STERLING COMMERCE INC, 424B4, 1997-02-25

STERLING COMMERCE INC
424B4, 1997-02-25
PREPACKAGED SOFTWARE

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<PAGE>

Filed pursuant to Rule 424(B)(4)
SEC File No. 333-20565

12,500,000 Shares
Common Stock

[LOGO OF STERLING COMMERCE APPEARS HERE]

All of the shares of Common Stock offered hereby (the "Offering") are being
sold by Sterling Commerce, Inc. (together with its subsidiaries, the
"Company"). The Company's Common Stock is traded on the New York Stock
Exchange (the "NYSE") under the symbol "SE." On February 24, 1997, the last
reported sale price for the Common Stock on the NYSE was $31.00 per share. See
"Price Range of Common Stock and Dividend Policy."

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SEE "RISK FACTORS" COMMENCING ON PAGE 6 HEREOF FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE
COMMON STOCK OFFERED HEREBY.

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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

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PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............................. $29.00 $1.10 $27.90
- --------------------------------------------------------------------------------
Total(3).............................. $362,500,000 $13,750,000 $348,750,000
</TABLE>
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(1) See "Underwriting" for information relating to indemnification of the
Underwriters.
(2) Before deducting expenses payable by the Company estimated at $500,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
1,875,000 additional shares of Common Stock solely to cover over-
allotments, if any. To the extent that the option is exercised, the
Underwriters will offer the additional shares at the Price to Public shown
above. If the option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$416,875,000, $15,812,500 and $401,062,500, respectively. See
"Underwriting."

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The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject
to the right of the Underwriters to reject any order in whole or in part. It
is expected that delivery of the shares of Common Stock will be made at the
offices of Alex. Brown & Sons Incorporated, Baltimore, Maryland, on or about
February 28, 1997.

Alex. Brown & Sons Goldman, Sachs & Co.
INCORPORATED

THE DATE OF THIS PROSPECTUS IS FEBRUARY 25, 1997.
<PAGE>

IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NYSE OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the public reference
facilities maintained by the Commission at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511, and at 7 World Trade Center,
Suite 1300, New York, New York 10048. Copies of such materials can also be
obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission
maintains a Web site that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission and that is located at http://www.sec.gov. Documents filed by the
Company can also be inspected at the offices of the NYSE, 20 Broad Street, New
York, New York 10005.

The Company has filed a Registration Statement on Form S-3 (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"). This Prospectus omits certain of the information contained
in the Registration Statement, and reference is hereby made to the
Registration Statement and to the exhibits relating thereto for further
information with respect to the Company and the Common Stock offered hereby.
Any statements contained herein concerning the provisions of any document are
not necessarily complete, and in each instance reference is made to the copy
of such document filed as an exhibit to the Registration Statement or
otherwise filed with the Commission. Each such statement is qualified in its
entirety by such reference.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The Company hereby incorporates by reference into this Prospectus (i) the
Company's Annual Report on Form 10-K for the period ended September 30, 1996,
as amended (the "1996 Form 10-K"), (ii) the Company's Quarterly Report on Form
10-Q for the three--month period ended December 31, 1996 (the "December 1996
Form 10-Q"), and (iii) the Company's Current Reports on Form 8-K dated
September 30, 1996 and December 18, 1996.

All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act, prior to the termination of the
Offering made hereby, shall be deemed to be incorporated by reference in this
Prospectus and to be a part of this Prospectus from the date of the filing of
such reports.

Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein or in any subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.

Any person receiving a copy of this Prospectus may obtain, without charge,
upon written or oral request, a copy of any of the documents incorporated by
reference herein, except for the exhibits to such documents (other than the
exhibits expressly incorporated in such documents by reference). Requests
should be directed to: Sterling Commerce, Inc., 300 Crescent Court, Suite
1200, Dallas, Texas 75201 (telephone: (214) 981-1100), Attention: Dawn C.
Wheeler, Vice President, Investor Relations.

2
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements included elsewhere or
incorporated by reference in this Prospectus. This Prospectus (including the
documents incorporated by reference herein) contains forward-looking statements
that are based on the beliefs of, and estimates and assumptions made by and
information currently available to, the Company's management. Such statements
are subject to certain risks, uncertainties and assumptions. Actual results may
vary materially from those expected or anticipated in these forward-looking
statements as a result of certain factors, including those set forth under
"Risk Factors" and elsewhere in this Prospectus. See "Certain Forward-Looking
Statements."

THE COMPANY

The Company is a leading provider of electronic data interchange ("EDI") and
other electronic commerce ("EC") products and services worldwide. The Company
develops, markets and supports electronic commerce software products and
provides electronic commerce services that enable businesses to engage in
business-to-business electronic communications and transactions. The Company
has been providing electronic commerce solutions for over 20 years and has
numerous customers in a broad range of industries including banking,
pharmaceuticals and retailing. As of September 30, 1996, the Company's
customers included 96 of the 100 largest U.S. industrial corporations, as
ranked by 1995 sales in Fortune magazine, and 99 of the top 100 U.S. commercial
banks, as ranked by deposits as of December 31, 1995, in American Banker
magazine. Selected customers of the Company include Cummins Engine Company,
Mobil Corporation, NationsBanc Services, Inc., The Pillsbury Company and Target
Stores.

Electronic commerce involves the automation of business-to-business
transactions through the use of telecommunications and computers to exchange
and process electronically commercial information and business transaction
documents. Due to the critical nature of these transactions, electronic
commerce requires reliable, secure, automated connectivity between businesses.
Electronic commerce typically involves software and value-added services to
perform essential business functions such as EDI, which facilitates uniform
communications with different trading partners, including suppliers, customers,
transportation carriers, banks and governmental agencies. In addition,
electronic commerce includes value-added services such as e-mail, electronic
funds transfer, electronic forms and bulletin board and catalog services.
Currently, EDI is the most widely utilized component of electronic commerce.
Advantages of electronic commerce include reduced clerical workload and
elimination of unnecessary paper handling; rapid, accurate and secure exchange
of time sensitive business information; reduced operating and inventory
carrying costs; and improved speed of ordering, delivering and paying for goods
and services.

The Company offers a comprehensive range of electronic commerce products and
services for the electronic commerce market. The Company continually strives to
understand the business requirements of the global electronic commerce market;
to address these requirements with flexible, reliable and secure electronic
commerce solutions; and to deliver these solutions in an effective and
efficient manner. The Company believes that many of today's business
organizations operate as extended enterprises that not only include an entity's
divisions, plant sites and sales offices, but also involve close partnering
relationships with customers, suppliers, banks and other trading partners. The
foundation for transacting business electronically is reliable and secure
communications software. Upon this foundation, solutions are provided for
messaging management, translation, managed services and automated payment
integration. The Company provides all of these solutions, among others, to
support the extended enterprise.

3
<PAGE>

The Company operates through five separate groups, four of which offer
distinct families of products and services in the United States and Canada and
one of which markets electronic commerce services and related products outside
of the United States and Canada. The Company believes that its decentralized
organizational structure promotes operating flexibility, improves
responsiveness to customer requirements and focuses management on achieving
revenue and profit objectives. The Commerce Services Group is a leading
provider of electronic commerce services and related software products, offered
under the COMMERCE family name, that facilitate the electronic exchange of
business transactions among multiple trading partners. The Interchange Software
Group is a leading provider of electronic commerce translation and gateway
messaging software, which makes message management and communications possible
across diverse systems. These products are marketed under the GENTRAN family
name. The Communications Software Group offers automated file transfer and
communications management solutions under the CONNECT family name that provide
the infrastructure for an enterprise's electronic commerce system. The Banking
Systems Group, with its VECTOR family of products, is a leading provider of
item processing and electronic payments software and related services for
financial institutions. The International Group markets electronic commerce
services and related software products outside of the United States and Canada,
primarily in Europe.

Prior to the Company's initial public offering in March 1996, the Company was
a wholly owned subsidiary of Sterling Software, Inc. (together with its
subsidiaries, "Sterling Software"). In September 1996, Sterling Software
declared a special dividend to its stockholders consisting of the distribution
(the "Distribution") of all shares of the Company's Common Stock then owned by
Sterling Software. As a result, effective September 30, 1996, the Company
ceased to be a subsidiary of Sterling Software. Under the International
Marketing Agreement, Sterling Software currently acts as the exclusive
distributor of the Company's interchange and communications software products
in markets outside the United States and Canada. See "Business--Sales and
Marketing " and "--Shared Management and Contractual Arrangements with Sterling
Software."

The Company's principal executive offices are located at 300 Crescent Court,
Suite 1200, Dallas, Texas 75201 and its telephone number is (214) 981-1100.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered hereby................ 12,500,000
Common Stock to be outstanding after
the Offering (1).......................... 87,500,000
Use of proceeds by the Company............. Working capital and general corporate purposes,
including possible acquisitions
NYSE symbol................................ SE
</TABLE>
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(1) Excludes the effects of the possible future issuance of up to 18,336,400
additional shares of Common Stock available for issuance pursuant to the
Company's 1996 Stock Option Plan as of January 31, 1997. See "Description
of Capital Stock--General."

4
<PAGE>

SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
THREE
MONTHS ENDED
YEAR ENDED SEPTEMBER 30,(1) DECEMBER 31,(2)
------------------------------------------- --------------------
1992 1993 1994 1995 1996 1995 1996
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<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue............... $88,926 $117,813 $155,916 $203,578 $267,773 $ 56,150 $ 74,769
Income before
restructuring charge,
other income and
expense and income
taxes................ 14,933 29,001 46,405 72,028 95,205 20,691 25,013
Net income............ 8,983 15,194 27,753 42,930 58,392 12,289 16,060
Pro forma earnings per
common share(3)...... $ 0.59 $ 0.17
Earnings per common
share................ $ 0.77 $ 0.21
<CAPTION>
DECEMBER 31, 1997
--------------------
AS
ACTUAL ADJUSTED(4)
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<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital..................................................... $ 87,793 $436,043
Total assets........................................................ 259,887 608,137
Stockholders' equity(5)............................................. 153,863 502,113
</TABLE>
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(1) The financial data reflect the adoption of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," for all
periods presented. The Company's operations have historically been included
in consolidated income tax returns filed by Sterling Software. Income tax
expense has been computed as if the Company filed separate income tax
returns.
(2) Results of operations for interim periods are not necessarily indicative of
results of operations for the entire fiscal year.
(3) Assumes that 73,200,000 shares of Common Stock were outstanding.
(4) Adjusted to give effect to the 87,500,000 shares of Common Stock to be
outstanding after the Offering and the receipt by the Company of
approximately $348.3 million of net proceeds from the sale by the Company
of 12,500,000 shares of Common Stock pursuant to the Offering.
(5) Excludes the effects of the possible future issuance of up to 18,336,400
additional shares of Common Stock available for issuance pursuant to the
Company's 1996 Stock Option Plan as of January 31, 1997. See "Description
of Capital Stock--General."

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Except as otherwise indicated, the information in this Prospectus assumes
that the Underwriters' over-allotment option is not exercised. See
"Underwriting."

5
<PAGE>

RISK FACTORS

In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
shares of Common Stock offered by this Prospectus.

