<PAGE>

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                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                  FORM 10-K/A

                                AMENDMENT NO. 2

[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
   ACT OF 1934
  For the fiscal year ended September 30, 1999
                                      OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
   EXCHANGE ACT OF 1934
  For the transition period from        to

                          Commission File No. 1-14196

                            STERLING COMMERCE, INC.
            (Exact name of registrant as specified in its charter)

               Delaware                              75-2623341
                                        (I.R.S. Employer Identification No.)
     (State or other jurisdiction
   ofincorporation or organization)

              300 Crescent Court, Suite 1200, Dallas, Texas 75201
         (Address of principal executive offices, including zip code)

      Registrant's telephone number, including area code: (214) 981-1100

                Registrant's web page: www.sterlingcommerce.com

          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

          Title of Each Class              Name of Each Exchange on Which
     Common Stock, $0.01 Par Value                   Registered
  Rights to Purchase Series A Junior           New York Stock Exchange
 Participating Preferred Stock, $0.01          New York Stock Exchange
               Par Value

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                                     None

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

  As of December 31, 1999, 79,982,697 shares of the Registrant's Common Stock
were outstanding.

  The aggregate market value of the Registrant's Common Stock held by non-
affiliates of the Registrant was $2,711,489,450 based on the $34 closing sales
price of the Registrant's Common Stock on the New York Stock Exchange on
December 31, 1999.

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<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                       AMENDMENT TO APPLICATION OR REPORT
                FILED PURSUANT TO SECTION 12, 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

                            STERLING COMMERCE, INC.

                                  FORM 10-K/A

                                AMENDMENT NO. 2

  The undersigned registrant hereby amends the following items of its Annual
Report on Form 10-K for the fiscal year ended September 30, 1999 as set forth
in the pages attached hereto:

  Item 10. Directors and Executive Officers of the Registrant.

  Item 11. Executive Compensation.

  Item 12. Security Ownership of Certain Beneficial Owners and Management.

  Item 13. Certain Relationships and Related Transactions.

                                       1
<PAGE>

                                   PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

  The name, age and position of each executive officer of Sterling Commerce,
Inc. (the "Company") is set forth under the heading "Executive Officers" in
Part I of the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1999.

Board of Directors

  The Company's Certificate of Incorporation provides for a board of directors
(the "Board") divided into three classes, as nearly equal in number as
possible, with the term of office of one class expiring each year at the
Company's annual meeting of stockholders. Each class of directors is elected
for a term of three years, except in the case of elections to fill vacancies
or newly created directorships.

  The Class A directors, whose terms will expire at the annual meeting of
stockholders in 2000, are as follows:

  Honor R. Hill, age 58. Mrs. Hill has served as a director of the Company
since March 1996. She has been a listed Christian Science practitioner since
1986 and a Christian Science lecturer since 1994. Mrs. Hill, who has an honors
degree in English from the University of Calgary in Alberta, served on the
Board of Trustees of the Christian Science Publishing Society, the
publications of which include the Christian Science Monitor, during its 1993-
1994 term. Mrs. Hill is a member of the Audit Committee and the Special Stock
Option Committee of the Board of Directors of Sterling Commerce.

  Evan A. Wyly, age 38. Mr. Wyly has served as a director of the Company since
December 1995. He has been a Managing Partner of Maverick Capital, Ltd., an
investment fund management company, since 1991. In 1988 Mr. Wyly founded
Premier Partners Incorporated, a private investment firm, and served as its
President prior to joining Maverick Capital, Ltd. Mr. Wyly also currently
serves as a director of Sterling Software, Inc. ("Sterling Software") and as a
director of Michaels Stores Inc., a specialty retailer ("Michaels Stores").

  The current Class B directors of the Company, whose terms will expire at the
Company's annual meeting of stockholders in 2001, are as follows:

  Warner C. Blow, age 62. Mr. Blow has served as Chief Executive Officer and a
director of the Company since October 1996. From December 1995 until October
1999, Mr. Blow also served as President of the Company and, from December 1995
until October 1996, Chief Operating Officer of the Company. Prior to December
1995, Mr. Blow served as President of Sterling Software's Electronic Commerce
Group (the predecessor of the Company) from July 1993 and as an Executive Vice
President of Sterling Software from October 1989.

  Robert E. Cook, age 58. Mr. Cook has served as a director of the Company
since March 1996. Prior to July 1993, Mr. Cook served as a Chairman and a
director of Systems Center, Inc., a computer software company that was
acquired by Sterling Software in July 1993. Mr. Cook currently also serves as
a director of Web Methods, Inc., a provider of Internet-oriented products. Mr.
Cook served as Chairman of the Board of ROADSHOW International, Inc., a
privately held provider of computer-based routing solutions for private fleet
operations, until October 1997, when it was sold. Mr. Cook is also an officer
of Pitchfork Development, Inc., a privately held, Utah-based, real estate
development company. Mr. Cook is a managing director of Royal Wulff Ventures,
LLP, a venture capital company. Mr. Cook is the Chairman of the Audit
Committee and a member of the Special Stock Option Committee of the Board.

