SYSTEM SOFTWARE ASSOCIATES INC, 10-K405, 1999-01-29

SYSTEM SOFTWARE ASSOCIATES INC
10-K405, 1999-01-29
PREPACKAGED SOFTWARE

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM 10-K

(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended October 31, 1998

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 0-15322

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System Software Associates, Inc.

(Exact name of registrant as specified in its charter)

Delaware 36-3144515
---------------- ----------------
(State or other jurisdiction (IRS Employer
of incorporation or origination) Identification Number)

500 W. Madison, 32nd Floor
Chicago, Illinois 60661
---------------- ----------------
(Address of principal executive (Zip Code)
offices)

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Registrant's telephone number, including area code: (312) 258-6000

Securities registered pursuant to Section 12(b) of the Act: None

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

7% Convertible Subordinated Notes due 2002

Common Stock, par value $0.0033 per Share
(Title of class)

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

Indicate by check mark whether the registrant (l) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
X
Yes _____ No _____.

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

The aggregate market value of voting stock held by non-affiliates of the
registrant based upon the closing sale price of the stock as reported on the
Nasdaq National Market on January 22, 1999, was $225,200,430.75.

At January 22, 1999, 47,752,228 shares of the registrant's Common Stock
were outstanding.

DOCUMENT INCORPORATED BY REFERENCE

The registrant's definitive proxy statement for the annual meeting of
stockholders, estimated to be held in April 1999, expected to be filed with
the Commission not later than March 1, 1999, is incorporated by reference into
Part III of this Form 10-K.

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PART I

ITEM 1. BUSINESS

The Company

System Software Associates, Inc. (the "Company" or "SSA") is a leading
provider of cost-effective business enterprise information systems to the
industrial sector worldwide. The Company's BPCS (Business Planning and Control
System) Client/Server product line provides business process re-engineering
and integration of an enterprise's operations, including multi-mode
manufacturing processes, supply chain management and global financial
solutions. The BPCS product line delivers scalability, interoperability and
reconfigurability in a comprehensive product suite to meet changing market
demands. The Company markets, sells and services its products to large- and
intermediate-sized industrial sector firms primarily through its own worldwide
sales organization and through a network of independent software companies
(the "Affiliates"). The Company has strategic relationships with major
computer hardware manufacturers, such as IBM and Hewlett Packard; software
functionality companies, such as i2 and Cognos; major systems integrators; and
the Big Five consulting firms.

Industry Background

The market for enterprise resource planning (ERP) software and services
remains dynamic. Manufacturers, having achieved substantial cost savings from
initial ERP implementations, now are focusing on ERP initiatives aimed at
revenue enhancement and opportunity creation through development of new
business processes across applications, which deliver new ways of competing.
As a result of this fundamental shift from efficiency-led decisions to
effectiveness-driven decisions, the ERP market is increasingly focused on the
key elements of the effectiveness equation: visibility, velocity and
variability. This trend is fast transforming the ERP model to a supply chain
model, most notably in the areas of channel enablement, channel expansion and
self-service.

SSA, recognizing the remarkable pace of change in this market, the need for
proper domain experience and expertise, and the demand for a broad range of
application functionalities, has focused on the development of an aggressive
and ongoing partnership strategy with key niche solution providers. As a
result of this important initiative, the Company successfully entered into a
number of new relationships that extend and further complement its core BPCS
offering and functionality. These partnerships enable SSA to offer its
customers enhanced, best-of-market application solutions across a wide variety
of manufacturing disciplines.

SSA Solution

SSA's BPCS product suite provides an ERP foundation with a flexible
infrastructure that allows customers to easily modify, extend or replace
business processes without disruption. Through SSA's Semantic Message Gateway
(SMG) technology, BPCS enables seamless integration of new business processes,
regardless of whether they are developed internally or by a business partner.
SSA's interoperability strategy provides the right solution to the right
market at the right time, with the ability to change as customer demands and
requirements change.

SSA's BPCS software consists of over 50 integrated products designed for
manufacturing, supply chain management and financial applications, as well as
electronic commerce and application development. The Company's products are
designed to provide sufficient breadth of features and application flexibility
to appeal to a wide variety of users, operate in a variety of business
environments, and to offer a consistent Windows(TM) look and feel with respect
to data entry, information retrieval and general operation, thereby improving
ease of use and shortening training time.

SSA's product strategy is to provide "best-of-market" solutions to its
customers. The Company's objective is to deliver tailored individual systems
that provide market-defining competitive advantage by leveraging industry-
specific, best-practice models and extensions of business processes across
applications. The Company's

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focus embraces the mid-market and divisions of tier-one companies within
targeted vertical industries, namely consumer packaged goods (including fast-
moving consumer packaged goods, food and beverage and consumer electronics),
automotive supply, pharmaceutical/specialty chemical and general
manufacturing.

Product Suite

BPCS consists of over 50 integrated, century dated products designed for
manufacturing, supply chain management and financial applications, as well as
electronic commerce and application development tools. BPCS operates on
various hardware and database platform combinations. These include Hewlett-
Packard HP9000, IBM AS/400 and the Company's UNIX version of BPCS software
which operates on both Informix and Oracle databases. The entire BPCS product
suite is available in English, and all, or a significant portion of the line
is available in 19 other languages including Chinese (simplified and
traditional), Dutch, French, German, Italian, Japanese, Korean, Portuguese and
Spanish. In addition, BPCS has been designed to meet localized regulatory
policies and statutory requirements of many countries.

In addition to BPCS, the Company also offers an interoperable, application
development tool set which enables the development of high transaction volume,
enterprise-wide object oriented client/server applications.

Product Development

To maintain and enhance the breadth and functionality of its software, SSA
devotes significant resources to research and development. The Company employs
professionals with subject matter expertise and skills in the AS/400, UNIX and
MS Windows(TM) operating environments. The Company's focus on developing
advanced applications and maintaining its entire BPCS product suite also
requires professionals skilled in the fields of software development, project
management, and systems and client/server products. The Company is also
devoting a portion of its research and development effort to adapt its
technology to the Microsoft Windows(TM) NT environment, a joint project
initiative with Hewlett Packard.

Clients

BPCS has been installed by more than 6,500 clients in more than 18,000
sites in more than 90 countries worldwide, the substantial majority of which
comprise the Company's installed base of AS/400 customers. The target
marketplace for BPCS is large- and medium-sized firms in such diverse
industries as pharmaceuticals/ specialty chemicals, automotive supply,
consumer electronics, consumer packaged goods, food and beverage and general
manufacturing.

Sales and Marketing

Historically, the Company's revenues are almost equally divided across
North America, Europe and the rest of the world. The Company supports its
clients primarily through a worldwide network of branch offices. The Company
markets, sells and services its products through a distribution network
consisting of its own sales and services organization and a network of
Affiliates and major systems integrators. The Company has over 40 offices
worldwide, with more than 100 BPCS support centers in over 90 countries.

The Company's BASIS implementation methodology helps to ensure consistent,
successful and rapid implementation of the Company's software. BASIS, which is
built upon SSA's experience with more than 6,500 clients implementing
worldwide, provides tools and techniques to address project organization,
project process, project direction and project planning and control.

The Company believes that as a consequence of its global support network
and proven implementation capabilities, SSA is well qualified among business
enterprise software vendors to manage simultaneous multiple country and
multiple site implementations. By offering these capabilities, SSA partners
with its clients for global information systems.

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Licensing

In almost all cases, software sales are made pursuant to the Company's
Software License Agreement (the "SLA") which is entered into by the client and
SSA. The gross amount of the software license fee is remitted to the Company
and, if applicable, the Company then pays a commission to the Affiliate. In
certain small countries outside of the United States, the SLA is entered into
by the client, the Company and the Affiliate. SSA enters into individual,
negotiated contracts with its Major Account clients. The SLA typically
provides for either a single license fee to use the product in perpetuity on a
single computer or licensing the products on the basis of the number of users.
License fees for BPCS Client/Server products typically range from $1,500 to
$150,000 per product.

The Company also charges annual ongoing support fees to clients who desire
product updates and upgrades and "HelpLine" product support through telephonic
and other electronic means. Ongoing support is typically provided to clients
under annual or multi-year maintenance agreements. Occasionally, Affiliates
handle the installation of such upgrades and receive their standard
commissions on maintenance fees received from their clients. An Affiliate may
also perform services and provide hardware to its clients for which the
Affiliate bills directly.

Competition

The ERP application software market is highly competitive, rapidly changing
and significantly affected by new product introductions and other market
activities of industry participants. The Company's BPCS Client/Server product
line is targeted at the market for open systems, client/server ERP software
solutions and the IBM AS/400 ERP market. The Company's current and prospective
competitors offer a variety of products and solutions to address these
markets. The Company's primary competition comes from a large number of
independent software vendors and other sources including (i) companies
offering products that run on UNIX-based systems in a client/server
environment such as Oracle Corporation, Baan Company N.V. and SAP AG, and (ii)
companies offering products that run on AS/400 and other mid-range computers,
including J.D. Edwards. The Company also faces competition from a variety of
other vendors of ERP software, including QAD Inc. In addition, the Company
faces indirect competition from suppliers of custom-developed business
application software that have focused mainly on proprietary mainframe and
minicomputer based systems with highly customized software, such as the
systems consulting groups of major accounting firms and systems integrators.
The Company also faces indirect competition from proprietary systems developed
by the internal MIS departments of large organizations. Competition in SSA's
industry is primarily based on sales ability, quality of the products, breadth
of product line and quality of support. To date, there has been no significant
price competition in this market, but price competition could become a factor
in the future.

Proprietary Rights

SSA regards its application software as proprietary and attempts to protect
it with copyrights, trade secret laws and restrictions on disclosure and
transferring title. Despite these precautions, it may be possible for third
parties to copy aspects of the Company's products or to obtain and use
information which the Company regards as trade secrets without authorization.
Computer software generally cannot be patented and existing copyright laws
afford only limited practical protection. In addition, the laws of some
foreign countries do not protect the Company's proprietary rights in its
products to the same extent as do the laws of the United States.

Staff

As of January 1, 1999, SSA employed approximately 2,200 people. The
Company's success is highly dependent on its ability to attract and retain
qualified staff members. Competition for staff is intense in the software
industry. The Company has no collective bargaining agreements, and SSA
believes that its relations with its staff are good.

4
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EXECUTIVE OFFICERS OF THE REGISTRANT

The Company's executive officers are as follows:

WILLIAM M. STUEK, age 56, was appointed Chairman and Chief Executive
Officer on April 17, 1998. He previously served as President and Chief
Operating Officer. Prior to joining the Company, he served in a variety of
sales, marketing and operational management positions with IBM Corporation.
While at IBM, Mr. Stuek served as General Manager of North American Operations
in 1996 and 1997 and prior to that was General Manager of North American
Sales, General Manager of Product Sales for Europe, Middle East and Africa,
and General Manager of Software. Mr. Stuek holds a BS degree from Colgate
University.

LAWRENCE A. ZIMMERMAN, age 56, was appointed Executive Vice President and
Chief Financial Officer on April 27, 1998. Prior to joining the Company, Mr.
Zimmerman held many senior financial management positions during his 32-year
tenure at IBM Corporation. From 1996 through March 1998 he was Vice President
of Finance for IBM's Server Group. From 1994 to 1996, he was IBM's Vice
President of Finance for Europe, Middle East and Africa, and from 1991 to
1994, he was Vice President and Corporate Controller. Mr. Zimmerman holds a
M.B.A. from Adelphi University and a B.S. degree from New York University.

LORRAINE H. FENTON, age 52, joined the Company as Vice President--
Development on July 1, 1998 and was appointed Executive Vice President--
Research and Development on November 18, 1998. Prior to joining the Company,
she served in a variety of management positions with IBM Corporation over a
31-year tenure. Most recently at IBM, Ms. Fenton was Vice President,
Information Technology, North American Sales and Distribution. Prior to that
she had served as General Manager, Quality and Information Technology for
North American Sales and Vice President, Quality and Development Operations
for North American software development. Ms. Fenton holds a B.A. degree from
Dickinson College, and she serves on the Board of Trustees of Marymount
College in Tarrytown, New York.

ITEM 2. PROPERTIES

The Company's principal administrative, marketing and technical facilities
are located in Chicago, Illinois and consist of approximately 141,000 square
feet of occupied or committed space, subject to a lease terminating in August
2008. In accordance with the 1998 restructuring plan, the Company plans to
sublease approximately 45,000 square feet of the office space. The Company
also leases office space for its regional headquarters and branch offices (see
Note 13 of Notes to Consolidated Financial Statements).

ITEM 3. LEGAL PROCEEDINGS

In January 1997, class action lawsuits against the Company and certain of
its officers were filed in state court in Illinois and in the federal court in
Chicago, Illinois. The state court action alleges damages to persons who
purchased the Company's Common Stock during the period from November 21, 1994
through January 7, 1997 arising from alleged violations of the Illinois
securities laws and associated statutory and common law. The federal actions
allege damages to persons who purchased the Company's Common Stock during the
period from August 22, 1994 through January 7, 1997 arising from alleged
violations of the federal securities laws and associated common laws. The
lawsuits name the Company and several of its officers and directors as
defendants, and allege violations of securities laws, fraud and negligence,
stemming from circumstances which resulted in the restatement of the Company's
financial statements for 1994 and 1995. The complaints do not specify the
amounts of damages sought.

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Settlement will not be overturned or opposed or that it will legally bar the
federal claims described above. In addition, even if the Settlement bars the
federal claims as described above, because the class period of the federal
claims is slightly larger than the class period of the state claim and one
defendant was named in the Federal action that was not a defendant in the
State action, the Settlement may not result in the dismissal of the entire
federal action. The failure to achieve a dismissal of any of these actions or
the failure to settle them on sufficiently advantageous terms could have a
material adverse effect on the business, operating results and financial
condition of the Company.

Since October 1995, the Company has been the subject of a private
investigation by the Securities and Exchange Commission (the "Commission").
The inquiry primarily relates to revenue recognition issues. The Staff of the
Enforcement Division has advised the Company that it has tentatively concluded
that in past years the Company improperly recognized revenue on software
contracts for UNIX based software products and software reseller contracts,
and in so doing violated various provisions of the federal securities laws.
Although the Company believes that there are meritorious defenses in
connection with the issues, the Company is unable to predict at this time the
consequences to the Company of the Commission's investigation. There can be no
assurance that any actions taken by the Commission may not have a material
adverse effect on the business, financial condition or results of operations
of the Company.

The Company is also subject to other legal proceedings and claims which
arise in the normal course of business. Although the outcome of these
proceedings cannot be determined with certainty, management believes that the
final outcomes of these proceedings should not have a material adverse effect
on the Company's operations or financial position.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

STOCK INFORMATION

Price Range of Common Stock and Public Convertible Subordinated Notes

The Company's common stock is traded on the Nasdaq National Market under
the symbol SSAX. The following table shows each quarter's high and low closing
prices as reported by Nasdaq.

<TABLE>
<CAPTION>
Fiscal 1998 High Low Fiscal 1997 High Low
- - ----------- ------ ----- ----------- ------ ------
<S> <C> <C> <C> <C> <C>
First Quarter............... $15.25 $6.81 First Quarter............... $14.06 $10.00
Second Quarter.............. 8.69 6.69 Second Quarter.............. 10.88 4.13
Third Quarter............... 9.88 5.38 Third Quarter............... 9.56 5.63
Fourth Quarter.............. 6.63 3.75 Fourth Quarter.............. 16.38 8.06
</TABLE>

At January 22, 1999 there were approximately 470 holders of record.

The Company's Public Convertible Subordinated Notes are traded on the
Nasdaq SmallCap Market under the symbol "SSAXG". The following table shows
each quarter's high and low closing prices as reported by Nasdaq.

<TABLE>
<CAPTION>
Fiscal 1998 High Low Fiscal 1997 High Low
- - ----------- ------- ------ ----------- ------- ------
<S> <C> <C> <C> <C> <C>
First Quarter.............. $112.50 $82.00 First Quarter.............. n/a n/a
Second Quarter............. 87.00 81.00 Second Quarter............. n/a n/a
Third Quarter.............. 91.25 69.00 Third Quarter.............. n/a n/a
Fourth Quarter............. 68.50 55.75 Fourth Quarter............. $114.50 $95.00
</TABLE>

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ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
(in millions, except per share
data)
1998 1997 1996 1995 1994
------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Year Ended October 31,
Total revenues.......................... $ 420.8 $430.5 $340.8 $374.1 $324.3
Net income (loss)....................... (128.7) 1.0 (32.8) 26.6 10.0
Net income (loss) available for common
stockholders........................... (130.0) (1.4) (32.8) 26.6 10.0
Basic earnings (loss) per share of
common stock........................... (2.80) (0.03) (0.76) 0.69 0.25
Diluted earnings (loss) per share of
common stock........................... (2.80) (0.03) (0.76) 0.63 0.25
Dividends declared per common share..... -- -- 0.10 0.08 0.08
At October 31,
Total assets............................ $ 360.8 $475.4 $384.4 $393.2 $333.1
Long-term obligations and Redeemable
Series A Preferred Stock............... 151.2 160.0 75.1 33.9 32.7
</TABLE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Results of Operations

The following table presents, for the periods indicated, certain information
from the consolidated statements of operations as a percentage of total
revenues and the percentage change of such items as compared to the prior year.
<TABLE>
<CAPTION>
Percentage of Total
Revenues Percentage
Year Ended October Increase (Decrease)
31, Over Prior Period
------------------------- --------------------
1998 1997
versus versus
1998 1997 1996 1997 1996
------- ------ ------ --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
License fees................ 51.1% 70.4% 66.5% (29.0%) 33.7%
Client services and other... 48.9% 29.6% 33.5% 61.3% 11.7%
------- ------ ------ --------- ---------
Total revenues............ 100.0% 100.0% 100.0% (2.3%) 26.3%
------- ------ ------ --------- ---------
Costs and expenses:
Cost of license fees........ 17.3% 17.5% 19.6% (3.1%) 12.6%
Cost of client services and
other...................... 33.9% 22.8% 26.1% 45.0% 10.4%
Sales and marketing......... 19.3% 20.6% 30.4% (8.0%) (14.7%)
Research and development.... 14.3% 12.0% 16.0% 16.2% (5.0%)
General and administrative.. 21.0% 20.7% 25.1% (0.6%) 4.0%
Special charges............. 0.3% 1.1% -- (77.6%) *
Restructuring and other..... 29.1% -- -- * *
------- ------ ------ --------- ---------
Total costs and expenses.. 135.2% 94.7% 117.2% 39.6% 2.0%
------- ------ ------ --------- ---------
Operating income (loss)....... (35.2%) 5.3% (17.2%) * 138.9%
------- ------ ------ --------- ---------
Gain on sale of available-for-
sale securities.............. -- -- 3.8% * *
Non-operating income
(expense), net............... (2.4%) (4.9%) (1.7%) (53.5%) 273.7%
------- ------ ------ --------- ---------
Income (loss) before income
taxes........................ (37.6%) 0.4% (15.1%) * 103.1%
Provision (benefit) for income
taxes........................ (7.0%) 0.1% (5.5%) * 103.2%
------- ------ ------ --------- ---------
Net income (loss)............. (30.6%) 0.3% (9.6%) * 103.0%
Preferred dividends........... 0.3% 0.6% -- (45.8%) *
------- ------ ------ --------- ---------
Net income (loss) available
for common stockholders...... (30.9%) (0.3%) (9.6%) * 95.7%
======= ====== ====== ========= =========
</TABLE>
* not meaningful

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Revenues

Total revenues decreased 2.3% from 1997 to 1998. Latin America recorded
higher revenues in 1998 while the Company's other regions were flat to down.
Total revenues increased 26.3% from 1996 to 1997. All regions of the world,
the Americas, Europe/Middle East/Africa, and Asia Pacific, recorded increased
revenues in 1997.

License Fees. The principal components of license fee revenues are software
license fees, a portion of post contract support and hardware. License fees
decreased 29.0% in 1998 to $215.2 million compared to $303.0 million in 1997.
License fees increased 33.7% in 1997, due to revenues derived from Version
6.0, which was released for general availability in the fourth quarter of
1996.

Client Services. Client services and other revenues increased 61.3% to
$205.6 million in 1998 from $127.5 million in 1997. The increase in services
revenues is attributable to an increase in the number of billable services
personnel in response to continuing demand for implementation services as well
as an increase in productivity of services personnel. Client services and
other revenues increased 11.7% in 1997 when compared to 1996, primarily due to
an increase in services personnel.

Costs and Expenses

Cost of License Fees. The principal components of cost of license fees are
commissions paid to independent Affiliates, hardware costs, amortization of
capitalized software costs, royalties paid to third parties and warranty
costs. Cost of license fees in 1998, as a percentage of related license fee
revenues, increased to 33.9% from 24.9% in 1997. The increase is primarily
attributable to the decline in license fee revenues, in particular license
fees sold by the direct sales organization. Cost of hardware rose slightly as
a percentage of revenues while amortization of software cost declined and
warranty costs were flat when compared to 1997. In 1997, cost of license fees,
as a percentage of related license fee revenues, decreased to 24.9% from 29.5%
in 1996. The decrease is primarily the result of a higher mix of direct
channel revenues which have a lower associated cost of license fees than do
indirect channel revenues.

Cost of Client Services and Other. The principal components of cost of
client services and other are salaries and other direct employment costs paid
to the Company's client services personnel and amounts paid for contracted
client services professionals. Cost of client services and other as a
percentage of related revenues was 69.3% in 1998 compared to 77.1% in 1997.
The decrease is primarily due to increased productivity of client services
personnel. In 1996, cost of client services and other was 78%. The modest
improvement from 1996 to 1997 is also due to increased productivity of client
services personnel.

Sales and Marketing. Sales and marketing expenses include salaries,
commissions and other direct employment expenses of the Company's sales and
pre-sales professionals, as well as marketing expenses, which include
advertising, trade shows and production of sales brochures. Sales and
marketing expenses, as a percentage of license fee revenues, were 37.8% in
1998 compared to 29.2% in 1997 as a direct result of the decline in license
fee revenues. However, sales and marketing expenses decreased $7.1 million
from $88.5 million in 1997 to $81.4 million in 1998. The decrease in sales and
marketing expenses is primarily due to a reduction of direct sales incentives
as a result of lower direct license fee revenues and the positive impact of
restructuring, partially offset by an increase in marketing expenditures. In
1996, sales and marketing expenses were 45.8% of license fee revenues compared
to 29.2% in 1997. The lower percentage in 1997 was due to improved
productivity of the Company's direct sales organization and decreased
marketing expenditures.

Research and Development. Total research and development (R&D) expenditures
in 1998 decreased $11.7 million, or 12.6%, to $81.4 million from $93.1 million
in 1997. The decrease is due, primarily, to reduced development activities
with the release of BPCS Client/Server Version 6.0 as well as the positive
impact of restructuring. Total research and development expenditures in 1996
were $96.3 million. The 3.3% decrease from 1996 to 1997 was related to
development expenditures for the Company's new product line, which peaked
during the last half of 1996 and declined as various projects related to such
development were completed.

