10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2005 or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 000-24539

ECLIPSYS CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	65-0632092
(State of incorporation)	(I.R.S. Employer Identification Number)

1750 Clint Moore Road

Boca Raton, Florida

33487

(Address of principal executive offices)

(561)-322-4321

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.01 par value, and Preferred Stock Purchase Rights

 Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes [ ]No [ ü ]

 Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes [ ]No [ü]

 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [ü]No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. []

 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [  ]Accelerated filer [ ü ]Non-accelerated filer [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ]No [ü]

The aggregate market value of the common stock held by non-affiliates of the registrant as of June 30, 2005 based upon the closing price of the Common Stock on the NASDAQ National Market for such date was $462,601,410

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 February 15, 2006
Common Stock, $.01 par value	50,334,221

DOCUMENTS INCORPORATED BY REFERENCE

      Certain portions of the Company’s definitive Proxy Statement to be used in connection with the 2006 annual meeting of stockholders will be incorporated by reference into Part III of this Form 10-K.

Part I

This report contains forward-looking statements that are based on our current expectations, assumptions, estimates and projections about our company and our industry.  When used in this report, the words “may”, “will”, “should”, “predict”, “continue”, “plans”, “expects”, “anticipates”, “estimates”, “intends”, “believe”, and “could”, and similar expressions are intended to identify forward-looking statements.  These statements may include, but are not limited to, statements concerning our anticipated performance, including revenue, margin, cash flow, balance sheet and profit expectations; development and implementation of our software; duration, size, scope and revenue expectations associated with client contracts; capabilites of or benefits provided by Eclipsys software, outsourcing and consulting services; business mix; sales and growth in our client base; market opportunities; industry conditions; and our accounting, including its effects and potential changes in accounting.

Actual results might differ materially from the results projected due to a number of risks and uncertainties.  Software development may take longer and cost more than expected, and incorporation of anticipated features and functionality may be delayed, due to various factors including programming and integration challenges and resource constraints.  We may change our product strategy in response to client requirements, market factors, resource availability, and other factors.  Implementation of some of our software is complex and time consuming.  Clients’ circumstances vary and may include unforeseen issues that make it more difficult or costly than anticipated to implement or derive benefit from software, outsourcing or consulting services.  The success and timeliness of our services often depends at least in part upon client involvement, which can be difficult to control.  We are required to meet specified performance standards, and contracts can be terminated or their scope reduced under certain circumstances.  Competition is vigorous, and competitors may develop more compelling offerings or offer more aggressive pricing.  New business is not assured and existing clients may migrate to competing offerings.  Financial performance targets might not be achieved due to various risks, including slower-than-expected business development or new account implementation, or higher-than-expected costs to develop software, meet service commitments or sign new contracts.  Our cash consumption may exceed expected levels if profitability does not meet expectations or strategic opportunities require cash investments.  These and other risks and uncertainties are described in this report under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in our other filings made from time to time with the Securities and Exchange Commission.  The cautionary statements made in this report should be read as being applicable to all related forward-looking statements wherever they appear.  These statements are only predictions.  We cannot guarantee future results, levels of activity, performance or achievements.  We assume no obligation to publicly update or revise these forward-looking statements for any reason, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.  We nonetheless reserve the right to make such updates from time to time without the need for specific reference to this report.  No such update shall be deemed to indicate that other statements not addressed by such updates remain correct or create an obligation to provide any other updates.

Item 1.     Business

Overview

Eclipsys is a healthcare information technology (HIT) company and a leading provider of advanced clinical, financial and management information software and service solutions. We develop and license proprietary software and content that is designed for use in connection with many of the key clinical, administrative and financial functions that hospitals and other healthcare organizations require. Among other things, our software enables physicians, nurses and other clinicians to order tests, treatment and medications and record, access and share information about patients. Our software also facilitates many administrative and financial functions, including patient admissions, scheduling, records maintenance, invoicing, inventory control, cost accounting, and assessment of the profitability of specific medical procedures and personnel.  Our content, which is integrated with our software, provides practice guidelines in context at the point of care for use by physicians, nurses and other clinicians.

We also provide services related to our software.  These services include software and hardware maintenance, outsourcing, remote hosting of our software as well as third-party HIT applications, network services, and training and consulting.

We believe that one of the key differentiators of our software is its open, flexible and modular architecture.  This allows our software to be installed one application at a time or all at once, and to integrate easily with software developed by other vendors or the client. This enables our clients to install our software without the disruption and expense of replacing their existing software systems to gain additional functionality.

We market our software to small, stand-alone hospitals, large multi-entity healthcare systems, academic medical centers and community hospitals. We have one or more of our software applications installed in, or licensed to be installed at approximately 1,500 facilities. All 16 of the top-ranked U.S. hospitals named to the Honor Roll of “America’s Best Hospitals” in the July 18, 2005 issue of U.S. News & World Report use one or more of our solutions.

Our Web site address is www.eclipsys.com.  We make available free of charge, on or through our Web site, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission.

Recent Developments

In October 2005, we named R. Andrew Eckert president and chief executive officer. He assumed these roles on November 14, 2005 from our chairman, Eugene V. Fife, who had served in an interim capacity for the previous six months.

In March 2005, we announced the release of Sunrise Clinical Manager 4.0XA, which contained numerous new features and enhancements, particularly in the ambulatory, emergency department, and medications management parts of our software, extending the usability, depth and reach of Eclipsys clinical solutions. SCM 4.0XA was installed at 38 client sites in 2005, and approximately 18 additional client sites are expected to begin using SCM 4.0XA in 2006. 

Following the launch of SCM 4.0XA, we released Sunrise Clinical Manager 4.5XA in January 2006.  The Sunrise 4.5 XA advanced clinical suite builds upon our previous releases and adds significant new or expanded capabilities, including the fully integrated capabilities of our Sunrise Ambulatory Care Manager^™,Sunrise ED Manager^™ and Sunrise Medication Management solutions.  Sunrise 4.5 XA also builds upon recent enhancements to our Sunrise Patient Financial Manager and Sunrise Decision Support Manager solutions. These industry-leading business process solutions help save healthcare enterprises significant time and costs by streamlining workflows and optimizing best practices across the organization. Sunrise Clinical Manager 4.5XA is already being installed at initial client sites.

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Client input has played an important role in the development of the software we released this year.  Our solutions utilize the same architecture and share the same Health Data Repository (HDR), while being customized for the workflows of different environments.  This enables Eclipsys clients to tie together their workflows, operations and the entire continuum of care.   Further, our software is built upon an open architecture that supports the secure exchange of data between systems, as well as the ability to embed evidence-based content.

In February 2005, we introduced Remote Access Services (RAS) 4.0 XA^™ and Pocket Sunrise^™ 4.0 XA, at the Annual Healthcare Information and Management Systems Society Conference and Exhibition (HIMSS) in Dallas.

In March 2005, we were recognized as a leading provider of computerized physician order entry (CPOE) solutions based on physician usage in the KLAS CPOE Digest 2005. Eclipsys CPOE solutions include its award-winning Sunrise™ Clinical Manager and Eclipsys 7000 offerings. The survey found that when software functionality is the key decision-making criteria, healthcare organizations selected Eclipsys more often than any other vendor.

In April 2005, we released Sunrise Access Manager/Patient Financial Manager 11.5, the latest major milestone in our proven revenue cycle management solution. The new release added new and enhanced capabilities for maximizing revenue capture, improving cash flow, decreasing administrative costs, and enhancing patient satisfaction.

In November 2005, we announced the latest release of Sunrise RIS, the Eclipsys advanced radiology information system. Sunrise RIS supports a paperless workflow, including document generation, document management, scanner support, and the ability to markup diagrams and capture key images. All components, including speech recognition, are Web-based, simplifying deployment and providing today's increasingly mobile radiology personnel the flexibility to work from virtually any location.

Also in November 2005, our Sunrise Pocket XA wireless solution was recognized as among the most innovative uses of enterprise technology in healthcare in this year's InfoWorld 100. The annual awards honor Information Technology (IT) products that demonstrate the most creative use of cutting-edge technologies. Pocket XA is a wireless companion to our advanced clinical solutions. Running on a pocket personal computer, it provides wireless access to clinical information. As a result, physicians can place orders for medications and additional lab work, access patient records including current lab and other diagnostic results, make positive patient identification using barcode technology and perform other functions directly from the device, both at the point of care and at wireless locations inside and outside the hospital or clinic.

In the second quarter of 2005, we contracted for Oracle’s Enterprise Resource Planning (ERP) system, Oracle’s E-Business Suite 11i, which will provide Eclipsys with a web-based, integrated set of business applications.  This is a significant infrastructure investment that should facilitate better communication and increased efficiency and productivity across our organization. 

Healthcare Industry Factors

Hospitals are under increased pressure to reduce medical errors and increase operational efficiencies. Our software and services are designed to help clients achieve these objectives. Legislation is also requiring changes within the healthcare industry. We believe that these changes may increase demand for HIT software and services like ours.

The Decade of Health Information Technology. On April 27, 2004, President George W. Bush issued an executive order that established the position of National Health Information Technology Coordinator within the Department of Health & Human Services, or HHS. The post, filled by David J. Brailer, MD, PhD, was created to provide leadership for the development and nationwide implementation of an interoperable health information technology infrastructure to improve the quality and efficiency of healthcare in the United States. The vision of this infrastructure is to:

• ensure that appropriate information to guide medical decisions is available at the time and place of care;
• improve healthcare quality, reduce medical errors, and advance the delivery of appropriate, evidence-based medical care;
• reduce healthcare costs resulting from inefficiency, medical errors, inappropriate care, and incomplete information;
• promote a more-effective marketplace, greater competition, and increased choice through the wider availability of accurate information on healthcare costs, quality, and outcomes;
• improve the coordination of care and information among hospitals, laboratories, physician offices, and other ambulatory care providers through an effective infrastructure for the secure and authorized exchange of healthcare information; and
• ensure that patients’ individually identifiable health information is secure and protected.

On July 21, 2004, the Secretary of Health and Human Services released the first outline of a 10-year plan to build the national electronic health information infrastructure. The report entitled, “The Decade of Health Information Technology: Delivering Consumer-centric and Information-rich Health Care,” concluded that federal leadership can facilitate efforts to be carried out by the private sector and laid out the broad steps needed to achieve widespread electronic health records or EHRs for Americans. This report was a response to the call by President Bush in 2004 to achieve EHRs for most Americans within a decade.

 CCHIT.  The HHS inititatives have, among other things, led to the creation of the private-sector Certification Commission for Health Information Technology, or CCHIT, which consists of 15 commissioners from across the healthcare industry. CCHIT intends to develop a set of private sector determined criteria for EHR functionality, interoperability, reliability and security, and will inspect EHR software to determine its performance against these criteria.

Institute of Medicine. In 1999, the Institute of Medicine, or IOM, issued a report titled, “To Err Is Human: Building a Safer Health System” calling for the expanded use of information technology to reduce avoidable medical errors by 50 percent in the U.S. over the ensuing five-year period. According to that report, between 44,000 and 98,000 people died each year as a result of medical errors. The IOM concluded that more people were injured from preventable mistakes than from many other common illnesses or accidents. The IOM report identified medication and pharmacy errors as significant causes of deaths and adverse events. In 2003, the IOM released a separate report stating that medical errors may be reduced through widespread adoption of information technology, such as electronic medical records that can be connected through a national system linking all healthcare organizations.

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The Leapfrog Group. Following the release of the initial IOM report, the Leapfrog Group was formed. The Leapfrog Group is a consortium of more than 170 companies including large private and public healthcare purchasers representing more than 34 million healthcare consumers within the United States. Leapfrog Group members and their employees spend billions of dollars on healthcare annually. The Leapfrog Group is urging its members and their employees to base their healthcare purchases on principles that encourage hospitals to utilize stringent patient-safety measures such as computerized physician order entry systems, or CPOE. The adoption of CPOE is a leading Leapfrog Group recommendation for reducing medical errors.

The IOM and The Leapfrog Group are leveraging their influence to encourage hospitals to use advanced clinical software to reduce adverse drug events and medical errors. Their influence, coupled with consumer demands, are spurring new legislation.

Health Insurance Portability and Accountability Act. The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, seeks to impose national health data standards on covered entities. Under HIPAA, a covered entity includes (i) healthcare providers that conduct electronic health transactions; (ii) healthcare clearinghouses that convert health data between HIPAA-compliant and non-compliant formats; and (iii) health plans. The HIPAA standards prescribe, among other things, transaction formats and code sets for electronic health transactions, in order to protect individual privacy by limiting the uses and disclosure of individually identifiable health information. HIPAA also requires covered entities to implement administrative, physical and technological safeguards to ensure the confidentiality, integrity, availability and security of individually identifiable health information in electronic form.

Under HIPAA, covered entities are required to utilize HIPAA-compliant products, software and services. We believe that the need for HIPAA-compliant products will continue to create demand for software and services like ours. We are not a covered entity under HIPAA, but many of our clients are. Accordingly, we have developed our software to facilitate HIPAA compliance.

Joint Commission on Accreditation of Healthcare Organizations. The Joint Commission on the Accreditation of Healthcare Organizations, or JCAHO, is an independent non-profit organization that provides voluntary evaluation and accreditation for more than 15,000 healthcare organizations in the United States. JCAHO periodically introduces new process improvement initiatives, standards and performance measurements that are used to assess hospitals. JCAHO has also established patient safety standards that require hospitals to initiate specific efforts to prevent medical errors and inform patients when they have been unknowingly harmed during treatment. Additionally, each year since 2002, JCAHO has approved annual National Patient Safety Goals that include specific recommendations for improving patient safety. Most of our clients seek to comply with JCAHO standards. We believe that our software and services aid our clients in meeting JCAHO standards.

The Internet. We believe the Internet will enable consumers to be more involved in their healthcare choices, and will provide increased availability of medical information to physicians, clinicians and healthcare workers. As consumers and physicians adopt Web-centric lifestyles, we believe that software and services like ours will become more appealing to a wider customer base.

Our Offering

                We provide the following:

• Clinical and financial software for use by healthcare organizations and clinicians;
• Professional services related to implementation and use of our software;
• Consulting services to help our clients improve their operations;
• IT outsourcing;
• Remote hosting of client IT systems, including our software and third-party software;
• Hardware and Networks.

                Our offering is described below:

Software

 Eclipsys software provides comprehensive functionality that helps hospitals and care providers address many of their key clinical, financial and administrative needs.  Among other things, our software is designed to:

• Provide hospitals with tools to improve clinical workflow and support clinical, financial and operational decision-making throughout the organization, as well as information they use to negotiate with insurance companies, Medicare and Medicaid, and to maximize collections and minimize payment denials.
• Provide clinicians with access to patient information, evidence-based clinical content and supporting references, such as medical journals, as well as real-time information regarding the cost and effectiveness of patient tests and treatments.
• Permit simultaneous access to consolidated patient information by multiple users from access points throughout the clinical environment and from remote locations.  

 For several years we have been committed to building our new software on, and re-engineering and migrating existing software to, an architecture based on the Microsoft .NET Framework and other industry-standard technologies. We believe this approach allows our software to be more open and extensible, making it easier to integrate with a client’s legacy and ancillary systems. We believe this architecture enables hospitals to continue to derive value from their existing technology investments, and to add other software as functional needs and resources dictate.

SunriseXA is built upon a single database model known as a Health Data Repository or HDR. The HDR can be used by all components within SunriseXA regardless of where in the hospital a physician, nurse or employee resides. SunriseXA is designed to prevent the isolation of information and duplication of functionality that can occur with other information technology, or IT, systems. We believe that this approach will enable a faster, more cost-effective implementation of our software, simplify software maintenance and provide a lower total cost of ownership.

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The following summarizes our principal software offerings:

Sunrise Clinical Manager  is a computerized patient record system that provides patient information to clinicians at the point of decision-making. SCM allows a physician to enter orders quickly and efficiently, and provides evidence-based clinical decision support at the time of order entry.  SCM’s core capabilities and related modules are designed for use in the ambulatory, acute care and Emergency Department settings, and include the following features among others:

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

·   Knowledge-based orders, which is a clinical decision support system that 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. Clients can modify these existing rules or develop their own clinical rules.

·   Clinical decision support, which triggers alerts, including by e-mail 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 provides access to standardized patient-care profiles and assists in the scheduling of clinical treatment procedures.

·   Clinical documentation, which gathers and presents patient information by accepting and arranging input from caregivers, laboratories or monitoring equipment. Features include an automated patient classification, an acuity system that facilitates timely adjustment of nursing staffing and other resources and evidence-based clinical practice guidelines.

·   End-to-end medication management, which links physicians as they place orders, pharmacists as they verify and dispense those orders, and nurses as they administer medications.

·   Laboratory, surgery, and critical care modules to facilitate the operation of these care environments.

·   Sunrise ECA, which enables Meditech clients to integrate Sunrise Clinical Manager with their existing Meditech system. This allows clinicians to improve  the way they enter and retrieve patient information and take advantage of other benefits of our software, while allowing the client to continue to use the Meditech system in the usual way for various functions such as lab, radiology, admissions and billing.

·   Remote access services, which provides physicians with Web-based access to patient information from within the healthcare facility or remotely.

Sunrise Access Manager enables healthcare providers to identify the patient at any time within a hospital and to collect and maintain patient information on an

enterprise-wide basis.

·   Comprehensive admission, discharge and transfer management captures demographic, insurance, referral and primary-care provider information and automates visit management.

·   Patient scheduling and resource management facilitates scheduling patient appointments throughout an organization based on patient preferences and resource availability, and provides complex scheduling capabilities such as multiple and linked conditional appointments.

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

Sunrise Patient Financial Manager provides centralized enterprise-wide business office capabilities.

·   Patient accounting, which facilitates the patient-billing and accounts receivable functions, including bill generation, reimbursement management to monitor receivables, the collection activities and contract compliance analysis, as well as follow-up processing and reporting functions. Paperless processing is possible through real-time inquiry, editing, sorting, reporting, commenting and updating from other applications, including modules in SAM  and SCM.

·   Contract management, which is used in conjunction with other Sunrise software to ensure that patient care complies with the payment terms,  restrictions, approval requirements and other rules and regulations of each insurance plan and managed care contracts.

·   Single-statement billing and registration across the entire enterprise, and enterprise-wide access and outcomes analysis.

Sunrise Decision Support Manager integrates data from throughout the enterprise to create a clinical and financial data repository that can be used as an analytical tool.

·   Allows a hospital to evaluate its cost structure, make changes in clinical processes to reduce costs and accurately price reimbursement contracts  on a profitable basis.

·   Analyzes and measures clinical process and outcomes data, and helps to determine the patient-level costs of care and identify the practice patterns  that most consistently result in the highest quality care at the lowest cost.

·   Helps clients’ measure and document improved clinical outcomes and return on investment.

·   Facilitates cost and profitability analysis and strategic planning, modeling and forecasting.

Sunrise Discovery builds upon Sunrise Decision Support Manager by using a data warehouse, data-extraction techniques, including natural language processing, and business intelligence tools to collect useful clinical and financial data and distribute it across the enterprise using portal technology.

Sunrise Record Manager  provides comprehensive clinical data management and enterprise-wide document and image-management functions.

·   Enables capture of patient identification and consent forms and other documents through document imaging and document scanning and interfaces with other electronic document systems.

·   Includes tools for managing patient medical records, including tracking record locations, chart requests, and secured release of information.

·   JCAHO-compliant deficiency and chart completion management functions, including HIPAA-compliant electronic signature functions.

·   Medical records abstracting, working with industry-standard encoders.

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Knowledge-Based Charting provides nurses with evidence-based practice guidelines and patient charting tools.

eLink  provides tools to enable the integration of clinical and financial data from disparate existing systems within an integrated health network.

Eclipsys Diagnostic Imaging Solutions comprise a comprehensive radiology information system, or RIS, and

a picture archiving and communications system, or PACS image-enabled clinical information system, that delivers imaging data as an integrated part of the overall patient record that is accessible to clinicians at the point of care on any Sunrise-enabled device. 

Professional Services.  Implementation of some of our software is complex.  We offer our clients professional assistance in the implementation of our software, the conversion and integration of their historical data into our software and systems, and ongoing training and support in the use of our software.   We also provide regular maintenance releases and software updates. 

Consulting Services.  We also offer consulting services to help clients to improve their operations.

IT Outsourcing. We provide IT outsourcing services to our clients. This means that we assume responsibility for a healthcare organization’s IT operations using our employees. These services include facilities management, by which we assume responsibility for all aspects of client internal IT operations, as well as network outsourcing, which relieves our clients of the need to secure and maintain an expensive IT infrastructure in a rapidly changing technological environment, and transition management, which offers our clients a solution for migrating their IT to new processes, technologies or platforms without interfering with healthcare delivery.

Remote Hosting. We also provide remote hosting services to our clients. This means that we assume processing of selected applications for our clients using equipment and personnel at our facilities. This frees an organization from the capital investment, operating expense, and management challenges of maintaining the environment, equipment and technical staff required to support their IT operations.

Hardware and Networks. As part of our commitment to being a comprehensive software and services provider, we sell a variety of desktop, network and platform solutions including hardware, middleware and related services.  We also offer several network services.  Our professionals assess changes in network utilization and function, forecast necessary upgrades to accommodate a client’s growth, and design the changes required to provide our clients with the network performance and functionality.

Sales and Marketing

Our sales and marketing teams target academic medical centers, larger multi-entity healthcare systems, community hospitals and small, stand-alone hospitals and other healthcare facilities.  We sell our software and services primarily in North America exclusively through our direct sales force, which works closely with our client services and software specialists and experts with extensive experience with each of our specific software applications to design client solutions.

  Our marketing group develops targeted campaigns designed to increase demand for our software and services, as well as increase corporate awareness and brand identity for our company.  In addition to advertising, direct mail, public relations and Internet marketing, our marketing group produces a wide range of collateral and sales support training and materials.

Research and Development

We believe that our future success depends on our ability to maintain and enhance our existing software and develop new software. We seek to maintain technological competitiveness and respond to market trends and our clients’ evolving needs. We are currently developing our software based on Microsoft’s .NET Framework and other industry standards. We are also creating new functionality for our existing software. Since the announcement of our SunriseXA response time issues in October 2003, we have enhanced our staff and our processes within our research and development function.  Among other things, we have decreased our reliance on outside vendors that have historically aided our internal personnel in software development. We use Microsoft’s Solutions Framework development methodology to gauge the quality and performance of our software development efforts. As part of these new processes, we have also involved clients in our software design process, enabling them in some cases to have direct and regular access to the development staff, including its senior leadership.

Competition

We face intense competition in the marketplace. We are confronted by rapidly changing technology, evolving user needs and the frequent introduction of new software to meet the needs of our current and future clients. Our principal competitors in our software business include Cerner Corporation, Epic Systems Corporation, Meditech, GE Medical Systems (which recently acquired IDX Systems Corporation, formerly a separate competitor), McKesson Corporation, QuadraMed Corporation and Siemens AG. Other software competitors include providers of practice management, general decision support and database systems, as well as segment-specific applications and healthcare technology consultants.  Our services business competes with large consulting firms such as Deloitte & Touche and Cap Gemini, as well as independent providers of technology implementation and other services.  Our outsourcing business competes with large national providers of technology solutions such as International Business Machines, Corporation (IBM), Computer Sciences Corp. (CSC), Perot Systems Corporation, as well as smaller firms.  Several of our existing and potential competitors are better established, benefit from greater name recognition and have significantly more financial, technical and marketing resources than we do.  Some competitors, particularly those with a more diversified revenue base or that are privately held, may have greater flexibility than we do to compete aggressively on the basis of price.  We expect that competition will continue to increase, which could lead to a loss of market share or pressure on our prices and could make it more difficult to grow our business profitably.

The principal factors that affect competition within our market include software functionality, performance, flexibility and features, use of open industry standards, speed and quality of implementation and client service and support, company reputation, price and total cost of ownership.  We anticipate that competition will increase as a result of continued consolidation in both the information technology and healthcare industries.  We expect large integrated technology companies to become more active in our markets, both through acquisition and internal investment.  There is a finite number of hospitals and other healthcare providers in our target market.  As costs fall, technology improves, and market factors continue to compel investment by healthcare organizations in software and services like ours, market saturation may change the competitive landscape in favor of larger competitors with greater scale.

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Executive Officers of the Registrant

Certain biographical information concerning the Company’s executive officers is presented below.

Name	Age	Title
R. Andrew Eckert	44	President and Chief Executive Officer
John A. Adams	51	Executive Vice President Business Solutions
John Gomez	41	Executive Vice President Chief Technology Strategy Officer
John E. Deady	41	Executive Vice President Customer Solutions
Robert J. Colletti	47	Senior Vice President, Chief Financial Officer and Chief Accounting Officer
Frank E. Stearns, Jr.	46	Senior Vice President Professional Services
Brian W. Copple	45	Chief Legal Officer, General Counsel and Secretary

R. Andrew Eckert joined Eclipsys Corporation in October 2005 and became President and Chief Executive Officer and joined the Board of Directors on November 14, 2005. From March 2004 to October 2005, Mr. Eckert was CEO of SumTotal Systems, Inc., a provider of learning and business performance technologies and services. From 2002 to March 2004, he was CEO of Docent, Inc., until it merged with Click2learn to form SumTotal Systems. Previously, Mr. Eckert spent 11 years with ADAC Laboratories, , a publicly traded provider of healthcare enterprise radiology and cardiology information systems and integrated imaging solutions, where he served as CEO (1997 to 2001), Chairman (1999 until its sale to Philips Medical Systems in December 2000), and President (1994 to 1997). Prior to ADAC, he worked in the consulting and finance industries with Goldman Sachs, Summit Partners and Marakon Associates. Mr. Eckert serves on the Boards of Directors of Connetics Corporation, a specialty pharmaceuticals company, and Varian Medical Systems, Inc., a manufacturer of integrated cancer therapy systems. He is a Fellow of the College of Nuclear Medicine and co-chairman of the Pacific Vascular Research Foundation, a vascular disease research and public awareness organization.

John A. Adams joined Eclipsys as our Executive Vice President and Chief Administrative Officer in December 2004 and became Executive Vice President Business Solutions in January 2006.  Prior to joining us, Mr. Adams was chief financial officer of Exult, Inc., a publicly traded provider of human resources and related business process outsourcing services from June 2003 until its acquisition by Hewitt Associates late in 2004.  From November 2000 to June 2003, Mr. Adams was vice president and chief financial officer of AT&T’s Business Services division.  Previously he served in a variety of managerial positions with EDS Corporation over 15 years.

John Gomez has served as our Executive Vice President and Chief Technology Strategy Officer since December 2004. He held the title of Senior Vice President and Chief Technology Officer from August 2003, when he first joined our Company, to December 2004. From October 2002 to January 2003, Mr. Gomez was a senior vice president and chief technology officer at WebMD Corporation. Prior to that, from February 2001 to October 2002 Mr. Gomez served as chief technology officer and senior vice president of strategic business development at Brill Media Holdings, an e-commerce and media publication company. From April 1998 through January 2001 Mr. Gomez was employed by Microsoft Corporation.

John E.  Deady, joined Eclipsys in January 2006 as our Executive Vice President of Customer Solutions.  Prior to joining Eclipsys, from April 2004 until January 2006, Mr. Deady served as vice president, marketing & sales support, at McKesson Corporation, a publicly traded provider of healthcare information technology.  While at McKesson, Mr. Deady also served as national vice president, new business, from October 2002 to April 2004 and national vice president, Clinical Sales Group, from August 2001 to October 2002.  From October 2000 to August 2001, Mr. Deady served as senior vice president, global sales, at TrueSpectra, a provider of dynamic imaging solutions for the retail, manufacturing, and entertainment & media industries.  Prior to that, from August 1997 to September 2000, Mr. Deady held executive sales and marketing positions at ADAC Laboratories, a publicly traded provider of healthcare enterprise radiology and cardiology information systems and integrated imaging solutions.  Prior to joining ADAC, from June 1992 to July 1997, Mr. Deady held sales management positions with Cerner Corporation, a publicly traded provider of enterprise healthcare software and services.  From October 1989 to May 1992, Mr. Deady was Technical Sales Representative at E.I. du Pont de Nemours and Company, a manufacturer of medical imaging consumables and capital equipment.

Robert J. Colletti has served as our Senior Vice President, Chief Financial Officer and Chief Accounting Officer since August 2001. From June to August 2001, Mr. Colletti served as Senior Vice President Finance and Chief Accounting Officer. From January 1997 to June 2001, Mr. Colletti served as our vice president of finance. Mr. Colletti joined Eclipsys in January 1997 as part of our acquisition of ALLTEL Healthcare Information Services, Inc.

Frank E. Stearns, Jr., has served as our Senior Vice President Professional Services since November 2005, which includes responsibility for all professional services including implementation, integration and consulting services.  Previously, Mr. Stearns led the Eclipsys Consulting Group from January 2003.  Prior to Eclipsys, from August 1999 to January 2003, Mr. Stearns served as a Vice President and Partner for Cerner Corporation, a publicly traded provider of enterprise healthcare software and services.  From October 1993 to August 1999, Mr. Stearns served as Vice President of Decision Technologies at Computer Sciences Corporation (CSC), a worldwide provider of technology products and services focusing in the healthcare sector.  Previously, Mr. Stearns served as a Partner with APM Management Consultants in the information resources and clinical effectiveness consulting practice, and in a leadership role at MediQual Systems, Inc., a leading supplier of severity of illness and outcomes measurement tools.

Brian W. Copple joind Eclipsys as our Chief Legal Office, General Counsel and Secretary in May 2005.  Before joining Eclipsys, Mr. Copple served as Executive Vice President, General Counsel and Secretary of Exult, Inc., a publicly traded provider of human resources and related business process outsourcing services, from February 2000 until its acquisition by Hewitt Associates late in 2004.  Previously, Mr. Copple practiced corporate and securities law as a partner with the law firm of Gibson, Dunn & Crutcher LLP.

Employees

As of December 31, 2005, we had 2020 employees. Our success depends on our continued ability to attract and retain highly skilled and qualified personnel. Competition for such personnel is intense in our industry, particularly for software developers, implementation and service consultants and sales and marketing personnel. We cannot be assured that we will continue to attract and retain qualified personnel. Our employees are not represented by any labor unions. We consider our relations with our employees to be good.

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Financial Information About Geographic Areas

Revenues from U.S. operations totaled $359.3 million in 2005, $293.1 million in 2004 and $244.3 million in 2003. Revenues from outside the United States totaled $24.0 million in 2005, $16.0 million in 2004 and $10.4 million in 2003. Long-lived assets totaled $108.5 million in the United States in 2005, $89.8 million in 2004 and $73.6 million in 2003. Long-lived assets totaled $2.9 million in other countries in 2005, $2.1 million in 2004 and $100,000 in 2003.

Item 1A. Risk Factors

Many risks affect our business.  These risks include, but are not limited to, those described below, each of which may be relevant to decisions regarding ownership of our stock.  We have attempted to organize the description of these risks into logical groupings to enhance readability, but many of the risks interrelate or could be grouped in other ways, so no special significance should be attributed to these groupings.  Any of these risks could have a significant adverse effect on our business, financial condition or results of operations.

Risks relating to development and operation of our software

Since October 2003, we have worked to overcome the effects of technical issues we experienced at that time, and the success of our recent software releases, particularly Sunrise Clinical Manager 4.5 XA, is critical. 

 In October 2003, we announced the existence of response time issues within some components of the version of our next-generation core clinical software that we were developing at that time. We concluded that this was attributable to the technical design of the software, which did not adequately support the throughput required in the highly interactive patient care environment.   These issues harmed our reputation in the marketplace and set back our software development plans.  In addition, they resulted in significant expense associated with re-development and warranty claims.  Our 2003 operating results include a $1.2 million write-down of capitalized software development costs for some of our software components, and to date we have recorded provisions related to warranty costs of $4.6 million. We still have warranty and related issues with clients associated with the October 2003 problem.  Our sales bookings, market position, and financial performance have suffered as a result.

We took steps to address these issues, and our subsequent releases of Sunrise Clinical Manager 3.5 XA (3.5) in June 2004 and Sunrise Clinical Manager 4.0 XA (4.0) in March 2005 to date have not manifested these same throughput shortcomings.  Combined, these versions have been installed in approximately 60 locations; we believe they have performed well and achieved market acceptance.  However, they are still relatively recent releases and  issues may appear in the future.  Due to our recent history, the marketplace can be expected to be particularly sensitive to any future technical issues we may encounter with our software, so any serious issues associated with 3.5 or 4.0 that may emerge could seriously impair our reputation, sales, client relationships and results of operations.

We believe that Sunrise Clinical Manager 4.5 XA (4.5) which we released in January 2006 largely completes the development objectives that we had envisioned before October 2003.  Many clients, investors and market observers have anticipated the 4.5 release as an important milestone in the evolution of our software offering and our market position.  However, 4.5 has not yet been widely implemented in clinical environments, so it is too early to assess its operational performance.  It is an ambitious software release that incorporates a large number of new features and functions and was completed relatively quickly.  As is typical with new software releases in general, 4.5 may require additional work to address issues that may be discovered as the software comes into use in our client base.  If these issues are significant, our reputation, sales, client relationships and results of operations could be significantly impaired.

Our software may not operate properly, which could damage our reputation and impair our sales. 

Software development is time consuming, expensive and complex.  Unforeseen difficulties can arise. We may encounter technical obstacles, and it is possible that we could discover additional problems that prevent our software from operating properly. If our software contains errors or does not function consistent with product specifications or client expectations, clients could assert liability claims against us and/or attempt to cancel their contracts with us.  It is also possible that future releases of our software, which would typically include additional features for our software, may be delayed. This could damage our reputation and impair our sales.

Our software development efforts may not meet the needs of our clients, which could adversely affect our results of operations.

We continuously strive to develop new software, and improve our existing software to add new features and functionality. We schedule and prioritize these development efforts according to a variety of factors, including our perceptions of market trends, client requirements, and resource availability. Our software is complex and requires a significant investment of time and resources to develop, test and introduce into use. Sometimes this takes longer than we expect. Sometimes we encounter unanticipated difficulties that require us to re-direct or scale-back our efforts. Sometimes we change our plans in response to changes in client requirements, market demands, resource availability, regulatory requirements, or other factors. All of this can result in acceleration of some initiatives and delay of others.  If we make the wrong choices or do not manage our development efforts well, we may fail to produce software that responds appropriately to our clients’ needs or fails to meet client expectations regarding  new or enhanced features and functionality.  If we fail to deliver software within the timeframes and with the features and functionality as described in our product specifications, we could be subject to significant contractual damages.

Market changes or mistaken development decisions could decrease the demand for our software, which could harm our business and decrease our revenues.

The healthcare information technology market is characterized by rapidly changing technologies, evolving industry standards and new software introductions and enhancements that may render existing software obsolete or less competitive. Our position in the market could erode rapidly due to the development of regulatory or industry standards that our software may not fully meet, or due to changes in the features and functions of competing software, as well as the pricing models for such software.  Our future success will depend in part upon our ability to enhance our existing software and services, and to develop and introduce competing new software and services that are appropriately priced to meet changing client and market requirements. The process of developing software and services such as those we offer is extremely complex and is expected to become more complex and expensive in the future as new technologies are introduced.  As we evolve our offering in an attempt to anticipate and meet market demand, clients and potential clients may find our software and services less appealing.  If software development for the healthcare information technology market becomes significantly more expensive due to changes in regulatory requirements or healthcare industry practices, or other factors, we may find ourselves at a disadvantage to larger competitors with more financial resources to devote to development.  If we are unable to enhance our existing software or develop new software to meet changing client requirements, demand for our software could suffer.

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Our software strategy is dependent on the continued development and support by Microsoft of its .NET Framework and other technologies.

Our software strategy is substantially dependent upon Microsoft’s .NET Framework and other Microsoft technologies. The .NET Framework, in particular, is a relatively new and evolving technology. If Microsoft were to cease actively supporting .NET or other technologies, fail to update and enhance them to keep pace with changing industry standards, encounter technical difficulties in the continuing development of these technologies or make them unavailable to us, we could be required to invest significant resources in re-engineering our software. This could lead to lost or delayed sales, unanticipated development expenses and harm to our reputation, and would cause our financial results and business to suffer.

Any failure by us to protect our intellectual property, or any misappropriation of it, could enable our competitors to market software with similar features, which could reduce demand for our software.

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 software, reverse engineer our software or otherwise obtain and use information that we regard as proprietary. In some limited instances, clients can access source-code versions of our software, subject to contractual limitations on the permitted use of the source code. Furthermore, it may be possible for our competitors to copy or gain access to our content. Although our license agreements with clients attempt to prevent misuse of the source code or trade secrets, the possession of our source code or trade secrets by third parties increases the ease and likelihood of potential misappropriation of our software. Furthermore, others could independently develop technologies similar or superior to our technology or design around our proprietary rights.

Failure of security features of our software could expose us to significant expense and reputational harm.

Clients use our systems to store and transmit highly confidential patient health information.  Because of the sensitivity of this information, security features of our software are very important.  If, notwithstanding our efforts, our software security features do not function properly, or client systems using our software are compromised, we could face damages for contract breach, penalties for violation of applicable laws or regulations, significant costs for remediation and re-engineering to prevent future occurrences, and serious harm to our reputation.

Risks related to sales and implementation of our software

The length of our sales and implementation cycles may adversely affect our future operating results.

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 hospitals, our target client market. Furthermore, our software generally requires significant capital expenditures by our clients. The sales cycle for our software ranges from 6 to 18 months or more from initial contact to contract execution.  Our implementation cycle has generally ranged from 6 to 36 months from contract execution to completion of implementation. During the sales and implementation cycles, we will expend substantial time, effort and resources preparing contract proposals, negotiating the contract and implementing the software. 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. Additionally, any decision by our clients to delay purchasing or implementing our software may adversely affect our revenues.

We may experience implementation delays that could harm our reputation and violate contractual commitments.

Some of our software is complex and requires a lengthy and expensive implementation process.  Each client’s situation is different, and unanticipated difficulties and delays may arise as a result of failures by us or the client to meet our respective implementation responsibilities.  Because of the complexity of the implementation process, delays are sometimes difficult to attribute solely to us or the client.  Implementation delays could motivate clients to delay payments or attempt to cancel their contracts with us or seek other remedies from us. Any inability or perceived inability to implement consistent with a client’s schedule may be a competitive disadvantage for us as we pursue new business.  Implementation also requires our clients to make a substantial commitment of their own time and resources and to make significant organizational and process changes, and if our clients are unable to fulfill their implementation responsibilities in a timely fashion our projects may be delayed or become less profitable.

Implementation costs may exceed expectations, which can negatively affect our operating results.

Each client’s circumstances may include unforeseen issues that make it more difficult or costly than anticipated to implement our software. We may fail to project, price or manage our implementation services correctly.  If we do not have sufficient qualified personnel to fulfill our implementation commitments in a timely fashion, related revenue may be delayed, and if we must supplement our capabilities with expensive third-party consultants, our costs will increase.

Risks related to our outsourcing services

Various risks could interrupt clients’ access to their data residing in our service center, exposing us to significant costs.

 We provide remote hosting services that involve running our software and third- party vendor’s software for clients in our Technology Solutions Center (TSC).  The ability to access the systems and the data the TSC hosts and supports on demand is critical to our clients.  Our operations and facilities are vulnerable to interruption and/or damage from a number of sources, many of which are beyond our control, including, without limitation: (i) power loss and telecommunications failures; (ii) fire, flood, hurricane and other natural disasters; (iii) software and hardware errors, failures or crashes, and (iv) computer viruses, hacking and similar disruptive problems.  We attempt to mitigate these risk through various means including redundant infrastructure, disaster recovery plans, separate test systems and change control and system security measures, but our precautions  may not protect against all problems.  If clients’ access is interrupted because of problems in the operation of our facilities, we could be exposed to significant claims by clients or their patients, particularly if the access interruption is associated with problems in the timely delivery of medical care.  We must maintain disaster recovery and business continuity plans that rely upon third-party providers of related services, and if those vendors fail us at a time that our center is not operating correctly, we could incur a loss of revenue and liability for failure to fulfill our contractual service commitments.  Any significant instances of system downtime could negatively affect our reputation and ability to sell our remote hosting services.

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Any breach of confidentiality of client or patient data in our service center could expose us to significant expense and reputational harm.

We must maintain facility and systems security measures to preserve the confidentiality of data belonging to our clients and their patients that resides on computer equipment in our TSC.  Notwithstanding the efforts we undertake to protect data, our measures can be vulnerable to infiltration as well as unintentional lapse, and if confidential information is compromised we could face damages for contract breach, penalties for violation of applicable laws or regulations, significant costs for remediation and re-engineering to prevent future occurrences, and serious harm to our reputation.

Recruiting challenges and higher than anticipated costs in  outsourcing our client’s IT operations may adversely affect our profitability.