  Charles J. Wyly, Jr., age 66. Mr. Wyly has served as a director of the
Company since December 1995. Mr. Wyly co-founded Sterling Software in 1981 and
since such time has served as a director, and as Vice Chairman of Sterling
Software since 1984. He served as an officer and director of University
Computing Company, a computer software and services company, from 1964 to
1975, including President from 1969 to 1973. Mr. Wyly

                                       2
<PAGE>

and his brother, Sam Wyly, also a director of the Company, founded Earth
Resources Company, an oil refining and silver mining company, and Charles J.
Wyly, Jr. served as its Chairman of the Board from 1968 to 1980. Mr. Wyly
served as Vice Chairman of the Bonanza Steakhouse chain from 1967 to 1989. Mr.
Wyly currently serves as Vice Chairman of Michaels Stores and as a director of
Scottish Annuity Life & Holdings, Ltd, a variable life insurance and
reinsurance company. Mr. Wyly is a member of the Executive Committee, the 1996
Stock Option Committee and the 1999 Stock Option Committee of the Board.

  The current Class C directors of the Company, whose terms will expire at the
Company's annual meeting of stockholders in 2002, are as follows:

  Sterling L. Williams, age 56. Mr. Williams has served as Chairman of the
Board of the Company since December 1995 and served as Chief Executive Officer
of the Company from December 1995 until October 1996. Mr. Williams co-founded
Sterling Software in 1981, and since such time has served as President, Chief
Executive Officer and a director of Sterling Software. Mr. Williams is a
member of the Executive Committee, the 1996 Stock Option Committee and the
1999 Stock Option Committee of the Board.

  Sam Wyly, age 65. Mr. Wyly has served as a director of the Company since
December 1995. He also serves as Chairman of the Executive and 1996 and 1999
Stock Option Committees of the Board. Mr. Wyly co-founded Sterling Software in
1981 and since such time has served as Chairman of the Board of Sterling
Software. Companies founded by Mr. Wyly were among the forerunners of the
computer software and electronic commerce industries and the Internet. In
1963, he founded University Computing Company, which became one of the largest
computer service and software companies. His data transmission company,
Datran, Inc., was one of the pioneering telecommunications ventures that broke
up the telephone monopoly. Mr. Wyly currently serves as Chairman of the Board
of Sterling Software, Chairman of the Board of Michaels Stores and Chairman of
the Board of Scottish Annuity and Life Holdings, Ltd., and is Founding Partner
of the General Partner of Maverick Capital, Ltd. Mr. Wyly is the father of
Evan Wyly, also a director of the Company.

Section 16(a) Beneficial Ownership Reporting Compliance

  Section 16(a) of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers, and
persons who own more than 10% of the Company's Common Stock, to file with the
Securities Exchange Commission (the "SEC") and the New York Stock Exchange
(the "NYSE") initial reports of ownership and reports of changes in ownership
of the Common Stock and all other equity securities of the Company
beneficially owned by them. Such persons are required by SEC regulations to
furnish the Company with copies of all Section 16(a) reports that they file.

  To the Company's knowledge, based solely on review of copies of such reports
furnished to the Company or written representations from certain reporting
persons, during the fiscal year ended September 30, 1999, all Section 16(a)
filing requirements applicable to the directors, executive officers and
greater than 10% stockholders were complied with by such persons, except as
noted below. A report on Form 4 was filed on behalf of Sam Wyly on December
10, 1999 disclosing the previously unreported purchase of Common Stock by his
spouse. A report on Form 4 was filed on behalf of Sterling L. Williams on
January 7, 2000 disclosing the previously unreported sale of Common Stock by
his spouse. The subject shares were acquired by his spouse prior to their
marriage and Mr. Williams disclaimed beneficial ownership of such securities
held and sold by his spouse.

ITEM 11. EXECUTIVE COMPENSATION.

Summary Compensation Table

  The following table sets forth certain information regarding compensation
paid or accrued for services rendered to the Company and its subsidiaries
during each of the Company's last three fiscal years to (i) the Chief
Executive Officer and (ii) each of the Company's four other most highly
compensated executive officers based on salary and bonus earned during the
Company's fiscal year ended September 30, 1999 (collectively (i) and (ii), the
"Named Executive Officers").