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<PAGE>

The Company capitalizes software development costs once technological
feasibility is established, in accordance with Statement of Financial
Accounting Standards (SFAS) No. 86. In connection with a restructuring of
operations, the Company determined that it was more appropriate to begin
capitalization of software development costs subsequent to a working model
being developed. Accordingly, the Company capitalized $21.3 million of
software development costs in 1998 compared to $41.4 million in 1997. The
capitalization ratio (capitalized software costs as a percentage of total R&D
expenditures) was 26% for 1998 compared to 44% for both 1997 and 1996,
however, the capitalization ratio for the second half of 1998 was 10%.

The following table sets forth total research and development expenditures
and related capitalized amounts for the periods indicated.

<TABLE>
<CAPTION>
Percentage
Year Ended October 31, Change
------------------------- -------------
(in millions) 1998 1997
versus versus
1998 1997 1996 1997 1996
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Total R&D expenditures................. $ 81.4 $ 93.1 $ 96.3 (13%) (3%)
Less amount capitalized................ (21.3) (41.4) (41.9) (49%) (1%)
------- ------- ------- ---- ----
Net R&D expenses................... $ 60.1 $ 51.7 $ 54.4 16% (5%)
======= ======= ======= ==== ====
</TABLE>

General and Administrative. General and administrative expenses decreased
$.5 million in 1998 to $88.4 million from $88.9 million in 1997 primarily due
to the positive impact of restructuring. In 1996, general and administrative
expenses totaled $85.5 million. The increase in 1997 over 1996 was primarily
due to increased facilities and personnel costs related to acquisitions and
increased costs for computer equipment.

Special Charges. The special charge of $1.1 million recorded in the first
quarter of 1998, and $3.2 million recorded in the fourth quarter of 1997,
related to the settlement of the Bain Investors lawsuit. In addition, a $1.7
million charge was recorded in the third quarter of 1997 which related to the
settlement of the Company's class action lawsuits (see Note 13 of Notes to
Consolidated Financial Statements).

Restructuring and Other Charges. The Company announced a restructuring and
other charge of $122.5 million in the third quarter ending July 31, 1998. The
charge includes a write-down of capitalized and locally developed software
products, a write-down of goodwill and equipment, certain warranty
commitments, a 25% reduction of office space and severance benefits for
approximately 300 employees. The reduction in workforce represents
approximately 12% of June 30, 1998 worldwide employees. Actual write-downs of
capitalized software and restructuring costs incurred in 1998 total $83.5
million of the $122.5 million reserved for restructuring and other charges.
The following table summarizes the significant components of the restructuring
reserve at October 31, 1998.

<TABLE>
<CAPTION>
Restructuring Restructuring Remaining Balance
and Other Costs at October 31,
Charge Incurred 1998
------------- ------------- -----------------
(in millions)
<S> <C> <C> <C>
Severance and benefits............ $ 7.6 $ 5.8 $ 1.8
Write-down of assets.............. 65.1 64.4 0.7
Office space...................... 11.1 2.7 8.4
Warranty.......................... 35.4 7.4 28.0
Other............................. 3.3 3.2 0.1
------ ----- -----
$122.5 $83.5 $39.0
====== ===== =====
</TABLE>

The Company expects to pay a significant amount of the remaining $39.0 million
of accrued restructuring costs in fiscal 1999 (see Note 5 of Notes to
Consolidated Financial Statements).

Operating Income (Loss). Operating loss in 1998, before restructuring and
other charges was $(25.7) million, a decrease of $48.6 when compared to the
operating income of $22.9 million in 1997. The major reason

9
<PAGE>

for the decline was lower license fee revenues. Operating loss in 1998 after
restructuring and other charges of $122.5 million was $(148.2) million.
Operating loss was $(58.8) million in 1996. The increase in operating income
in 1997 resulted from increased software license fees and lower sales and
marketing expenses.

Non-operating Income (Expense), Net. Non-operating expense, net consists
primarily of interest expense related to the Company's 7% Convertible
Subordinated Notes, former Credit Facility and Senior Notes, the amortization
of the value of the former Convertible Note's beneficial conversion feature,
less interest income earned on invested cash. Non-operating expense, net of
$9.9 million in 1998 decreased $11.4 million from $21.3 million in 1997. This
represents a reduction in both interest expense and amortization. The
Convertible Note beneficial conversion feature of $8.9 million was fully
amortized in 1997. In 1997, non-operating expense, net increased $15.6 million
over 1996 due to higher borrowing levels under the Company's former Credit
Facility, higher interests rates applicable to the former Credit Facility and
Senior Notes, interest on the Company's former Convertible Note, interest on
the current 7% Convertible Subordinated Notes issued during the fourth quarter
of 1997, amortization of the value of the former Convertible Note's beneficial
conversion feature and reduced interest income related to lower cash balances.

Income Taxes. The Company's effective tax rate was approximately 19% in
1998 and approximately 36% in 1997 and 1996. The decrease in the effective tax
rate was primarily due to the timing of the recognition of the full tax
benefit related to the $122.5 million restructuring and other charges. The tax
benefit recorded in 1998 and 1996 represents federal and state tax refunds
received in 1997 and amounts to be realized through future utilization of net
operating loss and tax credit carryforwards. Realization of the domestic tax
loss carryforward is dependent upon the generation of approximately $94.0
million of future U.S. taxable income.

Impact of Inflation. To date, the Company has not experienced any
significant effect from inflation. The Company's major expenses have been
salaries and related costs incurred principally for product development and
enhancements, client services, sales and marketing and administration. The
Company generally has been able to meet increases in costs by increasing
prices of its products and services.

Foreign Currency Exposures. Sales outside of the United States account for
approximately 60% of the Company's total revenues. The Company's international
sales (with the exception of certain Latin American countries) are
predominately invoiced and paid in foreign currencies. Consequently, the
Company's revenues are impacted by the fluctuation of foreign currencies
versus the U.S. Dollar. The operating income impact of such fluctuations,
however, is offset to the extent expenses of the Company's international
operations are incurred and paid for in local currencies.

Historically, the Company minimized the financial impact of foreign
currency exchange transactions through the use of foreign exchange forward
contracts, which generally mature within three months of origination (see Note
4 of Notes to the Consolidated Financial Statements).

ACQUISITIONS AND INVESTMENTS

The Company continues to expand its global coverage and strengthen its
product offerings through various acquisitions and investments (see Notes 2
and 3 of Notes to the Consolidated Financial Statements).

During 1998, the Company acquired the remaining 81% of the Company's U.K.
affiliate, SSA Acclaim. During 1996, the Company acquired the remaining 81%
and 90% of its domestic affiliates, SSA North Central and SSA Northwest,
respectively, the remaining 27% of SSA Iberica in Spain and 100% of Vector
Systems, a Canadian affiliate. In addition, the Company purchased 25% of CS
Controlling Software Systeme, a German software development company.

On January 25, 1999 the Company sold its 25% ownership of CS Controlling
Software Systeme for $3,750,000.

10
<PAGE>

QUARTERLY RESULTS

The following table contains selected unaudited consolidated financial
results by quarter for 1998 and 1997. In management's opinion, this
information reflects all adjustments (which consist only of normal recurring
adjustments) necessary to present the results fairly when read in conjunction
with the Consolidated Financial Statements and related notes included
elsewhere herein.

<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1998
Quarter Ended Quarter Ended
--------------------------------------- ----------------------------------------
January 31 April 30 July 31 October 31 January 31 April 30 July 31 October 31
---------- -------- ------- ---------- ---------- -------- -------- ----------
(in millions, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 92.2 $ 98.1 $114.7 $125.6 $ 99.0 $102.4 $ 106.9 $112.5
Costs and expenses...... 96.8 94.2 104.9 111.7 98.7 114.8 240.6 114.8
------ ------ ------ ------ ------ ------ -------- ------
Operating income (loss). (4.6) 3.9 9.8 13.9 0.3 (12.4) (133.7) (2.3)
Non-operating income
(expense), net......... (2.1) (4.9) (4.6) (9.7) (2.3) (2.3) (2.6) (2.7)
------ ------ ------ ------ ------ ------ -------- ------
Income (loss) before
income taxes........... (6.7) (1.0) 5.2 4.2 (2.0) (14.7) (136.3) (5.0)
Provision (benefit) for
income taxes........... (2.4) (0.4) 1.9 1.5 (0.7) (5.3) (21.6) (1.8)
------ ------ ------ ------ ------ ------ -------- ------
Net income (loss)....... (4.3) (0.6) 3.3 2.7 (1.3) (9.4) (114.7) (3.2)
Preferred dividends..... -- -- -- 2.4 0.3 0.3 0.3 0.3
------ ------ ------ ------ ------ ------ -------- ------
Net income (loss)
available for common
stockholders........... $ (4.3) $ (0.6) $ 3.3 $ 0.3 $ (1.6) $ (9.7) $ (115.0) $ (3.5)
====== ====== ====== ====== ====== ====== ======== ======
Basic earnings (loss)
per share of common
stock.................. $(0.10) $(0.01) $ 0.08 $ 0.01 $(0.04) $(0.20) $ (2.42) $(0.07)
====== ====== ====== ====== ====== ====== ======== ======
Diluted earnings (loss)
per share of common
stock.................. $(0.10) $(0.01) $ 0.07 $ 0.01 $(0.04) $(0.20) $ (2.42) $(0.07)
====== ====== ====== ====== ====== ====== ======== ======
</TABLE>

The Company has experienced a seasonal pattern in its operating results,
with the fourth quarter typically having the highest revenues and operating
income. The Company believes that fourth quarter revenues are positively
impacted by the Company's sales compensation plans. This factor, which the
Company believes is common in the computer software industry, typically
results in first quarter revenues in any year being lower than revenues in the
immediately preceding fourth quarter. In addition, the Company's European
operations generally provide lower revenues during the summer months as a
result of the generally reduced economic activity in Europe during such time.
This seasonal factor could materially adversely affect third quarter revenues.

The Company has also historically recognized a substantial portion of its
revenues from sales booked and shipped in the last month of a quarter. As a
result, the magnitude of quarterly fluctuations in license fees may not become
evident until late in a particular quarter. If sales forecasted from a
specific customer for a particular quarter are not realized in that quarter,
the Company is unlikely to be able to generate revenues from alternate sources
in time to compensate for the shortfall. As a result, a lost or delayed sale
could have a material adverse effect on the Company's quarterly operating
results. To the extent that significant sales occur earlier than expected,
operating results for subsequent quarters may be adversely affected. The
Company, historically, operated with little backlog because its products are
generally shipped as orders are received. As a result, revenues from license
fees in any quarter is substantially dependent on orders booked and shipped in
that quarter.

Based upon the factors described above, the Company believes that its
quarterly revenues and operating results are likely to vary significantly in
the future, that period-to-period comparison of its results of operations are
not necessarily meaningful and that, as a result, such comparisons should not
be relied upon as indications of future performance. Moreover, although the
Company's revenues have generally increased in recent periods, there can be no
assurance that the Company's revenues will grow in future periods, at past
rates or at all, or that the Company will be profitable on a quarterly or
annual basis. In future periods, the Company's operating results may be below
the expectations of stock market analysts and investors. In such event, the
price of the Common Stock could be materially adversely affected.

11
<PAGE>

Year 2000

BPCS product line. The Company offers comprehensive services, education,
project management and migration strategies to ready clients for the Year
2000. Century date options include BPCS Client/Server Version 6.0, BPCS ("CD")
Century Dated, or BPCS Millennium Toolset. All versions of BPCS Client/Server
V6.0 are Year 2000 compliant, BPCS CD century dates V4.05 and the BPCS
Millennium Toolset will century date client's current version of BPCS
Client/Server, modifications and related applications.

Third parties. Identification of areas with third party risk is currently
in process and should be completed by the first calendar quarter. Plans to
mitigate risk when identified should be developed and implemented by the
second calendar quarter of 1999.

Internal systems. The Company is in the process of identifying all affected
information technology and non-information technology systems. Remediation
plans will target successful development, implementation and testing of each
affected system. Identification should be completed by the end of the first
calendar quarter of 1999 and plans to remediate should be developed and
implemented by the second calendar quarter of 1999.

In addition, the remediation plan will identify areas of risk to the
Company if the Year 2000 plan fails and will identify contingency plans for
critical processes. Risk assessment and contingency plans should be completed
in the second calendar quarter of 1999.

At this time, the Company believes that there will be no significant cost
associated with ensuring Year 2000 compliance of its internal systems.

LIQUIDITY AND CAPITAL RESOURCES

Cash and equivalents at October 31, 1998 totaled $52.4 million, a decrease
of $30.9 million when compared to October 31, 1997 cash balance of $83.3
million. Cash usage was primarily due to operating losses experienced during
the year, the acquisition of the remaining 81% of the Company's UK affiliate,
payment of certain warranty costs, interest payments on the Company's
subordinated notes and payments related to the Company's third quarter 1998
restructuring activities.

On January 12, 1998, the holder of the Company's $12.0 million convertible
subordinated three-year promissory note elected to exercise its conversion
right. The financial impact of that conversion was to reduce Long-Term
Obligations by $12.0 million and increase Stockholders' Equity by the same
amount.

In May 1998, the Company strengthened its management team, reorganized its
operations, and took initial steps to stabilize its financial performance. In
July 1998, the Company restructured its business and recorded a $122.5 million
restructuring and other charge. The charge includes a reduction in the
Company's work force and office space and a write-down of software, goodwill
and equipment (see Note 5 of Notes to Consolidated Financial Statements).
These measures were aimed at significantly reducing the Company's cost and
expense structure and improving future profitability.

Management believes that based upon its anticipated operating results, cash
generated from operations, combined with current working capital, will provide
sufficient liquidity to meet the Company's capital requirements for the
foreseeable future.

RECENTLY ISSUED ACCOUNTING STANDARDS

American Institute of Certified Public Accountants Statement of Position
97-2, "Software Revenue Recognition" (SOP 97-2) was issued in October 1997.
SOP 97-2 is effective for transactions entered into in fiscal years beginning
after December 15, 1997. Therefore, SOP 97-2 will effect transactions entered
into by the Company beginning November 1, 1998. SOP 97-2 addresses various
aspects of the recognition of revenue on software transactions and supersedes
SOP 91-1, the policy currently followed by the Company. SOP 97-2 provides
guidance on software arrangements consisting of multiple elements, evidence of
fair value, delivery of elements, accounting for service elements and software
arrangements requiring significant production,

12
<PAGE>

modification or customization of software. The Company plans to adopt this
statement in fiscal year 1999 and does not expect the adoption of this
statement to have a material impact on the Company's financial statements.

In June 1997, the Financial Accounting Standards Board (FASB) has issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income" and SFAS No. 131 "Disclosures About Segments of an
Enterprise and Related Information." SFAS 130 established new standards for
reporting and displaying comprehensive income and its components. SFAS 131
requires disclosures of certain information regarding operating segments,
products and services, geographic areas of operation and major customers. The
Company does not believe that SFAS 130 or SFAS 131, which will become
effective in fiscal year 1999, will have a material impact on the Company's
financial statements.

In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes accounting and
reporting standards for derivative financial instruments and hedging
activities and requires the Company to recognize all derivatives as either
assets or liabilities on the balance sheet and measure them at fair value.
Gains and losses resulting from changes in fair value would be accounted for
based on the use of the derivative and whether it is designated and qualifies
for hedge accounting. The Company will be required to implement SFAS 133 for
its fiscal year 2000. The Company has not determined the impact that SFAS 133
will have on its financial statements and believes that such determination
will not be meaningful until closer to the date of initial adoption.

ITEM 7A. MARKET RISK

Approximately 60% of the Company's business is conducted outside the United
States in Europe/Middle East/Africa, Canada, Latin America, and Asia/Pacific.
The majority of business operations are transacted in foreign currencies
except for Latin America where most revenues are invoiced and paid in U.S.
dollars. As a result, the Company has exposure to foreign exchange
fluctuations. The Company is affected by both foreign currency translation and
transaction adjustments. Translation adjustments result from the conversion of
the foreign subsidiaries' balance sheets and income statements to U.S. dollars
at year-end exchange rates and weighted average exchange rates, respectively.
Translation adjustments resulting from this process are recorded directly into
stockholders' equity. Transaction adjustments result from currency exchange
movements when a foreign subsidiary transacts business in a currency that
differs from its local currency. These transactions are recorded as gains or
losses in the Company's income statement.

The Company's foreign exchange exposure was minimized in 1998 as the
majority of the Company's foreign subsidiaries' business transactions were
spread across approximately 20 different countries and currencies. This
geographic diversity reduces the risk to the Company's operating results. Some
foreign exchange exposure is mitigated as sales are predominately invoiced and
paid in foreign currencies and offset by expenses which are also incurred and
paid in the same currencies. Also, the Company performs periodic reviews of
outstanding balances and settles intercompany accounts to minimize foreign
exchange transaction gains and losses.

The Company has minimal interest rate risk. The Company's $138 million
public convertible subordinated notes' 7% interest rate is fixed and not
subject to market fluctuations. The notes are due in 2002 (see Note 1 of Notes
to Consolidated Financial Statements related to fair value of financial
instruments).

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and schedule of the Company are annexed to this
Report as pages F-2 through F-23. An index to such materials appears on page
F-l.

ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not Applicable.

13
<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item with respect to the directors of the
Company is incorporated by reference from the Company's definitive proxy
statement, expected to be filed with the Commission not later than March 1,
1999. Information regarding executive officers is set forth in Part I of this
report.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference from the
Company's definitive proxy statement, expected to be filed with the Commission
not later than March 1, 1999.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is incorporated by reference from the
Company's definitive proxy statement, expected to be filed with the Commission
not later than March 1, 1999.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated by reference from the
Company's definitive proxy statement, expected to be filed with the Commission
not later than March 1, 1999.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

a. The financial statements and schedule filed as part of this report are
listed in the accompanying Index to Financial Statements and Schedule. The
exhibits filed or incorporated by reference as part of this report are listed
in the accompanying Index to Exhibits. The Company will furnish a copy of any
exhibit listed to requesting stockholders upon payment of the Company's
reasonable expenses in furnishing those materials.

b. The Company had no 8-K filings in the fiscal quarter ending October 31,
1998.

14
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

System Software Associates, Inc.
January 29, 1999

/s/ Lawrence A. Zimmerman
_____________________________________
Lawrence A. Zimmerman,
Executive Vice President and Chief
Financial Officer

Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----

<S> <C> <C>
/s/ William M. Stuek - Chief Executive Officer and January 29, 1999
____________________________________ Chairman of the Board of
William M. Stuek Directors (Principal
Executive Officer)

/s/ Lawrence A. Zimmerman Executive Vice President, January 29, 1999
____________________________________ Chief Financial Officer and
Lawrence A. Zimmerman Director (Principal
Financial and Accounting
Officer)

/s/ Casey G. Cowell Director January 29, 1999
____________________________________
Casey G. Cowell

/s/ Andrew J. Filipowski Director January 29, 1999
____________________________________
Andrew J. Filipowski

/s/ Douglas P. Smith Director January 29, 1999
____________________________________
Douglas P. Smith

/s/ William N. Weaver, Jr. Director January 29, 1999
____________________________________
William N. Weaver, Jr.

</TABLE>

15
<PAGE>

INDEX TO FINANCIAL STATEMENTS AND SCHEDULE

<TABLE>
<CAPTION>
Page
----
<S> <C>
(1) Financial Statements:
Independent Auditors' Report............................................ F-2

Consolidated Balance Sheets as of October 31, 1998 and 1997............. F-3
Consolidated Statements of Operations for the years ended October 31,
1998, 1997 and 1996.................................................... F-5
Consolidated Statements of Cash Flows for the years ended October 31,
1998, 1997 and 1996.................................................... F-6
Consolidated Statements of Changes in Stockholders' Equity for the years
ended October 31, 1998, 1997 and 1996.................................. F-7
Notes to Consolidated Financial Statements.............................. F-8
(2) Financial Statement Schedule:
The following financial statement schedule is included herein:
Schedule II--Valuation and Qualifying Accounts.......................... F-23
All other financial statement schedules are omitted because they are not
applicable or the required information is shown in the consolidated
financial statements or notes thereto.
</TABLE>

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors
System Software Associates, Inc.

We have audited the accompanying consolidated balance sheets of System
Software Associates, Inc. and subsidiaries as of October 31, 1998 and 1997,
and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for each of the years in the three-year
period ended October 31, 1998. In connection with our audits of the
consolidated financial statements, we have also audited the financial
statement schedule as listed in the accompanying index. These consolidated
financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements and financial statement
schedule based on our audits.

We conducted our audits in accordance with generally accepted accounting
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of System
Software Associates, Inc. and subsidiaries as of October 31, 1998 and 1997,
and the results of their operations and their cash flows for each of the years
in the three-year period ended October 31, 1998 in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.