We provide outsourcing services that involve operating clients’ IT departments using our employees.  At the initiation of these relationships, clients often require us to hire, at substantially the same compensation, the entire IT staff that had been performing the services we take on.  In these circumstances our costs may be higher than we target unless and until we are able to transition the workforce, methods and systems to a more scalable model.  Various factors can make this difficult, including geographic dispersion of client facilities and variation in client needs, IT environments, and system configurations.  Also, under some circumstances we may incur unanticipated costs as a successor employer by inheriting unforeseen liabilities that the client had to these employees.  Further, facilities management contracts require us to provide the IT services specified by contract, and in some places it can be difficult to recruit qualified IT personnel.  Changes in circumstances or failure to assess the client’s environment and scope our services accurately can mean we must hire more staff than we anticipated in order to meet our responsibilities.  If we have to increase salaries or relocate personnel, or hire more people than we anticipated, our costs may increase under fixed fee contracts.

Inability to obtain consents needed from third parties could impair our ability to provide remote outsourcing services.

We and our clients need consent from some third-party software providers as a condition to running their software in our data center, or to allowing our employees who work in client locations under facilities management arrangements to have access to their software.  Vendors’ refusal to give such consents, or insistence upon unreasonable conditions to such consents, could reduce our revenue opportunities and make our outsourcing services less viable for some clients.

Risks related to the healthcare IT industry and market

We operate in an intensely competitive market that includes companies that have greater financial, technical and marketing resources than we do.

We face intense competition in the marketplace. We are confronted by rapidly changing technology, evolving user needs and the frequent introduction of new software to meet the needs of our current and future clients. Our principal competitors in our software business include Cerner Corporation, Epic Systems Corporation, Meditech, GE Medical Systems (which recently acquired IDX Systems Corporation, formerly a separate competitor), McKesson Corporation, QuadraMed Corporation and Siemens AG. Other software competitors include providers of practice management, general decision support and database systems, as well as segment-specific applications and healthcare technology consultants.  Our services business competes with large consulting firms such as Deloitte & Touche and Cap Gemini, as well as independent providers of technology implementation and other services.  Our outsourcing business competes with large national providers of technology solutions such as International Business Machines Corporation (IBM), Computer Sciences Corp. (CSC), Perot Systems Corporation, as well as smaller firms.  Several of our existing and potential competitors are better established, benefit from greater name recognition and have significantly more financial, technical and marketing resources than we do.  Some competitors, particularly those with a more diversified revenue base or that are privately held, may have greater flexibility than we do to compete aggressively on the basis of price.  We expect that competition will continue to increase, which could lead to a loss of market share or pressure on our prices and could make it more difficult to grow our business profitably.

The principal factors that affect competition within our market include software functionality, performance, flexibility and features, use of open industry standards, speed and quality of implementation and client service and support, company reputation, price and total cost of ownership.  We anticipate that competition will increase as a result of continued consolidation in both the information technology and healthcare industries.  We expect large integrated technology companies to become more active in our markets, both through acquisition and internal investment.  There is a finite number of hospitals and other healthcare providers in our target market.  As costs fall, technology improves, and market factors continue to compel investment by healthcare organizations in software and services like ours, market saturation may change the competitive landscape in favor of larger competitors with greater scale.

Clients that use our legacy software are vulnerable to competition.

A significant part of our revenue comes from relatively high-margin legacy software that was installed by our clients many years ago. We attempt to convert these clients to our newer generation software, but such conversions require significant investments of time and resources by clients. This reduces our advantage as the incumbent vendor and has allowed our competitors to target these clients, with some success.  If we are not successful in retaining a large portion of these clients by continuing to support legacy software – which is increasingly expensive to maintain – or by converting them to our newer software, our results of operations will be negatively affected.

The healthcare industry faces financial constraints that could adversely affect the demand for our software and services.

The healthcare industry faces significant financial constraints. For example, the shift to managed healthcare in the 1990’s put pressure on healthcare organizations to reduce costs, and the Balanced Budget Act of 1997 dramatically reduced Medicare reimbursement to healthcare organizations. Our software often involves a significant financial commitment by our clients. Our ability to grow our business is largely dependent on our clients’ information technology budgets.  If healthcare information technology spending declines or increases more slowly than we anticipate, demand for our software could be adversely affected.

Healthcare industry consolidation could impose pressure on our software prices, reduce our potential client base and reduce demand for our software.

Many hospitals have consolidated to create larger healthcare enterprises with greater market power. If this consolidation trend continues, it could reduce the size of our target market and give the resulting enterprises greater bargaining power, which may lead to erosion of the prices for our software. In addition, when hospitals combine they often consolidate infrastructure including IT systems, and acquisition of our clients could erode our revenue base.

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Potential changes in standards applicable to our software could require us to incur substantial additional development costs.

Integration and interoperability of the software and systems provided by various vendors are important issues in the healthcare industry.  Market forces or regulatory authorities could cause emergence of software standards applicable to us, and if our software is not consistent with those standards we could be forced to incur substantial additional development costs to conform.  If our software is not consistent with emerging standards, our market position and sales could be impaired.

Risks related to our operating results, accounting controls and finances

We have a history of operating losses and we cannot predict future profitability.

We had a profit of $485,000 in 2005 although we had a loss from operations of $2.6 million. We had a net loss of $32.6 million for the year ended December 31, 2004. We also had net losses of $56.0 million in 2003, $29.8 million in 2002, $34.0 million in 2000, $9.4 million in 1999, and $35.3 million in 1998. In 2001, we had net income of $4.4 million, although we had a loss from operations of $1.6 million.  It is not certain that we will remain profitable, or that our profitability will increase.  We may incur net losses in the future.

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 operating results may continue to fluctuate due to a number of factors, including:

·   the performance of our software and our ability to promptly and efficiently address software performance shortcomings or warranty issues;

·   the cost, timeliness and outcomes of our software development and implementation efforts;

·   the timing, size and complexity of our software sales and implementations;

·   overall demand for healthcare information technology;

·   the financial condition of our clients and potential clients;

·   market acceptance of new services, software and software enhancements by us and our competitors;

·   client decisions regarding renewal of their respective contracts;

·   software and price competition;

·   the relative proportions of revenues we derive from software, services and hardware;

·   changes in our operating expenses;

·   the timing and size of future acquisitions;

·   personnel changes;

·   significant judgments and estimates made by management in the application of generally accepted accounting principles;

·   healthcare reform measures and healthcare regulation in general; and

·   fluctuations in general economic and financial market conditions, including interest rates.

It is difficult to predict the timing of revenues that we receive from software sales, because the sales cycle can vary depending upon several factors. These include the size and terms of the transaction, the changing business plans of the client, the effectiveness of the client’s management, general economic conditions and the regulatory environment. In addition, the timing of our revenue recognition could vary considerably depending upon whether our clients license our software under our subscription model or our traditional licensing arrangements. Because a significant percentage of our expenses are 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. Investors should not rely on these comparisons as indicators of future performance.

Early termination of client contracts could adversely affect results of operations.

Client contracts can change or terminate early for a variety of reasons.  Change of control, financial issues, or other changes in client circumstances may cause us or the client to seek to modify or terminate a contract.  Further, either we or the client may generally terminate a contract for material uncured breach by the other.  If we breach a contract, we may be required to refund money previously paid to us by the client, or to pay other damages.  Even if we have not breached, we may deal with various situations from time to time for the reasons described above which may result in the amendment of a contract.  These steps can result in significant current period charges and/or reductions in future revenue.

Because in many cases we recognize revenues for our software monthly over the term of a client contract, downturns or upturns in sales will not be fully reflected in our operating results until future periods.

We recognize a significant portion of our revenues from clients monthly over the terms of their agreements, which are typically 5-7 years and can be up to 10 years. As a result, much of the revenue that we report each quarter is attributable to agreements executed during prior quarters. Consequently, a decline in sales, client renewals, or market acceptance of our software in one quarter will not necessarily be reflected in lower revenues in that quarter, and may negatively affect our revenues and profitability in future quarters. In addition, we may be unable to adjust our cost structure to compensate for these reduced revenues. This monthly revenue recognition also makes it difficult for us to rapidly increase our revenues through additional sales in any period, as a significant portion of revenues from new clients must generally be recognized over the applicable agreement term.

Payment defaults by large customers could have significant negative impact on our liquidity and overall financial condition.

 During the fiscal year ended December 31, 2005, approximately 40.2 % of our revenues were attributable to our 20 largest clients.  In addition, approximately 51.7% of our accounts receivable as of December 31, 2005 were attributable to 20 clients.  Significant payment defaults by these clients could have a significant negative impact on our liquidity and overall financial condition.  

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Impairment of intangible assets could increase our expenses.

A significant portion of our assets consists of intangible assets, including capitalized development costs, goodwill and other intangibles acquired in connection with acquisitions.  Current accounting standards require us to evaluate goodwill on an annual basis and other intangibles if certain triggering events occur, and adjust the carrying value of these assets to net realizable value when such testing reveals impairment of the assets.  Various factors, including regulatory or competitive changes, could affect the value of our intangible assets.  If we are required to write-down the value of our intangible assets due to impairment, our reported expenses will increase, resulting in a corresponding decrease in our reported profit.

Failure to maintain effective internal controls could adversely affect our operating results and the market price of our common stock.

Section 404 of the Sarbanes-Oxley Act of 2002 requires that we maintain internal control over financial reporting that meets applicable standards.  If we fail to maintain effective internal controls and procedures in accordance with the requirements of Section 404, as such standards may be modified, supplemented or amended, we may be required to disclose our deficiencies.  If we are unable, or are perceived as unable, to produce reliable financial reports due to internal controls deficiencies, investors could lose confidence in our reported financial information and our operating results and the market price of our common stock could be adversely affected. 

Adoption of FAS 123R will increase our expenses and have a significant effect on our reported profit.

In 2006 and beyond, recorded expenses will increase as a result of our adoption of FAS 123R, which requires us to record expense associated with stock options based upon their fair value at the date of grant.  If we had adopted this methodology we would have recorded stock option related expense of $10.7 million, $9.6 million and $16.2 million in 2005, 2004 and 2003, respectively, using the Black-Scholes valuation model. Actual amounts recorded in the future will vary depending upon the number of options actually granted, the fair market value at the date of grant, and other variables affecting the calculation.

Inability to obtain additional financing could limit our ability to conduct necessary development activities and make strategic investments.

While our available cash and cash equivalents and the cash we anticipate generating from operations appear at this time to be adequate to meet our foreseeable needs, we could incur significant expenses as a result of unanticipated events in our business or competitive, regulatory, or other changes in our market.  As a result, we may in the future need to obtain additional financing.  If additional financing is not available on acceptable terms, we may not be able to respond adequately to these changes, which could adversely affect our operating results and the market price of our common stock.  

Risk of liability to third parties

Our software and content are used to assist clinical decision-making and provide information about patient medical histories and treatment plans. If our software fails to provide accurate and timely information or is associated with faulty clinical decisions or treatment, clients, clinicians or their patients could assert claims against us that could result in substantial cost to us, harm our reputation in the industry and cause demand for our software to decline.

We provide software and content that provides practice guidelines and potential treatment methodolgies, and other information and tools for use in clinical decision-making,  provides access to patient medical histories and assists in creating patient treatment plans. If our software fails to provide accurate and timely information, or if our content or any other element of our software is associated with faulty clinical decisions or treatment, we could have liability to clients, clinicians or patients. The assertion of such claims, whether or not valid and ensuing litigation, regardless of its outcome, could result in substantial cost to us, divert management’s attention from operations and decrease market acceptance of our software. We attempt to limit by contract our liability for damages and to require that our clients assume responsibility for medical care and approve all system rules and protocols. Despite these precautions, the allocations of responsibility and limitations of liability set forth in our contracts may not be enforceable, may not be binding upon patients, or may not otherwise protect us from liability for damages. We maintain general liability and errors and omissions insurance coverage, but 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.

Complex software such as ours may contain errors or failures that are not detected until after the software is introduced or updates and new versions are released. It is challenging for us to envision and test our software for all potential problems because it is difficult to simulate the wide variety of computing environments or treatment methodologies that our clients may deploy or rely upon. Despite extensive testing by us and clients, from time to time we have discovered defects or errors in our software, and such defects or errors can be expected to appear in the future.  Defects  and errors that are not timely detected and remedied could expose us to risk of liability to clients, clinicians and patients and cause delays in software introductions and shipments, result in increased costs and diversion of development resources, require design modifications or decrease market acceptance or client satisfaction with our software.

Our software and our vendors’ software that we include in our offering could infringe third-party intellectual property rights, exposing us to costs that could be significant.

Infringement or invalidity claims or claims for indemnification resulting from infringement claims could be asserted or prosecuted against us based upon design or use of software we provide to clients, including software we develop as well as software provided to us by vendors. Regardless of the validity of any claims, defending against these claims could result in significant costs and diversion of our resources, and vendor indemnity might not be available. The assertion of infringement claims could result in injunctions preventing us from distributing our software, or require us to obtain a license to the disputed intellectual property rights, which might not be available on reasonable terms or at all.  We might also be required to indemnify our clients at significant expense.

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Risks related to our strategic relationships and initiatives

We depend on licenses from third parties for rights to some technology we use, 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 software from a number of third-party vendors. Most of these licenses expire within one to five 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 software 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 or are unsuccessful in their continued research and development efforts, particularly with regard to Microsoft, we may not be able to modify or adapt our own software.

Our offering often includes software modules provided by third parties, and if these third parties do not meet their commitments, our relationships with our clients could be impaired.

Some of the software modules we offer to clients are provided by third parties.  We often rely upon these third parties to produce software that meets clients’ needs and to implement and maintain that software.  If these third parties fail to fulfill their responsibilities, our relationships with affected clients could be impaired, and we could be responsible to clients for the failures.  We might not be able to recover from these third parties for all of the costs we incur as a result of their failures.

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 ten acquisitions.  While there is no assurance that we will complete any future 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 management’s attention 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.

·   New business acquisitions must be accounted for under the purchase method of accounting. These acquisitions may generate significant intangible assets and result in substantial related amortization charges to us.

Risks related to industry regulation

Potential regulation by the U.S. Food and Drug Administration of our software and content as medical devices could impose increased costs, delay the introduction of new software and hurt our business.

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

·   requiring us to seek FDA clearance of a pre-market notification submission demonstrating substantial equivalence to a device already legally marketed, or to obtain FDA approval of a pre-market approval application establishing the safety and effectiveness of the software;

·   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 regarding 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 software corrections, suspending production, refusing to grant pre-market clearance or approval of software, withdrawing clearances and approvals, and initiating criminal prosecution. Any FDA policy governing computer products or content, may increase the cost and time to market of new or existing software or may prevent us from marketing our software.

Changes in federal and state regulations relating to patient data could depress the demand for our software and impose significant software redesign costs on us.

Clients use our systems to store and transmit highly confidential patient health information and data.  State and federal laws and regulations and their foreign equivalents govern the collection, use, transmission and other disclosures of health information. These laws and regulations may change rapidly and may be unclear or difficult to apply.

Federal regulations under the Health Insurance Portability and Accountability Act of 1996, or HIPAA, impose national health data standards on healthcare providers that conduct electronic health transactions, healthcare clearinghouses that convert health data between HIPAA-compliant and non-compliant formats and health plans. Collectively, these groups are known as covered entities. The HIPAA standards prescribe transaction formats and code sets for electronic health transactions; protect individual privacy by limiting the uses and disclosures of individually identifiable health information; and require covered entities to implement administrative, physical and technological safeguards to ensure the confidentiality, integrity, availability and security of individually identifiable health information in electronic form. Though we are not a covered entity, most of our clients are and require that our software and services adhere to HIPAA standards. Any failure or perception of failure of our software or services to meet HIPAA standards could adversely affect demand for our software and services and force us to expend significant capital, research and development and other resources to modify our software or services to address the privacy and security requirements of our clients.

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States and foreign jurisdictions in which we or our clients operate have adopted, or may adopt, privacy standards that are similar to or more stringent than the federal HIPAA privacy standards. This may lead to different restrictions for handling individually identifiable health information. As a result, our clients may demand information technology solutions and services that are adaptable to reflect different and changing regulatory requirements which could increase our development costs. In the future, federal or state governmental authorities may impose new data security standards or additional restrictions on the collection, use, transmission and other disclosures of health information. We cannot predict the potential impact that these future rules, may have on our business. However, the demand for our software and services may decrease if we are not able to develop and offer software and services that can address the regulatory challenges and compliance obligations facing our clients.

Risks related to our personnel and organization

Recent changes in our executive team could distract management and cause uncertainty that could result in delayed or lost sales.

From April until November 2005, our Chairman, Eugene V. Fife, served as our President and Chief Executive Officer on an interim basis, pending a search for a new, long-term Chief Executive Officer.  In November 2005, R. Andrew Eckert replaced Mr. Fife as CEO and President.  Including Mr. Eckert, five of our executive officers have joined the Company or assumed their current roles within the past year.  In January, 2006, we announced a headcount reduction of approximately 100 persons, including seven senior executives, and reorganization of our management structure.  These changes may disrupt continuity in our organization, disrupt established relationships with clients, prospects and vendors, divert our management’s time and attention from the operation of our business, delay important operational initiatives, and cause some level of uncertainty among our clients and potential clients that could lead to delays in closing new business or ultimately in lost sales.

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 and we maintain at-will employment terms with our employees, meaning that they are free to leave at any time.  Further, while we do utilize non-compete agreements with some employees, such agreements may not be enforceable, or we may choose for various reasons not to attempt to enforce them. 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 could hurt our business.

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; and

·   advance notice must be given to nominate directors or submit proposals for consideration at stockholders meetings.

Item 1B. Unresolved Staff Comments

Not applicable.

Item 2.     Properties

Our corporate offices are located in Boca Raton, Florida under a lease that expires in February 2008. In addition, we maintain leased office space in Phoenix, Arizona; Newport Beach, California; San Jose, California; Santa Rosa, California; Atlanta, Georgia; Westchester, Illinois; Overland Park, Kansas; Rockville, Maryland; Boston, Massachusetts; Grand Rapids, Michigan; Mountain Lakes, New Jersey;  Malvern, Pennsylvania; San Antonio, Texas; Montreal, Canada, Toronto, Canada and Richmond, Canada. These leases expire at various times through September 2013.

Item 3.     Legal Proceedings

We and our subsidiaries are from time to time parties to legal proceedings, lawsuits and other claims incident to our business activities. Such matters may include, among other things assertions of contract breach or intellectual property infringement, claims for indemnity arising in the course of our business and claims by persons whose employment has been terminated. Such matters are subject to many uncertainties and outcomes are not predictable with assurance. Consequently, we are unable to ascertain the ultimate aggregate amount of monetary liability, amounts which may be covered by insurance or recoverable from third parties, or the financial impact with respect to these matters as of the date of this report. However, based on our knowledge at the time of this report, management believes that the final resolution of such matters pending at the time of this report, individually and in the aggregate, will not have a material adverse effect upon our consolidated financial position, results of operations or cash flows.

Item 4.     Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of our stockholders during the fourth quarter of 2005.

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Part II

Item 5.    Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Price Range of Common Stock

Our common stock has been publicly traded on the NASDAQ National Market under the symbol “ECLP” since our initial public offering on August 6, 1998. The following table sets forth, for the quarters indicated, the high and low sales prices of our common stock as reported by the NASDAQ National Market.

	High		Low
2004
First quarter	$	15.48	$	11.27
Second quarter	$	15.26	$	11.25
Third quarter	$	16.07	$	12.75
Fourth quarter	$	20.95	$	14.62
2005
First quarter	$	20.52	$	14.44
Second quarter	$	15.67	$	11.21
Third quarter	$	18.83	$	12.82
Fourth quarter	$	20.20	$	15.38

Holders of Record

On February 15, 2006, the last reported sale price of our common stock on the NASDAQ National Market was $21.15 per share. Also as of February 15, 2006, we had approximately 192 stockholders of record.

Dividends

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.

Shares Available Under Equity Compensation Plans

Information regarding securities authorized for issuance under equity compensation plans is provided under Item 12 — Security Ownership of Certain Beneficial Owners and Management elsewhere in this document.

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Item 6.    Selected Financial Data

You should read the following selected financial data in conjunction with our consolidated financial statements and the related notes thereto, along with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, that is included elsewhere in this document. Our statement of operations data for the years ended December 31, 2005, 2004 and 2003 and the balance sheet data at December 31, 2005 and 2004 are derived from, and are qualified by reference to, our audited consolidated financial statements, which appear elsewhere in this document. Our statement of operations data for the years ended December 31, 2002 and 2001  and the balance sheet data at December 31, 2003, 2002 and 2001  set forth below, are derived from, and are qualified by reference to, our audited consolidated financial statements which are not included in this document. Historical results are not necessarily indicative of any future results.

Consolidated Statements of Operations
(in thousands, except per share data)
	Year Ended December 31,
	2005			2004			2003			2002			2001
Revenues:
Systems and services	$	370,309		$	282,124		$	233,971		$	203,218		$	223,171
Hardware		12,962			26,951			20,708			14,850			16,505
Total revenues		383,271			309,075			254,679			218,068			239,676
Costs and expenses:
Costs of systems and services revenues		225,080			168,393			143,276			119,044			124,255
Costs of hardware revenues		11,055			22,949			17,252			12,270			13,571
Sales and marketing		64,140			65,024			70,381			53,175			42,698
Research and development		51,789			58,095			58,144			46,228			37,034
General and administrative		19,191			15,524			13,528			12,434			10,278
Depreciation and amortization		14,659			13,284			10,492			8,531			13,900
Pooling and transaction costs		-			-			-			-			(472	)
Total costs and expenses		385,914			343,269			313,073			251,682			241,264
Loss from operations		(2,643	)		(34,194	)		(58,394	)		(33,614	)		(1,588	)
Interest income, net		3,128			1,629			2,430			4,016			5,996
Income (loss) before income taxes		485			(32,565	)		(55,964	)		(29,598	)		4,408
Provision for income taxes		-			-			-			165			-
Net income (loss)	$	485		$	(32,565	)	$	(55,964	)	$	(29,763	)	$	4,408
Net income (loss) per common share:
Basic net income (loss) per common share	$	0.01		$	(0.70	)	$	(1.23	)	$	(0.67	)	$	0.10
Diluted net income (loss) per common share	$	0.01		$	(0.70	)	$	(1.23	)	$	(0.67	)	$	0.09
Basic weighted average common shares outstanding		47,947			46,587			45,405			44,711			43,244
Diluted weighted average common shares outstanding		50,644			46,587			45,405			44,711			46,795

	Year Ended December 31,
	(in thousands)
	2005		2004		2003		2002		2001
Balance Sheet Data:
Cash	$	76,693	$	122,031	$	151,683	$	183,500	$	168,942
Marketable Securities		37,455		-		-		-		-
Working Capital		52,789		47,371		79,553		140,368		174,951
Total assets		328,789		296,043		295,783		301,197		300,494
Debt, including current portion		-		-		-		-		-
Stockholder's equity	$	146,191	$	123,277	$	143,153	$	192,597	$	218,201

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

Executive Overview

The following should be read in conjunction with our consolidated financial statements, including the notes thereto, which are included elsewhere in this document.

Eclipsys is a healthcare information technology company. We develop and license our proprietary software and content to hospitals. Our software allows hospitals to automate many of the key clinical, administrative and financial functions that they require. Our software is designed to enable our clients to improve patient care and patient satisfaction, and allow them to reduce their operating costs and enhance their revenues.  Our content provides practice guidelines for use in clinical environments.

Background

We were founded in December 1995 to commercialize an integrated clinical and financial information software system for use by hospitals. Historically, hospitals kept records in paper form. This has been associated with patient safety concerns, including avoidable medical errors, duplicative and unnecessary procedures, inefficient use of limited resources, and a limited ability to track, bill and collect for services rendered. Our software is designed to address these issues by turning data into information that can be easily used, accessed by or provided to the right person, at the right time, in the right place. This enables hospital employees to redesign business processes, deliver higher quality care at lower cost, and receive expedited payment for services rendered. Our software also helps to improve collaboration among physicians, nurses and other healthcare workers across all venues of care.

Software Development

In June 1999, we began re-expressing the intellectual property we had acquired through acquisitions on a common platform to provide integrated software to our clients. In 1999, we announced the general availability of SCM, the first version of our Sunrise^TM suite of software. SCM provides advanced knowledge-based clinical decision-support capabilities including computerized physician order entry.

In 2001, we announced our SunriseXA^TM strategy. This strategy was to migrate our Sunrise suite of software to an open architecture and platform. SunriseXA’s architecture is built on Microsoft’s .NET Framework, Microsoft SQL Server and the Microsoft Windows family of operating systems. In 2002 and 2003, we announced the general availability of certain components of our SunriseXA software offerings.

In October 2003, we identified and announced certain response time issues within components of the version of our next-generation clinical software that we were developing at that time. Although some of our software components had been implemented in and were working at some client sites, we determined that the software did not produce acceptable response times for complex, high-volume hospital environments. To address the issue, we implemented a strategy that was designed to allow SunriseXA clients to continue their deployment of SunriseXA, and at the same time allow us to continue the development of advanced SunriseXA solutions. This strategy was to replace the affected SunriseXA components with certain components from our SCM software, which is our prior generation, core clinical software. The response time issue resulted in a software delivery delay for some of our advanced SunriseXA functionality. The announcement of these issues also impacted the implementation schedules for a number of our clients.  This announcement adversely affected our sales in 2004 and 2005. 

In connection with this issue, we recorded a $1.2 million write-down of capitalized software development costs to net realizable value for some SunriseXA components in the third quarter of 2003. The write-down was included in the costs of systems and services revenues. Also, we believe that the correction of the response time issue and related issues is covered by the warranties that we provide to our clients.  We intend to continue to remediate the problem for our clients. Accordingly, we recorded provisions related to warranty costs of $4.6 million to date.  These provisions reflect our estimate of warranty-related costs that includes among other things, implementation and third-party costs for affected clients. Warranty costs are charged to costs of systems and services revenues when they are probable and reasonably estimable.  Through December 31, 2005, we had expended approximately $3.5 million in warranty costs related to remediation of the response time issue and related issues.  As of December 31, 2005 the warranty reserve balance was $1.1 million.   Professional services revenues have been, and we believe will continue to be negatively affected as we utilize resources to fulfill these obligations.

On June 30, 2004, we introduced Sunrise Clinical Manager Release 3.5 XA.  This new release contained significant additional functionality for core clinical, ambulatory and emergency department settings, as well as enhancements to patient management functions.  Additionally, the new release extended support for physicians through the inclusion of advanced functionality for clinical decision support, structured notes, medical necessity checking, prescription writing and medical management configuration.

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In November 2004, we announced the general availability of Sunrise ED Manager 3.6 XA and Sunrise Ambulatory Care Manager 3.6 XA. In the first quarter of 2005, we released Sunrise Clinical Manager Release 4.0XA, which contained new features and enhancements in several key areas including incremental functionality related to ambulatory, emergency department, critical care, medication management and nursing.   Additionally, we released Remote Access Services (RAS) 4.0 XA^TM and Pocket Sunrise^TM 4.0 XA, which enhanced users’ ability to access our applications from remote locations.  Furthermore, in November 2005 we announced the release of Sunrise Radiology Information System (RIS), which automates radiology workflow.

In January 2006 we released Sunrise Clinical Manager Release 4.5 XA.  This release contained approximately 1,500 incremental functions which continued to enhance the capabilities of our offering in all major clinical areas including ambulatory, emergency department, critical care and nursing.  Additionally, this release included integrated end–to-end medication management capabilities and builds upon   recent enhancements to our Sunrise Patient Financial Manager and Sunrise Decision Support Manager solutions.

The general availability of these releases fulfilled key deliverables expected by our clients in connection with the 2003 response time issue. These releases were consistent with our strategy and contained enhanced functionality as planned. 

Operational Initiatives

During 2001, our management made two strategic decisions that significantly impacted our operating results. First, we substantially increased our gross research and development spending, which includes research and development expenses and capitalized software development costs. This decision was made to enable us to bring components of our SunriseXA software line to market more rapidly. Second, we invested heavily in sales and marketing to enhance market awareness surrounding Eclipsys and its software and services. We did this to capitalize on perceived market demand for our software and services. Additionally, in 2002, we moved aggressively to change our contracting model, offering our clients payment terms which are more evenly distributed over the term of the contract compared to our historical licensing model, in which software license fees were paid in advance. We did this to meet the needs of our clients, by matching the timing of their payments to the value that we deliver to them. We believe that this new contracting model makes purchase decisions easier for our clients.

The change in our contracting model has had a material affect on our revenues, gross margins, and cash flows. Because the payments from our clients for software license fees are more evenly distributed over the term of the contract, our revenues are recognized over a longer period of time compared to our historical licensing model, while a significant portion of our operating expenses remain relatively fixed, resulting in lower margins early in the contract term.  We believe that this contracting model will provide for more predictable revenues on a year over year basis, and that over time, our margins will trend back towards historical levels as revenue from contracts later in their contract term help to compensate for lower margins earned in connection with new contracts.

Competitive Environment and Other Challenges for 2006

During the fourth quarter of 2004 and much of 2005, we experienced a slow-down in closing new sales transactions related to increasing competition, issues associated with our previously discussed software delay and our CEO transition.  Additionally, we hired a new CEO during the fourth quarter of 2005 and implemented a restructuring of senior management and our operations during January 2006.   Also, we continue to release significant new functionality in our software suite including a major new release in January 2006.  In connection with these releases, we continue to implement a significant number of clients on this new software.  In the event our new software does not continue to achieve market acceptance, we experience any significant delays in implementing these new releases or experience disruptions in our operations as a result of the restructuring activities, our results of operations could be negatively affected, including a delay or loss in closing future new sales transactions.

Critical Accounting Policies

 We believe there are several accounting policies that are critical to understanding our historical and future performance, as these policies affect the reported amount of revenue and other significant areas involving management’s judgments and estimates. On an ongoing basis, management evaluates and adjusts its estimates and judgments, if necessary. These significant accounting policies relate to revenue recognition, allowance for doubtful accounts, capitalized software development costs and our warranty reserve. Please refer to Note 2 of the audited consolidated financial statements for further discussion of our accounting policies.

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Revenue Recognition

 We generally contract under multiple element arrangements, which include software license fees, hardware and services including consulting, implementation, and software maintenance, for periods of 3 to 10 years. We evaluate revenue recognition on a contract-by-contract basis as the terms of each arrangement vary. The evaluation of our contractual arrangements often requires judgments and estimates that affect the timing of revenue recognized in our statements of operations. Specifically, we may be required to make judgments about:

• whether the fees associated with our software and services are fixed or determinable;
• whether collection of our fees is reasonably assured;
• whether professional services are essential to the functionality of the related software;
• whether we have the ability to make reasonably dependable estimates in the application of the percentage-of-completion method; and
• whether we have verifiable objective evidence of fair value for our software and services.

 We recognize revenues in accordance with the provisions of Statement of Position, or SOP, No. 97-2, “Software Revenue Recognition,” as amended by SOP No. 98-9, Staff Accounting Bulletin, or SAB, 104, “Revenue Recognition” and Emerging Issues Task Force, or EITF 00-21, “Revenue Arrangements with Multiple Deliverables.” SOP 97-2 and SAB 104, as amended, require among other matters, that there be a signed contract evidencing an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectibility is probable.

Many of our contracts with our clients are multiple element arrangements which may provide for multiple software modules including the rights to future versions and releases we may offer within the software suites the client purchases or rights to software versions that support different hardware or operating platforms, and that do not qualify as exchange rights.  We refer to these arrangements as subscription contracts.  Additionally, we sometimes enter into multiple element arrangements that do not include these rights to future software or platform protection rights.  We refer to these arrangements as traditional software contracts.  Finally, we offer much of our software and services on a stand-alone bases. Revenue under each of these arrangements is recognized as follows:

Subscription Contracts

Our subscription contracts typically include the following deliverables:

• Software license fees;
• Maintenance;
• Professional services; and
• Third party hardware or remote hosting services.

Software license fees are recognized ratably over the term of the contract, commencing upon the delivery of the software provided that (1) there is evidence of an arrangement, (2) the fee is fixed or determinable and (3) collection of our fee is considered probable. The value of the software is determined using the residual method pursuant to Statement of Position or SOP 98-9, “Modification of SOP 97-2, With Respect to Certain Transactions” or SOP 98-9. These contracts contain the rights to unspecified future software within the suite purchased and/or unspecified platform transfer rights that do not qualify for exchange accounting. Accordingly, these arrangements are accounted for pursuant to paragraphs 48 and 49 of SOP 97-2 “Software Revenue Recognition” or SOP 97-2. Under certain arrangements, we capitalize related direct costs consisting of third party software costs and direct software implementation costs. These costs are amortized over the term of the arrangement.

In the case of maintenance revenues, vendor-specific objective evidence, or VSOE of fair value is based on substantive renewal prices, and the revenues are recognized ratably over the maintenance period.

In the case of professional services revenues, VSOE is based on prices from stand-alone sale transactions, and the revenues are recognized as services are performed pursuant to paragraph 65 of SOP 97-2.

Third party hardware revenues are recognized upon delivery, pursuant to SAB 104.

In the case of remote hosting services, VSOE is based upon consistent pricing charged to clients based on volumes and performance requirements on a stand-alone basis and substantive renewal terms, and the revenues are recognized ratably over the contract term as the services are performed. Our remote hosting arrangements generally require us to perform one-time set-up activities and include a one-time set-up fee. This one-time set-up fee is generally paid by the client at contract execution. We have determined that these set-up activities do not constitute a separate unit of accounting, and accordingly the related set-up fees are recognized ratably over the term of the contract.

We consider the applicability of EITF 00-3, “Application of AICPA Statement of Position 97-2 to Arrangements That Include the Right to Use Software Stored On Another Entity’s Hardware,” to our remote hosting services arrangements on a contract-by-contract basis. If we determine that the client has the contractual right to take possession of our software at any time during the hosting period without significant penalty, and can feasibly run the software on its own hardware or enter into another arrangement with a third party to host the software, a software element covered by SOP 97-2 exists. When a software element exists in a remote hosting services arrangement, we recognize the license, professional services and remote hosting services revenues pursuant to SOP 97-2, whereby the fair value of the remote hosting service is recognized as revenue ratably over the term of the remote hosting contract. If we determine that a software element covered by SOP 97-2 is not present in a remote hosting services arrangement; we recognize revenue for the remote hosting services arrangement, ratably over the term of the remote hosting contract pursuant to SAB 104.

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Traditional Software Contracts

We enter into traditional multiple-element arrangements that include the following elements:

• Software license;
• Maintenance;
• Professional services; and
• Third party hardware or remote hosting services.

   Revenue for each of the elements is recognized as follows:

Software license fees are recognized upon delivery of the software provided that (1) there is evidence of an arrangement, (2) the fee is fixed or determinable and (3) collection of our fee is considered probable. For those arrangements in which the fee is not considered fixed or determinable, the software license revenue is recognized as the payments become due. For arrangements where VSOE only exists for the undelivered elements, we account for the delivered elements (software license revenue) using the residual method in accordance with SOP 98-9.

In addition to the software license fees, these contracts may also contain maintenance, professional services and hardware or remote hosting services. VSOE and revenue recognition for these elements is determined using the same methodology as noted above for subscription contracts.

Software Contracts Requiring Contract Accounting

We enter into certain multiple element arrangements containing milestone provisions in which the professional services are considered essential to the functionality of the software. Under these arrangements, software license fees and professional service revenues are recognized using the percentage-of-completion method over the implementation period which generally ranges from 12 to 24 months. Under the percentage-of-completion method, revenue and profit are recognized throughout the term of the implementation based upon estimates of total labor hours incurred and revenues to be generated over the term of the implementation. Changes in estimates of total labor hours and the related effect on the timing of revenues and profits are recognized in the period in which they are determinable. Accordingly, changes in these estimates could occur and have a material effect on our operating results in the period of change.

Stand-Alone Software and Service

We also market certain software and services on a stand-alone basis, including the following:

• Outsourcing;
• Software license;
• Maintenance;
• Professional services;
• Hardware;
• Network services;
• Remote Hosting services.

 Revenues related to such software and services are recognized as follows:

Software license fees and maintenance are marketed on a stand-alone basis may be licensed either under traditional contracts or under subscription arrangements. Software license fees under traditional contracts are recognized pursuant to SOP 97-2 upon delivery of the software, persuasive evidence of an arrangement exists, the fee is fixed or determinable and collectibility is probable. Under subscription agreements for stand-alone software, license fees are recognized ratably over the term of the contract. With respect to maintenance, VSOE is determined based on substantive renewal prices contained in the contracts. Maintenance is recognized ratably over the term of the contract.

Professional services represent incremental services marketed to clients including implementation and consulting services. Professional services revenues, where VSOE is based on prices from stand-alone transactions are recognized as services are performed.

Hardware is recognized upon delivery pursuant to SAB 104.

Network service arrangements include the assessment, assembly and delivery of a wireless network which may include wireless carts or other wireless equipment to the client. Our network services arrangements are sold to a client for a fixed fee. All services are performed prior to the delivery of the equipment. These contracts are typically 60 to 90 days in length and are recognized pursuant to SAB 104, upon the delivery of the network to the client.

Remote hosting contracts that are sold on a stand alone basis are recognized ratably over the contract term pursuant to SAB 104. Our remote hosting arrangements generally require us to perform one-time set-up activities and include a one-time set-up fee. This one-time set-up fee is generally paid by the client at contract execution. We have determined that these set-up activities do not constitute a separate unit of accounting, and accordingly we recognize the related set-up fees ratably over the term of the contract.

We provide outsourcing services to our clients. Under these arrangements we assume all responsibilities for a healthcare organization’s IT operations using our employees. Our outsourcing services include facilities management, network outsourcing and transition management. These arrangements typically range from five to ten years in duration. Revenues from these arrangements are recognized when services are performed.

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We record reimbursable out-of-pocket expenses in both systems and services revenues and as a direct cost of systems and services revenues in accordance with EITF Issue No. 01-14, Income Statement Characterization of Reimbursements Received for “Out-of-Pocket” Expenses Incurred (“EITF 01-14”). EITF 01-14 requires reimbursable out-of-pocket expenses incurred to be characterized as revenue in the statement of operations. For 2005, 2004, and 2003 reimbursable out-of-pocket expenses were $9.2 million, $5.7 million, and $4.5 million, respectively.

In accordance with EITF Issue No. 00-10, Accounting for Shipping and Handling Fees, we have classified the re-imbursement by clients of shipping and handling costs as revenue and the associated cost as cost of revenue.

If other judgments or assumptions were used in the evaluation of our revenue arrangements, the timing and amounts of revenue recognized may have been significantly different.

Allowance for Doubtful Accounts

In evaluating the collectibility of our accounts receivable, we assess a number of factors, including a specific client’s ability to meet its financial obligations to us, as well as general factors such as the length of time the receivables are past due and historical collection experience. Based on these assessments, we record a reserve for specific account balances as well as a reserve based on our historical experience for bad debt to reduce the related receivables to the amount we ultimately expect to collect from clients. If circumstances related to specific clients change, or economic conditions deteriorate such that our past collection experience is no longer relevant, our estimate of the recoverability of our accounts receivable could be further reduced from the levels provided for in the consolidated financial statements.

Capitalized Software Development Costs

We capitalize software development costs in accordance with FASB Statement No. 86 “Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed.” We capitalize software development costs incurred subsequent to establishing technological feasibility of the software being developed. These costs include salaries, benefits, consulting and other directly related costs incurred in connection with coding and testing software. Capitalization ceases when the software is generally released for sale to clients, at which time amortization of the capitalized costs begins. At each balance sheet date, we perform a detailed assessment of our capitalized software development costs which includes a review of, among other factors, projected revenues, client demand requirements, software lifecycle, changes in software and hardware technologies, and software development plans. Based on this analysis we record adjustments, when appropriate, to reflect the net realizable value of our capitalized software development costs. The estimates of expected future revenues generated by the software, the remaining economic life of the software, or both, could change, materially affecting the carrying value of capitalized software development costs, as well as our consolidated operating results in the period of change.

 On October 20, 2003, we announced response time issues with some components of the version of our next-generation core clinical software that we were developing at that time. To address the issue, we implemented a strategy that was designed to allow SunriseXA clients to continue their deployment of SunriseXA, and at the same time allow us to continue the development of our advanced SunriseXA solutions. Our strategy was to replace the affected SunriseXA components with certain components from our SCM software. As a result, in 2003 we recorded a $1.2 million write-down of capitalized software development costs for certain SunriseXA components to net realizable value. The write-down is included in the costs of systems and services revenues.

Warranty Reserve

The agreements that we use to license our software include a limited warranty providing that our software, in its unaltered form, will perform substantially in accordance with the related documentation. Through September 30, 2003, we did not incur any material warranty costs related to our software. Due to the response time issues that we identified in October 2003, we recorded provisions related to warranty costs of $4.6 million to date and expended $3.5 million against the provision through December 31, 2005. Warranty costs are charged to costs of systems and services revenues when they are probable and reasonably estimable. In determining this warranty reserve, we used significant judgments and estimates for the additional professional service hours and third party costs that will be necessary to remedy this issue on a client-by-client basis. The timing and amount of our warranty reserve could have been different if we had used other judgments or assumptions in our evaluation. We expect to substantially complete this work by December 31, 2006.

Results of Operations

Revenues

We derive revenues from licensing our software and the delivery of services including software and hardware maintenance; professional services (including implementation, integration, training and consulting); remote hosting services; outsourcing services; network services; and the sale of computer hardware. Our software and services are generally sold to clients under contracts that range in duration from 3 to 10 years.