                                       3
<PAGE>

<TABLE>
<CAPTION>
                                                                    Long-Term
                                                                   Compensation
                                   Annual Compensation                Awards
                         ----------------------------------------   Securities
   Name and Principal    Fiscal                     Other Annual    Underlying   All Other
        Position          Year   Salary  Bonus(1)  Compensation(2)  Options(3)  Compensation
   ------------------    ------ -------- --------  --------------  ------------ ------------
<S>                      <C>    <C>      <C>       <C>             <C>          <C>
Warner C. Blow..........  1999  $700,000 $300,000     $265,693(4)           0     $13,838(5)
 Chief Executive Officer  1998   662,500  300,000      154,117              0      12,522
                          1997   550,000  250,000      158,483      1,000,000      14,382
J. Brad Sharp...........  1999   366,000  167,000       17,985(7)           0       6,191(8)
 President and Chief
  Operating Officer(6)    1998   244,000  147,994        4,255              0       6,191
                          1997   228,000  112,143        3,598        215,000       5,396
Paul L. H. Olson........  1999   292,000  149,605       20,615(7)           0       7,300(9)
 Executive Vice
  President and           1998   283,000   88,996       16,541              0       7,876
 President, Commerce
  Services Group          1997   260,000  141,423        9,312        200,000       6,130
Stephen R. Perkins......  1999   284,000  104,300        9,926(7)           0       6,258(10)
 Executive Vice
  President and           1998   255,000   71,603        4,909              0       6,939
 President,
  Communications          1997   228,000  131,701        7,904        195,000       6,516
 Software Group
Steven P. Shiflet.......  1999   252,600   59,650       14,235(7)           0       7,422(11)
 Senior Vice President
  and                     1998   237,000   66,000            0              0       4,800
 Chief Financial Officer  1997   214,000   71,560            0        105,000       4,500
</TABLE>
--------
 (1) Reflects bonus earned during the fiscal year. In some instances, the
     payment of all or a portion of salary or bonus was deferred by the Named
     Executive Officer to a subsequent year.
 (2) Excludes perquisites and other personal benefits if the aggregate amount
     of such compensation is less than the lesser of $50,000 or 10% of the
     total annual salary and bonus reported for such Named Executive Officer.
 (3) The Company has not granted stock appreciation rights.
 (4) Includes a $96,213 payment for reimbursement of taxes.
 (5) Includes $4,800 in contributions to the Sterling Commerce, Inc. Savings
     and Security Plan (the "Savings Plan") and $9,038 in respect of premiums
     on a life insurance policy for Mr. Blow's benefit.
 (6) Mr. Sharp was elected President of the Company in October 1999.
     Additionally, Mr. Sharp has served as Chief Operating Officer of the
     Company since October 1998. Prior to October 1998, Mr. Sharp served as
     Executive Vice President of the Company and President of the Company's
     Interchange Software Group.
 (7) Consists of payments for reimbursement of taxes.
 (8) Includes $4,800 in contributions to the Savings Plan and $1,391 in
     respect of premiums on a life insurance policy for Mr. Sharp's benefit.
 (9) Includes $4,800 in contributions to the Savings Plan and $2,500 in
     respect of premiums on a life insurance policy for Mr. Olson's benefit.
(10) Includes $4,800 in contributions to the Savings Plan and $1,458 in
     respect of premiums on a life insurance policy for Mr. Perkins' benefit.
(11) Includes $4,800 in contributions to the Savings Plan and $2,622 in
     respect of premiums on a life insurance policy for Mr. Shiflet's benefit.

                                       4
<PAGE>

Option Grants in Fiscal 1999

  The following table provides information related to options to purchase
Common Stock granted by the Company to the Named Executive Officers during
fiscal 1999.

<TABLE>
<CAPTION>
                                                                          Potential Realizable
                                                                            Value at Assumed
                                                                          Annual Rates of Stock
                                                                           Price Appreciation
                                       Individual Grants(1)                for Option Term(4)
                         ------------------------------------------------ ---------------------
                         Number of  Percentage of
                         Securities Total Options Exercise
                         Underlying  Granted to    Price
                          Options   Employees in    Per      Expiration
Name                     Granted(2)  Fiscal 1999  Share(3)      Date          5%        10%
----                     ---------- ------------- -------- -------------- ---------- ----------
<S>                      <C>        <C>           <C>      <C>            <C>        <C>
J. Brad Sharp...........  500,000       10.5%      $34.88   Oct. 28, 2005 $4,236,877 $9,913,546
J. Brad Sharp...........  200,000        4.2        18.81  Sept. 29, 2006  1,576,187  3,630,946
Stephen R. Perkins......   50,000        1.0        34.88   Oct. 28, 2003    423,688    991,355
</TABLE>
--------
(1) The agreements underlying such options provide that the options vest 25%
    each year on the anniversary of the grant date. All such options have a
    seven-year term and are transferable by the option holder.
(2) The Company has not granted stock appreciation rights.
(3) The option agreements provide that the option exercise price may be paid
    in cash, in shares of Common Stock owned by the Named Executive Officer or
    in a combination of the foregoing. The exercise price was equal to the
    fair market value of the Common Stock on the date of grant.
(4) The potential realizable value columns of the table above illustrate the
    value that might be realized upon exercise of the options immediately
    prior to the expiration of their terms, assuming the specified compounded
    rates of appreciation of the price of the Common Stock over the terms of
    the options. These amounts do not take into account provisions of certain
    options providing for termination of the options following termination of
    employment or vesting over periods of up to four years. The use of the
    assumed 5% and 10% values is established by the SEC and is not intended by
    the Company to forecast possible future appreciation of the price of the
    Common Stock.