/s/ KPMG LLP

Chicago, Illinois
December 10, 1998

F-2
<PAGE>

SYSTEM SOFTWARE ASSOCIATES, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
October 31,
-------------
ASSETS 1998 1997
------ ------ ------
(in millions,
except share
data)
<S> <C> <C>
Current Assets:
Cash and equivalents........................................... $ 52.4 $ 83.3
Accounts receivable, less allowance for doubtful accounts of
$16.5 and $16.5............................................... 144.4 198.3
Income taxes receivable........................................ 3.9 1.5
Deferred income taxes.......................................... 31.2 11.3
Prepaid expenses and other current assets...................... 27.6 27.5
------ ------
Total current assets......................................... 259.5 321.9
------ ------

Property and Equipment:
Data processing equipment...................................... 41.5 42.0
Furniture and office equipment................................. 16.3 17.5
Leasehold improvements......................................... 8.4 10.3
Transportation equipment....................................... 1.7 1.3
------ ------
67.9 71.1
Less-accumulated depreciation and amortization................. 48.8 46.0
------ ------
Total property and equipment................................. 19.1 25.1
------ ------

Other Assets:
Software costs, less accumulated amortization of $42.9 and
$89.3......................................................... 39.5 99.4
Cost in excess of net assets of acquired businesses, less
accumulated amortization of $13.0 and $11.8................... 21.1 19.7
Deferred income taxes.......................................... 16.6 3.9
Investments in associated companies............................ 1.0 1.6
Miscellaneous.................................................. 4.0 3.8
------ ------
Total other assets........................................... 82.2 128.4
------ ------
Total Assets................................................. $360.8 $475.4
====== ======
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

F-3
<PAGE>

SYSTEM SOFTWARE ASSOCIATES, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
October 31,
--------------------
LIABILITIES AND
STOCKHOLDERS' EQUITY 1998 1997
-------------------- --------- ---------
(in millions,
except share data)
<S> <C> <C>
Current Liabilities:
Accrued commissions and
royalties................ $ 20.3 $ 25.8
Accounts payable and other
accrued liabilities...... 77.9 60.6
Accrued compensation and
related benefits......... 23.1 24.7
Deferred revenue.......... 44.3 49.3
--------- ---------
Total current
liabilities............ 165.6 160.4
--------- ---------

Long-Term Obligations:
Convertible subordinated
notes.................... 137.3 149.1
Other..................... 4.6 1.7
--------- ---------
Total long-term
obligations............ 141.9 150.8
--------- ---------
Deferred Revenue............ 29.9 32.4
--------- ---------
Deferred Income Taxes....... -- 0.8
--------- ---------
Redeemable Series A
Preferred Stock, $.01 par
value, convertible, 10,000
shares issued and
outstanding (liquidation
preference of $10.0
million)................... 9.3 9.2
--------- ---------
Stockholders' Equity:
Preferred stock, $.01 par
value, 100,000 shares
authorized, 10,000 shares
issued as Series A
Preferred Stock.......... -- --
Common stock, $.0033 par
value, 250,000,000 shares
authorized, 47,621,000
and 42,868,000 shares
issued................... 0.2 0.1
Capital in excess of par
value.................... 72.5 48.5
Retained earnings
(deficit)................ (52.9) 77.1
Cumulative translation
adjustment............... (5.7) (3.9)
--------- ---------
Total stockholders'
equity................. 14.1 121.8
Commitments and
Contingencies (Note 13).... -- --
--------- ---------
Total Liabilities and
Stockholders' Equity... $ 360.8 $ 475.4
========= =========
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

F-4
<PAGE>

SYSTEM SOFTWARE ASSOCIATES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Year Ended October 31,
---------------------------
1998 1997 1996
-------- -------- --------
(in millions, except per
share data)
<S> <C> <C> <C>
Revenues:
License fees.................................... $ 215.2 $ 303.0 $ 226.7
Client services and other....................... 205.6 127.5 114.1
-------- ------- --------
Total revenues................................ 420.8 430.5 340.8
-------- ------- --------
Costs and Expenses:
Cost of license fees............................ 73.0 75.3 66.9
Cost of client services and other............... 142.5 98.3 89.0
Sales and marketing............................. 81.4 88.5 103.8
Research and development........................ 60.1 51.7 54.4
General and administrative...................... 88.4 88.9 85.5
Special charges................................. 1.1 4.9 --
Restructuring and other......................... 122.5 -- --
-------- ------- --------
Total costs and expenses...................... 569.0 407.6 399.6
-------- ------- --------
Operating income (loss)........................... (148.2) 22.9 (58.8)
Gain on sale of available-for-sale securities..... -- -- 13.1
Non-operating income (expense), net............... (9.9) (21.3) (5.7)
-------- ------- --------
Income (loss) before income taxes................. (158.1) 1.6 (51.4)
Provision (benefit) for income taxes.............. (29.4) 0.6 (18.6)
-------- ------- --------
Net income (loss)................................. (128.7) 1.0 (32.8)
Preferred dividends............................... 1.3 2.4 --
-------- ------- --------
Net income (loss) available for common
stockholders..................................... $ (130.0) $ (1.4) $ (32.8)
======== ======= ========
Basic and diluted earnings (loss) per share of
common stock..................................... $ (2.80) $ (0.03) $ (0.76)
======== ======= ========
Weighted average common shares outstanding........ 46.5 42.7 43.0
======== ======= ========
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

F-5
<PAGE>

SYSTEM SOFTWARE ASSOCIATES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Year Ended October 31,
------------------------
1998 1997 1996
------- ------ -------
(in millions)
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss)................................... $(128.7) $ 1.0 $(32.8)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Net assets written off due to restructuring....... 64.4 -- --
Depreciation and amortization of property and
equipment........................................ 8.9 9.3 9.2
Amortization of other assets...................... 26.8 40.8 23.0
Provision for doubtful accounts................... 21.1 3.3 9.3
Gain on sale of available-for-sale securities..... -- -- (13.1)
Deferred income taxes............................. (33.4) (3.1) (14.2)
Deferred revenue.................................. (7.8) (2.8) (2.5)
Changes in operating assets and liabilities, net
of acquisitions:
Accounts receivable............................. 37.1 (42.9) 12.6
Prepaid expenses and other current assets....... 2.6 (1.9) (2.1)
Miscellaneous assets............................ 1.7 2.1 2.4
Accrued commissions and royalties............... (5.6) (0.2) (6.8)
Accounts payable and other accrued liabilities.. 18.0 (1.0) 8.0
Accrued compensation and related benefits....... (2.2) 1.6 --
Income taxes.................................... (2.4) 3.4 (14.2)
------- ------ -------
Net cash provided by (used in) operating activities. 0.5 9.6 (21.2)
------- ------ -------
Cash Flows From Investing Activities:
Purchases of property and equipment................. (2.9) (4.9) (11.4)
Software costs...................................... (23.2) (44.8) (43.8)
Investments and acquisitions, net of cash acquired.. (2.0) -- (4.5)
Proceeds from sale of available-for-sale securities. -- -- 23.2
Other............................................... -- -- (0.1)
------- ------ -------
Net cash flows used in investing activities......... (28.1) (49.7) (36.6)
------- ------ -------
Cash Flows From Financing Activities:
Amount borrowed (repaid) under line of credit....... -- (46.4) 46.4
Repayment of Senior Notes Payable................... -- (26.0) --
Proceeds from issuance of convertible subordinated
notes.............................................. -- 150.0 --
Proceeds from issuance of Redeemable Series A
Preferred Stock.................................... -- 10.0 --
Principal payments under other financing
obligations........................................ (3.4) (2.7) (5.7)
Proceeds from stock option and stock purchase plans. 2.5 1.6 2.1
Dividends paid...................................... (1.2) -- (4.2)
------- ------ -------
Net cash provided by (used in) financing activities. (2.1) 86.5 38.6
------- ------ -------
Effect of exchange rate changes on cash............. (1.2) (1.2) 0.2
------- ------ -------
Net increase (decrease) in cash and equivalents..... (30.9) 45.2 (19.0)
Cash and equivalents:
Beginning of year................................... 83.3 38.1 57.1
------- ------ -------
End of year......................................... $ 52.4 $ 83.3 $ 38.1
======= ====== =======
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

F-6
<PAGE>

SYSTEM SOFTWARE ASSOCIATES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
Unrealized
gain on
Common Stock Capital in Retained available- Cumulative Total
------------- excess of earnings for-sale translation stockholders'
Shares Amount par value (deficit) securities adjustment equity
------ ------ ---------- --------- ---------- ----------- -------------
(in millions, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance October 31,
1995................... 42.1 $0.1 $26.1 $ 115.5 $ 2.5 $ (0.8) $ 143.4
Shares issued upon
exercise of employee
stock options.......... 0.3 2.1 2.1
Tax benefit of stock
options exercised...... 1.2 1.2
Foreign currency
translation adjustment. (0.4) (0.4)
Dividends paid--$0.10
per share.............. (4.2) (4.2)
Shares issued in
business combinations.. 0.2 3.4 3.4
Sale of available-for-
sale securities........ (2.5) (2.5)
Net loss................ (32.8) (32.8)
---- ---- ----- ------- ----- ------ -------
Balance October 31,
1996................... 42.6 $0.1 $32.8 $ 78.5 $-- $ (1.2) $ 110.2
---- ---- ----- ------- ----- ------ -------
Shares issued upon
exercise of employee
stock options.......... 0.3 1.6 1.6
Tax benefit of stock
options exercised...... 0.5 0.5
Foreign currency
translation adjustment. (2.7) (2.7)
Dividends--Redeemable
Series A Preferred
Stock ($30.00 per
share)................. (0.2) (0.2)
Issuance of warrants.... 2.5 2.5
Beneficial conversion
feature of convertible
subordinated note...... 8.9 8.9
Beneficial conversion
feature of Redeemable
Series A Preferred
Stock.................. 2.2 (2.2) --
Net income.............. 1.0 1.0
---- ---- ----- ------- ----- ------ -------
Balance October 31,
1997................... 42.9 $0.1 $48.5 $ 77.1 $-- $ (3.9) $ 121.8
---- ---- ----- ------- ----- ------ -------
Shares issued upon
exercise of employee
stock options and
shared issued in
employee stock purchase
plans.................. 0.4 0.1 2.4 2.5
Tax benefit of stock
options exercised...... 0.2 0.2
Foreign currency
translation adjustment. (1.8) (1.8)
Dividends--Redeemable
Series A Preferred
Stock ($30.00 per
share)................. (1.3) (1.3)
Issuance of warrants.... 3.5 3.5
Shares issued in
business combination... 0.7 5.9 5.9
Conversion of $12
million private
convertible
subordinated note to
common stock........... 3.6 12.0 12.0
Net loss................ (128.7) (128.7)
---- ---- ----- ------- ----- ------ -------
Balance October 31,
1998................... 47.6 $0.2 $72.5 $ (52.9) $-- $ (5.7) $ 14.1
==== ==== ===== ======= ===== ====== =======
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

F-7
<PAGE>

SYSTEM SOFTWARE ASSOCIATES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--Operations and Significant Accounting Policies:

Nature of operations

System Software Associates, Inc. (the "Company" or "SSA") is a leading
provider of cost-effective business enterprise information systems to the
industrial sector worldwide. The Company's BPCS (Business Planning and Control
System) Client/Server product line provides business process re-engineering
and integration of an enterprise's operations, including multi-mode
manufacturing processes, supply chain management and global financial
solutions. The BPCS product line delivers scalability, interoperability and
reconfigurability in a comprehensive product suite to meet changing market
demands. The Company markets, sells and services its products to large and
intermediate-sized industrial sector firms primarily through its own worldwide
sales organization and through a network of independent software companies
(the "Affiliates"). The Company has strategic relationships with major
computer hardware manufacturers, such as IBM and Hewlett Packard; software
functionality companies, such as i2 and Cognos; and major systems integrators
and the Big Five consulting firms.

Principles of consolidation

The consolidated financial statements include the accounts of System
Software Associates, Inc. and its majority owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.

Foreign currency translation

The functional currencies for substantially all of the Company's foreign
subsidiaries are their local currencies. The foreign subsidiaries' balance
sheets are translated at the year end rates of exchange and their results of
operations at weighted average rates of exchange for the year. Translation
adjustments resulting from this process are recorded directly in stockholders'
equity and will be included in the determination of net income (loss) only
upon sale or liquidation of the subsidiaries, which is not contemplated at
this time. Foreign exchange transaction gains (losses) aggregating $2.7
million, $0.6 million and $(0.4) million are included in general and
administrative expenses for 1998, 1997, and 1996, respectively.

Revenue recognition

The license fees generated and related commissions earned by the
independent Affiliates are included in license fees and cost of license fees,
respectively. Software license fees are recognized, as required by AICPA
Statement of Position 91-1, upon delivery and acceptance of the product by the
end user providing that no significant vendor obligations remain and
collection of the related receivable is probable. Revenues and commissions
from software maintenance and HelpLine agreements are deferred and recognized
ratably over the term of the contract. Client services revenues are recorded
when such services are provided. Concentrations of credit risk with respect to
accounts receivable are limited due to a large customer base and its
geographic dispersion.

The principal components of cost of license fees are commissions paid to
independent Affiliates, hardware costs, amortization of capitalized software
costs, warranty costs and royalties paid to third parties. The principal
components of cost of client services and other are salaries paid to the
Company's client services personnel and amounts paid to independent client
services professionals. Accrued Affiliate and salesman commissions are not
paid until the related accounts receivable balances have been collected.

F-8
<PAGE>

SYSTEM SOFTWARE ASSOCIATES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Property and equipment

Property and equipment are stated at cost. Depreciation is computed using
various methods over the estimated useful lives of the related assets which
range from three to seven years. Leasehold improvements are amortized over the
shorter of the life of the assets or related leases. Gains or losses resulting
from sales or retirements are recorded as incurred, at which time related
costs and accumulated depreciation are removed from the accounts. Maintenance
and repairs are charged to expense as incurred. Depreciation and amortization
of property and equipment was $8.9 million, $9.3 million and $9.2 million in
1998, 1997, and 1996, respectively.

Software costs

Purchased software is capitalized and stated at cost. The Company
capitalizes software development costs in accordance with Statement of
Financial Accounting Standards (SFAS) No. 86. Amortization of capitalized
costs is computed on a straight-line basis using an estimated useful life of
five years or in proportion to current and anticipated revenues, whichever
provides the greater amortization. Capitalized software costs are summarized
as follows:

<TABLE>
<CAPTION>
October 31,
--------------
1998 1997
------ ------
(in millions)
<S> <C> <C>
Purchased software........................................ $ 10.6 $ 10.6
Internally developed software............................. 71.8 178.1
------ ------
82.4 188.7
Less--Accumulated amortization............................ (42.9) (89.3)
------ ------
Net capitalized software costs............................ $ 39.5 $ 99.4
====== ======
</TABLE>

Amortization of capitalized software costs charged to cost of license fees
aggregated $22.5 million, $28.2 million, and $20.0 million during 1998, 1997,
and 1996, respectively.

Research and development

Research and development expenses, principally the design and development
of software products (exclusive of costs capitalized under SFAS No. 86), are
expensed as incurred.

Cost in excess of net assets of acquired businesses

The excess of cost over the fair value of the net identifiable assets of
acquired businesses is amortized on a straight-line basis, typically over a
seven-year period. Amortization expense was $4.1 million, $3.1 million and
$2.7 million in 1998, 1997, and 1996, respectively.

Fair value of financial instruments

The fair value of cash and equivalents, receivables, accounts payable and
accrued expenses approximates their carrying values. The fair value of public
convertible subordinated notes using the quoted market price on October 31,
1998 is $91.1 million. It was not practical to determine the fair value of
Redeemable Series A Preferred Stock and investments in associated companies at
October 31, 1998 as there are no quoted market prices for these instruments.

F-9
<PAGE>

SYSTEM SOFTWARE ASSOCIATES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Derivatives

The Company has periodically entered into foreign currency contracts in
order to reduce the impact of certain foreign currency fluctuations.
Unrealized gains and losses on foreign currency contracts were recognized in
each reporting period in the consolidated statement of operations.

Stock-based compensation

The Company utilizes the intrinsic value based method of accounting for its
stock-based compensation agreements.

Earnings per share

During fiscal year 1998, the Company adopted Statement of Financial
Accounting Standards No. 128 (SFAS No. 128) "Earnings per Share". In
accordance with SFAS 128, basic earnings per share is computed using the
weighted average number of common shares outstanding during the period.
Diluted earnings per share is computed using the weighted average number of
common shares and dilutive potential common shares outstanding during the
period. Dilutive potential common shares could consist of employee stock
options, warrants or convertible securities using the treasury stock method of
computation. All earnings per share amounts for all periods presented have
been restated to conform to SFAS 128 requirements. The loss per share for
1998, 1997 and 1996 has been computed using only the weighted average number
of shares outstanding.

Shares issuable from securities that could potentially dilute basic
earnings per share in the future that were not included in the computation
earnings per share were as follows:

<TABLE>
<CAPTION>
October 31,
--------------
1998 1997 1996
---- ---- ----
(in millions)
<S> <C> <C> <C>
Stock options.............................................. 3.0 2.9 2.1
Warrants................................................... 3.7 2.1 --
Convertible securities..................................... 8.4 12.0 --
---- ---- ---
15.1 17.0 2.1
==== ==== ===
</TABLE>

Use of estimates

Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.

Statements of cash flows

For purposes of reporting cash flows, the Company considers highly liquid
investments with an original maturity of three months or less to be cash
equivalents. At October 31, 1998, the Company had $7.5 million invested in
money market funds. Interest income which is included in the Company's
Consolidated Statements

F-10
<PAGE>

SYSTEM SOFTWARE ASSOCIATES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

of Operations in non-operating income (expense), net aggregated $2.2 million,
$1.3 million and $1.1 million during 1998, 1997 and 1996, respectively.
Supplemental information is as follows:

<TABLE>
<CAPTION>
Year Ended
October 31,
----------------
1998 1997 1996
----- ----- ----
(in millions)
<S> <C> <C> <C>
Non-cash investing and financing activities:
Leases capitalized.................................... $ 0.8 $ 1.7 $0.6
Liabilities assumed in connection with investments and
acquisitions......................................... $ -- $ -- $1.2
Shares issued in business combinations................ $ 5.9 $ -- $3.4
Issuance of common stock purchase warrants............ $ 3.5 $ 2.5 $ --
Beneficial conversion features on issuance of note and
preferred stock...................................... $ -- $11.1 $ --
Conversion of private convertible subordinated note... $12.0 $ -- $ --
Cash paid during the period for:
Interest.............................................. $10.8 $ 8.0 $4.0
Income taxes.......................................... $ 6.4 $ 2.4 $9.5
</TABLE>

NOTE 2--Business Combinations:

The Company has expanded its global coverage and strengthened its product
offerings through various acquisitions.

The following table summarizes all which were accounted for under the
purchase method and, accordingly, resulted in allocations of the purchase
prices to the net assets acquired based upon their estimated fair values as of
the acquisition dates. The accompanying consolidated statements of operations
reflect the results of operations of the acquired companies since the
acquisition dates. Proforma results of operations are not presented as the
acquisitions were not significant. These transactions typically involved the
Company acquiring a majority interest or additional interest in an existing
independent Affiliate.

Year Ended October 31,
<TABLE>
- - -----------------------------------------------------------------------------------------
<CAPTION>
1998 1997 1996
- - -----------------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
.SSA Acclaim (a) No acquisitions .SSA North Central (b)
.NofTek NW, Inc. (SSA Northwest) (b)
.Castillo Informatica (SSA Iberica) (b)
.Vector Systems Analysis
- - -----------------------------------------------------------------------------------------
Aggregate
consideration. $8.0 -- $8.0
- - -----------------------------------------------------------------------------------------
Goodwill....... $7.7 -- $7.2
- - -----------------------------------------------------------------------------------------
</TABLE>
(a) Acquired the remaining interest of 81% in 1998.
(b) Acquired the remaining interests of 81% in SSA North Central, 90% in SSA
Northwest and 27% in SSA Iberica in 1996.

F-11
<PAGE>

SYSTEM SOFTWARE ASSOCIATES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

NOTE 3--Investments in Associated Companies:

The Company owns minority interests in certain of its affiliates and
accounts for these investments under the cost method if the Company owns less
than 20% and the equity method if ownership is more than 20% of each
associated company. The Company does not exercise control over the operations
of these companies.

NOTE 4--Financial Instruments:

The Company has used forward exchange contracts for the primary purpose of
reducing its exposure to fluctuations in foreign currency exchange rates. The
instruments are employed to manage transactional exposure. While these
financial instruments are subject to the risk that market rates may change
subsequent to the acquisition of the financial instrument, such changes would
generally be offset by opposite effects on the items being managed. The
Company's financial instruments typically mature within three months of
origination and are transacted at rates which reflect the market rate at the
date of the contract.

At October 31, 1998 and 1997, the Company had no forward exchange contracts
outstanding. As of October 31, 1996, the Company had forward contracts for the
purchase and sale of European and other currencies, with purchases totaling
$3.2 million and sales totaling $26.8 million. These contracts matured on or
before November 5, 1996.

NOTE 5--Restructuring and Other Charge:

The Company announced a restructuring and other charge of $122.5 million in
the third quarter ending July 31, 1998. The charge includes a write-down of
capitalized and locally developed software products, a write-down of goodwill
and equipment, certain warranty commitments, a 25% reduction of office space
and severance benefits for approximately 300 employees. The reduction in
workforce represents approximately 12% of June 30, 1998 worldwide employees.
Actual write-downs of capitalized software and restructuring costs incurred in
1998 total $83.5 million of the $122.5 million reserved for restructuring and
other charges. The following table summaries the significant components of the
restructuring reserve at October 31, 1998.

<TABLE>
<CAPTION>
Restructuring Restructuring Remaining Balance
and Other Costs at October 31,
Charge Incurred 1998
------------- ------------- -----------------
(in millions)
<S> <C> <C> <C>
Severance and benefits..... $ 7.6 $ 5.8 $ 1.8
Write-down of assets....... 65.1 64.4 0.7
Office space............... 11.1 2.7 8.4
Warranty................... 35.4 7.4 28.0
Other...................... 3.3 3.2 0.1
------ ----- -----
$122.5 $83.5 $39.0
====== ===== =====
</TABLE>

The Company expects to pay a significant amount of the remaining $39.0
million of accrued restructuring costs in fiscal 1999.

F-12
<PAGE>

SYSTEM SOFTWARE ASSOCIATES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

NOTE 6--Long-Term Obligations:

Long-term obligations consist of the following:

<TABLE>
<CAPTION>
October 31,
-------------
1998 1997
------ ------
(in millions)
<S> <C> <C>
Public convertible subordinated notes...................... $137.3 $137.1
Private convertible subordinated note...................... -- 12.0
Restructuring and other payable............................ 39.0 --
Note payable............................................... -- 0.5
Obligations under capital leases........................... 1.7 3.4
------ ------
178.0 153.0
Less--Current maturities................................... 36.1 2.2
------ ------
Total long-term obligations.............................. $141.9 $150.8
====== ======
</TABLE>

Public Convertible Subordinated Notes

On September 12, 1997, the Company issued $138.0 million principal amount
of convertible subordinated notes due September 15, 2002 bearing interest at
7% (the "Public Notes"). Interest will be paid March 15 and September 15 of
each year, commencing March 15, 1998. The Public Notes are subordinated to all
existing and future indebtedness of the Company.

The Public Notes are convertible at the holders' option at any time into
shares of common stock of the Company at $18.06 per share, subject to
adjustments in certain events. The Public Notes are redeemable at the option
of the Company after September 20, 2000 in whole, or in part at any time
(103.5% beginning September 20, 2000 and 101.75% from September 20, 2001 and
thereafter) plus accrued and unpaid interest. In the event that a change in
control occurs, each holder of a Public Note may require the Company to
repurchase all or a portion of such holder's Public Notes at a price equal to
100% of the principal amount thereof plus accrued and unpaid interest to the
purchase date.

A substantial portion of the net proceeds from the sale of the notes was
used to fund the retirement of the Company's line of credit and Senior Notes
payable.

Private Convertible Subordinated Note

Prior to its conversion to common stock in January 1998, the Company had
issued a convertible subordinated promissory note (the "Private Convertible
Subordinated Note") in March 1997 to a strategic investor in the amount of
$12.0 million, bearing interest at the prime rate plus 1% and convertible into
common stock of the Company at the lesser of $3.33 per share or 80% of the
fair market value of the stock at the time of conversion. The loan maturity
was three years, and the note was not convertible prior to October 1997,
except in the event of prepayment. The Private Convertible Subordinated Note
had a beneficial conversion feature because the fair market value of the
Company's stock was in excess of its per share conversion price at the date of
issuance. The value of the beneficial conversion feature of $8.9 million has
been reflected as an increase to capital in excess of par value and was
amortized as interest expense in 1997. The expense was included in the
Company's Consolidated Statement of Operations for the year ended October 31,
1997 in non-operating income (expense), net.