Costs of Revenues

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

During the third quarter of 2003, we recorded a write-down of capitalized software costs to net realizable value of certain components of our SunriseXA software in the amount of $1.2 million. This related to the SunriseXA response time issue discussed above. Additionally, to date, we have recorded a warranty provision of $4.6 million related to anticipated costs of our SunriseXA response time issue. This warranty provision reflects an estimate of implementation and third party costs for certain clients. The warranty provision was included in the costs of systems and services revenues.

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Sales and Marketing

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

Research and Development

Research and development expenses consist primarily of salaries, benefits and related overhead, as well as consultants for the design, development and testing of new software. We capitalize certain software development costs subsequent to attaining technological feasibility. These costs are amortized as an element of the costs of systems and services 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 lives of the assets, which generally range from 3 to 7 years, and may reach 10 years for outsourcing contracts. Acquisition-related intangible assets, which primarily consisted of the value of ongoing client relationships, acquired technology and goodwill, have been amortized based upon their estimated economic lives at the time of the acquisition, and vary among acquisitions. In accordance with Statement of Financial Accounting Standards, or SFAS, No. 142, our amortization of goodwill ceased as of January 1, 2002, leaving a recorded balance of $454,000 for goodwill as of December 31, 2001. On at least an annual basis, we conduct an impairment review of our goodwill balance. As of December 31, 2005, there was no impairment of the goodwill balance.

Taxes

As of December 31, 2005, we had U.S. net operating loss carryforwards for federal income tax purposes of $306.5 million. Of this amount, $6.0 million expires in 2012 with the balance expiring in varying amounts annually through 2025.   Of the $306.5 million total, $63.3 million relate to stock option tax deductions which will be tax-effected and the benefit credited as additional paid-in-capital when realized.  Additionally, the Company has Canadian foreign net operating loss carryovers of $19.1 million that expire in varying amounts through 2012.  We did not record a benefit for the resulting net deferred tax asset for any of the periods presented, because we believe it is more likely than not that we would not realize our net deferred tax asset. Accordingly, we have recorded a valuation allowance against our total net deferred tax asset.  We are required to reverse the valuation allowance and record a benefit for the net deferred tax asset if and to the extent that we conclude that it is more likely than not that we will realize the asset.  This will result in a non-recurring benefit in the period that we make the determination.  For all future periods, after the recognition of the non-recurring benefit, we will record income tax expense in any period in which we earn taxable income.

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Statement of Operations
(in thousands, except per share data)
				2005						2004
				% of Total						% of Total
	2005			Revenue			2004			Revenue			Change $			Change %
Revenues:
Systems and services	$	370,309			96.6	%	$	282,124			91.3	%	$	88,185			31.26	%
Hardware		12,962			3.4	%		26,951			8.7	%		(13,989	)		-51.91	%
Total revenues		383,271			100.0	%		309,075			100.0	%		74,196			24.01	%
Costs and expenses:
Costs of systems and services revenues		225,080			58.7	%		168,393			54.5	%		56,687			33.66	%
Costs of hardware revenues		11,055			2.9	%		22,949			7.4	%		(11,894	)		-51.83	%
Sales and marketing		64,140			16.7	%		65,024			21.0	%		(884	)		-1.36	%
Research and development		51,789			13.5	%		58,095			18.8	%		(6,306	)		-10.85	%
General and administrative		19,191			5.0	%		15,524			5.0	%		3,667			23.62	%
Depreciation and amortization		14,659			3.8	%		13,284			4.3	%		1,375			10.35	%
Total costs and expenses		385,914			100.7	%		343,269			111.1	%		42,645			12.42	%
Loss from operations		(2,643	)		-0.7	%		(34,194	)		-11.1	%		31,551			92.27	%
Interest income, net		3,128			0.8	%		1,629			0.5	%		1,499			92.02	%
Income (loss) before income taxes		485						(32,565	)					33,050			101.49	%
Provision for income taxes		-						-						-			-
Net income (loss)	$	485					$	(32,565	)				$	33,050			101.49	%
Basic net income (loss) per common share	$	0.01					$	(0.70	)				$	0.71			101.43	%
Diluted net income (loss) per common share	$	0.01					$	(0.70	)				$	0.71			101.43	%

Year Ended December 31, 2005 compared to December 31, 2004

Total revenues for the year ended December 31, 2005 increased $74.2 million or 24.0 % to $383.3 million, from $309.1 million in 2004.

Systems and services revenues increased $88.2 million or 31.3% to $370.3 million for the year ended December 31, 2005 compared to $282.1 million in 2004. The increase in systems and services revenues was primarily a result of an increase in ratable generated revenues related to software, maintenance, outsourcing and remote hosting. These revenues increased $50.7 million or 25.6% to $248.7 million in 2005 from $198.0 million in 2004. Additionally, professional services revenues which include implementation, integration, consulting and training services increased $28.3 million or 51.0% to $83.8 million in 2005 from $55.5 million in 2004. Also, revenue related to software and networking services increased $9.2 million or 32.2% to $37.8 million in 2005 compared to $28.6 million in 2004.

Increases in ratable generated revenues were primarily driven by increases in outsourcing, remote hosting and subscription revenues which include software maintenance.  The increase in outsourcing revenues was primarily the result of revenues associated with a large contract entered into in Q4 2004.  Remote hosting revenues were favorably impacted by a shift in sales mix as more clients began to elect this option in-lieu of purchasing hardware as a mechanism to deliver their software applications.  We expect that remote hosting will continue to expand as a delivery option in future periods.  Subscription revenues increased as a result of progress made on a significant number of client implementations during the past twelve months as our clients continue to activate our clinical and financial modules.  These activations resulted in higher revenues under these contracts.  Additionally, new sales bookings in 2005 and 2004 favorably impacted subscription related revenues.

Revenues related to software and networking services increased $9.2 million in 2005 compared to the prior year.  Networking services increased $2.0 million to $17.2 million in 2005 compared to $15.2 million in 2004.  These increases were related to higher sales volume.  Software related revenues increased $7.2 million to $20.6 million in 2005.  This increase was primarily driven by an increase in third-party related software revenues which increased from $3.5 million in 2004 to $8.6 million in 2005.   Other software related revenues, which includes revenues recognized upon delivery of our software and content sold directly by us or through third parties, increased from $10.0 million in 2004 to $12.1 million in 2005; these revenues can vary significantly from period to period and past levels are not necessarily indicative of future performance. Other software related revenues increased primarily as a result of a higher volume of revenues related to sales of our clinical practice content under a remarketing arrangement with a third-party.  There is no assurance that we will generate comparable amounts under this arrangement in future periods.  The increase in third party software was a result of higher software sales in 2005.  In the event that we are not successful in achieving comparable levels of software related revenues in 2006, our operating results could be negatively impacted.

Professional service revenues increased as a result of major activation activities at numerous client installations during 2005.  Additionally, we experienced significant growth in our consulting practice as clients have begun to acquire these services from us to improve their respective work flow and processes associated with their ongoing operations.  In 2005, new sales levels associated with consulting and implementation services have significantly increased as clients have purchased higher volumes of these offerings to improve their workflows and benefits derived from using our software.  We expect this trend to continue in the future.

Hardware revenues decreased approximately $14.0 million, or 51.9% to $13.0 million for the year ended December 31, 2005 compared to $27.0 million in 2004.  The decrease was a result of lower software related sales in 2004 and the first half of 2005 associated with the previously discussed software issue.  Additionally, we have begun to experience a change in sales mix as more clients have elected remote hosting services in-lieu of hardware purchases to operate their respective software applications.  We expect hardware and network service transactions will fluctuate in future periods due a variety of factors, including competition within the hardware industry, the status of the client implementations and future sales volumes related to hardware and network services.

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Revenue increases in any period are attributable, to a significant degree, to sales contracts entered into in prior-years.  Because 2005 software sales bookings have fallen short of our expectations, the percentage revenue increases experienced in 2005 may not be repeated in 2006.

Cost of systems and services revenues “exclusive of depreciation shown below”, increased approximately $56.7 million or 33.7% to $225.1 million, for the year ended December 31, 2005 compared to $168.4 million in 2004.  The increase in costs of systems and services revenues in 2005 was related to the following:

• higher payroll related costs associated with an increase in outsourcing;
• higher costs associated with incremental remote hosting revenue;
• higher amortization of capitalized software development costs associated with the release of Sunrise Clinical Manager 3.5 XA in June 2004 and 4.0 XA in March 2005;
• higher costs associated with a higher volume networking services revenues;
• higher costs associated with an increase in third party related software revenues ;
• higher implementation costs associated with an expanded implementation team in connection with higher professional services volumes and an increased usage of third party consultants to augment these services;

 During 2005, we experienced a significant increase in costs associated with the use of third party consultants to augment our implementation services.  In Q4 2005, we implemented an initiative to improve our professional services area which included a reorganization of these resources.  Additionally, we are investing incremental resources in training related activities and improvements in our services infrastructure.  We expect these initiatives to improve our results in this area over the next 12 – 24 months.

Cost of hardware revenues decreased $11.9 million to $11.1 million or 51.8% in 2005 compared to $22.9 million in 2004. The decrease in these costs was directly related to the lower hardware volumes discussed above. The gross margin percentage on hardware revenue decreased to 14.7% in 2005 compared to 14.8% in 2004.

Research and development expenses were $51.8 million in 2005 compared to $58.1 million in 2004. Gross research and development spending which consists of research and development expense plus capitalized software development costs decreased $1.4 million to $71.9 million in 2005 compared to $73.3 million in 2004. The decrease in overall spending was driven by an improvement in internal processes within the research and development organization and a shifting of resources from third party consultants to internal resources. In summary, research and development was as follows:

	(in thousands)
		2005		2004		Change		% Change
Research and development expenses	$	51,789	$	58,095	$	(6,306	)	-10.9	%
Capitalized software development costs		20,144		15,194		4,950		32.6	%
Gross research and development expenses		71,933		73,289		(1,356	)	-1.9	%
Amortization of capitalized software development costs	$	14,274	$	10,634	$	3,640		34.2	%

The increase in amortization of capitalized software development costs was a result of the release of Sunrise Clinical Manager 3.5 XA in June 2004 and Sunrise Clinical Manager 4.0 XA in March 2005. These costs are included as a component of costs of systems and services revenues.   We expect capitalization of software development costs to reduce in 2006 from 2005 levels.  Sunrise Clinical Manager 4.0XA and 4.5XA, which accounted for a significant part of our software development expense in 2005, have been released, and software development in 2006 is expected to focus more on enhancement and maintenance of existing software than on new software development.  The anticipated reduction in software development capitalization will result in a commensurate increase in research and development expense recognized in 2006.

General and administrative expenses increased approximately $3.7 million or 23.6% to $19.2 million in 2005 compared to $15.5 million in 2004. The increase was primarily related to costs associated with the transition of our CEO resulting in incremental costs of $2.7 million.  Additionally, costs increased as a result of an incremental investment in our infrastructure related to the expansion of our management team and an increase in costs associated with incentive related compensation.  These increases were partially offset by lower legal costs and a reduction in insurance related expenses.

In 2006 and beyond, recorded expenses will increase as a result of our adoption of FAS 123R, which requires us to record expense associated with stock options based upon their fair value at the date of grant.  If we had adopted this methodology we would have recorded stock option related expense of $10.7 million, $9.6 million and $16.2 million in 2005, 2004 and 2003, respectively using the Black-Scholes valuation model. Actual amounts recorded in the future will vary depending upon the number of options actually granted, the fair market value at the date of grant, and other variables affecting the calculation.

Depreciation and amortization increased $1.4 million or 10.4% to $14.7 million in 2005 compared to $13.3 million in 2004. The increase was a result of an on-going investment in our infrastructure in research and development area and other areas of the Company.  The increase was also attributable to a full year of amortization for acquired intangible assets in the current year compared to a pro-rated period in the prior year.

Interest income increased $1.5 million to $3.1 million in 2005 compared to $1.6 million in 2004. The increase was primarily related to better yields earned on cash and cash equivalent balances in 2005.

As a result of these factors, we had a net income of $485,000 for the year ended December 31, 2005, compared to a net loss of $32.6 million for the year ended December 31, 2004.

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Statement of Operations
(in thousands, except per share data)
				2004 % of Total						2003 % of Total
	2004			Revenue			2003			Revenue			Change $			Change %
Revenues:
Systems and services	$	282,124			91.3	%	$	233,971			91.9	%	$	48,153			20.58	%
Hardware		26,951			8.7	%		20,708			8.1	%		6,243			30.15	%
Total revenues		309,075			100.0	%		254,679			100.0	%		54,396			21.36	%
Costs and expenses:
Costs of systems and services revenues		168,393			54.5	%		143,276			56.3	%		25,117			17.53	%
Costs of hardware revenues		22,949			7.4	%		17,252			6.8	%		5,697			33.02	%
Sales and marketing		65,024			21.0	%		70,381			27.6	%		(5,357	)		-7.61	%
Research and development		58,095			18.8	%		58,144			22.8	%		(49	)		-0.08	%
General and administrative		15,524			5.0	%		13,528			5.3	%		1,996			14.75	%
Depreciation and amortization		13,284			4.3	%		10,492			4.1	%		2,792			26.61	%
Total costs and expenses		343,269			111.1	%		313,073			122.9	%		30,196			9.65	%
Loss from operations		(34,194	)		-11.1	%		(58,394	)		-22.9	%		24,200			41.44	%
Interest income, net		1,629			0.5	%		2,430			1.0	%		(801	)		-32.96	%
Loss before income taxes		(32,565	)					(55,964	)					23,399			41.81	%
Provision for income taxes		-						-						-			-
Net loss	$	(32,565	)				$	(55,964	)				$	23,399			41.81	%
Basic net (loss) income per common share	$	(0.70	)				$	(1.23	)				$	0.53			43.09	%
Diluted net (loss) income per common share	$	(0.70	)				$	(1.23	)				$	0.53			43.09	%

Year Ended December 31, 2004 compared to December 31, 2003

Total revenues for the year ended December 31, 2004 increased $54.4 million or 21.4% to $309.1 million, from $254.7 million in 2003.

Systems and services revenues increased $48.2 million or 20.6% to $282.1 million for the year ended December 31, 2004 compared to $234.0 million in 2003. The increase in systems and services revenues was primarily a result of an increase in monthly generated revenues related to software, maintenance, outsourcing and remote hosting. These revenues increased $31.0 million to $198.0 million in 2004. Additionally, professional services revenues which include implementation and consulting services increased $8.4 million or 17.8% from $47.1 million in 2003 to $55.5 million in 2004. Also, revenue related to software and networking services increased $8.7 million or 43.9% to $28.6 million in 2004 compared to $19.9 million in 2003.

The increase in monthly generated revenues related to software, maintenance, outsourcing and remote hosting and professional services was primarily driven by higher sales volume in 2003 and 2004. The higher sales volume was related to an ongoing initiative in which we expanded our sales and marketing functions. The higher sales volume was related to success in the market place in connection with sales of our advanced clinical systems and combined software and outsourcing transactions. The sales of advanced clinical systems were related to ongoing industry wide initiatives to adopt and implement these systems. In connection with the higher sales volume, we began to market multiple element arrangements that are recognized on a monthly basis. This initiative which was implemented in 2002, has resulted in lower cash flows during the past two years as these contracts provide for payment terms that provide for lower cash flows during the early portion of the respective contracts. The growth in professional services was a result of significant incremental activity in 2004 tied to client implementations. Activities increased in 2004 as numerous clients went live on one or more software applications. This activity is expected to continue at these heightened levels in 2005 as numerous clients are scheduled to activate or upgrade their software applications. The increase in software license revenues and network services revenues was primarily a result of higher network services revenues which increased by $6.3 million in 2004. Network services revenues increased from $8.9 million in 2003 to $15.2 million in 2004. This increase was a result of an initiative we implemented to expand our network services offering to our client base.

As part of our future growth and continued expansion of our solutions offering, we implemented a strategy to market combined outsourcing and software contracts. We signed several large contracts in this area in 2004 and continued this program in 2005. In the event that we experience a change in revenue mix whereby a higher portion of contracts are combined outsourcing and software contracts, our overall gross margin percentage would likely decline. However, given the significantly larger size of typical combined outsourcing and software contracts, we expect the overall contribution of these contracts to our profitability would be positive.

Hardware revenues increased approximately $6.2 million, or 30.2% to $27.0 million for the year ended December 31, 2004 compared to $20.7 million in 2003. Hardware increased as a significant number of clients made purchases as they progressed on their respective installations in 2004 following our release of Sunrise Clinical Manager 3.5 XA in June 2004.

Cost of systems and services exclusive of “depreciation as shown below”, increased approximately $25.1 million or 17.5% to $168.4 million, for the year ended December 31, 2004 compared to $143.3 million in 2003. The increase in costs of systems and services revenues in 2004 was related to the following:

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• higher payroll and related costs associated with an increase in outsourcing and remote hosting revenues;
• higher amortization of capitalized software development costs associated with the release of Sunrise Clinical Manager 3.5 XA in June 2004;
• higher costs associated with a higher volume networking services revenues;
• higher third party costs including royalties and consulting due to the higher sales of third party software and increased usage of external consultants ;
• higher implementation costs associated with an expanded implementation team in connection with higher professional services volumes;
• partially offset by a decrease in warranty related costs in 2004.

 Cost of hardware revenues increased $5.7 million to $22.9 million or 33.0% in 2004 compared to $17.3 million in 2003. The increase in these costs was directly related to the higher hardware volumes discussed above. The gross margin percentage on hardware revenue decreased to 14.8% in 2004 compared to 16.7% in 2003. The decrease was a result of pricing pressures in 2004 in the hardware sector of our business. It is expected that fluctuations in revenue and margin will continue to occur in future periods. 

 Research and development expenses were $58.1 million in 2004 compared to $58.1 million in 2003. Gross research and development spending which consists of research and development expense and capitalized software development costs decreased $3.1 million to $73.3 million in 2004 compared to $76.4 million in 2003. The decrease in overall spending was driven by an improvement in internal processes within the research and development organization and a shifting of resources from third party consultants to internal resources. In summary research and development expenses were as follows:

	(in thousands)
	2004		2003		Change			% Change
Research and development expenses	$	58,095	$	58,144	$	(49	)		-0.1	%
Capitalized software development costs		15,194		18,249		(3,055	)		-16.7	%
Gross research and development expenses		73,289		76,393		(3,104	)		-4.1	%
Amortization of capitalized software development costs	$	10,634	$	8,164	$	2,470			30.3	%

The decrease in capitalized software development costs was primarily related to the decrease in costs associated with a shift from third party resources to internal resources in 2004. The increase in amortization of capitalized software development costs was a result of the release of Sunrise Clinical Manager 3.5 XA in June 2004. These costs are included as a component of the costs of systems and services revenues.

General and administrative expenses increased approximately $2.0 million or 14.8% to $15.5 million in 2004 compared to $13.5 million in 2003. The increase was primarily related to higher legal costs, higher accounting and professional fees associated with the implementation of Section 404 of the Sarbanes-Oxley Act and expense associated with a stock option repurchase which was executed in the fourth quarter of 2004.

Depreciation and amortization increased $2.8 million or 26.6% to $13.3 million in 2004 compared to $10.5 million in 2003. The increase was a result of on-going investment to improve our infrastructure in our research and development area and continued investments in our TechnologySolutionsCenter related to higher volumes of remote hosting services. As a result of these initiatives, we expect depreciation and amortization to continue to increase in future periods.

Interest income decreased $801,000 to $1.6 million in 2004 compared to $2.4 million in 2003. The decrease was primarily related to lower cash and cash equivalent balances in 2004.

As a result of these factors, we had a net loss of $32.6 million for the year ended December 31, 2004, compared to a net loss of $56.0 million for the year ended December 31, 2003.

Liquidity and Capital Resources

During 2005, operating activities provided $14.4 million of cash. Operating activities were favorably impacted in 2005 as a result of improvements in operations related to increased revenues and related contribution across all significant areas of our business. Investing activities used $77.2 million of cash, consisting of net purchases of marketable securities of $37.5 million, $20.1 million of capitalized software development costs and $19.3 million for the procurement of property and equipment. The property and equipment expenditures were related to activities at our TSC for the expansion of our remote hosting function and activities in our research and development area, as well as investments in our Oracle ERP solution. Financing activities provided $17.0 million from the proceeds of stock options exercised and proceeds from the issuance of common stock in the employee stock purchase plan. Cash provided by the exercise of stock options was higher in 2005 than in 2004.   The timing and amount of cash provided by future stock option exercises is uncertain. 

As of December 31, 2005, our principal source of liquidity was our cash and cash equivalents and marketable-securities balances of  $114.1 million.

Our future capital and liquidity 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 December 31, 2005, we have a commitment for capital expenditures related to our ERP system of $1.2 million. We believe that our available cash and cash equivalents and anticipated cash generated from our future operations will be sufficient to meet our operating requirements at least through 2006.

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Contracts and Commitments

The following table provides information related to our contractual cash obligations under various financial and commercial agreements as of December 31, 2005:

	Payments Due by Period
	(in thousands)
			Less than						More than
Contractual Obligations	Total		1 year		1-3 years		3-5 years		5 years
Operating Leases	$	26,252	$	9,373	$	10,811	$	3,409	$	2,659
Unconditional Purchase Obligations		48,424		37,699		10,582		143		-
Total Contractual Cash Obligations	$	74,676	$	47,072	$	21,393	$	3,552	$	2,659

The unconditional purchase obligations consist of minimum purchase commitments for telecommunication services, computer equipment, maintenance, consulting, airplane charters and other commitments. The contract for airplane charters is discussed in further detail in Note 10 to the consolidated financial statements, “Related Party Transactions” included herein.

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk

We do not currently use derivative financial instruments. We generally invest in high quality debt instruments with relatively short maturities. Based upon the nature of our investments, we do not expect any material loss from our investments.

Investments in both fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates or we may suffer losses in principal if forced to sell securities that have seen a decline in market value due to changes in interest rates. A hypothetical 10% increase or decrease in interest rates, however, would not have a material adverse effect on our financial condition. 

The following table illustrates potential fluctuation in annualized interest income based upon hypothetical values for blended interest rates and cash and marketable securities account balances. 

Annualized interest income based upon hypothetical values for cash and
marketable securities combined balances and interest rates:*
	Combined cash and cash equivalents and
Hypothetical	marketable securities balances (in thousands)
Interest Rate	$ 100,000		$ 110,000		$ 120,000
1.5%		1,500		1,650		1,800
2.0%		2,000		2,200		2,400
2.5%		2,500		2,750		3,000
3.0%		3,000		3,300		3,600
3.5%		3,500		3,850		4,200
4.0%		4,000		4,400		4,800

* This sensitivity analysis is not a forecast of future interest income.

We account for cash equivalents and marketable securities in accordance with SFAS No. 115. “Accounting for Certain Investments in Debt and Equity Securities.” Cash equivalents are short-term highly liquid investments with original maturity dates of three months or less. Cash equivalents are carried at cost, which approximates fair market value.

We do not currently enter into foreign currency hedge transactions. Through December 31, 2005, foreign currency fluctuations have not had a material impact on our financial position or results of operations.

26

Item 8.     Financial Statements and Supplementary Data

Index to Consolidated Financial Statements:

Financial Statements:
	Page
Report of Independent Registered Public Certified Accounting Firm		28
Consolidated Balance Sheets as of December 31, 2005 and 2004		29
Consolidated Statements of Operations for the years ended December 31, 2005, 2004 and 2003		30
Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003		31
Consolidated Statement of Changes in Stockholders’ Equity for the years ended December 31, 2005, 2004 and 2003		32
Notes to the Consolidated Financial Statements		33
Financial Statement Schedules:
Schedule II — Valuation of Qualifying Accounts for each of the three years in the period ended December 31, 2005		49
All other schedules are omitted as they are not applicable or the required information is shown in the financial statements or notes thereto.
Signatures		54

27

Report of Independent Registered Public Certified Accounting Firm

To the Board of Directors and Stockholders of Eclipsys Corporation:

We have completed integrated audits of Eclipsys Corporation’s 2005 and 2004 consolidated financial statements and of its internal control over financial reporting as of December 31, 2005, and an audit of its 2003 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Our opinions, based on our audits, are presented below.

Consolidated financial statements and financial statement schedule

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Eclipsys Corporation and its subsidiaries at December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America.  In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.  These financial statements and financial statement schedule are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements and financial statement schedulebased on our audits.  We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit of financial statements 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 our opinion.

Internal control over financial reporting

Also, in our opinion, management’s assessment, included in “Report of Management on Eclipsys Corporation’s Internal Control over Financial Reporting” appearing under Item 9A, that the Company maintained effective internal control over financial reporting as of December 31, 2005 based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control - Integrated Framework issued by the COSO.  The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting.  Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.  An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances.  We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

PricewaterhouseCoopers LLP

Atlanta, Georgia

March 6, 2006

28

Consolidated Balance Sheets
(in thousands, except share and per share data)
	December 31,			December 31,
	2005			2004
Assets
Current assets:
Cash	$	76,693		$	122,031
Marketable Securities		37,455			-
Accounts receivable, net of allowance for doubtful accounts of $5,676 and $4,952 at December 31, 2005 and 2004, respectively		80,833			64,862
Inventory		2,289			1,644
Prepaid expenses		17,909			14,495
Other current assets		2,184			1,091
Total current assets		217,363			204,123
Property and equipment, net		40,500			35,002
Capitalized software development costs, net		35,690			29,819
Acquired technology, net		584			886
Intangible assets, net		2,940			3,804
Goodwill, net		6,624			2,863
Deferred tax asset		4,124			4,623
Other assets		20,964			14,923
Total assets	$	328,789		$	296,043
Liabilities and Stockholders’ Equity
Current liabilities:
Deferred revenue	$	107,960		$	106,804
Accounts payable		26,103			21,945
Accrued compensation costs		15,974			12,738
Deferred tax liability		4,124			4,623
Other current liabilities		10,413			10,642
Total current liabilities		164,574			156,752
Deferred revenue		16,772			15,892
Other long-term liabilities		1,252			122
Total long-term liabilities		18,024			16,014
Commitments and contingencies (See Note 7)
Stockholders’ Equity:
Common stock, $0.01 par value, 200,000,000 shares authorized; issued and outstanding, 49,903,325 and 47,496,142		499			472
Additional paid-in capital		454,941			429,001
Unearned stock compensation		(9,551	)		(5,641	)
Accumulated deficit		(299,858	)		(300,343	)
Accumulated other comprehensive income		160			(212	)
Total stockholders’ equity		146,191			123,277
Total liabilities and stockholders’ equity	$	328,789		$	296,043

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

29

Consolidated Statements of Operations
(in thousands, except per share data)
	Year Ended December 31,
	2005			2004			2003
Revenues:
Systems and services	$	370,309		$	282,124		$	233,971
Hardware		12,962			26,951			20,708
Total revenues		383,271			309,075			254,679
Costs and expenses:
Costs of systems and services revenues		225,080			168,393			143,276
Costs of hardware revenues		11,055			22,949			17,252
Sales and marketing		64,140			65,024			70,381
Research and development		51,789			58,095			58,144
General and administrative		19,191			15,524			13,528
Depreciation and amortization		14,659			13,284			10,492
Total costs and expenses		385,914			343,269			313,073
Loss from operations		(2,643	)		(34,194	)		(58,394	)
Interest income, net		3,128			1,629			2,430
Income (loss) before income taxes		485			(32,565	)		(55,964	)
Provision for income taxes		-			-			-
Net income (loss)	$	485		$	(32,565	)	$	(55,964	)
Net income (loss) per share:
Basic net income (loss) per common share	$	0.01		$	(0.70	)	$	(1.23	)
Diluted net income (loss) per common share	$	0.01		$	(0.70	)	$	(1.23	)
Basic weighted average common shares outstanding		47,947			46,587			45,405
Diluted weighted average common shares outstanding		50,644			46,587			45,405

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

30

Consolidated Statements of Cash Flows
(in thousands)
	Year Ended December 31,
	2005			2004			2003
Operating activities:
Net income (loss)	$	485		$	(32,565	)	$	(55,964	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		32,472			27,410			21,902
Write-off of capitalized software development costs		-			-			1,200
Provision for bad debts		3,011			1,800			2,625
Loss on sale of marketable securities		-			131			424
Stock compensation expense		2,353			477			226
Changes in operating assets and liabilities:
Increase in accounts receivable		(18,966	)		(11,520	)		(10,706	)
(Increase) / Decrease in other current assets		(1,092	)		(28	)		1,255
(Increase) / Decrease in prepaid expenses		(3,415	)		(506	)		673
(Increase) / Decrease in inventory		(645	)		(1,079	)		126
Increase in other assets		(9,283	)		(2,724	)		(9,232	)
Increase in deferred revenue		2,036			21,403			21,094
Increase / (Decrease) in accrued compensation		2,441			(4,486	)		7,397
Increase in accounts payable		6,493			3,637			13,825
(Decrease) / Increase in other current liabilities		(2,563	)		(4,635	)		1,255
Increase / (Decrease) in other long-term liabilities		1,130			(562	)		458
Total adjustments		13,972			29,318			52,522
Net cash provided by (used in) operating activities		14,457			(3,247	)		(3,442	)
Investing activities:
Purchases of property and equipment		(19,288	)		(15,333	)		(15,997	)
Purchase of marketable securities		(501,717	)		(164,074	)		(73,785	)
Proceeds from sale of marketable securities		464,262			163,943			73,361
Capitalized software development costs		(20,144	)		(15,194	)		(18,249	)
Cash paid for acquisitions		(312	)		(5,458	)		-
Net cash used in investing activities		(77,199	)		(36,116	)		(34,670	)
Financing activities:
Proceeds from stock options exercised		16,853			7,892			3,554
Proceeds from issuance of common stock in stock purchase plan		195			1,664			2,709
Net cash provided by financing activities		17,048			9,556			6,263
Effect of exchange rates on cash and cash equivalents		356			155			32
Net decrease in cash and cash equivalents		(45,338	)		(29,652	)		(31,817	)
Cash and cash equivalents — beginning of year		122,031			151,683			183,500
Cash and cash equivalents — end of year	$	76,693		$	122,031		$	151,683
Cash paid for income taxes	$	-		$	133		$	155
Non-cash investing activities:
Issuance of shares for acquisition (NOTE 8)	$	2,660		$	2,500		$	-

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

31

Consolidated Statement of Changes in Stockholders’ Equity
(in thousands, except share data)
	Voting and Non-Voting Common Stock				Additional Paid-in		Unearned Stock			Accumulated			Comprehensive Income			Accumulated Other Comprehensive
	Shares		Amount		Capital		Compensation			Deficit			(Loss)			Income (Loss)			Total
Balance at December 31, 2002	45,088,872		$  451		$ 405,380		$ (1,021)			$ (211,814)						$ (399)			$ 192,597
Exercise of stock options		430,132		4		3,550														3,554
Employee stock purchase plan		457,651		5		2,704														2,709
Compensation expense recognized								226												226
Comprehensive income:
Net loss											(55,964	)		(55,964	)					(55,964	)
Foreign currency translation adjustment														32			32			32
Other comprehensive income														32
Comprehensive loss														(55,932	)
Balance at December 31, 2003		45,976,655		460		411,634		(795	)		(267,778	)					(367	)		143,154
Exercise of stock options		872,576		8		7,884														7,892
Employee stock purchase plan		167,709		1		1,663														1,664
Issuance of restricted stock		295,000		2		5,272		(5,274	)											-
Stock compensation expense						49		428												477
Stock issued for Acquisition		184,202		1		2,499														2,500
Comprehensive income:
Net loss											(32,565	)		(32,565	)					(32,565	)
Foreign currency translation adjustment														155			155			155
Other comprehensive income														155						-
Comprehensive loss														(32,410	)					-
Balance at December 31, 2004		47,496,142		472		429,001		(5,641	)		(300,343	)					(212	)		123,277
Exercise of stock options		1,957,912		21		16,827														16,848
Employee stock purchase plan		10,848		0		195														195
Issuance of restricted stock		372,500		5		6,258		(6,263	)											-
Stock compensation expense								2,353												2,353
Stock issued or to be issued for acquisitions		65,923		1		2,660														2,661
Comprehensive income:
Net income											485			485						485
Foreign currency translation adjustment														372			372			372
Other comprehensive income														372						-
Comprehensive income														857						-
Balance at December 31, 2005		49,903,325	$	499	$	454,941	$	(9,551	)	$	(299,858	)				$	160		$	146,191
The accompanying notes are an integral part of these consolidated financial statements.

32

1.             Organization and Description of Business

Eclipsys Corporation (“Eclipsys” or the “Company”, “We”, “Us” or “Our”) is a healthcare information technology company and a leading provider of advanced clinical, financial and management information software and service solutions.  The Company develops and licenses proprietary software and content that is designed to help automate many of the key clinical, administrative and financial functions that hospitals and other healthcare organizations require.  The Company’s software is designed to enable clients to improve patient care and patient satisfaction, reduce operating costs, and enhance revenues. Among other things, the software enables physicians, nurses and other clinicians to check on a patient’s condition, order patient tests, review test results, monitor a patient’s medications, and provide alerts to changes in a patient’s condition. The software also facilitates hospitals’ patient admissions, scheduling, records maintenance, invoicing, inventory control, cost accounting, and helps clients determine the profitability of physicians and physician groups, understand the profitability of specific medical procedures, and perform numerous other functions.  The Company’s content, which is integrated with our software, provides treatment guidelines in context at the point of care for use by physicians, nurses and other clinicians. 

2.             Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of Eclipsys Corporation and its wholly owned subsidiaries. All intercompany transactions have been eliminated in consolidation. Eclipsys manages its business as one reportable segment.

Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America 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 and circumstances as of the date of the financial statements. Actual results could differ from those estimates. The most significant estimates relate to the allowance for doubtful accounts, revenues recognized, the amounts recorded for capitalized software development costs, amortization periods, the warranty reserve and the valuation allowance for deferred tax assets.

Reclassifications

Certain prior period amounts have been reclassified to conform to the 2005 presentation. These reclassifications have had no impact on the statement of operations, net income or the statement of cash flows.

Cash and Cash Equivalents

For purposes of the consolidated statements of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

Revenue Recognition

 Revenues are derived from licensing of computer software; software and hardware maintenance; professional services (including implementation, integration, training and consulting); remote hosting; outsourcing; network services; and the sale of computer hardware.

 We generally contract under multiple element arrangements, which include software license fees, hardware and services including consulting, implementation, and software maintenance, for periods of 3 to 10 years. We evaluate revenue recognition on a contract-by-contract basis as the terms of each arrangement vary. The evaluation of our contractual arrangements often requires judgments and estimates that affect the timing of revenue recognized in our statements of operations. Specifically, we may be required to make judgments about:

• whether the fees associated with our software and services are fixed or determinable;
• whether collection of our fees is reasonably assured;
• whether professional services are essential to the functionality of the related software;
• whether we have the ability to make reasonably dependable estimates in the application of the percentage-of-completion method; and
• whether we have verifiable objective evidence of fair value for our software and services.

 We recognize revenues in accordance with the provisions of Statement of Position (SOP) No. 97-2, “Software Revenue Recognition,” as amended by SOP No. 98-9, Staff Accounting Bulletin (SAB) 104, “Revenue Recognition” and Emerging Issues Task Force (EITF) 00-21, “Revenue Arrangements with Multiple Deliverables.” SOP 97-2 and SAB 104 require among other matters, that there be a signed contract evidencing an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectibility is probable.

 Many of our contracts with our clients are multiple element arrangements which may provide for multiple software modules including the rights to future versions and releases we may offer within the software suites the client purchases or rights to software versions that support different hardware or operating platforms, and that do not qualify as exchange rights.  We refer to these arrangements as subscription contracts.  Additionally, we sometimes enter into multiple element arrangements that do not include these rights to future software or platform protection rights.  We refer to these arrangements as traditional software contracts.  Finally, we offer much of our software and services on a stand-alone basis. Revenue under each of these arrangements is recognized as follows:

33

Subscription Contracts

Our subscription contracts typically include the following deliverables:

• Software license fees;
• Maintenance;
• Professional services; and
• Third party hardware or remote hosting services

Software license fees are recognized ratably over the term of the contract, commencing upon the delivery of the software provided that (1) there is evidence of an arrangement, (2) the fee is fixed or determinable and (3) collection of our fee is considered probable. The value of the software is determined using the residual method pursuant to SOP 98-9, “Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions”. These contracts contain the rights to unspecified future software within the suite purchased and/or unspecified platform transfer rights that do not qualify for exchange accounting. Accordingly, these arrangements are accounted for pursuant to paragraphs 48 and 49 of SOP 97-2. Under certain arrangements, we capitalize related direct costs consisting of third party software costs and direct software implementation costs. These costs are amortized over the term of the arrangement.

In the case of maintenance revenues, vendor-specific objective evidence (VSOE) of fair value is based on substantive renewal prices, and the revenues are recognized ratably over the maintenance period.

In the case of professional services revenues, VSOE is based on prices from stand-alone sale transactions, and the revenues are recognized as services are performed pursuant to paragraph 65 and 66 of SOP 97-2.

Third party hardware revenues are recognized upon delivery, pursuant to SAB 104.

For remote hosting services, where VSOE is based upon consistent pricing charged to clients based on volumes and performance requirements on a stand-alone basis and substantive renewal terms, revenues are recognized ratably over the contract term as the services are performed. Our remote hosting arrangements generally require us to perform one-time set-up activities and include a one-time set-up fee. This one-time set-up fee is generally paid by the client at contract execution. We have determined that these set-up activities do not constitute a separate unit of accounting, and accordingly the related set-up fees are recognized ratably over the term of the contract.

We consider the applicability of EITF 00-3, “Application of AICPA Statement of Position 97-2, Software Revenue Recognition, to Arrangements That Include the Right to Use Software Stored On Another Entity’s Hardware,” to our remote hosting services arrangements on a contract-by-contract basis. If we determine that the client has the contractual right to take possession of our software at any time during the hosting period without significant penalty, and can feasibly run the software on its own hardware or enter into another arrangement with a third party to host the software, a software element covered by SOP 97-2 exists. When a software element exists in a remote hosting services arrangement, we recognize the license, professional services and remote hosting services revenues pursuant to SOP 97-2, whereby the fair value of the remote hosting service is recognized as revenue ratably over the term of the remote hosting contract. If we determine that a software element covered by SOP 97-2 is not present in a remote hosting services arrangement; we recognize revenue for the remote hosting services arrangement ratably over the term of the remote hosting contract pursuant to SAB 104.

Traditional Software Contracts

We enter into traditional multiple-element arrangements that include the following elements:

• Software license;
• Maintenance;
• Professional services; and
• Third party hardware or remote hosting services

 Revenue for each of the elements is recognized as follows:

Software license fees are recognized upon delivery of the software provided that (1) there is evidence of an arrangement, (2) the fee is fixed or determinable and (3) collection of our fee is considered probable. For those arrangements in which the fee is not considered fixed or determinable, the software license revenue is recognized as the payments become due. For arrangements where VSOE only exists for the undelivered elements, we account for the delivered elements (software license revenue) using the residual method in accordance with SOP 98-9.

34

In addition to the software license fees, these contracts may also contain maintenance, professional services and hardware or remote hosting services. VSOE and revenue recognition for these elements is determined using the same methodology as noted above for subscription contracts.

Software Contracts Requiring Contract Accounting

We enter into certain multiple element arrangements containing milestone provisions in which the professional services are considered essential to the functionality of the software. Under these arrangements, software license fees and professional service revenues are recognized using the percentage-of-completion method over the implementation period which generally ranges from 12 to 24 months. Under the percentage-of-completion method, revenue and profit are recognized throughout the term of the implementation based upon estimates of total labor hours incurred and revenues to be generated over the term of the implementation. Changes in estimates of total labor hours and the related effect on the timing of revenues and profits are recognized in the period in which they are determinable. Accordingly, changes in these estimates could occur and have a material effect on our operating results in the period of change.

Stand-Alone Software and Services

We also market certain software and services on a stand-alone basis, including the following:

• Outsourcing;
• Software license;
• Maintenance;
• Professional services;
• Hardware;
• Network services;
• Remote Hosting services

 Revenue related to such software and services are recognized as follows:

Software license fees and maintenance are marketed on a stand-alone basis may be licensed either under traditional contracts or under subscription arrangements. Software license fees under traditional contracts are recognized pursuant to SOP 97-2 when the following criteria are met; delivery of the software has occurred, persuasive evidence of an arrangement exists, the fee is fixed or determinable and collectibility is probable. Under subscription agreements for stand-alone software, license fees are recognized ratably over the term of the contract. With respect to maintenance, VSOE is determined based on substantive renewal prices contained in the contracts. Maintenance is recognized ratably over the term of the contract.

Professional services represent incremental services marketed to clients including implementation and consulting services. Professional services revenues, where VSOE is based on prices from stand-alone transactions are recognized as services are performed.

Hardware is recognized upon delivery pursuant to SAB 104.