Option Exercises in Fiscal 1999 and Fiscal Year-End Option Values

  The following table provides information related to options to purchase
Common Stock issued by the Company and exercised by the Named Executive
Officers during fiscal 1999 and the number and value of options held at fiscal
year end.

<TABLE>
<CAPTION>
                                                           Number of
                                                     Securities Underlying     Value of Unexercised
                                                    Unexercised Options at    In-the-Money Options at
                                                     September 30, 1999(1)     September 30, 1999(2)
                         Shares Acquired   Value   ------------------------- -------------------------
Name                       on Exercise   Realized  Exercisable Unexercisable Exercisable Unexercisable
----                     --------------- --------- ----------- ------------- ----------- -------------
<S>                      <C>             <C>       <C>         <C>           <C>         <C>
Warner C. Blow..........           0     $       0  1,050,000     750,000        $ 0          $ 0
Paul L.H. Olson.........     115,000     1,829,100     25,000     150,000          0            0
Stephen R. Perkins......      93,750     1,145,625     25,000     192,500          0            0
J. Brad Sharp...........      28,750       508,887     90,000     847,500          0            0
Steven P. Shiflet.......      67,500     1,092,663          0      85,000          0            0
</TABLE>
--------
(1) The Company has not granted stock appreciation rights.
(2) In accordance with SEC regulations, value was determined based upon the
    per share closing price of the Common Stock as reported by the NYSE on
    September 30, 1999 ($18 18/32) multiplied by the number of shares of
    Common Stock of the Company underlying such options.

Director Compensation

  Each director of the Company who is not also an employee of the Company or
any of its subsidiaries (other than Mr. Williams) receives an annual fee of
$30,000, plus $3,000 for each meeting of the Board or a committee thereof that
he or she attends during the fiscal year. All directors are reimbursed for
their out-of-pocket expenses incurred in connection with attendance at
meetings of the Board and Board committees and other activities relating
thereto. Directors are also eligible to receive discretionary grants of
options to purchase shares of Common Stock under the terms of the Sterling
Commerce, Inc. 1996 Stock Option Plan (the "1996 Stock Option Plan"). However,
no such grants were made to directors during fiscal 1999.

                                       5
<PAGE>

SERP

  In connection with its acquisition of Informatics General Corporation in
1985, Sterling Software retained the Informatics Supplemental Executive
Retirement Plan II ("SERP II"). The Company has adopted the Sterling Commerce,
Inc. Supplemental Executive Retirement Plan ("SERP") to assume the obligations
of Sterling Software under the SERP II with respect to Warner C. Blow. Mr.
Blow is the only employee of the Company who participates in the SERP. No
other employee, including the other Named Executive Officers, participates, or
will be eligible to participate, in the SERP. As of September 30, 1999, Mr.
Blow had accrued approximately 25 years of service under the SERP. The annual
benefit payable upon retirement at age 65 or above under the SERP is equal to
the lesser of (i) 2% of the participant's "final average pay," which is equal
to the highest average of the participant's base salary plus the participant's
bonuses (up to a maximum bonus amount not to exceed 50% of the participant's
base salary in the applicable year) over three consecutive years of service,
multiplied by the participant's years of service or (ii) 50% of the
participant's final average pay less the annuity equivalent of an account
balance equal to 3% of compensation for each year of service beginning with
the calendar year of participation in the SERP II plus interest at an assumed
rate (collectively, the "annuity offset"). For purposes of the annuity offset,
the participant's compensation is equal to the participant's taxable wages up
to the limit on qualified plan compensation for any calendar year under the
Internal Revenue Code of 1986, as amended (the "Code"). Benefits paid under
the SERP are adjusted in the event of disability or retirement prior to age
65. Benefits are also adjusted annually, upward or downward, to the extent
that the increase or decrease, if any, in the Consumer Price Index for the
preceding calendar year over the Consumer Price Index for the next preceding
calendar year exceeds 5%. Benefits under the SERP are paid in the form of a
joint and 50% survivor annuity (unless a Change in Control of the Company as
defined in the SERP occurs) and are taxable as ordinary income.