On January 12, 1998, the $12.0 million Private Convertible Subordinated
Note was converted into 3.6 million shares of common stock.

F-13
<PAGE>

SYSTEM SOFTWARE ASSOCIATES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Restructuring and Other Payable

At October 31, 1998, the $39.0 million restructuring and other payable
balance represents the unused charges from the third quarter 1998 $122.5
million restructuring and other charge. The Company expects to use
approximately $35.0 million of the balance during 1999 and the remaining $4.0
million in 2000.

Note Payable

At October 31, 1997, the notes payable represents a commitment made in
connection with an acquisition which was paid in 1998.

Capital Lease Obligations

Capital lease obligations represent the present value of future payments
under leases for transportation and data processing equipment. The recorded
cost of these assets aggregated $6.6 million and $6.5 million at October 31,
1998 and 1997, respectively; accumulated amortization thereon aggregated $4.5
million and $4.0 million, respectively. Amortization of assets under capital
leases is included in depreciation and amortization expense.

The following is a schedule of future minimum lease payments under capital
lease obligations, together with the present value of minimum lease payments
at October 31, 1998:

<TABLE>
<CAPTION>
Year Ending October 31, (in millions) Amount
------------------------------------- ------
<S> <C>
1999............................................................... $1.5
2000............................................................... 0.4
2001............................................................... 0.1
----
Total minimum lease payments....................................... 2.0
Less--Amount representing interest................................. 0.3
----
Present value of minimum lease payments............................ 1.7
Less--Current maturities........................................... 1.1
----
$0.6
====
</TABLE>

Interest expense which is included in the Company's Consolidated Statements
of Operations in non-operating income (expense), net was $10.7 million, $9.3
million, and $4.7 million during 1998, 1997, and 1996, respectively.

NOTE 7--Income Taxes:

Deferred income taxes arise from temporary differences between the income
tax basis of assets and liabilities and their reported amounts in the
consolidated financial statements.

Pretax income (loss) from continuing operations was taxed in the following
jurisdictions:

<TABLE>
<CAPTION>
Year Ended October
31,
---------------------
1998 1997 1996
------- ---- ------
(in millions)
<S> <C> <C> <C>
Domestic........................................... $(153.0) $4.0 $(57.6)
Foreign............................................ (5.1) (2.4) 6.2
------- ---- ------
$(158.1) $1.6 $(51.4)
======= ==== ======
</TABLE>

F-14
<PAGE>

SYSTEM SOFTWARE ASSOCIATES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The provision for income taxes consists of the following:

<TABLE>
<CAPTION>
Year Ended October
31,
---------------------
1998 1997 1996
------ ----- ------
(in millions)
<S> <C> <C> <C>
Current:
Federal............................................ $ -- $ 1.6 $ (8.3)
State.............................................. -- -- (2.8)
Foreign............................................ 4.0 2.1 5.3
------ ----- ------
4.0 3.7 (5.8)
------ ----- ------
Deferred:
Federal............................................ (31.4) (2.9) (11.5)
State.............................................. (2.0) (0.2) (0.8)
Foreign............................................ -- -- (0.5)
------ ----- ------
(33.4) (3.1) (12.8)
------ ----- ------
$(29.4) $ 0.6 $(18.6)
====== ===== ======
</TABLE>

In addition to taxes incurred on foreign operations, the Company is subject
to and includes foreign taxes on net remittances from foreign Affiliates as a
component in its provision for foreign income taxes. No domestic provision has
been recorded for unremitted earnings of foreign subsidiaries as it is
anticipated that any U.S. income taxes on distributions of earnings not
permanently reinvested will be offset by foreign tax credits.

A reconciliation of taxes based on the federal statutory rate and the
Company's actual provision is as follows:

<TABLE>
<CAPTION>
Year Ended October
31,
--------------------
1998 1997 1996
------ ---- ------
(in millions)
<S> <C> <C> <C>
Income tax at the federal statutory rate........... $(55.4) $0.5 $(18.0)
State income taxes, net of federal benefit......... (2.2) 0.2 (1.3)
Foreign operating losses........................... 5.8 2.9 (0.3)
Research and development tax credit................ (0.8) (1.0) (1.2)
Meals and entertainment............................ 0.6 0.7 1.1
Restructuring expense with no tax benefit.......... 20.7 -- --
Other, net......................................... 1.9 (2.7) 1.1
------ ---- ------
$(29.4) $0.6 $(18.6)
====== ==== ======
</TABLE>

F-15
<PAGE>

SYSTEM SOFTWARE ASSOCIATES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The net deferred tax balance is comprised of (asset) liability:

<TABLE>
<CAPTION>
Year Ended
October 31,
--------------
1998 1997
------ ------
(in millions)
<S> <C> <C>
Revenue (net of commissions) recognized for tax purposes
in advance of financial reporting...................... $ (6.2) $ (6.9)
Capitalization of software costs for financial reporting
purposes............................................... 32.5 33.7
Provision for doubtful accounts......................... (4.6) (4.6)
Rent expense for financial reporting purposes........... (0.8) (1.1)
Expense recognized for financial reporting purposes in
advance of tax......................................... (17.1) (4.7)
Deferred gain........................................... (1.6) (1.6)
Domestic credit carryforwards........................... (1.4) (1.4)
Foreign carryforwards................................... (15.6) (8.1)
Foreign tax credit carryforwards........................ (11.0) (11.0)
Research and development credit carryforwards........... (4.4) (3.6)
Domestic net operating loss carryforwards............... (35.5) (15.0)
Valuation allowance..................................... 20.7 13.1
Other, net.............................................. (2.8) (3.2)
------ ------
$(47.8) $(14.4)
====== ======
</TABLE>

At October 31, 1998, the Company has approximately $40.2 million of foreign
net operating loss carryforwards, $94.1 million of domestic net operating loss
carryforwards, and $11.0 million of foreign tax credit carryforwards and $5.8
million of domestic tax credit carryforwards. At October 31, 1998 and October
31, 1997, the Company recorded valuation allowances related to these items of
$20.7 million and $13.1 million, respectively. The Company recognizes certain
deferred tax assets based upon Management's assessment that these assets will
"more likely than not" be recognized in the future in accordance with SFAS
109, "Accounting for Income Taxes". This assessment is based primarily on
estimates of future operating results.

Of the $40.2 million of foreign net operating loss carryforwards, $16.6
million expire in varying amounts through the fiscal year ending October 31,
2005, and $23.6 million may be carried forward indefinitely. Of the $94.1
million of domestic net operating loss carryforwards, $31.0 million expire on
October 31, 2011, $9.0 million expire on October 31, 2012, and $54.1 million
expire on October 31, 2018. The $11.0 million of the foreign tax credit
carryforwards expire in varying amounts through the fiscal year ending on
October 31, 2001. Of the $5.8 million of domestic tax credit carryforwards,
$1.4 million expire in varying amounts through the fiscal year ending on
October 31, 2002, and $4.4 million expire in varying amounts through October
31, 2013.

During 1998, 1997, and 1996 certain employees disposed of shares acquired
through the exercise of stock options that allowed the Company to record
additional compensation expense for tax purposes measured as the difference
between the fair value of the stock and the option price at the date of
exercise. The aggregate tax benefit to the Company of $0.2 million, $0.5
million, and $1.2 million, respectively, has been credited to capital in
excess of par value.

NOTE 8--Redeemable Series A Preferred Stock:

On August 29, 1997, the Company issued 10,000 shares of Series A Preferred
Stock and 600,000 common stock purchase warrants to a private investor for
$10.0 million. The shares of Series A Preferred Stock have an initial
liquidation preference of $1,000 per share, increasing to $3,500 per share on
or after the earliest of (i)

F-16
<PAGE>

SYSTEM SOFTWARE ASSOCIATES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

August 22, 2003, (ii) a change in control and (iii) certain bankruptcy events
(such event, a "Trigger Event") (such liquidation preference as from time to
time in effect, the "Liquidation Price"). The Series A Preferred Stock accrue
dividends, payable quarterly in arrears, at an annual rate of 12% of the
Liquidation Price per share, which increases to 14% of the Liquidation Price
per share upon a Trigger Event. The dividend rate will increase by 4% per
annum upon the occurrence and during the continuance of any payment default or
certain other material defaults as described in the purchase agreement.

The Redeemable Series A Preferred Stock has a beneficial conversion feature
because the fair market value of the Company's stock was in excess of its per
share conversion price at the date of issuance. The value of the beneficial
conversion feature of $2.2 million was recorded in 1997 as an increase to
capital in excess of par value and a decrease to retained earnings (preferred
dividend).

Each share of Series A Preferred Stock is convertible at the holder's
option at any time into 80.4 shares of Common Stock (subject to proportional
and broad-based weighted average anti-dilution).

The Series A Preferred Stock may be redeemed at the option of the holders
thereof at any time (i) on or after August 31, 2003 or (ii) following the
occurrence and continuance of a Redemption Event (as defined below) at a
redemption price equal to the greater of $1,000 per share, plus accrued and
unpaid dividends, or the amount that such holder would have received had such
holder converted the Series A Preferred Stock into Common Stock immediately
prior to the liquidation of the Company. The Series A Preferred Stock may be
redeemed by the Company at any time after the occurrence of a Trigger Event at
a redemption price equal to $3,500 per share, plus accrued and unpaid
dividends.

Upon the occurrence of certain events, including payment defaults, covenant
defaults in the purchase agreement, cross defaults to acceleration of other
material indebtedness, bankruptcy and a change in control (each, a "Redemption
Event"), the holders of the Series A Preferred Stock may require the Company
to redeem their shares of Series A Preferred Stock at a redemption price equal
to the greater of $1,000 per share, plus accrued and unpaid dividends or the
amount that such holder would have received had such holder converted the
Series A Preferred Stock into Common Stock immediately prior to the
liquidation of the Company.

For so long as at least 2,500 shares of Series A Preferred Stock are
outstanding, the Company must comply with various covenants, including,
without limitation, maintenance of fixed charge coverage ratios on a rolling
four-quarter basis and total debt to capital, and restrictions on mergers,
consolidations, sales of assets, liens, payment of dividends and other
distributions to, and redemptions of, other classes of equity and limitations
on the issuance of additional debt (other than the Public Convertible
Subordinated Notes, up to $40.0 million in additional senior indebtedness and
certain other exceptions).

As a result of the third quarter $122.5 million restructuring and other
charge, the Company determined it would likely not meet the fixed charge
coverage ratio and debt to capital ratio at October 31, 1998. The Company
obtained a waiver on November 19, 1998. The fixed charge coverage ratio has
been waived for October 31, 1998 and January 31, 1999 and the Company must
resume compliance at April 30, 1999. The Company did not meet the debt to
capital ratio covenant at July 31, 1998 and obtained an extension of the cure
period until the debt to capital ratio provision was increased to a maximum of
86% effective November 1, 1998. The Company was in compliance with all other
covenants at October 31, 1998.

NOTE 9--Common Stock Purchase Warrants:

In January 1998, in consideration of certain long-term financial advisory
services, the Company agreed to sell to a financial advisor for a nominal
amount warrants to purchase from the Company up to 1,325,000 shares of Common
Stock (the "Financial Advisor Warrants"). The Financial Advisor Warrants are
initially exercisable

F-17
<PAGE>

SYSTEM SOFTWARE ASSOCIATES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

at $9.6875 per share, the fair market value at the date of the issuance and
may be exercised at any time or from time to time within a ten year period,
commencing on the warrant issue date. The fair value of the warrants of $2.8
million was recorded as an increase to capital in excess of par value and
other assets and is being amortized over the term of the advisory services to
be rendered.

In January 1998, the Company settled the Bain Investors' lawsuit. As part
of the settlement the Company issued to certain of the Bain Investors warrants
to purchase an aggregate of 300,000 shares of the Company's Common Stock,
which warrants are exercisable at $9.6875 per share, the fair market value at
the settlement date. The fair value of the warrants of $0.7 million was
recorded as an increase to capital in excess of par value and a special
charge.

On March 4, 1997, the Company issued warrants to purchase 775,000 shares of
common stock ("Warrants") as part of amendments to the Company's Line of
Credit and Senior Notes payable agreements. The Warrants are initially
exercisable at $10.32 per share and may be exercised for five years from the
date of issuance. The fair value of the warrants of $0.9 million was recorded
as an increase to capital in excess of par value and other current assets and
was amortized over the term of the amendments.

On August 29, 1997, the Company issued warrants to purchase 600,000 shares
of common stock (the "Private Warrants") to a private investor in connection
with the Company's issuance of Redeemable Series A Preferred Stock. Each
holder of a Private Warrant is entitled to purchase shares of Common Stock at
an exercise price equal to $15.125 per share, the fair market value at the
date of issuance of the warrants. The Private Warrants are exercisable at any
time until August 22, 2007. The fair value of the warrants of $0.8 million was
recorded as an increase to capital in excess of par value and a decrease to
Redeemable Series A Preferred Stock which is being accreted as preferred
dividends over six years beginning the date of issuance.

In consideration of certain financial advisory services performed during
1997, the Company agreed to sell to a financial advisor for a nominal amount
warrants to purchase from the Company up to 664,452 shares of Common Stock
(the "Financial Advisor Warrants"). The Financial Advisor Warrants are
initially exercisable at $18.06 per share and may be exercised for a period of
five years commencing on the first anniversary of the issuance of such
warrants. The fair value of the warrants of $0.9 million was recorded as an
increase to capital in excess of par value and a decrease to the Public
Convertible Subordinated Notes which is being accreted as interest expense
over five years beginning the date of issuance.

NOTE 10--Stock Options:

The Company has certain stock option plans and a long-term incentive plan
under which options to purchase shares of the Company's common stock, stock
appreciation rights, restricted stock, and cash awards may be granted to key
employees and non-employees of the Company and its Affiliates. In April 1997,
shareholders approved an amendment to the long-term incentive plan, increasing
the aggregate number of common shares to be available for grant to 4,500,000,
from a previous aggregate of 1,800,000, provided the aggregate number of
common shares which may be granted in one calendar year, to any one key
employee, shall not exceed 200,000 shares. The stock option and long-term
incentive plans provide that an aggregate of 9,056,250 common shares be
available for grant, subject to adjustments for stock splits, stock dividends,
mergers, or other changes in capitalization. Options become exercisable in
varying periods (typically 4 to 5 years) and are priced by the Board of
Directors, but may not be less than 50% of the fair market value of the shares
at the date of grant. All options granted during 1998, 1997, and 1996 were
granted at fair market value.

The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its plans. Accordingly, no compensation cost has been
recognized for its fixed stock option plans. Had compensation cost for the
Company's stock option plans been determined consistent with FASB Statement of
Financial Accounting

F-18
<PAGE>

SYSTEM SOFTWARE ASSOCIATES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Standards No. 123 ("FAS 123"), the Company's net income (loss) available to
common stockholders and earnings (loss) per share of common stock would have
been reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
1998 1997 1996
------- ------ ------
(in millions except
per share data)
<S> <C> <C> <C> <C>
Net income (loss) available for common
stockholders.......................... As Reported $(130.0) $ (1.4) $(32.8)
Pro Forma $(132.2) $ (4.0) $(33.7)
Basic and diluted earnings (loss) per
share of common stock................. As Reported $ (2.80) $(0.03) $(0.76)
Pro Forma $ (2.84) $(0.09) $(0.78)
</TABLE>

Under the stock option plans, the exercise price of each option equals the
market price of the Company's common stock on the date of grant. For purposes
of calculating the compensation cost consistent with FAS 123, the fair value
of each option grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions used for
grants in fiscal 1998: risk free interest rate of 5.0%; expected life of 4.5
years; expected volatility of 53%; and no dividends expected to be paid. The
weighted-average assumptions used in fiscal 1997 and 1996 are as follows: risk
free interest rate of 6.3%; expected life of 5.5 years; expected volatility of
53%; and no dividends expected to be paid.

The following is a summary of 1998, 1997 and 1996 stock option activity:

<TABLE>
<CAPTION>
Available Weighted Average
for grant Unexercised Exercisable Exercise Price
---------- ----------- ----------- ----------------
<S> <C> <C> <C> <C>
Balance, October 31,
1995................... 508,844 2,284,571 677,253 $ 8.19
---------- ---------- -------- ------
Granted................. (1,468,001) 1,468,001 14.22
Becoming exercisable.... 393,822 7.52
Cancelled............... 1,384,237 (1,384,237) (191,211) 17.71
Exercised............... (275,906) (275,906) 7.64
---------- ---------- -------- ------
Balance, October 31,
1996................... 425,080 2,092,429 603,958 8.04
---------- ---------- -------- ------
Authorized.............. 2,700,000
Granted................. (3,105,569) 3,105,569 6.36
Becoming exercisable.... 403,679 4.27
Cancelled............... 1,995,296 (1,995,296) (106,289) 9.67
Exercised............... (290,698) (290,698) 5.77
---------- ---------- -------- ------
Balance, October 31,
1997................... 2,014,807 2,912,004 610,650 5.50
---------- ---------- -------- ------
Granted................. (1,389,510) 1,389,510 6.33
Becoming exercisable.... 533,699 5.40
Cancelled............... 1,012,748 (1,012,748) (92,102) 6.23
Exercised............... (325,047) (325,047) 3.97
---------- ---------- -------- ------
Balance, October 31,
1998................... 1,638,045 2,963,719 727,200 $ 5.84
========== ========== ======== ======
</TABLE>

The weighted-average fair values of options granted during 1998, 1997 and
1996 are $2.30, $3.46, and $7.85, respectively.

F-19
<PAGE>

SYSTEM SOFTWARE ASSOCIATES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The following table summarizes information about the stock options
outstanding as of October 31, 1998:

<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------- -----------------------
Weighted
Average
Remaining Weighted Weighted
Range of Contractual Average Average
Exercise Number Life Exercise Number Exercise
Prices of Shares (Years) Price Exercisable Price
-------- --------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$1 to 5 2,151,719 8.1 $ 5 572,050 $ 5
$6 to 10 723,000 8.2 8 147,950 8
$11 to 15 89,000 9.0 14 7,200 14
--------- --- --- ------- ---
$1 to 15 2,963,719 8.2 $ 6 727,200 $ 5
========= === === ======= ===
</TABLE>

NOTE 11--Employee Stock Purchase Plans:

On October 1, 1997 the Company established Qualified and Non-Qualified
Employee Stock Purchase Plans ("Stock Purchase Plans") for all eligible U.S.
employees. On April 17, 1998, participation in the Stock Purchase Plan was
extended to all eligible UK employees. An aggregate of 2.0 million shares of
the Company's common stock (subject to adjustments for stock splits, dividends
or other relevant changes in the Company's capitalization) may be sold
pursuant to the Stock Purchase Plans. The Stock Purchase Plans enable
employees to purchase, through payroll deductions, the Company's common stock
at the lesser of 90% (subject to adjustment, but not less than 85%) of the
market value on the first day of each month or the market value on the
purchase date. During 1998, the Company issued 138,400 shares under this plan.

F-20
<PAGE>

SYSTEM SOFTWARE ASSOCIATES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

NOTE 12--Foreign Information:

Information regarding geographic areas for the years ended October 31,
1998, 1997, and 1996 is as follows:

<TABLE>
<CAPTION>
United Europe
States Middle East Other Eliminations Total
------- ----------- ------ ------------ -------
(in millions)
<S> <C> <C> <C> <C> <C>
Year Ended October 31, 1998
Sales to unaffiliated
customers................ $ 157.0 $167.7 $130.2 $(34.1) $ 420.8
Operating income (loss)... $(172.4) $ 10.9 $ 13.3 -- $(148.2)
Identifiable assets....... $ 176.7 $112.5 $134.5 $(62.9) $ 360.8
======= ====== ====== ====== =======
Year Ended October 31, 1997
Sales to unaffiliated
customers................ $ 208.8 $160.3 $122.3 $(60.9) $ 430.5
Operating income (loss)... $ 30.0 $(16.9) $ 9.8 -- $ 22.9
Identifiable assets....... $ 304.6 $118.5 $117.3 $(65.0) $ 475.4
======= ====== ====== ====== =======
Year Ended October 31, 1996
Sales to unaffiliated
customers................ $ 164.9 $113.8 $ 95.0 $(32.9) $ 340.8
Operating income (loss)... $ (17.4) $(26.6) $(14.8) -- $ (58.8)
Identifiable assets....... $ 234.9 $ 98.6 $107.2 $(56.3) $ 384.4
======= ====== ====== ====== =======
</TABLE>

The sales and operating income (loss) amounts reflected above include
intercompany royalties, which are eliminated.

United States sales by geographical areas during the years ended October
31, 1998, 1997, and 1996 are as follows:

<TABLE>
<CAPTION>
Foreign
---------------------------------
Europe Asia Canada
United States Middle East Pacific Latin America Total
------------- ----------- ------- ------------- ------
(in millions)
<S> <C> <C> <C> <C> <C>
Year Ended October 31,
1998................... $135.3 $ 9.6 $ 4.9 $7.2 $157.0
Year Ended October 31,
1997................... $151.6 $37.9 $14.7 $4.6 $208.8
Year Ended October 31,
1996................... $143.1 $13.0 $ 4.3 $4.5 $164.9
</TABLE>

NOTE 13--Commitments and Contingencies:

The Company leases its office space and certain equipment under
noncancelable operating leases that expire at various dates through 2015. Rent
expense under such leases aggregated approximately $24.4 million, $28.1
million and $24.1 million during 1998, 1997 and 1996, respectively. Minimum
annual rental commitments under noncancelable operating leases for periods
subsequent to October 31, 1998 are as follows: $21.0 million in 1999, $14.5
million in 2000, $10.6 million in 2001, $9.6 million in 2002, $9.6 million in
2003 and $35.8 million in 2004 and thereafter.

F-21
<PAGE>

SYSTEM SOFTWARE ASSOCIATES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

associated common laws. The lawsuits name the Company and several of its
officers and directors as defendants, and allege violations of securities
laws, fraud and negligence, stemming from circumstances which resulted in the
restatement of the Company's financial statements for 1994 and 1995. The
complaints do not specify the amounts of damages sought.

The Company has executed a settlement agreement with the class plaintiffs
in the Illinois state court action titled Steinberg v. SSA, 97 CH 287 (the
"Settlement"). The Company paid $1.7 million in cash and an officer defendant
has contributed 100,000 shares of Common Stock. The presiding judge in the
Illinois case approved the Settlement on September 30, 1997. Certain
individual objectors to the Settlement appealed the fairness of the
Settlement. The Appellate Court has heard oral arguments but has yet to rule.
There can be no assurance that the Settlement will not be overturned or
opposed or that it will legally bar the federal claims described above. In
addition, even if the Settlement bars the federal claims as described above,
because the class period of the federal claims is slightly larger than the
class period of the state claim and one defendant was named in the Federal
action that was not a defendant in the State action, the Settlement may not
result in the dismissal of the entire federal action. The failure to achieve a
dismissal of any of these actions or the failure to settle them on
sufficiently advantageous terms could have a material adverse effect on the
business, operating results and financial condition of the Company.