Network service arrangements include the assessment, assembly and delivery of a wireless network which may include wireless carts or other wireless equipment to the client. Our network services arrangements are sold to a client for a fixed fee. All services are performed prior to the delivery of the equipment. These contracts are typically 60 to 90 days in length and are recognized pursuant to SAB 104, upon the delivery of the network to the client.

Remote hosting contracts that are sold on a stand alone basis are recognized ratably over the contract term pursuant to SAB 104. Our remote hosting arrangements generally require us to perform one-time set-up activities and include a one-time set-up fee. This one-time set-up fee is generally paid by the client at contract execution. We have determined that these set-up activities do not constitute a separate unit of accounting, and accordingly we recognize the related set-up fees ratably over the term of the contract.

We provide outsourcing services to our clients. Under these arrangements we assume all responsibilities for a healthcare organization’s IT operations using our employees. Our outsourcing services include facilities management, network outsourcing and transition management. These arrangements typically range from five to ten years in duration. Revenues from these arrangements are recognized when services are performed.

The Company records reimbursable out-of-pocket expenses in both systems and services revenues and as a direct cost of systems and services revenues in accordance with EITF Issue No. 01-14, Income Statement Characterization of Reimbursements Received for “Out-of-Pocket” Expenses Incurred (“EITF 01-14”). EITF 01-14 requires reimbursable out-of-pocket expenses incurred to be characterized as revenue in the income statement. For 2005, 2004, and 2003 reimbursable out-of-pocket expenses were $9.2 million, $5.7 million, and $4.5 million, respectively.

In accordance with EITF Issue No. 00-10, Accounting for Shipping and Handling Fees, the Company has classified the re-imbursement by clients of shipping and handling costs as revenue and the associated cost as cost of revenue.

If other judgments or assumptions were used in the evaluation of our revenue arrangements, the timing and amounts of revenue recognized may have been significantly different.

35

Warranty Reserve

The license agreements for our software generally include a limited warranty providing that our software, in its unaltered form, will perform substantially in accordance with the related documentation. Through September 30, 2003, we had not incurred any material warranty costs related to our software. As a result of the response time issues identified during the fourth quarter of 2003, we recorded a warranty reserve of $4.6 million through December 31, 2004. No additional warranty reserve was recorded during the year ended December 31, 2005, as management considers the warranty reserve previously recorded to be adequate to cover all potential claims as currently foreseen. Warranty costs are charged to costs of systems and services revenues when they are probable and reasonably estimable. A summary of the activity in our warranty reserve was as follows:

		(in thousands)
		December 31,
		2005	2004
Beginning Balance		$      2,057	$      4,400
	Provision for warranty	-	450
	Provision reduction	-	(252)
	Warranty utilized	(986)	(2,541)
Ending Balance		$      1,071	$      2,057

Marketable Securities

	(in thousands)
	December 31,
	2005	2004
Security Type
Auction Rate Securities:
Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies	$    14,117	$            -
Debt securities issued by states of the United States and political subdivisions of the states	17,084	-
	31,201	-
Other Securities:
Government Bonds/Agencies	6,206	-
Other debt securities	48	-
Total	$    37,455	$            -

Marketable securities consist of funds that are highly liquid and are classified as available-for-sale. Marketable securities are recorded at a fair value, and unrealized gains and losses are recorded as a component of other comprehensive income.

As of December 31, 2005, all marketable securities, except for auction rate securities, have a maturity of less than 2 years. Auction rate securities of $31.2 million held at December 31, 2005 have an underlying maturity of greater than ten years, but typically have an interest rate reset feature every 30 days pursuant to which we can sell or reset the interest rate on the security. At December 31, 2005, we believe that these investments are considered a part our working capital and are appropriately classified as current assets.

In an effort to increase our interest income, we moved excess cash from money market investment to marketable securities, which include auction rates securities and government bonds. These funds remain highly liquid.

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Accounts Receivable and Unbilled Receivables

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.  Client payments are due under these arrangements in varying amounts upon the achievement of certain contractual milestones throughout the implementation periods, which generally range from 12 to 24 months.  The current portion of unbilled accounts receivable is included in accounts receivable.

Accounts receivable was composed of the following:

	(in thousands)
	December 31,
	2005		2004
Billed accounts receivable, net	$	69,772	$	53,698
Total unbilled accounts receivable, net		11,061		11,164
Total accounts receivable, net	$	80,833	$	64,862

Allowance for Doubtful Accounts

In evaluating the collectibility of our accounts receivable, we assess a number of factors, including a specific client’s ability to meet its financial obligations to us, as well as general factors, such as the length of time the receivables are past due and historical collection experience. Based on these assessments, we record a reserve for specific account balances as well as a reserve based on our historical experience for bad debt to reduce the related receivables to the amount we ultimately expect to collect from clients. If circumstances related to specific clients change, or economic conditions deteriorate such that our past collection experience is no longer relevant, our estimate of the recoverability of our accounts receivable could be further reduced from the levels provided for in the consolidated financial statements.

Inventory

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

Capitalized Software Development Costs

We capitalize a portion of our computer software development costs incurred subsequent to establishing technological feasibility. These costs include salaries, benefits, consulting and other directly related costs incurred in connection with programming and testing software. Capitalization ceases when the software is generally released for sale to clients. Management monitors the net realizable value of development costs to ensure that the investment will be recovered through future revenues. Capitalized software development costs were approximately $20.1 million, $15.2 million and $18.2 million for the years ended December 31, 2005, 2004, and 2003, respectively. These costs are amortized over the greater of the ratio that current revenues are to total and anticipated future revenues for the applicable software or the straight-line method over three years. Amortization of capitalized software development costs, which is included in costs of systems and services revenues, was approximately $14.3 million, $10.6 million and $8.2 million for the years ended December 31, 2005, 2004, and 2003, respectively. Accumulated amortization of capitalized software development costs was $19.5 million and $17.6 million as of December 31, 2005 and 2004, respectively. In 2005 and 2004 respectively, we wrote-off fully amortized capitalized software development costs in the amount of $12.3 million and $21.6 million.

Acquired Technology and Intangible Assets

Acquired technology and intangible assets are amortized over their estimated useful lives generally on a straight-line basis. The carrying values of acquired technology and intangible assets are reviewed if the facts and circumstances suggest that they may be impaired and goodwill is reviewed annually in accordance with Statement of Financial

37

Accounting Standards , (SFAS) No. 142, “Goodwill and Other Intangible Assets”. Testing would be done on a more frequent basis, if impairment indicators arise. The test for impairment is based upon a number of factors, including operating results, business plans and projected future cash flows. No impairment has been identified or recorded during fiscal 2005 or 2004. The gross and net amounts for acquired technology, goodwill, and intangible assets consist of the following:

	(in thousands)
	December 31, 2005						December 31, 2004
	Gross				Net		Gross				Net
	Carrying		Accumulated		Book		Carrying		Accumulated		Book		Estimated
	Amount		Amortization		Value		Amount		Amortization		Value		Life
Amounts subject to amortization
Acquired Technology	$	914	$	330	$	584	$	914	$	28	$	886		3-5 years
Ongoing customer relationships		4,335		1,395		2,940		4,335		531		3,804		5-7 years
Total	$	5,249	$	1,725	$	3,524	$	5,249	$	559	$	4,690
Amounts not subject to amortization:
Goodwill					$	6,624					$	2,863

Amortization expense was $1.2 million for the year-ended December 31, 2005, comprised of $302,000 for acquired technology and $864,000 for customer relationships.  Amortization expense was $559,000 for the year-ended December 31, 2004, comprised of $28,000 for acquired technology and $531,000 for customer relationships.  The Company wrote-off fully amortized intangible assets in the amount of $112.2 million in 2004.

The estimated aggregate amortization expense for each of the five succeeding fiscal years is as follows:

	(in thousands)
	2006	2007	2008	2009	2010	Total
Acquired technology	$         305	$         279	$            -	$            -	$            -	$         584
Ongoing customer relationships	851	851	851	340	47	2,940
Total Amortization Expense	$      1,156	$      1,130	$         851	$         340	$           47	$      3,524

Amortization of the acquired technology is included in the cost of systems and services revenues.

Long Lived Assets

 Long lived assets including separate and identifiable intangible assets are reviewed for potential impairment at such time when events or changes in circumstances indicate that the carrying amount of an asset might not be recoverable. Any impairment loss would be recognized when the sum of the expected, undiscounted net cash flows is less than the carrying amount of the asset. If an asset is impaired, the asset is written down to its estimated fair value.

Fair Value of Financial Instruments

The carrying amounts of our financial instruments, including cash and cash equivalents, accounts receivable, and other current liabilities, approximate fair value due to the short-term nature of these assets and liabilities.

Income Taxes

The provision for income taxes and corresponding balance sheet accounts are determined in accordance with SFAS No. 109, “Accounting for Income Taxes” (“SFAS No. 109”). Under SFAS No. 109, deferred tax assets and liabilities are determined based on the temporary differences between the bases of certain assets and liabilities for income tax and financial reporting purposes. The deferred tax assets and liabilities are classified according to the financial statement classification of the assets and liabilities generating the differences. The Company provides a valuation allowance for that portion of deferred tax assets, which it cannot determine is more likely than not to be recognized due to the Company’s cumulative losses and the uncertainty as to future recoverability.

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Stock-Based Compensation

For all historical periods presented, we 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. Under this method, compensation costs for stock options is measured as the excess, if any, of the estimated market price of our stock at the date of the grant over the amount an employee must pay to acquire the stock. Accordingly, we provide the additional disclosures required under SFAS No. 123, “Accounting for Stock-Based Compensation” as amended by SFAS No. 148 “Accounting for Stock-Based Compensation — Transition and Disclosure.”  We have issued restricted common stock to key employees at nominal prices.  We record unearned stock compensation for such items and recognize stock compensation expense ratably over the vesting period of the restricted common stock agreements.

We have adopted the disclosure only provision of SFAS 123. If compensation costs for our stock option grants described above were determined based on the fair value at the grant date for awards in 2005, 2004 and 2003, consistent with the provisions of SFAS 123, Eclipsys’ net income / (loss) and income / (loss) per share would have changed to the pro forma amounts indicated below:

	(in thousands, except per share data)
	December 31,
	2005			2004			2003
Net income (loss):
As reported	$	485		$	(32,565	)	$	(55,964	)
Add: Stock-based employee compensation expense included in net income (loss), net of related tax effects		2,353			477			224
Deduct: Total stock-based compensation expense determined under fair value based method for all awards, net of related tax effects		(10,725	)		(9,591	)		(16,162	)
Pro forma	$	(7,887	)	$	(41,679	)	$	(71,902	)
Basic net income (loss) per common share:
As reported	$	0.01		$	(0.70	)	$	(1.23	)
Pro forma	$	(0.16	)	$	(0.90	)	$	(1.58	)
Diluted income (loss) per common share:
As reported	$	0.01		$	(0.70	)	$	(1.23	)
Pro forma	$	(0.16	)	$	(0.90	)	$	(1.58	)

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 2005, 2004, and 2003: dividend yield of 0% for all years, risk-free interest rate of  4.11% for 2005, of 3.30% for 2004 and 2.63% for 2003; expected life of 6.31 years for 2005, 4.92 years for 2004 and 4.88 years for 2003, based on the plan and volatility of 79% for 2005, 84% for 2004 and 92% for 2003.

Basic and Diluted Net Income (Loss) Per Share

For all periods presented, basic and diluted net income (loss) per common share is presented in accordance with SFAS 128, “Earnings per Share,” which provides for the accounting principles used in the calculation of earnings per share. Basic net income (loss) per common share excludes dilution and is calculated by dividing net income available to common shareholders by the weighted average number of shares of common stock outstanding during the period. Diluted net income per common share reflects the potential dilution from assumed conversion of all dilutive securities such as stock options, warrants and unvested restricted stock using the treasury stock method.  When the effects of the outstanding stock options or warrants are anti-dilutive, they are not included in the calculation of diluted earnings per common share. For the year ended December 31, 2005, anti-dilutive stock options totaling 1,299,143 were excluded from the determination of diluted earnings per common share.  The computation of the basic and diluted earnings per common share were as follows:

		(in thousands, except per share data)
		December 31,
		2005	2004	2003
Basic Earnings Per Common Share:
	Net income (loss)	$          485	$    (32,565)	$    (55,964)
	Weighted average common shares outstanding	47,946,584	46,586,754	45,404,754
	Basic net income (loss) per common share	$         0.01	$        (0.70)	$        (1.23)
Diluted net income (loss) per common share :
	Net income (loss)	$          485	$    (32,565)	$    (55,964)
	Weighted average common shares outstanding	47,946,584	46,586,754	45,404,754
Dilutive effect of:
	Stock options and restricted stock awards	2,624,072	-	-
	Contingent shares issuable pursuant to earn-out agreements	73,146	-	-
	Total shares	50,643,802	46,586,754	45,404,754
	Diluted net income (loss) per common share	$         0.01	$        (0.70)	$        (1.23)

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Concentration of Credit Risk

Our clients operate primarily in the healthcare industry. We sell our software and services under contracts with varying terms. The accounts receivable amounts are unsecured. We believe that the allowance for doubtful accounts is sufficient to cover credit losses. We do not believe that the loss of any one client would have a material effect on our financial position.

Foreign Currency

Our 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. We have not entered into any hedging contracts during the three-year period ended December 31, 2005.

Comprehensive Income

Statement of Financial Accounting Standards (“SFAS”) No. 130, “Reporting Comprehensive Income” requires that the total changes in equity resulting from revenue, expenses, and gains and losses, including those that do not affect the accumulated deficit, be reported. Accordingly, those amounts, which are comprised solely of foreign currency translation adjustments, are included in other comprehensive income in the consolidated statement of changes in stockholders’ equity.

New Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS” or “Statement”) No. 153, “Exchanges of Nonmonetary Assets—An Amendment of Accounting Principles Board (“APB”) Opinion No. 29, Accounting for Nonmonetary Transactions” (“SFAS No. 153”). SFAS No. 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29 and replaces it with an exception for exchanges that do not have commercial substance. SFAS No. 153 specifies that a nonmonetary exchange has commercial substance if future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 was effective for the Company beginning on July 1, 2005. The adoption of SFAS No. 153 did not have a material impact on the Company’s consolidated results of operations or financial position.

In April 2005, the SEC announced that the effective date of SFAS No. 123R, “Share-Based Payments”, has been deferred for certain public companies. SFAS No. 123R, as amended, requires that all share-based payments to employees, including grants of employee equity incentives, are to be recognized in the consolidated statement of operations based on their fair values. SFAS No. 123R will be applicable to the Company beginning January 1, 2006, and the Company intends to adopt the standard using the “modified prospective” method. The “modified prospective” method requires compensation costs to be recognized, beginning with the effective date of adoption, for a) all share-based payments granted after the effective date and b) awards granted to employees prior to the effective date of the statement that remain unvested on the effective date.

 As permitted by SFAS No. 123  we account for share-based payments to employees using the intrinsic value method prescribed in APB No. 25 “Accounting for Stock Issued to Employees”, and as such, generally recognize no compensation cost for employee equity incentives. Accordingly, the adoption of SFAS No. 123R will have a significant impact on the Company’s results of operations, although it will have no impact on our overall liquidity. The impact of the adoption of SFAS No. 123R can not be determined at this time because it will depend on the levels of share-based payments granted in the future. However, had the Company adopted SFAS No. 123R in prior periods, the impact of the statement would have approximated the impact of SFAS No. 123 as described in the disclosure of pro-forma net income (loss) and earnings (loss) per share included in the stock-based compensation table in Note 2 - Basic and Diluted Net Income (Loss) Per Share.

SFAS No. 123R also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current requirements. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Corrections” which replaces APB Opinion No. 20, “Accounting Changes” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements”, and changes the requirements for the accounting for and reporting of a change in accounting principle. SFAS No. 154 also provides guidance on the accounting for and reporting of error corrections. This statement is applicable for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.

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3.             Property and Equipment

Property and equipment are stated at cost. Depreciation and amortization are provided for using the straight-line method over the estimated useful lives, which generally range from 2 to 7 years. Computer equipment is depreciated over 2 to 5 years. Office equipment is depreciated over 2 to 7 years. Purchased software for internal use is amortized over 3 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. The balances for property and equipment were as follows:

		(in thousands)
		December 31,
		2005			2004
Computer equipment	$	43,287		$	41,952
Office equipment and other		6,723			7,201
Purchased software		20,722			13,281
Leasehold improvements			12,805			11,611
			83,537			74,045
Less: Accumulated depreciation and amortization			(43,037	)		(39,043	)
		$	40,500		$	35,002

Included in purchased software at December 31, 2005 is approximately $5.3 million in capitalized expenses associated with the implementation of our Oracle ERP software. In accordance with Statement of Position 98-1 , “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use”, amortization of these capitalized expenses will commence when the software is ready for its intended use during 2006.

Depreciation expense for property and equipment totaled approximately $13.8 million, $12.8 million, and $10.5 million in 2005, 2004 and 2003, respectively.

4.             Stockholders’ Equity

Restricted Stock Grant

From time to time the Company has issued restricted stock grants to members of senior management.  The Company issued 372,500 and 295,000 shares in 2005 and 2004, respectively.  Generally, restricted stock grants vest over a five-year period.

Stock compensation related to all restricted stock issued amounted to $2.4 million in 2005, $428,000 in 2004 and $225,000 in 2003. As of December 31, 2005 and 2004, respectively, Eclipsys had unearned stock compensation of $9.6 million and $5.6 million recorded as a component of stockholders’ equity.  Additionally, during 2004, the Company accelerated vesting of certain stock options and recorded stock-based compensation expense of $49,000. 

Undesignated Preferred Stock

We have available for issuance, 5,000,000 shares of preferred stock. As discussed below under “Shareholder Rights Plan”, the Board has designated 100,000 of the 5,000,000 authorized shares of preferred stock as Series A Junior Participating Preferred Stock. Eclipsys has a balance of 4,900,000 authorized 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 preferred shares.

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Shareholder Rights Plan

On July 26, 2000, our Board of Directors declared a dividend of one Right for each outstanding share of Eclipsys’ Common Stock to stockholders of record at the close of business on August 9, 2000. Each Right entitles the registered holder to purchase from Eclipsys 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 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 of Directors. The terms of the Rights are set forth in a Rights Agreement dated as of July 26, 2000 (the “Rights Agreement”) between Eclipsys 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.

5.             Income Taxes

The income tax provision (benefit) is calculated as follows:

	(in thousands)
	December 31,
	2005			2004			2003
Current Tax Provision:
Federal	$	-		$	-		$	-
State
	$	-		$	-		$	-
Deferred Provision (Benefit):
Federal	$	(4,406	)	$	(10,755	)	$	(18,859	)
State		(513	)		(1,253	)		(2,197	)
Valuation allowance		4,919			12,008			21,056
	$	-		$	-		$	-
Total Provision	$	-		$	-		$	-

    

At December 31, 2005, the Company has recorded a noncurrent deferred tax asset and current deferred tax liability based upon the pro rata allocation model in accordance with SFAS No. 109.  A similar reclassification on the balance sheet has been made at December 31, 2004.

A reconciliation of the effect of applying the federal statutory rate and the effective income tax rate on our income tax provision is as follows:

	(in thousands)
	December 31,
	2005	2004	2003
Statutory federal income tax rate	$         166	$   (11,072)	$   (19,028)
State income taxes	19	(1,290)	(2,216)
Nondeductible meals and entertainment	618	594	604
Valuation allowance, includes effect of acquisitions	(803)	11,768	20,640
Income tax provision	$            -	$            -	$            -

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The significant components of our net deferred tax assets (liabilities) were as follows:

	(in thousands)
	December 31,
	2005	2004
Deferred tax assets:
Intangible assets	$    24,012	$    27,734
Allowance for doubtful accounts	2,795	3,219
Accrued expenses	1,703	1,544
Other	2,351	2,259
Net operating loss carryforwards	123,617	113,150
	$  154,478	$  147,906
Deferred tax liabilities:
Unbilled Receivables	(5,271)	(5,847)
Depreciation	(3,412)	(3,411)
Capitalization of software development costs	(13,548)	(11,320)
Net deferred tax asset	132,247	127,328
Valuation allowance	(132,247)	(127,328)
	$            -	$            -

Balance sheet classification:
Noncurrent deferred tax asset	$      4,124	$      4,623
Current deferred tax liability	(4,124)	(4,623)
	$           -	$            -

At December 31, 2005, the Company had U.S. net operating loss carryforwards for federal income tax purposes of approximately $306.5 million.  Of this amount, $6.0 million expires in 2012 with the balance expiring in varying amounts annually through 2025.  Of the $306.5 million total, $63.3 million relate to stock option tax deductions which will be tax-effected and the benefit credited as additional paid-in-capital when realized.  Additionally, the Company has Canadian net operating loss carryovers of approximately $19.1 million that expire in varying amounts through 2012.

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. We experienced an ownership change as defined under Section 382 of the Internal Revenue Code in November 1998. As a result of the ownership change, net operating loss carryforwards of approximately $16.9 million at November 1998, which were incurred prior to the date of the change, are subject to annual limitations on their future use. As of December 31, 2005, net operating loss carryforwards of approximately $4.7 million remain subject to the annual limitation. As of December 31, 2005, a valuation allowance has been established against the deferred tax assets that management does not believe are more likely than not to be realized.

6.             Employee Benefit Plans

2005 Stock Incentive Plan

At our Annual Meeting of Stockholders held June 29, 2005, our shareholders approved the 2005 Stock Incentive Plan (2005 Plan).  Under the 2005 Plan, no further awards will be granted under our prior Stock Incentive Plans which include our 1996, 1998, 1999 and 2000 plans.  Awards may be made under the 2005 Plan for a number of shares (subject to adjustment in the event of stock splits and other similar events) equal to the sum of (1) 2,000,000 shares of our Voting Common Stock, (2) any shares reserved for issuance under the Amended and Restated 2000 Stock Incentive Plan that remain available for issuance as of the date the 2005 Plan is approved by our stockholders and (3) any shares subject to outstanding awards under our 1996 Stock Plan, the Amended and Restated 1998 Stock Incentive Plan, the Amended and Restated 1999 Stock Incentive Plan and the Amended and Restated 2000 Stock Incentive Plan that expire or are terminated, surrendered or canceled without having been fully exercised, are repurchased or forfeited in whole or part or result in any shares subject to such award not being issued.  As of December 31, 2005, there were 2,318,799 shares available for future issuance under the 2005 Plan.

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 We issued 525,000 stock options in 2005 and 400,000 stock options in 2004 and and issued 150,000 shares of restricted stock and 100,000 shares of restricted stock in 2005 and 2004 respectively as inducement grants in accordance with NASDAQ rules.

 During 2005 and 2004, we issued a total of 410,000 and 295,000 shares of restricted stock at a weighted-average grant-date fair value of $15.95 and $17.89 respectively.

A summary of stock option transactions is as follows during the years ended December 31,

	2005					2004					2003
				Weighted					Weighted					Weighted
				Average					Average					Average
				Exercise					Exercise					Exercise
	Options			Price		Options			Price		Options			Price
Outstanding at beginning of the year		9,138,452		$	11.50		9,268,674		$	11.05		9,020,711		$	11.24
Granted		909,000			15.56		1,530,000			16.12		1,539,500			9.08
Exercised		(1,959,012	)		8.61		(872,576	)		9.04		(430,132	)		8.26
Forfeited		(482,831	)		10.38		(787,646	)		17.84		(861,405	)		10.90
Outstanding at end of year		7,605,609			12.80		9,138,452			11.50		9,268,674			11.05
Exercisable at end of the year		4,678,311					5,784,506					5,714,566

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

	2005		2004		2003
	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	$            -		$            -		$            -
Option price = Fair market value	15.56		16.12		9.08
Option price > Fair market value	-		-		-
Weighted Fair Market Value Options		$      12.80		$      11.12		$        6.44

				OPTIONS OUTSTANDING					OPTIONS EXERCISABLE
						Weighted
				Number		Average			Number
				Outstanding		Remaining		Weighted	Exercisable		Weighted
	Range of			As of		Contractual Life		Average	As of		Average
	Exercise Prices			12/31/2005		(in years)		Exercise Price	12/31/2005		Exercise Price
$	0.10	$	6.50	931,278	$	4.37	$	6.12	708,204	$	6.12
	6.94		7.50	27,097		2.53		7.35	27,097		7.35
	8.25		8.25	1,259,396		4.53		8.25	1,227,396		8.25
	8.88		9.13	798,045		7.14		8.96	440,987		8.97
	9.53		13.35	1,271,051		6.89		12.51	721,293		12.19
	13.50		15.00	838,969		6.05		14.19	554,294		14.37
	15.13		15.90	1,192,979		7.76		15.64	379,896		15.18
	16.00		19.96	863,045		7.86		19.43	207,545		18.23
	20.13		35.83	385,950		3.12		23.48	375,900		23.52
	43.57		43.57	37,799		1.88		43.57	35,699		43.57
$	0.10	$	43.57	7,605,609	$	6.14	$	12.80	4,678,311	$	11.83

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Employee Savings Plan

During 1997, we 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 our Board of Directors, we may elect to make matching contributions, as defined in the Plan. For the years ending December 31, 2005, 2004 and 2003 the Board of Directors approved contributions to the Plan of $625,000, $750,000 and $750,000 respectively.

1998 Employee Stock Purchase Plan

Under our 1998 Employee Stock Purchase Plan (the “Purchase Plan”) that was implemented in April 1998, our employees, including directors 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.  During the second quarter of 2004, we suspended the Purchase Plan indefinitely.

2005 Employee Stock Purchase Plan

On June 29, 2005, our shareholders approved the 2005 Employee Stock Purchase Plan (the “2005 Purchase Plan”).  In connection with the approval, the Second Amended and Restated 1998 Employee Stock Purchase Plan was terminated and no further awards will be made under such plan.  Under the provisions of the 2005 Purchase Plan, our employees may purchase shares of our stock at a purchase price of 95% of the closing price of our stock on the final day of the quarterly offering period as defined.  In aggregate 1,000,000 shares are available for purchase under the 2005 Purchase Plan.  In 2005, 10,848 shares were issuable under the plan.

7.             Commitments and Contingencies

Non-cancelable Operating Leases

We lease office space and certain equipment under non-cancelable operating leases. Rental expense under operating leases was approximately $9.4 million, $9.7 million and $12.5 million for the years ended December 31, 2005, 2004 and 2003, respectively. Future minimum rental payments under non-cancelable operating leases as of December 31, 2005 are as follows:

	(in thousands)
Year Ending December 31,
2006	$9,373
2007	7,467
2008	3,344
2009	2,426
2010	983
Thereafter	2,659
	$26,252

We have unconditional purchase obligations that consist of minimum purchase commitments for telecommunication services, computer equipment, maintenance, consulting, airplane charters and other commitments. In aggregate, these obligations total approximately $48.4 million. These obligations will require payments of approximately $37.7 million in 2006, with the majority of the balance occurring within the next three years.

Employment Agreements

The Company has entered into employment agreements with certain key employees.  These agreements provide for severance and other benefits if the Company, for any other reason than cause, as defined by their agreements, terminates these employees.

Indemnification clauses

Our standard software license agreements contain indemnification clauses that are limited in amount. Pursuant to these clauses, we indemnify, hold harmless, and agree to reimburse the indemnified party for losses suffered or incurred by the indemnified party. We account for these clauses under FASB Staff Position FIN 45 45-1: Accounting for Intellectual Property Infringement Indemnifications under FASB Interpretation No. 45. Accordingly, there are no liabilities recorded for these agreements as of December 31, 2005.

8.             Acquisitions

In March 2004, we acquired CPM Resource Center, Ltd., or CPMRC. CPMRC provides consulting services and clinical content designed principally to improve and enhance the care process primarily related to the workflow of nurses and interdisciplinary healthcare professionals. CPMRC’s evidence-based content and practice guidelines has been incorporated into our current releases of SunriseXA software. We paid $2.5 million in cash and issued 184,202 shares of common stock for CPMRC, for a total consideration of $5.0 million. In addition, the acquisition agreement permitted the prior owner of CPMRC to earn up to an additional $12.5 million over the following 5 year period based on future operating results, payable 50% in shares of our common stock and 50% in cash, based upon the average of the last reported sale prices of our common stock on the NASDAQ National Market for the five consecutive trading days ending on the trading day that is one day prior to the date on which the earn-out consideration is paid. The operating results of CPMRC have been combined with those of the Eclipsys since the date of acquisition. We did not present unaudited pro forma results of operations of Eclipsys and CPMRC for the year ended December 31, 2004 and 2003 because our pro forma results for those periods would not be materially different from our actual results for those periods.

45

At the time of the CPMRC acquisition, we recorded approximately $2.4 million in non amortizable goodwill and $3.2 million in amortizable intangible assets. Amortizable intangible assets include client relationships and acquired technology and is being amortized over a seven and five year period, respectively, which we believe approximates the expected utility of these assets. The non amortizable goodwill is not tax deductible. Since the date of the CPMRC acquisition we have recorded incremental non amortizable goodwill related to consideration earned by the prior owner as part of the earn-out provisions of the agreement.  These amounts were approximately $1.5 million in 2005 and $700,000 in 2004. All consideration paid under the earn out provisions of the agreement will be recorded as non amortizable goodwill.  In 2005, for amounts related to the 2004 earn-out attainment, we issued 25,311 shares of our common stock. 

In December of 2004, we acquired eSys Medical Inc. (eSys). eSys develops and markets radiology information systems (RIS). Using our solutions, clinicians will be able to view patient medical records, diagnostic images and reports in real time. We believe the acquisition will increase sales opportunities for our Picture Archiving Communications System (PACS) and RIS systems through integration with both our and other clinical systems. In 2004, we paid $2.3 million in cash consideration for the eSys acquisition. In addition, the terms of the acquisition agreement permitted the prior owners of eSys to earn up to an additional $2.5 million of future consideration related to certain milestones in connection with future development of the acquired technology, payable in cash (25%) and our common stock (75%). Additionally, the agreement contains an earn out provision permitting the prior owners to earn up to an additional $5.0 million in future consideration based on sales of the acquired technology over the five years following the closing of the transaction, payable in cash or shares of our common stock. The number of shares of our common stock issued as earn-out consideration will be based on the average closing prices of our common stock on the NASDAQ National Market for the calendar quarter preceding the payment of the earn-out consideration.

As a result of the eSys acquisition, we recorded approximately $2.0 million in amortizable intangible assets. Amortizable intangible assets include client relationships of $1.1 million and acquired technology of $914,000 and is being amortized over a five and three year period, respectively. We believe these amortization periods reflect the estimated expected utility of these assets. The operating results of eSys have been combined with those of Eclipsys since the date of acquisition. We did not present unaudited pro forma results of operations of Eclipsys and eSys for the year ended December 31, 2004 and 2003 because our pro forma results for those periods would not be materially different from our actual results for those periods. The majority of future consideration, if earned, will be recorded as non amortizable goodwill.

In 2005, under the provisions of the earn-out agreement, we recorded incremental non amortizable goodwill of approximately $2.2 million.  In connection with the earn-out agreement, we issued 40,612 shares of our common stock in 2005 for amounts earned, and paid cash consideration totaling approximately $311,000.

With respect to the acquisitions of CPMRC and eSys, we assigned the total purchase price to the net assets and liabilities of the businesses with any remaining amount assigned to goodwill. The value assigned to the identifiable intangible assets was based on an analysis as of the date of acquisitions.

9.             Litigation

The Company and its subsidiaries are from time to time parties to legal proceedings, lawsuits and other claims incident to their business activities. Such matters may include, among other things, assertions of contract breach or intellectual property infringement, claims for indemnity arising in the course of our business and claims by persons whose employment with us has been terminated. Such matters are subject to many uncertainties and outcomes are not predictable with assurance. Consequently, management is unable to ascertain the ultimate aggregate amount of monetary liability, amounts which may be covered by insurance or recoverable from third parties, or the financial impact with respect to these matters as of the date of this report. However, based on our knowledge at the time of this report, management believes that the final resolution of such matters pending at the time of this report, individually and in the aggregate, will not have a material adverse effect upon our consolidated financial position, results of operations or cash flows.

10.          Related Party Transactions

We have certain transactions between us and our executive officers, directors and affiliates.

We lease office space in Boston, Massachusetts from a former stockholder of SDK Medical Computer Services Corporation, or SDK, and lease office space in Grand Rapids, Michigan from the former stockholder of CPMRC. SDK was acquired in 1997. During the years ended December 31, 2005, 2004 and 2003, we paid $631,000, $675,000 and $526,000 respectively, under the Boston lease.  Under the Michigan lease we paid $72,000 in 2005 and  $42,000 in 2004. The leases are non-cancelable and expire in 2009 and 2008 respectively.

Our former Chairman Emeritus, Harvey J. Wilson, owns a company, RMSC of West Palm Beach Inc. (“RMSC”), which leases an aircraft to a charter company. The charter company provides aircraft charter services to us as well as other outside parties. Mr. Wilson has no ownership or other interest in the charter company. We paid the charter company $269,000, $733,000 and $603,000 in 2005, 2004 and 2003, respectively, for charters using the aircraft owned by RMSC. We also paid the charter company $163,000, $74,000 and $50,000 in 2005, 2004 and 2003, respectively, for charters of other aircraft, not owned by RMSC. RMSC received $145,000, $408,000 and $275,000 during 2005, 2004 and 2003, respectively, from the charter company for these transactions.  In January 2006, the Company entered into an arrangement whereby the remaining commitment of $544,000 will be utilized during the first half of 2006.  Additionally, under this agreement the Company and Chairman Emeritus terminated the arrangement pursuant to which Mr. Wilson served as Chairman Emeritus.  In connection with this termination we recorded a provision of approximately $200,000 in the fourth quarter of 2005.

46

In July 1999, we invested in HEALTHvision, Inc. (“HEALTHvision”), a Dallas-based, privately held internet healthcare company. Other principal investors included VHA, Inc. and investment entities affiliated with General Atlantic, LLC. HEALTHvision provides Internet solutions to hospital organizations to assist them in improving patient care in the local communities they serve. We purchased 3,400,000 shares of common stock in HEALTHvision for $34,000, which at the time represented 34% of the outstanding common stock on an if-converted basis. As of December 31, 2005, our shares represented approximately 28% of the common stock of HEALTHvision on an if-converted basis. We account for our investment in HEALTHvision using the equity method of accounting.  Due to losses recognized under the equity method, the recorded balance of the investment in HEALTHvision was $0 as of December 31, 2005. We entered into a joint marketing arrangement with HEALTHvision under which both organizations agreed to jointly market software and services to their customers. Under this agreement, we paid HEALTHvision the sum of $2.2 million during 2005 for the sale of software and services, and owed HEALTHvision the sum of $350,000 as of December 31, 2005. Also, during 2005, we earned revenues from HEALTHvision of $986,000 for hosting and other related services and had accounts receivable due from HEALTHvision of $245,000 at December 31, 2005. For the year ended December 31, 2005, HEALTHvision had total revenues of approximately $21.9 million (unaudited) and a net loss of approximately $3.3 million (unaudited) with total assets of approximately $6.0 million (unaudited). We are not required to provide funding to HEALTHvision, and have made no guarantees on their behalf. In late 2003, we mutually agreed with HEALTHvision to terminate the joint marketing arrangement of our agreement.

We have a license agreement with Partners HealthCare System, Inc. (“Partners”). Under the terms of this license, we may develop, commercialize, distribute and support certain technology that we have received from Partners throughout the world (with the exception of the Boston, Massachusetts metropolitan area). Prior to our initial public offering, no sales of software incorporating the licensed technology were made and, consequently, no royalties were paid by us pursuant to the license with Partners. The royalty arrangement under the license terminated upon Eclipsys’ initial public offering. After our initial public offering, we sold software incorporating the licensed technology. We are obligated to offer to Partners and certain of its affiliates a license for internal use, granted on most favored client terms, to all new software applications developed by us, whether or not derived from the licensed technology and major architectural changes to the licensed technology. Partners and certain of its affiliates are also entitled to receive internal use licenses, also granted on most favored client terms, for any changes to any module or application included in the licensed technology requiring at least one person-year of technical effort.

In 2001, Partners entered into a contract with us for the license of a new software application and related professional services. This new software application consisted of an upgrade to an existing software application that Partners had licensed from Transition Systems, Inc, an entity that was acquired by us in December 1998. Under this new contract, Partners paid us the sums of $916,000, $691,000 and $627,000 in 2005, 2004 and 2003, respectively. As of December 31, 2005, Partners owed us the sum of $82,000 related to this contract. Mr. Jay Pieper, a director of Eclipsys, is Vice President of Corporate Development and Treasury Affairs for Partners. Partners was not affiliated with Eclipsys at the time of the negotiation of the Partners license from Transition Systems, Inc.

11.          Subsequent event

In January 2006, we effected a restructuring of our operations which included a reduction in headcount of approximately 100 individuals and the reorganization of our senior management team.  This initiative is expected to result in a restructuring charge of approximately $7 million in the first quarter of 2006.  In connection with this initiative, we expect to invest a portion of the anticipated cost reductions into client-related activities including client support and professional services.

On January 9, 2006, we hired John E. Deady to assume the position of Executive Vice President Customer Solutions.  Mr. Deady’s responsibilities will include management of sales and marketing.  

12.          Quarterly Financial Information (Unaudited)

The following table presents quarterly consolidated statement of operations data for each of the eight quarters in the years ended December 31, 2005 and 2004. The data in the statement of operations is unaudited and, in the opinion of management, includes all adjustments (consisting of normal recurring adjustments) necessary to present fairly the data for such periods. Additionally, the data is derived from, and is qualified by reference to, our audited financial statements, which appear elsewhere in this document.

	For the Year Ended December 31, 2005
	(in thousands, except per share data)
	First			Second			Third		Fourth
	Quarter			Quarter			Quarter		Quarter		Year
Revenues	$	84,435		$	95,865		$	97,852	$	105,119	$	383,271
Income (loss) from operations		(7,722	)		(3,204	)		4,234		4,049		(2,643	)
Net income (loss)		(7,161	)		(2,485	)		5,099		5,032		485
Basic net income (loss) per common share		(0.15	)		(0.05	)		0.11		0.10		0.01
Diluted net income (loss) per common share	$	(0.15	)	$	(0.05	)	$	0.10	$	0.10	$	0.01

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	For the Year Ended December 31, 2004
	(in thousands, except per share data)
	First			Second			Third			Fourth
	Quarter			Quarter			Quarter			Quarter			Year
Revenues	$	68,384		$	73,643		$	79,815		$	87,233		$	309,075
Loss from operations		(13,516	)		(10,185	)		(7,065	)		(3,428	)		(34,194	)
Net loss		(13,063	)		(9,961	)		(6,650	)		(2,891	)		(32,565	)
Basic net loss per common share		(0.28	)		(0.21	)		(0.14	)		(0.06	)		(0.70	)
Diluted net loss per common share	$	(0.28	)	$	(0.21	)	$	(0.14	)	$	(0.06	)	$	(0.70	)

13.          Geographic Information

A summary of the Company's revenues by geographic area is summarized below (in thousands):

	Year ended December 31,
	2005		2004		2003
United States	$	359,331	$	293,120	$	244,292
Canada		21,268		13,029		7,894
Rest of world		2,672		2,926		2,493
Total	$	383,271	$	309,075	$	254,679

Revenues are attributed to countries based on location of customers.

A summary of the Company's long-lived assets is summarized below (in thousands):

	Year ended December 31,
	2005		2004		2003
United States	$	108,524	$	89,808	$	73,574
Canada		2,902		2,112		100
Rest of world		-		-		-
Total	$	111,426	$	91,920	$	73,674

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SCHEDULE II — VALUATION OF QUALIFYING ACCOUNTS

For Each of the Three Years in the Period Ended December 31, 2005

(in thousands)

	Balance at Beginning of Period		Additions		Write-offs			Balance at End of Period
December 31, 2005
Allowance for doubtful accounts	$	4,952	$	3,998	$	(3,274	)	$	5,676
Valuation allowance for deferred tax asset		127,328		4,919					132,247
December 31, 2004
Allowance for doubtful accounts		4,807		4,117		(3,972	)		4,952
Valuation allowance for deferred tax asset		115,320		12,008					127,328
December 31, 2003
Allowance for doubtful accounts		3,412		4,492		(3,097	)		4,807
Valuation allowance for deferred tax asset		94,264		21,056					115,320

Item 9.     Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A. Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”) as of December 31, 2005.  Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives of ensuring that information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.  There is no assurance that our disclosure controls and procedures will operate effectively under all circumstances.  Based upon the evaluation described above our chief executive officer and chief financial officer concluded that, as of December 31, 2005, our disclosure controls and procedures were effective at the reasonable assurance level.

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter-ended December 31, 2005 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Report of Management on Eclipsys Corporation's Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f).

We assessed the effectiveness of our internal control over financial reporting as of December 31, 2005. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework. Based on our assessment using those criteria, we concluded that our internal control over financial reporting was effective as of December 31, 2005.

Our management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2005 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein.

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Part III

Certain information required by Part III of Form 10-K will be contained in the definitive Proxy Statement to be used in connection with our 2006 annual meeting of stockholders, and is incorporated herein by reference to this Form 10-K Annual Report.