  In the event of a Change in Control of the Company, the participant's SERP
benefit is calculated by giving the participant credit for additional service
equal to the number of months for which the participant would be entitled to
severance benefits upon a termination of employment following the Change in
Control and by calculating his base pay and bonus during each year of such
service at the rates in effect for the year in which the Change in Control
occurs. The present value of the SERP benefit as so calculated is payable to
the participant in a single lump sum on the first day of the month following
the Change in Control. If any portion of the SERP benefit would result in an
excess parachute payment subject to excise tax for which no tax gross-up
payment is provided under the participant's Change-in-Control Agreement, an
additional payment would be made from the SERP to compensate the participant
for the excise tax imposed on the SERP benefit.

  The following table shows the estimated annual benefits payable upon
retirement at age 65 to the participant in the SERP for the indicated level of
three-year average annual compensation and various periods of service. The
amounts shown in the table may be subject to the annuity offset.

<TABLE>
<CAPTION>
      Remuneration                            Years of service
      ------------             ----------------------------------------------------------------------------
                                  25                           30                           35
                               --------                     --------                     --------
      <S>                      <C>                          <C>                          <C>
      $  800,000               $400,000                     $400,000                     $400,000
         900,000                450,000                      450,000                      450,000
       1,000,000                500,000                      500,000                      500,000
       1,100,000                550,000                      550,000                      550,000
       1,200,000                600,000                      600,000                      600,000
</TABLE>

Change-in-Control and Severance Agreements

  The Company has entered into an agreement (as amended, a "Change-in-Control
Agreement") with each of the Named Executive Officers. Each Change-in-Control
Agreement covers termination within a specified number of years after the date
of a Change in Control (as defined in such agreements) and requires the
Company to pay to such officer if, prior to expiration of such specified
period, his employment is terminated with or without cause by the Company
(other than upon such officer's death) or by such officer upon the occurrence
of certain constructive termination events, a lump-sum amount equal to a
multiple of such officer's annual salary,

                                       6
<PAGE>

bonus and cash incentive compensation preceding such termination and to
provide continuation of all benefits for a specified number of months. The
specified number of years, the multiple and the specified number of months
referred to in the immediately preceding sentence are five, 500% and 60,
respectively, in the case of Mr. Blow; four, 400% and 48, respectively, in the
case of Mr. Sharp; and three, 300% and 36, respectively, in the case of
Messrs. Olson, Perkins and Shiflet. In addition, if any payments (including
payments under the Change-in-Control Agreement, any stock option agreement or
otherwise) to such officer are determined to be "excess parachute payments"
under the Code, such officer would be entitled to receive an additional
payment (net of income taxes) to compensate such officer for the excise tax
imposed by the Code on such payments.

  The Company has also entered into an agreement (a "Severance Agreement")
with each of the Named Executive Officers, providing for the continued
compensation of such officer in the event that the Company terminates his
employment, with or without cause. Each such agreement requires the Company to
pay the officer, upon his termination from employment by the Company, for a
specified number of months (60 in the case of Mr. Blow, 48 in the case of Mr.
Sharp, and 36 in the case of Messrs. Olson, Perkins and Shiflet), such
officer's annual salary and bonus and to provide continuation of certain
benefits for the specified number of months. In the event of a termination of
employment following a Change in Control, at the officer's option, the terms
of his Change-in-Control Agreement may govern such termination in lieu of the
terms of the Severance Agreement.

Consulting Agreement

  In fiscal 1998, the Company entered into an agreement (the "Consulting
Agreement") with Mr. Williams pursuant to which Mr. Williams provides advisory
services to the Executive Committee of the Board and the Chief Executive
Officer of the Company and, for so long as the Board elects Mr. Williams as
Chairman of the Board, he serves as Chairman. The Consulting Agreement is in
lieu of and replaces the Chairman Agreement and the Change-in-Control
Agreement that were previously in place between the Company and Mr. Williams.
Under the Consulting Agreement, Mr. Williams is paid an annual fee for his
services thereunder and is entitled to participate in the Company's cash
incentive bonus program. In fiscal 1999, Mr. Williams was paid $800,000 in
annual fees and a $300,000 bonus under this agreement. Effective for fiscal
2000, Mr. Williams and the Company mutually agreed to increase the annual fee
to $880,000 and his bonus level to $330,000. In addition, Mr. Williams is
entitled to participate in certain of the Company's employee benefit plans.
Pursuant to the Consulting Agreement, Mr. Williams waived his right to receive
fees and other compensation as a non-employee director of the Company. Under
the terms of the Consulting Agreement, the Company will provide Mr. Williams
with suitable office facilities, including secretarial support, or reimburse
Mr. Williams for the cost of obtaining comparable facilities from third
parties. The Company will also reimburse Mr. Williams for authorized expenses
incurred in providing services under the Consulting Agreement.