F-22
<PAGE>

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS
(in millions)

<TABLE>
<CAPTION>
Deductions--
Balance at Additions charged write-
beginning of to costs and offs and other Balance at end
period expenses adjustments of period
------------ ----------------- -------------- --------------
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts
Year ended October 31,
1998................. $ 16.5 $ 21.1 $(21.1) $16.5
Year ended October 31,
1997................. $ 16.5 $ 3.3 $ (3.3) $16.5
Year ended October 31,
1996................. $ 12.5 $ 9.3 $ (5.3) $16.5
</TABLE>

F-23
<PAGE>

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S> <C>
3.1 Certificate of Incorporation, as amended to date............... (1)
3.2 Amendment to Certificate of Incorporation, June 6, 1997........ (2)
3.3 By-Laws, as amended to date.................................... (3)
3.4 Certificate of Designations for Series A Preferred Stock....... (2)
4.1 Form of Indenture between the Company and Harris Trust and
Savings Bank, as Trustee....................................... (2)
4.2 Form of Note (included in Exhibit 4.1).........................
10.8 Incentive Stock Option Plan.................................... (4)
10.12 Office Lease Northwestern Atrium Center, Chicago, Illinois,
dated July 1, 1987 (the "Chicago Lease")....................... (1)
10.15 Non-Qualified Stock Option Plan................................ (5)
10.16 SSA Incentive Savings Plan effective May 1, 1986 as amended and
restated November 1, 1988...................................... (6)
10.24 Agreement dated August 27, 1990 between the Registrant and
Ameritech Information Systems, Inc. ("Ameritech").............. (7)
10.25 Letter Agreement dated August 27, 1990 among the Registrant,
Ameritech and Northwestern Atrium Center Associates L.P........ (7)
10.31 Long-Term Incentive Plan....................................... (8)
10.38 Letter Agreement dated August 12, 1994 between the Registrant
and Joseph J. Skadra........................................... (9)
10.45 Amendment to Long Term Incentive Plan.......................... (10)
10.46 Agreement dated July 10, 1998 between the Registrant and Roger
Covey..........................................................
10.47 Amendment and Restated Employment Agreement dated October 16,
1998 between the Registrant and William M. Stuek...............
10.48 Agreement dated April 27, 1998 between the Registrant and Larry
Zimmerman......................................................
21.1 Subsidiaries of the Registrant.................................
23.1 Consent of KPMG LLP, Independent Auditors......................
27 Financial Data Schedule........................................
</TABLE>
- - --------
(1) Incorporated by reference from the Registrant's Form 10-K Annual Report
for the fiscal year ended October 31, 1987.
(2) Incorporated by reference from the Registrant's Form S-3 Registration
Statement effective September 8, 1997 (File No. 333-31271).
(3) Incorporated by reference from the Registrant's Form 10-K Annual Report
for the fiscal year ended October 31, 1989.
(4) Incorporated by reference from the Registrant's Form S-1 Registration
Statement effective February 12, 1987 (File No. 33-10920).
(5) Incorporated by reference from the Registrant's Form S-8 Registration
Statement filed on October 4, 1988 (File No. 33-24516).
(6) Incorporated by reference from the Registrant's Form 10-K Annual Report
for the fiscal year ended October 31, 1988.
(7) Incorporated by reference from the Registrant's Form 10-K Annual Report
for the fiscal year ended October 31, 1990.
(8) Incorporated by reference from the Registrant's Form 10-K Annual Report
for the fiscal year ended October 31, 1991.
(9) Incorporated by reference from the Registrant's 10-K Annual Report for
the fiscal year ended October 31, 1994.
(10) Incorporated by reference from the Registrant's definitive Proxy
Statement filed on March 13, 1998.

<PAGE>

EXHIBIT 10.46
-------------

AGREEMENT
---------

THIS AGREEMENT (the "AGREEMENT ") is made and entered into as of this
10th day of July, 1998, by and between System Software Associates, Inc., a
Delaware corporation, and its subsidiaries and affiliates (collectively, the
"COMPANY"), and Roger E. Covey (the "EXECUTIVE ").

FOR VALUABLE CONSIDERATION, the receipt and sufficiency of which is
hereby acknowledged, the parties agree as follows:

1. Termination of Employment. Effective the close of business on April
6, 1998, the Executive and the Company agree that the Executive's employment
with the Company terminated. Prior to his termination of employment, the Company
had agreed to compensate him for the surrender of the Executive's right and
option to purchase 200,000 shares under the Company's Long-Term Incentive Plan
(which option the Executive acknowledges was canceled in or around March 24,
1997), and to provide him with additional compensation in consideration of his
long and valuable service to the Company.

2. Compensation Payment. As a compensation payment, the Company shall
pay the Executive the sum of $2,113,000, payable in one single sum payment
within ten (10) calendar days from the date this Agreement is executed. The
payment made hereunder shall be subject to customary withholding and other
employment taxes. This payment is not subject to offset or recision for any
reason and represents all compensation from the Company for stock and options
that the Company is obligated to pay the Executive. The Executive agrees that he
has been paid all wages and bonuses which are or may be due and payable from the
Company.

3. General Release.

(a) As a material inducement to the Company to enter into this
Agreement and in consideration of the payment to be made by the Company to the
Executive in Paragraph 2 above, the Executive, with full understanding of the
contents and legal effect of this Agreement, and having the right and
opportunity to consult with his counsel and consider this release for twenty-one
(21) days (and, from the date this Agreement is executed, being given seven (7)
days to revoke his acceptance of this release), releases and discharges the
Company, its stockholders, officers, directors, supervisors, managers,
employees, agents, representatives, attorneys, divisions, subsidiaries and
affiliates, and its and their predecessors, successors, heirs, executors,
administrators, and assigns (collectively, the "COMPANY RELEASED PARTIES") from
any and all claims, actions, causes of action, grievances, suits, charges, or
complaints of any kind or nature whatsoever, that he ever had or now has,
whether fixed or contingent, liquidated or unliquidated, known or unknown,
suspected or unsuspected, and whether arising in tort, contract, statute, or
equity, before any federal, state, local, or private court, agency, arbitrator,
mediator, or other entity, regardless of the relief or remedy. Without limiting
the generality of the foregoing, it being the intention of the parties to make
this Agreement as broad and as general as the law permits, this Agreement
specifically includes any and all claims arising from any alleged violation by
the
<PAGE>

Company Released Parties under the Age Discrimination in Employment Act of 1967,
as amended; Title VII of the Civil Rights Act of 1964, as amended; the Civil
Rights Act of 1866, as amended by the Civil Rights Act of 1991 (42 U.S.C. ss.
1981); the Rehabilitation Act of 1973, as amended; the Employee Retirement
Income Security Act of 1974, as amended; the Illinois Wage Payment and
Collection Act; the Illinois Human Rights Act, the Cook County Human Rights
Ordinance, the Chicago Human Rights Ordinance, and other similar state or local
laws; the Americans with Disabilities Act; the Family and Medical Leave Act; the
Equal Pay Act; Executive Order 11246; Executive Order 11141; and any other
statutory claim, employment or other contract claim or implied contract claim,
or common law claim for wrongful discharge, defamation, or invasion of privacy
arising out of or involving his employment or engagement with the Company, the
termination of his employment or engagement with the Company, or involving any
continuing effects of his employment or engagement with the Company or
termination of his employment or engagement with the Company. The Executive
further acknowledges that he is aware that statutes exist that render null and
void releases and discharges of any claims, rights, demands, liabilities, action
and causes of action which are unknown to the releasing or discharging party at
the time of execution of the release and discharge. The Executive hereby
expressly waives, surrenders and agrees to forego any protection to which he
otherwise would be entitled by virtue of the existence of any such statute in
any jurisdiction including, but not limited to, the State of Illinois. The
foregoing notwithstanding, this Paragraph 3(a) does not release the Company
Released Parties from any claims the Executive may have with respect to the
enforcement of the terms of this Agreement or based upon events arising after
the execution of this Agreement.

(b) As a material inducement to the Executive to enter into
this Agreement and in consideration of his releases and other items of value
provided by him hereunder, the Company, on behalf of itself and all of the
Company Released Parties, with full understanding of the contents and legal
effect of this Agreement, and having the right and opportunity to consult with
its counsel, releases and discharges the Executive and his successors, heirs,
executors, administrators, representatives and assigns (collectively, the
"EXECUTIVE RELEASED PARTIES") from any and all claims, actions, causes of
action, grievances, suits, charges, or complaints of any kind or nature
whatsoever, that it and/or they ever had or now has or have, whether fixed or
contingent, liquidated or unliquidated, known or unknown, suspected or
unsuspected, and whether arising in tort, contract, statute, or equity, before
any federal, state, local, or private court, agency, arbitrator, mediator, or
other entity, regardless of the relief or remedy. Without limiting the
generality of the foregoing, it being the intention of the parties to make this
Agreement as broad and as general as the law permits, this Agreement
specifically includes any and all claims arising from any alleged violation by
the Executive Released Parties under any statute, law, ordinance, regulation, or
contract, and any other statutory claim, employment or other contract claim or
implied contract claim, or common law claim for defamation, or invasion of
privacy, or arising out of or involving his employment or engagement with the
Company, the termination of his employment or engagement with the Company, or
involving any continuing effects of his employment or engagement with the
Company or termination of his employment or engagement with the Company. The
Company, on behalf of the Company Released Parties, further acknowledges that it
and they are aware that statutes exist that render null and void releases and
discharges of any claims, rights, demands, liabilities, action and causes of
action which are unknown to the releasing or discharging party at the time of
execution of the release and discharge. The Company, on behalf of itself and the

2
<PAGE>

Company Released Parties, hereby expressly waives, surrenders and agrees to
forego any protection to which it or they otherwise would be entitled by virtue
of the existence of any such statute in any jurisdiction including, but not
limited to, the State of Illinois. The foregoing notwithstanding, this Paragraph
3(b) does not release the Executive Released Parties from any claims the Company
may have with respect to the enforcement of the terms of this Agreement or based
upon events arising after the execution of this Agreement.

4. Covenant Not to Sue.
--------------------

(a) The Executive, for himself, his heirs, executors,
administrators, successors and assigns covenants and agrees not to bring, file,
charge, claim, sue or cause, assist, or permit to be brought, filed, charged or
claimed any action, cause of action, or proceeding based upon any of the claims
released under Paragraph 3(a) hereof, and further covenants and agrees that this
Agreement is, will constitute and may be pleaded as, a bar to any such claim,
action, cause of action or proceeding. If any government agency or court assumes
jurisdiction of any charge, complaint, or cause of action released by this
Agreement, the Executive will not seek and will not accept any personal
equitable or monetary relief in connection with such investigation, civil
action, suit or legal proceeding.

(b) The Company, on behalf of all the Company Released
Parties, covenants and agrees not to bring, file, charge, claim, sue or cause,
assist, or permit to be brought, filed, charged or claimed any action, cause of
action, or proceeding based upon any of the claims released under Paragraph 3(b)
hereof, and further covenants and agrees that this Agreement is, will constitute
and may be pleaded as, a bar to any such claim, action, cause of action or
proceeding. If any government agency or court assumes jurisdiction of any
charge, complaint, or cause of action released by this Agreement, the Company
and the Company Released Parties will not seek and will not accept any equitable
or monetary relief in connection with such investigation, civil action, suit or
legal proceeding.

5. Miscellaneous Provisions. Both parties agree that they will
keep the terms and amounts set forth in this Agreement completely confidential
and, other than as required by statute, regulation, a court of competent
jurisdiction, or the rules of any governmental agency, will not disclose any
information concerning this Agreement's terms and amounts to any person other
than each party's attorneys, accountants, tax advisors, or (if disclosed by the
Executive) his immediate family.

6. Complete Agreement. This Agreement sets forth the entire
agreement between the parties, and fully supersedes any and all prior agreements
or understandings between the parties pertaining to his rights and options under
the Long-Term Incentive Plan or any rights he may have with respect to options
or shares of the Company.

7. Future Cooperation. The Executive agrees to execute any
Company minutes and/or resolutions approved or adopted by the Company on or
before April 6, 1998 and not yet executed by him to the extent such minutes
and/or resolutions accurately reflect actions approved or adopted by the
Company.

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<PAGE>

8. Amendment. This Agreement may not be altered, amended, or
modified except in writing signed by both the Executive and the Company.

9. Applicable Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Illinois, and any court
action commenced to enforce this Agreement shall have as its sole and exclusive
venue the County of Cook, Illinois.

10. Execution of Agreement. This Agreement may be executed in
several counterparts, each of which shall be considered an original, but which
when taken together, shall constitute one Agreement.

IN WITNESS WHEREOF, the Executive and the Company have voluntarily
signed this Agreement consisting of four (4) pages on the date set forth above.

System Software Associates, Inc. Roger E. Covey

By: /s/ William M. Stuek /s/ Roger E. Covey
---------------------------- ------------------------
Its: Chairman & C.E.O
---------------------------

<PAGE>

Exhibit 10.47

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "AGREEMENT"), made
and entered into effective as of the 16th day of October, 1998 (the "EFFECTIVE
DATE") by and between System Software Associates, Inc., a Delaware corporation
(the "EMPLOYER"), and William M. Stuek (the "EXECUTIVE"), is an amendment and
restatement of the employment agreement by and between the Employer and the
Executive that was entered into as of the 5th day of January, 1998 (the "PRIOR
AGREEMENT").

RECITALS

A. The Employer and the Executive desire to amend, revise and
restate the Prior Agreement.

B. The Employer desires that the Executive continue to provide
services for the benefit of the Employer and its affiliates and the Executive
desires to accept such continued employment with the Employer under the revised
terms and conditions set forth herein.

C. The Employer and the Executive acknowledge that the Executive
will continue to be a member of the senior management team of the Employer and,
as such, will continue to participate in creating and implementing the
Employer's business plan.

D. In the course of employment with the Employer, the Executive
will continue to have access to certain confidential information that relates to
or will relate to the business of the Employer and its affiliates.

E. The Employer desires that any such information not be
disclosed to other parties or otherwise used for unauthorized purposes.

NOW, THEREFORE, in consideration of the above premises and the
following mutual covenants and conditions, the parties agree as follows:

1. Employment. The Employer shall continue to employ the
Executive as its Chief Executive Officer and Chairman of the Board of Directors
(the "BOARD"), which positions the Executive assumed on April 6, 1998. The
Executive hereby accepts such continued employment on the following terms and
conditions.

2. Duties. The Executive shall work for the Employer in a
full-time capacity. The Executive shall have the duties, responsibilities,
powers, and authority customarily associated with the position of Chief
Executive Officer and Chairman, which duties shall include, but not be limited
to, responsibility for all field-related activities on a worldwide basis,
including all sales, marketing, services and other relationships, as well as
responsibility for the overall financial operations of the Employer and selected
research and development activities of the Employer.
<PAGE>

The Executive shall report to, and follow the direction of the Board. In
addition to, or in lieu of, the foregoing, the Executive also shall perform such
other and unrelated services and duties as may be assigned to him from time to
time by the Board. The Executive shall diligently, competently, and faithfully
perform all duties, and shall devote his entire business time, energy,
attention, and skill to the performance of duties for the Employer or its
affiliates and will use his best efforts to promote the interests of the
Employer. It shall not be considered a violation of the foregoing for the
Executive to serve on corporate, industry, civic, religious, or charitable
boards or committees, so long as such activities do not significantly interfere
with the performance of the Executive's responsibilities as an employee of the
Employer in accordance with this Agreement.

3. Executive Loyalty. The Executive shall devote all of his time,
attention, knowledge, and skill solely and exclusively to the business and
interests of the Employer, and the Employer shall be entitled to all benefits
and profits arising from or incident to any and all work, services, and advice
of the Executive. The Executive expressly agrees that during the term of this
Agreement, he shall not engage, directly or indirectly, as a partner, officer,
director, stockholder, advisor, agent, employee, or in any other form or
capacity, in any other business similar to that of the Employer. The foregoing
notwithstanding, nothing herein contained shall be deemed to prevent the
Executive from investing his money in the capital stock or other securities of
any corporation whose stock or securities are publicly-owned or are regularly
traded on any public exchange, nor shall anything herein contained be deemed to
prevent the Executive from investing his money in real estate.

4. Term of Employment. Unless sooner terminated as hereinafter
provided, this Agreement shall be entered into for the period commencing on the
Effective Date and ending on January 4, 2003.

5. Compensation.

A. Salary. The Employer shall pay the Executive an
annual salary of $500,000, payable in substantially equal installments in
accordance with the Employer's payroll policy from time to time in effect. The
Executive's salary shall be subject to any payroll or other deductions as may be
required to be made pursuant to law, government order, or by agreement with, or
consent of, the Executive.

B. Incentive Bonus. The Executive shall participate in
an annual bonus program, which program shall provide the Executive with an
opportunity to achieve a targeted annual bonus of up to $500,000. The actual
terms and conditions of the annual bonus program shall be established by the
Employer, with input from the Executive, shall be memorialized in a written
document to be prepared by the Employer and which will be incorporated herein by
reference, and will provide for the payment of an annual bonus hereunder if the
Employer achieves specified company-wide objectives and if the Executive
achieves specified personal management objectives. All such objectives shall be
agreed upon by the Executive and the Board prior to the beginning of each fiscal
year of the Employer. Any bonus earned hereunder

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<PAGE>

shall be payable no later than sixty (60) days following the end of the
Employer's fiscal year in which the bonus is earned.

C. Stock Options. Effective on the date hereof, the
Employer shall grant the Executive an option to purchase one million four
hundred forty thousand (1,440,000) shares of the common stock of the Employer.
Two hundred thousand (200,000) of such shares shall be granted in accordance
with and pursuant to the terms of the Employer's Long-Term Incentive Plan. The
grant of such stock option has been memorialized in the Option Agreement
attached hereto as Exhibit A. One million two hundred forty thousand (1,240,000)
of such shares shall be granted in accordance with and pursuant to the terms of
the Option Agreement attached hereto as Exhibit B. In consideration of the
options granted pursuant to this Paragraph 5C, the Executive agrees and
acknowledges that he has surrendered, and the Employer has canceled, both the
option to purchase three hundred thousand (300,000) shares of the Employer's
common stock, which had been granted to him under the Employer's Long-Term
Incentive Plan pursuant to the Prior Agreement, and the option to purchase three
hundred thousand (300,000) shares of the Employer's common stock, which option
was to be granted to the Executive upon his appointment as Chief Executive
Officer of the Employer.

D. Engagement Bonus. The Executive acknowledges that he
has received a one-time engagement bonus in the amount of $1,583,000 in
recognition of his execution of the Prior Agreement and his resignation from IBM
prior to March 31, 1998 and in lieu of the engagement bonus set forth in
Paragraph 5E of the Prior Agreement.

E. Other Benefits. During the term of this Agreement, the
Employer shall:

(1) include the Executive in any life insurance
(including, but not limited to, a term life insurance
policy for the Executive with a death benefit of
$3,000,000 and with the beneficiary(ies) to be
designated by the Executive), disability insurance,
medical, dental or health insurance, vacation,
savings, pension and retirement plans and other
benefit plans or programs (including, if applicable,
any excess benefit or supplemental executive
retirement plans) maintained by the Employer for the
benefit of its executives; and

(2) include the Executive in such perquisites as
the Employer may establish from time to time that are
commensurate with his position and at least comparable
to those received by other executives of the Employer.

6. Expenses. The Employer shall reimburse the Executive for all
reasonable and approved business expenses, provided the Executive submits paid
receipts or other documentation acceptable to the Employer and as required by
the Internal Revenue Service to qualify as ordinary and necessary business
expenses under the Internal Revenue Code of 1986, as amended (the "CODE").

7. Termination. Notwithstanding anything in Paragraph 4 of this
Agreement to the contrary, the Executive's services shall terminate upon the
first to occur of the following events:

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<PAGE>

A. Upon the Executive's date of death or the date the
Executive is given written notice that he has been determined to be disabled by
the Employer. For purposes of this Agreement, the Executive shall be deemed to
be disabled if the Executive, as a result of illness or incapacity, shall be
determined to be disabled in accordance with the terms of the Employer's
Long-Term Disability Plan, as in effect from time to time. A termination of the
Executive's employment by the Employer for disability shall be communicated to
the Executive by written notice and shall be effective on the tenth (10th)
calendar day after receipt of such notice by the Executive, unless the Executive
returns to full-time performance of his duties before such tenth (10th) calendar
day.

B. On the date the Employer provides the Executive with
written notice that he is being terminated for "Cause." For purposes of this
Agreement, the Executive shall be deemed terminated for Cause if the Employer
terminates the Executive after the Executive:

(1) shall have been indicted (or the equivalent
thereof) for any felony including, but not limited to,
a felony involving fraud, theft, misappropriation,
dishonesty, or embezzlement;

(2) shall have committed intentional acts of
gross misconduct that materially impair the goodwill
or business of the Employer or cause material damage
to its property, goodwill, or business; or

(3) shall have refused to, or willfully failed
to, perform his material duties hereunder, provided,
however, that no termination under this subparagraph
(3) shall be effective unless the Executive does not
cure such refusal or failure to the Employer's
satisfaction as soon as practicable after the Employer
gives the Executive written notice identifying such
refusal or failure (and, in any event, within thirty
(30) calendar days after receipt of such written
notice).

No act or failure to act on the part of the Executive shall be considered
"willful" unless it is done, or omitted to be done, by the Executive in bad
faith or without reasonable belief that his action or omission was in the best
interests of the Employer. A termination of the Executive's employment for Cause
shall be effected in accordance with the following procedures. The Employer
shall give the Executive written notice ("NOTICE OF TERMINATION FOR CAUSE") of
its intention to terminate the Executive's employment for Cause, setting forth
in reasonable detail the specific conduct of the Executive that it considers to
constitute Cause and the specific provision(s) of this Agreement on which it
relies, and stating the date, time and place of the Board Meeting for Cause. The
"BOARD MEETING FOR CAUSE" means a meeting of the Board at which the Executive's
termination for Cause will be considered, that takes place not less than ten
(10) and not more than twenty (20) business days after the Executive receives
the Notice of Termination for Cause. The Executive shall be given an
opportunity, together with counsel, to be heard at the Board Meeting for Cause.
The Executive's termination for Cause shall be effective when and if a
resolution is duly adopted at the Board Meeting for Cause by a majority vote of
the entire membership of the Board (exclusive of the Executive, who shall recuse
himself

4
<PAGE>

from such a vote), stating that in the good faith opinion of the Board, the
Executive is guilty of the conduct described in the Notice of Termination for
Cause, and that such conduct constitutes Cause under this Agreement.