Competition. The electronic commerce market is very competitive. Numerous
companies supply electronic commerce products and services, and several
competitors target specific customer requirements for which the Company
presently is, or may seek to become, a provider. The Company's competitors
include both large companies with substantially greater resources than the
Company and small, specialized companies that compete in one or more
particular market niches. Competitors that offer products and/or services that
compete with various of the Company's products and services include, among
others, Advantis Systems, Inc. (a joint venture between Sears, Roebuck & Co.
and IBM); AT&T; Computer Associates International, Inc.; EDS; General Electric
Information Systems; Harbinger Corporation; Premenos Technology Corp.;
QuickResponse Services, Inc.; and a joint venture between British
Telecommunications Plc and MCI Communications Corporation; as well as the
internal programming staffs of various businesses engaging in electronic
commerce.

The Company expects competition to increase in the future from both existing
competitors and other companies that may enter the Company's existing or
future markets. The Company believes that its ability to compete successfully
in the electronic commerce market depends on numerous factors, both within and
outside its control, including product performance, functionality and
reliability, price and customer service and support. There can be no assurance
that new or established competitors will not offer products and services that
are superior to and/or lower in price than those of the Company. In addition,
the Company could face increased competition to the extent the Internet gains
further acceptance as a method of conducting electronic commerce. See "--The
Internet" and "Business--Competition."

Factors Affecting Operating Results; Potential Fluctuations in Quarterly
Results. The Company's future quarterly operating results may vary and reduced
levels of earnings or losses could be experienced in one or more quarters.
Fluctuations in the Company's quarterly operating results could result from a
variety of factors, including changes in the levels of revenues derived from
sales of software products and electronic commerce services, the timing of new
product and service announcements by the Company or its competitors, changes
in pricing policies by the Company or its competitors, market acceptance of
new and enhanced versions of the products and services of the Company or its
competitors, the size and timing of significant orders, changes in operating
expenses, changes in the Company's strategy, the introduction of alternative
technologies, the effect of potential acquisitions and industry and general
economic factors. The Company has limited or no control over many of these
factors. In addition, a somewhat greater portion of the Company's revenues
tends to be recognized in the fourth fiscal quarter as a result of a number of
factors, including the Company's incentive compensation structure for its
sales personnel (under which, opportunities to earn higher commissions
applicable to sales in excess of annual quotas and to realize other benefits
associated with the achievement of such quotas are at their greatest during
the fourth fiscal quarter). In 1995 and 1996, approximately 29.7% and 30.0%,
respectively, of the Company's total revenues were recognized in the fourth
fiscal quarter. See "Selected Financial Data--Quarterly Results of
Operations."

The Company operates with virtually no product order backlog because its
software products typically are shipped shortly after orders are received. As
a result, revenues in any quarter are substantially dependent on the quantity
of such products licensed in that quarter. The Company's expense levels are
based, in part, on its expectations as to future revenues. If revenue levels
are below expectations, the Company's operating results are likely to be
adversely affected unless the Company is willing and able to reduce its
expenses proportionally. As a result of the foregoing factors, comparisons of
results of operations between particular periods are not necessarily
meaningful and historical results of operations are not necessarily indicative
of future performance. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in the Company's 1996 Form 10-K
and incorporated herein by reference.

6
<PAGE>

Technological Change; Dependence on New Products and Related Risks. The
electronic commerce industry is characterized by rapid technological change,
frequent new product and service introductions and evolving industry
standards. The Company's future success will depend in significant part on its
ability to anticipate industry standards, continue to apply advances in
electronic commerce product and service technologies, enhance existing
products and services and introduce and acquire new products and services on a
timely basis to keep pace with technological developments. There can be no
assurance that the Company will be successful in developing, acquiring or
marketing new or enhanced products or services that respond to technological
change or evolving industry standards, that the Company will not experience
difficulties that could delay or prevent the successful development,
acquisition or marketing of such products or services or that its new or
enhanced products and services will adequately meet the requirements of the
marketplace or achieve market acceptance. Any delay or failure in the
introduction of new or enhanced products or services, or the failure of such
products or services to achieve market acceptance, could have a material
adverse effect on the business, results of operations and financial condition
of the Company.

Software products as complex as those used in the electronic commerce
industry may contain undetected errors or failures when first introduced or
when new versions are released. If software errors are discovered after
introduction, the Company could experience delays or lost revenues during the
period required to correct these errors. There can be no assurance that,
despite testing by the Company and by current and potential customers, errors
will not be found in new products or releases after commencement of commercial
shipments, resulting in loss of, or delay in, market acceptance, which could
have a material adverse effect on the business, results of operations and
financial condition of the Company. See "Business--Product Development."

Growth Through Acquisitions. The Company's growth has been significantly
enhanced through acquisitions of other businesses, products and licenses.
Following the Offering, the Company will have significant cash resources,
which may be used for acquisitions. The inability of the Company to make
appropriate acquisitions on attractive terms (whether for cash, Company
securities or both) could make it more difficult for the Company to achieve
growth levels consistent with those historically achieved. Moreover, there can
be no assurance as to the Company's ability to make appropriate acquisitions,
the timing thereof or the ultimate benefits therefrom to the Company.

Furthermore, the Company will not be eligible to account for any acquisition
as a pooling of interests prior to October 1998, two years following the
completion of the Distribution. The use of the purchase method of accounting
for an acquisition may result in the recording of goodwill, which would be
required to be amortized by the Company over a period of time. Such
amortization would reduce the Company's reported earnings and, consequently,
could adversely affect the market price of the Common Stock.

The Internet. The Internet is an interconnected global network of computer
systems linked together through a common protocol. The Company and certain of
its existing competitors have introduced products and services that are
intended to enable businesses to engage in electronic commerce over the
Internet, and other companies are expected to do so in the future. The use of
the Internet as a vehicle for electronic commerce raises numerous issues,
including reliability, data security and data integrity, and has not yet
become widely accepted. There can be no assurance that any such products and
services introduced by the Company will adequately meet the requirements of
the marketplace or achieve market acceptance. Moreover, new competitors, which
could include media and telecommunications companies, may increasingly offer
products and services that utilize the Internet in competition with the
Company's product and service offerings. To the extent that the Internet gains
further acceptance as a method of conducting electronic commerce, the Company
believes that the Internet will provide the Company with expanded
opportunities. However, there can be no assurance that the Company's efforts
to exploit any such opportunities will be successful or that any increased
usage of the Internet for electronic commerce or increased competition will
not adversely affect the business, results of operations and financial
condition of the Company.

International Growth and Marketing. Historically, sales of the Company's
electronic commerce services and related products outside the United States
and Canada have not been significant. The Company's ability to successfully
expand its services business internationally will depend upon, among other
things, its ability to attract and retain both talented and qualified
managerial, technical and sales

7
<PAGE>

personnel and electronic commerce services customers outside the United States
and Canada and its ability to continue to effectively manage its domestic
operations while focusing on international expansion. Moreover, the Company's
ability to successfully implement its international services strategy will
require additional improvements to its infrastructure and management
information systems, particularly its international customer support systems.

International operations are subject to certain inherent risks, including
unexpected changes in regulatory requirements and tariffs, longer payment
cycles, increased difficulties in collecting accounts receivable and
potentially adverse tax consequences. To the extent international sales are
denominated in foreign currencies, gains and losses on the conversion to U.S.
dollars of accounts receivable and accounts payable arising from international
operations may contribute to fluctuations in the Company's results of
operations. The Company has not entered into any hedging or other arrangements
for the purpose of guarding against the risk of currency fluctuations but will
consider entering into such arrangements should its exposure to such risk
increase significantly. In addition, sales in Europe and certain other parts
of the world typically are adversely affected in the third calendar quarter of
each year because many customers reduce their business activities in the
summer months. See "Business--Sales and Marketing."

Pursuant to an agreement between the Company and Sterling Software (the
"International Marketing Agreement"), Sterling Software acts as the exclusive
distributor (directly and through subdistributors) of the Company's
interchange and communications software products in markets outside the United
States and Canada and is responsible for sales, marketing and first level
support of such products in those markets. The International Marketing
Agreement, which expires in March 1999, provides for the payment to the
Company of royalties equal to 50% of the revenue that Sterling Software
derives from licenses of the Company's interchange and communications software
products and related product support services, with the balance of such
revenue to be retained by Sterling Software. During fiscal 1996, the Company
recorded aggregate royalties from Sterling Software of approximately $20.7
million. See "Business--Shared Management and Contractual Arrangements with
Sterling Software."

Ability to Attract Qualified Personnel. The Company's business is dependent
upon its ability to attract and retain highly qualified managerial, technical
and sales personnel. Competition for such personnel is intense. There can be
no assurance that the Company can retain its key managerial, technical and
sales personnel or that it can attract, assimilate or retain such personnel in
the future. The inability of the Company to attract and retain such personnel
could have a material adverse effect on the business, results of operations
and financial condition of the Company. See "Business--Employees" and "--
Shared Management and Contractual Arrangements with Sterling Software."

Dependence on Data Center. The operations of the Company's Commerce Services
Group are dependent upon the Company's ability to protect its computer
equipment and the information stored in its data center against damage that
may be caused by fire, power loss, telecommunications failures, unauthorized
intrusion, computer viruses and disabling devices and other similar events.
The Company is party to a disaster recovery agreement that provides an
alternative off-site computer system for use in such disastrous events, and
the Company has taken precautions to protect itself and its customers from
events that could interrupt delivery of certain of the Company's electronic
commerce services. These precautions include, among others, backup power
generation equipment, fire protection and physical security systems and an
early warning detection and fire extinguishing system. Notwithstanding such
precautions, there can be no assurance that a fire or other natural disaster,
including national, regional or local telecommunications disruptions, would
not result in a prolonged disruption of the Company's electronic commerce
services. The Company is currently covered under a business interruption
insurance policy. However, even if lost revenues or increased costs
experienced by the Company during the pendency of any disruption of its
services business were substantially recovered under any such insurance policy
(as to which, depending upon the circumstances, there can be no assurance),
longer term revenue losses not recoverable under such policies could result
from possible losses of customers and, consequently, could have a material
adverse effect on the business, results of operations and financial condition
of the Company.

8
<PAGE>

Limited Protection of Proprietary Technology; Risks of Infringement and Loss
of Licenses. The Company relies primarily on a combination of copyright,
patent and trademark laws, trade secrets, confidentiality procedures and
contractual provisions to protect its intellectual property rights. The
Company seeks to protect its software, documentation and other written
materials principally under trade secret and copyright laws, which afford only
limited protection. The Company routinely enters into non-disclosure and
confidentiality agreements with employees, contractors, consultants and
customers. Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's products or
to obtain and use information that the Company regards as proprietary. There
can be no assurance that the Company's means of protecting its proprietary
rights will be adequate or that the Company's competitors will not
independently develop similar technology. In addition, the laws of some
foreign countries do not protect the Company's proprietary rights to the same
extent as the laws of the United States. The Company does not believe that any
of its products infringe on the proprietary rights of third parties in any
material respect. There can be no assurance, however, that third parties will
not claim infringement by the Company with respect to current or future
products. Any such claim, with or without merit, could be time-consuming,
result in costly litigation, cause product shipment delays or require the
Company to enter into royalty or licensing agreements. Such royalty or
licensing agreements, if required, may not be available on terms acceptable to
the Company or at all, which could have a material adverse effect on the
business, results of operations and financial condition of the Company.