  A notice of termination of the Consulting Agreement may be given by Mr.
Williams at any time or by the Company at any time after Mr. Williams ceases
to be Chairman. Upon such notice of termination, the term of the Consulting
Agreement will automatically become a term of seven years and Mr. Williams
would be entitled to continue receiving compensation under the Consulting
Agreement during such seven-year term. At any time after a Change in Control
(as defined in the Consulting Agreement), Mr. Williams would have the option
of terminating the Consulting Agreement, whereupon the term of the Consulting
Agreement, if it has not previously done so, would automatically become a term
of seven years and Mr. Williams would be entitled to receive a lump sum amount
equal to all compensation (annual fee and highest annual cash incentive bonus
to be paid) due throughout the unexpired portion of the seven-year term, and
all unvested Company stock options held by Mr. Williams would immediately vest
and become exercisable. In addition, if any payments (including payments under
any stock option agreement or otherwise) to Mr. Williams are determined to be
"excess parachute payments" under the Code, Mr. Williams would be entitled to
receive an additional payment (net of income taxes) to compensate him for the
excise tax imposed by the Code on such payments. The Consulting Agreement will
also terminate upon Mr. Williams's death.


                                       7
<PAGE>

  In addition to the above-described agreements, the Company has agreed to
reimburse each of the Named Executive Officers for certain legal, financial
and other professional services.

Executive and Option Committee Interlocks and Insider Participation

  The members of the Executive Committee have been and will be primarily
responsible for determining executive compensation other than with respect to
grants of stock options. The 1996 Stock Option Committee, the 1999 Stock
Option Committee and the Special Stock Option Committee are responsible for
determining grants of stock options. Each of Sam Wyly, Sterling L. Williams
and Charles J. Wyly, Jr. is a member of the Executive Committee, the 1996
Stock Option Committee and the 1999 Stock Option Committee and participated in
meetings with respect to compensation matters.

  Sam Wyly and Charles J. Wyly, Jr. are executive officers of both Sterling
Software and Michaels Stores, members of the executive committees and the
boards of directors of the Company, Sterling Software and Michaels Stores,
members of stock option committees of the Company and Sterling Software and
members of the board of directors of Scottish Annuity & Life Holdings, Ltd.
Each is also a member of the compensation committee of Michaels Stores. In
addition, Mr. Williams is a director of the Company and a director and
executive officer of Sterling Software and a member of the respective
executive committees, stock option committees and boards of directors of the
Company and Sterling Software. Accordingly, Mr. Williams has participated in
decisions related to compensation of executive officers of each of the Company
and Sterling Software, and Sam Wyly and Charles J. Wyly, Jr. have participated
in decisions related to compensation matters for each of the Company, Sterling
Software and Michaels Stores. Evan A. Wyly, a director of the Company, is also
a director of Michaels Stores and a director of Sterling Software. See Item
13. "Certain Relationships and Related Transactions."

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

  The following table sets forth information regarding the beneficial
ownership of Common Stock by each director of the Company (which includes all
nominees), each Named Executive Officer (as defined below), the directors and
executive officers of the Company as a group and each person or entity known
by the Company to own 5% or more of the outstanding shares of Common Stock.
Unless otherwise indicated, each person or entity listed below has sole voting
and investment power with respect to such shares.

<TABLE>
<CAPTION>
                                                   Shares of Common Stock
                                                   Owned Beneficially(1)
                                                --------------------------------
       Name                                       Number        Percent of Class
       ----                                     -----------     ----------------
<S>                                             <C>             <C>
Sterling L. Williams..........................   3,755,776 (2)        4.76%
Warner C. Blow................................   1,359,031 (3)        1.72%
J. Brad Sharp.................................     285,916 (4)           *
Paul L. H. Olson..............................     104,572 (5)           *
Stephen R. Perkins............................     108,044 (6)           *
Steven P. Shiflet.............................      53,084 (7)           *
Sam Wyly......................................   1,045,672 (8)         1.3%
Charles J. Wyly, Jr...........................     988,366 (9)         1.2%
Evan A. Wyly..................................      60,000 (10)          *
Robert E. Cook................................      35,000 (11)          *
Honor R. Hill.................................      25,000 (12)          *
All executive officers and directors as a
 group (13 persons)...........................   7,922,248 (13)      10.03%
AXA Conseil Vie Assurance Mutuelle and related
 entities, AXA and The Equitable Companies
 Incorporated and related entities............  10,595,169 (14)      13.25%
AMVESCAP PLC and related entities.............   4,833,440 (15)       6.04%
T. Rowe Price Associates, Inc. ...............   4,996,923 (16)       6.25%
</TABLE>