C. On the date the Executive terminates his employment for
"Good Reason." For purposes of this Agreement, "GOOD REASON" means:

(1) the assignment to the Executive of any duties
materially inconsistent in any respect with Paragraph
2 of this Agreement, or any other action by the
Employer that results in a diminution in the
Executive's position, authority, duties or
responsibilities, other than an isolated,
insubstantial and inadvertent action that is not taken
in bad faith and is remedied by the Employer after
receipt of notice thereof from the Executive;

(2) any requirement by the Employer that the
Executive's services be rendered primarily at a
location or locations other than within the greater
Chicago metropolitan area and for other than a de
minimis period of time;

(3) any breach of this Agreement by the Employer
that is not remedied by the Employer promptly after
receipt of notice thereof from the Executive;

(4) any failure by the Employer to comply with
any provision of Paragraph 5 of this Agreement, other
than an isolated, insubstantial and inadvertent
failure that is not taken in bad faith and is remedied
by the Employer promptly after receipt of notice
thereof from the Executive;

(5) any purported termination of the Executive's
employment by the Employer for a reason or in a manner
not expressly permitted by this Agreement; or

(6) the resignation by the Executive following a
"Change in Control." A "CHANGE IN CONTROL" shall be
deemed to occur on the earliest of (a) the acquisition
by any entity, person, or group of beneficial
ownership, as that term is defined in Rule 13d-3 under
the Securities Exchange Act of 1934, of more than 50%
of the outstanding capital stock of the Employer
entitled to vote for the election of directors
("VOTING STOCK"); (b) the completion by any entity,
person, or group (other than the Employer or a
subsidiary of the Employer) of the purchase of more
than 50% of the outstanding Voting Stock of the
Employer; (c) the effective time of (1) a merger or
consolidation of the Employer with one or more
corporations as a result of which the holders of the
outstanding Voting Stock of the Employer immediately
prior to such merger hold less than 50% of the Voting
Stock of the surviving or resulting corporation, or
(2) a transfer of substantially all of the property or
assets of the Employer other than to an entity of
which the Employer owns at least 80% of the Voting
Stock; and (d) the election to the Board, without the
recommendation or approval of the incumbent Board, of

5
<PAGE>

the directors constituting a majority of the number of
directors of the Employer then in office.

A termination of employment by the Executive for Good Reason shall be
effectuated by giving the Employer written notice ("NOTICE OF TERMINATION FOR
GOOD REASON") of the termination within three (3) months (six (6) months in the
event of a Change in Control) of the event constituting Good Reason, setting
forth in reasonable detail the specific conduct of the Employer that constitutes
Good Reason and the specific provisions of this Agreement on which Executive
relies. A termination of employment by the Executive for Good Reason shall be
effective on the fifth (5th) business day following the date when the Notice of
Termination for Good Reason is given, unless the notice sets forth a later date
(which date shall in no event be later than thirty (30) business days after the
notice is given).

D. On the date the Executive terminates his employment for
any reason, other than for the reason set forth in Paragraph 7C, provided that
the Executive shall give the Employer ninety (90) days written notice prior to
such date of his intention to terminate this Agreement.

E. On the date the Employer terminates the Executive's
employment for any reason, other than a reason set forth in Paragraph 7B,
provided that the Employer shall give the Executive ninety (90) days written
notice prior to such date of its intention to terminate this Agreement.

8. Compensation Upon Termination.

A. If the Executive's services are terminated pursuant to
Paragraph 7A, 7B, or 7D, the Executive shall be entitled to his salary through
his final date of active employment, plus any accrued but unused vacation pay.
The Executive also shall be entitled to any benefits mandated under the
Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) or required under
the terms of any death, insurance, or retirement plan, program, or agreement
provided by the Employer and to which the Executive is a party or in which the
Executive is a participant, including, but not limited to, any short-term or
long-term disability plan or program, if applicable.

B. If the Executive's services are terminated pursuant to
Paragraph 7C or 7E, the Executive shall be entitled to his salary through his
final date of active employment, plus any accrued but unused vacation pay. The
Executive also shall be entitled to the continuation of his current base salary
(as set forth in Paragraph 5A) for a period of twenty-four (24) months or, if
lesser, through the end of the term of this Agreement (the "SALARY CONTINUATION
PERIOD"), provided (a) he signs an agreement that releases the Employer from
actions, suits, claims, proceedings and demands related to the period of
employment and/or the termination of employment, and (b) the Employer shall be
permitted to offset from the severance pay hereunder any salary paid to the
Executive during the ninety (90) day written notice period, if the Executive
performs no substantial services during such ninety (90) day written notice
period. The Executive also shall be entitled to any benefits mandated under the
Consolidated Omnibus

6
<PAGE>

Budget Reconciliation Act of 1985 (COBRA) or required under the terms of any
death, insurance, or retirement plan, program, or agreement provided by the
Employer and to which the Executive is a party or in which the Executive is a
participant.

C. This Paragraph 8 shall not supersede or invalidate any
severance benefit agreement or other benefit plans to which the Executive is a
party or in which the Executive is a participant; provided, however, if a change
in control shall occur (as defined in Section 280G(b)(2)(a)(i) of the Code), and
a determination is made by legislation, regulation, ruling directed to the
Executive or the Employer, or court decision, that the aggregate amount of any
payment made to the Executive hereunder, or pursuant to any plan, program, or
policy of the Employer in connection with, on account of, or as a result of,
such change in control constitutes "excess parachute payments" under the Code
that are subject to the excise tax provisions of Section 4999 of the Code, or
any successor sections thereof, the Executive shall be entitled to receive from
the Employer, in addition to any other amounts payable hereunder, an additional
payment (a "GROSS-UP PAYMENT") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed thereon) and any excise tax imposed upon the
Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal
to the excise tax imposed. All determinations required to be made under this
Paragraph 8, including whether and when a Gross-Up Payment is required and the
amount of such Gross-Up Payment and the assumptions to be utilized in arriving
at such determination, shall be made by a certified public accounting firm
designated by the Employer and reasonably acceptable to the Executive which is
one of the five largest accounting firms in the United States (the "ACCOUNTING
FIRM"), which shall provide detailed supporting calculations both to the
Employer and the Executive within fifteen (15) business days of the receipt of
notice from the Executive that there has been an excess parachute payment, or
such earlier time as is requested by the Employer. All fees and expenses of the
Accounting Firm shall be borne solely by the Employer. Any Gross-Up Payment, as
determined pursuant to this Paragraph 8 shall be paid by the Employer to the
Executive within five (5) business days of the receipt of the Accounting Firm's
determination. As a result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been made
by the Employer should have been made ("UNDERPAYMENT") consistent with the
calculations required to be made hereunder. In the event that the Employer
exhausts its remedies hereunder and the Executive thereafter is required to make
a payment of any excise tax, the Accounting Firm shall determine the amount of
the Underpayment that has occurred and any such Underpayment shall be promptly
paid by the Employer to or for the benefit of the Executive. The Executive shall
notify the Employer in writing of any claim by the Internal Revenue Service
that, if successful, would require the payment by the Employer of the Gross-Up
Payment. Such notification shall be given as soon as practicable but no later
than ten (10) business days after the Executive is informed in writing of such
claim and shall apprise the Employer of the nature of such claim and the date on
which such claim is requested to be paid. The Executive shall not pay such claim
prior to the expiration of the thirty (30) day period following the date on
which he gives such notice to the Employer (or such shorter period ending on the
date that any payment of taxes with respect to such claim is due). If the
Employer notifies

7
<PAGE>

the Executive in writing prior to the expiration of such period that it desires
to contest such claim, the Executive shall:

(1) give the Employer any information reasonably requested
by the Employer relating to such claim;

(2) take such action in connection with contesting such
claim as the Employer shall reasonably request in writing from
time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
reasonably selected by the Employer;

(3) cooperate with the Employer in good faith in order
effectively to contest such claim; and

(4) permit the Employer to participate in any proceedings
relating to such claim;

provided, however, that the Employer shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any excise tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provision of
this Paragraph 8C, the Employer shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forego any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Employer shall
determine. Notwithstanding anything herein to the contrary, if, after the
receipt by the Executive of an amount advanced by the Employer pursuant to this
Paragraph 8C, the Executive becomes entitled to receive any refund with respect
to such claim, the Executive shall (subject to the Employer's substantial
compliance with the requirements of this Paragraph 8C) promptly pay to the
Employer the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the Executive
of an amount advanced by the Employer pursuant to Paragraph 8C, a determination
is made that the Executive shall not be entitled to any refund with respect to
such claim and the Employer does not notify the Executive in writing of its
intent to contest such denial of refund prior to the expiration of thirty (30)
days after such determination, then such advance shall be forgiven and shall not
be required to be repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid.

9. Protective Covenants. The Executive acknowledges and agrees
that solely by virtue of his employment by, and relationship with, the Employer,
he has acquired and will continue to acquire "Confidential Information", as
hereinafter defined, as well as special knowledge of the Employer's
relationships with its customers and business brokers, and that, but

8
<PAGE>

for his association with the Employer, the Executive will not have had access to
said Confidential Information or knowledge of said relationships. The Executive
further acknowledges and agrees (i) that the Employer has long term,
near-permanent relationships with its customers and business brokers, and that
those relationships were developed at great expense and difficulty to the
Employer over several years of close and continuing involvement; (ii) that the
Employer's relationships with its customers and business brokers are and will
continue to be valuable, special and unique assets of the Employer and that the
identity of its customers and business brokers is kept under tight security with
the Employer and cannot be readily ascertained from publicly available materials
or from materials available to the Employer's competitors; and (iii) that the
Employer has the following protectable interests that are critical to its
competitive advantage in the industry and would be of demonstrable value in the
hands of a competitor: marketing strategies and research information and
benchmarks; and plans, processes, customer networks and protocols. In return for
the consideration described in this Agreement, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
as a condition precedent to the Employer entering into the Prior Agreement and
this Agreement, and as an inducement to the Employer to do so, the Executive
hereby represents, warrants, and covenants as follows:

A. The Executive has executed and delivered this Agreement
as his free and voluntary act, after having determined that the provisions
contained herein are of a material benefit to him, and that the duties and
obligations imposed on him hereunder are fair and reasonable and will not
prevent him from earning a comparable livelihood following the termination of
his employment with the Employer;

B. The Executive has read and fully understands the terms
and conditions set forth herein, has had time to reflect on and consider the
benefits and consequences of entering into this Agreement, and has had the
opportunity to review the terms hereof with an attorney or other representative,
if he so chooses;

C. The execution and delivery of this Agreement by the
Executive does not conflict with, or result in a breach of or constitute a
default under, any agreement or contract, whether oral or written, to which the
Executive is a party or by which the Executive may be bound;

D. The Executive agrees that, during the time of his
employment and for a period of one (1) year after the termination of the
Executive's employment hereunder for any reason whatsoever or for no reason,
whether voluntary or involuntary, the Executive will not, except on behalf of
the Employer, in any place or venue where the Employer or any affiliate,
subsidiary, or division thereof now conducts or operates, or may conduct or
operate, its business prior to the date of the Executive's termination of
employment:

(1) directly or indirectly, contact, solicit or direct
any person, firm, or corporation to contact or solicit, any of
the Employer's customers, prospective customers, or business
brokers (as hereinafter defined) for the purpose of selling or
attempting to sell, any products and/or services that are the
same as or similar

9
<PAGE>

to the products and services provided by the Employer to its
customers during the term hereof. In addition, the Executive
will not disclose the identity of any such business brokers,
customers, or prospective customers, or any part thereof, to
any person, firm, corporation, association, or other entity
for any reason or purpose whatsoever; and

(2) directly or indirectly, whether as an investor
(excluding investments representing less than one percent (1%)
of the common stock of a public company), lender, owner,
stockholder, officer, director, consultant, employee, agent,
salesperson or in any other capacity, whether part-time or
full-time, become associated with any business involved in the
design, manufacture, marketing, or servicing of products then
constituting ten percent (10%) or more of the annual sales of
the Employer; and

(3) solicit or accept if offered to him, with or
without solicitation, on his own behalf or on behalf of any
other person, the services of any person who is an employee of
the Employer, nor solicit any of the Employer's employees to
terminate employment with the Employer, nor agree to hire any
employee of the Employer into employment with himself or any
company, individual or other entity; and

(4) act as a consultant, advisor, officer, manager,
agent, director, partner, independent contractor, owner, or
employee for or on behalf of any of the Employer's business
brokers, customers, or prospective customers (as hereinafter
defined), with respect to or in any way with regard to any
aspect of the Employer's business and/or any other business
activities in which the Employer engages during the term
hereof;

E. The Executive acknowledges and agrees that the scope
described above is necessary and reasonable in order to protect the Employer in
the conduct of its business and that, if the Executive becomes employed by
another employer, he shall be required to disclose the existence of this
Paragraph 9 to such employer and the Executive hereby consents to and the
Employer is hereby given permission to disclose the existence of this Paragraph
9 to such employer;

F. For purposes of this Paragraph 9, "customer" shall be
defined as any person, firm, or entity that purchased any type of product and/or
service from the Employer or is or was doing business with the Employer or the
Executive within the twelve (12) month period immediately preceding termination
of the Executive's employment. For purposes of this Paragraph 9, "prospective
customer" shall be defined as any person, firm, or entity contacted or solicited
by the Employer or the Executive (whether directly or indirectly) or who
contacted the Employer or the Executive (whether directly or indirectly) within
the twelve (12) month period immediately preceding termination of the
Executive's employment for the purpose of having such persons, firms, or
entities become a customer of the Employer. For purposes of this Paragraph 9,
"business broker" shall be defined as any person, firm, or entity who is or was
doing

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business with the Employer or the Executive or who was contacted or
solicited by the Employer or the Executive (whether directly or indirectly) or
who contacted or solicited the Employer or the Executive (whether directly or
indirectly) within the thirty-six (36) month period immediately preceding
termination of the Executive's employment;

G. The Executive agrees that both during his employment
and thereafter the Executive will not, for any reason whatsoever, use for
himself or disclose to any person not employed by the Employer any "Confidential
Information" of the Employer acquired by the Executive during his relationship
with the Employer. The Executive further agrees to use Confidential Information
solely for the purpose of performing duties with the Employer and further agrees
not to use Confidential Information for his own private use or commercial
purposes or in any way detrimental to the Employer. The Executive agrees that
"Confidential Information" includes but is not limited to: (1) any financial,
business, planning, operations, services, potential services, products,
potential products, technical information and/or know-how, formulas, production,
purchasing, marketing, sales, personnel, customer, broker, supplier, or other
information of the Employer; (2) any papers, data, records, processes, methods,
techniques, systems, models, samples, devices, equipment, compilations,
invoices, customer lists, or documents of the Employer; (3) any confidential
information or trade secrets of any third party provided to the Employer in
confidence or subject to other use or disclosure restrictions or limitations;
and (4) any other information, written, oral, or electronic, whether existing
now or at some time in the future, whether pertaining to current or future
developments, which pertains to the Employer's affairs or interests or with whom
or how the Employer does business. The Employer acknowledges and agrees that
Confidential Information does not include (1) information properly in the public
domain, or (2) information in the Executive's possession prior to the date of
his original employment with the Employer;

H. During and after the term of employment hereunder, the
Executive will not remove from the Employer's premises any documents, records,
files, notebooks, correspondence, computer printouts, computer programs,
computer software, price lists, microfilm, or other similar documents containing
Confidential Information, including copies thereof, whether prepared by him or
others, except as his duty shall require, and in such cases, will promptly
return such items to the Employer. Upon termination of his employment with the
Employer, all such items including summaries or copies thereof, then in the
Executive's possession, shall be returned to the Employer immediately;

I. The Executive recognizes and agrees that all ideas,
inventions, enhancements, plans, writings, and other developments or
improvements (the "INVENTIONS") conceived by the Executive, alone or with
others, during the term of his employment, whether or not during working hours,
that are within the scope of the Employer's business operations or that relate
to any of the Employer's work or projects, are the sole and exclusive property
of the Employer. The Executive further agrees that (1) he will promptly disclose
all Inventions to the Employer and hereby assigns to the Employer all present
and future rights he has or may have in those Inventions, including without
limitation those relating to patent, copyright, trademark or trade secrets; and
(2) all of the Inventions eligible under the copyright laws are "work made for
hire." At the request of and without charge to the Employer, the Executive will
do all things

11
<PAGE>

deemed by the Employer to be reasonably necessary to perfect title to the
Inventions in the Employer and to assist in obtaining for the Employer such
patents, copyrights or other protection as may be provided under law and desired
by the Employer, including but not limited to executing and signing any and all
relevant applications, assignments or other instruments. Notwithstanding the
foregoing, pursuant to the Employee Patent Act, Illinois Public Act 83-493, the
Employer hereby notifies the Executive that the provisions of this Paragraph 9
shall not apply to any Inventions for which no equipment, supplies, facility or
trade secret information of the Employer was used and which were developed
entirely on the Executive's own time, unless (1) the Invention relates (i) to
the business of the Employer, or (ii) to actual or demonstrably anticipated
research or development of the Employer, or (2) the Invention results from any
work performed by the Executive for the Employer;

J. The Executive acknowledges and agrees that all customer
lists, supplier lists, and customer and supplier information, including, without
limitation, addresses and telephone numbers, are and shall remain the exclusive
property of the Employer, regardless of whether such information was developed,
purchased, acquired, or otherwise obtained by the Employer or the Executive. The
Executive agrees to furnish to the Employer on demand at any time during the
term of this Agreement, and upon termination of this Agreement, his complete
list of the correct names and places of business and telephone numbers of all of
its customers served by him, including all copies thereof wherever located. The
Executive further agrees to immediately notify the Employer of the name and
address of any new customer, and report all changes of a location of old
customers, so that upon the termination of this Agreement, the Employer will
have a complete list of the correct names and addresses of all of its customers
with which the Executive has had dealings. The Executive also agrees to furnish
to the Employer on demand at any time during the term of this Agreement, and
upon the termination of this Agreement, any other records, notes, computer
printouts, computer programs, computer software, price lists, microfilm, or any
other documents related to the Employer's business, including originals and
copies thereof; and

K. It is agreed that any breach or anticipated or
threatened breach of any of the Executive's covenants contained in this
Paragraph 9 will result in irreparable harm and continuing damages to the
Employer and its business and that the Employer's remedy at law for any such
breach or anticipated or threatened breach will be inadequate and, accordingly,
in addition to any and all other remedies that may be available to the Employer
at law or in equity in such event, any court of competent jurisdiction may issue
a decree of specific performance or issue a temporary and permanent injunction,
without the necessity of the Employer posting bond or furnishing other security
and without proving special damages or irreparable injury, enjoining and
restricting the breach, or threatened breach, of any such covenant, including,
but not limited to, any injunction restraining the Executive from disclosing, in
whole or part, any Confidential Information. In addition to, but not in lieu of,
the remedies contained herein, the Employer and the Executive agree that for
purposes of this Agreement, damages will be difficult to assess and, in
recognition thereof, the Executive shall pay and the Employer shall accept as
liquidated damages, and not as a penalty, the sum of $250,000. The Executive
acknowledges the truthfulness of all factual statements in this Agreement and
agrees that he is estopped from and

12
<PAGE>

will not make any factual statement in any proceeding that is contrary to this
Agreement or any part thereof.

10. Notices. Any and all notices required in connection with this
Agreement shall be deemed adequately given only if in writing and (a) personally
delivered, or sent by first class, registered or certified mail, postage
prepaid, return receipt requested, or by recognized overnight courier, (b) sent
by facsimile, provided a hard copy is mailed on that date to the party for whom
such notices are intended, or (c) sent by other means at least as fast and
reliable as first class mail. A written notice shall be deemed to have been
given to the recipient party on the earlier of (a) the date it shall be
delivered to the address required by this Agreement; (b) the date delivery shall
have been refused at the address required by this Agreement; (c) with respect to
notices sent by mail or overnight courier, the date as of which the Postal
Service or overnight courier, as the case may be, shall have indicated such
notice to be undeliverable at the address required by this Agreement; or (d)
with respect to a facsimile, the date on which the facsimile is sent and receipt
of which is confirmed. Any and all notices referred to in this Agreement, or
which either party desires to give to the other, shall be addressed to his
residence in the case of the Executive, or to its principal office in the case
of the Employer.

11. Waiver of Breach. A waiver by the Employer of a breach of any
provision of this Agreement by the Executive shall not operate or be construed
as a waiver or estoppel of any subsequent breach by the Executive. No waiver
shall be valid unless in writing and signed by an authorized officer of the
Employer.

12. Assignment. The Executive acknowledges that the services to be
rendered by him are unique and personal. Accordingly, the Executive may not
assign any of his rights or delegate any of his duties or obligations under this
Agreement. The rights and obligations of the Employer under this Agreement shall
inure to the benefit of and shall be binding upon the successors and assigns of
the Employer.

13. Entire Agreement. This Agreement sets forth the entire and
final agreement and understanding of the parties and contains all of the
agreements made between the parties with respect to the subject matter hereof.
This Agreement supersedes any and all other agreements, either oral or in
writing, between the parties hereto, with respect to the subject matter hereof
(including, but not limited to, the Prior Agreement). No change or modification
of this Agreement shall be valid unless in writing and signed by the Employer
and the Executive. If any provision of this Agreement shall be found invalid or
unenforceable for any reason, in whole or in part, then such provision shall be
deemed modified, restricted, or reformulated to the extent and in the manner
necessary to render the same valid and enforceable, or shall be deemed excised
from this Agreement, as the case may require, and this Agreement shall be
construed and enforced to the maximum extent permitted by law, as if such
provision had been originally incorporated herein as so modified, restricted, or
reformulated or as if such provision had not been originally incorporated
herein, as the case may be. The parties further agree to seek a lawful
substitute for any provision found to be unlawful; provided, that, if the
parties are unable to agree upon a lawful substitute, the parties desire and
request that a court or other authority called upon to decide the enforceability
of this Agreement modify those restrictions in this

13
<PAGE>

Agreement that, once modified, will result in an agreement that is enforceable
to the maximum extent permitted by the law in existence at the time of the
requested enforcement.

14. Headings. The headings in this Agreement are inserted for
convenience only and are not to be considered a construction of the provisions
hereof.

15. Execution of Agreement. This Agreement may be executed in
several counterparts, each of which shall be considered an original, but which
when taken together, shall constitute one agreement.

16. Recitals. The recitals to this Agreement are incorporated
herein as an integral part hereof and shall be considered as substantive and not
precatory language.

17. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Illinois, without
reference to its conflict of law provisions. Any and all disputes arising under
this Agreement, other than a dispute arising under Paragraph 9, initially shall
be referred by the parties hereto to non-binding mediation for resolution. If
such mediation is unsuccessful in resolving the dispute (or in the context of
Paragraph 9 hereof), any court action commenced to enforce this Agreement shall
have as its sole and exclusive venue the County of Cook, Illinois.

IN WITNESS WHEREOF, the parties have set their signatures on the date
first written above.