Licenses for a number of software products have been granted to the Company
for its own use or for remarketing to its customers. In the aggregate, these
licenses are material to the business of the Company. Although management
believes that the risk that the Company will lose a significant number of
licenses is remote, such a loss could have a material adverse effect on the
business, results of operations and financial condition of the Company. See
"Business--Intellectual Property Rights."

Relationship with Sterling Software. Four of the directors of the Company
are also directors of Sterling Software. In addition, three of the executive
officers of the Company are also executive officers of Sterling Software.
Accordingly, such persons do not expend all of their professional time on
behalf of the Company and may have conflicts of interest with respect to
matters potentially or actually involving or affecting the Company and
Sterling Software. Further, the Company and Sterling Software entered into a
number of agreements in anticipation of the Company's initial public offering.
As a result of Sterling Software's then-existing ownership in the Company, the
terms of such agreements were not the result of arm's-length negotiations. See
"Business--Shared Management and Contractual Arrangements with Sterling
Software."

Government Regulatory and Industrial Policy Risks. Current U.S. and Canadian
regulations and laws governing the telecommunications industry generally do
not apply to providers of electronic commerce services and products. Except
for government regulations in certain foreign countries (which may affect the
provision of certain of the Company's services or use of certain of its
products) and regulations governing the ability of the Company to disclose the
contents of communications by its customers, there are no government
regulations pertaining to the pricing, service characteristics or
capabilities, geographic distribution or quality control features of the
Company's electronic commerce services or products. There exists, however, the
risk that governmental policies affecting the electronic commerce industry
could be implemented by executive order, legislation, administrative order or
otherwise. If such policies are adopted, they could have a material adverse
effect on the business, results of operations and financial condition of the
Company.

Although the Company does not believe that import and export control
regulations currently create significant impediments to the Company's
international growth strategy, such regulations are applicable to certain of
the Company's software products, and could interfere with such growth in the
future. See "Business--Government Regulations."

9
<PAGE>

Certain Antitakeover Provisions. The Company's Certificate of Incorporation
and Bylaws and applicable law contain provisions that may have the effect of
delaying, deterring or preventing a change in control of the Company. In
addition, the Company's Certificate of Incorporation authorizes the issuance
of up to 150,000,000 shares of Common Stock and 50,000,000 shares of Preferred
Stock. The Board will have the power to determine the price and terms under
which any such additional capital stock may be issued and to fix the terms of
such Preferred Stock, and existing stockholders of the Company will not have
preemptive rights with respect thereto. The Company has also adopted a Rights
Plan, which is intended to deter certain takeover practices or takeover bids.
See "Description of Capital Stock."

USE OF PROCEEDS

The net proceeds to the Company from the sale of shares of Common Stock
pursuant to the Offering, after underwriting discounts and commissions and
estimated offering expenses, will be approximately $348.3 million (or
approximately $400.6 million if the over-allotment option is exercised in
full). Such net proceeds will be added to the Company's working capital and
used for general corporate purposes, which may include acquisitions. Pending
such use, the Company currently intends to invest the net proceeds of the
Offering in short-term, investment grade debt securities and other marketable
securities. While the Company is presently in negotiations to acquire a
European communications software company for a cash purchase price of less
than $5 million, the Company does not presently have any material pending
acquisitions.

10
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
December 31, 1996, and as adjusted to give effect to the completion of the
Offering and the receipt by the Company of the estimated net proceeds
therefrom. See "Use of Proceeds." This table should be read in conjunction
with the Company's consolidated financial statements and the other information
included and incorporated by reference in this Prospectus.

<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt............................................ $ -- $ --
Stockholders' equity:
Preferred Stock, $.01 par value; 50,000,000 shares
authorized............................................. -- --
Common Stock, $.01 par value; 150,000,000 shares
authorized, 75,000,000 shares issued; 87,500,000
issued, as adjusted(1)................................. 750 875
Additional paid-in capital.............................. 97,780 445,905
Retained earnings....................................... 55,333 55,333
-------- --------
Total stockholders' equity............................ 153,863 502,113
-------- --------
Total capitalization................................ $153,863 $502,113
======== ========
</TABLE>
- --------
(1) Excludes the effect of the possible future issuance of up to 18,336,400
additional shares of Common Stock available for issuance pursuant to the
Company's 1996 Stock Option Plan as of January 31, 1997. See "Description
of Capital Stock--General."

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Common Stock trades on the NYSE under the symbol "SE." The following
table sets forth the high and low sales prices per share of Common Stock as
reported on the NYSE, for all periods since March 8, 1996, the date the Common
Stock began trading on the NYSE on a when issued basis.

<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
Year Ended September 30, 1996:
Quarter Ended:
March 31, 1996................................................ $30 7/8 $28 3/4
June 30, 1996................................................. $45 $30 1/8
September 30, 1996............................................ $37 1/8 $28
Year Ended September 30, 1997:
Quarter Ended:
December 31, 1996............................................. $35 3/4 $25 1/2
March 31, 1997 (through February 24, 1997).................... $38 5/8 $30 1/2
</TABLE>

On February 24, 1997, the closing sales price of the Common Stock on the
NYSE was $31.00 per share.

The Company's current intention is to retain any available earnings for use
in the operation and expansion of its business. Accordingly, the Company does
not anticipate paying any cash dividends on the Common Stock in the
foreseeable future. Further, under the terms of the Company's Revolving Credit
and Term Loan Agreement, the Company is prohibited from making distributions
in the form of dividends on Common Stock.

11
<PAGE>

SELECTED FINANCIAL DATA

The selected financial data set forth below should be read in conjunction
with the Company's consolidated financial statements and the other information
included or incorporated by reference in this Prospectus. The data for the
years ended September 30, 1994, 1995 and 1996 have been derived from the
audited consolidated financial statements included in the 1996 Form 10-K
incorporated by reference in this Prospectus. See "Incorporation of Certain
Documents by Reference." The data for the year ended September 30, 1993 has
been derived from audited consolidated financial statements of the Company and
the data for the year ended September 30, 1992 has been derived from unaudited
consolidated financial statements of the Company. The data for the three
months ended December 31, 1995 and 1996 have been derived from unaudited
consolidated interim financial statements of the Company included in the
December 1996 Form 10-Q incorporated by reference in this Prospectus. The
unaudited consolidated financial statements have been prepared by the Company
on a basis consistent with the Company's audited consolidated financial
statements and, in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments, necessary for fair
presentation of such data.

<TABLE>
<CAPTION>
THREE
MONTHS ENDED
YEAR ENDED SEPTEMBER 30,(1) DECEMBER 31,(2)
---------------------------------------------- ----------------------
1992 1993 1994 1995 1996 1995 1996
------- -------- -------- -------- -------- --------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue:
Products............... $32,376 $ 43,509 $ 56,291 $ 67,603 $ 87,527 $ 16,063 $22,189
Product support........ 23,268 29,875 37,953 46,190 56,229 13,477 15,549
Services............... 28,794 39,523 53,246 78,063 103,269 23,127 32,417
Royalties from
affiliated companies.. 4,488 4,906 8,426 11,722 20,748 3,483 4,614
------- -------- -------- -------- -------- -------- --------
Total revenue......... 88,926 117,813 155,916 203,578 267,773 56,150 74,769
Costs and expenses:
Cost of sales:
Products and product
support............... 11,958 15,884 23,020 23,713 28,647 6,348 7,992
Services............... 8,635 11,673 13,262 17,837 25,771 5,568 7,743
------- -------- -------- -------- -------- -------- --------
Total cost of sales... 20,593 27,557 36,282 41,550 54,418 11,916 15,735
Product development and
enhancement........... 9,413 6,478 12,497 14,807 15,553 3,288 5,071
Selling, general and
administrative ....... 43,987 54,777 60,732 75,193 102,597 20,255 28,950
Restructuring charges.. -- 3,638 -- -- -- -- --
------- -------- -------- -------- -------- -------- --------
Total costs and
expenses ............ 73,993 92,450 109,511 131,550 172,568 35,459 49,756
------- -------- -------- -------- -------- -------- --------
Income before other
income (expense) and
income taxes........... 14,933 25,363 46,405 72,028 95,205 20,691 25,013
Other income (expense).. 38 (40) (150) (478) 1,217 (210) 1,058
------- -------- -------- -------- -------- -------- --------
Income before income
taxes ................. 14,971 25,323 46,255 71,550 96,422 20,481 26,071
Provision for income
taxes.................. 5,988 10,129 18,502 28,620 38,030 8,192 10,011
------- -------- -------- -------- -------- -------- --------
Net income.............. $ 8,983 $ 15,194 $ 27,753 $ 42,930 $ 58,392 $ 12,289 $ 16,060
======= ======== ======== ======== ======== ======== ========
Pro forma earnings per
common share(3)........ $ 0.59 $ 0.17
======== ========
Earnings per common
share.................. $ 0.77 $ 0.21
======== ========
<CAPTION>
SEPTEMBER 30,(1) DECEMBER 31, 1996
---------------------------------------------- ----------------------
AS
1992 1993 1994 1995 1996 ACTUAL(2) ADJUSTED(4)
------- -------- -------- -------- -------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital(5)..... $ 2,485 $ (3,438) $ 2,198 $ 3,692 $ 77,159 $ 87,793 $436,043
Total assets........... 77,319 87,271 100,638 128,978 241,680 259,887 608,137
Other noncurrent
liabilities........... 3,639 4,020 6,151 5,680 7,523 7,420 7,420
Stockholder's net
investment............ 38,650 37,498 43,051 53,187 -- -- --
Stockholders'
equity(6)............. -- -- -- -- 138,187 153,863 502,113
</TABLE>
- -------
(1) The financial data reflect the adoption of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," for all
periods presented. The Company's operations have historically been
included in consolidated income tax returns filed by Sterling Software.
Income tax expense has been computed as if the Company filed separate
income tax returns.
(2) Results of operations for interim periods are not necessarily indicative
of results of operations for the entire fiscal year.
(3) Assumes that 73,200,000 shares of Common Stock were outstanding.
(4) Adjusted to give effect to the 87,500,000 shares of Common Stock to be
outstanding after the Offering and the receipt by the Company of
approximately $348.3 million of net proceeds from the Offering. See "Use
of Proceeds" and "Capitalization."
(5) Prior to the consummation of the Company's initial public offering in
March 1996, substantially all of the excess cash generated by the
Company's operations was regularly remitted to Sterling Software pursuant
to Sterling Software's centralized cash management program.
(6) Excludes the effects of the possible future issuance of up to 18,336,400
additional shares of Common Stock available for issuance pursuant to the
Company's 1996 Stock Option Plan as of January 31, 1997. See "Description
of Capital Stock--General."