Item 9B. Other Information

                Not applicable

Item 10. Directors and Executive Officers of the Registrant

Information regarding directors and our code of ethics will be set forth in the proxy statement for our 2006 annual meeting of stockholders and is incorporated herein by reference. Information regarding our executive officers is set forth under the caption “Executive Officers of the Registrant” in Item 1.

Item 11. Executive Compensation

Information regarding executive compensation will be set forth in the proxy statement for the annual meeting of stockholders for the year 2006 and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information regarding security ownership of certain beneficial owners and management will be set forth in the proxy statement for our 2006 annual stockholders’ meeting, and is incorporated herein by reference.

The following table provides information about the Common Stock that may be issued under our existing equity compensation plans as of December 31, 2005.

	Number of securities to be	Weighted-average exercise	Number of securities
	issued upon exercise of	price of outstanding	remaining available for
	outstanding options,	options, warrants and rights	future issuance under
	warrants and rights		equity compensation plans
Equity compensation plans approved by security holders (1)	8,173,403	$12.51	2,318,799
ESPP Plan	1,000,000		989,152
Equity compensation plans not approved by security holders (2)	925,000		-
Total	10,098,403		3,307,951

(1) This tabe excluded an aggregate of 137,206 options issuable upon the exercise of outstanding options assumbed by Eclipsys in

connection with various acquisitions.  The weighted average price of the excluded options is $34.83.

(2) This represents options which are granted in 2004 and 2005 without stockholder approval as an inducement grant in accordance with

NASDAQ rules related to the hiring of Mr. Adams as our Executive Vice President and Chief Administrative Officer and Mr. Eckert as our

President and Chief Executive Officer.

On November 14, 2005, in connection with hiring Mr. Eckert as our president and chief executive officer, we granted Mr. Eckert 150,000 restricted shares of Eclipsys common stock and non-qualified options to purchase up to 525,000 shares of Eclipsys common stock.  The restricted stock has a purchase price of $.01 per share, is subject to contractual restrictions on transfer until vested, and vests over five years, with the first 20 percent vesting on December 1, 2006, and an additional 10 percent vesting each June 1 and December 1 thereafter for the following four years.  The stock options have a 10-year term, an exercise price per share equal to the fair market value of Eclipsys common stock on the date of grant, and vest over five years, with the first 20 percent vesting on December 1, 2006, and the remaining 80 percent vesting in 48 equal consecutive monthly installments thereafter.  Vesting of the restricted stock and stock options is contingent upon continued employment and is subject to acceleration under certain circumstances.  The restricted stock and stock options are being awarded as inducement grants under Section 4350(i)(1)(A)(iv) of the NASD Marketplace Rules.

50

Under Mr. Eckert's employment agreement, if Eclipsys were to terminate his employment without cause, or if he were to terminate his employment with good reason (as cause and good reason are defined in the employment agreement), he would be entitled to 12 months' additional vesting of his restricted stock and stock options, among other benefits.  If a change in control of Eclipsys (as defined in the employment agreement) were to occur, and Eclipsys or its successor were to terminate Mr. Eckert's employment without cause, or if he were to terminate his employment with good reason, within two years following the change in control, or within 180 days before and in anticipation of the change in control, then Mr. Eckert would be entitled to acceleration of vesting of all of his stock options and restricted stock.

Item 13. Certain Relationships and Related Transactions

Information regarding certain relationships and related transactions will be set forth in the proxy statement for our 2006 annual meeting of stockholders and is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services

Information regarding principal accountant fees and services will be set forth in the proxy statement for the our 2006 annual meeting of stockholders and is incorporated herein by reference.

51

Part IV

Item 15. Exhibits, Financial Statement Schedules.

(a)   The following documents are filed as part of this report:

1	Consolidated Financial Statements included in Item 8 of this report on Form 10-K
2	Financial Statement Schedules included in Item 8 of this report on Form 10-K Schedule II - Valuation of Qualifying Accounts
3	The following exhibits are included in this report:

3.1 (2)	Third Amended and Restated Certificate of Incorporation of the Registrant
3.2 (1)	Third Amended and Restated Bylaws of the Registrant
3.3 (3)	Certificate of Designation of Series A Junior Participating Preferred
4.1 (1)	Specimen certificate for shares of Common Stock
4.2 (3)	Rights Agreement, dated July 26, 2000, by and between Eclipsys Corporation and Fleet National Bank, as Rights Agent
10.1 (1)	Second Amended and Restated Registration Rights Agreement
10.2 (1)	Information Systems Technology License Agreement, dated as of May 3, 1996, by and amount Partners Healthcare System, Inc. and Integrated Healthcare Solutions, Inc
10.3 (1)*	1996 Stock Plan
10.4 (4)*	Amended and Restated 1998 Employee Stock Incentive Plan
10.5 (8)	Form of Indemnification Agreement between Eclipsys Corporation and each non-employee directors
10.6 (4)*	Amended and Restated 1999 Stock Incentive Plan, as amended
10.7 (9)*	Amended and Restated Employment Agreement, effective as of March 15, 2005, between the Registrant and Paul L. Ruflin
10.8 (5)*	Agreement between the Registrant and Mr. John S. Cooper, dated February 2, 2002
10.9 (6)*	Restricted Stock Agreement between the Registrant and John A. Adams, dated December 20, 2004
10.10 (6)*	Non-Qualified Stock Option Agreement between the Registrant and John A. Adams, dated December 20, 2004
10.11 (6)*	Employment Agreement between the Registrant and John A. Adams, dated December 20, 2004
10.12 (7)*	Form of Incentive and/or Non-Qualified Stock Option Agreement under the Amended and Restated 2000 Stock Incentive Plan, as amended
10.13 (9)*	Template 2005 Bonus Program Individual Summary Sheet for Non-Sales Executives
10.14 (9)*	Template 2005 Bonus Program Individual Summary Sheet for Senior Sales Executives
10.15 (9)*	Employment Agreement, effective as of March 15, 2005, by and between the Registrant and John P. Gomez
10.16 (9)*	Employment Agreement, effective as of March 15, 2005, by and between the Registrant and Russ Rudish
10.17 (10)*	Amended and Restated 2000 Stock Incentive Plan
10.18 (10)*	Employment Agreement between the Registrant and Eugene V. Fife dated April 29, 2005
10.19 (10)*	Restricted Stock Agreement between the Registrant and Eugene V. Fife dated April 29, 2005
10.20 (11)*	Separation Agreement, effective May 20, 2005, by and between the Registrant and Paul L. Ruflin
10.21 (12)*	2005 Stock Incentive Plan
10.22 (12)*	2005 Employee Stock Purchase Plan
10.23 (13)*	Form of Restricted Stock Agreement to be used in connection with issuance of restricted stock to executive officers and members of the registrant’s board of directors under the Eclipsys Corporation 2005 Stock Incentive Plan
10.24 (13)*	Form of Notice of Grant of Restricted Stock Agreement to be used in connection with issuance of restricted stock to executive officers under the Eclipsys Corporation 2005 Stock Incentive Plan
10.25 (13)*	Form of Notice of Grant of Restricted Stock Agreement to be used in connection with issuance of restricted stock to members of the registrant’s board of directors under the Eclipsys Corporation 2005 Stock Incentive Plan
10.26 (13)*	Form of Notice of Grant of Stock Option to be used in connection with grants of stock options to executive officers under the Eclipsys Corporation 2005 Stock Incentive Plan
10.27 (13)*	Form of Notice of Grant of Stock Option to be used in connection with grants of stock options to members of the registrant’s board of directors under the Eclipsys Corporation 2005 Stock Incentive Plan
10.28 (14)*	2005 Inducement Grant Stock Incentive Plan
10.29 (14)*	Employment Agreement between the Registrant and R. Andrew Eckert dated as of October 24, 2005
10.30 (14)*	Agreement re Specified Acts between the Registrant and R. Andrew Eckert dated as of October 24, 2005
10.31 (15)*	Employment Agreement between the Registrant and John E. Deady dated December 22, 2005
10.32 (15)*	Agreement re Specified Acts between the Registrant and John E. Deady dated December 22, 2005
21 (16)	Subsidiaries of the Registrant
23	Consent of PricewaterhouseCoopers LLP
31.1	Certification of R. Andrew Eckert
31.2	Certification of Robert J. Colletti
32.1	Certification Pursuant to 18 U.S.C. Section 1350
32.2	Certification Pursuant to 18 U.S.C. Section 1350

52

(1)	Incorporated by reference to the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-50781)
(2)	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the q uarter ended June 30, 1998(File No. 000-24539)
(3)	Incorporated by reference to the Registrant’s Current Report on Form 8-K dated August 8, 2000 (File No. 000-24539)
(4)	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002
(5)	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 (File No. 000-24539)
(6)	Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on December 23, 2004 (File No. 000-24539)
(7)	Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on December 1, 2004 (File No. 000-24539)
(8)	Incorporated by reference to the Registrant’s Annual Report on Form 10-K filed on March, 15 2004
(9)	Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on April 7, 2005 (File No.000-24539)
(10)	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed on May 10, 2005 (File No.000-24539)
(11)	Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on May 25, 2005 (File No.000-24539)
(12)	Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on July 6, 2005 (File No.000-24539)
(13)	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed on August 5, 2005 (File No.000-24539)
(14)	Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on October 21, 2005 (File No.000-24539)
(15)	The Registrant has requested confidential treatment with respect to certain portions of this exhibit. Such portions have been omitted from this exhibit and have been filed separately with the United States Securities and Exchange Commission
(16)	Incorporated by reference to Exhibit 21 of the Registrant’s Annual Report on Form 10-K filed March 25, 2002
*	Indicates a management contract or compensatory plan or arrangement

53

Signatures

Pursuant to the requirements of Section 13 or 15(d) 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.

Signature	Title	Date
/s/ R. Andrew Eckert	President, Chief Executive Officer and Director (Principal Executive Officer)	March 6, 2006
R. Andrew Eckert
/s/ Robert J. Colletti	Senior Vice President, Chief Financial Officer (Principal Financial and Accounting Officer)	March 6, 2006
Robert J. Colletti
/s/ Steven A. Denning	Director	March 6, 2006
Steven A. Denning
/s/ Dan L. Crippen	Director	March 6, 2006
Dan L. Crippen
/s/ Eugene V. Fife	Director	March 6, 2006
Eugene V. Fife
/s/ Braden Kelly	Director	March 6, 2006
Braden Kelly
/s/ Jay B. Pieper	Director	March 6, 2006
Jay B. Pieper
/s/ Edward A. Kangas	Director	March 6, 2006
Edward A. Kangas

54

EX-10.31

Exhibit 10.31

Certain confidential portions of this Exhibit were omitted by means of blackout of the text and replaced with an asterisk (*) (the “Mark”). This exhibit has been filed separately with the Securities and Exchange Commission without the Mark pursuant to the Company’s Application Requesting Confidential Treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

              EMPLOYMENT AGREEMENT

This Employment Agreement (this “Agreement”) is entered into by and between Eclipsys Corporation, a Delaware corporation (the “Company”)and John E. Deady, an individual(the “Executive”), effective immediately upon the signatures of the parties below, with the Executive’s employment commencing on January 9, 2006 (such commencement of employment being the “Effective Date”).

WHEREAS, the Company desires to employ the Executive, and the Executive desires to be employed by the Company, on the terms set forth herein;

NOW THEREFORE, in consideration of the mutual covenants and promises contained in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties to this Agreement, the parties agree as follows:

Section 1 - Employment.

(a)   The Company shall employ Executive as of the Effective Date. Executive will serve as the Company’s Executive Vice President - Sales & Marketing, and in that capacity shall (i) have the customary powers, responsibilities and authorities of an executive officer of the Company and such other powers, responsibilities and authorities as may be delegated to Executive by the Company’s Chief Executive Officer (the “CEO”) or the Company’s Board of Directors (the “Board”) from time to time, and (ii) report to, and be subject to review and control by, the CEO. Executive shall devote his reasonable best efforts to the performance of his duties and responsibilities hereunder.

(b)   Nothing in this Agreement shall preclude Executive from engaging in charitable and community affairs; from managing any passive investment (i.e., an investment with respect to which Executive is in no way involved with the management or operation of the entity in which Executive has invested) made by him in publicly traded equity securities or other property (provided that no such investment may exceed five percent (5%) of the equity of any entity, without the prior approval of the Board); or from serving as a member of boards of directors or as a trustee of any other corporation, association or entity, to the extent that any of the above activities do not interfere with his ability to discharge his duties hereunder and the subject entity does not directly compete with the Company, and provided that Executive will not serve as a director of any for-profit entity without approval of the Board.

Section 2 - Term of Employment. Executive’s employment is at-will, subject to the severance benefits specified herein. The period from the Effective Date until the date Executive’s employment terminates is referred to herein as the “Term of Employment”.

Section 3 - Compensation.

(a)   Salary. During the period from the Effective Date through December 31, 2006 (the “Initial Period”), the Company shall pay the Executive at the annualized rate of $450,000.00 (“Base Salary”) in accordance with the ordinary payroll practices of the Company, and subject to all applicable federal, state and local withholding and reporting requirements. The Executive’s Base Salary shall not be decreased during the Initial Period. During the Term of Employment, the Board or the Compensation Committee of the Board (the “Compensation Committee”) shall review, and may, subject to the immediately preceding sentence and subject to Executive’s right to terminate employment for Good Reason pursuant to Section 6(a) as a result of any reduction in Base Salary, adjust the Executive’s Base Salary annually, in accordance with the Company’s customary procedures and practices for reviewing compensation of senior executives. In the event the Base Salary is so adjusted, the adjusted amount shall become the Base Salary for purposes of this Agreement.

(b)   Bonus Plan. Executive shall be eligible to participate in the Company’s standard bonus plan for executive officers, subject to all terms and conditions of such plan. The executive bonus plan will be established and may be modified from time to time by the CEO, the Board or the Compensation Committee of the Board (the “Compensation Committee”). Executive’s annual target bonus will be $200,000 (the “Target Bonus”), but except as set forth in the following sentence no bonus payments are guaranteed and all bonus payments will be contingent upon achievement of such Company and individual performance targets and management objectives (including objectives specific to Executive, objectives common to other executives as well, and Company objectives) as may be established by the CEO, the Board or the Committee. However, notwithstanding the foregoing, without regard to Executive’s performance against any bonus plan, Executive shall receive the Target Bonus for 2006, payable $50,000 by April 15, 2006 if Executive is employed continuously as the Company’s Executive Vice President from the Effective Date until March 31, 2006, and $150,000 at the time 2006 bonuses are paid to other executive officers and consistent with the ordinary payroll practices of the Company, if Executive is employed continuously as the Company’s Executive Vice President from the Effective Date until December 31, 2006. The Board or Compensation Committee may provide in any year’s bonus plan that Executive may earn more than the Target Bonus upon achievement of specified performance criteria, but in no event will Executive’s cash bonus for any year exceed two times the Target Bonus. Executive’s bonuses will be earned as of December 31 of each year, if and to the extent that performance criteria applicable to that year’s bonus plan are met, and paid thereafter consistent with the timing of payment of bonuses to other executives. All bonus payments shall be subject to all applicable federal, state and local withholding and reporting requirements.

Section 4 - Employee Benefits.

(a)   Employee Retirement Benefit Programs, Welfare Benefit Programs, Plans and Practices. The Company shall provide Executive with coverage during the Term of Employment under any retirement benefit programs, welfare benefit programs, and other compensatory and benefit programs, plans and practices, that the Company makes generally available to its senior executives, including, but not limited to, its life and short- and long-term disability insurance, hospitalization and major medical insurance, the Company’s 401(k) Plan, Employee Stock Purchase Plan, dental insurance, directors and officers liability insurance, and any other nonqualified compensation program (including deferred compensation or supplemental retirement programs) as in effect from time to time.

(b)   Vacation. Executive shall be entitled to five weeks of paid vacation each calendar year, which shall be taken at such times as are consistent with the Executive’s responsibilities hereunder; provided, however, subject to applicable law, that the Executive shall not be entitled to carry over unused vacation from year to year in an amount exceeding that which the Executive would be entitled to carry over in accordance with the Company’s standard vacation policy as applied to employees of the Executive’s longevity with the Company.

(c)   Stock Options and Restricted Stock Grants. As a material inducement to Executive’s entering into employment with the Company, the Company is granting to Executive as inducement grants under NASD Rule 4350(i)(1)(A)(iv), effective as of the Effective Date, (1) a non-qualified stock option to purchase 400,000 shares of the Company’s common stock at an exercise price equal to the closing price of the common stock on Nasdaq on the trading day immediately preceding the Effective Date, and (2) a restricted stock grant of 100,000 shares of the Company’s common stock, for which the Executive must pay an initial price of $.01 per share (together, the “Initial Grants”). The terms of these stock options are specified in a Notice of Grant being issued to Executive and the Company’s 2005 Inducement Grant Stock Incentive Plan, and the terms of these shares of restricted stock are specified a Restricted Stock Agreement between the Company and Executive, a Notice of Grant being issued to Executive, and in the Company’s 2005 Inducement Grant Stock Incentive Plan (collectively, the “Equity Documents”). The forms of the Equity Documents are attached as Exhibits A-1 through A-4 to this Agreement. The Initial Grants are also subject to certain provisions of this Agreement, and the Agreement re Specified Acts being entered into between the Company and Executive concurrently with this Agreement in the form of Exhibit B to this Agreement (the “Agreement re Specified Acts”). The Initial Grants are considered to be multiple-year awards and thus regular additional annual equity awards should not be anticipated even if other executives receive annual equity awards.

(d)   Other Benefits. Executive will be entitled to reimbursement of reasonable expenses incurred by him for an annual physical examination, to the extent such an examination is not otherwise covered or provided by the health insurance or health benefits provided by the Company to Executive pursuant to Section 4(a) above; and reimbursement of up to $25,000 in legal expenses incurred by Executive in negotiation and preparation of his initial employment documents, together with a gross-up if necessary so that net of any income taxes payable on reimbursement of such legal fees, Executive’s expense for these legal expenses is effectively covered.

Section 5 - Expenses. Subject to prevailing Company policy or such guidelines as may be established by the CEO or the Board or Compensation Committee from time to time, the Company shall reimburse the Executive for all reasonable expenses incurred by the Executive in carrying out his duties.

Section 6 - Termination of Employment.

(a)   Termination Without Cause or Termination for Good Reason. Subject to Section 6(i), if Executive’s employment is terminated by the Company for any reason other than Cause (as defined in Section 6(c)), Executive’s Disability (as defined in Section 6(e)), or Executive’s death, or if Executive’s employment is terminated by Executive for Good Reason (as defined in Section 6(a)(2)), then the Company shall pay Executive (x) the Accrued Amounts (as defined below) and (y) subject to the limitations described in this Agreement, the Severance Package. The payment of the Severance Package to Executive under this Section 6(a) shall (i) be contingent upon the execution by Executive of a general release in favor of the Company in substantially the form attached hereto as Exhibit C, provided that if changes or expansions of relevant laws and regulations would result in Exhibit C in the form thereof as of the date of this Agreement failing to achieve the intent thereof as reflected by the form thereof as of the date of this Agreement (the “Initial Intent”), and if it is possible to modify Exhibit C so as to effect the Initial Intent notwithstanding such changes or expansions of relevant laws or regulations, then Exhibit C will be modified to the extent necessary to preserve the Initial Intent (the “Release”); (ii) constitute the sole remedy of Executive in the event of a termination of Executive’s employment in the circumstances set forth in this Section 6(a); and (iii) be subject to the Agreement re Specified Acts. Except as expressly provided herein or in the Agreement re Specified Acts or in another agreement between the Company and Executive, the Severance Package shall not be subject to any duty to mitigate damages by Executive, nor any set off or reduction due to Executive’s post-termination employment, provided such post-termination employment does not contravene any agreement between the Company and Executive. The Accrued Amounts shall be payable in a lump sum within ten (10) days of termination of employment, or earlier if required by applicable law.

(1) For purposes of this Agreement, the “Accrued Amounts” shall mean Executive’s earned but unpaid Base Salary, any declared but unpaid bonus, any accrued but unused vacation and any other earned but unpaid amounts payable to him hereunder, in each case as accrued through the last day of his actual employment by the Company.

(2) For purposes of this Agreement, a termination of employment by Executive for “Good Reason” shall be a termination by Executive following the occurrence of any of the following events unless the Company has cured as provided below:

(A)   Subject to Section 6(d)(2), removal from the position of Executive Vice President of the Company or any material diminution in Executive’s duties, responsibilities, authority, or participation in management, except for Cause or following Executive’s death or Disability, provided that a change in Executive’s duties that is approved by the Board or Compensation Committee and that is commensurate with his role as an Executive Vice President of the Company will not constitute Good Reason;

(B)   A reduction in the Base Salary or Target Bonus then in effect or a material reduction in the other benefits provided to Executive by the Company;

(C)   Any material breach by the Company of this Agreement or any other legal obligation owed by the Company to Executive;

(D)   Failure of any successor of the Company to assume this Agreement as required by Section 11; or

(E)   A required relocation of Executive’s primary residence other than as described in Section 8(c).

Executive must notify the Company in writing specifically identifying any event constituting Good Reason within thirty (30) days after Executive becomes aware of such event or such event shall not constitute Good Reason for purposes of this Agreement; provided that the Company shall have thirty (30) days from the date of such notice to cure the Good Reason event. A termination by Executive following cure shall not be a termination for Good Reason. A failure of Executive to notify the Company after the first occurrence of an event constituting Good Reason shall not preclude any subsequent occurrences of such event (or similar event) from constituting Good Reason.

(3) For purposes of this Agreement, “Severance Package” shall mean:

(A)   Base Salary continuation for eighteen (18) months following the date of termination at Executive’s annual Base Salary rate in effect on the date of termination, subject to all applicable federal, state and local withholding and reporting requirements. These salary continuation payments shall be paid in accordance with usual Company payroll practices.

(B)   A bonus equal to one hundred fifty percent (150%) of Executive’s Target Bonus in effect on the date of termination (but not less than $200,000), payable in equal installments over the eighteen (18) month period described in Section 6(a)(3)(A), subject to the same withholding and reporting requirements. In addition, to the extent not included in the Accrued Amounts, Executive shall receive a pro rata bonus for the bonus period during which the date of termination occurs calculated at one hundred percent (100%) of the Target Bonus then in effect, multiplied by a fraction the numerator of which is the number of days that Executive was employed during such bonus term and the denominator of which is 365. Such prorated bonus shall be paid in accordance with the Company’s customary practices for payment of executive bonuses but with no additional performance requirements or contingencies.

(C)   For the avoidance of confusion, the parties acknowledge that in the event Executive terminates his employment for Good Reason as a result of a decrease in his Base Salary or Target Bonus as contemplated in clause (B) of Section 6(a)(2), then the Base Salary and Target Bonus used for purposes of the calculation of the Severance Package shall be the Base Salary and Target Bonus in effect immediately prior to such reduction.

(D)   Executive shall be entitled to twelve (12) months of vesting of all stock, stock options and other equity-based awards granted to him, including the Initial Grants, in addition to vesting that had occurred at the date of termination (i.e., vesting as would have occurred if Executive had remained employed until the first anniversary of the date of termination of his employment), provided (i) that if the Severance Package becomes payable as a result of a termination of employment occurring before June 1, 2006, then in lieu of the 12 months of vesting of restricted stock included in the Initial Grants as described above, Executive shall be entitled to vesting of 20% of the restricted stock included in the Initial Grants, plus an additional 1.667% of the restricted stock included in the Initial Grants for each complete calendar month, if any, that elapses from the date of this Agreement until the date of termination of employment, and (ii) provided further that if the Severance Package becomes payable as a result of a termination of employment occurring before February 1, 2006, then in lieu of the 12 months of vesting of the stock options included in the Initial Grants as described above, Executive shall be entitled to vesting of 20.0% of the stock optionsincluded in the Initial Grants.

(E)   Continuation of benefits under any life, group health, and dental insurance benefits substantially similar to those which Executive (and, if applicable, his family) was receiving immediately prior to termination of employment until the earlier of:

(i)the end of the eighteen (18) month period following the date of termination, or

(ii) the date on which Executive becomes eligible to receive substantially similar benefits under any plan or program of any other employer.

The continuing coverage provided under this Section 6(a)(3)(E) is subject to the availability of such continuation under the terms of the applicable plan documents and all provisions of applicable law, including the requirements of the federal “COBRA” law, 29 U.S.C. § 1161 et seq. with respect to group health and dental insurance. If Executive is not eligible for such continued coverage under one of the Company-provided benefit plans noted in this paragraph (E) that he was participating in during his employment, the Company shall pay the Executive the cash equivalent of the cost of replacement insurance for the duration of the applicable period, up to a maximum of the Company’s cost of providing the coverage before the termination of employment, which payments shall be made pro-rata in accordance with the Company’s customary payroll practices.

(4) To the extent that this Employment Agreement is treated as a nonqualified deferred compensation arrangement within the meaning of Section 409A of the Internal Revenue Code (“Section 409A”), neither the Company nor Executive may accelerate the timing of the payments under this Section 6(a) (for example, no part of the Severance Package may be paid in a lump sum at the time of termination) unless such acceleration does not trigger the application of interest and penalty taxes under Section 409A. In addition, to the extent that this Employment Agreement is treated as a nonqualified deferred compensation arrangement within the meaning of Section 409A and the Treasury Regulations under Section 409A require a delay in the commencement of any payments under the Severance Package due to Executive’s status as a “specified employee”, the Severance Package payments shall be delayed to the minimum extent and in the minimum amount necessary so as to comply with the Code and any regulations thereunder and avoid interest and penalties, and otherwise paid on the schedule set forth in this Section 6(a).

(b)   Voluntary Termination by Executive Without Good Reason. If Executive terminates his employment with the Company without Good Reason, then the Company shall pay Executive only the Accrued Amounts in a lump sum within ten (10) days of termination of employment, or earlier if required by applicable law. Retirement shall be considered a termination of employment by Executive without Good Reason.

(c)   Termination for Cause. If Executive’s employment is terminated for Cause, the Company shall pay Executive only the Accrued Amounts in a lump sum within ten (10) days of termination of employment, or earlier if required by applicable law. As used herein, the term “Cause” shall be limited to the following, and to the causes described in Section 8(b):

(1) Executive’s conviction of or plea of guilty or nolo contendere to a felony under the laws of the United States or any state thereof or any other jurisdiction in which the Company conducts business;

(2) Executive’s willful misconduct or gross negligence in the performance of his duties that causes material harm to the Company;

(3) Executive’s willful and continued failure to follow the reasonable and lawful instructions of the Board;

(4) Executive’s willful and continued neglect of duties (other than any such neglect resulting from incapacity of Executive due to physical or mental illness); or

(5) a material breach of this Agreement by Executive;

provided, however, that Cause shall arise under items (2), (3), (4) or (5) only following thirty (30) days written notice thereof from the Company which specifically identifies such misconduct, failure, neglect or breach and only if Executive continues to engage in or fails to cure (if the misconduct, failure, neglect or breach can be cured) such misconduct, failure, neglect or breach during such notice period. During any such notice period, Executive shall have the right to be heard by the Board and Cause shall not be deemed to exist without a finding by a majority of the Board that Cause exists and, if the misconduct, failure, neglect or breach can be cured, has not been cured during the thirty (30) day cure period. A termination by the Company after cure shall not be a termination for Cause. A failure of the Company to notify Executive after the first occurrence of an event constituting Cause shall not preclude any subsequent occurrences of such event (or similar event) from constituting Cause.

(d)   Certain Terminations Following a Change in Control. Subject to Section 6(i), in the event Executive’s employment with the Company or its successor terminates by reason of a Qualifying Termination (as defined below) within two (2) years after a Change in Control of the Company (as defined below) that occurs during the Term of Employment, then the Company shall pay to the Executive (x) the Accrued Amounts in a lump sum within ten (10) days of termination of employment, or earlier if required by applicable law, and (y) in lieu of the Severance Package, and subject to the limitations described in this Agreement, the Company shall provide the Executive the Change in Control Benefits (as defined below). The provision of the Change in Control Benefits to Executive under this Section 6(d) shall (i) be contingent upon the execution by Executive of the Release or a release in another form reasonably acceptable to the Company and Executive; (ii) constitute the sole remedy of Executive in the event of a termination of Executive’s employment in the circumstances set forth in this Section 6(d); and (iii) be subject to the Agreement re Specified Acts. In addition, all payments under this Section 6(d) are subject to the timing rules, calculations and adjustments described in Section 7. Anything in this Agreement to the contrary notwithstanding, if (q) a Change in Control occurs, (r)  Executive's employment with the Company is terminated by the Company without Cause or by Executive for Good Reason within 180 days prior to the date on which the Change in Control occurs, and (s) it is reasonably demonstrated by Executive that such termination of employment or events constituting Good Reason (u) was at the request of a third party who has taken steps reasonably calculated to effect a Change in Control or (v) otherwise arose in connection with or in anticipation of a Change in Control, then for all purposes of this Agreement such Change in Control shall be deemed to have occurred during the Term of Employment and the termination shall be deemed to have occurred after the Change in Control, so that Executive is entitled to the Change in Control Benefits. It is recognized that options and restricted stock not vested at the time of or as a result of termination of employment may be cancelled, and further that following such cancellation Executive may become entitled to vesting of those cancelled stock options or shares of restricted stock in connection with a subsequent Change in Control pursuant to this section. In that case, the Company or its successor shall deliver to Executive the consideration Executive would have received in the Change in Control for (i) the shares of restricted stock that were cancelled as if those shares had been owned by and fully vested in Executive at the time of the Change in Control, less an amount equal to the product of $.01 per share and the number of such shares to represent the par value thereof; and (ii) the stock options that were cancelled as though such options had been vested at the time of the Change in Control, to the extent that unexercised vested stock options were cashed out in the Change in Control, and otherwise for a number of shares of the Company’s common stock having a value at the time of the Change in Control equal to the aggregate amount by which those stock options were in-the-money at the time of the Change in Control, using for purposes of this calculation the value of a share of the Company’s common stock in the Change in Control transaction.

(1) “Change of Control Benefits” shall mean:

(A) Base Salary continuation for twenty four (24) months following the date of termination at Executive’s annual Base Salary rate in effect on the date of termination, subject to all applicable federal, state and local withholding and reporting requirements. These salary continuation payments shall be paid in accordance with usual Company payroll practices;

(B) A bonus equal to two hundred percent (200%) of Executive’s Target Bonus in effect on the date of termination, payable in equal installments over the twenty four (24) month period described in Section 6(d)(1)(A), subject to the same withholding and reporting requirements. In addition, to the extent not included in the Accrued Amounts, Executive shall receive a pro rata bonus for the bonus period during which the date of termination occurs calculated at one hundred percent (100%) of the Target Bonus then in effect, multiplied by a fraction the numerator of which is the number of days that Executive was employed during such bonus term and the denominator of which is 365. Such prorated bonus shall be paid in accordance with the Company’s customary practices for payment of executive bonuses but with no additional performance requirements or contingencies;

(C) Acceleration in full of the vesting of all stock, stock options and other equity-based awards granted to him, including the Initial Grants; and

(D) Continuation of life, group health and dental insurance benefits substantially similar to those which Executive (and, if applicable, his family) was receiving immediately prior to the Qualifying Termination until the earlier of:

(i) the end of the twenty four (24) month period following Executive’s termination of employment, or

(ii) the date on which Executive becomes eligible to receive substantially similar benefits under any plan or program of any other employer.

The continuing coverage provided under this Section 6(d)(1)(D) is subject to the availability of such continuation under the terms of the applicable plan documents and all provisions of applicable law. If Executive is not eligible for such continued coverage under one of the Company-provided benefit plans noted in this paragraph (D) that he was participating in during his employment, the Company shall pay Executive the cash equivalent of the cost of replacement insurance for the duration of the applicable period, up to a maximum of the Company’s cost of providing the coverage before the termination of employment, which payments shall be made pro-rata in accordance with the Company’s customary payroll practices.

(2) Qualifying Termination. For purposes of this Agreement, the term “Qualifying Termination” means a termination by the Company or its successor of Executive’s employment with the Company or its successor for any reason other than Cause, Disability or death, or a termination by

Executive of Executive’s employment with Good Reason. However, if following a Change in Control the Company or its successor in the Change in Control offers to retain Executive in a Comparable Position, then Executive shall not be entitled to resign his employment for Good Reason pursuant to Section 6(a)(2)(A). For these purposes, “Comparable Position” means (i) Executive Vice President of the successor organization or the portion of the successor organization that succeeds to the business of the Company (whether organized as a subsidiary, division, or otherwise) (in either case, the “Successor Business”), or if the Successor Business does not use that title, then a title within the Successor Business’s organizational structure that is comparable to Executive Vice President in the Company’s organizational structure, with duties, responsibilities, authority and participation in management commensurate with that role, if (A) the Successor Business is the natural successor to the business of the Company following the Change in Control and continues in the same basic business as the Company; and (B) Executive’s role with the Successor Business would not result in a material diminution of the substantive operational scope of Executive’s role from the substantive operational scope of his role with the Company. In each case, it is recognized that following a Change in Control, the evolution of the Company to the Successor Business can result in various changes resulting from integration, efforts to capture synergy opportunities or address new markets, and changes in business strategy, and as a result Executive’s duties, responsibilities, authority or participation in management in a Comparable Position may not be exactly the same as his duties, responsibilities, authority or participation in management with the Company prior to the Change in Control. However, whether a role with the successor offered to Executive qualifies as a Comparable Position will be judged with a view to the overall quality of the opportunity represented by that role from a professional point of view, with the understanding that the intention of this Agreement is that a Comparable Position, in light of all relevant factors including the size and complexity of the successor organization, would not represent a material diminution to Executive in the overall quality of his professional stature, experience and opportunity compared to the professional stature, experience and opportunity represented by Executive’s role with the Company.

(3) Change of Control Defined. For purposes of this Agreement, a “Change of Control” shall have the meaning set forth in Exhibit D.

(4) To the extent that this Employment Agreement is treated as a nonqualified deferred compensation arrangement within the meaning of Section 409A, neither the Company nor Executive may accelerate the timing of the payments under this Section 6(d) (for example, no part of the Change in Control Benefits may be paid in a lump sum at the time of termination) unless such acceleration does not trigger the application of interest and penalties under Section 409A. In addition, to the extent that this Agreement is treated as a nonqualified deferred compensation arrangement within the meaning of Section 409A and the Treasury Regulations issued under Section 409A require a delay in the commencement of any payments under the Change in Control Benefits due to Executive’s status as a “specified employee”, the Change in Control Benefit payments shall be delayed to the minimum extent necessary so as to comply with the code and any regulations thereunder and to avoid interest and penalties, and otherwise paid on the schedule set forth in this Section 6(d).

(e)   Disability. In the event that Executive suffers a Disability, the Company may, in its discretion, terminate Executive’s employment hereunder. For purposes of this Agreement, “Disability” shall be defined to occur at such time as Executive becomes eligible to receive benefits under the terms of the Company’s then applicable long-term disability policy, or, in the absence of such policy, shall be defined as a physical or mental disability that prevents Executive from performing his duties under this Agreement for ninety (90) consecutive days or more, or for an aggregate of one hundred twenty (120) days in any period of twelve (12) months. The Company may only terminate Executive on account of Disability after giving due consideration to whether reasonable accommodations can be made under which Executive is able to fulfill his duties under this Agreement. The commencement date and expected duration of any physical or mental condition that prevents Executive from performing his duties hereunder shall be determined by a medical doctor mutually acceptable to Executive and the Company. In the event Executive’s employment is terminated by the Company pursuant to this Section 6(e), then the Company shall pay Executive only the Accrued Amounts in a lump sum within ten (10) days of termination of employment, or earlier if required by applicable law.

(f)   Death. In the event of Executive’s death during the Term of Employment, all obligations of the Company to make any further payments, including the obligation to pay the Accrued Amounts, shall be paid to Executive’s estate, and in any event all Accrued Amounts shall be paid in a lump sum within ten (10) days of the Executive’s death, or earlier if required by applicable law. In addition, to the extent not included in the Accrued Amounts, Executive’s estate shall receive a payment or payments reflecting a pro rata bonus for Executive for the bonus period during which the date of termination pursuant to this Section 6(f) occurs calculated at one hundred percent (100%) of the Target Bonus then in effect, multiplied by a fraction the numerator of which is the number of days that Executive was employed during such bonus term and the denominator of which is 365. Such prorated bonus shall be paid in accordance with the Company’s customary practices for payment of executive bonuses but with no additional performance requirements or contingencies, provided, however, that to the extent that this Agreement is treated as a nonqualified deferred compensation arrangement within the meaning of Section 409A, the payment of such bonus may not be accelerated by either the Company or Executive unless such acceleration does not trigger the application of interest and penalty taxes under Section 409A.

(g)   Payments as Compensable Compensation. Any participation by Executive in, and any terminating distributions and vested rights under, Company-sponsored retirement or deferred compensation plans, regardless of whether such plans are qualified or nonqualified for tax purposes, shall be governed by the terms of those respective plans.

(h)   Executive’s Duty to Provide Materials. Upon the termination of the Term of Employment for any reason, Executive or his estate shall surrender to the Company all computer files and electronic data and records, correspondence, letters, files, contracts, mailing lists, customer lists, advertising material, ledgers, supplies, equipment, checks, and all other materials and records of any kind that are the property of the Company or any of its subsidiaries or affiliates, that may be in Executive’s possession or under his control, including all copies of any of the foregoing.

(i)   Certain Contingencies and Limitations.

(1) Notwithstanding anything herein to the contrary, Executive may lose his rights to the Severance Package or the Change in Control Benefits pursuant to the Agreement re Specified Acts.

(2) As of the date of any termination of employment as a result of which Executive would be entitled to either (i) the Severance Package or (ii) the Change in Control Benefits, the Company shall calculate the Total Equity Value, and for each Dollar by which the Total Equity Value exceeds $4.0 million, the amount of cash severance otherwise payable to Executive as part of the Severance Package or Change in Control Benefits will be reduced by one Dollar, with the total amount of such reductions spread evenly over the term that such cash severance would otherwise be payable. In addition, as of the date of any termination of employment as a result of which Executive would be entitled to the Severance Package (but not as a result of which Executive would be entitled to Change in Control Benefits), the Company shall calculate the Vested Equity Value, and for each Dollar by which the Vested Equity Value exceeds $4.0 million, the accelerated vesting of the Initial Grants or other stock options, restricted stock or other equity-based awards that would otherwise occur as a part of the Severance Package or pursuant to any plan or agreement governing such awards will be reduced by one Dollar in value, with such reductions coming first from stock options and then from restricted stock and then from other awards, and with such reductions measured by the gross spread on options that would otherwise accelerate and the gross value of shares of restricted stock or other awards that would otherwise accelerate. For these purposes, “Vested Equity Value” means (i) the value of vested restricted stock and other vested awards (other than stock options) owned beneficially by Executive, plus (ii) the spread on vested stock options owned beneficially by Executive, plus (iii) the gross proceeds received by Executive or his transferee from sales of restricted stock and payment of other awards (other than stock options) in the four-year period ending on the date of termination of employment, plus (iv) the amount by which gross proceeds from sales by Executive or his transferee, in the four-year period ending on the date of termination of employment, of shares obtained upon exercise of stock options exceeded the exercise price thereof, plus (v) the amount by which the value of shares obtained upon exercise of stock options and still beneficially owned by Executive or his transferee exceeds the exercise price paid for those shares. “Total Equity Value” means Vested Equity Value plus (i) the value of restricted stock and other awards (other than stock options) that would vest as a part of Severance Package or Change in Control Benefits, plus (ii) the spread on stock options that would vest as a part of Severance Package or Change in Control Benefits, calculated as the aggregate of the amount by which the value of a share of stock issuable upon exercise of each stock option vesting as part of the Severance Package or Change in Control Benefits exceeds the exercise price payable therefor. Measures of value of stock options, restricted stock and other awards will be taken at fair market value on the date of termination of employment.

(3) If any Change in Control occurs within 365 days following the date of this Agreement, or a definitive agreement for a Change in Control is signed within 365 days following the date of this Agreement and pursuant to that definitive agreement a Change in Control is subsequently consummated within 180 days following the execution thereof, and in connection with that Change in Control a Qualifying Termination occurs so that Executive would be entitled to the Change in Control Benefits, then notwithstanding any other provision of this Agreement or any other agreement between Executive and the Company or any plan pursuant to which equity awards are made to Executive, the Total Realization shall not exceed the Special Limit. If the Total Realization would otherwise exceed the Special Limit, then the Change in Control Benefits other than continuation of insurance benefits shall be reduced to the extent necessary to limit the Total Realization to the Special Limit, first by reduction of the continuation of salary, then if necessary by reduction of the continuation of bonus, then if necessary by reduction of acceleration of vesting of stock options, then if necessary by reduction of acceleration of vesting of restricted stock, and finally if necessary by reduction of vesting of any other awards. However, if the Total Realization exceeds the Special limit without any Change in Control Benefits, the Executive will not be required to make any payment to the Company in respect of that excess. For these purposes, (i) “Total Realization” means the sum of the Total Equity Value plus all cash payable as part of the Change in Control Benefits (but excluding the value of continuation of insurance benefits); (ii) “Special Limit” means $5.0 million; and (iii) the value of the Change in Control Benefits shall be the gross amount of salary continuation and bonus continuation, the gross spread on stock options that would vest as a part of the Change in Control Benefits, and the gross value of restricted stock and other awards (other than stock options) that would vest as a part of the Change in Control Benefits. Measures of value of stock options, restricted stock and other awards will be taken at fair market value on the date of termination of employment.

