to the development of an enterprise-wide, web enabled, client server platform solution at the end of the first quarter of 2000. General and administrative expenses decreased 14.7% for the second quarter of 2000 compared to the same period in 1999 and 19.4% for the six months ended June 30, 2000 compared to the same period in 1999. The decrease was primarily due to the reduction of administrative and finance personnel following the Company's restructuring that commenced in the second quarter of 1999. 9 10 Depreciation and amortization decreased 5.6% for the second quarter of 2000 compared to the same period in 1999 and 5.3% for the six months ended June 30, 2000 compared to the same period in 1999. The decrease is primarily the result of the full depreciation of fixed assets and a decrease in the purchase of fixed assets during the quarter and six months ended June 30, 2000. Stock compensation and restructuring charges incurred during the second quarter of 1999 were non-recurring in nature. Pooling and transaction costs decreased 100% for the second quarter of 2000 compared to the same period in 1999 and increased 88.0% for the six months ended June 30, 2000 compared to the same period in 1999. Pooling and transaction costs incurred during the quarter and six months ended June 30, 1999 were related to the poolings of PowerCenter and MSI. The increase during the six months ended June 30, 2000, is primarily the result of costs associated with proposed transactions with Shared Medical Systems Corp (SMS) and Neoforma.com, Inc. (Neoforma). Other income recorded during the six months ended June 30, 2000 related to a gain on the Company's investment in SMS during the first quarter of 2000. See notes to the unaudited condensed consolidated financial statements. ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT In connection with the Alltel, SDK and HealthVISION acquisitions, the Company wrote off acquired 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. The Company continues to believe 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 value of the acquired in-process research and development was determined by estimating the projected net cash flows related to such 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 such projects were based on management's estimates of revenues and operating profits related to such projects. Through June 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 six months of 2000, the Company has continued the development of the in-process technology that was acquired in the transactions. To date, the Company is installing modules derived from the acquired in-process technology in various field trial sites and activated certain sites by the end of 1999. Additionally, the Company has begun to successfully market certain aspects of the technology to new and existing customers. The Company expects to continue releasing products derived from the technology through 2001. Management continues to believe the projections used reasonably estimate the future benefits attributable to the in-process technology. However, no assurance can be given 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, the sales and profitability of the Company may be adversely affected in future periods. Additionally, the value of other intangible assets may become impaired. BALANCE SHEET CAPITALIZED SOFTWARE DEVELOPMENT COSTS Capitalized software development costs increased during the six months ended June 30, 2000 primarily due to the continued development of an enterprise-wide, web enabled, client server platform solution that had reached technological feasibility. ACQUIRED TECHNOLOGY Acquired technology decreased during the six months ended June 30, 2000 primarily due to amortization partially offset by the final purchase price adjustment for Intelus. INTANGIBLE ASSETS Intangible assets decreased during the six months ended June 30, 2000 due to amortization. 10 11 OTHER ASSETS Other assets decreased during the six months ended June 30, 2000 primarily due to a write-down of an equity investment to its net realizable value. DEFERRED REVENUE Deferred revenue decreased during the six months ended June 30, 2000 primarily due to the completion of certain implementations and milestones of various software license fee contracts and the timing of software maintenance billings. OTHER CURRENT LIABILITIES Other current liabilities decreased during the six months ended June 30, 2000 primarily due to the timing of certain employee compensation related expenses. LIQUIDITY AND CAPITAL RESOURCES During the six months ended June 30, 2000, the Company used $12.7 million in operations. Included in operations is approximately $10.5 million of annual employee compensation related liabilities paid during the first quarter and $3.1 million related to transaction costs paid during the second quarter. Investing activities used $2.8 million for the purchase of fixed assets and the funding of development costs partially offset by the sale of investments. Financing activities provided $4.5 million, due to the assumption of a note payable, exercise of stock options and the employee stock purchase plan. As of June 30, 2000, the Company had no amounts outstanding under its $50.0 million revolving credit facility. As of June 30, 2000, the Company had $23.1 million in cash and cash equivalents. Management believes that its available cash and cash equivalents, anticipated cash generated from its future operations and amounts available under the existing revolving credit facility will be sufficient to meet the Company's operating requirements for at least the next twelve months. 11 12 PART II. ITEM 1. LEGAL PROCEEDINGS In April 2000, the Company and the members of its Board of Directors were named as defendants in three shareholder lawsuits filed in the Court of Chancery of the state of Delaware, Ilene Silberman v. Eclipsys Corporation, et al; Paul Minch v. Eclipsys Corporation, et al; and William York v. Eclipsys Corporation, et al. Each of the lawsuits seeks to enjoin or rescind the proposed merger with Neoforma.com, Inc. or to collect an unspecified amount of damages. Each of the lawsuits in general alleged that the members of the Company's Board of Directors had breached their fiduciary duties by approving the transaction with Neoforma.com, Inc. and that the consideration received by the Company's shareholders in connection with the transaction would be inadequate. The Company believes that the members of its Board of Directors properly exercised their fiduciary duties. During the second quarter of 2000, the Company and Neoforma agreed to terminate the merger agreement without the payment of a termination fee. In July 2000, the plaintiffs in each of these cases voluntarily dismissed these stockholder lawsuits. ITEM 2. 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 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. A copy of the Rights Agreement has been filed with the Securities and Exchange Commission as an Exhibit to the Company's Current Report on Form 8-K dated August 8, 2000. This summary does not purport to be complete and is qualified in its entirety by reference to the Rights Agreement. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: See Index to exhibits. (b) Reports on Form 8-K: Filed with the Securities and Exchange Commission on April 3, 2000 12 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ECLIPSYS CORPORATION Date: August 14, 2000 /s/ Gregory L.Wilson --------------------------------------------------- Gregory L. Wilson Senior Vice President, Chief Financial Officer and Treasurer 13 14 ECLIPSYS CORPORATION EXHIBIT INDEX EXHIBIT NO. DESCRIPTION -- ----------- 10 2000 Stock Incentive Plan 27 Financial Data Schedule (for SEC use only) 14