12
<PAGE>

QUARTERLY RESULTS OF OPERATIONS

The following tables set forth the Company's statement of operations data
for each of the nine quarters ended December 31, 1996, including such amounts
expressed as a percentage of total revenue. This unaudited quarterly
information has been prepared on the same basis as the Company's audited
consolidated financial statements included in the 1996 Form 10-K incorporated
by reference in this Prospectus and, in the opinion of management, reflects
all adjustments (consisting only of normal recurring entries) necessary for a
fair presentation of the information for the periods presented. The operating
results for any quarter are not necessarily indicative of results for any
future period.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1994 1995 1995 1995 1995 1996 1996 1996 1996
-------- -------- -------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Products.................... $14,346 $13,931 $16,339 $22,987 $16,063 $19,145 $22,295 $30,024 $22,189
Product support............. 10,466 11,367 11,872 12,485 13,477 13,784 14,093 14,875 15,549
Services.................... 18,010 18,780 19,957 21,316 23,127 24,463 27,384 28,295 32,417
Royalties from affiliated
companies.................. 2,274 2,197 3,469 3,782 3,483 4,684 5,453 7,128 4,614
------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenue.............. 45,096 46,275 51,637 60,570 56,150 62,076 69,225 80,322 74,769
Costs and expenses:
Cost of sales:
Products and product
support.................... 5,274 5,381 5,893 7,165 6,348 7,081 6,977 8,241 7,992
Services.................... 4,318 4,267 4,340 4,912 5,568 6,255 6,718 7,230 7,743
------- ------- ------- ------- ------- ------- ------- ------- -------
Total cost of sales........ 9,592 9,648 10,233 12,077 11,916 13,336 13,695 15,471 15,735
Product development and
enhancement................ 3,599 4,032 3,706 3,470 3,288 3,777 4,187 4,301 5,071
Selling, general and
administrative............. 17,303 16,535 19,284 22,071 20,255 22,905 27,684 31,753 28,950
------- ------- ------- ------- ------- ------- ------- ------- -------
Total costs and expenses... 30,494 30,215 33,223 37,618 35,459 40,018 45,566 51,525 49,756
------- ------- ------- ------- ------- ------- ------- ------- -------
Income before other income
(expense) and income taxes.. 14,602 16,060 18,414 22,952 20,691 22,058 23,659 28,797 25,013
Other income (expense)....... (59) (113) (171) (135) (210) 1 521 905 1,058
------- ------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes... 14,543 15,947 18,243 22,817 20,481 22,059 24,180 29,702 26,071
Provision for income taxes .. 5,817 6,379 7,297 9,127 8,192 8,824 9,430 11,584 10,011
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income................... $ 8,726 $ 9,568 $10,946 $13,690 $12,289 $13,235 $14,750 $18,118 $16,060
======= ======= ======= ======= ======= ======= ======= ======= =======
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1994 1995 1995 1995 1995 1996 1996 1996 1996
-------- -------- -------- --------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PERCENTAGE OF REVENUE:
Revenue:
Products.................... 31.9% 30.1% 31.6% 38.0% 28.6% 30.8% 32.2% 37.4% 29.7%
Product support............. 23.2 24.6 23.0 20.6 24.0 22.2 20.4 18.5 20.8
Services.................... 39.9 40.6 38.7 35.2 41.2 39.4 39.6 35.2 43.3
Royalties from affiliated
companies.................. 5.0 4.7 6.7 6.2 6.2 7.6 7.8 8.9 6.2
------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenue.............. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Costs and expenses:
Cost of sales:
Products and product
support.................... 11.7 11.7 11.4 11.9 11.3 11.4 10.1 10.3 10.7
Services.................... 9.6 9.2 8.4 8.1 9.9 10.1 9.7 9.0 10.3
------- ------- ------- ------- ------- ------- ------- ------- -------
Total cost of sales........ 21.3 20.9 19.8 20.0 21.2 21.5 19.8 19.3 21.0
Product development and
enhancement................ 8.0 8.7 7.2 5.7 5.9 6.1 6.0 5.3 6.8
Selling, general and
administrative............. 38.4 35.7 37.3 36.4 36.1 36.9 40.0 39.5 38.7
------- ------- ------- ------- ------- ------- ------- ------- -------
Total costs and expenses... 67.7 65.3 64.3 62.1 63.2 64.5 65.8 64.1 66.5
------- ------- ------- ------- ------- ------- ------- ------- -------
Income before other income
(expense) and income taxes.. 32.3 34.7 35.7 37.9 36.8 35.5 34.2 35.9 33.5
Other income (expense) ...... (0.1) (0.2) (0.4) (0.2) (0.3) 0.0 0.7 1.1 1.4
------- ------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes... 32.2 34.5 35.3 37.7 36.5 35.5 34.9 37.0 34.9
Provision for income taxes .. 12.9 13.8 14.1 15.1 14.6 14.2 13.6 14.4 13.4
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income................... 19.3% 20.7% 21.2% 22.6% 21.9% 21.3% 21.3% 22.6% 21.5%
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>

13
<PAGE>

BUSINESS

The Company is a leading provider of electronic data interchange and other
electronic commerce products and services worldwide. The Company develops,
markets and supports electronic commerce software products and provides
electronic commerce services that enable businesses to engage in business-to-
business electronic communications and transactions. The Company has been
providing electronic commerce solutions for over 20 years and has numerous
customers in a broad range of industries including banking, pharmaceuticals
and retailing. As of September 30, 1996, the Company's customers included 96
of the 100 largest U.S. industrial corporations, as ranked by 1995 sales in
Fortune magazine, and 99 of the top 100 U.S. commercial banks, as ranked by
deposits as of December 31, 1995, in American Banker magazine. Selected
customers of the Company include Cummins Engine Company, Mobil Corporation,
NationsBanc Services, Inc., The Pillsbury Company and Target Stores.

The Company offers a comprehensive range of electronic commerce products and
services for the electronic commerce market. The Company continually strives
to understand the business requirements of the global electronic commerce
market; to address these requirements with flexible, reliable and secure
electronic commerce solutions; and to deliver these solutions in an effective
and efficient manner. The Company believes that many of today's business
organizations operate as extended enterprises that not only include an
entity's divisions, plant sites and sales offices, but also involve close
partnering relationships with customers, suppliers, banks and other trading
partners. The foundation for transacting business electronically is reliable
and secure communications software. Upon this foundation, solutions are
provided for messaging management, translation, managed services and automated
payment integration. The Company provides all of these solutions, among
others, to support the extended enterprise.

The Company operates through five separate groups, four of which offer
distinct families of products and services in the United States and Canada and
one of which markets electronic commerce services and related products outside
of the United States and Canada. The Company believes that its decentralized
organizational structure promotes operating flexibility, improves
responsiveness to customer requirements and focuses management on achieving
revenue and profit objectives. The Commerce Services Group is a leading
provider of electronic commerce services and related software products
offered, under the COMMERCE family name, that facilitate the electronic
exchange of business transactions among multiple trading partners. The
Interchange Software Group is a leading provider of electronic commerce
translation and gateway messaging software, which makes message management and
communications possible across diverse systems. These products are marketed
under the GENTRAN family name. The Communications Software Group offers
automated file transfer and communications management solutions under the
CONNECT family name that provide the infrastructure for an enterprise's
electronic commerce system. The Banking Systems Group, with its VECTOR family
of products, is a leading provider of item processing and electronic payments
software and related services for financial institutions. The International
Group markets electronic commerce services and related software products
outside of the United States and Canada, primarily in Europe.

The Company generates revenue from four sources: services, products, product
support and royalties. Services revenue consists primarily of transaction fees
for services from the COMMERCE family and is recognized at the time the
service is performed. Products revenue is primarily derived from license fees
from the Company's software product groups--GENTRAN, CONNECT and VECTOR--and
is recognized at the time of product delivery, provided no significant future
vendor obligations exist and collection is probable. Product support revenue
consists primarily of fees from product support agreements that provide
customers with updated or enhanced versions of the Company's software products
as they become available and telephone access to the Company's technical
personnel. Product support revenue is deferred and recognized ratably over the
term of the applicable product support agreement, which is generally from one
to three years. Royalty revenue consists primarily of royalties from Sterling
Software relating to international licenses of the Company's software products
and related product support agreements. See "--Shared Management and
Contractual Arrangements with Sterling Software."

14
<PAGE>

A majority of the Company's software customers enter into product support
agreements and renew such agreements upon expiration. Moreover, although most
COMMERCE service agreements are cancelable upon 30 days' notice, the Company's
experience is that once customers initiate use of the Company's COMMERCE
services, they tend to continue to use them. Accordingly, revenue from product
support and COMMERCE services is considered recurring revenue. In fiscal 1996,
recurring revenue represented 57% of the Company's total revenue.

ELECTRONIC COMMERCE

Electronic commerce involves the automation of business-to-business
transactions through the use of telecommunications and computers to exchange
and process electronically commercial information and business transaction
documents. Due to the critical nature of these transactions, electronic
commerce requires reliable, secure, automated connectivity between businesses.
Electronic commerce typically involves software and value-added services to
perform essential business functions such as EDI, which facilitates uniform
communications with different trading partners, including suppliers,
customers, transportation carriers, banks and government agencies. In
addition, electronic commerce includes value-added services such as e-mail,
electronic funds transfer, electronic forms and bulletin board and catalog
services. Currently, EDI is the most widely utilized component of electronic
commerce. Advantages of electronic commerce include reduced clerical workload
and elimination of unnecessary paper handling; rapid, accurate and secure
exchange of time sensitive business information; reduced operating and
inventory carrying costs; and improved speed of ordering, delivering and
paying for goods and services.

A December 1996 report by International Data Corporation indicates that the
worldwide market for electronic commerce services was estimated at $2.2
billion in revenues in 1996 and is estimated to increase to almost $5.5
billion by 2001, an average annual growth rate of approximately 20%.

Groups of companies that regularly trade with each other generate
significant repetitive business transactions. These trading communities are
natural prospects for electronic commerce. Many large companies within a
trading community increasingly recommend or require that their trading
partners engage in electronic commerce, particularly EDI, as the primary
method of communicating business documents. Large companies within a trading
community often are described as "hubs" and their trading partners as
"spokes." A hub company and its trading partners communicate through
electronic networks, traditionally using value-added service providers, which
utilize either their own proprietary network or third-party networks.
Alternatively, some trading communities use a private network owned and
operated by the hub company.

Hub companies typically decide to engage in electronic commerce for one or
more of the following reasons: (i) to reduce inventories by shortening the
time required to notify vendors and replenish stocks; (ii) to reduce the
administrative handling costs of documents that they send or receive from
their suppliers or customers; and (iii) to improve customer support and
service levels. For these reasons, a hub company often adopts a stated
business objective that all of its trading partners use EDI as the principal
means of communicating business documents. These trading partners or spoke
companies, in turn, often expand the use of electronic commerce by requesting
or requiring their trading partners to communicate through EDI. The expansion
of the number of trading partners adopting EDI increases the number of
potential software customers and subscribers for EDI services.

In a typical EDI transaction, a trading partner (the "sending partner")
first generates, with its computer, the business data used for the completion
of a particular set of documents, described by EDI standards as a transaction
set. Transaction sets include requests for quotes, purchase orders, invoices,
shipping notices, remittance advices and other related documents and messages.
Second, a translation software program on the sending partner's computer
converts the data into a standard EDI format. Third,

15
<PAGE>

this information is electronically transmitted directly to the intended
trading partner's computer (the "receiving partner") or to a central computer
system of a value-added service provider. Value-added service providers
receive documents for subsequent delivery to the receiving partner, connect
many types of computer hardware and communications devices, convert multiple
transaction sets from one industry standard to another and maintain security
by reducing the possibility of unauthorized access to critical business
information. Finally, a translation software program on the receiving
partner's computer converts the document or transaction set from a standard
EDI format into the format required by the receiving partner.