                                       8
<PAGE>

--------
  * Less than 1%.
 (1) The number of shares shown includes outstanding shares owned by the
     person indicated on December 31, 1999 and shares underlying options owned
     by such person on December 31, 1999 that were exercisable within 60 days
     of such date. Persons holding shares of Common Stock pursuant to the
     Savings Plan generally have sole voting power, but not investment power,
     with respect to such shares.
 (2) Includes 3,750,000 shares of Common Stock that may be acquired upon
     exercise of options granted under the 1996 Stock Option Plan.
 (3) Includes 1,350,000 shares of Common Stock that may be acquired upon
     exercise of options granted under the 1996 Stock Option Plan and 4,031
     shares of Common Stock held pursuant to the Savings Plan.
 (4) Includes 283,750 shares of Common Stock that may be acquired upon
     exercise of options granted under the 1996 Stock Option Plan and 2,166
     shares of Common Stock held pursuant to the Savings Plan.
 (5) Includes 100,000 shares of Common Stock that may be acquired upon
     exercise of options granted under the 1996 Stock Option Plan. Also
     includes 2,090 shares of Common Stock held pursuant to the Savings Plan
     and 348 shares of Common Stock held by a revocable trust of which Mr.
     Olson's spouse is the sole beneficiary and trustee.
 (6) Includes 106,250 shares of Common Stock that may be acquired upon
     exercise of options granted under the 1996 Stock Option Plan and 794
     shares of Common Stock held pursuant to the Savings Plan.
 (7) Includes 50,000 shares of Common Stock that may be acquired upon exercise
     of options granted under the 1996 Stock Option Plan and 3,084 shares of
     Common Stock held pursuant to the Savings Plan.
 (8) Includes 537,000 shares of Common Stock that may be acquired upon
     exercise of options granted under the 1996 Stock Option Plan, 75,000 of
     which are currently held of record by a marital trust of which Sam Wyly's
     spouse is the trustee. Also includes 286,327 shares of Common Stock owned
     by family trusts of which Sam Wyly is trustee; 220,753 shares of Common
     Stock held of record by a limited partnership of which Sam Wyly is a
     general partner; and 1,592 shares of Common Stock held of record by Mr.
     Wyly's spouse.
 (9) Includes 250,000 shares of Common Stock that may be acquired upon
     exercise of options granted under the 1996 Stock Option Plan. Also
     includes 503,477 shares of Common Stock owned by family trusts of which
     Charles J. Wyly, Jr. is trustee and 234,919 shares of Common Stock held
     of record by a limited partnership of which Charles J. Wyly, Jr. is a
     general partner.
(10) Shares of Common Stock held of record by a family limited partnership of
     which Evan A. Wyly is general partner.
(11) Includes 25,000 shares of Common Stock that may be acquired upon exercise
     of options granted under the 1996 Stock Option Plan.
(12) Shares of Common Stock that may be acquired upon exercise of options
     granted under the 1996 Stock Option Plan.
(13) Includes 95,000 shares of Common Stock that may be acquired upon exercise
     of options granted under the Option Plan and 5,115 shares of Common Stock
     held pursuant to the Savings Plan by executive officers of the Company
     not named in the table above.
(14) Based on a Schedule 13G/A filed on February 16, 1999 by (i) AXA Counseil
     Vie Assurance Mutuelle (formerly Alpha Assurances Vie Mutuelle), AXA
     Assurances I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle and AXA
     Courtage Assurance Mutuelle, as a group, (ii) AXA (formerly AXA-UAP) and
     (iii) The Equitable Companies Incorporated. It was reported that The
     Equitable Life Assurance Society of the United States, Alliance Capital
     Management L.P. and Donaldson, Lufkin & Jenrette Securities Corporation,
     each of which is a subsidiary of The Equitable Companies Incorporated,
     are deemed in the aggregate to have sole voting power with respect to
     1,662,365 shares, shared voting power with respect to 8,788,550 shares,
     sole dispositive power with respect to 10,550,085 shares and shared
     dispositive power with respect to 45,084 shares. The address of AXA
     Conseil Vie Assurance Mutuelle is 100-101 Terrasse Boieldieu, 92042 Paris
     La Defense, France; the address of AXA Assurances I.A.R.D. Mutuelle and
     AXA Assurances Vie Mutuelle is 21, rue de Chateaudun, 75009 Paris,
     France; the address of AXA Courtage Assurance Mutuelle is 26, rue Louis
     le Grand, 75002 Paris, France; the address of AXA is 9 Place Vendome,
     75001 Paris, France; and the address of The Equitable Companies
     Incorporated is 1290 Avenue of the Americas, New York, New York 10104.
     The information regarding beneficial ownership of Common Stock by this
     group is included in reliance upon reports filed with the SEC by such
     parties, except that the percentage of Common Stock beneficially owned is
     based upon the Company's calculations made in reliance upon the number of
     shares of Common Stock reported to be beneficially owned by such parties
     in such report and the number of shares of Common Stock outstanding on
     December 31, 1999.
(15) Based on a Schedule 13G/A filed on February 11, 1999 by AMVESCAP PLC, as
     the parent holding company of the following of its subsidiaries which
     acquired the securities reported thereon: AVZ, Inc., AIM Management Group
     Inc., AMVESCAP Group Services, Inc., INVESCO, Inc., INVESCO North
     American Holdings, Inc., INVESCO Funds Group, Inc. and INVESCO (NY) Asset
     Management, Inc. Each subsidiary is deemed to have shared dispositive
     power and shared voting power with respect to 4,833,440 shares. The
     address of AMVESCAP PLC is 11 Devonshire Square, London EC2M 4YR, England
     and, in the United States, 1315 Peachtree Street, N.E., Atlanta, Georgia
     30309. The information regarding beneficial ownership of Common Stock by
     this group is included in reliance upon a report filed with the SEC by
     this group, except that the percentage of Common Stock beneficially owned
     is based upon the Company's calculations made in reliance upon the number
     of shares of Common Stock reported to be beneficially owned by such
     parties in such report and the number of shares of Common Stock
     outstanding on December 31, 1999.
(16) Based on a Schedule 13G filed on February 11, 1999 by T. Rowe Price
     Associates, Inc. It was reported that T. Rowe Price Associates, Inc. has
     sole voting power with respect to 656,314 shares and sole dispositive
     power with respect to 4,996,923 shares. The address of T. Rowe Price
     Associates, Inc. is 100 E. Pratt Street, Baltimore, Maryland 21202. The
     information regarding beneficial ownership of Common Stock by T. Rowe
     Price Associates, Inc. is included in reliance upon reports filed with
     the SEC by them, except that the percentage of Common Stock beneficially
     owned is based upon the Company's calculations made in reliance upon the
     number of shares of Common Stock reported to be beneficially owned by
     them in such report and the number of shares of Common Stock outstanding
     on December 31, 1999.