EMPLOYER: EXECUTIVE:

SYSTEM SOFTWARE ASSOCIATES, WILLIAM M. STUEK
INC.,
/s/ William M. Stuek
a Delaware corporation -----------------------

By: /s/ Lawrence A. Zimmerman
----------------------------------------
Its: Executive Vice President & C.F.O.
---------------------------------------

14
<PAGE>

EXHIBIT A
---------

SYSTEM SOFTWARE ASSOCIATES, INC.
NONSTATUTORY STOCK OPTION AGREEMENT

THIS AGREEMENT is made effective this 16th day of October, 1998 between
System Software Associates, Inc., a Delaware corporation (the "COMPANY"), and
William M. Stuek (the "OPTIONEE").

WHEREAS, the Company desires to grant to the Optionee an option to
purchase shares of its common capital stock (the "SHARES") under the Company's
Long-Term Incentive Plan (the "PLAN"); and

WHEREAS, the Company and the Optionee understand and agree that any
terms used herein have the same meanings as in the Plan (the Optionee being
referred to in the Plan as a "Participant").

NOW, THEREFORE, in consideration of the following mutual covenants and
for other good and valuable consideration, the parties agree as follows:

1. GRANT OF OPTION

The Company grants to the Optionee the right and Option to purchase all
or any part of an aggregate of 200,000 Shares (the "OPTION") on the
terms and conditions and subject to all the limitations set forth
herein and in the Plan, which is incorporated herein by reference. The
Optionee acknowledges receipt of a copy of the Plan and acknowledges
that the definitive records pertaining to the grant of this Option, and
exercises of rights hereunder, shall be retained by the Company. The
Option granted herein is intended to be a Nonstatutory Option as
defined in the Plan.

2. PURCHASE PRICE

The purchase price of the Shares subject to the Option shall be Four
Dollars ($4.00) per Share, the Fair Market Value of the Shares on
October 16, 1998.

3. EXERCISE OF OPTION

Subject to the Plan and this Agreement, the Option shall be
exerciseable as follows:

1
<PAGE>

<TABLE>
<CAPTION>
EXERCISE PERIOD
Commencement Expiration
Number of Shares Date Date
---------------- ------------ -----------
<S> <C> <C>
15,278 October 16, 1998 April 5, 2008
46,180 April 6, 1999 April 5, 2008
46,180 April 6, 2000 April 5, 2008
46,181 April 6, 2001 April 5, 2008
46,181 April 6, 2002 April 5, 2008
</TABLE>

Notwithstanding anything in this Paragraph 3 to the contrary, the Shares subject
to the Option shall be exercisable, as described below, upon the following
events:

A. Upon a "CHANGE IN CONTROL," as such term is defined in Paragraph 7C(6)
of the Optionee's Amended and Restated Employment Agreement (the
"EMPLOYMENT AGREEMENT") with the Company made and entered into
effective as of the 16th day of October, 1998, all Shares not then
exercisable shall immediately become exerciseable and shall be
exercisable through April 5, 2008.

B. (i) Upon the first date that the closing sales price of the Common
Stock as reported on the NASDAQ National Market System shall have been
equal to or in excess of $15.00 per share, as adjusted for stock splits
or stock dividends, for any sixty (60) Trading Days (as defined below)
out of any consecutive ninety (90) calendar days during the period
beginning on April 6, 1998 and ending on January 4, 2002 (the "OPTION
ACCELERATION PERIOD"), 61,458 Shares in the aggregate shall be
exerciseable, whether or not they were previously exercisable in
accordance with the Exercise Period set forth above. Such adjustment to
the Exercise Period shall occur only upon the initial attainment of
such sixty-day share price during any ninety (90) consecutive calendar
day period. A "TRADING DAY" shall be defined as any day on which the
principal national securities exchange or market quotation system on
which the Common Stock is then listed or admitted for trading is open.

(ii) Upon the first date that the closing sales price of the Common
Stock as reported on the NASDAQ National Market System shall have been
equal to or in excess of $20.00 per share, as adjusted for stock splits
or stock dividends, for sixty (60) Trading Days out of any consecutive
ninety (90) calendar days during the Option Acceleration Period,
107,638 Shares in the aggregate shall be exerciseable, whether or not
they were previously exercisable in accordance with the Exercise Period
set forth above. Such adjustment to the Exercise Period shall occur
only

2
<PAGE>

upon the initial attainment of such sixty-day share price during
any ninety (90) consecutive calendar day period.

(iii) Upon the first date that the closing sales price of the Common
Stock as reported on the NASDAQ National Market Systems shall have been
equal to or in excess of $25.00 per share, as adjusted for stock splits
or stock dividends, for sixty (60) Trading Days out of any consecutive
ninety (90) calendar days during the Option Acceleration Period, the
remaining Shares of the Option, if otherwise unexercisable at such
time, shall become exerciseable.

Except as set forth in subparagraph 3(a) above in the event of a Change
in Control, the Option shall expire on, and shall be exercised (if at
all) prior to the first to occur of:

A. April 5, 2008;

B. Ninety (90) days after the date on which the Optionee shall
cease, for any reason or cause whatsoever, and without regard
to such reason or cause (except as set forth in (c) and (d)
below) to be an employee of, or consultant to, the Company or
any affiliate or subsidiary thereof;

C. The date the Optionee's employment is terminated, if it is
terminated for "Cause" as that term is defined in the
Employment Agreement; or

D. Twelve months from the date the Optionee's employment is
terminated, if it is terminated pursuant to Paragraph 7A of
the Employment Agreement, in which case the Option, to the
extent it is otherwise exerciseable on the date the Optionee's
employment is terminated, may be exercised by the Optionee or
his legal representative or estate within such twelve month
period.

Upon expiration of the Option without it having been duly exercised,
the Option shall be and become null, void, and of no further effect.

3. EXERCISE OF OPTION AND ISSUANCE OF STOCK

The Option may be exercised in whole or in part (to the extent that it
is exerciseable in accordance with its terms) by giving written notice
(or any other approved form of notice) to the Company. Such written
notice shall be signed by the person exercising the Option, shall state
the number of Shares with respect to which the Option is being
exercised, shall contain the warranty, if any, required under the Plan
and shall specify a date (other than a Saturday, Sunday or legal
holiday) not less than five (5) nor more than ten (10) days after the
date of such written notice, as the date on which the Shares will be
purchased, at the principal office of the Company during ordinary
business hours, or at such other hour and place agreed upon by the
Company and the person or persons exercising the Option, and shall
otherwise comply with the terms and conditions of this Agreement and
the Plan. On the date specified in such written notice (which date may
be extended by the Company if any law or regulation requires the
Company to take any action with respect to the Shares

3
<PAGE>

prior to the issuance thereof), the Company shall accept payment for
the Shares and shall deliver to the Optionee an appropriate certificate
or certificates for the Shares as to which the Option was exercised.

The Option price of any Shares shall be payable at the time of exercise
as determined by the Company in its sole discretion either:

A. in cash, by certified check or bank check, or by wire transfer; or

B. in whole shares of the Company's common stock, provided, however,
that if such shares were acquired pursuant to an incentive stock
option plan (as defined in Code Section 422) of the Company or
Affiliate, then the applicable holding period requirements of said
Section 422 have been met with respect to such shares, and, provided
further, that if the Optionee is subject to the reporting
requirements of Section 16 of the Securities Exchange Act of 1934,
as amended from time to time, then, if (i) such shares were granted
pursuant to an option, then such option must have been granted at
least six (6) months prior to the exercise of the Option hereunder,
and (ii) such shares were purchased other than through the grant
and exercise of an option, such shares were owned by the Optionee
for more than six (6) months prior to the exercise of the Option
hereunder; or

C. in any combination of (a) or (b) above.

The fair market value of the stock to be applied toward the purchase
price shall be determined as of the date of exercise of the Option in a
manner consistent with the determination of fair market value with
respect to the grant of an Option under the Plan. Any certificate for
shares of outstanding stock of the Company used to pay the purchase
price shall be accompanied by a stock power duly endorsed in blank by
the registered holder of the certificate, with signature guaranteed in
the event the certificate shall also be accompanied by instructions
from the Optionee to the Company's transfer agent with respect to
disposition of the balance of the shares covered thereby.

The Company shall pay all original issue taxes with respect to the issuance
of Shares pursuant hereto and all other fees and expenses necessarily
incurred by the Company in connection therewith. The holder of this
Option shall have the rights of a stockholder only with respect to
those Shares covered by the Option which have been registered in the
holder's name in the share register of the Company upon the due
exercise of the Option.

4. NON-ASSIGNABILITY

This Option shall not be transferable by the Optionee and shall be
exerciseable only by the Optionee, except as the Plan may otherwise
provide.

4
<PAGE>

5. NOTICES

Any notices required or permitted by the terms of this Agreement or the
Plan shall be given by registered or certified mail, return receipt
requested, addressed as follows:

To the Company: System Software Associates, Inc.
500 West Madison
Chicago, Illinois 60661
Attn: Long-Term Incentive Plan Award Committee

To the Optionee: William M. Stuek

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

or to such other address or addresses of which notice in the same
manner has previously been given. Any such notice shall be deemed to
have been given when mailed in accordance with the foregoing
provisions.

6. GOVERNING LAW

This Agreement shall be construed and enforced in accordance with the
laws of the State of Illinois.

7. BINDING EFFECT

This Agreement shall (subject to the provisions of Section 5 hereof) be
binding upon the heirs, executors, administrators, successors and
assigns of the parties hereto.

IN WITNESS WHEREOF, the Company and the Optionee have caused this
Agreement to be executed on their behalf, by their duly authorized
representatives, all on the day and year first above written.

SYSTEM SOFTWARE ASSOCIATES, INC.

By: /s/ Lawrence A. Zimmerman
------------------------------------
Its: Executive Vice President & C.F.O.
-----------------------------------

OPTIONEE

/s/ William M. Stuek
------------------------
William M. Stuek

5
<PAGE>

EXHIBIT B
---------

SYSTEM SOFTWARE ASSOCIATES, INC.
NONSTATUTORY STOCK OPTION AGREEMENT

THIS AGREEMENT is made effective this 16th day of October, 1998 between
System Software Associates, Inc., a Delaware corporation (the "COMPANY"), and
William M. Stuek (the "OPTIONEE").

WHEREAS, in accordance with the terms of that certain Amended and
Restated Employment Agreement (the "EMPLOYMENT AGREEMENT") as executed by and
between the Company and the Optionee effective of even date herewith, the
Company desires to grant to the Optionee an option to purchase shares of its
common capital stock (the "Shares"); and

WHEREAS, the grant hereunder shall not be under the Company's Long-Term
Incentive Plan.

NOW, THEREFORE, in consideration of the following mutual covenants and
for other good and valuable consideration, the parties agree as follows:

1. GRANT OF OPTION

The Company grants to the Optionee the right and option to purchase all
or any part of an aggregate of 1,240,000 Shares (the "OPTION") on the
terms and conditions and subject to all the limitations set forth
herein. The Optionee acknowledges that the definitive records
pertaining to the grant of this Option, and exercises of rights
hereunder, shall be retained by the Company. The Option granted herein
is intended to be a nonstatutory option.

2. PURCHASE PRICE

The purchase price of the Shares subject to the Option shall be Four
Dollars ($4.00) per Share, the fair market value of the Shares on
October 16, 1998.

3. EXERCISE OF OPTION

Subject to this Agreement, the Option shall be exerciseable as follows:

1
<PAGE>

<TABLE>
<CAPTION>
EXERCISE PERIOD
Commencement Expiration
Number of Shares Date Date
------------------ ------------ -----------
<S> <C> <C>
94,722 October 16, 1998 April 5, 2008
286,319 April 6, 1999 April 5, 2008
286,319 April 6, 2000 April 5, 2008
286,320 April 6, 2001 April 5, 2008
286,320 April 6, 2002 April 5, 2008
</TABLE>

Notwithstanding anything in this Paragraph 3 to the contrary, the
Shares subject to the Option shall be exercisable, as described below,
upon the following events:

A. Upon a "CHANGE IN CONTROL," as such term is defined in
Paragraph 7C(6) of the Employment Agreement, all Shares not
then exercisable shall immediately become exerciseable and
shall be exercisable through April 5, 2008.

B. (i) Upon the first date that the closing sales price of
the Common Stock as reported on the NASDAQ National Market
System shall have been equal to or in excess of $15.00 per
share, as adjusted for stock splits or stock dividends, for
any sixty (60) Trading Days (as defined below) out of any
consecutive ninety (90) calendar days during the period
beginning on April 6, 1998 and ending on January 4, 2002
(the "OPTION ACCELERATION PERIOD"), 381,041 Shares in the
aggregate shall be exerciseable, whether or not they were
previously exercisable in accordance with the Exercise Period
set forth above. Such adjustment to the Exercise Period
shall occur only upon the initial attainment of such
sixty-day share price during any ninety (90) consecutive
calendar day period. A "TRADING DAY" shall be defined
as any day on which the principal national securities
exchange or market quotation system on which the Common
Stock is then listed or admitted for trading is open.

(ii) Upon the first date that the closing sales price of
the Common Stock as reported on the NASDAQ National Market
System shall have been equal to or in excess of $20.00 per
share, as adjusted for stock splits or stock dividends, for
sixty (60) Trading Days out of any consecutive ninety (90)
calendar days during the Option Acceleration Period, 667,360
Shares in the aggregate shall be exerciseable, whether or
not they were previously exercisable in accordance with
the Exercise Period set forth above. Such adjustment to the
Exercise Period shall occur only upon the initial attainment
of such sixty-day share price during any ninety (90)
consecutive calendar day period.

2
<PAGE>

(iii) Upon the first date that the closing sales price of
the Common Stock as reported on the NASDAQ National Market
Systems shall have been equal to or in excess of $25.00 per
share, as adjusted for stock splits or stock dividends, for
sixty (60) Trading Days out of any consecutive ninety (90)
calendar days during the Option Acceleration Period, the
remaining Shares of the Option, if otherwise unexercisable at
such time, shall become exerciseable.

Except as set forth in subparagraph 3(a) above in the event of a Change
in Control, the Option shall expire on, and shall be exercised (if at
all) prior to the first to occur of:

A. April 5, 2008;

C. The date the Optionee's employment is terminated, if it is
terminated for "Cause" as that term is defined in the
Employment Agreement; or

Upon expiration of the Option without it having been duly exercised,
the Option shall be and become null, void, and of no further effect.

4. EXERCISE OF OPTION AND ISSUANCE OF STOCK

The Option may be exercised in whole or in part (to the extent that it
is exerciseable in accordance with its terms) by giving written notice
(or any other approved form of notice) to the Company. Such written
notice shall be signed by the person exercising the Option, shall state
the number of Shares with respect to which the Option is being
exercised, and shall specify a date (other than a Saturday, Sunday or
legal holiday) not less than five (5) nor more than ten (10) days after
the date of such written notice, as the date on which the Shares will
be purchased, at the principal office of the Company during ordinary
business hours, or at such other hour and place agreed upon by the
Company and the person or persons exercising the Option, and shall
otherwise comply with the terms and conditions of this Agreement. On
the date specified in such written notice (which date may be extended
by the Company if any law or regulation requires the Company to take
any action with respect to the Shares prior to the issuance thereof),
the Company shall accept payment for the Shares and shall deliver to
the Optionee an appropriate certificate or certificates for the Shares
as to which the Option was exercised.

3
<PAGE>

The Option price of any Shares shall be payable at the time of exercise
as determined by the Company in its sole discretion either:

A. in cash, by certified check or bank check, or by wire
transfer; or

B. in whole shares of the Company's common stock, provided,
however, that if such shares were acquired pursuant to an
incentive stock option plan (as defined in Code Section
422) of the Company or Affiliate, then the applicable
holding period requirements of said Section 422 have been
met with respect to such shares, and, provided further,
that if the Optionee is subject to the reporting requirements
of Section 16 of the Securities Exchange Act of 1934, as
amended from time to time, then, if (i) such shares were
granted pursuant to an option, then such option must have
been granted at least six (6) months prior to the exercise
of the Option hereunder, and (ii) such shares were purchased
other than through the grant and exercise of an option,
such shares were owned by the Optionee for more than six
(6) months prior to the exercise of the Option hereunder; or

C. in any combination of (a) or (b) above.

The fair market value of the stock to be applied toward the purchase
price shall be determined as of the date of exercise of the Option. Any
certificate for shares of outstanding stock of the Company used to pay
the purchase price shall be accompanied by a stock power duly endorsed
in blank by the registered holder of the certificate, with signature
guaranteed in the event the certificate shall also be accompanied by
instructions from the Optionee to the Company's transfer agent with
respect to disposition of the balance of the shares covered thereby.

The Company shall pay all original issue taxes with respect to the
issuance of Shares pursuant hereto and all other fees and expenses
necessarily incurred by the Company in connection therewith. The holder
of this Option shall have the rights of a stockholder only with respect
to those Shares covered by the Option which have been registered in the
holder's name in the share register of the Company upon the due
exercise of the Option.

5. REPRESENTATIONS AND COVENANTS OF THE OPTIONEE

In connection with the grant of the Option hereunder, the Optionee represents
and warrants to the Company that:

A. The Shares subject to the Option under this Agreement shall be
acquired for the Optionee's own account and not with a view
to, or present intention of, distribution in violation of the
Securities Act of 1933 (the "1933 ACT") or any applicable
state securities laws, and the Shares will not be disposed of
in contravention of the 1933 Act or any applicable state
securities laws.

B. The Optionee is sophisticated in financial matters and is able
to evaluate the risks and benefits of the Option and the
Shares.

4
<PAGE>

C. The Optionee acknowledges that he is able to bear the economic
risk of the exercise of the Option for an indefinite period of
time, because the Shares have not been registered under the
1933 Act and, therefore, cannot be resold unless subsequently
registered under the 1933 Act or an exemption from such
registration is available.

D. The Optionee has had an opportunity to ask questions and
receive answers concerning the terms and conditions of the
grant of the Option and has had full access to such
information concerning the Company as he has requested.

E. The Optionee has the full right, power and authority to
execute and deliver this Agreement and to perform his
obligations hereunder. This Agreement constitutes the valid
and legally binding obligations of the Optionee enforceable
against him in accordance with its terms, except as the same
may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws relating to or
affecting the enforcement of creditors' rights generally, now
or hereafter in effect and subject to the application of
equitable principles and the availability of equitable
remedies.

F. The Optionee is not a party to, subject to or bound by any
agreement or any judgment, order, writ, prohibition,
injunction or decree of any court or other governmental body
which would prevent the execution or delivery of this
Agreement by him or the consummation of the transactions
contemplated hereby.

6. REGISTRATION

The Optionee understands that the Shares are not currently being
registered under the 1933 Act by reason of their contemplated issuance
in a transaction exempt from the registration and prospectus delivery
requirements of the 1933 Act pursuant to Section 4(2) thereof. The
Optionee further agrees that he will not sell or otherwise dispose of
the Shares unless such sale or other disposition has been registered or
is exempt from registration under the 1933 Act and has been registered
or qualified or is exempt from registration or qualification under
applicable securities laws of any state. The Optionee understands that
a restrictive legend consistent with the foregoing, and as set forth in
Paragraph 8, will be placed on the certificates evidencing the Shares,
and related stop transfer instructions will be noted in the stock
transfer records of the Company and/or its stock transfer agent for the
Shares. The foregoing notwithstanding, the Company agrees that it will
use all reasonable efforts to cause a registration of the Shares
obtained by the Optionee through the exercise of all or any portion of
the Option to be declared effective within six (6) months after the
Optionee provides written notice requesting such registration to the
Board of Directors.

7. WITHHOLDING

The Company shall have the power and right to deduct or withhold, or
require the Optionee to remit to the Company, an amount sufficient to
satisfy federal, state, and local taxes required by law to be withheld
with respect to any grant made under or as a result of this Agreement.
In the alternative, upon any taxable event hereunder, the Optionee may
elect,

5
<PAGE>

subject to Company approval, to satisfy the withholding requirement in
whole or in part, by having the Company withhold Shares that would
otherwise be transferred to the Optionee having a fair market value, on
the date the tax is to be determined, equal to the minimum marginal tax
that could be imposed on the transaction. All elections shall be made
in writing and signed by the Optionee.

8. LEGEND

The Optionee shall be bound by the provisions of the following legend
(or similar legend) which shall be endorsed upon the certificate(s)
evidencing the Shares issued pursuant to the grant of the Option
hereunder.

"The shares represented by this certificate have been acquired
for investment and they may not be sold or otherwise
transferred by any person in the absence of an effective
registration statement for the shares under the Securities Act
of 1933 or an opinion of counsel satisfactory to the Company
that an exemption from registration is then available."

9. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.

In the event that the outstanding Shares of the Company are changed
into or exchanged for a different number or kind of shares or other
securities of the Company or of another corporation by reason of any
reorganization, merger, consolidation, recapitalization,
reclassification, change in par value, stock split-up, combination of
shares or dividends payable in capital stock, or the like, appropriate
adjustments to prevent dilution or enlargement of the Shares granted
to, or available for, the Optionee shall be made in the manner and kind
of Shares granted hereunder.

10. NON-ASSIGNABILITY

This Option shall not be transferable by the Optionee and shall be
exerciseable only by the Optionee, except as the Board of Directors may
otherwise provide.

11. NOTICES

Any notices required or permitted by the terms of this Agreement shall
be given by registered or certified mail, return receipt requested,
addressed as follows:

To the Company: System Software Associates, Inc.
500 West Madison
Chicago, Illinois 60661
Attn: Board of Directors

6
<PAGE>

To the Optionee: William M. Stuek

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

12. GOVERNING LAW

This Agreement shall be construed and enforced in accordance with the
laws of the State of Illinois.

13. BINDING EFFECT

This Agreement shall (subject to the provisions of Section 10 hereof)
be binding upon the heirs, executors, administrators, successors and
assigns of the parties hereto.

IN WITNESS WHEREOF, the Company and the Optionee have caused this
Agreement to be executed on their behalf, by their duly authorized
representatives, all on the day and year first above written.

SYSTEM SOFTWARE ASSOCIATES, INC.

By: /s/ Lawrence A. Zimmerman
-----------------------------------
Its: Executive Vice President & C.F.O.
---------------------------------

OPTIONEE

/s/ William M. Stuek
------------------------------
William M. Stuek

<PAGE>

EXHIBIT 10.48

[LETTERHEAD OF SYSTEM SOFTWARE ASSOCIATES, INC.]

EMPLOYMENT AGREEMENT

This Employment Agreement (the "Agreement") is made and entered into as of the
27th day of April, 1998, by and between System Software Associates, Inc., a
Delaware corporation (hereinafter the "Company") and Lawrence A. Zimmerman
(hereinafter the "Employee").

WHEREAS, the Company desires that the Employee provide services for the benefit
of the Company (including, to the extent required, all subsidiary and related
companies of the Company; hereinafter collectively the "Affiliates") and the
Employee desires to accept such employment with the Company; and

WHEREAS, in the course of employment with the Company, the Employee will have
access to certain confidential information that relates to or will relate to the
business of the Company and its Affiliates and the Company desires that any such
information not be disclosed to other parties or otherwise use for unauthorized
purposes.