The adoption of electronic commerce products and services by a typical
organization tends to be an evolutionary process. The first stage involves
automating existing business processes, usually at the insistence of the
largest trading partners within a particular industry. At this stage,
departments within the organization typically replace paper processes with
electronic processes. During the second stage, the organization is either
changing existing processes or integrating new processes into its business,
usually in conjunction with the business strategy of a major trading partner.
For example, the organization may be a major supplier required to provide
just-in-time inventory to a manufacturer, quick response to a retailer or
efficient consumer response to a grocer. These activities tend to be
implemented at the corporate rather than the departmental level of the
organization and may involve other entities such as suppliers, shippers or
banks in the use of electronic commerce processes. In the third stage, the
organization integrates electronic commerce into its core business strategies.
For example, the organization may require its suppliers to provide just-in-
time inventory, quick response or efficient consumer response and,
additionally, integrate all of its key business partners in the process.

The electronic commerce market requires a broad range of integrated product
and service solutions with differing degrees of sophistication, rather than
isolated products or services. Most current offerings in the electronic
commerce market are narrowly designed to target specific computer platforms or
specific industry applications and, accordingly, do not provide a total
solution.

THE STERLING COMMERCE SOLUTION

The Company offers a comprehensive range of electronic commerce products and
services for the electronic commerce market. The Company continually strives
to understand the business requirements of the global electronic commerce
market; to address these requirements with flexible, reliable and secure
electronic commerce solutions; and to deliver these solutions in an effective
and efficient manner. The Company's products and services include
communications, translation and message management software, managed services,
value-added applications and closely-related professional services. The
Company believes that its ability to offer a broad array of products across
all major computing systems and to provide value-added services by selectively
utilizing multiple transmission networks, including telecommunications
carriers, public data networks and the Internet, gives it a competitive
advantage in addressing the needs of the electronic commerce market. The
Company has been providing electronic commerce solutions for over 20 years and
has numerous customers in a broad range of industries including banking,
pharmaceuticals and retailing. The Company is recognized as a leading provider
of EDI and other electronic commerce products and services worldwide.

16
<PAGE>

PRODUCTS AND SERVICES

The foundation for transacting business electronically throughout an
extended enterprise is reliable and secure communications software. Upon this
foundation, solutions are provided for messaging management, translation
software, managed services and automated payment integration. The Company
offers four distinct families of products that address targeted market
segments. A brief description of each family of products is included in the
following table.

<TABLE>
<CAPTION>
COMMERCE GENTRAN CONNECT VECTOR
- -------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C>
A family of A family of gateway A family of A family of
electronic commerce message handling and automated file financial electronic
value-added EDI translation transfer and commerce and bank
services, software, software communications automation software
catalogs and related management software
products
</TABLE>

COMMERCE. The COMMERCE family offers over a dozen service and software
solutions to facilitate the electronic exchange of business transactions and
documents. Serving businesses in many different industries, COMMERCE:Network
provides an electronic messaging system with mailbox facilities to accommodate
the exchange of EDI documents, electronic business forms, e-mail messages and
attachments and the posting of technical or reference data. COMMERCE:Network
accepts all of the most commonly used protocols for EDI and e-mail exchanges.
Along with many standard services, COMMERCE:Network offers value-added
services that help companies conduct business electronically with their
trading partners. These services include programs that assist companies in
implementing electronic commerce with their trading partners; strategic
consulting to help define electronic commerce solutions that address a
company's needs; and shared applications to help trading communities and
companies to leverage common applications. Other value-added services include
extended customer support, product training and education. Software products
include COMMERCE:Connection, a Windows-based suite of products that provides
integrated access to a full range of electronic commerce services including
EDI, e-mail, file transfer and electronic libraries. With COMMERCE:Connection,
a company can communicate many types of business documents electronically from
CAD/CAM drawings to trading partner policies to price lists. This product can
also be used to relay business transactions, distribute software and collect
sales and database information. COMMERCE products and services are marketed to
targeted vertical industry groups which include the primary markets of
pharmaceuticals, hardlines, grocery, healthcare, insurance, retail, train-
truck-ship transportation, automotive, entertainment, telecommunications,
chemical and petroleum, paper and packaging, banking and government. As of
December 31, 1996, there were approximately 14,000 COMMERCE customer sites
worldwide.

GENTRAN. The GENTRAN family of products offers software solutions for
electronic commerce gateway messaging and EDI translation. GENTRAN software
automates the flow of internal business transactions within organizations and
between organizations and their customers and suppliers. GENTRAN translators
and intelligent messaging servers are available for the major operating
systems and platforms such as UNIX, Windows, Windows NT, AS/400 and IBM
mainframes. GENTRAN was designed for high-volume, commercial traffic and
supports any-to-any formatted message exchange across platforms. This makes
GENTRAN an excellent tool for linking disparate applications and for the
intelligent dissemination of information received via the World Wide Web (the
"Web"). The GENTRAN family of products is packaged into three categories of
electronic commerce business solutions: EDI Complete, for companies that need
plug-and-play EDI with expert consultants to assist them through the start-up
process; EC Messaging Gateway or EC Gateway for the Internet, for companies
that need a full electronic commerce solution that integrates with core
enterprise applications; and EC Desktop Solutions, for those who want to
supply vendors, customers or distributors with push-button, EDI-enabled
applications that make it easier to do business with their trading partners.
Key products include GENTRAN:Server, a sophisticated electronic commerce
gateway that recognizes, manages and routes all types of business messages;
GENTRAN:Director for Windows-based EDI processing; GENTRAN:Mentor, which uses
expert systems technology and graphical navigation to fully automate EDI
mapping; and GENTRAN:Basic, the base EDI translation product for the mainframe
and HP3000 platforms, that translates data from internal formats into standard
formats for EDI processing. GENTRAN products were installed at over 4,000
customer sites as of December 31, 1996.

17
<PAGE>

CONNECT. The CONNECT family of software products is a complete suite of
automated file transfer and communications management solutions that support a
wide variety of protocols. The CONNECT family of products provides an
enterprise-wide solution that integrates seamlessly with existing operations
and supports the addition of new applications, databases, hardware and
software. These products offer prompt access to information and the highest
levels of security for a company's computer data and network. CONNECT:Direct
is primarily used to move large volumes of data with focus on high
performance, security, reliability and intelligent automation. CONNECT:Direct
addresses the information needs of electronic commerce between internal
departments and offices and external customer and client locations.
CONNECT:Mailbox is used primarily to move information between companies with a
focus on wide connectivity. The software works independently of applications,
platforms and protocols, and provides open connections throughout the network
to any host, midrange or remote workstation or value-added service provider.
CONNECT products were installed at over 2,600 customer sites as of December
31, 1996.

VECTOR. The VECTOR family of products enables banks to provide to their
corporate customers integrated trade-payment processing services for both
paper-based check payments and electronic payments. VECTOR:Connexion provides
financial EDI payment services. VECTOR:Banker provides PC-based cash
management and electronic payment software for medium and small sized banks.
VECTOR products also automate several key functions in banks, including item
processing applications such as statement sorting, research and adjustments,
check fraud control, electronic check presentment, return item processing and
signature verification. As of December 31, 1996, over 2,000 VECTOR systems had
been installed at approximately 850 customer sites worldwide, including 99 of
the top 100 U.S. banks, as ranked by deposits as of December 31, 1995 in
American Banker magazine.

Internet. The Company provides electronic commerce solutions that enable
enterprises to conduct business with their trading partners over the Internet
in a safe, reliable environment. These solutions fall under four broad
categories: (i) Web-based catalog search and select, (ii) purchase and order
fulfillment by browser access of Web sites, (iii) key encryption and firewall
software, and (iv) Internet-enablement of existing products and services. The
Internet enables enterprises to reach segments of their trading partner bases
that were not previously accessible by traditional means of electronic
commerce. To the extent that the Internet gains further acceptance as a method
of conducting electronic commerce, the Company expects the Internet to broaden
the electronic commerce market and provide additive business to the Company.

SALES AND MARKETING

Each of the Company's Commerce Services, Interchange Software,
Communications Software and Banking Systems Groups has its own sales and
marketing organizations. These organizations license and market the Company's
products and services in the United States and Canada through a combination of
direct sales, telesales and telemarketing. The Company's International Group,
headquartered in Paris, France, markets electronic commerce services and
related products outside the United States and Canada, primarily in Europe
(directly and through distributors). The Company's Banking Systems Group
markets its software products and product support services worldwide. The
Company has implemented a comprehensive, performance-based system of sales
commissions, awards and recognition designed to compensate and motivate its
sales force.

Pursuant to the International Marketing Agreement with Sterling Software,
Sterling Software acts as the exclusive distributor (directly and through
subdistributors) of the Company's interchange and communications software
products in markets outside the United States and Canada and is responsible
for sales, marketing and first level support of such products in those
markets. Sterling Software presently maintains offices throughout Europe and
in Tokyo, Japan and Sydney, Australia and has relationships with agents and
distributors in Asia (other than Japan), Central and South America, Eastern
Europe, the Middle East, Mexico and South Africa.

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CUSTOMERS

As of September 30, 1996, the Company's customers include 96 of the 100
largest U.S. industrial corporations, as ranked by 1995 sales in Fortune
magazine, and 99 of the top 100 U.S. commercial banks, as ranked by deposits
as of December 31, 1995, in American Banker magazine.

PRODUCT LICENSES AND PRODUCT SUPPORT

The Company's software products are licensed for perpetual use or for a
fixed term. The Company typically does not sell or otherwise transfer title to
its software products. The license agreements generally restrict the use of
the product to designated sites or central processing units and prohibit
reproduction, transfer or disclosure of the product. However, some license
agreements may cover multiple sites or multiple central processing units at
one site.

In addition to licensing the use of its software products to its customers,
the Company also often sells product support services to its customers.
Typically, the Company provides these services pursuant to product support
agreements having terms ranging generally from one to three years. The
Company's product support agreements provide customers with updated or
enhanced versions of the Company's software products as they become available
and telephone access to the Company's technical personnel.

PRODUCT DEVELOPMENT

The Company's product development strategy is to enhance existing products
and to introduce new products based upon current and anticipated customer
needs. In addition, the Company has made a number of acquisitions to expand
the array of products and services available to its customers.

Each of the Company's Commerce Services, Interchange Software,
Communications Software and Banking Systems Groups performs its own product
development function. Each group's development lab operates as a profit
center, with revenues derived from royalties earned on products sold in the
domestic and international markets. The Company believes that this
organizational structure facilitates development cost control and focuses the
development function on customer needs. Gross product development costs in
1996, 1995 and 1994 were approximately $27.8 million, $24.9 million and $21.7
million, respectively, of which the Company capitalized approximately $12.3
million, $10.1 million and $9.2 million, respectively, as the cost of
developing and testing new or significantly enhanced software products.
Product development expense and the capitalization rate may fluctuate from
period to period depending, in part, upon the number and status of software
development projects in process.

The Company's disciplined approach to product development includes, among
other things, evaluating anticipated customer needs, analyzing the cost of
developing new products versus the cost of acquiring new products and
analyzing anticipated revenues from new and enhanced products. For example,
the Company may seek to acquire an existing product or to acquire a company
that owns an existing product rather than develop the product internally, and
in other instances the Company may contract with a third-party developer to
develop the product on the Company's behalf. Because of these and other
factors, the Company is unable to estimate future product development costs.