                                       9
<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

  In anticipation of the Company's public offering in March 1996 (the
"Offering"), the Company and Sterling Software entered into various agreements
under which amounts payable to and receivable from Sterling Software arise
from time to time. During fiscal year 1999, the Company paid Sterling Software
$73,653 under a space sharing agreement and the Company paid a subsidiary of
Sterling Software $142,000 for aircraft services under an aircraft services
agreement.

  Effective as of June 30, 1997, the Company and Sterling Software entered
into an agreement (the "Termination Agreement") terminating the distributor
agreement pursuant to which Sterling Software acted as the exclusive
distributor of certain of the Company's products outside the United States and
Canada. Contemporaneously with such termination, the Company purchased certain
assets formerly used by Sterling Software in connection with the distribution
of the Company's products under the international distributor agreement. In
fiscal 1999, Sterling Software paid or agreed to pay the Company approximately
$0.5 million with respect to certain post-closing account adjustments under
the Termination Agreement.

  Sterling Software remains the guarantor of certain office leases and other
obligations of the Company incurred pursuant to agreements entered into prior
to the spin-off of the Company from Sterling Software. The aggregate amount
due over the remaining terms of the agreements guaranteed by Sterling Software
is approximately $12.6 million. The Company is obligated to indemnify Sterling
Software for any liabilities incurred by Sterling Software as guarantor of
such obligations, and the Company has agreed to use reasonable efforts to
obtain a release of Sterling Software's obligations under the related
guarantees. Sterling Software did not make any payments with respect to such
guarantees during fiscal 1999.

  From time to time in the ordinary course of business, the Company and
Sterling Software have used (internally or as part of product offerings) each
other's software products. One of the intercompany agreements entered into in
anticipation of the Offering was a license agreement covering certain software
products then in use, or to be used by, the respective companies. During
fiscal 1999, the Company and Sterling Software entered into a license
agreement pursuant to which the Company licensed to Sterling Software certain
of the Company's CONNECT:Manage products. Sterling Software paid total license
and maintenance fees of approximately $2.3 million for these products. Also
during fiscal 1999, the Company and Sterling Software entered into a license
agreement pursuant to which the Company licensed certain of Sterling
Software's application development products. The Company paid total license
and maintenance fees of approximately $2.3 million for these products. The
terms of each of the foregoing license agreements were the result of arms-
length negotiations between the parties.

                                      10
<PAGE>

                                   SIGNATURES

  Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Form 10-K/A, Amendment No. 2 to its Annual
Report on Form 10-K, to be signed on its behalf by the undersigned, thereunto
duly authorized.

                                          STERLING COMMERCE, INC.

Date: February 3, 2000                              /s/ Warner C. Blow
                                          By __________________________________
                                                      Warner C. Blow
                                                  Chief Executive Officer
                                               (Principal Executive Officer)


Date: February 3, 2000                            /s/ Steven P. Shiflet
                                            -----------------------------------
                                                     Steven P. Shiflet
                                                 Senior Vice President and
                                                  Chief Financial Officer
                                                 (Principal Financial and
                                                    Accounting Officer)


                                       11