NOW, THEREFORE, in consideration of the above premises and the following terms
and mutual covenants, the parties agree as follows:

1. EMPLOYMENT. The Employee shall serve as Executive Vice President and
Chief Financial Officer. The Employee hereby accepts such employment and
position on the terms contained herein.

2. DUTIES AND EMPLOYEE LOYALTY. The Employee shall work for the Company in a
full-time capacity and shall have the duties, responsibilities, powers and
authority customarily associated with the position of Executive Vice President
and Chief Financial Officer, together with such other duties and functions as
are assigned from time to time by the undersigned or his designee. The Employee
shall report to the undersigned or his designee (hereinafter "Employee's
Manager"). The Employee shall devote his entire business time, attention,
energy, knowledge, and skill to the performance of duties for the Company and
will use his best efforts to promote the interests of the Company and its
Affiliates.

The Employee expressly agrees that during the term of this Agreement, he shall
not engage, directly or indirectly, as a partner, officer, director,
stockholder, advisor, agent, employee, or in any other form or capacity, in any
other business similar to that of the Company. The foregoing notwithstanding,
nothing herein contained shall be deemed to prevent the Employee from investing
in the capital stock or other securities of any corporation whose stock or
securities are publicly owned or are regularly traded on any public exchange.

3. TERM OF EMPLOYMENT. Unless sooner terminated as in accordance with Paragraph
7, this Agreement shall be entered into commencing as of April 27, 1998
(hereinafter the "Start Date") and shall thereafter continue until expiration in
accordance with the terms and conditions of this Agreement.

4. COMPENSATION. For all services rendered by the Employee to the Company, the
Company shall pay to the Employee during his period of employment the following
compensation:

BASE SALARY. The Employee shall be entitled to an annual base salary of
$300,000.00 (hereinafter "Base Salary") commencing as of the Start Date,
payable in substantially equal installments in accordance with the
Company's then current local payroll policy.

ANNUAL INCENTIVE BONUS. Up to $150,000.00, based on achievement of
specified organizational and personal management objectives (hereinafter
"Annual Incentive Bonus"). Employee agrees that incentive bonus payments
are not guaranteed income and are based upon actual performance and
achievement of established
<PAGE>

objectives on a fiscal year or quarterly basis. The actual payment of
earned incentive bonus payments shall be made by the Company on a
periodic basis in accordance with the Company's then current payroll
policy.

ADJUSTMENTS TO BASE SALARY AND ANNUAL INCENTIVE BONUS. The Base Salary
and/or Annual Incentive Bonus may be increased (but may not be reduced,
unless there is a significant change in the Employee's duties and
responsibilities) by the Employee's Manager. To that end, the Employee
shall periodically receive a performance review in accordance with the
Company's then existing policies. For informational purposes only, the
Company's current policy provides for an annual performance review
(which may or may not, at the Company's option, include an adjustment in
the Employee's Base Salary and/or Annual Incentive Bonus).

ADDITIONAL COMPENSATION. The Employee is also be eligible to be
considered for participation, during the term of his/her employment, in
such other compensation programs as may be available by the Company from
time to time (commensurate with the Employee's position and
compensation).

GRANT OF STOCK OPTIONS. In accordance with the Company's Long Term
Incentive Plan, a grant of 250,000 stock options in the Company's common
stock will be requested of SSA's Board of Directors at their next
meeting. The strike price on these options will be the value of a share
of the Company's common stock at the close of market on April 27, 1998
and will, subject to Paragraph 7, below, vest as follows: 1/5th (50,000
stock options) on April 27, 1998; the remaining 4/5ths (200,000 stock
options) in four (4) equal installments (50,000 stock options per
installment) over a four (4) year employment period beginning on April
27, 1999. The grant of such stock options, in accordance with the
foregoing, will be memorialized in an option agreement pursuant to and
in accordance with the Company's Long Term Incentive Plan.

DEDUCTIONS. The Employee agrees that the Company shall withhold from any
and all compensation required to be made to the Employee under this
Agreement all federal, state, local and/or other taxes or payroll
deductions which the Company determines are required to be withheld in
accordance with applicable statutes and/or regulations from time to time
in effect or as otherwise withheld pursuant to the consent or agreement
of the Employee.

5. BENEFITS. During the term of this Agreement, the Employee shall be eligible
to participate in any life insurance, disability insurance, medical, dental, or
health insurance, vacation, savings, pension and retirement plans and other
benefit plans or programs as be maintained by the Company for the benefit of its
employees (commensurate with the Employee's position and compensation).

6. EXPENSES. During the term of this Agreement, the Company shall promptly
reimburse the Employee for all reasonable and approved business expenses
incurred by him in connection with the performance of his duties to the Company,
upon substantiation of such expenses in accordance with the policies of the
Company in effect from time to time.

7. TERMINATION. The Employee's services shall terminate upon the first to occur
of the following events:

TERMINATION WITHOUT CAUSE. The Company expressly reserves the right to
terminate the employment of the Employee hereunder other than for cause,
disability or death, as provided for below. In the event that the
Employee's employment shall have be so terminated by the Company other
than for cause, death, or disability, the Employee shall be entitled to
receive the equivalent of twenty-four (24) months Base Salary (as may
have been adjusted from time to time during the term of this Agreement
and in accordance with the terms hereof) (hereinafter "Twenty-Four Month
Severance Payment"). The Company will pay this Twenty-Four Month
Severance Payment on a lump sum basis within thirty (30) days of
termination. In addition, in the event that the Employee's employment
shall have been so terminated, the vesting period with respect to stock
options granted to the Employee pursuant to Paragraph 4, above, shall
accelerate so as to permit the Employee to exercise, in accordance with
the terms of SSA's Long Term Incentive Plan, any such stock options
which

2
<PAGE>

would have otherwise vested within a period of twenty-four (24) months
after the Employee's effective date of termination of employment.
Notwithstanding the foregoing, in the event that the Employee's
employment is terminated by the Company as a result of a Change in
Control (as defined below), the vesting period with respect to stock
options granted to the Employee pursuant to Paragraph 4, above, shall
accelerate as provided for below.

VOLUNTARY TERMINATION AND TERMINATION FOR CAUSE. The Employee's
termination may be voluntarily terminated by him at any time by giving
ninety (90) day written notice thereof to the Company (or such shorter
period of time as may be agreed upon by the Company). Additionally, the
Employee's employment may be terminated at any time for cause (as
hereinafter defined), effective immediately upon the giving of written
notice to the Employee.

If at any time during the term of this Agreement: (a) the Employee shall
have voluntarily terminated his employment with the Company or (b) the
Company shall have terminated the employment of the Employee for cause
(as hereinafter defined), the Employee shall be entitled to receive only
his Base Salary (as may have been adjusted from time to time during the
term of this Agreement and in accordance with the terms hereof) up to
the date of termination plus any accrued but unused vacation pay. The
Employee shall also be entitled to any benefits mandate under the
Consolidated Onmibus Budget Reconciliation Act of 1985 (COBRA) or
required under the terms of any death, insurance, or retirement plan,
program, or agreement provided by the Company and to which the Employee
is a party or in which the Employee is a participant, including, but not
limited to, any short-term or long-term disability plan or program, if
applicable.

For purposes of this Agreement, the Employee shall be deemed terminated
"for cause" if the Company terminates the Employee after the Employee:
(a) shall have been formally indicted (or the equivalent thereof) for
any felony including, but not limited to, a felony involving fraud,
theft, misappropriation, dishonesty, or embezzlement; (b) shall have
committed intentional acts of gross misconduct that materially impair
the goodwill or business of the Company or cause material damage to its
property, goodwill, or business; or (c) shall have refused to, or
willfully failed to, perform his material duties, provided, however,
that no termination under this subparagraph (c) shall be effective
unless the Employee does not cure such refusal or failure to the
Company's satisfaction as soon as practicable after the Company gives
the Employee written notice identifying such refusal or failure (and, in
any event, within thirty (30) calendar days after receipt of such
written notice). No act or failure to act on the part of the Employee
shall be considered "willful" unless it is done, or omitted to be done,
by the Employee in bad faith or without reasonable belief that his
action or omission was in the best interests of the Company.

TERMINATION DUE TO DISABILITY. This Agreement and any termination of
employment as a result of a disability shall be subject to the
disability policy as established by the Company from time to time.

TERMINATION DUE TO DEATH. In the event of the Employee's death during
the term of this Agreement, the Employee's employment hereunder shall
immediately terminate and, in such event, the Employee's estate shall be
entitled to receive the Employee's Base Salary (as may have been
adjusted from time to time in accordance with Paragraph 4, above) to the
last day of the month during which the Employee's death shall have
occurred and such additional benefits, if any, as may be provided by any
insurance or other benefits to which the Employee may have participated
in or otherwise become entitled to during his period of employment, as
established or maintained by the Company for its employees from time to
time.

TERMINATION DUE TO CHANGE OF CONTROL. The Employee's employment may be
terminated by him by written notice for a Good Reason (as hereinafter
defined) by giving ninety (90) days written notice thereof to the
Company (or such shorter period of time as may be agreed upon by the
Company), at any time within one hundred eighty (180) days following a
Change of Control (as defined below). In such event, the Employee

3
<PAGE>

shall bee entitled to receive a Twenty-Four Month Severance Payment as
described above. The Company will pay this Twenty-Four Month Severance
Payment on a lump sum basis within thirty (30) days of termination.

In the event that the Employee's employment shall have been terminated
by him in accordance with the foregoing or by the Company due to a
Change in Control, the vesting period with respect to all stock options
granted to the Employee pursuant to Paragraph 4, above, shall accelerate
so as to permit the Employee to exercise, in accordance with the terms
of SSA's Long Term Incentive Plan, all stock options which would have
otherwise vested in accordance with the terms of this Agreement.

The term "Good Reason" shall mean either: (a) the elimination of the
Employee's position or a material diminution in the Employee's
authority, functions, duties or responsibilities, which has occurred as
a result of a Change of Control (as hereinafter defined); or (b) a
failure by the Company to either reaffirm the Employee's current
position with the Company or offer the Employee a comparable position at
the same or greater compensation level with thirty (30) days following a
Change of Control (as defined below).

The term "Change of Control" shall mean a material change in the
management structure of the Company which has occurred as a result of
either: (a) a sale of a controlling interest of the Company to a third
party; (b) a sale of the Company to a third party of all or
substantially all of the Company's stock or assets; or (c) a merger of
the Company with another unrelated entity.

TREATMENT OF ANNUAL INCENTIVE BONUS UPON TERMINATION. In the event of
termination of the employment of the Employee for any reason, the
Employee shall be entitled to receive any Annual Incentive Bonus or
other compensation (other than Base Salary) in respect of the fiscal
quarter of the Company in which the termination shall take place; the
specific amount of the Annual Incentive Bonus and/or additional
compensation to be paid to the Executive to be: (a) prorated based upon
the earlier of the effective date of the Employee's termination of
employment or the date the Employee ceases to perform services on behalf
of the Company; and (b) dependent upon the Company's achievement of the
underlying bonus program to which the Annual Incentive Bonus and/or
other compensation relates. In addition, in the event that at the time
of his termination, the Employee is due, but has not yet received,
payment of any Annual Incentive Bonus, or portion thereof, or other
compensation (other than Base Salary), such amount(s) shall be paid to
Employee in accordance with the Company's payroll policy from time to
time in effect.

PAYMENT CONTINGENCIES. Payment to the Employee of the Twenty-Four Month
Severance Payment, together with any other amounts to be paid to the
Employee pursuant to this Paragraph 7, is contingent upon: (a) the
Employee signing an agreement that releases the Company from actions,
suits, claims, proceedings and demands related the period of employment
and/or the termination of the employment; (b) the Company being
permitted to offset from the severance pay hereunder any salary paid to
the Employee during the ninety (90) day notice period (or such shorter
period of time as may be provided for herein or otherwise agreed upon by
the Company) if the Employee performs no services during such notice
period; (c) the Employee returning, in good condition, all property
belonging to Company; and (d) the Employee remaining in compliance with
his obligations of confidentiality including, without limitation, the
Employee's adherence to the restrictions placed upon his subsequent
employment opportunities pursuant to Paragraph 8, below.

8. EMPLOYEE CONFIDENTIALITY OBLIGATIONS. The Employee acknowledges and agrees
that solely by virtue of his employment by, and relationship with the Company,
he will acquire confidential information relating to the Company and its
Affiliates; such confidential information to include, but is not limited to: (a)
any financial business, planning, operations, services, potential services,
products, potential products, technical information and/or know-how, formulas,
production, purchasing, marketing, sales, personnel, customer, broker, supplier,
or other information of the Company or Affiliates; (b) any papers, data,
records, processes, methods, techniques, systems, models, samples, devices,
equipment, compilations, invoices, customer lists, or documents of the Company

4
<PAGE>

or Affiliates; (c) any confidential information or trade secrets of any third
party provided to the Company in confidence or subject to other use of
disclosure restrictions or limitations; and (d) any other information, written,
oral, or electronic, whether existing now or at some time in the future, whether
pertaining to current or future developments, which pertains to the Company's or
Affiliate's affairs or interests or with whom or how the Company or Affiliates
conduct business (hereinafter collectively "Information").

The Employee further acknowledges and agrees that in consideration of the terms
and conditions set forth in this Agreement, including, without limitation, the
compensation to be paid to Employee hereunder, Employee shall sign and abide by
the terms and conditions of the Employee Confidentiality Agreement, attached
hereto and deemed a part hereof (hereinafter "Employee Confidentiality
Agreement"), including, without limitation, the restriction on Employee's
subsequent employment opportunities as set forth in Section 4 thereof. In
addition, the Employee acknowledges and agrees that the restrictions contained
in Section 4 of the Employee Confidentiality Agreement are necessary and
reasonable in order to protect the Company in the conduct of its business and
will not prevent Employee form earning a comparable livelihood following the
termination of his/her employment with the Company. Employee further agrees that
for a minimum period of one (1) year following the termination of his employment
with the Company, he shall disclose the existence and terms of the Employee
Confidentiality Agreement to each subsequent employer and hereby consents to and
the Company is hereby given permission to disclose the existence and terms of
the Employee Confidentiality Agreement to any such subsequent employer.

The Information described in this Paragraph 8 shall be deemed to be included in
this definition of "Proprietary Information" as set forth in the Employee
Confidentiality Agreement and shall be subject to the terms and conditions
contained therein.

9. ADDITIONAL PROVISIONS. The Company and the Employee further agree as
follows:

ASSIGNMENT. The Employee acknowledges that the services to be rendered
by him are unique and personal. Accordingly, the Employee may not assign
any of his rights or delegate any of his duties or obligations under
this Agreement. The rights and obligations of the Company under this
Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of the Company.

NOTICES. All notices required or permitted hereunder shall be in writing
and deemed effectively given upon personal delivery or upon deposit in
the United States mails, by registered or certified mail, postage
prepaid, addressed to the other party hereto at the address set forth in
the introductory paragraph of this Agreement, or at other address or
addresses as either party designate to the other in accordance with this
paragraph.

ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties, and supersedes all prior agreements and
understandings, relating to the subject matter hereof. If any provision
of this Agreement shall be found invalid or unenforceable for any
reason, in whole or in part, then such provision shall be deemed
modified, restrict, or reformulated to the extent and in the manner
necessary to render the same valid and enforceable, or shall be deemed
excised from this Agreement, as the case may require, and this Agreement
shall be construed and enforced to the maximum extent permitted by law,
as if such provision had been originally incorporated herein as so
modified, restricted, or reformulated or as if such provision had not
been originally incorporated herein, as the case may be.

AMENDMENT. This Agreement may be amended or modified only by a written
instrument executed by both the Company and the Employee.

HEADINGS. The Paragraph and subparagraph headings used in this Agreement
are for convenience only and shall not be deemed to be considered a
construction of the provisions hereof.

5
<PAGE>

IMMIGRATION AND REFORM CONTROL ACT OF 1986. This Agreement is contingent
upon submission by the Employee of the appropriate documentation for
verification in compliance with the Immigration and Reform Control Act
of 1986, as amended.

GOVERNING LAW. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the laws of the State of
Illinois.

THE EMPLOYEE HAS READ AND FULLY UNDERSTANDS THE TERMS AND CONDITIONS SET FORTH
IN THIS AGREEMENT, HAS HAD TIME TO REFLECT ON AND CONSIDER THE BENEFITS AND
CONSEQUENCES OF ENTERING INTO THIS AGREEMENT, AND HAS HAD THE OPPORTUNITY TO
REVIEW THE TERMS HEREOF WITH AN ATTORNEY OR OTHER REPRESENTATIVE, IF HE/SHE SO
CHOOSES.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first written at the introductory paragraph to this Agreement.

SYSTEM SOFTWARE ASSOCIATES, INC.

By: /s/ William Stuek
----------------------------------------
Typed or Printed Name: William Stuek
---------------------

EMPLOYEE:
By: /s/ Lawrence A. Zimmerman
----------------------------------------
Typed or Printed Name: Lawrence A. Zimmerman
---------------------

<PAGE>

Exhibit 21.1

SUBSIDIARIES OF THE REGISTRANT
------------------------------
<TABLE>
<CAPTION>
Jurisdiction of
Name Incorporation % STOCK
---- ------------------- -------
<S> <C> <C>
Astral International Corporation Massachusetts 100.00
- - --------------------------------------------------------------------------------
Castillo Informatica, S.A. Spain 100.00
- - --------------------------------------------------------------------------------
CS Controlling Software Systeme GmbH Germany 25.00
- - --------------------------------------------------------------------------------
Knight Enterprises, Inc. Nevada 100.00
- - --------------------------------------------------------------------------------
NofTek, N.W., Inc. d/b/a SSA Northwest Inc. Oregon 100.00
- - --------------------------------------------------------------------------------
Priority Systems, Inc. Texas 100.00
- - --------------------------------------------------------------------------------
SSA Acclaim Limited United Kingdom 100.00
- - --------------------------------------------------------------------------------
SSA Benelux B.V. The Netherlands 100.00
- - --------------------------------------------------------------------------------
SSA Canada Corporation Canada 100.00
- - --------------------------------------------------------------------------------
SSA Carribbean, Inc. Delaware 100.00
- - --------------------------------------------------------------------------------
SSA Columbia S.A. Columbia 100.00
- - --------------------------------------------------------------------------------
SSA Hong Kong Ltd. Hong Kong 100.00
- - --------------------------------------------------------------------------------
SSA India Private Limited India 100.00
- - --------------------------------------------------------------------------------
SSA Italia S.p.A. Italy 100.00
- - --------------------------------------------------------------------------------
SSA Japan Corp. Delaware 100.00
- - --------------------------------------------------------------------------------
SSA Korea Ltd. Korea 100.00
- - --------------------------------------------------------------------------------
SSA Nordic AB Sweden 100.00
- - --------------------------------------------------------------------------------
SSA North Central Delaware 100.00
- - --------------------------------------------------------------------------------
SSA Northeast Delaware 100.00
- - --------------------------------------------------------------------------------
SSA Pacific (New Zealand) Ltd. New Zealand 100.00
- - --------------------------------------------------------------------------------
SSA Pacific Pty. Ltd. Australia 100.00
- - --------------------------------------------------------------------------------
SSA Pacific Rim Corporation Delaware 100.00
- - --------------------------------------------------------------------------------
SSA Software (Malaysia) SDN.BHD. Malaysia 100.00
- - --------------------------------------------------------------------------------
SSA Softwright Limited United Kingdom 100.00
- - --------------------------------------------------------------------------------
SSA System Software Associates GmbH Germany 100.00
- - --------------------------------------------------------------------------------
SSA, Inc. do Brazil Brazil 100.00
- - --------------------------------------------------------------------------------
System Software Associates (Beijing) Co., Ltd. China 100.00
- - --------------------------------------------------------------------------------
System Software Associates (Japan) LLC Delaware 100.00
- - --------------------------------------------------------------------------------
System Software Associates AG, Basel Switzerland 100.00
- - --------------------------------------------------------------------------------
System Software Associates Asia Pacific Pte. Ltd. Singapore 100.00
- - --------------------------------------------------------------------------------
System Software Associates Czech Republic Czech Republic 100.00
- - --------------------------------------------------------------------------------
System Software Associates Finland OY Finland 100.00
- - --------------------------------------------------------------------------------
System Software Associates Iberica S.A. Spain 100.00
- - --------------------------------------------------------------------------------
System Software Associates Inc., de Mexico, S.A. Mexico 100.00
- - --------------------------------------------------------------------------------
System Software Associates Limited United Kingdom 100.00
- - --------------------------------------------------------------------------------
Systems Software Associates France S.A. France 100.00
- - --------------------------------------------------------------------------------
Systems Sofware Associates (FSC), Inc. U.S. Virgin Islands 100.00
- - --------------------------------------------------------------------------------
Vector Systems Analysis Inc. Canada 100.00
- - --------------------------------------------------------------------------------
Wallop Investments (Proprietary) Limited South Africa 100.00
- - --------------------------------------------------------------------------------
</TABLE>

<PAGE>

Exhibit 23.1

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors
System Software Associates, Inc.:

We consent to incorporation by reference in the registration statements
(Nos. 33-14621, 333-36777 and 33-24516) on Form S-8 and registration statements
(Nos. 333-46449, 33-62207, 333-06647, 333-09463, 333-21561, 333-29355,
333-31271, 333-35195, 333-35771 and 333-64551) on Form S-3 of System Software
Associates, Inc. of our report dated December 10, 1998, relating to the
consolidated balance sheets of System Software Associates, Inc. and subsidiaries
as of October 31, 1998 and 1997, and the related consolidated statements of
operations, changes in stockholders' equity, and cash flows for each of the
years in the three-year period ended October 31, 1998, and the related schedule,
which reports appear in the October 31, 1998 annual report on Form 10-K of
System Software Associates, Inc.

/s/ KPMG LLP

Chicago, Illinois
January 29, 1999

<PAGE>

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<CASH> 52,400
<SECURITIES> 0
<RECEIVABLES> 160,900
<ALLOWANCES> 16,500
<INVENTORY> 0
<CURRENT-ASSETS> 259,500
<PP&E> 67,900
<DEPRECIATION> 48,800
<TOTAL-ASSETS> 360,800
<CURRENT-LIABILITIES> 165,600
<BONDS> 137,300
9,300
0
<COMMON> 200
<OTHER-SE> 13,900
<TOTAL-LIABILITY-AND-EQUITY> 360,800
<SALES> 420,800
<TOTAL-REVENUES> 420,800
<CGS> 0
<TOTAL-COSTS> 569,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,900
<INCOME-PRETAX> (158,100)
<INCOME-TAX> (29,400)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (130,000)
<EPS-PRIMARY> (2.80)
<EPS-DILUTED> (2.80)

</TABLE>