COMPETITION

The electronic commerce market is very competitive. Numerous companies
supply electronic commerce products and services, and several competitors
target specific customer requirements for which the Company presently is, or
may seek to become, a provider. The Company's competitors include both large
companies with substantially greater resources than the Company and small,
specialized companies that compete in one or more particular market niches.
Competitors that offer products and/or services that compete with various of
the Company's products and services include, among others, Advantis Systems,
Inc. (a joint venture between Sears, Roebuck & Co. and IBM); AT&T; Computer

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Associates International, Inc.; EDS; General Electric Information Systems;
Harbinger Corporation; Premenos Technology Corp.; QuickResponse Services,
Inc.; and a joint venture between British Telecommunications Plc and MCI
Communications Corporation; as well as the internal programming staffs of
various businesses engaging in electronic commerce.

INTELLECTUAL PROPERTY RIGHTS

The Company relies primarily on a combination of copyright, patent and
trademark laws, trade secrets, confidentiality procedures and contractual
provisions to protect its intellectual property rights. The Company routinely
enters into non-disclosure and confidentiality agreements with employees,
contractors, consultants and customers. Despite the Company's efforts to
protect its proprietary rights, unauthorized parties may attempt to copy
aspects of the Company's products or to obtain and use information that the
Company regards as proprietary. In addition, the laws of some foreign
countries do not protect the Company's proprietary rights to the same extent
as the laws of the United States. However, the Company believes that, due to
the rapid pace of innovation within the electronic commerce industry, factors
such as the technological and creative skills of its personnel are more
important in establishing and maintaining a leadership position within this
industry than are the various legal protections afforded its technology.

The Company does not believe that any of its products infringe on the
proprietary rights of third parties in any material respect. Licenses for a
number of software products have been granted to the Company for its own use
or for remarketing to its customers. In the aggregate, these licenses are
material to the business of the Company, but the Company believes that the
loss of any one of these licenses would not materially affect the Company's
results of operations or financial position.

The COMMERCE, GENTRAN, CONNECT and VECTOR families of product names used
herein are registered or unregistered trademarks owned by the Company.

SHARED MANAGEMENT AND CONTRACTUAL ARRANGEMENTS WITH STERLING SOFTWARE

Introduction. The Company was incorporated in December 1995 as a subsidiary
of Sterling Software. The Company completed its initial public offering on
March 13, 1996. Pursuant to that offering, the Company sold to the public
1,800,000 previously unissued shares of Common Stock and Sterling Software
sold to the public 12,000,000 of the 73,200,000 shares of Common Stock then
owned by it.

In contemplation of the Company's initial public offering, among other
things: (i) Sterling Software caused to be transferred to the Company certain
assets relating to the electronic commerce business previously conducted by
Sterling Software, and (ii) the Company entered into contractual arrangements
with Sterling Software. See "--Intercompany Agreements."

On September 23, 1996, the Board of Directors of Sterling Software declared
a special dividend consisting of the distribution of all shares of Common
Stock held by Sterling Software on September 30, 1996, payable pro rata to the
holders of record of Sterling Software's common stock, as of the close of
business on such date. As a result, effective September 30, 1996, the Company
ceased to be a subsidiary of Sterling Software.

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<PAGE>

Management. The Board of Directors of the Company (the "Board") currently
has seven members. Sam Wyly, Charles J. Wyly, Jr. and Evan A. Wyly are
directors of the Company and are also directors of Sterling Software. Sterling
L. Williams serves as Chairman of the Board of the Company and as President
and Chief Executive Officer and a member of the Board of Directors of Sterling
Software. In addition, Jeannette P. Meier serves as Executive Vice President,
General Counsel and Secretary of both companies and the Chief Financial
Officer of Sterling Software, and Phillip A. Moore serves as an Executive Vice
President of both companies. Neither the specific time period nor the capacity
or capacities in which such executive officers may continue to serve either
the Company or Sterling Software (or both) has been determined as of the date
of this Prospectus.

Directors and executive officers of the Company who are also directors or
executive officers of Sterling Software may have conflicts of interest with
respect to matters potentially or actually involving or affecting the Company
and Sterling Software, such as acquisitions, financings and other corporate
opportunities that may be suitable for the Company and Sterling Software. To
the extent that such opportunities arise, such directors and executive
officers may consult with their legal advisors and make a determination after
consideration of a number of factors, including whether such opportunity is
presented to any such director or executive officer in his or her capacity as
a director or executive officer of the Company, whether such opportunity is
within the Company's line of business or consistent with its strategic
objectives and whether the Company will be able to undertake or benefit from
such opportunity. In addition, determinations may be made by the Board of
Directors of the Company, when appropriate, by the vote of the disinterested
directors only. Notwithstanding the foregoing, there can be no assurance that
conflicts will be resolved in favor of the Company.

Intercompany Agreements. In anticipation of the Company's initial public
offering, the Company and Sterling Software entered into a number of
agreements (the "Intercompany Agreements") for the purpose of defining certain
relationships between them. As a result of Sterling Software's then-existing
ownership interest in the Company, the terms of such agreements were not the
result of arm's-length negotiation. The Intercompany Agreements include an
International Marketing Agreement, a Tax Allocation Agreement, an
Indemnification Agreement and a Space Sharing Agreement. The International
Marketing Agreement defines the terms pursuant to which Sterling Software acts
as the exclusive distributor through March 1999 of certain of the Company's
products in markets outside the United States and Canada. The International
Marketing Agreement provides for the payment of royalties by Sterling Software
to the Company equal to 50% of the revenue that Sterling Software derives from
licenses of the Company's interchange and communications software products and
related product support services. The Tax Allocation Agreement provides that
for periods during which the Company and/or its subsidiaries were included in
Sterling Software's consolidated federal income tax returns or consolidated,
combined or unitary state tax returns, the Company is required to pay to or is
entitled to receive from Sterling Software its allocable portion of the
consolidated, federal and state income tax liability or refunds, respectively.
Additionally, the Tax Allocation Agreement contains provisions for the
handling of tax controversies. The Indemnification Agreement provides that the
Company will indemnify Sterling Software and its directors, officers,
employees, agents and representatives for any liabilities resulting from or
arising out of certain acts, failures to act or the provision of incorrect
factual information by the Company in connection with the Internal Revenue
Service ruling request that would cause the Distribution to be taxable to
Sterling Software or its stockholders. The Indemnification Agreement also
provides that each party will indemnify the other party for certain other
liabilities, including those relating to the business, operations or assets
conducted or owned by the indemnifying party. The Space Sharing Agreement
defines the terms pursuant to which the Company and Sterling Software are
allowed to utilize a portion of certain of each other's office facilities for
a fee. Conflicts of interest may arise between the Company and Sterling
Software in a number of areas relating to the companies' ongoing
relationships. The Board will utilize such procedures in evaluating the terms
and provisions of the existing and any material future transactions between
the Company and Sterling Software and their respective affiliates as the Board
may determine appropriate in light of its fiduciary duties under applicable
state law.

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EXECUTIVE OFFICERS

The following information regarding the executive officers of the Company is
as of January 31, 1997.

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Sterling L. Williams........ 53 Chairman of the Board
Warner C. Blow.............. 59 President and Chief Executive Officer; Director
Jeannette P. Meier.......... 49 Executive Vice President, General Counsel and
Secretary
Phillip A. Moore............ 54 Executive Vice President
William W. Hymes............ 60 Senior Vice President and Group President
Paul L. H. Olson............ 46 Senior Vice President and Group President
Stephen R. Perkins.......... 52 Senior Vice President and Group President
J. Brad Sharp............... 39 Senior Vice President and Group President
Senior Vice President and Chief Financial
Steven P. Shiflet........... 49 Officer
Thomas A. Lutz.............. 56 Vice President and Group President
Albert K. Hoover............ 37 Vice President, Legal
James W. Hoyt............... 49 Vice President, Technology
Dawn Wheeler................ 37 Vice President, Investor Relations
G. Clark Woodford........... 49 Vice President, Business Development
John Blaine................. 34 Controller
</TABLE>

Sterling L. Williams has served as Chairman of the Board of the Company and
a director since December 1995 and served as Chief Executive Officer of the
Company from December 1995 until October 1996. Mr. Williams co-founded
Sterling Software in 1981, and since such time has served and continues to
serve as President, Chief Executive Officer and a director of Sterling
Software. Mr. Williams also currently serves as a director of INPUT, an
information technology market research company. Mr. Williams is a member of
the Executive Committee and the Stock Option Committee of the Board.

Warner C. Blow has served as Chief Executive Officer and a director of the
Company since October 1996 and as President since December 1995. From December
1995 until October 1996, Mr. Blow also served as Chief Operating Officer of
the Company. Prior to December 1995, Mr. Blow served as President of Sterling
Software's Electronic Commerce Group (the predecessor of the Company) from
July 1993 and as an Executive Vice President of Sterling Software from October
1989. Prior to July 1993, Mr. Blow also served as President of Sterling
Software's former EDI Group.

Jeannette P. Meier has served as Executive Vice President, General Counsel
and Secretary of the Company since December 1995. Ms. Meier also served as
Chief Financial Officer of the Company from June 1996 to January 1997. Ms.
Meier has served and continues to serve as Chief Financial Officer (since June
1996), Executive Vice President (since July 1993) and General Counsel and
Secretary (since 1985) of Sterling Software. Prior to July 1993, Ms. Meier
also served as Senior Vice President of Sterling Software.

Phillip A. Moore has served as Executive Vice President of the Company since
December 1995. Mr. Moore co-founded Sterling Software in 1981 and since such
time has served and continues to serve as a director of Sterling Software. Mr.
Moore has served and continues to serve as an Executive Vice President of
Sterling Software since December 1994. From July 1993 until December 1994, Mr.
Moore served as Executive Vice President, Technology of Sterling Software.
Prior to July 1993, Mr. Moore served as Senior Vice President, Technology of
Sterling Software.

William W. Hymes has served as Senior Vice President of the Company and
President of the Banking Systems Group since December 1995. Prior to March
1996, Mr. Hymes served as President of the Banking Systems Division of
Sterling Software's Electronic Commerce Group (the predecessor of the Company)
from July 1993. Prior to July 1993, Mr. Hymes served as President of the
former Directions Division of Sterling Software.

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<PAGE>

Paul L. H. Olson has served as Senior Vice President of the Company and
President of the Commerce Services Group since December 1995. Prior to March
1996, Mr. Olson served as President of the Network Services Division of
Sterling Software's Electronic Commerce Group (the predecessor of the Company)
from August 1992. Prior to August 1992, Mr. Olson served as Group Vice
President of Business Development for Sterling Software's former EDI Group.

Stephen R. Perkins has served as Senior Vice President of the Company and
President of the Communications Software Group since December 1995. Prior to
March 1996, Mr. Perkins served as President of the Communications Software
Division of Sterling Software's Electronic Commerce Group (the predecessor of
the Company) from July 1993. Prior to July 1993, Mr. Perkins served as Vice
President of Development for Systems Center, Inc., a computer software company
that was acquired by Sterling Software in July 1993.

J. Brad Sharp has served as Senior Vice President of the Company and
President of the Interchange Software Group since December 1995. Prior to
March 1996, Mr. Sharp served as President of the Interchange Software Division
of Sterling Software's Electronic Commerce Group (the predecessor of the
Company) from August 1992. Prior to August 1992, Mr. Sharp served as Vice
President of Development of Sterling Software's former EDI Labs Division.

Steven P. Shiflet has served as Senior Vice President and Chief Financial
Officer of the Company since January 1997. From December 1995 until January
1997, Mr. Shiflet served as Vice President, Finance of the Company. Prior to
March 1996, Mr. Shiflet served as Group Vice President, Finance &
Administration of Sterling Software's Electronic Commerce Group (the
predecessor of the Company) from 1986.