Section 7 - Gross-up Payments.

(a) If Executive becomes obligated to pay any excise tax on excess parachute payments under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") or any similar or successor law or regulation, whether as a result of benefits provided to Executive under this Agreement or another agreement by or plan of the Company, the Company shall pay an additional amount (the "Gross-Up Payment") to Executive at the time specified in the following paragraph. The Gross-Up Payment shall be equal to the amount necessary so that the net amount retained by Executive, after subtracting the parachute excise tax imposed by Section 4999 of the Code or any successor statute then in effect (the "Excise Tax"), and after also subtracting all federal, state or local income tax, FICA tax and Excise Tax on the Gross-Up Payment, shall be equal to the net amount Executive would have retained if no Excise Tax had been imposed and no Gross-Up Payment had been paid. The amount of the Gross-Up Payment shall be determined in good faith by independent accountants or tax counsel selected by the Company and acceptable to Executive, who shall apply the following assumptions: (i) Executive shall be treated as paying federal income taxes at the highest marginal rate in the calendar year in which the Gross-Up Payment is made, and (ii) Executive shall be treated as paying state and local income taxes at the highest marginal rate(s) in the calendar year in which the Gross-Up Payment is made in the locality of Executive's residence as of the effective date of Executive's termination or resignation, net of the maximum reduction in federal income taxes that could be obtained from deducting those state and local taxes.

(b) The Gross-Up Payment shall be made within thirty days after the event that triggered the Company’s obligation to provide the benefits upon which taxes as described in this Section 7 are payable (the “Triggering Event”), provided that if the Gross-Up Payment cannot be determined within that time, the Company shall pay Executive within that time an estimate, determined in good faith by the Company, of the minimum amount of the Gross-Up Payment and shall pay the remainder (plus interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount can be determined but in no event later than the 60th day after the Triggering Event. If the estimated payment is more than the amount later determined to have been due, the excess (plus interest at the rate provided in Section 1274(b)(2)(B) of the Code) shall be repaid by Executive within five business days after written demand.

(c) If the actual Excise Tax imposed is less than the amount that was taken into account in determining the amount of the Gross-Up Payment, Executive shall repay at the time that the amount of the reduced Excise Tax is finally determined the portion of the Gross-Up Payment attributable to that reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax, FICA tax and federal, state and local income tax imposed on the portion of the Gross-Up Payment being repaid by Executive, to the extent the repayment results in a reduction in or refund of the Excise Tax, FICA tax or federal, state or local income tax), plus interest on the amount of the repayment at the rate provided in Section 1274(b)(2)(B) of the Code. If the actual Excise Tax imposed is more than the amount that was taken into account in determining the amount of the Gross-Up Payment, the Company shall make an additional gross-up payment in respect of such excess (plus interest at the rate provided in Section 1274(b)(2)(B) of the Code) at the time that the amount of the excess is finally determined.

(d) Notwithstanding anything to the contrary herein, the parties agree that if the payments under this Section 7 are treated as nonqualified deferred compensation under Section 409A of the Code, the parties will negotiate this section in good faith to avoid adverse tax consequences to Executive

 Section 8 - Other Agreements.

(a) Non-Solicitation; Non-Disclosure, etc. In consideration for the provisions of this Agreement, among other things, Executive is separately entering into a Confidentiality, Non-Disclosure and Developments Agreements in the form of Exhibit E (the “Confidentiality Agreement”).

(b) No Violation of Other Agreements. Executive hereby represents that he is not bound by the terms of any agreement with any previous employer or other party to refrain from using or disclosing any trade secret or confidential or proprietary information in the course of his employment with the Company or to refrain from competing, directly or indirectly, with the business of such previous employer or any other party, except for any such agreement that could not reasonably be expected to compromise Executive’s ability to perform his duties to the Company as contemplated by this Agreement. Executive further represents that, to his knowledge and belief, he has not breached any agreement not to compete or any agreement to keep in confidence proprietary information, knowledge or data acquired by him in confidence or in trust prior to his employment with the Company, and Executive acknowledges the Company’s desire and direction that he not breach any such agreement in the performance of his services hereunder. Accordingly, the Company agrees that any failure or refusal of the Executive to perform his duties to the Company as contemplated by this Agreement shall not constitute “Cause” to the extent such failure or refusal is attributable to the Executive’s compliance with any agreement to keep in confidence proprietary information, knowledge or data acquired by him in confidence or in trust prior to his employment with the Company. Without limiting the foregoing, Executive has provided to Eclipsys an executed copy of an Agreement Respecting Non-disclosure, Non-competition and Non-solicitation with his immediately preceding employer. Executive represents that this agreement is the only agreement he has entered into with his immediately preceding employer and the only such restrictive agreement in effect with any prior employer. Executive acknowledges that under the terms of that agreement, he is required to maintain certain confidential information, which covenant he shall honor in his employment with the Company. In connection with any new duties he undertakes for Eclipsys, Executive will use his best efforts to maintain such confidentiality and notify Eclipsys when, in his judgment, he believes that any assigned task might cause a breach of such covenants. [ * ]

(c)   Headquarters and Location and Travel. Executive currently resides in Atlanta, Georgia. The Company does not have a conventional headquarters due to distribution of its executive management. The Board and CEO will consider establishing a conventional headquarters, and if the Company establishes a conventional headquarters and the CEO or the Board determines that Executive’s relocation to that headquarters would be in the Company’s best interests, then Executive may be required to relocate his residence to the area in which the headquarters is located. If Executive is required to relocate, the Company shall provide him with executive-level relocation benefits, consistent with Company policies, designed to defray all reasonable out-of-pocket costs of the relocation incurred by Executive, provided that Executive will not be entitled to any adjustment to his compensation to defray any increase in his cost of living resulting from relocation. If Executive does not wish to relocate, and consequently he resigns or the Company terminates his employment, he will not be entitled to any severance benefits (including without limitation the Severance Package or the Change in Control Benefit, each as defined in Article 6), except that if this occurs before his first-year guaranteed bonus is paid in full then he will be entitled to any portions of his guaranteed first year bonus that have not been paid. Whether or not Executive relocates his residence, Executive must spend significant time traveling, as is consistent with his role and necessary or appropriate to execute fully his responsibilities.

(d)   Registration. Executive will use reasonable efforts to utilize the safe harbor provided by Rule 144 under the Securities Act of 1933 to exempt from registration sales by Executive of shares derived from the Initial Grants. If and to the extent that Executive cannot implement and execute a plan to achieve reasonable liquidity from sales of shares derived from the Initial Grants pursuant to Rule 144, the Company will use reasonable efforts to provide an effective registration statement to cover sales by Executive of such shares, provided that Executive and the Company will cooperate to determine timing and duration for such registration that is not adverse to the Company’s interests.

(e)   Conduct. Executive will observe the Company’s policies, conduct himself in a manner befitting an executive officer of a public company, and provide reasonable cooperation with legal authorities in any investigation or proceeding involving the Company or his service to the Company, to the extent legally required or reasonably directed by the Board.

* Confidential Treatment Requested

Section 9 - Notices. All notices or communications hereunder shall be in writing, addressed as follows, or otherwise as directed in a written notice from the party wishing to make changes hereto:

To the Company:Eclipsys Corporation

ATTN: CEO

Address, Telephone and Facsimile numbers then listed in the Company’s directory

with a copy to:the Company’s General Counsel

Address, Telephone and Facsimile numbers then listed in the Company’s directory

To the Executive:To the address, telephone number and facsimile number then reflected in the Company’s payroll records

With a copy to:[ * ]

Any such notice or communication shall be delivered by hand or sent certified or registered mail, return receipt requested, postage prepaid, or by reputable overnight courier addressed as above (or to such other address as such party may designate in a notice duly delivered as described above), and the time of actual delivery, if delivered by hand, the next business day, if sent by overnight courier, or the third (3^rd) business day after the actual date of mailing, if sent by mail, shall constitute the time at which notice was given.

*Confidential Treatment Requested

Section 10 - Severability. If any part of this Agreement as applied to any party or to any circumstance is adjudged by a court of competent jurisdiction to be invalid, illegal, void or unenforceable for any reason, then (i) the invalidity of that part shall in no way affect (to the maximum extent permissible by law) the application of such part under circumstances different from those adjudicated by the court, the application of any other part of this Agreement, or the enforceability or invalidity of this Agreement as a whole; and (ii) such part shall be deemed amended to the extent necessary to conform to applicable law so as to be valid, legal, effective and enforceable or, if such part cannot be so amended without materially altering the intention of the parties, then such part will be stricken and the remainder of this Agreement shall continue in full force and effect.

Section 11 - Assignment and Assumption. This Agreement shall be binding upon and inure to the benefit of the heirs and representatives of Executive and the assigns and successors of the Company, but neither this Agreement nor any rights or obligations hereunder shall be assignable or otherwise subject to hypothecation by Executive (except by will or by operation of the laws of intestate succession) or by the Company, except that the Company may assign this Agreement to any successor (whether by merger, purchase or otherwise) to all or substantially all of the stock, assets or business of the Company and shall cause such successor to assume this Agreement, which assumption shall not relieve the Company of its obligations to Executive hereunder unless so agreed in writing by Executive. The Company’s successor, or the Company’s assignee following such an assignment, shall have all the rights of the Company hereunder, and Executive’s obligations hereunder will be to the successor or assignee thereafter.

Section 12 - Amendment. This Agreement may only be amended by written agreement of the parties hereto.

Section 13 - Survivorship. The respective rights and obligations of the parties hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations. The provisions of this Section 13 are in addition to the survivorship provisions of any other section of this Agreement.

Section 14 - Governing Law; Venue and Jurisdiction. This Agreement shall be governed by and construed under and in accordance with the laws of the State of Florida (without reference to the conflicts of law provisions thereof). Subject to the following sentence, if any judicial or administrative proceeding or claim relating to or pertaining to this Agreement is initiated by either party hereto, such proceeding or claim shall and must be filed in a state or federal court located in Palm Beach County or Miami-Dade County, Florida, and the Company and Executive each consents to the jurisdiction of such a court. If Executive brings any judicial or administrative proceeding or claim relating to or pertaining to his right to receive payment or provision of compensation (including without limitation salary, bonuses or equity-based awards) or benefits from the Company, other than a claim arising in connection with the Company’s enforcement of its rights under the Agreement re Specified Acts, such proceeding or claim may, in Executive’s discretion, be filed in a state or federal court located in district in which Executive then resides, and if so filed the Company and the Executive each consents to the jurisdiction of such a court, which shall be the exclusive jurisdiction therefor, and the Company shall not contest such jurisdiction or seek to remove the matter to any other jurisdiction.

Section 15 - Prior Agreement; Coordination of Benefits. This Agreement including the exhibits hereto, and the indemnity provisions of the Company’s charter to the extent applicable, contain the entire understanding between the parties hereto regarding terms of Executive’s employment (other than any agreements that may be entered into after the date hereof between the Company and Executive) and supersedes in all respects any prior or other employment agreement or understanding, both written and oral. In the event of a conflict between this Agreement and any policy or plan that applies generally to employees or executives of the Company regarding compensation, employee benefits, performance bonuses, healthcare, retirement, severance, change in control, relocation, or equity programs such as Restricted Stock or Option awards, this Agreement shall control unless the generally applicable plan or program would provide a greater benefit or award to Executive, in which case the terms of such plan or program shall control over this Agreement.

Section 16 - Withholding. The Company shall be entitled to withhold from payment any amount of withholding required by law.

Section 17 - Section Headings and Construction. The headings of sections in this Agreement are provided for convenience only and will not effect its construction or interpretation. All references to “Sections” or “Exhibits” refer to the corresponding section or exhibit of this Agreement unless otherwise specified. All words used in this Agreement will be construed to be of such gender or number as circumstances require.

Section 18 - Counterparts. This Agreement may be executed in one (1) or more counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same Agreement.

Section 19 - Acknowledgement. Executive states and represents that he has had an opportunity to fully discuss and review the terms of this Agreement including its exhibits with an attorney. Executive further states and represents that he has carefully read this Agreement including its exhibits, understands the contents herein, freely and voluntarily assents to all of the terms and conditions hereof, and signs his name of his own free act.

Section 20 - Attorneys’ Fees. In the event that either party brings a legal action against the other in connection with the employment relationship between them, including without limitation anactionto enforce this Agreement or any of the exhibits hereto, the party, if either, that is judicially determined to be the prevailing party in such action shall be entitled to recover his or its reasonable attorney’s fees and legal costs incurred in connection with such action.

Intending to be immediately legally bound hereby, the parties have executed this Agreement on the date beside their respective signatures.

Date: December 22, 2005   ECLIPSYS CORPORATION   By: /s/ Brian Copple Name: Brian W. Copple Title: Secretary Date: December 22, 2005     /s/ John E. Deady John E. Deady

EXHIBIT A-1 TO EMPLOYMENT AGREEMENT

Notice of Grant of Stock Option

Notice of Grant of Stock Option Employee	Eclipsys Corporation ID: 65-0632092
John E. Deady «StreetAddress» «CityStateZip»	Option Number:«OptionNumber» Plan:2005 Inducement Grant Stock Incentive Plan Employee ID:«IDNumber»
Effective January __, 2006 (the “Grant Date”), you have been granted a non-statutory option to buy 400,000 shares of common stock of Eclipsys Corporation (the "Company") at an exercise price of $_________ per share. This option will vest and become exercisable with respect to 20% of the underlying shares on February 1, 2007 (the “First Vesting Date”); and (ii) with respect to the remaining 80% of the underlying shares in 48 equal consecutive monthly installments on the first day of each calendar month following the First Vesting Date, provided that vesting will not occur if you are not employed with the Company (as defined in the Plan) (or serving as a member of the Company’s Board of Directors) on the scheduled vesting date. The option is granted under and governed by the terms and conditions of this Notice, the Company's 2005 Inducement Grant Stock Incentive Plan (the “Plan”), the Employment Agreement between you and the Company dated January __, 2006 (the “Employment Agreement”), the Agreement re Specified Acts between you and the Company dated January __, , 2006 (the “Agreement re Specified Acts”), and any other applicable written agreement between you and the Company. The agreements referenced in this paragraph are referred to in this Notice as the “Applicable Agreements.” By your acceptance of this option, and also by its exercise, you agree to such terms and conditions and confirm that your receipt and exercise of this option is voluntary. Unless otherwise provided in the Plan or the Applicable Agreements, (i) no vesting will occur before the First Vesting Date; (ii) vesting will occur only on scheduled vesting dates, without any ratable vesting for periods of time between vesting dates; (iii) notwithstanding the foregoing, vesting will be suspended during the portion of any leave of absence (LOA) you have in excess of 60 days, and if you return to work following such a LOA, any scheduled vesting dates that passed during the suspension of vesting will be added to the end of the original vesting schedule, with vesting on each such additional vesting date in the amount of shares not vested on the corresponding vesting date during the period of the suspension; (iv) the Company may in its discretion cancel this option in whole or part, whether or not vested, and whether or not your employment is continuing, if you breach in any material respect any material contractual obligation or legal duty to the Company and fail to cure that breach within 30 days of receipt of written notice thereof from the Company, provided that a final determination that such a breach has occurred and not been cured within the 30 day notice period must be made by the Company’s Board of Directors after giving you an opportunity to be heard by the Board, and provided further than a failure of the Company to assert any breach shall not waive any subsequent breach; and (v) this option and the underlying shares are subject to the Agreement re Specified Acts, which may result in loss of some of all of the benefit of this grant. Except as otherwise provided in the Plan or the Applicable Agreements, any termination of your employment for any reason or no reason will result in cessation of vesting and lapse of the option to the extent not yet vested at the time of termination (unless you are then or are becoming a member of the Board of Directors of the Company), and vested options may be exercised only for a period of 90 days following termination of your employment (or Board service if you are a member of the Company’s Board of Directors at the time of termination of your employment) (or 365 days following termination if your employment ends as a result of death). Unless otherwise permitted by the Company’s Board of Directors, you must pay the exercise price and meet any tax obligations in cash. The option expires on the tenth anniversary of the Grant Date or such earlier date as the Plan provides. For purposes of this option, the definition of “Good Reason” under the Plan shall be the same as the definition of Good Reason in the Employment Agreement, notwithstanding any Plan provision to the contrary.
The Plan, the Company’s Annual Report on Form 10-K, and other filings made by the Company with the Securities and Exchange Commission are available for your review on the Company’s internal employee web site. You may also obtain paper copies of these documents upon request to the Company’s HR department. No representations or promises are made regarding the duration of your employment or service, vesting of the option, the value of the Company's stock or this option, or the Company's prospects. The Company provides no advice regarding tax consequences or your handling of this option; you agree to rely only upon your own personal advisors.
ECLIPSYS CORPORATION By: Name Title

EXHIBIT A-2 TO EMPLOYMENT AGREEMENT

Notice of Grant of Restricted Stock

Notice of Grant of Restricted Stock Employee	Eclipsys Corporation ID: 65-0632092
John E. Deady [address of recipient]	Grant Number:______________________ Plan:2005 Inducement Grant Stock Incentive Plan Employee ID:______________________
Effective January __, 2006 (the “Grant Date”), you have been granted the right to purchase, at a price of $0.01 per share, 100,000 shares (the “Shares”) of common stock of Eclipsys Corporation (the "Company"). You must pay the aggregate purchase price for the Shares to the Company by cash, check or other method acceptable to the Company within 30 days of the date of this Notice or the Company may cancel the grant. This notice is a “Grant Notice” as described in the Restricted Stock Agreement between you and the Company dated January __, 2006 (the “Restricted Stock Agreement”). This grant is made under, and this grant and the Shares are subject to and governed by the terms and conditions of, this Notice, the Restricted Stock Agreement including the restrictions on transfer set forth therein, the Company's 2005 Inducement Grant Stock Incentive Plan (the “Plan”), the Employment Agreement between you and the Company dated January __, 2006 (the “Employment Agreement”), the Agreement re Specified Acts between you and the Company dated January __, 2006 (the “Agreement re Specified Acts”), and any other applicable written agreement between you and the Company. The agreements referenced in this paragraph are referred to in this Notice as the “Applicable Agreements.” By your acceptance and payment for the Shares, you agree to such terms and conditions and confirm that your receipt of and payment for the Shares is voluntary. For purposes of this Notice, “Vesting Date” means each June 1 and December 1. Subject to the Applicable Agreements, 26.666% of the total number of Shares shall vest on June 1, 2007 (the “First Vesting Date”), and an additional 10% of the total number of Shares shall vest on each of the seven Vesting Dates next succeeding the First Vesting Date, and the final 3.334% of the total number of Shares shall vest on June 1, 2011. Unless otherwise provided in the Plan or the Applicable Agreements, (i) no Shares will vest before the First Vesting Date; (ii) vesting of Shares will occur only on Vesting Dates, without any ratable vesting for periods of time between Vesting Dates; (iii) notwithstanding the foregoing, vesting will be suspended during the portion of any leave of absence (LOA) you have in excess of 60 days, and if you return to work following such a LOA, any Vesting Dates that passed during the suspension of vesting will be added to the end of the original vesting schedule, with vesting on each such additional Vesting Date in the amount of shares not vested on the corresponding Vesting Date during the period of the suspension, contingent upon your continued employment; (iv) the Company may in its discretion cancel this grant in whole or part, whether or not vested, and whether or not your employment is continuing, and repurchase the cancelled Shares you own on the date of the breach (whether or not vested) at the purchase price you paid, if you breach in any material respect any material contractual obligation or legal duty to the Company and fail to cure that breach within 30 days of receipt of written notice thereof from the Company, provided that a final determination that such a breach has occurred and not been cured within the 30 day notice period must be made by the Company’s Board of Directors after giving you an opportunity to be heard by the Board, and provided further that a failure of the Company to assert any breach shall not waive any subsequent breach; and (v) the Shares are subject to the Agreement re Specified Acts, which may result in loss of some of all of the benefit of this grant. Except as otherwise provided in the Plan or the Applicable Agreements, any termination of your employment for any reason or no reason will result in cessation of vesting, cancellation of this grant, and forfeiture to the Company of any Shares not vested at the time your employment terminates (unless you are then or are becoming a member of the Board of Directors of the Company). For purposes of this grant and the Shares, the definition of Good Reason under the Plan shall be the same as the definition of Good Reason in the Employment Agreement, notwithstanding any Plan provision to the contrary.
The Plan, the Company’s Annual Report on Form 10-K, and other filings made by the Company with the Securities and Exchange Commission are available for your review on the Company’s internal employee web site. You may also obtain paper copies of these documents upon request to the Company’s HR department. No representations or promises are made regarding the duration of your employment or service, vesting of the Shares, the value of the Company's stock or this grant, or the Company's prospects. The Company provides no advice regarding tax consequences or your handling of the Shares; you agree to rely only upon your own personal advisors.
ECLIPSYS CORPORATION By: Name & Title

EXHIBIT A-3 TO EMPLOYMENT AGREEMENT

Restricted Stock Agreement

RESTRICTED STOCK AGREEMENT

This Restricted Stock Agreement (this “Agreement”) is made as of January __, 2006 by Eclipsys Corporation, a Delaware corporation ("Eclipsys") and John E. Deady ("Recipient") to govern awards of restricted stock by Eclipsys to Recipient made from time to time pursuant to Grant Notices (as defined below) that reference this Agreement as governing the awards reflected therein.

1.Grants of Restricted Stock. From time to time in its discretion, Eclipsys may grant and issue to Recipient shares of Eclipsys's common stock that are subject to the restrictions described in, and other provisions of, this Agreement (the "Restricted Stock"). No grants of Restricted Stock are promised by this Agreement. Each grant of Restricted Stock will be documented by a written notice delivered by Eclipsys to Recipient (a “Grant Notice”) stating: (i) that the Restricted Stock described therein is subject to this Agreement, (ii) the number of shares of Restricted Stock subject to the grant, (iii) the schedule and any other conditions for vesting of the Restricted Stock, and (iv) such other terms and conditions applicable to the Restricted Stock as Eclipsys may determine. As a condition to each grant of Restricted Stock, Recipient is required to pay to Eclipsys $.01 by cash or check for each share of Restricted Stock (the "Acquisition Consideration").

2.Governing Plan. The Restricted Stock shall be granted pursuant to and (except as specifically set forth herein or in another written agreement between Eclipsys and Recipient) subject in all respects to the applicable provisions of the Eclipsys Corporation 2005 Stock Incentive Plan (or, for inducement grants made in connection with commencement of Recipient’s employment, the Eclipsys Corporation 2005 Inducement Grant Stock Incentive Plan) or its successor plan (the "Plan"), which are incorporated herein by reference. Terms not otherwise defined in this Agreement have the meanings ascribed to them in the Plan.

3.Restrictions on the Restricted Stock.

(a)Limitation on Transfer. No share of Restricted Stock (including any shares received by Recipient with respect to shares of Restricted Stock as a result of stock dividends, stock splits or any other form of recapitalization or a similar transaction affecting Eclipsys's securities without receipt of consideration) may be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of, alienated or encumbered unless and until the conditions to vesting of that share set forth in the Grant Notice are met and any additional requirements or restrictions contained in this Agreement, the Grant Notice or the Plan have been satisfied, terminated or expressly waived by Eclipsys in writing. However, this will not prohibit nominal transfers of Restricted Stock for estate planning purposes that do not effect a change in beneficial ownership, if the transferee agrees in writing to the terms of this Agreement. Satisfaction of the conditions to vesting set forth in the Grant Notice and any additional requirements or restrictions contained in this Agreement, and the resulting removal of the restrictions imposed hereunder from particular shares of Restricted Stock, is also referred to as “vesting” of those shares and shares from which the restrictions have been removed are referred to as “vested.”

US1DOCS 5198605v2

(b)Cancellation of Restricted Stock. Notwithstanding Section 3(a), but subject to the Plan, any applicable Grant Notice, and any other separate written agreement between Eclipsys and Recipient, if any Cancellation Event occurs, then (i) vesting of any shares of Restricted Stock originally scheduled to vest after the time that Cancellation Event occurred will cease; (ii) any grant insofar as it relates to Restricted Stock that has not yet vested will be cancelled; (iii) unvested Restricted Stock will be forfeited to Eclipsys and all rights of Recipient as a stockholder of such shares will cease; (iv) Eclipsys shall be obligated to pay to Recipient, by cash or equivalent or by cancellation of amounts owed by Recipient to Eclipsys or any Affiliate, the Acquisition Consideration per share previously received from Recipient in respect of all shares of Restricted Stock that are forfeited to Eclipsys; and (v) Recipient shall have no rights to or in respect of shares of Restricted Stock that are forfeited to Eclipsys except the right to receive the Acquisition Consideration in respect thereof. In case of a Cancellation Event, any partially vested share will be rounded up to the nearest whole share for purposes of determining the number of shares that are forfeited to Eclipsys. For these purposes, if Recipient is an employee of Eclipsys or any of its present or future parent or subsidiary corporations (each an “Affiliate”) as defined in Sections 424(e) or (f) of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder (the “Code”), a “Cancellation Event” means, and shall be deemed to occur upon, the cessation of Recipient’s employment with Eclipsys or any of its Affiliates or its successor (other than in situations in which the Recipient is or is becoming a member of the Board of Directors of Eclipsys) for any reason, including without limitation resignation by Recipient with or without good reason, or termination of employment by Eclipsys or any Affiliate or its successor with or without cause. If Recipient is a member of the Board of Directors of Eclipsys, a Cancellation Event means, and shall be deemed to occur upon, cessation of Recipient’s service as a director of Eclipsys, unless at the time of such cessation Recipient is then an employee of Eclipsys or any of its Affiliates, in which case Recipient shall thereafter be treated as an employee for these purposes.

4.Voting and Other Rights. During the period prior to vesting, except as otherwise provided herein, Recipient will have all of the rights of a stockholder with respect to all of the Restricted Stock, including without limitation the right to vote such Restricted Stock and the right to receive all dividends or other distributions with respect to such Restricted Stock. In connection with the payment of such dividends or other distributions, Eclipsys will be entitled to deduct from any amounts otherwise payable by Eclipsys to Recipient (including without limitation salary or other compensation), except to the extent prohibited by applicable law or regulation, any taxes or other amounts required by any governmental authority to be withheld and paid over or deposited to such authority for Recipient's account.

5.Handling of Shares.

(a)Certificates or Book Entries. Eclipsys may in its discretion issue physical certificates representing Restricted Stock, or cause the Restricted Stock to be recorded in book entry form and reflected in records maintained by or for Eclipsys. Each certificate or data base entry representing any unvested portion of any Restricted Stock may be endorsed with a legend substantially as set forth below, as well as such other legends as Eclipsys may deem appropriate to comply with applicable laws and regulations:

The securities evidenced by this certificate are subject to certain limitations on transfer and other restrictions as set forth in that certain Restricted Stock Agreement, dated as of January __, 2006, between Eclipsys and the holder of such securities, the Eclipsys Corporation 2005 Stock Incentive Plan or 2005 Inducement Grant Stock Incentive Plan (copies of which are available for inspection at the offices of Eclipsys), and the notice of grant applicable to the securities.

(b)Escrow. With respect to each unvested share of Restricted Stock (including any shares received by Recipient with respect to shares of Restricted Stock that have not yet vested as a result of stock dividends, stock splits or any other form of recapitalization or a similar transaction affecting Eclipsys's securities without receipt of consideration), the Secretary of Eclipsys, or such other escrow holder as the Secretary may appoint, will retain physical custody of any certificate representing such share until such share vests.

(c) Delivery of Certificates. As soon as practicable after the vesting of any Restricted Stock and upon request by Recipient, but subject to Section 5(d), Eclipsys will deliver to Recipient or Recipient’s designee a certificate(s) free of restrictive legends representing such vested Restricted Stock, or cause appropriate book entry or other electronic changes to be made to reflect Recipient’s ownership of such vested Restricted Stock free of restrictions, in any case net of the number of shares withheld by Eclipsys in payment of tax pursuant to Section 6(a).

(d)Conditions to Vesting. At the time for vesting of any shares of Restricted Stock, and as a condition to vesting, Recipient must, if requested by Eclipsys, make appropriate representations in a form satisfactory to Eclipsys that such Restricted Stock will not be sold other than (A) pursuant to an effective registration statement under the Securities Act of 1933, as amended, or an applicable exemption from the registration requirements of such Act; (B) in compliance with all applicable state securities laws and regulations; and (C) in compliance with all terms and conditions of the Plan, the applicable Grant Notice, any applicable policy of Eclipsys or any of its Affiliates, and any other written agreement between Recipient and Eclipsys or any of its Affiliates.

6.Tax Matters.

(a)Recipient’s Tax Obligations. The vesting of Restricted Stock generally results in taxable income for employees and is subject to appropriate income tax withholding, deposits, or other deductions required by applicable laws or regulations. Subject to any separate written agreement between Recipient and Eclipsys, Recipient and Recipient’s successors will be responsible for all income and other taxes payable as a result of grant or vesting of Restricted Stock or otherwise in connection with this Agreement. All obligations of Eclipsys or its Affiliates to pay tax deposits to any federal, state or other taxing authority as a result of grant or vesting of Restricted Stock will result in a commensurate obligation of Recipient to reimburse Eclipsys or its Affiliate the amount of such tax deposits. Such obligation of Recipient shall, unless otherwise specified in the applicable Grant Notice or in a separate written agreement between Eclipsys and Recipient, be satisfied by the Recipient forfeiting and Eclipsys deducting and retaining from the shares vesting at any particular time that number of shares with a value equal to the amount of the required minimum tax withholdings that Eclipsys or its Affiliate is required to pay as a result of such vesting, with such value measured by the same value per share used by Eclipsys or its Affiliate to determine its tax deposit obligation and based on the minimum statutory withholding rates for federal and state income and payroll tax purposes that are applicable to supplemental wages. If Eclipsys or its Affiliate is required to pay additional tax deposits after the initial issuance to Recipient of the net number of vested shares, Eclipsys or its Affiliate may require Recipient to make up the difference in cash. If the tax deposits paid are less than Recipient’s tax obligations, Recipient is solely responsible for any additional taxes due. If Eclipsys or its Affiliate pays tax deposits in excess of Recipient’s tax obligations, Recipient’s sole recourse will be against the relevant taxing authorities, and Eclipsys and its Affiliates will have no obligation to issue additional shares or pay cash to Recipient in respect thereof. Recipient is responsible for determining Recipient’s actual income tax liabilities and making appropriate payments to the relevant taxing authorities to fulfill Recipient’s tax obligations and avoid interest and penalties.

(b)Section 83(b) Election. Recipient understands that Recipient may make an election pursuant to Section 83(b) of the Code (by filing an election with the Internal Revenue Service within thirty (30) days after the date Recipient acquired the Restricted Stock) to include in Recipient's gross income the fair market value (as of the date of acquisition) of the Restricted Stock. Recipient may make such an election under Section 83(b), or comparable provisions of any state tax law, only if, prior to making any such election, Recipient (a) notifies Eclipsys of Recipient's intention to make such election, by delivering to Eclipsys a copy of the fully-executed Section 83(b) Election Form attached hereto as Exhibit A, and (b) pays to Eclipsys an amount sufficient to satisfy any taxes or other amounts required by any governmental authority to be withheld or paid over to such authority for Recipient's account, or otherwise makes arrangements satisfactory to Eclipsys for the payment of such amounts through withholding or otherwise. Recipient understands that if Recipient has not made a proper and timely Section 83(b) election, at the time the forfeiture restrictions applicable to the Restricted Stock lapse, Section 83 will generally provide that Recipient will recognize ordinary income and be taxed in an amount equal to the fair market value (as of the date the forfeiture restrictions lapse) of the Restricted Stock less the Acquisition Consideration paid for the Restricted Stock. For this purpose, the term "forfeiture restrictions" includes the right of Eclipsys to cancel the Restricted Stock pursuant to Section 3 of this Agreement. Recipient acknowledges that it is Recipient's sole responsibility, and not the responsibility of Eclipsys or any of its Affiliates, to file a timely election under Section 83(b), even if Recipient requests Eclipsys or its representative to make this filing on Recipient's behalf. Recipient is relying solely on Recipient's advisors with respect to the decision as to whether or not to file a Section 83(b) election.

7.Additional Agreements

(a)Independent Advice; No Representations. Recipient acknowledges that (i) Recipient was and is free to use professional advisors of Recipient’s choice in connection with this Agreement and any grant of Restricted Stock, that Recipient understands this Agreement and the meaning and consequences of receiving grants of Restricted Stock, and is entering into this Agreement freely and without coercion or duress; and (ii) Recipient has not received and is not relying, and will not rely, upon any advice, representations or assurances made by or on behalf of Eclipsys or any Affiliate or any employee of or counsel to Eclipsys or any Affiliate regarding any tax or other effects or implications of the Restricted Stock or other matters contemplated by this Agreement or any Grant Notice.

(b)Value of Restricted Stock. No representations or promises are made to Recipient regarding the value of the Restricted Stock or the business prospects of Eclipsys or any Affiliate. Recipient acknowledges that information about investment in Eclipsys stock, including financial information and related risks, is contained in Eclipsys’s SEC reports on Form 10-Q and Form 10-K, which have been made available from Eclipsys’s Human Resources department and/or on Eclipsys’s internal web site for Recipient’s review at any time before Recipient’s acceptance of this Agreement or at any time during Recipient’s employment or service. Further, Recipient understands that Eclipsys and its Affiliates and their respective employees, counsel and other representatives do not provide tax or investment advice and acknowledges Eclipsys’s recommendation that Recipient consult with independent specialists regarding such matters. Sale or other transfer of Eclipsys stock may be limited by and subject to policies of Eclipsys or its Affiliates as well as applicable securities laws and regulations.

(c)Merger, Consolidation or Reorganization. In the event of a Reorganization of Eclipsys in which holders of shares of Common Stock of Eclipsys are entitled to receive in respect of such shares any additional shares or new or different shares or securities, cash or other consideration (including, without limitation, a different number of shares of Common Stock) ("Exchange Consideration"), then Recipient will be entitled to receive a proportionate share of the Exchange Consideration in exchange for any Restricted Stock that is then still owned by Recipient and not cancelled; provided that, subject to any Grant Notice or other separate written agreement between Eclipsys and Recipient, any Exchange Consideration issued to Recipient in respect of unvested Restricted Stock will be subject to the same restrictions and vesting provisions that were applicable to the Restricted Stock in exchange for which the Exchange Consideration was issued.

(d)No Right to Continued Employment or Service; No Positive Inference. Neither this Agreement nor any grant of Restricted Stock confers upon Recipient any right to continue as an employee, director or consultant of, or in any other relationship with, Eclipsys or its Affiliates, or to any particular employment or service tenure or minimum vesting of Restricted Stock, or limits in any way the right of Eclipsys or its Affiliates to terminate Recipient's services to Eclipsys or any of its Affiliates at any time, with or without cause. Restricted Stock is to motivate and reward future performance, and no grant of Restricted Stock will be interpreted as a reward for past performance that dictates vesting in advance of the vesting schedule specified in the applicable Grant Notice, or an indication that the Recipient has performed well or is entitled to any particular employment or service tenure.

8.General.

(a)Successors and Assigns. This Agreement is personal in its nature and Recipient may not assign or transfer Recipient’s rights under this Agreement, except as specifically provided herein or permitted by Eclipsys in writing.

(b)Notices. Any notices, demands or other communications required or desired to be given by any party shall be in writing and shall be validly given to another party if served personally or if deposited in the United States mail, certified or registered, postage prepaid, return receipt requested. If such notice, demand or other communication shall be served personally, service shall be conclusively deemed made at the time of such personal service. If such notice, demand or other communication is given by mail, such notice shall be conclusively deemed given forty-eight (48) hours after the deposit thereof in the United States mail addressed to the party to whom such notice, demand or other communication is to be given as hereinafter set forth:

To Eclipsys:Eclipsys, Inc.

1750 Clint Moore Road

Boca Raton, Florida 33487

Attention: General Counsel

To Recipient:At Recipient’s address of record as maintained in Eclipsys’s employment files

Any party may change its address for the purpose of receiving notices, demands and other communications by providing written notice to the other party in the manner described in this paragraph.

(c)Entire Agreement. Except as this Agreement and/or another written agreement between Eclipsys and Recipient may expressly provide otherwise, this Agreement, the Plan, and any Grant Notices constitute the entire agreement and understanding of Eclipsys (together with its Affiliates) and Recipient with respect to Restricted Stock, and supersede all prior written or verbal agreements and understandings between Recipient and Eclipsys (together with its Affiliates) relating to such subject matter. Recipient has not received and is not relying upon, and will not rely upon, any representations by any employee of or counsel to or other representative of Eclipsys or any of its Affiliates in connection with this Agreement or any grant of Restricted Stock hereunder. This Agreement may only be amended by written instrument signed by Recipient and an authorized officer of Eclipsys.

(d)Governing Law; Severability.This Agreement will be construed and interpreted under the laws of the State of Delaware applicable to agreements executed and to be wholly performed within the State of Delaware. If any part of this Agreement as applied to any party or to any circumstance is adjudged by a court of competent jurisdiction to be invalid, illegal, void or unenforceable for any reason, then (i) the invalidity of that part shall in no way affect (to the maximum extent permissible by law) the application of such part under circumstances different from those adjudicated by the court, the application of any other part of this Agreement, or the enforceability or invalidity of this Agreement as a whole; and (ii) such part shall be deemed amended to the extent necessary to conform to applicable law so as to be valid, legal, effective and enforceable or, if such part cannot be so amended without materially altering the intention of the parties, then such part will be stricken and the remainder of this Agreement shall continue in full force and effect.

(e)Remedies. All rights and remedies provided pursuant to this Agreement or by law shall be cumulative, and no such right or remedy shall be exclusive of any other. A party may pursue any one or more rights or remedies hereunder or may seek damages or specific performance in the event of another party’s breach hereunder or may pursue any other remedy by law or equity, whether or not stated in this Agreement.

(f)Interpretation.Headings herein are for convenience of reference only, do not constitute a part of this Agreement, and will not affect the meaning or interpretation of this Agreement. References herein to Sections are references to the referenced Section hereof, unless otherwise specified.

(g)Waivers; Amendments. The waiver by either party of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any later breach of that provision. This Agreement may be modified only by written agreement signed by Recipient and Eclipsys.

(h)Counterparts.This Agreement may be executed in more than one counterpart, each of which shall be deemed an original, but all of which together shall constitute but one and the same instrument. Facsimile or photographic copies of originally signed copies of this Agreement will be deemed to be originals.

ECLIPSYS CORPORATION   By: Name: Title:     John E. Deady

EXHIBIT A

to Restricted Stock Agreement

ELECTION TO INCLUDE VALUE OF RESTRICTED PROPERTY

IN GROSS INCOME IN YEAR OF TRANSFER

INTERNAL REVENUE CODE § 83(b)

The undersigned hereby elects pursuant to Section 83(b) of the Internal Revenue Code with respect to the property described below, and supplies the following information in accordance with the regulations promulgated thereunder:

1.Name, address and taxpayer identification number of the undersigned:

Taxpayer I.D. No.:

2.Description of property with respect to which the election is being made:

____________ shares of Common Stock of Eclipsys Corporation, a Delaware corporation (the "Company")

3.Date on which property was transferred: __________

4.Taxable year to which this election relates: ________

5.Nature of the restrictions to which the property is subject:

If the taxpayer's service to the Company terminates for any reason before the Common Stock vests, the Company will repurchase the Common Stock from the taxpayer at $.01 per share. The Common Stock vests according to the following schedule: _____________________

The Common Stock is non-transferable in the taxpayer's hands, by virtue of language to that effect stamped on the stock certificate.

6.Fair market value of the property:

The fair market value at the time of transfer (determined without regard to any restrictions other than restrictions that by their terms will never lapse) of the property with respect to which this election is being made is $_________ per share.

7.Amount paid for the property:

The amount paid by the taxpayer for said property is $.01 per share.

8.Furnishing statement to employer:

A copy of this statement has been furnished to _______________

Date:________________________________

Signature

Printed Name

This election must be filed with the Internal Revenue Service Center with which taxpayer files his or her Federal income tax returns and must be made within thirty (30) days after receipt of the Restricted Stock. This filing should be made by registered or certified mail, return receipt requested. The taxpayer must retain two (2) copies of the completed form, one for filing with his or her Federal and state tax returns for the current tax year and an additional copy for his or her records.

EXHIBIT A-4 TO EMPLOYMENT AGREEMENT

2005 Inducement Grant Stock Incentive Plan

ECLIPSYS CORPORATION

2005 INDUCEMENT GRANT STOCK INCENTIVE PLAN

1.Purpose

The purpose of this 2005 Inducement Grant Stock Incentive Plan (the “Plan”) of Eclipsys Corporation, a Delaware corporation (the “Company”), is to provide terms and conditions to govern inducement grants made by the Company under Section 4350(i)(1)(A)(iv) of the NASD Marketplace Rules (“Inducement Grants”). Such grants are intended to advance the interests of the Company’s stockholders by enhancing the Company’s ability to recruit, retain and motivate persons who are expected to make important contributions to the Company and by providing such persons with equity ownership opportunities and performance-based incentives that are intended to align their interests with those of the Company’s stockholders. Except where the context otherwise requires, the term “Company” shall include any of the Company’s present or future parent or subsidiary corporations as defined in Sections 424(e) or (f) of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder (the “Code”) and any other business venture (including, without limitation, joint venture or limited liability company) in which the Company has a controlling interest, as determined by the Board of Directors of the Company (the “Board”).