Thomas A. Lutz has served as Vice President of the Company and President of
the International Group since December 1995. Prior to March 1996, Mr. Lutz
served as President of Sterling Software's Creative Data Systems Division from
October 1991. Prior to October 1991, Mr. Lutz served as Executive Vice
President of Sterling Software's Creative Data Systems Division. Mr. Lutz also
served as Group Vice President of Sterling Software's former EDI Group from
August 1990 to July 1993.

Albert K. Hoover has served as Vice President, Legal of the Company since
December 1995. Prior to March 1996, Mr. Hoover served as Vice President of
Sterling Software from May 1994 and Assistant General Counsel of Sterling
Software from June 1990.

James W. Hoyt has served as Vice President, Technology of the Company since
July 1996. Mr Hoyt served as Director of Product Architecture of Sterling
Software's Communications Software Division from July 1993 until March 1996
and of the Company's Communications Software Group from March 1996 until June
1996. Prior to July 1993, Mr. Hoyt served as Director of Product Architecture
for Systems Center, Inc., a computer software company that was acquired by
Sterling Software in July 1993.

Dawn Wheeler has served as Vice President, Investor Relations of the Company
since February 1996. Prior to March 1996, Ms. Wheeler served as Director of
Industry Relations of Sterling Software's Electronic Commerce Group (the
predecessor of the Company) from October 1994. Prior to October 1994, Ms.
Wheeler served in various capacities for Sterling Software's Network Services
Division from November 1988.

G. Clark Woodford has served as Vice President, Business Development of the
Company since December 1995. Prior to March 1996, Mr. Woodford served as Vice
President, Business Development of Sterling Software's Electronic Commerce
Group (the predecessor of the Company) from November 1993. Prior to November
1993, Mr. Woodford served as Vice President, National Accounts for the Network
Services Division of Sterling Software's Electronic Commerce Group (the
predecessor of the Company).

John Blaine has served as Controller of the Company since April 1996. From
February 1995 until April 1996, Mr. Blaine served as Director, Finance &
Administration for the France Division of Sterling

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<PAGE>

Software's International Group. From July 1993 until February 1995, Mr. Blaine
served as Vice President, Finance and Administration for the former Americas
Division of Sterling Software's International Group. From September 1990 until
July 1993, Mr. Blaine served in various financial positions with Sterling
Software.

EMPLOYEES

The Company's business is dependent upon its ability to attract and retain
highly qualified managerial, technical and sales personnel, who are in limited
supply. The Company's operations could be adversely affected if it were to
lose the services of a significant number of qualified employees or if it were
unable to obtain additional qualified personnel when needed. To attract and
retain qualified employees, the Company strives to maintain excellent employee
relations, attractive office facilities and challenging working environments,
and offers competitive compensation and benefits packages. None of the
Company's employees are represented by a labor union. The Company has not
experienced any work stoppages and considers its employee relations to be
excellent.

At December 31, 1996, the Company employed approximately 1,340 full-time
employees.

CERTAIN LEGAL PROCEEDINGS

On February 20, 1996, David B. Shaev, who alleges to be a stockholder of the
Company, filed a derivative action in the Chancery Court in the State of
Delaware against the Company and each of the Company's directors, Sam Wyly,
Charles J. Wyly, Jr., Evan A. Wyly, Sterling L. Williams, Warner C. Blow,
Honor R. Hill and Robert E. Cook, alleging that such directors breached their
fiduciary duties by approving grants of excessive stock options to the
individual defendants. The plaintiff seeks rescission of such grants of stock
options to the individual defendants, injunctive relief prohibiting the
exercise of such stock options by the individual defendants, the award of
damages to the Company and attorneys' fees and costs. The defendants intend to
vigorously defend this action.

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<PAGE>

DESCRIPTION OF CAPITAL STOCK

GENERAL

The Company's Certificate of Incorporation provides that the authorized
capital stock of the Company consists of 150,000,000 shares of common stock,
par value $.01 per share ("Common Stock"), and 50,000,000 shares of preferred
stock, par value $.01 per share ("Preferred Stock"). Upon completion of the
Offering, 87,500,000 shares of Common Stock will be issued and outstanding
(89,375,000 if the over-allotment option is exercised in full), and no shares
of Preferred Stock will be issued or outstanding. As of the date of this
Prospectus, 18,336,400 shares of Common Stock are reserved for issuance under
the Company's 1996 Stock Option Plan and 1,500,000 shares of the Company's
Series A Junior Participating Preferred Stock, par value $.01 per share, are
reserved for issuance pursuant to the Rights Agreement, dated December 18,
1996, between the Company and The First National Bank of Boston, as rights
agent (the "Rights Plan"). See "--Rights Plan." Under the terms of the
Company's 1996 Stock Option Plan, the number of shares of Common Stock
available for issuance under such plan is automatically adjusted upward, if
necessary, as of the end of each calendar quarter, so that the aggregate
number of shares available for issuance under the Company's 1996 Stock Option
Plan is equal to 20% of the total number of outstanding shares of Common Stock
then outstanding, computed on a fully diluted basis.

COMMON STOCK

The holders of Common Stock are entitled to one vote per share owned of
record on all matters voted upon by stockholders. Subject to preferential
rights that may be applicable to any Preferred Stock outstanding, holders of
Common Stock are entitled to receive dividends if, as and when declared by the
Board out of funds legally available therefor. See "Price Range of Common
Stock and Dividend Policy." In the event of a liquidation, dissolution or
winding-up of the Company, holders of Common Stock are entitled to share
equally and ratably in the assets of the Company, if any, remaining after the
payment of all liabilities of the Company and the liquidation preferences of
any outstanding Preferred Stock. Holders of the Common Stock have no
preemptive rights, cumulative voting rights or rights to convert their Common
Stock into any other securities, and there are no redemption or sinking fund
provisions with respect to the Common Stock.

The Common Stock is listed on the NYSE under the symbol "SE." The First
National Bank of Boston is the transfer agent and registrar for the Common
Stock.

PREFERRED STOCK

The Board has the authority to issue the authorized shares of Preferred
Stock in one or more series and to fix the designations, relative powers,
preferences, rights, qualifications, limitations and restrictions of all
shares of each such series, including without limitation dividend rates,
conversion rights, voting rights, redemption and sinking fund provisions,
liquidation preferences and the number of shares constituting each such
series, without any further vote or action by the stockholders. The issuance
of Preferred Stock could decrease the amount of earnings and assets available
for distribution to holders of Common Stock or adversely affect the rights and
powers, including voting rights, of the holders of Common Stock. The issuance
of Preferred Stock also could have the effect of delaying, deterring or
preventing a change in control of the Company without further action by the
stockholders.

RIGHTS PLAN

Pursuant to the Rights Plan, 1,500,000 shares of Series A Junior
Participating Preferred Stock, $.01 par value ("Junior Preferred Shares"), are
reserved for issuance. One right (a "Right") to purchase 1/100th of a Junior
Preferred Share (structured so as to be substantially the equivalent of a
share of Common Stock) is attached to each issued and outstanding share of
Common Stock, including the shares of Common Stock to be sold in the Offering.
Subject to certain conditions, each Right entitles the holder to purchase
1/100th of a Junior Preferred Share at a price (the "Purchase Price") of
$200.00 per 1/100th of a Junior Preferred Share (subject to adjustment).

In general, the Rights will not become exercisable, or transferable apart
from the shares of Common Stock, unless a person or group of affiliated or
associated persons becomes the beneficial owner of, or

25
<PAGE>

commences a tender offer that would result in beneficial ownership of, 15% or
more of the outstanding shares of Common Stock (any such person or group of
persons being referred to in the Rights Plan as an "Acquiring Person").
Thereafter, under certain circumstances, each Right (other than any Rights
that are or were beneficially owned by an Acquiring Person, which Rights will
be void) could become exercisable to purchase at the Purchase Price a number
of shares of Common Stock (or, in certain circumstances, the common stock of a
company into which the Company is merged or consolidated or to which the
Company sells all or substantially all of its assets) having a market value
equal to two times the Purchase Price. The Rights will expire on December 31,
2006, unless earlier redeemed by the Company at a redemption price of $.01 per
Right (subject to adjustment), or otherwise exchanged or amended in accordance
with the terms of the Rights Plan.

CERTAIN CORPORATE GOVERNANCE MATTERS

The Company's Certificate of Incorporation and Bylaws provide that the
directors of the Company are to be classified into three classes, with the
directors in each class serving for three-year terms and until their
successors are elected, except that the initial terms of the initial directors
of the Company will expire at the 1997, 1998 or 1999 annual meeting of the
stockholders of the Company, depending upon the particular class in which each
such director is placed. Any additional person selected to the Board will be
added to a particular class of directors to be determined at the time of such
election. In accordance with the Company's Certificate of Incorporation and
Bylaws, the number of directors in each class will be identical, or as nearly
as practicable thereto, based on the total number of directors then serving as
such. The Company's Certificate of Incorporation and Bylaws provide, in
general, that (i) the number of directors of the Company will be fixed by
resolution of the Board, (ii) the directors of the Company in office from time
to time will fill any vacancy or newly created directorship on the Board, with
any new director to serve in the class of directors to which he or she is so
elected, (iii) directors of the Company may be removed only for cause by the
holders of at least 75% of the Company's voting stock, (iv) stockholder action
can be taken only at an annual or special meeting of stockholders and not by
written consent in lieu of a meeting, and (v) special meetings of stockholders
may be called only by the Chairman of the Board or the President of the
Company or by a majority of the total number of directors of the Company and
the business permitted to be conducted at any such meeting is limited to that
brought before the meeting by the Chairman of the Board or the President of
the Company or by a majority of the total number of directors of the Company.
The Company's Bylaws also require that stockholders desiring to bring any
business before an annual meeting of stockholders deliver written notice
thereof to the Secretary of the Company not later than 60 days in advance of
the meeting of stockholders; provided, however, that in the event that the
date of the meeting is not furnished to stockholders in a notice or publicly
disclosed by the Company more than 65 days prior to the meeting, notice by the
stockholder to be timely must be delivered to the Secretary of the Company not
later than the close of business on the tenth day following the day on which
such notice of the date of the meeting was mailed or such public disclosure
was made. The Company's Bylaws further require that the notice by the
stockholder set forth a description of the business to be brought before the
meeting and certain information concerning the stockholder proposing such
business, including such stockholder's name and address, the class and number
of shares of the Company that are owned beneficially by such stockholder, and
any material interest of such stockholder in the business proposed to be
brought before the meeting.

Under applicable provisions of the General Corporation Law of the State of
Delaware (the "DGCL"), the approval of a Delaware corporation's board of
directors, in addition to stockholder approval, is required to adopt any
amendment to the corporation's certificate of incorporation, but a
corporation's bylaws may be amended either by action of its stockholders or,
if the corporation's certificate of incorporation so provides, its board of
directors. The Company's Certificate of Incorporation and Bylaws provide that
the provisions summarized above and the provisions relating to the
classification of the Board and nomination procedures may not be amended by
the stockholders, nor may any provision inconsistent therewith be adopted by
the stockholders, without the affirmative vote of the holders of at least 75%
of the Company's voting stock, voting together as a single class.