2.Eligibility

Prospective and newly hired employees of the Company are eligible to receive Inducement Grants in the form of options, stock appreciation rights, restricted stock, restricted stock units and other stock-based awards and commitments therefore (each an “Award”) under the Plan. Each person who receives an Award under the Plan is deemed a “Participant”.

3.Administration and Delegation

(a)Administration by Board of Directors. The Plan will be administered by the Board. The Board shall have authority to grant Awards and to adopt, amend and repeal such administrative rules, guidelines and practices relating to the Plan as it shall deem advisable. The Board may correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award in the manner and to the extent it shall deem expedient to carry the Plan into effect and it shall be the sole and final judge of such expediency. All decisions by the Board shall be made in the Board’s sole discretion and shall be final and binding on all persons having or claiming any interest in the Plan or in any Award. No director or person acting pursuant to the authority delegated by the Board shall be liable for any action or determination relating to or under the Plan made in good faith.

(b)Appointment of Committees. To the extent permitted by applicable law, the Board may delegate any or all of its powers under the Plan to one or more committees or subcommittees of the Board (a “Committee”). All references in the Plan to the “Board” shall mean the Board or a Committee of the Board or the officers referred to in Section 3(c) to the extent that the Board’s powers or authority under the Plan have been delegated to such Committee or officers.

(c)Delegation to Officers. To the extent permitted by applicable law, the Board may delegate to one or more officers of the Company the power to grant Awards to employees or officers of the Company or any of its present or future subsidiary corporations and to exercise such other powers under the Plan as the Board may determine, provided that the Board shall fix the terms of the Awards to be granted by such officers (including the exercise price of such Awards, which may include a formula by which the exercise price will be determined) and the maximum number of shares subject to Awards that the officers may grant; provided further, however, that no officer shall be authorized to grant Awards to any “executive officer” of the Company (as defined by Rule 3b-7 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) or to any “officer” of the Company (as defined by Rule 16a-1 under the Exchange Act).

4.Stock Available for Awards

(a)Number of Shares. Subject to adjustment under Section 9, Awards may be made under the Plan for 1,200,000 shares of common stock, $.01 par value per share, of the Company (the “Common Stock”). The Board may in its discretion increase the number of shares of Common Stock available for Awards under the Plan from time to time. If any Award expires or is terminated, surrendered or canceled without having been fully exercised or is forfeited in whole or in part (including as the result of shares of Common Stock subject to such Award being repurchased by the Company at the original issuance price pursuant to a contractual repurchase right) or results in any Common Stock not being issued, the unused Common Stock covered by such Award shall again be available for the grant of Awards under the Plan. However, in the case of Incentive Stock Options (as hereinafter defined), the foregoing provisions shall be subject to any limitations under the Code. SARs (as hereinafter defined) to be settled in shares of Common Stock shall be counted in full against the number of shares available for award under the Plan, regardless of the number of shares of Common Stock issued on settlement of the SAR; provided, however, that SARs to be settled only in cash shall not be so counted. Shares issued under the Plan may consist in whole or in part of authorized but unissued shares or treasury shares.

(b)Section 162(m) Sub-limit. Subject to adjustment under Section 9, the maximum number of shares of Common Stock with respect to which Awards may be granted to any Participant under the Plan shall be 1,000,000 per calendar year. For purposes of the foregoing limit, the combination of an Option (as hereafter defined) in tandem with an SAR shall be treated as a single Award. The per-Participant limit described in this Section 4(b)(1) shall be construed and applied consistently with Section 162(m) of the Code or any successor provision thereto, and the regulations thereunder (“Section 162(m)”).

5.Stock Options

(a)General. The Board may grant options to purchase Common Stock (each, an “Option”) and determine the number of shares of Common Stock to be covered by each Option, the exercise price of each Option and the conditions and limitations applicable to the exercise of each Option, including conditions relating to applicable federal or state securities laws, as it considers necessary or advisable. An Option which is not intended to be an Incentive Stock Option (as hereinafter defined) shall be designated a “Nonstatutory Stock Option”.

(b)Incentive Stock Options. An Option that the Board intends to be an “incentive stock option” as defined in Section 422 of the Code (an “Incentive Stock Option”) shall only be granted to employees of Eclipsys Corporation, any of Eclipsys Corporation's present or future parent or subsidiary corporations as defined in Sections 424(e) or (f) of the Code, and any other entities the employees of which are eligible to receive Incentive Stock Options under the Code, and shall be subject to and shall be construed consistently with the requirements of Section 422 of the Code. The Company shall have no liability to a Participant, or any other party, if an Option (or any part thereof) that is intended to be an Incentive Stock Option is not an Incentive Stock Option or for any action taken by the Board pursuant to Section 10(f), including without limitation the conversion of an Incentive Stock Option to a Nonstatutory Stock Option.

(c)Exercise Price. The Board shall establish the exercise price of each Option and specify such exercise price in the applicable option agreement; provided, however, that the exercise price shall not be less than 100% of the Fair Market Value (as defined below) at the time the Option is granted.

(d)Duration of Options. Each Option shall be exercisable at such times and subject to such terms and conditions as the Board may specify in the applicable option agreement, provided, however, that no Option will be granted for a term in excess of 10 years.

(e)Exercise of Option. Options may be exercised by delivery to the Company of a written notice of exercise signed by the proper person or by any other form of notice (including electronic notice) approved by the Board together with payment in full as specified in Section 5(f) for the number of shares for which the Option is exercised. Shares of Common Stock subject to the Option will be delivered by the Company following exercise either as soon as practicable or, subject to such conditions as the Board shall specify, on a deferred basis (with the Company’s obligation to be evidenced by an instrument providing for future delivery of the deferred shares at the time or times specified by the Board).

(f)Payment Upon Exercise. Common Stock purchased upon the exercise of an Option granted under the Plan shall be paid for as follows:

(1)in cash or by check, payable to the order of the Company;

(2)except as the Board may otherwise provide in an option agreement, by (i) delivery of an irrevocable and unconditional undertaking by a creditworthy broker to deliver promptly to the Company sufficient funds to pay the exercise price and any required tax withholding or (ii) delivery by the Participant to the Company of a copy of irrevocable and unconditional instructions to a creditworthy broker to deliver promptly to the Company cash or a check sufficient to pay the exercise price and any required tax withholding;

(3)when the Common Stock is registered under the Securities Exchange Act of 1934 (the “Exchange Act”), by delivery of shares of Common Stock owned by the Participant valued at their fair market value as determined by (or in a manner approved by) the Board (“Fair Market Value”), provided (i) such method of payment is then permitted under applicable law, (ii) such Common Stock, if acquired directly from the Company, was owned by the Participant for such minimum period of time, if any, as may be established by the Board in its discretion and (iii) such Common Stock is not subject to any repurchase, forfeiture, unfulfilled vesting or other similar requirements;

(4)to the extent permitted by applicable law and by the Board, by (i) delivery of a promissory note of the Participant to the Company on terms determined by the Board, or (ii) payment of such other lawful consideration as the Board may determine; or

(5)by any combination of the above permitted forms of payment.

(g)Substitute Options. In connection with a merger or consolidation of an entity with the Company or the acquisition by the Company of property or stock of an entity, the Board may grant Options in substitution for any options or other stock or stock-based awards granted by such entity or an affiliate thereof. Substitute Options may be granted on such terms as the Board deems appropriate in the circumstances, notwithstanding any limitations on Options contained in the other sections of this Section 5 or in Section 2. Substitute Options shall not count against the overall share limit set forth in Section 4(a), except as may be required by reason of Section 422 and related provisions of the Code.

6.Stock Appreciation Rights.

(a)General. A stock appreciation right, or “SAR”, is an Award entitling the holder, upon exercise, to receive an amount in Common Stock determined by reference to appreciation, from and after the date of grant, in the fair market value of a share of Common Stock. The base price from which such appreciation is measured shall not be less than 100% of the Fair Market Value on the date of grant. The date as of which such appreciation or other measure is determined shall be the exercise date. SARs granted hereunder shall expire no later than 10 years after the date of grant.

(b)Grants. SARs may be granted in tandem with, or independently of, Options granted under the Plan.

(1)Tandem Awards. When SARs are expressly granted in tandem with Options, (i) the SAR will be exercisable only at such time or times, and to the extent, that the related Option is exercisable (except to the extent designated by the Board in connection with a Reorganization Event or a Change in Control Event) and will be exercisable in accordance with the procedure required for exercise of the related Option; (ii) the SAR will terminate and no longer be exercisable upon the termination or exercise of the related Option, except to the extent designated by the Board in connection with a Reorganization Event or a Change in Control Event and except that a SAR granted with respect to less than the full number of shares covered by an Option will not be reduced until the number of shares as to which the related Option has been exercised or has terminated exceeds the number of shares not covered by the SAR; (iii) the Option will terminate and no longer be exercisable upon the exercise of the related SAR; and (iv) the SAR will be transferable only with the related Option.

(2)Independent SARs. A SAR not expressly granted in tandem with an Option will become exercisable at such time or times, and on such conditions, as the Board may specify in the SAR Award.

(c)Exercise. SARs may be exercised by delivery to the Company of a written notice of exercise signed by the proper person or by any other form of notice (including electronic notice) approved by the Board, together with any other documents required by the Board.

7.Restricted Stock; Restricted Stock Units.

(a)General. The Board may grant Awards entitling recipients to acquire shares of Common Stock (“Restricted Stock”), subject to the right of the Company to repurchase all or part of such shares at their issue price or other stated or formula price from the recipient in the event that conditions specified by the Board in the applicable Award are not satisfied prior to the end of the applicable restriction period or periods established by the Board for such Award. Instead of granting Awards for Restricted Stock, the Board may grant Awards entitling the recipient to receive shares of Common Stock to be delivered at the time such shares of Common Stock vest (“Restricted Stock Units”) (Restricted Stock and Restricted Stock Units are each referred to herein as a “Restricted Stock Award”).

(b)Terms and Conditions. The Board shall determine the terms and conditions of a Restricted Stock Award, including the conditions for repurchase and the issue price.

(c)Stock Certificates. Any stock certificates issued in respect of a Restricted Stock Award shall be registered in the name of the Participant and, unless otherwise determined by the Board, deposited by the Participant, together with a stock power endorsed in blank, with the Company (or its designee). At the expiration of the applicable restriction periods, the Company (or such designee) shall deliver the certificates no longer subject to such restrictions to the Participant or if the Participant has died, to the beneficiary designated, in a manner determined by the Board, by a Participant to receive amounts due or exercise rights of the Participant in the event of the Participant’s death (the “Designated Beneficiary”). In the absence of an effective designation by a Participant, “Designated Beneficiary” shall mean the Participant’s estate.

8.Other Stock-Based Awards.

Other Awards of shares of Common Stock, and other Awards that are valued in whole or in part by reference to, or are otherwise based on, shares of Common Stock or other property, may be granted hereunder to Participants (“Other Stock Unit Awards”), including without limitation Awards entitling recipients to receive shares of Common Stock to be delivered in the future. Such Other Stock Unit Awards shall also be available as a form of payment in the settlement of other Awards granted under the Plan or as payment in lieu of compensation to which a Participant is otherwise entitled. Other Stock Unit Awards may be paid in shares of Common Stock or cash, as the Board shall determine. Subject to the provisions of the Plan, the Board shall determine the conditions of each Other Stock Unit Awards, including any purchase price applicable thereto.

9.Adjustments for Changes in Common Stock and Certain Other Events.

(a)Changes in Capitalization. In the event of any stock split, reverse stock split, stock dividend, recapitalization, combination of shares, reclassification of shares, spin-off or other similar change in capitalization or event, or any distribution to holders of Common Stock other than an ordinary cash dividend, (i) the number and class of securities available under this Plan, (ii) the sub-limit set forth in Section 4(b), (iii) the number and class of securities and exercise price per share of each outstanding Option, (iv) the share- and per-share provisions of each SAR, (v) the repurchase price per share subject to each outstanding Restricted Stock Award and (vi) the share- and per-share-related provisions of each outstanding Other Stock Unit Award, shall be appropriately adjusted by the Company (or substituted Awards may be made, if applicable) to the extent determined by the Board.

(b)Reorganization and Change in Control Events

(1)Definitions

(a)A “Reorganization Event” shall mean:

(i)any merger or consolidation of the Company with or into another entity as a result of which all of the Common Stock of the Company is converted into or exchanged for the right to receive cash, securities or other property or is cancelled;

(ii)any exchange of all of the Common Stock of the Company for cash, securities or other property pursuant to a share exchange transaction; or

(iii)any liquidation or dissolution of the Company.

(b)A “Change in Control Event” shall mean:

(i)the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a “Person”) of beneficial ownership of any capital stock of the Company if, after such acquisition, such Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) 30% or more of either (x) the then-outstanding shares of Common Stock of the Company (the “Outstanding Company Common Stock”) or (y) the combined voting power of the then-outstanding securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change in Control Event: (A) any acquisition directly from the Company (excluding an acquisition pursuant to the exercise, conversion or exchange of any security exercisable for, convertible into or exchangeable for Common Stock or voting securities of the Company, unless the Person exercising, converting or exchanging such security acquired such security directly from the Company or an underwriter or agent of the Company), (B) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, (C) any acquisition by any corporation pursuant to a Business Combination (as defined below) which complies with clauses (x) and (y) of subsection (iii) of this definition or (D) any acquisition by General Atlantic Partners 28, L.P., General Atlantic Partners 38, L.P., General Atlantic Partners 47, L.P., GAP Coinvestment Partners, L.P. and any other entities controlled by or under common control with any of the foregoing entities, within the meaning of the Exchange Act (each such party is referred to herein as an “Exempt Person”); or

(ii)such time as the Continuing Directors (as defined below) do not constitute a majority of the Board (or, if applicable, the Board of Directors of a successor corporation to the Company), where the term “Continuing Director” means at any date a member of the Board (x) who was a member of the Board on the date of the initial adoption of this Plan by the Board or (y) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; provided, however, that there shall be excluded from this clause (y) any individual whose initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Board; or

(iii)the consummation of a merger, consolidation, reorganization, recapitalization or share exchange involving the Company or a sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination”), unless, immediately following such Business Combination, each of the following two conditions is satisfied: (x) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall include, without limitation, a corporation which as a result of such transaction owns the Company or substantially all of the Company’s assets either directly or through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as the “Acquiring Corporation”) in substantially the same proportions as their ownership of the Outstanding Company Common Stock and Outstanding Company Voting Securities, respectively, immediately prior to such Business Combination and (y) no Person (excluding the Exempt Persons and any employee benefit plan (or related trust) maintained or sponsored by the Company or by the Acquiring Corporation) beneficially owns, directly or indirectly, 30% or more of the then-outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of the then-outstanding securities of such corporation entitled to vote generally in the election of directors (except to the extent that such ownership existed prior to the Business Combination); or

(iv)the liquidation or dissolution of the Company.

(c)“Good Reason” shall have the meaning set forth in any employment agreement or severance agreement between the Company and the Participant, or in the absence of such a definition, shall mean any significant diminution in the Participant’s title, authority, or responsibilities from and after such Reorganization Event or Change in Control Event, as the case may be, or any reduction in the annual cash compensation payable to the Participant from and after such Reorganization Event or Change in Control Event, as the case may be.

(d)“Cause” shall have the meaning set forth in any employment agreement or severance agreement between the Company and the Participant, or in the absence of such a definition, shall mean any (i) willful failure by the Participant, which failure is not cured within 30 days of written notice to the Participant from the Company, to perform his or her material responsibilities to the Company or (ii) willful misconduct by the Participant which affects the business reputation of the Company. The Participant shall be considered to have been discharged for “Cause” if the Company determines, within 30 days after the Participant’s resignation, that discharge for Cause was warranted.

(2)Effect on Options

(a)Reorganization Event. Upon the occurrence of a Reorganization Event (regardless of whether such event also constitutes a Change in Control Event), or the execution by the Company of any agreement with respect to a Reorganization Event (regardless of whether such event will result in a Change in Control Event), the Board shall provide that all outstanding Options shall be assumed, or equivalent options shall be substituted, by the acquiring or succeeding corporation (or an affiliate thereof); provided that if such Reorganization Event also constitutes a Change in Control Event, except to the extent specifically provided to the contrary in the instrument evidencing any Option or any other agreement between a Participant and the Company, such assumed or substituted options shall be immediately exercisable in full if, on or prior to the first anniversary of the date of the consummation of the Reorganization Event, the Participant’s employment with the Company or the acquiring or succeeding corporation is terminated for Good Reason by the Participant or is terminated without Cause by the Company or the acquiring or succeeding corporation. For purposes hereof, an Option shall be considered to be assumed if, following consummation of the Reorganization Event, the Option confers the right to purchase, for each share of Common Stock subject to the Option immediately prior to the consummation of the Reorganization Event, the consideration (whether cash, securities or other property) received as a result of the Reorganization Event by holders of Common Stock for each share of Common Stock held immediately prior to the consummation of the Reorganization Event (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares of Common Stock); provided, however, that if the consideration received as a result of the Reorganization Event is not solely common stock of the acquiring or succeeding corporation (or an affiliate thereof), the Company may, with the consent of the acquiring or succeeding corporation, provide for the consideration to be received upon the exercise of Options to consist solely of common stock of the acquiring or succeeding corporation (or an affiliate thereof) equivalent in value (as determined by the Board) to the per share consideration received by holders of outstanding shares of Common Stock as a result of the Reorganization Event.

Notwithstanding the foregoing, if the acquiring or succeeding corporation (or an affiliate thereof) does not agree to assume, or substitute for, such Options, or in the event of a liquidation or dissolution of the Company, the Board shall, upon written notice to the Participants, provide that all then unexercised Options will become exercisable in full as of a specified time prior to the Reorganization Event and will terminate immediately prior to the consummation of such Reorganization Event, except to the extent exercised by the Participants before the consummation of such Reorganization Event; provided, however, in the event of a Reorganization Event under the terms of which holders of Common Stock will receive upon consummation thereof a cash payment for each share of Common Stock surrendered pursuant to such Reorganization Event (the “Acquisition Price”), then the Board may instead provide that all outstanding Options shall terminate upon consummation of such Reorganization Event and that each Participant shall receive, in exchange therefor, a cash payment equal to the amount (if any) by which (A) the Acquisition Price multiplied by the number of shares of Common Stock subject to such outstanding Options (whether or not then exercisable), exceeds (B) the aggregate exercise price of such Options.

(b)Change in Control Event that is not a Reorganization Event. Upon the occurrence of a Change in Control Event that does not also constitute a Reorganization Event, except to the extent specifically provided to the contrary in the instrument evidencing any Option or any other agreement between a Participant and the Company, all Options then outstanding shall automatically become immediately exercisable in full if, on or prior to the first anniversary of the date of the consummation of the Change in Control Event, the Participant’s employment with the Company or the acquiring or succeeding corporation is terminated for Good Reason by the Participant or is terminated without Cause by the Company or the acquiring or succeeding corporation.

(3)Effect on Restricted Stock Awards

(a)Reorganization Event that is not a Change in Control Event. Upon the occurrence of a Reorganization Event that is not a Change in Control Event, the repurchase and other rights of the Company under each outstanding Restricted Stock Award shall inure to the benefit of the Company’s successor and shall apply to the cash, securities or other property which the Common Stock was converted into or exchanged for pursuant to such Reorganization Event in the same manner and to the same extent as they applied to the Common Stock subject to such Restricted Stock Award.

(b)Change in Control Event. Upon the occurrence of a Change in Control Event (regardless of whether such event also constitutes a Reorganization Event), except to the extent specifically provided to the contrary in the instrument evidencing any Restricted Stock Award or any other agreement between a Participant and the Company, all restrictions and conditions on all Restricted Stock Awards then outstanding shall automatically be deemed terminated or satisfied if, on or prior to the first anniversary of the date of the consummation of the Change of Control Event, the Participant’s employment with the Company or the acquiring or succeeding corporation is terminated for Good Reason by the Participant or is terminated without Cause by the Company or the acquiring or succeeding corporation.

(4)Effect on Stock Appreciation Rights and Other Stock Unit Awards

The Board may specify in an Award at the time of the grant the effect of a Reorganization Event and Change in Control Event on any SAR and Other Stock Unit Award.

10.General Provisions Applicable to Awards

(a)Transferability of Awards. Awards shall not be sold, assigned, transferred, pledged or otherwise encumbered by the person to whom they are granted, either voluntarily or by operation of law, except by will or the laws of descent and distribution or, other than in the case of an Incentive Stock Option, pursuant to a qualified domestic relations order, and, during the life of the Participant, shall be exercisable only by the Participant; provided, however, that the Board may permit or provide in an Award for the gratuitous transfer of the Award by the Participant to or for the benefit of any immediate family member, family trust or family partnership established solely for the benefit of the Participant and/or an immediate family member thereof if, with respect to such proposed transferee, the Company would be eligible to use a Form S-8 for the registration of the sale of the Common Stock subject to such Award under the Securities Act of 1933, as amended; provided, further, that the Company shall not be required to recognize any such transfer until such time as the Participant and such permitted transferee shall, as a condition to such transfer, deliver to the Company a written instrument in form and substance satisfactory to the Company confirming that such transferee shall be bound by all of the terms and conditions of the Award. References to a Participant, to the extent relevant in the context, shall include references to authorized transferees.

(b)Documentation. Each Award shall be evidenced in such form (written, electronic or otherwise) as the Board shall determine. Each Award may contain terms and conditions in addition to those set forth in the Plan.

(c)Board Discretion. Except as otherwise provided by the Plan, each Award may be made alone or in addition or in relation to any other Award. The terms of each Award need not be identical, and the Board need not treat Participants uniformly.

(d)Termination of Status. The Board shall determine the effect on an Award of the disability, death, retirement, authorized leave of absence or other change in the employment or other status of a Participant and the extent to which, and the period during which, the Participant, or the Participant’s legal representative, conservator, guardian or Designated Beneficiary, may exercise rights under the Award.

(e)Withholding. Each Participant shall pay to the Company, or make provision satisfactory to the Company for payment of, any taxes required by law to be withheld in connection with an Award to such Participant. Except as the Board may otherwise provide in an Award, for so long as the Common Stock is registered under the Exchange Act, Participants may satisfy such tax obligations in whole or in part by delivery of shares of Common Stock, including shares retained from the Award creating the tax obligation, valued at their Fair Market Value; provided, however, except as otherwise provided by the Board, that the total tax withholding where stock is being used to satisfy such tax obligations cannot exceed the Company’s minimum statutory withholding obligations (based on minimum statutory withholding rates for federal and state tax purposes, including payroll taxes, that are applicable to such supplemental taxable income). Shares surrendered to satisfy tax withholding requirements cannot be subject to any repurchase, forfeiture, unfulfilled vesting or other similar requirements. The Company may, to the extent permitted by law, deduct any such tax obligations from any payment of any kind otherwise due to a Participant.

(f)Amendment of Award. The Board may amend, modify or terminate any outstanding Award, including but not limited to, substituting therefor another Award of the same or a different type, changing the date of exercise or realization, and converting an Incentive Stock Option to a Nonstatutory Stock Option, provided that the Participant’s consent to such action shall be required unless the Board determines that the action, taking into account any related action, would not materially and adversely affect the Participant.

(g)Conditions on Delivery of Stock. The Company will not be obligated to deliver any shares of Common Stock pursuant to the Plan or to remove restrictions from shares previously delivered under the Plan until (i) all conditions of the Award have been met or removed to the satisfaction of the Company, (ii) in the opinion of the Company’s counsel, all other legal matters in connection with the issuance and delivery of such shares have been satisfied, including any applicable securities laws and any applicable stock exchange or stock market rules and regulations, and (iii) the Participant has executed and delivered to the Company such representations or agreements as the Company may consider appropriate to satisfy the requirements of any applicable laws, rules or regulations.

(h)Acceleration. The Board may at any time provide that any Award shall become immediately exercisable in full or in part, free of some or all restrictions or conditions, or otherwise realizable in full or in part, as the case may be.

(i)Performance Conditions.

(1)This Section 10(i) shall be administered by a Committee approved by the Board, all of the members of which are “outside directors” as defined by Section 162(m) (the “Section 162(m) Committee”).

(2)Notwithstanding any other provision of the Plan, if the Section 162(m) Committee determines, at the time a Restricted Stock Award or Other Stock Unit Award is granted to a Participant, that such Participant is, or may be as of the end of the tax year in which the Company would claim a tax deduction in connection with such Award, a Covered Employee (as defined in Section 162(m)), then the Section 162(m) Committee may provide that this Section 10(i) is applicable to such Award.

(3)If a Restricted Stock Award or Other Stock Unit Award is subject to this Section 10(i), then the lapsing of restrictions thereon and the distribution of cash or Shares pursuant thereto, as applicable, shall be subject to the achievement of one or more objective performance goals established by the Section 162(m) Committee, which shall be based on the relative or absolute attainment of specified levels of one or any combination of the following: (a) earnings per share, (b) return on average equity or average assets with respect to a pre-determined peer group, (c) earnings, (d) earnings growth, (e) revenues, (f) expenses, (g) stock price, (h) market share, (i) return on sales, assets, equity or investment, (j) regulatory compliance, (k) improvement of financial ratings, (l) achievement of balance sheet or income statement objectives, (m) total shareholder return, (n) net operating profit after tax, (o) pre-tax or after-tax income or (p) cash flow, and may be absolute in their terms or measured against or in relationship to other companies comparably, similarly or otherwise situated. Such performance goals may be adjusted to exclude any one or more of (i) extraordinary items, (ii) gains or losses on the dispositions of discontinued operations, (iii) the cumulative effects of changes in accounting principles, (iv) the writedown of any asset, and (v) charges for restructuring and rationalization programs. Such performance goals: (i) may vary by Participant and may be different for different Awards; (ii) may be particular to a Participant or the department, branch, line of business, subsidiary or other unit in which the Participant works and may cover such period as may be specified by the Section 162(m) Committee; and (iii) shall be set by the Section 162(m) Committee within the time period prescribed by, and shall otherwise comply with the requirements of, Section 162(m).

(4)Notwithstanding any provision of the Plan, with respect to any Restricted Stock Award or Other Stock Unit Award that is subject to this Section 10(i), the Section 162(m) Committee may adjust downwards, but not upwards, the cash or number of Shares payable pursuant to such Award, and the Section 162(m) Committee may not waive the achievement of the applicable performance goals except in the case of the death or disability of the Participant.

(5)The Section 162(m) Committee shall have the power to impose such other restrictions on Awards subject to this Section 10(i) as it may deem necessary or appropriate to ensure that such Awards satisfy all requirements for “performance-based compensation” within the meaning of Section 162(m)(4)(C) of the Code, or any successor provision thereto.

11.Miscellaneous

(a)No Right To Employment or Other Status. No person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to continued employment or any other relationship with the Company. The Company expressly reserves the right at any time to dismiss or otherwise terminate its relationship with a Participant free from any liability or claim under the Plan, except as expressly provided in the applicable Award or another written agreement between the Company and the Participant.

(b)No Rights As Stockholder. Subject to the provisions of the applicable Award, no Participant or Designated Beneficiary shall have any rights as a stockholder with respect to any shares of Common Stock to be distributed with respect to an Award until becoming the record holder of such shares. Notwithstanding the foregoing, in the event the Company effects a split of the Common Stock by means of a stock dividend and the exercise price of and the number of shares subject to such Option are adjusted as of the date of the distribution of the dividend (rather than as of the record date for such dividend), then an optionee who exercises an Option between the record date and the distribution date for such stock dividend shall be entitled to receive, on the distribution date, the stock dividend with respect to the shares of Common Stock acquired upon such Option exercise, notwithstanding the fact that such shares were not outstanding as of the close of business on the record date for such stock dividend.

(c)Effective Date and Term of Plan. The Plan shall become effective on the date on which it is adopted by the Board. No Awards shall be granted under the Plan after the completion of 10 years from the date on which the Plan was adopted by the Board, but Awards previously granted may extend beyond that date.

(d)Amendment of Plan. The Board may amend, suspend or terminate the Plan or any portion thereof at any time, subject to any requirements of Section 162(m) for an Award granted to a Participant that is intended to comply with Section 162(m), and subject to any applicable laws or regulations. In addition, if at any time the approval of the Company’s stockholders is required as to any other modification or amendment, the Board may not effect such modification or amendment without such approval.

(e)Provisions for Foreign Participants. The Board may modify Awards or Options granted to Participants who are foreign nationals or employed outside the United States or establish subplans or procedures under the Plan to recognize differences in laws, rules, regulations or customs of such foreign jurisdictions with respect to tax, securities, currency, employee benefit or other matters.

(f)Compliance With Code Section 409A. No Award shall provide for deferral of compensation that does not comply with Section 409A of the Code, unless the Board, at the time of grant, specifically provides that the Award is not intended to comply with Section 409A of the Code.

(g)Governing Law. The provisions of the Plan and all Awards made hereunder shall be governed by and interpreted in accordance with the laws of the State of Delaware, excluding choice-of-law principles of the law of such state that would require the application of the laws of a jurisdiction other than such state.

Adopted by the Board of Directors

on October __, 2005

EXHIBIT B TO EMPLOYMENT AGREEMENT

Agreement re Specified Acts

Agreement Re Specified Acts

This Agreement re Specified Acts is made effective as of January __, 2006 by and between Eclipsys Corporation, a Delaware corporation (hereinafter referred to collectively with any of its subsidiaries as the “Company”), and John E. Deady (“Executive”).

The Company and Executive are parties to that certain Employment Agreement of even date herewith (the “Employment Agreement”) pursuant to which the Company employs Executive as its Executive Vice President. Executive is receiving a grant of stock options to purchase up to 400,000 shares of Common Stock of the Company and a grant of 100,000 shares of Common Stock of the Company that are subject to contractual restrictions, as described in the Employment Agreement (the “Initial Grants”), and Executive may become entitled to certain severance benefits described in the Employment Agreement (the “Severance Package” or the “Change in Control Benefits”). In addition, Executive may receive additional grants of stock options, restricted stock, or other equity-based awards, and may become entitled to additional severance benefits. It is a condition of Executive’s employment that Executive enter into this Agreement with the Company. Accordingly, the Company and Executive hereby agree as follows:

1. Specified Acts.

(a)If, at any time during Executive’s employment with the Company or during the 730-day period following the termination or cessation of Executive’s employment with the Company for any reason, Executive commits any Specified Act (as defined below), then notwithstanding any agreement or plan provision to the contrary, the Company may in its discretion, at any time or from time to time during the Evaluation Period related to that Specified Act (as defined below), (i) cancel in whole or part the Initial Grants and/or any other award of stock options or restricted stock or any other award made at any time to Executive under any equity incentive plan of the Company (each an “Award”), whether or not vested, and/or (ii) rescind some or all of any vesting, exercise, payment or delivery that occurred or occurs or is scheduled to occur pursuant to the Initial Grants or any other Award within 730 days before the earlier of the Specified Act or the termination of Executive’s employment, or at any time after the Specified Act, and/or (iii) cease paying or providing any or all of the Severance Package or the Change in Control, and/or (iv) demand that Executive return to the Company any portion of the Severance Package or the Change in Control Benefits previously paid, provided that cessation of payment pursuant to item (iii) and/or demand for return pursuant to item (iv) shall only apply to portions of the Severance Package or Change in Control Benefits in excess of $150,000, which $150,000 shall be consideration for the release signed as required by the Employment Agreement as a condition to payment of the Severance Package or the Change in Control Benefits.

(b)The Company shall notify Executive in writing of any exercise of any of its rights under Section 1(a) within the Evaluation Period related to the Specified Act triggering the Company’s rights.

(c)If the Company rescinds some or all of any vesting, exercise or delivery pursuant to Section 1(a)(ii), then within ten days after receiving from the Company the notice described in Section 1(b), Executive shall be obligated to pay to the Company the gross amount of any gain realized or payment received as a result of the cancelled Award or rescinded vesting, exercise, payment or delivery. Such payment shall be made by returning to the Company all shares of capital stock that Executive purchased or otherwise received in connection with the cancelled Award or rescinded vesting, exercise, payment or delivery, or if such shares or any interest therein have been transferred by Executive, then by paying to the Company, by wire transfer of immediately available funds, the fair market value of such shares at the time of the transfer. For this purpose, in the case of publicly traded shares, the value of shares will be measured by the price for which Executive sold the shares in a bona fide arm’s length transaction, or if the shares or interests therein were transferred otherwise than by a bona fide arm’s length sale, then by the closing price of the shares on the Nasdaq National Market or other primary market or exchange upon which the shares trade on the trading day immediately preceding the date of the transfer. Executive will cease to have any rights under any Award, vesting, exercise, payment or delivery to the extent cancelled or rescinded pursuant to this Agreement. Any payment of the exercise price for stock options or purchase price for restricted stock previously made by Executive to the Company in connection with an Award or vesting, exercise, payment or delivery that is cancelled or rescinded pursuant to this Agreement will be returned by the Company to Executive (without interest), at the time Executive returns the shares or makes payment pursuant to Section 1(c), including, at the Company's discretion, by offset against any amounts payable by Executive to the Company or any of the Company’s subsidiaries.

(d)If the Company demands return of previously paid portions of the Severance Package or the Change in Control Benefits pursuant to Section 1(a)(iv), then within ten days after receiving from the Company the notice described in Section 1(b), Executive shall pay to the Company, by wire transfer of immediately available funds, an amount equal to the aggregate cost to the Company of any parts of the Severance Package or the Change in Control Benefits previously provided to Executive by the Company that the Company demands be returned.

(e)Upon and as a condition to vesting, exercise, payment or delivery of shares or cash pursuant to any Award, a Recipient shall, if required by the Administrator, certify on a form acceptable to the Company that he has not committed any Specified Act. For purposes of this Agreement, the Company will be deemed to have been aware of Specified Act only after the completion of any investigation or inquiry and only when the Company has clear and convincing evidence thereof. For this purpose, suspicion is not awareness.

(f)For these purposes:

(i)“Evaluation Period” related to a Specified Act means the period beginning with that Specified Act and ending not later than the later of 365 days after such Specified Act, or, if later, 180 days after the Company became aware of such Specified Act.

(ii)“Specified Act” means Employee (A) has a Specified Relationship with a Designated Company (as those terms are defined below), or (B) violates in any material respect any material contractual obligation or legal duty to the Company and, if such violation of contractual obligation or legal duty is susceptible of cure fails to cure such violation within 30 days of written demand by the Company for cure, provided that the final determination that such a violation of contractual obligation or legal duty has occurred and not been cured within such 30-day notice period must be made by the Company’s board of directors after giving Executive an opportunity to be heard.

(iii)“Specified Relationship” with a Designated Company means acting as an owner, partner, officer, director, or employee of, or consultant or advisor (paid or unpaid) or lender to, or investor in, that Designated Company, except that ownership of not more than 1% of the outstanding stock of a Designated Company, in and of itself, will not be a Specified Relationship.

(iv) “Designated Company” means at any time of determination any of the entities listed on the Current Version of Schedule A to this Agreement and any Affiliate of any of such entities regardless of when formed. At no time may there be more than ten Designated Companies listed on Schedule A, and if any version of Schedule A lists more than ten companies, then only the first ten listed on Schedule A, reading left to right, top to bottom, will be Designated Companies pursuant to that schedule, but Affiliates of the listed entities will be Designated Companies but will not be counted for purposes of this ten-entity limit. In addition, each of the following shall be a Designated Company, in addition to the Designated Companies listed on Schedule A and not subject to the ten-entity limit: (i) any entity that is a successor to or transferee of any significant part of the business or assets of an entity listed on the Current Version; and (ii) any entity that first engages in competitive activity following the date of the Current Version. For this purpose, an entity first engages in competitive activity when it openly begins to provide or pursue any goods or services or line of business that is competitive in any material way with any goods or services or line of business provided or being pursued, or for which plans were being made, during Executive’s tenure with the Company. The “Current Version” of Schedule A is the version attached to this Agreement at the date of its execution unless and until Schedule A is modified as set forth in paragraph 1(f)(iv)(A) or 1(f)(iv)(B) below. The Current Version need not be the same as the list of competitors specified by the Company for any agreement entered into by the Company or any of its affiliates with any other employee that is similar to this Agreement.

(A) At any time and from time to time from the date hereof until the date seven days following the termination of Executive’s employment for any reason, but not more than once in any period of 180 days, the Company may, in its discretion, by written notice to Executive, modify the Current Version to include any company or companies that the Company in its discretion deems to be engaged in or planning any activity that is competitive with the Company’s business as conducted or planned, subject to the overall limit of ten, and that modified version of the schedule will then be the Current Version unless and until further modified pursuant to this paragraph 1(f)(iv)(A) or paragraph 1(f)(iv)(B).

(B) Not more than once in any period of 180 days, Executive may by written demand require the Company to provide an updated Current Version. In response, within seven days of receipt of Executive’s demand, the Company must deliver to Executive an updated Current Version or ratify in writing the then-existing Current Version. Any such updated Current Version may include, in the Company’s discretion, any company or companies that the Company in its discretion deems to be engaged in or planning any activity that is competitive with the Company’s business as conducted or planned, subject to the overall limit of ten. The Company may elect to deliver an updated Current Version in response to Executive’s demand even if the Company has modified the schedule in its own discretion within the preceding 180 days, but in any case the Current Version provided by the Company in response to Executive’s demand (whether updated or ratified) will trigger a new 180-day waiting period before the Company may again modify the schedule in its discretion pursuant to paragraph 1(f)(iv)(A). Any Current Version resulting from the process described in this paragraph 1(f)(iv)(B) will be the Current Version unless and until further modified pursuant to this paragraph 1(f)(iv)(B) or paragraph 1(f)(iv)(A).

(v)“Affiliate” of an entity means any controlling, controlled by or under common control with such entity.

(g)Executive understands and agrees that (i) his entering into this Agreement is a material inducement to the Company to employ him on the terms described in the Employment Agreement; (ii) the Initial Grants and any other equity that the Company may grant to Executive, the Severance Package and the Change in Control Benefits (other than the first $200,000 thereof) are intended not only to motivate and reward Executive’s performance, but also to compensate Executive for not engaging in any specified Act; (iii) Executive is not restricted by this Agreement from engaging in any Specified Act, and Executive is willing to accept the potential economic consequences under this Agreement of engaging in any Specified Act; (iv) Executive’s livelihood does not depend upon his ability to engage in any Specified Act; and (v) Executive shall not bring or participate in any action challenging the, validity, legality, effectiveness or enforceability of any part of this Agreement.

2.General Provisions.

(a)No Contract of Employment. This Agreement does not constitute a contract of employment, either express or implied, and does not imply that the Company will continue the Executive’s employment for any period of time. This Agreement shall in no way alter the Company’s policy of employment at will, under which both Executive and the Company remain free to terminate the employment relationship, with or without cause, at any time, with or without notice. Any change or changes in Executive’s duties, salary or compensation after the signing of this Agreement shall not affect the validity or scope of this Agreement.

(b)Entire Agreement. This Agreement sets forth the entire understanding of Executive and the Company regarding the subject matter hereof, and supersedes all prior agreements, written or oral, between the Executive and the Company relating to the subject matter hereof. However, it does not replace or supersede the Employment Agreement, any agreements documenting equity awards to Executive, any policies of the Company or agreements entered into by Executive providing for confidentiality, non-disclosure or assignment of developments, all of which remain in full force and effect. This Agreement may not be modified, changed or discharged in whole or in part, except by an agreement in writing signed by the Executive and the Company.

(c)Interpretation. If any provision of this Agreement is found by any court of competent jurisdiction to be unenforceable, it shall be interpreted to apply only to the extent that it is enforceable.

(d)Severability. If any part of this Agreement as applied to any party or to any circumstance is adjudged by a court of competent jurisdiction to be invalid, illegal, void or unenforceable for any reason, then (i) the invalidity of that part shall in no way affect (to the maximum extent permissible by law) the application of such part under circumstances different from those adjudicated by the court, the application of any other part of this Agreement, or the enforceability or invalidity of this Agreement as a whole; and (ii) such part shall be deemed amended to the extent necessary to conform to applicable law so as to be valid, legal, effective and enforceable or, if such part cannot be so amended without materially altering the intention of the parties, then such part will be stricken and the remainder of this Agreement shall continue in full force and effect.

(e)Waiver. No delay or omission by the Company in exercising any right under this Agreement will operate as a waiver of that or any other right. A waiver or consent given by the Company on any one occasion is effective only in that instance and will not be construed as a bar to or waiver of any right on any other occasion.

(f)Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of both parties and their respective successors and assigns, including any corporation or entity with which or into which the Company may be merged or which may succeed to its assets or business.

(g)Subsidiaries and Affiliates. Executive expressly consents to be bound by the provisions of this Agreement for the benefit of the Company or any subsidiary or affiliate thereof to whose employ the Executive may be transferred without the necessity that this Agreement be re-signed at the time of such transfer.

(h)Remedies not Limited. This Agreement and the Company’s enforcement hereof are not intended to be exclusive remedies and will not limit any other remedies that may be available to the Company at law or in equity as a result of or in connection with any violation by Executive of any contractual obligation or legal duty to the Company or any subsidiary or affiliate thereof.

(i)Governing Law, Forum and Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of the State of Florida (without reference to its conflicts of law provisions). If any judicial or administrative proceeding or claim relating to or pertaining to this Agreement is initiated by either party hereto, such proceeding or claim shall and must be filed in a state or federal court located in Palm Beach County or Miami-Dade County, Florida, and the Company and Executive each consents to the jurisdiction of such a court.

(j)Attorneys’ Fees. In the event that either party brings a legal action against the other in connection with this Agreement, the party, if either, that is judicially determined to be the prevailing party in such action shall be entitled to recover his or its reasonable attorney’s fees and legal costs incurred in connection with such action.

(k)Captions. The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any section of this Agreement.

In witness whereof, the Company and Executive have entered into this Agreement as of the date above set forth.

ECLIPSYS CORPORATION   By:_______________________ Name: R. Andrew Eckert Title: Chairman & CEO     _________________________ John E. Deady

Schedule A To Agreement Re Specified Acts

Designated Companies

[ * ]

EXHIBIT C TO EMPLOYMENT AGREEMENT

Release

RELEASE

This Release (this “Release”) is entered into as of _______________, by John E. Deady(“Executive”) in favor of Eclipsys Corporation (“Eclipsys” or the “Company”) and certain other parties as set forth herein.

Contingent upon Executive’s execution and delivery to the Company of this Release, and the effectiveness of this Release following the lapse without revocation of any revocation period, the Company is obligated to provide to Executive the “Severance Package” as defined in and pursuant to that certain Employment Agreement entered into as of January __, 2006 by and between Executive and the Company (the “Employment Agreement”). In consideration of Executive’s right to receive the Severance Package, Executive hereby agrees as follows:

1.Termination Date. The effective date of Executive’s termination of employment with the Company is ________________.

2.Release.

(a) As of the Effective Date (as defined below), Executive, for Executive and Executive’s assigns, heirs, executors, successors and administrators, hereby fully and unconditionally releases the Company, its subsidiaries and other affiliates, their respective successors, and the officers, directors, employees, stockholders, attorneys and agents of each of them (the “Released Parties”), from any and all claims, causes of action, rights, agreements, obligations, liabilities, and expenses (including attorneys’ fees and costs), of every kind and nature, whether known or unknown, suspected or unsuspected, liquidated or unliquidated, arising out of, relating to or in any way connected with Executive’s employment with or separation from the Company (the “Released Matters”). The Released Matters include, but are not limited to, claims for wrongful termination, breach of contract, breach of the covenant of good faith and fair dealing, tort, intentional or negligent infliction of emotional distress, defamation, invasion of privacy, fraud, negligent misrepresentation, violation of or rights under local, state or federal law, ordinance or regulation, all common law claims, and all claims to any non-vested ownership interest in the Company, contractual or otherwise, including but not limited to claims to non-vested stock or non-vested stock options. However, Released Matters do not include, and nothing in this Release waives or releases or prevents Executive from in any way pursuing any rights or claims Executive may have (i) to indemnity and defense from the Company pursuant to provisions of the Company’s charter documents, any contract of indemnity, or applicable law; (ii) to coverage under policies of insurance maintained by the Company (including without limitation insurance covering directors’ and officers’ liability, fiduciary liability, employment practices liability, general liability, and automobile damage and liability) according to the terms of such policies; (iii) to the Accrued Amounts and Severance Package [or substitute Change in Control Benefits, if appropriate] as defined in the Employment Agreement; (iv) to reimbursement of expenses properly incurred by Executive in the course of his service to the Company; (v) under plans or contracts governing equity awards made to Executive; (vi) as a former employee under the Company’s retirement and welfare plans under which Executive is a beneficiary or in which Executive is a participant, including without limitation the Company’s 401(k) plan and plans or policies or insurance providing for health care; or (vi) as a stockholder of the Company.

(b) Executive acknowledges and agrees that the releases made herein constitute final and complete releases of the Released Parties with respect to all Released Matters, and that by signing this Release, Executive is forever giving up the right to sue or attempt to recover money, damages or any other relief from the Released Parties for all claims Executive has or may have with respect to the Released Matters (even if any such claim is unforeseen as of the date hereof).

(c) [insert the following or other state equivalent if appropriate] Executive represents and warrants that Executive understands California Civil Code Section 1542, which provides as follows:

"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR."

Executive, being aware of Section 1542, hereby expressly waives any and all rights Executive may have thereunder as well as under any other statute or common law principles of similar effect under the laws of any state or the United States. This Release shall act as a release of all future claims that may arise from the Released Matters, whether such claims are currently known or unknown, foreseen or unforeseen including, without limitation, any claims for damages incurred at any time after the date of this Release resulting from the acts or omissions which occurred on or before the date of this Release of any of the Released Parties.

Thus, notwithstanding the provisions of Section 1542, and for the purpose of implementing a full and complete release and discharge of the Released Parties, Executive expressly acknowledges that this Release is intended to include in its effect, without limitation, all Released Matters which Executive does not know or suspect to exist in his favor at the time of execution hereof, and that this Release contemplates the extinguishment of all such Released Matters.

3.No Claims. Executive represents and warrants that Executive has not instituted any complaints, charges, lawsuits or other proceedings against any Released Parties with any governmental agency, court, arbitration agency or tribunal. Executive further agrees that, except to the extent that applicable law prohibits such agreements, Executive will not, directly or indirectly, (i) file, bring, cause to be brought, join or participate in, or provide any assistance in connection with any complaint, charge, lawsuit or other proceeding or action against any Released Parties at any time hereafter for any Released Matters, (ii) assist, encourage, or support employees or former employees or stockholders or former stockholders of Eclipsys or any of its affiliates in connection with any lawsuit, charge, claim or action they may initiate, unless compelled to testify by appropriate civil processes; or (iii) defend any action, proceeding or suit in whole or in part on the grounds that any or all of the terms or provisions of this Release are illegal, invalid, not binding, unenforceable or against public policy. In addition, Executive will refrain from bringing or dismiss, as applicable, any claim against any third party if any Released Party would be required to defend or indemnify that third party in connection with such claim. If any agency or court assumes jurisdiction of any complaint, charge, or lawsuit against Eclipsys or any Released Party, on Executive’s behalf, Executive agrees to immediately notify such agency or court, in writing, of the existence of this Release, including providing a copy of it and to request, in writing, that such agency or court dismiss the matter with prejudice.

4.Non-Disclosure and Non-Solicitation. Executive acknowledges and reaffirms his obligation to keep confidential all non-public information concerning the Company which he acquired during the course of his employment with the Company and his post-employment obligations to refrain from soliciting the Company’s employees or clients, as stated more fully in the Confidentiality, Non-Disclosure and Developments Agreement Executive executed in connection with the inception of his employment, which remains in full force and effect. Executive also acknowledges the Agreement re Specified Acts entered into between Executive and the Company in connection with the inception of his employment, which remains in full force and effect.

5.Return of Company Property. Executive shall immediately return to the Company all keys, files, records (and copies thereof), equipment (including, but not limited to, computer hardware, software and printers, wireless handheld devices, cellular phones, pagers, etc.), Company identification, Company vehicles and any other Company-owned property in his possession or control. Executive confirms that he has left, and will continue to leave, intact all electronic Company documents, including but not limited to those Executive developed or helped develop during his employment. Executive further confirms that he has cancelled or shall immediately cancel all accounts for his benefit, if any, in the Company's name, including but not limited to, credit cards, telephone charge cards, cellular phone and/or pager accounts and computer accounts.

6.Business Expenses and Compensation. Executive acknowledges that he has been reimbursed by the Company for all costs and business expenses incurred in conjunction with the performance of his employment and that no other reimbursements are owed to him, except for unreimbursed expenses properly incurred by him in the course of his service to the Company that he submits within 30 days after the date of this Release. Executive further acknowledges that he has received payment in full for all services rendered in conjunction with his employment by the Company and that no other compensation is owed to his, other than the Accrued Amounts and the Severance Package as defined in the Employment Agreement.

7.Non-Disparagement. Executive shall not make any false, disparaging or derogatory statements to any media outlet, industry group, financial institution or current or former employee, consultant, or customer of the Company, or any other third party, regarding any Released Party.

8.Amendment. This Release is binding upon Executive and may not be modified in any manner, except by an instrument in writing of concurrent or subsequent date signed by Executive and a duly authorized representative of Eclipsys. This Release is binding upon Executive and his assigns, heirs, executors, successors and administrators, and shall inure to the benefit of all the Released Parties.

9.Waiver of Rights. No delay or omission by the Company in exercising any right under this Release shall operate as a waiver of that or any other right. A waiver or consent given by the Company on any one occasion shall be effective only in that instance and shall not be construed as a bar or waiver of any right on any other occasion.

10.Validity. If any part of this Release is determined by any court of competent jurisdiction to be void, illegal, invalid or unenforceable, the legality, validity and enforceability of the remaining parts shall not be affected thereby and said void, illegal, invalid or unenforceable part shall be deemed not to be a part of this Release.

11.Nature of Agreement. This Release is part of a severance arrangement and does not constitute an admission of liability or wrongdoing on the part of Executive, the Company or any other person.

12.Acknowledgments. Executive acknowledges that he has been given at least twenty-one (21) days to consider this Release and that the Company advised him to consult with an attorney of his own choosing prior to signing this Release. Executive understands that he may revoke this Release for a period of seven (7) days after its execution and delivery. The eighth (8^th) day after Executive’s execution and delivery of this Release will be its “Effective Date.” This Release will be effective and enforceable beginning on the Effective Date unless Executive delivers written revocation of this Release to the Company’s Chief Executive Officer and General Counsel, or persons acting in those capacities, before the Effective Date, in which case this Release will be of no force or effect. Executive understands and agrees that by entering into this Release he is waiving any and all rights or claims he might have under The Age Discrimination in Employment Act, as amended by The Older Workers Benefit Protection Act, and that he has received consideration beyond that to which he was previously entitled.

13.Voluntary Assent. - Executive represents and agrees that he fully understands his right to discuss, and that Eclipsys has advised Executive to discuss, all aspects of this Release with Executive’s private attorney, that Executive has carefully read and fully understands all the provisions of the Release, that Executive understands its final and binding effect, that Executive is competent to sign this Release and that Executive is voluntarily entering into this Release. Executive specifically agrees not to claim, and has waived any right to claim, to have been under duress in connection with the review, negotiation, execution and delivery of this Release.

14.Applicable Law. This Release shall be interpreted and construed in accordance with the laws of the State of Florida, without regard to conflict of laws provisions.

15.Entire Agreement. This Release contains and constitutes the entire understanding and agreement between Executive and the Company regarding the matters set forth herein, but provisions of other agreements between Executive and the Company (including without limitation the Employment Agreement, the Restricted Stock Agreement, the Agreement re Specified Acts, and grant notices for equity awards) that by their nature or terms are intended to survive termination of employment will continue in effect. Executive represents and agrees that in executing this Release Executive relies solely upon his own judgment, belief and knowledge, and the advice and recommendations of any independently selected counsel, concerning the nature, extent and duration of Executive’s rights and claims. Executive acknowledges that no other individual has made any promise, representation or warranty, express or implied, not contained in this Release, to induce Executive to execute this Release. Executive further acknowledges that Executive is not executing this Release in reliance on any promise, representation, or warranty not contained in this Release.

In witness whereof, Executive has executed this Release as of the date above written.

________________________

John E. Deady

US1DOCS 5148638v2

EXHIBIT D TO EMPLOYMENT AGREEMENT

Definition of Change in Control

“Change in Control” means an event or occurrence set forth in any one or more of subsections (a) through (d) below (including an event or occurrence that constitutes a Change in Control under one of such subsections but is specifically exempted from another such subsection) that occurs during the Term of Employment:

(a) the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership of any capital stock of the Company if, after such acquisition, such Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) 30% or more of either (x) the then-outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (y) the combined voting power of the then-outstanding securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Company (excluding an acquisition pursuant to the exercise, conversion or exchange of any security exercisable for, convertible into or exchangeable for common stock or voting securities of the Company, unless the Person exercising, converting or exchanging such security acquired such security directly from the Company or an underwriter or agent of the Company), (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i) and (ii) of subsection (c) below; or (v) any acquisition by General Atlantic Partners 28, L.P., General Atlantic Partners 38, L.P., General Atlantic Partners 47, L.P., GAP Coinvestment Partners, L.P., General Atlantic Partners, LLC, and any person directly or indirectly controlled (within the meaning of Rule 12b-2 promulgated under the Exchange Act) by any of the foregoing entities described in this clause (v) (each such party is referred to herein as an “Exempt Person”) of any shares of Common Stock; or

(b) such time as the Continuing Directors (as defined below) do not constitute a majority of the Board (or, if applicable, the Board of Directors of a successor corporation to the Company), where the term “Continuing Director” means at any date a member of the Board (i) who was a member of the Board on the date of the execution of this Agreement or (ii) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; provided, however, that there shall be excluded from this clause (ii) any individual whose initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Board; or

(c)the consummation of a merger, consolidation, reorganization, recapitalization or statutory share exchange involving the Company or a sale or other disposition of all or substantially all of the assets of the Company in one or a series of transactions (a “Business Combination”), unless, immediately following such Business Combination, each of the following two conditions is satisfied: (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall include, without limitation, a corporation which as a result of such transaction owns the Company or substantially all of the Company’s assets either directly or through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as the “Acquiring Corporation”) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, respectively; and (ii) no Person (excluding the Acquiring Corporation, any employee benefit plan (or related trust) maintained or sponsored by the Company or by the Acquiring Corporation, or any Exempt Person) beneficially owns, directly or indirectly, 30% or more of the then outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of the then-outstanding securities of such corporation entitled to vote generally in the election of directors (except to the extent that such ownership existed prior to the Business Combination); or

(d)approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.

EXHIBIT E TO EMPLOYMENT AGREEMENT

Confidentiality, Non-disclosure and Developments Agreement

CONFIDENTIALITY, NON-DISCLOSURE AND DEVELOPMENTS AGREEMENT

This Confidentiality, Non-Disclosure and Developments Agreement is made as of January __, 2006 by and between Eclipsys Corporation, a Delaware corporation headquartered in Florida (hereinafter referred to collectively with any of its subsidiaries as the “Company”), and John E. Deady (the “Employee”).

WHEREAS, the Company desires to employ the Employee;

THEREFORE, IN CONSIDERATION of the employment of the Employee by the Company, the Employee and the Company agree as follows:

1.Condition of Employment.

The Employee acknowledges that his employment with the Company is contingent upon his agreement to sign and adhere to the provisions of this Confidentiality, Non-Disclosure and Developments Agreement (“Agreement”).

2.Proprietary and Confidential Information.

(a)The Employee agrees that all information, whether or not in writing, of a private, secret or confidential nature concerning the Company’s business, business relationships or financial affairs (collectively, “Proprietary Information”) is and shall be the exclusive property of the Company. By way of illustration, but not limitation, Proprietary Information may include discoveries, inventions, products, product improvements, product enhancements, processes, methods, techniques, formulas, compositions, compounds, negotiation strategies and positions, projects, developments, plans (including business and marketing plans), research data, clinical data, financial data (including sales costs, profits, pricing methods), personnel data, computer programs (including software used pursuant to a license agreement), customer and supplier lists, and contacts at or knowledge of customers or prospective customers of the Company. The Employee will not disclose any Proprietary Information to any person or entity other than employees of the Company or use the same for any purposes (other than in the performance of his duties as an employee of the Company) without written approval by an officer of the Company, either during or after his employment with the Company, unless and until such Proprietary Information has become public knowledge without fault by the Employee.

(b)The Employee agrees that all files, documents, letters, memoranda, reports, records, data, sketches, drawings, models, laboratory notebooks, program listings, computer equipment or devices, computer programs or other written, photographic, or other tangible material containing Proprietary Information, whether created by the Employee or others, which shall come into his custody or possession, shall be and are the exclusive property of the Company to be used by the Employee only in the performance of his duties for the Company and shall not be copied or removed from the Company premises except in the pursuit of the business of the Company. All such materials or copies thereof and all tangible property of the Company in the custody or possession of the Employee shall be delivered to the Company, upon the earlier of (i) a request by the Company or (ii) termination of his employment. After such delivery, the Employee shall not retain any such materials or copies thereof or any such tangible property.

(c)The Employee agrees that his obligation not to disclose or to use information and materials of the types set forth in paragraphs 2(a) and 2(b) above, and his obligation to return materials and tangible property set forth in paragraph 2(b) above also extends to such types of information, materials and tangible property of customers of the Company or suppliers to the Company or other third parties who may have disclosed or entrusted the same to the Company or to the Employee.

3.Developments.

(a)The Employee will make full and prompt disclosure to the Company of all inventions, creations, improvements, discoveries, trade secrets, secret processes, technology, know-how, methods, developments, software, and works of authorship or other creative works, whether patentable or not, which are created, made, conceived or reduced to practice by him or under his direction or jointly with others during his employment by the Company, whether or not during normal working hours or on the premises of the Company (all of which are collectively referred to in this Agreement as “Developments”).

(b)Employee agrees to assign and does hereby assign to the Company (or any person or entity designated by the Company) all his right, title and interest in and to all Developments and all related patents, patent applications, copyrights and copyright applications. However, this paragraph 3(b) shall not apply to Developments that do not relate to the present or planned business or research and development of the Company and which are made and conceived by the Employee not during normal working hours, not on the Company’s premises and not using the Company’s tools, devices, equipment or Proprietary Information. The Employee understands that, to the extent this Agreement shall be construed in accordance with the laws of any state that precludes a requirement in an employee agreement to assign certain classes of inventions made by an employee, this paragraph 3(b) shall be interpreted not to apply to any invention that a court rules and/or the Company agrees falls within such classes. In addition, for purposes of California law, this provision shall apply only to the maximum extent permitted by Section 2870 of the California Labor Code (attached hereto as Attachment A). The Employee understands that the provisions of this Agreement requiring assignment of Developments to the Company do not apply to any invention that qualifies fully under the provisions of California Labor Code Section 2870. The Employee agrees to advise the Company promptly in writing of any invention that he believes meets the criteria in Section 2870 that are not otherwise disclosed on Attachment B. The Employee also hereby waives all claims to moral rights in any Developments.

(c)The Employee agrees to cooperate fully with the Company and to take such further actions as may be necessary or desirable, both during and after his employment with the Company, with respect to the procurement, maintenance and enforcement of copyrights, patents and other intellectual property rights (both in the United States and foreign countries) relating to Developments. The Employee shall sign all papers, including, without limitation, copyright applications, patent applications, declarations, oaths, formal assignments, assignments of priority rights, and powers of attorney, which the Company may deem necessary or desirable in order to protect its rights and interests in any Development. The Employee further agrees that if the Company is unable, after reasonable effort, to secure the signature of the Employee on any such papers, any executive officer of the Company shall be entitled to execute any such papers as the agent and the attorney-in-fact of the Employee, and the Employee hereby irrevocably designates and appoints each executive officer of the Company as his agent and attorney-in-fact to execute any such papers on his behalf, and to take any and all actions as the Company may deem necessary or desirable in order to protect its rights and interests in any Development, under the conditions described in this sentence.

4.Other Agreements.

The Employee hereby represents that, except as the Employee has disclosed in writing to the Company, the Employee is not bound by the terms of any agreement with any previous employer or other party to refrain from using or disclosing any trade secret or confidential or proprietary information in the course of his employment with the Company, to refrain from competing, directly or indirectly, with the business of such previous employer or any other party, or to refrain from soliciting employees, customers or suppliers of such previous employer or other party. The Employee further represents that his performance of all the terms of this Agreement and the performance of his duties as an employee of the Company do not and will not breach any agreement with any prior employer or other party to which the Employee is a party (including without limitation any non-disclosure or non-competition agreement), and that the Employee will not disclose to the Company or induce the Company to use any confidential or proprietary information or material belonging to any previous employer or others.

5.United States Government Obligations.

The Employee acknowledges that the Company from time to time may have agreements with other persons or with the United States Government, or agencies thereof, which impose obligations or restrictions on the Company regarding inventions made during the course of work under such agreements or regarding the confidential nature of such work. The Employee agrees to be bound by all such obligations and restrictions that are made known to the Employee and to take all action necessary to discharge the obligations of the Company under such agreements.

6.Non-Solicitation.

While employed by the Company, the Employee shall devote all of his business time, attention, skill and effort to the faithful performance of his duties for the Company. For a period of 1 year after the termination or cessation of Employee’s employment for any reason, the Employee will not, in the geographical areas that the Company or any of its subsidiaries does business or has done business at the time of Employee’s departure, directly or indirectly:

(a)Either alone or in association with others (i) solicit, recruit, induce, or attempt to solicit, recruit or induce, or permit any organization directly or indirectly controlled by the Employee to solicit, recruit, induce, or attempt to solicit, recruit or induce any employee of the Company to leave the employ of the Company, or (ii) solicit, recruit, induce, or attempt to solicit, recruit or induce for employment, or permit any organization directly or indirectly controlled by the Employee to solicit, recruit, induce, or attempt to solicit, recruit or induce for employment, any person who was employed by the Company at any time during the term of the Employee’s employment with the Company; provided, that this clause (ii) shall not apply to any individual's employment with the Company, which has been terminated for a period of six months or longer; or

(b)Either alone or in association with others, solicit, divert or take away, or attempt to solicit, divert or take away, or permit any organization directly or indirectly controlled by the Employee to solicit, divert or take away, or attempt to solicit, divert or take away, the business or patronage of any of the clients, customers or accounts, or prospective clients, customers or accounts, of the Company, which were contacted, solicited or served by the Company at any time during the term of the Employee’s employment with the Company.

7.Not An Employment Contract.

The Employee acknowledges that this Agreement does not constitute a contract of employment, either express or implied, and does not imply that the Company will continue the Employee’s employment for any period of time. This Agreement shall in no way alter the Company’s policy of employment at will, under which both the Employee and the Company remain free to terminate the employment relationship, with or without cause, at any time, with or without notice.

8.General Provisions.

(a)No Conflict. The Employee represents that the execution and performance by him of this Agreement does not and will not conflict with or breach the terms of any other agreement by which the Employee is bound.

(b)Entire Agreement. This Agreement supersedes all prior agreements, written or oral, between the Employee and the Company relating to the subject matter of this Agreement. This Agreement may not be modified, changed or discharged in whole or in part, except by an agreement in writing signed by the Employee and the Company. The Employee agrees that any change or changes in his duties, salary or compensation after the signing of this Agreement shall not affect the validity or scope of this Agreement.

(c)Interpretation. If the Employee violates the provisions of Section 6 of this Agreement, the Employee shall continue to be bound by the restrictions set forth in Section 6 until a period of 1 year has expired without any violation of such provisions. If any restriction set forth in Section 6 is found by any court of competent jurisdiction to be unenforceable because it extends for too long a period of time or over too great a range of activities or in too broad a geographic area, it shall be interpreted to extend only over the maximum period of time, range of activities or geographic area as to which it may be enforceable.

(d)Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect or impair the validity or enforceability of any other provision of this Agreement.

(e)Waiver. No delay or omission by the Company in exercising any right under this Agreement will operate as a waiver of that or any other right. A waiver or consent given by the Company on any one occasion is effective only in that instance and will not be construed as a bar to or waiver of any right on any other occasion.

(f)Employee Acknowledgment and Equitable Remedies. The Employee acknowledges that the restrictions contained in this Agreement are necessary for the protection of the business and goodwill of the Company and considers the restrictions to be reasonable for such purpose. The Employee agrees that any breach of this Agreement is likely to cause the Company substantial and irrevocable damage and that therefore, in the event of any breach of this Agreement, the Employee agrees that the Company, in addition to such other remedies that may be available, shall be entitled to specific performance and other injunctive relief without posting a bond.

(g)Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of both parties and their respective successors and assigns, including any corporation or entity with which or into which the Company may be merged or which may succeed to its assets or business, provided however that the obligations of the Employee are personal and shall not be assigned by the Employee.

(h)Subsidiaries and Affiliates. The Employee expressly consents to be bound by the provisions of this Agreement for the benefit of the Company or any subsidiary or affiliate thereof to whose employ the Employee may be transferred without the necessity that this Agreement be re-signed at the time of such transfer.

(i)Governing Law, Forum and Jurisdiction. This Agreement shall be governed by and construed as a sealed instrument under and in accordance with the laws of the State of California (without reference to the conflicts of law provisions thereof). Any action, suit, or other legal proceeding that is commenced to resolve any matter arising under or relating to any provision of this Agreement shall be commenced only in a court in the City and County of San Francisco, California (or, if appropriate, a federal court located within the City and County of San Francisco, California), and the Company and the Employee each consents to the jurisdiction of such a court.

(j)Captions. The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any section of this Agreement.

THE EMPLOYEE ACKNOWLEDGES THAT HE HAS CAREFULLY READ THIS AGREEMENT AND UNDERSTANDS AND AGREES TO ALL OF THE PROVISIONS IN THIS AGREEMENT.

ECLIPSYS CORPORATION   By:_______________________ Name: R. Andrew Eckert Title: Chairman & CEO     _________________________ John E. Deady

Attachment A

CALIFORNIA LABOR CODE SECTION 2870

INVENTION ON OWN TIME - EXEMPTION FROM AGREEMENT

(a)Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his rights in an invention to his employer shall not apply to an invention that the employee developed entirely on his own time without using the employer’s equipment, supplies, facilities, or trade secret information except for those inventions that either:

(1)Relate at the time of conception or reduction to practice of the invention to the employer’s business, or actual or demonstrably anticipated research or development of the employer, or

(2)Result from any work performed by the employee for his employer.

(b)To the extent a provision in an employment agreement purports to require an employee to assign an invention otherwise excluded from being required to be assigned under subdivision (a), the provision is against the public policy of this state and is unenforceable.

Attachment B

LIST OF PRIOR INVENTIONS

AND ORIGINAL WORKS OF AUTHORSHIP

Title Date Identifying Number or Brief Description

No inventions or improvements

Additional Sheets Attached

Signature of Employee:

Printed Name of Employee:John E. Deady

Date:January __. 2006

EX-10.32

Exhibit 10.32

Certain confidential portions of this Exhibit were omitted by means of blackout of the text and replaced with an asterisk (*) (the “Mark”). This exhibit has been filed separately with the Securities and Exchange Commission without the Mark pursuant to the Company’s Application Requesting Confidential Treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

Agreement Re Specified Acts

This Agreement re Specified Acts is made effective as of January 6, 2006 by and between Eclipsys Corporation, a Delaware corporation (hereinafter referred to collectively with any of its subsidiaries as the “Company”), and John E. Deady (“Executive”).

The Company and Executive are parties to that certain Employment Agreement of even date herewith (the “Employment Agreement”) pursuant to which the Company employs Executive as its Executive Vice President. Executive is receiving a grant of stock options to purchase up to 400,000 shares of Common Stock of the Company and a grant of 100,000 shares of Common Stock of the Company that are subject to contractual restrictions, as described in the Employment Agreement (the “Initial Grants”), and Executive may become entitled to certain severance benefits described in the Employment Agreement (the “Severance Package” or the “Change in Control Benefits”). In addition, Executive may receive additional grants of stock options, restricted stock, or other equity-based awards, and may become entitled to additional severance benefits. It is a condition of Executive’s employment that Executive enter into this Agreement with the Company. Accordingly, the Company and Executive hereby agree as follows:

1. Specified Acts.

(a)If, at any time during Executive’s employment with the Company or during the 730-day period following the termination or cessation of Executive’s employment with the Company for any reason, Executive commits any Specified Act (as defined below), then notwithstanding any agreement or plan provision to the contrary, the Company may in its discretion, at any time or from time to time during the Evaluation Period related to that Specified Act (as defined below), (i) cancel in whole or part the Initial Grants and/or any other award of stock options or restricted stock or any other award made at any time to Executive under any equity incentive plan of the Company (each an “Award”), whether or not vested, and/or (ii) rescind some or all of any vesting, exercise, payment or delivery that occurred or occurs or is scheduled to occur pursuant to the Initial Grants or any other Award within 730 days before the earlier of the Specified Act or the termination of Executive’s employment, or at any time after the Specified Act, and/or (iii) cease paying or providing any or all of the Severance Package or the Change in Control, and/or (iv) demand that Executive return to the Company any portion of the Severance Package or the Change in Control Benefits previously paid, provided that cessation of payment pursuant to item (iii) and/or demand for return pursuant to item (iv) shall only apply to portions of the Severance Package or Change in Control Benefits in excess of $150,000, which $150,000 shall be consideration for the release signed as required by the Employment Agreement as a condition to payment of the Severance Package or the Change in Control Benefits.

(b)The Company shall notify Executive in writing of any exercise of any of its rights under Section 1(a) within the Evaluation Period related to the Specified Act triggering the Company’s rights.

(c)If the Company rescinds some or all of any vesting, exercise or delivery pursuant to Section 1(a)(ii), then within ten days after receiving from the Company the notice described in Section 1(b), Executive shall be obligated to pay to the Company the gross amount of any gain realized or payment received as a result of the cancelled Award or rescinded vesting, exercise, payment or delivery. Such payment shall be made by returning to the Company all shares of capital stock that Executive purchased or otherwise received in connection with the cancelled Award or rescinded vesting, exercise, payment or delivery, or if such shares or any interest therein have been transferred by Executive, then by paying to the Company, by wire transfer of immediately available funds, the fair market value of such shares at the time of the transfer. For this purpose, in the case of publicly traded shares, the value of shares will be measured by the price for which Executive sold the shares in a bona fide arm’s length transaction, or if the shares or interests therein were transferred otherwise than by a bona fide arm’s length sale, then by the closing price of the shares on the Nasdaq National Market or other primary market or exchange upon which the shares trade on the trading day immediately preceding the date of the transfer. Executive will cease to have any rights under any Award, vesting, exercise, payment or delivery to the extent cancelled or rescinded pursuant to this Agreement. Any payment of the exercise price for stock options or purchase price for restricted stock previously made by Executive to the Company in connection with an Award or vesting, exercise, payment or delivery that is cancelled or rescinded pursuant to this Agreement will be returned by the Company to Executive (without interest), at the time Executive returns the shares or makes payment pursuant to Section 1(c), including, at the Company's discretion, by offset against any amounts payable by Executive to the Company or any of the Company’s subsidiaries.

(d)If the Company demands return of previously paid portions of the Severance Package or the Change in Control Benefits pursuant to Section 1(a)(iv), then within ten days after receiving from the Company the notice described in Section 1(b), Executive shall pay to the Company, by wire transfer of immediately available funds, an amount equal to the aggregate cost to the Company of any parts of the Severance Package or the Change in Control Benefits previously provided to Executive by the Company that the Company demands be returned.

(e)Upon and as a condition to vesting, exercise, payment or delivery of shares or cash pursuant to any Award, a Recipient shall, if required by the Administrator, certify on a form acceptable to the Company that he has not committed any Specified Act. For purposes of this Agreement, the Company will be deemed to have been aware of Specified Act only after the completion of any investigation or inquiry and only when the Company has clear and convincing evidence thereof. For this purpose, suspicion is not awareness.

(f)For these purposes:

(i)“Evaluation Period” related to a Specified Act means the period beginning with that Specified Act and ending not later than the later of 365 days after such Specified Act, or, if later, 180 days after the Company became aware of such Specified Act.

(ii)“Specified Act” means Employee (A) has a Specified Relationship with a Designated Company (as those terms are defined below), or (B) violates in any material respect any material contractual obligation or legal duty to the Company and, if such violation of contractual obligation or legal duty is susceptible of cure fails to cure such violation within 30 days of written demand by the Company for cure, provided that the final determination that such a violation of contractual obligation or legal duty has occurred and not been cured within such 30-day notice period must be made by the Company’s board of directors after giving Executive an opportunity to be heard.

(iii)“Specified Relationship” with a Designated Company means acting as an owner, partner, officer, director, or employee of, or consultant or advisor (paid or unpaid) or lender to, or investor in, that Designated Company, except that ownership of not more than 1% of the outstanding stock of a Designated Company, in and of itself, will not be a Specified Relationship.

(iv) “Designated Company” means at any time of determination any of the entities listed on the Current Version of Schedule A to this Agreement and any Affiliate of any of such entities regardless of when formed. At no time may there be more than ten Designated Companies listed on Schedule A, and if any version of Schedule A lists more than ten companies, then only the first ten listed on Schedule A, reading left to right, top to bottom, will be Designated Companies pursuant to that schedule, but Affiliates of the listed entities will be Designated Companies but will not be counted for purposes of this ten-entity limit. In addition, each of the following shall be a Designated Company, in addition to the Designated Companies listed on Schedule A and not subject to the ten-entity limit: (i) any entity that is a successor to or transferee of any significant part of the business or assets of an entity listed on the Current Version; and (ii) any entity that first engages in competitive activity following the date of the Current Version. For this purpose, an entity first engages in competitive activity when it openly begins to provide or pursue any goods or services or line of business that is competitive in any material way with any goods or services or line of business provided or being pursued, or for which plans were being made, during Executive’s tenure with the Company. The “Current Version” of Schedule A is the version attached to this Agreement at the date of its execution unless and until Schedule A is modified as set forth in paragraph 1(f)(iv)(A) or 1(f)(iv)(B) below. The Current Version need not be the same as the list of competitors specified by the Company for any agreement entered into by the Company or any of its affiliates with any other employee that is similar to this Agreement.

(A) At any time and from time to time from the date hereof until the date seven days following the termination of Executive’s employment for any reason, but not more than once in any period of 180 days, the Company may, in its discretion, by written notice to Executive, modify the Current Version to include any company or companies that the Company in its discretion deems to be engaged in or planning any activity that is competitive with the Company’s business as conducted or planned, subject to the overall limit of ten, and that modified version of the schedule will then be the Current Version unless and until further modified pursuant to this paragraph 1(f)(iv)(A) or paragraph 1(f)(iv)(B).

(B) Not more than once in any period of 180 days, Executive may by written demand require the Company to provide an updated Current Version. In response, within seven days of receipt of Executive’s demand, the Company must deliver to Executive an updated Current Version or ratify in writing the then-existing Current Version. Any such updated Current Version may include, in the Company’s discretion, any company or companies that the Company in its discretion deems to be engaged in or planning any activity that is competitive with the Company’s business as conducted or planned, subject to the overall limit of ten. The Company may elect to deliver an updated Current Version in response to Executive’s demand even if the Company has modified the schedule in its own discretion within the preceding 180 days, but in any case the Current Version provided by the Company in response to Executive’s demand (whether updated or ratified) will trigger a new 180-day waiting period before the Company may again modify the schedule in its discretion pursuant to paragraph 1(f)(iv)(A). Any Current Version resulting from the process described in this paragraph 1(f)(iv)(B) will be the Current Version unless and until further modified pursuant to this paragraph 1(f)(iv)(B) or paragraph 1(f)(iv)(A).

(v)“Affiliate” of an entity means any controlling, controlled by or under common control with such entity.

(g)Executive understands and agrees that (i) his entering into this Agreement is a material inducement to the Company to employ him on the terms described in the Employment Agreement; (ii) the Initial Grants and any other equity that the Company may grant to Executive, the Severance Package and the Change in Control Benefits (other than the first $200,000 thereof) are intended not only to motivate and reward Executive’s performance, but also to compensate Executive for not engaging in any specified Act; (iii) Executive is not restricted by this Agreement from engaging in any Specified Act, and Executive is willing to accept the potential economic consequences under this Agreement of engaging in any Specified Act; (iv) Executive’s livelihood does not depend upon his ability to engage in any Specified Act; and (v) Executive shall not bring or participate in any action challenging the, validity, legality, effectiveness or enforceability of any part of this Agreement.

2.General Provisions.

(a)No Contract of Employment. This Agreement does not constitute a contract of employment, either express or implied, and does not imply that the Company will continue the Executive’s employment for any period of time. This Agreement shall in no way alter the Company’s policy of employment at will, under which both Executive and the Company remain free to terminate the employment relationship, with or without cause, at any time, with or without notice. Any change or changes in Executive’s duties, salary or compensation after the signing of this Agreement shall not affect the validity or scope of this Agreement.

(b)Entire Agreement. This Agreement sets forth the entire understanding of Executive and the Company regarding the subject matter hereof, and supersedes all prior agreements, written or oral, between the Executive and the Company relating to the subject matter hereof. However, it does not replace or supersede the Employment Agreement, any agreements documenting equity awards to Executive, any policies of the Company or agreements entered into by Executive providing for confidentiality, non-disclosure or assignment of developments, all of which remain in full force and effect. This Agreement may not be modified, changed or discharged in whole or in part, except by an agreement in writing signed by the Executive and the Company.

(c)Interpretation. If any provision of this Agreement is found by any court of competent jurisdiction to be unenforceable, it shall be interpreted to apply only to the extent that it is enforceable.

(d)Severability. If any part of this Agreement as applied to any party or to any circumstance is adjudged by a court of competent jurisdiction to be invalid, illegal, void or unenforceable for any reason, then (i) the invalidity of that part shall in no way affect (to the maximum extent permissible by law) the application of such part under circumstances different from those adjudicated by the court, the application of any other part of this Agreement, or the enforceability or invalidity of this Agreement as a whole; and (ii) such part shall be deemed amended to the extent necessary to conform to applicable law so as to be valid, legal, effective and enforceable or, if such part cannot be so amended without materially altering the intention of the parties, then such part will be stricken and the remainder of this Agreement shall continue in full force and effect.

(e)Waiver. No delay or omission by the Company in exercising any right under this Agreement will operate as a waiver of that or any other right. A waiver or consent given by the Company on any one occasion is effective only in that instance and will not be construed as a bar to or waiver of any right on any other occasion.

(f)Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of both parties and their respective successors and assigns, including any corporation or entity with which or into which the Company may be merged or which may succeed to its assets or business.

(g)Subsidiaries and Affiliates. Executive expressly consents to be bound by the provisions of this Agreement for the benefit of the Company or any subsidiary or affiliate thereof to whose employ the Executive may be transferred without the necessity that this Agreement be re-signed at the time of such transfer.

(h)Remedies not Limited. This Agreement and the Company’s enforcement hereof are not intended to be exclusive remedies and will not limit any other remedies that may be available to the Company at law or in equity as a result of or in connection with any violation by Executive of any contractual obligation or legal duty to the Company or any subsidiary or affiliate thereof.

(i)Governing Law, Forum and Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of the State of Florida (without reference to its conflicts of law provisions). If any judicial or administrative proceeding or claim relating to or pertaining to this Agreement is initiated by either party hereto, such proceeding or claim shall and must be filed in a state or federal court located in Palm Beach County or Miami-Dade County, Florida, and the Company and Executive each consents to the jurisdiction of such a court.

(j)Attorneys’ Fees. In the event that either party brings a legal action against the other in connection with this Agreement, the party, if either, that is judicially determined to be the prevailing party in such action shall be entitled to recover his or its reasonable attorney’s fees and legal costs incurred in connection with such action.

(k)Captions. The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any section of this Agreement.

In witness whereof, the Company and Executive have entered into this Agreement as of the date above set forth.

ECLIPSYS CORPORATION   By: /s/ Brian W. Copple Name: Brian W. Copple Title: Secretary     /s/ John E. Deady John E. Deady

Schedule A To Agreement Re Specified Acts

Designated Companies

[ * ]

* Confidential Treatment Requested

EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Forms S-8 (No. 333-127083, 333-121462, 333-92148, 333-45444, 333-33536, 333-89547, 333-77471, 333-70439, and 333-62791) of Eclipsys Corporation of our report dated March 6, 2006 relating to the financial statements, financial statement schedule, management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

PricewaterhouseCoopers LLP

Atlanta, Georgia

March 6, 2006

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, R. Andrew Eckert, certify that:

1.I have reviewed this Annual Report on Form 10-K of Eclipsys Corporation;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 6, 2006      /S/ R. Andrew Eckert

R. Andrew Eckert

President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Robert J. Colletti, certify that:

1.I have reviewed this Annual Report on Form 10-K of Eclipsys Corporation;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 6, 2006/S/ Robert J. Colletti

  Robert J. Colletti

  Senior Vice President, Chief Financial Officer and Chief Accounting Officer

EX-32.1

Exhibit 32.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with this annual report on Form 10-K of Eclipsys Corporation (the “Company”) for the period ended December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, R. Andrew Eckert, President and Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: March 6, 2006

/S/ R. Andrew Eckert

________________________________________

R. Andrew Eckert

President and Chief Executive Officer

EX-32.2

Exhibit 32.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with this annual report on Form 10-K of Eclipsys Corporation (the “Company”) for the period ended December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Robert J. Colletti, Senior Vice President and Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: March 6, 2006

/S/ Robert J. Colletti

________________________________________

Robert J. Colletti

Senior Vice President, Chief Financial Officer and Chief Accounting Officer