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<PAGE>

The foregoing provisions of the Company's Certificate of Incorporation and
Bylaws, and the terms of the Rights Plan, may discourage or make more
difficult the acquisition of control of the Company by means of a tender
offer, open market purchase, proxy contest or otherwise. These provisions may
have the effect of discouraging certain types of coercive takeover practices
and inadequate takeover bids and to encourage persons seeking to acquire
control of the Company first to negotiate with the Company. The Company's
management believes that the foregoing measures provide benefits to the
Company and its stockholders by enhancing the Company's ability to negotiate
with the proponent of any unfriendly or unsolicited proposal to take over or
restructure the Company and that such benefits outweigh the disadvantages of
discouraging such proposals because, among other things, negotiation of such
proposals could result in an improvement of their terms.

The Company is a Delaware corporation and is subject to Section 203 of the
DGCL. In general, Section 203 prevents an "interested stockholder" (defined
generally as a person owning 15% or more of a corporation's outstanding voting
stock) from engaging in a "business combination" (as defined in Section 203)
with a Delaware corporation for three years following the date such person
became an interested stockholder unless (i) before such person became an
interested stockholder, the board of directors of the corporation approved the
transaction in which the interested stockholder became an interested
stockholder or approved the business combination, (ii) upon consummation of
the transaction that resulted in the interested stockholder's becoming an
interested stockholder, the interested stockholder owns at least 85% of the
voting stock of the corporation outstanding at the time such transaction
commenced (excluding stock held by directors who are also officers of the
corporation and by employee stock plans that do not provide employees with the
rights to determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer), or (iii) following the
transaction in which such person became an interested stockholder, the
business combination is approved by the board of directors of the corporation
and authorized at a meeting of stockholders by the affirmative vote of the
holders of at least two-thirds of the outstanding voting stock of the
corporation not owned by the interested stockholder. Under Section 203, the
restrictions described above also do not apply to certain business
combinations proposed by an interested stockholder following the announcement
or notification of one of certain extraordinary transactions involving the
corporation and a person who had not been an interested stockholder during the
previous three years or who became an interested stockholder with the approval
of a majority of the corporation's directors and which transaction is approved
or not opposed by a majority of the board of directors then in office.

27
<PAGE>

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives,
Alex. Brown & Sons Incorporated and Goldman, Sachs & Co., have severally
agreed to purchase from the Company the following respective numbers of shares
of Common Stock at the public offering price less the underwriting discounts
and commissions set forth on the cover page of this Prospectus:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ----------
<S> <C>
Alex. Brown & Sons Incorporated...................................... 1,500,000
Goldman, Sachs & Co. ................................................ 1,500,000
ABN AMRO Chicago Corporation......................................... 375,000
Bear, Stearns & Co. Inc. ............................................ 375,000
Credit Suisse First Boston Corporation............................... 375,000
Dean Witter Reynolds Inc. ........................................... 375,000
Deutsche Morgan Grenfell Inc. ....................................... 375,000
Dillon, Read & Co. Inc. ............................................. 375,000
Donaldson, Lufkin & Jenrette Securities Corporation.................. 375,000
A.G. Edwards & Sons, Inc. ........................................... 375,000
Hambrecht & Quist LLC................................................ 375,000
Lazard Freres & Co., LLC............................................. 375,000
Lehman Brothers Inc. ................................................ 375,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated................... 375,000
Montgomery Securities................................................ 375,000
J.P. Morgan Securities Inc. ......................................... 375,000
Morgan Stanley & Co. Incorporated.................................... 375,000
Oppenheimer & Co., Inc. ............................................. 375,000
PaineWebber Incorported.............................................. 375,000
Prudential Securities Incorporated................................... 375,000
Robertson, Stephens & Company LLC.................................... 375,000
Salomon Brothers Inc................................................. 375,000
Schroder Wertheim & Co. Incorporated................................. 375,000
Smith Barney Inc. ................................................... 375,000
First Albany Corporation............................................. 125,000
Friedman, Billings, Ramsey & Co., Inc. .............................. 125,000
Gerard Klauer Mattison & Co., Inc. .................................. 125,000
Hoak Breedlove Wesneski & Co. ....................................... 125,000
Laidlaw Equities, Inc. .............................................. 125,000
Nesbitt Burns Securities Inc. ....................................... 125,000
The Robinson-Humphrey Company, Inc. ................................. 125,000
Soundview Financial Group, Inc. ..................................... 125,000
Southwest Securities, Inc. .......................................... 125,000
Wheat First Butcher Singer........................................... 125,000
----------
Total............................................................ 12,500,000
==========
</TABLE>

The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all shares of the Common Stock offered hereby if any of such shares
are purchased.

The Company has been advised by the Representatives of the Underwriters that
the Underwriters propose to offer the shares of Common Stock to the public at
the public offering price set forth on the

<PAGE>

cover page of this Prospectus and to certain dealers at such price less a
concession not in excess of $0.63 per share. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of $0.10 per share to
certain other dealers. After the Offering, the offering price and other
selling terms may be changed by the Representatives of the Underwriters.

The Company has granted to the Underwriters an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to 1,875,000
additional shares of Common Stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the
same percentage thereof that the number of shares of Common Stock to be
purchased by it shown in the above table bears to 12,500,000, and the Company
will be obligated pursuant to the option to sell such shares to the
Underwriters. The Underwriters may exercise such option only to cover over-
allotments made in connection with the sale of Common Stock offered hereby. If
purchased, the Underwriters will offer such additional shares on the same
terms as those on which the 12,500,000 shares are being offered.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.

As of December 31, 1996, directors and executive officers of the Company
owned, directly or indirectly, an aggregate of 2,718,118 shares of Common
Stock and held options to acquire an additional 10,536,000 shares of Common
Stock. Such directors and executive officers have agreed, subject to certain
limited exceptions, that they will not offer, sell or otherwise dispose of
shares of Common Stock for a period of 90 days after the date of this
Prospectus without the prior consent of Alex. Brown & Sons Incorporated.

Pursuant to the Underwriting Agreement, the Company has agreed not to offer,
sell or otherwise dispose of any shares of Common Stock for a period of 90
days after the date of this Prospectus without the prior written consent of
Alex. Brown & Sons Incorporated.

Alex. Brown & Sons Incorporated has served in the past as a financial
advisor and underwriter for the Company.

The Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.

LEGAL MATTERS

The validity of the Common Stock will be passed upon for the Company by
Jones, Day, Reavis & Pogue, Dallas, Texas. Certain legal matters will be
passed upon for the Underwriters by Vinson & Elkins L.L.P., Dallas, Texas.

EXPERTS

The consolidated financial statements of Sterling Commerce, Inc. appearing
in Sterling Commerce, Inc.'s Annual Report (Form 10-K) for the year ended
September 30, 1996, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.

29
<PAGE>

CERTAIN FORWARD-LOOKING STATEMENTS

This Prospectus (including the documents incorporated herein by reference)
contains or may contain certain forward-looking statements and information
that are based on beliefs of, and information currently available to, the
Company's management as well as estimates and assumptions made by the
Company's management. When used in this Prospectus, words such as
"anticipate," "believe," "estimate," "expect," "future," "intend," "plan" and
similar expressions as they relate to the Company or the Company's management,
identify forward-looking statements. Such statements reflect the current views
of the Company with respect to future events and are subject to certain risks,
uncertainties and assumptions relating to the Company's operations and results
of operations, competitive factors and pricing pressures, shifts in market
demand, the performance and needs of the industries served by the Company, the
costs of product development and other risks and uncertainties including, in
addition to any uncertainties specifically identified in the text surrounding
such statements, uncertainties with respect to changes or developments in
social, economic, business, industry, market, legal and regulatory
circumstances and conditions and actions taken or omitted to be taken by third
parties, including the Company's stockholders, customers, suppliers, business
partners, competitors, and legislative, regulatory, judicial and other
governmental authorities and officials. Should one or more of these risks or
uncertainties materialize, or should the underlying estimates or assumptions
prove incorrect, actual results or outcomes may vary significantly from those
anticipated, believed, estimated, expected, intended or planned.

30
<PAGE>

GLOSSARY OF SELECTED ELECTRONIC COMMERCE TERMS

CUSTOMER TRACKING SYSTEM--A system for tracking customer service calls
and/or customer accounts, usually in the form of a mainframe- or PC-based
software application.

DIAL-UP LINES AND INTERFACE--Dial-up lines are ordinary phone lines that are
part of the switched network used by a phone company to handle all types of
calls, including data communications transmissions. A dial-up interface is a
temporary software connection established via the switched telephone network.

E-MAIL--Electronic mail. The electronic transmission of text messages, or a
software application that enables such transmission, over the Internet or
other networked systems.

EDI--Electronic data interchange. The automated, computer-to-computer
exchange of structured business data, such as purchase orders and invoices,
between a company and its trading partners.

ELECTRONIC FORMS--In software applications, a presentation element (such as
a window or box) with predefined areas for entering and changing information.
Forms ease the creation and exchange of electronic documents, including EDI
documents.

ELECTRONIC FUNDS TRANSFER OR EFT--Electronic payment in which the transfer
of funds between the transaction parties' bank accounts is automated.

ELECTRONIC COMMERCE OR EC--The automation of business-to-business
transactions through the use of telecommunications and computers to exchange
and process commercial information and business transaction documents.

INTERNET--A worldwide network of computer networks that began with
technology and equipment funded by the U.S. Department of Defense in the
1970s. TCP/IP is the basic communications protocol for the Internet.

INTRANET--A collection of Internet-related technologies, including TCP/IP,
used within an organization or group of organizations to develop, store,
access and exchange information.

LAN--Local Area Network. A network designed to interconnect PCs within a
local environment. One of a variety of communications technologies used to
link computers together in a single building, business or campus environment.

ONLINE BULLETIN BOARD SERVICES--A bulletin board system is an online
information and message-passing center for dial-up computer users. Typical
services include message transfer or chat forum centers for uploading or
downloading files and programs.

PROTOCOL--A set of rules governing the format, timing, sequencing and error
control of exchanged messages on a data network. A protocol can govern data
transfer over an interface, between two logical units directly connected or
between two users connected end-to-end over a large and complex network.

TCP/IP--Transmission Control Protocol/Internet Protocol. A set of network-
and transport-level protocols that allows computers with different
architectures and operating systems to communicate on the Internet.

WORLD WIDE WEB--A network of computer servers that uses a special
communications protocol to link different servers throughout the Internet and
permits communication of graphics, video and sound.

31
<PAGE>

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NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PRO-
SPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEI-
THER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................................................... 2
Incorporation of Certain Documents by Reference............................ 2
Prospectus Summary......................................................... 3
Risk Factors............................................................... 6
Use of Proceeds............................................................ 10
Capitalization............................................................. 11
Price Range of Common Stock and Dividend Policy............................ 11
Selected Financial Data.................................................... 12
Business................................................................... 14
Description of Capital Stock............................................... 25
Underwriting............................................................... 28
Legal Matters.............................................................. 29
Experts.................................................................... 29
Certain Forward-Looking Statements......................................... 30
Glossary of Selected Electronic Commerce Terms............................. 31
</TABLE>

12,500,000 Shares

[LOGO OF STERLING COMMERCE APPEARS HERE]

Common Stock

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

PROSPECTUS

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

Alex. Brown & Sons
INCORPORATED

Goldman, Sachs & Co.

February 25, 1997

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